I
104TH CONGRESS
1ST SESSION
H. R. 2220
To provide for portability of health insurance, guaranteed renewability, high
risk pools, medical care savings accounts, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
AUGUST 4, 1995
Mr. JACOBS (for himself, Mr. LIPINSKI, and Mr. INGLIS of South Carolina)
introduced the following bill; which was referred to the Committee on
Ways and Means, and in addition to the Committees on Commerce, and
Economic and Educational Opportunities, for a period to be subsequently
determined by the Speaker, in each case for consideration of such provi-
sions as fall within the jurisdiction of the committee concerned
A BILL
To provide for portability of health insurance, guaranteed
renewability, high risk pools, medical care savings ac-
counts, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Health Insurance Portability and Guaranteed Renewabil-
ity Act of 1995’’.
(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; table of contents.
TITLE I—AMENDMENTS OF INTERNAL REVENUE CODE OF 1986
Subtitle A—Medical Care Savings Accounts
Sec. 101. Medical care savings benefits.
Sec. 102. Medical care savings accounts.
Sec. 103. Unused amounts in flexible spending accounts transferable to medical
care savings accounts.
Subtitle B—Expansion of COBRA Continuation Coverage
Sec. 111. Expansion of COBRA continuation coverage.
Sec. 112. Expansion of COBRA options and continuation coverage require-
ments.
Sec. 113. Continuation coverage must offer conversion option at end of required
coverage period.
TITLE II—INSURANCE REFORM
Subtitle A—Employer Insurance Protections
Sec. 201. Small group employer insurance protections.
Sec. 202. General portability requirement for employer-based health insurance.
Sec. 203. Enforcement.
Sec. 204. Definitions.
Sec. 205. Effective date.
Subtitle B—Guaranteeing Portability of Health Insurance for Individuals
Sec. 211. Coverage of individual health benefit plans.
Sec. 212. Portability protections.
Sec. 213. Limitations on nonrenewal and premium increases.
Sec. 214. Definitions.
Sec. 215. Effective date.
Subtitle C—Assuring Health Insurance Coverage for Uninsurable Individuals
Sec. 221. Establishment of high risk health insurance pools.
Sec. 222. Uninsurable individuals eligible for coverage.
Sec. 223. Qualified health insurance coverage under pool.
Sec. 224. Funding of pool.
Sec. 225. Administration.
TITLE I—AMENDMENTS OF IN-
TERNAL REVENUE CODE OF
1986
Subtitle A—Medical Care Savings
Accounts
SEC. 101. MEDICAL CARE SAVINGS BENEFITS.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 is amended
by inserting after section 125 the following new section:
‘‘SEC. 125A. MEDICAL CARE SAVINGS BENEFITS.
‘‘(a) IN GENERAL.—A medical care savings benefit
is a qualified benefit which consists of a health plan meet-
ing the requirements of this section that includes, as part
thereof, a medical care savings account, as set forth in
section 408A.
‘‘(b) ESTABLISHMENT OF MEDICAL CARE SAVINGS
BENEFIT.—A medical care savings benefit shall be estab-
lished as a health plan which provides that all or part of
the premium differential realized by instituting a qualified
higher deductible health plan is credited to a participating
employee during a plan year to pay for medical care de-
scribed in section 213(d) subject to the limitations set
forth in subsection (e) hereof. To the extent that any
amount remains credited to that participant at the end
of each plan year, such amount shall be deposited to a
section 408A medical care savings account (which may
also be referred to as a ‘Medical IRA’) for that partici-
pant.
‘‘(c) PAYMENTS FROM ACCOUNT BALANCE.—If the
plan provides for level installment payments, the plan may
also provide that the maximum amount of reimbursement
at a particular time during the period of coverage may
be limited to the amount of actual contributions to the
participant’s benefit account. A participant may be ad-
vanced, interest free, such amounts necessary to cover in-
curred medical expenses which exceed the amount then
credited to the participant’s benefit account, upon the par-
ticipant’s agreement to repay such advancement from fu-
ture installments or upon ceasing to be a participant.
‘‘(d) REPORTING.—Employers shall cause to be is-
sued to participating employees, not less frequently than
quarterly, a statement setting forth amounts remaining in
their accounts.
‘‘(e) LIMITATIONS ON MEDICAL CARE SAVINGS BEN-
EFITS.—For purposes of this section—
‘‘(1) IN GENERAL.—In the case of an employer
who has a health plan in existence immediately prior
to the adoption of the medical care savings benefit,
the maximum amount that may be contributed an-
nually to a participant’s benefit account shall be
equal to—
‘‘(A) the cost of that health plan for that
participant’s type of coverage; plus
‘‘(B) a cost of living adjustment for the
calendar year in which the plan year begins, de-
termined under section 1(f)(3) as adjusted an-
nually based on the CPI-medical cost of living
component.
‘‘(2) OTHER EMPLOYERS.—In the case of an
Employer to whom paragraph (1) does not apply,
the contribution limit shall be equal to the excess of
the annual cost of the catastrophic health plan cov-
ering the individual (whether or not such cost is
borne by the employer or the employee) over the an-
nual aggregate cost (including the government and
employee share) of the standard option of the Blue
Cross-Blue Shield plan offered under the Federal
Employees Health Benefits Program under chapter
89 of title 5, United States Code for the same type
of family coverage.
‘‘(3) OVERALL LIMITATION.—In no event may
any contribution described above exceed the deduct-
ible amount of the qualified higher deductible plan.
‘‘(f) HEALTH PLAN.—The term ‘health plan’ means
an employee welfare benefit plan providing medical care
(as defined in section 213(d)) to participants or bene-
ficiaries directly or through insurance, reimbursement, or
otherwise.
‘‘(g) QUALIFIED HIGHER DEDUCTIBLE PLAN.—The
term ‘qualified higher deductible plan’ is a health plan
which provides for payment of covered benefits in excess
of the higher deductible, which higher deductible shall not
exceed $5,000 in 1996 and, adjusted annually thereafter
for increases in the cost of living in accordance with regu-
lations prescribed by the Secretary.
‘‘(h) COORDINATION
WITH
HEALTH
FLEXIBLE
SPENDING ACCOUNTS.—If, during a plan year, a partici-
pating employee has a medical care savings benefit in ef-
fect and a health flexible spending account established
under section 125, coverage under the health flexible
spending account, for the type of medical expenses that
may be reimbursed under the medical care savings benefit,
would be limited to 100 percent of the deductible under
the qualified higher deductible plan, less the amount cred-
ited in the current year to the employee’s medical care
savings account. For purposes of section 125, a medical
care savings benefit is not considered to involve the defer-
ral of compensation for purposes of this title.
‘‘(i) SEPARATE DETERMINATIONS FOR CATEGORIES
OF EMPLOYEES AND SEPARATE LINES OF BUSINESS.—
Contributions to Health Plans established by an Employer
may be separately determined on the basis of:
‘‘(1) Types of coverage.
‘‘(2) Reasonable classifications of employees
based on such classifications as hours of work per
week, retirement status, coverage by a collective bar-
gaining agreement.
‘‘(3) Employees within separate lines of busi-
ness, within the meaning of section 414(r).
‘‘(j) OTHER DEFINITIONS FOR PURPOSES OF THIS
SECTION.—
‘‘(1) EMPLOYEE.—The term ‘employee’ means
any individual employed by an employer, including—
‘‘(A) an individual who is an employee
within the meaning of section 401(c)(1); and
‘‘(B) former employees.
‘‘(2) TYPES OF COVERAGE.—The types of cov-
erage are—
‘‘(A) self-only coverage; and
‘‘(B) coverage other than self-only cov-
erage.
‘‘(k) PREVENTATIVE HEALTH CARE.—By allowing
medical expenses payable from a medical care savings ben-
efit to be those permitted under section 213(d), participat-
ing employees are encouraged to use this benefit to pro-
mote good health, to use preventative medical and health
procedures, and to seek appropriate consultative and sec-
ond opinions.
‘‘(l) NONDUPLICATION OF BENEFITS.—Policies is-
sued as a part of a medical care savings benefit shall not
be required to duplicate expenses that may be proper ex-
penses covered by the medical care savings benefit. Addi-
tionally, the qualified higher deductible plan may provide
that the deductible specified in the insurance policy may
be increased by the amount of any benefits payable by any
other health benefits program or plan.’’.
(b) CLERICAL AMENDMENT.—The table of sections
for part III of subchapter B of chapter 1 of such Code
is amended by inserting after the item relating to section
125 the following new item:
‘‘Sec. 125A. Medical care savings benefits.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 102. MEDICAL CARE SAVINGS ACCOUNTS.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 of the Internal Revenue Code of 1986 is
amended by inserting after section 408 the following new
section:
‘‘SEC. 408A. MEDICAL CARE SAVINGS ACCOUNTS.
‘‘(a) GENERAL RULE.—For purposes of this title, the
term ‘medical care savings account’ (which may also be
referred to as a ‘Medical IRA’) means a trust created or
organized in the United States for the exclusive benefit
of an individual and the individual’s spouse and depend-
ents (as defined in section 152), but only if the written
instrument creating the trust meets the following require-
ments:
‘‘(1) Except in the case of a rollover contribu-
tion described in subsection (c)(3), no contribution
will be accepted unless it is in cash and contribu-
tions will not be accepted during any calendar year
in excess of the amount permitted under section
125A(b).
‘‘(2) The trustee is a bank (as defined in sec-
tion 408(n)), insurance company (as defined in sec-
tion 816), or such other person who demonstrates to
the satisfaction of the Secretary that the manner in
which such other person will administer the trust
will be consistent with the requirements of this
section.
‘‘(3) No part of the trust funds will be invested
in life insurance contracts.
‘‘(4) The interest of an individual in the bal-
ance of the account is nonforfeitable.
‘‘(5) The assets of the trust will not be commin-
gled with other property except in a common trust
fund or common investment fund.
‘‘(b) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) ACCOUNT TAXED AS GRANTOR TRUST.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the account beneficiary of a
medical care savings account shall be treated
for purposes of this title as the owner of such
account and shall be subject to tax thereon in
accordance with subpart E of part I of sub-
chapter J of this chapter (relating to grantors
and others treated as substantial owners).
‘‘(B) TREATMENT OF CAPITAL LOSSES.—
With respect to assets held in a medical care
savings account, any capital loss for a taxable
year from the sale or exchange of such an asset
shall be allowed only to the extent of capital
gains from such assets for such taxable year.
Any capital loss which is disallowed under the
preceding sentence shall be treated as a capital
loss from the sale or exchange of such an asset
in the next taxable year. For purposes of this
subparagraph, all medical care savings accounts
of the account beneficiary shall be treated as 1
account.
‘‘(2) ACCOUNT TERMINATES IF INDIVIDUAL EN-
GAGES IN PROHIBITED TRANSACTION.—
‘‘(A) IN GENERAL.—If, during any taxable
year of the account beneficiary, such beneficiary
engages in any transaction prohibited by section
4975 with respect to the account, the account
ceases to be a medical care savings account as
of the first day of that taxable year.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a medical care savings ac-
count by reason of subparagraph (A) on the
first day of any taxable year, subsection (c)
shall be applied as if—
‘‘(i) there were a distribution on such
first day in an amount equal to the fair
market value (on such first day) of all as-
sets in the account (on such first day), and
‘‘(ii) no portion of such distribution
were used to pay qualified expenses.
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the account ben-
eficiary uses the account or any portion thereof as
security for a loan, the portion so used is treated as
distributed and not used to pay qualified expenses.
‘‘(c) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION OF AMOUNTS NOT USED FOR
QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—Any amount paid or
distributed out of a medical care savings ac-
count which is not used exclusively to pay the
qualified medical expenses of the account bene-
ficiary or of the spouse or dependents of such
beneficiary shall be included in the gross in-
come of such beneficiary to the extent such
amount does not exceed the excess of—
‘‘(i) the aggregate contributions by
the employer to such account which were
not includible in gross income, over
‘‘(ii) the aggregate prior payments or
distributions from such account which were
includible in gross income under this para-
graph.
‘‘(B) SPECIAL
RULES.—For purposes of
subparagraph (A)—
‘‘(i) all medical care savings accounts
of the account beneficiary shall be treated
as 1 account,
‘‘(ii) all payments and distributions
during any taxable year shall be treated as
1 distribution, and
‘‘(iii) any distribution of property
shall be taken into account at its fair mar-
ket value on the date of the distribution.
‘‘(2) PENALTY FOR DISTRIBUTIONS NOT USED
FOR QUALIFIED EXPENSES.—
‘‘(A) IN GENERAL.—The tax imposed by
this chapter for any taxable year in which there
is a payment or distribution from a medical
care savings account which is includible in gross
income under paragraph (1) shall be increased
by 10 percent of the amount which is so includ-
ible.
‘‘(B) 
EXCEPTION
FOR
DISTRIBUTIONS
AFTER AGE 591⁄2.—Subparagraph (A) shall not
apply to any distribution or payment after the
date on which the account beneficiary attains
age 591⁄2.
‘‘(C) DISABILITY OR DEATH CASES.—Sub-
paragraph (A) shall not apply if the payment or
distribution is made after the account bene-
ficiary becomes disabled within the meaning of
section 72(m)(7) or dies.
‘‘(3) ROLLOVER CONTRIBUTION.—An amount is
described in this paragraph as a rollover contribu-
tion if it meets the requirements of subparagraphs
(A) and (B).
‘‘(A) IN
GENERAL.—Paragraph (1) does
not apply to any amount paid or distributed out
of a medical care savings account to the ac-
count beneficiary if the entire amount received
is paid into a medical care savings account for
the benefit of such beneficiary not later than
the 60th day after the day on which he receives
the payment or distribution.
‘‘(B) LIMITATION.—This paragraph does
not apply to any amount described in subpara-
graph (A) received by an individual from a
medical care savings account if at any time dur-
ing the one-year period ending on the day of
such receipt such individual received any other
amount described in subparagraph (A) from a
medical care savings account which was not in-
cludible in his gross income because of the ap-
plication of this paragraph.
‘‘(C) TREATMENT AFTER DEATH OF AC-
COUNT BENEFICIARY.—
‘‘(i) IN GENERAL.—After the death of
the account beneficiary, the assets in such
beneficiary’s medical care savings account
may continue to be used for the benefit of
the beneficiary’s spouse and dependents if,
not more than 60 days after the bene-
ficiary’s death—
‘‘(I) the beneficiary’s medical
care savings account is transferred to
a new account administrator; or
‘‘(II) the legatee requests in writ-
ing that the account administrator re-
main the administrator of the ac-
count, and the account administrator
agrees to retain the account.
‘‘(ii) FAILURE TO GIVE NOTICE.—If
the former account administrator of a
medical care savings account of a deceased
beneficiary is not informed, within 90 days
after the beneficiary’s death, of the name
and address of an account administrator to
which the medical care savings account has
been transferred under clause (i), the
former account administrator shall liq-
uidate the assets in such account and pay
the proceeds to the estate of the bene-
ficiary.
‘‘(iii) ACCOUNT ADMINISTRATOR UN-
WILLING TO MAINTAIN ACCOUNT.—If—
‘‘(I) the legatee makes a request
described in clause (i)(II); and
‘‘(II) the account administrator
does not agree to retain the account;
the account administrator shall, within 90
days after the beneficiary’s death, liquidate
the assets in such account and pay the
proceeds to the estate of the beneficiary.
‘‘(iv) TREATMENT OF TRANSFERS TO
ESTATE.—Any transfer to the estate of a
decedent under clause (ii) or (iii) shall not
be includible in the gross income of the
beneficiary or of the estate.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED EXPENSES.—The term ‘quali-
fied expenses’ means any of the following expenses
which are incurred for the benefit of the account
beneficiary or the spouse or dependents (as defined
in section 152) of such beneficiary:
‘‘(A) Expenses for medical care (as defined
in section 213(d)).
respect to contributions, distributions, and such other
matters as the Secretary may require under regulations.
The reports required by this subsection shall be filed at
such time and in such manner and furnished to such indi-
viduals at such time and in such manner as may be re-
quired by those regulations.’’
(b) EMPLOYER PAYMENTS EXCLUDED FROM EM-
PLOYMENT TAX BASE.—
(1) SOCIAL SECURITY TAXES.—
(A) Subsection (a) of section 3121 of such
Code is amended by striking ‘‘or’’ at the end of
paragraph (20), by striking the period at the
end of paragraph (21) and inserting ‘‘; or’’, and
by inserting after paragraph (21) the following
new paragraph:
‘‘(22) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from gross income under
chapter 1.’’
(B) Subsection (a) of section 209 of the
Social Security Act is amended by striking ‘‘or’’
at the end of paragraph (18), by striking the
period at the end of paragraph (19) and insert-
ing ‘‘; or’’, and by inserting after paragraph
(19) the following new paragraph:
‘‘(20) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from gross income under
chapter 1 of the Internal Revenue Code of 1986.’’
(2) RAILROAD RETIREMENT TAX.—Subsection
(e) of section 3231 of such Code is amended by add-
ing at the end the following new paragraph:
‘‘(10) MEDICAL CARE SAVINGS ACCOUNT CON-
TRIBUTIONS.—The term ‘compensation’ shall not in-
clude any payment made to or for the benefit of an
employee if at the time of such payment it is reason-
able to believe that the employee will be able to ex-
clude such payment from gross income under chap-
ter 1.’’
(3) UNEMPLOYMENT TAX.—Subsection (b) of
section 3306 of such Code is amended by striking
‘‘or’’ at the end of paragraph (15), by striking the
period at the end of paragraph (16) and inserting ‘‘;
or’’, and by inserting after paragraph (16) the fol-
lowing new paragraph:
‘‘(17) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from gross income under
chapter 1.’’
(4) WITHHOLDING TAX.—Subsection (a) of sec-
tion 3401 of such Code is amended by striking ‘‘or’’
at the end of paragraph (19), by striking the period
at the end of paragraph (20) and inserting ‘‘; or’’,
and by inserting after paragraph (20) the following
new paragraph:
‘‘(21) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from gross income under
chapter 1.’’
(c) TAX ON PROHIBITED TRANSACTIONS.—Section
4975 of such Code (relating to prohibited transactions)
is amended—
(1) by adding at the end of subsection (c) the
following new paragraph:
‘‘(4) SPECIAL RULE FOR MEDICAL CARE SAV-
INGS ACCOUNTS.—An individual for whose benefit a
medical care savings account (within the meaning of
section 408A) is established shall be exempt from
the tax imposed by this section with respect to any
transaction concerning such account (which would
otherwise be taxable under this section) if, with re-
spect to such transaction, the account ceases to be
a medical care savings account by reason of the ap-
plication of section 408A(b)(2)(A) to such account.’’,
and
(2) by inserting ‘‘or a medical care savings ac-
count described in section 408A’’ in subsection
(e)(1) after ‘‘described in section 408(a)’’.
(d) FAILURE TO PROVIDE REPORTS ON MEDICAL
CARE SAVINGS ACCOUNTS.—Section 6693 of such Code
(relating to failure to provide reports on individual retire-
ment account or annuities) is amended—
(1) by inserting ‘‘OR
ON
MEDICAL
CARE
SAVINGS ACCOUNTS’’ after ‘‘ANNUITIES’’ in the
heading of such section, and
(2) by adding at the end of subsection (a) the
following: ‘‘The person required by section 408A(f)
to file a report regarding a medical care savings ac-
count at the time and in the manner required by
such section shall pay a penalty of $50 for each fail-
ure unless it is shown that such failure is due to rea-
sonable cause.’’
(e) CLERICAL AMENDMENTS.—
(1) The table of sections for subpart A of part
I of subchapter D of chapter 1 of such Code is
amended by inserting after the item relating to sec-
tion 408 the following:
‘‘Sec. 408A. Medical care savings accounts.’’
(2) The table of sections for chapter 43 of such
Code is amended by striking the item relating to sec-
tion 4973 and inserting the following:
‘‘Sec. 4973. Tax on excess contributions to individual retirement
accounts, medical care savings accounts, certain
403(b) contracts, and certain individual retirement
annuities.’’
(3) The table of sections for subchapter B of
chapter 68 of such Code is amended by inserting ‘‘or
on medical care savings accounts’’ after ‘‘annuities’’
in the item relating to section 6693.
(f) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1996.
SEC. 103. UNUSED AMOUNTS IN FLEXIBLE SPENDING AC-
COUNTS TRANSFERABLE TO MEDICAL CARE
SAVINGS ACCOUNTS.
(a) IN GENERAL.—Subsection (d) of section 125 of
the Internal Revenue Code of 1986 (relating to cafeteria
plans) is amended by adding at the end thereof the follow-
ing new paragraph:
‘‘(3) UNUSED
AMOUNTS
TRANSFERABLE
TO
MEDICAL CARE SAVINGS ACCOUNTS.—Subsection (a)
shall not fail to apply to a participant in a plan, and
a plan shall not fail to be treated as a cafeteria plan,
solely because under the plan amounts not paid out
as reimbursements under a flexible spending ar-
rangement for medical care (as defined in section
213(d)) for an individual or such individual’s spouse
and dependents) are contributed on the last day of
the plan year of the cafeteria plan to a medical care
savings account (as defined in section 408A) of such
individual.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to cafeteria plan years ending after
December 31, 1995.
Subtitle B—Expansion of COBRA
Continuation Coverage
SEC. 111. EXPANSION OF COBRA CONTINUATION COV-
ERAGE.
(a) AMENDMENTS TO INTERNAL REVENUE CODE.—
(1) SMALLER
EMPLOYERS
SUBJECT
TO
RE-
QUIREMENTS.—Paragraph (1) of section 4980B(d)
of the Internal Revenue Code of 1986 (relating to
tax not to apply to certain plans) is amended by
striking ‘‘20 employees’’ and inserting ‘‘2 employ-
ees’’.
(2) PERIOD OF COVERAGE EXTENDED TO 36
MONTHS.—
(A) IN
GENERAL.—Clause (i) of section
4980B(f)(2)(B) of such Code (relating to period
of coverage) is amended to read as follows:
‘‘(i) MAXIMUM REQUIRED PERIOD.—
‘‘(I) IN
GENERAL.—The date
which is 36 months after the date of
the qualifying event.
‘‘(II) SPECIAL
RULE
FOR
CER-
TAIN
BANKRUPTCY
PROCEEDINGS.—
In the case of a qualifying event de-
scribed in paragraph (3)(F) (relating
to bankruptcy proceedings), the date
of the death of the covered employee
or qualified beneficiary (described in
subsection (g)(1)(D)(iii)), or in the
case of the surviving spouse or de-
pendent children of the covered em-
ployee, 36 months after the date of
the death of the covered employee.
‘‘(III) QUALIFYING
EVENT
IN-
VOLVING MEDICARE ENTITLEMENT.—
In the case of an event described in
paragraph (3)(D) (without regard to
whether such event is a qualifying
event), the period of coverage for
qualified beneficiaries other than the
covered employee for such event or
any subsequent qualifying event shall
not terminate before the close of the
36-month period beginning on the
date the covered employee becomes
entitled to benefits under title XVIII
of the Social Security Act.’’
(B) TECHNICAL
AMENDMENT.—The last
sentence of section 4980B(f)(2)(C) of such
Code is amended to read as follows: ‘‘In the
case of a qualified beneficiary who is deter-
mined, under title II or XVI of the Social Secu-
rity Act, to have been disabled at the time of
a qualifying event described in paragraph
(3)(B), any reference in clause (i) to ‘102 per-
cent’ is deemed a reference to ‘150 percent’ for
any month after the 36th month of continu-
ation coverage.’’
(3) SUBSTANTIALLY SIMILAR COVERAGE UNDER
NEW
EMPLOYER’S
HEALTH
PLAN
TO
TERMINATE
CONTINUATION
COVERAGE
OBLIGATION
OF
PRIOR
EMPLOYER.—Clause (iv) of section 4980B(f)(2)(B)
of such Code is amended by striking ‘‘or’’ at the end
of subclause (I), by redesignating subclause (II) as
subclause (III), and by inserting after subclause (I)
the following new subclause:
‘‘(II) covered under any other
group health plan by reason of the re-
employment of the covered employee if
such coverage is substantially similar
to (or in all respects greater than) the
coverage provided by reason of this
section, or’’.
(b) AMENDMENTS TO EMPLOYEE RETIREMENT IN-
COME SECURITY ACT OF 1974.—
(1) SMALLER
EMPLOYERS
SUBJECT
TO
RE-
QUIREMENTS.—Subsection (b) of section 601 of the
Employee Retirement Income Security Act of 1974
(29 U.S.C. 1161) (relating to exception for certain
plans) is amended by striking ‘‘20 employees’’ and
inserting ‘‘2 employees’’.
(2) PERIOD OF COVERAGE EXTENDED TO 36
MONTHS.—
(A) IN
GENERAL.—Subparagraph (A) of
section 602(2) of such Act (29 U.S.C. 1161(2))
(relating to period of coverage) is amended to
read as follows:
‘‘(A) MAXIMUM REQUIRED PERIOD.—
‘‘(i) IN GENERAL.—The date which is
36 months after the date of the qualifying
event.
‘‘(ii) SPECIAL
RULE
FOR
CERTAIN
BANKRUPTCY PROCEEDINGS.—In the case
of a qualifying event described in section
603(6) (relating to bankruptcy proceed-
ings), the date of the death of the covered
employee or qualified beneficiary (described
in section 607(3)(C)(iii)), or in the case of
the surviving spouse or dependent children
of the covered employee, 36 months after
the date of the death of the covered
employee.
‘‘(iii) QUALIFYING EVENT INVOLVING
MEDICARE ENTITLEMENT.—In the case of
an event described in section 603(4) (with-
out regard to whether such event is a
qualifying event), the period of coverage
for qualified beneficiaries other than the
covered employee for such event or any
subsequent qualifying event shall not ter-
minate before the close of the 36-month
period beginning on the date the covered
employee becomes entitled to benefits
under title XVIII of the Social Security
Act.’’
(B) TECHNICAL
AMENDMENT.—The last
sentence of section 602(3) of such Act is
amended to read as follows: ‘‘In the case of an
individual who is determined, under title II or
XVI of the Social Security Act, to have been
disabled at the time of a qualifying event de-
scribed in section 603(2), any reference in sub-
paragraph (A) to ‘102 percent’ is deemed a ref-
erence to ‘150 percent’ for any month after the
36th month of continuation coverage.’’
(3) SUBSTANTIALLY SIMILAR COVERAGE UNDER
NEW
EMPLOYER’S
HEALTH
PLAN
TO
TERMINATE
CONTINUATION
COVERAGE
OBLIGATION
OF
PRIOR
EMPLOYER.—Subparagraph (D) of section 602(2) of
such Act is amended by striking ‘‘or’’ at the end of
clause (i), by redesignating clause (ii) as clause (iii),
and by inserting after clause (i) the following new
subclause:
‘‘(ii) covered under any other
group health plan by reason of the re-
employment of the covered employee if
such coverage is substantially similar
to (or in all respects greater than) the
coverage provided by reason of this
section, or’’.
(c) AMENDMENTS
TO PUBLIC HEALTH SERVICE
ACT.—
(1) SMALLER
EMPLOYERS
SUBJECT
TO
RE-
QUIREMENTS.—Paragraph (1) of section 2201(b) of
the Public Health Service Act (42 U.S.C. 300bb-
1(b)) (relating to exception for certain plans) is
amended by striking ‘‘20 employees’’ and inserting
‘‘4 employees’’.
(2) PERIOD OF COVERAGE EXTENDED TO 36
MONTHS.—
(A) IN
GENERAL.—Subparagraph (A) of
section 2202(2) of such Act (42 U.S.C. 300bb–
2(2)) (relating to period of coverage) is amend-
ed to read as follows:
‘‘(A) MAXIMUM REQUIRED PERIOD.—
‘‘(i) IN GENERAL.—The date which is
36 months after the date of the qualifying
event.
‘‘(ii) QUALIFYING EVENT INVOLVING
MEDICARE ENTITLEMENT.—In the case of
an event described in section 2203(4)
(without regard to whether such event is a
qualifying event), the period of coverage
for qualified beneficiaries other than the
covered employee for such event or any
subsequent qualifying event shall not ter-
minate before the close of the 36-month
period beginning on the date the covered
employee becomes entitled to benefits
under title XVIII of the Social Security
Act.’’
(B) TECHNICAL
AMENDMENT.—The last
sentence of section 2202(3) of such Act is
amended to read as follows: ‘‘In the case of an
individual who is determined, under title II or
XVI of the Social Security Act, to have been
disabled at the time of a qualifying event de-
scribed in section 2203(2), any reference in
subparagraph (A) to ‘102 percent’ is deemed a
reference to ‘150 percent’ for any month after
the 36th month of continuation coverage.’’
(3) SUBSTANTIALLY SIMILAR COVERAGE UNDER
NEW
EMPLOYER’S
HEALTH
PLAN
TO
TERMINATE
CONTINUATION
COVERAGE
OBLIGATION
OF
PRIOR
EMPLOYER.—Subparagraph (D) of section 2202(2)
of such Act is amended by striking ‘‘or’’ at the end
of clause (i), by redesignating clause (ii) as clause
(iii), and by inserting after clause (i) the following
new clause:
‘‘(ii) covered under any other
group health plan by reason of the re-
employment of the covered employee if
such coverage is substantially similar
to (or in all respects greater than) the
coverage provided by reason of this
section, or’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to—
(1) qualifying events occurring after December
31, 1995, and
(2) qualifying events occurring on or before
such date if the period of continuation coverage re-
quired under section 4980B of the Internal Revenue
Code of 1986 (determined without regard to the
amendments made by this section) has not expired
on or before such date.
SEC. 112. EXPANSION OF COBRA OPTIONS AND CONTINU-
ATION COVERAGE REQUIREMENTS.
(a) AMENDMENTS TO INTERNAL REVENUE CODE.—
Subparagraph (A) of section 4980B(f)(2) of the Internal
Revenue Code of 1986 (relating to continuation coverage
requirements of group health plans) is amended to read
as follows:
‘‘(A) TYPE OF BENEFIT COVERAGE.—The
coverage must consist of coverage which, as of
the time the coverage is being provided—
‘‘(i) is identical to the coverage pro-
vided under the plan to similarly situated
beneficiaries under the plan with respect to
whom a qualifying event has not occurred,
‘‘(ii) is so identical, except such cov-
erage is offered with an annual $1,000 de-
ductible, or
‘‘(iii) is so identical, except such cov-
erage is offered with an annual $3,000 de-
ductible.
If coverage under the plan is modified for any
group of similarly situated beneficiaries, the
coverage shall also be modified in the same
manner for all individuals who are qualified
beneficiaries under the plan pursuant to this
subsection in connection with such group.’’
(b) AMENDMENTS TO EMPLOYEE RETIREMENT IN-
COME SECURITY ACT OF 1974.—Paragraph (1) of section
602 of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1162) is amended to read as follows:
‘‘(1) TYPE OF BENEFIT COVERAGE.—The cov-
erage must consist of coverage which, as of the time
the coverage is being provided—
‘‘(A) is identical to the coverage provided
under the plan to similarly situated bene-
ficiaries under the plan with respect to whom a
qualifying event has not occurred,
‘‘(B) is so identical, except such coverage
is offered with an annual $1,000 deductible, or
‘‘(C) is so identical, except such coverage is
offered with an annual $3,000 deductible.
If coverage under the plan is modified for any group
of similarly situated beneficiaries, the coverage shall
also be modified in the same manner for all individ-
uals who are qualified beneficiaries under the plan
pursuant to this part in connection with such
group.’’
(c) AMENDMENTS
TO PUBLIC HEALTH SERVICE
ACT.—Paragraph (1) of section 2202 of the Public Health
Service Act (42 U.S.C. 300bb-2) is amended to read as
follows:
‘‘(1) TYPE OF BENEFIT COVERAGE.—The cov-
erage must consist of coverage which, as of the time
the coverage is being provided—
‘‘(A) is identical to the coverage provided
under the plan to similarly situated bene-
ficiaries under the plan with respect to whom a
qualifying event has not occurred,
‘‘(B) is so identical, except such coverage
is offered with an annual $1,000 deductible, or
‘‘(C) is so identical, except such coverage is
offered with an annual $3,000 deductible.
If coverage under the plan is modified for any group
of similarly situated beneficiaries, the coverage shall
also be modified in the same manner for all individ-
uals who are qualified beneficiaries under the plan
pursuant to this part in connection with such
group.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to—
(1) qualifying events occurring after December
31, 1996, and
(2) qualifying events occurring on or before
such date if the period of continuation coverage re-
quired under section 4980B of the Internal Revenue
Code of 1986 (determined without regard to the
amendments made by this Act) has not expired on
or before such date.
SEC. 113. CONTINUATION COVERAGE MUST OFFER CON-
VERSION OPTION AT END OF REQUIRED COV-
ERAGE PERIOD.
(a) AMENDMENTS TO INTERNAL REVENUE CODE.—
Paragraph (1) of section 4980B(f) of the Internal Reve-
nue Code of 1986 is amended to read as follows:
‘‘(1) IN GENERAL.—A group health plan meets
the requirements of this subsection only if—
‘‘(A) the coverage of the costs of pediatric
vaccines (as defined under section 2162 of the
Public Health Service Act) is not reduced below
the coverage provided by the plan as of May 1,
1993,
‘‘(B) each qualified beneficiary who would
lose coverage under the plan as a result of a
qualifying event is entitled to elect, within the
election period, continuation coverage under the
plan, and
‘‘(C) in the case of a group health plan
provided through insurance, at the termination
of the continuation coverage period with respect
to any qualified beneficiary (other than a period
which terminates by reason of paragraph
(2)(B)(iv)), such beneficiary has the option to
be covered under another health plan provided
through insurance issued by such the insurer
(or an affiliated insurer)—
‘‘(i) which does not contain any exclu-
sion or limitation with respect to any pre-
existing condition of such beneficiary,
‘‘(ii) which provides coverage which is
substantially similar to (or in all respects
greater than) the coverage being termi-
nated, and
‘‘(iii) the premium for which is based
on the new, normal business rate within
the class of business involved for individ-
uals with similar demographic characteris-
tics and which is adjusted only for age and
sex.’’
(b) AMENDMENTS TO EMPLOYEE RETIREMENT IN-
COME SECURITY ACT OF 1974.—Subsection (a) of section
601 of such Act is amended to read as follows:
‘‘(a) IN GENERAL.—The plan sponsor of each group
health plan shall provide, in accordance with this part,
that—
‘‘(1) each qualified beneficiary who would lose
coverage under the plan as a result of a qualifying
event is entitled, under the plan, to elect, within the
election period, continuation coverage under the
plan, and
‘‘(2) in the case of such a group health plan
provided through insurance, at the termination of
the continuation coverage period with respect to any
qualified beneficiary (other than a period which ter-
minates by reason of section 602(2)(D)), such bene-
ficiary has the option to be covered under another
health plan provided through insurance issued by
such the insurer (or an affiliated insurer) which does
not contain any exclusion or limitation with respect
to any preexisting condition of such beneficiary and
which provides coverage which is substantially simi-
lar to (or in all respects greater than) the coverage
being terminated.’’.
(c) AMENDMENTS
TO PUBLIC HEALTH SERVICE
ACT.—Subsection (a) of section 2201 of the Public Health
Service Act is amended to read as follows:
‘‘(a) IN GENERAL.—In accordance with regulations
which the Secretary shall prescribe, each group health
plan that is maintained by any State that receives funds
under this Act, by any political subdivision of such a State,
or by any agency or instrumentality of such a State or
political subdivision, shall provide, in accordance with this
title, that—
‘‘(1) each qualified beneficiary who would lose
coverage under the plan as a result of a qualifying
event is entitled, under the plan, to elect, within the
election period, continuation coverage under the
plan, and
‘‘(2) in the case of such a group health plan
provided through insurance, at the termination of
the continuation coverage period with respect to any
qualified beneficiary (other than a period which ter-
minates by reason of section 2202(2)(D)), such ben-
eficiary has the option to be covered under another
health plan provided through insurance issued by
such the insurer (or an affiliated insurer) which does
not contain any exclusion or limitation with respect
to any preexisting condition of such beneficiary and
which provides coverage which is substantially simi-
lar to (or in all respects greater than) the coverage
being terminated.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to—
(1) qualifying events occurring after December
31, 1996, and
(2) qualifying events occurring on or before
such date if the period of continuation coverage re-
quired under section 4980B of the Internal Revenue
Code of 1986 (determined without regard to the
amendments made by this Act) has not expired on
or before such date.
TITLE II—INSURANCE REFORM
Subtitle A—Employer Insurance
Protections
SEC. 201. SMALL GROUP EMPLOYER INSURANCE PROTEC-
TIONS.
(a) REQUIREMENTS
FOR INSURERS.—Any health
benefit insurer that provides or offers a small group health
benefit plan within a State (in this subtitle referred to as
a ‘‘covered insurer’’) must meet the requirements specified
in this section with respect to such a plan.
(b) SMALL EMPLOYER PROTECTION AGAINST TER-
MINATION OR NON-RENEWAL OR INDUSTRY BLACKLIST-
ING.—
(1) IN GENERAL.—A covered insurer may not—
(A) cancel or nonrenew an individual small
employer group except for a reason specified in
paragraph (2), or
(B) refuse to provide coverage to such a
group based solely on the nature of the employ-
er’s business or industry.
A covered insurer may not single out and cancel a
small group health benefit plan for an individual
small employer group because of claims experience
relating to the group.
(2) PERMISSIBLE TERMINATION.—A covered in-
surer may cancel or nonrenew a small group health
benefit plan for an individual small employer group
for any of the following:
(A) Nonpayment of required premium.
(B) Fraud or misrepresentation on the
part of the employer.
(C) Noncompliance with provisions of the
plan.
(D) Nonrenewal upon 90 days written no-
tice with respect to all persons insured under
the small group health benefit plan in a State.
(3) LIMITATION ON MARKET REENTRY.—A cov-
ered insurer that exercises its right of nonrenewal as
provided under paragraph (2)(D) may not accept
any new health business of the type it nonrenewed
for a period of 5 years, after the date it provides no-
tice of such nonrenewal.
(c) LIMITS ON PREMIUM RATES.—The annual in-
crease in the premium rate charged to a small employer
group by a covered insurer may not exceed the sum of
the following:
(1) The percentage change in the premium rate
for new business for employers with similar case
characteristics, as measured between the first day of
the year in which the new rates take effect and the
first day of the previous year.
(2) A percentage (not to exceed 15 percent)
based on claims experience, health status, or dura-
tion of coverage.
(3) Any adjustment due to changes in the cov-
erage provided or changes in the case characteristics
of the small employer group.
(d) LIMIT ON VARIATION IN PREMIUMS.—
(1) ACROSS CLASSES OF BUSINESS.—The index
rate for a rating period for any class of business
shall not exceed the index rate for any other class
of business by more than 20 percent.
(2) WITHIN
A
CLASS
OF
BUSINESS.—For a
class of business, the premium rates charged during
a rating period to small employer groups with simi-
lar case characteristics for the same or similar cov-
erage (or rates that could be charged to such em-
ployers under the rating system for that class of
business) shall not vary from the index rate for such
class by more than 25 percent of the index rate.
(3) USE
OF
INDUSTRY
AS
A
CASE
CHAR-
ACTERISTIC.—
(A) IN
GENERAL.—Subject to subpara-
graph (B), a covered insurer may utilize indus-
try as a case characteristic in establishing pre-
mium rates.
(B) LIMITATION ON VARIATION.—If a cov-
ered insurer that utilizes industry as a case
characteristic in establishing premium rates,
the highest rate factor associated with an in-
dustry classification may not exceed the lowest
rate associated with any industry classification
by more than 15 percent.
SEC. 202. GENERAL PORTABILITY REQUIREMENT FOR EM-
PLOYER-BASED HEALTH INSURANCE.
(a) LIMITATIONS ON USE OF PREEXISTING CONDI-
TIONS.—
(1) IN GENERAL.—A group health benefit plan
of an employer shall not exclude or limit coverage
for a preexisting condition for a covered individual
for a period beyond 12 months following the effec-
tive date of the individual’s coverage.
(2) RESTRICTIONS
ON
DEFINITION
OF
PRE-
EXISTING CONDITION.—For purposes of paragraph
(1), such a plan shall not define a preexisting condi-
tion more restrictively than the following:
(A) A condition that would have caused an
ordinarily prudent person to seek medical ad-
vice, diagnosis, care, or treatment during the 6
months immediately preceding the effective date
of coverage.
(B) A condition for which medical advice,
diagnosis, care, or treatment was recommended
or received during the 6 months immediately
preceding the effective date of coverage.
(C) A pregnancy existing on the effective
date of coverage.
(b) LIMITATIONS ON RIDERS.—
(1) IN GENERAL.—Except as provided in para-
graph (2), an insurer issuing a group health plan
may not modify the plan with respect to an eligible
individual, eligible employee, or dependent.
(2) RELATION TO PREEXISTING CONDITION EX-
CLUSION PERIOD.—
(A) IN GENERAL.—To the extent that a
preexisting condition limitation applies, an in-
surer may restrict or exclude coverage or bene-
fits for a specific condition for a maximum pe-
riod of 12 months from the effective date of
coverage of an eligible individual by way of
rider or endorsement.
(B) NO ADDITION RIDERS.—No other rider
or endorsement may be placed on the group
health plan to restrict further coverage.
(C) COMBINATION.—If both a rider and a
preexisting condition exclusion period are used,
the combined limitation period may not exceed
12 months.
(3) NO
DISCLOSURE
OF
CONDITION
RE-
QUIRED.—A preexisting condition limitation period
may be applied whether or not the specific condition
has been disclosed on the application for coverage
under the individual health benefit plan.
(4) PORTABILITY OF COVERAGE.—The preexist-
ing condition limitation period under any group
health plan with respect to particular services shall
be reduced by one month for each month of continu-
ous coverage the eligible individual had under prior
similar coverage.
(c) LIMITATION ON UNDERWRITING.—
(1) IN GENERAL.—In the case of a previously
covered individual who becomes an employee of an
employer, the group health plan of the employer
shall accept the individual for coverage upon the
date of application for coverage on the basis relating
to the individual’s health status as of the date the
individual applied for employment with the previous
employer.
(2) PREVIOUSLY
COVERED
INDIVIDUAL
DE-
FINED.—For purposes of paragraph (1), the term
‘‘previously covered individual’’ means, with respect
to an employer, an individual who before employ-
ment by the employer was an employee of another
employer and was provided coverage under a group
health plan of (or contributed to by) the previous
employer.
(d) RESTRICTIONS FOR SMALL EMPLOYER HEALTH
PLANS.—If a small employer insurer offers coverage to
a small employer, the small employer insurer shall offer
coverage to all of the eligible employees of the small em-
ployer and their dependents. A small employer insurer
shall not offer coverage to only certain individuals in a
small employer group or to only part of the group, except
in the case of late enrollees.
(e) CONSTRUCTION.—Nothing in this section shall be
construed as requiring an insurer or health benefit plan
to provide benefits greater than those provided to an indi-
vidual insured as a standard risk had the previous cov-
erage remained in force.
(f) DEFINITIONS.—For purposes of this section:
(1) COVERED INDIVIDUAL.—The term ‘‘covered
individual’’ means—
(A) an individual who is (or will be) pro-
vided coverage under a group health plan by
virtue of the performance of services by the in-
dividual for 1 or more persons maintaining the
plan (including as an employee defined in sec-
tion 401(c)(1) of the Internal Revenue Code of
1986), and
(B) the spouse or any dependent child of
such individual.
(2) GROUP HEALTH PLAN.—The term ‘‘group
health plan’’ has the meaning given such term by
section 5000(b)(1) of the Internal Revenue Code of
1986.
SEC. 203. ENFORCEMENT.
(a) IN GENERAL.—Chapter 47 of the Internal Reve-
nue Code of 1986 (relating to taxes on group health plans)
is amended by adding at the end thereof the following new
section:
‘‘SEC. 5000A. ENFORCEMENT OF REQUIREMENTS FOR EM-
PLOYER HEALTH BENEFIT PLANS.
‘‘(a) GENERAL RULE.—There is hereby imposed a
penalty on the failure of an insurer or group health plan
to meet the applicable requirements of section 201 or 202
of the Health Insurance Portability and Guaranteed Re-
newability Act of 1995 with respect to any covered individ-
ual.
‘‘(b) AMOUNT OF PENALTY.—
‘‘(1) IN GENERAL.—The amount of the penalty
imposed by subsection (a) on any failure with re-
spect to—
‘‘(A) a requirement in such section 201
shall be $100 for each day in the noncompli-
ance period with respect to such failure; or
‘‘(B) a requirement in such section 202
with respect to a covered individual shall be
$100 for each day in the noncompliance period
with respect to such failure.
‘‘(2) NONCOMPLIANCE PERIOD.—For purposes
of this section, the term ‘noncompliance period’
means, with respect to any failure, the period—
‘‘(A) beginning on the date such failure
first occurs, and
‘‘(B) ending on the date such failure is
corrected.
‘‘(3) CORRECTION.—A failure of a group health
plan to meet the requirements of section 202 of the
Health Insurance Portability and Guaranteed Re-
newability Act of 1995 with respect to any covered
individual shall be treated as corrected if—
‘‘(A) such failure is retroactively undone to
the extent possible, and
‘‘(B) the covered individual is placed in a
financial position which is as good as such indi-
vidual would have been in had such failure not
occurred.
For purposes of applying subparagraph (B), the cov-
ered individual shall be treated as if the individual
had elected the most favorable coverage in light of
the expenses incurred since the failure first oc-
curred.
‘‘(c) LIMITATIONS ON AMOUNT OF PENALTY.—
‘‘(1) PENALTY NOT TO APPLY WHERE FAILURE
NOT
DISCOVERED
EXERCISING
REASONABLE
DILI-
GENCE.—No penalty shall be imposed by subsection
(a) on any failure during any period for which it is
established to the satisfaction of the Secretary that
none of the persons referred to in subsection (d)
knew, or exercising reasonable diligence would have
known, that such failure existed.
‘‘(2) PENALTY
NOT
TO
APPLY
TO
FAILURES
CORRECTED WITHIN 30 DAYS.—No penalty shall be
imposed by subsection (a) on 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 referred to in subsection (d) 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 penalty imposed by subsection (a) to the ex-
tent that the payment of such penalty would be ex-
cessive relative to the failure involved.
‘‘(d) LIABILITY FOR PENALTY.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the following shall be liable
for the penalty imposed by subsection (a) on a fail-
ure:
‘‘(A) In the case of a group health plan
other than a self-insured group health plan, the
issuer.
‘‘(B)(i) In the case of a self-insured group
health plan other than a multiemployer group
health plan, the employer.
‘‘(ii) In the case of a self-insured group
health multiemployer plan, the plan.
‘‘(C) Each person who is responsible (other
than in a capacity as an employee) for admin-
istering or providing benefits under the group
health plan, health insurance plan, or other
health benefit arrangement (including a self-in-
sured plan) and whose act or failure to act
caused (in whole or in part) the failure.
‘‘(2) SPECIAL RULES FOR PERSONS DESCRIBED
IN PARAGRAPH (1)(C).—A person described in sub-
paragraph (C) (and not in subparagraphs (A) and
(B)) of paragraph (1) shall be liable for the penalty
imposed by subsection (a) on any failure only if such
person assumed (under a legally enforceable written
agreement) responsibility for the performance of the
act to which the failure relates.
‘‘(e) PENALTY TREATED AS TAX.—For purposes of
subtitle F, any penalty imposed by this section shall be
treated as a tax.’’
(b) NONDEDUCTIBILITY OF PENALTY.—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. Enforcement of requirements for employer health
benefit plans.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 204. DEFINITIONS.
In this subtitle:
(1) CASE CHARACTERISTICS.—The term ‘‘case
characteristics’’ means demographic, geographic, and
other relevant characteristics as determined by the
insurer that are considered by the insurer in the de-
termination of premium rates for a small employer,
but not including—
(A) claims experience,
(B) health status, and
(C) duration of coverage since date of
issue.
(2) INSURER.—The term ‘‘insurer’’ means an
entity that provides health insurance in a State.
(3) SMALL EMPLOYER.—The term ‘‘small em-
ployer’’ means a business that, during the most re-
cent calendar year, employed at least 2, but not
more than 25, employees who are eligible for cov-
erage under a health benefit plan on at least 50 per-
cent of that business’ working days.
(4) 
HEALTH
BENEFIT
PLAN.—The 
term
‘‘health benefit plan’’ means any employee welfare
benefit plan (as defined in the Employee Retirement
Income Security Act of 1974) that is insured by an
insurer that provides medical, surgical, or hospital
care or benefits to employees of a small employer
and their dependents and to which the employer con-
tributes 50 percent or more of the single coverage
cost at the time of purchase. Such term does not in-
clude any individual major medical policies and
group insurance that are not designed or adminis-
tered as a health benefit plan to be provided by an
employer for its employees.
(5) INDEX
RATE.—The term ‘‘index rate’’
means, for a class of business as to a small employ-
er’s rating period with similar case characteristics,
the arithmetic average of the applicable base pre-
mium rate and the corresponding highest premium
rate.
(6) CLASS OF BUSINESS.—The term ‘‘class of
business’’ means each separate class of business es-
tablished by an insurer to reflect substantial dif-
ferences in expected claims experience or administra-
SEC. 225. ADMINISTRATION.
A high risk pool in a State shall be administered
through a contract with one or more insurers operating
in the State.
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