Rico, the Virgin Islands, Guam, American Samoa, 
and the Northern Mariana Islands. 
‘‘(9) UNFAIR
CLAIMS
SETTLEMENT
PRAC-
TICES.—The term ‘unfair claims settlement prac-
tices’ means only the following practices: 
‘‘(A) Knowingly misrepresenting to claim-
ants and insured individuals relevant facts or 
policy provisions relating to coverage at issue. 
‘‘(B) Failing to acknowledge with reason-
able promptness pertinent communications with 
respect to claims arising under policies. 
‘‘(C) Failing to adopt and implement rea-
sonable standards for the prompt investigation 
and settlement of claims arising under policies. 
‘‘(D) Failing to effectuate prompt, fair, 
and equitable settlement of claims submitted in 
which liability has become reasonably clear. 
‘‘(E) Refusing to pay claims without con-
ducting a reasonable investigation. 
‘‘(F) Failing to affirm or deny coverage of 
claims within a reasonable period of time after 
having completed an investigation related to 
those claims. 
‘‘(G) A pattern or practice of compelling 
insured individuals or their beneficiaries to in-
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stitute suits to recover amounts due under its 
policies by offering substantially less than the 
amounts ultimately recovered in suits brought 
by them. 
‘‘(H) A pattern or practice of attempting 
to settle or settling claims for less than the 
amount that a reasonable person would believe 
the insured individual or his or her beneficiary 
was entitled by reference to written or printed 
advertising material accompanying or made 
part of an application. 
‘‘(I) Attempting to settle or settling claims 
on the basis of an application that was materi-
ally altered without notice to, or knowledge or 
consent of, the insured. 
‘‘(J) Failing to provide forms necessary to 
present claims within 15 calendar days of a re-
quests with reasonable explanations regarding 
their use. 
‘‘(K) Attempting to cancel a policy in less 
time than that prescribed in the policy or by the 
law of the primary State. 
‘‘(10) FRAUD AND ABUSE.—The term ‘fraud 
and abuse’ means an act or omission committed by 
a person who, knowingly and with intent to defraud, 
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commits, or conceals any material information con-
cerning, one or more of the following: 
‘‘(A) Presenting, causing to be presented 
or preparing with knowledge or belief that it 
will be presented to or by an insurer, a rein-
surer, broker or its agent, false information as 
part of, in support of or concerning a fact ma-
terial to one or more of the following: 
‘‘(i) An application for the issuance or 
renewal of an insurance policy or reinsur-
ance contract. 
‘‘(ii) The rating of an insurance policy 
or reinsurance contract. 
‘‘(iii) A claim for payment or benefit 
pursuant to an insurance policy or reinsur-
ance contract. 
‘‘(iv) Premiums paid on an insurance 
policy or reinsurance contract. 
‘‘(v) Payments made in accordance 
with the terms of an insurance policy or 
reinsurance contract. 
‘‘(vi) A document filed with the com-
missioner or the chief insurance regulatory 
official of another jurisdiction. 
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‘‘(vii) The financial condition of an in-
surer or reinsurer. 
‘‘(viii) The formation, acquisition, 
merger, 
reconsolidation, 
dissolution 
or 
withdrawal from one or more lines of in-
surance or reinsurance in all or part of a 
State by an insurer or reinsurer. 
‘‘(ix) The issuance of written evidence 
of insurance. 
‘‘(x) The reinstatement of an insur-
ance policy. 
‘‘(B) Solicitation or acceptance of new or 
renewal insurance risks on behalf of an insurer 
reinsurer or other person engaged in the busi-
ness of insurance by a person who knows or 
should know that the insurer or other person 
responsible for the risk is insolvent at the time 
of the transaction. 
‘‘(C) Transaction of the business of insur-
ance in violation of laws requiring a license, cer-
tificate of authority or other legal authority for 
the transaction of the business of insurance. 
‘‘(D) Attempt to commit, aiding or abet-
ting in the commission of, or conspiracy to com-
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mit the acts or omissions specified in this para-
graph. 
‘‘SEC. 2796. APPLICATION OF LAW. 
‘‘(a) IN GENERAL.—The covered laws of the primary 
State shall apply to individual health insurance coverage 
offered by a health insurance issuer in the primary State 
and in any secondary State, but only if the coverage and 
issuer comply with the conditions of this section with re-
spect to the offering of coverage in any secondary State. 
‘‘(b) EXEMPTIONS FROM COVERED LAWS IN A SEC-
ONDARY STATE.—Except as provided in this section, a 
health insurance issuer with respect to its offer, sale, rat-
ing (including medical underwriting), renewal, and 
issuance of individual health insurance coverage in any 
secondary State is exempt from any covered laws of the 
secondary State (and any rules, regulations, agreements, 
or orders sought or issued by such State under or related 
to such covered laws) to the extent that such laws would— 
‘‘(1) make unlawful, or regulate, directly or in-
directly, the operation of the health insurance issuer 
operating in the secondary State, except that any 
secondary State may require such an issuer— 
‘‘(A) to pay, on a nondiscriminatory basis, 
applicable premium and other taxes (including 
high risk pool assessments) which are levied on 
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insurers and surplus lines insurers, brokers, or 
policyholders under the laws of the State; 
‘‘(B) to register with and designate the 
State insurance commissioner as its agent solely 
for the purpose of receiving service of legal doc-
uments or process; 
‘‘(C) to submit to an examination of its fi-
nancial condition by the State insurance com-
missioner in any State in which the issuer is 
doing business to determine the issuer’s finan-
cial condition, if— 
‘‘(i) the State insurance commissioner 
of the primary State has not done an ex-
amination within the period recommended 
by the National Association of Insurance 
Commissioners; and 
‘‘(ii) any such examination is con-
ducted in accordance with the examiners’ 
handbook of the National Association of 
Insurance Commissioners and is coordi-
nated to avoid unjustified duplication and 
unjustified repetition; 
‘‘(D) to comply with a lawful order 
issued— 
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‘‘(i) in a delinquency proceeding com-
menced by the State insurance commis-
sioner if there has been a finding of finan-
cial impairment under subparagraph (C); 
or 
‘‘(ii) in a voluntary dissolution pro-
ceeding; 
‘‘(E) to comply with an injunction issued 
by a court of competent jurisdiction, upon a pe-
tition by the State insurance commissioner al-
leging that the issuer is in hazardous financial 
condition; 
‘‘(F) to participate, on a nondiscriminatory 
basis, in any insurance insolvency guaranty as-
sociation or similar association to which a 
health insurance issuer in the State is required 
to belong; 
‘‘(G) to comply with any State law regard-
ing fraud and abuse (as defined in section 
2795(10)), except that if the State seeks an in-
junction regarding the conduct described in this 
subparagraph, such injunction must be obtained 
from a court of competent jurisdiction; 
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‘‘(H) to comply with any State law regard-
ing unfair claims settlement practices (as de-
fined in section 2795(9)); or 
‘‘(I) to comply with the applicable require-
ments for independent review under section 
2798 with respect to coverage offered in the 
State; 
‘‘(2) require any individual health insurance 
coverage issued by the issuer to be countersigned by 
an insurance agent or broker residing in that Sec-
ondary State; or 
‘‘(3) otherwise discriminate against the issuer 
issuing insurance in both the primary State and in 
any secondary State. 
‘‘(c) CLEAR
AND CONSPICUOUS DISCLOSURE.—A 
health insurance issuer shall provide the following notice, 
in 12-point bold type, in any insurance coverage offered 
in a secondary State under this part by such a health in-
surance issuer and at renewal of the policy, with the 5 
blank spaces therein being appropriately filled with the 
name of the health insurance issuer, the name of primary 
State, the name of the secondary State, the name of the 
secondary State, and the name of the secondary State, re-
spectively, for the coverage concerned: 
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‘Notice This policy is issued by lll and is 
governed by the laws and regulations of the 
State of lll, and it has met all the laws of 
that State as determined by that State’s De-
partment of Insurance. This policy may be 
less expensive than others because it is not 
subject to all of the insurance laws and regu-
lations of the State of lll, including cov-
erage of some services or benefits mandated 
by the law of the State of lll. Additionally, 
this policy is not subject to all of the con-
sumer protection laws or restrictions on rate 
changes of the State of lll. As with all in-
surance products, before purchasing this pol-
icy, you should carefully review the policy 
and determine what health care services the 
policy covers and what benefits it provides, 
including any exclusions, limitations, or con-
ditions for such services or benefits.’ ’’. 
‘‘(d) PROHIBITION ON CERTAIN RECLASSIFICATIONS 
AND PREMIUM INCREASES.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, a health insurance issuer that provides indi-
vidual health insurance coverage to an individual 
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under this part in a primary or secondary State may 
not upon renewal— 
‘‘(A) move or reclassify the individual in-
sured under the health insurance coverage from 
the class such individual is in at the time of 
issue of the contract based on the health-status 
related factors of the individual; or 
‘‘(B) increase the premiums assessed the 
individual for such coverage based on a health 
status-related factor or change of a health sta-
tus-related factor or the past or prospective 
claim experience of the insured individual. 
‘‘(2) CONSTRUCTION.—Nothing in paragraph 
(1) shall be construed to prohibit a health insurance 
issuer— 
‘‘(A) from terminating or discontinuing 
coverage or a class of coverage in accordance 
with subsections (b) and (c) of section 2742; 
‘‘(B) from raising premium rates for all 
policy holders within a class based on claims ex-
perience; 
‘‘(C) from changing premiums or offering 
discounted premiums to individuals who engage 
in wellness activities at intervals prescribed by 
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the issuer, if such premium changes or incen-
tives— 
‘‘(i) are disclosed to the consumer in 
the insurance contract; 
‘‘(ii) are based on specific wellness ac-
tivities that are not applicable to all indi-
viduals; and 
‘‘(iii) are not obtainable by all individ-
uals to whom coverage is offered; 
‘‘(D) from reinstating lapsed coverage; or 
‘‘(E) from retroactively adjusting the rates 
charged an insured individual if the initial rates 
were set based on material misrepresentation by 
the individual at the time of issue. 
‘‘(e) PRIOR OFFERING
OF POLICY
IN PRIMARY 
STATE.—A health insurance issuer may not offer for sale 
individual health insurance coverage in a secondary State 
unless that coverage is currently offered for sale in the 
primary State. 
‘‘(f) LICENSING
OF AGENTS
OR BROKERS
FOR 
HEALTH INSURANCE ISSUERS.—Any State may require 
that a person acting, or offering to act, as an agent or 
broker for a health insurance issuer with respect to the 
offering of individual health insurance coverage obtain a 
license from that State, with commissions or other com-
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pensation subject to the provisions of the laws of that 
State, except that a State may not impose any qualifica-
tion or requirement which discriminates against a non-
resident agent or broker. 
‘‘(g) DOCUMENTS FOR SUBMISSION TO STATE IN-
SURANCE COMMISSIONER.—Each health insurance issuer 
issuing individual health insurance coverage in both pri-
mary and secondary States shall submit— 
‘‘(1) to the insurance commissioner of each 
State in which it intends to offer such coverage, be-
fore it may offer individual health insurance cov-
erage in such State— 
‘‘(A) a copy of the plan of operation or fea-
sibility study or any similar statement of the 
policy being offered and its coverage (which 
shall include the name of its primary State and 
its principal place of business); 
‘‘(B) written notice of any change in its 
designation of its primary State; and 
‘‘(C) written notice from the issuer of the 
issuer’s compliance with all the laws of the pri-
mary State; and 
‘‘(2) to the insurance commissioner of each sec-
ondary State in which it offers individual health in-
surance coverage, a copy of the issuer’s quarterly fi-
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nancial statement submitted to the primary State, 
which statement shall be certified by an independent 
public accountant and contain a statement of opin-
ion on loss and loss adjustment expense reserves 
made by— 
‘‘(A) a member of the American Academy 
of Actuaries; or 
‘‘(B) a qualified loss reserve specialist. 
‘‘(h) POWER OF COURTS TO ENJOIN CONDUCT.— 
Nothing in this section shall be construed to affect the 
authority of any Federal or State court to enjoin— 
‘‘(1) the solicitation or sale of individual health 
insurance coverage by a health insurance issuer to 
any person or group who is not eligible for such in-
surance; or 
‘‘(2) the solicitation or sale of individual health 
insurance coverage that violates the requirements of 
the law of a secondary State which are described in 
subparagraphs 
(A) 
through 
(H) 
of 
section 
2796(b)(1). 
‘‘(i) POWER OF SECONDARY STATES TO TAKE AD-
MINISTRATIVE ACTION.—Nothing in this section shall be 
construed to affect the authority of any State to enjoin 
conduct in violation of that State’s laws described in sec-
tion 2796(b)(1). 
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‘‘(j) STATE POWERS TO ENFORCE STATE LAWS.— 
‘‘(1) IN GENERAL.—Subject to the provisions of 
subsection (b)(1)(G) (relating to injunctions) and 
paragraph (2), nothing in this section shall be con-
strued to affect the authority of any State to make 
use of any of its powers to enforce the laws of such 
State with respect to which a health insurance issuer 
is not exempt under subsection (b). 
‘‘(2) COURTS OF COMPETENT JURISDICTION.— 
If a State seeks an injunction regarding the conduct 
described in paragraphs (1) and (2) of subsection 
(h), such injunction must be obtained from a Fed-
eral or State court of competent jurisdiction. 
‘‘(k) STATES’ AUTHORITY TO SUE.—Nothing in this 
section shall affect the authority of any State to bring ac-
tion in any Federal or State court. 
‘‘(l) GENERALLY APPLICABLE LAWS.—Nothing in 
this section shall be construed to affect the applicability 
of State laws generally applicable to persons or corpora-
tions. 
‘‘(m) GUARANTEED AVAILABILITY OF COVERAGE TO 
HIPAA ELIGIBLE INDIVIDUALS.—To the extent that a 
health insurance issuer is offering coverage in a primary 
State that does not accommodate residents of secondary 
States or does not provide a working mechanism for resi-
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100 
dents of a secondary State, and the issuer is offering cov-
erage under this part in such secondary State which has 
not adopted a qualified high risk pool as its acceptable 
alternative mechanism (as defined in section 2744(c)(2)), 
the issuer shall, with respect to any individual health in-
surance coverage offered in a secondary State under this 
part, comply with the guaranteed availability requirements 
for eligible individuals in section 2741. 
‘‘SEC. 2797. PRIMARY STATE MUST MEET FEDERAL FLOOR 
BEFORE ISSUER MAY SELL INTO SECONDARY 
STATES. 
‘‘A health insurance issuer may not offer, sell, or 
issue individual health insurance coverage in a secondary 
State if the State insurance commissioner does not use 
a risk-based capital formula for the determination of cap-
ital and surplus requirements for all health insurance 
issuers. 
‘‘SEC. 2798. INDEPENDENT EXTERNAL APPEALS PROCE-
DURES. 
‘‘(a) RIGHT TO EXTERNAL APPEAL.—A health insur-
ance issuer may not offer, sell, or issue individual health 
insurance coverage in a secondary State under the provi-
sions of this title unless— 
‘‘(1) both the secondary State and the primary 
State have legislation or regulations in place estab-
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101 
lishing an independent review process for individuals 
who are covered by individual health insurance cov-
erage, or 
‘‘(2) in any case in which the requirements of 
subparagraph (A) are not met with respect to the ei-
ther of such States, the issuer provides an inde-
pendent review mechanism substantially identical (as 
determined by the applicable State authority of such 
State) to that prescribed in the ‘Health Carrier Ex-
ternal Review Model Act’ of the National Association 
of Insurance Commissioners for all individuals who 
purchase insurance coverage under the terms of this 
part, except that, under such mechanism, the review 
is conducted by an independent medical reviewer, or 
a panel of such reviewers, with respect to whom the 
requirements of subsection (b) are met. 
‘‘(b) QUALIFICATIONS OF INDEPENDENT MEDICAL 
REVIEWERS.—In the case of any independent review 
mechanism referred to in subsection (a)(2)— 
‘‘(1) IN GENERAL.—In referring a denial of a 
claim to an independent medical reviewer, or to any 
panel of such reviewers, to conduct independent 
medical review, the issuer shall ensure that— 
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102 
‘‘(A) each independent medical reviewer 
meets the qualifications described in paragraphs 
(2) and (3); 
‘‘(B) with respect to each review, each re-
viewer meets the requirements of paragraph (4) 
and the reviewer, or at least 1 reviewer on the 
panel, meets the requirements described in 
paragraph (5); and 
‘‘(C) compensation provided by the issuer 
to each reviewer is consistent with paragraph 
(6). 
‘‘(2) LICENSURE AND EXPERTISE.—Each inde-
pendent medical reviewer shall be a physician 
(allopathic or osteopathic) or health care profes-
sional who— 
‘‘(A) is appropriately credentialed or li-
censed in 1 or more States to deliver health 
care services; and 
‘‘(B) typically treats the condition, makes 
the diagnosis, or provides the type of treatment 
under review. 
‘‘(3) INDEPENDENCE.— 
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), each independent medical reviewer 
in a case shall— 
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103 
‘‘(i) not be a related party (as defined 
in paragraph (7)); 
‘‘(ii) not have a material familial, fi-
nancial, or professional relationship with 
such a party; and 
‘‘(iii) not otherwise have a conflict of 
interest with such a party (as determined 
under regulations). 
‘‘(B) EXCEPTION.—Nothing in subpara-
graph (A) shall be construed to— 
‘‘(i) prohibit an individual, solely on 
the basis of affiliation with the issuer, 
from serving as an independent medical re-
viewer if— 
‘‘(I) a non-affiliated individual is 
not reasonably available; 
‘‘(II) the affiliated individual is 
not involved in the provision of items 
or services in the case under review; 
‘‘(III) the fact of such an affili-
ation is disclosed to the issuer and the 
enrollee (or authorized representative) 
and neither party objects; and 
‘‘(IV) the affiliated individual is 
not an employee of the issuer and 
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104 
does not provide services exclusively or 
primarily to or on behalf of the issuer; 
‘‘(ii) prohibit an individual who has 
staff privileges at the institution where the 
treatment involved takes place from serv-
ing as an independent medical reviewer 
merely on the basis of such affiliation if 
the affiliation is disclosed to the issuer and 
the enrollee (or authorized representative), 
and neither party objects; or 
‘‘(iii) prohibit receipt of compensation 
by an independent medical reviewer from 
an entity if the compensation is provided 
consistent with paragraph (6). 
‘‘(4) PRACTICING HEALTH CARE PROFESSIONAL 
IN SAME FIELD.— 
‘‘(A) IN
GENERAL.—In a case involving 
treatment, or the provision of items or serv-
ices— 
‘‘(i) by a physician, a reviewer shall be 
a practicing physician (allopathic or osteo-
pathic) of the same or similar specialty, as 
a physician who, acting within the appro-
priate scope of practice within the State in 
which the service is provided or rendered, 
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105 
typically treats the condition, makes the 
diagnosis, or provides the type of treat-
ment under review; or 
‘‘(ii) by a non-physician health care 
professional, the reviewer, or at least 1 
member of the review panel, shall be a 
practicing non-physician health care pro-
fessional of the same or similar specialty 
as the non-physician health care profes-
sional who, acting within the appropriate 
scope of practice within the State in which 
the service is provided or rendered, typi-
cally treats the condition, makes the diag-
nosis, or provides the type of treatment 
under review. 
‘‘(B) PRACTICING
DEFINED.—For pur-
poses of this paragraph, the term ‘practicing’ 
means, with respect to an individual who is a 
physician or other health care professional, that 
the individual provides health care services to 
individual patients on average at least 2 days 
per week. 
‘‘(5) PEDIATRIC EXPERTISE.—In the case of an 
external review relating to a child, a reviewer shall 
have expertise under paragraph (2) in pediatrics. 
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106 
‘‘(6) LIMITATIONS
ON
REVIEWER
COMPENSA-
TION.—Compensation provided by the issuer to an 
independent medical reviewer in connection with a 
review under this section shall— 
‘‘(A) not exceed a reasonable level; and 
‘‘(B) not be contingent on the decision ren-
dered by the reviewer. 
‘‘(7) RELATED PARTY DEFINED.—For purposes 
of this section, the term ‘related party’ means, with 
respect to a denial of a claim under a coverage relat-
ing to an enrollee, any of the following: 
‘‘(A) The issuer involved, or any fiduciary, 
officer, director, or employee of the issuer. 
‘‘(B) The enrollee (or authorized represent-
ative). 
‘‘(C) The health care professional that pro-
vides the items or services involved in the de-
nial. 
‘‘(D) The institution at which the items or 
services (or treatment) involved in the denial 
are provided. 
‘‘(E) The manufacturer of any drug or 
other item that is included in the items or serv-
ices involved in the denial. 
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107 
‘‘(F) Any other party determined under 
any regulations to have a substantial interest in 
the denial involved. 
‘‘(8) DEFINITIONS.—For purposes of this sub-
section: 
‘‘(A) ENROLLEE.—The term ‘enrollee’ 
means, with respect to health insurance cov-
erage offered by a health insurance issuer, an 
individual enrolled with the issuer to receive 
such coverage. 
‘‘(B) HEALTH CARE PROFESSIONAL.—The 
term ‘health care professional’ means an indi-
vidual who is licensed, accredited, or certified 
under State law to provide specified health care 
services and who is operating within the scope 
of such licensure, accreditation, or certification. 
‘‘SEC. 2799. ENFORCEMENT. 
‘‘(a) IN GENERAL.—Subject to subsection (b), with 
respect to specific individual health insurance coverage the 
primary State for such coverage has sole jurisdiction to 
enforce the primary State’s covered laws in the primary 
State and any secondary State. 
‘‘(b) SECONDARY STATE’S AUTHORITY.—Nothing in 
subsection (a) shall be construed to affect the authority 
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of a secondary State to enforce its laws as set forth in 
the exception specified in section 2796(b)(1). 
‘‘(c) COURT INTERPRETATION.—In reviewing action 
initiated by the applicable secondary State authority, the 
court of competent jurisdiction shall apply the covered 
laws of the primary State. 
‘‘(d) NOTICE OF COMPLIANCE FAILURE.—In the case 
of individual health insurance coverage offered in a sec-
ondary State that fails to comply with the covered laws 
of the primary State, the applicable State authority of the 
secondary State may notify the applicable State authority 
of the primary State.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to individual health insurance 
coverage offered, issued, or sold after the date that is one 
year after the date of the enactment of this Act. 
(c) GAO ONGOING STUDY AND REPORTS.— 
(1) STUDY.—The Comptroller General of the 
United States shall conduct an ongoing study con-
cerning the effect of the amendment made by sub-
section (a) on— 
(A) the number of uninsured and under-in-
sured; 
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(B) the availability and cost of health in-
surance policies for individuals with pre-existing 
medical conditions; 
(C) the availability and cost of health in-
surance policies generally; 
(D) the elimination or reduction of dif-
ferent types of benefits under health insurance 
policies offered in different States; and 
(E) cases of fraud or abuse relating to 
health insurance coverage offered under such 
amendment and the resolution of such cases. 
(2) ANNUAL REPORTS.—The Comptroller Gen-
eral shall submit to Congress an annual report, after 
the end of each of the 5 years following the effective 
date of the amendment made by subsection (a), on 
the ongoing study conducted under paragraph (1). 
SEC. 132. SEVERABILITY. 
If any provision of this subtitle or the application of 
such provision to any person or circumstance is held to 
be unconstitutional, the remainder of this subtitle and the 
application of the provisions of such to any other person 
or circumstance shall not be affected. 
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Subtitle E—Protecting Patients 
From Rescissions 
SEC. 141. OPPORTUNITY FOR INDEPENDENT, EXTERNAL 
THIRD PARTY REVIEWS OF CERTAIN NON-
RENEWALS 
AND 
DISCONTINUATIONS, 
IN-
CLUDING 
RESCISSIONS, 
OF 
INDIVIDUAL 
HEALTH INSURANCE COVERAGE. 
(a) CLARIFICATION REGARDING APPLICATION
OF 
GUARANTEED RENEWABILITY OF INDIVIDUAL HEALTH 
INSURANCE COVERAGE.—Section 2742 of the Public 
Health Service Act (42 U.S.C. 300gg–42) is amended— 
(1) in its heading, by inserting ‘‘, continuation 
in force, including prohibition of rescission,’’ after 
‘‘guaranteed renewability’’; 
(2) in subsection (a), by inserting ‘‘, including 
without rescission,’’ after ‘‘continue in force’’; and 
(3) in subsection (b)(2), by inserting before the 
period at the end the following: ‘‘, including inten-
tional concealment of material facts regarding a 
health condition related to the condition for which 
coverage is being claimed’’. 
(b) OPPORTUNITY FOR INDEPENDENT, EXTERNAL 
THIRD PARTY REVIEW IN CERTAIN CASES.—Subpart 1 
of part B of title XXVII of the Public Health Service Act 
is amended by adding at the end the following new section: 
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‘‘SEC. 2746. OPPORTUNITY FOR INDEPENDENT, EXTERNAL 
THIRD PARTY REVIEW IN CERTAIN CASES. 
‘‘(a) NOTICE AND REVIEW RIGHT.—If a health in-
surance issuer determines to nonrenew or not continue in 
force, including rescind, health insurance coverage for an 
individual in the individual market on the basis described 
in section 2742(b)(2) before such nonrenewal, discontinu-
ation, or rescission, may take effect the issuer shall pro-
vide the individual with notice of such proposed non-
renewal, discontinuation, or rescission and an opportunity 
for a review of such determination by an independent, ex-
ternal third party under procedures specified by the Sec-
retary. 
‘‘(b) INDEPENDENT DETERMINATION.—If the indi-
vidual requests such review by an independent, external 
third party of a nonrenewal, discontinuation, or rescission 
of health insurance coverage, the coverage shall remain in 
effect until such third party determines that the coverage 
may be nonrenewed, discontinued, or rescinded under sec-
tion 2742(b)(2).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply after the date of the enactment 
of this Act with respect to health insurance coverage 
issued before, on, or after such date. 
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TITLE II—PROMOTING PATIENT 
CHOICE 
Subtitle A—Credit for Small Em-
ployers Adopting Auto-Enroll-
ment and Defined Contribution 
Options 
SEC. 201. CREDIT FOR SMALL EMPLOYERS ADOPTING 
AUTO-ENROLLMENT 
AND 
DEFINED 
CON-
TRIBUTION OPTIONS. 
(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 new section: 
‘‘SEC. 45R. AUTO-ENROLLMENT AND DEFINED CONTRIBU-
TION OPTION FOR HEALTH BENEFITS PLANS 
OF SMALL EMPLOYERS. 
‘‘(a) IN GENERAL.—For purposes of section 38, in 
the case of a small employer, the health benefits plan im-
plementation credit determined under this section for the 
taxable year is an amount equal to 100 percent of the 
amount paid or incurred by the taxpayer during the tax-
able year for qualified health benefits expenses. 
‘‘(b) LIMITATION.—The credit determined under sub-
section (a) with respect to any taxpayer for any taxable 
year shall not exceed the excess of— 
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‘‘(1) $1,500, over 
‘‘(2) sum of the credits determined under sub-
section (a) with respect to such taxpayer for all pre-
ceding taxable years. 
‘‘(c) QUALIFIED HEALTH BENEFITS EXPENSES.— 
For purposes of this section, the term ‘qualified health 
benefits auto-enrollment expenses’ means, with respect to 
any taxable year, amounts paid or incurred by the tax-
payer during such taxable year for— 
‘‘(1) establishing auto-enrollment which meets 
the requirements of section 107 of the for coverage 
of a participant or beneficiary under a group health 
plan, or health insurance coverage offered in connec-
tion with such a plan, and 
‘‘(2) implementing the employer contribution 
option for health insurance coverage pursuant to 
section 5000(e)(2). 
‘‘(d) QUALIFIED SMALL EMPLOYER.—For purposes 
of this section, the term ‘qualified small employer’ means 
any employer for any taxable year if the number of em-
ployees employed by such employer during such taxable 
year does not exceed 50. All employers treated as a single 
employer under subsection (a) or (b) of section 52 shall 
be treated as a single employer for purposes of this sec-
tion. 
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‘‘(e) NO DOUBLE BENEFIT.—No deduction or credit 
shall be allowed under any other provision of this chapter 
with respect to the amount of the credit determined under 
this section. 
‘‘(f) TERMINATION.—Subsection (a) shall not apply 
to any taxable year beginning after the date which is 2 
years after the date of the enactment of this section.’’. 
(b) CREDIT TO BE PART OF GENERAL BUSINESS 
CREDIT.—Subsection (b) of section 38 of such Code (re-
lating to general business credit) is amended by striking 
‘‘plus’’ at the end of paragraph (34), by striking the period 
at the end of paragraph (35) and inserting ‘‘, plus’’ , and 
by adding at the end the following new paragraph: 
‘‘(36) in the case of a small employer (as de-
fined in section 45R(d)), the health benefits plan im-
plementation 
credit 
determined 
under 
section 
45R(a).’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
of such Code is amended by inserting after the item relat-
ing to section 45Q the following new item: 
‘‘Sec. 45R. Auto-enrollment and defined contribution option for health benefits 
plans of small employers.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
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Subtitle B—Tax Incentives for 
Long-Term Care Insurance 
SEC. 211. TREATMENT OF PREMIUMS ON QUALIFIED LONG- 
TERM CARE INSURANCE CONTRACTS. 
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
additional itemized deductions) is amended by redesig-
nating section 224 as section 225 and by inserting after 
section 223 the following new section: 
‘‘SEC. 224. PREMIUMS ON QUALIFIED LONG-TERM CARE IN-
SURANCE CONTRACTS. 
‘‘(a) IN GENERAL.—In the case of an individual, 
there shall be allowed as a deduction an amount equal to 
the applicable percentage of eligible long-term care pre-
miums (as defined in section 213(d)(10)) paid during the 
taxable year for coverage for the taxpayer and the tax-
payer’s spouse and dependents under a qualified long-term 
care insurance contract (as defined in section 7702B(b)). 
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of 
subsection (a), the applicable percentage shall be deter-
mined in accordance with the following table: 
‘‘For taxable years beginning 
The applicable 
in calendar year— 
percentage is— 
2010 or 2011 ...............................................................................
2012 .............................................................................................
2013 .............................................................................................
2014 or thereafter .......................................................................
100. 
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‘‘(c) COORDINATION WITH OTHER DEDUCTIONS.— 
Any amount paid by a taxpayer for any qualified long- 
term care insurance contract to which subsection (a) ap-
plies shall not be taken into account in computing the 
amount allowable to the taxpayer as a deduction under 
section 162(l) or 213(a).’’. 
(b) LONG-TERM CARE INSURANCE PERMITTED TO 
BE OFFERED UNDER CAFETERIA PLANS AND FLEXIBLE 
SPENDING ARRANGEMENTS.— 
(1) CAFETERIA PLANS.—The last sentence of 
section 125(f) of such Code (defining qualified bene-
fits) is amended by inserting before the period at the 
end ‘‘; except that such term shall include the pay-
ment of premiums for any qualified long-term care 
insurance contract (as defined in section 7702B) to 
the extent the amount of such payment does not ex-
ceed the eligible long-term care premiums (as de-
fined in section 213(d)(10)) for such contract’’. 
(2) FLEXIBLE
SPENDING
ARRANGEMENTS.— 
Section 106 of such Code (relating to contributions 
by an employer to accident and health plans) is 
amended by striking subsection (c) and redesig-
nating subsections (d) and (e) as subsections (c) and 
(d), respectively. 
(c) CONFORMING AMENDMENTS.— 
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(1) Section 62(a) of such Code is amended by 
inserting before the last sentence at the end the fol-
lowing new paragraph: 
‘‘(22) PREMIUMS
ON
QUALIFIED
LONG-TERM 
CARE
INSURANCE
CONTRACTS.—The deduction al-
lowed by section 224.’’. 
(2) 
Sections 
223(b)(4)(B), 
223(d)(4)(C), 
223(f)(3)(B), 
3231(e)(11), 
3306(b)(18), 
3401(a)(22), 4973(g)(1), and 4973(g)(2)(B)(i) of 
such Code are each amended by striking ‘‘section 
106(d)’’ and inserting ‘‘section 106(c)’’. 
(3) Section 223(c)(1)(B)(iii)(II) of such Code is 
amended 
by 
striking 
‘‘106(e)’’ 
and 
inserting 
‘‘106(d)’’. 
(4) Section 6041 of such Code is amended— 
(A) in subsection (f)(1) by striking ‘‘(as 
defined in section 106(c)(2))’’, and 
(B) by adding at the end the following new 
subsection: 
‘‘(h) FLEXIBLE
SPENDING
ARRANGEMENT
DE-
FINED.—For purposes of this section, a flexible spending 
arrangement is a benefit program which provides employ-
ees with coverage under which— 
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‘‘(1) specified incurred expenses may be reim-
bursed (subject to reimbursement maximums and 
other reasonable conditions), and 
‘‘(2) the maximum amount of reimbursement 
which is reasonably available to a participant for 
such coverage is less than 500 percent of the value 
of such coverage. 
In the case of an insured plan, the maximum amount rea-
sonably available shall be determined on the basis of the 
underlying coverage.’’. 
(5) The table of sections for part VII of sub-
chapter B of chapter 1 of such Code is amended by 
striking the last item and inserting the following 
new items: 
‘‘Sec. 224. Premiums on qualified long-term care insurance contracts. 
‘‘Sec. 225. Cross reference.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2009. 
SEC. 212. CREDIT FOR TAXPAYERS WITH LONG-TERM CARE 
NEEDS. 
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to nonrefundable personal credits) is 
amended by inserting after section 25D the following new 
section: 
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‘‘SEC. 25E. CREDIT FOR TAXPAYERS WITH LONG-TERM 
CARE NEEDS. 
‘‘(a) ALLOWANCE OF CREDIT.— 
‘‘(1) IN GENERAL.—There shall be allowed as a 
credit against the tax imposed by this chapter for 
the taxable year an amount equal to the applicable 
credit amount multiplied by the number of applica-
ble individuals with respect to whom the taxpayer is 
an eligible caregiver for the taxable year. 
‘‘(2) APPLICABLE CREDIT AMOUNT.—For pur-
poses of paragraph (1), the applicable credit amount 
shall be determined in accordance with the following 
table: 
‘‘For taxable years beginning 
The applicable 
in calendar year— 
credit amount is— 
2010 .............................................................................................
1,500
2011 .............................................................................................
2,000
2012 .............................................................................................
2,500
2013 or thereafter .......................................................................
3,000. 
‘‘(b) LIMITATION BASED ON ADJUSTED GROSS IN-
COME.— 
‘‘(1) IN GENERAL.—The amount of the credit 
allowable under subsection (a) shall be reduced (but 
not below zero) by $100 for each $1,000 (or fraction 
thereof) by which the taxpayer’s modified adjusted 
gross income exceeds the threshold amount. For 
purposes of the preceding sentence, the term ‘modi-
fied adjusted gross income’ means adjusted gross in-
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come increased by any amount excluded from gross 
income under section 911, 931, or 933. 
‘‘(2) THRESHOLD AMOUNT.—For purposes of 
paragraph (1), the term ‘threshold amount’ means— 
‘‘(A) $150,000 in the case of a joint re-
turn, and 
‘‘(B) $75,000 in any other case. 
‘‘(3) INDEXING.—In the case of any taxable 
year beginning in a calendar year after 2010, each 
dollar amount contained in paragraph (2) shall be 
increased by an amount equal to the product of— 
‘‘(A) such dollar amount, and 
‘‘(B) the medical care cost adjustment de-
termined under section 213(d)(10)(B)(ii) for 
the calendar year in which the taxable year be-
gins, determined by substituting ‘August 2009’ 
for ‘August 1996’ in subclause (II) thereof. 
If any increase determined under the preceding sen-
tence is not a multiple of $50, such increase shall 
be rounded to the next lowest multiple of $50. 
‘‘(c) DEFINITIONS.—For purposes of this section: 
‘‘(1) APPLICABLE INDIVIDUAL.— 
‘‘(A) IN GENERAL.—The term ‘applicable 
individual’ means, with respect to any taxable 
year, any individual who has been certified, be-
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fore the due date for filing the return of tax for 
the taxable year (without extensions), by a phy-
sician (as defined in section 1861(r)(1) of the 
Social Security Act) as being an individual with 
long-term care needs described in subparagraph 
(B) for a period— 
‘‘(i) which is at least 180 consecutive 
days, and 
‘‘(ii) a portion of which occurs within 
the taxable year. 
Notwithstanding the preceding sentence, a cer-
tification shall not be treated as valid unless it 
is made within the 391⁄2 month period ending 
on such due date (or such other period as the 
Secretary prescribes). 
‘‘(B) INDIVIDUALS WITH LONG-TERM CARE 
NEEDS.—An individual is described in this sub-
paragraph if the individual meets any of the fol-
lowing requirements: 
‘‘(i) The individual is at least 6 years 
of age and— 
‘‘(I) is unable to perform (with-
out substantial assistance from an-
other individual) at least 3 activities 
of daily living (as defined in section 
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7702B(c)(2)(B)) due to a loss of 
functional capacity, or 
‘‘(II) requires substantial super-
vision to protect such individual from 
threats to health and safety due to se-
vere cognitive impairment and is un-
able to perform, without reminding or 
cuing assistance, at least 1 activity of 
daily living (as so defined) or to the 
extent provided in regulations pre-
scribed by the Secretary (in consulta-
tion with the Secretary of Health and 
Human Services), is unable to engage 
in age appropriate activities. 
‘‘(ii) The individual is at least 2 but 
not 6 years of age and is unable due to a 
loss of functional capacity to perform 
(without substantial assistance from an-
other individual) at least 2 of the following 
activities: eating, transferring, or mobility. 
‘‘(iii) The individual is under 2 years 
of age and requires specific durable med-
ical equipment by reason of a severe health 
condition or requires a skilled practitioner 
trained to address the individual’s condi-
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taxable years ending with or within the 
same calendar year, a taxpayer shall be 
treated as the eligible caregiver if each 
such individual (other than the taxpayer) 
files a written declaration (in such form 
and manner as the Secretary may pre-
scribe) that such individual will not claim 
such applicable individual for the credit 
under this section. 
‘‘(ii) NO AGREEMENT.—If each indi-
vidual required under clause (i) to file a 
written declaration under clause (i) does 
not do so, the individual with the highest 
adjusted gross income shall be treated as 
the eligible caregiver. 
‘‘(iii) MARRIED
INDIVIDUALS
FILING 
SEPARATELY.—In the case of married indi-
viduals filing separately, the determination 
under this subparagraph as to whether the 
husband or wife is the eligible caregiver 
shall be made under the rules of clause (ii) 
(whether or not one of them has filed a 
written declaration under clause (i)). 
‘‘(d) IDENTIFICATION
REQUIREMENT.—No credit 
shall be allowed under this section to a taxpayer with re-
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spect to any applicable individual unless the taxpayer in-
cludes the name and taxpayer identification number of 
such individual, and the identification number of the phy-
sician certifying such individual, on the return of tax for 
the taxable year. 
‘‘(e) TAXABLE YEAR MUST BE FULL TAXABLE 
YEAR.—Except in the case of a taxable year closed by rea-
son of the death of the taxpayer, no credit shall be allow-
able under this section in the case of a taxable year cov-
ering a period of less than 12 months.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 6213(g)(2) of such Code is amend-
ed by striking ‘‘and’’ at the end of subparagraph 
(L), by striking the period at the end of subpara-
graph (M) and inserting ‘‘, and’’, and by inserting 
after subparagraph (M) the following new subpara-
graph: 
‘‘(N) an omission of a correct TIN or phy-
sician identification required under section 
25E(d) (relating to credit for taxpayers with 
long-term care needs) to be included on a re-
turn.’’. 
(2) The table of sections for subpart A of part 
IV of subchapter A of chapter 1 of such Code is 
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amended by inserting after the item relating to sec-
tion 25D the following new item: 
‘‘Sec. 25E. Credit for taxpayers with long-term care needs.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2009. 
SEC. 213. ADDITIONAL CONSUMER PROTECTIONS FOR 
LONG-TERM CARE INSURANCE. 
(a) ADDITIONAL
PROTECTIONS
APPLICABLE
TO 
LONG-TERM CARE INSURANCE.—Subparagraphs (A) and 
(B) of section 7702B(g)(2) of the Internal Revenue Code 
of 1986 (relating to requirements of model regulation and 
Act) are amended to read as follows: 
‘‘(A) IN GENERAL.—The requirements of 
this paragraph are met with respect to any con-
tract if such contract meets— 
‘‘(i) MODEL
REGULATION.—The fol-
lowing requirements of the model regula-
tion: 
‘‘(I) Section 6A (relating to guar-
anteed renewal or noncancellability), 
other than paragraph (5) thereof, and 
the requirements of section 6B of the 
model Act relating to such section 6A. 
‘‘(II) Section 6B (relating to pro-
hibitions on limitations and exclu-
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128 
sions) other than paragraph (7) there-
of. 
‘‘(III) Section 6C (relating to ex-
tension of benefits). 
‘‘(IV) Section 6D (relating to 
continuation or conversion of cov-
erage). 
‘‘(V) Section 6E (relating to dis-
continuance and replacement of poli-
cies). 
‘‘(VI) Section 7 (relating to unin-
tentional lapse). 
‘‘(VII) Section 8 (relating to dis-
closure), other than sections 8F, 8G, 
8H, and 8I thereof. 
‘‘(VIII) Section 11 (relating to 
prohibitions against post-claims un-
derwriting). 
‘‘(IX) Section 12 (relating to 
minimum standards). 
‘‘(X) Section 13 (relating to re-
quirement to offer inflation protec-
tion). 
‘‘(XI) Section 25 (relating to pro-
hibition against preexisting conditions 
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and probationary periods in replace-
ment policies or certificates). 
‘‘(XII) The provisions of section 
26 relating to contingent nonforfeiture 
benefits, if the policyholder declines 
the offer of a nonforfeiture provision 
described in paragraph (4). 
‘‘(ii) MODEL ACT.—The following re-
quirements of the model Act: 
‘‘(I) Section 6C (relating to pre-
existing conditions). 
‘‘(II) Section 6D (relating to 
prior hospitalization). 
‘‘(III) The provisions of section 8 
relating to contingent nonforfeiture 
benefits, if the policyholder declines 
the offer of a nonforfeiture provision 
described in paragraph (4). 
‘‘(B) DEFINITIONS.—For purposes of this 
paragraph: 
‘‘(i) MODEL PROVISIONS.—The terms 
‘model regulation’ and ‘model Act’ mean 
the long-term care insurance model regula-
tion, and the long-term care insurance 
model Act, respectively, promulgated by 
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the National Association of Insurance 
Commissioners (as adopted as of December 
31, 2008). 
‘‘(ii) COORDINATION.—Any provision 
of the model regulation or model Act listed 
under clause (i) or (ii) of subparagraph 
(A) shall be treated as including any other 
provision of such regulation or Act nec-
essary to implement the provision. 
‘‘(iii) 
DETERMINATION.—For 
pur-
poses of this section and section 4980C, 
the determination of whether any require-
ment of a model regulation or the model 
Act has been met shall be made by the 
Secretary.’’. 
(b) 
EXCISE
TAX.—Paragraph 
(1) 
of 
section 
4980C(c) of the Internal Revenue Code of 1986 (relating 
to requirements of model provisions) is amended to read 
as follows: 
‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.— 
‘‘(A) MODEL REGULATION.—The following 
requirements of the model regulation must be 
met: 
‘‘(i) Section 9 (relating to required 
disclosure of rating practices to consumer). 
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131 
‘‘(ii) Section 14 (relating to applica-
tion forms and replacement coverage). 
‘‘(iii) Section 15 (relating to reporting 
requirements). 
‘‘(iv) Section 22 (relating to filing re-
quirements for marketing). 
‘‘(v) Section 23 (relating to standards 
for marketing), including inaccurate com-
pletion of medical histories, other than 
paragraphs (1), (6), and (9) of section 
23C. 
‘‘(vi) Section 24 (relating to suit-
ability). 
‘‘(vii) Section 29 (relating to standard 
format outline of coverage). 
‘‘(viii) Section 30 (relating to require-
ment to deliver shopper’s guide). 
The requirements referred to in clause (vi) shall 
not include those portions of the personal work-
sheet described in Appendix B relating to con-
sumer protection requirements not imposed by 
section 4980C or 7702B. 
‘‘(B) MODEL ACT.—The following require-
ments of the model Act must be met: 
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132 
‘‘(i) Section 6F (relating to right to 
return). 
‘‘(ii) Section 6G (relating to outline of 
coverage). 
‘‘(iii) Section 6H (relating to require-
ments for certificates under group plans). 
‘‘(iv) Section 6J (relating to policy 
summary). 
‘‘(v) Section 6K (relating to monthly 
reports on accelerated death benefits). 
‘‘(vi) Section 7 (relating to incontest-
ability period). 
‘‘(C) DEFINITIONS.—For purposes of this 
paragraph, the terms ‘model regulation’ and 
‘model Act’ have the meanings given such terms 
by section 7702B(g)(2)(B).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to policies issued after December 
31, 2009. 
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Subtitle C—Comparative 
Effectiveness Research 
SEC. 221. PROHIBITION ON CERTAIN USES OF DATA OB-
TAINED FROM COMPARATIVE EFFECTIVE-
NESS RESEARCH; ACCOUNTING FOR PERSON-
ALIZED MEDICINE AND DIFFERENCES IN PA-
TIENT TREATMENT RESPONSE. 
(a) IN GENERAL.—Notwithstanding any other provi-
sion of law, the Secretary of Health and Human Serv-
ices— 
(1) shall not use data obtained from the con-
duct of comparative effectiveness research, including 
such research that is conducted or supported using 
funds appropriated under the American Recovery 
and Reinvestment Act of 2009 (Public Law 111–5), 
to deny coverage of an item or service under a Fed-
eral health care program (as defined in section 
1128B(f) of the Social Security Act (42 U.S.C. 
1320a–7b(f))); and 
(2) shall ensure that comparative effectiveness 
research conducted or supported by the Federal 
Government accounts for factors contributing to dif-
ferences in the treatment response and treatment 
preferences of patients, including patient-reported 
outcomes, genomics and personalized medicine, the 
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unique needs of health disparity populations, and in-
direct patient benefits. 
(b) RULE OF CONSTRUCTION.—Nothing in this sec-
tion shall be construed as affecting the authority of the 
Commissioner of Food and Drugs under the Federal 
Food, Drug, and Cosmetic Act (21 U.S.C. 301 et seq.) 
or the Public Health Service Act (42 U.S.C. 201 et seq.). 
Subtitle D—Programs of Health 
Promotion or Disease Prevention 
SEC. 231. PROGRAMS OF HEALTH PROMOTION OR DISEASE 
PREVENTION. 
(a) IN GENERAL.—Nothing in the Public Health 
Service Act, Employee Retirement Income Security Act of 
1974, or the Internal Revenue Code of 1986 (or any 
amendment made by this Act) shall be applied, adminis-
tered, or interpreted to prevent an employer from estab-
lishing premium discounts or rebates, or modifying copay-
ments or deductibles, in the case of employees who adhere 
to, or participate in, a program of health promotion or 
disease prevention which meets the requirements of sub-
section (b). 
(b) PROGRAMS OF HEALTH PROMOTION OR DISEASE 
PREVENTION TO WHICH SECTION APPLIES.— 
(1) GENERAL PROVISIONS.— 
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(A) GENERAL
RULE.—For purposes of 
paragraph (2)(B), a program of health pro-
motion or disease prevention (referred to in this 
subsection as a ‘‘wellness program’’) shall be a 
program that is designed to promote health or 
prevent disease that meets the applicable re-
quirements of this subsection. 
(B) NO CONDITIONS BASED ON HEALTH 
STATUS FACTOR.—If none of the conditions for 
obtaining a premium discount or rebate or 
other reward for participation in a wellness pro-
gram is based on an individual satisfying a 
standard that is related to a health status fac-
tor, such wellness program shall not violate this 
section if participation in the program is made 
available to all similarly situated individuals 
and the requirements of paragraph (2) are com-
plied with. 
(C) CONDITIONS BASED ON HEALTH STA-
TUS FACTOR.—If any of the conditions for ob-
taining a premium discount or rebate or other 
reward for participation in a wellness program 
is based on an individual satisfying a standard 
that is related to a health status factor, such 
wellness program shall not violate this section if 
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the requirements of paragraph (3) are complied 
with. 
(2) WELLNESS
PROGRAMS
NOT
SUBJECT
TO 
REQUIREMENTS.—If none of the conditions for ob-
taining a premium discount or rebate or other re-
ward under a wellness program as described in para-
graph (1)(B) are based on an individual satisfying 
a standard that is related to a health status factor 
(or if such a wellness program does not provide such 
a reward), the wellness program shall not violate 
this section if participation in the program is made 
available to all similarly situated individuals. The 
following programs shall not have to comply with the 
requirements of paragraph (3) if participation in the 
program is made available to all similarly situated 
individuals: 
(A) A program that reimburses all or part 
of the cost for memberships in a fitness center. 
(B) A diagnostic testing program that pro-
vides a reward for participation and does not 
base any part of the reward on outcomes. 
(C) A program that encourages preventive 
care related to a health condition through the 
waiver of the copayment or deductible require-
ment under an individual or group health plan 
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for the costs of certain items or services related 
to a health condition (such as prenatal care or 
well-baby visits). 
(D) A program that reimburses individuals 
for the costs of smoking cessation programs 
without regard to whether the individual quits 
smoking. 
(E) A program that provides a reward to 
individuals for attending a periodic health edu-
cation seminar. 
(3) WELLNESS
PROGRAMS
SUBJECT
TO
RE-
QUIREMENTS.—If any of the conditions for obtaining 
a premium discount, rebate, or reward under a 
wellness program as described in paragraph (1)(C) 
is based on an individual satisfying a standard that 
is related to a health status factor, the wellness pro-
gram shall not violate this section if the following re-
quirements are complied with: 
(A) The reward for the wellness program, 
together with the reward for other wellness pro-
grams with respect to the plan that requires 
satisfaction of a standard related to a health 
status factor, shall not exceed 50 percent of the 
cost of employee-only coverage under the plan. 
If, in addition to employees or individuals, any 
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138 
class of dependents (such as spouses or spouses 
and dependent children) may participate fully 
in the wellness program, such reward shall not 
exceed 50 percent of the cost of the coverage in 
which an employee or individual and any de-
pendents are enrolled. For purposes of this 
paragraph, the cost of coverage shall be deter-
mined based on the total amount of employer 
and employee contributions for the benefit 
package under which the employee is (or the 
employee and any dependents are) receiving 
coverage. A reward may be in the form of a dis-
count or rebate of a premium or contribution, 
a waiver of all or part of a cost-sharing mecha-
nism (such as deductibles, copayments, or coin-
surance), the absence of a surcharge, or the 
value of a benefit that would otherwise not be 
provided under the plan. 
(B) The wellness program shall be reason-
ably designed to promote health or prevent dis-
ease. A program complies with the preceding 
sentence if the program has a reasonable 
chance of improving the health of, or preventing 
disease in, participating individuals and it is 
not overly burdensome, is not a subterfuge for 
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discriminating based on a health status factor, 
and is not highly suspect in the method chosen 
to promote health or prevent disease. The plan 
or issuer shall evaluate the program’s reason-
ableness at least once per year. 
(C) The plan shall give individuals eligible 
for the program the opportunity to qualify for 
the reward under the program at least once 
each year. 
(D) The full reward under the wellness 
program shall be made available to all similarly 
situated individuals. For such purpose, the fol-
lowing applies: 
(i) The reward is not available to all 
similarly situated individuals for a period 
unless the wellness program allows— 
(I) for a reasonable alternative 
standard (or waiver of the otherwise 
applicable standard) for obtaining the 
reward for any individual for whom, 
for that period, it is unreasonably dif-
ficult due to a medical condition to 
satisfy the otherwise applicable stand-
ard; and 
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(II) for a reasonable alternative 
standard (or waiver of the otherwise 
applicable standard) for obtaining the 
reward for any individual for whom, 
for that period, it is medically inadvis-
able to attempt to satisfy the other-
wise applicable standard. 
(ii) If reasonable under the cir-
cumstances, the plan or issuer may seek 
verification, such as a statement from an 
individual’s physician, that a health status 
factor makes it unreasonably difficult or 
medically inadvisable for the individual to 
satisfy or attempt to satisfy the otherwise 
applicable standard. 
(E) The plan or issuer involved shall dis-
close in all plan materials describing the terms 
of the wellness program the availability of a 
reasonable alternative standard (or the possi-
bility of waiver of the otherwise applicable 
standard) required under subparagraph (D). If 
plan materials disclose that such a program is 
available, without describing its terms, the dis-
closure under this subparagraph shall not be re-
quired. 
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(c) EXISTING PROGRAMS.—Nothing in this section 
shall prohibit a program of health promotion or disease 
prevention that was established prior to the date of enact-
ment of this section and applied with all applicable regula-
tions, and that is operating on such date, from continuing 
to be carried out for as long as such regulations remain 
in effect. 
(d) REGULATIONS.—Nothing in this section shall be 
construed as prohibiting the Secretaries of Labor, Health 
and Human Services, or the Treasury from promulgating 
regulations in connection with this section. 
TITLE III—STRENGTHENING 
SAFETY NET PROGRAMS 
Subtitle A—Beneficiary Choice 
Under Medicaid and SCHIP 
SEC. 301. EASING ADMINISTRATIVE BARRIERS TO STATE 
COOPERATION WITH EMPLOYER-SPONSORED 
INSURANCE COVERAGE. 
(a) REQUIRING SOME COVERAGE FOR EMPLOYER- 
SPONSORED INSURANCE.— 
(1) IN GENERAL.—Section 2102(a) of the So-
cial Security Act (42 U.S.C. 1397b(a)) is amend-
ed— 
(A) in paragraph (6), by striking ‘‘and’’ at 
the end; 
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(B) in paragraph (7), by striking the pe-
riod at the end and inserting ‘‘; and’’; and 
(C) by adding at the end the following new 
paragraph: 
‘‘(8) effective for plan years beginning on or 
after October 1, 2010, how the plan will provide for 
child health assistance with respect to targeted low- 
income children who have access to coverage under 
a group health plan.’’. 
(2) EFFECTIVE DATE.—The amendments made 
by paragraph (1) shall apply beginning with fiscal 
year 2011. 
(b) FEDERAL FINANCIAL PARTICIPATION FOR EM-
PLOYER-SPONSORED INSURANCE.—Section 2105 of such 
Act (42 U.S.C. 1397d) is amended— 
(1) in subsection (a)(1)(C), by inserting before 
the semicolon at the end the following: ‘‘and, subject 
to paragraph (3)(C) of subsection (c), in the form of 
payment of the premiums for coverage under a 
group health plan that includes coverage of targeted 
low-income children and benefits supplemental to 
such coverage’’; and 
(2) by amending paragraph (3) of subsection 
(c) to read as follows: 
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‘‘(3) PURCHASE OF EMPLOYER-SPONSORED IN-
SURANCE.— 
‘‘(A) IN
GENERAL.—Payment may be 
made to a State under subsection (a)(1)(C), 
subject to the provisions of this paragraph, for 
the purchase of family coverage under a group 
health plan that includes coverage of targeted 
low-income children unless such coverage would 
otherwise substitute for coverage that would be 
provided to such children but for the purchase 
of family coverage. 
‘‘(B) WAIVER OF CERTAIN PROVISIONS.— 
With respect to coverage described in subpara-
graph (A)— 
‘‘(i) notwithstanding section 2102, no 
minimum benefits requirement (other than 
those otherwise applicable with respect to 
services within the categories of basic serv-
ices described in section 2103(c)(1) and 
emergency services) under this title shall 
apply; and 
‘‘(ii) no limitation on beneficiary cost- 
sharing otherwise applicable under this 
title or title XIX shall apply. 
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‘‘(C) REQUIRED
PROVISION
OF
SUPPLE-
MENTAL BENEFITS.—If the coverage described 
in subparagraph (A) does not provide coverage 
for the services in each of the categories of 
basic services described in section 2103(c)(1) 
and for emergency services, the State child 
health plan shall provide coverage of such serv-
ices as supplemental benefits. 
‘‘(D) LIMITATION ON FFP.—The amount 
of the payment under subsection (a)(1)(C) for 
coverage described in subparagraph (A) (and 
supplemental benefits under subparagraph (C) 
for individuals so covered) during a fiscal year 
may not exceed the product of— 
‘‘(i) the national per capita expendi-
ture under this title (taking into account 
both Federal and State expenditures) for 
the previous fiscal year (as determined by 
the Secretary using the best available 
data); 
‘‘(ii) the enhanced FMAP for the 
State and fiscal year involved; and 
‘‘(iii) the number of targeted low-in-
come children for whom such coverage is 
provided. 
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‘‘(E) VOLUNTARY ENROLLMENT.—A State 
child health plan— 
‘‘(i) may not require a targeted low- 
income child to enroll in family coverage 
described in subparagraph (A) in order to 
obtain child health assistance under this 
title; 
‘‘(ii) before providing such child 
health assistance for such coverage of a 
child, shall make available (which may be 
through an Internet website or other 
means) to the parent or guardian of the 
child information on the coverage available 
under this title, including benefits and 
cost-sharing; and 
‘‘(iii) shall provide at least one oppor-
tunity per fiscal year for beneficiaries to 
switch coverage under this title from cov-
erage described in subparagraph (A) to the 
coverage that is otherwise made available 
under this title. 
‘‘(F) INFORMATION
ON
COVERAGE
OP-
TIONS.—A State child health plan shall— 
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146 
‘‘(i) describe how the State will notify 
potential beneficiaries of coverage de-
scribed in subparagraph (A); 
‘‘(ii) provide such notification in writ-
ing at least during the initial application 
for enrollment under this title and during 
redeterminations of eligibility if the indi-
vidual was enrolled before October 1, 2009; 
and 
‘‘(iii) post a description of these cov-
erage options on any official Internet 
website that may be established by the 
State in connection with the plan. 
‘‘(G) SEMIANNUAL VERIFICATION OF COV-
ERAGE.—If coverage described in subparagraph 
(A) is provided under a group health plan with 
respect to a targeted low-income child, the 
State child health plan shall provide for the col-
lection, at least once every six months, of proof 
from the plan that the child is enrolled in such 
coverage. 
‘‘(H) RULE OF CONSTRUCTION.—Nothing 
in this section is to be construed to prohibit a 
State from— 
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‘‘(i) offering wrap around benefits in 
order for a group health plan to meet any 
State-established minimum benefit require-
ments; 
‘‘(ii) establishing a cost-effectiveness 
test to qualify for coverage under such a 
plan; 
‘‘(iii) establishing limits on beneficiary 
cost-sharing under such a plan; 
‘‘(iv) paying all or part of a bene-
ficiary’s cost-sharing requirements under 
such a plan; 
‘‘(v) paying less than the full cost of 
the employee’s share of the premium under 
such a plan, including prorating the cost of 
the premium to pay for only what the 
State determines is the portion of the pre-
mium that covers targeted low-income chil-
dren; 
‘‘(vi) using State funds to pay for 
benefits above the Federal upper limit es-
tablished under subparagraph (D); 
‘‘(vii) allowing beneficiaries enrolled in 
group health plans from changing plans to 
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another coverage option available under 
this title at any time; or 
‘‘(viii) providing any guidance or in-
formation it deems appropriate in order to 
help beneficiaries make an informed deci-
sion regarding the option to enroll in cov-
erage described in subparagraph (A). 
‘‘(I) GROUP HEALTH PLAN DEFINED.—In 
this paragraph, the term ‘group health plan’ 
has the meaning given such term in section 
2791(a)(1) of the Public Health Service Act (42 
U.S.C. 300gg–91(a)(1)). 
‘‘(J) ATTESTATION
REQUIREMENT
FOR 
CERTAIN
HIGHER
INCOME
CHILDREN.—Effec-
tive October 1, 2011, any State that provides 
for child health assistance under this title for 
children in families with gross income (as deter-
mined without regard to any income disregards 
or expense exclusions) that exceeds 200 percent 
of the poverty line shall require, as a condition 
of eligibility for child health assistance under 
this title (other than in the form of premium 
assistance under this paragraph) that there 
must be executed an attestation (under penalty 
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149 
of perjury) that the child is not eligible for cov-
erage under any group health plan.’’. 
SEC. 302. IMPROVING BENEFICIARY CHOICE IN SCHIP. 
(a) REQUIRING OFFERING OF ALTERNATIVE COV-
ERAGE OPTIONS.—Section 2102 of the Social Security Act 
(42 U.S.C. 1397b), as amended by section 1781, is 
amended— 
(1) in subsection (a)— 
(A) in paragraph (7), by striking ‘‘and’’ at 
the end; 
(B) in paragraph (8), by striking the pe-
riod at the end and inserting ‘‘; and’’; and 
(C) by adding at the end the following new 
paragraph: 
‘‘(9) effective for plan years beginning on or 
after October 1, 2010, how the plan will provide for 
child health assistance with respect to targeted low- 
income children through alternative coverage options 
in accordance with subsection (d).’’; and 
(2) by adding at the end the following new sub-
section: 
‘‘(d) ALTERNATIVE COVERAGE OPTIONS.— 
‘‘(1) IN GENERAL.—Effective October 1, 2010, 
a State child health plan shall provide for the offer-
ing of any qualified alternative coverage that a 
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qualified entity seeks to offer to targeted low-income 
children through the plan in the State. 
‘‘(2) APPLICATION
OF
UNIFORM
FINANCIAL 
LIMITATION FOR ALL ALTERNATIVE COVERAGE OP-
TIONS.—With respect to all qualified alternative cov-
erage offered in a State, the State child health plan 
shall establish a uniform dollar limitation on the per 
capita monthly amount that will be paid by the 
State to the qualified entity with respect to such 
coverage provided to a targeted low-income child. 
Such limitation may not be less than 90 percent of 
the per capita monthly payment made for coverage 
offered under the State child health plan that is not 
in the form of an alternative coverage option. Noth-
ing in this paragraph shall be construed— 
‘‘(A) as requiring a State to provide for 
the full payment of premiums for qualified al-
ternative coverage; 
‘‘(B) as preventing a State from charging 
additional premiums to cover the difference be-
tween the cost of qualified alternative coverage 
and the amount of such payment limitation; 
and 
‘‘(C) as preventing a State from using its 
own funds to provide a dollar limitation that ex-
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151 
ceeds the Federal financial participation as lim-
ited under section 2105(c)(8). 
‘‘(3) QUALIFIED ALTERNATIVE COVERAGE DE-
FINED.—In this section, the term ‘qualified alter-
native coverage’ means health insurance coverage 
that— 
‘‘(A) meets the coverage requirements of 
section 2103 (other than cost-sharing require-
ments of such section); and 
‘‘(B) is offered by a qualified insurer, and 
not directly by the State. 
‘‘(4) QUALIFIED
INSURER
DEFINED.—In this 
section, the term ‘qualified insurer’ means, with re-
spect to a State, an entity that is licensed to offer 
health insurance coverage in the State.’’. 
(b) FEDERAL
FINANCIAL
PARTICIPATION
FOR 
QUALIFIED ALTERNATIVE COVERAGE.—Section 2105 of 
such Act (42 U.S.C. 1397d), as amended by sections 
301(a) and 601(a) of the Children’s Health Insurance 
Program Reauthorization Act of 2009 (Public Law 111– 
5), is amended— 
(1) in subsection (a)(1)(C), as amended by sec-
tion 1781(b)(1), by inserting before the semicolon at 
the end the following: ‘‘and, subject to subsection 
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(c)(12)(C), in the form of payment of the premiums 
for coverage for qualified alternative coverage’’; and 
(2) by adding at the end of subsection (c) the 
following new paragraph: 
‘‘(12) PURCHASE OF QUALIFIED ALTERNATIVE 
COVERAGE.— 
‘‘(A) IN
GENERAL.—Payment may be 
made to a State under subsection (a)(1)(C), 
subject to the provisions of this paragraph, for 
the purchase of qualified alternative coverage. 
‘‘(B) WAIVER OF CERTAIN PROVISIONS.— 
With respect to coverage described in subpara-
graph (A), no limitation on beneficiary cost- 
sharing otherwise applicable under this title or 
title XIX shall apply. 
‘‘(C) LIMITATION ON FFP.—The amount of 
the payment under paragraph (1)(C) for cov-
erage described in subparagraph (A) during a 
fiscal year in the aggregate for all such cov-
erage in the State may not exceed the product 
of— 
‘‘(i) the national per capita expendi-
ture under this title (taking into account 
both Federal and State expenditures) for 
the previous fiscal year (as determined by 
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153 
the Secretary using the best available 
data); 
‘‘(ii) the enhanced FMAP for the 
State and fiscal year involved; and 
‘‘(iii) the number of targeted low-in-
come children for whom such coverage is 
provided. 
‘‘(D) VOLUNTARY ENROLLMENT.—A State 
child health plan— 
‘‘(i) may not require a targeted low- 
income child to enroll in coverage described 
in subparagraph (A) in order to obtain 
child health assistance under this title; 
‘‘(ii) before providing such child 
health assistance for such coverage of a 
child, shall make available (which may be 
through an Internet website or other 
means) to the parent or guardian of the 
child information on the coverage available 
under this title, including benefits and 
cost-sharing; and 
‘‘(iii) shall provide at least one oppor-
tunity per fiscal year for beneficiaries to 
switch coverage under this title from cov-
erage described in subparagraph (A) to the 
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coverage that is otherwise made available 
under this title. 
‘‘(E) INFORMATION
ON
COVERAGE
OP-
TIONS.—A State child health plan shall— 
‘‘(i) describe how the State will notify 
potential beneficiaries of coverage de-
scribed in subparagraph (A); 
‘‘(ii) provide such notification in writ-
ing at least during the initial application 
for enrollment under this title and during 
redeterminations of eligibility if the indi-
vidual was enrolled before October 1, 2009; 
and 
‘‘(iii) post a description of these cov-
erage options on any official website that 
may be established by the State in connec-
tion with the plan. 
‘‘(F) RULE OF CONSTRUCTION.—Nothing 
in this section is to be construed to prohibit a 
State from— 
‘‘(i) establishing limits on beneficiary 
cost-sharing under such alternative cov-
erage; 
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155 
‘‘(ii) paying all or part of a bene-
ficiary’s cost-sharing requirements under 
such coverage; 
‘‘(iii) paying less than the full cost of 
a child’s share of the premium under such 
coverage, insofar as the premium for such 
coverage exceeds the limitation established 
by the State under subparagraph (C); 
‘‘(iv) using State funds to pay for 
benefits above the Federal upper limit es-
tablished under subparagraph (C); or 
‘‘(v) providing any guidance or infor-
mation it deems appropriate in order to 
help beneficiaries make an informed deci-
sion regarding the option to enroll in cov-
erage described in subparagraph (A).’’. 
SEC. 303. APPLICATION TO MEDICAID. 
In accordance with rules established by the Secretary 
of Health and Human Services, the requirements imposed 
under a State child health plan under title XXI of the 
Social Security Act under the amendments made by the 
preceding sections of this subtitle shall apply in the same 
manner to a State plan under title XIX of such Act, except 
that— 
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(1) such requirements shall not apply to indi-
viduals whose eligibility for medical assistance under 
such title is based on being aged, blind, or disabled 
or to individuals with a category of individuals de-
scribed in section 1937(a)(2)(B) of such Act; and 
(2) the national per capita expenditures shall be 
determined based on a benchmark coverage de-
scribed in section 1937(b)(1) of such Act but with-
out regard to expenditures for individuals described 
in paragraph (1) or for nursing facility services and 
other long-term care services (as determined by the 
Secretary). 
SEC. 304. EXPANSION OF HEALTH OPPORTUNITY ACCOUNT 
PROGRAM. 
(a) IN GENERAL.—Section 613 of the Children’s 
Health Insurance Program Reauthorization Act of 2009 
(Public Law 111–3) is repealed. 
(b) EXPANSION.—Section 1938(a)(2) of the Social 
Security Act (42 U.S.C. 1396u–8(a)(2)) is amended— 
(1) in subparagraph (A) by striking everything 
following the first sentence; and 
(2) by striking subparagraph (B). 
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157 
SEC. 305. VERIFICATION REQUIREMENTS TO PREVENT IL-
LEGAL ALIENS FROM RECEIVING MEDICAID 
BENEFITS. 
Section 1904 of the Social Security Act (42 U.S.C. 
1396c) is amended— 
(1) by striking ‘‘If the Secretary’’ and inserting 
the following: 
‘‘(a) OVERSIGHT.—If the Secretary’’; and 
(2) by adding at the end the following new sub-
section: 
‘‘(b) PREVENTING ILLEGAL ALIENS FROM RECEIV-
ING MEDICAID BENEFITS.— 
‘‘(1) VERIFICATION AS CONDITION ON FUND-
ING.—Notwithstanding any other provision of law, 
subject to paragraphs (3) and (4), the Secretary 
shall not provide funding under 1903(a) for medical 
assistance provided to an individual (other than 
emergency services unless such individual has been 
determined to be eligible for medical assistance 
under this title on the basis of— 
‘‘(A) United States citizenship or nation-
ality through the verification process described 
in section 1903(x); or 
‘‘(B) qualified alien status through the im-
migration status verification system described 
in section 1137(d). 
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‘‘(2) RULE OF CONSTRUCTION.—Nothing in the 
America’s Affordable Health Choices Act of 2009 or 
the amendments made by that Act shall be con-
strued as exempting any individual from the eligi-
bility verification requirements specified in para-
graph (1). 
‘‘(3) NO APPLICATION TO DSH.—Paragraph (1) 
shall not apply to or affect the payments described 
in section 1923(f) (relating to disproportionate share 
hospital payments). 
‘‘(4) NO APPLICATION TO EMERGENCY MEDICAL 
SERVICES.—Paragraph (1) shall not apply to emer-
gency medical services described in section 1903(f), 
regardless of the status of the individual for whom 
such services are provided. 
‘‘(5) NO IMPACT ON EMTALA.—Nothing in this 
subsection shall be construed as affecting the appli-
cation of the requirements of section 1867.’’. 
Subtitle B—Community Health 
Centers 
SEC. 311. INCREASED FUNDING. 
Section 330 of the Public Health Service Act (42 
U.S.C. 254b) is amended— 
(1) in subsection (r)(1)— 
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(A) in subparagraph (D), by striking 
‘‘and’’ at the end; 
(B) in subparagraph (E), by striking the 
period at the end and inserting ‘‘; and’’; and 
(C) by inserting at the end the following: 
‘‘(F) Such sums as may be necessary for 
each of fiscal years 2013 and 2019.’’; and 
(2) by inserting after subsection (r) the fol-
lowing: 
‘‘(s) ADDITIONAL FUNDING.—For the purpose of 
carrying out this section, in addition to any other amounts 
authorized to be appropriated for such purpose, there are 
authorized to be appropriated, out of any monies in the 
Public Health Investment Fund, the following: 
‘‘(1) For fiscal year 2010, $1,000,000,000. 
‘‘(2) For fiscal year 2011, $1,500,000,000. 
‘‘(3) For fiscal year 2012, $2,500,000,000. 
‘‘(4) For fiscal year 2013, $3,000,000,000. 
‘‘(5) For fiscal year 2014, $4,000,000,000. 
‘‘(6) For fiscal year 2015, $4,400,000,000. 
‘‘(7) For fiscal year 2016, $4,800,000,000. 
‘‘(8) For fiscal year 2017, $5,300,000,000. 
‘‘(9) For fiscal year 2018, $5,900,000,000. 
‘‘(10) For fiscal year 2019, $6,400,000,000.’’. 
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160 
TITLE IV—EXPANDING HEALTH 
SAVINGS ACCOUNTS 
SEC. 401. ALLOW BOTH SPOUSES TO MAKE CATCH-UP CON-
TRIBUTIONS TO THE SAME HSA ACCOUNT. 
(a) IN GENERAL.—Paragraph (3) of section 223(b) 
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following new subparagraph: 
‘‘(C) 
SPECIAL
RULE
WHERE
BOTH 
SPOUSES ARE ELIGIBLE INDIVIDUALS WITH 1 
ACCOUNT.—If— 
‘‘(i) an individual and the individual’s 
spouse have both attained age 55 before 
the close of the taxable year, and 
‘‘(ii) the spouse is not an account ben-
eficiary of a health savings account as of 
the close of such year, 
the additional contribution amount shall be 200 
percent of the amount otherwise determined 
under subparagraph (B).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 402. PROVISIONS RELATING TO MEDICARE. 
(a) INDIVIDUALS OVER AGE 65 ONLY ENROLLED IN 
MEDICARE PART A.—Section 223(b)(7) of the Internal 
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Revenue Code of 1986 (relating to contribution limitation 
on Medicare eligible individuals) is amended by adding at 
the end the following new sentence: ‘‘This paragraph shall 
not apply to any individual during any period the individ-
ual’s only entitlement to such benefits is an entitlement 
to hospital insurance benefits under part A of title XVIII 
of such Act pursuant to an enrollment for such hospital 
insurance benefits under section 226(a)(1) of such Act.’’. 
(b) MEDICARE BENEFICIARIES PARTICIPATING
IN 
MEDICARE ADVANTAGE MSA MAY CONTRIBUTE THEIR 
OWN MONEY TO THEIR MSA.—Subsection (b) of section 
138 of such Code is amended by striking paragraph (2) 
and by redesignating paragraphs (3) and (4) as para-
graphs (2) and (3), respectively. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 403. INDIVIDUALS ELIGIBLE FOR VETERANS BENE-
FITS 
FOR 
A 
SERVICE-CONNECTED 
DIS-
ABILITY. 
(a) IN GENERAL.—Section 223(c)(1) of the Internal 
Revenue Code of 1986 (defining eligible individual) is 
amended by adding at the end the following new subpara-
graph: 
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162 
‘‘(C) SPECIAL RULE FOR INDIVIDUALS ELI-
GIBLE
FOR
CERTAIN
VETERANS
BENEFITS.— 
For purposes of subparagraph (A)(ii), an indi-
vidual shall not be treated as covered under a 
health plan described in such subparagraph 
merely because the individual receives periodic 
hospital care or medical services for a service- 
connected disability under any law administered 
by the Secretary of Veterans Affairs but only if 
the individual is not eligible to receive such care 
or services for any condition other than a serv-
ice-connected disability.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 404. INDIVIDUALS ELIGIBLE FOR INDIAN HEALTH 
SERVICE ASSISTANCE. 
(a) IN GENERAL.—Section 223(c)(1) of the Internal 
Revenue Code of 1986, as amended by this title, is amend-
ed by adding at the end the following new subparagraph: 
‘‘(D) SPECIAL RULE FOR INDIVIDUALS EL-
IGIBLE
FOR
ASSISTANCE
UNDER
INDIAN 
HEALTH SERVICE PROGRAMS.—For purposes of 
subparagraph (A)(ii), an individual shall not be 
treated as covered under a health plan de-
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scribed in such subparagraph merely because 
the individual receives hospital care or medical 
services under a medical care program of the 
Indian Health Service or of a tribal organiza-
tion.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 405. FSA AND HRA TERMINATION TO FUND HSAS. 
(a) ELIGIBLE INDIVIDUALS INCLUDE FSA AND HRA 
PARTICIPANTS.—Section 223(c)(1)(B) of the Internal 
Revenue Code of 1986 is amended— 
(1) by striking ‘‘and’’ at the end of clause (ii), 
(2) by striking the period at the end of clause 
(iii) and inserting ‘‘, and’’, and 
(3) by inserting after clause (iii) the following 
new clause: 
‘‘(iv) coverage under a health flexible 
spending arrangement or a health reim-
bursement arrangement in the plan year a 
qualified HSA distribution as described in 
section 106(e) is made on behalf of the in-
dividual if after the qualified HSA dis-
tribution is made and for the remaining 
duration of the plan year, the coverage 
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164 
provided under the health flexible spending 
arrangement or health reimbursement ar-
rangement is converted to— 
‘‘(I) coverage that does not pay 
or reimburse any medical expense in-
curred before the minimum annual de-
ductible under section 223(c)(2)(A)(i) 
(prorated for the period occurring 
after the qualified HSA distribution is 
made) is satisfied, 
‘‘(II) coverage that, after the 
qualified HSA distribution is made, 
does not pay or reimburse any med-
ical expense incurred after the quali-
fied HSA distribution is made other 
than preventive care as defined in sec-
tion 223(c)(2)(3), 
‘‘(III) coverage that, after the 
qualified HSA distribution is made, 
pays or reimburses benefits for cov-
erage 
described 
in 
section 
223(c)(1)(B)(ii) (but not through in-
surance or for long-term care serv-
ices), 
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‘‘(IV) coverage that, after the 
qualified HSA distribution is made, 
pays or reimburses benefits for per-
mitted insurance as defined in section 
223(c)(1)(B)(i) or coverage described 
in section 223(c)(1)(B)(ii) (but not 
for long-term care services), 
‘‘(V) coverage that, after the 
qualified HSA distribution is made, 
pays or reimburses only those medical 
expenses incurred after an individual’s 
retirement (and no expenses incurred 
before retirement), or 
‘‘(VI) coverage that, after the 
qualified HSA distribution is made, is 
suspended, pursuant to an election 
made on or before the date the indi-
vidual elects a qualified HSA distribu-
tion or, if later, on the date of the in-
dividual enrolls in a high deductible 
health plan (as defined in section 
223(c)(2)), that does not pay or reim-
burse, at any time, any medical ex-
pense incurred during the suspension 
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166 
period except as defined in subclauses 
(I) through (V) above.’’. 
(b) QUALIFIED HSA DISTRIBUTION SHALL NOT AF-
FECT
FLEXIBLE
SPENDING
ARRANGEMENT.—Section 
106(e)(1) of such Code is amended to read as follows: 
‘‘(1) IN GENERAL.—A plan shall not fail to be 
treated as a health flexible spending arrangement 
under this section, section 105, or section 125, or as 
a health reimbursement arrangement under this sec-
tion or section 105, merely because such plan pro-
vides for a qualified HSA distribution.’’. 
(c) FSA BALANCES AT YEAR END SHALL NOT FOR-
FEIT.—Section 125(d)(2) of such Code is amended by 
adding at the end the following new subparagraph: 
‘‘(E) EXCEPTION FOR QUALIFIED HSA DIS-
TRIBUTIONS.—Subparagraph 
(A) 
shall 
not 
apply to the extent that there is an amount re-
maining in a health flexible spending account at 
the end of a plan year that an individual elects 
to contribute to a health savings account pursu-
ant to a qualified HSA distribution (as defined 
in section 106(e)(2)).’’. 
(d) SIMPLIFICATION OF LIMITATIONS ON FSA AND 
HRA ROLLOVERS.—Section 106(e)(2) of such Code (re-
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167 
lating to qualified HSA distribution) is amended to read 
as follows: 
‘‘(2) QUALIFIED HSA DISTRIBUTION.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
HSA distribution’ means a distribution from a 
health flexible spending arrangement or health 
reimbursement arrangement to the extent that 
such distribution does not exceed the lesser 
of— 
‘‘(i) the balance in such arrangement 
as of the date of such distribution, or 
‘‘(ii) the amount determined under 
subparagraph (B). 
Such term shall not include more than 1 dis-
tribution with respect to any arrangement. 
‘‘(B) DOLLAR LIMITATIONS.— 
‘‘(i) DISTRIBUTIONS FROM A HEALTH 
FLEXIBLE
SPENDING
ARRANGEMENT.—A 
qualified HSA distribution from a health 
flexible spending arrangement shall not ex-
ceed the applicable amount. 
‘‘(ii) DISTRIBUTIONS FROM A HEALTH 
REIMBURSEMENT
ARRANGEMENT.—A 
qualified HSA distribution from a health 
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reimbursement arrangement shall not ex-
ceed— 
‘‘(I) the applicable amount di-
vided by 12, multiplied by 
‘‘(II) the number of months dur-
ing which the individual is a partici-
pant in the health reimbursement ar-
rangement. 
‘‘(iii) 
APPLICABLE
AMOUNT.—For 
purposes of this subparagraph, the applica-
ble amount is— 
‘‘(I) $2,250 in the case of an eli-
gible individual who has self-only cov-
erage under a high deductible health 
plan at the time of such distribution, 
and 
‘‘(II) $4,500 in the case of an eli-
gible individual who has family cov-
erage under a high deductible health 
plan at the time of such distribu-
tion.’’. 
(e) ELIMINATION OF ADDITIONAL TAX FOR FAILURE 
TO MAINTAIN HIGH DEDUCTIBLE HEALTH PLAN COV-
ERAGE.—Section 106(e) of such Code is amended— 
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(1) by striking paragraph (3) and redesignating 
paragraphs (4) and (5) as paragraphs (3) and (4), 
respectively, and 
(2) by striking subparagraph (A) of paragraph 
(3), as so redesignated, and redesignating subpara-
graphs (B) and (C) of such paragraph as subpara-
graphs (A) and (B) thereof, respectively. 
(f) LIMITED PURPOSE FSAS AND HRAS.—Section 
106(e) of such Code, as amended by this section, is 
amended by adding at the end the following new para-
graph: 
‘‘(5) LIMITED PURPOSE FSAS AND HRAS.—A 
plan shall not fail to be a health flexible spending 
arrangement or health reimbursement arrangement 
under this section or section 105 merely because the 
plan converts coverage for individuals who enroll in 
a high deductible health plan described in section 
223(c)(2) 
to 
coverage 
described 
in 
section 
223(c)(1)(B)(iv). Coverage for such individuals may 
be converted as of the date of enrollment in the high 
deductible health plan, without regard to the period 
of coverage under the health flexible spending ar-
rangement or health reimbursement arrangement, 
and without requiring any change in coverage to in-
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170 
dividuals who do not enroll in a high deductible 
health plan.’’. 
(g) DISTRIBUTION AMOUNTS ADJUSTED FOR COST- 
OF-LIVING.—Section 106(e) of such Code, as amended by 
this section, is amended by adding at the end the following 
new paragraph: 
‘‘(6) COST-OF-LIVING ADJUSTMENT.— 
‘‘(A) IN
GENERAL.—In the case of any 
taxable year beginning after December 31, 
2010, each of the dollar amounts in paragraph 
(2)(B)(iii) shall be increased by an amount 
equal to such dollar amount, multiplied by the 
cost-of-living adjustment determined under sec-
tion 1(f)(3) for the calendar year in which such 
taxable year begins by substituting ‘calendar 
year 2009’ for ‘calendar year 1992’ in subpara-
graph (B) thereof. 
‘‘(B) ROUNDING.—If any increase under 
paragraph (1) is not a multiple of $50, such in-
crease shall be rounded to the nearest multiple 
of $50.’’. 
(h) DISCLAIMER OF DISQUALIFYING COVERAGE.— 
Section 223(c)(1)(B) of such Code, as amended by this 
section, is amended— 
(1) by striking ‘‘and’’ at the end of clause (iii), 
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171 
(2) by striking the period at the end of clause 
(iv) and inserting ‘‘, and’’, and 
(3) by inserting after clause (iv) the following 
new clause: 
‘‘(v) any coverage (including prospec-
tive coverage) under a health plan that is 
not a high deductible health plan which is 
disclaimed in writing, at the time of the 
creation or organization of the health sav-
ings account, including by execution of a 
trust 
described 
in 
subsection 
(d)(1) 
through a governing instrument that in-
cludes such a disclaimer, or by acceptance 
of an amendment to such a trust that in-
cludes such a disclaimer.’’. 
(i) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 406. PURCHASE OF HEALTH INSURANCE FROM HSA 
ACCOUNT. 
(a) IN GENERAL.—Paragraph (2) of section 223(d) 
of the Internal Revenue Code of 1986 (defining qualified 
medical expenses) is amended— 
(1) by striking subparagraphs (B) and (C), and 
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(2) by inserting ‘‘ and including payment for in-
surance)’’ after ‘‘section 213(d)’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 407. SPECIAL RULE FOR CERTAIN MEDICAL EXPENSES 
INCURRED BEFORE ESTABLISHMENT OF AC-
COUNT. 
(a) IN GENERAL.—Paragraph (2) of section 223(d) 
of the Internal Revenue Code of 1986, as amended by this 
title, is amended by adding at the end the following new 
subparagraph: 
‘‘(B) CERTAIN
MEDICAL
EXPENSES
IN-
CURRED BEFORE ESTABLISHMENT OF ACCOUNT 
TREATED AS QUALIFIED.—An expense shall not 
fail to be treated as a qualified medical expense 
solely because such expense was incurred before 
the establishment of the health savings account 
if such expense was incurred— 
‘‘(i) during either— 
‘‘(I) the taxable year in which the 
health savings account was estab-
lished, or 
‘‘(II) the preceding taxable year 
in the case of a health savings ac-
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173 
count established after the taxable 
year in which such expense was in-
curred but before the time prescribed 
by law for filing the return for such 
taxable year (not including extensions 
thereof), and 
‘‘(ii) for medical care of an individual 
during a period that such individual was 
covered by a high deductible health plan 
and met the requirements of subsection 
(c)(1)(A)(ii) (after application of sub-
section (c)(1)(B)).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to health savings accounts estab-
lished during taxable years beginning after the date of the 
enactment of this Act. 
SEC. 408. PREVENTIVE CARE PRESCRIPTION DRUG CLARI-
FICATION. 
(a) CLARIFY
USE
OF
DRUGS
IN
PREVENTIVE 
CARE.—Subparagraph (C) of section 223(c)(2) of the In-
ternal Revenue Code of 1986 is amended by adding at the 
end the following: ‘‘Preventive care shall include prescrip-
tion and over-the-counter drugs and medicines which have 
the primary purpose of preventing the onset of, further 
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deterioration from, or complications associated with 
chronic conditions, illnesses, or diseases.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 409. QUALIFIED MEDICAL EXPENSES. 
(a) CERTAIN EXERCISE EQUIPMENT AND PHYSICAL 
FITNESS PROGRAMS TREATED AS MEDICAL CARE.— 
(1) IN
GENERAL.—Subsection (d) of section 
213 of the Internal Revenue Code of 1986 is amend-
ed by adding at the end the following new para-
graph: 
‘‘(12) EXERCISE
EQUIPMENT
AND
PHYSICAL 
FITNESS PROGRAMS.— 
‘‘(A) IN
GENERAL.—The term ‘medical 
care’ shall include amounts paid— 
‘‘(i) to purchase or use equipment 
used in a program (including a self-di-
rected program) of physical exercise, 
‘‘(ii) to participate, or receive instruc-
tion, in a program of physical exercise, and 
‘‘(iii) for membership dues in a fitness 
club the primary purpose of which is to 
provide access to equipment and facilities 
for physical exercise. 
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‘‘(B) LIMITATION.—Amounts treated as 
medical care under subparagraph (A) shall not 
exceed $1,000 with respect to any individual for 
any taxable year.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by this subsection shall apply to taxable years begin-
ning after the date of the enactment of this Act. 
(b) CERTAIN NUTRITIONAL AND DIETARY SUPPLE-
MENTS TO BE TREATED AS MEDICAL CARE.— 
(1) IN
GENERAL.—Subsection (d) of section 
213 of such Code, as amended by subsection (a), is 
amended by adding at the end the following new 
paragraph: 
‘‘(13) NUTRITIONAL
AND
DIETARY
SUPPLE-
MENTS.— 
‘‘(A) IN
GENERAL.—The term ‘medical 
care’ shall include amounts paid to purchase 
herbs, vitamins, minerals, homeopathic rem-
edies, meal replacement products, and other di-
etary and nutritional supplements. 
‘‘(B) LIMITATION.—Amounts treated as 
medical care under subparagraph (A) shall not 
exceed $1,000 with respect to any individual for 
any taxable year. 
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‘‘(C) MEAL
REPLACEMENT
PRODUCT.— 
For purposes of this paragraph, the term ‘meal 
replacement product’ means any product that— 
‘‘(i) is permitted to bear labeling mak-
ing a claim described in section 403(r)(3) 
of the Federal Food, Drug, and Cosmetic 
Act, and 
‘‘(ii) is permitted to claim under such 
section that such product is low in fat and 
is a good source of protein, fiber, and mul-
tiple essential vitamins and minerals.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by this subsection shall apply to taxable years begin-
ning after the date of the enactment of this Act. 
TITLE V—MEDICAL LIABILITY 
REFORM 
Subtitle A—Medical Liability 
SEC. 501. ENCOURAGING SPEEDY RESOLUTION OF CLAIMS. 
The time for the commencement of a health care law-
suit shall be 3 years after the date of manifestation of 
injury or 1 year after the claimant discovers, or through 
the use of reasonable diligence should have discovered, the 
injury, whichever occurs first. In no event shall the time 
for commencement of a health care lawsuit exceed 3 years 
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after the date of manifestation of injury unless tolled for 
any of the following— 
(1) upon proof of fraud; 
(2) intentional concealment; or 
(3) the presence of a foreign body, which has no 
therapeutic or diagnostic purpose or effect, in the 
person of the injured person 
Actions by a minor shall be commenced within 3 years 
from the date of the alleged manifestation of injury except 
that actions by a minor under the full age of 6 years shall 
be commenced within 3 years of manifestation of injury 
or prior to the minor’s 8th birthday, whichever provides 
a longer period. Such time limitation shall be tolled for 
minors for any period during which a parent or guardian 
and a health care provider or health care organization 
have committed fraud or collusion in the failure to bring 
an action on behalf of the injured minor 
SEC. 502. COMPENSATING PATIENT INJURY. 
(a) UNLIMITED AMOUNT OF DAMAGES FOR ACTUAL 
ECONOMIC LOSSES IN HEALTH CARE LAWSUITS.—In any 
health care lawsuit, nothing in this subtitle shall limit a 
claimant’s recovery of the full amount of the available eco-
nomic damages, notwithstanding the limitation in sub-
section (b). 
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(b) ADDITIONAL NONECONOMIC DAMAGES.—In any 
health care lawsuit, the amount of noneconomic damages, 
if available, may be as much as $250,000, regardless of 
the number of parties against whom the action is brought 
or the number of separate claims or actions brought with 
respect to the same injury. 
(c) NO DISCOUNT OF AWARD FOR NONECONOMIC 
DAMAGES.—For purposes of applying the limitation in 
subsection (b), future noneconomic damages shall not be 
discounted to present value. The jury shall not be in-
formed about the maximum award for noneconomic dam-
ages. An award for noneconomic damages in excess of 
$250,000 shall be reduced either before the entry of judg-
ment, or by amendment of the judgment after entry of 
judgment, and such reduction shall be made before ac-
counting for any other reduction in damages required by 
law. If separate awards are rendered for past and future 
noneconomic damages and the combined awards exceed 
$250,000, the future noneconomic damages shall be re-
duced first. 
(d) FAIR SHARE RULE.—In any health care lawsuit, 
each party shall be liable for that party’s several share 
of any damages only and not for the share of any other 
person. Each party shall be liable only for the amount of 
damages allocated to such party in direct proportion to 
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such party’s percentage of responsibility. Whenever a 
judgment of liability is rendered as to any party, a sepa-
rate judgment shall be rendered against each such party 
for the amount allocated to such party. For purposes of 
this section, the trier of fact shall determine the propor-
tion of responsibility of each party for the claimant’s 
harm. 
SEC. 503. MAXIMIZING PATIENT RECOVERY. 
(a) COURT SUPERVISION OF SHARE OF DAMAGES 
ACTUALLY PAID TO CLAIMANTS.—In any health care law-
suit, the court shall supervise the arrangements for pay-
ment of damages to protect against conflicts of interest 
that may have the effect of reducing the amount of dam-
ages awarded that are actually paid to claimants. In par-
ticular, in any health care lawsuit in which the attorney 
for a party claims a financial stake in the outcome by vir-
tue of a contingent fee, the court shall have the power 
to restrict the payment of a claimant’s damage recovery 
to such attorney, and to redirect such damages to the 
claimant based upon the interests of justice and principles 
of equity. In no event shall the total of all contingent fees 
for representing all claimants in a health care lawsuit ex-
ceed the following limits: 
(1) 40 percent of the first $50,000 recovered by 
the claimant(s). 
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(2) 331⁄3 percent of the next $50,000 recovered 
by the claimant(s). 
(3) 25 percent of the next $500,000 recovered 
by the claimant(s). 
(4) 15 percent of any amount by which the re-
covery by the claimant(s) is in excess of $600,000. 
(b) APPLICABILITY.—The limitations in this section 
shall apply whether the recovery is by judgment, settle-
ment, mediation, arbitration, or any other form of alter-
native dispute resolution. In a health care lawsuit involv-
ing a minor or incompetent person, a court retains the 
authority to authorize or approve a fee that is less than 
the maximum permitted under this section. The require-
ment for court supervision in the first two sentences of 
subsection (a) applies only in civil actions. 
SEC. 504. ADDITIONAL HEALTH BENEFITS. 
In any health care lawsuit involving injury or wrong-
ful death, any party may introduce evidence of collateral 
source benefits. If a party elects to introduce such evi-
dence, any opposing party may introduce evidence of any 
amount paid or contributed or reasonably likely to be paid 
or contributed in the future by or on behalf of the oppos-
ing party to secure the right to such collateral source bene-
fits. No provider of collateral source benefits shall recover 
any amount against the claimant or receive any lien or 
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181 
credit against the claimant’s recovery or be equitably or 
legally subrogated to the right of the claimant in a health 
care lawsuit involving injury or wrongful death. This sec-
tion shall apply to any health care lawsuit that is settled 
as well as a health care lawsuit that is resolved by a fact 
finder. This section shall not apply to section 1862(b) (42 
U.S.C. 1395y(b)) or section 1902(a)(25) (42 U.S.C. 
1396a(a)(25)) of the Social Security Act. 
SEC. 505. PUNITIVE DAMAGES. 
(a) IN GENERAL.—Punitive damages may, if other-
wise permitted by applicable State or Federal law, be 
awarded against any person in a health care lawsuit only 
if it is proven by clear and convincing evidence that such 
person acted with malicious intent to injure the claimant, 
or that such person deliberately failed to avoid unneces-
sary injury that such person knew the claimant was sub-
stantially certain to suffer. In any health care lawsuit 
where no judgment for compensatory damages is rendered 
against such person, no punitive damages may be awarded 
with respect to the claim in such lawsuit. No demand for 
punitive damages shall be included in a health care lawsuit 
as initially filed. A court may allow a claimant to file an 
amended pleading for punitive damages only upon a mo-
tion by the claimant and after a finding by the court, upon 
review of supporting and opposing affidavits or after a 
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182 
hearing, after weighing the evidence, that the claimant has 
established by a substantial probability that the claimant 
will prevail on the claim for punitive damages. At the re-
quest of any party in a health care lawsuit, the trier of 
fact shall consider in a separate proceeding— 
(1) whether punitive damages are to be award-
ed and the amount of such award; and 
(2) the amount of punitive damages following a 
determination of punitive liability. 
If a separate proceeding is requested, evidence relevant 
only to the claim for punitive damages, as determined by 
applicable State law, shall be inadmissible in any pro-
ceeding to determine whether compensatory damages are 
to be awarded. 
(b) DETERMINING AMOUNT
OF PUNITIVE DAM-
AGES.— 
(1) FACTORS
CONSIDERED.—In determining 
the amount of punitive damages, if awarded, in a 
health care lawsuit, the trier of fact shall consider 
only the following— 
(A) the severity of the harm caused by the 
conduct of such party; 
(B) the duration of the conduct or any 
concealment of it by such party; 
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183 
(C) the profitability of the conduct to such 
party; 
(D) the number of products sold or med-
ical procedures rendered for compensation, as 
the case may be, by such party, of the kind 
causing the harm complained of by the claim-
ant; 
(E) any criminal penalties imposed on such 
party, as a result of the conduct complained of 
by the claimant; and 
(F) the amount of any civil fines assessed 
against such party as a result of the conduct 
complained of by the claimant. 
(2) MAXIMUM AWARD.—The amount of punitive 
damages, if awarded, in a health care lawsuit may 
be as much as $250,000 or as much as two times 
the amount of economic damages awarded, which-
ever is greater. The jury shall not be informed of 
this limitation. 
(c) NO PUNITIVE DAMAGES FOR PRODUCTS THAT 
COMPLY WITH FDA STANDARDS.— 
(1) IN GENERAL.— 
(A) No punitive damages may be awarded 
against the manufacturer or distributor of a 
medical product, or a supplier of any compo-
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184 
nent or raw material of such medical product, 
based on a claim that such product caused the 
claimant’s harm where— 
(i)(I) such medical product was sub-
ject to premarket approval, clearance, or li-
censure by the Food and Drug Administra-
tion with respect to the safety of the for-
mulation or performance of the aspect of 
such medical product which caused the 
claimant’s harm or the adequacy of the 
packaging or labeling of such medical 
product; and 
(II) such medical product was so ap-
proved, cleared, or licensed; or 
(ii) such medical product is generally 
recognized among qualified experts as safe 
and effective pursuant to conditions estab-
lished by the Food and Drug Administra-
tion and applicable Food and Drug Admin-
istration regulations, including without 
limitation those related to packaging and 
labeling, unless the Food and Drug Admin-
istration has determined that such medical 
product was not manufactured or distrib-
uted in substantial compliance with appli-
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185 
cable Food and Drug Administration stat-
utes and regulations. 
(B) RULE OF CONSTRUCTION.—Subpara-
graph (A) may not be construed as establishing 
the obligation of the Food and Drug Adminis-
tration to demonstrate affirmatively that a 
manufacturer, distributor, or supplier referred 
to in such subparagraph meets any of the con-
ditions described in such subparagraph. 
(2) LIABILITY OF HEALTH CARE PROVIDERS.— 
A health care provider who prescribes, or who dis-
penses pursuant to a prescription, a medical product 
approved, licensed, or cleared by the Food and Drug 
Administration shall not be named as a party to a 
product liability lawsuit involving such product and 
shall not be liable to a claimant in a class action 
lawsuit against the manufacturer, distributor, or 
seller of such product. Nothing in this paragraph 
prevents a court from consolidating cases involving 
health care providers and cases involving products li-
ability claims against the manufacturer, distributor, 
or product seller of such medical product. 
(3) PACKAGING.—In a health care lawsuit for 
harm which is alleged to relate to the adequacy of 
the packaging or labeling of a drug which is required 
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186 
to have tamper-resistant packaging under regula-
tions of the Secretary of Health and Human Serv-
ices (including labeling regulations related to such 
packaging), the manufacturer or product seller of 
the drug shall not be held liable for punitive dam-
ages unless such packaging or labeling is found by 
the trier of fact by clear and convincing evidence to 
be substantially out of compliance with such regula-
tions. 
(4) EXCEPTION.—Paragraph (1) shall not 
apply in any health care lawsuit in which— 
(A) a person, before or after premarket ap-
proval, clearance, or licensure of such medical 
product, knowingly misrepresented to or with-
held from the Food and Drug Administration 
information that is required to be submitted 
under the Federal Food, Drug, and Cosmetic 
Act (21 U.S.C. 301 et seq.) or section 351 of 
the Public Health Service Act (42 U.S.C. 262) 
that is material and is causally related to the 
harm which the claimant allegedly suffered; or 
(B) a person made an illegal payment to 
an official of the Food and Drug Administra-
tion for the purpose of either securing or main-
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taining approval, clearance, or licensure of such 
medical product. 
SEC. 506. AUTHORIZATION OF PAYMENT OF FUTURE DAM-
AGES TO CLAIMANTS IN HEALTH CARE LAW-
SUITS. 
(a) IN GENERAL.—In any health care lawsuit, if an 
award of future damages, without reduction to present 
value, equaling or exceeding $50,000 is made against a 
party with sufficient insurance or other assets to fund a 
periodic payment of such a judgment, the court shall, at 
the request of any party, enter a judgment ordering that 
the future damages be paid by periodic payments. In any 
health care lawsuit, the court may be guided by the Uni-
form Periodic Payment of Judgments Act promulgated by 
the National Conference of Commissioners on Uniform 
State Laws. 
(b) APPLICABILITY.—This section applies to all ac-
tions which have not been first set for trial or retrial be-
fore the effective date of this subtitle. 
SEC. 507. DEFINITIONS. 
In this subtitle: 
(1) ALTERNATIVE DISPUTE RESOLUTION SYS-
TEM; ADR.—The term ‘‘alternative dispute resolution 
system’’ or ‘‘ADR’’ means a system that provides 
for the resolution of health care lawsuits in a man-
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ner other than through a civil action brought in a 
State or Federal court. 
(2) CLAIMANT.—The term ‘‘claimant’’ means 
any person who brings a health care lawsuit, includ-
ing a person who asserts or claims a right to legal 
or equitable contribution, indemnity, or subrogation, 
arising out of a health care liability claim or action, 
and any person on whose behalf such a claim is as-
serted or such an action is brought, whether de-
ceased, incompetent, or a minor. 
(3) COLLATERAL
SOURCE
BENEFITS.—The 
term ‘‘collateral source benefits’’ means any amount 
paid or reasonably likely to be paid in the future to 
or on behalf of the claimant, or any service, product, 
or other benefit provided or reasonably likely to be 
provided in the future to or on behalf of the claim-
ant, as a result of the injury or wrongful death, pur-
suant to— 
(A) any State or Federal health, sickness, 
income-disability, accident, or workers’ com-
pensation law; 
(B) any health, sickness, income-disability, 
or accident insurance that provides health bene-
fits or income-disability coverage; 
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(C) any contract or agreement of any 
group, organization, partnership, or corporation 
to provide, pay for, or reimburse the cost of 
medical, hospital, dental, or income-disability 
benefits; and 
(D) any other publicly or privately funded 
program. 
(4) 
COMPENSATORY
DAMAGES.—The 
term 
‘‘compensatory 
damages’’ 
means 
objectively 
verifiable monetary losses incurred as a result of the 
provision of, use of, or payment for (or failure to 
provide, use, or pay for) health care services or med-
ical products, such as past and future medical ex-
penses, loss of past and future earnings, cost of ob-
taining domestic services, loss of employment, and 
loss of business or employment opportunities, dam-
ages for physical and emotional pain, suffering, in-
convenience, physical impairment, mental anguish, 
disfigurement, loss of enjoyment of life, loss of soci-
ety and companionship, loss of consortium (other 
than loss of domestic service), hedonic damages, in-
jury to reputation, and all other nonpecuniary losses 
of any kind or nature. The term ‘‘compensatory 
damages’’ includes economic damages and non-
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economic damages, as such terms are defined in this 
section. 
(5) CONTINGENT FEE.—The term ‘‘contingent 
fee’’ includes all compensation to any person or per-
sons which is payable only if a recovery is effected 
on behalf of one or more claimants. 
(6) ECONOMIC DAMAGES.—The term ‘‘economic 
damages’’ means objectively verifiable monetary 
losses incurred as a result of the provision of, use 
of, or payment for (or failure to provide, use, or pay 
for) health care services or medical products, such as 
past and future medical expenses, loss of past and 
future earnings, cost of obtaining domestic services, 
loss of employment, and loss of business or employ-
ment opportunities. 
(7) 
HEALTH
CARE
LAWSUIT.—The 
term 
‘‘health care lawsuit’’ means any health care liability 
claim concerning the provision of health care goods 
or services or any medical product affecting inter-
state commerce, or any health care liability action 
concerning the provision of health care goods or 
services or any medical product affecting interstate 
commerce, brought in a State or Federal court or 
pursuant to an alternative dispute resolution system, 
against a health care provider, a health care organi-
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zation, or the manufacturer, distributor, supplier, 
marketer, promoter, or seller of a medical product, 
regardless of the theory of liability on which the 
claim is based, or the number of claimants, plain-
tiffs, defendants, or other parties, or the number of 
claims or causes of action, in which the claimant al-
leges a health care liability claim. Such term does 
not include a claim or action which is based on 
criminal liability; which seeks civil fines or penalties 
paid to Federal, State, or local government; or which 
is grounded in antitrust. 
(8) HEALTH
CARE
LIABILITY
ACTION.—The 
term ‘‘health care liability action’’ means a civil ac-
tion brought in a State or Federal court or pursuant 
to an alternative dispute resolution system, against 
a health care provider, a health care organization, or 
the manufacturer, distributor, supplier, marketer, 
promoter, or seller of a medical product, regardless 
of the theory of liability on which the claim is based, 
or the number of plaintiffs, defendants, or other par-
ties, or the number of causes of action, in which the 
claimant alleges a health care liability claim. 
(9) HEALTH
CARE
LIABILITY
CLAIM.—The 
term ‘‘health care liability claim’’ means a demand 
by any person, whether or not pursuant to ADR, 
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