Subtitle A—Small Employer Health Insurance Market Reform
Sec. 101. General requirements.
Sec. 102. General issuance requirements.
Sec. 103. Specific contractual requirements.
Sec. 104. State compliance agreements.
Sec. 105. Definitions and other rules.
Sec. 106. Amendment to the Internal Revenue Code of 1986.
Sec. 107. Effective date.
Subtitle B—Community Health Services Expansion
Sec. 111. Establishment of grant program.
Sec. 112. Program to provide for expansion of federally qualified health centers.
Subtitle C—Expansion of Tax Incentives for Self-Employed Individuals
Sec. 121. Permanent increase in deductible health insurance costs for self-em-
ployed individuals.
Subtitle D—Expanding the Supply of Health Professionals in Rural Areas
Sec. 131. Expansion of National Health Service Corps.
Sec. 132. Tax incentives for practice in rural areas.
Subtitle E—Malpractice Reform
PART I—DEFINITIONS
Sec. 141. Definitions.
PART II—TORT REFORM OF HEALTH CARE LIABILITY ACTIONS
Sec. 142. Application to civil actions.
Sec. 143. Damages.
Sec. 144. Joint and several liability.
Sec. 145. Statute of limitations.
Sec. 146. Preemption.
Sec. 147. Effective date.
PART III—ALTERNATIVE DISPUTE RESOLUTION SYSTEMS
Sec. 148. Grants for alternative dispute resolution systems.
Sec. 149. Establishment of advisory panel.
Sec. 150. Authorization.
PART IV—DEMONSTRATION PROJECTS FOR NO-FAULT COMPENSATION
PROGRAMS
Sec. 151. Demonstration projects for no-fault compensation programs.
Subtitle F—Joint Ventures
Sec. 161.
Amendment of the National Cooperative Research Act of 1984.
TITLE II—LONG-TERM REFORMS
Subtitle A—Establishment of Commission and Advisory Board
Sec. 201. The Commission on National Health Care Access and Reform.
Sec. 202. National Advisory Board.
Sec. 203. Authorization of appropriations.
Subtitle B—Reform and Standardization of Private Insurance
Sec. 211. Defining goals and guidelines of Commission.
Sec. 212. Development and submission of legislative proposal.
Sec. 213. Continuing duties and responsibilities of the Commission.
Sec. 214. BasiCare benefits package.
Sec. 215. Insurance responsibilities under BasiCare.
Sec. 216. BasiCare base premium rate.
Sec. 217. Employer responsibilities under BasiCare.
Sec. 218. Individual responsibilities under BasiCare.
Sec. 219. Self-insured plan requirements.
Sec. 220. Provider responsibilities under BasiCare.
Sec. 221. Development of standards for managed care plans.
Sec. 222. Preemption of provisions relating to managed care.
Subtitle C—Low-Income Assistance
Sec. 231. Transfer from medicaid to BasiCare.
Sec. 232. Low-income assistance with costs of BasiCare insurance.
Subtitle D—Congressional Consideration of Commission Recommendation
Sec. 241. Rules governing congressional consideration.
Subtitle E—Enforcement Provisions
Sec. 251. Enforcement provisions for carriers, providers, and employers.
Sec. 252. Enforcement provision for individuals.
Subtitle F—Financial Provisions
Sec. 261. BasiCare Trust Fund.
Sec. 262. Tax treatment of costs of BasiCare insurance.
Subtitle G—Definitions
Sec. 271. Definitions.
TITLE I—IMMEDIATE REFORMS
Subtitle A—Small Employer Health
Insurance Market Reform
SEC. 101. GENERAL REQUIREMENTS.
Any person issuing an accident and health insurance
contract to any small employer shall meet the require-
ments of sections 102 and 103.
SEC. 102. GENERAL ISSUANCE REQUIREMENTS.
(a) GENERAL RULE.—The requirements of this sec-
tion are met if any person issuing an accident and health
insurance contract to any small employer meets—
(1) the mandatory policy requirements of sub-
section (b), and
(2) the guaranteed issue requirements of sub-
section (c).
(b) MANDATORY POLICY REQUIREMENTS.—
(1) IN
GENERAL.—The requirements of this
subsection are met if any person issuing an accident
and health insurance contract to any small employer
makes available to such small employer an accident
and health insurance contract which provides bene-
fits which are identical to the core benefits described
in subsection (d).
(2) 
PRICING
AND
MARKETING
REQUIRE-
MENTS.—The requirements of paragraph (1) are not
met unless—
(A) the price at which the accident and
health insurance contract is made available is
not greater than the price for such contract de-
termined on the same basis as prices for other
accident and health insurance contracts within
the same class of business made available by
the person to small employers, and
(B) the accident and health insurance con-
tract is made available to small employers using
substantially the same marketing methods and
other sales practices which are used in selling
such other contracts.
(c) GUARANTEED ISSUE.—
(1) IN
GENERAL.—The requirements of this
subsection are met—
(A) if the person offering accident and
health insurance contracts to small employers
issues such contracts to any small employer
seeking to enter into such a contract, and
(B) if the person offers a managed care ar-
rangement in a State, or a geographic area
within a State, to employers that are not small
employers, the person offers such managed care
arrangement to small employers in the State or
geographic area.
(2) FINANCIAL
CAPACITY
EXCEPTION.—Para-
graph (1)(A) shall not require any person to issue
an accident and health insurance contract to the ex-
tent that the issuance of such contract would result
in such person violating any financial solvency
standards established by the State in which such
contract is to be issued.
(3) EXCEPTIONS FOR CERTAIN EMPLOYERS.—
Paragraph (1)(A) shall not apply to a failure to
issue an accident and health insurance contract to a
small employer if—
(A) the small employer is unable to pay the
premium for such contract, or
(B) in the case of a small employer with
fewer than 15 employees, such employer fails to
enroll at least 60 percent of the employer’s eli-
gible employees for coverage under such con-
tract.
(4) SIZE LIMITS FOR MANAGED CARE ARRANGE-
MENTS.—Paragraph (1)(B) shall not apply to any
person who ceases to enroll new small employer
groups in a managed care arrangement if it ceases
to enroll any new employer groups in such arrange-
ment.
(d) BENEFITS.—
(1) CORE BENEFITS.—For purposes of this sec-
tion, the term ‘‘core benefits’’ means benefits which
are the same benefits provided as of the date of the
enactment of this Act under title XVIII of the Social
Security Act to individuals entitled to benefits under
part A, and enrolled for benefits under part B of
such title.
(i) NO
DEDUCTIBLES
OR
COINSUR-
ANCE.—In the case of a pregnant woman,
there shall be no coinsurance, deductibles,
or copayments applicable to covered bene-
fits described in clause (ii).
(ii) ADDITIONAL BENEFITS.—Subject
to the periodicity schedule established
under clause (iii), benefits shall be avail-
able for pregnant women under the acci-
dent and health insurance contract for the
following items and services:
(I) Prenatal care, including care
for all complications of pregnancy.
(II) Inpatient labor and delivery
services.
(III) Postnatal care.
(IV) Postnatal family planning
services.
(iii) PERIODICITY
SCHEDULE.—The
Secretary, in consultation with the Amer-
ican College of Obstetrics and Gynecology,
shall establish a schedule of periodicity
which reflects the general, appropriate fre-
quency with which services listed in clause
(ii) should be provided to pregnant women
without complications of pregnancy.
(iv) PREGNANT
WOMAN.—For pur-
poses of this subparagraph, the term
‘‘pregnant woman’’ means a woman who
has been certified by a physician (in a
manner specified by the Secretary) as
being pregnant and such woman shall be a
pregnant woman for the purposes of this
subparagraph until the last day of the
month in which the 60-day period begin-
ning on the date of termination of the
pregnancy ends.
(3) PREEMPTION.—To the extent that the laws
of any State or local government regulate or other-
wise provide any requirement relating to the benefits
to be provided under an accident and health insur-
ance contract which are inconsistent with the provi-
sions of this Act, they are preempted.
SEC. 103. SPECIFIC CONTRACTUAL REQUIREMENTS.
(a) GENERAL RULE.—The requirements of this sec-
tion are met if any person issuing an accident and health
insurance contract to any small employer meets—
(1) the coverage requirements of subsection (b),
and
(2) the rating requirements of subsection (c).
(b) COVERAGE REQUIREMENTS.—
(1) IN
GENERAL.—The requirements of this
subsection are met with respect to any accident and
health contract if, under the terms and operation of
the contract, the following requirements are met:
(A) GUARANTEED ELIGIBILITY.—No eligi-
ble employee (and the spouse or any dependent
child (as defined in section 102(d)(2)(C)(iv)) of
the employee eligible for coverage) may be ex-
cluded from coverage under the contract.
(B) LIMITATIONS ON COVERAGE OF PRE-
EXISTING
CONDITIONS.—Any limitation under
the contract on any preexisting condition—
(i) may not extend beyond the 6-
month period beginning with the date an
insured individual is first covered by the
contract, and
(ii) may only apply to preexisting con-
ditions which manifested themselves, or for
which medical care or advice was sought or
recommended, during the 3-month period
preceding the date an insured individual is
first covered by the contract.
(C) GUARANTEED RENEWABILITY.—
(i) IN GENERAL.—The contract must
be renewed at the election of the small em-
ployer unless the contract is terminated for
cause.
(ii) CAUSE.—For purposes of this
subparagraph, the term ‘‘cause’’—
(I) includes nonpayment of pre-
miums, fraud or misrepresentation,
noncompliance with contract provi-
sions (including participation require-
ments), or misuse of network provi-
sions, but
(II) does not include any reason
related to risk characteristics.
(2) WAITING PERIODS.—Paragraph (1)(A) shall
not apply to any period an eligible employee is ex-
cluded from coverage under the contract solely by
reason of a requirement applicable to all employees
that a minimum period of service with the employer
is required before the employee is eligible for such
coverage.
(3) DETERMINATION OF PERIODS FOR RULES
RELATING TO PREEXISTING CONDITIONS.—For pur-
poses of paragraph (1)(B), the date on which an in-
sured individual is first covered by an accident and
health insurance contract shall be the earlier of—
(A) the date on which coverage under such
contract begins, or
(B) the first day of any continuous pe-
riod—
(i) during which the insured individual
was covered under 1 or more other health
insurance arrangements, and
(ii) which does not end more than 120
days before the date employment for the
employer begins.
(4) CESSATION OF SMALL EMPLOYER HEALTH
INSURANCE BUSINESS.—
(A) IN
GENERAL.—Except as otherwise
provided in this paragraph, a person shall not
be treated as failing to meet the requirements
of paragraph (1)(C) if such person terminates
the class of business which includes the acci-
dent and health insurance contract.
(B) 
NOTICE
REQUIREMENT.—Subpara-
graph (A) shall apply only if the person gives
notice of the decision to terminate at least 90
days before the expiration of the contract.
(C) 5-YEAR
MORATORIUM.—If, within 5
years of the year in which a person terminates
a class of business under subparagraph (A),
such person establishes a new class of business
which includes contracts within the class of
business so terminated, the issuance of such
contracts in that year shall be treated as a fail-
ure to meet the requirements of paragraph
(1)(C).
(D) TRANSFERS.—If, upon a failure to
renew a contract to which subparagraph (A)
applies, a person transfers such contract to an-
other class of business, such transfer must be
made without regard to any risk characteristic.
(c) RATING REQUIREMENTS.—The requirements of
this subsection are met with respect to any accident and
health contract if the following requirements are met:
(1) LIMITATION ON VARIATION OF PREMIUMS
BETWEEN CLASSES OF BUSINESS.—
(A) IN GENERAL.—The base premium rate
for any class of business of a person issuing an
accident and health insurance contract to a
small employer may not exceed the base pre-
mium rate for any other class of business by
more than 20 percent.
(B) 
EXCEPTIONS.—Subparagraph 
(A)
shall not apply to a class of business if the ap-
plicable regulatory authority determines that—
(i) the class is one for which the per-
son does not reject, and never has rejected,
small employers included within the defini-
tion of employers eligible for the class of
business or otherwise eligible employees
and dependents who enroll on a timely
basis, based upon their claims experience,
health status, industry, or occupation,
(ii) the person does not transfer, and
never has transferred, an accident and
health insurance contract involuntarily into
or out of the class of business, and
(iii) accident and health insurance
contracts offered under the class of busi-
ness are currently available for purchase
by small employers at the time an excep-
tion to subparagraph (A) is sought by the
person.
(2) LIMIT ON VARIATION IN PREMIUM RATES
WITHIN A CLASS OF BUSINESS.—For a class of busi-
ness of a person issuing an accident and health in-
surance contract to a small employer, the highest
premium rates charged during a rating period to
small employers with similar demographic character-
istics (including age, sex, and geography and not re-
lating to claims experience, health status, industry,
occupation, or duration of coverage since issue) for
the same or similar coverage, or the highest rates
which could be charged to such employers under the
rating system for that class of business, shall not ex-
ceed an amount that is 1.5 times the base premium
rate for the class of business for a rating period (or
portion thereof) that occurs in the first 3 years in
which this subsection is in effect, and 1.35 times the
base premium rate thereafter.
(3) CONSISTENT APPLICATION OF RATING FAC-
TORS.—In establishing premium rates for any acci-
dent and health insurance contract offered to small
employers—
(A) the person making adjustments with
respect to age, sex, or geography must apply
such adjustments consistently across small em-
ployers, and
(B) no person may use a geographic area
that is smaller than a county or smaller than
an area that includes all areas in which the
first three digits of the zip code are identical,
whichever is smaller.
(4) LIMIT
ON
TRANSFER
OF
EMPLOYERS
AMONG CLASSES OF BUSINESS.—
(A) IN GENERAL.—A person issuing an ac-
cident and health insurance contract to a small
employer may not transfer a small employer
from one class of business to another without
the consent of the employer.
(B) OFFERS TO TRANSFER.—The person
may not offer to transfer a small employer from
one class of business to another unless—
(i) the offer is made without regard to
age, sex, geography, claims experience,
health status, industry, occupation or the
date on which the policy was issued, and
(ii) the same offer is made to all other
small employers in the same class of busi-
ness.
(5) LIMITS
ON
VARIATION
IN
PREMIUM
IN-
CREASES.—The percentage increase in the premium
rate charged to a small employer for a new rating
period (determined on an annual basis) may not ex-
ceed the sum of the percentage change in the base
premium rate plus 5 percentage points.
(6) FULL
DISCLOSURE
OF
RATING
PRAC-
TICES.—
(A) IN GENERAL.—At the time a person
offers an accident and health insurance contract
to a small employer, the person shall fully dis-
close to the employer all of the following:
(i) Rating practices for small em-
ployer accident and health insurance con-
tracts, including rating practices for dif-
ferent populations and benefit designs.
(ii) The extent to which premium
rates for the small employer are based on
risk characteristics and on factors other
than risk characteristics.
(iii) The provisions concerning the
person’s right to change premium rates,
the extent to which premiums can be modi-
fied, and the factors which affect changes
in premium rates.
(iv) The class of business within
which the contract falls, including a de-
scription of the grouping of contracts with-
in a class of business.
(B) NOTICE
ON
EXPIRATION.—A person
issuing accident and health insurance contracts
to small employers shall provide for notice, at
least 60 days before the date of expiration of
the accident and health insurance contract, of
the terms for renewal of the contract. Such no-
tice shall include an explanation of the extent to
which any increase in premiums is due to actual
or expected claims experience of the individuals
covered under the small employer’s accident
and health insurance contract.
(7) ACTUARIAL CERTIFICATION.—Each person
issuing an accident and health contract to a small
employer shall file annually with the applicable regu-
latory authority a written statement by a qualified
health actuary (or other individual acceptable to
such authority) that, based upon an examination by
the individual which includes a review of the appro-
priate records and of the actuarial assumptions of
the person and methods used by the person in estab-
lishing premium rates for small employer accident
and health insurance contracts—
(A) the person is in compliance with the
applicable provisions of this subsection, and
(B) the rating methods are actuarially
sound.
(8) RECORDKEEPING.—Each person issuing an
accident and health insurance contract to a small
employer shall retain for examination at its principal
place of business a complete and detailed description
of its rating and renewal underwriting practices and
the information on which such practices are based,
including the statement described in paragraph (7).
SEC. 104. STATE COMPLIANCE AGREEMENTS.
(a) AGREEMENTS.—The Secretary may, in the dis-
cretion of the Secretary, enter into an agreement with any
State—
(1) to apply the standards set by the laws of
such State for accident and health insurance con-
tracts issued by any person to any small employer
in lieu of the requirements of section 102, or
(2) to provide for the State to make the initial
determination as to whether a person is in compli-
ance with the provisions of section 102.
(b) STANDARDS.—An agreement may be entered into
under subsection (a)(1) only if—
(1) the chief executive officer of the State re-
quests such agreement be entered into,
(2) the Secretary determines that the State
standards to be applied under the agreement will
apply to substantially all accident and health insur-
ance contracts issued to small employers in such
State, and
(3) the Secretary determines that the applica-
tion of the State standards will carry out the pur-
poses of section 102.
(c) LIMITATION ON WAIVER.—Any agreement en-
tered into under subsection (a)(1) shall not waive the man-
datory policy requirements under section 102(b).
(d) TERMINATION.—The Secretary shall terminate
any agreement if the Secretary determines that the appli-
cation of State standards ceases to carry out the purposes
of this section.
SEC. 105. DEFINITIONS AND OTHER RULES.
For purposes of this subtitle:
(1) ACCIDENT AND HEALTH INSURANCE CON-
TRACT.—
(A) IN
GENERAL.—The term ‘‘accident
and health insurance contract’’ means a con-
tract under which a person authorized under
applicable State insurance laws provides a
health insurance plan or arrangement to a
small employer. Such term does not include any
self-insured plan of an employer.
(B) 
CERTAIN
CONTRACTS
NOT
COV-
ERED.—The term ‘‘accident and health insur-
ance contract’’ does not include any contract—
(i) which provides for accident only,
dental only, or disability only coverage,
(ii) which provides coverage as a sup-
plement to liability insurance,
(iii) which provides insurance arising
out of a workmen’s compensation or simi-
lar law, or automobile medical-payment in-
surance, or
(iv) which provides insurance which is
required by law to be contained under any
self-insured plan of an employer.
(2) BASE
PREMIUM
RATE.—The term ‘‘base
premium rate’’ means, for each class of business for
each rating period, the lowest premium rate which
could have been charged under a rating system for
that class of business by the person issuing accident
and health insurance contracts to small employers
with similar demographic or other relevant charac-
teristics (including age, sex, and geography and not
relating to claims experience, health status, industry,
occupation or duration of coverage since issue) for
accident and health insurance contracts with the
same or similar coverage.
(3) CLASS OF BUSINESS.—
(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘‘class of business’’
means, with respect to a person, all of the small
employers with an accident and health insur-
ance contract issued by the person.
(B) DISTINCT GROUPS.—
(i) IN
GENERAL.—Subject to clause
(ii), a distinct group of small employers
with accident and health insurance con-
tracts issued by a person may be treated
as a class of business by such person if all
of the contracts in such group—
(I) 
are 
marketed 
and 
sold
through individuals and organizations
that do not participate in the market-
ing or sale of other distinct groups by
the person,
(II) have been acquired from an-
other person as a distinct group, or
(III) are provided through an as-
sociation with membership of not less
than 25 small employers that has
been formed for purposes other than
obtaining health insurance.
(ii) EXCEPTION
ALLOWED.—Except
as provided in subparagraph (C), a person
may not establish more than one distinct
group of small employers for each category
specified in clause (i).
(C) SPECIAL RULE.—A person may estab-
lish up to 2 groups under each category in sub-
paragraph (A) or (B) to account for differences
in characteristics (other than differences in con-
tract benefits) of accident and health insurance
contracts that are expected to produce substan-
tial variation in health care costs.
(4) MANAGED HEALTH CARE ARRANGEMENT.—
The term ‘‘managed health care arrangement’’
means an arrangement which integrates the financ-
ing and delivery of health care services to covered in-
dividuals by employing the following:
(A) Contracts with selected health care
providers to furnish health care services to
members.
(B) The adoption of explicit standards for
the selection and recertification of providers.
(C) An explicit, formal program for ongo-
ing quality assurance and utilization review.
(D) Significant financial incentives for
members to use the providers and procedures
associated with the arrangement.
(5) CHARACTERISTICS.—
(A) IN GENERAL.—The term ‘‘characteris-
tics’’ means, with respect to any insurance rat-
ing system, the factors used in determining
rates.
(B) RISK
CHARACTERISTICS.—The term
‘‘risk characteristics’’ means factors related to
the health risks of individuals, including health
status, prior claims experience, the duration
since the date of issue of a health insurance
plan or arrangement, industry, and occupation.
(C) GEOGRAPHIC
FACTORS.—In applying
geographic location as a characteristic, a person
may not use for purposes of this subtitle areas
smaller than Census Bureau designations of
metropolitan 
statistical 
areas 
and
nonmetropolitan statistical areas.
(6) ELIGIBLE EMPLOYEE.—The term ‘‘eligible
employee’’ means, with respect to an employer, any
employee who normally works at least 30 hours per
week for that employer. For purposes of this para-
graph, the term ‘‘employee’’ includes a self-employed
individual as defined in section 401(c)(1) of the In-
ternal Revenue Code of 1986.
(7) PERSON.—The term ‘‘person’’ includes a li-
censed insurance company, a prepaid hospital or
medical service plan, a health maintenance organiza-
tion, or in States which have distinct insurance li-
censure requirements, a multiple employer welfare
arrangement.
(8) QUALIFIED HEALTH ACTUARY.—The term
‘‘qualified health actuary’’ means a member of the
American Academy of Actuaries who is qualified by
reason of prior and continuing education and rel-
evant experience to render the actuarial opinion.
(9) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services, or the
delegate of the Secretary.
(10) SMALL EMPLOYER.—The term ‘‘small em-
ployer’’ means, with respect to a calendar year, an
employer who normally employs more than 1 but
less than 51 eligible employees on a typical business
day. For purposes of the preceding sentence, all em-
ployers covered under the same health insurance
plan or arrangement covered by a contract shall be
treated as 1 employer.
SEC. 106. AMENDMENT TO THE INTERNAL REVENUE CODE
OF 1986.
(a) IN GENERAL.—Chapter 47 of the Internal Reve-
nue Code of 1986 (relating to excise taxes on qualified
pension, etc. plans) is amended by adding at the end
thereof the following new section:
‘‘SEC. 5000A. FAILURE TO SATISFY CERTAIN STANDARDS
FOR HEALTH INSURANCE.
‘‘(a) GENERAL RULE.—In the case of any person is-
suing an accident and health insurance contract to a small
employer, there is hereby imposed a tax on the failure of
such person to meet at any time during any taxable year
the applicable requirements of section 101 of the BasiCare
Health Access and Cost Control Act. The Secretary of
Health and Human Services shall determine whether any
person meets the requirements of such section.
‘‘(b) AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—The amount of tax imposed
by subsection (a) by reason of 1 or more failures
during a taxable year shall be equal to 35 percent
of the gross premiums received during such taxable
year with respect to all accident and health insur-
ance contracts issued to a small employer by the
person on whom such tax is imposed.
‘‘(2) GROSS PREMIUMS.—For purposes of para-
graph (1), gross premiums shall include any consid-
eration received with respect to any accident and
health insurance contract.
‘‘(3) CONTROLLED GROUPS.—For purposes of
paragraph (1)—
‘‘(A) CONTROLLED
GROUP
OF
CORPORA-
TIONS.—All corporations which are members of
the same controlled group of corporations shall
be treated as 1 person. For purposes of the pre-
ceding sentence, the term ‘controlled group of
corporations’ has the meaning given to such
term by section 1563(a), except that—
‘‘(i) ‘more than 50 percent’ shall be
substituted for ‘at least 80 percent’ each
place it appears in section 1563(a)(1), and
‘‘(ii) the determination shall be made
without regard to subsections (a)(4) and
(e)(3)(C) of section 1563.
‘‘(B) PARTNERSHIPS, PROPRIETORSHIPS,
ETC., WHICH ARE UNDER COMMON CONTROL.—
Under regulations prescribed by the Secretary,
all trades or business (whether or not incor-
porated) which are under common control shall
be treated as 1 person. The regulations pre-
scribed under this subparagraph shall be based
on principles similar to the principles which
apply in the case of subparagraph (A).
‘‘(c) LIMITATION ON TAX.—
‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT
DISCOVERED
EXERCISING
REASONABLE
DILI-
GENCE.—No tax shall be imposed by subsection (a)
with respect to any failure for which it is established
to the satisfaction of the Secretary that the person
on whom the tax is imposed did not know, and exer-
cising reasonable diligence would not have known,
that such failure existed.
‘‘(2) TAX
NOT
TO
APPLY
WHERE
FAILURES
CORRECTED WITHIN 30 DAYS.—No tax shall be im-
posed by subsection (a) with respect to any failure
if—
‘‘(A) such failure was due to reasonable
cause and not to willful neglect, and
‘‘(B) such failure is corrected during the
30-day period beginning on the first date any of
the persons on whom the tax is imposed knew,
or exercising reasonable diligence would have
known, that such failure existed.
‘‘(3) WAIVER BY SECRETARY.—In the case of a
failure which is due to reasonable cause and not to
willful neglect, the Secretary may waive part or all
of the tax imposed by subsection (a) to the extent
that the payment of such tax would be excessive rel-
ative to the failure involved.
‘‘(d) DEFINITIONS.—For purposes of this section the
terms ‘accident and health insurance contract’, ‘small em-
ployer’, ‘eligible employee’, and ‘person’ shall have the
same meanings given such terms under section 105 of the
BasiCare Health Access and Cost Control Act.’’.
(b) NONDEDUCTIBILITY OF TAX.—Paragraph (6) of
section 275(a) of such Code (relating to nondeductibility
of certain taxes) is amended by inserting ‘‘47,’’ after
‘‘46,’’.
(c) CLERICAL AMENDMENTS.—The table of sections
for such chapter 47 is amended by adding at the end
thereof the following new item:
‘‘Sec. 5000A. Failure to satisfy certain standards for health insur-
ance.’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
subsections (a) and (c) shall take effect on the date
of the enactment of this Act.
(2) NONDEDUCTIBILITY OF TAX.—The amend-
ment made by subsection (b) shall apply to taxable
years beginning after December 31, 1993.
SEC. 107. EFFECTIVE DATE.
(a) IN GENERAL.—Except as provided in section 106
and subsection (b), this subtitle shall apply to contracts
issued, or renewed, after the date of the enactment of this
Act and before the effective date of the legislation de-
scribed in section 212(a) or 213(a) of this Act.
(b) GUARANTEED ISSUE.—The provisions of section
102(c) shall apply to contracts which are issued, or re-
newed, after the date which is 12 months after the date
of the enactment of this Act and before the effective date
of the legislation described in section 212(a) or 213(a) of
this Act.
Subtitle B—Community Health
Services Expansion
SEC. 111. ESTABLISHMENT OF GRANT PROGRAM.
Subpart I of part D of title III of the Public Health
Service Act (42 U.S.C. 254b et seq.) is amended by adding
at the end thereof the following new section:
‘‘SEC. 330A. COMMUNITY-BASED PRIMARY HEALTH CARE
GRANT PROGRAM.
‘‘(a) ESTABLISHMENT.—The Secretary shall estab-
lish and administer a program to provide allotments to
States to enable such States to provide grants for the cre-
ation or enhancement of community-based primary health
care entities that provide services to low-income or medi-
cally underserved populations.
‘‘(b) ALLOTMENTS TO STATES.—
‘‘(1) IN GENERAL.—From the amount available
for allotment under subsection (h) for a fiscal year,
the Secretary shall allot to each State an amount
equal to the product of the grant share of the State
(as determined under paragraph (2)) multiplied by
such amount available.
‘‘(2) GRANT SHARE.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the grant share of a State shall be
the product of the need-adjusted population of
the State (as determined under subparagraph
(B)) multiplied by the Federal matching per-
centage of the State (as determined under sub-
paragraph (C)), expressed as a percentage of
the sum of the products of such factors for all
States.
‘‘(B) NEED-ADJUSTED POPULATION.—
‘‘(i) IN
GENERAL.—For purposes of
subparagraph (A), the need-adjusted popu-
lation of a State shall be the product of
the total population of the State (as esti-
mated by the Secretary of Commerce) mul-
tiplied by the need index of the State (as
determined under clause (ii)).
‘‘(ii) NEED INDEX.—For purposes of
clause (i), the need index of a State shall
be the ratio of—
‘‘(I) the weighted sum of the geo-
graphic percentage of the State (as
determined under clause (iii)), the
poverty percentage of the State (as
determined under clause (iv)), and the
multiple grant percentage of the State
(as determined under clause (v)); to
‘‘(II) the general population per-
centage of the State (as determined
under clause (vi)).
‘‘(iii) GEOGRAPHIC PERCENTAGE.—
‘‘(I) IN GENERAL.—For purposes
of clause (ii)(I), the geographic per-
centage of the State shall be the esti-
mated population of the State that is
residing in nonurbanized areas (as de-
termined under subclause (II)) ex-
pressed as a percentage of the total
nonurbanized population of all States.
‘‘(II) 
NONURBANIZED
POPU-
LATION.—For purposes of subclause
(I), the estimated population of the
State that is residing in nonurbanized
areas shall be one minus the urban-
ized population of the State (as deter-
mined using the most recent decennial
census), expressed as a percentage of
the total population of the State (as
determined using the most recent de-
cennial census), multiplied by the cur-
rent estimated population of the
State.
‘‘(iv) POVERTY
PERCENTAGE.—For
purposes of clause (ii)(I), the poverty per-
centage of the State shall be the estimated
number of people residing in the State
with incomes below 200 percent of the in-
come official poverty line (as determined
by the Office of Management and Budget)
expressed as a percentage of the total
number of such people residing in all
States.
‘‘(v) MULTIPLE
GRANT
PERCENT-
AGE.—For purposes of clause (ii)(I), the
multiple grant percentage of the State
shall be the amount of Federal funding re-
ceived by the State under grants awarded
under sections 329, 330, and 340, ex-
pressed as a percentage of the total
amounts received under such grants by all
States. With respect to a State, such per-
centage shall not exceed twice the general
population percentage of the State under
clause (vi) or be less than one-half of the
States general population percentage.
‘‘(vi) GENERAL
POPULATION
PER-
CENTAGE.—For purposes of clause (ii)(II),
the general population percentage of the
State shall be the total population of the
State (as determined by the Secretary of
Commerce) expressed as a percentage of
the total population of all States.
‘‘(C) FEDERAL MATCHING PERCENTAGE.—
‘‘(i) IN
GENERAL.—For purposes of
subparagraph (A), the Federal matching
percentage of the State shall be equal to
one, less the State matching percentage (as
determined under clause (ii)).
‘‘(ii) STATE
MATCHING
PERCENT-
AGE.—For purposes of clause (i), the State
matching percentage of the State shall be
0.25 multiplied by the ratio of the total
taxable resource percentage (as determined
under clause (iii)) to the need-adjusted
population of the State (as determined
under subparagraph (B)).
‘‘(iii) TOTAL
TAXABLE
RESOURCE
PERCENTAGE.—For purposes of clause (ii),
the total taxable resources percentage of
the State shall be the total taxable re-
sources of a State (as determined by the
Secretary of the Treasury) expressed as a
percentage of the sum of the total taxable
resources of all States.
‘‘(3) ANNUAL ESTIMATES.—
‘‘(A) IN
GENERAL.—If the Secretary of
Commerce does not produce the annual esti-
mates required under paragraph (2)(B)(iv),
such estimates shall be determined by multiply-
ing the percentage of the population of the
State that is below 200 percent of the income
official poverty line as determined using the
most recent decennial census by the most recent
estimate of the total population of the State.
Except as provided in subparagraph (B), the
calculations required under this subparagraph
shall be made based on the most recent 3-year
average of the total taxable resources of individ-
uals within the State.
‘‘(B) DISTRICT
OF
COLUMBIA.—Notwith-
standing subparagraph (A), the calculations re-
quired under such subparagraph with respect to
the District of Columbia shall be based on the
most recent 3-year average of the personal in-
come of individuals residing within the District
as a percentage of the personal income for all
individuals residing within the District, as de-
termined by the Secretary of Commerce.
‘‘(4) MATCHING REQUIREMENT.—A State that
receives an allotment under this section shall make
available State resources (either directly or indi-
rectly) to carry out this section in an amount that
shall equal the State matching percentage for the
State (as determined under paragraph (2)(C)(ii)) di-
vided by the Federal matching percentage (as deter-
mined under paragraph (2)(C)).
‘‘(2) ELIGIBILITY.—To be eligible to receive a
grant under paragraph (1), an entity or consortium
shall—
‘‘(A) prepare and submit to the admin-
istering entity of the State, an application at
such time, in such manner, and containing such
information as such administering entity may
require, including a plan for the provision of
services of the type described in paragraph (3);
‘‘(B) provide assurances that services will
be provided under the grant at fee rates estab-
lished or determined in accordance with section
330(e)(3)(F); and
‘‘(C) provide assurances that in the case of
services provided to individuals with health in-
surance, such insurance shall be used as the
primary source of payment for such services.
‘‘(3) SERVICES.—The services to be provided
under a grant awarded under paragraph (1) shall in-
clude—
‘‘(A) one or more of the types of primary
health services described in section 330(b)(1);
‘‘(B) one or more of the types of supple-
mental health services described in section
330(b)(2); and
‘‘(C) any other services determined appro-
priate by the administering entity of the State.
‘‘(4) TARGET POPULATIONS.—Entities or con-
sortia receiving grants under paragraph (1) shall, in
providing the services described in paragraph (3),
substantially target populations of low-income or
medically underserved populations within the State
who reside in medically underserved or health pro-
fessional shortage areas, areas certified as under-
served under the rural health clinic program, or
other areas determined appropriate by the admin-
istering entity of the State, within the State.
‘‘(5) PRIORITY.—In awarding grants under
paragraph (1), the State shall—
‘‘(A) give priority to entities or consortia
that can demonstrate through the plan submit-
ted under paragraph (2) that—
‘‘(i) the services provided under the
grant will expand the availability of pri-
mary care services to the maximum num-
ber of low-income or medically underserved
populations who have no access to such
care on the date of the grant award; and
‘‘(ii) the delivery of services under the
grant will be cost-effective; and
‘‘(B) ensure that an equitable distribution
of funds is achieved among urban and rural en-
tities or consortia.
‘‘(e) REPORTS AND AUDITS.—Each State shall pre-
pare and submit to the Secretary annual reports concern-
ing the State’s activities under this section which shall be
in such form and contain such information as the Sec-
retary determines appropriate. Each such State shall es-
tablish fiscal control and fund accounting procedures as
may be necessary to assure that amounts received under
this section are being disbursed properly and are ac-
counted for, and include the results of audits conducted
under such procedures in the reports submitted under this
subsection.
‘‘(f) PAYMENTS.—
‘‘(1) ENTITLEMENT.—Each State for which an
application has been approved by the Secretary
under this section shall be entitled to payments
under this section for each fiscal year in an amount
not to exceed the State’s allotment under subsection
(b) to be expended by the State in accordance with
the terms of the application for the fiscal year for
which the allotment is to be made.
‘‘(2) METHOD OF PAYMENTS.—The Secretary
may make payments to a State in installments, and
in advance or by way of reimbursement, with nec-
essary adjustments on account of overpayments or
underpayments, as the Secretary may determine.
‘‘(3) STATE
SPENDING
OF
PAYMENTS.—Pay-
ments to a State from the allotment under sub-
section (b) for any fiscal year must be expended by
the State in that fiscal year or in the succeeding fis-
cal year.
‘‘(g) DEFINITION.—As used in this section, the term
‘administering entity of the State’ means the agency or
official designated by the chief executive officer of the
State to administer the amounts provided to the State
under this section.
‘‘(h) FUNDING.—Notwithstanding any other provi-
sion of law, the Secretary shall use 50 percent of the
amounts that the Secretary is required to utilize under
section 330B(h) in each fiscal year to carry out this sec-
tion.’’.
SEC. 112. PROGRAM TO PROVIDE FOR EXPANSION OF FED-
ERALLY QUALIFIED HEALTH CENTERS.
(a) IN GENERAL.—Subpart I of part D of title III
of the Public Health Service Act (42 U.S.C. 254b et seq.)
(as amended by section 111) is further amended by adding
at the end thereof the following new section:
‘‘SEC. 330B. PROGRAM TO PROVIDE FOR EXPANSION OF
FEDERALLY QUALIFIED HEALTH CENTERS.
‘‘(a) ESTABLISHMENT OF HEALTH SERVICES AC-
CESS PROGRAM.—From amounts appropriated under this
section, the Secretary shall, acting through the Bureau of
Health Care Delivery Assistance, award grants under this
section to federally qualified health centers (hereafter re-
ferred to in this section as ‘FQHCs’) and other entities
and organizations submitting applications under this sec-
tion (as described in subsection (c)) for the purpose of
providing access to services for medically underserved pop-
ulations (as defined in section 330(b)(3)) or in high im-
pact areas (as defined in section 329(a)(5)) not currently
being served by a FQHC.
‘‘(b) ELIGIBILITY FOR GRANTS.—
‘‘(1) IN GENERAL.—The Secretary shall award
grants under this section to entities or organizations
described in this paragraph and paragraph (2) which
have submitted a proposal to the Secretary to ex-
pand such entities or organizations operations (in-
cluding expansions to new sites (as determined nec-
essary by the Secretary)) to serve medically under-
served populations or high impact areas not cur-
rently served by a FQHC and which—
‘‘(A) have as of the date of enactment of
the BasiCare Health Access and Cost Control
Act, been certified by the Secretary as a FQHC
under section 1905(l)(2)(B) of the Social Secu-
rity Act;
‘‘(B) have submitted applications to the
Secretary to qualify as FQHCs under section
1905(l)(2)(B) of the Social Security Act; or
‘‘(C) have submitted a plan to the Sec-
retary which provides that the entity or organi-
zation will meet the requirements to qualify as
a FQHC when operational.
‘‘(2) NON-FQHC ENTITIES.—
‘‘(A) ELIGIBILITY.—The Secretary shall
also make grants under this section to any pub-
lic or private nonprofit agency, or any health
care entity or organization which—
‘‘(i) meets the requirements necessary
to qualify as a FQHC, except the require-
ment that such agency, entity, or organiza-
tion has a consumer majority governing
board,
‘‘(ii) has submitted a proposal to the
Secretary to provide those services pro-
vided by a FQHC as defined in section
1905(l)(2)(B) of the Social Security Act,
and
‘‘(iii) is designed to promote access to
primary care services or to reduce reliance
on hospital emergency rooms or other high
cost providers of primary health care serv-
ices,
provided that the proposal described in clause
(ii) is developed by the agency, entity, or orga-
nization (or such agencies, entities, or organiza-
tions acting in a consortium in a community)
with the review and approval of the Governor of
the State in which such agency, entity, or orga-
nization is located.
‘‘(B) LIMITATION.—The Secretary shall
provide in making grants to entities or organi-
zations described in this paragraph that not
more than 10 percent of the funds provided for
grants under this section shall be made avail-
able for grants to such entities or organizations.
‘‘(c) APPLICATION REQUIREMENTS.—
‘‘(1) IN GENERAL.—In order to be eligible to
receive a grant under this section, a FQHC or other
entity or organization must submit an application in
such form and at such time as the Secretary shall
prescribe and which meets the requirements of this
subsection.
‘‘(2) REQUIREMENTS.—An application submit-
ted under this section must provide—
‘‘(A)(i) for a schedule of fees or payments
for the provision of the services provided by the
entity or organization designed to cover its rea-
sonable costs of operations; and
‘‘(ii) for a corresponding schedule of dis-
counts to be applied to such fees or payments,
based upon the patient’s ability to pay (deter-
mined by using a sliding scale formula based on
the income of the patient);
‘‘(B) assurances that the entity or organi-
zation provides services to persons who are eli-
gible for benefits under title XVIII of the Social
Security Act, for medical assistance under title
XIX of such Act, or for assistance for medical
expenses under any other public assistance pro-
gram or private health insurance program; and
‘‘(C) assurances that the entity or organi-
zation has made and will continue to make
every reasonable effort to collect reimbursement
for services—
‘‘(i) from persons eligible for assist-
ance under any of the programs described
in subparagraph (B); and
‘‘(ii) from patients not entitled to ben-
efits under any such programs.
‘‘(d) LIMITATIONS ON USE OF FUNDS.—
‘‘(1) IN GENERAL.—From the amounts award-
ed to a FQHC or other entity or organization under
this section, funds may be used for purposes of plan-
ning but may only be expended for the costs of—
‘‘(A) assessing the needs of the populations
or proposed areas to be served;
‘‘(B) preparing a description of how the
needs identified will be met; and
‘‘(C) development of an implementation
plan that addresses—
‘‘(i) recruitment and training of per-
sonnel; and
‘‘(ii) activities necessary to achieve
operational status in order to meet FQHC
requirements under 1905(l)(2)(B) of the
Social Security Act.
‘‘(2) RECRUITING, TRAINING, AND COMPENSA-
TION OF STAFF.—From the amounts awarded to an
entity or organization under this section, funds may
be used for the purposes of paying for the costs of
recruiting, training, and compensating staff (clinical
and associated administrative personnel (to the ex-
tent such costs are not already reimbursed under
title XIX of the Social Security Act or any other
State or Federal program)) to the extent necessary
to allow the entity or organization to operate at new
or expanded existing sites.
‘‘(3) FACILITIES AND EQUIPMENT.—From the
amounts awarded to an entity or organization under
this section, funds may be expended for the purposes
of acquiring facilities and equipment but only for the
costs of—
‘‘(A) construction of new buildings (to the
extent that new construction is found to be the
most cost-efficient approach by the Secretary);
‘‘(B) acquiring, expanding, or modernizing
existing facilities;
‘‘(C) purchasing essential (as determined
by the Secretary) equipment; and
‘‘(D) amortization of principal and pay-
ment of interest on loans obtained for purposes
of site construction, acquisition, modernization,
or expansion, as well as necessary equipment.
‘‘(4) SERVICES.—From the amounts awarded
to an entity or organization under this section, funds
may be expended for the payment of services but
only for the costs of—
‘‘(A) providing or arranging for the provi-
sion of all services through the entity or organi-
zation necessary to qualify such entity or orga-
nization 
as 
a 
FQHC 
under 
section
1905(l)(2)(B) of the Social Security Act;
‘‘(B) providing or arranging for any other
service that a FQHC may provide and be reim-
bursed for under title XIX of the Social Secu-
rity Act; and
‘‘(C) providing any unreimbursed costs of
providing services as described in section 330(a)
to patients.
‘‘(e) PRIORITIES IN THE AWARDING OF GRANTS.—
‘‘(1) CERTIFIED FQHCs.—The Secretary shall
give priority in awarding grants under this section
to entities and organizations which have, as of the
date of enactment of the BasiCare Health Access
and Cost Control Act, been certified as a FQHC
under section 1905(l)(2)(B) of the Social Security
Act and which have submitted a proposal to the Sec-
retary to expand their operations (including expan-
sion to new sites) to serve medically underserved
populations for high impact areas not currently
served by a FQHC. The Secretary shall give first
priority in awarding grants under this section to
those FQHCs or other entities or organizations
which propose to serve populations with the highest
degree of unmet need, and which can demonstrate
the ability to expand their operations in the most ef-
ficient manner.
‘‘(2) QUALIFIED FQHCs.—The Secretary shall
give second priority in awarding grants to entities
and organizations which have submitted applications
to the Secretary which demonstrate that the entities
or organizations will qualify as FQHCs under sec-
tion 1905(l)(2)(B) of the Social Security Act before
they provide or arrange for the provision of services
supported by funds awarded under this section, and
which are serving or proposing to serve medically
underserved populations or high impact areas which
are not currently served (or proposed to be served)
by a FQHC.
‘‘(3) EXPANDED
SERVICES
AND
PROJECTS.—
The Secretary shall give third priority in awarding
grants in subsequent years to those FQHCs or other
entities or organizations which have provided for ex-
panded services and projects and are able to dem-
onstrate that such entities or organizations will
incur significant unreimbursed costs in providing
such expanded services.
‘‘(f) RETURN OF FUNDS TO SECRETARY FOR COSTS
REIMBURSED FROM OTHER SOURCES.—To the extent
that a FQHC or other entity or organization receiving
funds under this section is reimbursed from another
source for the provision of services to an individual, and
does not use such increased reimbursement to expand
services furnished, to expand areas served, to compensate
for costs of unreimbursed services provided to patients, or
to promote recruitment, training, or retention of person-
nel, such excess revenues shall be returned to the Sec-
retary.
‘‘(g) TERMINATION OF GRANTS.—
‘‘(1) FAILURE
TO
MEET
FQHC
REQUIRE-
MENTS.—
‘‘(A) IN GENERAL.—With respect to any
entity or organization that is receiving funds
awarded under this section and which subse-
quently fails to meet the requirements to qual-
ify as a FQHC under section 1905(l)(2)(B) of
the Social Security Act or is an entity or orga-
nization that is not required to meet the re-
quirements to qualify as a FQHC under section
1905(l)(2)(B) of the Social Security Act but
fails to meet the requirements of this section,
the Secretary shall terminate the award of
funds under this section to such entity or orga-
nization.
‘‘(B) NOTICE.—Prior to any termination
of funds under this section to an entity or orga-
nization, the entity or organization shall be en-
titled to 60 days’ prior notice of termination
and, as provided by the Secretary in regula-
tions, an opportunity to correct any deficiencies
in order to allow the entity or organization to
continue to receive funds under this section.
‘‘(2) REQUIREMENTS.—Upon any termination
of funding under this section, the Secretary may (to
the extent practicable)—
‘‘(A) sell any property (including equip-
ment) acquired or constructed by the entity or
organization using funds made available under
this section or transfer such property to an-
other FQHC, except that the Secretary shall re-
imburse any costs which were incurred by the
entity or organization in acquiring or construct-
ing such property (including equipment) which
were not supported by grants under this sec-
tion; and
‘‘(B) recoup any funds provided to an en-
tity or organization terminated under this sec-
tion.
‘‘(h) AUTHORIZATION OF APPROPRIATIONS.—There
are authorized to be appropriated to carry out this section
$600,000,000 for each of the fiscal years 1994 through
1998.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall become effective with respect to serv-
ices furnished by a federally qualified health center or
other qualifying entity or organization described in this
section beginning on or after the date of enactment of this
Act.
Subtitle C—Expansion of Tax In-
centives for Self-Employed Indi-
viduals
SEC. 121. PERMANENT INCREASE IN DEDUCTIBLE HEALTH
INSURANCE COSTS FOR SELF-EMPLOYED IN-
DIVIDUALS.
(a) IN GENERAL.—Paragraph (1) of section 162(l)
of the Internal Revenue Code of 1986 (relating to special
rules for health insurance costs of self-employed individ-
uals) is amended by striking ‘‘25 percent’’ and inserting
‘‘100 percent’’.
(b) PERMANENT DEDUCTION.—Section 162(l) of
such Code is amended by striking paragraph (6).
(c) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to taxable years beginning after
the date of enactment of this Act.
Subtitle D—Expanding the Supply
of Health Professionals in Rural
Areas
SEC. 131. EXPANSION OF NATIONAL HEALTH SERVICE
CORPS.
Section 338H(b) of the Public Health Service Act (42
U.S.C. 254q(b)) is amended—
(1) in paragraph (1), by striking ‘‘and such
sums’’ and all that follows through the end thereof
and inserting ‘‘$120,000,000 for each of the fiscal
years 1992 through 1997.’’; and
(2) in paragraph (2)—
(A) by redesignating subparagraphs (A)
and (B) as subparagraphs (B) and (C), respec-
tively; and
(B) by inserting before subparagraph (B)
(as so redesignated) the following new subpara-
graph:
‘‘(A) IN GENERAL.—Of the amount appro-
priated under paragraph (1) for each fiscal
year, the Secretary shall utilize 25 percent of
such amount to carry out section 338A and 75
percent of such amount to carry out section
338B.’’.
SEC. 132. TAX INCENTIVES FOR PRACTICE IN RURAL
AREAS.
(a) NONREFUNDABLE CREDIT FOR CERTAIN PRI-
MARY HEALTH SERVICES PROVIDERS.—
(1) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code
of 1986 (relating to nonrefundable personal credits)
is amended by inserting after section 25 the follow-
ing new section:
‘‘SEC. 25A. PRIMARY HEALTH SERVICES PROVIDERS.
‘‘(a) ALLOWANCE
OF CREDIT.—In the case of a
qualified primary health services provider, there is allowed
as a credit against the tax imposed by this chapter for
any taxable year in a mandatory service period an amount
equal to the product of—
‘‘(1) the lesser of—
‘‘(A) the number of months of such period
occurring in such taxable year, or
‘‘(B) 36 months, reduced by the number of
months taken into account under this para-
graph with respect to such provider for all pre-
ceding taxable years (whether or not in the
same mandatory service period), multiplied by
‘‘(2) $1,000 ($500 in the case of a qualified
primary health services provider who is a physician
assistant or a nurse practitioner).
‘‘(b) QUALIFIED PRIMARY HEALTH SERVICES PRO-
VIDER.—For purposes of this section, the term ‘qualified
primary health services provider’ means any physician,
physician assistant, or nurse practitioner who for any
month during a mandatory service period is certified by
the Bureau to be a primary health services provider who—
‘‘(1) is providing primary health services—
‘‘(A) full time, and
‘‘(B) to individuals at least 80 percent of
whom reside in a rural health professional
shortage area,
‘‘(2) is not receiving during such year a scholar-
ship under the National Health Service Corps Schol-
arship Program or a loan repayment under the Na-
tional Health Service Corps Loan Repayment Pro-
gram,
‘‘(3) is not fulfilling service obligations under
such Programs, and
‘‘(4) has not defaulted on such obligations.
‘‘(c) MANDATORY SERVICE PERIOD.—For purposes
of this section, the term ‘mandatory service period’ means
the period of 60 consecutive calendar months beginning
with the first month the taxpayer is a qualified primary
health services provider.
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) BUREAU.—The term ‘Bureau’ means the
Bureau of Health Care Delivery and Assistance,
Health Resources and Services Administration of the
United States Public Health Service.
‘‘(2) PHYSICIAN.—The term ‘physician’ has the
meaning given to such term by section 1861(r) of
the Social Security Act.
‘‘(3) PHYSICIAN
ASSISTANT; NURSE
PRACTI-
TIONER.—The terms ‘physician assistant’ and ‘nurse
practitioner’ have the meanings given to such terms
by section 1861(aa)(3) of the Social Security Act.
‘‘(4) PRIMARY HEALTH SERVICES PROVIDER.—
The term ‘primary health services provider’ means a
provider of primary health services (as defined in
section 330(b)(1) of the Public Health Service Act).
‘‘(5) RURAL HEALTH PROFESSIONAL SHORTAGE
AREA.—The term ‘rural health professional shortage
area’ means—
‘‘(A) a class 1 or class 2 rural health pro-
fessional shortage area (as defined in section
332(a)(1)(A) of the Public Health Service Act)
in a rural area (as determined under section
1886(d)(2)(D) of the Social Security Act), or
‘‘(B) an area which is determined by the
Secretary of Health and Human Services as
equivalent to an area described in subparagraph
(A) and which is designated by the Bureau of
the Census as not urbanized.
‘‘(C) a community that is certified as un-
derserved by the Secretary for purposes of par-
ticipation in the rural health clinic program
under title XVIII of the Social Security Act.
‘‘(e) RECAPTURE OF CREDIT.—
‘‘(1) IN GENERAL.—If, during any taxable year,
there is a recapture event, then the tax of the tax-
payer under this chapter for such taxable year shall
be increased by an amount equal to the product of—
‘‘(A) the applicable percentage, and
‘‘(B) the aggregate unrecaptured credits
allowed to such taxpayer under this section for
all prior taxable years.
‘‘(2) APPLICABLE RECAPTURE PERCENTAGE.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, the applicable recapture percentage
shall be determined from the following table:
‘‘If the recapture
The applicable recap-
event occurs during:
ture percentage is:
Months 1–24 ..............................................
100
Months 25–36 ............................................
Months 37–48 ............................................
Months 49–60 ............................................
Months 61 and thereafter ..........................
0.
‘‘(B) TIMING.—For purposes of subpara-
graph (A), month 1 shall begin on the first day
of the mandatory service period.
‘‘(3) RECAPTURE EVENT DEFINED.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, the term ‘recapture event’ means
the failure of the taxpayer to be a qualified pri-
mary health services provider for any month
during any mandatory service period.
‘‘(B) CESSATION
OF
DESIGNATION.—The
cessation of the designation of any area as a
rural health professional shortage area after the
beginning of the mandatory service period for
any taxpayer shall not constitute a recapture
event.
‘‘(C) SECRETARIAL
WAIVER.—The Sec-
retary may waive any recapture event caused by
extraordinary circumstances.
‘‘(4) NO CREDITS AGAINST TAX.—Any increase
in tax under this subsection shall not be treated as
a tax imposed by this chapter for purposes of deter-
mining the amount of any credit under subpart A,
B, or D of this part.’’.
(2) CLERICAL AMENDMENT.—The table of sec-
tions for subpart A of part IV of subchapter A of
chapter 1 of such Code is amended by inserting
after the item relating to section 25 the following
new item:
‘‘Sec. 25A. Primary health services providers.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after the date of the enactment of this Act.
(b) NATIONAL HEALTH SERVICE CORPS LOAN RE-
PAYMENTS EXCLUDED FROM GROSS INCOME.—
(1) IN GENERAL.—Part III of subchapter B of
chapter 1 of the Internal Revenue Code of 1986 (re-
lating to items specifically excluded from gross in-
come) is amended by redesignating section 136 as
section 137 and by inserting after section 135 the
following new section:
‘‘SEC. 136. NATIONAL HEALTH SERVICE CORPS LOAN RE-
PAYMENTS.
‘‘(a) GENERAL RULE.—Gross income shall not in-
clude any qualified loan repayment.
‘‘(b) QUALIFIED LOAN REPAYMENT.—For purposes
of this section, the term ‘qualified loan repayment’ means
any payment made on behalf of the taxpayer by the Na-
tional Health Service Corps Loan Repayment Program
under section 338B(g) of the Public Health Service Act.’’.
(2) CONFORMING AMENDMENT.—Paragraph (3)
of section 338B(g) of the Public Health Service Act
is amended by striking ‘‘Federal, State, or local’’
and inserting ‘‘State or local’’.
(3) CLERICAL AMENDMENT.—The table of sec-
tions for part III of subchapter B of chapter 1 of
the Internal Revenue Code of 1986 is amended by
striking the item relating to section 136 and insert-
ing the following:
‘‘Sec. 136. National Health Service Corps loan repayments.
‘‘Sec. 137. Cross references to other Acts.’’.
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to payments made
under section 338B(g) of the Public Health Service
Act after the date of the enactment of this Act.
(c) EXPENSING OF MEDICAL EQUIPMENT.—
(1) IN GENERAL.—Section 179 of the Internal
Revenue Code of 1986 (relating to election to ex-
pense certain depreciable business assets) is amend-
ed—
(A) by striking paragraph (1) of subsection
(b) and inserting the following:
‘‘(1) DOLLAR LIMITATION.—
‘‘(A) GENERAL RULE.—The aggregate cost
which may be taken into account under sub-
section (a) for any taxable year shall not exceed
$10,000.
‘‘(B) RURAL HEALTH CARE PROPERTY.—
In the case of rural health care property, the
aggregate cost which may be taken into account
under subsection (a) for any taxable year shall
not exceed $25,000, reduced by the amount
otherwise taken into account under subsection
(a) for such year.’’; and
(B) by adding at the end of subsection (d)
the following new paragraph:
‘‘(11) RURAL HEALTH CARE PROPERTY.—For
purposes of this section, the term ‘rural health care
property’ means section 179 property used by a phy-
sician (as defined in section 1861(r) of the Social
Security Act) in the active conduct of such physi-
cian’s full-time trade or business of providing pri-
mary health services (as defined in section 330(b)(1)
of the Public Health Service Act) in a rural health
professional shortage area (as defined in section
25A(d)(5)).’’.
(2) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to property placed in
service in taxable years beginning after the date of
enactment of this Act.
(d) DEDUCTION FOR STUDENT LOAN PAYMENTS BY
MEDICAL
PROFESSIONALS
PRACTICING
IN
RURAL
AREAS.—
(1) INTEREST ON STUDENT LOANS NOT TREAT-
ED AS PERSONAL INTEREST.—Section 163(h)(2) of
the Internal Revenue Code of 1986 (defining per-
sonal interest) is amended by striking ‘‘and’’ at the
end of subparagraph (D), by striking the period at
the end of subparagraph (E) and inserting ‘‘, and’’,
and by adding at the end thereof the following new
subparagraph:
‘‘(F) any qualified medical education interest
(within the meaning of subsection (k)).’’.
(2) QUALIFIED MEDICAL EDUCATION INTEREST
DEFINED.—Section 163 of such Code (relating to in-
terest expenses) is amended by redesignating sub-
section (k) as subsection (l) and by inserting after
subsection (j) the following new subsection:
‘‘(k) QUALIFIED MEDICAL EDUCATION INTEREST OF
MEDICAL
PROFESSIONALS
PRACTICING
IN
RURAL
AREAS.—
‘‘(1) IN GENERAL.—For purposes of subsection
(h)(2)(F), the term ‘qualified medical education in-
terest’ means an amount which bears the same ratio
to the interest paid on qualified educational loans
during the taxable year by an individual performing
services under a qualified rural medical practice
agreement as—
‘‘(A) the number of months during the tax-
able year during which such services were per-
formed, bears to
‘‘(B) the number of months in the taxable
year.
‘‘(2) DOLLAR
LIMITATION.—The aggregate
amount which may be treated as qualified medical
education interest for any taxable year with respect
to any individual shall not exceed $5,000.
‘‘(3) QUALIFIED
RURAL
MEDICAL
PRACTICE
AGREEMENT.—For purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
rural medical practice agreement’ means a writ-
ten agreement between an individual and an ap-
plicable rural community under which the indi-
vidual agrees—
‘‘(i) in the case of a medical doctor,
upon completion of the individual’s resi-
dency (or internship if no residency is re-
quired), or
‘‘(ii) in the case of a registered nurse,
nurse practitioner, or physician’s assistant,
upon completion of the education to which
the qualified education loan relates,
to perform full-time services as such a medical
professional in the applicable rural community
for a period of 24 consecutive months. An indi-
vidual and an applicable rural community may
elect to have the agreement apply for 36 con-
secutive months rather than 24 months.
‘‘(B) SPECIAL RULE FOR COMPUTING PE-
RIODS.—An individual shall be treated as meet-
ing the 24 or 36 consecutive month requirement
under subparagraph (A) if, during each 12-con-
secutive month period within either such period,
the individual performs full-time services as a
medical doctor, registered nurse, nurse practi-
tioner, or physician’s assistant, whichever ap-
plies, in the applicable rural community during