I
107TH CONGRESS
2D SESSION
H. R. 4856
To establish a medical education trust fund, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JUNE 4, 2002
Mrs. LOWEY introduced the following bill; which was referred to the Com-
mittee on Ways and Means, and in addition to the Committee on Energy
and Commerce, for a period to be subsequently determined by the Speak-
er, in each case for consideration of such provisions as fall within the ju-
risdiction of the committee concerned
A BILL
To establish a medical education trust fund, and for other
purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Medical Education Trust Fund Act of 2002’’.
(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Medical Education Trust Fund.
Sec. 3. Amendments to medicare program.
Sec. 4. Amendments to medicaid program.
Sec. 5. Assessments on insured and self-insured health plans.
Sec. 6. Medical Education Advisory Commission.
Sec. 7. Demonstration projects.
SEC. 2. MEDICAL EDUCATION TRUST FUND.
The Social Security Act (42 U.S.C. 300 et seq.) is
amended by adding after title XXI the following new title:
‘‘TITLE XXII—MEDICAL EDUCATION TRUST
FUND
‘‘TABLE OF CONTENTS OF TITLE
‘‘Sec. 2201. Establishment of Trust Fund.
‘‘Sec. 2202. Payments to medical schools.
‘‘Sec. 2203. Payments to teaching hospitals.
‘‘SEC. 2201. ESTABLISHMENT OF TRUST FUND.
‘‘(a) IN GENERAL.—There is established in the
Treasury of the United States a fund to be known as the
Medical Education Trust Fund (in this title referred to
as the ‘Trust Fund’), consisting of the following accounts:
‘‘(1) The Medical School Account.
‘‘(2) The Medicare Teaching Hospital Indirect
Account.
‘‘(3) The Medicare Teaching Hospital Direct
Account.
‘‘(4) The Non-Medicare Teaching Hospital In-
direct Account.
‘‘(5) The Non-Medicare Teaching Hospital Di-
rect Account.
Each such account shall consist of such amounts as are
allocated and transferred to such account under this sec-
tion, sections 1886(m) and 1936, and section 4503 of the
Internal Revenue Code of 1986. Amounts in the accounts
of the Trust Fund shall remain available until expended.
‘‘(b) 
EXPENDITURES
FROM
TRUST
FUND.—
Amounts in the accounts of the Trust Fund are available
to the Secretary for making payments under sections 2202
and 2203.
‘‘(c) INVESTMENT.—
‘‘(1) IN
GENERAL.—The Secretary of the
Treasury shall invest amounts in the accounts of the
Trust Fund which the Secretary determines are not
required to meet current withdrawals from the Trust
Fund. Such investments may be made only in inter-
est-bearing obligations of the United States. For
such purpose, such obligations may be acquired on
original issue at the issue price, or by purchase of
outstanding obligations at the market price.
‘‘(2) SALE OF OBLIGATIONS.—The Secretary of
the Treasury may sell at market price any obligation
acquired under paragraph (1).
‘‘(3) AVAILABILITY OF INCOME.—Any interest
derived from obligations held in each such account,
and proceeds from any sale or redemption of such
obligations, are hereby appropriated to such account.
‘‘(d) MONETARY GIFTS TO TRUST FUND.—There are
appropriated to the Trust Fund such amounts as may be
unconditionally donated to the Federal Government as
gifts to the Trust Fund. Such amounts shall be allocated
and transferred to the accounts described in subsection
(a) in the same proportion as the amounts in each of the
accounts bears to the total amount in all the accounts of
the Trust Fund.
‘‘SEC. 2202. PAYMENTS TO MEDICAL SCHOOLS.
‘‘(a) FEDERAL PAYMENTS TO MEDICAL SCHOOLS
FOR CERTAIN COSTS.—
‘‘(1) IN GENERAL.—In the case of a medical
school that in accordance with paragraph (2) sub-
mits to the Secretary an application for fiscal year
2003 or any subsequent fiscal year, the Secretary
shall make payments for such year to the medical
school for the purpose specified in paragraph (3).
The Secretary shall make such payments from the
Medical School Account in an amount determined in
accordance with subsection (b), and may administer
the payments as a contract, grant, or cooperative
agreement.
‘‘(2) APPLICATION FOR PAYMENTS.—For pur-
poses of paragraph (1), an application for payments
under such paragraph for a fiscal year is in accord-
ance with this paragraph if—
‘‘(A) the medical school involved submits
the application not later than the date specified
by the Secretary; and
‘‘(B) the application is in such form, is
made in such manner, and contains such agree-
ments, assurances, and information as the Sec-
retary determines to be necessary to carry out
this section.
‘‘(3) PURPOSE OF PAYMENTS.—The purpose of
payments under paragraph (1) is to assist medical
schools in maintaining and developing quality edu-
cational programs in an increasingly competitive
health care system.
‘‘(b) AVAILABILITY OF TRUST FUND FOR PAYMENTS;
ANNUAL AMOUNT OF PAYMENTS.—
‘‘(1) AVAILABILITY OF TRUST FUND FOR PAY-
MENTS.—The following amounts shall be available
for a fiscal year for making payments under sub-
section (a) from the amount allocated and trans-
ferred to the Medical School Account under sections
1886(m), 1936, 2201(c)(3), and 2201(d), and sec-
tion 4503 of the Internal Revenue Code of 1986:
‘‘(A) In the case of fiscal year 2003,
$200,000,000.
‘‘(B) In the case of fiscal year 2004,
$300,000,000.
‘‘(C) In the case of fiscal year 2005,
$400,000,000.
‘‘(D) In the case of fiscal year 2006,
$500,000,000.
‘‘(E) In the case of fiscal year 2007,
$600,000,000.
‘‘(F) In the case of each subsequent fiscal
year, the amount determined under this para-
graph for the previous fiscal year updated
through the midpoint of such previous fiscal
year by the estimated percentage change in the
general health care inflation factor (as defined
in subsection (d)) during the 12-month period
ending at that midpoint, with appropriate ad-
justments to reflect previous underestimations
or overestimations under this subparagraph in
the projected health care inflation factor.
‘‘(2) AMOUNT
OF
PAYMENTS
FOR
MEDICAL
SCHOOLS.—
‘‘(A) IN GENERAL.—Subject to the annual
amount available under paragraph (1) for a fis-
cal year, the amount of payments required
under subsection (a) to be made to a medical
school that submits to the Secretary an applica-
tion for such year in accordance with subsection
(a)(2) is an amount equal to an amount deter-
mined by the Secretary in accordance with sub-
paragraph (B).
‘‘(B) DEVELOPMENT OF FORMULA.—The
Secretary shall develop a formula for allocation
of funds to medical schools under this section
consistent with the purpose described in sub-
section (a)(3).
‘‘(c) MEDICAL SCHOOL DEFINED.—For purposes of
this section, the term ‘medical school’ means a school of
medicine (as defined in section 799B of the Public Health
Service Act) or a school of osteopathic medicine (as de-
fined in such section).
‘‘(d) GENERAL HEALTH CARE INFLATION FAC-
TOR.—The term ‘general health care inflation factor’
means the Consumer Price Index for Medical Services as
determined by the Bureau of Labor Statistics.
‘‘SEC. 2203. PAYMENTS TO TEACHING HOSPITALS.
‘‘(a) FORMULA
PAYMENTS
TO
ELIGIBLE
ENTI-
TIES.—
‘‘(1) IN GENERAL.—In the case of any fiscal
year beginning after September 30, 2002, the Sec-
retary shall make payments to each eligible entity
that, in accordance with paragraph (2), submits to
the Secretary an application for such fiscal year.
Such payments shall be made from the Trust Fund,
and the total of the payments to the eligible entity
for the fiscal year shall equal the sum of the
amounts determined under subsections (b), (c), (d),
and (e) with respect to such entity.
‘‘(2) APPLICATION.—For purposes of para-
graph (1), an application shall contain such informa-
tion as may be necessary for the Secretary to make
payments under such paragraph to an eligible entity
during a fiscal year. An application shall be treated
as submitted in accordance with this paragraph if it
is submitted not later than the date specified by the
Secretary, and is made in such form and manner as
the Secretary may require.
‘‘(3) PERIODIC
PAYMENTS.—Payments under
paragraph (1) to an eligible entity for a fiscal year
shall be made periodically, at such intervals and in
such amounts as the Secretary determines to be ap-
propriate (subject to applicable Federal law regard-
ing Federal payments).
‘‘(4) ADMINISTRATOR OF PROGRAMS.—The Sec-
retary shall carry out responsibility under this title
by acting through the Administrator of the Centers
for Medicare & Medicaid Services.
‘‘(5) ELIGIBLE ENTITY.—For purposes of this
title, the term ‘eligible entity’, with respect to any
fiscal year, means—
‘‘(A) for payment under subsections (b)
and (c), an entity which would be eligible to re-
ceive payments for such fiscal year under—
‘‘(i) section 1886(d)(5)(B), if such
payments had not been terminated for dis-
charges occurring after September 30,
2002;
‘‘(ii) section 1886(h), if such pay-
ments had not been terminated for cost re-
porting periods beginning after September
30, 2002; or
‘‘(iii) both sections; or
‘‘(B) for payment under subsections (d)
and (e)—
‘‘(i) an entity which meets the re-
quirement of subparagraph (A); or
‘‘(ii) an entity which the Secretary de-
termines should be considered an eligible
entity.
‘‘(b) DETERMINATION OF AMOUNT FROM MEDICARE
TEACHING HOSPITAL INDIRECT ACCOUNT.—
‘‘(1) IN GENERAL.—The amount determined for
an eligible entity for a fiscal year under this sub-
section is the amount equal to the applicable per-
centage of the total amount allocated and trans-
ferred to the Medicare Teaching Hospital Indirect
Account under section 1886(m)(1), and subsections
(c)(3) and (d) of section 2201 for such fiscal year.
‘‘(2) APPLICABLE PERCENTAGE.—For purposes
of paragraph (1), the applicable percentage for any
fiscal year is equal to the percentage of the total
payments which would have been made to the eligi-
ble entity in such fiscal year under section
1886(d)(5)(B) if such payments had not been termi-
nated for discharges occurring after September 30,
2002.
‘‘(c) DETERMINATION OF AMOUNT FROM MEDICARE
TEACHING HOSPITAL DIRECT ACCOUNT.—
‘‘(1) IN GENERAL.—The amount determined for
an eligible entity for a fiscal year under this sub-
section is the amount equal to the applicable per-
centage of the total amount allocated and trans-
ferred to the Medicare Teaching Hospital Direct Ac-
count under section 1886(m)(2), and subsections
(c)(3) and (d) of section 2201 for such fiscal year.
‘‘(2) APPLICABLE PERCENTAGE.—For purposes
of paragraph (1), the applicable percentage for any
fiscal year is equal to the percentage of the total
payments which would have been made to the eligi-
ble entity in such fiscal year under section 1886(h)
if such payments had not been terminated for cost
reporting periods beginning after September 30,
1999.
‘‘(d) DETERMINATION
OF AMOUNT FROM NON-
MEDICARE TEACHING HOSPITAL INDIRECT ACCOUNT.—
‘‘(1) IN GENERAL.—The amount determined for
an eligible entity for a fiscal year under this sub-
section is the amount equal to the applicable per-
centage of the total amount allocated and trans-
ferred to the Non-Medicare Teaching Hospital Indi-
rect Account for such fiscal year under section 1936,
subsections (c)(3) and (d) of section 2201, and sec-
tion 4503 of the Internal Revenue Code of 1986.
‘‘(2) APPLICABLE PERCENTAGE.—For purposes
of paragraph (1), the applicable percentage for any
fiscal year for an eligible entity is equal to the per-
centage of the total payments which, as determined
by the Secretary, would have been made in such fis-
cal year under section 1886(d)(5)(B) if—
‘‘(A) such payments had not been termi-
nated for discharges occurring after September
30, 2002; and
‘‘(B) non-medicare patients were taken
into account in lieu of medicare patients.
‘‘(e) DETERMINATION
OF AMOUNT FROM NON-
MEDICARE TEACHING HOSPITAL DIRECT ACCOUNT.—
‘‘(1) IN GENERAL.—The amount determined for
an eligible entity for a fiscal year under this sub-
section is the amount equal to the applicable per-
centage of the total amount allocated and trans-
ferred to the Non-Medicare Teaching Hospital Di-
rect Account for such fiscal year under section 1936,
subsections (c)(3) and (d) of section 2201, and sec-
tion 4503 of the Internal Revenue Code of 1986.
‘‘(2) APPLICABLE PERCENTAGE.—For purposes
of paragraph (1), the applicable percentage for any
fiscal year for an eligible entity is equal to the per-
centage of the total payments which, as determined
by the Secretary, would have been made in such fis-
cal year under section 1886(h) if—
‘‘(A) such payments had not been termi-
nated for cost reporting periods beginning after
September 30, 2002; and
‘‘(B) non-medicare patients were taken
into account in lieu of medicare patients.’’.
SEC. 3. AMENDMENTS TO MEDICARE PROGRAM.
Section 1886 of the Social Security Act (42 U.S.C.
1395ww) is amended—
(1) in subsection (d)(5)(B), in the matter pre-
ceding clause (i), by striking ‘‘The Secretary shall
provide’’ and inserting the following: ‘‘For dis-
charges occurring before October 1, 2002, the Sec-
retary shall provide’’;
(2) in subsection (d)(11)(C), by inserting after
‘‘paragraph (5)(B)’’ ‘‘(notwithstanding that pay-
ments under paragraph (5)(B) are terminated for
discharges occurring after September 30, 2002)’’;
(3) in subsection (h)—
(A) in paragraph (1), in the first sentence,
by striking ‘‘the Secretary shall provide’’ and
inserting ‘‘the Secretary shall, subject to para-
graph (7), provide’’; and
(B) by adding at the end the following:
‘‘(7) LIMITATION.—
‘‘(A) IN
GENERAL.—The authority to
make payments under this subsection (other
than payments made under paragraphs (3)(D)
and (6)) shall not apply with respect to—
‘‘(i) cost reporting periods beginning
after September 30, 2002; and
‘‘(ii) any portion of a cost reporting
period beginning on or before such date
which occurs after such date.
‘‘(B) 
RULE
OF
CONSTRUCTION.—This
paragraph may not be construed as authorizing
any payment under section 1861(v) with re-
spect to graduate medical education.’’; and
(4) by adding at the end the following:
‘‘(m) TRANSFERS TO MEDICAL EDUCATION TRUST
FUND.—
‘‘(1) INDIRECT
COSTS
OF
MEDICAL
EDU-
CATION.—
‘‘(A) TRANSFER.—
‘‘(i) IN GENERAL.—From the Federal
Hospital Insurance Trust Fund, the Sec-
retary shall, for fiscal year 2003 and each
subsequent fiscal year, transfer to the
Medical Education Trust Fund an amount
equal to the amount estimated by the Sec-
retary under subparagraph (B).
‘‘(ii) ALLOCATION.—Of the amount
transferred under clause (i)—
‘‘(I) there shall be allocated and
transferred to the Medical School Ac-
count of such Trust Fund an amount
which bears the same ratio to the
total amount available under section
2202(b)(1) for the fiscal year (re-
duced by the balance in such account
at the end of the preceding fiscal
year) as the amount transferred under
clause (i) bears to the total amounts
transferred to such Trust Fund under
title XXII (excluding amounts trans-
ferred under subsections (c)(3) and
(d) of section 2201) for such fiscal
year; and
‘‘(II) the remainder shall be allo-
cated and transferred to the Medicare
Teaching Hospital Indirect Account of
such Trust Fund.
‘‘(B) DETERMINATION OF AMOUNTS.—The
Secretary shall make an estimate for each fiscal
year involved of the nationwide total of the
amounts that would have been paid under sub-
section (d)(5)(B) to hospitals during the fiscal
year if such payments had not been terminated
for discharges occurring after September 30,
2002.
‘‘(2) DIRECT COSTS OF MEDICAL EDUCATION.—
‘‘(A) TRANSFER.—
‘‘(i) IN GENERAL.—From the Federal
Hospital Insurance Trust Fund and the
Federal Supplementary Medical Insurance
Trust Fund, the Secretary shall, for fiscal
year 2003 and each subsequent fiscal year,
transfer to the Medical Education Trust
Fund an amount equal to the amount esti-
mated by the Secretary under subpara-
graph (B).
‘‘(ii) ALLOCATION.—Of the amount
transferred under clause (i)—
‘‘(I) there shall be allocated and
transferred to the Medical School Ac-
count of such Trust Fund an amount
which bears the same ratio to the
total amount available under section
2202(b)(1) for the fiscal year (re-
duced by the balance in such account
at the end of the preceding fiscal
year) as the amount transferred under
clause (i) bears to the total amounts
transferred to such Trust Fund under
title XXII (excluding amounts trans-
ferred under subsections (c)(3) and
(d) of section 2201) for such fiscal
year; and
‘‘(II) the remainder shall be allo-
cated and transferred to the Medicare
Teaching Hospital Direct Account of
such Trust Fund.
‘‘(B) DETERMINATION OF AMOUNTS.—For
each hospital, the Secretary shall make an esti-
mate for the fiscal year involved of the amount
that would have been paid under subsection (h)
to the hospital during the fiscal year if such
payments had not been terminated for cost re-
porting periods beginning after September 30,
2002.
‘‘(C) ALLOCATION BETWEEN FUNDS.—In
providing for a transfer under subparagraph
(A) for a fiscal year, the Secretary shall provide
for an allocation of the amounts involved be-
tween part A and part B (and the trust funds
established under the respective parts) as rea-
sonably reflects the proportion of direct grad-
uate medical education costs of hospitals associ-
ated with the provision of services under each
respective part.’’.
SEC. 4. AMENDMENTS TO MEDICAID PROGRAM.
(a) IN GENERAL.—Title XIX of the Social Security
Act (42 U.S.C. 1396 et seq.) is amended by adding at
the end the following:
‘‘TRANSFER OF FUNDS TO ACCOUNTS
‘‘SEC. 1936. (a) TRANSFER OF FUNDS.—
‘‘(1) IN GENERAL.—For fiscal year 2003 and
each subsequent fiscal year, the Secretary shall
transfer to the Medical Education Trust Fund es-
tablished under title XXII an amount equal to the
amount determined under subsection (b).
‘‘(2) ALLOCATION.—Of the amount transferred
under paragraph (1)—
‘‘(A) there shall be allocated and trans-
ferred to the Medical School Account of such
Trust Fund an amount which bears the same
ratio to the total amount available under sec-
tion 2202(b)(1) for the fiscal year (reduced by
the balance in such account at the end of the
preceding fiscal year) as the amount transferred
under paragraph (1) bears to the total amounts
transferred to such Trust Fund (excluding
amounts transferred under subsections (c)(3)
and (d) of section 2201) for such fiscal year;
and
‘‘(B) the remainder shall be allocated and
transferred to the Non-Medicare Teaching Hos-
pital Indirect Account and the Non-Medicare
Teaching Hospital Direct Account of such
Trust Fund, in the same proportion as the
amounts transferred to each account under sec-
tion 1886(m) relate to the total amounts trans-
ferred under such section for such fiscal year.
‘‘(b) AMOUNT DETERMINED.—
‘‘(1) OUTLAYS FOR ACUTE MEDICAL SERVICES
DURING PRECEDING FISCAL YEAR.—Beginning with
fiscal year 2003, the Secretary shall determine 5
percent of the total amount of Federal outlays made
under this title for acute medical services, as defined
in paragraph (2), for the preceding fiscal year.
‘‘(2) ACUTE
MEDICAL
SERVICES
DEFINED.—
The term ‘acute medical services’ means items and
services described in section 1905(a) other than the
following:
‘‘(A) Nursing facility services (as defined
in section 1905(f)).
‘‘(B) Services furnished in an intermediate
care facility for the mentally retarded (as de-
fined in section 1905(d)).
‘‘(C) Personal care services (as described
in section 1905(a)(24)).
‘‘(D) Private duty nursing services (as re-
ferred to in section 1905(a)(8)).
‘‘(E) Home or community-based services
furnished under a waiver granted under sub-
section (c), (d), or (e) of section 1915.
‘‘(F) Home and community care furnished
to functionally disabled elderly individuals
under section 1929.
‘‘(G) Community supported living arrange-
ments services under section 1930.
‘‘(H) Case-management services (as de-
scribed in section 1915(g)(2)).
‘‘(I) Home health care services (as referred
to in section 1905(a)(7)), clinic services, and re-
habilitation services that are furnished to an in-
dividual who has a condition or disability that
qualifies the individual to receive any of the
services described in a previous subparagraph.
‘‘(J) Services furnished in an institution
for mental diseases (as defined in section
1905(i)).
‘‘(c) ENTITLEMENT.—This section constitutes budget
authority in advance of appropriations Acts and rep-
resents the obligation of the Federal Government to pro-
vide for the payment to the Non-Medicare Teaching Hos-
pital Indirect Account, the Non-Medicare Teaching Hos-
pital Direct Account, and the Medical School Account of
amounts determined in accordance with subsections (a)
and (b).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall be effective on and after October 1,
2002.
SEC. 5. ASSESSMENTS ON INSURED AND SELF-INSURED
HEALTH PLANS.
(a) GENERAL RULE.—Subtitle D of the Internal Rev-
enue Code of 1986 (relating to miscellaneous excise taxes)
is amended by adding after chapter 36 the following new
chapter:
‘‘CHAPTER 37—HEALTH RELATED
ASSESSMENTS
‘‘SUBCHAPTER A. Insured and self-insured health plans.
‘‘Subchapter A—Insured and Self-Insured
Health Plans
‘‘Sec. 4501. Health insurance and health-related administrative
services.
‘‘Sec. 4502. Self-insured health plans.
‘‘Sec. 4503. Transfer to accounts.
‘‘Sec. 4504. Definitions and special rules.
‘‘SEC. 4501. HEALTH INSURANCE AND HEALTH-RELATED
ADMINISTRATIVE SERVICES.
‘‘(a) 
IMPOSITION
OF
TAX.—There 
is 
hereby
imposed—
‘‘(1) on each taxable health insurance policy, a
tax equal to 1.5 percent of the premiums received
under such policy, and
‘‘(2) on each amount received for health-related
administrative services, a tax equal to 1.5 percent of
the amount so received.
‘‘(b) LIABILITY FOR TAX.—
‘‘(1) HEALTH
INSURANCE.—The tax imposed
by subsection (a)(1) shall be paid by the issuer of
the policy.
‘‘(2) HEALTH-RELATED ADMINISTRATIVE SERV-
ICES.—The tax imposed by subsection (a)(2) shall
be paid by the person providing the health-related
administrative services.
‘‘(c) TAXABLE HEALTH INSURANCE POLICY.—For
purposes of this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section, the term ‘taxable health insur-
ance policy’ means any insurance policy providing
accident or health insurance with respect to individ-
uals residing in the United States.
‘‘(2) EXEMPTION OF CERTAIN POLICIES.—The
term ‘taxable health insurance policy’ does not in-
clude any insurance policy if substantially all of the
coverage provided under such policy relates to—
‘‘(A) liabilities incurred under workers’
compensation laws,
‘‘(B) tort liabilities,
‘‘(C) liabilities relating to ownership or use
of property,
‘‘(D) credit insurance, or
‘‘(E) such other similar liabilities as the
Secretary may specify by regulations.
‘‘(3) SPECIAL RULE WHERE POLICY PROVIDES
OTHER
COVERAGE.—In the case of any taxable
health insurance policy under which amounts are
payable other than for accident or health coverage,
in determining the amount of the tax imposed by
subsection (a)(1) on any premium paid under such
policy, there shall be excluded the amount of the
charge for the nonaccident or nonhealth coverage
if—
‘‘(A) the charge for such nonaccident or
nonhealth coverage is either separately stated in
the policy, or furnished to the policyholder in a
separate statement, and
‘‘(B) such charge is reasonable in relation
to the total charges under the policy.
In any other case, the entire amount of the premium
paid under such policy shall be subject to tax under
subsection (a)(1).
‘‘(4) TREATMENT OF PREPAID HEALTH COV-
ERAGE ARRANGEMENTS.—
‘‘(A) IN GENERAL.—In the case of any ar-
rangement described in subparagraph (B)—
‘‘(i) such arrangement shall be treated
as a taxable health insurance policy,
‘‘(ii) the payments or premiums re-
ferred to in subparagraph (B)(i) shall be
treated as premiums received for a taxable
health insurance policy, and
‘‘(iii) the person referred to in sub-
paragraph (B)(i) shall be treated as the
issuer.
‘‘(B) DESCRIPTION OF ARRANGEMENTS.—
An arrangement is described in this subpara-
graph if under such arrangement—
‘‘(i) fixed payments or premiums are
received as consideration for any person’s
agreement to provide or arrange for the
provision of accident or health coverage to
residents of the United States, regardless
of how such coverage is provided or ar-
ranged to be provided, and
‘‘(ii) substantially all of the risks of
the rates of utilization of services is as-
sumed by such person or the provider of
such services.
‘‘(d) HEALTH-RELATED
ADMINISTRATIVE
SERV-
ICES.—For purposes of this section, the term ‘health-re-
lated administrative services’ means—
‘‘(1) the processing of claims or performance of
other administrative services in connection with acci-
dent or health coverage under a taxable health in-
surance policy if the charge for such services is not
included in the premiums under such policy, and
‘‘(2) processing claims, arranging for provision
of accident or health coverage, or performing other
administrative services in connection with an appli-
cable self-insured health plan (as defined in section
4502(c)) established or maintained by a person
other than the person performing the services.
For purposes of paragraph (1), rules similar to the rules
of subsection (c)(3) shall apply.
‘‘SEC. 4502. SELF-INSURED HEALTH PLANS.
‘‘(a) IMPOSITION OF TAX.—In the case of any appli-
cable self-insured health plan, there is hereby imposed a
tax for each month equal to 1.5 percent of the sum of—
‘‘(1) the accident or health coverage expendi-
tures for such month under such plan, and
‘‘(2) the administrative expenditures for such
month under such plan to the extent such expendi-
tures are not subject to tax under section 4501.
In determining the amount of expenditures under para-
graph (2), rules similar to the rules of subsection (d)(3)
apply.
‘‘(b) LIABILITY FOR TAX.—
‘‘(1) IN GENERAL.—The tax imposed by sub-
section (a) shall be paid by the plan sponsor.
‘‘(2) PLAN SPONSOR.—For purposes of para-
graph (1), the term ‘plan sponsor’ means—
‘‘(A) the employer in the case of a plan es-
tablished or maintained by a single employer,
‘‘(B) the employee organization in the case
of a plan established or maintained by an em-
ployee organization, or
‘‘(C) in the case of—
‘‘(i) a plan established or maintained
by 2 or more employers or jointly by 1 or
more employers and 1 or more employee
organizations,
‘‘(ii) a voluntary employees’ bene-
ficiary association under section 501(c)(9),
or
‘‘(iii) any other association plan,
the association, committee, joint board of trust-
ees, or other similar group of representatives of
the parties who establish or maintain the plan.
‘‘(c) APPLICABLE SELF-INSURED HEALTH PLAN.—
For purposes of this section, the term ‘applicable self-in-
sured health plan’ means any plan for providing accident
or health coverage if any portion of such coverage is pro-
vided other than through an insurance policy.
‘‘(d) ACCIDENT OR HEALTH COVERAGE EXPENDI-
TURES.—For purposes of this section—
‘‘(1) IN GENERAL.—The accident or health cov-
erage expenditures of any applicable self-insured
health plan for any month are the aggregate expend-
itures paid in such month for accident or health cov-
erage provided under such plan to the extent such
expenditures are not subject to tax under section
4501.
‘‘(2) TREATMENT
OF
REIMBURSEMENTS.—In
determining accident or health coverage expenditures
during any month of any applicable self-insured
health plan, reimbursements (by insurance or other-
wise) received during such month shall be taken into
account as a reduction in accident or health coverage
expenditures.
‘‘(3) CERTAIN EXPENDITURES DISREGARDED.—
Paragraph (1) shall not apply to any expenditure for
the acquisition or improvement of land or for the ac-
quisition or improvement of any property to be used
in connection with the provision of accident or
health coverage which is subject to the allowance
under section 167, except that, for purposes of para-
graph (1), allowances under section 167 shall be
considered as expenditures.
‘‘SEC. 4503. TRANSFER TO ACCOUNTS.
‘‘For fiscal year 2003 and each subsequent fiscal
year, there are hereby appropriated and transferred to the
Medical Education Trust Fund under title XXII of the
Social Security Act amounts equivalent to taxes received
in the Treasury under sections 4501 and 4502, of which—
‘‘(1) there shall be allocated and transferred to
the Medical School Account of such Trust Fund an
amount which bears the same ratio to the total
amount available under section 2202(b)(1) of such
Act for the fiscal year (reduced by the balance in
such account at the end of the preceding fiscal year)
as the amount transferred to such Trust Fund
under this section bears to the total amounts trans-
ferred to such Trust Fund (excluding amounts
transferred under subsections (c)(3) and (d) of sec-
tion 2201 of such Act) for such fiscal year; and
‘‘(2) the remainder shall be allocated and trans-
ferred to the Non-Medicare Teaching Hospital Indi-
rect Account and the Non-Medicare Teaching Hos-
pital Direct Account of such Trust Fund, in the
same proportion as the amounts transferred to such
account under section 1886(m) of such Act relate to
the total amounts transferred under such section for
such fiscal year.
Such amounts shall be transferred in the same manner
as under section 9601.
‘‘SEC. 4504. DEFINITIONS AND SPECIAL RULES.
‘‘(a) 
DEFINITIONS.—For 
purposes 
of 
this
subchapter—
‘‘(1) ACCIDENT OR HEALTH COVERAGE.—The
term ‘accident or health coverage’ means any cov-
erage which, if provided by an insurance policy,
would cause such policy to be a taxable health insur-
ance policy (as defined in section 4501(c)).
‘‘(2) INSURANCE POLICY.—The term ‘insurance
policy’ means any policy or other instrument where-
by a contract of insurance is issued, renewed, or ex-
tended.
‘‘(3) PREMIUM.—The term ‘premium’ means
the gross amount of premiums and other consider-
ation (including advance premiums, deposits, fees,
and assessments) arising from policies issued by a
person acting as the primary insurer, adjusted for
any return or additional premiums paid as a result
of endorsements, cancellations, audits, or retrospec-
tive rating. Amounts returned where the amount is
not fixed in the contract but depends on the experi-
ence of the insurer or the discretion of management
shall not be included in return premiums.
‘‘(4) UNITED
STATES.—The term ‘United
States’ includes any possession of the United States.
‘‘(b) TREATMENT OF GOVERNMENTAL ENTITIES.—
‘‘(1) IN
GENERAL.—For purposes of this
subchapter—
‘‘(A) the term ‘person’ includes any gov-
ernmental entity, and
‘‘(B) notwithstanding any other law or rule
of law, governmental entities shall not be ex-
empt from the taxes imposed by this subchapter
except as provided in paragraph (2).
‘‘(2) EXEMPT GOVERNMENTAL PROGRAMS.—
‘‘(A) IN GENERAL.—In the case of an ex-
empt governmental program—
‘‘(i) no tax shall be imposed under
section 4501 on any premium received pur-
suant to such program or on any amount
received for health-related administrative
services pursuant to such program, and
‘‘(ii) no tax shall be imposed under
section 4502 on any expenditures pursuant
to such program.
‘‘(B) 
EXEMPT
GOVERNMENTAL
PRO-
GRAM.—For purposes of this paragraph, the
term ‘exempt governmental program’ means—
‘‘(i) the insurance programs estab-
lished by parts A and B of title XVIII of
the Social Security Act,
‘‘(ii) the medical assistance program
established by title XIX of the Social Secu-
rity Act,
‘‘(iii) any program established by Fed-
eral law for providing medical care (other
than through insurance policies) to individ-
uals (or the spouses and dependents there-
of) by reason of such individuals being—
‘‘(I) members of the Armed
Forces of the United States, or
‘‘(II) veterans, and
‘‘(iv) any program established by Fed-
eral law for providing medical care (other
than through insurance policies) to mem-
bers of Indian tribes (as defined in section
4(d) of the Indian Health Care Improve-
ment Act).
‘‘(c) NO COVER OVER TO POSSESSIONS.—Notwith-
standing any other provision of law, no amount collected
under this subchapter shall be covered over to any posses-
sion of the United States.’’.
(b) CLERICAL AMENDMENT.—The table of chapters
for subtitle D of the Internal Revenue Code of 1986 is
amended by inserting after the item relating to chapter
36 the following new item:
‘‘CHAPTER 37. Health related assessments.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to premiums received,
and expenses incurred, with respect to coverage for peri-
ods after September 30, 2002.
SEC. 6. MEDICAL EDUCATION ADVISORY COMMISSION.
(a) ESTABLISHMENT.—There is hereby established
an advisory commission to be known as the Medical Edu-
cation Advisory Commission (in this section referred to as
the ‘‘Advisory Commission’’).
(b) DUTIES.—
(1) IN
GENERAL.—The Advisory Commission
shall—
(A) conduct a thorough study of all mat-
ters relating to—
(i) the operation of the Medical Edu-
cation Trust Fund established under sec-
tion 2201 of the Social Security Act (as
added by section 2);
(ii) alternative and additional sources
of graduate medical education funding;
(iii) 
alternative 
methodologies 
for
compensating teaching hospitals for grad-
uate medical education;
(iv) policies designed to maintain su-
perior research and educational capacities
in an increasing competitive health system;
(v) the role of medical schools in grad-
uate medical education;
(vi) policies designed to expand eligi-
bility for graduate medical education pay-
ments to children’s hospitals that operate
graduate medical education programs; and
(vii) policies designed to expand eligi-
bility for graduate medical education pay-
ments to institutions other than teaching
hospitals;
(B) develop recommendations, including
the use of demonstration projects, on the mat-
ters studied under subparagraph (A) in con-
sultation with the Secretary of Health and
Human Services and the entities described in
paragraph (2);
(C) not later than January 2004, submit
an interim report to the Committee on Finance
of the Senate, the Committee on Ways and
Means of the House of Representatives, and the
Secretary of Health and Human Services; and
(D) not later than January 2006, submit
a final report to the Committee on Finance of
the Senate, the Committee on Ways and Means
of the House of Representatives, and the Sec-
retary of Health and Human Services.
(2) ENTITIES
DESCRIBED.—The entities de-
scribed in this paragraph are—
(A) other advisory groups, including the
Council on Graduate Medical Education and
the Medicare Payment Advisory Commission;
(B) interested parties, including the Asso-
ciation of American Medical Colleges, the Asso-
ciation of Academic Health Centers, and the
American Medical Association;
(C) health care insurers, including man-
aged care entities; and
(D) other entities as determined by the
Secretary of Health and Human Services.
(c) NUMBER AND APPOINTMENT.—The membership
of the Advisory Commission shall include 9 individuals
who are appointed to the Advisory Commission from
among individuals who are not officers or employees of
the United States. Such individuals shall be appointed by
the Secretary of Health and Human Services, and shall
include individuals from each of the following categories:
(1) Physicians who are faculty members of
medical schools.
(2) Officers or employees of teaching hospitals.
(3) Officers or employees of health plans.
(4) Deans of medical schools.
(5) Such other individuals as the Secretary de-
termines to be appropriate.
(d) TERMS.—
(1) IN GENERAL.—Except as provided in para-
graph (2), members of the Advisory Commission
shall serve for the lesser of the life of the Advisory
Commission, or 4 years.
(2) SERVICE BEYOND TERM.—A member of the
Advisory Commission may continue to serve after
the expiration of the term of the member until a
successor is appointed.
(e) VACANCIES.—If a member of the Advisory Com-
mission does not serve the full term applicable under sub-
section (d), the individual appointed to fill the resulting
vacancy shall be appointed for the remainder of the term
of the predecessor of the individual.
(f) CHAIR.—The Secretary of Health and Human
Services shall designate an individual to serve as the Chair
of the Advisory Commission.
(g) MEETINGS.—The Advisory Commission shall
meet not less than once during each 4-month period and
shall otherwise meet at the call of the Secretary of Health
and Human Services or the Chair.
(h) COMPENSATION AND REIMBURSEMENT OF EX-
PENSES.—Members of the Advisory Commission shall re-
ceive compensation for each day (including travel time) en-
gaged in carrying out the duties of the Advisory Commis-
sion. Such compensation may not be in an amount in ex-
cess of the maximum rate of basic pay payable for level
IV of the Executive Schedule under section 5315 of title
5, United States Code.
(i) STAFF.—
(1) STAFF DIRECTOR.—The Advisory Commis-
sion shall, without regard to the provisions of title
5, United States Code, relating to competitive serv-
ice, appoint a Staff Director who shall be paid at a
rate equivalent to a rate established for the Senior
Executive Service under 5382 of title 5, United
States Code.
(2) ADDITIONAL
STAFF.—The Secretary of
Health and Human Services shall provide to the Ad-
visory Commission such additional staff, informa-
tion, and other assistance as may be necessary to
carry out the duties of the Advisory Commission.
(j) TERMINATION OF THE ADVISORY COMMISSION.—
The Advisory Commission shall terminate 90 days after
the date on which the Advisory Commission submits its
final report under subsection (b)(1)(D).
(k) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated such sums as may be
necessary to carry out the purposes of this section.
SEC. 7. DEMONSTRATION PROJECTS.
(a) ESTABLISHMENT.—The Secretary of Health and
Human Services (in this section referred to as the ‘‘Sec-
retary’’) shall establish, by regulation, guidelines for the
establishment and operation of demonstration projects
which the Medical Education Advisory Commission rec-
ommends under section 6(b)(1)(B).
(b) FUNDING.—
(1) IN GENERAL.—For any fiscal year after fis-
cal year 2002, amounts in the Medical Education
Trust Fund under title XXII of the Social Security
Act shall be available for use by the Secretary in the
establishment 
and 
operation 
of 
demonstration
projects described in subsection (a).
(2) FUNDS AVAILABLE.—
(A) LIMITATION.—Not more than 1⁄10 of 1
percent of the funds in such Trust Fund shall
be available for the purposes of paragraph (1).
(B) ALLOCATION.—Amounts under para-
graph (1) shall be paid from the accounts es-
tablished under paragraphs (2) through (5) of
section 2201(a) of the Social Security Act, in
the same proportion as the amounts transferred
to such accounts bears to the total of amounts
transferred to all 4 such accounts for such fis-
cal year.
(c) LIMITATION.—Nothing in this section shall be
construed to authorize any change in the payment method-
ology for teaching hospitals and medical schools estab-
lished by the amendments made by this Act.
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