II
106TH CONGRESS
1ST SESSION
H. R. 2990
IN THE SENATE OF THE UNITED STATES
OCTOBER 14, 1999
Recieved
AN ACT
To amend the Internal Revenue Code of 1986 to allow indi-
viduals greater access to health insurance through a
health care tax deduction, a long-term care deduction,
and other health-related tax incentives, to amend the
Employee Retirement Income Security Act of 1974 to
provide access to and choice in health care through asso-
ciation health plans, to amend the Public Health Service
HR 2990 RDS
Act to create new pooling opportunities for small employ-
ers to obtain greater access to health coverage through
HealthMarts; to amend title I of the Employee Retire-
ment Income Security Act of 1974, title XXVII of the
Public Health Service Act, and the Internal Revenue
Code of 1986 to protect consumers in managed care
plans and other health coverage; 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. ORGANIZATION OF ACT INTO DIVISIONS; TABLE
OF CONTENTS.
(a) DIVISIONS.—This Act is organized into 2 divi-
sions as follows:
(1) Division A—Quality Care for the Uninsured
Act of 1999.
(2) Division B—Bipartisan Consensus Managed
Care Improvement Act of 1999.
(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Organization of Act into divisions; table of contents.
DIVISION A—QUALITY CARE FOR THE UNINSURED ACT
OF 1999
TITLE I—GENERAL PROVISIONS
Sec. 101. Short title of division; table of contents of division.
Sec. 102. Constitutional authority to enact this division.
Sec. 103. Purposes of division.
Sec. 104. Findings relating to health care choice.
TITLE II—TAX-RELATED HEALTH CARE PROVISIONS
Sec. 201. Deduction for health and long-term care insurance costs of individ-
uals not participating in employer-subsidized health plans.
Sec. 202. Deduction for 100 percent of health insurance costs of self-employed
individuals.
HR 2990 RDS
Sec. 203. Expansion of availability of medical savings accounts.
Sec. 204. Long-term care insurance permitted to be offered under cafeteria
plans and flexible spending arrangements.
Sec. 205. Additional personal exemption for taxpayer caring for elderly family
member in taxpayer’s home.
Sec. 206. Expanded human clinical trials qualifying for orphan drug credit.
Sec. 207. Inclusion of certain vaccines against streptococcus pneumoniae to list
of taxable vaccines; reduction in per dose tax rate.
Sec. 208. Credit for clinical testing research expenses attributable to certain
qualified academic institutions including teaching hospitals.
TITLE III—GREATER ACCESS AND CHOICE THROUGH
ASSOCIATION HEALTH PLANS
Sec. 301. Rules.
Sec. 302. Clarification of treatment of single employer arrangements.
Sec. 303. Clarification of treatment of certain collectively bargained arrange-
ments.
Sec. 304. Enforcement provisions.
Sec. 305. Cooperation between Federal and State authorities.
Sec. 306. Effective date and transitional and other rules.
TITLE IV—GREATER ACCESS AND CHOICE THROUGH
HEALTHMARTS
Sec. 401. Expansion of consumer choice through HealthMarts.
TITLE V—COMMUNITY HEALTH ORGANIZATIONS
Sec. 501. Promotion of provision of insurance by community health organiza-
tions.
DIVISION B—BIPARTISAN CONSENSUS MANAGED CARE
IMPROVEMENT ACT OF 1999
Sec. 1001. Short title of division; table of contents of division.
TITLE XI—IMPROVING MANAGED CARE
Subtitle A—Grievances and Appeals
Sec. 1101. Utilization review activities.
Sec. 1102. Internal appeals procedures.
Sec. 1103. External appeals procedures.
Sec. 1104. Establishment of a grievance process.
Subtitle B—Access to Care
Sec. 1111. Consumer choice option.
Sec. 1112. Choice of health care professional.
Sec. 1113. Access to emergency care.
Sec. 1114. Access to specialty care.
Sec. 1115. Access to obstetrical and gynecological care.
Sec. 1116. Access to pediatric care.
Sec. 1117. Continuity of care.
Sec. 1118. Access to needed prescription drugs.
Sec. 1119. Coverage for individuals participating in approved clinical trials.
HR 2990 RDS
DIVISION A—QUALITY CARE FOR
THE UNINSURED ACT OF 1999
TITLE I—GENERAL PROVISIONS
SEC. 101. SHORT TITLE OF DIVISION; TABLE OF CONTENTS
OF DIVISION.
(a) SHORT TITLE OF DIVISION.—This division may
be cited as the ‘‘Quality Care for the Uninsured Act of
1999’’.
(b) TABLE OF CONTENTS OF DIVISION.—The table
of contents of this division is as follows:
TITLE I—GENERAL PROVISIONS
Sec. 101. Short title of division; table of contents of division.
Sec. 102. Constitutional authority to enact this division.
Sec. 103. Purposes of division.
Sec. 104. Findings relating to health care choice.
TITLE II—TAX-RELATED HEALTH CARE PROVISIONS
Sec. 201. Deduction for health and long-term care insurance costs of individ-
uals not participating in employer-subsidized health plans.
Sec. 202. Deduction for 100 percent of health insurance costs of self-employed
individuals.
Sec. 203. Expansion of availability of medical savings accounts.
Sec. 204. Long-term care insurance permitted to be offered under cafeteria
plans and flexible spending arrangements.
Sec. 205. Additional personal exemption for taxpayer caring for elderly family
member in taxpayer’s home.
Sec. 206. Expanded human clinical trials qualifying for orphan drug credit.
Sec. 207. Inclusion of certain vaccines against streptococcus pneumoniae to list
of taxable vaccines; reduction in per dose tax rate.
Sec. 208. Credit for clinical testing research expenses attributable to certain
qualified academic institutions including teaching hospitals.
TITLE III—GREATER ACCESS AND CHOICE THROUGH
ASSOCIATION HEALTH PLANS
Sec. 301. Rules.
‘‘PART 8—RULES GOVERNING ASSOCIATION HEALTH PLANS
‘‘Sec. 801. Association health plans.
‘‘Sec. 802. Certification of association health plans.
‘‘Sec. 803. Requirements relating to sponsors and boards of trustees.
HR 2990 RDS
‘‘Sec. 804. Participation and coverage requirements.
‘‘Sec. 805. Other requirements relating to plan documents, contribution
rates, and benefit options.
‘‘Sec. 806. Maintenance of reserves and provisions for solvency for plans
providing health benefits in addition to health insurance
coverage.
‘‘Sec. 807. Requirements for application and related requirements.
‘‘Sec. 808. Notice requirements for voluntary termination.
‘‘Sec. 809. Corrective actions and mandatory termination.
‘‘Sec. 810. Trusteeship by the Secretary of insolvent association health
plans providing health benefits in addition to health insur-
ance coverage.
‘‘Sec. 811. State assessment authority.
‘‘Sec. 812. Special rules for church plans.
‘‘Sec. 813. Definitions and rules of construction.
Sec. 302. Clarification of treatment of single employer arrangements.
Sec. 303. Clarification of treatment of certain collectively bargained arrange-
ments.
Sec. 304. Enforcement provisions.
Sec. 305. Cooperation between Federal and State authorities.
Sec. 306. Effective date and transitional and other rules.
TITLE IV—GREATER ACCESS AND CHOICE THROUGH
HEALTHMARTS
Sec. 401. Expansion of consumer choice through HealthMarts.
‘‘TITLE XXVIII—HEALTHMARTS
‘‘Sec. 2801. Definition of HealthMart.
‘‘Sec. 2802. Application of certain laws and requirements.
‘‘Sec. 2803. Administration.
‘‘Sec. 2804. Definitions.
TITLE V—COMMUNITY HEALTH ORGANIZATIONS
Sec. 501. Promotion of provision of insurance by community health organiza-
tions.
SEC. 102. CONSTITUTIONAL AUTHORITY TO ENACT THIS DI-
VISION.
The constitutional authority upon which this division
rests is the power of the Congress to regulate commerce
with foreign nations and among the several States, set
forth in article I, section 8 of the United States Constitu-
tion.
HR 2990 RDS
SEC. 103. PURPOSES OF DIVISION.
The purposes of this division are—
(1) to make it possible for individuals, employ-
ees, and the self-employed to purchase and own their
own health insurance without suffering any negative
tax consequences;
(2) to assist individuals in obtaining and in
paying for basic health care services;
(3) to render patients and deliverers sensitive to
the cost of health care, giving them both the incen-
tive and the ability to restrain undesired increases in
health care costs;
(4) to foster the development of numerous, var-
ied, and innovative systems of providing health care
which will compete against each other in terms of
price, service, and quality, and thus allow the Amer-
ican people to benefit from competitive forces which
will reward efficient and effective deliverers and
eliminate those which provide unsatisfactory quality
of care or are inefficient; and
(5) to encourage the development of systems of
delivering health care which are capable of supplying
a broad range of health care services in a com-
prehensive and systematic manner.
HR 2990 RDS
SEC. 104. FINDINGS RELATING TO HEALTH CARE CHOICE.
(a) Congress finds that the majority of Americans are
receiving health care of a quality unmatched elsewhere in
the world but that 43 million Americans remain without
private health insurance. Congress further finds that small
business faces significant challenges in the purchase of
health insurance, including higher costs and lack of choice
of coverage. Congress further finds that such challenges
lead to fewer Americans who are able to take advantage
of private health insurance, leading to higher cost and
lower quality care.
(b) Congress finds that reduction of the number of
uninsured Americans is an important public policy goal.
Congress further finds that the use of alternative pooling
mechanisms 
such 
as 
Association 
Health 
Plans,
HealthMarts and other innovative means could provide
significant opportunities for small business and individuals
to purchase health insurance. Congress further finds that
the use of such mechanisms could provide significant op-
portunities to expand private health coverage for individ-
uals who are employees of small business, self-employed,
or do not work for employers who provide health insur-
ance.
(c) Congress finds that the current Tax Code pro-
vides significant incentives for employers to provide health
insurance coverage for their employees by providing a de-
HR 2990 RDS
duction for the employer for the cost of health insurance
coverage and an exclusion from income for the employee
for employer-provided health care. Congress further finds
that some individuals may prefer to decline coverage under
their employer’s group health plan and obtain individual
health insurance coverage, and some employers may wish
to give employees the opportunity to do so. Congress fur-
ther finds that the Internal Revenue Service has ruled that
this tax treatment for the employer and employee for em-
ployer-provided health care applies even if the employer
pays for individual health insurance polices for its employ-
ees. Therefore, the Tax Code makes it possible for employ-
ers to provide employees choice among health insurance
coverage while retaining favorable tax treatment. Congress
further finds that the present-law exclusion for employer-
provided health care, together with the tax provisions in
the bill, will provide more equitable tax treatment for
health insurance expenses, encourage uninsured individ-
uals to purchase insurance, expand health care options,
and encourage individuals to better manage their health
care needs and expenses.
(d) Congress finds that continually increasing and
complex Government regulation of the health care delivery
system has proven ineffective in restraining costs and is
HR 2990 RDS
itself expensive and counterproductive in fulfilling its pur-
poses and detrimental to the care of patients.
TITLE II—TAX-RELATED HEALTH
CARE PROVISIONS
SEC. 201. DEDUCTION FOR HEALTH AND LONG-TERM CARE
INSURANCE COSTS OF INDIVIDUALS NOT
PARTICIPATING IN EMPLOYER-SUBSIDIZED
HEALTH PLANS.
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 is amended
by redesignating section 222 as section 223 and by insert-
ing after section 221 the following new section:
‘‘SEC. 222. HEALTH AND LONG-TERM CARE INSURANCE
COSTS.
‘‘(a) IN GENERAL.—In the case of an individual,
there shall be allowed as a deduction an amount equal to
the applicable percentage of the amount paid during the
taxable year for insurance which constitutes medical care
for the taxpayer and the taxpayer’s spouse and depend-
ents.
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of
subsection (a), the applicable percentage shall be deter-
mined in accordance with the following table:
HR 2990 RDS
‘‘(C) AGGREGATION
OF
PLANS
OF
EM-
PLOYER.—A health plan which is not otherwise
described in subparagraph (A) shall be treated
as described in such subparagraph if such plan
would be so described if all health plans of per-
sons treated as a single employer under sub-
section (b), (c), (m), or (o) of section 414 were
treated as one health plan.
‘‘(D) SEPARATE APPLICATION TO HEALTH
INSURANCE
AND
LONG-TERM
CARE
INSUR-
ANCE.—Subparagraphs (A) and (C) shall be
applied separately with respect to—
‘‘(i) plans which include primarily cov-
erage for qualified long-term care services
or are qualified long-term care insurance
contracts, and
‘‘(ii) plans which do not include such
coverage and are not such contracts.
‘‘(2) COVERAGE
UNDER
CERTAIN
FEDERAL
PROGRAMS.—
‘‘(A) IN
GENERAL.—Subsection (a) shall
not apply to any amount paid for any coverage
for an individual for any calendar month if, as
of the first day of such month, the individual is
HR 2990 RDS
covered under any medical care program de-
scribed in—
‘‘(i) title XVIII, XIX, or XXI of the
Social Security Act,
‘‘(ii) chapter 55 of title 10, United
States Code,
‘‘(iii) chapter 17 of title 38, United
States Code,
‘‘(iv) chapter 89 of title 5, United
States Code, or
‘‘(v) the Indian Health Care Improve-
ment Act.
‘‘(B) EXCEPTIONS.—
‘‘(i) QUALIFIED LONG-TERM CARE.—
Subparagraph (A) shall not apply to
amounts paid for coverage under a quali-
fied long-term care insurance contract.
‘‘(ii) CONTINUATION
COVERAGE
OF
FEHBP.—Subparagraph (A)(iv) shall not
apply to coverage which is comparable to
continuation 
coverage 
under 
section
4980B.
‘‘(d) LONG-TERM CARE DEDUCTION LIMITED
TO
QUALIFIED
LONG-TERM
CARE
INSURANCE
CON-
TRACTS.—In the case of a qualified long-term care insur-
HR 2990 RDS
ance contract, only eligible long-term care premiums (as
defined in section 213(d)(10)) may be taken into account
under subsection (a).
‘‘(e) DEDUCTION NOT AVAILABLE FOR PAYMENT OF
ANCILLARY COVERAGE PREMIUMS.—Any amount paid as
a premium for insurance which provides for—
‘‘(1) coverage for accidents, disability, dental
care, vision care, or a specified illness, or
‘‘(2) making payments of a fixed amount per
day (or other period) by reason of being hospitalized,
shall not be taken into account under subsection (a).
‘‘(f) SPECIAL RULES.—
‘‘(1) COORDINATION
WITH
DEDUCTION
FOR
HEALTH INSURANCE COSTS OF SELF-EMPLOYED IN-
DIVIDUALS.—The amount taken into account by the
taxpayer in computing the deduction under section
162(l) shall not be taken into account under this
section.
‘‘(2) COORDINATION WITH MEDICAL EXPENSE
DEDUCTION.—The amount taken into account by
the taxpayer in computing the deduction under this
section shall not be taken into account under section
213.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out this
HR 2990 RDS
section, including regulations requiring employers to re-
port to their employees and the Secretary such informa-
tion as the Secretary determines to be appropriate.’’.
(b) DEDUCTION ALLOWED WHETHER OR NOT TAX-
PAYER ITEMIZES OTHER DEDUCTIONS.—Subsection (a)
of section 62 of such Code is amended by inserting after
paragraph (17) the following new item:
‘‘(18) HEALTH AND LONG-TERM CARE INSUR-
ANCE
COSTS.—The deduction allowed by section
222.’’.
(c) CLERICAL AMENDMENT.—The table of sections
for part VII of subchapter B of chapter 1 of such Code
is amended by striking the last item and inserting the fol-
lowing new items:
‘‘Sec. 222. Health and long-term care insurance costs.
‘‘Sec. 223. Cross reference.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 202. DEDUCTION FOR 100 PERCENT OF HEALTH IN-
SURANCE COSTS OF SELF-EMPLOYED INDI-
VIDUALS.
(a) IN GENERAL.—Paragraph (1) of section 162(l)
of the Internal Revenue Code of 1986 is amended to read
as follows:
HR 2990 RDS
‘‘(1) ALLOWANCE OF DEDUCTION.—In the case
of an individual who is an employee within the
meaning of section 401(c)(1), there shall be allowed
as a deduction under this section an amount equal
to 100 percent of the amount paid during the tax-
able year for insurance which constitutes medical
care for the taxpayer and the taxpayer’s spouse and
dependents.’’.
(b) CLARIFICATION OF LIMITATIONS ON OTHER COV-
ERAGE.—The first sentence of section 162(l)(2)(B) of
such Code is amended to read as follows: ‘‘Paragraph (1)
shall not apply to any taxpayer for any calendar month
for which the taxpayer participates in any subsidized
health plan maintained by any employer (other than an
employer described in section 401(c)(4)) of the taxpayer
or the spouse of the taxpayer.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 203. EXPANSION OF AVAILABILITY OF MEDICAL SAV-
INGS ACCOUNTS.
(a) REPEAL OF LIMITATIONS ON NUMBER OF MED-
ICAL SAVINGS ACCOUNTS.—
HR 2990 RDS
(1) IN GENERAL.—Subsections (i) and (j) of
section 220 of the Internal Revenue Code of 1986
are hereby repealed.
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (1) of section 220(c) of
such Code is amended by striking subparagraph
(D).
(B) Section 138 of such Code is amended
by striking subsection (f).
(b) AVAILABILITY NOT LIMITED TO ACCOUNTS FOR
EMPLOYEES
OF
SMALL
EMPLOYERS
AND
SELF-EM-
PLOYED INDIVIDUALS.—
(1) IN GENERAL.—Section 220(c)(1)(A) of such
Code (relating to eligible individual) is amended to
read as follows:
‘‘(A) IN GENERAL.—The term ‘eligible in-
dividual’ means, with respect to any month, any
individual if—
‘‘(i) such individual is covered under a
high deductible health plan as of the 1st
day of such month, and
‘‘(ii) such individual is not, while cov-
ered under a high deductible health plan,
covered under any health plan—
HR 2990 RDS
‘‘(I) which is not a high deduct-
ible health plan, and
‘‘(II) which provides coverage for
any benefit which is covered under the
high deductible health plan.’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 220(c)(1) of such Code is
amended by striking subparagraph (C).
(B) Section 220(c) of such Code is amend-
ed by striking paragraph (4) (defining small
employer) and by redesignating paragraph (5)
as paragraph (4).
(C) Section 220(b) of such Code is amend-
ed by striking paragraph (4) (relating to deduc-
tion limited by compensation) and by redesig-
nating paragraphs (5), (6), and (7) as para-
graphs (4), (5), and (6), respectively.
(c) INCREASE IN AMOUNT OF DEDUCTION ALLOWED
FOR CONTRIBUTIONS TO MEDICAL SAVINGS ACCOUNTS.—
(1) IN
GENERAL.—Paragraph (2) of section
220(b) of such Code is amended to read as follows:
‘‘(2) MONTHLY LIMITATION.—The monthly lim-
itation for any month is the amount equal to 1⁄12 of
the annual deductible (as of the first day of such
HR 2990 RDS
month) of the individual’s coverage under the high
deductible health plan.’’.
(2) CONFORMING AMENDMENT.—Clause (ii) of
section 220(d)(1)(A) of such Code is amended by
striking ‘‘75 percent of’’.
(d) BOTH EMPLOYERS AND EMPLOYEES MAY CON-
TRIBUTE TO MEDICAL SAVINGS ACCOUNTS.—Paragraph
(4) of section 220(b) of such Code (as redesignated by
subsection (b)(2)(C)) is amended to read as follows:
‘‘(4) COORDINATION WITH EXCLUSION FOR EM-
PLOYER
CONTRIBUTIONS.—The limitation which
would (but for this paragraph) apply under this sub-
section to the taxpayer for any taxable year shall be
reduced (but not below zero) by the amount which
would (but for section 106(b)) be includible in the
taxpayer’s gross income for such taxable year.’’.
(e) REDUCTION
OF
PERMITTED
DEDUCTIBLES
UNDER HIGH DEDUCTIBLE HEALTH PLANS.—
(1) IN GENERAL.—Subparagraph (A) of section
220(c)(2) of such Code (defining high deductible
health plan) is amended—
(A) by striking ‘‘$1,500’’ in clause (i) and
inserting ‘‘$1,000’’; and
(B) by striking ‘‘$3,000’’ in clause (ii) and
inserting ‘‘$2,000’’.
HR 2990 RDS
(2) CONFORMING AMENDMENT.—Subsection (g)
of section 220 of such Code is amended to read as
follows:
‘‘(g) COST-OF-LIVING ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning in a calendar year after 1998, each
dollar amount in subsection (c)(2) shall be increased
by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which such taxable year begins by sub-
stituting ‘calendar year 1997’ for ‘calendar year
1992’ in subparagraph (B) thereof.
‘‘(2) SPECIAL
RULES.—In the case of the
$1,000 amount in subsection (c)(2)(A)(i) and the
$2,000 amount in subsection (c)(2)(A)(ii), para-
graph (1)(B) shall be applied by substituting ‘cal-
endar year 1999’ for ‘calendar year 1997’.
‘‘(3) ROUNDING.—If any increase under para-
graph (1) or (2) is not a multiple of $50, such in-
crease shall be rounded to the nearest multiple of
$50.’’.
HR 2990 RDS
(f) MEDICAL SAVINGS ACCOUNTS MAY BE OFFERED
UNDER CAFETERIA PLANS.—Subsection (f) of section
125 of such Code is amended by striking ‘‘106(b),’’.
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 204. LONG-TERM CARE INSURANCE PERMITTED TO BE
OFFERED UNDER CAFETERIA PLANS AND
FLEXIBLE SPENDING ARRANGEMENTS.
(a) CAFETERIA PLANS.—
(1) IN
GENERAL.—Subsection (f ) of section
125 of the Internal Revenue Code of 1986 (defining
qualified benefits) is amended by inserting before
the period at the end ‘‘; except that such term shall
include the payment of premiums for any qualified
long-term care insurance contract (as defined in sec-
tion 7702B) to the extent the amount of such pay-
ment does not exceed the eligible long-term care pre-
miums (as defined in section 213(d)(10)) for such
contract’’.
(b) FLEXIBLE SPENDING ARRANGEMENTS.—Section
106 of such Code (relating to contributions by employer
to accident and health plans) is amended by striking sub-
section (c).
HR 2990 RDS
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 205. ADDITIONAL PERSONAL EXEMPTION FOR TAX-
PAYER CARING FOR ELDERLY FAMILY MEM-
BER IN TAXPAYER’S HOME.
(a) IN GENERAL.—Section 151 of the Internal Rev-
enue Code of 1986 (relating to allowance of deductions
for personal exemptions) is amended by redesignating sub-
section (e) as subsection (f ) and by inserting after sub-
section (d) the following new subsection:
‘‘(e) ADDITIONAL EXEMPTION FOR CERTAIN ELDER-
LY FAMILY MEMBERS RESIDING WITH TAXPAYER.—
‘‘(1) IN GENERAL.—An exemption of the ex-
emption amount for each qualified family member of
the taxpayer.
‘‘(2) QUALIFIED FAMILY MEMBER.—For pur-
poses of this subsection, the term ‘qualified family
member’ means, with respect to any taxable year,
any individual—
‘‘(A) who is an ancestor of the taxpayer or
of the taxpayer’s spouse or who is the spouse
of any such ancestor,
HR 2990 RDS
‘‘(B) who is a member for the entire tax-
able year of a household maintained by the tax-
payer, and
‘‘(C) who has been certified, before the due
date for filing the return of tax for the taxable
year (without extensions), by a physician (as
defined in section 1861(r)(1) of the Social Se-
curity Act) as being an individual with long-
term care needs described in paragraph (3) for
a period—
‘‘(i) which is at least 180 consecutive
days, and
‘‘(ii) a portion of which occurs within
the taxable year.
Such term shall not include any individual otherwise
meeting the requirements of the preceding sentence
unless within the 391⁄2 month period ending on such
due date (or such other period as the Secretary pre-
scribes) a physician (as so defined) has certified that
such individual meets such requirements.
‘‘(3) INDIVIDUALS
WITH
LONG-TERM
CARE
NEEDS.—An individual is described in this para-
graph if the individual—
‘‘(A) is unable to perform (without sub-
stantial assistance from another individual) at
HR 2990 RDS
least two activities of daily living (as defined in
section 7702B(c)(2)(B)) due to a loss of func-
tional capacity, or
‘‘(B) requires substantial supervision to
protect such individual from threats to health
and safety due to severe cognitive impairment
and is unable to perform, without reminding or
cuing assistance, at least one activity of daily
living (as so defined) or to the extent provided
in regulations prescribed by the Secretary (in
consultation with the Secretary of Health and
Human Services), is unable to engage in age
appropriate activities.
‘‘(4) SPECIAL
RULES.—Rules similar to the
rules of paragraphs (1), (2), (3), (4), and (5) of sec-
tion 21(e) shall apply for purposes of this sub-
section.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 206. EXPANDED HUMAN CLINICAL TRIALS QUALI-
FYING FOR ORPHAN DRUG CREDIT.
(a) 
IN
GENERAL.—Subclause 
(I) 
of 
section
45C(b)(2)(A)(ii) of the Internal Revenue Code of 1986 is
amended to read as follows:
HR 2990 RDS
‘‘(I) after the date that the appli-
cation is filed for designation under
such section 526, and’’.
(b) CONFORMING AMENDMENT.—Clause (i) of sec-
tion 45C(b)(2)(A) of such Code is amended by inserting
‘‘which is’’ before ‘‘being’’ and by inserting before the
comma at the end ‘‘and which is designated under section
526 of such Act’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts paid or incurred after
December 31, 2000.
SEC. 207. INCLUSION OF CERTAIN VACCINES AGAINST
STREPTOCOCCUS PNEUMONIAE TO LIST OF
TAXABLE VACCINES; REDUCTION IN PER
DOSE TAX RATE.
(a) INCLUSION OF VACCINES.—
(1) IN GENERAL.—Section 4132(a)(1) of the
Internal Revenue Code of 1986 (defining taxable
vaccine) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(L) Any conjugate vaccine against strep-
tococcus pneumoniae.’’.
(2) EFFECTIVE DATE.—
(A) SALES.—The amendment made by this
subsection shall apply to vaccine sales beginning
HR 2990 RDS
on the day after the date on which the Centers
for Disease Control makes a final recommenda-
tion for routine administration to children of
any conjugate vaccine against streptococcus
pneumoniae, but shall not take effect if sub-
section (c) does not take effect.
(B) DELIVERIES.—For purposes of sub-
paragraph (A), in the case of sales on or before
the date described in such subparagraph for
which delivery is made after such date, the de-
livery date shall be considered the sale date.
(b) REDUCTION IN PER DOSE TAX RATE.—
(1) IN GENERAL.—Section 4131(b)(1) of such
Code (relating to amount of tax) is amended by
striking ‘‘75 cents’’ and inserting ‘‘50 cents’’.
(2) EFFECTIVE DATE.—
(A) SALES.—The amendment made by this
subsection shall apply to vaccine sales after De-
cember 31, 2004, but shall not take effect if
subsection (c) does not take effect.
(B) DELIVERIES.—For purposes of sub-
paragraph (A), in the case of sales on or before
the date described in such subparagraph for
which delivery is made after such date, the de-
livery date shall be considered the sale date.
HR 2990 RDS
(3) LIMITATION ON CERTAIN CREDITS OR RE-
FUNDS.—For purposes of applying section 4132(b)
of the Internal Revenue Code of 1986 with respect
to any claim for credit or refund filed after August
31, 2004, the amount of tax taken into account shall
not exceed the tax computed under the rate in effect
on January 1, 2005.
(c) VACCINE
TAX
AND
TRUST
FUND
AMEND-
MENTS.—
(1) Sections 1503 and 1504 of the Vaccine In-
jury Compensation Program Modification Act (and
the amendments made by such sections) are hereby
repealed.
(2) Subparagraph (A) of section 9510(c)(1) of
such Code is amended by striking ‘‘August 5, 1997’’
and inserting ‘‘October 21, 1998’’.
(3) The amendments made by this subsection
shall take effect as if included in the provisions of
the Tax and Trade Relief Extension Act of 1998 to
which they relate.
(d) REPORT.—Not later than December 31, 1999,
the Comptroller General of the United States shall prepare
and submit a report to the Committee on Ways and Means
of the House of Representatives and the Committee on
Finance of the Senate on the operation of the Vaccine In-
HR 2990 RDS
jury Compensation Trust Fund and on the adequacy of
such Fund to meet future claims made under the Vaccine
Injury Compensation Program.
SEC. 208. CREDIT FOR CLINICAL TESTING RESEARCH EX-
PENSES ATTRIBUTABLE TO CERTAIN QUALI-
FIED ACADEMIC INSTITUTIONS INCLUDING
TEACHING HOSPITALS.
(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
inserting after section 41 the following:
‘‘SEC. 41A. CREDIT FOR MEDICAL INNOVATION EXPENSES.
‘‘(a) GENERAL RULE.—For purposes of section 38,
the medical innovation credit determined under this sec-
tion for the taxable year shall be an amount equal to 40
percent of the excess (if any) of—
‘‘(1) the qualified medical innovation expenses
for the taxable year, over
‘‘(2) the medical innovation base period
amount.
‘‘(b) 
QUALIFIED
MEDICAL
INNOVATION
EX-
PENSES.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified medical
innovation expenses’ means the amounts which are
paid or incurred by the taxpayer during the taxable
HR 2990 RDS
year directly or indirectly to any qualified academic
institution for clinical testing research activities.
‘‘(2) CLINICAL
TESTING
RESEARCH
ACTIVI-
TIES.—
‘‘(A) IN
GENERAL.—The term ‘clinical
testing research activities’ means human clinical
testing conducted at any qualified academic in-
stitution in the development of any product,
which occurs before—
‘‘(i) the date on which an application
with respect to such product is approved
under section 505(b), 506, or 507 of the
Federal Food, Drug, and Cosmetic Act (as
in effect on the date of the enactment of
this section),
‘‘(ii) the date on which a license for
such product is issued under section 351 of
the Public Health Service Act (as so in ef-
fect), or
‘‘(iii) the date classification or ap-
proval of such product which is a device in-
tended for human use is given under sec-
tion 513, 514, or 515 of the Federal Food,
Drug, and Cosmetic Act (as so in effect).
HR 2990 RDS
‘‘(B) 
PRODUCT.—The 
term 
‘product’
means any drug, biologic, or medical device.
‘‘(3) QUALIFIED ACADEMIC INSTITUTION.—The
term ‘qualified academic institution’ means any of
the following institutions:
‘‘(A) 
EDUCATIONAL
INSTITUTION.—A
qualified organization described in section
170(b)(1)(A)(iii) which is owned by, or affili-
ated with, an institution of higher education (as
defined in section 3304(f )).
‘‘(B) TEACHING
HOSPITAL.—A teaching
hospital which—
‘‘(i) is publicly supported or owned by
an 
organization 
described 
in 
section
501(c)(3), and
‘‘(ii) is affiliated with an organization
meeting the requirements of subparagraph
(A).
‘‘(C) FOUNDATION.—A medical research
organization described in section 501(c)(3)
(other than a private foundation) which is affili-
ated with, or owned by—
‘‘(i) an organization meeting the re-
quirements of subparagraph (A), or
HR 2990 RDS
‘‘(ii) a teaching hospital meeting the
requirements of subparagraph (B).
‘‘(D) 
CHARITABLE
RESEARCH
HOS-
PITAL.—A hospital that is designated as a can-
cer center by the National Cancer Institute.
‘‘(4) EXCLUSION
FOR
AMOUNTS
FUNDED
BY
GRANTS, ETC.—The term ‘qualified medical innova-
tion expenses’ shall not include any amount to the
extent such amount is funded by any grant, con-
tract, or otherwise by another person (or any gov-
ernmental entity).
‘‘(c) 
MEDICAL
INNOVATION
BASE
PERIOD
AMOUNT.—For purposes of this section, the term ‘medical
innovation base period amount’ means the average annual
qualified medical innovation expenses paid by the taxpayer
during the 3-taxable year period ending with the taxable
year immediately preceding the first taxable year of the
taxpayer beginning after December 31, 2000.
‘‘(d) SPECIAL RULES.—
‘‘(1) LIMITATION ON FOREIGN TESTING.—No
credit shall be allowed under this section with re-
spect to any clinical testing research activities con-
ducted outside the United States.
HR 2990 RDS
‘‘(2) CERTAIN
RULES
MADE
APPLICABLE.—
Rules similar to the rules of subsections (f ) and (g)
of section 41 shall apply for purposes of this section.
‘‘(3) ELECTION.—This section shall apply to
any taxpayer for any taxable year only if such tax-
payer elects to have this section apply for such tax-
able year.
‘‘(4) COORDINATION
WITH
CREDIT
FOR
IN-
CREASING
RESEARCH
EXPENDITURES
AND
WITH
CREDIT FOR CLINICAL TESTING EXPENSES FOR CER-
TAIN DRUGS FOR RARE DISEASES.—Any qualified
medical innovation expense for a taxable year to
which an election under this section applies shall not
be taken into account for purposes of determining
the credit allowable under section 41 or 45C for
such taxable year.’’.
(b) CREDIT TO BE PART OF GENERAL BUSINESS
CREDIT.—
(1) IN GENERAL.—Section 38(b) of such Code
(relating to current year business credits) is amend-
ed by striking ‘‘plus’’ at the end of paragraph (11),
by striking the period at the end of paragraph (12)
and inserting ‘‘, plus’’, and by adding at the end the
following:
HR 2990 RDS
‘‘(13) the medical innovation expenses credit
determined under section 41A(a).’’.
(2) TRANSITION RULE.—Section 39(d) of such
Code is amended by adding at the end the following
new paragraph:
‘‘(9) NO CARRYBACK OF SECTION 41A CREDIT
BEFORE
ENACTMENT.—No portion of the unused
business credit for any taxable year which is attrib-
utable to the medical innovation credit determined
under section 41A may be carried back to a taxable
year beginning before January 1, 2001.’’.
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C of
such Code is amended by adding at the end the following
new subsection:
‘‘(d) CREDIT FOR INCREASING MEDICAL INNOVA-
TION EXPENSES.—
‘‘(1) IN GENERAL.—No deduction shall be al-
lowed for that portion of the qualified medical inno-
vation expenses (as defined in section 41A(b)) other-
wise allowable as a deduction for the taxable year
which is equal to the amount of the credit deter-
mined for such taxable year under section 41A(a).
‘‘(2) CERTAIN RULES TO APPLY.—Rules similar
to the rules of paragraphs (2), (3), and (4) of sub-
HR 2990 RDS
section (c) shall apply for purposes of this sub-
section.’’.
(d) DEDUCTION FOR UNUSED PORTION OF CRED-
IT.—Section 196(c) of such Code (defining qualified busi-
ness credits) is amended by redesignating paragraphs (5)
through (8) as paragraphs (6) through (9), respectively,
and by inserting after paragraph (4) the following new
paragraph:
‘‘(5) the medical innovation expenses credit de-
termined under section 41A(a) (other than such
credit determined under the rules of section
280C(d)(2)),’’.
(e) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1
of such Code is amended by adding after the item relating
to section 41 the following:
‘‘Sec. 41A. Credit for medical innovation expenses.’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
HR 2990 RDS
TITLE 
III—GREATER 
ACCESS
AND CHOICE THROUGH ASSO-
CIATION HEALTH PLANS
SEC. 301. RULES.
(a) IN GENERAL.—Subtitle B of title I of the Em-
ployee Retirement Income Security Act of 1974 is amend-
ed by adding after part 7 the following new part:
‘‘PART 8—RULES GOVERNING ASSOCIATION HEALTH
PLANS
‘‘SEC. 801. ASSOCIATION HEALTH PLANS.
‘‘(a) IN GENERAL.—For purposes of this part, the
term ‘association health plan’ means a group health
plan—
‘‘(1) whose sponsor is (or is deemed under this
part to be) described in subsection (b); and
‘‘(2) under which at least one option of health
insurance coverage offered by a health insurance
issuer (which may include, among other options,
managed care options, point of service options, and
preferred provider options) is provided to partici-
pants and beneficiaries, unless, for any plan year,
such coverage remains unavailable to the plan de-
spite good faith efforts exercised by the plan to se-
cure such coverage.
HR 2990 RDS
‘‘(b) SPONSORSHIP.—The sponsor of a group health
plan is described in this subsection if such sponsor—
‘‘(1) is organized and maintained in good faith,
with a constitution and bylaws specifically stating its
purpose and providing for periodic meetings on at
least an annual basis, as a bona fide trade associa-
tion, a bona fide industry association (including a
rural electric cooperative association or a rural tele-
phone cooperative association), a bona fide profes-
sional association, or a bona fide chamber of com-
merce (or similar bona fide business association, in-
cluding a corporation or similar organization that
operates on a cooperative basis (within the meaning
of section 1381 of the Internal Revenue Code of
1986)), for substantial purposes other than that of
obtaining or providing medical care;
‘‘(2) is established as a permanent entity which
receives the active support of its members and col-
lects from its members on a periodic basis dues or
payments necessary to maintain eligibility for mem-
bership in the sponsor; and
‘‘(3) does not condition membership, such dues
or payments, or coverage under the plan on the
basis of health status-related factors with respect to
the employees of its members (or affiliated mem-
HR 2990 RDS
bers), or the dependents of such employees, and does
not condition such dues or payments on the basis of
group health plan participation.
Any sponsor consisting of an association of entities which
meet the requirements of paragraphs (1), (2), and (3)
shall be deemed to be a sponsor described in this sub-
section.
‘‘SEC. 
802. 
CERTIFICATION 
OF 
ASSOCIATION 
HEALTH
PLANS.
‘‘(a) IN GENERAL.—The applicable authority shall
prescribe by regulation, through negotiated rulemaking, a
procedure under which, subject to subsection (b), the ap-
plicable authority shall certify association health plans
which apply for certification as meeting the requirements
of this part.
‘‘(b) STANDARDS.—Under the procedure prescribed
pursuant to subsection (a), in the case of an association
health plan that provides at least one benefit option which
does not consist of health insurance coverage, the applica-
ble authority shall certify such plan as meeting the re-
quirements of this part only if the applicable authority is
satisfied that—
‘‘(1) such certification—
‘‘(A) is administratively feasible;
HR 2990 RDS
‘‘(B) is not adverse to the interests of the
individuals covered under the plan; and
‘‘(C) is protective of the rights and benefits
of the individuals covered under the plan; and
‘‘(2) the applicable requirements of this part
are met (or, upon the date on which the plan is to
commence operations, will be met) with respect to
the plan.
‘‘(c) REQUIREMENTS APPLICABLE
TO CERTIFIED
PLANS.—An association health plan with respect to which
certification under this part is in effect shall meet the ap-
plicable requirements of this part, effective on the date
of certification (or, if later, on the date on which the plan
is to commence operations).
‘‘(d) REQUIREMENTS
FOR
CONTINUED
CERTIFI-
CATION.—The applicable authority may provide by regula-
tion, through negotiated rulemaking, for continued certifi-
cation of association health plans under this part.
‘‘(e) CLASS CERTIFICATION FOR FULLY INSURED
PLANS.—The applicable authority shall establish a class
certification procedure for association health plans under
which all benefits consist of health insurance coverage.
Under such procedure, the applicable authority shall pro-
vide for the granting of certification under this part to
the plans in each class of such association health plans
HR 2990 RDS
upon appropriate filing under such procedure in connec-
tion with plans in such class and payment of the pre-
scribed fee under section 807(a).
‘‘(f) CERTIFICATION OF SELF-INSURED ASSOCIATION
HEALTH PLANS.—An association health plan which offers
one or more benefit options which do not consist of health
insurance coverage may be certified under this part only
if such plan consists of any of the following:
‘‘(1) a plan which offered such coverage on the
date of the enactment of the Quality Care for the
Uninsured Act of 1999,
‘‘(2) a plan under which the sponsor does not
restrict membership to one or more trades and busi-
nesses or industries and whose eligible participating
employers represent a broad cross-section of trades
and businesses or industries, or
‘‘(3) a plan whose eligible participating employ-
ers represent one or more trades or businesses, or
one or more industries, which have been indicated as
having average or above-average health insurance
risk or health claims experience by reason of State
rate filings, denials of coverage, proposed premium
rate levels, and other means demonstrated by such
plan in accordance with regulations which the Sec-
retary shall prescribe through negotiated rule-
HR 2990 RDS
making, including (but not limited to) the following:
agriculture; automobile dealerships; barbering and
cosmetology; child care; construction; dance, theat-
rical, and orchestra productions; disinfecting and
pest control; eating and drinking establishments;
fishing; hospitals; labor organizations; logging; man-
ufacturing (metals); mining; medical and dental
practices; medical laboratories; sanitary services;
transportation (local and freight); and warehousing.
‘‘SEC. 803. REQUIREMENTS RELATING TO SPONSORS AND
BOARDS OF TRUSTEES.
‘‘(a) SPONSOR.—The requirements of this subsection
are met with respect to an association health plan if the
sponsor has met (or is deemed under this part to have
met) the requirements of section 801(b) for a continuous
period of not less than 3 years ending with the date of
the application for certification under this part.
‘‘(b) BOARD OF TRUSTEES.—The requirements of
this subsection are met with respect to an association
health plan if the following requirements are met:
‘‘(1) FISCAL CONTROL.—The plan is operated,
pursuant to a trust agreement, by a board of trust-
ees which has complete fiscal control over the plan
and which is responsible for all operations of the
plan.
HR 2990 RDS
‘‘(2) RULES
OF
OPERATION
AND
FINANCIAL
CONTROLS.—The board of trustees has in effect
rules of operation and financial controls, based on a
3-year plan of operation, adequate to carry out the
terms of the plan and to meet all requirements of
this title applicable to the plan.
‘‘(3) RULES
GOVERNING
RELATIONSHIP
TO
PARTICIPATING
EMPLOYERS
AND
TO
CONTRAC-
TORS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraphs (B) and (C), the members of the
board of trustees are individuals selected from
individuals who are the owners, officers, direc-
tors, or employees of the participating employ-
ers or who are partners in the participating em-
ployers and actively participate in the business.
‘‘(B) LIMITATION.—
‘‘(i) GENERAL RULE.—Except as pro-
vided in clauses (ii) and (iii), no such
member is an owner, officer, director, or
employee of, or partner in, a contract ad-
ministrator or other service provider to the
plan.
‘‘(ii) LIMITED EXCEPTION FOR PRO-
VIDERS OF SERVICES SOLELY ON BEHALF
HR 2990 RDS
OF THE SPONSOR.—Officers or employees
of a sponsor which is a service provider
(other than a contract administrator) to
the plan may be members of the board if
they constitute not more than 25 percent
of the membership of the board and they
do not provide services to the plan other
than on behalf of the sponsor.
‘‘(iii) TREATMENT OF PROVIDERS OF
MEDICAL CARE.—In the case of a sponsor
which is an association whose membership
consists primarily of providers of medical
care, clause (i) shall not apply in the case
of any service provider described in sub-
paragraph (A) who is a provider of medical
care under the plan.
‘‘(C) CERTAIN
PLANS
EXCLUDED.—Sub-
paragraph (A) shall not apply to an association
health plan which is in existence on the date of
the enactment of the Quality Care for the Unin-
sured Act of 1999.
‘‘(D) SOLE AUTHORITY.—The board has
sole authority under the plan to approve appli-
cations for participation in the plan and to con-
HR 2990 RDS
tract with a service provider to administer the
day-to-day affairs of the plan.
‘‘(c) TREATMENT OF FRANCHISE NETWORKS.—In
the case of a group health plan which is established and
maintained by a franchiser for a franchise network con-
sisting of its franchisees—
‘‘(1) the requirements of subsection (a) and sec-
tion 801(a)(1) shall be deemed met if such require-
ments would otherwise be met if the franchiser were
deemed to be the sponsor referred to in section
801(b), such network were deemed to be an associa-
tion described in section 801(b), and each franchisee
were deemed to be a member (of the association and
the sponsor) referred to in section 801(b); and
‘‘(2) the requirements of section 804(a)(1) shall
be deemed met.
The Secretary may by regulation, through negotiated rule-
making, define for purposes of this subsection the terms
‘franchiser’, ‘franchise network’, and ‘franchisee’.
‘‘(d) CERTAIN COLLECTIVELY BARGAINED PLANS.—
‘‘(1) IN
GENERAL.—In the case of a group
health plan described in paragraph (2)—
‘‘(A) the requirements of subsection (a)
and section 801(a)(1) shall be deemed met;
HR 2990 RDS
‘‘(B) the joint board of trustees shall be
deemed a board of trustees with respect to
which the requirements of subsection (b) are
met; and
‘‘(C) the requirements of section 804 shall
be deemed met.
‘‘(2) REQUIREMENTS.—A group health plan is
described in this paragraph if—
‘‘(A) the plan is a multiemployer plan; or
‘‘(B) the plan is in existence on April 1,
1997, and would be described in section
3(40)(A)(i) but solely for the failure to meet
the requirements of section 3(40)(C)(ii).
‘‘SEC. 804. PARTICIPATION AND COVERAGE REQUIRE-
MENTS.
‘‘(a) COVERED EMPLOYERS AND INDIVIDUALS.—The
requirements of this subsection are met with respect to
an association health plan if, under the terms of the
plan—
‘‘(1) each participating employer must be—
‘‘(A) a member of the sponsor,
‘‘(B) the sponsor, or
‘‘(C) an affiliated member of the sponsor
with respect to which the requirements of sub-
section (b) are met,
HR 2990 RDS
except that, in the case of a sponsor which is a pro-
fessional association or other individual-based asso-
ciation, if at least one of the officers, directors, or
employees of an employer, or at least one of the in-
dividuals who are partners in an employer and who
actively participates in the business, is a member or
such an affiliated member of the sponsor, partici-
pating employers may also include such employer;
and
‘‘(2) all individuals commencing coverage under
the plan after certification under this part must
be—
‘‘(A) active or retired owners (including
self-employed individuals), officers, directors, or
employees of, or partners in, participating em-
ployers; or
‘‘(B) the beneficiaries of individuals de-
scribed in subparagraph (A).
‘‘(b) COVERAGE OF PREVIOUSLY UNINSURED EM-
PLOYEES.—In the case of an association health plan in
existence on the date of the enactment of the Quality Care
for the Uninsured Act of 1999, an affiliated member of
the sponsor of the plan may be offered coverage under
the plan as a participating employer only if—
HR 2990 RDS
‘‘(1) the affiliated member was an affiliated
member on the date of certification under this part;
or
‘‘(2) during the 12-month period preceding the
date of the offering of such coverage, the affiliated
member has not maintained or contributed to a
group health plan with respect to any of its employ-
ees who would otherwise be eligible to participate in
such association health plan.
‘‘(c) INDIVIDUAL MARKET UNAFFECTED.—The re-
quirements of this subsection are met with respect to an
association health plan if, under the terms of the plan,
no participating employer may provide health insurance
coverage in the individual market for any employee not
covered under the plan which is similar to the coverage
contemporaneously provided to employees of the employer
under the plan, if such exclusion of the employee from cov-
erage under the plan is based on a health status-related
factor with respect to the employee and such employee
would, but for such exclusion on such basis, be eligible
for coverage under the plan.
‘‘(d) PROHIBITION
OF DISCRIMINATION AGAINST
EMPLOYERS
AND EMPLOYEES ELIGIBLE TO PARTICI-
PATE.—The requirements of this subsection are met with
respect to an association health plan if—
HR 2990 RDS
‘‘(1) under the terms of the plan, all employers
meeting the preceding requirements of this section
are eligible to qualify as participating employers for
all geographically available coverage options, unless,
in the case of any such employer, participation or
contribution requirements of the type referred to in
section 2711 of the Public Health Service Act are
not met;
‘‘(2) upon request, any employer eligible to par-
ticipate is furnished information regarding all cov-
erage options available under the plan; and
‘‘(3) the applicable requirements of sections
701, 702, and 703 are met with respect to the plan.
‘‘SEC. 805. OTHER REQUIREMENTS RELATING TO PLAN
DOCUMENTS, CONTRIBUTION RATES, AND
BENEFIT OPTIONS.
‘‘(a) IN GENERAL.—The requirements of this section
are met with respect to an association health plan if the
following requirements are met:
‘‘(1) 
CONTENTS
OF
GOVERNING
INSTRU-
MENTS.—The instruments governing the plan in-
clude a written instrument, meeting the require-
ments of an instrument required under section
402(a)(1), which—
HR 2990 RDS
‘‘(A) provides that the board of trustees
serves as the named fiduciary required for plans
under section 402(a)(1) and serves in the ca-
pacity of a plan administrator (referred to in
section 3(16)(A));
‘‘(B) provides that the sponsor of the plan
is to serve as plan sponsor (referred to in sec-
tion 3(16)(B)); and
‘‘(C) incorporates the requirements of sec-
tion 806.
‘‘(2) CONTRIBUTION
RATES
MUST
BE
NON-
DISCRIMINATORY.—
‘‘(A) The contribution rates for any par-
ticipating small employer do not vary on the
basis of the claims experience of such employer
and do not vary on the basis of the type of
business or industry in which such employer is
engaged.
‘‘(B) Nothing in this title or any other pro-
vision of law shall be construed to preclude an
association health plan, or a health insurance
issuer offering health insurance coverage in
connection with an association health plan,
from—
HR 2990 RDS
‘‘(i) setting contribution rates based
on the claims experience of the plan; or
‘‘(ii) varying contribution rates for
small employers in a State to the extent
that such rates could vary using the same
methodology employed in such State for
regulating premium rates in the small
group market with respect to health insur-
ance coverage offered in connection with
bona fide associations (within the meaning
of section 2791(d)(3) of the Public Health
Service Act),
subject to the requirements of section 702(b)
relating to contribution rates.
‘‘(3) FLOOR FOR NUMBER OF COVERED INDI-
VIDUALS
WITH
RESPECT
TO
CERTAIN
PLANS.—If
any benefit option under the plan does not consist
of health insurance coverage, the plan has as of the
beginning of the plan year not fewer than 1,000 par-
ticipants and beneficiaries.
‘‘(4) MARKETING REQUIREMENTS.—
‘‘(A) IN
GENERAL.—If a benefit option
which consists of health insurance coverage is
offered under the plan, State-licensed insurance
agents shall be used to distribute to small em-
HR 2990 RDS
ployers coverage which does not consist of
health insurance coverage in a manner com-
parable to the manner in which such agents are
used to distribute health insurance coverage.
‘‘(B) 
STATE-LICENSED
INSURANCE
AGENTS.—For purposes of subparagraph (A),
the term ‘State-licensed insurance agents’
means one or more agents who are licensed in
a State and are subject to the laws of such
State relating to licensure, qualification, test-
ing, examination, and continuing education of
persons authorized to offer, sell, or solicit
health insurance coverage in such State.
‘‘(5) 
REGULATORY
REQUIREMENTS.—Such
other requirements as the applicable authority deter-
mines are necessary to carry out the purposes of this
part, which shall be prescribed by the applicable au-
thority by regulation through negotiated rulemaking.
‘‘(b) ABILITY OF ASSOCIATION HEALTH PLANS TO
DESIGN BENEFIT OPTIONS.—Subject to section 514(d),
nothing in this part or any provision of State law (as de-
fined in section 514(c)(1)) shall be construed to preclude
an association health plan, or a health insurance issuer
offering health insurance coverage in connection with an
association health plan, from exercising its sole discretion
HR 2990 RDS
in selecting the specific items and services consisting of
medical care to be included as benefits under such plan
or coverage, except (subject to section 514) in the case
of any law to the extent that it (1) prohibits an exclusion
of a specific disease from such coverage, or (2) is not pre-
empted under section 731(a)(1) with respect to matters
governed by section 711 or 712.
‘‘SEC. 806. MAINTENANCE OF RESERVES AND PROVISIONS
FOR 
SOLVENCY 
FOR 
PLANS 
PROVIDING
HEALTH BENEFITS IN ADDITION TO HEALTH
INSURANCE COVERAGE.
‘‘(a) IN GENERAL.—The requirements of this section
are met with respect to an association health plan if—
‘‘(1) the benefits under the plan consist solely
of health insurance coverage; or
‘‘(2) if the plan provides any additional benefit
options which do not consist of health insurance cov-
erage, the plan—
‘‘(A) establishes and maintains reserves
with respect to such additional benefit options,
in amounts recommended by the qualified actu-
ary, consisting of—
‘‘(i) a reserve sufficient for unearned
contributions;
HR 2990 RDS
‘‘(ii) a reserve sufficient for benefit li-
abilities which have been incurred, which
have not been satisfied, and for which risk
of loss has not yet been transferred, and
for expected administrative costs with re-
spect to such benefit liabilities;
‘‘(iii) a reserve sufficient for any other
obligations of the plan; and
‘‘(iv) a reserve sufficient for a margin
of error and other fluctuations, taking into
account the specific circumstances of the
plan; and
‘‘(B) establishes and maintains aggregate
and specific excess /stop loss insurance and sol-
vency indemnification, with respect to such ad-
ditional benefit options for which risk of loss
has not yet been transferred, as follows:
‘‘(i) The plan shall secure aggregate
excess /stop loss insurance for the plan
with an attachment point which is not
greater than 125 percent of expected gross
annual claims. The applicable authority
may by regulation, through negotiated
rulemaking, provide for upward adjust-
ments in the amount of such percentage in
HR 2990 RDS
specified circumstances in which the plan
specifically provides for and maintains re-
serves in excess of the amounts required
under subparagraph (A).
‘‘(ii) The plan shall secure specific ex-
cess /stop loss insurance for the plan with
an attachment point which is at least equal
to an amount recommended by the plan’s
qualified actuary (but not more than
$175,000). The applicable authority may
by regulation, through negotiated rule-
making, provide for adjustments in the
amount of such insurance in specified cir-
cumstances in which the plan specifically
provides for and maintains reserves in ex-
cess of the amounts required under sub-
paragraph (A).
‘‘(iii) The plan shall secure indem-
nification insurance for any claims which
the plan is unable to satisfy by reason of
a plan termination.
Any regulations prescribed by the applicable authority
pursuant to clause (i) or (ii) of subparagraph (B) may
allow for such adjustments in the required levels of excess /
stop loss insurance as the qualified actuary may rec-
HR 2990 RDS
ommend, taking into account the specific circumstances
of the plan.
‘‘(b) MINIMUM SURPLUS IN ADDITION TO CLAIMS
RESERVES.—In the case of any association health plan de-
scribed in subsection (a)(2), the requirements of this sub-
section are met if the plan establishes and maintains sur-
plus in an amount at least equal to—
‘‘(1) $500,000, or
‘‘(2) such greater amount (but not greater than
$2,000,000) as may be set forth in regulations pre-
scribed by the applicable authority through nego-
tiated rulemaking, based on the level of aggregate
and specific excess /stop loss insurance provided with
respect to such plan.
‘‘(c) ADDITIONAL REQUIREMENTS.—In the case of
any association health plan described in subsection (a)(2),
the applicable authority may provide such additional re-
quirements relating to reserves and excess /stop loss insur-
ance as the applicable authority considers appropriate.
Such requirements may be provided by regulation, through
negotiated rulemaking, with respect to any such plan or
any class of such plans.
‘‘(d) ADJUSTMENTS FOR EXCESS /STOP LOSS INSUR-
ANCE.—The applicable authority may provide for adjust-
ments to the levels of reserves otherwise required under
HR 2990 RDS
subsections (a) and (b) with respect to any plan or class
of plans to take into account excess /stop loss insurance
provided with respect to such plan or plans.
‘‘(e) ALTERNATIVE MEANS OF COMPLIANCE.—The
applicable authority may permit an association health plan
described in subsection (a)(2) to substitute, for all or part
of the requirements of this section (except subsection
(a)(2)(B)(iii)), such security, guarantee, hold-harmless ar-
rangement, or other financial arrangement as the applica-
ble authority determines to be adequate to enable the plan
to fully meet all its financial obligations on a timely basis
and is otherwise no less protective of the interests of par-
ticipants and beneficiaries than the requirements for
which it is substituted. The applicable authority may take
into account, for purposes of this subsection, evidence pro-
vided by the plan or sponsor which demonstrates an as-
sumption of liability with respect to the plan. Such evi-
dence may be in the form of a contract of indemnification,
lien, bonding, insurance, letter of credit, recourse under
applicable terms of the plan in the form of assessments
of participating employers, security, or other financial ar-
rangement.
‘‘(f) MEASURES TO ENSURE CONTINUED PAYMENT
OF BENEFITS BY CERTAIN PLANS IN DISTRESS.—
HR 2990 RDS
‘‘(1) PAYMENTS BY CERTAIN PLANS TO ASSO-
CIATION HEALTH PLAN FUND.—
‘‘(A) IN GENERAL.—In the case of an as-
sociation health plan described in subsection
(a)(2), the requirements of this subsection are
met if the plan makes payments into the Asso-
ciation Health Plan Fund under this subpara-
graph when they are due. Such payments shall
consist of annual payments in the amount of
$5,000, except that the Secretary shall reduce
part or all of such annual payments, or shall
provide a rebate of part or all of such a pay-
ment, to the extent that the Secretary deter-
mines that the balance in such Fund is suffi-
cient (taking into account such a reduction or
rebate) to meet all reasonable actuarial require-
ments. Such determination shall occur not less
than once annually. In addition to any such an-
nual payments, such payments may include
such supplemental payments as the Secretary
may determine to be necessary to meet reason-
able actuarial requirements to carry out para-
graph (2). Payments under this paragraph are
payable to the Fund at the time determined by
the Secretary. Initial payments are due in ad-
HR 2990 RDS
vance of certification under this part. Payments
shall continue to accrue until a plan’s assets are
distributed pursuant to a termination proce-
dure.
‘‘(B) PENALTIES FOR FAILURE TO MAKE
PAYMENTS.—If any payment is not made by a
plan when it is due, a late payment charge of
not more than 100 percent of the payment
which was not timely paid shall be payable by
the plan to the Fund.
‘‘(C) CONTINUED
DUTY
OF
THE
SEC-
RETARY.—The Secretary shall not cease to
carry out the provisions of paragraph (2) on ac-
count of the failure of a plan to pay any pay-
ment when due.
‘‘(2) PAYMENTS BY SECRETARY TO CONTINUE
EXCESS /STOP LOSS INSURANCE COVERAGE AND IN-
DEMNIFICATION
INSURANCE
COVERAGE
FOR
CER-
TAIN PLANS.—In any case in which the applicable
authority determines that there is, or that there is
reason to believe that there will be: (A) a failure to
take necessary corrective actions under section
809(a) with respect to an association health plan de-
scribed in subsection (a)(2); or (B) a termination of
such a plan under section 809(b) or 810(b)(8) (and,
HR 2990 RDS
if the applicable authority is not the Secretary, cer-
tifies such determination to the Secretary), the Sec-
retary shall determine the amounts necessary to
make payments to an insurer (designated by the
Secretary) to maintain in force excess /stop loss in-
surance coverage or indemnification insurance cov-
erage for such plan, if the Secretary determines that
there is a reasonable expectation that, without such
payments, claims would not be satisfied by reason of
termination of such coverage. The Secretary shall, to
the extent provided in advance in appropriation
Acts, pay such amounts so determined to the insurer
designated by the Secretary.
‘‘(3) ASSOCIATION HEALTH PLAN FUND.—
‘‘(A) IN GENERAL.—There is established
on the books of the Treasury a fund to be
known as the ‘Association Health Plan Fund’.
The Fund shall be available for making pay-
ments pursuant to paragraph (2). The Fund
shall be credited with payments received pursu-
ant to paragraph (1)(A), penalties received pur-
suant to paragraph (1)(B); and earnings on in-
vestments of amounts of the Fund under sub-
paragraph (B).
HR 2990 RDS
‘‘(B) INVESTMENT.—Whenever the Sec-
retary determines that the moneys of the fund
are in excess of current needs, the Secretary
may request the investment of such amounts as
the Secretary determines advisable by the Sec-
retary of the Treasury in obligations issued or
guaranteed by the United States.
‘‘(g) EXCESS /STOP LOSS INSURANCE.—For pur-
poses of this section—
‘‘(1) AGGREGATE
EXCESS /STOP
LOSS
INSUR-
ANCE.—The term ‘aggregate excess /stop loss insur-
ance’ means, in connection with an association
health plan, a contract—
‘‘(A) under which an insurer (meeting such
minimum standards as the applicable authority may
prescribe by regulation through negotiated rule-
making) provides for payment to the plan with re-
spect to aggregate claims under the plan in excess
of an amount or amounts specified in such contract;
‘‘(B) which is guaranteed renewable; and
‘‘(C) which allows for payment of premiums by
any third party on behalf of the insured plan.
‘‘(2) SPECIFIC
EXCESS /STOP
LOSS
INSUR-
ANCE.—The term ‘specific excess /stop loss insur-
HR 2990 RDS
ance’ means, in connection with an association
health plan, a contract—
‘‘(A) under which an insurer (meeting such
minimum standards as the applicable authority
may prescribe by regulation through negotiated
rulemaking) provides for payment to the plan
with respect to claims under the plan in connec-
tion with a covered individual in excess of an
amount or amounts specified in such contract
in connection with such covered individual;
‘‘(B) which is guaranteed renewable; and
‘‘(C) which allows for payment of pre-
miums by any third party on behalf of the in-
sured plan.
‘‘(h) INDEMNIFICATION INSURANCE.—For purposes
of this section, the term ‘indemnification insurance’
means, in connection with an association health plan, a
contract—
‘‘(1) under which an insurer (meeting such min-
imum standards as the applicable authority may pre-
scribe through negotiated rulemaking) provides for
payment to the plan with respect to claims under the
plan which the plan is unable to satisfy by reason
of a termination pursuant to section 809(b) (relating
to mandatory termination);
HR 2990 RDS
‘‘(2) which is guaranteed renewable and
noncancellable for any reason (except as the applica-
ble authority may prescribe by regulation through
negotiated rulemaking); and
‘‘(3) which allows for payment of premiums by
any third party on behalf of the insured plan.
‘‘(i) RESERVES.—For purposes of this section, the
term ‘reserves’ means, in connection with an association
health plan, plan assets which meet the fiduciary stand-
ards under part 4 and such additional requirements re-
garding liquidity as the applicable authority may prescribe
through negotiated rulemaking.
‘‘(j) SOLVENCY STANDARDS WORKING GROUP.—
‘‘(1) IN GENERAL.—Within 90 days after the
date of the enactment of the Quality Care for the
Uninsured Act of 1999, the applicable authority
shall establish a Solvency Standards Working
Group. In prescribing the initial regulations under
this section, the applicable authority shall take into
account the recommendations of such Working
Group.
‘‘(2) MEMBERSHIP.—The Working Group shall
consist of 18 members appointed by the applicable
authority as follows:
HR 2990 RDS
‘‘(A) three representatives of the National
Association of Insurance Commissioners;
‘‘(B) three representatives of the American
Academy of Actuaries;
‘‘(C) three representatives of the State
governments, or their interests;
‘‘(D) three representatives of existing self-
insured arrangements, or their interests;
‘‘(E) three representatives of associations
of the type referred to in section 801(b)(1), or
their interests; and
‘‘(F) three representatives of multiem-
ployer plans that are group health plans, or
their interests.
‘‘SEC. 807. REQUIREMENTS FOR APPLICATION AND RE-
LATED REQUIREMENTS.
‘‘(a) FILING FEE.—Under the procedure prescribed
pursuant to section 802(a), an association health plan
shall pay to the applicable authority at the time of filing
an application for certification under this part a filing fee
in the amount of $5,000, which shall be available in the
case of the Secretary, to the extent provided in appropria-
tion Acts, for the sole purpose of administering the certifi-
cation procedures applicable with respect to association
health plans.
HR 2990 RDS
‘‘(b) INFORMATION TO BE INCLUDED IN APPLICA-
TION FOR CERTIFICATION.—An application for certifi-
cation under this part meets the requirements of this sec-
tion only if it includes, in a manner and form which shall
be prescribed by the applicable authority through nego-
tiated rulemaking, at least the following information:
‘‘(1) IDENTIFYING INFORMATION.—The names
and addresses of—
‘‘(A) the sponsor; and
‘‘(B) the members of the board of trustees
of the plan.
‘‘(2) STATES IN WHICH PLAN INTENDS TO DO
BUSINESS.—The States in which participants and
beneficiaries under the plan are to be located and
the number of them expected to be located in each
such State.
‘‘(3) BONDING REQUIREMENTS.—Evidence pro-
vided by the board of trustees that the bonding re-
quirements of section 412 will be met as of the date
of the application or (if later) commencement of op-
erations.
‘‘(4) PLAN DOCUMENTS.—A copy of the docu-
ments governing the plan (including any bylaws and
trust agreements), the summary plan description,
and other material describing the benefits that will
HR 2990 RDS
be provided to participants and beneficiaries under
the plan.
‘‘(5) 
AGREEMENTS
WITH
SERVICE
PRO-
VIDERS.—A copy of any agreements between the
plan and contract administrators and other service
providers.
‘‘(6) FUNDING REPORT.—In the case of asso-
ciation health plans providing benefits options in ad-
dition to health insurance coverage, a report setting
forth information with respect to such additional
benefit options determined as of a date within the
120-day period ending with the date of the applica-
tion, including the following:
‘‘(A) RESERVES.—A statement, certified
by the board of trustees of the plan, and a
statement of actuarial opinion, signed by a
qualified actuary, that all applicable require-
ments of section 806 are or will be met in ac-
cordance with regulations which the applicable
authority shall prescribe through negotiated
rulemaking.
‘‘(B) 
ADEQUACY
OF
CONTRIBUTION
RATES.—A statement of actuarial opinion,
signed by a qualified actuary, which sets forth
a description of the extent to which contribution
HR 2990 RDS
rates are adequate to provide for the payment
of all obligations and the maintenance of re-
quired reserves under the plan for the 12-
month period beginning with such date within
such 120-day period, taking into account the
expected coverage and experience of the plan. If
the contribution rates are not fully adequate,
the statement of actuarial opinion shall indicate
the extent to which the rates are inadequate
and the changes needed to ensure adequacy.
‘‘(C) CURRENT AND PROJECTED VALUE OF
ASSETS AND LIABILITIES.—A statement of ac-
tuarial opinion signed by a qualified actuary,
which sets forth the current value of the assets
and liabilities accumulated under the plan and
a projection of the assets, liabilities, income,
and expenses of the plan for the 12-month pe-
riod referred to in subparagraph (B). The in-
come statement shall identify separately the
plan’s administrative expenses and claims.
‘‘(D) 
COSTS
OF
COVERAGE
TO
BE
CHARGED
AND
OTHER
EXPENSES.—A state-
ment of the costs of coverage to be charged, in-
cluding an itemization of amounts for adminis-
HR 2990 RDS
tration, reserves, and other expenses associated
with the operation of the plan.
‘‘(E) OTHER
INFORMATION.—Any other
information as may be determined by the appli-
cable authority, by regulation through nego-
tiated rulemaking, as necessary to carry out the
purposes of this part.
‘‘(c) FILING
NOTICE
OF
CERTIFICATION
WITH
STATES.—A certification granted under this part to an
association health plan shall not be effective unless written
notice of such certification is filed with the applicable
State authority of each State in which at least 25 percent
of the participants and beneficiaries under the plan are
located. For purposes of this subsection, an individual
shall be considered to be located in the State in which a
known address of such individual is located or in which
such individual is employed.
‘‘(d) NOTICE OF MATERIAL CHANGES.—In the case
of any association health plan certified under this part,
descriptions of material changes in any information which
was required to be submitted with the application for the
certification under this part shall be filed in such form
and manner as shall be prescribed by the applicable au-
thority by regulation through negotiated rulemaking. The
applicable authority may require by regulation, through
HR 2990 RDS
negotiated rulemaking, prior notice of material changes
with respect to specified matters which might serve as the
basis for suspension or revocation of the certification.
‘‘(e) REPORTING REQUIREMENTS FOR CERTAIN AS-
SOCIATION HEALTH PLANS.—An association health plan
certified under this part which provides benefit options in
addition to health insurance coverage for such plan year
shall meet the requirements of section 103 by filing an
annual report under such section which shall include infor-
mation described in subsection (b)(6) with respect to the
plan year and, notwithstanding section 104(a)(1)(A), shall
be filed with the applicable authority not later than 90
days after the close of the plan year (or on such later date
as may be prescribed by the applicable authority). The ap-
plicable authority may require by regulation through nego-
tiated rulemaking such interim reports as it considers ap-
propriate.
‘‘(f) ENGAGEMENT OF QUALIFIED ACTUARY.—The
board of trustees of each association health plan which
provides benefits options in addition to health insurance
coverage and which is applying for certification under this
part or is certified under this part shall engage, on behalf
of all participants and beneficiaries, a qualified actuary
who shall be responsible for the preparation of the mate-
rials comprising information necessary to be submitted by
HR 2990 RDS
a qualified actuary under this part. The qualified actuary
shall utilize such assumptions and techniques as are nec-
essary to enable such actuary to form an opinion as to
whether the contents of the matters reported under this
part—
‘‘(1) are in the aggregate reasonably related to
the experience of the plan and to reasonable expecta-
tions; and
‘‘(2) represent such actuary’s best estimate of
anticipated experience under the plan.
The opinion by the qualified actuary shall be made with
respect to, and shall be made a part of, the annual report.
‘‘SEC. 808. NOTICE REQUIREMENTS FOR VOLUNTARY TER-
MINATION.
‘‘Except as provided in section 809(b), an association
health plan which is or has been certified under this part
may terminate (upon or at any time after cessation of ac-
cruals in benefit liabilities) only if the board of trustees—
‘‘(1) not less than 60 days before the proposed
termination date, provides to the participants and
beneficiaries a written notice of intent to terminate
stating that such termination is intended and the
proposed termination date;
‘‘(2) develops a plan for winding up the affairs
of the plan in connection with such termination in
HR 2990 RDS
a manner which will result in timely payment of all
benefits for which the plan is obligated; and
‘‘(3) submits such plan in writing to the appli-
cable authority.
Actions required under this section shall be taken in such
form and manner as may be prescribed by the applicable
authority by regulation through negotiated rulemaking.
‘‘SEC. 809. CORRECTIVE ACTIONS AND MANDATORY TERMI-
NATION.
‘‘(a) ACTIONS
TO
AVOID
DEPLETION
OF
RE-
SERVES.—An association health plan which is certified
under this part and which provides benefits other than
health insurance coverage shall continue to meet the re-
quirements of section 806, irrespective of whether such
certification continues in effect. The board of trustees of
such plan shall determine quarterly whether the require-
ments of section 806 are met. In any case in which the
board determines that there is reason to believe that there
is or will be a failure to meet such requirements, or the
applicable authority makes such a determination and so
notifies the board, the board shall immediately notify the
qualified actuary engaged by the plan, and such actuary
shall, not later than the end of the next following month,
make such recommendations to the board for corrective
action as the actuary determines necessary to ensure com-
HR 2990 RDS
pliance with section 806. Not later than 30 days after re-
ceiving from the actuary recommendations for corrective
actions, the board shall notify the applicable authority (in
such form and manner as the applicable authority may
prescribe by regulation through negotiated rulemaking) of
such recommendations of the actuary for corrective action,
together with a description of the actions (if any) that the
board has taken or plans to take in response to such rec-
ommendations. The board shall thereafter report to the
applicable authority, in such form and frequency as the
applicable authority may specify to the board, regarding
corrective action taken by the board until the requirements
of section 806 are met.
‘‘(b) MANDATORY TERMINATION.—In any case in
which—
‘‘(1) the applicable authority has been notified
under subsection (a) of a failure of an association
health plan which is or has been certified under this
part and is described in section 806(a)(2) to meet
the requirements of section 806 and has not been
notified by the board of trustees of the plan that
corrective action has restored compliance with such
requirements; and
‘‘(2) the applicable authority determines that
there is a reasonable expectation that the plan will
HR 2990 RDS
continue to fail to meet the requirements of section
806,
the board of trustees of the plan shall, at the direction
of the applicable authority, terminate the plan and, in the
course of the termination, take such actions as the appli-
cable authority may require, including satisfying any
claims referred to in section 806(a)(2)(B)(iii) and recov-
ering for the plan any liability under subsection
(a)(2)(B)(iii) or (e) of section 806, as necessary to ensure
that the affairs of the plan will be, to the maximum extent
possible, wound up in a manner which will result in timely
provision of all benefits for which the plan is obligated.
‘‘SEC. 810. TRUSTEESHIP BY THE SECRETARY OF INSOL-
VENT ASSOCIATION HEALTH PLANS PRO-
VIDING HEALTH BENEFITS IN ADDITION TO
HEALTH INSURANCE COVERAGE.
‘‘(a) APPOINTMENT OF SECRETARY AS TRUSTEE FOR
INSOLVENT PLANS.—Whenever the Secretary determines
that an association health plan which is or has been cer-
tified under this part and which is described in section
806(a)(2) will be unable to provide benefits when due or
is otherwise in a financially hazardous condition, as shall
be defined by the Secretary by regulation through nego-
tiated rulemaking, the Secretary shall, upon notice to the
plan, apply to the appropriate United States district court
HR 2990 RDS
for appointment of the Secretary as trustee to administer
the plan for the duration of the insolvency. The plan may
appear as a party and other interested persons may inter-
vene in the proceedings at the discretion of the court. The
court shall appoint such Secretary trustee if the court de-
termines that the trusteeship is necessary to protect the
interests of the participants and beneficiaries or providers
of medical care or to avoid any unreasonable deterioration
of the financial condition of the plan. The trusteeship of
such Secretary shall continue until the conditions de-
scribed in the first sentence of this subsection are rem-
edied or the plan is terminated.
‘‘(b) POWERS AS TRUSTEE.—The Secretary, upon
appointment as trustee under subsection (a), shall have
the power—
‘‘(1) to do any act authorized by the plan, this
title, or other applicable provisions of law to be done
by the plan administrator or any trustee of the plan;
‘‘(2) to require the transfer of all (or any part)
of the assets and records of the plan to the Sec-
retary as trustee;
‘‘(3) to invest any assets of the plan which the
Secretary holds in accordance with the provisions of
the plan, regulations prescribed by the Secretary
HR 2990 RDS
through negotiated rulemaking, and applicable provi-
sions of law;
‘‘(4) to require the sponsor, the plan adminis-
trator, any participating employer, and any employee
organization representing plan participants to fur-
nish any information with respect to the plan which
the Secretary as trustee may reasonably need in
order to administer the plan;
‘‘(5) to collect for the plan any amounts due the
plan and to recover reasonable expenses of the trust-
eeship;
‘‘(6) to commence, prosecute, or defend on be-
half of the plan any suit or proceeding involving the
plan;
‘‘(7) to issue, publish, or file such notices, state-
ments, and reports as may be required by the Sec-
retary by regulation through negotiated rulemaking
or required by any order of the court;
‘‘(8) to terminate the plan (or provide for its
termination accordance with section 809(b)) and liq-
uidate the plan assets, to restore the plan to the re-
sponsibility of the sponsor, or to continue the trust-
eeship;
HR 2990 RDS
‘‘(9) to provide for the enrollment of plan par-
ticipants and beneficiaries under appropriate cov-
erage options; and
‘‘(10) to do such other acts as may be nec-
essary to comply with this title or any order of the
court and to protect the interests of plan partici-
pants and beneficiaries and providers of medical
care.
‘‘(c) NOTICE OF APPOINTMENT.—As soon as prac-
ticable after the Secretary’s appointment as trustee, the
Secretary shall give notice of such appointment to—
‘‘(1) the sponsor and plan administrator;
‘‘(2) each participant;
‘‘(3) each participating employer; and
‘‘(4) if applicable, each employee organization
which, for purposes of collective bargaining, rep-
resents plan participants.
‘‘(d) ADDITIONAL DUTIES.—Except to the extent in-
consistent with the provisions of this title, or as may be
otherwise ordered by the court, the Secretary, upon ap-
pointment as trustee under this section, shall be subject
to the same duties as those of a trustee under section 704
of title 11, United States Code, and shall have the duties
of a fiduciary for purposes of this title.
HR 2990 RDS
‘‘(e) OTHER PROCEEDINGS.—An application by the
Secretary under this subsection may be filed notwith-
standing the pendency in the same or any other court of
any bankruptcy, mortgage foreclosure, or equity receiver-
ship proceeding, or any proceeding to reorganize, conserve,
or liquidate such plan or its property, or any proceeding
to enforce a lien against property of the plan.
‘‘(f) JURISDICTION OF COURT.—
‘‘(1) IN GENERAL.—Upon the filing of an appli-
cation for the appointment as trustee or the issuance
of a decree under this section, the court to which the
application is made shall have exclusive jurisdiction
of the plan involved and its property wherever lo-
cated with the powers, to the extent consistent with
the purposes of this section, of a court of the United
States having jurisdiction over cases under chapter
11 of title 11, United States Code. Pending an adju-
dication under this section such court shall stay, and
upon appointment by it of the Secretary as trustee,
such court shall continue the stay of, any pending
mortgage foreclosure, equity receivership, or other
proceeding to reorganize, conserve, or liquidate the
plan, the sponsor, or property of such plan or spon-
sor, and any other suit against any receiver, conser-
vator, or trustee of the plan, the sponsor, or prop-
HR 2990 RDS
erty of the plan or sponsor. Pending such adjudica-
tion and upon the appointment by it of the Sec-
retary as trustee, the court may stay any proceeding
to enforce a lien against property of the plan or the
sponsor or any other suit against the plan or the
sponsor.
‘‘(2) VENUE.—An action under this section
may be brought in the judicial district where the
sponsor or the plan administrator resides or does
business or where any asset of the plan is situated.
A district court in which such action is brought may
issue process with respect to such action in any
other judicial district.
‘‘(g) PERSONNEL.—In accordance with regulations
which shall be prescribed by the Secretary through nego-
tiated rulemaking, the Secretary shall appoint, retain, and
compensate accountants, actuaries, and other professional
service personnel as may be necessary in connection with
the Secretary’s service as trustee under this section.
‘‘SEC. 811. STATE ASSESSMENT AUTHORITY.
‘‘(a) IN GENERAL.—Notwithstanding section 514, a
State may impose by law a contribution tax on an associa-
tion health plan described in section 806(a)(2), if the plan
commenced operations in such State after the date of the
HR 2990 RDS
enactment of the Quality Care for the Uninsured Act of
1999.
‘‘(b) CONTRIBUTION TAX.—For purposes of this sec-
tion, the term ‘contribution tax’ imposed by a State on
an association health plan means any tax imposed by such
State if—
‘‘(1) such tax is computed by applying a rate to
the amount of premiums or contributions, with re-
spect to individuals covered under the plan who are
residents of such State, which are received by the
plan from participating employers located in such
State or from such individuals;
‘‘(2) the rate of such tax does not exceed the
rate of any tax imposed by such State on premiums
or contributions received by insurers or health main-
tenance organizations for health insurance coverage
offered in such State in connection with a group
health plan;
‘‘(3) such tax is otherwise nondiscriminatory;
and
‘‘(4) the amount of any such tax assessed on
the plan is reduced by the amount of any tax or as-
sessment otherwise imposed by the State on pre-
miums, contributions, or both received by insurers or
health maintenance organizations for health insur-
HR 2990 RDS
ance coverage, aggregate excess /stop loss insurance
(as defined in section 806(g)(1)), specific excess /
stop loss insurance (as defined in section 806(g)(2)),
other insurance related to the provision of medical
care under the plan, or any combination thereof pro-
vided by such insurers or health maintenance organi-
zations in such State in connection with such plan.
‘‘SEC. 812. SPECIAL RULES FOR CHURCH PLANS.
‘‘(a) ELECTION
FOR CHURCH PLANS.—Notwith-
standing section 4(b)(2), if a church, a convention or asso-
ciation of churches, or an organization described in section
3(33)(C)(i) maintains a church plan which is a group
health plan (as defined in section 733(a)(1)), and such
church, convention, association, or organization makes an
election with respect to such plan under this subsection
(in such form and manner as the Secretary may by regula-
tion prescribe), then the provisions of this section shall
apply to such plan, with respect to benefits provided under
such plan consisting of medical care, as if section 4(b)(2)
did not contain an exclusion for church plans. Nothing in
this subsection shall be construed to render any other sec-
tion of this title applicable to church plans, except to the
extent that such other section is incorporated by reference
in this section.
‘‘(b) EFFECT OF ELECTION.—
HR 2990 RDS
‘‘(1) PREEMPTION OF STATE INSURANCE LAWS
REGULATING COVERED CHURCH PLANS.—Subject to
paragraphs (2) and (3), this section shall supersede
any and all State laws which regulate insurance in-
sofar as they may now or hereafter regulate church
plans to which this section applies or trusts estab-
lished under such church plans.
‘‘(2) GENERAL STATE INSURANCE REGULATION
UNAFFECTED.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B) and paragraph (3), nothing
in this section shall be construed to exempt or
relieve any person from any provision of State
law which regulates insurance.
‘‘(B) CHURCH PLANS NOT TO BE DEEMED
INSURANCE COMPANIES OR INSURERS.—Neither
a church plan to which this section applies, nor
any trust established under such a church plan,
shall be deemed to be an insurance company or
other insurer or to be engaged in the business
of insurance for purposes of any State law pur-
porting to regulate insurance companies or in-
surance contracts.
‘‘(3) PREEMPTION
OF
CERTAIN
STATE
LAWS
RELATING
TO
PREMIUM
RATE
REGULATION
AND
HR 2990 RDS
BENEFIT MANDATES.—The provisions of subsections
(a)(2)(B) and (b) of section 805 shall apply with re-
spect to a church plan to which this section applies
in the same manner and to the same extent as such
provisions apply with respect to association health
plans.
‘‘(4) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) STATE LAW.—The term ‘State law’
includes all laws, decisions, rules, regulations,
or other State action having the effect of law,
of any State. A law of the United States appli-
cable only to the District of Columbia shall be
treated as a State law rather than a law of the
United States.
‘‘(B) STATE.—The term ‘State’ includes a
State, any political subdivision thereof, or any
agency or instrumentality of either, which pur-
ports to regulate, directly or indirectly, the
terms and conditions of church plans covered by
this section.
‘‘(c) 
REQUIREMENTS
FOR
COVERED
CHURCH
PLANS.—
‘‘(1) FIDUCIARY RULES AND EXCLUSIVE PUR-
POSE.—A fiduciary shall discharge his duties with
HR 2990 RDS
respect to a church plan to which this section
applies—
‘‘(A) for the exclusive purpose of:
‘‘(i) providing benefits to participants
and their beneficiaries; and
‘‘(ii) defraying reasonable expenses of
administering the plan;
‘‘(B) with the care, skill, prudence and dili-
gence under the circumstances then prevailing
that a prudent man acting in a like capacity
and familiar with such matters would use in the
conduct of an enterprise of a like character and
with like aims; and
‘‘(C) in accordance with the documents
and instruments governing the plan.
The requirements of this paragraph shall not be
treated as not satisfied solely because the plan as-
sets are commingled with other church assets, to the
extent that such plan assets are separately ac-
counted for.
‘‘(2) CLAIMS PROCEDURE.—In accordance with
regulations of the Secretary, every church plan to
which this section applies shall—
‘‘(A) provide adequate notice in writing to
any participant or beneficiary whose claim for
HR 2990 RDS
benefits under the plan has been denied, setting
forth the specific reasons for such denial, writ-
ten in a manner calculated to be understood by
the participant;
‘‘(B) afford a reasonable opportunity to
any participant whose claim for benefits has
been denied for a full and fair review by the ap-
propriate fiduciary of the decision denying the
claim; and
‘‘(C) provide a written statement to each
participant describing the procedures estab-
lished pursuant to this paragraph.
‘‘(3) ANNUAL
STATEMENTS.—In accordance
with regulations of the Secretary, every church plan
to which this section applies shall file with the Sec-
retary an annual statement—
‘‘(A) stating the names and addresses of
the plan and of the church, convention, or asso-
ciation maintaining the plan (and its principal
place of business);
‘‘(B) certifying that it is a church plan to
which this section applies and that it complies
with the requirements of paragraphs (1) and
(2);
HR 2990 RDS
‘‘(C) identifying the States in which par-
ticipants and beneficiaries under the plan are or
likely will be located during the 1-year period
covered by the statement; and
‘‘(D) containing a copy of a statement of
actuarial opinion signed by a qualified actuary
that the plan maintains capital, reserves, insur-
ance, other financial arrangements, or any com-
bination thereof adequate to enable the plan to
fully meet all of its financial obligations on a
timely basis.
‘‘(4) DISCLOSURE.—At the time that the an-
nual statement is filed by a church plan with the
Secretary pursuant to paragraph (3), a copy of such
statement shall be made available by the Secretary
to the State insurance commissioner (or similar offi-
cial) of any State. The name of each church plan
and sponsoring organization filing an annual state-
ment in compliance with paragraph (3) shall be pub-
lished annually in the Federal Register.
‘‘(c) ENFORCEMENT.—The Secretary may enforce
the provisions of this section in a manner consistent with
section 502, to the extent applicable with respect to ac-
tions under section 502(a)(5), and with section 3(33)(D),
except that, other than for the purpose of seeking a tem-
HR 2990 RDS
porary restraining order, a civil action may be brought
with respect to the plan’s failure to meet any requirement
of this section only if the plan fails to correct its failure
within the correction period described in section 3(33)(D).
The other provisions of part 5 (except sections 501(a),
503, 512, 514, and 515) shall apply with respect to the
enforcement and administration of this section.
‘‘(d) DEFINITIONS AND OTHER RULES.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section, any term used in this section
which is defined in any provision of this title shall
have the definition provided such term by such pro-
vision.
‘‘(2) SEMINARY STUDENTS.—Seminary students
who are enrolled in an institution of higher learning
described in section 3(33)(C)(iv) and who are treat-
ed as participants under the terms of a church plan
to which this section applies shall be deemed to be
employees as defined in section 3(6) if the number
of such students constitutes an insignificant portion
of the total number of individuals who are treated
as participants under the terms of the plan.
‘‘SEC. 813. DEFINITIONS AND RULES OF CONSTRUCTION.
‘‘(a) DEFINITIONS.—For purposes of this part—
HR 2990 RDS
‘‘(1) GROUP HEALTH PLAN.—The term ‘group
health plan’ has the meaning provided in section
733(a)(1) (after applying subsection (b) of this sec-
tion).
‘‘(2) MEDICAL CARE.—The term ‘medical care’
has the meaning provided in section 733(a)(2).
‘‘(3) HEALTH
INSURANCE
COVERAGE.—The
term ‘health insurance coverage’ has the meaning
provided in section 733(b)(1).
‘‘(4) HEALTH INSURANCE ISSUER.—The term
‘health insurance issuer’ has the meaning provided
in section 733(b)(2).
‘‘(5) APPLICABLE AUTHORITY.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘applicable author-
ity’ means, in connection with an association
health plan—
‘‘(i) the State recognized pursuant to
subsection (c) of section 506 as the State
to which authority has been delegated in
connection with such plan; or
‘‘(ii) if there is no State referred to in
clause (i), the Secretary.
‘‘(B) EXCEPTIONS.—
HR 2990 RDS
‘‘(i) 
JOINT
AUTHORITIES.—Where
such term appears in section 808(3), sec-
tion 807(e) (in the first instance), section
809(a) (in the second instance), section
809(a) (in the fourth instance), and sec-
tion 809(b)(1), such term means, in con-
nection with an association health plan, the
Secretary and the State referred to in sub-
paragraph (A)(i) (if any) in connection
with such plan.
‘‘(ii) REGULATORY
AUTHORITIES.—
Where such term appears in section 802(a)
(in the first instance), section 802(d), sec-
tion 
802(e), 
section 
803(d), 
section
805(a)(5), 
section 
806(a)(2), 
section
806(b), section 806(c), section 806(d),
paragraphs (1)(A) and (2)(A) of section
806(g), section 806(h), section 806(i), sec-
tion 806(j), section 807(a) (in the second
instance), section 807(b), section 807(d),
section 807(e) (in the second instance),
section 808 (in the matter after paragraph
(3)), and section 809(a) (in the third in-
stance), such term means, in connection
HR 2990 RDS
with an association health plan, the Sec-
retary.
‘‘(6) HEALTH STATUS-RELATED FACTOR.—The
term ‘health status-related factor’ has the meaning
provided in section 733(d)(2).
‘‘(7) INDIVIDUAL MARKET.—
‘‘(A) IN GENERAL.—The term ‘individual
market’ means the market for health insurance
coverage offered to individuals other than in
connection with a group health plan.
‘‘(B) 
TREATMENT
OF
VERY
SMALL
GROUPS.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), such term includes coverage offered in
connection with a group health plan that
has fewer than two participants as current
employees or participants described in sec-
tion 732(d)(3) on the first day of the plan
year.
‘‘(ii) STATE
EXCEPTION.—Clause (i)
shall not apply in the case of health insur-
ance coverage offered in a State if such
State regulates the coverage described in
such clause in the same manner and to the
same extent as coverage in the small group
HR 2990 RDS
market (as defined in section 2791(e)(5) of
the Public Health Service Act) is regulated
by such State.
‘‘(8) PARTICIPATING
EMPLOYER.—The term
‘participating employer’ means, in connection with
an association health plan, any employer, if any indi-
vidual who is an employee of such employer, a part-
ner in such employer, or a self-employed individual
who is such employer (or any dependent, as defined
under the terms of the plan, of such individual) is
or was covered under such plan in connection with
the status of such individual as such an employee,
partner, or self-employed individual in relation to the
plan.
‘‘(9) APPLICABLE
STATE
AUTHORITY.—The
term ‘applicable State authority’ means, with respect
to a health insurance issuer in a State, the State in-
surance commissioner or official or officials des-
ignated by the State to enforce the requirements of
title XXVII of the Public Health Service Act for the
State involved with respect to such issuer.
‘‘(10) QUALIFIED ACTUARY.—The term ‘quali-
fied actuary’ means an individual who is a member
of the American Academy of Actuaries or meets
such reasonable standards and qualifications as the
HR 2990 RDS
Secretary may provide by regulation through nego-
tiated rulemaking.
‘‘(11) AFFILIATED MEMBER.—The term ‘affili-
ated member’ means, in connection with a sponsor—
‘‘(A) a person who is otherwise eligible to
be a member of the sponsor but who elects an
affiliated status with the sponsor,
‘‘(B) in the case of a sponsor with mem-
bers which consist of associations, a person who
is a member of any such association and elects
an affiliated status with the sponsor, or
‘‘(C) in the case of an association health
plan in existence on the date of the enactment
of the Quality Care for the Uninsured Act of
1999, a person eligible to be a member of the
sponsor or one of its member associations.
‘‘(12) LARGE EMPLOYER.—The term ‘large em-
ployer’ means, in connection with a group health
plan with respect to a plan year, an employer who
employed an average of at least 51 employees on
business days during the preceding calendar year
and who employs at least two employees on the first
day of the plan year.
‘‘(13) SMALL EMPLOYER.—The term ‘small em-
ployer’ means, in connection with a group health
HR 2990 RDS
plan with respect to a plan year, an employer who
is not a large employer.
‘‘(b) RULES OF CONSTRUCTION.—
‘‘(1) EMPLOYERS AND EMPLOYEES.—For pur-
poses of determining whether a plan, fund, or pro-
gram is an employee welfare benefit plan which is an
association health plan, and for purposes of applying
this title in connection with such plan, fund, or pro-
gram so determined to be such an employee welfare
benefit plan—
‘‘(A) in the case of a partnership, the term
‘employer’ (as defined in section (3)(5)) in-
cludes the partnership in relation to the part-
ners, and the term ‘employee’ (as defined in
section (3)(6)) includes any partner in relation
to the partnership; and
‘‘(B) in the case of a self-employed indi-
vidual, the term ‘employer’ (as defined in sec-
tion 3(5)) and the term ‘employee’ (as defined
in section 3(6)) shall include such individual.
‘‘(2) PLANS, FUNDS, AND PROGRAMS TREATED
AS EMPLOYEE WELFARE BENEFIT PLANS.—In the
case of any plan, fund, or program which was estab-
lished or is maintained for the purpose of providing
medical care (through the purchase of insurance or
HR 2990 RDS
‘‘subsection (a) of this section and subsections
(a)(2)(B) and (b) of section 805’’, and by strik-
ing ‘‘subsection (a)’’ in subparagraph (B) and
inserting ‘‘subsection (a) of this section or sub-
section (a)(2)(B) or (b) of section 805’’;
(C) by redesignating subsection (d) as sub-
section (e); and
(D) by inserting after subsection (c) the
following new subsection:
‘‘(d)(1) Except as provided in subsection (b)(4), the
provisions of this title shall supersede any and all State
laws insofar as they may now or hereafter preclude, or
have the effect of precluding, a health insurance issuer
from offering health insurance coverage in connection with
an association health plan which is certified under part
8.
‘‘(2) Except as provided in paragraphs (4) and (5)
of subsection (b) of this section—
‘‘(A) In any case in which health insurance cov-
erage of any policy type is offered under an associa-
tion health plan certified under part 8 to a partici-
pating employer operating in such State, the provi-
sions of this title shall supersede any and all laws
of such State insofar as they may preclude a health
insurance issuer from offering health insurance cov-
HR 2990 RDS
erage of the same policy type to other employers op-
erating in the State which are eligible for coverage
under such association health plan, whether or not
such other employers are participating employers in
such plan.
‘‘(B) In any case in which health insurance cov-
erage of any policy type is offered under an associa-
tion health plan in a State and the filing, with the
applicable State authority, of the policy form in con-
nection with such policy type is approved by such
State authority, the provisions of this title shall su-
persede any and all laws of any other State in which
health insurance coverage of such type is offered, in-
sofar as they may preclude, upon the filing in the
same form and manner of such policy form with the
applicable State authority in such other State, the
approval of the filing in such other State.
‘‘(3) For additional provisions relating to association
health plans, see subsections (a)(2)(B) and (b) of section
805.
‘‘(4) For purposes of this subsection, the term ‘asso-
ciation health plan’ has the meaning provided in section
801(a), and the terms ‘health insurance coverage’, ‘par-
ticipating employer’, and ‘health insurance issuer’ have
HR 2990 RDS
the meanings provided such terms in section 811, respec-
tively.’’.
(3) Section 514(b)(6)(A) of such Act (29
U.S.C. 1144(b)(6)(A)) is amended—
(A) in clause (i)(II), by striking ‘‘and’’ at
the end;
(B) in clause (ii), by inserting ‘‘and which
does not provide medical care (within the mean-
ing of section 733(a)(2)),’’ after ‘‘arrange-
ment,’’, and by striking ‘‘title.’’ and inserting
‘‘title, and’’; and
(C) by adding at the end the following new
clause:
‘‘(iii) subject to subparagraph (E), in the case
of any other employee welfare benefit plan which is
a multiple employer welfare arrangement and which
provides medical care (within the meaning of section
733(a)(2)), any law of any State which regulates in-
surance may apply.’’.
(4) Section 514(e) of such Act (as redesignated
by paragraph (2)(C)) is amended—
(A) by striking ‘‘Nothing’’ and inserting
‘‘(1) Except as provided in paragraph (2), noth-
ing’’; and
HR 2990 RDS
(B) by adding at the end the following new
paragraph:
‘‘(2) Nothing in any other provision of law enacted
on or after the date of the enactment of the Quality Care
for the Uninsured Act of 1999 shall be construed to alter,
amend, modify, invalidate, impair, or supersede any provi-
sion of this title, except by specific cross-reference to the
affected section.’’.
(c) PLAN SPONSOR.—Section 3(16)(B) of such Act
(29 U.S.C. 102(16)(B)) is amended by adding at the end
the following new sentence: ‘‘Such term also includes a
person serving as the sponsor of an association health plan
under part 8.’’.
(d) DISCLOSURE OF SOLVENCY PROTECTIONS RE-
LATED TO SELF-INSURED AND FULLY INSURED OPTIONS
UNDER ASSOCIATION HEALTH PLANS.—Section 102(b)
of such Act (29 U.S.C. 102(b)) is amended by adding at
the end the following: ‘‘An association health plan shall
include in its summary plan description, in connection
with each benefit option, a description of the form of sol-
vency or guarantee fund protection secured pursuant to
this Act or applicable State law, if any.’’.
(e) SAVINGS CLAUSE.—Section 731(c) of such Act is
amended by inserting ‘‘or part 8’’ after ‘‘this part’’.
HR 2990 RDS
(f) REPORT TO THE CONGRESS REGARDING CERTIFI-
CATION
OF
SELF-INSURED
ASSOCIATION
HEALTH
PLANS.—Not later than January 1, 2004, the Secretary
of Labor shall report to the Committee on Education and
the Workforce of the House of Representatives and the
Committee on Health, Education, Labor, and Pensions of
the Senate the effect association health plans have had,
if any, on reducing the number of uninsured individuals.
(g) CLERICAL AMENDMENT.—The table of contents
in section 1 of the Employee Retirement Income Security
Act of 1974 is amended by inserting after the item relat-
ing to section 734 the following new items:
‘‘PART 8—RULES GOVERNING ASSOCIATION HEALTH PLANS
‘‘Sec. 801. Association health plans.
‘‘Sec. 802. Certification of association health plans.
‘‘Sec. 803. Requirements relating to sponsors and boards of trustees.
‘‘Sec. 804. Participation and coverage requirements.
‘‘Sec. 805. Other requirements relating to plan documents, contribution rates,
and benefit options.
‘‘Sec. 806. Maintenance of reserves and provisions for solvency for plans pro-
viding health benefits in addition to health insurance coverage.
‘‘Sec. 807. Requirements for application and related requirements.
‘‘Sec. 808. Notice requirements for voluntary termination.
‘‘Sec. 809. Corrective actions and mandatory termination.
‘‘Sec. 810. Trusteeship by the Secretary of insolvent association health plans
providing health benefits in addition to health insurance cov-
erage.
‘‘Sec. 811. State assessment authority.
‘‘Sec. 812. Special rules for church plans.
‘‘Sec. 813. Definitions and rules of construction.’’.
HR 2990 RDS
SEC. 302. CLARIFICATION OF TREATMENT OF SINGLE EM-
PLOYER ARRANGEMENTS.
Section 3(40)(B) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1002(40)(B)) is
amended—
(1) in clause (i), by inserting ‘‘for any plan year
of any such plan, or any fiscal year of any such
other arrangement;’’ after ‘‘single employer’’, and by
inserting ‘‘during such year or at any time during
the preceding 1-year period’’ after ‘‘control group’’;
(2) in clause (iii)—
(A) by striking ‘‘common control shall not
be based on an interest of less than 25 percent’’
and inserting ‘‘an interest of greater than 25
percent may not be required as the minimum
interest necessary for common control’’; and
(B) by striking ‘‘similar to’’ and inserting
‘‘consistent and coextensive with’’;
(3) by redesignating clauses (iv) and (v) as
clauses (v) and (vi), respectively; and
(4) by inserting after clause (iii) the following
new clause:
‘‘(iv) in determining, after the application of
clause (i), whether benefits are provided to employ-
ees of two or more employers, the arrangement shall
be treated as having only one participating employer
HR 2990 RDS
if, after the application of clause (i), the number of
individuals who are employees and former employees
of any one participating employer and who are cov-
ered under the arrangement is greater than 75 per-
cent of the aggregate number of all individuals who
are employees or former employees of participating
employers and who are covered under the arrange-
ment;’’.
SEC. 303. CLARIFICATION OF TREATMENT OF CERTAIN
COLLECTIVELY 
BARGAINED 
ARRANGE-
MENTS.
(a) IN GENERAL.—Section 3(40)(A)(i) of the Em-
ployee Retirement Income Security Act of 1974 (29
U.S.C. 1002(40)(A)(i)) is amended to read as follows:
‘‘(i)(I) under or pursuant to one or more collec-
tive bargaining agreements which are reached pursu-
ant to collective bargaining described in section 8(d)
of the National Labor Relations Act (29 U.S.C.
158(d)) or paragraph Fourth of section 2 of the
Railway Labor Act (45 U.S.C. 152, paragraph
Fourth) or which are reached pursuant to labor-
management negotiations under similar provisions of
State public employee relations laws, and (II) in ac-
cordance with subparagraphs (C), (D), and (E);’’.
HR 2990 RDS
(b) LIMITATIONS.—Section 3(40) of such Act (29
U.S.C. 1002(40)) is amended by adding at the end the
following new subparagraphs:
‘‘(C) For purposes of subparagraph (A)(i)(II), a plan
or other arrangement shall be treated as established or
maintained in accordance with this subparagraph only if
the following requirements are met:
‘‘(i) The plan or other arrangement, and the
employee organization or any other entity sponsoring
the plan or other arrangement, do not—
‘‘(I) utilize the services of any licensed in-
surance agent or broker for soliciting or enroll-
ing employers or individuals as participating
employers or covered individuals under the plan
or other arrangement; or
‘‘(II) pay any type of compensation to a
person, other than a full time employee of the
employee organization (or a member of the or-
ganization to the extent provided in regulations
prescribed by the Secretary through negotiated
rulemaking), that is related either to the volume
or number of employers or individuals solicited
or enrolled as participating employers or cov-
ered individuals under the plan or other ar-
rangement, or to the dollar amount or size of
100
HR 2990 RDS
the contributions made by participating employ-
ers or covered individuals to the plan or other
arrangement;
except to the extent that the services used by the
plan, arrangement, organization, or other entity con-
sist solely of preparation of documents necessary for
compliance with the reporting and disclosure re-
quirements of part 1 or administrative, investment,
or consulting services unrelated to solicitation or en-
rollment of covered individuals.
‘‘(ii) As of the end of the preceding plan year,
the number of covered individuals under the plan or
other arrangement who are neither—
‘‘(I) employed within a bargaining unit
covered by any of the collective bargaining
agreements with a participating employer (nor
covered on the basis of an individual’s employ-
ment in such a bargaining unit); nor
‘‘(II) present employees (or former employ-
ees who were covered while employed) of the
sponsoring employee organization, of an em-
ployer who is or was a party to any of the col-
lective bargaining agreements, or of the plan or
other arrangement or a related plan or arrange-
101
HR 2990 RDS
ment (nor covered on the basis of such present
or former employment);
does not exceed 15 percent of the total number of
individuals who are covered under the plan or ar-
rangement and who are present or former employees
who are or were covered under the plan or arrange-
ment pursuant to a collective bargaining agreement
with a participating employer. The requirements of
the preceding provisions of this clause shall be treat-
ed as satisfied if, as of the end of the preceding plan
year, such covered individuals are comprised solely
of individuals who were covered individuals under
the plan or other arrangement as of the date of the
enactment of the Quality Care for the Uninsured
Act of 1999 and, as of the end of the preceding plan
year, the number of such covered individuals does
not exceed 25 percent of the total number of present
and former employees enrolled under the plan or
other arrangement.
‘‘(iii) The employee organization or other entity
sponsoring the plan or other arrangement certifies
to the Secretary each year, in a form and manner
which shall be prescribed by the Secretary through
negotiated rulemaking that the plan or other ar-
102
HR 2990 RDS
rangement meets the requirements of clauses (i) and
(ii).
‘‘(D) For purposes of subparagraph (A)(i)(II), a plan
or arrangement shall be treated as established or main-
tained in accordance with this subparagraph only if—
‘‘(i) all of the benefits provided under the plan
or arrangement consist of health insurance coverage;
or
‘‘(ii)(I) the plan or arrangement is a multiem-
ployer plan; and
‘‘(II) the requirements of clause (B) of the pro-
viso to clause (5) of section 302(c) of the Labor
Management Relations Act, 1947 (29 U.S.C.
186(c)) are met with respect to such plan or other
arrangement.
‘‘(E) For purposes of subparagraph (A)(i)(II), a plan
or arrangement shall be treated as established or main-
tained in accordance with this subparagraph only if—
‘‘(i) the plan or arrangement is in effect as of
the date of the enactment of the Quality Care for
the Uninsured Act of 1999; or
‘‘(ii) the employee organization or other entity
sponsoring the plan or arrangement—
‘‘(I) has been in existence for at least 3
years; or
103
HR 2990 RDS
‘‘(II) demonstrates to the satisfaction of
the Secretary that the requirements of subpara-
graphs (C) and (D) are met with respect to the
plan or other arrangement.’’.
(c) CONFORMING AMENDMENTS TO DEFINITIONS OF
PARTICIPANT AND BENEFICIARY.—Section 3(7) of such
Act (29 U.S.C. 1002(7)) is amended by adding at the end
the following new sentence: ‘‘Such term includes an indi-
vidual who is a covered individual described in paragraph
(40)(C)(ii).’’.
SEC. 304. ENFORCEMENT PROVISIONS.
(a) CRIMINAL PENALTIES FOR CERTAIN WILLFUL
MISREPRESENTATIONS.—Section 501 of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1131)
is amended—
(1) by inserting ‘‘(a)’’ after ‘‘SEC. 501.’’; and
(2) by adding at the end the following new sub-
section:
‘‘(b) Any person who willfully falsely represents, to
any employee, any employee’s beneficiary, any employer,
the Secretary, or any State, a plan or other arrangement
established or maintained for the purpose of offering or
providing any benefit described in section 3(1) to employ-
ees or their beneficiaries as—
104
HR 2990 RDS
‘‘(1) being an association health plan which has
been certified under part 8;
‘‘(2) having been established or maintained
under or pursuant to one or more collective bar-
gaining agreements which are reached pursuant to
collective bargaining described in section 8(d) of the
National Labor Relations Act (29 U.S.C. 158(d)) or
paragraph Fourth of section 2 of the Railway Labor
Act (45 U.S.C. 152, paragraph Fourth) or which are
reached pursuant to labor-management negotiations
under similar provisions of State public employee re-
lations laws; or
‘‘(3) being a plan or arrangement with respect
to which the requirements of subparagraph (C), (D),
or (E) of section 3(40) are met;
shall, upon conviction, be imprisoned not more than 5
years, be fined under title 18, United States Code, or
both.’’.
(b) CEASE ACTIVITIES ORDERS.—Section 502 of
such Act (29 U.S.C. 1132) is amended by adding at the
end the following new subsection:
‘‘(n)(1) Subject to paragraph (2), upon application
by the Secretary showing the operation, promotion, or
marketing of an association health plan (or similar ar-
105
HR 2990 RDS
rangement providing benefits consisting of medical care
(as defined in section 733(a)(2))) that—
‘‘(A) is not certified under part 8, is subject
under section 514(b)(6) to the insurance laws of any
State in which the plan or arrangement offers or
provides benefits, and is not licensed, registered, or
otherwise approved under the insurance laws of such
State; or
‘‘(B) is an association health plan certified
under part 8 and is not operating in accordance with
the requirements under part 8 for such certification,
a district court of the United States shall enter an order
requiring that the plan or arrangement cease activities.
‘‘(2) Paragraph (1) shall not apply in the case of an
association health plan or other arrangement if the plan
or arrangement shows that—
‘‘(A) all benefits under it referred to in para-
graph (1) consist of health insurance coverage; and
‘‘(B) with respect to each State in which the
plan or arrangement offers or provides benefits, the
plan or arrangement is operating in accordance with
applicable State laws that are not superseded under
section 514.
‘‘(3) The court may grant such additional equitable
relief, including any relief available under this title, as it
106
HR 2990 RDS
deems necessary to protect the interests of the public and
of persons having claims for benefits against the plan.’’.
(c) RESPONSIBILITY
FOR CLAIMS PROCEDURE.—
Section 503 of such Act (29 U.S.C. 1133) (as amended
by title XIII) is amended by adding at the end the fol-
lowing new subsection:
‘‘(c) ASSOCIATION HEALTH PLANS.—The terms of
each association health plan which is or has been certified
under part 8 shall require the board of trustees or the
named fiduciary (as applicable) to ensure that the require-
ments of this section are met in connection with claims
filed under the plan.’’.
SEC. 305. COOPERATION BETWEEN FEDERAL AND STATE
AUTHORITIES.
Section 506 of the Employee Retirement Income Se-
curity Act of 1974 (29 U.S.C. 1136) is amended by adding
at the end the following new subsection:
‘‘(c) RESPONSIBILITY OF STATES WITH RESPECT TO
ASSOCIATION HEALTH PLANS.—
‘‘(1) AGREEMENTS
WITH
STATES.—A State
may enter into an agreement with the Secretary for
delegation to the State of some or all of—
‘‘(A) the Secretary’s authority under sec-
tions 502 and 504 to enforce the requirements
for certification under part 8;
107
HR 2990 RDS
‘‘(B) the Secretary’s authority to certify
association health plans under part 8 in accord-
ance with regulations of the Secretary applica-
ble to certification under part 8; or
‘‘(C) any combination of the Secretary’s
authority authorized to be delegated under sub-
paragraphs (A) and (B).
‘‘(2) DELEGATIONS.—Any department, agency,
or instrumentality of a State to which authority is
delegated pursuant to an agreement entered into
under this paragraph may, if authorized under State
law and to the extent consistent with such agree-
ment, exercise the powers of the Secretary under
this title which relate to such authority.
‘‘(3) RECOGNITION
OF
PRIMARY
DOMICILE
STATE.—In entering into any agreement with a
State under subparagraph (A), the Secretary shall
ensure that, as a result of such agreement and all
other agreements entered into under subparagraph
(A), only one State will be recognized, with respect
to any particular association health plan, as the
State to which all authority has been delegated pur-
suant to such agreements in connection with such
plan. In carrying out this paragraph, the Secretary
shall take into account the places of residence of the
108
HR 2990 RDS
participants and beneficiaries under the plan and the
State in which the trust is maintained.’’.
SEC. 306. EFFECTIVE DATE AND TRANSITIONAL AND
OTHER RULES.
(a) EFFECTIVE DATE.—The amendments made by
sections 301, 304, and 305 shall take effect on January
1, 2001. The amendments made by sections 302 and 303
shall take effect on the date of the enactment of this Act.
The Secretary of Labor shall first issue all regulations
necessary to carry out the amendments made by this title
before January 1, 2001. Such regulations shall be issued
through negotiated rulemaking.
(b) EXCEPTION.—Section 801(a)(2) of the Employee
Retirement Income Security Act of 1974 (added by section
301) does not apply in connection with an association
health plan (certified under part 8 of subtitle B of title
I of such Act) existing on the date of the enactment of
this Act, if no benefits provided thereunder as of the date
of the enactment of this Act consist of health insurance
coverage (as defined in section 733(b)(1) of such Act).
(c) TREATMENT
OF CERTAIN EXISTING HEALTH
BENEFITS PROGRAMS.—
(1) IN GENERAL.—In any case in which, as of
the date of the enactment of this Act, an arrange-
ment is maintained in a State for the purpose of
109
HR 2990 RDS
providing benefits consisting of medical care for the
employees and beneficiaries of its participating em-
ployers, at least 200 participating employers make
contributions to such arrangement, such arrange-
ment has been in existence for at least 10 years, and
such arrangement is licensed under the laws of one
or more States to provide such benefits to its par-
ticipating employers, upon the filing with the appli-
cable authority (as defined in section 813(a)(5) of
the Employee Retirement Income Security Act of
1974 (as amended by this Act)) by the arrangement
of an application for certification of the arrangement
under part 8 of subtitle B of title I of such Act—
(A) such arrangement shall be deemed to
be a group health plan for purposes of title I
of such Act;
(B) the requirements of sections 801(a)(1)
and 803(a)(1) of the Employee Retirement In-
come Security Act of 1974 shall be deemed met
with respect to such arrangement;
(C) the requirements of section 803(b) of
such Act shall be deemed met, if the arrange-
ment is operated by a board of directors
which—
110
HR 2990 RDS
(i) is elected by the participating em-
ployers, with each employer having one
vote; and
(ii) has complete fiscal control over
the arrangement and which is responsible
for all operations of the arrangement;
(D) the requirements of section 804(a) of
such Act shall be deemed met with respect to
such arrangement; and
(E) the arrangement may be certified by
any applicable authority with respect to its op-
erations in any State only if it operates in such
State on the date of certification.
The provisions of this subsection shall cease to apply
with respect to any such arrangement at such time
after the date of the enactment of this Act as the
applicable requirements of this subsection are not
met with respect to such arrangement.
(2) DEFINITIONS.—For purposes of this sub-
section, the terms ‘‘group health plan’’, ‘‘medical
care’’, and ‘‘participating employer’’ shall have the
meanings provided in section 813 of the Employee
Retirement Income Security Act of 1974, except
that the reference in paragraph (7) of such section
to an ‘‘association health plan’’ shall be deemed a
111
HR 2990 RDS
reference to an arrangement referred to in this sub-
section.
(d) PROMOTING USE OF CERTAIN ADDITIONAL AS-
SOCIATIONS IN PROVIDING INDIVIDUAL HEALTH INSUR-
ANCE COVERAGE.—Section 2742(b)(5) of the Public
Health Service Act (42 U.S.C. 300gg–42(b)(5)) is
amended—
(1) by striking ‘‘paragraph’’ and inserting ‘‘sub-
paragraph’’;
(2) by inserting ‘‘(A)’’ after ‘‘.—’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(B)(i) In the case of health insurance coverage
that is made available in the individual market only
through one or more associations described in clause
(ii), the membership of the individual in the associa-
tion (on the basis of which the coverage is provided)
ceases but only if such coverage is terminated under
this subparagraph uniformly without regard to any
health status-related factor of covered individuals
and only if the individual is entitled, upon applica-
tion and without furnishing evidence of insurability,
to health insurance conversion coverage that meets
and is subject to all the rules and regulations of the
State in which application is made.
112
HR 2990 RDS
‘‘(ii) An association described in this clause is
an organization that meets the requirements for a
bona fide organization described in subparagraphs
(A), (B), (C), (E) and (F) of section 2791(d)(3)
and, except in the case of an association that enrolls
individual members who each pay their own indi-
vidual membership dues, which provides that all
members and dependents of members are eligible for
coverage offered through the association regardless
of any health status-related factor.’’.
TITLE 
IV—GREATER 
ACCESS
AND 
CHOICE 
THROUGH
HEALTHMARTS
SEC. 401. EXPANSION OF CONSUMER CHOICE THROUGH
HEALTHMARTS.
(a) IN GENERAL.—The Public Health Service Act is
amended by adding at the end the following new title:
‘‘TITLE XXVIII—HEALTHMARTS
‘‘SEC. 2801. DEFINITION OF HEALTHMART.
‘‘(a) IN GENERAL.—For purposes of this title, the
term ‘HealthMart’ means a legal entity that meets the fol-
lowing requirements:
‘‘(1) ORGANIZATION.—The HealthMart is a
nonprofit organization operated under the direction
of a board of directors which is composed of rep-
113
HR 2990 RDS
resentatives of not fewer than two and in equal
numbers from each of the following:
‘‘(A) Small employers.
‘‘(B) Employees of small employers.
‘‘(C) Health care providers, which may be
physicians, other health care professionals,
health care facilities, or any combination there-
of.
‘‘(D) Entities, such as insurance compa-
nies, health maintenance organizations, and li-
censed provider-sponsored organizations, that
underwrite or administer health benefits cov-
erage.
‘‘(2) 
OFFERING
HEALTH
BENEFITS
COV-
ERAGE.—
‘‘(A) IN
GENERAL.—The HealthMart, in
conjunction with those health insurance issuers
that offer health benefits coverage through the
HealthMart, makes available health benefits
coverage in the manner described in subsection
(b) to all small employers and eligible employees
in the manner described in subsection (c)(2) at
rates (including employer’s and employee’s
share) that are established by the health insur-
ance issuer on a policy or product specific basis
114
HR 2990 RDS
and that may vary only as permissible under
State law. A HealthMart is deemed to be a
group health plan for purposes of applying sec-
tion 702 of the Employee Retirement Income
Security Act of 1974, section 2702 of this Act,
and section 9802(b) of the Internal Revenue
Code of 1986 (which limit variation among
similarly situated individuals of required pre-
miums for health benefits coverage on the basis
of health status-related factors).
‘‘(B) NONDISCRIMINATION
IN
COVERAGE
OFFERED.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), the HealthMart may not offer health
benefits coverage to an eligible employee in
a geographic area (as specified under para-
graph (3)(A)) unless the same coverage is
offered to all such employees in the same
geographic area. Section 2711(a)(1)(B) of
this Act limits denial of enrollment of cer-
tain eligible individuals under health bene-
fits coverage in the small group market.
‘‘(ii) 
CONSTRUCTION.—Nothing 
in
this title shall be construed as requiring or
permitting a health insurance issuer to
115
HR 2990 RDS
provide coverage outside the service area of
the issuer, as approved under State law.
‘‘(C) NO FINANCIAL UNDERWRITING.—The
HealthMart provides health benefits coverage
only through contracts with health insurance
issuers and does not assume insurance risk with
respect to such coverage.
(D) MINIMUM COVERAGE.—By the end of
the first year of its operation and thereafter,
the HealthMart maintains not fewer than 10
purchasers and 100 members.
‘‘(3) GEOGRAPHIC AREAS.—
‘‘(A) 
SPECIFICATION
OF
GEOGRAPHIC
AREAS.—The HealthMart shall specify the geo-
graphic area (or areas) in which it makes avail-
able health benefits coverage offered by health
insurance issuers to small employers. Such an
area shall encompass at least one entire county
or equivalent area.
‘‘(B) MULTISTATE AREAS.—In the case of
a HealthMart that serves more than one State,
such geographic areas may be areas that in-
clude portions of two or more contiguous
States.
116
HR 2990 RDS
‘‘(C) 
MULTIPLE
HEALTHMARTS
PER-
MITTED IN SINGLE GEOGRAPHIC AREA.—Noth-
ing in this title shall be construed as preventing
the establishment and operation of more than
one HealthMart in a geographic area or as lim-
iting the number of HealthMarts that may op-
erate in any area.
‘‘(4) PROVISION OF ADMINISTRATIVE SERVICES
TO PURCHASERS.—
‘‘(A) IN GENERAL.—The HealthMart pro-
vides administrative services for purchasers.
Such services may include accounting, billing,
enrollment information, and employee coverage
status reports.
‘‘(B) CONSTRUCTION.—Nothing in this
subsection shall be construed as preventing a
HealthMart from serving as an administrative
service organization to any entity.
‘‘(5) DISSEMINATION
OF
INFORMATION.—The
HealthMart collects and disseminates (or arranges
for the collection and dissemination of) consumer-
oriented information on the scope, cost, and enrollee
satisfaction of all coverage options offered through
the HealthMart to its members and eligible individ-
uals. Such information shall be defined by the
117
HR 2990 RDS
HealthMart and shall be in a manner appropriate to
the type of coverage offered. To the extent prac-
ticable, such information shall include information
on provider performance, locations and hours of op-
eration of providers, outcomes, and similar matters.
Nothing in this section shall be construed as pre-
venting the dissemination of such information or
other information by the HealthMart or by health
insurance issuers through electronic or other means.
‘‘(6) 
FILING
INFORMATION.—The 
Health-
Mart—
‘‘(A) files with the applicable Federal au-
thority information that demonstrates the
HealthMart’s compliance with the applicable re-
quirements of this title; or
‘‘(B) in accordance with rules established
under section 2803(a), files with a State such
information as the State may require to dem-
onstrate such compliance.
‘‘(b) HEALTH
BENEFITS
COVERAGE
REQUIRE-
MENTS.—
‘‘(1) COMPLIANCE
WITH
CONSUMER
PROTEC-
TION REQUIREMENTS.—Any health benefits coverage
offered through a HealthMart shall—
118
HR 2990 RDS
‘‘(A) be underwritten by a health insurance
issuer that—
‘‘(i) is licensed (or otherwise regu-
lated) under State law (or is a community
health organization that is offering health
insurance coverage pursuant to section
330B(a));
‘‘(ii) meets all applicable State stand-
ards relating to consumer protection, sub-
ject to section 2802(b); and
‘‘(iii) offers the coverage under a con-
tract with the HealthMart;
‘‘(B) subject to paragraph (2), be approved
or otherwise permitted to be offered under
State law; and
‘‘(C) provide full portability of creditable
coverage for individuals who remain members of
the same HealthMart notwithstanding that they
change the employer through which they are
members in accordance with the provisions of
the parts 6 and 7 of subtitle B of title I of the
Employee Retirement Income Security Act of
1974 and titles XXII and XXVII of this Act,
so long as both employers are purchasers in the
HealthMart.
119
HR 2990 RDS
‘‘(2) ALTERNATIVE PROCESS FOR APPROVAL OF
HEALTH BENEFITS COVERAGE IN CASE OF DISCRIMI-
NATION OR DELAY.—
‘‘(A) IN
GENERAL.—The requirement of
paragraph (1)(B) shall not apply to a policy or
product of health benefits coverage offered in a
State if the health insurance issuer seeking to
offer such policy or product files an application
to waive such requirement with the applicable
Federal authority, and the authority deter-
mines, based on the application and other evi-
dence presented to the authority, that—
‘‘(i) either (or both) of the grounds
described in subparagraph (B) for approval
of the application has been met; and
‘‘(ii) the coverage meets the applicable
State standards (other than those that
have been preempted under section 2802).
‘‘(B) GROUNDS.—The grounds described
in this subparagraph with respect to a policy or
product of health benefits coverage are as fol-
lows:
‘‘(i) FAILURE
TO
ACT
ON
POLICY,
PRODUCT, OR
RATE
APPLICATION
ON
A
TIMELY BASIS.—The State has failed to
120
HR 2990 RDS
complete action on the policy or product
(or rates for the policy or product) within
90 days of the date of the State’s receipt
of a substantially complete application. No
period before the date of the enactment of
this section shall be included in deter-
mining such 90-day period.
‘‘(ii) DENIAL OF APPLICATION BASED
ON
DISCRIMINATORY
TREATMENT.—The
State has denied such an application
and—
‘‘(I) the standards or review
process imposed by the State as a
condition of approval of the policy or
product imposes either any material
requirements, procedures, or stand-
ards to such policy or product that
are not generally applicable to other
policies and products offered or any
requirements 
that 
are 
preempted
under section 2802; or
‘‘(II) the State requires the
issuer, as a condition of approval of
the policy or product, to offer any pol-
121
HR 2990 RDS
icy or product other than such policy
or product.
‘‘(C) ENFORCEMENT.—In the case of a
waiver granted under subparagraph (A) to an
issuer with respect to a State, the Secretary
may enter into an agreement with the State
under which the State agrees to provide for
monitoring and enforcement activities with re-
spect to compliance of such an issuer and its
health insurance coverage with the applicable
State standards described in subparagraph
(A)(ii). Such monitoring and enforcement shall
be conducted by the State in the same manner
as the State enforces such standards with re-
spect to other health insurance issuers and
plans, without discrimination based on the type
of issuer to which the standards apply. Such an
agreement shall specify or establish mechanisms
by which compliance activities are undertaken,
while not lengthening the time required to re-
view and process applications for waivers under
subparagraph (A).
‘‘(3) EXAMPLES OF TYPES OF COVERAGE.—The
health benefits coverage made available through a
HealthMart may include, but is not limited to, any
122
HR 2990 RDS
of the following if it meets the other applicable re-
quirements of this title:
‘‘(A) Coverage through a health mainte-
nance organization.
‘‘(B) Coverage in connection with a pre-
ferred provider organization.
‘‘(C) Coverage in connection with a li-
censed provider-sponsored organization.
‘‘(D) Indemnity coverage through an insur-
ance company.
‘‘(E) Coverage offered in connection with a
contribution into a medical savings account or
flexible spending account.
‘‘(F) Coverage that includes a point-of-
service option.
‘‘(G) Coverage offered by a community
health organization (as defined in section
330B(e)).
‘‘(H) Any combination of such types of
coverage.
‘‘(4) WELLNESS BONUSES FOR HEALTH PRO-
MOTION.—Nothing in this title shall be construed as
precluding a health insurance issuer offering health
benefits coverage through a HealthMart from estab-
lishing premium discounts or rebates for members or
123
HR 2990 RDS
from modifying otherwise applicable copayments or
deductibles in return for adherence to programs of
health promotion and disease prevention so long as
such programs are agreed to in advance by the
HealthMart and comply with all other provisions of
this title and do not discriminate among similarly
situated members.
‘‘(c) PURCHASERS; MEMBERS; HEALTH INSURANCE
ISSUERS.—
‘‘(1) PURCHASERS.—
‘‘(A) IN GENERAL.—Subject to the provi-
sions of this title, a HealthMart shall permit
any small employer to contract with the
HealthMart for the purchase of health benefits
coverage for its employees and dependents of
those employees and may not vary conditions of
eligibility (including premium rates and mem-
bership fees) of a small employer to be a pur-
chaser.
‘‘(B) ROLE
OF
ASSOCIATIONS, BROKERS,
AND LICENSED HEALTH INSURANCE AGENTS.—
Nothing in this section shall be construed as
preventing an association, broker, licensed
health insurance agent, or other entity from as-
sisting or representing a HealthMart or small
124
HR 2990 RDS
employers from entering into appropriate ar-
rangements to carry out this title.
‘‘(C) 
PERIOD
OF
CONTRACT.—The
HealthMart may not require a contract under
subparagraph (A) between a HealthMart and a
purchaser to be effective for a period of longer
than 12 months. The previous sentence shall
not be construed as preventing such a contract
from being extended for additional 12-month
periods or preventing the purchaser from volun-
tarily electing a contract period of longer than
12 months.
‘‘(D) 
EXCLUSIVE
NATURE
OF
CON-
TRACT.—Such a contract shall provide that the
purchaser agrees not to obtain or sponsor
health benefits coverage, on behalf of any eligi-
ble employees (and their dependents), other
than through the HealthMart. The previous
sentence shall not apply to an eligible individual
who resides in an area for which no coverage is
offered by any health insurance issuer through
the HealthMart.
‘‘(2) MEMBERS.—
‘‘(A) IN
GENERAL.—Under rules estab-
lished to carry out this title, with respect to a
125
HR 2990 RDS
small employer that has a purchaser contract
with a HealthMart, individuals who are employ-
ees of the employer may enroll for health bene-
fits coverage (including coverage for dependents
of such enrolling employees) offered by a health
insurance issuer through the HealthMart.
‘‘(B) NONDISCRIMINATION
IN
ENROLL-
MENT.—A HealthMart may not deny enroll-
ment as a member to an individual who is an
employee (or dependent of such an employee)
eligible to be so enrolled based on health status-
related factors, except as may be permitted con-
sistent with section 2742(b).
‘‘(C) ANNUAL
OPEN
ENROLLMENT
PE-
RIOD.—In the case of members enrolled in
health benefits coverage offered by a health in-
surance issuer through a HealthMart, subject
to subparagraph (D), the HealthMart shall pro-
vide for an annual open enrollment period of 30
days during which such members may change
the coverage option in which the members are
enrolled.
‘‘(D) RULES OF ELIGIBILITY.—Nothing in
this paragraph shall preclude a HealthMart
from establishing rules of employee eligibility
126
HR 2990 RDS
for enrollment and reenrollment of members
during the annual open enrollment period under
subparagraph (C). Such rules shall be applied
consistently to all purchasers and members
within the HealthMart and shall not be based
in any manner on health status-related factors
and may not conflict with sections 2701 and
2702 of this Act.
‘‘(3) HEALTH INSURANCE ISSUERS.—
‘‘(A) PREMIUM
COLLECTION.—The con-
tract between a HealthMart and a health insur-
ance issuer shall provide, with respect to a
member enrolled with health benefits coverage
offered by the issuer through the HealthMart,
for the payment of the premiums collected by
the HealthMart (or the issuer) for such cov-
erage (less a pre-determined administrative
charge negotiated by the HealthMart and the
issuer) to the issuer.
‘‘(B) SCOPE OF SERVICE AREA.—Nothing
in this title shall be construed as requiring the
service area of a health insurance issuer with
respect to health insurance coverage to cover
the entire geographic area served by a
HealthMart.
127
HR 2990 RDS
‘‘(C) AVAILABILITY
OF
COVERAGE
OP-
TIONS.—A HealthMart shall enter into con-
tracts with one or more health insurance issuers
in a manner that assures that at least two
health insurance coverage options are made
available in the geographic area specified under
subsection (a)(3)(A).
‘‘(d) PREVENTION OF CONFLICTS OF INTEREST.—
‘‘(1) FOR BOARDS OF DIRECTORS.—A member
of a board of directors of a HealthMart may not
serve as an employee or paid consultant to the
HealthMart, but may receive reasonable reimburse-
ment for travel expenses for purposes of attending
meetings of the board or committees thereof.
‘‘(2) FOR BOARDS OF DIRECTORS OR EMPLOY-
EES.—An individual is not eligible to serve in a paid
or unpaid capacity on the board of directors of a
HealthMart or as an employee of the HealthMart, if
the individual is employed by, represents in any ca-
pacity, owns, or controls any ownership interest in
a organization from whom the HealthMart receives
contributions, grants, or other funds not connected
with 
a 
contract 
for 
coverage 
through 
the
HealthMart.
128
HR 2990 RDS
‘‘(3) 
EMPLOYMENT
AND
EMPLOYEE
REP-
RESENTATIVES.—
‘‘(A) IN GENERAL.—An individual who is
serving on a board of directors of a HealthMart
as a representative described in subparagraph
(A) or (B) of section 2801(a)(1) shall not be
employed by or affiliated with a health insur-
ance issuer or be licensed as or employed by or
affiliated with a health care provider.
‘‘(B) CONSTRUCTION.—For purposes of
subparagraph (A), the term ‘‘affiliated’’ does
not include membership in a health benefits
plan or the obtaining of health benefits cov-
erage offered by a health insurance issuer.
‘‘(e) CONSTRUCTION.—
‘‘(1) 
NETWORK
OF
AFFILIATED
HEALTHMARTS.—Nothing in this section shall be
construed as preventing one or more HealthMarts
serving different areas (whether or not contiguous)
from providing for some or all of the following
(through a single administrative organization or oth-
erwise):
‘‘(A) Coordinating the offering of the same
or similar health benefits coverage in different
areas served by the different HealthMarts.
129
HR 2990 RDS
‘‘(B) Providing for crediting of deductibles
and other cost-sharing for individuals who are
provided health benefits coverage through the
HealthMarts 
(or 
affiliated 
HealthMarts)
after—
‘‘(i) a change of employers through
which the coverage is provided; or
‘‘(ii) a change in place of employment
to an area not served by the previous
HealthMart.
‘‘(2) PERMITTING
HEALTHMARTS
TO
ADJUST
DISTRIBUTIONS AMONG ISSUERS TO REFLECT REL-
ATIVE RISK OF ENROLLEES.—Nothing in this sec-
tion shall be construed as precluding a HealthMart
from providing for adjustments in amounts distrib-
uted among the health insurance issuers offering
health benefits coverage through the HealthMart
based on factors such as the relative health care risk
of members enrolled under the coverage offered by
the different issuers.
‘‘(3) APPLICATION OF UNIFORM MINIMUM PAR-
TICIPATION
AND
CONTRIBUTION
RULES.—Nothing
in this section shall be construed as precluding a
HealthMart from establishing minimum participa-
tion and contribution rules (described in section
130
HR 2990 RDS
2711(e)(1)) for small employers that apply to be-
come purchasers in the HealthMart, so long as such
rules are applied uniformly for all health insurance
issuers.
‘‘SEC. 2802. APPLICATION OF CERTAIN LAWS AND REQUIRE-
MENTS.
‘‘(a) AUTHORITY OF STATES.—Nothing in this sec-
tion shall be construed as preempting State laws relating
to the following:
‘‘(1) The regulation of underwriters of health
coverage, including licensure and solvency require-
ments.
‘‘(2) The application of premium taxes and re-
quired payments for guaranty funds or for contribu-
tions to high-risk pools.
‘‘(3) The application of fair marketing require-
ments and other consumer protections (other than
those specifically relating to an item described in
subsection (b)).
‘‘(4) The application of requirements relating to
the adjustment of rates for health insurance cov-
erage.
‘‘(b) TREATMENT OF BENEFIT AND GROUPING RE-
QUIREMENTS.—State laws insofar as they relate to any
of the following are superseded and shall not apply to
131
HR 2990 RDS
health benefits coverage made available through a
HealthMart:
‘‘(1) Benefit requirements for health benefits
coverage offered through a HealthMart, including
(but not limited to) requirements relating to cov-
erage of specific providers, specific services or condi-
tions, or the amount, duration, or scope of benefits,
but not including requirements to the extent re-
quired to implement title XXVII or other Federal
law and to the extent the requirement prohibits an
exclusion of a specific disease from such coverage.
‘‘(2) Requirements (commonly referred to as
fictitious group laws) relating to grouping and simi-
lar requirements for such coverage to the extent
such requirements impede the establishment and op-
eration of HealthMarts pursuant to this title.
‘‘(3) Any other requirements (including limita-
tions on compensation arrangements) that, directly
or indirectly, preclude (or have the effect of pre-
cluding) the offering of such coverage through a
HealthMart, if the HealthMart meets the require-
ments of this title.
Any State law or regulation relating to the composition
or organization of a HealthMart is preempted to the ex-
132
HR 2990 RDS
tent the law or regulation is inconsistent with the provi-
sions of this title.
‘‘(c) APPLICATION OF ERISA FIDUCIARY AND DIS-
CLOSURE REQUIREMENTS.—The board of directors of a
HealthMart is deemed to be a plan administrator of an
employee welfare benefit plan which is a group health plan
for purposes of applying parts 1 and 4 of subtitle B of
title I of the Employee Retirement Income Security Act
of 1974 and those provisions of part 5 of such subtitle
which are applicable to enforcement of such parts 1 and
4, and the HealthMart shall be treated as such a plan
and the enrollees shall be treated as participants and bene-
ficiaries for purposes of applying such provisions pursuant
to this subsection.
‘‘(d) APPLICATION OF ERISA RENEWABILITY PRO-
TECTION.—A HealthMart is deemed to be a group health
plan that is a multiple employer welfare arrangement for
purposes of applying section 703 of the Employee Retire-
ment Income Security Act of 1974.
‘‘(e) APPLICATION OF RULES FOR NETWORK PLANS
AND
FINANCIAL
CAPACITY.—The provisions of sub-
sections (c) and (d) of section 2711 apply to health bene-
fits coverage offered by a health insurance issuer through
a HealthMart.
133
HR 2990 RDS
‘‘(f) CONSTRUCTION RELATING TO OFFERING RE-
QUIREMENT.—Nothing in section 2711(a) of this Act or
703 of the Employee Retirement Income Security Act of
1974 shall be construed as permitting the offering outside
the HealthMart of health benefits coverage that is only
made available through a HealthMart under this section
because of the application of subsection (b).
‘‘(g) APPLICATION TO GUARANTEED RENEWABILITY
REQUIREMENTS IN CASE OF DISCONTINUATION OF AN
ISSUER.—For purposes of applying section 2712 in the
case of health insurance coverage offered by a health in-
surance issuer through a HealthMart, if the contract be-
tween the HealthMart and the issuer is terminated and
the HealthMart continues to make available any health in-
surance coverage after the date of such termination, the
following rules apply:
‘‘(1) RENEWABILITY.—The HealthMart shall
fulfill the obligation under such section of the issuer
renewing and continuing in force coverage by offer-
ing purchasers (and members and their dependents)
all available health benefits coverage that would oth-
erwise be available to similarly-situated purchasers
and members from the remaining participating
health insurance issuers in the same manner as
would be required of issuers under section 2712(c).
134
HR 2990 RDS
‘‘(2) APPLICATION OF ASSOCIATION RULES.—
The HealthMart shall be considered an association
for purposes of applying section 2712(e).
‘‘(h) CONSTRUCTION
IN RELATION
TO CERTAIN
OTHER LAWS.—Nothing in this title shall be construed
as modifying or affecting the applicability to HealthMarts
or health benefits coverage offered by a health insurance
issuer through a HealthMart of parts 6 and 7 of subtitle
B of title I of the Employee Retirement Income Security
Act of 1974 or titles XXII and XXVII of this Act.
‘‘SEC. 2803. ADMINISTRATION.
‘‘(a) IN GENERAL.—The applicable Federal authority
shall administer this title through the division established
under subsection (b) and is authorized to issue such regu-
lations as may be required to carry out this title. Such
regulations shall be subject to Congressional review under
the provisions of chapter 8 of title 5, United States Code.
The applicable Federal authority shall incorporate the
process of ‘deemed file and use’ with respect to the infor-
mation filed under section 2801(a)(6)(A) and shall deter-
mine whether information filed by a HealthMart dem-
onstrates compliance with the applicable requirements of
this title. Such authority shall exercise its authority under
this title in a manner that fosters and promotes the devel-
135
HR 2990 RDS
opment of HealthMarts in order to improve access to
health care coverage and services.
‘‘(b) ADMINISTRATION THROUGH HEALTH CARE
MARKETPLACE DIVISION.—
‘‘(1) IN GENERAL.—The applicable Federal au-
thority shall carry out its duties under this title
through a separate Health Care Marketplace Divi-
sion, the sole duty of which (including the staff of
which) shall be to administer this title.
‘‘(2) ADDITIONAL
DUTIES.—In addition to
other responsibilities provided under this title, such
Division is responsible for—
‘‘(A) 
oversight 
of 
the 
operations 
of
HealthMarts under this title; and
‘‘(B) the periodic submittal to Congress of
reports on the performance of HealthMarts
under this title under subsection (c).
‘‘(c) PERIODIC REPORTS.—The applicable Federal
authority shall submit to Congress a report every 30
months, during the 10-year period beginning on the effec-
tive date of the rules promulgated by the applicable Fed-
eral authority to carry out this title, on the effectiveness
of this title in promoting coverage of uninsured individ-
uals. Such authority may provide for the production of
136
HR 2990 RDS
such reports through one or more contracts with appro-
priate private entities.
‘‘SEC. 2804. DEFINITIONS.
‘‘For purposes of this title:
‘‘(1) APPLICABLE FEDERAL AUTHORITY.—The
term ‘applicable Federal authority’ means the Sec-
retary of Health and Human Services.
‘‘(2) ELIGIBLE
EMPLOYEE
OR
INDIVIDUAL.—
The term ‘eligible’ means, with respect to an em-
ployee or other individual and a HealthMart, an em-
ployee or individual who is eligible under section
2801(c)(2) to enroll or be enrolled in health benefits
coverage offered through the HealthMart.
‘‘(3) EMPLOYER; EMPLOYEE; DEPENDENT.—
Except as the applicable Federal authority may oth-
erwise provide, the terms ‘employer’, ‘employee’, and
‘dependent’, as applied to health insurance coverage
offered by a health insurance issuer licensed (or oth-
erwise regulated) in a State, shall have the meanings
applied to such terms with respect to such coverage
under the laws of the State relating to such coverage
and such an issuer.
‘‘(4) HEALTH BENEFITS COVERAGE.—The term
‘health benefits coverage’ has the meaning given the
137
HR 2990 RDS
term group health insurance coverage in section
2791(b)(4).
‘‘(5) HEALTH INSURANCE ISSUER.—The term
‘health insurance issuer’ has the meaning given such
term in section 2791(b)(2) and includes a commu-
nity health organization that is offering coverage
pursuant to section 330B(a).
‘‘(6) HEALTH STATUS-RELATED FACTOR.—The
term ‘health status-related factor’ has the meaning
given such term in section 2791(d)(9).
‘‘(7) HEALTHMART.—The term ‘HealthMart’ is
defined in section 2801(a).
‘‘(8) MEMBER.—The term ‘member’ means,
with respect to a HealthMart, an individual enrolled
for health benefits coverage through the HealthMart
under section 2801(c)(2).
‘‘(9) 
PURCHASER.—The 
term 
‘purchaser’
means, with respect to a HealthMart, a small em-
ployer 
that 
has 
contracted 
under 
section
2801(c)(1)(A) with the HealthMart for the purchase
of health benefits coverage.
‘‘(10) SMALL EMPLOYER.—The term ‘small em-
ployer’ has the meaning given such term for pur-
poses of title XXVII.’’.
138
HR 2990 RDS
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on January 1, 2000. The
Secretary of Health and Human Services shall first issue
all regulations necessary to carry out such amendment be-
fore such date.
TITLE V—COMMUNITY HEALTH
ORGANIZATIONS
SEC. 501. PROMOTION OF PROVISION OF INSURANCE BY
COMMUNITY HEALTH ORGANIZATIONS.
(a) WAIVER OF STATE LICENSURE REQUIREMENT
FOR COMMUNITY HEALTH ORGANIZATIONS IN CERTAIN
CASES.—Subpart I of part D of title III of the Public
Health Service Act is amended by adding at the end the
following new section:
‘‘WAIVER OF STATE LICENSURE REQUIREMENT FOR
COMMUNITY HEALTH ORGANIZATIONS IN CERTAIN CASES
‘‘SEC. 330D. (a) WAIVER AUTHORIZED.—
‘‘(1) IN GENERAL.—A community health orga-
nization may offer health insurance coverage in a
State notwithstanding that it is not licensed in such
a State to offer such coverage if—
‘‘(A) the organization files an application
for waiver of the licensure requirement with the
Secretary of Health and Human Services (in
this section referred to as the ‘Secretary’) by
not later than November 1, 2005; and
139
HR 2990 RDS
‘‘(B) the Secretary determines, based on
the application and other evidence presented to
the Secretary, that any of the grounds for ap-
proval of the application described in subpara-
graph (A), (B), or (C) of paragraph (2) has
been met.
‘‘(2) GROUNDS FOR APPROVAL OF WAIVER.—
‘‘(A) FAILURE TO ACT ON LICENSURE AP-
PLICATION ON A TIMELY BASIS.—The ground
for approval of such a waiver application de-
scribed in this subparagraph is that the State
has failed to complete action on a licensing ap-
plication of the organization within 90 days of
the date of the State’s receipt of a substantially
complete application. No period before the date
of the enactment of this section shall be in-
cluded in determining such 90-day period.
‘‘(B) DENIAL OF APPLICATION BASED ON
DISCRIMINATORY TREATMENT.—The ground for
approval of such a waiver application described
in this subparagraph is that the State has de-
nied such a licensing application and the stand-
ards or review process imposed by the State as
a condition of approval of the license or as the
basis for such denial by the State imposes any
140
HR 2990 RDS
material requirements, procedures, or standards
(other than solvency requirements) to such or-
ganizations that are not generally applicable to
other entities engaged in a substantially similar
business.
‘‘(C) DENIAL OF APPLICATION BASED ON
APPLICATION OF SOLVENCY REQUIREMENTS.—
With respect to waiver applications filed on or
after the date of publication of solvency stand-
ards established by the Secretary under sub-
section (d), the ground for approval of such a
waiver application described in this subpara-
graph is that the State has denied such a li-
censing application based (in whole or in part)
on the organization’s failure to meet applicable
State solvency requirements and such require-
ments are not the same as the solvency stand-
ards established by the Secretary. For purposes
of this subparagraph, the term solvency require-
ments means requirements relating to solvency
and other matters covered under the standards
established by the Secretary under subsection
(d).
141
HR 2990 RDS
‘‘(3) TREATMENT OF WAIVER.—In the case of
a waiver granted under this subsection for a commu-
nity health organization with respect to a State—
‘‘(A) LIMITATION TO STATE.—The waiver
shall be effective only with respect to that State
and does not apply to any other State.
‘‘(B) LIMITATION TO 36-MONTH PERIOD.—
The waiver shall be effective only for a 36-
month period but may be renewed for up to 36
additional months if the Secretary determines
that such an extension is appropriate.
‘‘(C) CONDITIONED ON COMPLIANCE WITH
CONSUMER PROTECTION AND QUALITY STAND-
ARDS.—The continuation of the waiver is condi-
tioned upon the organization’s compliance with
the requirements described in paragraph (5).
‘‘(D) PREEMPTION OF STATE LAW.—Any
provisions of law of that State which relate to
the licensing of the organization and which pro-
hibit the organization from providing health in-
surance coverage shall be superseded.
‘‘(4) PROMPT ACTION ON APPLICATION.—The
Secretary shall grant or deny such a waiver applica-
tion within 60 days after the date the Secretary de-
termines that a substantially complete waiver appli-
142
HR 2990 RDS
cation has been filed. Nothing in this section shall
be construed as preventing an organization which
has had such a waiver application denied from sub-
mitting a subsequent waiver application.
‘‘(5) APPLICATION
AND
ENFORCEMENT
OF
STATE
CONSUMER
PROTECTION
AND
QUALITY
STANDARDS.—A waiver granted under this sub-
section to an organization with respect to licensing
under State law is conditioned upon the organiza-
tion’s compliance with all consumer protection and
quality standards insofar as such standards—
‘‘(A) would apply in the State to the com-
munity health organization if it were licensed as
an entity offering health insurance coverage
under State law; and
‘‘(B) are generally applicable to other risk-
bearing managed care organizations and plans
in the State.
‘‘(6) REPORT.—By not later than December 31,
2004, the Secretary shall submit to the Committee
on Commerce of the House of Representatives and
the Committee on Labor and Human Resources of
the Senate a report regarding whether the waiver
process under this subsection should be continued
after December 31, 2005.
143
HR 2990 RDS
‘‘(b) ASSUMPTION OF FULL FINANCIAL RISK.—To
qualify for a waiver under subsection (a), the community
health organization shall assume full financial risk on a
prospective basis for the provision of covered health care
services, except that the organization—
‘‘(1) may obtain insurance or make other ar-
rangements for the cost of providing to any enrolled
member such services the aggregate value of which
exceeds such aggregate level as the Secretary speci-
fies from time to time;
‘‘(2) may obtain insurance or make other ar-
rangements for the cost of such services provided to
its enrolled members other than through the organi-
zation because medical necessity required their pro-
vision before they could be secured through the orga-
nization;
‘‘(3) may obtain insurance or make other ar-
rangements for not more than 90 percent of the
amount by which its costs for any of its fiscal years
exceed 105 percent of its income for such fiscal year;
and
‘‘(4) may make arrangements with physicians
or other health care professionals, health care insti-
tutions, or any combination of such individuals or
institutions to assume all or part of the financial
144
HR 2990 RDS
risk on a prospective basis for the provision of
health services by the physicians or other health pro-
fessionals or through the institutions.
‘‘(c) CERTIFICATION OF PROVISION AGAINST RISK
OF INSOLVENCY FOR UNLICENSED CHOS.—
‘‘(1) IN GENERAL.—Each community health or-
ganization that is not licensed by a State and for
which a waiver application has been approved under
subsection (a)(1), shall meet standards established
by the Secretary under subsection (d) relating to the
financial solvency and capital adequacy of the orga-
nization.
‘‘(2) CERTIFICATION PROCESS FOR SOLVENCY
STANDARDS FOR CHOS.—The Secretary shall estab-
lish a process for the receipt and approval of appli-
cations of a community health organization de-
scribed in paragraph (1) for certification (and peri-
odic recertification) of the organization as meeting
such solvency standards. Under such process, the
Secretary shall act upon such a certification applica-
tion not later than 60 days after the date the appli-
cation has been received.
‘‘(d) ESTABLISHMENT
OF SOLVENCY STANDARDS
FOR COMMUNITY HEALTH ORGANIZATIONS.—
145
HR 2990 RDS
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish, on an expedited basis and by rule pursuant to
section 553 of title 5, United States Code and
through the Health Resources and Services Adminis-
tration, standards described in subsection (c)(1) (re-
lating to financial solvency and capital adequacy)
that entities must meet to obtain a waiver under
subsection (a)(2)(C). In establishing such standards,
the Secretary shall consult with interested organiza-
tions, including the National Association of Insur-
ance Commissioners, the Academy of Actuaries, and
organizations representing Federally qualified health
centers.
‘‘(2) FACTORS
TO
CONSIDER
FOR
SOLVENCY
STANDARDS.—In establishing solvency standards for
community health organizations under paragraph
(1), the Secretary shall take into account—
‘‘(A) the delivery system assets of such an
organization and ability of such an organization
to provide services to enrollees;
‘‘(B) alternative means of protecting
against insolvency, including reinsurance, unre-
stricted surplus, letters of credit, guarantees,
organizational insurance coverage, partnerships
with other licensed entities, and valuation at-
146
HR 2990 RDS
tributable to the ability of such an organization
to meet its service obligations through direct
delivery of care; and
‘‘(C) any standards developed by the Na-
tional Association of Insurance Commissioners
specifically for risk-based health care delivery
organizations.
‘‘(3) ENROLLEE PROTECTION AGAINST INSOL-
VENCY.—Such standards shall include provisions to
prevent enrollees from being held liable to any per-
son or entity for the organization’s debts in the
event of the organization’s insolvency.
‘‘(4) DEADLINE.—Such standards shall be pro-
mulgated in a manner so they are first effective by
not later than April 1, 2000.
‘‘(e) DEFINITIONS.—In this section:
‘‘(1) COMMUNITY
HEALTH
ORGANIZATION.—
The term ‘community health organization’ means an
organization that is a Federally-qualified health cen-
ter or is controlled by one or more Federally-quali-
fied health centers.
‘‘(2) FEDERALLY-QUALIFIED
HEALTH
CEN-
TER.—The term ‘Federally-qualified health center’
has the meaning given such term in section
1905(l)(2)(B) of the Social Security Act.
147
HR 2990 RDS
‘‘(3) HEALTH
INSURANCE
COVERAGE.—The
term ‘health insurance coverage’ has the meaning
given such term in section 2791(b)(1).
‘‘(4) CONTROL.—The term ‘control’ means the
possession, whether direct or indirect, of the power
to direct or cause the direction of the management
and policies of the organization through member-
ship, board representation, or an ownership interest
equal to or greater than 50.1 percent.’’.
DIVISION B—BIPARTISAN CON-
SENSUS MANAGED CARE IM-
PROVEMENT ACT OF 1999
SEC. 1001. SHORT TITLE OF DIVISION; TABLE OF CONTENTS
OF DIVISION.
(a) SHORT TITLE OF DIVISION.—This division may
be cited as the ‘‘Bipartisan Consensus Managed Care Im-
provement Act of 1999’’.
(b) TABLE OF CONTENTS OF DIVISION.—The table
of contents of this division is as follows:
Sec. 1001. Short title; table of contents.
TITLE XI—IMPROVING MANAGED CARE
Subtitle A—Grievances and Appeals
Sec. 1101. Utilization review activities.
Sec. 1102. Internal appeals procedures.
Sec. 1103. External appeals procedures.
Sec. 1104. Establishment of a grievance process.
Subtitle B—Access to Care
Sec. 1111. Consumer choice option.
Sec. 1112. Choice of health care professional.
148
HR 2990 RDS
Sec. 1113. Access to emergency care.
Sec. 1114. Access to specialty care.
Sec. 1115. Access to obstetrical and gynecological care.
Sec. 1116. Access to pediatric care.
Sec. 1117. Continuity of care.
Sec. 1118. Access to needed prescription drugs.
Sec. 1119. Coverage for individuals participating in approved clinical trials.
Subtitle C—Access to Information
Sec. 1121. Patient access to information.
Subtitle D—Protecting the Doctor-Patient Relationship
Sec. 1131. Prohibition of interference with certain medical communications.
Sec. 1132. Prohibition of discrimination against providers based on licensure.
Sec. 1133. Prohibition against improper incentive arrangements.
Sec. 1134. Payment of claims.
Sec. 1135. Protection for patient advocacy.
Subtitle E—Definitions
Sec. 1151. Definitions.
Sec. 1152. Preemption; State flexibility; construction.
Sec. 1153. Exclusions.
Sec. 1154. Coverage of limited scope plans.
Sec. 1155. Regulations.
TITLE XII—APPLICATION OF QUALITY CARE STANDARDS TO
GROUP HEALTH PLANS AND HEALTH INSURANCE COVERAGE
UNDER THE PUBLIC HEALTH SERVICE ACT
Sec. 1201. Application to group health plans and group health insurance cov-
erage.
Sec. 1202. Application to individual health insurance coverage.
TITLE XIII—AMENDMENTS TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974
Sec. 1301. Application of patient protection standards to group health plans
and group health insurance coverage under the Employee Re-
tirement Income Security Act of 1974.
Sec. 1302. ERISA preemption not to apply to certain actions involving health
insurance policyholders.
Sec. 1303. Limitations on actions.
TITLE XIV—APPLICATION TO GROUP HEALTH PLANS UNDER
THE INTERNAL REVENUE CODE OF 1986
Sec. 1401. Amendments to the Internal Revenue Code of 1986.
TITLE XV—EFFECTIVE DATES; COORDINATION IN
IMPLEMENTATION
Sec. 1501. Effective dates.
Sec. 1502. Coordination in implementation.
149
HR 2990 RDS
TITLE XVI—HEALTH CARE PAPERWORK SIMPLIFICATION
Sec. 1601. Health care paperwork simplification.
TITLE XI—IMPROVING MANAGED
CARE
Subtitle A—Grievance and Appeals
SEC. 1101. UTILIZATION REVIEW ACTIVITIES.
(a) COMPLIANCE WITH REQUIREMENTS.—
(1) IN GENERAL.—A group health plan, and a
health insurance issuer that provides health insur-
ance coverage, shall conduct utilization review activi-
ties in connection with the provision of benefits
under such plan or coverage only in accordance with
a utilization review program that meets the require-
ments of this section.
(2) USE OF OUTSIDE AGENTS.—Nothing in this
section shall be construed as preventing a group
health plan or health insurance issuer from arrang-
ing through a contract or otherwise for persons or
entities to conduct utilization review activities on be-
half of the plan or issuer, so long as such activities
are conducted in accordance with a utilization review
program that meets the requirements of this section.
(3) UTILIZATION REVIEW DEFINED.—For pur-
poses of this section, the terms ‘‘utilization review’’
and ‘‘utilization review activities’’ mean procedures
used to monitor or evaluate the use or coverage,
150
HR 2990 RDS
clinical necessity, appropriateness, efficacy, or effi-
ciency of health care services, procedures or settings,
and includes prospective review, concurrent review,
second opinions, case management, discharge plan-
ning, or retrospective review.
(b) WRITTEN POLICIES AND CRITERIA.—
(1) WRITTEN POLICIES.—A utilization review
program shall be conducted consistent with written
policies and procedures that govern all aspects of the
program.
(2) USE OF WRITTEN CRITERIA.—
(A) IN GENERAL.—Such a program shall
utilize written clinical review criteria developed
with input from a range of appropriate actively
practicing health care professionals, as deter-
mined by the plan, pursuant to the program.
Such criteria shall include written clinical re-
view criteria that are based on valid clinical evi-
dence where available and that are directed spe-
cifically at meeting the needs of at-risk popu-
lations and covered individuals with chronic
conditions or severe illnesses, including gender-
specific criteria and pediatric-specific criteria
where available and appropriate.
151
HR 2990 RDS
(B) CONTINUING USE OF STANDARDS IN
RETROSPECTIVE
REVIEW.—If a health care
service has been specifically pre-authorized or
approved for an enrollee under such a program,
the program shall not, pursuant to retrospective
review, revise or modify the specific standards,
criteria, or procedures used for the utilization
review for procedures, treatment, and services
delivered to the enrollee during the same course
of treatment.
(C) REVIEW OF SAMPLE OF CLAIMS DENI-
ALS.—Such a program shall provide for an
evaluation of the clinical appropriateness of at
least a sample of denials of claims for benefits.
(c) CONDUCT OF PROGRAM ACTIVITIES.—
(1) ADMINISTRATION BY HEALTH CARE PRO-
FESSIONALS.—A utilization review program shall be
administered by qualified health care professionals
who shall oversee review decisions.
(2) USE
OF
QUALIFIED, INDEPENDENT
PER-
SONNEL.—
(A) IN
GENERAL.—A utilization review
program shall provide for the conduct of utiliza-
tion review activities only through personnel
who are qualified and have received appropriate
152
HR 2990 RDS
training in the conduct of such activities under
the program.
(B) PROHIBITION
OF
CONTINGENT
COM-
PENSATION ARRANGEMENTS.—Such a program
shall not, with respect to utilization review ac-
tivities, permit or provide compensation or any-
thing of value to its employees, agents, or con-
tractors in a manner that encourages denials of
claims for benefits.
(C) PROHIBITION OF CONFLICTS.—Such a
program shall not permit a health care profes-
sional who is providing health care services to
an individual to perform utilization review ac-
tivities in connection with the health care serv-
ices being provided to the individual.
(3) ACCESSIBILITY OF REVIEW.—Such a pro-
gram shall provide that appropriate personnel per-
forming utilization review activities under the pro-
gram, including the utilization review administrator,
are reasonably accessible by toll-free telephone dur-
ing normal business hours to discuss patient care
and allow response to telephone requests, and that
appropriate provision is made to receive and respond
promptly to calls received during other hours.
153
HR 2990 RDS
(4) LIMITS ON FREQUENCY.—Such a program
shall not provide for the performance of utilization
review activities with respect to a class of services
furnished to an individual more frequently than is
reasonably required to assess whether the services
under review are medically necessary or appropriate.
(d) DEADLINE FOR DETERMINATIONS.—
(1) PRIOR AUTHORIZATION SERVICES.—
(A) IN GENERAL.—Except as provided in
paragraph (2), in the case of a utilization re-
view activity involving the prior authorization of
health care items and services for an individual,
the utilization review program shall make a de-
termination concerning such authorization, and
provide notice of the determination to the indi-
vidual or the individual’s designee and the indi-
vidual’s health care provider by telephone and
in printed form, as soon as possible in accord-
ance with the medical exigencies of the case,
and in no event later than the deadline specified
in subparagraph (B).
(B) DEADLINE.—
(i) IN GENERAL.—Subject to clauses
(ii) and (iii), the deadline specified in this
subparagraph is 14 days after the date of
154
HR 2990 RDS
receipt of the request for prior authoriza-
tion.
(ii) EXTENSION
PERMITTED
WHERE
NOTICE OF ADDITIONAL INFORMATION RE-
QUIRED.—If 
a 
utilization 
review
program—
(I) receives a request for a prior
authorization;
(II) determines that additional
information is necessary to complete
the review and make the determina-
tion on the request; and
(III) notifies the requester, not
later than five business days after the
date of receiving the request, of the
need for such specified additional in-
formation,
the deadline specified in this subparagraph
is 14 days after the date the program re-
ceives the specified additional information,
but in no case later than 28 days after the
date of receipt of the request for the prior
authorization. This clause shall not apply
if the deadline is specified in clause (iii).
155
HR 2990 RDS
(iii) EXPEDITED CASES.—In the case
of 
a 
situation 
described 
in 
section
102(c)(1)(A), the deadline specified in this
subparagraph is 72 hours after the time of
the request for prior authorization.
(2) ONGOING CARE.—
(A) CONCURRENT REVIEW.—
(i) IN GENERAL.—Subject to subpara-
graph (B), in the case of a concurrent re-
view of ongoing care (including hospitaliza-
tion), which results in a termination or re-
duction of such care, the plan must provide
by telephone and in printed form notice of
the concurrent review determination to the
individual or the individual’s designee and
the individual’s health care provider as
soon as possible in accordance with the
medical exigencies of the case, with suffi-
cient time prior to the termination or re-
duction to allow for an appeal under sec-
tion 102(c)(1)(A) to be completed before
the termination or reduction takes effect.
(ii) CONTENTS OF NOTICE.—Such no-
tice shall include, with respect to ongoing
health care items and services, the number
156
HR 2990 RDS
of ongoing services approved, the new total
of approved services, the date of onset of
services, and the next review date, if any,
as well as a statement of the individual’s
rights to further appeal.
(B) EXCEPTION.—Subparagraph (A) shall
not be interpreted as requiring plans or issuers
to provide coverage of care that would exceed
the coverage limitations for such care.
(3) PREVIOUSLY PROVIDED SERVICES.—In the
case of a utilization review activity involving retro-
spective review of health care services previously pro-
vided for an individual, the utilization review pro-
gram shall make a determination concerning such
services, and provide notice of the determination to
the individual or the individual’s designee and the
individual’s health care provider by telephone and in
printed form, within 30 days of the date of receipt
of information that is reasonably necessary to make
such determination, but in no case later than 60
days after the date of receipt of the claim for bene-
fits.
(4) FAILURE TO MEET DEADLINE.—In a case
in which a group health plan or health insurance
issuer fails to make a determination on a claim for
157
HR 2990 RDS
benefit under paragraph (1), (2)(A), or (3) by the
applicable deadline established under the respective
paragraph, the failure shall be treated under this
subtitle as a denial of the claim as of the date of the
deadline.
(5) REFERENCE TO SPECIAL RULES FOR EMER-
GENCY SERVICES, MAINTENANCE CARE, AND POST-
STABILIZATION CARE.—For waiver of prior author-
ization requirements in certain cases involving emer-
gency services and maintenance care and post-sta-
bilization care, see subsections (a)(1) and (b) of sec-
tion 1113, respectively.
(e) NOTICE OF DENIALS OF CLAIMS FOR BENE-
FITS.—
(1) IN GENERAL.—Notice of a denial of claims
for benefits under a utilization review program shall
be provided in printed form and written in a manner
calculated to be understood by the participant, bene-
ficiary, or enrollee and shall include—
(A) the reasons for the denial (including
the clinical rationale);
(B) instructions on how to initiate an ap-
peal under section 1102; and
(C) notice of the availability, upon request
of the individual (or the individual’s designee)
158
HR 2990 RDS
of the clinical review criteria relied upon to
make such denial.
(2) SPECIFICATION OF ANY ADDITIONAL INFOR-
MATION.—Such a notice shall also specify what (if
any) additional necessary information must be pro-
vided to, or obtained by, the person making the de-
nial in order to make a decision on such an appeal.
(f) CLAIM FOR BENEFITS AND DENIAL OF CLAIM
FOR BENEFITS DEFINED.—For purposes of this subtitle:
(1) CLAIM FOR BENEFITS.—The term ‘‘claim
for benefits’’ means any request for coverage (in-
cluding authorization of coverage), for eligibility, or
for payment in whole or in part, for an item or serv-
ice under a group health plan or health insurance
coverage.
(2) DENIAL
OF
CLAIM
FOR
BENEFITS.—The
term ‘‘denial’’ means, with respect to a claim for
benefits, a denial, or a failure to act on a timely
basis upon, in whole or in part, the claim for bene-
fits and includes a failure to provide benefits (in-
cluding items and services) required to be provided
under this title.
SEC. 1102. INTERNAL APPEALS PROCEDURES.
(a) RIGHT OF REVIEW.—
159
HR 2990 RDS
(1) IN GENERAL.—Each group health plan, and
each health insurance issuer offering health insur-
ance coverage—
(A) shall provide adequate notice in writ-
ing to any participant or beneficiary under such
plan, or enrollee under such coverage, whose
claim for benefits under the plan or coverage
has been denied (within the meaning of section
1101(f)(2)), setting forth the specific reasons
for such denial of claim for benefits and rights
to any further review or appeal, written in a
manner calculated to be understood by the par-
ticipant, beneficiary, or enrollee; and
(B) shall afford such a participant, bene-
ficiary, or enrollee (and any provider or other
person acting on behalf of such an individual
with the individual’s consent or without such
consent if the individual is medically unable to
provide such consent) who is dissatisfied with
such a denial of claim for benefits a reasonable
opportunity (of not less than 180 days) to re-
quest and obtain a full and fair review by a
named fiduciary (with respect to such plan) or
named appropriate individual (with respect to
160
HR 2990 RDS
such coverage) of the decision denying the
claim.
(2) TREATMENT OF ORAL REQUESTS.—The re-
quest for review under paragraph (1)(B) may be
made orally, but, in the case of an oral request, shall
be followed by a request in writing.
(b) INTERNAL REVIEW PROCESS.—
(1) CONDUCT OF REVIEW.—
(A) IN GENERAL.—A review of a denial of
claim under this section shall be made by an in-
dividual who—
(i) in a case involving medical judg-
ment, shall be a physician or, in the case
of limited scope coverage (as defined in
subparagraph (B), shall be an appropriate
specialist;
(ii) has been selected by the plan or
issuer; and
(iii) did not make the initial denial in
the internally appealable decision.
(B) 
LIMITED
SCOPE
COVERAGE
DE-
FINED.—For purposes of subparagraph (A), the
term ‘‘limited scope coverage’’ means a group
health plan or health insurance coverage the
only benefits under which are for benefits de-
161
HR 2990 RDS
scribed in section 2791(c)(2)(A) of the Public
Health Service Act (42 U.S.C. 300gg–91(c)(2)).
(2) TIME LIMITS FOR INTERNAL REVIEWS.—
(A) IN GENERAL.—Having received such a
request for review of a denial of claim, the plan
or issuer shall, in accordance with the medical
exigencies of the case but not later than the
deadline specified in subparagraph (B), com-
plete the review on the denial and transmit to
the participant, beneficiary, enrollee, or other
person involved a decision that affirms, re-
verses, or modifies the denial. If the decision
does not reverse the denial, the plan or issuer
shall transmit, in printed form, a notice that
sets forth the grounds for such decision and
that includes a description of rights to any fur-
ther appeal. Such decision shall be treated as
the final decision of the plan. Failure to issue
such a decision by such deadline shall be treat-
ed as a final decision affirming the denial of
claim.
(B) DEADLINE.—
(i) IN GENERAL.—Subject to clauses
(ii) and (iii), the deadline specified in this
162
HR 2990 RDS
subparagraph is 14 days after the date of
receipt of the request for internal review.
(ii) EXTENSION
PERMITTED
WHERE
NOTICE OF ADDITIONAL INFORMATION RE-
QUIRED.—If a group health plan or health
insurance issuer—
(I) receives a request for internal
review;
(II) determines that additional
information is necessary to complete
the review and make the determina-
tion on the request; and
(III) notifies the requester, not
later than five business days after the
date of receiving the request, of the
need for such specified additional in-
formation,
the deadline specified in this subparagraph
is 14 days after the date the plan or issuer
receives the specified additional informa-
tion, but in no case later than 28 days
after the date of receipt of the request for
the internal review. This clause shall not
apply if the deadline is specified in clause
(iii).
163
HR 2990 RDS
(iii) EXPEDITED CASES.—In the case
of a situation described in subsection
(c)(1)(A), the deadline specified in this
subparagraph is 72 hours after the time of
the request for review.
(c) EXPEDITED REVIEW PROCESS.—
(1) IN GENERAL.—A group health plan, and a
health insurance issuer, shall establish procedures in
writing for the expedited consideration of requests
for review under subsection (b) in situations—
(A) in which the application of the normal
timeframe for making a determination could se-
riously jeopardize the life or health of the par-
ticipant, beneficiary, or enrollee or such an indi-
vidual’s ability to regain maximum function; or
(B) described in section 1101(d)(2) (relat-
ing to requests for continuation of ongoing care
which would otherwise be reduced or termi-
nated).
(2) PROCESS.—Under such procedures—
(A) the request for expedited review may
be submitted orally or in writing by an indi-
vidual or provider who is otherwise entitled to
request the review;
164
HR 2990 RDS
(B) all necessary information, including
the plan’s or issuer’s decision, shall be trans-
mitted between the plan or issuer and the re-
quester by telephone, facsimile, or other simi-
larly expeditious available method; and
(C) the plan or issuer shall expedite the re-
view in the case of any of the situations de-
scribed in subparagraph (A) or (B) of para-
graph (1).
(3) DEADLINE FOR DECISION.—The decision on
the expedited review must be made and commu-
nicated to the parties as soon as possible in accord-
ance with the medical exigencies of the case, and in
no event later than 72 hours after the time of re-
ceipt of the request for expedited review, except that
in a case described in paragraph (1)(B), the decision
must be made before the end of the approved period
of care.
(d) WAIVER OF PROCESS.—A plan or issuer may
waive its rights for an internal review under subsection
(b). In such case the participant, beneficiary, or enrollee
involved (and any designee or provider involved) shall be
relieved of any obligation to complete the review involved
and may, at the option of such participant, beneficiary,
enrollee, designee, or provider, proceed directly to seek
165
HR 2990 RDS
further appeal through any applicable external appeals
process.
SEC. 1103. EXTERNAL APPEALS PROCEDURES.
(a) RIGHT TO EXTERNAL APPEAL.—
(1) IN GENERAL.—A group health plan, and a
health insurance issuer offering health insurance
coverage, shall provide for an external appeals proc-
ess that meets the requirements of this section in
the case of an externally appealable decision de-
scribed in paragraph (2), for which a timely appeal
is made either by the plan or issuer or by the partic-
ipant, beneficiary, or enrollee (and any provider or
other person acting on behalf of such an individual
with the individual’s consent or without such consent
if such an individual is medically unable to provide
such consent). The appropriate Secretary shall es-
tablish standards to carry out such requirements.
(2) EXTERNALLY APPEALABLE DECISION DE-
FINED.—
(A) IN GENERAL.—For purposes of this
section, the term ‘‘externally appealable deci-
sion’’ means a denial of claim for benefits (as
defined in section 1101(f)(2))—
(i) that is based in whole or in part on
a decision that the item or service is not
166
HR 2990 RDS
medically necessary or appropriate or is in-
vestigational or experimental; or
(ii) in which the decision as to wheth-
er a benefit is covered involves a medical
judgment.
(B) INCLUSION.—Such term also includes
a failure to meet an applicable deadline for in-
ternal review under section 1102.
(C) EXCLUSIONS.—Such term does not
include—
(i) specific exclusions or express limi-
tations on the amount, duration, or scope
of coverage that do not involve medical
judgment; or
(ii) a decision regarding whether an
individual is a participant, beneficiary, or
enrollee under the plan or coverage.
(3) EXHAUSTION OF INTERNAL REVIEW PROC-
ESS.—Except as provided under section 1102(d), a
plan or issuer may condition the use of an external
appeal process in the case of an externally appeal-
able decision upon a final decision in an internal re-
view under section 1102, but only if the decision is
made in a timely basis consistent with the deadlines
provided under this subtitle.
167
HR 2990 RDS
(4) FILING FEE REQUIREMENT.—
(A) IN
GENERAL.—Subject to subpara-
graph (B), a plan or issuer may condition the
use of an external appeal process upon payment
to the plan or issuer of a filing fee that does
not exceed $25.
(B) EXCEPTION
FOR
INDIGENCY.—The
plan or issuer may not require payment of the
filing fee in the case of an individual partici-
pant, beneficiary, or enrollee who certifies (in a
form and manner specified in guidelines estab-
lished by the Secretary of Health and Human
Services) that the individual is indigent (as de-
fined in such guidelines).
(C) REFUNDING FEE IN CASE OF SUCCESS-
FUL APPEALS.—The plan or issuer shall refund
payment of the filing fee under this paragraph
if the recommendation of the external appeal
entity is to reverse or modify the denial of a
claim for benefits which is the subject of the
appeal.
(b) GENERAL ELEMENTS OF EXTERNAL APPEALS
PROCESS.—
(1) CONTRACT WITH QUALIFIED EXTERNAL AP-
PEAL ENTITY.—
168
HR 2990 RDS
(A) CONTRACT REQUIREMENT.—Except as
provided in subparagraph (D), the external ap-
peal process under this section of a plan or
issuer shall be conducted under a contract be-
tween the plan or issuer and one or more quali-
fied external appeal entities (as defined in sub-
section (c)).
(B) LIMITATION ON PLAN OR ISSUER SE-
LECTION.—The applicable authority shall im-
plement procedures—
(i) to assure that the selection process
among qualified external appeal entities
will not create any incentives for external
appeal entities to make a decision in a bi-
ased manner; and
(ii) for auditing a sample of decisions
by such entities to assure that no such de-
cisions are made in a biased manner.
(C) OTHER
TERMS
AND
CONDITIONS.—
The terms and conditions of a contract under
this paragraph shall be consistent with the
standards the appropriate Secretary shall estab-
lish to assure there is no real or apparent con-
flict of interest in the conduct of external ap-
peal activities. Such contract shall provide that
169
HR 2990 RDS
all costs of the process (except those incurred
by the participant, beneficiary, enrollee, or
treating professional in support of the appeal)
shall be paid by the plan or issuer, and not by
the participant, beneficiary, or enrollee. The
previous sentence shall not be construed as ap-
plying to the imposition of a filing fee under
subsection (a)(4).
(D) STATE
AUTHORITY
WITH
RESPECT
QUALIFIED
EXTERNAL
APPEAL
ENTITY
FOR
HEALTH INSURANCE ISSUERS.—With respect to
health insurance issuers offering health insur-
ance coverage in a State, the State may provide
for external review activities to be conducted by
a qualified external appeal entity that is des-
ignated by the State or that is selected by the
State in a manner determined by the State to
assure an unbiased determination.
(2) ELEMENTS OF PROCESS.—An external ap-
peal process shall be conducted consistent with
standards established by the appropriate Secretary
that include at least the following:
(A) FAIR
AND
DE
NOVO
DETERMINA-
TION.—The process shall provide for a fair, de
novo determination. However, nothing in this
170
HR 2990 RDS
paragraph shall be construed as providing for
coverage of items and services for which bene-
fits are specifically excluded under the plan or
coverage.
(B) STANDARD OF REVIEW.—An external
appeal entity shall determine whether the plan’s
or issuer’s decision is in accordance with the
medical needs of the patient involved (as deter-
mined by the entity) taking into account, as of
the time of the entity’s determination, the pa-
tient’s medical condition and any relevant and
reliable evidence the entity obtains under sub-
paragraph (D). If the entity determines the de-
cision is in accordance with such needs, the en-
tity shall affirm the decision and to the extent
that the entity determines the decision is not in
accordance with such needs, the entity shall re-
verse or modify the decision.
(C) CONSIDERATION
OF
PLAN
OR
COV-
ERAGE DEFINITIONS.—In making such deter-
mination, the external appeal entity shall con-
sider (but not be bound by) any language in the
plan or coverage document relating to the defi-
nitions of the terms medical necessity, medically
171
HR 2990 RDS
necessary or appropriate, or experimental, in-
vestigational, or related terms.
(D) EVIDENCE.—
(i) IN GENERAL.—An external appeal
entity shall include, among the evidence
taken into consideration—
(I) the decision made by the plan
or issuer upon internal review under
section 1102 and any guidelines or
standards used by the plan or issuer
in reaching such decision;
(II) any personal health and
medical information supplied with re-
spect to the individual whose denial of
claim for benefits has been appealed;
and
(III) the opinion of the individ-
ual’s treating physician or health care
professional.
(ii) ADDITIONAL
EVIDENCE.—Such
entity may also take into consideration but
not be limited to the following evidence (to
the extent available):
(I) The results of studies that
meet professionally recognized stand-
172
HR 2990 RDS
ards of validity and replicability or
that have been published in peer-re-
viewed journals.
(II) The results of professional
consensus conferences conducted or fi-
nanced in whole or in part by one or
more Government agencies.
(III) 
Practice 
and 
treatment
guidelines prepared or financed in
whole or in part by Government agen-
cies.
(IV) Government-issued coverage
and treatment policies.
(V) Community standard of care
and generally accepted principles of
professional medical practice.
(VI) To the extent that the entity
determines it to be free of any conflict
of interest, the opinions of individuals
who are qualified as experts in one or
more fields of health care which are
directly related to the matters under
appeal.
(VII) To the extent that the enti-
ty determines it to be free of any con-
173
HR 2990 RDS
flict of interest, the results of peer re-
views conducted by the plan or issuer
involved.
(E) DETERMINATION CONCERNING EXTER-
NALLY
APPEALABLE
DECISIONS.—A qualified
external appeal entity shall determine—
(i) whether a denial of claim for bene-
fits is an externally appealable decision
(within the meaning of subsection (a)(2));
(ii) whether an externally appealable
decision involves an expedited appeal; and
(iii) for purposes of initiating an ex-
ternal review, whether the internal review
process has been completed.
(F) 
OPPORTUNITY
TO
SUBMIT
EVI-
DENCE.—Each party to an externally appeal-
able decision may submit evidence related to the
issues in dispute.
(G) PROVISION
OF
INFORMATION.—The
plan or issuer involved shall provide timely ac-
cess to the external appeal entity to information
and to provisions of the plan or health insur-
ance coverage relating to the matter of the ex-
ternally appealable decision, as determined by
the entity.
174
HR 2990 RDS
(H) TIMELY DECISIONS.—A determination
by the external appeal entity on the decision
shall—
(i) be made orally or in writing and,
if it is made orally, shall be supplied to the
parties in writing as soon as possible;
(ii) be made in accordance with the
medical exigencies of the case involved, but
in no event later than 21 days after the
date (or, in the case of an expedited ap-
peal, 72 hours after the time) of requesting
an external appeal of the decision;
(iii) state, in layperson’s language, the
basis for the determination, including, if
relevant, any basis in the terms or condi-
tions of the plan or coverage; and
(iv) inform the participant, bene-
ficiary, or enrollee of the individual’s rights
(including any limitation on such rights) to
seek further review by the courts (or other
process) of the external appeal determina-
tion.
(I) COMPLIANCE WITH DETERMINATION.—
If the external appeal entity reverses or modi-
175
HR 2990 RDS
fies the denial of a claim for benefits, the plan
or issuer shall—
(i) upon the receipt of the determina-
tion, authorize benefits in accordance with
such determination;
(ii) take such actions as may be nec-
essary to provide benefits (including items
or services) in a timely manner consistent
with such determination; and
(iii) submit information to the entity
documenting compliance with the entity’s
determination and this subparagraph.
(c) QUALIFICATIONS OF EXTERNAL APPEAL ENTI-
TIES.—
(1) IN GENERAL.—For purposes of this section,
the term ‘‘qualified external appeal entity’’ means,
in relation to a plan or issuer, an entity that is cer-
tified under paragraph (2) as meeting the following
requirements:
(A) The entity meets the independence re-
quirements of paragraph (3).
(B) The entity conducts external appeal
activities through a panel of not fewer than
three clinical peers.
176
HR 2990 RDS
(C) The entity has sufficient medical, legal,
and other expertise and sufficient staffing to
conduct external appeal activities for the plan
or issuer on a timely basis consistent with sub-
section (b)(2)(G).
(D) The entity meets such other require-
ments as the appropriate Secretary may im-
pose.
(2) INITIAL CERTIFICATION OF EXTERNAL AP-
PEAL ENTITIES.—
(A) IN GENERAL.—In order to be treated
as a qualified external appeal entity with re-
spect to—
(i) a group health plan, the entity
must be certified (and, in accordance with
subparagraph (B), periodically recertified)
as meeting the requirements of paragraph
(1)—
(I) by the Secretary of Labor;
(II) under a process recognized
or approved by the Secretary of
Labor; or
(III) to the extent provided in
subparagraph (C)(i), by a qualified
private standard-setting organization
177
HR 2990 RDS
(certified under such subparagraph);
or
(ii) a health insurance issuer oper-
ating in a State, the entity must be cer-
tified (and, in accordance with subpara-
graph (B), periodically recertified) as
meeting such requirements—
(I) by the applicable State au-
thority (or under a process recognized
or approved by such authority); or
(II) if the State has not estab-
lished a certification and recertifi-
cation process for such entities, by the
Secretary of Health and Human Serv-
ices, under a process recognized or ap-
proved by such Secretary, or to the
extent 
provided 
in 
subparagraph
(C)(ii), by a qualified private stand-
ard-setting 
organization 
(certified
under such subparagraph).
(B) RECERTIFICATION PROCESS.—The ap-
propriate Secretary shall develop standards for
the recertification of external appeal entities.
Such standards shall include a review of—
(i) the number of cases reviewed;
178
HR 2990 RDS
(ii) a summary of the disposition of
those cases;
(iii) the length of time in making de-
terminations on those cases;
(iv) updated information of what was
required to be submitted as a condition of
certification for the entity’s performance of
external appeal activities; and
(v) such information as may be nec-
essary to assure the independence of the
entity from the plans or issuers for which
external appeal activities are being con-
ducted.
(C) CERTIFICATION
OF
QUALIFIED
PRI-
VATE STANDARD-SETTING ORGANIZATIONS.—
(i) FOR EXTERNAL REVIEWS UNDER
GROUP HEALTH PLANS.—For purposes of
subparagraph (A)(i)(III), the Secretary of
Labor may provide for a process for certifi-
cation (and periodic recertification) of
qualified private standard-setting organiza-
tions which provide for certification of ex-
ternal review entities. Such an organization
shall only be certified if the organization
does not certify an external review entity
179
HR 2990 RDS
unless it meets standards required for cer-
tification of such an entity by such Sec-
retary under subparagraph (A)(i)(I).
(ii) FOR
EXTERNAL
REVIEWS
OF
HEALTH
INSURANCE
ISSUERS.—For pur-
poses of subparagraph (A)(ii)(II), the Sec-
retary of Health and Human Services may
provide for a process for certification (and
periodic recertification) of qualified private
standard-setting organizations which pro-
vide for certification of external review en-
tities. Such an organization shall only be
certified if the organization does not certify
an external review entity unless it meets
standards required for certification of such
an entity by such Secretary under subpara-
graph (A)(ii)(II).
(3) INDEPENDENCE REQUIREMENTS.—
(A) IN GENERAL.—A clinical peer or other
entity meets the independence requirements of
this paragraph if—
(i) the peer or entity does not have a
familial, financial, or professional relation-
ship with any related party;
180
HR 2990 RDS
(ii) any compensation received by such
peer or entity in connection with the exter-
nal review is reasonable and not contingent
on any decision rendered by the peer or en-
tity;
(iii) except as provided in paragraph
(4), the plan and the issuer have no re-
course against the peer or entity in connec-
tion with the external review; and
(iv) the peer or entity does not other-
wise have a conflict of interest with a re-
lated party as determined under any regu-
lations which the Secretary may prescribe.
(B) RELATED
PARTY.—For purposes of
this paragraph, the term ‘‘related party’’
means—
(i) with respect to—
(I) a group health plan or health
insurance coverage offered in connec-
tion with such a plan, the plan or the
health insurance issuer offering such
coverage; or
(II) individual health insurance
coverage, the health insurance issuer
offering such coverage,
181
HR 2990 RDS
or any plan sponsor, fiduciary, officer, di-
rector, or management employee of such
plan or issuer;
(ii) the health care professional that
provided the health care involved in the
coverage decision;
(iii) the institution at which the health
care involved in the coverage decision is
provided;
(iv) the manufacturer of any drug or
other item that was included in the health
care involved in the coverage decision; or
(v) any other party determined under
any regulations which the Secretary may
prescribe to have a substantial interest in
the coverage decision.
(4) LIMITATION
ON
LIABILITY
OF
REVIEW-
ERS.—No qualified external appeal entity having a
contract with a plan or issuer under this part and
no person who is employed by any such entity or
who furnishes professional services to such entity,
shall be held by reason of the performance of any
duty, function, or activity required or authorized
pursuant to this section, to have violated any crimi-
nal law, or to be civilly liable under any law of the
182
HR 2990 RDS
United States or of any State (or political subdivi-
sion thereof) if due care was exercised in the per-
formance of such duty, function, or activity and
there was no actual malice or gross misconduct in
the performance of such duty, function, or activity.
(d) EXTERNAL APPEAL DETERMINATION BINDING
ON PLAN.—The determination by an external appeal enti-
ty under this section is binding on the plan and issuer
involved in the determination.
(e) PENALTIES AGAINST AUTHORIZED OFFICIALS
FOR REFUSING TO AUTHORIZE THE DETERMINATION OF
AN EXTERNAL REVIEW ENTITY.—
(1) MONETARY
PENALTIES.—In any case in
which the determination of an external review entity
is not followed by a group health plan, or by a
health insurance issuer offering health insurance
coverage, any person who, acting in the capacity of
authorizing the benefit, causes such refusal may, in
the discretion in a court of competent jurisdiction,
be liable to an aggrieved participant, beneficiary, or
enrollee for a civil penalty in an amount of up to
$1,000 a day from the date on which the determina-
tion was transmitted to the plan or issuer by the ex-
ternal review entity until the date the refusal to pro-
vide the benefit is corrected.
183
HR 2990 RDS
(2) CEASE AND DESIST ORDER AND ORDER OF
ATTORNEY’S
FEES.—In any action described in
paragraph (1) brought by a participant, beneficiary,
or enrollee with respect to a group health plan, or
a health insurance issuer offering health insurance
coverage, in which a plaintiff alleges that a person
referred to in such paragraph has taken an action
resulting in a refusal of a benefit determined by an
external appeal entity in violation of such terms of
the plan, coverage, or this subtitle, or has failed to
take an action for which such person is responsible
under the plan, coverage, or this title and which is
necessary under the plan or coverage for authorizing
a benefit, the court shall cause to be served on the
defendant an order requiring the defendant—
(A) to cease and desist from the alleged
action or failure to act; and
(B) to pay to the plaintiff a reasonable at-
torney’s fee and other reasonable costs relating
to the prosecution of the action on the charges
on which the plaintiff prevails.
(3) ADDITIONAL CIVIL PENALTIES.—
(A) IN GENERAL.—In addition to any pen-
alty imposed under paragraph (1) or (2), the
appropriate Secretary may assess a civil penalty
184
HR 2990 RDS
against a person acting in the capacity of au-
thorizing a benefit determined by an external
review entity for one or more group health
plans, or health insurance issuers offering
health insurance coverage, for—
(i) any pattern or practice of repeated
refusal to authorize a benefit determined
by an external appeal entity in violation of
the terms of such a plan, coverage, or this
title; or
(ii) any pattern or practice of re-
peated violations of the requirements of
this section with respect to such plan or
plans or coverage.
(B) STANDARD OF PROOF AND AMOUNT OF
PENALTY.—Such penalty shall be payable only
upon proof by clear and convincing evidence of
such pattern or practice and shall be in an
amount not to exceed the lesser of—
(i) 25 percent of the aggregate value
of benefits shown by the appropriate Sec-
retary to have not been provided, or unlaw-
fully delayed, in violation of this section
under such pattern or practice; or
(ii) $500,000.
185
HR 2990 RDS
(4) REMOVAL
AND
DISQUALIFICATION.—Any
person acting in the capacity of authorizing benefits
who has engaged in any such pattern or practice de-
scribed in paragraph (3)(A) with respect to a plan
or coverage, upon the petition of the appropriate
Secretary, may be removed by the court from such
position, and from any other involvement, with re-
spect to such a plan or coverage, and may be pre-
cluded from returning to any such position or in-
volvement for a period determined by the court.
(f) PROTECTION
OF LEGAL RIGHTS.—Nothing in
this subtitle shall be construed as altering or eliminating
any cause of action or legal rights or remedies of partici-
pants, beneficiaries, enrollees, and others under State or
Federal law (including sections 502 and 503 of the Em-
ployee Retirement Income Security Act of 1974), includ-
ing the right to file judicial actions to enforce rights.
SEC. 1104. ESTABLISHMENT OF A GRIEVANCE PROCESS.
(a) ESTABLISHMENT OF GRIEVANCE SYSTEM.—
(1) IN GENERAL.—A group health plan, and a
health insurance issuer in connection with the provi-
sion of health insurance coverage, shall establish and
maintain a system to provide for the presentation
and resolution of oral and written grievances
brought by individuals who are participants, bene-