I
103D CONGRESS
2D SESSION
H. R. 4202
To increase access to high quality, affordable health insurance.
IN THE HOUSE OF REPRESENTATIVES
APRIL 13, 1994
Mr. MCCRERY (for himself, Mr. TAUZIN, Mr. BAKER of Louisiana, Mr.
DELAY, Mr. DOOLITTLE, Mr. HOUGHTON, Mr. INHOFE, Mr. SAM JOHN-
SON of Texas, Mr. LIVINGSTON, Mr. HAYES, Mr. INGLIS of South Caro-
lina, and Mr. HOKE) introduced the following bill; which was referred
jointly to the Committees on Energy and Commerce, Ways and Means,
the Judiciary, and Education and Labor
A BILL
To increase access to high quality, affordable health
insurance.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Health Savings and Security Act of 1994’’.
(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
TITLE I—INSURANCE REFORM
Subtitle A—Insurance Provisions
PART 1—REQUIREMENTS FOR TAX-FAVORED HEALTH PLANS
Sec. 101. Requirements for high deductible umbrella insurance plans
and managed health care plans ....................................
Sec. 102. Benefits ...................................................................................
Sec. 103. Rating practices .......................................................................
Sec. 104. Guaranteed issue .....................................................................
Sec. 105. Guaranteed renewability ..........................................................
Sec. 106. Restrictions on agent compensation and broker activities ......
PART 2—CERTIFICATION OF HIGH DEDUCTIBLE UMBRELLA INSURANCE
PLANS AND MANAGED CARE HEALTH PLANS
Sec. 111. Establishment of regulatory program for certification of
plans ..............................................................................
Sec. 112. Standards for regulatory programs .........................................
Subtitle B—Promoting Development of Voluntary Health Plan
Purchasing Cooperatives
Sec. 121. Establishment of standards; application in States ..................
Sec. 122. Specification of HPPC areas ...................................................
Sec. 123. Standards for health plan purchasing cooperatives ................
Sec. 124. Functions of health plan purchasing cooperatives ..................
Sec. 125. Qualified health carriers ..........................................................
Sec. 126. Marketing HPPC plans ...........................................................
Sec. 127. Collection and submission of data ...........................................
Sec. 128. Role of State; oversight; evaluation .........................................
Sec. 129. Definitions ...............................................................................
Subtitle C—Federal Preemption
Sec. 141. Prohibition of State benefit mandates for group health plans
Sec. 142. Prohibition of provisions prohibiting employer groups from
purchasing health insurance .........................................
Sec. 143. Restrictions on managed care .................................................
Sec. 144. Exemption of state laws preventing denial of lifesaving medi-
cal treatment pending transfer to another health care
provider .........................................................................
Sec. 145. Definitions ...............................................................................
Subtitle D—Rules of Construction Regarding Abortion
Services; Inseverability
Sec. 151. Rules of construction regarding abortion services ..................
Sec. 152. Inseverability ...........................................................................
TITLE II—AMENDMENTS OF INTERNAL REVENUE CODE
OF 1986
Subtitle A—Limitations on Employer Deduction for Health
Care Coverage for Employees and on Employee Exclusion
for Employer-Provided Health Care Coverage
Sec. 201. Employer deduction for health care coverage for employees
limited to coverage under high-deductible plans and
managed care plans and to contributions to medical
savings accounts for employees .....................................
Sec. 202. Limitation on exclusion for employer-provided coverage
under health plan ..........................................................
Sec. 203. Health benefits may not be provided under cafeteria plans ...
Sec. 204. Effective date ..........................................................................
Subtitle B—Credits for Contributions to Medical Savings Ac-
counts, for Purchase of Coverage Under Tax-Qualified
Health Care Plans, and for Routine Preventive Care
Sec. 211. Credit for contributions to medical savings accounts .............
Sec. 212. Refundable credit for purchase of coverage under tax-quali-
fied health care plans ....................................................
Sec. 213. Credit for cost of routine preventive care ...............................
103
Sec. 214. Effective date ..........................................................................
105
Subtitle C—Repeal of Medical Expense Deduction
Sec. 221. Repeal of medical expense deduction ......................................
105
Subtitle D—Veterans Medical Benefits and Services
Unaffected
Sec. 231. Veterans medical benefits and services unaffected .................
106
TITLE III—SAVINGS IN MEDICARE AND MEDICAID
PROGRAMS
Subtitle A—Medicare Program
Sec. 301. Increase in Medicare part B premium for individuals with
high income ...................................................................
106
Sec. 302. Imposition of 20 percent coinsurance on clinical laboratory
services under Medicare ................................................
110
Sec. 303. Annual indexing of part B deductible .....................................
110
Subtitle B—Medicaid Program
PART 1—ACHIEVING SAVINGS IN PROGRAM
Sec. 311. Cap on Federal payments made for acute medical services
furnished under the Medicaid program ........................
111
PART 2—OPTIONAL ENROLLMENT
OF LOW-INCOME INDIVIDUALS UNDER
HIGH DEDUCTIBLE UMBRELLA INSURANCE PLANS AND MANAGED HEALTH
CARE PLANS
Sec. 321. Optional enrollment under plans .............................................
119
PART 3—INCREASING STATE FLEXIBILITY TO USE MANAGED CARE UNDER
MEDICAID
Sec. 331. Modification of Federal requirements to allow States more
flexibility in contracting for coordinated care services
under Medicaid ..............................................................
128
PART 4—LIMITATIONS ON FUNDING OF ABORTION SERVICES UNDER
MEDICAID
Sec. 341. Limitations on funding of abortion services under Medicaid
182
TITLE IV—CONTAINING HEALTH CARE COSTS
Subtitle A—Medical Malpractice Liability Reform
PART 1—GENERAL PROVISIONS
Sec. 401. Federal reform of medical malpractice liability actions ..........
183
Sec. 402. Definitions ...............................................................................
185
Sec. 403. Effective date ..........................................................................
190
PART 2—MEDICAL MALPRACTICE AND PRODUCT LIABILITY REFORM
Sec. 411. Requirement for initial resolution of action through alter-
native dispute resolution ...............................................
191
Sec. 412. Calculation and payment of damages ......................................
195
Sec. 413. Requiring party contesting ADR ruling to pay attorney’s fees
and other costs ..............................................................
198
Sec. 414. Joint and several liability for noneconomic damages ..............
201
Sec. 415. Statute of limitations ..............................................................
202
Sec. 416. Uniform standard for determining negligence ........................
202
Sec. 417. Special provision for certain obstetric services ........................
202
PART 3—REQUIREMENTS FOR STATE ALTERNATIVE DISPUTE RESOLUTION
SYSTEMS (ADR)
Sec. 421. Basic requirements ..................................................................
203
Sec. 422. Certification of State systems; applicability of alternative
Federal system ..............................................................
206
Sec. 423. Reports on implementation and effectiveness of alternative
dispute resolution systems ............................................
208
PART 4—OTHER PROVISIONS RELATING TO MEDICAL MALPRACTICE
LIABILITY
Sec. 431. Permitting State professional societies to participate in dis-
ciplinary activities .........................................................
209
Sec. 432. Study of incentives to encourage voluntary service by physi-
cians ..............................................................................
211
Sec. 433. Requirements for risk management programs ........................
212
Sec. 434. Grants for medical safety promotion .......................................
213
Subtitle B—Treatment of Certain Activities Under the
Antitrust Laws
Sec. 451. Exemption from antitrust laws for certain competitive and
collaborative activities ...................................................
216
Sec. 452. Safe harbors ............................................................................
218
Sec. 453. Designation of additional safe harbors ...................................
222
Sec. 454. Certificates of review ...............................................................
225
Sec. 455. Notifications providing reduction in certain penalties under
antitrust law for health care cooperative ventures .......
237
Sec. 456. Review and reports on safe harbors and certificates of review
246
Sec. 457. Rules, regulations, and guidelines ...........................................
247
Sec. 458. Establishment of HHS Office of Health Care Competition
Policy .............................................................................
249
Sec. 459. Definitions ...............................................................................
249
TITLE V—SPECIAL ASSISTANCE FOR FRONTIER, RURAL,
AND URBAN UNDERSERVED AREAS
Subtitle A—Frontier, Rural, and Urban Underserved Areas
Sec. 501. Establishment of program to make community-based pri-
mary health grants and health service access grants
for Federally-qualified health centers ...........................
252
Sec. 502. Tax incentives for practice in frontier, rural, and urban un-
derserved areas ..............................................................
276
Sec. 503. Rural emergency access care hospitals ....................................
290
Sec. 504. Grants to States regarding aircraft for transporting rural
victims of medical emergencies .....................................
295
Sec. 505. Demonstration projects to encourage the development and
operation of rural health networks ...............................
301
Subtitle B—Primary Care Provider Education
Sec. 511. Graduate medical education demonstration projects ..............
311
Sec. 512. Funding under Medicare for training in nonhospital-owned
facilities .........................................................................
323
Sec. 513. Increase in National Health Service Corps funding ...............
326
Sec. 514. Increase in health professions funding for primary care phy-
sicians ............................................................................
326
Sec. 515. Health professions funding for nurse practitioners and physi-
cian assistants programs ...............................................
327
Sec. 516. State grants to increase the number of primary care provid-
ers ..................................................................................
330
Subtitle C—Programs Relating to Primary and Preventive
Care Services
Sec. 521. Maternal and infant care coordination ....................................
331
Sec. 522. Frontier States ........................................................................
335
Subtitle D—Limitation on Funding for Abortions
Sec. 531. Limitation on funding for abortions .......................................
335
TITLE VI—ADMINISTRATIVE COST SAVINGS
Subtitle A—Standardization of Claims Processing
Sec. 601. Adoption of data elements, uniform claims, and uniform elec-
tronic transmission standards .......................................
336
Sec. 602. Application of standards .........................................................
338
Sec. 603. Periodic review and revision of standards ...............................
342
Sec. 604. Health insurance plan defined ................................................
343
Subtitle B—Electronic Medical Data Standards
Sec. 611. Medical data standards for hospitals and other providers ......
343
Sec. 612. Application of electronic data standards to certain hospitals
345
Sec. 613. Electronic transmission to Federal agencies ...........................
348
Sec. 614. Limitation on data requirements where standards in effect ...
348
Sec. 615. Advisory commission ...............................................................
350
Subtitle C—Development and Distribution of Comparative
Value Information
Sec. 621. State comparative value information programs for health
care purchasing .............................................................
351
Sec. 622. Federal implementation ...........................................................
354
Sec. 623. Comparative value information concerning Federal programs
354
Subtitle D—Preemption of State Quill Pen Laws
Sec. 631. Preemption of State quill pen laws .........................................
355
TITLE VII—ANTI-FRAUD AND ANTI-RATIONING
Subtitle A—Criminal Prosecution of Health Care Fraud
Sec. 701. Penalties for health care fraud ................................................
356
Sec. 702. Rewards for information leading to prosecution and convic-
tion ................................................................................
357
Subtitle B—Coordination of Health Care Anti-Fraud and
Abuse Activities
Sec. 711. Application of Federal health anti-fraud and abuse sanctions
to all fraud and abuse against any health insurance
plan ...............................................................................
359
Subtitle C—Protection Against Rationing of Treatment
Sec. 721. Prohibition on denial or treatment based on age, disability,
degree of medical need, or quality of life ......................
363
Sec. 722. Enforcement ............................................................................
364
TITLE I—INSURANCE REFORM
Subtitle A—Insurance Provisions
PART 1—REQUIREMENTS FOR TAX-FAVORED
HEALTH PLANS
SEC. 101. REQUIREMENTS FOR HIGH DEDUCTIBLE UM-
BRELLA INSURANCE PLANS AND MANAGED
HEALTH CARE PLANS.
(a) IN GENERAL.—For purposes of section 162(o) of
the Internal Revenue Code of 1986 and this Act:
(1) HIGH DEDUCTIBLE UMBRELLA INSURANCE
PLAN.—A ‘‘high deductible umbrella insurance plan’’
is a health insurance plan offered, issued, or re-
newed on or after January 1, 1996, which is cer-
tified by the applicable regulatory authority as meet-
ing, at a minimum, the applicable requirements of
sections 102, 103, 104, 105, and 106 with respect
to such a plan and providing for the regulatory pro-
gram described in section 112.
(2) MANAGED HEALTH CARE PLAN.—A ‘‘man-
aged health care plan’’ is a health insurance plan of-
fered, issued, or renewed on or after January 1,
1996, which is certified by the applicable regulatory
authority as meeting, at a minimum, the applicable
requirements of sections 102, 103, 104, 105, and
106 with respect to such a plan and providing for
the regulatory program described in section 112.
(3) TAX-QUALIFIED HEALTH CARE PLAN.—The
term ‘‘tax-qualified health care plan’’ means a high
deductible umbrella insurance plan or managed
health care plan.
(b) GENERAL DEFINITIONS.—As used in this title:
(1) HEALTH
INSURANCE
PLAN.—The term
‘‘health insurance plan’’ means any hospital or medi-
cal service policy or certificate, hospital or medical
service plan contract, or health maintenance organi-
zation group contract and, in States which have dis-
tinct licensure requirements, a multiple employer
welfare arrangement, but does not include any (or
any combination) of the following offered by an
insurer:
(A) Accident only, dental only, disability
only, or long-term care only insurance.
(B) Coverage issued as a supplement to
liability insurance.
(C) Workers’ compensation or similar
insurance.
(D) Automobile medical-payment insur-
ance.
(2) APPLICABLE
REGULATORY
AUTHORITY.—
The term ‘‘applicable regulatory authority’’ means—
(A) in the case of a State with a program
described in section 111, the State commis-
sioner or superintendent of insurance or other
State authority responsible for regulation of
health insurance; or
(B) if the State has not established such a
program or such program has been decertified
under section 111(b), the Secretary.
(3) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services.
(4) STATE.—The term ‘‘State’’ means each of
the several States of the United States, the District
of Columbia, the Commonwealth of Puerto Rico, the
United States Virgin Islands, Guam, American
Samoa, and the Commonwealth of the Northern
Mariana Islands.
(c) ESTABLISHMENT OR OPERATION OF MANAGED
HEALTH CARE PLANS BY STATES.—A State may estab-
lish or operate a managed health care plan.
SEC. 102. BENEFITS.
(a) IN GENERAL.—The requirements of this section
are met, if the health insurance plan—
(1) provides coverage for all medically necessary
acute medical care described in subsection (b),
(2) does not exclude coverage for selected ill-
nesses or selected treatments if consistent with
medically accepted practices, and
(3) meets the applicable patient cost-sharing re-
quirements of subsection (c).
(b) ACUTE MEDICAL CARE.—Acute medical care de-
scribed in this subsection includes—
(1) physician services,
(2) inpatient, outpatient, and emergency hos-
pital services and appropriate alternatives to hos-
pitalization, and
(3) inpatient and outpatient prescription drugs.
(c) COST SHARING REQUIREMENTS.—The require-
ments of this subsection are as follows:
(1) LIMITATION ON DEDUCTIBLES.—
(A) 
HIGH
DEDUCTIBLE
UMBRELLA
HEALTH INSURANCE PLAN.—
(i) IN
GENERAL.—In the case of a
high deductible umbrella insurance plan,
the plan shall provide a deductible amount
for benefits provided in any plan year
which is at least $1,500 (but not to exceed
$3,000) for items and services furnished to
a family (composed of one or more individ-
uals) enrolled under the plan in a year.
(ii) INDEXING
DOLLAR
AMOUNTS.—
For any calendar year beginning with
1997, the dollar amount specified in clause
(i) (as previously increased under this
clause) shall be increased by the percent-
age increase in the consumer price index
for all urban consumers (United States
city average, as published by the Bureau of
Labor Statistics) for the 12-month period
ending with September of the preceding
calendar year. Any dollar amount in-
creased under the previous sentence that is
not a multiple of $10, shall be rounded to
the next highest multiple of $10.
(B) MANAGED HEALTH CARE PLANS.—In
the case of a managed health care plan, the
plan may provide a deductible the amount of
which does not exceed the amount of the de-
ductible permitted under subparagraph (A).
(2) LIMITATION
ON
COPAYMENTS
AND
COIN-
SURANCE.—
(A) IN
GENERAL.—A health insurance
plan may not require the payment of any
copayment or coinsurance for an item or service
for which coverage is required under this sec-
tion after an individual or a family covered
under the plan has incurred out-of-pocket ex-
penses under the plan that are equal to the out-
of-pocket limit for a plan year.
(B) 
LIMIT
ON
OUT-OF-POCKET
EX-
PENSES.—As used in this paragraph—
(i) OUT-OF-POCKET
EXPENSES
DE-
FINED.—The 
term 
‘‘out-of-pocket 
ex-
penses’’ means, with respect to an individ-
ual or a family in a plan year, amounts
payable under the plan as deductibles and
coinsurance with respect to items and serv-
ices provided under the plan and furnished
in the plan year on behalf of the individual
or the family covered under the plan.
(ii) 
OUT-OF-POCKET
LIMIT
DE-
FINED.—The term ‘‘out-of-pocket limit’’
means for a plan year beginning in—
(I) a calendar year prior to 1998,
$5,000; or
(II) for a subsequent calendar
year, the limit specified in this clause
for the previous calendar year in-
creased by the percentage increase in
the consumer price index for all urban
consumers (United States city aver-
age, as published by the Bureau of
Labor Statistics) for the 12-month pe-
riod ending on September 30 of the
preceding calendar year.
If the limit computed under subclause (II)
is not a multiple of $10, it shall be round-
ed to the next highest multiple of $10.
SEC. 103. RATING PRACTICES.
(a) IN GENERAL.—The requirements of this section
are met, if, except as provided in subsection (b), the health
insurance plan provides for—
(1) a variation in premium rates only—
(A) on the basis of age, sex, geography,
and family enrollment,
(B) on the basis of individual and group
coverage, and
(C) in the case of group coverage, on the
basis of the number of individuals covered with-
in the group;
(2) a charge of the same premium rates to new
applicants and existing policyholders with the same
age, sex, geographic characteristics, and family en-
rollment; and
(3) the highest premium for the plan for a par-
ticular class of family enrollment and geographic
characteristics may not exceed four times the lowest
premium for such plan for the same enrollment and
geographic characteristics.
(b) INCENTIVE DISCOUNTS.—A plan may discount
an individual’s premium rate by not more than 10 percent
as an incentive for participating in a program, approved
by the applicable regulatory authority to be offered in con-
junction with the coverage, which has as its objective, 1
or more of the following:
(1) To promote healthy behavior.
(2) To prevent or delay the onset of illness.
(3) To provide for screening or early detection
of illness.
(c) 
CLASSES
OF
FAMILY
ENROLLMENT
DE-
SCRIBED.—In this section, each of the following shall be
considered a separate ‘‘class of family enrollment’’:
(1) Single individual without children.
(2) Married couple without children.
(3) Single individual with 1 or more children.
(4) Married couple with 1 or more children.
(d) TREATMENT OF HPPCS.—For purposes of sub-
section (a), any coverage obtained through a health plan
purchasing cooperative approved under subtitle B shall be
treated as a form of group coverage.
SEC. 104. GUARANTEED ISSUE.
(a) IN GENERAL.—The requirements of this section
are met, if the health insurance plan—
(1) provides guaranteed issue at standard rates
to all applicants, and
(2) does not exclude from coverage, or limit
coverage for, any preexisting condition except as
provided in subsection (b).
(b) TREATMENT OF PREEXISTING CONDITIONS.—
(1) NO EXCLUSION FOR PREEXISTING CONDI-
TION FOR APPLICANTS CONTINUOUSLY COVERED.—
A health insurance plan may not exclude from cov-
erage, or limit coverage for, any preexisting condi-
tion for any applicant who, on the date the applica-
tion is made, has been continuously insured for a pe-
riod of at least 6 months prior to the date of the ap-
plication under 1 or more of the following health in-
surance plans or programs:
(A) A high deductible umbrella insurance
plan or a managed health care plan.
(B) An employer-sponsored group health
insurance plan in effect before the date of the
enactment of this Act.
(C) An individual health insurance plan in
effect before such date.
(D) A program described in—
(i) title XVIII or XIX 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
Improvement Act.
(2) LIMITATION ON PERIOD OF EXCLUSION FOR
OTHER APPLICANTS.—In the case of an applicant
not described in paragraph (1), the health insurance
plan may exclude from coverage, or limit coverage
for, any preexisting condition for a period no greater
than the lesser of—
(A) the number of months immediately
prior to the date of the application during
which the individual was not insured since the
illness or condition in question was first diag-
nosed, or
(B) 6 months.
(c) PREEXISTING CONDITION.—For purposes of this
section, the term ‘‘preexisting condition’’ means, with re-
spect to coverage under a health insurance plan, a condi-
tion which has been diagnosed or treated during the 6-
month period ending on the day before the first date of
such coverage (without regard to any waiting period).
SEC. 105. GUARANTEED RENEWABILITY.
The requirements of this section are met, if the
health insurance plan provides the policyholder with a con-
tractual right to renew the coverage which stipulates that
the insurer cannot cancel or refuse to renew the coverage
except for cases of—
(1) nonpayment of premiums by the policy-
holder, or
(2) fraud or misrepresentation by the policy-
holder.
SEC. 106. RESTRICTIONS ON AGENT COMPENSATION AND
BROKER ACTIVITIES.
The requirements of this section are not met if—
(1) the health insurance plan varies compensa-
tion or commissions to an agent, broker, contractor,
or producer based, directly or indirectly, on the an-
ticipated or actual claims experience or health status
associated with particular small employers or eligible
individuals to which each plan is sold, or
(2) the health insurance plan (or agent, broker,
contractor, or producer for a health insurance plan)
engages, directly, or indirectly, in any activity or
marketing practice that would encourage small em-
ployers or eligible individuals to refrain from enroll-
ing in the plan, or seek coverage from another
health insurance plan, because of the health status
or claims experience of the employer or individual.
PART 2—CERTIFICATION OF HIGH DEDUCTIBLE
UMBRELLA INSURANCE PLANS AND MAN-
AGED CARE HEALTH PLANS
SEC. 111. ESTABLISHMENT OF REGULATORY PROGRAM
FOR CERTIFICATION OF PLANS.
(a) 
ENFORCEMENT
OF
PROGRAM
THROUGH
STATES.—
(1) IN GENERAL.—Each State shall submit to
the Secretary, by the deadline specified in paragraph
(2), a report on steps the State is taking to imple-
ment and enforce the regulatory program developed
under section 112 with respect to high deductible
umbrella insurance plans and managed care health
plans offered not later than such deadline.
(2) DEADLINE FOR REPORT.—
(A) 1 YEAR
AFTER
STANDARDS
ESTAB-
LISHED.—Subject to subparagraph (B), the
deadline under this paragraph is 1 year after
the date the regulatory program is developed
under section 112.
(B) EXCEPTION
FOR
LEGISLATION.—In
the case of a State which the Secretary identi-
fies, in consultation with the NAIC, as—
(i) requiring State legislation (other
than legislation appropriating funds) in
order for high deductible umbrella insur-
ance plans and managed care health plans
to meet the requirements of the program
developed under section 112, but
(ii) having a legislature which is not
scheduled to meet in 1996 in a legislative
session in which such legislation may be
considered,
the date specified in this paragraph is the first
day of the first calendar quarter beginning after
the close of the first legislative session of the
State legislature that begins on or after Janu-
ary 1, 1996. For purposes of the previous sen-
tence, in the case of a State that has a 2-year
legislative session, each year of such session
shall be deemed to be a separate regular session
of the State legislature.
(b) FEDERAL ROLE.—
(1) FAILURE
OF
STATE
TO
ENFORCE
PRO-
GRAM.—If the Secretary determines that a State has
failed to submit a report by the deadline specified
under subsection (a) or finds that the State has not
implemented and provided adequate enforcement of
the regulatory program developed under section 112,
the Secretary shall notify the State and provide the
State a period of 60 days in which to submit such
report or to implement and enforce such program.
(2) PROCEDURES
FOR
FEDERAL
ENFORCE-
MENT.—If, after the 60-day period referred to in
paragraph (1), the Secretary finds that such a fail-
ure has not been corrected, the Secretary shall pro-
vide for such mechanism for the implementation and
enforcement of such program in the State as the
Secretary determines to be appropriate. Such imple-
mentation and enforcement shall take effect with re-
spect to high deductible umbrella insurance plans
and managed care health plans offered or renewed,
on or after 3 months after the date of the Sec-
retary’s finding under the previous sentence, and
until the date the Secretary finds that such a failure
has been corrected.
SEC. 112. STANDARDS FOR REGULATORY PROGRAMS.
(a) IN GENERAL.—The Secretary, in consultation
with the National Association of Insurance Commissioners
(in this section referred to as ‘‘NAIC’’) shall develop by
not later than 1 year after the date of the enactment of
this Act, in the form of model Acts and model regulations,
State regulatory program standards which include—
(1) procedures for certifying that the require-
ments of part 1 of this subtitle have been met by a
health insurance plan applying for certification as a
high deductible umbrella insurance plan or a man-
aged care health plan,
(2) the requirements described in subsections
(b) and (c) with respect to such a plan,
(3) requirements with respect to solvency stand-
ards and guaranty funds for carriers of such plans,
and
(4) reporting requirements under which carriers
report to the Internal Revenue Service regarding the
acquisition and termination by individuals of cov-
erage under such plans.
(b) MARKETING PRACTICES.—The requirements of
this subsection are met, if the carrier offering the plan
retains the right to select agents with whom such plan
contracts and to determine the amount and form of com-
pensation to such agents, except that—
(1) if the carrier chooses to contract with an
agent, the carrier may not terminate or refuse to
renew the agency contract for any reason related to
the age, sex, health status, claims experience, occu-
pation, or geographic location of the insureds placed
by the agent with such plan, and
(2) the carrier may not, directly or indirectly,
enter into any contract, agreement, or arrangement
with an agent that provides for, or results in, any
consideration provided to such agent for the issu-
ance or renewal of such a plan to vary on account
of the age, sex, health status, claims experience, oc-
cupation, or geographic location of the insureds
placed by the agent with such plan.
(c) REINSURANCE OR ALLOCATION OF RISK MECHA-
NISMS.—
(1) ESTABLISHMENT OF STANDARDS.—
(A) ROLE OF NAIC.—The Secretary shall
request the NAIC to develop, within 9 months
after the date of the enactment of this Act,
models for reinsurance or allocation of risk
mechanisms (each in this section referred to as
a ‘‘reinsurance or allocation of risk mecha-
nism’’) for high deductible umbrella insurance
plans and managed care health plans made
available to individuals for whom an insurer is
at risk of incurring high costs under the plan.
If the NAIC develops such models within such
period, the Secretary shall review such models
to determine if they provide for an effective re-
insurance or allocation of risk mechanism. Such
review shall be completed within 30 days after
the date the models are developed. Unless the
Secretary determines within such period that
such a model is not an effective reinsurance or
allocation of risk mechanism, such remaining
models shall serve as the models under this sub-
section, with such amendments as the Secretary
deems necessary.
(B) CONTINGENCY.—If the NAIC does not
develop such models within such period or the
Secretary determines that all such models do
not provide for an effective reinsurance or allo-
cation of risk mechanism, the Secretary shall
specify, within 15 months after the date of the
enactment of this Act, models to carry out this
subsection.
(2) IMPLEMENTATION OF REINSURANCE OR AL-
LOCATION OF RISK MECHANISMS.—
(A) BY STATES.—Each State shall estab-
lish and maintain one or more reinsurance or
allocation of risk mechanisms that are consist-
ent with a model established under paragraph
(1) by not later than the deadline specified in
section 111(a)(2). A State may establish and
maintain such a mechanism jointly with one or
more other States.
(B) FEDERAL ROLE.—
(i) IN GENERAL.—If the Secretary de-
termines that a State has failed to estab-
lish or maintain a reinsurance or allocation
of risk mechanism in accordance with sub-
paragraph (A), the Secretary shall estab-
lish and maintain such a reinsurance or al-
location of risk mechanism meeting the re-
quirements of this subparagraph.
(ii) REINSURANCE MECHANISM.—Un-
less the Secretary determines under clause
(iii) that an allocation of risk mechanism is
the appropriate mechanism to use in a
State under this subparagraph, the Sec-
retary shall establish and maintain for use
under this subsection for each State an ap-
propriate reinsurance mechanism.
(iii) ALLOCATION
OF
RISK
MECHA-
NISM.—If the Secretary determines that,
due to the nature of the health coverage
market in the State (including a relatively
small number of high deductible umbrella
insurance plans or managed care health
plans offered or a relatively small number
of uninsurable individuals), an allocation of
risk mechanism would be a better mecha-
nism than a reinsurance mechanism, the
Secretary shall establish and maintain for
use under this section for a State an allo-
cation of risk mechanism under which un-
insurable individuals would be equitably as-
signed among insurers offering high de-
ductible umbrella insurance plans or man-
aged care health plans.
(iv) FINANCING
DEFICIT
FOR
REIN-
SURANCE MECHANISMS.—
(I) IN GENERAL.—Chapter 43 of
the Internal Revenue Code of 1986
(relating to qualified pension plans,
etc.) is amended by adding at the end
thereof the following new section:
‘‘SEC. 4980D. ADDITIONAL TAX TO FUND REINSURANCE IN
STATES UNDER FEDERAL REINSURANCE.
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed
a tax on the providing of any high deductible umbrella
insurance plan or managed care health plan which covers
any individual in a Federal reinsurance State.
‘‘(b) AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—The tax imposed by sub-
section (a) shall be equal to the applicable percent-
age of the amount received by the insurer for provid-
ing such plan in such Federal reinsurance State.
‘‘(2) APPLICABLE PERCENTAGE.—For purposes
of paragraph (1), the term ‘applicable percentage’
means, with respect to any State for any period, the
lowest percentage estimated by the Secretary as gen-
erating sufficient revenues to carry out section
112(c)(2)(B) of the Health Savings and Security
Act of 1994 in such State for such period.
‘‘(c) LIABILITY FOR TAX.—The tax imposed by this
section shall be paid by the insurer.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) HIGH
DEDUCTIBLE
INSURANCE
PLAN;
MANAGED CARE HEALTH PLAN.—The terms ‘high
deductible insurance plan’ and ‘managed care health
plan’ have the meaning given such terms in section
101(a) of the Health Savings and Security Act of
1994.
‘‘(2) FEDERAL
REINSURANCE
STATE.—The
term ‘Federal reinsurance State’ means any State
with respect to which a determination is in effect
under section 112(c)(2)(B) of the Health Savings
and Security Act of 1994 and for which the Sec-
retary of Health and Human Services has estab-
lished and is maintaining a reinsurance mechanism
under clause (ii) of such section for the State.
‘‘(3) INSURER.—The term ‘insurer’ means a li-
censed insurance company, a prepaid hospital or
medical service plan, and a health maintenance orga-
nization offering such a plan, and includes a similar
organization regulated under State law for sol-
vency.’’
(II) CLERICAL
AMENDMENT.—
The table of sections for chapter 43 of
such Code is amended by adding at
the end thereof the following new
item:
‘‘Sec. 4980D. Additional tax to fund reinsurance in States under
Federal reinsurance.’’
(3) CONSTRUCTION.—Nothing in this section
shall be construed to prohibit reinsurance or alloca-
tion of risk arrangements relating to high deductible
umbrella insurance plans or managed care health
plans, whether on a State or multi-state basis, not
required under this subsection.
Subtitle 
B—Promoting 
Develop-
ment of Voluntary Health Plan
Purchasing Cooperatives
SEC. 121. ESTABLISHMENT OF STANDARDS; APPLICATION
IN STATES.
(a) ESTABLISHMENT OF STANDARDS.—
(1) IN GENERAL.—The Secretary of Health and
Human Services, in consultation with the National
Association of Insurance Commissioners, shall estab-
lish standards under this subtitle to carry out the
requirements of this subtitle, including standards re-
lating to—
(A) the establishment of health plan pur-
chasing cooperatives (or HPPCs),
(B) qualifications for qualified health car-
riers, and
(C) the roles of States under this subtitle.
(2) DEADLINE.—The Secretary shall establish
and publish the standards by not later than 6
months after the date of the enactment of this Act.
(3) REVISION.—The Secretary from time to
time may revise standards established under this
subsection. The revisions shall only become effective
in a manner that permits States sufficient time to
change laws and regulations in order to implement
the revisions.
(b) 
APPLICATION
OF
STANDARDS
THROUGH
STATES.—
(1) APPLICATION OF STANDARDS.—
(A) IN GENERAL.—Subject to subsection
(c), each State shall submit to the Secretary, by
the deadline specified in subparagraph (B), a
report on steps the State is taking to implement
the standards established under subsection (a)
in order to permit HPPCs to be established and
operate in all parts of the State, and to con-
form its insurance laws to meet the require-
ments of this subtitle, not later than that dead-
line.
(B) DEADLINE FOR REPORT.—
(i) 1 YEAR AFTER STANDARDS ESTAB-
LISHED.—Subject to clause (ii), the dead-
line under this subparagraph is 1 year
after the date the standards are estab-
lished under subsection (a).
(ii) EXCEPTION FOR LEGISLATION.—
In the case of a State which the Secretary
identifies, in consultation with the National
Association of Insurance Commissioners,
as—
(I) requiring State legislation
(other than legislation appropriating
funds) in order for carriers and health
plans offered to meet the standards
established under subsection (a), but
(II) having a legislature which is
not scheduled to meet in 1995 in a
legislative session in which such legis-
lation may be considered,
the date specified in this subparagraph is
the first day of the first calendar quarter
beginning after the close of the first legis-
lative session of the State legislature that
begins on or after January 1, 1996. For
purposes of the previous sentence, in the
case of a State that has a 2-year legislative
session, each year of the session shall be
deemed to be a separate regular session of
the State legislature.
(2) FEDERAL ROLE.—
(A) NOTICE TO STATES.—If the Secretary
determines that a State has failed to submit a
report by the deadline specified under para-
graph (1) or finds that the State has not taken
sufficient steps to permit establishment and op-
eration of HPPCs in accordance with the stand-
ards established under subsection (a), the Sec-
retary shall notify the State and provide the
State a period of 60 days in which to submit
the report or to implement the standards under
paragraph (1).
(B) 
FEDERAL
FALL-BACK
PARTICIPA-
TION.—If, after the 60-day period, the Sec-
retary finds that the failure has not been cor-
rected, the Secretary shall provide for such
mechanism as will—
(i) permit the establishment and oper-
ation of HPPCs in accordance with the
standards established under subsection (a)
in the State as the Secretary determines to
be appropriate, and
(ii) provide for the Secretary assum-
ing the role of the State otherwise provided
under this subtitle.
(C) DURATION.—The Secretary’s exercise
of authority under subparagraph (B) shall take
effect with respect to carriers, and health plans
offered or renewed, on or after 3 months after
the date of the Secretary’s finding under that
subparagraph and until the date the Secretary
finds that the failure of the State has been
corrected.
(c) IMPLEMENTATION.—The report under subsection
(b) shall specify the State official (or officials), or State
board, commission, or department, responsible for carry-
ing out the standards under subsection (a).
SEC. 122. SPECIFICATION OF HPPC AREAS.
(a) IN GENERAL.—Each State shall establish bound-
aries for HPPC areas in the State.
(b) STANDARDS.—Each part of the State shall be in
one, and only one, HPPC area. Each HPPC area shall
include a sufficient number of potential enrollees, health
care providers, and qualified health carriers to carry out
the purposes of this subtitle. A HPPC area may include
portions of more than one State.
(c) REVISIONS.—A State may revise the boundaries
of HPPC areas not more frequently than annually.
SEC. 123. STANDARDS FOR HEALTH PLAN PURCHASING CO-
OPERATIVES.
(a) ESTABLISHMENT.—
(1) IN
GENERAL.—One or more State-char-
tered, nonprofit private corporations may be estab-
lished in accordance with this section to serve as a
HPPC for each HPPC area specified under section
122 for the benefit of small employers and eligible
individuals in the area. A carrier may not form, un-
derwrite, or possess a majority vote of a HPPC, but
may administer a HPPC.
(2) RULES OF CONSTRUCTION.—
(A) ESTABLISHMENT
NOT
REQUIRED.—
Nothing in this section shall be construed as re-
quiring—
(i) that a HPPC be established in
each HPPC area; and
(ii) that there be only one HPPC es-
tablished with respect to any HPPC area.
(B) SINGLE ORGANIZATION SERVING MUL-
TIPLE AREAS.—Nothing in this section shall be
construed as preventing a single not-for-profit
corporation from being a HPPC for more than
one HPPC area.
(b) BYLAWS AND BOARD OF DIRECTORS.—
(1) BYLAWS.—Each HPPC shall establish by-
laws, consistent with this section, for its operation,
including the election of members of its board of di-
rectors.
(2) BOARD OF DIRECTORS.—
(A) IN GENERAL.—Each HPPC shall oper-
ate under the supervision of a board of direc-
tors established under the bylaws of the HPPC.
A majority of the members of the board shall
be small employers or eligible individuals, or
representatives thereof, that participate in the
HPPC.
(B) APPOINTMENT AND ELECTION.—After
the initial appointment of members to the board
of directors of a HPPC (in accordance with the
articles of incorporation of the HPPC), the
board shall be elected by small employer mem-
bers and individual members of the HPPC in
accordance with bylaws of the HPPC. The elec-
tions shall occur not less frequently than once
every 2 years. The standards may provide, at
the option of a State, for different voting rights
for members that are small employers to reflect
the number of individuals receiving coverage
through those employers.
(3) LIMITATION ON LIABILITY.—There shall be
no liability on the part of, and no cause of action of
any nature shall arise against, any member of the
board of directors of a HPPC, or its employees or
agent, for any action taken in good faith by them in
the performance of duties of HPPCs specified in this
subtitle.
(c) OFFICERS AND EMPLOYEES.—Each HPPC shall
provide, consistent with its bylaws, for—
(1) the appointment of officers from among its
members, and
(2) the appointment of an executive director to
serve as the chief operating officer of the HPPC.
(d) ADVISORY COMMITTEES.—Each HPPC shall es-
tablish such advisory committees as may be necessary to
assist in carrying out its duties under this subtitle. An
advisory committee may include representation from quali-
fied health carriers, agents, and health care providers.
(e) ANNUAL
REPORT; RECORDS; AUDIT.—Each
HPPC shall—
(1) prepare, and submit to the State and the
Secretary, an annual report on its operations, in-
cluding its program and financial operations;
(2) conduct such annual internal and independ-
ent audits as it determines to be appropriate; and
(3) maintain records on its operations.
(f) GENERAL AUTHORITIES; LIMITATIONS ON AU-
THORITY.—
(1) IN GENERAL.—A HPPC may—
(A) sue (or be sued), and
(B) subject to paragraph (2), accept and
expend grants or funds from any public or pri-
vate agency.
(2) LIMITATIONS.—A HPPC may not—
(A) purchase health care services or per-
form any activity (including review, approval, or
enforcement) relating to payment rates for
providers;
(B) assume financial risk for the cost or
provision of health care services;
(C) contract directly with health care pro-
viders (other than with qualified health carriers
under section 124) for the provision of health
care services for members; or
(D) accept any funds from any private
agency that is (or is affiliated with) a qualified
health carrier or other party that would pose a
conflict of interest (as specified by the Sec-
retary).
SEC. 124. FUNCTIONS OF HEALTH PLAN PURCHASING CO-
OPERATIVES.
(a) CONTRACTS
WITH QUALIFIED HEALTH CAR-
RIERS; ENROLLMENT IN PLANS.—
(1) CONTRACTS
WITH
PLANS.—Each HPPC
shall enter into contracts and hold policies with
qualified health carriers which elect to offer HPPC
plans to members, in accordance with subsection (d).
(2) ENROLLMENT.—
(A) IN GENERAL.—Each HPPC shall pro-
vide for the enrollment of eligible employees of
small employers and eligible individuals in
HPPC plans of qualified health carriers offered
by the HPPC.
(B) OPEN ENROLLMENT PERIODS.—Each
HPPC shall provide for an annual open enroll-
ment period of 30 days to be available within
60 days before the anniversary date of each
member’s coverage under a HPPC plan.
(3) PROVISION OF INFORMATION.—Each HPPC
shall provide to its members and eligible employees
of small employer members comparison sheets, in ac-
cordance with standards established by the Sec-
retary, which provide clear standardized information
on each qualified health carrier and each HPPC
plan offered by a qualified health carrier, including
information on price, consumer satisfaction, and (if
feasible) health outcomes and enrollment and en-
rollee responsibilities and obligations.
(b) MEMBERSHIP REQUIREMENTS.—
(1) IN GENERAL.—Each HPPC shall establish
requirements for participation of small employers
and eligible individuals as members of the HPPC
consistent with any standards the Secretary estab-
lishes consistent with this subsection. Each HPPC
shall maintain eligibility records to carry out its
functions.
(2) SMALL
EMPLOYER
STANDARDS.—Under
those standards—
(A) each small employer in the area that
meets requirements for membership is per-
mitted to become a member;
(B) a small employer that is not a valid
small employer group and was formed for the
purpose of securing health benefits coverage
shall be denied membership;
(C) each small employer member shall
offer to eligible employees a choice of at least
2 different HPPC plans, of which—
(i) at least one is a high deductible
umbrella insurance plan, and
(ii) at least one is a managed care
health plan;
(D) no small employer is required, as a
condition of membership, to make any contribu-
tion towards the premium for coverage of any
eligible employee; and
(E) if a small employer member terminates
coverage purchased through the HPPC, the
former member shall be ineligible to purchase a
HPPC plan through the HPPC for a period of
12 months.
(3) 
INDIVIDUAL
MEMBERS.—Under 
those
standards, eligible individuals residing in a HPPC
area may become individual members of the HPPC
for the area. Nothing in this subtitle shall be con-
strued as requiring as a condition of membership for
a HPPC serving a HPPC area that individual be re-
siding in the area.
(4) PAYMENT OF PREMIUMS.—
(A) IN GENERAL.—A HPPC may condition
membership upon prepayment of a monthly pre-
mium (or compliance with other mechanisms)
to assure that payment will be made for cov-
erage of members on a timely basis.
(B) NOTIFICATION
OF
FAILURE
TO
RE-
CEIVE PREMIUM.—If a HPPC fails to receive
payment on a premium due with respect to an
individual covered under a qualified health car-
rier offered by the HPPC, the HPPC shall pro-
vide notice of the failure to the individual with-
in the 20-day period after the date on which the
premium payment was due.
(C) DIRECT PAYMENT ALLOWED IN CASE
OF
EMPLOYER
NONPAYMENT.—In the case a
small employer member of a HPPC fails to
make payment of premiums due with respect to
an eligible employee covered under a qualified
health carrier offered through the HPPC, the
HPPC shall notify the employee of the
nonpayment and shall allow the employee to
make direct payments to the HPPC effective
with the next succeeding payment period.
(5) DISPUTE RESOLUTION PROCEDURES.—Each
HPPC shall establish, in accordance with standards
established under this subtitle dispute resolution
procedures to resolve disputes between the HPPC
and its members and disputes between the HPPC
and qualified health carriers. Under those proce-
dures, a member or HPPC may appeal the proposed
resolution of a dispute to the State.
(c) CONTRACTS WITH MEMBERS.—
(1) PREMIUM PAYMENTS.—
(A) IN GENERAL.—Each contract between
a member and a HPPC shall provide that pay-
ment of all premiums shall be transmitted by
the member (which in the case of a small em-
ployer member shall be on behalf of eligible em-
ployees) to (or on behalf of) the HPPC for the
benefit of the qualified health carrier in which
the eligible employee or individual is enrolled.
The HPPC shall provide for procedures for the
collection of premiums from members (includ-
ing, in the case of a small employer member,
eligible employees).
(B) AT
LEAST
BIMONTHLY.—The pre-
miums are payable not less often than bi-
monthly.
(C) LATE CHARGES.—A HPPC may pro-
vide for penalties for late payment.
(D) NONPAYMENT.—Nonpayment of pre-
miums by a member shall constitute a breach of
the contract, a breach of the health care policy,
and a default on the member’s obligation.
(2) CONTRACT
HOLDER.—The contract shall
provide that—
(A) the HPPC may be the contract holder
of the health benefit policy on behalf of the
member (including eligible employees), and
(B) all eligible employees who obtain cov-
erage under the HPPC plan offered by a small
employer must obtain the coverage through any
HPPC plan offered by a qualified health carrier
through the HPPC.
(3) PREMIUM AMOUNTS.—The amount of pre-
miums imposed shall include an amount that in-
cludes the fixed overhead allowance percentage es-
tablished by the HPPC under subsection (e).
(d) CONTRACTS WITH PLANS.—
(1) IN
GENERAL.—Each contract between a
qualified health carrier and a HPPC shall provide—
(A) that premiums of members shall be
forwarded to the plan in which they are en-
rolled, subject to any adjustment under section
128, on the effective date of coverage (if that
occurs more than once a month), on a monthly
basis, or as agreed in the contract (but in no
event less frequently than monthly); and
(B) that the HPPC shall transmit enroll-
ment and eligibility information to the plan on
a timely basis.
(2) TERMINATION.—A qualified health carrier
may not terminate the contract unless the plan—
(A) provides advance notice to the HPPC,
and
(B) provides notice at least 180 days be-
fore the nonrenewal of any HPPC plan to en-
rollees.
In the case of a contract termination, the qualified
health carrier shall not write new business with the
HPPC for a period of 3 years from the date of the
notice of termination.
(e) OVERHEAD ALLOWANCE.—Each HPPC shall es-
tablish a fixed overhead allowance percentage that shall
be—
(1) applied as addition to the premiums
charged for enrollment in a qualified health carrier
offered through the HPPC to its members, and
(2) used to cover administrative costs of the
HPPC, as well as defaults by members of premium
payments.
(f) UNIFORM ADMINISTRATIVE
AND ACCOUNTING
PROCEDURES.—Each HPPC shall establish such uniform
administrative and accounting procedures as are needed
to conform with applicable national standards identified
by the Secretary.
(g) CONTRACTS FOR ADMINISTRATIVE SERVICES.—
(1) IN GENERAL.—Each HPPC shall contract
with a qualified, independent third party for any
service necessary to carry out its duties under this
subtitle. The contracts shall include—
(A) contracts with agents to assist in con-
tracting with qualified health carriers and small
employer members, and
(B) contracts to market and publicize the
availability of HPPC plans through the HPPC.
(2) INFORMATION.—Unless permission is spe-
cifically granted by the HPPC, a third party may
not release, publish, or otherwise use any informa-
tion to which the party has access under its con-
tract.
(g) CONSTRUCTION.—Nothing in this subtitle shall
be construed as requiring a small employer or eligible indi-
vidual to obtain coverage from or through a HPPC.
SEC. 125. QUALIFIED HEALTH CARRIERS.
(a) DESIGNATION.—Each State shall establish a
process whereby a carrier that demonstrates to the satis-
faction of the State insurance commissioner that it has
the capability to fulfill the following requirements (directly
or through subcontracts) is designated as a qualified
health carrier for purposes of this subtitle:
(1) LICENSURE.—The carrier is licensed and in
good standing with the State insurance commis-
sioner (or other comparable official for a State).
(2) ADMINISTRATIVE
CAPACITY.—The carrier
has the capacity to administer HPPC plans.
(3) ACCESS.—In the case of a carrier with a
contractual obligation to provide or arrange for
health services included in a HPPC plan, the ability
to provide enrollees with adequate access to these
covered services within the carrier’s service area.
(4) GRIEVANCE PROCEDURES.—The carrier has
grievance procedures, including the ability to re-
spond to enrollees’ calls, questions, and complaints.
(5) 
UTILIZATION
MANAGEMENT
PROCE-
DURES.—The carrier has established utilization
management procedures.
(6) QUALITY.—The carrier has the ability to
monitor and evaluate the quality and cost-effective-
ness of care.
(7) INFORMATION.—The carrier has the ability
to provide information on enrollee satisfaction
(based on standard surveys described in section
127(b)(4)).
(8) DATA.—The carrier has the ability to pro-
vide standard data elements (identified under section
127(b)).
(b) FUNCTIONS
OF
QUALIFIED
HEALTH
CAR-
RIERS.—
(1) IN GENERAL.—In every HPPC with which
it has a contract under section 124(d), each quali-
fied health carrier shall provide for activities de-
scribed in this subsection.
(2) OFFERING
PLAN.—Each qualified health
carrier shall offer HPPC plans. If a qualified health
carrier offers a high deductible umbrella insurance
plan or a managed health care plan in a State (or
geographic area) to employers that are not small
employers, the carrier shall offer, as a HPPC plan,
a similar high deductible umbrella insurance plan or
managed health care plan in that State or geo-
graphic area.
(3) PERFORMANCE INFORMATION.—Each quali-
fied health carrier shall provide for the collection
and reporting to the State and to the appropriate
HPPC of information on the performance of the
plan regarding the effectiveness in providing serv-
ices, consistent with section 127(b).
(4) COMPLIANCE WITH REQUIREMENTS.—Each
qualified health carrier shall—
(A) meet the requirements of part 1 of
subtitle A (relating to benefits, rating practices,
guaranteed issue, guaranteed renewability, and
restrictions on agent compensation and broker
activities) with respect to HPPC plans it offers;
and
(B) file on a quarterly basis with the
HPPC in which it is participating the premium
rates for HPPC plans offered by the carrier.
(5) NOTICE OF TERMINATION OF HPPC CON-
TRACT.—Each qualified health carrier may only ter-
minate its contract with the HPPC in accordance
with section 124(d)(2).
(6) GRIEVANCE PROCEDURES.—Each qualified
health carrier shall provide a procedure for address-
ing grievances that arise between the carrier and the
HPPC or members of the HPPC (and, in the case
of small employer members, their eligible employees)
that requires both parties to fully exhaust the rem-
edies provided under the procedure to resolve griev-
ance before seeking any relief other than as provided
in the procedure.
(7) USE OF UNIFORM CLAIMS FORMS.—Each
qualified health carrier shall use standardized forms,
including uniform claims forms, identified by the
Secretary with respect to HPPC plans.
(c) COVERAGE.—
(1) IN
GENERAL.—Coverage under a HPPC
plan offered by a qualified health carrier shall be
available to any member of the HPPC at the anni-
versary date of each member’s coverage under a
HPPC plan (or in the case of an employer or indi-
vidual who has applied to become a member of a
HPPC when the member first joins the HPPC).
(2) EXCEPTION.—A qualified health carrier is
not required to offer coverage or accept enrollment
if—
(A) the eligible individual or employee does
not reside within the plan’s service area (as ap-
proved by the State insurance commissioner);
(B) the plan provides 90 days prior notice
that it will not have the capacity to deliver serv-
ices adequately in the HPPC area to additional
enrollees because of its obligations to existing
groups and enrollees; or
(C) the State insurance commissioner de-
termines that the acceptance of an application
or applications would place the plan in a finan-
cially impaired condition.
(3) CONDITIONS.—
(A) INSUFFICIENT CAPACITY.—A qualified
health carrier that cannot offer coverage under
paragraph (2)(B) may not offer coverage to the
employees of a new employer group until the
later of 90 days following that refusal or the
date on which the plan notifies the HPPC and
the State insurance commissioner that it has
regained capacity to deliver services to eligible
individuals in the service area.
(B) FINANCIAL IMPAIRMENT.—A qualified
health carrier that cannot offer coverage under
paragraph (2)(C) may not offer coverage or ac-
cept applications for any individual or employer
group until a determination by the State insur-
ance commissioner that acceptance of an appli-
cation will not put the plan in a financially im-
paired condition.
(d) DEEMED COMPLIANCE.—Carriers which comply
with any of the requirements of a paragraph of subsection
(a) through a requirement of State law shall be deemed
to be in compliance with the corresponding paragraph of
that subsection. Carriers receiving accreditation by nation-
ally recognized, health related accreditation organizations
(including the National Committee on Quality Assurance,
the Utilization Review Accreditation Commission, the
Joint Commission on Accreditation of Health Care Orga-
nizations), or qualification by Federal agencies, shall be
deemed in compliance with the requirements of subsection
(a) as they pertain to the relevant accreditation activities
of the organizations.
(e) DETERMINATIONS.—Each State shall provide for
a determination of whether a carrier is a qualified health
carrier within 30 days of a completed application being
submitted to the State.
(f) TERMINATION.—After notice and hearing, a State
may suspend or revoke the designation as a qualified
health carrier of a carrier that fails to maintain compli-
ance with the requirements in subsections (a), (b), and
(c).
SEC. 126. MARKETING HPPC PLANS.
(a) IN GENERAL.—Each HPPC shall use efficient
and standardized means to notify small employers of the
availability of HPPC plans through the HPPC.
(b) MARKETING MATERIALS.—Each HPPC shall
make available to small employer and individual members
marketing materials that accurately summarize the HPPC
plans, cost, and other relevant information concerning
qualified health carriers offered by the HPPC.
(c) USE OF BROKERS.—Nothing in this subtitle shall
be construed to prohibit a HPPC or qualified health car-
rier from using the services of an agent, broker, contrac-
tor, or producer in order to assist in marketing.
(d) MONITORING.—Each HPPC shall notify the
State insurance commissioner (or other official identified
by the State) of any marketing practices or materials that
it finds contrary to the fair and affirmative marketing of
qualified health carriers and HPPC plans under this sub-
title.
(e) STATE ROLE.—Each State insurance commis-
sioner shall monitor compliance with the marketing re-
quirements of this subtitle and subtitle A, including the
conduct of agents, brokers, contractors, and producers and
investigate complaints of violations of those requirements.
SEC. 127. COLLECTION AND SUBMISSION OF DATA.
(a) FROM HPPCS TO STATES.—Each HPPC shall
submit such data to the State, on a quarterly basis, as
the Secretary may specify. The data shall include the
following:
(1) With respect to small employer members—
(A) employer enrollment by employer size,
industry sector, previous insurance status, and
number of eligible employees within each small
employer, and
(B) number of total eligible employers in
the HPPC area.
(2) With respect to eligible individuals, the de-
mographic characteristics of those individuals, in-
cluding age, gender, employment status and employ-
ment sector, and previous insurance status.
(3) Premium ranges for each HPPC plan for
HPPC member categories.
(4) HPPC overhead charges.
(5) HPPC financial statements.
(b) COLLECTION OF DATA BY HPPCS.—
(1) IN GENERAL.—The Secretary shall establish
uniform standards for data that a HPPC collects
from qualified health carriers and providers and
disseminates.
(2) COLLECTION.—Under the standards, each
HPPC shall collect only such data as are necessary
for evaluation of the performance of qualified health
carriers (and any provider networks used by those
carriers) by consumers and providers. The Secretary
shall establish the standards consistent with the
method of operation of qualified health carriers, with
national health care data collection initiatives, and
with not imposing an unreasonable cost of compli-
ance on qualified health carriers. The Secretary shall
establish the standards only after a study of the fea-
sibility and cost-effectiveness.
(3) DISSEMINATION.—Under the standards,
each HPPC shall release the data collected in a uni-
form and standardized format which compares all
qualified health carriers or providers (as the case
may be).
(4) ENROLLEE
SATISFACTION
SURVEYS.—All
enrollee satisfaction surveys used by qualified health
carriers in reporting to HPPCs shall be in a stand-
ardized format promulgated by the Secretary.
SEC. 128. ROLE OF STATE; OVERSIGHT; EVALUATION.
(a) OVERSIGHT.—Each State shall—
(1) assure compliance of HPPCs, small employ-
ers, and eligible employees and individuals with the
requirements of this subtitle; and
(2) conduct reviews, not less frequently than
annually, on the performance of each HPPC in as-
suring access to health coverage to small employers
and eligible individuals in the HPPC area in accord-
ance with this subtitle.
(b) DISPUTE RESOLUTION.—Each State shall re-
ceive, review, and act on appeals of disputes, between a
HPPC and a member, not resolved by the HPPC under
section 124(b)(5).
(c) ANALYSIS OF INFORMATION.—Each State shall
analyze information collected from qualified health car-
riers and other sources and report findings that assist con-
sumers, HPPCs, qualified health carriers, or health care
providers in improving the delivery or purchase of cost-
effective health care.
(d) DISSEMINATION OF INFORMATION.—Each State
shall prepare and make available to HPPCs and employers
located in the State (and to eligible individuals upon re-
quest) information, in comparative form, concerning the
HPPC plans in the State and HPPCs operating in the
State. The information shall include a description of the
following:
(1) The HPPCs in the State and HPPC plans
of qualified health carriers available with respect to
each HPPC.
(2) The existence of HPPCs within each HPPC
area.
(3) Any other information determined appro-
priate by the State.
(e) ANNUAL REPORT.—Each State shall report to the
Secretary, at a frequency (not more often than annually)
specified by the Secretary, on the impact of the reforms
under this subtitle in expanding the availability and af-
fordability of health coverage to eligible employees and eli-
gible individuals.
(f) ANTITRUST PROTECTION.—Each State shall ac-
tively supervise HPPCs to ensure that actions that affect
market competition accomplish the objectives of this sub-
title, so as to provide State and Federal protection to
HPPCs and the board of directors of HPPCs against Fed-
eral and State laws intended to protect commerce from
unlawful restraints, monopolies, and unfair business
practices.
(g) NON-PREEMPTION.—Nothing in this subtitle
shall be construed as preempting a State from taking any
actions that are in addition to, and not directly inconsist-
ent with, the provisions of this subtitle.
SEC. 129. DEFINITIONS.
In this subtitle:
(1) CARRIER.—The term ‘‘carrier’’ means a li-
censed insurance company, a prepaid hospital or
medical service plan, and a health maintenance orga-
nization offering a health benefit plan, and includes
a similar organization regulated under State law for
solvency.
(2) ELIGIBLE EMPLOYEE.—The term ‘‘eligible
employee’’ means, with respect to an employer, an
employee who normally performs on a monthly basis
at least 30 hours of service per week for that
employer.
(3) ELIGIBLE INDIVIDUAL.—The term ‘‘eligible
individual’’ means an individual residing in the Unit-
ed States who is a citizen or national of the United
States or an alien lawfully residing permanently in
the United States.
(4) EMPLOYER.—The term ‘‘employer’’ has the
meaning given that term in section 3(5) of the Em-
ployee Retirement Income Security Act of 1974.
(5) HEALTH PLAN PURCHASING COOPERATIVE;
HPPC.—The terms ‘‘health plan purchasing coopera-
tive’’ and ‘‘HPPC’’ mean a State-chartered, non-
profit organization that—
(A) provides health coverage purchasing
services to members in a HPPC area regarding
HPPC plans offered by qualified health car-
riers, and
(B) is established in accordance with sec-
tion 123.
(6) HPPC AREA.—The term ‘‘HPPC area’’
means an area designated under section 123.
(7) HPPC PLAN.—The term ‘‘HPPC plan’’
means, with respect to a HPPC, a high deductible
umbrella insurance plan or managed health care
plan, as defined in section 101, offered by the
HPPC that is marketed in accordance with section
126 and submits data in accordance with section
127.
(8) HEALTH
MAINTENANCE
ORGANIZATION.—
The term ‘‘health maintenance organization’’ in-
cludes, as determined under standards established
by the Secretary, a health insurance plan that meets
specified standards and that offers to provide health
services on a prepaid, at-risk basis primarily through
a defined set of providers.
(9) MEMBER.—The term ‘‘member’’ means,
with respect to a HPPC, a small employer or eligible
individual that meets membership requirements for
the HPPC under section 124(b).
(10) QUALIFIED HEALTH CARRIER.—The term
‘‘qualified health carrier’’ means a carrier designated
under section 125(a) by a State insurance commis-
sioner.
(11) SERVICE AREA.—The term ‘‘service area’’
means a geographic region in which a carrier is li-
censed to operate.
(12) 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 501 eligible employees on a typical busi-
ness day in any 3-consecutive-month-period in the
year. For the purposes of this paragraph, the term
‘‘employee’’ includes a self-employed individual. For
purposes of determining if an employer is a small
employer, rules similar to the rules of subsection (b)
and (c) of section 414 of the Internal Revenue Code
of 1986 shall apply.
(13) SMALL
EMPLOYER
MEMBER.—The term
‘‘small employer member’’ means, with respect to a
HPPC, a small employer that is a member of the
HPPC.
(14) STATE INSURANCE COMMISSIONER.—The
term ‘‘State insurance commissioner’’ includes a
State superintendent of insurance and includes, with
respect to a health maintenance organization or
other carrier not regulated by that official, the State
official who is responsible for regulation of the orga-
nization or carrier.
Subtitle C—Federal Preemption
SEC. 141. PROHIBITION OF STATE BENEFIT MANDATES FOR
GROUP HEALTH PLANS.
In the case of a group health plan, no provision of
State or local law shall apply that requires the coverage
of one or more specific benefits, services, or categories of
health care, or services of any class or type of provider
of health care.
SEC. 142. PROHIBITION OF PROVISIONS PROHIBITING EM-
PLOYER 
GROUPS 
FROM 
PURCHASING
HEALTH INSURANCE.
No provision of State or local law shall apply that
prohibits 2 or more employers from obtaining coverage
under an insured multiple employer health plan.
SEC. 143. RESTRICTIONS ON MANAGED CARE.
(a) PREEMPTION OF STATE LAW PROVISIONS.—Sub-
ject to subsection (c), the following provisions of State law
are preempted and may not be enforced:
(1) RESTRICTIONS ON REIMBURSEMENT RATES
OR
SELECTIVE
CONTRACTING.—Any law that re-
stricts the ability of a group health plan to negotiate
reimbursement rates with providers or to contract
selectively with one provider or a limited number of
providers.
(2) RESTRICTIONS
ON
DIFFERENTIAL
FINAN-
CIAL INCENTIVES.—Any law that limits the financial
incentives that a group health plan may require a
beneficiary to pay when a non-plan provider is used
on a non-emergency basis.
(3) RESTRICTIONS
ON
UTILIZATION
REVIEW
METHODS.—Any law that—
(A) prohibits utilization review of any or
all treatments and conditions,
(B) requires that such review be made (i)
by a resident of the State in which the treat-
ment is to be offered or by an individual li-
censed in such State, or (ii) by a physician in
any particular specialty or with any board cer-
tified specialty of the same medical specialty as
the provider whose services are being reviewed,
(C) requires the use of specified standards
of health care practice in such reviews or re-
quires the disclosure of the specific criteria used
in such reviews,
(D) requires payments to providers for the
expenses of responding to utilization review re-
quests, or
(E) imposes liability for delays in perform-
ing such review.
Nothing in subparagraph (B) shall be construed as
prohibiting a State from (i) requiring a licensed phy-
sician or other health care professional be available
at some time in the review or appeal process, or (ii)
requiring that any decision in an appeal from such
a review be made by a licensed physician.
(b) GAO STUDY.—
(1) IN
GENERAL.—The Comptroller General
shall conduct a study of the benefits and cost effec-
tiveness of the use of managed care in the delivery
of health services.
(2) REPORT.—By not later than 4 years after
the date of the enactment of this Act, the Comptrol-
ler General shall submit a report to Congress on the
study conducted under paragraph (1) and shall in-
clude in the report such recommendations (including
whether the provisions of subsection (a) should be
extended) as may be appropriate.
(c) SUNSET.—Unless otherwise provided, subsection
(a) shall not apply 5 years after the date of the enactment
of this Act.
SEC. 144. EXEMPTION OF STATE LAWS PREVENTING DE-
NIAL OF LIFESAVING MEDICAL TREATMENT
PENDING TRANSFER TO ANOTHER HEALTH
CARE PROVIDER.
Nothing in this subtitle shall be construed to invali-
date any State law that has the effect of preventing invol-
untary denial of lifesaving medical treatment when such
denial would cause the involuntary death of the patient
pending transfer of the patient to a health care provider
willing to provide such treatment.
SEC. 145. DEFINITIONS.
In this subtitle, the following definitions shall apply:
(1) EMPLOYER.—The term ‘‘employer’’ shall
have the meaning applicable under section 3(5) of
the Employee Retirement Income Security Act of
1974.
(2) GROUP
HEALTH
PLAN; PLAN.—(A) The
term ‘‘group health plan’’ means an employee wel-
fare benefit plan providing medical care (as defined
in section 213(d) of the Internal Revenue Code of
1986) to participants or beneficiaries directly or
through insurance, reimbursement, or otherwise, but
does not include any type of coverage excluded from
the definition of a health insurance plan.
(B) The term ‘‘plan’’ means, unless used with
a modifying term or the context specifically indicates
otherwise, a group health plan (including any such
plan which is a multiemployer plan), an exempted
multiple employer health plan, or an insured mul-
tiple employer health plan.
(3) HEALTH INSURANCE PLAN.—
(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘‘health insurance
plan’’ means any hospital or medical service
policy or certificate, hospital or medical service
plan contract, or health maintenance organiza-
tion group contract offered by an insurer.
(B) EXCEPTION.—Such term does not in-
clude any of the following—
(i) coverage only for accident, dental,
vision, disability income, or long-term care
insurance, or any combination thereof,
(ii) medicare supplemental health in-
surance,
(iii) coverage issued as a supplement
to liability insurance,
(iv) worker’s compensation or similar
insurance, or
(v) automobile medical-payment insur-
ance,
or any combination thereof.
(4) INSURED
MULTIPLE
EMPLOYER
HEALTH
PLAN.—The term ‘‘insured multiple employer health
plan’’ means a fully insured multiple employer wel-
fare arrangement under which benefits consist solely
of medical care described in section 607(1) of the
Employee Retirement Income Security Act of 1974
(disregarding such incidental benefits as the Sec-
retary shall specify by regulations).
(5) INSURER.—The term ‘‘insurer’’ means a li-
censed insurance company, a prepaid hospital or
medical service plan, and a health maintenance orga-
nization offering such a plan to an employer, and in-
cludes a similar organization regulated under State
law for solvency.
(6) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services.
(7) STATE.—The term ‘‘State’’ means the 50
States, the District of Columbia, Puerto Rico, the
Virgin Islands, Guam, and American Samoa.
Subtitle D—Rules of Construction
Regarding 
Abortion 
Services;
Inseverability
SEC. 151. RULES OF CONSTRUCTION REGARDING ABOR-
TION SERVICES.
Nothing in this title or title II may be construed—
(1) to require any health plan to include any
abortion services, or
(2) to condition tax deductibility on the inclu-
sion of such services.
SEC. 152. INSEVERABILITY.
If section 151 is judicially determined to be invalid
or any provision in this title or title II is judicially deter-
mined—
(1) to require any health plan to include any
abortion services, or
(2) to condition tax deductibility on the inclu-
sion of such services,
then all the provisions of this title and title II shall be
deemed to be invalid and shall not be given any effect.
TITLE II—AMENDMENTS OF IN-
TERNAL REVENUE CODE OF
1986
Subtitle 
A—Limitations 
on 
Em-
ployer 
Deduction 
for 
Health
Care Coverage for Employees
and on Employee Exclusion for
Employer-Provided Health Care
Coverage
SEC. 201. EMPLOYER DEDUCTION FOR HEALTH CARE COV-
ERAGE FOR EMPLOYEES LIMITED TO COV-
ERAGE 
UNDER 
HIGH-DEDUCTIBLE 
PLANS
AND MANAGED CARE PLANS AND TO CON-
TRIBUTIONS 
TO 
MEDICAL 
SAVINGS 
AC-
COUNTS FOR EMPLOYEES.
(a) IN GENERAL.—Part IX of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
items not deductible) is amended by adding at the end
the following new section:
‘‘SEC. 280I. CERTAIN HEALTH CARE COVERAGE FOR EM-
PLOYEES.
‘‘(a) IN GENERAL.—Except as otherwise provided in
this section, no deduction shall be allowed under this chap-
ter to any employer for health care coverage for any em-
ployee.
‘‘(b) EXCEPTIONS.—
‘‘(1) IN
GENERAL.—Subsection (a) shall not
apply to coverage under—
‘‘(A) a high deductible umbrella insurance
plan, or
‘‘(B) a managed health care plan.
‘‘(2) MEDICAL SAVINGS ACCOUNTS PERMITTED
WITH
HIGH
DEDUCTIBLE
UMBRELLA
INSURANCE
PLAN COVERAGE.—In the case of an employer who
provides coverage under a high deductible umbrella
insurance plan for an employee, subsection (a) also
shall not apply to employer contributions to a medi-
cal savings account (as defined in section 23(c)) for
the benefit of such employee.
‘‘(3) PERMITTED
COVERAGE.—Subsection (a)
shall not apply to permitted coverage (as defined in
subsection (e)).
‘‘(c) MAXIMUM DEDUCTION FOR PROVISION OF TAX-
QUALIFIED HEALTH CARE PLANS AND MEDICAL SAV-
INGS ACCOUNTS.—The amount allowed as a deduction by
reason of paragraphs (1) and (2) of subsection (b) for any
taxable year with respect to an employee shall not exceed
the health care tax benefit limitation for such taxable year.
‘‘(d) HEALTH CARE TAX BENEFIT LIMITATION.—
‘‘(1) IN GENERAL.—The health care tax benefit
limitation for any taxable year is the sum of—
‘‘(A) $2,500 ($4,000 in the case of a joint
return filed by individuals both of whom are
covered under a tax-qualified health care plan
provided by the employer), plus
‘‘(B) $1,000 if any individual (other than
the taxpayer and the spouse (if any) of the tax-
payer) is covered under such plan by reason of
their relationship to such taxpayer or spouse.
‘‘(2) VARIATION OF MAXIMUM DEDUCTION BY
GEOGRAPHIC AREA.—
‘‘(A) IN GENERAL.—In the case of any cal-
endar year after 1996, each of the dollar
amounts applicable under paragraph (1) (after
the adjustment under paragraph (3)) shall be
adjusted by the Secretary to reflect variations
in the cost of tax-qualified health care plans be-
tween statistical areas (as defined in section
143(k)(2)). The amounts prescribed by the Sec-
retary under this subparagraph for any cal-
endar year shall apply to taxable years begin-
ning in such calendar year.
‘‘(B) METHOD.—
‘‘(i) IN
GENERAL.—Amounts pre-
scribed under subparagraph (A) for any
area for any calendar year shall be deter-
mined by multiplying the dollar amounts
applicable under paragraph (1) (after the
adjustment under paragraph (3)) by the
cost-of-living multiplier for such area for
such calendar year. If any adjustment
under the preceding sentence is not a mul-
tiple of $50, such adjustment shall be
rounded to the nearest multiple of $50.
‘‘(ii) MULTIPLIER.—The cost-of-living
multiplier for any area for any calendar
year is the fraction—
‘‘(I) the numerator of which is
the cost-of-living for such area for
such calendar year; and
‘‘(II) the denominator of which is
the average cost-of-living for the
United States for such calendar year.
The Secretary shall determine the cost-of-
living for an area using retail market
prices selected and used under the same
methodology as is used by the Bureau of
Labor 
Statistics 
in 
developing 
the
Consumer Price Index for All Urban Con-
sumers. The cost-of-living for any calendar
year is the cost-of-living as of the close of
the 12-month period ending on August 31
of such calendar year.
‘‘(3) INFLATION ADJUSTMENT.—
‘‘(A) IN GENERAL.—In the case of any cal-
endar year after 1996, each dollar amount con-
tained in paragraph (1) shall be increased by
an amount equal to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the inflation adjustment for such
calendar year.
If any increase under the preceding sentence is
not a multiple of $50, such increase shall be
rounded to the nearest multiple of $50.
‘‘(B) METHOD
OF
ADJUSTMENT.—For
purposes of subparagraph (A), the inflation ad-
justment for any calendar year is the greater
of—
‘‘(i) the CPI adjustment, or
‘‘(ii) the MEI adjustment.
‘‘(C) CPI ADJUSTMENT.—The CPI adjust-
ment for any calendar year is the percentage (if
any) by which the CPI–U for the preceding cal-
endar year exceeds the CPI–U for the second
preceding calendar year.
‘‘(D) MEI ADJUSTMENT.—The MEI ad-
justment for any calendar year is—
‘‘(i) the percentage (if any) by which
MEI for the preceding calendar year ex-
ceeds the MEI for the second preceding
calendar year, reduced by
‘‘(ii) 2 percentage points (1 percent-
age point in the case of adjustments for
calendar years 1997 and 1998).
‘‘(E) INDEX FOR ANY CALENDAR YEAR.—
For purposes of this paragraph, the CPI–U and
MEI for any calendar year is the CPI–U and
MEI as of the close of the 12-month period
ending on August 31 of such calendar year.
‘‘(F) CPI–U AND MEI.—For purposes of
this paragraph—
‘‘(i) The term ‘CPI–U’ means the
Consumer Price Index for all-urban con-
sumers published by the Department of
Labor.
‘‘(ii) The term ‘MEI’ means the Medi-
care Economic Index referred to in the 4th
sentence of section 1842(b)(3) of the So-
cial Security Act.
‘‘(e) PERMITTED COVERAGE.—For purposes of this
section, the term ‘permitted coverage’ means—
‘‘(1) any coverage providing wages or payments
in lieu of wages for any period during which the em-
ployee is absent from work on account of sickness or
injury,
‘‘(2) any coverage providing for payments re-
ferred to in section 105(c),
‘‘(3) insurance that limits benefits with respect
to specific diseases (or conditions),
‘‘(4) hospital or nursing home indemnity insur-
ance,
‘‘(5) insurance with respect to accidents,
‘‘(6) any coverage provided to an employee or
former employee after such employee has attained
age 65, unless such coverage is provided by reason
of the current employment of the individual (within
the meaning of section 1862(b)(1)(A)(i)(I) of the
Social Security Act) with the employer providing the
coverage,
‘‘(7) any coverage provided under Federal law
to any individual (or spouse or dependent thereof)
by reason of such individual being—
‘‘(A) a member of the Armed Forces of the
United States, or
‘‘(B) a veteran, and
‘‘(8) any other coverage to the extent that the
Secretary determines that the continuation of an ex-
clusion for such coverage is not inconsistent with the
purposes of this section.
Insurance shall be treated as described in paragraph (3),
(4), or (5) only if the amount of the benefits under the
insurance do not vary based on the amount of expenses
incurred.
‘‘(f) SPECIAL RULES FOR DETERMINING AMOUNT OF
DEDUCTION.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the cost of any coverage for an employee, his
spouse, and dependents shall be determined on the
basis of the average cost of providing such coverage
to the beneficiaries receiving such coverage.
‘‘(2) SPECIAL RULE.—To the extent provided
by the Secretary, cost determinations under para-
graph (1) may be made on the basis of reasonable
estimates.
‘‘(g) DEFINITIONS.—For purposes of this section, the
terms ‘high deductible umbrella insurance plan’, ‘managed
health care plan’, and ‘tax-qualified health care plan’ have
the respective meanings given such terms by section 101
of Health Savings and Security Act of 1994.’’
(b) CLERICAL AMENDMENT.—The table of sections
for such part IX is amended by adding at the end the
following new item:
‘‘Sec. 280I. Certain health care coverage for employees.’’
SEC. 202. LIMITATION ON EXCLUSION FOR EMPLOYER-PRO-
VIDED COVERAGE UNDER HEALTH PLAN.
(a) IN GENERAL.—The text of section 106 of the In-
ternal Revenue Code of 1986 (relating to contributions by
employer to accident and health plans) is amended to read
as follows:
‘‘(a) IN GENERAL.—Except as provided in subsection
(b), gross income of an employee does not include em-
ployer-provided coverage under an accident or health plan.
‘‘(b) LIMITATIONS.—
‘‘(1) 
ONLY
CERTAIN
COVERAGE
EXCLUD-
ABLE.—Gross income of an employee shall include
employer-provided coverage under any accident or
health plan except to the extent that—
‘‘(A) such coverage consists of coverage
under a tax-qualified health care plan (as de-
fined in section 101 of the Health Savings and
Security Act of 1994),
‘‘(B) such coverage consists of contribu-
tions to a medical savings account (as defined
in section 23(c)) for the benefit of an employee,
or
‘‘(C) such coverage consists of permitted
coverage (as defined in section 280I(e)).
‘‘(2) MAXIMUM
EXCLUSION
FOR
EMPLOYER-
PROVIDED
TAX-QUALIFIED
HEALTH
CARE
PLANS
AND MEDICAL SAVINGS ACCOUNTS.—
‘‘(A) IN GENERAL.—The amount excluded
from gross income by reason of subparagraphs
(A) and (B) of paragraph (1) for any taxable
year shall not exceed the health care tax benefit
limitation for such taxable year determined
under section 280I(d).
‘‘(B) SPOUSES WITH DUAL COVERAGE.—If
the taxpayer or the spouse of the taxpayer are
covered under more than 1 tax-qualified health
care plan, coverage under the least expensive
such plan shall not be subject to subparagraph
(A) and such coverage shall not be taken into
account in applying subparagraph (A) to the
other such plan.
‘‘(c) SPECIAL RULES FOR DETERMINING AMOUNT OF
INCLUSION.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the value of any coverage shall be determined
(b) CONFORMING AMENDMENT.—Subsection (g) of
section 125 is amended by striking paragraph (2) and re-
designating paragraphs (3) and (4) as paragraphs (2) and
(3), respectively.
SEC. 204. EFFECTIVE DATE.
(a) IN GENERAL.—The amendments made by this
subtitle shall take effect on January 1, 1996.
(b) COLLECTIVELY BARGAINED PLANS.—In the case
of a plan maintained pursuant to 1 or more collective bar-
gaining agreements between employee representatives and
1 or more employers ratified before March 15, 1994, the
amendments made by this subtitle shall not apply to
health coverage pursuant to such plan before the earlier
of—
(1) the later of—
(A) January 1, 1997, or
(B) the date on which the last of such col-
lective bargaining agreements terminates (de-
termined without regard to any extension there-
of after March 14, 1994), or
(2) January 1, 1999.
Subtitle B—Credits for Contribu-
tions to Medical Savings Ac-
counts, for Purchase of High De-
ductible 
Umbrella 
Insurance,
and 
for 
Routine 
Preventive
Care
SEC. 211. CREDIT FOR CONTRIBUTIONS TO MEDICAL SAV-
INGS ACCOUNTS.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to nonrefundable credits) is amended by
inserting after section 22 the following new section:
‘‘SEC. 23. MEDICAL SAVINGS ACCOUNT CONTRIBUTIONS.
‘‘(a) EXCLUSION.—In the case of an eligible individ-
ual, there shall be allowed as a credit against the tax im-
posed by this chapter for the taxable year an amount equal
to 31 percent of the medical savings account contributions
of the individual for the taxable year.
‘‘(b) LIMITATIONS.—
‘‘(1) IN
GENERAL.—The amount of medical
savings account contributions by an eligible individ-
ual which may be taken into account under sub-
section (a) for any taxable year shall not exceed the
excess of—
‘‘(A) the lesser of—
‘‘(i) the account limitation, or
‘‘(ii) the excess health care tax benefit
limitation for the taxable year, over
‘‘(B) the amount (if any) allowable as a
credit under section 35 to the taxpayer for the
taxable year.
‘‘(2) ACCOUNT LIMITATION.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the account limitation is $2,000.
‘‘(B) HIGHER
ACCOUNT
LIMITATION
IF
TAXPAYER
HAS
DEPENDENTS.—The $2,000
amount in subparagraph (A) shall be increased
by the lesser of—
‘‘(i) $500 for each other individual
who is covered under the high deductible
umbrella insurance plan (as defined in sec-
tion 101 of the Health Savings and Secu-
rity Act of 1994) by reason of such indi-
vidual’s relationship to the taxpayer, or
‘‘(ii) $1,500.
In the case of a married individual (as defined
in section 7703) who does not file a joint return
with such individual’s spouse, the $1,500
amount in clause (ii) shall be divided equally
between such individual and spouse unless they
agree on a different division of such amount.
‘‘(C) PRORATION OF LIMITATION IF PART-
YEAR ELIGIBILITY.—In the case of an individ-
ual who is an eligible individual only for a por-
tion (but not all) of the calendar year ending
with or within the taxable year, the account
limitation under this paragraph for such tax-
able year shall be an amount which bears the
same ratio to such limitation (determined with-
out regard to this paragraph) as such portion
bears to the entire calendar year.
‘‘(3) EXCESS HEALTH CARE TAX BENEFIT LIMI-
TATION.—For purposes of paragraph (1), the excess
health care tax benefit limitation for any taxable
year is the excess (if any) of—
‘‘(A) the health care tax benefit limitation
under section 280I(d) for such taxable year,
over
‘‘(B) the amount excluded from the tax-
payer’s gross income by reason of subpara-
graphs (A) and (B) of section 106(b)(1) for
such taxable year.
‘‘(c) DEFINITIONS.—For purposes of this section:
‘‘(1) MEDICAL SAVINGS ACCOUNT.—The term
‘medical savings account’ means a trust created or
organized in the United States exclusively for the
purpose of paying the medical expenses of the ac-
count beneficiary, but only if the written governing
instrument creating the trust meets the following
requirements:
‘‘(A) No contribution will be accepted un-
less it is in cash, and contributions will not be
accepted during any calendar year in excess of
the limitation under subsection (b).
‘‘(B) The trustee is a bank (as defined in
section 408(n)) or another person who dem-
onstrates to the satisfaction of the Secretary
that the manner in which such person will ad-
minister the trust will be consistent with the re-
quirements of this section.
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts.
‘‘(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(2) ELIGIBLE INDIVIDUAL.—The term ‘eligible
individual’ means any individual who is covered
under a high deductible umbrella insurance plan (as
defined in section 101 of Health Savings and Secu-
rity Act of 1994) other than—
‘‘(A) an individual who is covered by—
‘‘(i) part A or part B of the medicare
program under title XVIII of the Social
Security Act,
‘‘(ii) the medicaid program under title
XIX of the Social Security Act,
‘‘(iii) the health care program for ac-
tive military personnel under title 10,
United States Code,
‘‘(iv) the veterans health care program
under chapter 17 of title 38, United States
Code,
‘‘(v) the Civilian Health and Medical
Program 
of 
the 
Uniformed 
Services
(CHAMPUS), 
as 
defined 
in 
section
1073(4) of title 10, United States Code, or
‘‘(vi) the Indian health service pro-
gram under the Indian Health Care Im-
provement Act (25 U.S.C. 1601 et seq.),
‘‘(B) an individual with respect to whom a
deduction under section 151 is allowable to an-
other taxpayer for a taxable year beginning in
the calendar year in which the individual’s tax-
able year begins, and
‘‘(C) an individual if the amendments
made by subtitle A of title II of the Health Sav-
ings and Security Act of 1994 do not apply to
such individual’s health coverage by reason of
section 204(b) of such Act.
‘‘(3) MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—The term ‘medical ex-
penses’ means, with respect to the account ben-
eficiary, the amount paid by such beneficiary
for medical care (as defined in section 213(d))
of such beneficiary and the spouse and depend-
ents (as defined in section 152) of such bene-
ficiary.
‘‘(B) LIMITATION ON AMOUNTS PAID FOR
HEALTH INSURANCE.—Such term shall include
amounts paid for insurance only if—
‘‘(i) the account beneficiary is not eli-
gible to participate in any subsidized
health plan maintained by any employer of
such beneficiary or of the spouse of such
beneficiary, and
‘‘(ii) the insurance is a high deduct-
ible umbrella insurance plan (as defined in
section 101 of the Health Savings and Se-
curity Act of 1994.
‘‘(4) MEDICAL
SAVINGS
ACCOUNT
CONTRIBU-
TIONS.—The term ‘medical savings account con-
tributions’ means any amount paid in cash for the
taxable year by or on behalf of an individual to a
medical savings account for such individual’s benefit.
‘‘(5) ACCOUNT
BENEFICIARY.—The term ‘ac-
count beneficiary’ means the individual for whose
benefit the medical savings account is established.
‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—A contribution shall be deemed to be made
on the last day of the preceding taxable year if the
contribution is made on account of such taxable year
and is made not later than the time prescribed by
law for filing the return for such taxable year (not
including extensions thereof).
‘‘(2) MARRIED
INDIVIDUALS.—The maximum
credit under subsection (b) shall be computed sepa-
rately for each individual.
‘‘(3) EMPLOYER PAYMENTS.—For purposes of
this title, any amount paid by an employer to a med-
ical savings account shall be treated as a payment
of compensation to the employee (other than a self-
employed individual who is an employee within the
meaning of section 401(c)(1)) includible in his gross
income for the taxable year for which the amount
was contributed, whether or not a credit for such
payment is allowable under this section to the
employee.
‘‘(e) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Any amount paid or dis-
tributed out of a medical savings account shall be in-
cluded in the gross income of the account beneficiary
unless such amount is used exclusively to pay—
‘‘(A) the medical expenses of such bene-
ficiary or of the spouse and dependents (as de-
fined in section 152) of such beneficiary, or
‘‘(B) the expenses for long-term care (in-
cluding long-term care insurance) for any of
such individuals who have attained age 65 as of
the date such expenses are paid.
‘‘(2) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.—Paragraph (1) shall
not apply to the distribution of any contribution paid
during a taxable year to a medical savings account
to the extent that such contribution exceeds the
amount excludable under subsection (a) if—
‘‘(A) such distribution is received by the
individual on or before the last day prescribed
by law (including extensions of time) for filing
such individual’s return for such taxable year,
and
‘‘(B) such distribution is accompanied by
the amount of net income attributable to such
excess contribution.
Any net income described in subparagraph (B) shall
be included in the gross income of the individual for
the taxable year in which it is received.
‘‘(3) ROLLOVERS TO INDIVIDUAL RETIREMENT
PLANS.—Paragraph (1) shall not apply to any pay-
ment or distribution to the account beneficiary if—
‘‘(A) the payment or distribution is made
on or after the date such beneficiary attains age
65, and
‘‘(B) the entire amount received (including
money and other property) is paid into an indi-
vidual retirement plan for the benefit of such
beneficiary not later than the 60th day after
the day on which the individual receives the
payment or distribution.
The dollar limitation under section 408(a)(1) shall
not apply to amounts paid under the preceding sen-
tence.
‘‘(4) PENALTY FOR DISTRIBUTIONS NOT USED
FOR MEDICAL EXPENSES, ETC.—
‘‘(A) IN GENERAL.—The tax imposed by
this chapter for any taxable year in which there
is a payment or distribution from a medical
savings account which is includible in gross in-
come under paragraph (1) shall be increased by
10 percent of the amount which is so includible.
‘‘(B) 
EXCEPTION
FOR
DISTRIBUTIONS
AFTER
AGE
65.—Subparagraph (A) shall not
apply to any distribution or payment after the
date on which the account beneficiary attains
age 65.
‘‘(C) DISABILITY OR DEATH CASES.—Sub-
paragraph (A) shall not apply if the payment or
distribution is made after the account bene-
ficiary becomes disabled within the meaning of
section 72(m)(7) or dies.
‘‘(f) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—A medical savings account
is exempt from taxation under this subtitle, unless
such account has ceased to be a medical savings ac-
count by reason of paragraph (2) or (3). Notwith-
standing the preceding sentence, any such account is
subject to the taxes imposed by section 511 (relating
to imposition of tax on unrelated business income of
charitable, etc., organizations).
‘‘(2) ACCOUNT TERMINATES IF INDIVIDUAL EN-
GAGES IN PROHIBITED TRANSACTION.—
‘‘(A) IN GENERAL.—If, during any taxable
year of the account beneficiary engages in any
transaction prohibited by section 4975 with re-
spect to the account, the account ceases to be
a medical savings account as of the first day of
that taxable year.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a medical savings account by
reason of subparagraph (A) on the first day of
any taxable year, paragraph (1) of subsection
(e) shall be applied as if there were a distribu-
tion on such first day in an amount equal to
the fair market value (on such first day) of all
assets in the account (on such first day) and no
portion of such distribution were used to pay
medical expenses.
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the account ben-
eficiary uses the account or any portion thereof as
security for a loan, the portion so used is treated as
distributed and not used to pay medical expenses.
‘‘(g) INFLATION ADJUSTMENT.—In the case of any
calendar year after 1996, each dollar amount in subsection
(b) shall be increased by an amount equal to—
‘‘(1) such dollar amount, multiplied by
‘‘(2) the inflation adjustment (determined
under section 280I(d)(3)) for such calendar year.
If any increase under the preceding sentence is not a mul-
tiple of $50, such increase shall be rounded to the nearest
multiple of $50.
‘‘(h) CUSTODIAL ACCOUNTS.—For purposes of this
section, a custodial account shall be treated as a trust if—
‘‘(1) the assets of such account are held by a
bank (as defined in section 408(n)) or another per-
son who demonstrates to the satisfaction of the Sec-
retary that the manner in which he will administer
the account will be consistent with the requirements
of this section, and
‘‘(2) the custodial account would, except for the
fact that it is not a trust, constitute a medical sav-
ings account described in subsection (c).
For purposes of this title, in the case of a custodial ac-
count treated as a trust by reason of the preceding sen-
tence, the custodian of such account shall be treated as
the trustee thereof.
‘‘(i) REPORTS.—The trustee of a medical savings ac-
count shall make such reports regarding such account to
the Secretary and to the account beneficiary with respect
to contributions, distributions, and such other matters as
the Secretary may require under regulations. The reports
required by this subsection shall be filed at such time and
in such manner and furnished to such individuals at such
time and in such manner as may be required by those reg-
ulations.
‘‘(j) OTHER DEFINITIONS.—For purposes of this sec-
tion—
‘‘(1) EMPLOYER.—The term ‘employer’ includes
persons treated as an employer under section
401(c)(4).
‘‘(2) EMPLOYEE.—The term ‘employee’ includes
an individual who is an employee within the meaning
of section 401(c)(1).’’
(b) EMPLOYER PAYMENTS EXCLUDED FROM EM-
PLOYMENT TAX BASE.—
(1) SOCIAL SECURITY TAXES.—
(A) Subsection (a) of section 3121 of such
Code is amended by striking ‘‘or’’ at the end of
paragraph (20), by striking the period at the
end of paragraph (21) and inserting ‘‘; or’’, and
by inserting after paragraph (21) the following
new paragraph:
‘‘(22) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to take such payment into account in determining
the credit under section 23.’’
(B) Subsection (a) of section 209 of the
Social Security Act is amended by striking ‘‘or’’
at the end of paragraph (18), by striking the
period at the end of paragraph (19) and insert-
ing ‘‘; or’’, and by inserting after paragraph
(19) the following new paragraph:
‘‘(20) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to take such payment into account in determining
the credit under section 23 of the Internal Revenue
Code of 1986.’’
(2) RAILROAD RETIREMENT TAX.—Subsection
(e) of section 3231 of such Code is amended by add-
ing at the end the following new paragraph:
‘‘(10) MEDICAL SAVINGS ACCOUNT CONTRIBU-
TIONS.—The term ‘compensation’ shall not include
any payment made to or for the benefit of an em-
ployee if at the time of such payment it is reason-
able to believe that the employee will be able to take
such payment into account in determining the credit
under section 23.’’
(3) UNEMPLOYMENT TAX.—Subsection (b) of
section 3306 of such Code is amended by striking
‘‘or’’ at the end of paragraph (15), by striking the
period at the end of paragraph (16) and inserting ‘‘;
or’’, and by inserting after paragraph (16) the fol-
lowing new paragraph:
‘‘(17) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to take such payment into account in determining
the credit under section 23.’’
(4) WITHHOLDING TAX.—Subsection (a) of sec-
tion 3401 of such Code is amended by striking ‘‘or’’
at the end of paragraph (19), by striking the period
at the end of paragraph (20) and inserting ‘‘; or’’,
and by inserting after paragraph (20) the following
new paragraph:
‘‘(21) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to take such payment into account in determining
the credit under section 23.’’
(c) TAX ON EXCESS CONTRIBUTIONS.—Section 4973
of such Code (relating to tax on excess contributions to
individual retirement accounts, certain section 403(b) con-
tracts, and certain individual retirement annuities) is
amended—
(1) by inserting ‘‘MEDICAL
SAVINGS
AC-
COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of
such section,
(2) by redesignating paragraph (2) of sub-
section (a) as paragraph (3) and by inserting after
paragraph (1) the following:
‘‘(2) a medical savings account (within the
meaning of section 23(c)),’’,
(3) by striking ‘‘or’’ at the end of paragraph
(1) of subsection (a), and
(4) by adding at the end thereof the following
new subsection:
‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS
ACCOUNTS.—For purposes of this section, in the case of
a medical savings account (within the meaning of section
23(c)), the term ‘excess contributions’ means the amount
by which the amount contributed for the taxable year to
the account exceeds the amount which may be taken into
account in determining the credit under section 23 for
such taxable year. For purposes of this subsection, any
contribution which is distributed out of the medical sav-
ings account in a distribution to which section 23(e)(2)
applies shall be treated as an amount not contributed.’’
(d) TAX ON PROHIBITED TRANSACTIONS.—Section
4975 of such Code (relating to prohibited transactions)
is amended—
(1) by adding at the end of subsection (c) the
following new paragraph:
‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC-
COUNTS.—An individual for whose benefit a medical
savings account (within the meaning of section
23(c)) is established shall be exempt from the tax
imposed by this section with respect to any trans-
action concerning such account (which would other-
wise be taxable under this section) if, with respect
to such transaction, the account ceases to be a medi-
cal savings account by reason of the application of
section 23(f)(2)(A) to such account.’’, and
(2) by inserting ‘‘or a medical savings account
described in section 23(c)’’ in subsection (e)(1) after
‘‘described in section 408(a)’’.
(e) FAILURE TO PROVIDE REPORTS ON MEDICAL
SAVINGS ACCOUNTS.—Section 6693 of such Code (relat-
ing to failure to provide reports on individual retirement
account or annuities) is amended—
(1) by inserting ‘‘OR ON MEDICAL SAVINGS
ACCOUNTS’’ after ‘‘ANNUITIES’’ in the heading of
such section, and
(2) by adding at the end of subsection (a) the
following: ‘‘The person required by section 23(i) to
file a report regarding a medical savings account at
the time and in the manner required by such section
shall pay a penalty of $50 for each failure unless it
is shown that such failure is due to reasonable
cause.’’
(f) CLERICAL AMENDMENTS.—
(1) The table of sections for subpart A of part
IV of subchapter A of chapter 1 of such Code is
amended by inserting after the item relating to sec-
tion 22:
‘‘Sec. 23. Medical savings account contributions.’’
176
(1) in subparagraph (A), by striking all that
precedes ‘‘(but for this paragraph)’’ and inserting
‘‘In the case of an individual who is enrolled—
‘‘(i) with a qualified health maintenance
organization (as defined in title XIII of the
Public Health Service Act) or with a risk con-
tracting 
entity 
(as 
defined 
in 
section
1933(a)(3)), or
‘‘(ii) with any risk contracting entity (as
defined in section 1933(a)(3)) in a State that,
on the effective date of this provision, had in ef-
fect a waiver under section 1115 of require-
ments under this title under which the State
could extend eligibility for medical assistance
for enrollees of such entity, or
‘‘(iii) with an eligible organization with a
contract under section 1876,
and who would’’,
(2) in subparagraph (B), by striking ‘‘organiza-
tion or’’ each place it appears, and
(3) by adding at the end the following new sub-
paragraph:
‘‘(C) The State plan may provide, notwith-
standing any other provision of this title, that
an individual shall be deemed to continue to be