‘‘(B) The extent to which premium rates
for the small employer are established or ad-
justed based upon the actual or expected vari-
ation in claims costs or health condition of the
employees and of such small employer and their
dependents.
‘‘(C) The provisions concerning the insur-
er’s right to change premium rates, the extent
to which premiums can be modified, and the
factors which affect changes in premium rates.
‘‘(2) NOTICE ON EXPIRATION.—An insurer pro-
viding health plans to small employers shall provide
for notice, at least 60 days before the date of expira-
tion of the health plan, of the terms for renewal of
the plan.
‘‘(g) ACTUARIAL
CERTIFICATION.—Each insurer
shall file annually with the Secretary and any applicable
regulatory authority a written statement by a member of
the American Academy of Actuaries (or other individual
acceptable to such authority) that, based upon an exam-
ination by the individual which includes a review of the
appropriate records and of the actuarial assumptions of
the insurer and methods used by the insurer in establish-
ing premium rates for small employer health plans—
‘‘(1) the insurer is in compliance with the appli-
cable provisions of this section, and
‘‘(2) the rating methods are actuarially sound.
Each insurer shall retain a copy of such statement for ex-
amination at its principal place of business.
‘‘PART C—ESTABLISHMENT OF STANDARDS;
DEFINITIONS
‘‘SEC. 2131. STANDARDS AND REQUIREMENTS.
‘‘(a) APPROVAL REQUIRED.—
‘‘(1) IN GENERAL.—No individual or group pol-
icy may be issued under a health plan (as defined
in section 2133(a)) on or after the effective date
specified in subsection (d) (and no new contract may
be offered under such plan with respect to any small
employer beginning on or after such effective date)
unless the plan has been certified by the Secretary
(in accordance with such procedures as the Sec-
retary establishes) or approved by a State regulatory
program (approved under subsection (b)) as meeting
the applicable standards established under section
2132 by such effective date.
‘‘(2) PLAN DISAPPROVED.—If the Secretary de-
termines that a health plan does not meet such ap-
plicable standards on or after such effective date, no
coverage may be provided under the plan to individ-
uals not enrolled as of the date of the determination
and the plan may not be continued for plan years
beginning after the date of such determination until
the Secretary determines that such plan is in compli-
ance with such standards.
‘‘(b) CERTIFIED BY STATE APPROVED PROGRAMS.—
‘‘(1) IN GENERAL.—If the Secretary determines
that a State has in effect an effective regulatory pro-
gram for the application of the standards established
under section 2132 to health plans, the Secretary
may approve such program for purposes of certifi-
cation of health plans under this part.
‘‘(2) ANNUAL REPORTS.—As a condition for the
continued approval of such a regulatory program,
the State shall report to the Secretary annually such
information as the Secretary may require with re-
spect to the performance of the program. Such infor-
mation shall include the health plans certified under
the program, the compliance of such plans with the
standards established under section 2132, and en-
forcement actions taken to ensure such compliance.
‘‘(3) PERIODIC SECRETARIAL REVIEW OF STATE
REGULATORY
PROGRAMS.—The Secretary annually
shall review State regulatory programs approved
under paragraph (1) to determine if they continue to
meet and enforce the standards for approval. If the
Secretary initially determines that a State regulatory
program no longer meets such standards, the Sec-
retary shall provide the State an opportunity to
adopt such a plan of correction that would bring
such program into compliance with such standards.
If the Secretary makes a final determination that
the State regulatory program fails to meet and en-
force such standards after such an opportunity, the
Secretary shall disapprove such program and
reassume responsibility for certification of all health
plans in that State.
‘‘(4) GAO AUDITS.—The Comptroller General
shall conduct periodic reviews on a sample of State
regulatory programs approved under paragraph (1)
to determine their compliance with the requirements
of such paragraph. The Comptroller General shall
report to the Secretary and Congress on the findings
of such reviews.
‘‘(c) EXCISE TAX SANCTIONS.—For application of
excise tax in the case of a nonconforming plan, see section
5000A of the Internal Revenue Code of 1986.
‘‘(d) EFFECTIVE DATE.—The effective date specified
in this subsection is—
‘‘(1) January 1, 1994, with respect to the
standards established to carry out section 2111,
‘‘(2) January 1, 1995, with respect to the
standards established to carry out part A, section
2112, and section 2121, and
‘‘(3) January 1, 1996, with respect to the
standards established to carry out section 2122, ap-
plicable to premiums for months beginning with
January 1996.
‘‘SEC. 2132. ESTABLISHMENT OF STANDARDS.
‘‘(a) ESTABLISHMENT
OF STANDARDS.—The Sec-
retary shall develop, establish, and publish, by not later
than 3 months before the respective effective date speci-
fied under section 2131(d), specific standards to imple-
ment the requirements of parts A and B and to be applied
under section 5000A of the Internal Revenue Code of
1986.
‘‘(b) MORE STRINGENT STATE STANDARDS PER-
MITTED.—A State may implement standards that are
more stringent than the standards established under this
section to meet the requirements under parts A and B.
‘‘(c) TELEPHONE INFORMATION SYSTEM.—The Sec-
retary shall provide for the establishment of a toll-free
telephone information and complaint system which pro-
vides for—
‘‘(1) a system for the receipt and disposition of
consumer complaints or inquiries regarding compli-
ance of health plans with the standards, and
‘‘(2) information to small employers about in-
surers in the area of the employers that offer health
plans that meet the standards.
‘‘SEC. 2133. DEFINITIONS.
‘‘(a) HEALTH PLAN; GROUP HEALTH PLAN; INDI-
VIDUAL HEALTH PLAN.—As used in this title:
‘‘(1) HEALTH PLAN.—The term ‘health plan’
means any hospital or medical service policy or cer-
tificate, hospital or medical service plan contract,
health maintenance organization group contract, or
a multiple employer welfare arrangement, but—
‘‘(A) does not include any of the following
offered by an insurer—
‘‘(i) accident only, vision only, dental
only, disability only, or long-term care only
insurance,
‘‘(ii) coverage issued as a supplement
to liability insurance,
‘‘(iii) 
workmen’s 
compensation 
or
similar insurance,
‘‘(iv) automobile medical-payment in-
surance, or
‘‘(v) a medicare supplemental policy;
and
‘‘(B) for purposes of subpart 2 of part B
only, does not include a qualified health mainte-
nance organization (as defined in section
1310(d) of the Public Health Service Act).
‘‘(2) GROUP HEALTH PLAN.—The term ‘group
health plan’ has the meaning given such term by
section 5000(b)(1) of the Internal Revenue Code of
1986.
‘‘(3) INDIVIDUAL
HEALTH
PLAN.—The term
‘individual health plan’ means a health plan which is
not a group health plan.
‘‘(b) INSURER AND HEALTH MAINTENANCE ORGANI-
ZATION.—As used in this title:
‘‘(1) INSURER.—The term ‘insurer’ means any
person that offers to provide coverage under a health
plan to a small employer.
‘‘(2) HEALTH MAINTENANCE ORGANIZATION.—
The term ‘health maintenance organization’ has the
meaning given the term ‘eligible organization’ in sec-
tion 1876(b).
‘‘(c) GENERAL DEFINITIONS.—As used in this title:
‘‘(1) APPLICABLE REGULATORY AUTHORITY.—
The term ‘applicable regulatory authority’ means,
with respect to a health plan in a State with a regu-
latory program approved under section 2131(b), the
State commissioner or superintendent of insurance
or other State authority responsible for regulation of
health insurance.
‘‘(2) SMALL EMPLOYER.—The term ‘small em-
ployer’ means, with respect to a calendar year, an
employer that normally employs more than 1 but
less than 51 eligible employees on a typical business
day. For the purposes of this paragraph, the term
‘employee’ includes a self-employed individual. Sec-
tion 5000A(b)(3) of the Internal Revenue Code of
1986 shall apply for purposes of the preceding
sentence.
‘‘(3) ELIGIBLE EMPLOYEE.—The term ‘eligible
employee’ means, with respect to an employer, an
employee who normally performs on a monthly basis
at least 171⁄2 hours of service per week for that em-
ployer.’’.
SEC. 3. EXCISE TAX ON PREMIUMS RECEIVED ON HEALTH
PLANS WHICH DO NOT MEET CERTAIN RE-
QUIREMENTS.
(a) IN GENERAL.—Chapter 47 of the Internal Reve-
nue Code of 1986 (relating to taxes on group health plans)
is amended by adding at the end thereof the following new
section:
‘‘SEC. 5000A. FAILURE TO SATISFY CERTAIN STANDARDS
FOR HEALTH PLANS.
‘‘(a) GENERAL RULE.—
‘‘(1) TITLE XXI STANDARDS.—
‘‘(A) TAX.—In the case of any health plan,
there is hereby imposed a tax on the failure of
the plan (or the person issuing the plan) to
meet at any time during any taxable year the
applicable standards established under section
2131 of title XXI of the Social Security Act.
‘‘(B) DETERMINATION OF VIOLATIONS.—
The Secretary of Health and Human Services
shall determine whether a plan or person meets
the standards requirements of such title.
‘‘(2) SMALL
EMPLOYER
SELF-INSURING
FOR
HEALTH
BENEFITS.—In the case of a small em-
ployer, there is hereby imposed a tax on expendi-
tures for a health plan that is not an insured health
plan.
‘‘(b) AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—
‘‘(A) 
TITLE
XXI
STANDARDS.—The
amount of tax imposed by subsection (a)(1) by
reason of 1 or more failures during a taxable
year shall be equal to 25 percent of the gross
premiums received during such taxable year
with respect to all health plans issued by the
person on whom such tax is imposed (or in the
case of a violation of a standard established
with respect to a requirement of subpart 2 of
part B of title XXI of the Social Security Act
issued by the person to small employers).
‘‘(B) 
SMALL
EMPLOYER
SELF-INSUR-
ANCE.—The amount of tax imposed by sub-
section (a)(2) by reason of 1 or more failures
during a taxable year shall be equal to 25 per-
cent of the expenditures under any uninsured
health plan during such taxable year.
‘‘(2) GROSS PREMIUMS.—For purposes of para-
graph (1), gross premiums shall include any consid-
eration received with respect to any health plan.
‘‘(3) CONTROLLED GROUPS.—For purposes of
paragraph (1)—
‘‘(A) CONTROLLED
GROUP
OF
CORPORA-
TIONS.—All corporations which are members of
the same controlled group of corporations shall
be treated as 1 person. For purposes of the pre-
ceding sentence, the term ‘controlled group of
corporations’ has the meaning given to such
term by section 1563(a), except that—
‘‘(i) ‘more than 50 percent’ shall be
substituted for ‘at least 80 percent’ each
place it appears in section 1563(a)(1), and
‘‘(ii) the determination shall be made
without regard to subsections (a)(4) and
(e)(3)(C) of section 1563.
‘‘(B) PARTNERSHIPS, PROPRIETORSHIPS,
ETC., WHICH ARE UNDER COMMON CONTROL.—
Under regulations prescribed by the Secretary,
all trades or business (whether or not incor-
porated) which are under common control shall
be treated as 1 person. The regulations pre-
scribed under this subparagraph shall be based
on principles similar to the principles which
apply in the case of subparagraph (A).
‘‘(c) LIMITATION ON TAX.—
‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT
DISCOVERED
EXERCISING
REASONABLE
DILI-
GENCE.—No tax shall be imposed by subsection (a)
with respect to any failure for which it is established
to the satisfaction of the Secretary that the person
on whom the tax is imposed did not know, and exer-
cising reasonable diligence would not have known,
that such failure existed.
‘‘(2) TAX
NOT
TO
APPLY
WHERE
FAILURES
CORRECTED WITHIN 30 DAYS.—No tax shall be im-
posed by subsection (a) with respect to any failure
if—
‘‘(A) such failure was due to reasonable
cause and not to willful neglect, and
‘‘(B) such failure is corrected during the
30-day period beginning on the 1st date any of
the persons on whom the tax is imposed knew,
or exercising reasonable diligence would have
known, that such failure existed.
‘‘(3) WAIVER BY SECRETARY.—In the case of a
failure which is due to reasonable cause and not to
willful neglect, the Secretary may waive part or all
of the tax imposed by subsection (a) to the extent
that the payment of such tax would be excessive rel-
ative to the failure involved.
‘‘(d) DEFINITIONS.—For purposes of this section:
‘‘(1) HEALTH PLAN.—The term ‘health plan’
has the meaning given such term in section
2133(a)(1) of the Social Security Act.
‘‘(2) SMALL EMPLOYER.—The term ‘small em-
ployer’ means, with respect to a calendar year, an
employer that normally employs more than 1 but
less than 51 eligible employees on a typical business
day. For the purposes of this paragraph, the term
‘employee’ includes a self-employed individual. Sub-
section (b)(3) shall also apply for purposes of the
preceding sentence.
‘‘(3) ELIGIBLE EMPLOYEE.—The term ‘eligible
employee’ means, with respect to an employer, an
employee who normally performs on a monthly basis
at least 171⁄2 hours of service per week for that em-
ployer.’’
(b) NONDEDUCTIBILITY OF TAX.—Paragraph (6) of
section 275(a) of such Code (relating to nondeductibility
of certain taxes) is amended by inserting ‘‘47,’’ after
‘‘46,’’.
(c) CLERICAL AMENDMENTS.—The table of sections
for such chapter 47 is amended by adding at the end
thereof the following new item:
‘‘Sec. 5000A. Failure to satisfy certain standards for health insur-
ance.’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
subsections (a) and (c) shall take effect on the date
of the enactment of this Act.