Health Maintenance Organization Amendments of 1988
PL 100-517 (H.R.3235), enacted 10/24/1988

102 STAT. 2578 
PUBLIC LAW 100-517—OCT. 24, 1988 
Public Law 100-517 
100th Congress 
An Act 
Oct. 24,1988 
[H.R. 3235] 
Health 
Maintenance 
Organization 
Amendments of 
1988 
42 u s e 201 note. 
To amend the Public Health Service Act to revise the program of assistance for 
health maintenance organizations. 
Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, 
SECTION 1. SHORT TITLE, REFERENCE. 
(a) SHORT TITLE.—This Act may be cited as the "Health Mainte-
nance Organization Amendments of 1988". 
(b) REFERENCE.—Whenever in this Act (other than in section 6(a)) 
an amendment or repeal is expressed in terms of an amendment to, 
or repeal of, a section or other provision, the reference shall be 
considered to be made to a section or other provision of the Public 
Health Service Act. 
SEC. 2. ORGANIZATIONAL STRUCTURE. 
Section 1301(a) (42 U.S.C. 300e(a)) is amended by striking out 
"legal entity" and inserting in lieu thereof "public or private entity 
which is organized under the laws of any State and". 
SEC. 3. DEDUCTIBLES. 
Section 1301(bXl) (42 U.S.C. 300e(bXl)) is amended by adding after 
the second sentence the following: "If a health maintenance 
organization offers to its members the opportunity to obtain basic 
health services through a physician not described in subsection 
(bX3XA), the organization may require, in addition to payments 
described in clause (D) of this paragraph, a reasonable deductible to 
be paid by a member when obtaining a basic health service from 
such a physician.". 
SEC. 4. PHYSICIAN SERVICES. 
(a) GENERAL RULE.—Section 1301(bX3XA) (42 U.S.C. 300e(bX3XA)) 
is amended by striking out "the services of a physician which are 
provided as basic health services shall be provided" and insert in 
lieu thereof "at least 90 percent of the services of a physician which 
are provided as basic health services shall be provided". 
flb) DUAL-CHOICE.—Section 
1310(b) (42 U.S.C. 300e-9(b)) is 
amended— 
(1) in paragraph (1), by inserting before the comma at the end 
the following: "and provides at least 90 percent of such services 
through physicians described in section 13010t)X3XA)", and 
(2) in paragraph (2), by inserting before the comma at the end 
the following: "and provides no more than 10 percent of such 
services through physicians who are not described in section 
1301(bX3XA)". 
SEC. 5. ORGANIZATION. 
(a) FISCAL OPERATION.— 
PUBLIC LAW 100-517—OCT. 24, 1988 
102 STAT. 2579 
(1) Section 1301(cXlXA) (42 U.S-C. 300e(cXlXA)) is amended ix) 
read as follows: 
"(IXA)have— 
"(i) a fiscally sound operation, and 
"(ii) adequate provision against the risk of insolvency, 
which is satisfactory to the Secretary, and". 
(2) Section 1301(c) (42 U.S.C. 300e(c)) is amended by adding 
Regulations. 
after and below paragraph (9) the following: "The Secretary 
shall issue r^ulations stating the circumstances under which 
the Secretary, in administering paragraph (IXA), will consider 
the resources of an organization which owns or controls a 
health maintenance organization. Such regulations shall re-
quire as a condition to consideration of resources that an 
organization which owns or controls a health maintenance 
organization shall provide satisfactory assurances that it will 
assume the financial obligations of the health maintenance 
oiganization.". 
(3) During the period prior to the effective date of r^ulations 
42 use 300e 
issued under section 1301(c) of the Public Health Service Act (as 
^°^-
amended by paragraph (2)), the Secretary of Health and Human 
Services shall consider the application for qualification under 
section 1301(cXlXA) of such Act of a health maintenance 
organization— 
(A) which is owned or controlled by another organization, 
and 
(B) which requests that the resources of the other 
organization be considered in determining its qualification 
under such section, 
if the Secretary receives satisfactory assurances from the other 
oiganization that it will assume the financial obligations of the 
health maintenance organization and if the Secretary deter-
mines that the other organization meets such other require-
ments as the Secretary determines are necessary, 
(b) BOARD OF DIHECTORS.—^Paragraph (5) of section 1301(c) (42 
U5.C. 300e(c)) is repealed and paragraphs (6) through (9) are redesig-
nated as paragraphs (5) through (8), respectively. 
SECL & DEFINITIONS. 
(a) QHGAN TRANSPLANTS.—Subsection (b) of section 812 of the 
Health Maintenance Organization Amendments of 1986 (42 U.S.C. 
300e-l note) is repealed. 
(b) COMMUNITY RATING.— 
(1) The third sentence of section 1302(8XC) (42 U.S.C. 300e-
1(8XQ) is amended to read as follows: ''If a health maintenance 
organization is to fix rates of payment for individuals and 
families by groups, it shall— 
"(iXD classify all of the members of the organization into 
classes based on factors which the health maintenance 
organization determines predict the differences in the use 
of health services by the individuals or families in each 
class and which have not been disapproved by the Sec-
retary, 
"(II) determine its revenue requirements for providing 
services to the members of each class established under 
subclause (I), and 
"(in) fix the rates of payments for the individuals and 
families of a group on the basis of a composite of the 
102 STAT. 2580 
PUBLIC LAW 100-517—OCT. 24, 1988 
organization's revenue requirements determined under 
subclause (II) for providing services to them as members of 
the classes established under subclause (I), or 
"(ii) fix the rates of pajnnents for the individuals and 
families of a group on the basis of the organization's reve-
nue requirements for providing services to the group, 
except that the rates of payments for the individuals and 
families of a group of less than 100 persons may not be fixed 
at rates greater than 110 percent of the rate that would be 
fixed for such individuals and families under subparagraph 
(B) or clause (i) of this subparagraph.". 
(2) Section 1302(8X0 (42 U.S.C. 300e-l(8XC)) is amended by 
adding at the end the following: 'If a health maintenance 
organization is to fix rates of payment for a group under clause 
(ii), it shall, upon request of the entity with which it contracts to 
provide services to such group, disclose to that entity the 
method and data used in calculating the rates of pa3rment.". 
SEC 7. EMPLOYEES* HEALTH BENEFIT PLANS. 
(a) REVISIONS.— 
(1) STATES AND POLITICAL SUBDIVISIONS.— 
(A) Section 1310(b) (42 U.S.C. 300e-9(b)) is amended (i) 
by striking out "subject to subsection (a)" and inserting in 
lieu thereof ''or a State or political subdivision", and 
(ii) by striking out "employer pursuant" and inserting 
in lieu thereof "employer or State or political subdivision 
pursuant". 
(B) Section 1310(c) (42 U.S.C. 300e-9(c)) is amended by 
insertiiig "or State or political subdivision" after "em-
ployer" each place it occurs. 
(2) DISCRIMINATION.—Section 1310(c) (42 U.S.C. 300e-9(c)) is 
amended by adding at the end the following: "If a health 
benefits plsoi offered by an employer or a State or political 
subdivision under subsection (a) includes contributions for serv-
ices offered under the plan, the employer or State or political 
subdivision shall make a contribution under the plan for serv-
ices offered by a qualified health maintenance organization in 
an amount which does not financially discriminate against an 
employee who enrolls in such organization. For purposes of the 
preceding sentence, an employer's or a State's or political sub-
division's contribution does not financially discriminate if the 
employer's or State's or political subdivision's method of deter-
mining the contributions on behalf of all employees is reason-
able and is designed to assure employees a fair choi(» among 
health benefits plans.". 
(3) AmiCATiON.—^Nothing in section 1310 of the Public 
Health Service Act (42 UJS.C. 300e-9), as amended by this Act, 
shall be construed to supersede any provision of a collective 
baigaining agreement in effect on the date of enactment of this 
Act 
Effective date. 
(b) REPBAL O
F DuAL CHOICE.—^Effective 7 years after the date of 
the enactment of this Act, section 1310 (42 UJS.C. 300e-9) is 
ameiided to read as follows: 
PUBLIC LAW 100-517—OCT. 24, 1988 
102 STAT. 2581 
EMPLOYEES' HEALTH BENEFITS PLANS 
"SEC. 1310. (a) In accordance with regulations which the Secretary 
Regulations. 
shall prescribe— 
"(1) each employer— 
"(A) which is required during any calendar quarter to pay 
its employees the minimum wage prescribed by section 6 of 
the Fair Labor Standards Act of 1938 (or would be required 
to pay its employees such wage but for section 13(a) of such 
Act), and 
"(B) which during such calendar quarter employed an 
average number of employees of not less than 25, and 
"(2) any State and each political subdivision thereof which 
during any calendar quarter employed an average number of 
employees of not less than 25, as a condition of payment to the 
State of funds under section 317, 318, or 1002, 
which offers to its employees in the calendar year beginning after 
such calendar quarter the option of membership in a qualified 
health maintenance organization which is engaged in the provision 
of basic health services in a health maintenance organization serv-
ice area in which at least 25 of such employees reside shall meet the 
requirements of subsection (b) with respect to any qualified health 
maintenance organization offered by the employer or State or politi-
cal subdivision. 
"Ot)Xl) If a health benefits plan offered by an employer or a State 
or political subdivision includes contributions for services offered 
under the plan, the employer or State or political subdivision shall 
make a contribution under the plan for services offered by a quali-
fied health maintenance organization in an amount which does not 
financially discriminate against an employee who enrolls in such 
organization. For purposes of the preceding sentence, an employer's 
or a State's or political subdivision's contribution does not finan-
ciallv discriminate if the employer's or State's or political subdivi-
sion s method of determining the contributions on behalf of all 
employees is reasonable and is designed to assure employees a fair 
choice among health benefits plans. 
"(2) Each employer or State or political subdivision which provides 
payroll deductions as a means of paying employees' contributions 
for health benefits or which provides a health benefits plan to which 
an employee contribution is not required shall, with the consent of 
an employee who exercises option of membership in a qualified 
health maintenance organization, arrange for the employee's con-
tribution for membership in the organization to be paid through 
payroll deductions. 
'(3) No employer or State or political subdivision shall be required 
to pay more for health benefits as a result of the application of this 
subsection than would otherwise be required by any prevailing 
collective bargaining agreement or other legally enforceable con-
tract for the provision of health benefits between the employer or 
State or political subdivision and its employees. 
"(c) For purposes of this section, the term 'qualified health 
maintenance 
organization' 
means (1) a health 
maintenance 
organization which has provided assurances satisfactory to the Sec-
retary that it provides basic and supplemental health services to its 
members in the manner prescribed by section 1301(b) and that it is 
organized and operated in the manner prescribed by section 1301(c), 
and (2) an entity which proposes to become a health maintenance 
102 STAT. 2582 
PUBLIC LAW 100-517—OCT. 24, 1988 
organization and which the Secretary determines will when it be-
comes operational provide basic and supplemental health services to 
its members in the manner prescribed by section 1301(b) and will be 
organized and operated in the manner prescribed by section 1301(c). 
"(d)(1) Any employer who knowingly does not comply with one or 
more of the requirements of paragraph (1) or (2) of subsection (b) 
shall be subject to a civil penalty of not more than $10,000. If such 
noncompliance continues, a civil penalty may be assessed and col-
lected under this subsection for each thirty-day period such non-
compliance continues. Such penalty may be assessed by the Sec-
retary and collected in a civil action brought by the United States in 
a United States district court. • 
"(2) In any proceeding by the Secretary to assess a civil penalty 
under this subsection, no penalty shall be assessed until the em-
ployer charged shall have been given notice and an opportunity to 
present its views on such charge. In determining the amount of the 
penalty, or the amount agreed upon in compromise, the Secretary 
shall consider the gravity of the noncompliance and the dem-
onstrated good faith of the employer charged in attempting to 
achieve rapid compliance after notification by the Secretary of a 
noncompliance. 
"(3) In any civil action brought to review the assessment of a civil 
penalty assessed under this subsection, the court shall, at the re-
quest of any party to such action, hold a trial de novo on the 
assessment of such civil penalty and in any civil action to collect 
such a civil penalty, the court shall, at the request of any party to 
such action, hold a trial de novo on the assessment of such civil 
penalty unless in a prior civil action to review the assessment of 
such penalty the court held a trial de novo on such assessment. 
"(e) For purposes of this section, the term "employer" does not 
include (1) the Government of the United States, the government of 
the District of Columbia or any territory or possession of the United 
States, a State or any political subdivision thereof, or any agency or 
instrumentality (including the United States Postal Service and 
Postal Rate Commission) of any of the foregoing, except that such 
term includes nonappropriated fund instrumentalities of the 
Government of the United States; or (2) a church, convention or 
association of churches, or any organization operated, supervised or 
controlled by a church, convention or association of churches which 
organization (A) is an organization described in section 501(cX3) of 
the Internal Revenue Code of 1986, and (B) does not discriminate (i) 
in the employment, compensation, promotion, or termination of 
employment of any personnel, or (ii) in the extension of staff or 
other privileges to any physician or other health personnel, because 
such persons seek to obtain or obtained health care, or participate in 
providing health care, through a health maintenance organization. 
"(f) If the Secretary, after reasonable notice and opportunity for a 
hearing to a State, finds that it or any of its political subdivisions 
has failed to comply with paragraph (1) or (2) of subsection O
t
>
)
, the 
Secretary shall terminate payments to such State under sections 
317, 318, and 1002 and notify the Governor of such State that 
further payments under such sections will not be made to the State 
until the Secretary is satisfied that there will no longer be any such 
failure to comply.". 
PUBLIC LAW 100-517—OCT. 24, 1988 
102 STAT. 2583 
SEC. 8. RESTRICTIVE STATE LAWS. 
Section 1311(aXl) (42 U.S.C. 300e-10(aXl)) is amended by striking 
out "or" at the end of subparagraph (C), by striking out ", and" at 
the end of subparagraph (D) and inserting in lieu thereof ", or", and 
by adding at the end the following: 
"(E) imposes requirements which would prohibit the 
entity from complying with the requirements of this title, 
and". 
SEC. 9. PROHIBITION ON CERTAIN POLICY CHANGES. 
Abortion. 
42 u s e 1302 
With respect to abortion services, the Secretary of Health and note. 
Human Services shall not promulgate or issue any regulations, 
policy statements, or interpretations or develop any practices 
concerning the performance of medically necessary procedures if 
such regulations, policy statements, interpretations, or practices 
would be inconsistent with regulations, policy statements, 
interpretations, or practices in effect on the date of the enactment of 
this Act. 
Approved October 24, 1988. 
LEGISLATIVE HISTORY—H.R. 3235: 
HOUSE REPORTS: No. 100-417 (Comm. on Energy and Commerce) and No. 100-1056 
(Comm. of Conference). 
SENATE REPORTS: No. 100-304 (Comm. on Labor and Human Resources). 
CONGRESSIONAL RECORD: 
Vol. 133 (1987): Nov. 3, considered and passed House. 
Vol. 134 (1988): Aug. 11, considered and passed Senate, amended. 
Oct. 5, House agreed to conference report. 
Oct. 7, Senate agreed to conference report. 
o