I
103D CONGRESS
2D SESSION
H. R. 3955
To increase the availability and continuity of health coverage for employees
and their families, to prevent fraud and abuse in the health care delivery
system, to reform medical malpractice liability standards, to reduce pa-
perwork and simplify administration of health care claims, to promote
preventive care, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 3, 1994
Mr. ROWLAND (for himself, Mr. BILIRAKIS, Mr. SPRATT, Mr. BLILEY, Mr.
TAUZIN, Mr. DUNCAN, Mr. PARKER, Mr. HASTERT, Mr. MONTGOMERY,
Mr. BARTON of Texas, Mr. PETE GEREN of Texas, Mr. UPTON, Mr. SISI-
SKY, Mr. MOORHEAD, Mr. TANNER, Mrs. VUCANOVICH, Mr. LAUGHLIN,
Mr. GOSS, Mr. PICKETT, Mr. CRAPO, Mr. LANCASTER, Mr. GOODLATTE,
Mr. HAYES, Mr. ZELIFF, Mrs. LLOYD, Mr. LINDER, Mr. BROWDER, Mr.
CASTLE, Mr. ORTON, and Mr. YOUNG of Florida) introduced the follow-
ing bill; which was referred jointly to the Committees on Energy and
Commerce, Education and Labor, the Judiciary, and Ways and Means
APRIL 5, 1994
Additional sponsors: Mr. BREWSTER, Mr. LEWIS of Florida, Mr. DARDEN, Mr.
FIELDS of Texas, Mr. NEAL of North Carolina, Mr. GREENWOOD, Mr.
MORAN, Mr. KYL, Mr. CLEMENT, Mr. EWING, Mr. GLICKMAN, Mr.
BALLENGER, Mr. STENHOLM, and Mr. CANADY
JULY 20, 1994
Additional sponsors: Mr. BISHOP, Mr. BUNNING, Mr. PENNY, Mr. PAXON, Mr.
HEFNER, Mr. LIVINGSTON, Mr. BARLOW, Mr. BOEHNER, Mr. VALEN-
TINE, Mr. COLLINS of Georgia, Mr. CRAMER, Mr. THOMAS of Wyoming,
Mr. JOHNSON of Georgia, Mr. SUNDQUIST, Mr. PETERSON of Minnesota,
Mr. STEARNS, Mr. DEAL, Mr. HERGER, Mr. MURPHY, Mr. HUTCHINSON,
Mr. HUTTO, Mr. GILLMOR, Mr. ORTIZ, Mrs. FOWLER, Mr. JACOBS, Mr.
GILCHREST, Mr. BAESLER, and Mr. DICKEY
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A BILL
To increase the availability and continuity of health coverage
for employees and their families, to prevent fraud and
abuse in the health care delivery system, to reform medi-
cal malpractice liability standards, to reduce paperwork
and simplify administration of health care claims, to
promote preventive care, 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 Reform Consensus Act of 1994’’.
(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; table of contents.
TITLE I—INSURANCE REFORM
Subtitle A—Increased Availability and Continuity of Health Coverage for
Employees and Their Families
PART 1—REQUIRED COVERAGE OPTIONS FOR ELIGIBLE EMPLOYEES,
SPOUSES, AND DEPENDENTS
Sec. 1001. Requiring employers to offer option of coverage for eligible individ-
uals.
PART 2—ASSURING PORTABILITY OF HEALTH COVERAGE
Sec. 1011. Limitation on preexisting condition clauses.
Sec. 1012. Assurance of continuity of coverage through previous satisfaction of
preexisting condition requirement.
Sec. 1013. Requirements relating to renewability generally.
PART 3—ENFORCEMENT; EFFECTIVE DATES; DEFINITIONS
Sec. 1021. Enforcement.
Sec. 1022. Effective dates.
Sec. 1023. Definitions and special rules.
Subtitle B—Reform of Health Insurance Marketplace for Small Business
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Sec. 1101. Requirement for insurers to offer standard and catastrophic plans.
Sec. 1102. Health plan, standard plan, and catastrophic plan defined.
Sec. 1103. Establishment of health plan standards.
Sec. 1104. Limits on premiums and miscellaneous consumer protections.
Sec. 1105. Limitation on variation in annual premium increases among covered
small employers.
Sec. 1106. Establishment of reinsurance or allocation of risk mechanisms for
high risk individuals in marketplace for small business.
Sec. 1107. Definitions.
Sec. 1108. Office of Private Health Care Coverage; annual reports on evalua-
tion of health care coverage reform.
Sec. 1109. Research and demonstration projects; development of a health risk
pooling model.
Subtitle C—Preemption
PART 1—SCOPE OF STATE REGULATION
Sec. 1201. Prohibition of State benefit mandates for group health plans.
Sec. 1202. Prohibition of provisions prohibiting employer groups from purchas-
ing health insurance.
Sec. 1203. Restrictions on managed care.
Sec. 1204. Definitions.
PART 2—MULTIPLE EMPLOYER HEALTH BENEFITS PROTECTIONS
Sec. 1211. Limited exemption under preemption rules for multiple employer
plans providing health benefits subject to certain Federal
standards.
‘‘Part 7—Multiple Employer Health Plans
‘‘Sec. 701. Definitions.
‘‘Sec. 702. Exempted multiple employer plans providing benefits in the
form of medical care relieved of certain restrictions on
preemption of State law and treated as employee welfare
benefit plans.
‘‘Sec. 703. Exemption procedure.
‘‘Sec. 704. Eligibility requirements.
‘‘Sec. 705. Additional requirements applicable to exempted arrangements.
‘‘Sec. 706. Disclosure to participating employers by arrangements provid-
ing medical care.
‘‘Sec. 707. Maintenance of reserves.
‘‘Sec. 708. Corrective actions.
‘‘Sec. 709. Expiration, suspension, or revocation of exemption.
‘‘Sec. 710. Review of actions of the secretary.’’
Sec. 1212. Clarification of scope of preemption rules.
Sec. 1213. Clarification of treatment of single employer arrangements.
Sec. 1214. Clarification of treatment of certain collectively bargained arrange-
ments.
Sec. 1215. Employee leasing health care arrangements.
Sec. 1216. Enforcement provisions relating to multiple employer welfare ar-
rangements and employee leasing health care arrangements.
Sec. 1217. Filing requirements for health benefit multiple employer welfare ar-
rangements.
Sec. 1218. Cooperation between Federal and State authorities.
Sec. 1219. Effective date; transitional rules.
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PART 3—ENCOURAGEMENT OF MULTIPLE EMPLOYER ARRANGEMENTS
PROVIDING BASIC HEALTH BENEFITS
Sec. 1221. Eliminating commonality of interest or geographic location require-
ment for tax exempt trust status.
PART 4—SIMPLIFYING FILING OF REPORTS FOR EMPLOYERS COVERED
UNDER INSURED MULTIPLE EMPLOYER HEALTH PLANS
Sec. 1231. Single annual filing for all employers covered under an insured mul-
tiple employer health plan.
PART 5—COMPLIANCE WITH COVERAGE OPTION REQUIREMENTS
Sec. 1241. Compliance with coverage requirements through multiple employer
health arrangements.
Subtitle D—Health Deduction Fairness
Sec. 1301. Permanent extension and increase in health insurance tax deduction
for self-employed individuals.
TITLE II—PREVENTING FRAUD AND ABUSE
Subtitle A—Establishment of All-Payer Health Care Fraud and Abuse
Control Program
Sec. 2001. All-payer health care fraud and abuse control program.
Sec. 2002. Authorization of additional appropriations for investigators and
other personnel.
Sec. 2003. Establishment of Anti-fraud and Abuse Trust Fund.
Subtitle B—Revisions to Current Sanctions for Fraud and Abuse
Sec. 2101. Mandatory exclusion from participation in medicare and State
health care programs.
Sec. 2102. Establishment of minimum period of exclusion for certain individ-
uals and entities subject to permissive exclusion from medicare
and State health care programs.
Sec. 2103. Civil monetary penalties.
Sec. 2104. Intermediate sanctions for medicare health maintenance organiza-
tions.
Sec. 2105. Effective date.
Subtitle C—Administrative and Miscellaneous Provisions
Sec. 2201. Establishment of the health care fraud and abuse data collection
program.
Sec. 2202. Quarterly publication of final adverse actions taken.
Subtitle D—Amendments to Criminal Law
Sec. 2301. Penalties for health care fraud.
Sec. 2302. Rewards for information leading to prosecution and conviction.
TITLE III—MALPRACTICE REFORM
Subtitle A—Findings; Purpose; Definitions
Sec. 3001. Findings; purpose.
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Sec. 3002. Definitions.
Subtitle B—Uniform Standards for Malpractice Claims
Sec. 3101. Applicability.
Sec. 3102. Requirement for initial resolution of action through alternative dis-
pute resolution.
Sec. 3103. Procedural requirements for filing of actions.
Sec. 3104. Treatment of noneconomic and punitive damages.
Sec. 3105. Periodic payments for future losses.
Sec. 3106. Treatment of attorney’s fees and other costs.
Sec. 3107. Uniform statute of limitations.
Sec. 3108. Special provision for certain obstetric services.
Sec. 3109. Application of medical practice parameters in malpractice liability
actions.
Sec. 3110. Jurisdiction of Federal courts.
Sec. 3111. Preemption.
Subtitle C—Requirements for State Alternative Dispute Resolution Systems
(ADR)
Sec. 3201. Basic requirements.
Sec. 3202. Alternative Dispute Resolution Advisory Board.
Sec. 3203. Certification of State systems; applicability of alternative Federal
system.
Sec. 3204. Reports on implementation and effectiveness of alternative dispute
resolution systems.
TITLE IV—PAPERWORK REDUCTION AND ADMINISTRATIVE
SIMPLIFICATION
Sec. 4001. Preemption of State quill pen laws.
Sec. 4002. Confidentiality of electronic health care information.
Sec. 4003. Standardization for the electronic receipt and transmission of health
plan information.
Sec. 4004. Use of uniform health claims forms and identification numbers.
Sec. 4005. Priority among insurers.
Sec. 4006. Furnishing of information among health plans.
Sec. 4007. Definitions.
TITLE V—EXPANDING ACCESS/PREVENTIVE CARE
Subtitle A—Expanding Access Through Community Health Authorities
Sec. 5001. Community health authorities demonstration projects.
Sec. 5002. Health center program amendments.
Subtitle B—Expansion of Public Health Programs on Preventive Health
Sec. 5101. Immunizations against vaccine-preventable diseases.
Sec. 5102. Prevention, control, and elimination of tuberculosis.
Sec. 5103. Lead poisoning prevention.–
Sec. 5104. Preventive health measures with respect to breast and cervical can-
cers.
Sec. 5105. Office of Disease Prevention and Health Promotion.
Sec. 5106. Preventive health and health services block grant.
TITLE VI—ANTITRUST PROVISIONS
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Sec. 6001. Publication of antitrust guidelines on activities of health plans.
Sec. 6002. Issuance of health care certificates of public advantage.
TITLE VII—PREFUNDING GOVERNMENT HEALTH BENEFITS FOR
CERTAIN ANNUITANTS
Sec. 7001. Requirement that certain agencies prefund government health bene-
fits contributions for their annuitants.
TITLE I—INSURANCE REFORM
Subtitle A—Increased Availability
and Continuity of Health Cov-
erage for Employees and Their
Families
PART 1—REQUIRED COVERAGE OPTIONS
FOR ELIGIBLE EMPLOYEES, SPOUSES,
AND DEPENDENTS
SEC. 1001. REQUIRING EMPLOYERS TO OFFER OPTION OF
COVERAGE FOR ELIGIBLE INDIVIDUALS.
(a) IN GENERAL.—Each employer shall make avail-
able with respect to each eligible employee a group health
plan under which—
(1) coverage of each eligible individual with re-
spect to such an eligible employee may be elected on
an annual basis for each plan year,
(2) subject to subsection (d), coverage is pro-
vided for at least the required coverage specified in
subsection (c), and
(3) each eligible employee electing such cov-
erage may elect to have any premiums owed by the
employee collected through payroll deduction.
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An employer is not required under this subsection to make
any contribution to the cost of coverage under such a plan.
(b) SPECIAL RULES.—
(1) EXCLUSION OF NEW EMPLOYERS AND CER-
TAIN SMALL EMPLOYERS.—Subsection (a) shall not
apply to any employer for any plan year if, as of the
beginning of such plan year—
(A) such employer (including any prede-
cessor thereof) has been an employer for less
than 2 years,
(B) such employer has no more than 2 eli-
gible employees, or
(C) no more than 2 eligible employees are
not covered under any group health plan.
(2) EXCLUSION OF FAMILY MEMBERS.—Under
such procedures as the Secretary may prescribe, any
relative of an employer may be, at the election of the
employer, excluded from consideration as an eligible
employee for purposes of applying the requirements
of subsection (a). In the case of an employer that is
not an individual, an employee who is a relative of
a key employee (as defined in section 416(i)(1) of
the Internal Revenue Code of 1986) of the employer
may, at the election of the key employee, be consid-
ered a relative excludable under this paragraph.
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(3) OPTIONAL APPLICATION OF WAITING PE-
RIOD.—A group health plan shall not be treated as
failing to meet the requirements of subsection (a)
solely because a period of service by an eligible em-
ployee of not more than 60 days is required under
the plan for coverage under the plan of eligible indi-
viduals with respect to such employee.
(c) REQUIRED COVERAGE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the required coverage specified in this
subsection is standard coverage (consistent with sec-
tion 1102(b)).
(2) SPECIAL TREATMENT OF SMALL EMPLOY-
ERS
NOT
CONTRIBUTING
TO
EMPLOYEE
COV-
ERAGE.—In the case of a small employer (as defined
in section 1107(9)) that has not contributed during
the previous plan year to the cost of coverage for
any eligible employee under any group health plan,
the required coverage specified in this subsection for
the plan year (with respect to each eligible employee)
is—
(A) coverage under a standard plan, and
(B) coverage under a catastrophic plan,
as such terms are defined in section 1102(a)(2).
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(3) CONSTRUCTION.—Nothing in this section
shall be construed as limiting the group health
plans, or types of coverage under such a plan, that
an employer may offer to an employee.
(d) 5-YEAR TRANSITION
FOR EXISTING GROUP
HEALTH PLANS.—
(1) IN
GENERAL.—The requirement of sub-
section (a)(2), and section 1002(c)(2), shall not
apply to a group health plan for a plan year if—
(A) the group health plan is in effect in
the plan year in which September 1, 1993, oc-
curs, and
(B) the employer makes (or offers to
make), in such plan year and the plan year in-
volved, a contribution to the plan on behalf of
each employee who is eligible to participate in
the plan.
(2) SUNSET.—Paragraph (1) shall only apply to
a group health plan for each of the 5 plan years be-
ginning with the first plan year to which the require-
ment of subsection (a) applies.
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PART 2—ASSURING PORTABILITY OF
HEALTH COVERAGE
SEC. 
1011. 
LIMITATION 
ON 
PREEXISTING 
CONDITION
CLAUSES.
(a) IN GENERAL.—A group health plan may not im-
pose (and an insurer may not require an employer under
a group health plan to impose through a waiting period
for coverage under a plan or similar requirement) a limita-
tion or exclusion of benefits relating to treatment of a con-
dition based on the fact that the condition preexisted the
effective date of the plan with respect to an individual if—
(1) the condition relates to a condition that was
not diagnosed or treated within 3 months before the
date of coverage under the plan;
(2) the limitation or exclusion extends over
more than 6 months after the date of coverage
under the plan;
(3) the limitation or exclusion applies to an in-
dividual who, as of the date of birth, was covered
under the plan; or
(4) the limitation or exclusion relates to preg-
nancy.
(b) TREATMENT OF WAITING PERIODS.—In the case
of an individual who is eligible for coverage under a plan
but for a waiting period imposed by the employer, in ap-
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plying paragraphs (1) and (2) of subsection (a), the indi-
vidual shall be treated as having been covered under the
plan as of the earliest date of the beginning of the waiting
period.
SEC. 1012. ASSURANCE OF CONTINUITY OF COVERAGE
THROUGH PREVIOUS SATISFACTION OF PRE-
EXISTING CONDITION REQUIREMENT.
(a) IN GENERAL.—Each group health plan shall
waive any period applicable to a preexisting condition for
similar benefits with respect to an individual to the extent
that the individual, prior to the date of such individual’s
enrollment in such plan, was covered for the condition
under any other health plan that was in effect before such
date.
(b) CONTINUOUS COVERAGE REQUIRED.—
(1) IN
GENERAL.—Subsection (a) shall no
longer apply if there is a continuous period of more
than 60 days (or, in the case of an individual de-
scribed in paragraph (3), 6 months) on which the in-
dividual was not covered under a group health plan.
(2) TREATMENT OF WAITING PERIODS.—In ap-
plying paragraph (1), any waiting period imposed by
an employer before an employee is eligible to be cov-
ered under a plan shall be treated as a period in
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which the employee was covered under a group
health plan.
(3) JOB TERMINATION.—An individual is de-
scribed in this paragraph if the individual loses cov-
erage under a group health plan due to termination
of employment.
(4) EXCLUSION
OF
CASH-ONLY
AND
DREAD
DISEASE
PLANS.—In this subsection, the term
‘‘group health plan’’ does not include any group
health plan which is offered primarily to provide—
(A) coverage for a specified disease or ill-
ness, or
(B) a hospital or fixed indemnity policy,
unless the Secretary determines that such a
plan provides sufficiently comprehensive cov-
erage of a benefit so that it should be treated
as a group health plan under this subsection.
SEC. 1013. REQUIREMENTS RELATING TO RENEWABILITY
GENERALLY.
(a) MULTIEMPLOYER PLANS AND EXEMPTED MUL-
TIPLE EMPLOYER HEALTH PLANS.—A multiemployer
plan and an exempted multiple employer health plan may
not cancel coverage or deny renewal of coverage under
such a plan with respect to an employer other than—
(1) for nonpayment of contributions,
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(2) for fraud or other misrepresentation by the
employer,
(3) for noncompliance with plan provisions,
(4) for misuse of a provider network provision,
or
(5) because the plan is ceasing to provide any
coverage in a geographic area.
(b) INSURERS.—
(1) IN GENERAL.—An insurer may not cancel a
health insurance plan or deny renewal of coverage
under such a plan other than—
(A) for nonpayment of premiums,
(B) for fraud or other misrepresentation
by the insured,
(C) for noncompliance with plan provi-
sions,
(D) in the case of a plan issued to a small
employer, for failure to maintain minimum par-
ticipation rates (consistent with paragraph (3)),
(E) for misuse of a provider network provi-
sion, or
(F) because the insurer is ceasing to pro-
vide any health insurance plan in a State, or,
in the case of a health maintenance organiza-
tion, in a geographic area.
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(2) LIMITATION ON MARKET REENTRY.—If an
insurer terminates the offering of health insurance
plans in an area, the insurer may not offer such a
health insurance plan to any employer in the area
until 5 years after the date of the termination.
(3) MINIMUM PARTICIPATION RATES.—An in-
surer may require, with respect to a health insur-
ance plan issued to a small employer, that a mini-
mum percentage of eligible employees who do not
otherwise have health insurance are enrolled in such
plan if such percentage is applied uniformly to all
plans offered to employers of comparable size.
PART 3—ENFORCEMENT; EFFECTIVE
DATES; DEFINITIONS
SEC. 1021. ENFORCEMENT.
(a) ENFORCEMENT BY DEPARTMENT OF LABOR FOR
EMPLOYERS AND GROUP HEALTH PLANS.—
(1) IN GENERAL.—For purposes of part 5 of
subtitle B of title I of the Employee Retirement In-
come Security Act of 1974, the provisions of parts
1 and 2 of this subtitle shall be deemed to be provi-
sions of title I of such Act irrespective of exclusions
under section 4(b) of such Act.
(2) REGULATORY AUTHORITY.—With respect to
the regulatory authority of the Secretary of Labor
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under this subtitle pursuant to subsection (a), sec-
tion 505 of the Employee Retirement Income Secu-
rity Act of 1974 (29 U.S.C. 1135) shall apply.
(b) ENFORCEMENT THROUGH CIVIL MONEY PEN-
ALTIES FOR INSURERS.—
(1) IN GENERAL.—Subject to paragraph (2), an
insurer that fails to comply with the requirements
applicable to the insurer under part 2 of this subtitle
is subject to a civil money penalty under this sub-
section.
(2) EXCEPTION.—Paragraph (1) shall not
apply to a failure by an insurer in a State if the Sec-
retary determines that the State has in effect a reg-
ulatory enforcement mechanism that provides ade-
quate sanctions with respect to such a failure by
such an insurer.
(3) AMOUNT OF PENALTY.—
(A) IN
GENERAL.—Subject to subpara-
graph (B), the amount of the civil money pen-
alty imposed under this subsection shall be
$100 for each day during which such failure
persists for each individual to which such fail-
ure relates.
(B) LIMITATION.—The amount of the pen-
alty imposed by this subsection for an insurer
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with respect to a health insurance plan shall
not exceed 25 percent of the amounts received
under the plan for coverage during the period
such failure persists.
(4) EXCEPTIONS.—
(A) CORRECTIONS WITHIN 30 DAYS.—No
civil money penalty be imposed under this sub-
section by reason of any failure if—
(i) such failure was due to reasonable
cause and not to willful neglect, and
(ii) such failure is corrected within the
30-day period beginning on the earliest
date the insurer knew, or exercising rea-
sonable diligence would have known, that
such failure existed.
(B) 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 this
subsection to the extent that payment of such
penalty would be excessive relative to the failure
involved.
(5) PROCEDURES.—The Secretary by regulation
shall provide for procedures for the imposition of
civil money penalties under this subsection. Such
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procedures shall assure written notice and oppor-
tunity for a determination to be made on the record
after a hearing at which the insurer is entitled to be
represented by counsel, to present witnesses, and to
cross-examine witnesses against the insurer.The pro-
visions of subsections (e), (f), (j), and (k) of section
1128A of the Social Security Act shall apply to de-
terminations and civil money penalties under this
section in the same manner as they apply to deter-
minations and civil money penalties under such
section.
SEC. 1022. EFFECTIVE DATES.
(a) PART 1.—The requirements of part 1 shall apply
to plans years beginning after December 31, 1996.
(b) PART 2.—The requirements of part 2 with re-
spect to—
(1) group health plans and employers shall
apply to plans years beginning after December 31,
1996, and
(2) insurers shall take effect on January 1,
1997.
SEC. 1023. DEFINITIONS AND SPECIAL RULES.
(a) IN GENERAL.—For purposes of this subtitle:
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(1) 
DEPENDENT.—The 
term 
‘‘dependent’’
means, with respect to any individual, any person
who is—
(A) the spouse or surviving spouse of the
individual, or
(B) under regulations of the Secretary, a
child (including an adopted child) of such indi-
vidual and—
(i) under 19 years of age, or
(ii) under 25 years of age and a full-
time student.
(2) ELIGIBLE EMPLOYEE.—The term ‘‘eligible
employee’’ means, with respect to an employer, an
employee who normally performs on a monthly basis
at least 30 hours of service per week for that
employer.
(3) ELIGIBLE INDIVIDUAL.—The term ‘‘eligible
individual’’ means, with respect to an eligible em-
ployee, such employee, and any dependent of such
employee.
(4) EMPLOYER.—The term ‘‘employer’’ shall
have the meaning applicable under section 3(5) of
the Employee Retirement Income Security Act of
1974.
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(5) EXEMPTED MULTIPLE EMPLOYER HEALTH
PLAN.—The term ‘‘exempted multiple employer
health plan’’ means a multiple employer welfare ar-
rangement treated as an employee welfare benefit
plan by reason of an exemption under part 7 of sub-
title B of title I of the Employee Retirement Income
Security Act of 1974 (as added by part 2 of subtitle
C of this title).
(6) GROUP
HEALTH
PLAN; PLAN.—(A) The
term ‘‘group health plan’’ means an employee wel-
fare benefit plan providing medical care (as defined
in section 213(d) of the Internal Revenue Code of
1986) to participants or beneficiaries directly or
through insurance, reimbursement, or otherwise, but
does not include any type of coverage excluded from
the definition of a health insurance plan under sec-
tion 1107(4)(B).
(B) The term ‘‘plan’’ means, unless used with
a modifying term or the context specifically indicates
otherwise, a group health plan (including any such
plan which is a multiemployer plan), an exempted
multiple employer health plan, or an insured mul-
tiple employer health plan.
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(7) HEALTH
INSURANCE
PLAN.—The term
‘‘health insurance plan’’ has the meaning given such
term in section 1107(4).
(8) INSURED
MULTIPLE
EMPLOYER
HEALTH
PLAN.—The term ‘‘insured multiple employer health
plan’’ has the meaning given such term in section
701(11) of Employee Retirement Income Security
Act of 1974 (as added by section 1211 of this title).
(9) INSURER.—The term ‘‘insurer’’ has the
meaning given such term in section 1107(6).
(b) SPECIAL RULES.—
(1) GENERAL RULE.—Except as otherwise pro-
vided in this subtitle, for definitions of terms used
in this subtitle, see section 3 of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C.
1002).
(2) SECRETARY.—Except with respect to ref-
erences specifically to the Secretary of Labor, the
term ‘‘Secretary’’ means the Secretary of Health
and Human Services.
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Subtitle B—Reform of Health In-
surance Marketplace for Small
Business
SEC. 1101. REQUIREMENT FOR INSURERS TO OFFER
STANDARD AND CATASTROPHIC PLANS.
(a) REQUIREMENT.—
(1) IN GENERAL.—Each insurer (as defined in
section 1107(6)) that makes available any health in-
surance plan (as defined in section 1107(4)) to a
small employer (as defined in section 1107(9)) in a
State shall make available to each small employer in
the State—
(A) a standard plan (as defined in section
1102(a)(2)), and
(B) a catastrophic plan (as defined in such
section).
(2) SPECIAL RULE FOR HEALTH MAINTENANCE
ORGANIZATIONS.—The requirements of paragraph
(1)(B) shall not apply with respect to a health insur-
ance plan that—
(A) is a federally qualified health mainte-
nance organization (as defined in section
1301(a) of the Public Health Service Act), or
(B) is not such an organization but is rec-
ognized under State law as a health mainte-
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nance organization or managed care organiza-
tion or a similar organization regulated under
State law for solvency.
(3) EXCEPTION IF STATE PROVIDES FOR GUAR-
ANTEED AVAILABILITY (RATHER THAN GUARANTEED
ISSUE).—Paragraph (1) shall not apply to an insurer
in a State if the State is providing—
(A) access to each small employer in the
State to a standard plan and to a catastrophic
plan, and
(B) a risk allocation mechanism described
in subsection (c).
(b) GUARANTEED ISSUE OF STANDARD AND CATA-
STROPHIC PLANS.—Subject to subsection (c)—
(1) IN GENERAL.—Subject to paragraph (2),
each insurer that offers a standard or catastrophic
plan to a small employer in a State—
(A) must accept every small employer in
the State that applies for coverage under the
plan; and
(B) must accept for enrollment under the
plan every eligible individual (as defined in
paragraph (4)) who applies for enrollment on a
timely basis (consistent with paragraph (3))
and may not place any restriction on the eligi-
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bility of an individual to enroll so long as such
individual is an eligible individual.
(2) SPECIAL
RULES
FOR
HEALTH
MAINTE-
NANCE ORGANIZATIONS.—In the case of a plan of-
fered by a health maintenance organization, the plan
may—
(A) limit the employers that may apply for
coverage to those with eligible individuals resid-
ing in the service area of the plan;
(B) limit the individuals who may be en-
rolled under the plan to those who reside in the
service area of the plan; and
(C) within the service area of the plan,
deny coverage to such employers if the plan
demonstrates that—
(i) it will not have the capacity to de-
liver services adequately to enrollees of any
additional groups because of its obligations
to existing group contract holders and en-
rollees, and
(ii) it is applying this subparagraph
uniformly to all employers without regard
to the health status, claims experience, or
duration of coverage of those employers
and their employees.
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In this paragraph, the term ‘‘health maintenance or-
ganization’’ includes an organization recognized
under State law as a health maintenance organiza-
tion or managed care organization or a similar orga-
nization regulated under State law for solvency.
(3) 
CLARIFICATION
OF
TIMELY
ENROLL-
MENT.—
(A) GENERAL INITIAL ENROLLMENT RE-
QUIREMENT.—Except as provided in this para-
graph, a standard or catastrophic plan may
consider enrollment of an eligible individual not
to be timely if the eligible employee or depend-
ent fails to enroll in the plan during an initial
enrollment period, if such period is at least 30
days long.
(B) ENROLLMENT DUE TO LOSS OF PRE-
VIOUS EMPLOYER COVERAGE.—Enrollment in a
standard or catastrophic plan is considered to
be timely in the case of an eligible individual
who—
(i) was covered under another health
insurance plan or group health plan at the
time of the individual’s initial enrollment
period,
•HR 3955 SC2
(ii) stated at the time of the initial en-
rollment period that coverage under a
health insurance plan or a group health
plan was the reason for declining enroll-
ment,
(iii) lost coverage under another
health insurance plan or group health plan
(as a result of the termination of the other
plan’s coverage, termination or reduction
of employment, or other reason), and
(iv) requests enrollment within 30
days after termination of such coverage.
(C) REQUIREMENT APPLIES DURING OPEN
ENROLLMENT PERIODS.—Each standard or cat-
astrophic plan shall provide for at least one pe-
riod (of not less than 30 days) each year during
which enrollment under the plan shall be con-
sidered to be timely.
(D) EXCEPTION
FOR
COURT
ORDERS.—
Enrollment of a spouse or minor child of an
employee shall be considered to be timely if—
(i) a court has ordered that coverage
be provided for the spouse or child under
a covered employee’s group health plan,
and
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(ii) a request for enrollment is made
within 30 days after the date the court is-
sues the order.
(E) ENROLLMENT OF SPOUSES AND DE-
PENDENTS.—
(i) IN GENERAL.—Enrollment of the
spouse (including a child of the spouse)
and any dependent child of an eligible em-
ployee shall be considered to be timely if a
request for enrollment is made either—
(I) within 30 days of the date of
the marriage or of the date of the
birth or adoption of a child, if family
coverage is available as of such date,
or
(II) within 30 days of the date
family coverage is first made avail-
able.
(ii) COVERAGE.—If a plan makes
family coverage available and enrollment is
made under the plan on a timely basis
under clause (i)(I), the coverage shall be-
come effective not later than the first day
of the first month beginning after the date
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of the marriage or the date of birth or
adoption of the child (as the case may be).
(4) DEFINITIONS.—In this subsection, the
terms ‘‘eligible individual’’ and ‘‘group health plan’’
have the meanings given such terms in section
1023(a).
(c) STATE OPTION OF GUARANTEED AVAILABILITY
THROUGH
ALLOCATION
OF
RISK
(RATHER
THAN
THROUGH GUARANTEED ISSUE).—The requirements of
subsection (b) shall not apply in a State if the State has
provided (in accordance with standards established under
this subtitle) a mechanism under which—
(1) each insurer offering a health insurance
plan to a small employer in the State must partici-
pate in a program for assigning high-risk small em-
ployer groups (or individuals within such a group)
among some or all such insurers, and
(2) the insurers to which such high-risk small
employer groups or individuals are so assigned com-
ply with the requirements of subsection (b).
SEC. 1102. HEALTH PLAN, STANDARD PLAN, AND CATA-
STROPHIC PLAN DEFINED.
(a) HEALTH PLAN DEFINED.—In this subtitle:
(1) IN
GENERAL.—The term ‘‘health plan’’
means a health insurance plan (whether a managed-
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care plan, indemnity plan, or other plan) that meets
the following requirements:
(A) The plan—
(i) is designed to provide standard
coverage (consistent with subsection (b) or
(d)) with substantial cost-sharing, or
(ii) is designed to provide only cata-
strophic coverage (consistent with sub-
section (c) or (d)).
(B) The plan meets the applicable require-
ments of section 1101(b) (relating to guaran-
teed issue).
(C) The plan meets the consumer protec-
tion 
standards 
established 
under 
section
1103(a)(1)(B).
(D) The plan meets any participation re-
quirements with respect to an applicable rein-
surance or allocation of risk mechanism estab-
lished by a State or the Secretary under section
1106.
(2) STANDARD
AND
CATASTROPHIC
PLANS.—
The terms ‘‘standard plan’’ and ‘‘catastrophic plan’’
mean a health plan that provides for at least stand-
ard coverage (referred to in paragraph (1)(A)(i)) or
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for only catastrophic coverage (referred to in para-
graph (1)(A)(ii)), respectively.
(b) STANDARD BENEFIT PACKAGE.—
(1) IN
GENERAL.—Subject to the succeeding
provisions of this subsection, subsection (d) (permit-
ting variation of benefits among actuarially equiva-
lent plans), and subsection (e) (permitting plans not
to cover specific treatments, procedures, or classes),
a health insurance plan is considered to provide
standard coverage consistent with this subsection if
the benefits are limited to payment for—
(A) inpatient and outpatient hospital care,
except that treatment for a mental disorder is
subject to the special limitations described in
subparagraph (E)(i);
(B) inpatient and outpatient physicians’
services, except that psychotherapy or counsel-
ing for a mental disorder is subject to the spe-
cial limitations described in subparagraph
(E)(ii);
(C) diagnostic tests;
(D) preventive services limited to—
(i) prenatal care and well-baby care
provided to children who are 1 year of age
or younger;
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(ii) well child care;
(iii) Pap smears;
(iv) mammograms; and
(v) colorectal screening services; and
(E)(i) inpatient hospital care for a mental
disorder for not less than 45 days per year, ex-
cept that days of partial hospitalization or resi-
dential care may be substituted for days of in-
patient care; and
(ii) outpatient psychotherapy and counsel-
ing for a mental disorder for not less than 20
visits per year provided by a provider who is
acting within the scope of State law and who—
(I) is a physician; or
(II) is a duly licensed or certified clin-
ical psychologist or a duly licensed or cer-
tified clinical social worker, a duly licensed
or certified equivalent mental health pro-
fessional, or a clinic or center providing
duly licensed or certified mental health
services.
(2) AMOUNT, SCOPE, AND DURATION OF CER-
TAIN BENEFITS.—
(A) IN GENERAL.—Except as provided in
subparagraph (B) and in paragraph (3), a
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health insurance plan providing for standard
coverage shall place no limits on the amount,
scope, or duration of benefits described in sub-
paragraphs (A) through (C) of paragraph (1).
(B) PREVENTIVE SERVICES.—A health in-
surance plan providing for standard coverage
may limit the amount, scope, and duration of
preventive services described in subparagraph
(D) of paragraph (1) provided that the amount,
scope, and duration of such services are reason-
ably consistent with recommendations and peri-
odicity schedules developed by appropriate med-
ical experts.
(3) EXCEPTIONS.—Paragraph (1) shall not be
construed as requiring a plan to include payment
for—
(A) items and services that are not essen-
tial and medically necessary;
(B) routine physical examinations or pre-
ventive care (other than care and services de-
scribed in subparagraph (D) of paragraph (1));
or
(C) experimental services and procedures.
(4) LIMITATION ON DEDUCTIBLES.—
•HR 3955 SC2
aged care plan may require payments in excess
of the amount permitted under subparagraph
(A) in the case of items and services furnished
by nonparticipating providers.
(C) EXCEPTION FOR IMPROPER UTILIZA-
TION.—A health insurance plan may provide for
copayment or coinsurance in excess of the
amount permitted under subparagraph (A) for
any item or service that an individual obtains
without complying with procedures established
by a managed care plan or under a utilization
program to ensure the efficient and appropriate
utilization of covered services.
(D) EXCEPTIONS
FOR
MENTAL
HEALTH
CARE.—In the case of care described in para-
graph (1)(E)(ii), a health insurance plan shall
not require payment of any copayment or coin-
surance for an item or service for which cov-
erage is required by this subtitle in an amount
that exceeds 50 percent of the amount payable
for the item or service.
(6) LIMIT ON OUT-OF-POCKET EXPENSES.—
(A) 
OUT-OF-POCKET
EXPENSES
DE-
FINED.—As used in this section, the term ‘‘out-
of-pocket expenses’’ means, with respect to an
•HR 3955 SC2
employee in a plan year, amounts payable under
the plan as deductibles and coinsurance with re-
spect to items and services provided under the
plan and furnished in the plan year on behalf
of the employee and family covered under the
plan.
(B) OUT-OF-POCKET LIMIT DEFINED.—As
used in this section and except as provided in
subparagraph (C), the term ‘‘out-of-pocket
limit’’ means for a plan year beginning in—
(i) a calendar year prior to 1996,
$3,400; or
(ii) for a subsequent calendar year,
the limit specified in this subparagraph for
the previous calendar year increased by the
percentage increase in the consumer price
index for all urban consumers (United
States city average, as published by the
Bureau of Labor Statistics) for the 12-
month period ending on September 30 of
the preceding calendar year.
If the limit computed under clause (ii) is not a
multiple of $10, it shall be rounded to the next
highest multiple of $10.
•HR 3955 SC2
(C) 
ALTERNATIVE
OUT-OF-POCKET
LIMIT.—A health insurance plan may provide
for an out-of-pocket limit other than that de-
fined in subparagraph (B) if, for a plan year
with respect to an employee and the family of
the employee, the limit does not exceed (on an
annualized basis) 10 percent of the total wages
paid to the employee in the plan year.
(7) LIMITED
PREEMPTION
OF
STATE
MAN-
DATED BENEFITS.—No State law or regulation in
effect in a State that requires health insurance plans
offered to small employers in the State to include
specified items and services other than those speci-
fied by this subsection shall apply with respect to a
health insurance plan providing standard coverage
offered by an insurer to a small employer.
(c) CATASTROPHIC BENEFITS PACKAGE.—
(1) IN
GENERAL.—Subject to the succeeding
provisions of this subsection, subsection (d) (permit-
ting variation of benefits among actuarially equiva-
lent plans), and subsection (e) (permitting plans not
to cover specific treatments, procedures, or classes),
a health insurance plan is considered to provide cat-
astrophic coverage consistent with this subsection if
benefits are limited to payment for—
•HR 3955 SC2
(A) inpatient and outpatient hospital care,
including emergency services;
(B) inpatient and outpatient physicians’
services;
(C) diagnostic tests; and
(D) preventive services (which may include
one or more of the following services)—
(i) prenatal care and well-baby care
provided to children who are 1 year of age
or younger;
(ii) well-child care;
(iii) Pap smears;
(iv) mammograms; and
(v) colorectal screening services.
(2) COST-SHARING.—Each health insurance
plan providing catastrophic coverage issued to a
small employer by an insurer may impose premiums,
deductibles, copayments, or other cost-sharing on en-
rollees of such plan.
(3) OUT-OF-POCKET LIMIT.—Each health insur-
ance plan providing catastrophic coverage shall pro-
vide for a limit on out-of-pocket expenses.
(4) LIMITED
PREEMPTION
OF
STATE
MAN-
DATED BENEFITS.—No State law or regulation in
effect in a State that requires health insurance plans
•HR 3955 SC2
offered to small employers in the State to include
specified items and services other than those de-
scribed in this subsection shall apply with respect to
a health insurance plan providing catastrophic cov-
erage offered by an insurer to a small employer.
(d) ACTUARIAL EQUIVALENCE IN BENEFITS PER-
MITTED.—
(1) STANDARD BENEFIT PACKAGE.—A health
insurance plan also is considered to provide standard
coverage consistent with subsection (b) if the bene-
fits are determined, in accordance with the set of ac-
tuarial equivalence rules certified under paragraph
(3), to have a value that is within 5 percentage
points of the target actuarial value for standard cov-
erage established under paragraph (4).
(2) CATASTROPHIC
BENEFIT
PACKAGE.—A
health insurance plan also is considered to provide
catastrophic coverage consistent with subsection (c)
if the benefits are determined, in accordance with
the set of actuarial equivalence rules certified under
paragraph (3), to have a value that is within 5 per-
centage points of the target actuarial value for cata-
strophic coverage established under paragraph (5).
(3) RULES OF ACTUARIAL EQUIVALENCE.—
•HR 3955 SC2
(A) INITIAL DETERMINATION.—The NAIC
is requested to submit to the Secretary, within
6 months after the date of the enactment of
this Act, a set of rules which the NAIC deter-
mines is sufficient for determining, in the case
of any health insurance plan and for purposes
of this subsection, the actuarial value of the
coverage offered by the plan.
(B) CERTIFICATION.—If the Secretary de-
termines that the NAIC has submitted a set of
rules that comply with the requirements of sub-
paragraph (A), the Secretary shall certify such
set of rules for use under this subsection. If the
Secretary determines that such a set of rules
has not been submitted or does not comply with
such requirements, the Secretary shall promptly
establish a set of rules that meets such require-
ments.
(4) DETERMINATION
OF
TARGET
ACTUARIAL
VALUE FOR STANDARD COVERAGE.—
(A) INITIAL DETERMINATION.—The NAIC
is requested to submit to the Secretary, within
6 months after the date of the enactment of
this Act, a target actuarial value for standard
coverage equal to the average actuarial value of
•HR 3955 SC2
the standard coverage described in subsection
(b). No specific procedure or treatment, or
classes thereof, is required to be considered in
such determination by this Act or through regu-
lations. The determination of such value shall
be based on a representative distribution of the
population of eligible employees to be offered
standard coverage and a single set of standard-
ized utilization and cost factors.
(B) CERTIFICATION.—If the Secretary de-
termines that the NAIC has submitted a target
actuarial value for standard coverage that com-
plies with the requirements of subparagraph
(A), the Secretary shall certify such value for
use under this subsection. If the Secretary de-
termines that such a value has not been submit-
ted or does not comply with such requirements,
the Secretary shall promptly determine such a
target actuarial value that meets such require-
ments.
(5) DETERMINATION
OF
TARGET
ACTUARIAL
VALUE FOR CATASTROPHIC COVERAGE.—
(A) INITIAL DETERMINATION.—The NAIC
is requested to submit to the Secretary, within
6 months after the date of the enactment of
•HR 3955 SC2
this Act, a target actuarial value for cata-
strophic coverage equal to the average actuarial
value of the catastrophic coverage described in
subsection (c). No specific procedure or treat-
ment, or classes thereof, is required to be con-
sidered in such determination by this Act or
through regulations. The determination of such
value shall be based on a representative dis-
tribution of the population of eligible employees
to be offered catastrophic coverage and a single
set of standardized utilization and cost factors.
(B) CERTIFICATION.—If the Secretary de-
termines that the NAIC has submitted a target
actuarial value for catastrophic coverage that
complies with the requirements of subparagraph
(A), the Secretary shall certify such value for
use under this subsection. If the Secretary de-
termines that such a value has not been submit-
ted or does not comply with such requirements,
the Secretary shall promptly determine such a
target actuarial value that meets such require-
ments.
(6) SUBSEQUENT
REVISIONS
OF
RULES
AND
TARGET VALUES.—
•HR 3955 SC2
(A) NAIC.—The NAIC may submit from
time to time to the Secretary revisions of the
set of rules of actuarial equivalence and target
actuarial values previously established or deter-
mined under this subsection if the NAIC deter-
mines such revision necessary to take into ac-
count changes in the relevant types of health
benefits provisions, in deductible levels for cata-
strophic coverage, or in demographic conditions
which form the basis for such set of rules or
values. The provisions of paragraph (3)(B) shall
apply to such a revision in the same manner as
they apply to the initial determination of the set
of rules.
(B) SECRETARY.—The Secretary may by
regulation revise such set or rules and values
from time to time if the Secretary determines
such revision necessary to take into account
changes described in subparagraph (A).
(e) NO COVERAGE OF SPECIFIC TREATMENT, PRO-
CEDURES, OR CLASSES REQUIRED.—Nothing in this sec-
tion may be construed to require the coverage of any spe-
cific procedure, treatment, or class of service in a health
plan under this Act or through regulations.
•HR 3955 SC2
SEC. 1103. ESTABLISHMENT OF HEALTH PLAN STANDARDS.
(a) ESTABLISHMENT OF GENERAL STANDARDS.—
(1) ROLE OF NAIC.—The Secretary shall re-
quest the NAIC to develop, within 9 months after
the date of the enactment of this Act, model regula-
tions that specify standards with respect to each of
the following:
(A)(i) The requirement, under section
1101(a), that insurers make available health
plans.
(ii) The requirements of guaranteed avail-
ability of health plans to small employers under
section 1101(b).
(iii) The requirements for standard and
catastrophic coverage under subsections (b) and
(c) of section 1102.
(B)(i) The requirements of section 1104
(relating to limits on premiums and miscellane-
ous consumer protections).
(ii) The requirement of section 1105 (re-
lating to limitation on annual premium in-
creases).
If the NAIC develops recommended regulations
specifying such standards within such period, the
Secretary shall review the standards. Such review
shall be completed within 60 days after the date the
•HR 3955 SC2
regulations are developed. Unless the Secretary de-
termines within such period that the standards do
not meet the requirements, such standards shall
serve as the standards under this section, with such
amendments as the Secretary deems necessary.
(2) CONTINGENCY.—If the NAIC does not de-
velop such model regulations within such period or
the Secretary determines that such regulations do
not specify standards that meet the requirements de-
scribed in paragraph (1), the Secretary shall specify,
within 15 months after the date of the enactment of
this Act, standards to carry out those requirements.
(3) EFFECTIVE DATE.—The health plan stand-
ards and consumer protection standards (as defined
in paragraph (5)) shall apply to health plans and
health insurance plans in a State on or after the re-
spective date the standards are implemented in the
State under subsections (b) and (c).
(4) DEFINITIONS.—In this section:
(A) 
CONSUMER
PROTECTION
STAND-
ARDS.—The term ‘‘consumer protection stand-
ards’’ means the standards established under
paragraph (1)(B).
(B) HEALTH
PLAN
STANDARDS.—The
term ‘‘health plan standards’’ means the stand-
•HR 3955 SC2
ards established under paragraph (1)(A) (relat-
ing to the requirements of sections 1101 and
1102), and includes the consumer protection
standards insofar as they relate to health plans.
(b) 
APPLICATION
OF
STANDARDS
THROUGH
STATES.—
(1) APPLICATION
OF
HEALTH
PLAN
STAND-
ARDS.—
(A) IN GENERAL.—Each State shall sub-
mit to the Secretary, by the deadline specified
in subparagraph (B), a report on steps the
State is taking to implement and enforce the
consumer protection standards with respect to
insurers, and health plans offered, not later
than such deadline.
(B) DEADLINE FOR REPORT.—
(i) 1 YEAR AFTER STANDARDS ESTAB-
LISHED.—Subject to clause (ii), the dead-
line under this subparagraph is 1 year
after the date the health plan standards
are established under subsection (a).
(ii) EXCEPTION FOR LEGISLATION.—
In the case of a State which the Secretary
identifies, in consultation with the NAIC,
as—
•HR 3955 SC2
(I) requiring State legislation
(other than legislation appropriating
funds) in order for insurers and
health plans offered to meet the
health 
plan 
standards 
established
under subsection (a), but
(II) having a legislature which is
not scheduled to meet in 1995 in a
legislative session in which such legis-
lation may be considered,
the date specified in this subparagraph is
the first day of the first calendar quarter
beginning after the close of the first legis-
lative session of the State legislature that
begins on or after January 1, 1997. For
purposes of the previous sentence, in the
case of a State that has a 2-year legislative
session, each year of such session shall be
deemed to be a separate regular session of
the State legislature.
(2) FEDERAL ROLE.—If the Secretary deter-
mines that a State has failed to submit a report by
the deadline specified under paragraph (1) or finds
that the State has not implemented and provided
adequate enforcement of the health plan standards
•HR 3955 SC2
under such paragraph, the Secretary shall notify the
State and provide the State a period of 60 days in
which to submit such report or to implement and en-
force such standards under such paragraph. If, after
such 60-day period, the Secretary finds that such a
failure has not been corrected, the Secretary shall
provide for such mechanism for the implementation
and enforcement of such standards in the State as
the Secretary determines to be appropriate. Such
implementation and enforcement shall take effect
with respect to insurers, and health plans offered or
renewed, on or after 3 months after the date of the
Secretary’s finding under the previous sentence, and
until the date the Secretary finds that such a failure
has been corrected. In exercising authority under
this subparagraph, the Secretary shall determine
whether the use of a risk-allocation mechanism, de-
scribed in section 1101(c), would be more consistent
with the small employer group health coverage mar-
ket in the State than the guaranteed availability pro-
visions of section 1101(b).
(3) APPLICATION OF CONSUMER PROTECTION
STANDARDS.—
(A) IN GENERAL.—Each State shall sub-
mit to the Secretary, by the deadline specified
•HR 3955 SC2
in subparagraph (B), a report on steps the
State is taking to implement and enforce the
health plan standards with respect to insurers,
and health insurance plans (other than health
plans) offered, not later than such deadline.
(B) DEADLINE FOR REPORT.—
(i) 1 YEAR AFTER STANDARDS ESTAB-
LISHED.—Subject to clause (ii), the dead-
line under this subparagraph is 1 year
after the date the consumer protection
standards are established under subsection
(a).
(ii) EXCEPTION FOR LEGISLATION.—
In the case of a State which the Secretary
identifies, in consultation with the NAIC,
as—
(I) requiring State legislation
(other than legislation appropriating
funds) in order for insurers and
health insurance plans offered to meet
the consumer protection standards es-
tablished under subsection (a), but
(II) having a legislature which is
not scheduled to meet in 1994 in a
•HR 3955 SC2
legislative session in which such legis-
lation may be considered,
the date specified in this subparagraph is
the first day of the first calendar quarter
beginning after the close of the first legis-
lative session of the State legislature that
begins on or after January 1, 1996. For
purposes of the previous sentence, in the
case of a State that has a 2-year legislative
session, each year of such session shall be
deemed to be a separate regular session of
the State legislature.
(4) FEDERAL ROLE.—If the Secretary deter-
mines that a State has failed to submit a report by
the deadline specified under paragraph (1) or finds
that the State has not implemented and provided
adequate enforcement of the consumer protection
standards under such paragraph, the Secretary shall
notify the State and provide the State a period of
60 days in which to submit such report or to imple-
ment and enforce such standards under such para-
graph. If, after such 60-day period, the Secretary
finds that such a failure has not been corrected, the
Secretary shall provide for such mechanism for the
implementation and enforcement of such standards
•HR 3955 SC2
in the State as the Secretary determines to be ap-
propriate. Such implementation and enforcement
shall take effect with respect to insurers, and health
insurance plans (other than health plans) offered or
renewed, on or after 3 months after the date of the
Secretary’s finding under the previous sentence, and
until the date the Secretary finds that such a failure
has been corrected.
SEC. 1104. LIMITS ON PREMIUMS AND MISCELLANEOUS
CONSUMER PROTECTIONS.
(a) LIMITS ON PREMIUMS.—
(1) LIMIT ON VARIATION OF INDEX RATES BE-
TWEEN CLASSES OF BUSINESS.—
(A) IN GENERAL.—As a standard under
section 1103(a)(1)(B)(i), the index rate for a
rating period for any class of business of an in-
surer may not exceed by more than 20 percent
the index rate for any other class of business.
(B) EXCEPTION.—The limitation of sub-
paragraph (A) shall not apply to a class of busi-
ness if—
(i) the class is one for which the in-
surer does not reject, and never has re-
jected, small employers included within the
definition of employers eligible for the class
•HR 3955 SC2
of business or otherwise eligible employees
and dependents who enroll on a timely
basis, based upon their claim experience or
health status,
(ii) the insurer does not involuntarily
transfer, and never has involuntarily trans-
ferred, a health insurance plan into or out
of the class of business, and
(iii) the class of business is currently
available for purchase.
(2) LIMIT ON VARIATION OF PREMIUM RATES
WITHIN A CLASS OF BUSINESS.—For a class of busi-
ness of an insurer, as a standard under section
1103(a)(1)(B)(i), the highest premium rates charged
during a rating period to small employers with simi-
lar demographic and other similar objective charac-
teristics (and not relating to claims experience,
health status, industry, occupation, or duration of
coverage since issue) for the same or similar cov-
erage, or the highest rates which could be charged
to such employers under the rating system for that
class of business, shall not exceed 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 section is
•HR 3955 SC2
in effect, and 1.35 times the base premium rate
thereafter.
(3) OBJECTIVE
BASIS
FOR
DIFFERENCES
IN
PREMIUMS
FOR
STANDARD
AND
CATASTROPHIC
PLANS.—The difference between the index rates for
catastrophic plans and the index rates for standard
plans shall be reasonable and shall reflect the dif-
ference in plan design and shall not take into ac-
count differences due to the nature of the groups as-
sumed to select particular health plans.
(4) LIMIT
ON
TRANSFER
OF
EMPLOYERS
AMONG
CLASSES
OF
BUSINESS.—As a standard
under section 1103(a)(1)(B)(i), an insurer may not
involuntarily transfer a small employer into or out of
a class of business. An insurer may not offer to
transfer a small employer into or out of a class of
business unless such offer is made to transfer all
small employers in the class of business without re-
gard to demographic characteristics, claim experi-
ence, health status, industry, occupation, or duration
since issue.
(5) DEFINITIONS.—In this subsection:
(A) BASE
PREMIUM
RATE.—The term
‘‘base premium rate’’ means, for each class of
business for each rating period, the lowest pre-
•HR 3955 SC2
mium rate charged or which could have been
charged under a rating system for that class of
business by the insurer to small employers with
similar demographic characteristics and other
similar objective characteristics (not relating to
claims experience, health status, industry, occu-
pation, or duration of coverage since issue) for
health insurance plans with the same or similar
coverage.
(B) CLASS
OF
BUSINESS.—The term
‘‘class of business’’ means, with respect to an
insurer, all (or a distinct group of) small em-
ployers as shown on the records of the insurer.
(C) RULES
FOR
ESTABLISHING
CLASSES
OF BUSINESS.—For purposes of subparagraph
(B)—
(i) an insurer may establish, subject
to clause (ii), a distinct group of small em-
ployers on the basis that the applicable
health insurance plans either—
(I) 
are 
marketed 
and 
sold
through individuals and organizations
which are not participating in the
marketing or sale of other distinct
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groups of small employers for the in-
surer,
(II) have been acquired from an-
other insurer as a distinct group, or
(III) are provided through an as-
sociation that has a membership of
not less than 100 small employers and
that has been formed for purposes
other than obtaining health coverage;
(ii) an insurer may not establish more
than 2 groupings under each class of busi-
ness based on the insurer’s use of man-
aged-care techniques if the techniques are
expected to produce substantial variation
in health care costs; and
(iii) notwithstanding clauses (i) and
(ii), a State commissioner of insurance,
upon application and if authorized under
State law, may approve additional distinct
groups upon a finding that such approval
would enhance the efficiency and fairness
of the small employer marketplace.
(D) INDEX RATE.—The term ‘‘index rate’’
means, with respect to a class of business, the
arithmetic average of the applicable base pre-
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mium rate and the corresponding highest pre-
mium rate for the class.
(E) DEMOGRAPHIC
CHARACTERISTICS.—
Except as otherwise permitted under the stand-
ard under section 1103(b)(1)(B)(i), the term
‘‘demographic characteristics’’ means age, gen-
der, geographic area, family composition, and
group size.
(b) FULL DISCLOSURE OF RATING PRACTICES.—At
the time an insurer offers a health insurance plan to a
small employer, the insurer shall fully disclose to the em-
ployer rating practices for health insurance plans, includ-
ing rating practices for different populations and benefit
designs.
(c) ACTUARIAL CERTIFICATION.—Each insurer that
offers a health insurance plan to a small employer in a
State shall file annually with the State commissioner of
insurance a written statement by a member of the Amer-
ican Academy of Actuaries (or other individual acceptable
to the commissioner) that, based upon an examination by
the individual which includes a review of the appropriate
records and of the actuarial assumptions of the insurer
and methods used by the insurer in establishing premium
rates for applicable health insurance plans—
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(1) the insurer is in compliance with the appli-
cable provisions of this section, and
(2) the rating methods are actuarially sound.
Each such insurer shall retain a copy of such statement
for examination at its principal place of business.
(d) REGISTRATION AND REPORTING.—Each insurer
that issues any health insurance plan to a small employer
in a State shall be registered or licensed with the State
commissioner of insurance and shall comply with any re-
porting requirements of the commissioner relating to such
a plan.
SEC. 1105. LIMITATION ON VARIATION IN ANNUAL PRE-
MIUM INCREASES AMONG COVERED SMALL
EMPLOYERS.
An insurer may not provide for an increase in the
premium charged a small employer for a health insurance
plan in a percentage that exceeds the percentage change
in the premium charged under the plan for a newly cov-
ered small employer within the same class of business rate
plus 10 percentage points.
SEC. 1106. ESTABLISHMENT OF REINSURANCE OR ALLOCA-
TION OF RISK MECHANISMS FOR HIGH RISK
INDIVIDUALS IN MARKETPLACE FOR SMALL
BUSINESS.
(a) ESTABLISHMENT OF STANDARDS.—
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(1) ROLE OF NAIC.—The Secretary shall re-
quest the NAIC to develop, within 9 months after
the date of the enactment of this Act, models for re-
insurance or allocation of risk mechanisms (each in
this section referred to as a ‘‘reinsurance or alloca-
tion of risk mechanism’’) for health insurance plans
made available to small employers and for whom an
insurer is at risk of incurring high costs under the
plan. If the NAIC develops such models within such
period, the Secretary shall review such models to de-
termine if they provide for an effective reinsurance
or allocation of risk mechanism. Such review shall be
completed within 30 days after the date the models
are developed. Unless the Secretary determines with-
in such period that such a model is not an effective
reinsurance or allocation of risk mechanism, such re-
maining models shall serve as the models under this
section, with such amendments as the Secretary
deems necessary.
(2) CONTINGENCY.—If the NAIC does not de-
velop such models within such period or the Sec-
retary determines that all such models do not pro-
vide for an effective reinsurance or allocation of risk
mechanism, the Secretary shall specify, within 15
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months after the date of the enactment of this Act,
models to carry out this section.
(b) IMPLEMENTATION OF REINSURANCE OR ALLOCA-
TION OF RISK MECHANISMS.—
(1) BY
STATES.—Each State shall establish
and maintain one or more reinsurance or allocation
of risk mechanisms that are consistent with a model
established under subsection (a) by not later than
the deadline specified in section 1103(b)(1)(B). A
State may establish and maintain such a mechanism
jointly with one or more other States.
(2) FEDERAL ROLE.—
(A) IN GENERAL.—If the Secretary deter-
mines that a State has failed to establish or
maintain a reinsurance or allocation of risk
mechanism in accordance with paragraph (1),
the Secretary shall establish and maintain such
a reinsurance or allocation of risk mechanism
meeting the requirements of this paragraph.
(B) REINSURANCE
MECHANISM.—Unless
the Secretary determines under subparagraph
(C) that an allocation of risk mechanism is the
appropriate mechanism to use in a State under
this paragraph, the Secretary shall establish
and maintain for use under this section for
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SEC. 1107. DEFINITIONS.
Except as otherwise specifically provided, for pur-
poses of this subtitle:
(1) DEPENDENT CHILD.—The term ‘‘dependent
child’’ means a child (including an adopted child)
who is under 19 years of age or who is a full-time
student and under 25 years of age.
(2) ELIGIBLE EMPLOYEE.—The term ‘‘eligible
employee’’ means, with respect to an employer, an
employee who normally performs on a monthly basis
at least 30 hours of service per week for that
employer.
(3) EMPLOYER.—The term ‘‘employer’’ shall
have the meaning applicable under section 3(5) of
the Employee Retirement Income Security Act of
1974.
(4) HEALTH INSURANCE PLAN.—
(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘‘health insurance
plan’’ means any hospital or medical service
policy or certificate, hospital or medical service
plan contract, or health maintenance organiza-
tion group contract offered by an insurer.
(B) EXCEPTION.—Such term does not in-
clude any of the following—
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(i) coverage only for accident, dental,
vision, disability income, or long-term care
insurance, or any combination thereof,
(ii) medicare supplemental health in-
surance,
(iii) coverage issued as a supplement
to liability insurance,
(iv) worker’s compensation or similar
insurance, or
(v) automobile medical-payment insur-
ance,
or any combination thereof.
(5) HEALTH
MAINTENANCE
ORGANIZATION.—
The term ‘‘health maintenance organization’’ in-
cludes, as defined in standards established under
section 1103, a health insurance plan that meets
specified standards and that offers to provide health
services on a prepaid, at-risk basis primarily through
a defined set of providers.
(6) INSURER.—The term ‘‘insurer’’ means a li-
censed insurance company, a prepaid hospital or
medical service plan, and a health maintenance orga-
nization offering such a plan to an employer, and in-
cludes a similar organization regulated under State
law for solvency.
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(7) NAIC.—The term ‘‘NAIC’’ means the Na-
tional Association of Insurance Commissioners.
(8) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services.
(9) SMALL EMPLOYER.—The term ‘‘small em-
ployer’’ means, with respect to a calendar year, an
employer that normally employs more than 1 but
less than 51 eligible employees on a typical business
day. For the purposes of this paragraph, the term
‘‘employee’’ includes a self-employed individual. For
purposes of determining if an employer is a small
employer, rules similar to the rules of subsection (b)
and (c) of section 414 of the Internal Revenue Code
of 1986 shall apply.
(10) STATE.—The term ‘‘State’’ means the 50
States, the District of Columbia, Puerto Rico, the
Virgin Islands, Guam, and American Samoa.
(11) STATE COMMISSIONER OF INSURANCE.—
The term ‘‘State commissioner of insurance’’ in-
cludes a State superintendent of insurance.
SEC. 1108. OFFICE OF PRIVATE HEALTH CARE COVERAGE;
ANNUAL 
REPORTS 
ON 
EVALUATION 
OF
HEALTH CARE COVERAGE REFORM.
(a) IN GENERAL.—In order to carry out the respon-
sibilities of the Secretary under this subtitle, the Secretary
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shall establish an Office of Private Health Care Coverage,
to be headed by a Director (in this section and section
1109 referred to as the ‘‘Director’’) appointed by the Sec-
retary.
(b) ANNUAL REPORT.—
(1) IN GENERAL.—The Director shall submit to
Congress an annual report on the implementation of
this subtitle.
(2) INFORMATION TO BE INCLUDED.—Each an-
nual report shall include information concerning at
least the following:
(A) Implementation and enforcement of
the applicable health plan standards and
consumer protection standards under this sub-
title by the States and by the Secretary.
(B) An evaluation of the impact of the re-
forms under this subtitle on the availability of
affordable health coverage for small employers
that purchase group health coverage and for
their employees, and, in particular, the impact
of—
(i) guaranteed availability of health
coverage,
(ii) limitations of restrictions from
coverage of preexisting conditions,
•HR 3955 SC2
(iii) requirement for continuity of cov-
erage,
(iv) risk-management mechanisms for
health coverage,
(v) limits on premium variations,
(vi) limits on annual premium in-
creases, and
(vii) preemption of State benefit man-
dates.
In performing such evaluation, the Secretary
shall seek to discount the effect of the insur-
ance cycle on health insurance premiums.
(C) An assessment of the implications of
the reforms on adverse selection among health
insurance plans and the distribution of risk
among health insurance plans.
(c) ADVISORY COMMITTEE.—The Secretary shall pro-
vide for appointment of an advisory committee to advise
the Director concerning activities of the Office under this
subtitle. Membership on the committee shall consist of 17
individuals and shall include individuals from the general
public, small and large business, labor, insurance and
other group health plans, and health care providers, and
shall include individuals who are experts in the fields of
the actuarial science, health economics, and health services
•HR 3955 SC2
research. The Secretary may include, as additional, ex
officio members of the committee, such representatives of
government agencies as the Secretary deems appropriate.
The chairperson of the committee shall not be a health
care provider or receive any direct or indirect compensa-
tion from an insurer, health insurance plan, or a health
care provider.
SEC. 1109. RESEARCH AND DEMONSTRATION PROJECTS;
DEVELOPMENT OF A HEALTH RISK POOLING
MODEL.
(a) RESEARCH AND DEMONSTRATIONS.—The Direc-
tor is authorized, directly, by contract, and through grants
and cooperative agreements within the Department of
Health and Human Services and outside the Depart-
ment—
(1) to conduct research on the impact of this
subtitle on the availability of affordable health cov-
erage for employees and dependents in the small em-
ployers group health care coverage market and other
topics described in section 1108(b), and
(2) to conduct demonstration projects relating
to such topics.
(b) DEVELOPMENT
OF METHODS
OF MEASURING
RELATIVE HEALTH RISK.—
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(1) IN GENERAL.—The Director shall develop
methods for measuring, in terms of the expected
costs of providing benefits under health insurance
plans and, in particular, health plans, the relative
health risks of eligible individuals.
(2) METHODOLOGY.—The methods—
(A) shall rely on diagnosis or other health-
related information that is predictive of individ-
ual health care needs,
(B) may rely upon information routinely
collected in the process of making payments
under group health plans, and
(C) may provide for such random, sample
audits of records as may be necessary to verify
the accuracy of measurements.
(c) DEVELOPMENT OF A HEALTH RISK POOLING
MODEL.—
(1) IN GENERAL.—The Director shall develop a
model, based on the methods of measuring risks
under subsection (b), for equitably distributing
health risks among insurers in the small employer
health care coverage market.
(2) REDISTRIBUTION
OF
RISK.—Under such
model, insurers with below average health risks
would be required to contribute to a common fund
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for payment to insurers with above average health
risks, each in relation to the degree of their favor-
able or adverse risk selection.
(3) INCENTIVES.—Such model shall include in-
centives to encourage continuous coverage of eligible
individuals and small employers.
(d) CONSULTATION.—The methods and model under
this section shall be developed in consultation with the
NAIC and the advisory committee established under sec-
tion 1108(c).
(e) REPORT.—By not later than January 1, 1996,
the Director shall submit to Congress a report on the
methods and model developed under this section (as well
as on research and demonstration projects conducted
under subsection (a)). The Director shall include in the
report such recommendations respecting the application of
the model to insurers (and, in particular, to health plans)
under this subtitle as the Director deems appropriate.
(f) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated to carry out this section,
such sums as may be necessary in each of fiscal years
1995 through 1999.
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Subtitle C—Preemption
PART 1—SCOPE OF STATE REGULATION
SEC. 1201. PROHIBITION OF STATE BENEFIT MANDATES
FOR GROUP HEALTH PLANS.
In the case of a group health plan, no provision of
State or local law shall apply that requires the coverage
of one or more specific benefits, services, or categories of
health care, or services of any class or type of provider
of health care.
SEC. 1202. PROHIBITION OF PROVISIONS PROHIBITING EM-
PLOYER 
GROUPS 
FROM 
PURCHASING
HEALTH INSURANCE.
No provision of State or local law shall apply that
prohibits 2 or more employers from obtaining coverage
under an insured multiple employer health plan.
SEC. 1203. RESTRICTIONS ON MANAGED CARE.
(a) PREEMPTION OF STATE LAW PROVISIONS.—Sub-
ject to subsection (c), the following provisions of State law
are preempted and may not be enforced:
(1) RESTRICTIONS ON REIMBURSEMENT RATES
OR
SELECTIVE
CONTRACTING.—Any law that re-
stricts the ability of a group health plan to negotiate
reimbursement rates with providers or to contract
selectively with one provider or a limited number of
providers.
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(2) RESTRICTIONS
ON
DIFFERENTIAL
FINAN-
CIAL INCENTIVES.—Any law that limits the financial
incentives that a group health plan may require a
beneficiary to pay when a non-plan provider is used
on a non-emergency basis.
(3) RESTRICTIONS
ON
UTILIZATION
REVIEW
METHODS.—Any law that—
(A) prohibits utilization review of any or
all treatments and conditions,
(B) requires that such review be made (i)
by a resident of the State in which the treat-
ment is to be offered or by an individual li-
censed in such State, or (ii) by a physician in
any particular specialty or with any board cer-
tified specialty of the same medical specialty as
the provider whose services are being reviewed,
(C) requires the use of specified standards
of health care practice in such reviews or re-
quires the disclosure of the specific criteria used
in such reviews,
(D) requires payments to providers for the
expenses of responding to utilization review re-
quests, or
(E) imposes liability for delays in perform-
ing such review.
•HR 3955 SC2
Nothing in subparagraph (B) shall be construed as
prohibiting a State from (i) requiring a licensed phy-
sician or other health care professional be available
at some time in the review or appeal process, or (ii)
requiring that any decision in an appeal from such
a review be made by a licensed physician.
(b) GAO STUDY.—
(1) IN
GENERAL.—The Comptroller General
shall conduct a study of the benefits and cost effec-
tiveness of the use of managed care in the delivery
of health services.
(2) REPORT.—By not later than 4 years after
the date of the enactment of this Act, the Comptrol-
ler General shall submit a report to Congress on the
study conducted under paragraph (1) and shall in-
clude in the report such recommendations (including
whether the provisions of subsection (a) should be
extended) as may be appropriate.
(c) SUNSET.—Unless otherwise provided, subsection
(a) shall not apply 5 years after the date of the enactment
of this Act.
SEC. 1204. DEFINITIONS.
For purposes of this part, the terms ‘‘dependent’’,
‘‘employee’’, ‘‘employer’’, ‘‘group health plan’’, ‘‘health in-
surance plan’’, ‘‘insured multiple employer health plan’’,
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and ‘‘State’’ have the meanings given such terms in sec-
tion 1023(a).
PART 2—MULTIPLE EMPLOYER HEALTH
BENEFITS PROTECTIONS
SEC. 1211. LIMITED EXEMPTION UNDER PREEMPTION
RULES FOR MULTIPLE EMPLOYER PLANS
PROVIDING HEALTH BENEFITS SUBJECT TO
CERTAIN FEDERAL STANDARDS.
(a) IN GENERAL.—Subtitle B of title I of the Em-
ployee Retirement Income Security Act of 1974 is amend-
ed by adding at the end the following new part:
‘‘Part 7—Multiple Employer Health Plans
‘‘SEC. 701. DEFINITIONS.
‘‘For purposes of this part—
‘‘(1) INSURER.—The term ‘insurer’ means an
insurance company, insurance service, or insurance
organization, licensed to engage in the business of
insurance by a State.
‘‘(2) PARTICIPATING
EMPLOYER.—The term
‘participating employer’ means, in connection with a
multiple employer welfare arrangement, any em-
ployer if any of its employees, or any of the depend-
ents of its employees, are or were covered under
such arrangement in connection with the employ-
ment of the employees.
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‘‘(3) EXCESS/STOP LOSS COVERAGE.—The term
‘excess/stop loss coverage’ means, in connection with
a multiple employer welfare arrangement, a contract
under which an insurer provides for payment with
respect to claims under the arrangement, relating to
participants or beneficiaries individually or other-
wise, in excess of an amount or amounts specified in
such contract.
‘‘(4) QUALIFIED
ACTUARY.—The term ‘quali-
fied actuary’ means an individual who is a member
of the American Academy of Actuaries or meets
such reasonable standards and qualifications as the
Secretary may provide by regulation.
‘‘(5) SPONSOR.—The term ‘sponsor’ means, in
connection with a multiple employer welfare arrange-
ment, the association or other entity which estab-
lishes or maintains the arrangement.
‘‘(6) STATE LOCATION OF COVERED INDIVID-
UALS.—
‘‘(A) IN GENERAL.—A multiple employer
welfare arrangement shall be treated as cover-
ing individuals located in a State only if the
minimum required number of individuals who
are covered under the arrangement are located
in such State, except that if the minimum re-
•HR 3955 SC2
quired number of individuals are not located in
any State, such arrangement shall be treated as
covering individuals in any State in which any
covered individual is located.
‘‘(B) MINIMUM REQUIRED NUMBER.—For
purposes of subparagraph (A), the minimum re-
quired number is the greater of—
‘‘(i) 5 percent of the total number of
individuals described in subparagraph (A),
or
‘‘(ii) 50.
‘‘(C) 
LOCATION
OF
INDIVIDUALS
IN
STATE.—For purposes of subparagraph (A), an
individual shall be treated as located in a State
if such individual is employed in such State or
the address of such individual last known by
the arrangement is located in such State.
‘‘(7) STATE INSURANCE COMMISSIONER.—The
term ‘State insurance commissioner’ means the in-
surance commissioner (or similar official) of a State.
‘‘(8) DOMICILE
STATE.—The term ‘domicile
State’ means, in connection with a multiple employer
welfare arrangement, the State in which, according
to the application for an exemption under this part,
most individuals to be covered under the arrange-
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ment are located, except that, in any case in which
information contained in the latest annual report of
the arrangement filed under this part indicates that
most individuals covered under the arrangement are
located in a different State, such term means such
different State.
‘‘(9) FULLY INSURED ARRANGEMENT.—A mul-
tiple employer welfare arrangement shall be treated
as fully insured only if one or more insurers, health
maintenance organizations, similar organizations
regulated under State law for solvency, or any com-
bination thereof are liable under one or more insur-
ance policies or contracts for all benefits under the
arrangement (irrespective of any recourse they may
have against other parties).
‘‘(10) MULTIPLE EMPLOYER HEALTH PLAN.—
The term ‘multiple employer health plan’ means a
multiple employer welfare arrangement treated as an
employee welfare benefit plan by reason of an
exemption under this part.
‘‘(11) INSURED MULTIPLE EMPLOYER HEALTH
PLAN.—The term ‘insured multiple employer health
plan’ means a fully insured multiple employer wel-
fare arrangement under which benefits consist solely
of medical care described in section 607(1) (dis-
•HR 3955 SC2
regarding such incidental benefits as the Secretary
shall specify by regulations).
‘‘(12) 
PREPAID
HEALTH
CARE
ARRANGE-
MENT.—The term ‘prepaid health care arrangement’
means a nonprofit entity which—
‘‘(A) offers benefits consisting of medical
care described in section 607(1) on a prepaid
basis, and
‘‘(B) is established and controlled by a
group medical practice or similar group, by a
hospital, or by such a practice (or group) and
a hospital.
‘‘SEC. 702. EXEMPTED MULTIPLE EMPLOYER PLANS PRO-
VIDING BENEFITS IN THE FORM OF MEDICAL
CARE RELIEVED OF CERTAIN RESTRICTIONS
ON PREEMPTION OF STATE LAW AND TREAT-
ED AS EMPLOYEE WELFARE BENEFIT PLANS.
‘‘(a) IN GENERAL.—Subject to subsection (b), a mul-
tiple employer welfare arrangement which is not fully in-
sured and with respect to which there is in effect an ex-
emption granted by the Secretary under this part (or with
respect to which there is pending a complete application
for such an exemption and the Secretary determines that
provisional protection under this part is appropriate)—
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‘‘(1) shall be treated for purposes of subtitle A
and the preceding parts of this subtitle as an em-
ployee welfare benefit plan, irrespective of whether
such arrangement is an employee welfare benefit
plan, and
‘‘(2) 
shall 
be 
exempt 
from 
section
514(b)(6)(A)(ii).
‘‘(b) BENEFITS
MUST
CONSIST
OF
MEDICAL
CARE.—Subsection (a) shall apply to a multiple employer
welfare arrangement only if the benefits provided there-
under consist solely of medical care described in section
607(1) (disregarding such incidental benefits as the
Secretary shall specify by regulation).
‘‘(c) RESTRICTION ON COMMENCEMENT OF NEW AR-
RANGEMENTS.—A multiple employer welfare arrangement
providing benefits which consist of medical care described
in section 607(1) which has not commenced operations as
of January 1, 1995, may commence operations only if an
exemption granted to the arrangement under this part is
in effect (or there is pending with respect to the arrange-
ment a complete application for such an exemption and
the Secretary determines that provisional protection under
this part is appropriate).
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‘‘SEC. 703. EXEMPTION PROCEDURE.
‘‘(a) IN GENERAL.—The Secretary shall grant an ex-
emption described in section 702(a) to a multiple employer
welfare arrangement if—
‘‘(1) an application for such exemption with re-
spect to such arrangement, identified individually or
by class, has been duly filed in complete form with
the Secretary in accordance with this part,
‘‘(2) such application demonstrates compliance
with the requirements of section 704 with respect to
such arrangement, and
‘‘(3) the Secretary finds that such exemption
is—
‘‘(A) administratively feasible,
‘‘(B) not adverse to the interests of the in-
dividuals covered under the arrangement, and
‘‘(C) protective of the rights and benefits
of the individuals covered under the arrange-
ment.
‘‘(b) NOTICE AND HEARING.—Before granting an ex-
emption under this section, the Secretary shall publish no-
tice in the Federal Register of the pendency of the exemp-
tion, shall require that adequate notice be given to inter-
ested persons, including the State insurance commissioner
of each State in which covered individuals under the ar-
rangement are, or are expected to be, located, and shall
•HR 3955 SC2
sole purpose of administering the exemption proce-
dures under this part.
‘‘(3) INFORMATION INCLUDED.—An application
filed under this section shall include, in a manner
and form prescribed in regulations of the Secretary,
at least the following information:
‘‘(A) IDENTIFYING
INFORMATION.—The
names and addresses of—
‘‘(i) the sponsor, and
‘‘(ii) the members of the operating
committee of the arrangement.
‘‘(B) STATES IN WHICH ARRANGEMENT IN-
TENDS TO DO BUSINESS.—The States in which
individuals covered under the arrangement are
to be located and the number of such individ-
uals expected to be located in each such State.
‘‘(C) BONDING REQUIREMENTS.—Evidence
provided by the operating committee that the
bonding requirements of section 412 will be met
as of the date of the application.
‘‘(D) PLAN DOCUMENTS.—A copy of the
documents governing the arrangement (includ-
ing any bylaws and trust agreements), the sum-
mary plan description, and other material de-
scribing the benefits and coverage that will be
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provided to individuals covered under the ar-
rangement.
‘‘(E) AGREEMENTS WITH SERVICE PROVID-
ERS.—A copy of any agreements between the
arrangement and contract administrators and
other service providers.
‘‘(F) FUNDING REPORT.—A report setting
forth information determined as of a date with-
in the 120-day period ending with the date of
the application, including the following:
‘‘(i) RESERVES.—A statement, cer-
tified by the operating committee of the ar-
rangement, and a statement of actuarial
opinion, signed by a qualified actuary, that
all applicable requirements of section 707
are or will be met in accordance with regu-
lations which the Secretary shall prescribe.
‘‘(ii) ADEQUACY
OF
CONTRIBUTION
RATES.—A statement of actuarial opinion,
signed by a qualified actuary, which sets
forth a description of the extent to which
contribution rates are adequate to provide
for the payment of all obligations and the
maintenance of required reserves under the
arrangement for the 12-month period be-
•HR 3955 SC2
ginning with such date within such 120-
day period, taking into account the ex-
pected coverage and experience of the ar-
rangement. If the contribution rates are
not fully adequate, the statement of actu-
arial opinion shall indicate the extent to
which the rates are inadequate and the
changes needed to ensure adequacy.
‘‘(iii) 
CURRENT
AND
PROJECTED
VALUE
OF
ASSETS
AND
LIABILITIES.—A
statement of actuarial opinion signed by a
qualified actuary, which sets forth the cur-
rent value of the assets and liabilities accu-
mulated under the arrangement and a pro-
jection of the assets, liabilities, income,
and expenses of the arrangement for the
12-month period referred to in clause (ii).
The income statement shall identify sepa-
rately the arrangement’s administrative ex-
penses and claims.
‘‘(iv) COSTS
OF
COVERAGE
TO
BE
CHARGED
AND
OTHER
EXPENSES.—A
statement of the costs of coverage to be
charged, 
including 
an 
itemization 
of
amounts for administration, reserves, and
•HR 3955 SC2
other expenses associated with the oper-
ation of the arrangement.
‘‘(v) 
OTHER
INFORMATION.—Any
other information which may be prescribed
in regulations of the Secretary as nec-
essary to carry out the purposes of this
part.
‘‘(b) OTHER REQUIREMENTS.—A complete applica-
tion for an exemption under this part shall include infor-
mation which the Secretary determines to be complete and
accurate and sufficient to demonstrate that the following
requirements are met with respect to the arrangement:
‘‘(1) SPONSOR.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the sponsor is, and has been
(together with its immediate predecessor, if
any) for a continuous period of not less than 3
years before the date of the application, orga-
nized and maintained in good faith, with a con-
stitution and bylaws specifically stating its pur-
pose, as a trade association, an industry asso-
ciation, a professional association, or a chamber
of commerce or other business group, for sub-
stantial purposes other than that of obtaining
or providing medical care described in section
•HR 3955 SC2
607(1), and the applicant demonstrates to the
satisfaction of the Secretary that the sponsor is
established as a permanent entity which re-
ceives the active support of its members.
‘‘(B) SPECIAL RULE FOR PREPAID HEALTH
CARE ARRANGEMENTS.—In the case of an ar-
rangement that is a prepaid health care ar-
rangement (as defined in section 701(12)), the
sponsor is the operating committee of the ar-
rangement.
‘‘(2) OPERATING COMMITTEE.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the arrangement is operated,
pursuant to a trust agreement, by an operating
committee which has complete fiscal control
over the arrangement and which is responsible
for all operations of the arrangement, and the
operating committee has in effect rules of oper-
ation and financial controls, based on a 3-year
plan of operation, adequate to carry out the
terms of the arrangement and to meet all re-
quirements of this title applicable to the ar-
rangement. The members of the committee are
individuals selected from individuals who are
the owners, officers, directors, or employees of
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the participating employers or who are partners
in the participating employers and actively par-
ticipate in the business. No such member is an
owner, officer, director, or employee of, or part-
ner in, a contract administrator or other service
provider to the arrangement, except that offi-
cers or employees of a sponsor which is a serv-
ice provider (other than a contract adminis-
trator) to the arrangement may be members of
the committee if they constitute not more than
25 percent of the membership of the committee
and they do not provide services to the arrange-
ment other than on behalf of the sponsor. The
committee has sole authority to approve appli-
cations for participation in the arrangement
and to contract with a service provider to ad-
minister the day-to-day affairs of the arrange-
ment.
‘‘(B) SPECIAL RULE FOR PREPAID HEALTH
CARE ARRANGEMENTS.—In the case of an ar-
rangement that is a prepaid health care ar-
rangement (as defined in section 701(12)), the
operating committee is the board of the entity
that is the arrangement.
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‘‘(3) 
CONTENTS
OF
GOVERNING
INSTRU-
MENTS.—The instruments governing the arrange-
ment include a written instrument, meeting the re-
quirements of an instrument required under section
1212(a)(1), which—
‘‘(A) provides that the committee serves as
the named fiduciary required for plans under
section 1212(a)(1) and serves in the capacity of
a plan administrator (referred to in section
3(16)(A)),
‘‘(B) provides that the sponsor is to serve
as plan sponsor (referred to in section
3(16)(B)),
‘‘(C) incorporates the requirements of sec-
tion 707, and
‘‘(D) provides that, effective upon the
granting of an exemption under this part—
‘‘(i) all participating employers must
be members or affiliated members of the
sponsor, except that, in the case of a spon-
sor which is a professional association or
other individual-based association, if at
least one of the officers, directors, or em-
ployees of an employer, or at least one of
the individuals who are partners in an em-
•HR 3955 SC2
ployer and who actively participates in the
business, is a member or affiliated member
of the sponsor, participating employers
may also include such employer, and
‘‘(ii) all individuals thereafter com-
mencing coverage under the arrangement
must be—
‘‘(I) active or retired owners, offi-
cers, directors, or employees of, or
partners in, participating employers,
or
‘‘(II) the beneficiaries of individ-
uals described in subclause (I).
‘‘(4) CONTRIBUTION RATES.—The contribution
rates referred to in subsection (a)(3)(F)(ii) are
adequate.
‘‘(5) 
REGULATORY
REQUIREMENTS.—Such
other requirements as the Secretary may prescribe
by regulation as necessary to carry out the purposes
of this part.
‘‘(c) TREATMENT OF PARTY SEEKING EXEMPTION
WHERE PARTY IS SUBJECT TO DISQUALIFICATION.—
‘‘(1) IN GENERAL.—In the case of any applica-
tion for an exemption under this part with respect
to a multiple employer welfare arrangement, if the
•HR 3955 SC2
Secretary determines that the sponsor of the ar-
rangement or any other person associated with the
arrangement is subject to disqualification under
paragraph (2), the Secretary may deny the exemp-
tion with respect to such arrangement.
‘‘(2) DISQUALIFICATION.—A person is subject
to disqualification under this paragraph if such per-
son—
‘‘(A) has intentionally made a material
misstatement in the application for exemption;
‘‘(B) has obtained or attempted to obtain
an exemption under this part through misrepre-
sentation or fraud;
‘‘(C) has misappropriated or converted to
such person’s own use, or improperly withheld,
money held under a plan or any multiple
employer welfare arrangement;
‘‘(D) is prohibited (or would be prohibited
if the arrangement were a plan) from serving in
any capacity in connection with the arrange-
ment under section 411;
‘‘(E) has failed to appear without reason-
able cause or excuse in response to a subpoena,
examination, warrant, or any other order law-
•HR 3955 SC2
fully issued by the Secretary compelling such
response;
‘‘(F) has previously been subject to a de-
termination under this part resulting in the de-
nial, suspension, or revocation of an exemption
under this part on similar grounds; or
‘‘(G) has otherwise violated any provision
of this title with respect to a matter which the
Secretary determines of sufficient consequence
to merit disqualification for purposes of this
part.
‘‘(d) FRANCHISE NETWORKS.—In the case of a mul-
tiple employer welfare arrangement established and main-
tained by a franchisor for a franchise network consisting
of its franchisees, such franchisor shall be treated as the
sponsor referred to in the preceding provisions of this sec-
tion, such network shall be treated as an association re-
ferred to in such provisions, and each franchisee shall be
treated as a member (of the association and the sponsor)
referred to in such provisions, if all participating employ-
ers are such franchisees and the requirements of sub-
section (b)(1) with respect to a sponsor are met with
respect to the network.
‘‘(e) CERTAIN COLLECTIVELY BARGAINED ARRANGE-
MENTS.—In applying the preceding provisions of this sec-
•HR 3955 SC2
tion in the case of a multiple employer welfare arrange-
ment which would be described in section 3(40)(A)(i) but
for the failure to meet any requirement of section
3(40)(C)—
‘‘(1) paragraphs (1) and (2) of subsection (b)
and subparagraphs (A), (B), and (D) of paragraph
(3) of subsection (b) shall be disregarded, and
‘‘(2) the joint board of trustees shall be consid-
ered the operating committee of the arrangement.
‘‘(f) CERTAIN ARRANGEMENTS NOT MEETING SIN-
GLE EMPLOYER REQUIREMENT.—
‘‘(1) IN GENERAL.—In any case in which the
majority of the employees covered under a multiple
employer welfare arrangement are employees of a
single employer (within the meaning of clauses (i)
and (ii) of section 3(40)(B)), if all other employees
covered under the arrangement are employed by em-
ployers who are related to such single employer, sub-
section (b)(3)(D) shall be disregarded.
‘‘(2) RELATED EMPLOYERS.—For purposes of
paragraph (1), employers are ‘related’ if there is
among all such employers a common ownership in-
terest or a substantial commonality of business oper-
ations based on common suppliers or customers.
•HR 3955 SC2
‘‘SEC. 705. ADDITIONAL REQUIREMENTS APPLICABLE TO
EXEMPTED ARRANGEMENTS.
‘‘(a) NOTICE OF MATERIAL CHANGES.—In the case
of any multiple employer welfare arrangement with respect
to which there is in effect an exemption granted under
this part, descriptions of material changes in any informa-
tion which was required to be submitted with the applica-
tion for the exemption shall be filed in such form and man-
ner as shall be prescribed in regulations of the Secretary.
The Secretary may require by regulation prior notice of
material changes with respect to specified matters which
might serve as the basis for suspension or revocation of
the exemption.
‘‘(b) REPORTING REQUIREMENTS.—Under regula-
tions of the Secretary, the requirements of sections 102,
103, and 104 shall apply with respect to any multiple em-
ployer welfare arrangement with respect to which there is
or has been in effect an exemption granted under this part
in the same manner and to the same extent as such re-
quirements apply to employee welfare benefit plans, irre-
spective of whether such exemption continues in effect.
The annual report required under section 103 for any plan
year in the case of any such multiple employer welfare ar-
rangement shall also include information described in sec-
tion 704(a)(3)(F) with respect to the plan year and, not-
•HR 3955 SC2
withstanding section 104(a)(1)(A), shall be filed not later
than 90 days after the close of the plan year.
‘‘(c) ENGAGEMENT OF QUALIFIED ACTUARY.—The
operating committee of each multiple employer welfare ar-
rangement with respect to which there is or has been in
effect an exemption granted under this part shall engage,
on behalf of all covered individuals, a qualified actuary
who shall be responsible for the preparation of the mate-
rials comprising information necessary to be submitted by
a qualified actuary under this part. The qualified actuary
shall utilize such assumptions and techniques as are nec-
essary to enable such actuary to form an opinion as to
whether the contents of the matters reported under this
part—
‘‘(1) are in the aggregate reasonably related to
the experience of the arrangement and to reasonable
expectations, and
‘‘(2) represent such actuary’s best estimate of
anticipated experience under the arrangement.
The opinion by the qualified actuary shall be made with
respect to, and shall be made a part of, the annual report.
‘‘(d) 
FILING
NOTICE
OF
EXEMPTION
WITH
STATES.—An exemption granted to a multiple employer
welfare arrangement under this part shall not be effective
unless written notice of such exemption is filed with the
•HR 3955 SC2
State insurance commissioner of each State in which at
least 5 percent of the individuals covered under the ar-
rangement are located. For purposes of this paragraph,
an individual shall be considered to be located in the State
in which a known address of such individual is located or
in which such individual is employed. The Secretary may
by regulation provide in specified cases for the application
of the preceding sentence with lesser percentages in lieu
of such 5 percent amount.
‘‘SEC. 706. DISCLOSURE TO PARTICIPATING EMPLOYERS BY
ARRANGEMENTS PROVIDING MEDICAL CARE.
‘‘(a) IN GENERAL.—A multiple employer welfare ar-
rangement providing benefits consisting of medical care
described in section 607(1) shall issue to each participat-
ing employer—
‘‘(1) a document equivalent to the summary
plan description required of plans under part 1,
‘‘(2) information describing the contribution
rates applicable to participating employers, and
‘‘(3) a statement indicating—
‘‘(A) whether or not the arrangement is
fully insured,
‘‘(B) whether or not there is in effect with
respect to the arrangement an exemption grant-
ed under this part and, if there is in effect such
•HR 3955 SC2
an exemption, that the arrangement is (or is
treated as) an employee welfare benefit plan
under this title, and
‘‘(C) that the arrangement is not a li-
censed insurer under the laws of any State.
‘‘(b) TIME
FOR DISCLOSURE.—Such information
shall be issued to employers within such reasonable period
of time before becoming participating employers as may
be prescribed in regulations of the Secretary.
‘‘SEC. 707. MAINTENANCE OF RESERVES.
‘‘(a) IN GENERAL.—Each multiple employer welfare
arrangement with respect to which there is or has been
in effect an exemption granted under this part and which
is not fully insured shall establish and maintain reserves,
consisting of—
‘‘(1) a reserve for unearned contributions,
‘‘(2) a reserve for payment of claims reported
and not yet paid and claims incurred but not yet re-
ported, and for expected administrative costs with
respect to such claims, and
‘‘(3) a reserve, in an amount recommended by
the qualified actuary, for any other obligations of
the arrangement.
‘‘(b) MINIMUM AMOUNT FOR CERTAIN RESERVES.—
The total of the reserves described in subsection (a)(2)
•HR 3955 SC2
shall not be less than an amount equal to 25 percent of
expected incurred claims and expenses for the plan year.
‘‘(c) REQUIRED
MARGIN.—In determining the
amounts of reserves required under this section in connec-
tion with any multiple employer welfare arrangement, the
qualified actuary shall include a margin for error and
other fluctuations taking into account the specific
circumstances of such arrangement.
‘‘(d) ADDITIONAL REQUIREMENTS.—The Secretary
may provide such additional requirements relating to re-
serves and excess/stop loss coverage as the Secretary con-
siders appropriate. Such requirements may be provided,
by regulation or otherwise, with respect to any arrange-
ment or any class of arrangements.
‘‘(e) ADJUSTMENTS FOR EXCESS/STOP LOSS COV-
ERAGE.—The Secretary may provide for adjustments to
the levels of reserves otherwise required under subsections
(a) and (b) with respect to any arrangement or class of
arrangements to take into account excess/stop loss cov-
erage provided with respect to such arrangement or ar-
rangements.
‘‘(f) ALTERNATIVE MEANS OF COMPLIANCE.—The
Secretary may permit an arrangement (including a pre-
paid health care arrangement) to substitute, for all or part
of the reserves required under subsection (a), such secu-
•HR 3955 SC2
rity, guarantee, or other financial arrangement as the Sec-
retary determines to be adequate to enable the arrange-
ment to fully meet all its financial obligations on a timely
basis.
‘‘SEC. 708. CORRECTIVE ACTIONS.
‘‘(a) ACTIONS
TO
AVOID
DEPLETION
OF
RE-
SERVES.—A multiple employer welfare arrangement with
respect to which there is or has been in effect an exemp-
tion granted under this part shall continue to meet the
requirements of section 707, irrespective of whether such
exemption continues in effect. The operating committee of
such arrangement shall determine semiannually whether
the requirements of section 707 are met. In any case in
which the committee determines that there is reason to
believe that there is or will be a failure to meet such re-
quirements, or the Secretary makes such a determination
and so notifies the committee, the committee shall imme-
diately notify the qualified actuary engaged by the ar-
rangement, and such actuary shall, not later than the end
of the next following month, make such recommendations
to the committee for corrective action as the actuary deter-
mines necessary to ensure compliance with section 707.
Not later than 10 days after receiving from the actuary
recommendations for corrective actions, the committee
shall notify the Secretary (in such form and manner as
•HR 3955 SC2
the Secretary may prescribe by regulation) of such rec-
ommendations of the actuary for corrective action, to-
gether with a description of the actions (if any) that the
committee has taken or plans to take in response to such
recommendations. The committee shall thereafter report
to the Secretary, in such form and frequency as the Sec-
retary may specify to the committee, regarding corrective
action taken by the committee until the requirements of
section 707 are met.
‘‘(b) TERMINATION.—
‘‘(1) NOTICE OF TERMINATION.—In any case in
which the operating committee of a multiple em-
ployer welfare arrangement with respect to which
there is or has been in effect an exemption granted
under this part determines that there is reason to
believe that the arrangement will terminate, the
committee shall so inform the Secretary, shall de-
velop a plan for winding up the affairs of the ar-
rangement in connection with such termination in a
manner which will result in timely payment of all
benefits for which the arrangement is obligated, and
shall submit such plan in writing to the Secretary.
Actions required under this paragraph shall be taken
in such form and manner as may be prescribed in
regulations of the Secretary.
•HR 3955 SC2
‘‘(2) ACTIONS REQUIRED IN CONNECTION WITH
TERMINATION.—In any case in which—
‘‘(A) the Secretary has been notified under
subsection (a) of a failure of a multiple em-
ployer welfare arrangement with respect to
which there is or has been in effect an exemp-
tion granted under this part to meet the re-
quirements of section 707 and has not been no-
tified by the operating committee of the ar-
rangement that corrective action has restored
compliance with such requirements, and
‘‘(B) the Secretary determines that the
continuing failure to meet the requirements of
section 707 can be reasonably expected to result
in a continuing failure to pay benefits for which
the arrangement is obligated,
the operating committee of the arrangement shall, at
the direction of the Secretary, terminate the ar-
rangement and, in the course of the termination,
take such actions as the Secretary may require as
necessary to ensure that the affairs of the arrange-
ment will be, to the maximum extent possible, wound
up in a manner which will result in timely payment
of all benefits for which the arrangement is
obligated.
•HR 3955 SC2
‘‘SEC. 709. EXPIRATION, SUSPENSION, OR REVOCATION OF
EXEMPTION.
‘‘(a) EXPIRATION AND RENEWAL OF EXEMPTION.—
An exemption granted to a multiple employer welfare ar-
rangement under this part shall expire 3 years after the
date on which the exemption is granted. An exemption
which has expired may be renewed by means of application
for an exemption in accordance with section 704.
‘‘(b) SUSPENSION OR REVOCATION OF EXEMPTION
BY SECRETARY.—The Secretary may suspend or revoke
an exemption granted to a multiple employer welfare
arrangement under this part—
‘‘(1) for any cause that may serve as the basis
for the denial of an initial application for such an
exemption under section 704, or
‘‘(2) if the Secretary finds that—
‘‘(A) the arrangement, or the sponsor
thereof, in the transaction of business while
under the exemption, has used fraudulent, coer-
cive, or dishonest practices, or has dem-
onstrated incompetence, untrustworthiness, or
financial irresponsibility,
‘‘(B) the arrangement, or the sponsor
thereof, is using such methods or practices in
the conduct of its operations, so as to render its
further transaction of operations hazardous or
100
•HR 3955 SC2
injurious to participating employers, or covered
individuals,
‘‘(C) the arrangement, or the sponsor
thereof, has refused to be examined in accord-
ance with this part or to produce its accounts,
records, and files for examination in accordance
with this part, or
‘‘(D) any of the officers of the arrange-
ment, or the sponsor thereof, has refused to
give information with respect to the affairs of
the arrangement or the sponsor or to perform
any other legal obligation relating to such an
examination when required by the Secretary in
accordance with this part.
Any such suspension or revocation under this subsection
shall be effective only upon a final decision of the Sec-
retary made after notice and opportunity for a hearing
is provided in accordance with section 710.
‘‘(c) SUSPENSION OR REVOCATION OF EXEMPTION
UNDER COURT PROCEEDINGS.—An exemption granted to
a multiple employer welfare arrangement under this part
may be suspended or revoked by a court of competent ju-
risdiction in an action by the Secretary brought under
paragraph (2), (5), or (6) of section 502(a), except that
the suspension or revocation under this subsection shall
103
•HR 3955 SC2
‘‘(1) a specific date and time for the hearing,
which shall be within the 10-day period commencing
20 days after the date of the mailing of the notice,
and
‘‘(2) a specific place for the hearing, which shall
be in the District of Columbia or in the State and
county thereof (or parish or other similar political
subdivision thereof) in which is located the arrange-
ment’s principal place of business.
The decision as affirmed or modified in such hearing shall
constitute the final decision of the Secretary, unless such
decision is reversed in such hearing.’’.
(b) CONFORMING AMENDMENT TO DEFINITION OF
PLAN SPONSOR.—Section 3(16)(B) of such Act (29
U.S.C. 1002(16)(B)) is amended by adding at the end the
following new sentence: ‘‘Such term also includes the spon-
sor (as defined in section 701(5)) of a multiple employer
welfare arrangement, or a multiple employer health plan
(as defined in section 701(10)), with respect to which
there is or has been in effect an exemption granted under
part 7.’’.
(c) ALTERNATIVE MEANS
OF DISTRIBUTION
OF
SUMMARY PLAN DESCRIPTIONS.—Section 110 of such
Act (29 U.S.C. 1030) is amended by adding at the end
the following new subsection:
104
•HR 3955 SC2
‘‘(c) The Secretary shall prescribe, as an alternative
method for distributing summary plan descriptions in
order to meet the requirements of section 104(b)(1) in the
case of multiple employer welfare arrangements providing
benefits consisting of medical care described in section
607(1), a means of distribution of such descriptions by
participating employers.’’.
(d) CLERICAL AMENDMENT.—The table of contents
in section 1 of the Employee Retirement Income Security
Act of 1974 is amended by inserting after the item relat-
ing to section 608 the following new items:
‘‘PART 7—MULTIPLE EMPLOYER HEALTH PLANS
‘‘Sec. 701. Definitions.
‘‘Sec. 702. Exempted multiple employer welfare arrangements treated as em-
ployee welfare benefit plans and exempt from certain restric-
tions on preemption.
‘‘Sec. 703. Exemption procedure.
‘‘Sec. 704. Eligibility requirements.
‘‘Sec. 705. Additional requirements applicable to exempted arrangements.
‘‘Sec. 706. Disclosure to participating employers by arrangements providing
medical care.
‘‘Sec. 707. Maintenance of reserves.
‘‘Sec. 708. Corrective actions.
‘‘Sec. 709. Expiration, suspension, or revocation of exemption.
‘‘Sec. 710. Review of actions of the Secretary.’’.
SEC. 1212. CLARIFICATION OF SCOPE OF PREEMPTION
RULES.
(a) IN GENERAL.—Section 514(b)(6)(A)(ii) of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1144(b)(6)(A)(ii)) is amended by inserting ‘‘, but
only, in the case of an arrangement which provides medi-
cal care described in section 607(1) and with respect to
105
•HR 3955 SC2
which an exemption under part 7 is not in effect,’’ before
‘‘to the extent not inconsistent with the preceding sections
of this title’’.
(b) CROSS-REFERENCE.—Section 514(b)(6) of such
Act (29 U.S.C. 1144(b)(6)) is amended by adding at the
end the following new subparagraph:
‘‘(E) For additional rules relating to exemption from
subparagraph (A)(ii) of multiple employer welfare ar-
rangements providing medical care, see part 7.’’.
SEC. 1213. CLARIFICATION OF TREATMENT OF SINGLE EM-
PLOYER ARRANGEMENTS.
Section 3(40)(B) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1002(40)(B)) is amend-
ed—
(1) in clause (i), by inserting ‘‘for any plan year
of any such plan, or any fiscal year of any such
other arrangement,’’ after ‘‘single employer’’, and by
inserting ‘‘during such year or at any time during
the preceding 1-year period’’ after ‘‘common con-
trol’’;
(2) in clause (iii), by striking ‘‘common control
shall not be based on an interest of less than 25 per-
cent’’ and inserting ‘‘an interest of greater than 25
percent may not be required as the minimum inter-
106
•HR 3955 SC2
est necessary for common control’’, and by striking
‘‘and’’ at the end,
(3) by redesignating clause (iv) as clause (v),
and
(4) by inserting after clause (iii) the following
new clause:
‘‘(iv) in determining, after the application of
clause (i), whether benefits are provided to employ-
ees of two or more employers, the arrangement shall
be treated as having only 1 participating employer
if, at the time the determination under clause (i) is
made, the number of individuals who are employees
and former employees of any one participating em-
ployer and who are covered under the arrangement
is greater than 95 percent of the aggregate number
of all individuals who are employees or former em-
ployees of participating employers and who are
covered under the arrangement.’’.
SEC. 1214. CLARIFICATION OF TREATMENT OF CERTAIN
COLLECTIVELY 
BARGAINED 
ARRANGE-
MENTS.
(a) IN GENERAL.—Section 3(40)(A)(i) of the Em-
ployee Retirement Income Security Act of 1974 (29
U.S.C. 1002(40)(A)(i)) is amended to read as follows:
107
•HR 3955 SC2
‘‘(i) under or pursuant to one or more collective
bargaining agreements,’’.
(b) LIMITATIONS.—Section 3(40) of such Act (29
U.S.C. 1002(40)) is amended by adding at the end the
following new subparagraphs:
‘‘(C) Clause (i) of subparagraph (A) shall
apply only if—
‘‘(i) the plan or other arrangement,
and the employee organization or any other
entity sponsoring the plan or other ar-
rangement, do not—
‘‘(I) utilize the services of any li-
censed insurance agent or broker for
soliciting or enrolling employers or in-
dividuals as participating employers or
covered individuals under the plan or
other arrangement, or
‘‘(II) pay a commission or any
other type of compensation to a per-
son that is related either to the vol-
ume or number of employers or indi-
viduals solicited or enrolled as partici-
pating employers or covered individ-
uals under the plan or other arrange-
ment, or to the dollar amount or size
108
•HR 3955 SC2
of the contributions made by partici-
pating employers or covered individ-
uals to the plan or other arrangement,
‘‘(ii) not less than 85 percent of the
covered individuals under the plan or other
arrangement are individuals who—
‘‘(I) are employed within a bar-
gaining unit covered by at least one of
the collective bargaining agreements
with a participating employer (or are
covered on the basis of an individual’s
employment in such a bargaining
unit), or
‘‘(II) are present or former em-
ployees of the sponsoring employee or-
ganization, of an employer who is or
was a party to at least one of the col-
lective bargaining agreements, or of
the plan or other arrangement or a
related plan or arrangement (or are
covered on the basis of such present
or former employment),
‘‘(iii) the plan or other arrangement
does not provide benefits to individuals
(other than individuals described in clause
109
•HR 3955 SC2
(ii)(II)) who work outside the standard
metropolitan statistical area in which the
sponsoring 
employee 
organization 
rep-
resents employees (or to individuals (other
than 
individuals 
described 
in 
clause
(ii)(II)) on the basis of such work by oth-
ers), except that in the case of a sponsor-
ing employee organization that represents
employees who work outside of any stand-
ard metropolitan statistical area, this
clause shall be applied by reference to the
State in which the sponsoring organization
represents employees,
‘‘(iv) the employee organization or
other entity sponsoring the plan or other
arrangement certifies to the Secretary each
year, in a form and manner which shall be
prescribed in regulations of the Sec-
retary—
‘‘(I) that the plan or other ar-
rangement meets the requirements of
clauses (i), (ii), and (iii), and
‘‘(II) if, for any year, 10 percent
or more of the covered individuals
under the plan are individuals not de-
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scribed in subclause (I) or (II) of
clause (ii), the total number of cov-
ered individuals and the total number
of covered individuals not so de-
scribed.
‘‘(D)(i) Clause (i) of subparagraph (A)
shall not apply to a plan or other arrangement
that is established or maintained pursuant to
one or more collective bargaining agreements
which the National Labor Relations Boards de-
termines to have been negotiated or otherwise
agreed to in a manner or through conduct
which violates section 8(a)(2) of the National
Labor Relations Act (29 U.S.C. 158(a)(2)).
‘‘(ii)(I) Whenever a State insurance com-
missioner has reason to believe that this sub-
paragraph is applicable to part or all of a plan
or other arrangement, the State insurance com-
missioner may file a petition with the National
Labor Relations Board for a determination
under clause (i), along with sworn written testi-
mony supporting the petition.
‘‘(II) The Board shall give any such peti-
tion priority over all other petitions and cases,
other than other petitions under subclause (I)
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or cases given priority under section 10 of the
National Labor Relations Act (29 U.S.C. 160).
‘‘(III) The Board shall determine, upon
the petition and any response, whether, on the
facts before it, the plan or other arrangement
was negotiated, created, or otherwise agreed to
in a manner or through conduct which violates
section 8(a)(2) of the National Labor Relations
Act (29 U.S.C. 158(a)(2)). Such determination
shall constitute a final determination for pur-
poses of this subparagraph and shall be binding
in all Federal or State actions with respect to
the status of the plan or other arrangement
under this subparagraph.
‘‘(IV) A person aggrieved by the deter-
mination of the Board under subclause (III)
may obtain review of the determination in any
United States court of appeals in the circuit in
which the collective bargaining at issue oc-
curred. Commencement of proceedings under
this subclause shall not, unless specifically or-
dered by the court, operate as a stay of any
State administrative or judicial action or pro-
ceeding related to the status of the plan or
other arrangement, except that in no case may
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the court stay, before the completion of the re-
view, an order which prohibits the enrollment of
new individuals into coverage under a plan or
arrangement.’’.
SEC. 1215. EMPLOYEE LEASING HEALTHCARE ARRANGE-
MENTS.
(a) EMPLOYEE LEASING HEALTHCARE ARRANGE-
MENT DEFINED.—Section 3 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1002) is amended
by adding at the end the following new paragraph:
‘‘(43) EMPLOYEE LEASING HEALTHCARE ARRANGE-
MENT.—
‘‘(A) IN
GENERAL.—Subject to subparagraph
(B), the term ‘employee leasing healthcare arrange-
ment’ means any labor leasing arrangement, staff
leasing arrangement, extended employee staffing or
supply arrangement, or other arrangement under
which—
‘‘(i) one business or other entity (herein-
after in this paragraph referred to as the ‘les-
see’), under a lease or other arrangement en-
tered into with any other business or other en-
tity (hereinafter in this paragraph referred to
as the ‘lessor’), receives from the lessor the
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services of individuals to be performed under
such lease or other arrangement, and
‘‘(ii) benefits consisting of medical care de-
scribed in section 607(1) are provided to such
individuals or such individuals and their de-
pendents as participants and beneficiaries.
‘‘(B) EXCEPTION.—Such term does not include
an arrangement described in subparagraph (A) if,
under such arrangement, the lessor retains, both le-
gally and in fact, a complete right of direction and
control within the scope of employment over the in-
dividuals whose services are supplied under such
lease or other arrangement, and such individuals
perform a specified function for the lessee which is
separate and divisible from the primary business or
operations of the lessee.’’.
(b) 
TREATMENT
OF
EMPLOYEE
LEASING
HEALTHCARE ARRANGEMENTS AS MULTIPLE EMPLOYER
WELFARE ARRANGEMENTS.—Section 3(40) of such Act
(29 U.S.C. 1002(40)) (as amended by the preceding provi-
sions of this title) is further amended by adding at the
end the following new subparagraph:
‘‘(E) The term ‘multiple employer welfare arrange-
ment’ includes any employee leasing healthcare arrange-
ment, except that such term does not include any employee
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leasing healthcare arrangement which is a multiple em-
ployer health plan (as defined in section 701(10)).’’.
(c) SPECIAL
RULES
FOR
EMPLOYEE
LEASING
HEALTHCARE ARRANGEMENTS.—
(1) IN GENERAL.—Part 7 of subtitle B of title
I of such Act (as added by the preceding provisions
of this Act) is amended by adding at the end the fol-
lowing new section:
‘‘SEC. 711. SPECIAL RULES FOR EMPLOYEE LEASING
HEALTHCARE ARRANGEMENTS.
‘‘(a) IN GENERAL.—The requirements of paragraphs
(1), (2), and (3) of section 704(b) shall be treated as satis-
fied in the case of a multiple employer welfare arrange-
ment that is an employee leasing healthcare arrangement
if the application for exemption includes information
which the Secretary determines to be complete and accu-
rate and sufficient to demonstrate that the following
requirements are met with respect to the arrangement:
‘‘(1) 3-YEAR TENURE.—The lessor has been in
operation for not less than 3 years.
‘‘(2) SOLICITATION
RESTRICTIONS.—Employee
leasing services provided under the arrangement are
not solicited, advertised, or marketed through li-
censed insurance agents or brokers acting in such
capacity.
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‘‘(3) CREATION
OF
EMPLOYMENT
RELATION-
SHIP.—
‘‘(A) DISCLOSURE
STATEMENT.—Written
notice is provided to each applicant for employ-
ment subject to coverage under the arrange-
ment, at the time of application for employment
and before commencing coverage under the ar-
rangement, stating that the employer is the les-
sor under the arrangement.
‘‘(B) INFORMED
CONSENT.—Each such
applicant signs a written statement consenting
to the employment relationship with the lessor.
‘‘(C) INFORMED
RECRUITMENT
OF
LES-
SEE’S EMPLOYEES.—In any case in which the
lessor offers employment to an employee of a
lessee under the arrangement, the lessor in-
forms each employee in writing that his or her
acceptance of employment with the lessor is vol-
untary and that refusal of such offer will not be
deemed to be resignation from or abandonment
of current employment.
‘‘(4) REQUISITE
EMPLOYER-EMPLOYEE
RELA-
TIONSHIP UNDER ARRANGEMENT.—Under the em-
ployer-employee relationship with the employees of
the lessor—
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‘‘(A) the lessor retains the ultimate author-
ity to hire, terminate, and reassign such em-
ployees,
‘‘(B) the lessor is responsible for the pay-
ment of wages, payroll-related taxes, and em-
ployee benefits, without regard to payment by
the lessee to the lessor for its services,
‘‘(C) the lessor maintains the right of di-
rection and control over its employees, except to
the extent that the lessee is responsible for su-
pervision of the work performed consistent with
the lessee’s responsibility for its product or
service,
‘‘(D) in accordance with section 301(a) of
the Labor Management Relations Act, 1947 (29
U.S.C. 185(a)), the lessor retains in the ab-
sence of an applicable collective bargaining
agreement, the right to enter into arbitration
and to decide employee grievances, and
‘‘(E) no owner, officer, or director of, or
partner in, a lessee is an employee of the lessor,
and not more than 10 percent of the individuals
covered under the arrangement consist of own-
ers, officers, or directors of, or partners in,
such a lessee (or any combination thereof).
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‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) LESSOR.—The term ‘lessor’ means the
business or other entity from which services of indi-
viduals are obtained under an employee leasing
healthcare arrangement.
‘‘(2) LESSEE.—The term ‘lessee’ means a busi-
ness or other entity which receives the services of in-
dividuals provided under an employee leasing
healthcare arrangement.’’.
(2) CLERICAL AMENDMENT.—The table of con-
tents in section 1 of such Act (as amended by the
preceding provisions of this title) is further amended
by inserting after the item relating to section 710
the following new item:
‘‘Sec. 711. Employee leasing healthcare arrangements.’’.
SEC. 1216. ENFORCEMENT PROVISIONS RELATING TO MUL-
TIPLE EMPLOYER WELFARE ARRANGEMENTS
AND EMPLOYEE LEASING HEALTHCARE AR-
RANGEMENTS.
(a) ENFORCEMENT
OF FILING REQUIREMENTS.—
Section 502 of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1132) is amended—
(1) in subsection (a)(6), by striking ‘‘subsection
(c)(2) or (i) or (l)’’ and inserting ‘‘paragraph (2) or
(4) of subsection (c) or subsection (i) or (l)’’; and
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•HR 3955 SC2
(2) by adding at the end of subsection (c) the
following new paragraph:
‘‘(4) The Secretary may assess a civil penalty against
any person of up to $1,000 a day from the date of such
person’s failure or refusal to file the information required
to be filed with the Secretary under section 101(e).’’.
(b) ACTIONS BY STATES IN FEDERAL COURT.—Sec-
tion 502(a) of such Act (29 U.S.C. 1132(a)) is amended—
(1) in paragraph (5), by striking ‘‘or’’ at the
end;
(2) in paragraph (6), by striking the period and
inserting ‘‘, or’’; and
(3) by adding at the end the following:
‘‘(7) by a State official having authority under
the law of such State to enforce the laws of such
State regulating insurance, to enjoin any act or
practice which violates any provision of part 7 which
such State has the power to enforce under part 7.’’.
(c) CRIMINAL PENALTIES FOR CERTAIN WILLFUL
MISREPRESENTATIONS.—Section 501 of such Act (29
U.S.C. 1131) is amended—
(1) by inserting ‘‘(a)’’ after ‘‘SEC. 501.’’; and
(2) by adding at the end the following new sub-
section:
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‘‘(b) Any person who, either willfully or with willful
blindness, falsely represents, to any employee, any employ-
ee’s beneficiary, any employer, the Secretary, or any State,
an arrangement established or maintained for the purpose
of offering or providing any benefit described in section
3(1) to employees or their beneficiaries as being a multiple
employer welfare arrangement granted an exemption
under part 7, as being an employee leasing healthcare ar-
rangement under such an exemption, or as having been
established or maintained under or pursuant to a collective
bargaining agreement shall, upon conviction, be impris-
oned not more than five years, be fined under title 18,
United States Code, or both.’’.
(d) CEASE ACTIVITIES ORDERS.—Section 502 of
such Act (29 U.S.C. 1132) is amended by adding at the
end the following new subsection:
‘‘(m)(1) Subject to paragraph (2), upon application
by the Secretary showing the operation, promotion, or
marketing of a multiple employer welfare arrangement
providing benefits consisting of medical care described in
section 607(1) that—
‘‘(A) is not licensed, registered, or otherwise ap-
proved under the insurance laws of the States in
which the arrangement offers or provides benefits, or
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•HR 3955 SC2
‘‘(B) is not operating in accordance with the
terms of an exemption granted by the Secretary
under part 7,
a district court of the United States shall enter an order
requiring that the arrangement cease activities.
‘‘(2) Paragraph (1) shall not apply in the case of a
multiple employer welfare arrangement if the arrangement
shows that it—
‘‘(A) is fully insured, within the meaning of
section 701(9),
‘‘(B) is licensed, registered, or otherwise ap-
proved in each State in which it offers or provides
benefits, except to the extent that such State does
not require licensing, registration, or approval of
fully insured multiple employer welfare arrange-
ments, and
‘‘(C) with respect to each such State, is operat-
ing in accordance with applicable State insurance
laws that are not superseded under section 514.
‘‘(3) The court may grant such additional equitable
or remedial relief, including any relief available under this
title, as it deems necessary to protect the interests of the
public and of persons having claims for benefits against
the arrangement.’’.
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(e) RESPONSIBILITY
FOR CLAIMS PROCEDURE.—
Section 503 of such Act (29 U.S.C. 1133) is amended by
adding at the end (after and below paragraph (2)) the fol-
lowing new sentence: ‘‘The terms of each multiple em-
ployer welfare arrangement to which this section applies
and which provides benefits consisting of medical care de-
scribed in section 607(1) shall require the operating com-
mittee or the named fiduciary (as applicable) to ensure
that the requirements of this section are met in connection
with claims filed under the arrangement.’’.
SEC. 1217. FILING REQUIREMENTS FOR HEALTH BENEFIT
MULTIPLE EMPLOYER WELFARE ARRANGE-
MENTS.
Section 101 of the Employee Retirement Income Se-
curity Act of 1974 (29 U.S.C. 1021) is amended—
(1) by redesignating subsection (e) as sub-
section (f); and
(2) by inserting after subsection (d) the follow-
ing new subsection:
‘‘(e)(1) Each multiple employer welfare arrangement
shall file with the Secretary a registration statement de-
scribed in paragraph (2) within 60 days before commenc-
ing operations (in the case of an arrangement commencing
operations on or after January 1, 1995) and no later than
February 15 of each year (in the case of an arrangement
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•HR 3955 SC2
in operation since the beginning of such year), unless, as
of the date by which such filing otherwise must be made,
such arrangement provides no benefits consisting of medi-
cal care described in section 607(1).
‘‘(2) Each registration statement—
‘‘(A) shall be filed in such form, and contain
such information concerning the multiple employer
welfare arrangement and any persons involved in its
operation (including whether the arrangement is
fully insured), as shall be provided in regulations
which shall be prescribed by the Secretary, and
‘‘(B) if the arrangement is not fully insured,
shall contain a certification that copies of such reg-
istration statement have been transmitted by cer-
tified mail to—
‘‘(i) in the case of an arrangement with re-
spect to which an exemption under part 7 is in
effect, the State insurance commissioner of the
domicile State of such arrangement, or
‘‘(ii) in the case of an arrangement which
is not so exempt, the State insurance commis-
sioner of each State in which the arrangement
is located.
‘‘(3) The person or persons responsible for filing the
annual registration statement are—
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•HR 3955 SC2
‘‘(A) the trustee or trustees so designated by
the terms of the instrument under which the mul-
tiple employer welfare arrangement is established or
maintained, or
‘‘(B) in the case of a multiple employer welfare
arrangement for which the trustee or trustees can-
not be identified, or upon the failure of the trustee
or trustees of an arrangement to file, the person or
persons actually responsible for the acquisition, dis-
position, control, or management of the cash or
property of the arrangement, irrespective of whether
such acquisition, disposition, control, or management
is exercised directly by such person or persons or
through an agent designated by such person or
persons.
‘‘(4) Any agreement entered into under section
506(c) with a State as the primary domicile State with
respect to any multiple employer welfare arrangement
shall provide for simultaneous filings of reports required
under this subsection with the Secretary and with the
State insurance commissioner of such State.’’.
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SEC. 1218. COOPERATION BETWEEN FEDERAL AND STATE
AUTHORITIES.
Section 506 of the Employee Retirement Income Se-
curity Act of 1974 (29 U.S.C. 1136) is amended by adding
at the end the following new subsection:
‘‘(c) RESPONSIBILITY WITH RESPECT TO MULTIPLE
EMPLOYER WELFARE ARRANGEMENTS.—
‘‘(1) STATE ENFORCEMENT.—
‘‘(A) 
AGREEMENTS
WITH
STATES.—A
State may enter into an agreement with the
Secretary for delegation to the State of some or
all of the Secretary’s authority under sections
502 and 504 to enforce the provisions of this
title applicable to multiple employer welfare ar-
rangements with respect to which an exemption
under part 7 is or has been in effect. The Sec-
retary shall enter into the agreement if the Sec-
retary determines that the delegation provided
for therein would not result in a lower level or
quality of enforcement of the provisions of this
title.
‘‘(B) 
DELEGATIONS.—Any 
department,
agency, or instrumentality of a State to which
authority is delegated pursuant to an agree-
ment entered into under this paragraph may, if
authorized under State law and to the extent
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•HR 3955 SC2
consistent with such agreement, exercise the
powers of the Secretary under this title which
relate to such authority.
‘‘(C) CONCURRENT
AUTHORITY
OF
THE
SECRETARY.—If the Secretary delegates author-
ity to a State in an agreement entered into
under subparagraph (A), the Secretary may
continue to exercise such authority concurrently
with the State.
‘‘(D) RECOGNITION OF PRIMARY DOMICILE
STATE.—In entering into any agreement with a
State under subparagraph (A), the Secretary
shall ensure that, as a result of such agreement
and all other agreements entered into under
subparagraph (A), only one State will be recog-
nized, with respect to any particular multiple
employer welfare arrangement, as the primary
domicile State to which authority has been dele-
gated pursuant to such agreements.
‘‘(2) ASSISTANCE TO STATES.—The Secretary
shall—
‘‘(A) provide enforcement assistance to the
States with respect to multiple employer welfare
arrangements, including, but not limited to, co-
ordinating Federal and State efforts through
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•HR 3955 SC2
the establishment of cooperative agreements
with appropriate State agencies under which
the Pension and Welfare Benefits Administra-
tion keeps the States informed of the status of
its cases and makes available to the States in-
formation obtained by it,
‘‘(B) provide continuing technical assist-
ance to the States with respect to issues involv-
ing multiple employer welfare arrangements
and this Act,
‘‘(C) assist the States in obtaining from
the Office of Regulations and Interpretations
timely and complete responses to requests for
advisory opinions on issues described in sub-
paragraph (B), and
‘‘(D) distribute copies of all advisory opin-
ions described in subparagraph (C) to the State
insurance commissioner of each State.’’.
SEC. 1219. EFFECTIVE DATE; TRANSITIONAL RULES.
(a) EFFECTIVE DATE.—The amendments made by
this part shall take effect January 1, 1995, except that
the Secretary of Labor may issue regulations before such
date under such amendments. The Secretary shall issue
all regulations necessary to carry out the amendments
made by this title before the effective date thereof.
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•HR 3955 SC2
(b) TRANSITIONAL RULES.—If the sponsor of a mul-
tiple employer welfare arrangement which, as of January
1, 1995, provides benefits consisting of medical care de-
scribed in section 607(1) of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1167(1)) files with
the Secretary of Labor an application for an exemption
under part 7 of subtitle B of title I of such Act within
180 days after such date and the Secretary has not, as
of 90 days after receipt of such application, found such
application to be materially deficient, section 514(b)(6)(A)
of such Act (29 U.S.C. 1144(b)(6)(A)) shall not apply
with respect to such arrangement during the 18-month pe-
riod following such date. If the Secretary determines, at
any time after the date of enactment of this Act, that any
such exclusion from coverage under the provisions of such
section 514(b)(6)(A) of such Act of a multiple employer
welfare arrangement would be detrimental to the interests
of individuals covered under such arrangement, such ex-
clusion shall cease as of the date of the determination.
Any determination made by the Secretary under this sub-
section shall be in the Secretary’s sole discretion.
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PART 3—ENCOURAGEMENT OF MULTIPLE EM-
PLOYER ARRANGEMENTS PROVIDING BASIC
HEALTH BENEFITS
SEC. 1221. ELIMINATING COMMONALITY OF INTEREST OR
GEOGRAPHIC LOCATION REQUIREMENT FOR
TAX EXEMPT TRUST STATUS.
(a) IN GENERAL.—Paragraph (9) of section 501(c)
of the Internal Revenue Code of 1986 (relating to exempt
organizations) is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(9)’’; and
(2) by adding at the end the following:
‘‘(B) Any determination of whether a multiple
employer health plan (as defined in section 701(10)
of the Employee Retirement Income Security Act of
1974) or an insured multiple employer health plan
(as defined in section 701(11) of such Act) is a vol-
untary employees’ beneficiary association meeting
the requirements of this paragraph shall be made
without regard to any determination of commonality
of interest or geographic location if—
‘‘(i) such plan provides at least standard
coverage (consistent with section 1102(b) of the
Health Reform Consensus Act of 1994), and
‘‘(ii) in the case of an insured multiple em-
ployer health plan, it meets the requirements
enforceable under section 514(b)(6)(B)(i) of the
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Employee Retirement Income Security Act of
1974 to the extent not preempted by section
1202 of the Health Reform Consensus Act of
1994.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply with respect to determinations
made on or after January 1, 1995.
PART 4—SIMPLIFYING FILING OF REPORTS FOR
EMPLOYERS 
COVERED 
UNDER 
INSURED
MULTIPLE EMPLOYER HEALTH PLANS
SEC. 1231. SINGLE ANNUAL FILING FOR ALL EMPLOYERS
COVERED UNDER AN INSURED MULTIPLE
EMPLOYER HEALTH PLAN.
(a) IN GENERAL.—Section 110 of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C. 1030),
as amended by section 1211(c) of this subtitle, is amended
by adding at the end the following new subsection:
‘‘(d) The Secretary shall prescribe by regulation or
otherwise an alternative method providing for the filing
of a single annual report (as referred to in section
104(a)(1)(A)) with respect to all employers who are cov-
ered under the same insured multiple employer health plan
(as defined in section 701(11)).’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on the date of the enact-
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ment of this Act. The Secretary of Labor shall prescribe
the alternative method referred to in section 110(d) of the
Employee Retirement Income Security Act of 1974, as
added by such amendment, within 90 days after the date
of the enactment of this Act.
PART 5—COMPLIANCE WITH COVERAGE OPTION
REQUIREMENTS
SEC. 1241. COMPLIANCE WITH COVERAGE REQUIREMENTS
THROUGH MULTIPLE EMPLOYER HEALTH AR-
RANGEMENTS.
(a) COMPLIANCE WITH APPLICABLE REQUIREMENTS
THROUGH MULTIEMPLOYER PLANS.—In any case in
which an eligible employee is, for any plan year, a partici-
pant in a group health plan which is a multiemployer plan,
the requirements of section 1001(a) shall be deemed to
be met with respect to such employee for such plan year
if the employer requirements of subsection (c) are met
with respect to the eligible employee, irrespective of wheth-
er, or to what extent, the employer makes employer con-
tributions on behalf of the eligible employee.
(b) COMPLIANCE WITH APPLICABLE REQUIREMENTS
THROUGH OTHER MULTIPLE EMPLOYER HEALTH AR-
RANGEMENTS.—
(1) IN GENERAL.—In any case in which an em-
ployer is, for any plan year, a participating employer
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•HR 3955 SC2
(as defined in paragraph (3)) in an exempted mul-
tiple employer health plan or an insured multiple
employer health plan, the requirements of section
1001(a) shall be deemed to be met (and the ERISA
requirements of paragraph (2) shall be deemed to be
met by the employer) with respect to an eligible em-
ployee of the employer if—
(A) the employer requirements of sub-
section (c) are met with respect to the eligible
employee, and
(B) the applicable ERISA requirements of
paragraph (2) are met by the plan with respect
to the plan,
irrespective of whether, or to what extent, the em-
ployer makes employer contributions on behalf of the
eligible employee.
(2) APPLICABLE ERISA REQUIREMENTS.—The
applicable ERISA requirements of this paragraph
are the requirements of—
(A) part 1 of subtitle B of title I of the
Employee Retirement Income Security Act of
1974 (relating to reporting and disclosure),
(B) section 503 of such Act (relating to
claims procedure), and
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(C) part 6 of subtitle B of such title I (re-
lating to group health plans),
to the extent that such requirements relate to em-
ployers as plan sponsors or plan administrators.
(3) PARTICIPATING
EMPLOYER.—In this sub-
section, the term ‘‘participating employer’’ means, in
connection with an exempted multiple employer
health plan or an insured multiple employer health
plan, any employer if any of its employees, or any
of the dependents of its employees, are or were cov-
ered under such plan in connection with the employ-
ment of the employees.
(c) EMPLOYER REQUIREMENTS.—The employer re-
quirements of this subsection are met under a plan with
respect to an eligible employee if—
(1) the employee is eligible under the plan to
elect coverage on an annual basis and is provided a
reasonable opportunity to make the election in such
form and manner and at such times as are provided
by the plan,
(2) subject to section 1001(c), such coverage in-
cludes at least the standard coverage (consistent
with section 1102(c)),
(3) the employer facilitates collection of any
employee contributions under the plan and permits
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•HR 3955 SC2
the employee to elect to have employee contributions
under the plan collected through payroll deduction,
and
(4) in the case of a plan to which part 1 of sub-
title B of title I of the Employee Retirement Income
Security Act of 1974 does not otherwise apply, the
employer provides to the employee a summary plan
description described in section 102(a)(1) of such
Act in the form and manner and at such times as
are required under such part 1 with respect to em-
ployee welfare benefit plans.
Subtitle D—Health Deduction
Fairness
SEC. 1301. PERMANENT EXTENSION AND INCREASE IN
HEALTH INSURANCE TAX DEDUCTION FOR
SELF-EMPLOYED INDIVIDUALS.
(a) PERMANENT EXTENSION OF DEDUCTION.—
(1) IN GENERAL.—Subsection (l) of section 162
of the Internal Revenue Code of 1986 (relating to
special rules for health insurance costs of self-em-
ployed individuals) is amended by striking paragraph
(6).
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to taxable years begin-
ning after December 31, 1995.
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(b) INCREASE IN AMOUNT OF DEDUCTION.—
(1) IN
GENERAL.—Paragraph (1) of section
162(l) of such Code is amended by striking ‘‘25 per-
cent of’’ and inserting ‘‘100 percent (50 percent in
the case of taxable years beginning in 1996 or 1997)
of’’.
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to taxable years begin-
ning after December 31, 1995.
TITLE II—PREVENTING FRAUD
AND ABUSE
Subtitle A—Establishment of All-
Payer Health Care Fraud and
Abuse Control Program
SEC. 2001. ALL-PAYER HEALTH CARE FRAUD AND ABUSE
CONTROL PROGRAM.
(a) IN GENERAL.—Not later than January 1, 1996,
the Attorney General shall establish a program—
(1) to coordinate Federal, State, and local law
enforcement programs to control fraud and abuse
with respect to the delivery of and payment for
health care in the United States,
(2) to conduct investigations, audits, evalua-
tions, and inspections relating to the delivery of and
payment for health care in the United States, and
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(3) in consultation with the Inspector General
of the Department of Health and Human Services,
to facilitate the enforcement of the provisions of sec-
tions 1128, 1128A, and 1128B of the Social Secu-
rity Act and other statutes applicable to health care
fraud and abuse.
(b) COORDINATION
WITH
LAW
ENFORCEMENT
AGENCIES.—In carrying out the program under sub-
section (a), the Attorney General shall consult with, and
arrange for the sharing of data and resources with Fed-
eral, State and local law enforcement agencies, State Med-
icaid Fraud Control Units, and State agencies responsible
for the licensing and certification of health care providers.
(c) COORDINATION WITH THIRD PARTY INSUR-
ERS.—In carrying out the program established under sub-
section (a), the Attorney General shall consult with, and
arrange for the sharing of data with representatives of pri-
vate sponsors of health benefit plans and other providers
of health insurance.
(d) REGULATIONS.—
(1) IN GENERAL.—The Attorney General shall
by regulation establish standards to carry out the
program under subsection (a).
(2) INFORMATION STANDARDS.—
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(A) IN
GENERAL.—Such standards shall
include standards relating to the furnishing of
information by health insurers (including self-
insured health benefit plans), providers, and
others to enable the Attorney General to carry
out the program (including coordination with
law enforcement agencies under subsection (b)
and third party insurers under subsection (c)).
(B) CONFIDENTIALITY.—Such standards
shall include procedures to assure that such in-
formation is provided and utilized in a manner
that protects the confidentiality of the informa-
tion and the privacy of individuals receiving
health care services.
(C) QUALIFIED IMMUNITY FOR PROVIDING
INFORMATION.—The 
provisions 
of 
section
1157(a) of the Social Security Act (relating to
limitation on liability) shall apply to a person
providing information to the Attorney General
under the program under this section, with re-
spect to the Attorney General’s performance of
duties under the program, in the same manner
as such section applies to information provided
to organizations with a contract under part B
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of title XI of such Act, with respect to the per-
formance of such a contract.
SEC. 2002. AUTHORIZATION OF ADDITIONAL APPROPRIA-
TIONS FOR INVESTIGATORS AND OTHER PER-
SONNEL.
In addition to any other amounts authorized to be
appropriated to the Attorney General for health care anti-
fraud and abuse activities for a fiscal year, there are au-
thorized to be appropriated such sums as may be nec-
essary to enable the Attorney General to conduct inves-
tigations of allegations of health care fraud and otherwise
carry out the program established under section 2001 in
a fiscal year.
SEC. 2003. ESTABLISHMENT OF ANTI-FRAUD AND ABUSE
TRUST FUND.
(a) ESTABLISHMENT.—There is hereby created on
the books of the Treasury of the United States a trust
fund to be known as the ‘‘Anti-Fraud and Abuse Trust
Fund’’ (in this section referred to as the ‘‘Trust Fund’’).
The Trust Fund shall consist of such amounts as may be
deposited in, or appropriated to, such Trust Fund as pro-
vided in this subtitle and section 1128A(f)(3) of the Social
Security Act.
(b) MANAGEMENT.—
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(1) IN GENERAL.—The Trust Fund shall be
managed by the Attorney General through a Manag-
ing Trustee designated by the Attorney General.
(2) INVESTMENT OF FUNDS.—It shall be the
duty of the Managing Trustee to invest such portion
of the Trust Fund as is not, in the trustee’s judg-
ment, required to meet current withdrawals. Such
investments may be made only in interest-bearing
obligations of the United States or in obligations
guaranteed as to both principal and interest by the
United States. For such purpose such obligations
may be acquired on original issue at the issue price,
or by purchase of outstanding obligations at market
price. The purposes for which obligations of the
United States may be issued under chapter 31 of
title 31, United States Code, are hereby extended to
authorize the issuance at par of public-debt obliga-
tions for purchase by the Trust Fund. Such obliga-
tions issued for purchase by the Trust Fund shall
have maturities fixed with due regard for the needs
of the Trust Fund and shall bear interest at a rate
equal to the average market yield (computed by the
Managing Trustee on the basis of market quotations
as of the end of the calendar month next preceding
the date of such issue) on all marketable interest-
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bearing obligations of the United States then form-
ing a part of the public debt which are not due or
callable until after the expiration of 4 years from the
end of such calendar month, except that where such
average is not a multiple of 1⁄8 of 1 percent, the rate
of interest on such obligations shall be the multiple
of 1⁄8 of 1 percent nearest such market yield. The
Managing Trustee may purchase other interest-bear-
ing obligations of the United States or obligations
guaranteed as to both principal and interest by the
United States, on original issue or at the market
price, only where the Trustee determines that the
purchase of such other obligations is in the public
interest.
(3) Any obligations acquired by the Trust Fund
(except public-debt obligations issued exclusively to
the Trust Fund) may be sold by the Managing
Trustee at the market price, and such public-debt
obligations may be redeemed at par plus accrued in-
terest.
(4) The interest on, and the proceeds from the
sale or redemption of, any obligations held in the
Trust Fund shall be credited to and form a part of
the Trust Fund.
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(5) The receipts and disbursements of the At-
torney General in the discharge of the functions of
the Attorney General shall not be included in the to-
tals of the budget of the United States Government.
For purposes of part C of the Balanced Budget and
Emergency Deficit Control Act of 1985, the Attor-
ney General and the Trust Fund shall be treated in
the same manner as the Federal Retirement Thrift
Investment Board and the Thrift Savings Fund, re-
spectively. The United States is not liable for any
obligation or liability incurred by the Trust Fund.
(c) USE OF FUNDS.—Amounts in the Trust Fund
shall be used to assist the Attorney General in carrying
out the all-payor fraud and abuse control program estab-
lished under section 2001(a) in the fiscal year involved.
(d) DEPOSIT
OF FEDERAL HEALTH ANTI-FRAUD
AND ABUSE PENALTIES INTO TRUST FUND.—Section
1128A(f)(3) of the Social Security Act (42 U.S.C. 1320a–
7a(f)(3)) is amended by striking ‘‘as miscellaneous re-
ceipts of the Treasury of the United States’’ and inserting
‘‘in the Anti-Fraud and Abuse Trust Fund established
under section 2003(a) of the Health Reform Consensus
Act of 1994’’.
(e) USE OF FEDERAL HEALTH ANTI-FRAUD AND
ABUSE PENALTIES TO REPAY BENEFICIARIES FOR COST-
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SHARING.—Section 1128A(f) of the Social Security Act
(42 U.S.C. 1320a–7a(f)) is amended in the matter preced-
ing paragraph (1) by striking ‘‘Secretary and disposed of
as follows:’’ and inserting the following: ‘‘Secretary. If the
person against whom such a penalty or assessment was
assessed collected a payment from an individual for pro-
viding to the individual the service that is the subject of
the penalty or assessment, the Secretary shall pay a por-
tion of the amount recovered to the individual in the na-
ture of restitution in an amount equal to the payment so
collected. The Secretary shall dispose of any remaining
amounts recovered under this section as follows:’’.
Subtitle B—Revisions to Current
Sanctions for Fraud and Abuse
SEC. 2101. MANDATORY EXCLUSION FROM PARTICIPATION
IN MEDICARE AND STATE HEALTH CARE PRO-
GRAMS.
(a) INDIVIDUAL CONVICTED OF FELONY RELATING
TO FRAUD.—
(1) IN GENERAL.—Section 1128(a) of the So-
cial Security Act (42 U.S.C. 1320a–7(a)) is amend-
ed by adding at the end the following new para-
graph:
‘‘(3) 
FELONY
CONVICTION
RELATING
TO
FRAUD.—Any individual or entity that has been con-
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victed, under Federal or State law, in connection
with the delivery of a health care item or service or
with respect to any act or omission in a program
(other than those specifically described in paragraph
(1)) operated by or financed in whole or in part by
any Federal, State, or local government agency, of
a criminal offense consisting of a felony relating to
fraud, theft, embezzlement, breach of fiduciary re-
sponsibility, or other financial misconduct.’’.
(2) 
CONFORMING
AMENDMENT.—Section
1128(b)(1) of such Act (42 U.S.C. 1320a–7(b)(1))
is amended—
(A) in the heading, by striking ‘‘CONVIC-
TION’’ and inserting ‘‘MISDEMEANOR CONVIC-
TION’’; and
(B) by striking ‘‘criminal offense’’ and in-
serting ‘‘criminal offense consisting of a mis-
demeanor’’.
(b) INDIVIDUAL CONVICTED OF FELONY RELATING
TO CONTROLLED SUBSTANCE.—
(1) IN GENERAL.—Section 1128(a) of the So-
cial Security Act (42 U.S.C. 1320a–7(a)), as amend-
ed by subsection (a), is amended by adding at the
end the following new paragraph:
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‘‘(4) FELONY CONVICTION RELATING TO CON-
TROLLED
SUBSTANCE.—Any individual or entity
that has been convicted, under Federal or State law,
of a criminal offense consisting of a felony relating
to the unlawful manufacture, distribution, prescrip-
tion, or dispensing of a controlled substance.’’.
(2) 
CONFORMING
AMENDMENT.—Section
1128(b)(3) of such Act (42 U.S.C. 1320a–7(b)(3))
is amended—
(A) in the heading, by striking ‘‘CONVIC-
TION’’ and inserting ‘‘MISDEMEANOR CONVIC-
TION’’; and
(B) by striking ‘‘criminal offense’’ and in-
serting ‘‘criminal offense consisting of a mis-
demeanor’’.
SEC. 2102. ESTABLISHMENT OF MINIMUM PERIOD OF EX-
CLUSION FOR CERTAIN INDIVIDUALS AND
ENTITIES SUBJECT TO PERMISSIVE EXCLU-
SION FROM MEDICARE AND STATE HEALTH
CARE PROGRAMS.
Section 1128(c)(3) of the Social Security Act (42
U.S.C. 1320a–7(c)(3)) is amended by adding at the end
the following new subparagraphs:
‘‘(D) In the case of an exclusion of an individual or
entity under paragraph (1), (2), or (3) of subsection (b),
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•HR 3955 SC2
the period of the exclusion shall be 3 years, unless the
Secretary determines in accordance with published regula-
tions that a shorter period is appropriate because of miti-
gating circumstances or that a longer period is appro-
priate because of aggravating circumstances.
‘‘(E) In the case of an exclusion of an individual or
entity under subsection (b)(4) or (b)(5), the period of the
exclusion shall not be less than the period during which
the individual’s or entity’s license to provide health care
is revoked, suspended, or surrendered, or the individual
or the entity is excluded or suspended from a Federal or
State health care program.
‘‘(F) In the case of an exclusion of an individual or
entity under subsection (b)(6)(B), the period of the exclu-
sion shall be not less than 1 year.’’.
SEC. 2103. CIVIL MONETARY PENALTIES.
(a) PROHIBITION AGAINST OFFERING INDUCEMENTS
TO INDIVIDUALS ENROLLED UNDER OR EMPLOYED BY
PROGRAMS OR PLANS.—
(1) INDUCEMENTS TO INDIVIDUALS ENROLLED
UNDER MEDICARE.—
(A) OFFER OF REMUNERATION.—Section
1128A(a) of the Social Security Act (42 U.S.C.
1320a–7a(a)) is amended—
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(i) by striking ‘‘or’’ at the end of
paragraph (1)(D);
(ii) by striking ‘‘, or’’ at the end of
paragraph (2) and inserting a semicolon;
(iii) by striking the semicolon at the
end of paragraph (3) and inserting ‘‘; or’’;
and
(iv) by inserting after paragraph (3)
the following new paragraph:
‘‘(4) offers to or transfers remuneration to any
individual eligible for benefits under title XVIII of
this Act, or under a State health care program (as
defined in section 1128(h)) that such person knows
or should know is likely to significantly influence
such individual to order or receive from a particular
provider, practitioner, or supplier any item or service
for which payment may be made, in whole or in
part, under title XVIII, or a State health care pro-
gram;’’.
(B) REMUNERATION
DEFINED.—Section
1128A(i) is amended by adding the following
new paragraph:
‘‘(6) The term ‘remuneration’ includes the waiv-
er of coinsurance and deductible amounts (or any
part thereof), and transfers of items or services for
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•HR 3955 SC2
free or for other than fair market value. The term
‘remuneration’ does not include the waiver of coin-
surance and deductible amounts by a person, if—
‘‘(A) the waiver is not offered as part of
any advertisement or solicitation;
‘‘(B) the person does not routinely waive
coinsurance or deductible amounts; and
‘‘(C) the person—
‘‘(i) waives the coinsurance and de-
ductible amounts after determining in good
faith that the individual is in financial
need;
‘‘(ii) fails to collect coinsurance or de-
ductible amounts after making reasonable
collection efforts; or
‘‘(iii) provides for any permissible
waiver as specified in section 1128B(b)(3)
or in regulations issued by the Secretary.’’.
(2) INDUCEMENTS
TO
EMPLOYEES.—Section
1128A(a) of such Act (42 U.S.C. 1320a–7a(a)), as
amended by paragraph (1), is further amended—
(A) by striking ‘‘or’’ at the end of para-
graph (3);
(B) by striking the semicolon at the end of
paragraph (4) and inserting ‘‘; or’’; and
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(C) by inserting after paragraph (4) the
following new paragraph:
‘‘(5) pays a bonus, reward, or any other remu-
neration, directly or indirectly, to an employee to in-
duce the employee to encourage individuals to seek
or obtain covered items or services for which pay-
ment may be made under the medicare program, or
a State health care program where the amount of
the remuneration is determined in a manner that
takes into account (directly or indirectly) the value
or volume of any referrals by the employee to the
employer for covered items or services;’’.
(b) CLAIM FOR ITEM OR SERVICE BASED ON INCOR-
RECT CODING.—Section 1128A(a)(1)(A) of such Act (42
U.S.C. 
1320a–7a(a)(1)) 
is 
amended 
by 
striking
‘‘claimed,’’ and inserting the following: ‘‘claimed, including
any person who presents or causes to be presented a claim
for an item or service that is based on a code that the
person knows or should know will result in a greater pay-
ment to the person than the code the person knows or
should know is applicable to the item or service actually
provided,’’.
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SEC. 2104. INTERMEDIATE SANCTIONS FOR MEDICARE
HEALTH MAINTENANCE ORGANIZATIONS.
(a) APPLICATION OF INTERMEDIATE SANCTIONS FOR
ANY PROGRAM VIOLATIONS.—
(1) IN
GENERAL.—Section 1876(i)(1) of the
Social Security Act (42 U.S.C. 1395mm(i)(1)) is
amended by striking ‘‘the Secretary may terminate’’
and all that follows and inserting the following: ‘‘in
accordance with procedures established under para-
graph (9), the Secretary may at any time terminate
any such contract or may impose the intermediate
sanctions described in paragraph (6)(B) or (6)(C)
(whichever is applicable) on the eligible organization
if the Secretary determines that the organization—
(A) has failed substantially to carry out
the contract;
(B) is carrying out the contract in a man-
ner inconsistent with the efficient and effective
administration of this section;
(C) is operating in a manner that is not in
the best interests of the individuals covered
under the contract; or
(D) no longer substantially meets the ap-
plicable conditions of subsections (b), (c), (e),
and (f).’’
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(2) OTHER
INTERMEDIATE
SANCTIONS
FOR
MISCELLANEOUS
PROGRAM
VIOLATIONS.—Section
1876(i)(6) of such Act (42 U.S.C. 1395mm(i)(6)) is
amended by adding at the end the following new
subparagraph:
‘‘(C) In the case of an eligible organization for which
the Secretary makes a determination under paragraph (1)
the basis of which is not described in subparagraph (A),
the Secretary may apply the following intermediate sanc-
tions:
‘‘(i) Civil money penalties of not more than
$25,000 for each determination under paragraph (1)
if the deficiency that is the basis of the determina-
tion has directly adversely affected (or has the sub-
stantial likelihood of adversely affecting) an individ-
ual covered under the organization’s contract.
‘‘(ii) Civil money penalties of not more than
$10,000 for each week beginning after the initiation
of procedures by the Secretary under paragraph (9)
during which the deficiency that is the basis of a de-
termination under paragraph (1) exists.
‘‘(iii) Suspension of enrollment of individuals
under this section after the date the Secretary noti-
fies the organization of a determination under para-
graph (1) and until the Secretary is satisfied that
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the deficiency that is the basis for the determination
has been corrected and is not likely to recur.’’.
(3) PROCEDURES FOR IMPOSING SANCTIONS.—
Section 1876(i) of such Act (42 U.S.C. 1395mm(i))
is amended by adding at the end the following new
paragraph:
‘‘(9) The Secretary may terminate a contract with an
eligible organization under this section or may impose the
intermediate sanctions described in paragraph (6) on the
organization in accordance with formal investigation and
compliance procedures established by the Secretary under
which—
‘‘(A) the Secretary provides the organization
with the opportunity to develop and implement a
corrective action plan to correct the deficiencies that
were the basis of the Secretary’s determination
under paragraph (1);
‘‘(B) in deciding whether to impose sanctions,
the Secretary considers aggravating factors such as
whether an entity has a history of deficiencies or has
not taken action to correct deficiencies the Secretary
has brought to their attention;
‘‘(C) there are no unreasonable or unnecessary
delays between the finding of a deficiency and the
imposition of sanctions; and
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‘‘(D) the Secretary provides the organization
with reasonable notice and opportunity for hearing
(including the right to appeal an initial decision) be-
fore imposing any sanction or terminating the con-
tract.’’.
(4) CONFORMING AMENDMENTS.—
(A) IN GENERAL.—Section 1876(i)(6)(B)
of such Act (42 U.S.C. 1395mm(i)(6)(B)) is
amended by striking the second sentence.
(B) PROCEDURAL
PROVISIONS.—Section
1876(i)(6) 
of 
such 
Act 
(42 
U.S.C.
1395mm(i)(6)) is further amended by adding at
the end the following new subparagraph:
‘‘(D) The provisions of section 1128A (other than
subsections (a) and (b)) shall apply to a civil money pen-
alty under subparagraph (A) or (B) in the same manner
as they apply to a civil money penalty or proceeding under
section 1128A(a).’’.
(b) AGREEMENTS WITH PEER REVIEW ORGANIZA-
TIONS.—
(1) REQUIREMENT
FOR
WRITTEN
AGREE-
MENT.—Section 1876(i)(7)(A) of the Social Security
Act (42 U.S.C. 1395mm(i)(7)(A)) is amended by
striking ‘‘an agreement’’ and inserting ‘‘a written
agreement’’.
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(2) DEVELOPMENT OF MODEL AGREEMENT.—
Not later than July 1, 1995, the Secretary shall de-
velop a model of the agreement that an eligible orga-
nization with a risk-sharing contract under section
1876 of the Social Security Act must enter into with
an entity providing peer review services with respect
to services provided by the organization under sec-
tion 1876(i)(7)(A) of such Act.
(3) REPORT BY GAO.—
(A) STUDY.—The Comptroller General
shall conduct a study of the costs incurred by
eligible organizations with risk-sharing con-
tracts under section 1876(b) of such Act of
complying with the requirement of entering into
a written agreement with an entity providing
peer review services with respect to services pro-
vided by the organization, together with an
analysis of how information generated by such
entities is used by the Secretary to assess the
quality of services provided by such eligible or-
ganizations.
(B) REPORT
TO
CONGRESS.—Not later
than July 1, 1997, the Comptroller General
shall submit a report to the Committee on
Ways and Means and the Committee on Energy
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•HR 3955 SC2
and Commerce of the House of Representatives
and the Committee on Finance and the Special
Committee on Aging of the Senate on the study
conducted under subparagraph (A).
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to contract years be-
ginning on or after January 1, 1995.
SEC. 2105. EFFECTIVE DATE.
The amendments made by this subtitle shall take ef-
fect January 1, 1996.
Subtitle C—Administrative and
Miscellaneous Provisions
SEC. 2201. ESTABLISHMENT OF THE HEALTH CARE FRAUD
AND ABUSE DATA COLLECTION PROGRAM.
(a) FINDINGS.—The Congress finds the following:
(1) Fraud and abuse with respect to the deliv-
ery of and payment for health care services is a sig-
nificant contributor to the growing costs of the
Nation’s health care.
(2) Control of fraud and abuse in health care
services warrants greater efforts of coordination
than those that can be undertaken by individual
States or the various Federal, State, and local law
enforcement programs.
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(3) There is a national need to coordinate infor-
mation about health care providers and entities that
have engaged in fraud and abuse in the delivery of
and payment for health care services.
(4) There is no comprehensive national data
collection program for the reporting of public infor-
mation about final adverse actions against health
care providers, suppliers, or licensed health care
practitioners that have engaged in fraud and abuse
in the deliver of and payment for health care
services.
(5) A comprehensive national data collection
program for the reporting of public information
about final adverse actions will facilitate the enforce-
ment of the provisions of the Social Security Act and
other statutes applicable to health care fraud and
abuse.
(b) GENERAL PURPOSE.—Not later than January 1,
1995, the Secretary shall establish a national health care
fraud and abuse data collection program for the reporting
of final adverse actions (not including settlements where
no finding of liability has been made) against health care
providers, suppliers, or practitioners as required by sub-
section (c), with access as set forth in subsection (d).
(c) REPORTING OF INFORMATION.—
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(1) IN
GENERAL.—Each government agency
and health care plan shall report any final adverse
action (not including settlements where no finding of
liability has been made) taken against a health care
provider, supplier, or practitioner.
(2) INFORMATION TO BE REPORTED.—The in-
formation to be reported under paragraph (1)
includes:
(A) The name of any health care provider,
supplier, or practitioner who is the subject of a
final adverse action.
(B) The name (if known) of any health
care entity with which a health care provider,
supplier, or practitioner is affiliated or associ-
ated.
(C) The nature of the final adverse action.
(D) A description of the acts or omissions
and injuries upon which the final adverse action
was based, and such other information as the
Secretary determines by regulation is required
for appropriate interpretation of information re-
ported under this section.
(3) CONFIDENTIALITY.—In determining what
information is required, the Secretary shall include
procedures to assure that the information is pro-
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•HR 3955 SC2
vided and utilized in a manner that protects the con-
fidentiality of the information and the privacy of in-
dividuals receiving health care services.
(4) TIMING AND FORM OF REPORTING.—The
information required to be reported under this sub-
section shall be reported regularly (but not less often
than monthly) and in such form and manner as the
Secretary prescribes. Such information shall first be
required to be reported on a date specified by the
Secretary.
(5) TO WHOM REPORTED.—The information re-
quired to be reported under this subsection shall be
reported to the Secretary.
(d) DISCLOSURE
AND CORRECTION
OF INFORMA-
TION.—
(1) DISCLOSURE.—With respect to the informa-
tion about final adverse actions (not including settle-
ments where no findings of liability has been made)
reported to the Secretary under this section respect-
ing a health care provider, supplier, or practitioner,
the Secretary shall, by regulation, provide for—
(A) disclosure of the information, upon re-
quest, to the health care provider, supplier, or
licensed practitioner, and
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•HR 3955 SC2
(B) procedures in the case of disputed ac-
curacy of the information.
(2) CORRECTIONS.—Each Government agency
and health care plan shall report corrections of in-
formation already reported about any final adverse
action taken against a health care provider, supplier,
or practitioner, in such form and manner that the
Secretary prescribes by regulation.
(e) ACCESS TO REPORTED INFORMATION.—
(1) AVAILABILITY.—The information in this
database shall be available to the public, Federal
and State government agencies, and health care
plans pursuant to procedures that the Secretary
shall provide by regulation.
(2) FEES
FOR
DISCLOSURE.—The Secretary
may establish or approve reasonable fees for the dis-
closure of information in this database. The amount
of such a fee may not exceed the costs of processing
the requests for disclosure and of providing such in-
formation. Such fees shall be available to the Sec-
retary or, in the Secretary’s discretion to the agency
designated under this section to cover such costs.
(f) PROTECTION FROM LIABILITY
FOR REPORT-
ING.—No person or entity, including the agency des-
ignated by the Secretary in subsection (c)(5) shall be held
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liable in any civil action with respect to any report made
as required by this section, without knowledge of the fal-
sity of the information contained in the report.
(g) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section:
(1) The term ‘‘final adverse action’’ includes:
(A) Civil judgments against a health care
provider in Federal or State court related to the
delivery of a health care item or service.
(B) Federal or State criminal convictions
related to the delivery of a health care item or
service, as determined in accordance with sec-
tion 1128(j) of the Social Security Act.
(C) Actions by State or Federal agencies
responsible for the licensing and certification of
health care providers, suppliers, and licensed
health care practitioners, including—
(i) formal or official actions, such as
revocation or suspension of a license (and
the length of any such suspension), rep-
rimand, censure or probation, or
(ii) any other loss of license of the
provider, supplier, or practitioner, by oper-
ation of law.
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(D) Exclusion from participation in Fed-
eral or State health care programs.
(2) The term ‘‘Government agency’’ includes:
(A) The Department of Justice.
(B) The Department of Health and
Human Services.
(C) Any other Federal agency that either
administers or provides payment for the deliv-
ery of health care services, including, but not
limited to the Department of Defense and the
Department of Veterans Affairs.
(D) State law enforcement agencies.
(E) State medicaid fraud and abuse units.
(F) State or Federal agencies responsible
for the licensing and certification of health care
providers and licensed health care practitioners.
(3) The term ‘‘health care plan’’ means a public
or private program for the delivery of or payment
for health care services other than the medicare pro-
gram or a State health care program described in
section 1128(h) of the Social Security Act.
(4) The term ‘‘health care provider’’ means a
provider of services as defined in section 1861(u) of
the Social Security Act, and any entity, including a
health maintenance organization, group medical
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practice, or any other entity listed by the Secretary
in regulation, that provides health care services.
(5) The terms ‘‘licensed health care practi-
tioner’’, ‘‘licensed practitioner’’, and ‘‘practitioner’’
mean, with respect to a State, an individual who is
licensed or otherwise authorized by the State to pro-
vide health care services (or any individual who,
without authority holds himself or herself out to be
so licensed or authorized).
(6) The term ‘‘supplier’’ means a supplier of
health care items and services described in sections
1819 (a) and (b), and section 1861 of the Social
Security Act.
(h) CONFORMING AMENDMENT.—Section 1921(d) of
the Social Security Act is amended by inserting ‘‘and sec-
tion 2201 of the Health Reform Consensus Act of 1994’’
after ‘‘section 422 of the Health Care Quality Improve-
ment Act of 1986’’.
SEC. 2202. QUARTERLY PUBLICATION OF FINAL ADVERSE
ACTIONS TAKEN.
(a) IN GENERAL.—Part A of title XI of the Social
Security Act (42 U.S.C. 1301 et seq.) is amended by
adding at the end the following new section:
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‘‘QUARTERLY PUBLICATION OF FINAL ADVERSE ACTIONS
TAKEN
‘‘SEC. 1144. (a) IN GENERAL.—Not later than 30
days after the end of each calendar quarter, the Secretary
shall publish in the Federal Register a listing of all final
adverse actions taken during the quarter under this part
(including penalties imposed under section 1107, exclu-
sions under section 1128, the imposition of civil monetary
penalties under section 1128A, and the imposition of
criminal penalties under section 1128B) and under section
1156.
‘‘(b) FINAL ADVERSE ACTION DEFINED.—In sub-
section (a), the term ‘final adverse action’ has the meaning
given such term under section 2201(g)(1) of the Health
Reform Consensus Act of 1994.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to calendar quarters beginning
on or after January 1, 1996.
Subtitle D—Amendments to
Criminal Law
SEC. 2301. PENALTIES FOR HEALTH CARE FRAUD.
(a) IN GENERAL.—
(1) FINES AND IMPRISONMENT FOR HEALTH
CARE FRAUD VIOLATIONS.—Chapter 63 of title 18,
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United States Code, is amended by adding at the
end the following:
‘‘§ 1347. Health care fraud
‘‘(a) Whoever knowingly executes, or attempts to exe-
cute, a scheme or artifice—
‘‘(1) to defraud any health care plan or other
person, in connection with the delivery of or pay-
ment for health care benefits, items, or services; or
‘‘(2) to obtain, by means of false or fraudulent
pretenses, representations, or promises, any of the
money or property owned by, or under the custody
or control of, any health care plan, or person in con-
nection with the delivery of or payment for health
care benefits, items, or services;
shall be guilty of a felony, and fined under this title or
imprisoned not more than 5 years, or both.
‘‘(b) In determining the amount or scope of any pen-
alty or assessment, the court shall take into account:
‘‘(1) the nature of the false or fraudulent
claims and the circumstances under which they are
presented;
‘‘(2) the degree of culpability and history of
prior offenses by the convicted health care provider;
‘‘(3) the extent to which restitution is paid; and
‘‘(4) such other matters as justice may require.
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‘‘(c) A principal is liable for penalties and assess-
ments under this section for the acts of the principal’s
agents acting within the scope of the agency.
‘‘(d) For purposes of this section, the term ‘health
care plan’ means a Federally-funded public program or
private program for the delivery of or payment for health
care items or services.’’.
(2) CLERICAL AMENDMENT.—The table of sec-
tions at the beginning of chapter 63 of title 18,
United States Code, is amended by adding at the
end the following:
‘‘1347. Health care fraud.’’.
SEC. 2302. REWARDS FOR INFORMATION LEADING TO
PROSECUTION AND CONVICTION.
Section 3059 of title 18, United States Code, is
amended by adding at the end the following new sub-
section:
‘‘(c)(1) In special circumstances and in the Attorney
General’s sole discretion, the Attorney General may make
a payment of up to $10,000 to a person who furnishes
information unknown to the Government relating to a pos-
sible prosecution under section 1347.
‘‘(2) A person is not eligible for a payment under
paragraph (1) if—
‘‘(A) the person is a current or former officer
or employee of a Federal or State government agen-
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cy or instrumentality who furnishes information dis-
covered or gathered in the course of government em-
ployment.
‘‘(B) the person knowingly participated in the
offense;
‘‘(C) the information furnished by the person
consists of allegations or transactions that have been
disclosed to the public—
‘‘(i) in a criminal, civil, or administrative
proceeding;
‘‘(ii) in a congressional, administrative or
General Accounting Office report, hearing,
audit or investigation; or
‘‘(iii) by the news media, unless the person
is the original source of the information; or
‘‘(D) when, in the judgment of the Attorney
General, it appears that a person whose illegal ac-
tivities are being prosecuted or investigated could
benefit from the award.
‘‘(3) For the purposes of paragraph (2)(C)(iii), the
term ‘original source’ means a person who has direct and
independent knowledge of the information that is fur-
nished and has voluntarily provided the information to the
Government prior to disclosure by the news media.
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‘‘(4) Neither the failure of the Attorney General to
authorize a payment under paragraph (1) nor the amount
authorized shall be subject to judicial review.’’.
TITLE III—MALPRACTICE
REFORM
Subtitle A—Findings; Purpose;
Definitions
SEC. 3001. FINDINGS; PURPOSE.
(a) FINDINGS.—Congress finds that—
(1) the costs of health care consume more than
14 percent of the Gross Domestic Product of the
United States, significantly affecting interstate com-
merce and the budget of the Federal Government;
(2) claims for medical malpractice are a signifi-
cant factor in the cost of health care and cause phy-
sicians, hospitals, and other health care providers to
undertake diagnostic tests and procedures partly as
defensive measures against the possibility of mal-
practice claims;
(3) the health care and insurance industries are
industries affecting interstate commerce and the
medical malpractice litigation systems existing
throughout the United States affect interstate com-
merce by contributing to the high cost of health care
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and premiums for malpractice insurance purchased
by health care providers; and
(4) the Federal Government has a major inter-
est in health care as a direct provider of health care
and as a source of payment for health care, and has
a demonstrated interest in assessing the quality of
care, access to care, and the costs of care through
the evaluative activities of several Federal agencies.
(b) PURPOSE.—It is the purpose of this title to—
(1) provide grants to States to develop alter-
native dispute resolution procedures to attain a more
efficient, expeditious, and equitable resolution of
health care malpractice disputes;
(2) enhance general knowledge concerning the
benefits of different forms of alternative dispute res-
olution mechanisms; and
(3) establish uniformity and curb excesses in
the State-based medical liability systems through
Federally mandated reforms.
SEC. 3002. DEFINITIONS.
As used in this title:
(1) ADR ADVISORY BOARD.—The term ‘‘ADR
Advisory Board’’ means the Alternative Dispute
Resolution Advisory Board established by the Sec-
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retary of Health and Human Services under section
3202(a).
(2) ALTERNATIVE DISPUTE RESOLUTION SYS-
TEM.—The term ‘‘alternative dispute resolution sys-
tem’’ means a system that is enacted or adopted by
a State to resolve medical malpractice claims other
than through a medical malpractice liability action.
(3) CLAIMANT.—The term ‘‘claimant’’ means
any person who brings a medical malpractice liability
claim and, in the case of an individual who is de-
ceased, incompetent, or a minor, the person on
whose behalf such a claim is brought.
(4) CLEAR AND CONVINCING EVIDENCE.—The
term ‘‘clear and convincing evidence’’ is that meas-
ure or degree of proof that will produce in the mind
of the trier of fact a firm belief or conviction as to
the truth of the allegations sought to be established,
except that such measure or degree of proof is more
than that required under preponderance of the evi-
dence, but less than that required for proof beyond
a reasonable doubt.
(5) ECONOMIC DAMAGES.—The term ‘‘economic
damages’’ means damages paid to compensate an in-
dividual for losses for hospital and other medical ex-
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penses, lost wages, lost employment, and other pecu-
niary losses.
(6) HEALTH CARE PROFESSIONAL.—The term
‘‘health care professional’’ means any individual who
provides health care services in a State and who is
required by State law or regulation to be licensed or
certified by the State to provide such services in the
State.
(7) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means any organization or
institution that is engaged in the delivery of health
care services in a State that is required by State law
or regulation to be licensed or certified by the State
to engage in the delivery of such services in the
State.
(8) INJURY.—The term ‘‘injury’’ means any ill-
ness, disease, or other harm that is the subject of
a medical malpractice claim.
(9) MEDICAL
MALPRACTICE
LIABILITY
AC-
TION.—The term ‘‘medical malpractice liability ac-
tion’’ means any civil action brought pursuant to
State law in which a plaintiff alleges a medical mal-
practice claim against a health care provider or
health care professional, but does not include any
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action in which the plaintiff’s sole allegation is an al-
legation of an intentional tort.
(10) MEDICAL MALPRACTICE CLAIM.—The term
‘‘medical malpractice claim’’ means any claim relat-
ing to the provision of (or the failure to provide)
health care services or the use of a medical product,
without regard to the theory of liability asserted,
and includes any third-party claim, cross-claim,
counterclaim, or contribution claim in a medical
malpractice liability action.
(11) MEDICAL PRODUCT.—
(A) IN
GENERAL.—The term ‘‘medical
product’’ means, with respect to the allegation
of a claimant, a drug (as defined in section
201(g)(1) of the Federal Food, Drug, and Cos-
metic Act (21 U.S.C. 321(g)(1)) or a medical
device (as defined in section 201(h) of the Fed-
eral Food, Drug, and Cosmetic Act (21 U.S.C.
321(h))) if—
(i) such drug or device was subject to
premarket approval under section 505,
507, or 515 of the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 355, 357, or
360e) or section 351 of the Public Health
Service Act (42 U.S.C. 262) with respect
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to the safety of the formulation or per-
formance of the aspect of such drug or de-
vice which is the subject of the claimant’s
allegation or the adequacy of the packag-
ing or labeling of such drug or device, and
such drug or device is approved by the
Food and Drug Administration; or
(ii) the drug or device is generally rec-
ognized as safe and effective under regula-
tions issued by the Secretary of Health
and Human Services under section 201(p)
of the Federal Food, Drug, and Cosmetic
Act (21 U.S.C. 321(p)).
(B) EXCEPTION
IN
CASE
OF
MISREPRE-
SENTATION OR FRAUD.—Notwithstanding sub-
paragraph (A), the term ‘‘medical product’’
shall not include any product described in such
subparagraph if the claimant shows that the
product is approved by the Food and Drug Ad-
ministration for marketing as a result of with-
held information, misrepresentation, or an ille-
gal payment by manufacturer of the product.
(12) 
NONECONOMIC
DAMAGES.—The 
term
‘‘noneconomic damages’’ means damages paid to
compensate an individual for losses for physical and
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emotional pain, suffering, inconvenience, physical
impairment, mental anguish, disfigurement, loss of
enjoyment of life, loss of consortium, and other
nonpecuniary losses, but does not include punitive
damages.
(13) PUNITIVE DAMAGES.—The term ‘‘punitive
damages’’ means compensation, in addition to com-
pensation for actual harm suffered, that is awarded
for the purpose of punishing a person for conduct
deemed to be malicious, wanton, willful, or exces-
sively reckless.
(14) 
SECRETARY.—The 
term 
‘‘Secretary’’
means the Secretary of Health and Human Services.
(15) STATE.—The term ‘‘State’’ means each of
the several States, the District of Columbia, the
Commonwealth of Puerto Rico, the Virgin Islands,
and Guam.
Subtitle B—Uniform Standards for
Malpractice Claims
SEC. 3101. APPLICABILITY.
Except as provided in section 3111, this subtitle shall
apply to any medical malpractice liability action brought
in a Federal or State court, and to any medical mal-
practice claim subject to an alternative dispute resolution
system, that is initiated on or after January 1, 1996.
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SEC. 3102. REQUIREMENT FOR INITIAL RESOLUTION OF AC-
TION THROUGH ALTERNATIVE DISPUTE RES-
OLUTION.
(a) IN GENERAL.—
(1) STATE CASES.—A medical malpractice li-
ability action may not be brought in any State court
during a calendar year unless the medical mal-
practice liability claim that is the subject of the ac-
tion has been initially resolved under an alternative
dispute resolution system certified for the year by
the Secretary under section 3202(a), or, in the case
of a State in which such a system is not in effect
for the year, under the alternative Federal system
established under section 3202(b).
(2) FEDERAL DIVERSITY ACTIONS.—A medical
malpractice liability action may not be brought in
any Federal court under section 1332 of title 28,
United States Code, during a calendar year unless
the medical malpractice liability claim that is the
subject of the action has been initially resolved
under the alternative dispute resolution system re-
ferred to in paragraph (1) that applied in the State
whose law applies in such action.
(3) CLAIMS AGAINST UNITED STATES.—
(A) ESTABLISHMENT
OF
PROCESS
FOR
CLAIMS.—The Attorney General shall establish
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an alternative dispute resolution process for the
resolution of tort claims consisting of medical
malpractice liability claims brought against the
United States under chapter 171 of title 28,
United States Code. Under such process, the
resolution of a claim shall occur after the com-
pletion of the administrative claim process ap-
plicable to the claim under section 2675 of such
title.
(B) REQUIREMENT FOR INITIAL RESOLU-
TION UNDER PROCESS.—A medical malpractice
liability action based on a medical malpractice
liability claim described in subparagraph (A)
may not be brought in any Federal court unless
the claim has been initially resolved under the
alternative dispute resolution process estab-
lished by the Attorney General under such sub-
paragraph.
(b) INITIAL
RESOLUTION
OF
CLAIMS
UNDER
ADR.—For purposes of subsection (a), an action is ‘‘ini-
tially resolved’’ under an alternative dispute resolution
system if—
(1) the ADR reaches a decision on whether the
defendant is liable to the plaintiff for damages; and
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(2) if the ADR determines that the defendant
is liable, the ADR reaches a decision on the amount
of damages assessed against the defendant.
(c) LEGAL EFFECT OF UNCONTESTED ADR DECI-
SION.—If no party files a notice of intent to contest a deci-
sion reached under an alternative dispute resolution sys-
tem pursuant to section 3103(a)(1), the decision shall be
enforced by a court of competent jurisdiction in the same
manner as the verdict of a medical malpractice liability
action adjudicated in a State or Federal trial court.
SEC. 3103. PROCEDURAL REQUIREMENTS FOR FILING OF
ACTIONS.
(a) PROCEDURES FOR FILING ACTIONS AFTER DECI-
SION.—
(1) NOTICE
OF
INTENT
TO
CONTEST
DECI-
SION.—Not later than 60 days after a decision is is-
sued with respect to a medical malpractice liability
claim under an alternative dispute resolution system,
each party affected by the decision shall submit a
sealed statement to a court of competent jurisdiction
indicating whether or not the party intends to con-
test the decision.
(2) DEADLINE FOR FILING ACTION.—A medical
malpractice liability action may not be brought with
respect to a medical malpractice liability claim that
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is the subject of a decision under an alternative dis-
pute resolution system unless—
(A) a party has filed a notice of intent to
contest the decision under the alternative dis-
pute resolution system pursuant to paragraph
(1); and
(B) the party files the action in a court of
competent jurisdiction not later than 60 days
after the notice of intent is filed pursuant to
paragraph (1) (or, if such notice of intent is
filed by a party other than the claimant, not
later than 90 days after such notice is filed).
(3) COURT
OF
COMPETENT
JURISDICTION.—
For purposes of this subsection, the term ‘‘court of
competent jurisdiction’’ means—
(A) with respect to actions filed in a State
court, the appropriate State trial court; and
(B) with respect to actions filed in a Fed-
eral court, the appropriate United States dis-
trict court.
(b) CERTIFICATE OF MERIT.—
(1) IN GENERAL.—Each individual who files a
notice of intent to contest a decision under the alter-
native dispute resolution system pursuant to sub-
section (a)(1) shall, not later than 90 days after the
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applicable medical malpractice liability action is
filed—
(A) submit a certificate of merit described
in subsection (b); or
(B) post a surety (or equivalent security)
bond of $4,000 (or, during the 45-day period
that begins on the date the action is filed, a
cost bond of $2,000) with the court.
(2) EXTENSION OF DEADLINE.—On the motion
of any party to the action or upon a written agree-
ment of the parties filed with the court, the court
may extend the deadline specified in paragraph (1)
for a period not to exceed 30 days.
(3) WAIVER FOR GOOD CAUSE.—The court may
waive the application of paragraph (1) to a plaintiff
if the plaintiff shows good cause that such para-
graph should not apply.
(4) CERTIFICATE
OF
MERIT
DESCRIBED.—In
this subsection, a ‘‘certificate of merit’’ means—
(A) with respect to a plaintiff, an affidavit
declaring that the individual (or the individual’s
attorney) has obtained a written opinion from a
medical expert who is knowledgeable of the rel-
evant medical issues involved in the action that
the defendant was negligent and the defend-
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ant’s conduct was a proximate cause of the al-
leged injury that is the subject of the action;
and
(B) with respect to a defendant, an affida-
vit declaring that the individual (or the individ-
ual’s attorney) has obtained a written opinion
from a medical expert who is knowledgeable of
the relevant medical issues involved in the ac-
tion that the defendant followed the appropriate
standards or procedures and exercised due care,
and that the defendant’s conduct was not the
proximate cause of the alleged injury that is the
subject of the action.
(c) EFFECT OF FAILURE TO MEET REQUIREMENT
TO FILE CERTIFICATE.—If an individual fails to file a cer-
tificate of merit with respect to a medical malpractice li-
ability action under subsection (b)—
(1) if the individual is a plaintiff, the court
shall dismiss the action without prejudice to the
refiling of the action by the individual;
(2) if the individual is a defendant, the court
shall award judgment to the plaintiff based on the
plaintiff’s pleadings; and
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(3) the court shall require the individual to pay
any court costs incurred by the opposing parties as
a result of the filing of the action.
(d) JUDICIAL NOTICE OF DECISION UNDER ADR
SYSTEM.—A medical malpractice liability action brought
after a decision on the claim that is the subject of the
action has been reached under an alternative dispute reso-
lution system shall be tried de novo, except that the court
shall take judicial notice of such decision and (in the case
of an action tried by a jury) shall read the decision to
the jury prior to any opening statements and make the
decision available to the jury during the trial.
SEC. 3104. TREATMENT OF NONECONOMIC AND PUNITIVE
DAMAGES.
(a) LIMITATION ON NONECONOMIC DAMAGES.—The
total amount of noneconomic damages that may be award-
ed to a claimant and the members of the claimant’s family
for losses resulting from the injury which is the subject
of a medical malpractice liability action may not exceed
$250,000, regardless of the number of parties against
whom the action is brought or the number of actions
brought with respect to the injury.
(b) TREATMENT OF PUNITIVE DAMAGES AWARDED
AGAINST MANUFACTURER OF MEDICAL PRODUCT.—
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(1) LIMITATION ON AMOUNT OF AWARD.—The
total amount of punitive or exemplary damages that
may be awarded with respect to an injury which is
the subject of a medical malpractice liability action
may not exceed twice the total amount of other dam-
ages awarded with respect to the injury.
(2) DISTRIBUTION
OF
AWARD.—Of the total
amount of any punitive damages awarded in a medi-
cal malpractice liability action, 50 percent shall be
paid to the claimant and 50 percent shall be paid to
the State in which the action is brought (or, in a
case brought in Federal court, in the State in which
the health care services that caused the injury that
is the subject of the action were provided) for the
purposes of carrying out the activities described in
paragraph (3).
(3) ACTIVITIES DESCRIBED.—A State shall use
amounts paid pursuant to paragraph (2) to carry
out activities to assure the safety and quality of
health care services provided in the State, including
(but not limited to)—
(A) implementing health care quality as-
surance programs;
(B) carrying out programs to reduce mal-
practice-related costs for providers volunteering
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to provide services in medically underserved
areas; and
(C) implementing and operating a State al-
ternative dispute resolution system certified by
the Secretary under section 3203.
(4) MAINTENANCE OF EFFORT.—A State shall
use any amounts paid pursuant to paragraph (2) to
supplement and not to replace amounts spent by the
State for the activities described in paragraph (3).
(c) SEVERAL LIABILITY FOR NONECONOMIC DAM-
AGES.—The liability of each defendant for noneconomic
damages shall be several only and shall not be joint, and
each defendant shall be liable only for the amount of non-
economic damages allocated to the defendant in direct pro-
portion to the defendant’s percentage of responsibility (as
determined by the trier of fact).
SEC. 3105. PERIODIC PAYMENTS FOR FUTURE LOSSES.
(a) PERIODIC PAYMENTS PERMITTED.—
(1) IN GENERAL.—In any medical malpractice
liability action in which the damages awarded for fu-
ture economic loss exceeds $100,000, a defendant
may not be required to pay such damages in a sin-
gle, lump-sum payment, but may be permitted to
make such payments on a periodic basis if the
court—
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(A) determines that economic damages in-
curred through the date of the award shall be
paid;
(B) bases the periods for such payments
upon projections of when such expenses are
likely to be incurred; and
(C) determines that the periodic payments
are adequately secured.
(b) WAIVER.—A court may waive the application of
subsection (a) with respect to a defendant if the court de-
termines that it is not in the best interests of the plaintiff
to receive payments for damages on such a periodic basis.
SEC. 3106. TREATMENT OF ATTORNEY’S FEES AND OTHER
COSTS.
(a) LIMITATION
ON AMOUNT
OF CONTINGENCY
FEES.—
(1) IN GENERAL.—An attorney who represents,
on a contingency fee basis, a claimant in a medical
malpractice liability claim may not charge, demand,
receive, or collect for services rendered in connection
with such claim in excess of the following amount re-
covered by judgment or settlement under such claim:
(A) 25 percent of the first $100,000 (or
portion thereof) recovered.
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(B) 20 percent of the next $150,000 (or
portion thereof) recovered.
(C) 15 percent of the next $250,000 (or
portion thereof) recovered.
(D) 10 percent of any amount in excess of
$500,000 recovered.
(2) CALCULATION OF PERIODIC PAYMENTS.—In
the event that a judgment or settlement includes
periodic or future payments of damages, the amount
recovered for purposes of computing the limitation
on the contingency fee under paragraph (1) shall be
based on the cost of the annuity or trust established
to make the payments. In any case in which an an-
nuity or trust is not established to make such pay-
ments, such amount shall be based on the present
value of the payments.
(b) CONTINGENCY FEE DEFINED.—As used in this
section, the term ‘‘contingency fee’’ means any fee for pro-
fessional legal services which is, in whole or in part, con-
tingent upon the recovery of any amount of damages,
whether through judgment or settlement.
SEC. 3107. UNIFORM STATUTE OF LIMITATIONS.
(a) IN GENERAL.—No medical malpractice claim
may be initiated after the expiration of the 2-year period
that begins on the date on which the alleged injury that
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is the subject of such claim was discovered or the date
on which such injury should reasonably have been discov-
ered, whichever is earlier.
(b) EXCEPTION FOR MINORS.—In the case of an al-
leged injury suffered by a minor who has not attained 6
years of age, a medical malpractice claim may be initiated
after the expiration of the period described in subsection
(a) if the claim is initiated before the minor attains 8
years of age.
SEC. 3108. SPECIAL PROVISION FOR CERTAIN OBSTETRIC
SERVICES.
(a) IN GENERAL.—In the case of a medical mal-
practice claim relating to services provided during labor
or the delivery of a baby, if the health care professional
or health care provider against whom the claim is brought
did not previously treat the claimant for the pregnancy,
the trier of fact may not find that such professional or
provider committed malpractice and may not assess dam-
ages against such professional or provider unless the mal-
practice is proven by clear and convincing evidence.
(b) APPLICABILITY
TO
GROUP
PRACTICES
OR
AGREEMENTS AMONG PROVIDERS.—For purposes of sub-
section (a), a health care professional shall be considered
to have previously treated an individual for a pregnancy
if the professional is a member of a group practice whose
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members previously treated the individual for the preg-
nancy or is providing services to the individual during
labor or the delivery of a baby pursuant to an agreement
with another professional.
SEC. 3109. APPLICATION OF MEDICAL PRACTICE PARAM-
ETERS IN MALPRACTICE LIABILITY ACTIONS.
(a) USE
OF PARAMETERS
AS AFFIRMATIVE DE-
FENSE.—In any medical malpractice liability action, it
shall be a complete defense to any allegation that the de-
fendant was negligent that, in the provision of (or the fail-
ure to provide) the services that are the subject of the
action, the defendant followed the appropriate practice pa-
rameter.
(b) RESTRICTION ON PARAMETERS CONSIDERED AP-
PROPRIATE.—
(1) 
PARAMETERS
SANCTIONED
BY
SEC-
RETARY.—For purposes of subsection (a), a practice
parameter may not be considered appropriate with
respect to actions brought during a year unless the
Secretary has sanctioned the use of the parameter
for purposes of an affirmative defense to medical
malpractice liability actions brought during the year
in accordance with paragraph (2) or (3).
(2) 
PROCESS
FOR
SANCTIONING
PARAM-
ETERS.—Not less frequently than October 1 of each
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year (beginning with 1995), the Secretary shall re-
view the practice guidelines and standards developed
by the Administrator for Health Care Policy and Re-
search pursuant to section 1142 of the Social Secu-
rity Act, and shall sanction those guidelines which
the Secretary considers appropriate for purposes of
an affirmative defense to medical malpractice liabil-
ity actions brought during the next calendar year as
appropriate practice parameters for purposes of sub-
section (a).
(3) USE OF STATE PARAMETERS.—Upon the
application of a State, the Secretary may sanction
practice parameters selected by the State for pur-
poses of an affirmative defense to medical mal-
practice liability actions brought in the State as ap-
propriate practice parameters for purposes of sub-
section (a) if the parameters meet such requirements
as the Secretary may impose.
(c) PROHIBITING APPLICATION OF FAILURE TO FOL-
LOW PARAMETERS AS PRIMA FACIE EVIDENCE OF NEG-
LIGENCE.—No plaintiff in a medical malpractice liability
action may be deemed to have presented prima facie evi-
dence that a defendant was negligent solely by showing
that the defendant failed to follow the appropriate practice
parameter.
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SEC. 3110. JURISDICTION OF FEDERAL COURTS.
Nothing in this subtitle shall be construed to estab-
lish jurisdiction over any medical malpractice liability ac-
tion in the district courts of the United States on the basis
of sections 1331 or 1337 of title 28, United States Code.
SEC. 3111. PREEMPTION.
(a) IN GENERAL.—This subtitle supersedes any State
law only to the extent that the State law permits the recov-
ery by a claimant or the assessment against a defendant
of a greater amount of damages or establishes a less strict
standard of proof for determining whether a defendant has
committed malpractice, than the provisions of this sub-
title.
(b) EFFECT ON SOVEREIGN IMMUNITY AND CHOICE
OF LAW OR VENUE.—Nothing in this subtitle shall be con-
strued to—
(1) waive or affect any defense of sovereign im-
munity asserted by any State under any provision of
law;
(2) waive or affect any defense of sovereign im-
munity asserted by the United States;
(3) affect the applicability of any provision of
the Foreign Sovereign Immunities Act of 1976;
(4) preempt State choice-of-law rules with re-
spect to claims brought by a foreign nation or a citi-
zen of a foreign nation; or
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(5) affect the right of any court to transfer
venue or to apply the law of a foreign nation or to
dismiss a claim of a foreign nation or of a citizen
of a foreign nation on the ground in inconvenient
forum.
Subtitle C—Requirements for State
Alternative Dispute Resolution
Systems (ADR)
SEC. 3201. BASIC REQUIREMENTS.
(a) IN GENERAL.—A State’s alternative dispute reso-
lution system meets the requirements of this section if the
system—
(1) applies to all medical malpractice liability
claims under the jurisdiction of the courts of that
State;
(2) requires that a written opinion resolving the
dispute be issued not later than 6 months after the
date by which each party against whom the claim is
filed has received notice of the claim (other than in
exceptional cases for which a longer period is re-
quired for the issuance of such an opinion), and that
the opinion contain—
(A) findings of fact relating to the dispute,
and