I 
108TH CONGRESS 
2D SESSION 
H. R. 4356 
To amend the Internal Revenue Code of 1986 to provide tax subsidies to 
encourage small employers to offer affordable health coverage to their 
employees through qualified health pooling arrangements, to encourage 
the establishment and operation of these arrangements, and for other 
purposes. 
IN THE HOUSE OF REPRESENTATIVES 
MAY 12, 2004 
Mr. SANDLIN (for himself, Ms. PELOSI, Mr. RANGEL, Mr. DINGELL, Mr. 
STARK, Mr. BROWN of Ohio, Mr. PALLONE, Mr. WAXMAN, Mr. HOYER, 
Mr. MENENDEZ, Mr. BERRY, Mr. GEORGE MILLER of California, Mr. 
GEPHARDT, Mr. ROSS, Mr. MATSUI, Mr. STENHOLM, Mr. LAMPSON, Mr. 
HOEFFEL, Mrs. JONES of Ohio, Mr. KILDEE, Mr. GRIJALVA, Mr. 
RUPPERSBERGER, Mr. MCDERMOTT, Mr. TOWNS, Ms. SLAUGHTER, Mr. 
GREEN of Texas, Mr. MARKEY, Mr. LYNCH, Mr. CROWLEY, Ms. 
MILLENDER-MCDONALD, Mr. BOUCHER, Mrs. CHRISTENSEN, Mr. JACK-
SON of Illinois, Ms. ROYBAL-ALLARD, Mr. RODRIGUEZ, Mr. NADLER, Mr. 
CONYERS, Ms. DELAURO, Ms. KILPATRICK, Mr. SERRANO, Ms. LEE, Mr. 
EVANS, Mr. TIERNEY, Mr. ISRAEL, Ms. MCCOLLUM, Mr. LANTOS, Mr. 
GUTIERREZ, Ms. WATERS, Mr. ALEXANDER, Ms. WOOLSEY, Mrs. DAVIS 
of California, Ms. JACKSON-LEE of Texas, Mrs. MCCARTHY of New York, 
Mr. HINCHEY, Mr. ABERCROMBIE, Mr. VAN HOLLEN, Ms. LINDA T. 
SA´NCHEZ of California, Mr. TURNER of Texas, Mr. EMANUEL, Mr. 
MOORE, Ms. CARSON of Indiana, Mr. STUPAK, Mr. BISHOP of New York, 
Mr. CASE, Mr. WEINER, Ms. SCHAKOWSKY, Ms. SOLIS, Mr. FROST, Mr. 
WEXLER, Mr. HOLT, Mr. CUMMINGS, Mr. CARDOZA, Mr. BISHOP of 
Georgia, Mr. ENGEL, Mrs. CAPPS, Mr. HONDA, Mr. SCHIFF, Mr. 
MICHAUD, Mr. DELAHUNT, Mr. CHANDLER, Mr. CLAY, Mr. OLVER, Mr. 
REYES, Mr. SCOTT of Georgia, Mr. ORTIZ, Mr. CAPUANO, and Mr. 
ALLEN) introduced the following bill; which was referred to the Com-
mittee on Ways and Means, and in addition to the Committees on Energy 
and Commerce and Education and the Workforce, for a period to be sub-
sequently determined by the Speaker, in each case for consideration of 
such provisions as fall within the jurisdiction of the committee concerned
A BILL 
To amend the Internal Revenue Code of 1986 to provide 
tax subsidies to encourage small employers to offer af-
fordable health coverage to their employees through 
qualified health pooling arrangements, to encourage the 
establishment and operation of these arrangements, 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 
‘‘Small Business Health Insurance Promotion Act of 
2004’’. 
(b) TABLE OF CONTENTS.—The table of contents of 
this Act is as follows: 
Sec. 1. Short title; table of contents. 
Sec. 2. Temporary tax credit for small employers offering health coverage 
through a qualified health pooling arrangement. 
Sec. 3. Qualified State health pooling arrangements. 
Sec. 4. Establishment of national health pooling arrangement. 
Sec. 5. Funding of pooling arrangements. 
Sec. 6. Institute of Medicine study and report. 
SEC. 2. TEMPORARY TAX CREDIT FOR SMALL EMPLOYERS 
OFFERING HEALTH COVERAGE THROUGH A 
QUALIFIED 
HEALTH 
POOLING 
ARRANGE-
MENT. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to business-related credits) is amended by 
adding at the end the following:
‘‘SEC. 45G. SMALL BUSINESS HEALTH POOL ARRANGE-
MENTS. 
‘‘(a) GENERAL RULE.—For purposes of section 38, 
in the case of an eligible small employer, the health pool 
arrangement credit determined under this section for the 
taxable year is an amount equal to 50 percent of amounts 
paid or incurred by the employer during the taxable year 
as premiums for self-only or family coverage for health 
benefits under a qualified health pooling arrangement for 
employees of such employer. 
‘‘(b) LIMITATIONS.— 
‘‘(1) EMPLOYER MUST BEAR 50 PERCENT OF 
COST.—Expenses may be taken into account under 
subsection (a) only if at least 50 percent of the pre-
miums under the qualified health pooling arrange-
ment are paid by the employer. 
‘‘(2) PERIOD OF COVERAGE.—Expenses may be 
taken into account under subsection (a) only with 
respect to coverage for the 4-year period beginning 
on the date the employer first begins participating in 
a qualified health pooling arrangement. 
‘‘(3) EMPLOYERS
OFFERING
OTHER
HEALTH 
BENEFITS.—In the case of an employer who paid or 
incurred any expenses for health benefits for the em-
ployees of such employer during the first taxable 
year ending on or after the date of the enactment
of this section, subsection (a) shall apply to such 
employer only if such employer begins participating 
in a qualified health pooling arrangement during the 
2-year period beginning on the later of— 
‘‘(A) the date of the enactment of this sec-
tion, or 
‘‘(B) the first date that a qualified health 
pooling arrangement exists which allows such 
employer to participate. 
‘‘(4) NO EMPLOYEES EXCLUDED.—Subsection 
(a) shall not apply to an employer for any period un-
less at all times during such period coverage for 
health benefits under a qualified health pooling ar-
rangement is available to all employees of such em-
ployer under similar terms. 
‘‘(5) AMOUNTS
PAID
UNDER
SALARY
REDUC-
TION ARRANGEMENTS.—No amount paid or incurred 
pursuant to a salary reduction arrangement shall be 
taken into account under subsection (a). 
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section— 
‘‘(1) ELIGIBLE SMALL EMPLOYER.— 
‘‘(A) IN
GENERAL.—The term ‘eligible 
small employer’ means an employer who em-
ployed, with respect to the calendar year in
which such employer first begins participating 
in a qualified health pooling arrangement, an 
average of not more than 50 employees on busi-
ness days during the preceding calendar year. 
‘‘(B) EMPLOYERS NOT IN EXISTENCE IN 
PRECEDING YEAR.—In the case of an employer 
which was not in existence throughout the pre-
ceding calendar year, the determination of 
whether such employer is an eligible small em-
ployer shall be based on the average number of 
employees that it is reasonably expected such 
employer will employ on business days in the 
current calendar year. 
‘‘(C) PERMANENT
STATUS
AS
ELIGIBLE 
SMALL EMPLOYER.—In the case of an employer 
who meets the requirements of this subsection 
with respect to the calendar year in which such 
employer first begins participating in a quali-
fied health pooling arrangement, such employer 
shall not fail to be treated as an eligible small 
employer for any subsequent calendar year. 
‘‘(D) PREDECESSORS.—The Secretary may 
prescribe regulations which provide for ref-
erences in this paragraph to an employer to be
treated as including references to predecessors 
of such employer. 
‘‘(2) SELF-EMPLOYED INDIVIDUALS.— 
‘‘(A) TREATMENT
AS
EMPLOYEE.—The 
term ‘employee’ includes an individual who is 
an employee within the meaning of section 
401(c)(1) (relating to self-employed individ-
uals). 
‘‘(B) TREATMENT AS EMPLOYER.—An in-
dividual who owns the entire interest in an un-
incorporated trade or business shall be treated 
as his own employer. A partnership shall be 
treated as the employer of each partner who is 
an employee within the meaning of subpara-
graph (A). 
‘‘(3) FAMILY
COVERAGE.—The term ‘family 
coverage’ means coverage for health benefits of the 
employee and qualified family members of the em-
ployee (as defined in section 35(d), but without re-
gard to the last sentence of paragraph (1) thereof). 
‘‘(4) QUALIFIED HEALTH POOLING ARRANGE-
MENT.—The term ‘qualified health pooling arrange-
ment’ means a qualified State health pooling ar-
rangement described in section 3 of Small Business 
Health Insurance Promotion Act of 2004 or the na-
tional health pooling arrangement described in sec-
tion 4 of such Act. 
‘‘(5) CERTAIN
RULES
MADE
APPLICABLE.— 
Rules similar to the rules of section 52 shall apply 
for purposes of this section.’’. 
(b) CREDIT TO BE PART OF GENERAL BUSINESS 
CREDIT.—Section 38(b) of such Code (relating to current 
year business credit) is amended by striking ‘‘plus’’ at the 
end of paragraph (13), by striking the period at the end 
of paragraph (14) and inserting ‘‘, plus’’, and by adding 
at the end the following: 
‘‘(15) in the case of an eligible small employer 
(as defined in section 45G(c)), the health pool ar-
rangement 
credit 
determined 
under 
section 
45G(a).’’. 
(c) NO CARRYBACKS.—Subsection (d) of section 39 
of such Code (relating to carryback and carryforward of 
unused credits) is amended by adding at the end the fol-
lowing: 
‘‘(11) NO CARRYBACK OF SECTION 45G CREDIT 
BEFORE EFFECTIVE DATE.—No portion of the un-
used business credit for any taxable year which is 
attributable to the health pool arrangement credit 
determined under section 45G may be carried back
to a taxable year beginning before January 1, 
2004.’’. 
(d) DENIAL OF DOUBLE BENEFIT.—Section 280C of 
such Code is amended by adding at the end the following 
new subsection: 
‘‘(d) CREDIT FOR SMALL BUSINESS HEALTH POOL 
ARRANGEMENTS.— 
‘‘(1) IN GENERAL.—No deduction shall be al-
lowed for that portion of the expenses (otherwise al-
lowable as a deduction) taken into account in deter-
mining the credit under section 45G for the taxable 
year which is equal to the amount of the credit de-
termined for such taxable year under section 
45G(a). 
‘‘(2) CONTROLLED
GROUPS.—Persons treated 
as a single employer under subsection (a) or (b) of 
section 52 shall be treated as 1 person for purposes 
of this section.’’. 
(e) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
of such Code is amended by adding at the end the fol-
lowing: 
‘‘Sec. 45G. Small business health pool arrangements.’’. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts paid or incurred in tax-
able years beginning after December 31, 2003, for ar-
rangements established after the date of the enactment 
of this Act. 
SEC. 3. QUALIFIED STATE HEALTH POOLING ARRANGE-
MENTS. 
(a) DEFINED.—For purposes of this Act, the term 
‘‘qualified State health pooling arrangement’’ means an 
arrangement established by a State which meets the fol-
lowing requirements: 
(1) HEALTH
BENEFITS
COVERAGE.—The ar-
rangement provides health benefits coverage that the 
Secretaries of Health and Human Services and 
Labor jointly determine is substantially similar to 
the health benefits coverage in any of the four larg-
est health benefits plans (determined by enrollment) 
offered under chapter 89 of title 5, United States 
Code. 
(2) GROUP
HEALTH
PLAN
REQUIREMENTS.— 
The health benefits coverage provided under the ar-
rangement meets the requirements applicable to a 
group health plan under chapter 100 of the Internal 
Revenue Code of 1986, part 7 of subtitle B of title 
I of the Employee Retirement Income Security Act 
of 1974, and State law. 
(3) GUARANTEED
ISSUE
AND
RENEWABLE.— 
The arrangement does not deny coverage (including
renewal of coverage) with respect to employees of 
any eligible small employer or qualifying family 
members of such employees on the basis of health 
status of such employees or family members or any 
other condition or requirement that the Secretaries 
of Health and Human Services and Labor jointly de-
termine constitutes health underwriting. 
(4) NO PREEXISTING CONDITION EXCLUSION.— 
The arrangement does not permit a preexisting con-
dition exclusion as defined under section 9801(b)(1) 
of the Internal Revenue Code of 1986 and under 
section 701(b)(1) of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 11(b)(1)). 
(5) NO
UNDERWRITING; 
COMMUNITY-RATED 
PREMIUMS.—(A) Subject to subparagraph (B), the 
arrangement does not permit underwriting, through 
a preexisting condition limitation, differential bene-
fits, or different premium levels, or otherwise, with 
respect to such coverage for employees or their 
qualifying family members. 
(B) The premiums charged for such coverage 
are community-rated for individuals without regard 
to health status. 
(6) NO
RIDERS.—The arrangement does not 
permit riders to the health benefits coverage.
(7) ACCESSIBILITY
TO
ELIGIBLE
SMALL
EM-
PLOYERS.—The arrangement makes such coverage 
available to an eligible small employer without re-
gard to whether a credit is available under section 
45G of the Internal Revenue Code of 1986 with re-
spect to such employer. 
(8) MINIMUM OF TWO PLANS OFFERED UNDER 
THE
ARRANGEMENT.—The 
arrangement 
makes 
available at least two plans for health benefits cov-
erage. 
(b) ELIGIBLE SMALL EMPLOYER; SELF-EMPLOYED 
INDIVIDUAL.—For purposes of this Act, the terms ‘‘eligi-
ble small employer’’ and ‘‘employee’’ have the same mean-
ings as when such terms are used in section 45G of the 
Internal Revenue Code of 1986 and rules similar to the 
rules of subsection (c) of such section shall apply for pur-
poses of this Act. 
(c) QUALIFYING FAMILY MEMBER.—For purposes of 
this Act, the term ‘‘qualifying family member’’ has the 
meaning given such term in section 35(d) of the Internal 
Revenue Code of 1986, applied without regard to the last 
sentence of paragraph (1) thereof. 
(d) STATE DEFINED.—For purposes of this Act, the 
term ‘‘State’’ includes the District of Columbia, Puerto
Rico, the Virgin Islands of the United States, Guam, 
American Samoa, and the Northern Mariana Islands. 
(e) CONSTRUCTION.—Nothing in this section shall be 
construed as requiring a State to establish or maintain 
a qualified State health pooling arrangement. 
(f) CREDITABLE
COVERAGE
FOR
PURPOSES
OF 
HIPAA.—Health benefits coverage provided under a 
qualified State health pooling arrangement under this sec-
tion (and coverage provided under a National Pooling Ar-
rangement under section 4 of this title) shall be treated 
as creditable coverage for purposes of part 7 of subtitle 
B of title I of the Employee Retirement Income Security 
Act of 1974 (29 U.S.C. 1181 et seq.), title XXVII of the 
Public Health Service Act (42 U.S.C. 300gg et seq.), and 
subtitle K of the Internal Revenue Code of 1986. 
(g) OVERSIGHT AND ACCOUNTABILITY.— 
(1) OVERSIGHT.—The Secretaries of Health 
and Human Services and Labor shall jointly oversee 
the offering of health benefits coverage under quali-
fied State health pooling arrangements to eligible 
small employers. 
(2) ANNUAL REPORTS.— 
(A) IN GENERAL.—Each State that offers 
a qualified State health pooling arrangement 
under this section in a year shall submit, in a
form and manner specified jointly by the Secre-
taries of Health and Human Services and 
Labor, a report on the operation of the ar-
rangement in that year. 
(B) CONTENTS OF REPORT.—Reports re-
quired under subparagraph (A) shall include 
the following: 
(i) A description of the health benefits 
coverage offered under the arrangement. 
(ii) The number of employers that 
participated in the arrangement. 
(iii) The number of employees and 
qualifying family members of employees 
who received health benefits coverage 
under the arrangement. 
(iv) The premiums charged for the 
health benefits coverage under the arrange-
ment. 
(3) CERTIFICATION.—Each State that offers a 
qualified State health pooling arrangement under 
this section in a year shall submit, in a form and 
manner specified jointly by the Secretaries of Health 
and Human Services and Labor, a certification that 
the arrangement meets the requirements of this Act.
(h) COORDINATION OF COMPLAINTS WITH STATE 
INSURANCE COMMISSIONERS.—The Secretaries of Health 
and Human Services and Labor shall coordinate with the 
insurance commissioners for the various States in estab-
lishing a process for handling and resolving any com-
plaints relating to health benefits coverage offered under 
this Act, to the extent necessary to augment processes oth-
erwise available under State law. 
(i) NO PREEMPTION OF STATE LAW.—Nothing in 
this section shall be construed as preempting provisions 
of State law that provide protections in excess of the pro-
tections required under this section. 
SEC. 4. ESTABLISHMENT OF NATIONAL HEALTH POOLING 
ARRANGEMENT. 
(a) IN GENERAL.—The Secretaries of Health and 
Human Services and Labor, jointly in consultation with 
the Director of the Office of Personnel Management, shall 
provide for the offering and oversight of a national health 
pooling arrangement to eligible small employers. 
(b) NATIONAL HEALTH POOLING ARRANGEMENT 
DEFINED.— For purposes of this section, the term ‘‘na-
tional health pooling arrangement’’ means an arrange-
ment under which health plans are offered under terms 
and conditions that meet the requirements of section 3(a).
(c) USE OF FEHBP MODEL.—The Secretaries of 
Health and Human Services and Labor shall jointly pro-
vide for the national health pooling arrangement using the 
model of the Federal employees health benefits program 
under chapter 89 of title 5, United States Code, to the 
extent practicable and consistent with the provisions of 
this Act. In carrying out such model, the Secretaries shall, 
to the maximum extent practicable, negotiate the most af-
fordable and substantial coverage possible for small em-
ployers. 
SEC. 5. FUNDING OF POOLING ARRANGEMENTS. 
(a) FUNDING OF STATES TO ESTABLISH AND OPER-
ATE QUALIFIED STATE HEALTH POOLING ARRANGE-
MENTS.—There are authorized to be appropriated to the 
Secretaries of Health and Human Services and Labor 
such sums as may be necessary to provide grants to States 
to establish and operate qualified State health pooling ar-
rangements described in section 3. 
(b) FUNDING OF NATIONAL HEALTH POOLING AR-
RANGEMENT.—There are authorized to be appropriated to 
the Secretaries of Health and Human Services and Labor 
such sums as may be necessary to provide for the offering 
and operation of the national health pooling arrangement 
under section 4.
SEC. 6. INSTITUTE OF MEDICINE STUDY AND REPORT. 
(a) STUDY.—The Secretaries of Health and Human 
Services and Labor shall jointly enter into an arrangement 
under which the Institute of Medicine of the National 
Academy of Sciences shall conduct a study on the oper-
ation of qualified State health pooling arrangements under 
section 3 and the national health pooling arrangement 
under section 4. 
(b) MATTERS STUDIED.—The study conducted under 
subsection (a) shall include the following: 
(1) An assessment of the success of the ar-
rangements. 
(2) A determination of the affordability of 
health benefits coverage under the arrangements for 
employers and employees. 
(3) A determination of the access of small em-
ployers to health benefits coverage. 
(4) A determination of the extent to which the 
tax credit under section 45G of the Internal Revenue 
Code of 1986 provides a subsidy for eligible small 
employers that provided (or would have provided) 
health benefits coverage in the absence of such cred-
it. 
(5) Recommendations with respect to— 
(A) extension of the period for which the 
tax credit under section 45G of the Internal
Revenue Code of 1986 is available to employers 
or an appropriate phase-out of such credit over 
time; 
(B) expansion of categories of persons eli-
gible for such tax credit; 
(C) expansion of persons eligible for health 
benefits coverage under the arrangements; and 
(D) such other matters as the Institute de-
termines appropriate. 
(c) REPORT.—Not later than January 1, 2009, the 
Comptroller General shall submit to Congress a report on 
the study conducted under subsection (a). 
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