S. 222

To repeal provisions of the Patient Protection and Affordable Care Act and provide private health insurance reform, and for other purposes.

IN THE SENATE OF THE UNITED STATES

Mr. Paul introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL

To repeal provisions of the Patient Protection and Affordable Care Act and provide private health insurance reform, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. Short title.

This Act may be cited as the “Obamacare Replacement Act”.

SEC. 2. Table of contents.

The table of contents for this Act is as follows:

SEC. 101. Repeal of individual and employer mandates.

(a) Repeal of individual mandate.—Section 5000A of the Internal Revenue Code of 1986 is amended by adding at the end the following:

“(h) Termination.—This section shall not apply with respect to any month beginning after the date of enactment of the Obamacare Replacement Act”..”.

(b) Repeal of employer mandate.—Section 4980H of the Internal Revenue Code of 1986 is amended by adding at the end the following:

“(e) Termination.—This section shall not apply with respect to any month beginning after the date of enactment of the Obamacare Replacement Act”..”.

SEC. 102. Repeal of Public Health Service Act provisions.

(a) Repeal.—The following provisions of title XXVII of the Public Health Service Act (42 U.S.C. 300gg et seq.) are repealed:

(1) Section 2701 (42 U.S.C. 300gg).

(2) Section 2702 (42 U.S.C. 300gg–1).

(3) Section 2703 (42 U.S.C. 300gg–2).

(4) Section 2704 (42 U.S.C. 300gg–3).

(5) Section 2705 (42 U.S.C. 300gg–4).

(6) Section 2707 (42 U.S.C. 300gg–6).

(7) Section 2708 (42 U.S.C. 300gg–7).

(8) Section 2711 (42 U.S.C. 300gg–11).

(9) Section 2712 (42 U.S.C. 300gg–12).

(10) Section 2713 (42 U.S.C. 300gg–13).

(11) Section 2715 (42 U.S.C. 300gg–15).

(12) Section 2715A (42 U.S.C. 300gg–15a).

(13) Section 2716 (42 U.S.C. 300gg–16).

(14) Section 2718 (42 U.S.C. 300gg–18).

(15) Section 2719 (42 U.S.C. 300gg–19).

(16) Section 2719A (42 U.S.C. 300gg–19a).

(17) Section 2794 (42 U.S.C. 300gg–94), relating to ensuring that consumers get value for their dollars.

(b) Reinstating pre-PPACA law.—Sections 2701, 2702, 2711, and 2712 of the Public Health Service Act as in effect on the day before the date of enactment of the Patient Protection and Affordable Care Act (Public Law 111–148) shall be restored or revived as if such Act had not been enacted (subject to paragraphs (1), (2), (6), and (7) of subsection (c)).

(c) Redesignations and transfers.—The following provisions of title XXVII of the Public Health Service Act (42 U.S.C. 300gg et seq.) shall be redesignated and transferred as follows:

(1) Section 2701, as restored or revived under subsection (b), shall be transferred so as to appear as the first section in subpart I of part A.

(2) Section 2702, as restored or revived under subsection (b), shall be transferred so as to appear after such section 2701.

(3) Section 2706 (42 U.S.C. 300gg–5) shall be redesignated as section 2703 and transferred so as to appear after such section 2702.

(4) Section 2709 (42 U.S.C. 300gg–8), relating to coverage for individuals participating in approved clinical trials, shall be redesignated as section 2704 and transferred so as to appear after section 2703 (as so redesignated).

(5) Section 2709 (42 U.S.C. 300gg–9), relating to disclosure of information, shall be redesignated as section 2705 and transferred so as to appear after section 2704 (as so redesignated).

(6) Section 2711, as restored or revived under subsection (b), shall be redesignated as section 2706 and transferred so as to appear after section 2705 (as so redesignated).

(7) Section 2712, as restored or revived under subsection (b), shall be redesignated as section 2707 and transferred so as to appear after section 2706 (as so redesignated).

(8) Section 2714 (42 U.S.C. 300gg–14) shall be redesignated as section 2711 and transferred so as to appear as the first section under subpart II of part A.

(9) Section 2717 (42 U.S.C. 300gg–17) shall be redesignated as section 2712 and transferred so as to appear after section 2711 (as so redesignated).

(d) Effective dates.—

(1) IN GENERAL.—Except as provided in paragraph (2), the repeals under subsection (a) shall take effect on the date of enactment of this Act and shall apply to plan years beginning after such date of enactment.

(2) DELAYED EFFECTIVE DATES.—The repeals under paragraphs (2), (3), (4), and (5) of subsection (a), the provisions restored or revived under subsection (b), and the conforming amendment in section 104(a)(2) shall be effective for plan years beginning on January 1, 2019, and (notwithstanding subsection (c)) the provisions of law repealed by such paragraphs of subsection (a) or amended by such conforming amendment shall continue to remain in effect until such date.

SEC. 103. Repeal of Patient Protection and Affordable Care Act provisions.

(a) In general.—Section 1312(c) of the Patient Protection and Affordable Care Act (42 U.S.C. 18032(c)) is repealed.

(b) Repeal of 3-Month grace period for non-payment premiums.—Clause (iv) of section 1412(c)(2)(B) of the Patient Protection and Affordable Care Act is amended by striking “nonpayment of premiums by the insured” and all that follows and inserting “nonpayment of premiums by the insured, notify the Secretary of such nonpayment.”.

(c) Effective date.—This section, and the amendments made by this section, shall take effect on the date of enactment of this Act and shall apply to plan years and taxable years beginning after such date of enactment.

SEC. 104. Conforming and technical amendments.

(a) PHSA provisions.—Title XXVII of the Public Health Service Act (42 U.S.C. 300gg et seq.) is amended—

(1) in section 2724(c) (42 U.S.C. 300gg–23(c)), by striking “(other than section 2704)” and inserting “(other than section 2725)”;

(2) in section 2741(b)(3) (42 U.S.C. 300gg–41(a)(3)), by striking “2712” and inserting “2707”;

(3) in section 2751(a) (42 U.S.C. 300gg–51(a)), by striking “2704” and inserting “2725”;

(4) in section 2752 (42 U.S.C. 300gg–52), by striking “2706” and inserting “2727”; and

(5) in section 2753 (42 U.S.C. 300gg–54), relating to coverage of dependent students on medically necessary leave of absence, by striking “2707” and inserting “2728”.

(b) PPACA provisions.—The Patient Protection and Affordable Care Act (Public Law 111–148) is amended—

(1) in section 1103(b)(1) (42 U.S.C. 18003(b)(1))—

(A) by striking “the percentage of total premium revenue expended on nonclinical costs (as reported under section 2718(a) of the Public Health Service Act),”; and

(B) by striking “and be consistent with the standards adopted for the uniform explanation of coverage as provided for in section 2715 of the Public Health Service Act”;

(2) in section 1251(a) (42 U.S.C. 18011(a)), by striking paragraphs (3) and (4), and inserting the following:

“(3) APPLICATION OF CERTAIN PROVISIONS.—Section 2711 of the Public Health Service Act (relating to extension of dependent coverage) shall apply to grandfathered health plans for plan years beginning with the first plan year to which such provisions would otherwise apply.”;

(3) in section 1301(a)(4) (42 U.S.C. 18021(a)(4)), by striking “section 2701(a)(2) of the Public Health Service Act” and inserting “section 2701(a)(2) of the Public Health Service Act as in effect on the day before the date of enactment of the Obamacare Replacement Act or as determined by the Secretary”;

(4) in section 1302(e)(1)(B)(i) (42 U.S.C. 18022(e)(1)(B)(i)), by striking “(except as provided for in section 2713)”;

(5) in section 1311 (42 U.S.C. 18031)—

(A) in subsection (c)—

(i) in paragraph (1)(B), by striking “(in a manner consistent with applicable network adequacy provisions under section 2702(c) of the Public Health Service Act)”; and

(ii) in paragraph (5), by striking “to the uniform outline of coverage the plan is required to provide under section 2716 of the Public Health Service Act and”;

(B) in subsection (d)(4)(E), by striking “, including the use of the uniform outline of coverage established under section 2715 of the Public Health Service Act”;

(C) in subsection (e)(2), by striking “, and the information and the recommendations” and all that follows through “premium increases),”; and

(D) in subsection (f)(2)(B), by inserting before the period “as in effect on the day before the date of enactment of the Obamacare Replacement Act or as determined by the Secretary”; and

(6) in section 1334(a)(2), by inserting before the period “as in effect on the day before the date of enactment of the Obamacare Replacement Act”.

(c) ERISA provisions.—Section 715 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1185d) is amended—

(1) in subsection (a)—

(A) by striking “(a) General Rule” and all that follows through “the provisions of part A” in paragraph (1) and inserting “The provisions of part A”; and

(B) by striking “as if included in this subpart; and” in paragraph (1) and all that follows through “to the extent that” in paragraph (2) and inserting “as if included in this subpart. To the extent that”; and

(2) by striking subsection (b).

(d) IRC provisions.—The Internal Revenue Code of 1986 is amended—

(1) in section 36B(b)(3)(C)—

(A) in the first sentence, by striking “and the premium was adjusted only for the age of each such individual in the manner allowed under section 2701 of the Public Health Service Act”; and

(B) by striking the second sentence;

(2) in section 833(c), by striking paragraph (5); and

(3) in section 9815—

(A) in subsection (a)—

(i) by striking “(a) General Rule” and all that follows through “the provisions of part A” in paragraph (1) and inserting “The provisions of part A”; and

(ii) by striking “as if included in this subpart; and” in paragraph (1) and all that follows through “to the extent that” in paragraph (2) and inserting “as if included in this subpart. To the extent that”; and

(B) by striking subsection (b).

(e) Social Security Act.—Section 1937(b)(6)(A) of the Social Security Act (42 U.S.C. 1396u–7(b)(6)(A)) is amended by striking “2705(a)” and inserting “2726(a)”.

(f) Effective date.—Except as provided in section 102(d)(2), this section and the amendments made by this section shall take effect on the date of enactment of this Act and shall apply to plan years and taxable years beginning after such date of enactment.

SEC. 201. Tax deduction for health insurance premiums.

(a) In general.—Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by redesignating section 224 as section 225 and by inserting after section 222 the following new section:

“SEC. 224. Health insurance premiums.

“(a) In general.—There shall be allowed as a deduction the amount of premiums paid by the taxpayer for health insurance coverage (as defined in section 9832) of the taxpayer, the taxpayer's spouse, or any dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of the taxpayer.

“(b) Coordination provisions.—

“(1) PREMIUM ASSISTANCE CREDIT.—Subsection (a) shall not apply with respect to so much of any premium for which a credit has been allowed under section 36B.

“(2) ARCHER MSAS AND HSAS.—Subsection (a) shall not apply with respect to any amount which is treated as a qualified medical expense under either section 220(d) or 223(c).

“(3) DEDUCTION FOR MEDICAL EXPENSES.—For purposes of determining the amount of the deduction under section 213, any amount for which a deduction is allowed under subsection (a) shall not be treated as an expense paid for medical care.”.

(b) Deduction available above the line.—Section 62(a) of the Internal Revenue Code of 1986 is amended by inserting after paragraph (21) the following new paragraph:

“(22) HEALTH INSURANCE PREMIUMS.—The deduction allowed by section 224.”.

(c) Conforming amendments.—

(1) Section 35(g)(2) of the Internal Revenue Code of 1986 is amended by striking “or 213” and inserting “213, or 224”.

(2) Section 162(l)(3) of such Code is amended by inserting “or 224(a)” after “213(a)”.

(3) The table of sections for part VII of subchapter B of chapter 1 of such Code is amended by redesignating the item relating to section 224 as relating to section 225 and by inserting after the item relating to section 223 the following new item:

“Sec. 224. Health insurance premiums.”.

(d) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2016.

SEC. 202. Refundable tax credit for payroll taxes attributable to health insurance premiums.

(a) In general.—Subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

“SEC. 36C. Refund of payroll taxes attributable to health insurance premiums.

“(a) Allowance of credit.—There shall be allowed as a credit against the tax imposed by this subtitle for any taxable year an amount equal to the applicable percentage of the premiums paid by the taxpayer for health insurance coverage (as defined in section 9832) of the taxpayer, the taxpayer's spouse, or any dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of the taxpayer.

“(b) Applicable percentage.—For purposes of subsection (a), the term ‘applicable percentage’ means the percentage equal to the sum of the rates of in effect under subsections (a) and (b) of section 3101.

“(c) Limitation.—The amount of the credit allowed under subsection (a) shall not exceed the excess of—

“(1) the social security taxes (as defined in section 24(d)) of the taxpayer for the taxable year, reduced by

“(2) the sum of the credits allowed under section 24(d) and 32 for the taxable year.”.

(b) Conforming amendments.—

(1) Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by inserting “, 36C” after “36B”.

(2) The table of sections for subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 36B the following new item:

“Sec. 36C. Refund of payroll taxes attributable to health insurance premiums.”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2016.

SEC. 211. Repeal of contribution limitations.

(a) In general.—Subsection (b) of section 223 of the Internal Revenue Code of 1986 is amended to read as follows:

“(b) Denial of deduction to dependents.—No deduction shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins.”.

(b) Conforming amendments.—

(1) Subparagraph (A) of section 223(d)(1) of the Internal Revenue Code of 1986 is amended—

(A) by striking “subsection (f)(5)” and inserting “subsection (f)(4)”, and

(B) by striking “accepted—” and all that follows and inserting “accepted unless it is in cash.”.

(2) Subsection (f) of section 223 of such Code is amended by striking paragraph (3) and by redesignating paragraphs (4) through (8) as paragraphs (3) through (7), respectively.

(3) Subsection (g) of section 223 of such Code is amended—

(A) by striking “subsections (b)(2) and (c)(2)(A)” both places it appears and inserting “subsection (c)(2)(A)”, and

(B) by amending subparagraph (B) to read as follows:

“(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which such taxable year begins determined by substituting ‘calendar year 2003’ for ‘calendar year 1992’.”.

(4) Section 26(b)(2) of such Code is amended—

(A) by striking “, 223(b)(8)(B)(i)(II),” in subparagraph (S), and

(B) by striking “223(f)(4)” in subparagraph (U) and inserting “223(f)(3)”.

(5) Paragraph (1) of section 106(d) of such Code is amended by striking “under an accident or health plan” and all that follows and inserting “under an accident or health plan.”.

(6) Subparagraph (C) of section 106(e)(4) of such Code is amended by striking “223(f)(5)” and inserting “223(f)(4)”.

(7) Subparagraph (C) of section 408(d)(9) of such Code is amended—

(A) by striking “Limitations.—” in the heading and all that follows through “(ii) One-time transfer.—” in clause (ii), and inserting “One-time transfer.—”,

(B) by redesignating subclauses (I) and (II) as clauses (i) and (ii) and moving such clauses 2 ems to the left, and

(C) by striking “subclause (II)” in clause (i), as so redesignated, and inserting “clause (ii)”.

(8) Section 4973 of such Code is amended by striking subsection (g) and by redesignating subsection (h) as subsection (g).

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 212. Freedom from mandate.

(a) In general.—Section 223 of the Internal Revenue Code of 1986, as amended by section 211, is further amended by striking subsections (c) and (g) and by redesignating subsections (d), (e), (f), and (h) as subsections (c), (d), (e), and (f), respectively.

(b) Conforming amendments.—

(1) Subsection (a) of section 223 of the Internal Revenue Code of 1986 is amended to read as follows: “(a) Deduction allowed.—In the case of an individual, there shall be allowed as a deduction for the taxable year an amount equal to the aggregate amount paid in cash during such taxable year by or on behalf of such individual to a health savings account of such individual.”.

(2) Subsection (c)(1)(A) of section 223 of such Code, as amended by section 211 and redesignated by subsection (a), is further amended by striking “subsection (f)(4)” and inserting “subsection (e)(4)”.

(3) Subparagraph (U) of section 26(b)(2) of such Code, as amended by section 211, is further amended by striking “section 223(f)(3)” and inserting “section 223(e)(3)”.

(4) Sections 35(g)(3), 220(f)(5)(A), 848(e)(1)(B)(v), 4973(a)(5), and 6051(a)(12) of such Code are each amended by striking “section 223(d)” each place it appears and inserting “section 223(c)”.

(5) Section 106(d)(1) of such Code is amended—

(A) by striking “who is an eligible individual (as defined in section 223(c)(1))”, and

(B) by striking “section 223(d)” and inserting “section 223(c)”.

(6) Section 106(e) of such Code is amended—

(A) by striking paragraphs (3) and (4) and by redesignating paragraph (5) as paragraph (4),

(B) by inserting after paragraph (2) the following new paragraph:

“(3) TREATMENT AS ROLLOVER CONTRIBUTION.—A qualified HSA distribution shall be treated as a rollover contribution described in section 223(e)(4).”, and

(C) by striking “to any eligible individual covered under a high deductible health plan of the employer” in paragraph (4)(B)(ii) (as so redesignated) and inserting “to any employee with respect to whom a health savings account has been established”.

(7) Section 408(d)(9)(A) of such Code is amended by striking “who is an eligible individual (as defined in section 223(c)) and”.

(8) Section 877A(g)(6) of such Code is amended by striking “223(f)(4)” and inserting “223(e)(4)”.

(9) Section 4975 of such Code is amended—

(A) in subsection (c)(6)—

(i) by striking “section 223(d)” and inserting “section 223(c)”, and

(ii) by striking “section 223(e)(2)” and inserting “section 223(d)(2)”, and

(B) in subsection (e)(1)(E), by striking “section 223(d)” and inserting “section 223(c)”.

(10) Subsection (b) of section 4980G of such Code is amended to read as follows: “(b) Rules and requirements.— “(1) IN GENERAL.—An employer meets the requirements of this subsection for any calendar year if the employer makes available comparable contributions to the health savings accounts of all comparable participating employees for each coverage period during such calendar year.

“(2) COMPARABLE CONTRIBUTIONS.—

“(A) IN GENERAL.—For purposes of paragraph (1), the term ‘comparable contributions’ means contributions—

“(i) which are the same amount, or

“(ii) if the employees are covered by a health plan, which are the same percentage of the annual deductible limit under the plan covering the employees.

“(B) PART-YEAR EMPLOYEES.—In the case of an employee who is employed by the employer for only a portion of the calendar year, a contribution to the health savings account of such employee shall be treated as comparable if it is an amount which bears the same ratio to the comparable amount (determined without regard to this subparagraph) as such portion bears to the entire calendar year.

“(3) COMPARABLE PARTICIPATING EMPLOYEES.—For purposes of paragraph (1), the term ‘comparable participating employees’ means all employees who are covered (if at all) under the same health plan of the employer and have the same category of coverage. For purposes of the preceding sentence, the categories of coverage are self-only and family coverage.

“(4) PART-TIME EMPLOYEES.—

“(A) IN GENERAL.—Paragraph (3) shall be applied separately with respect to part-time employees and other employees.

“(B) PART-TIME EMPLOYEE.—For purposes of subparagraph (A), the term ‘part-time employee’ means any employee who is customarily employed for fewer than 30 hours per week.”.

(11) Section 4980G(d) of such Code is amended by striking “section 4980E” and inserting “this section”.

(12) Section 6693(a)(2)(C) of such Code is amended by striking “section 223(h)” and inserting “section 223(f)”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 213. Allowance of distributions for prescription and over-the-counter medicines and drugs.

(a) HSAs.—Paragraph (2)(A) of section 223(c) of the Internal Revenue Code of 1986, as redesignated by section 212, is amended by striking the last sentence thereof and inserting the following: “Such term shall include an amount paid for any prescription or over-the-counter medicine or drug.”.

(b) Archer MSAs.—Section 220(d)(2)(A) of the Internal Revenue Code of 1986 is amended by striking the last sentence thereof and inserting the following: “Such term shall include an amount paid for any prescription or over-the-counter medicine or drug.”.

(c) Health flexible spending arrangements and health reimbursement arrangements.—Subsection (f) of section 106 of the Internal Revenue Code of 1986 is amended to read as follows:

“(f) Reimbursements for all medicines and drugs.—For purposes of this section and section 105, reimbursement for expenses incurred for any prescription or over-the-counter medicine or drug shall be treated as a reimbursement for medical expenses.”.

(d) Effective dates.—

(1) DISTRIBUTIONS FROM SAVINGS ACCOUNTS.—The amendments made by subsections (a) and (b) shall apply to amounts paid in taxable years beginning after the date of the enactment of this Act.

(2) REIMBURSEMENTS.—The amendment made by subsection (c) shall apply to expenses incurred in plan years beginning after the date of the enactment of this Act.

SEC. 214. Purchase of health insurance from HSA.

(a) In general.—Paragraph (2) of section 223(c) of the Internal Revenue Code of 1986, as redesignated by section 212, is amended by striking subparagraphs (B) and (C).

(b) Conforming amendment.—Paragraph (2) of section 223(c) of the Internal Revenue Code of 1986, as amended by the preceding sections of this subtitle, is further amended by striking “and any dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of such individual” and inserting “any dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of such individual, and any child (as defined in section 152(f)(1)) of such individual who has not attained the age of 27 before the end of such individual's taxable year”.

(c) Effective date.—The amendments made by this section shall apply with respect to insurance purchased after the date of the enactment of this Act in taxable years beginning after such date.

SEC. 215. Special rule for certain medical expenses incurred before establishment of account.

(a) In general.—Paragraph (2) of section 223(c) of the Internal Revenue Code of 1986, as amended and redesignated by the preceding sections of this subtitle, is further amended by adding at the end the following new subparagraph:

“(B) CERTAIN MEDICAL EXPENSES INCURRED BEFORE ESTABLISHMENT OF ACCOUNT TREATED AS QUALIFIED.—An expense shall not fail to be treated as a qualified medical expense solely because such expense was incurred before the establishment of the health savings account if such expense was incurred—

“(i) during either—

“(I) the taxable year in which the health savings account was established, or

“(II) the preceding taxable year, in the case of a health savings account established after the taxable year in which such expense was incurred but before the time prescribed by law for filing the return for such taxable year (not including extensions thereof), and

“(ii) for medical care which (but for the fact that it was incurred before the establishment of the account) otherwise meets the requirements of the preceding subparagraphs.”.

(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 216. Administrative error correction before due date of return.

(a) In general.—Paragraph (3) of section 223(f) of the Internal Revenue Code of 1986, as in effect on the day before the date of the enactment of this Act, is amended by adding at the end the following new subparagraph:

“(D) EXCEPTION FOR ADMINISTRATIVE ERRORS CORRECTED BEFORE DUE DATE OF RETURN.—Subparagraph (A) shall not apply if any payment or distribution is made to correct an administrative, clerical, or payroll contribution error and if—

“(i) 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

“(ii) such distribution is accompanied by the amount of net income attributable to such contribution.

Any net income described in clause (ii) shall be included in the gross income of the individual for the taxable year in which it is received.”.

(b) Effective date.—The amendment made by this section shall take effect on the date of the enactment of this Act.

SEC. 217. Allowing HSA rollover to child or parent of account holder.

(a) In general.—Paragraph (7)(A) of section 223(e) of the Internal Revenue Code of 1986, as redesignated by the preceding sections of this subtitle, is amended—

(1) by inserting “, child, parent, or grandparent” after “surviving spouse”,

(2) by inserting “, child, parent, or grandparent, as the case may be,” after “the spouse”,

(3) by inserting “, child, parent, or grandparent” after “spouse” in the heading thereof, and

(4) by adding at the end the following: “In the case of a child who acquires such beneficiary’s interest and with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins, such health savings account shall be treated as a health savings account of such child.”.

(b) Effective date.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 218. Credit for contributions to an HSA.

(a) In general.—Subpart A of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 25D the following new section:

“SEC. 25E. Contributions to a health savings account.

“(a) Allowance of credit.—In the case of an individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to so much of the qualified HSA contributions of the individual as does not exceed $5,000 ($10,000 in the case of a joint return).

“(b) Qualified HSA contribution.—

“(1) IN GENERAL.—For purposes of this section, the term ‘qualified HSA contribution’ means an amount paid in cash during the taxable year by or on behalf of an individual to a health savings account (as defined in section 223(c)) of such individual.

“(2) EXCEPTION FOR AMOUNTS NOT USED FOR QUALIFIED MEDICAL EXPENSES.—The amount taken into account as qualified HSA contributions of the individual under paragraph (1) for a taxable year shall be reduced by the amount of any distribution from such health savings account during such taxable year which is not used exclusively to pay the qualified medical expenses of the account beneficiary (within the meaning of section 223(e)(2)).

“(c) Coordination with deduction.—For coordination rule, see section 223(b)(1).”.

(b) Clerical amendment.—The table of sections for subpart A of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 25D the following new item:

(c) Conforming amendment.—Subsection (b) of section 223 of the Internal Revenue Code of 1986, as amended by section 211, is further amended to read as follows:

“(b) Special rules.—

“(1) COORDINATION WITH CREDIT.—The amount taken into account under subsection (a) with respect to any individual shall be reduced (but not below zero) by the amount of any credit allowed under section 25E for qualified HSA contributions with respect to the individual.

“(2) DENIAL OF DEDUCTION TO DEPENDENTS.—No deduction shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins.”.

(d) Effective date.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 219. Equivalent bankruptcy protections for health savings accounts as retirement funds.

(a) In general.—Section 522 of title 11, United States Code, is amended by adding at the end the following new subsection:

“(r) Treatment of health savings accounts.—For purposes of this section, any health savings account (as described in section 223 of the Internal Revenue Code of 1986) shall be treated in the same manner as an individual retirement account described in section 408 of such Code.”.

(b) Effective date.—The amendment made by this section shall apply to cases commencing under title 11, United States Code, after the date of the enactment of this Act.

SEC. 221. Certain exercise equipment and physical fitness programs treated as medical care.

(a) In general.—Subsection (d) of section 213 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

“(12) EXERCISE EQUIPMENT AND PHYSICAL FITNESS ACTIVITY.—

“(A) IN GENERAL.—The term ‘medical care’ shall include amounts paid—

“(i) for equipment for use in a program (including a self-directed program) of physical exercise or physical activity,

“(ii) to participate, or receive instruction, in a program of physical exercise, nutrition, or health coaching (including a self-directed program), and

“(iii) for membership at a fitness facility.

“(B) OVERALL DOLLAR LIMITATION.—

“(i) IN GENERAL.—Amounts treated as medical care under subparagraph (A) shall not exceed $1,000 with respect to any individual for any taxable year.

“(ii) EXCEPTION.—Clause (i) shall not apply for purposes of determining whether expenses reimbursed through a health flexible spending arrangement subject to section 125(i)(1) are incurred for medical care.

“(C) LIMITATIONS RELATED TO SPORTS AND FITNESS EQUIPMENT.—Amounts paid for equipment described in subparagraph (A)(i) shall be treated as medical care only—

“(i) if such equipment is utilized exclusively for participation in fitness, exercise, sport, or other physical activity programs,

“(ii) if such equipment is not apparel or footwear, and

“(iii) in the case of any item of sports equipment (other than exercise equipment), to the extent the amount paid for such item does not exceed $250.

“(D) FITNESS FACILITY.—For purposes of subparagraph (A)(iii), the term ‘fitness facility’ means a facility—

“(i) which provides instruction in a program of physical exercise, offers facilities for the preservation, maintenance, encouragement, or development of physical fitness, or serves as the site of such a program of a State or local government,

“(ii) which is not a private club owned and operated by its members,

“(iii) which does not offer golf, hunting, sailing, or riding facilities,

“(iv) whose health or fitness facility is not incidental to its overall function and purpose, and

“(v) which is fully compliant with the State of jurisdiction and Federal anti-discrimination laws.”.

(b) Limitation not To apply for certain purposes.—

(1) HEALTH SAVINGS ACCOUNTS.—Subparagraph (A) of section 223(c)(2) of the Internal Revenue Code of 1986, as amended and redesignated by subtitle B, is further amended by inserting “, determined without regard to paragraph (12)(B) thereof)” after “medical care (as defined in section 213(d)”.

(2) ARCHER MSAS.—Subparagraph (A) of section 220(d)(2) of the Internal Revenue Code of 1986, as amended by subtitle B, is further amended by inserting “, determined without regard to paragraph (12)(B) thereof” after “medical care (as defined in section 213(d)”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 222. Certain nutritional and dietary supplements to be treated as medical care.

(a) In general.—Subsection (d) of section 213 of the Internal Revenue Code of 1986, as amended by section 221, is further amended by adding at the end the following new paragraph:

“(13) NUTRITIONAL AND DIETARY SUPPLEMENTS.—

“(A) IN GENERAL.—The term ‘medical care’ shall include amounts paid to purchase herbs, vitamins, minerals, homeopathic remedies, meal replacement products, and other dietary and nutritional supplements.

“(B) LIMITATION.—Amounts treated as medical care under subparagraph (A) shall not exceed $1,000 with respect to any individual for any taxable year.

“(C) MEAL REPLACEMENT PRODUCT.—For purposes of this paragraph, the term ‘meal replacement product’ means any product that—

“(i) is permitted to bear labeling making a claim described in section 403(r)(3) of the Federal Food, Drug, and Cosmetic Act, and

“(ii) is permitted to claim under such section that such product is low in fat and is a good source of protein, fiber, and multiple essential vitamins and minerals.

“(D) EXCEPTION.—Subparagraph (B) shall not apply for purposes of determining whether expenses reimbursed through a health flexible spending arrangement subject to section 125(i)(1) are incurred for medical care.”.

(b) Limitation not To apply for certain purposes.—

(1) HEALTH SAVINGS ACCOUNTS.—Subparagraph (A) of section 223(c)(2) of the Internal Revenue Code of 1986, as amended and redesignated by this Act, is amended by striking “paragraph (12)(B)” and inserting “paragraphs (12)(B) and (13)(B)”.

(2) ARCHER MSAS.—Subparagraph (A) of section 220(d)(2), as amended by this Act, is amended by striking “paragraph (12)(B)” and inserting “paragraphs (12)(B) and (13)(B)”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 223. Certain provider fees to be treated as medical care.

(a) In general.—Subsection (d) of section 213 of the Internal Revenue Code of 1986, as amended by sections 221 and 222, is amended by adding at the end the following new paragraph:

“(14) PERIODIC PROVIDER FEES.—The term ‘medical care’ shall include—

“(A) periodic fees paid to a primary care physician for a defined set of medical services or the right to receive medical services on an as-needed basis, and

“(B) pre-paid primary care services designed to screen for, diagnose, cure, mitigate, treat, or prevent disease and promote wellness.”.

(b) Exception for flexible spending accounts.—Section 125 of the Internal Revenue Code of 1986 is amended by redesignating subsections (k) and (l) as subsections (l) and (m), respectively, and by inserting after subsection (j) the following new subsection:

“(k) Special rule with respect to health flexible spending arrangements.—For purposes of applying this section with respect to any health flexible spending arrangement, amounts described in section 213(d)(14) shall not be considered insurance.”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 224. Clarification of treatment of capitated primary care payments as amounts paid for medical care.

(a) In general.—Subsection (d) of section 213 of the Internal Revenue Code of 1986, as amended by the preceding provisions of this Act, is amended by adding at the end the following new paragraph:

“(15) TREATMENT OF CAPITATED PRIMARY CARE PAYMENTS.—Capitated primary care payments shall be treated as amounts paid for medical care.”.

(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 231. Contributions of medicare beneficiaries participating in medicare advantage MSA.

(a) In general.—Section 138(b) of the Internal Revenue Code of 1986 is amended by striking paragraph (2) and by redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively.

(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 232. Physician charity and uncompensated care deduction.

(a) In general.—Part VI of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

“SEC. 199A. Physician charity and uncompensated care.

“(a) In general.—In the case of a physician, there shall be allowed as a deduction for the taxable year an amount equal to the sum of—

“(1) the amount such physician would have otherwise charged for qualified charity care provided by such physician during such taxable year, and

“(2) the amount of any debt owed to such physician for physicians' services which becomes worthless during such taxable year.

“(b) Definitions.—For purposes of this section—

“(1) PHYSICIAN.—The term ‘physician’ has the meaning given to such term in section 1861(r) of the Social Security Act (42 U.S.C. 1395x(r)).

“(2) QUALIFIED CHARITY CARE.—The term ‘qualified charity care’ means physicians’ services provided on a volunteer or pro bono basis (not including any services for which an amount was charged but not paid).

“(3) PHYSICIANS' SERVICES.—The term ‘physicians' services’ has the meaning given such term in section 1861(q) of the Social Security Act (42 U.S.C. 1395x(q)).

“(c) Limitations.—

“(1) SERVICE CHARGE LIMITATION.—The amount determined under subsection (a) with respect to any services or debt—

“(A) shall be reduced by any reimbursement received by the physician for such services or debt, and

“(B) shall not exceed the economic index referred to in the fourth sentence of section 1842(b)(3) of the Social Security Act (42 U.S.C. 1395u(b)(3)) applicable to the qualified charity care provided or the services provided with respect to which the debt relates.

In the case of physicians’ services to which such economic index is not applicable, the Secretary, in consultation with the Secretary of Health and Human Services, shall use data on uncompensated care for purposes of the limitation under subparagraph (B), and may adjust such data so as to be an appropriate proxy, including (in the case of qualified charity care) a downward adjustment to eliminate bad debt data from uncompensated care data.

“(2) OVERALL LIMITATION.—The amount allowed as a deduction under subsection (a) for any taxable year shall not exceed an amount equal to 10 percent of the gross income of the taxpayer for the taxable year derived from the taxpayer’s provision of physicians’ services.

“(d) Denial of double benefit.—No deduction shall be allowed under section 166 or any other provision of this title for the amount of any bad debt taken into account under subsection (a)(2) (as reduced, if applicable, under subsection (c)).”.

(b) Clerical amendment.—The table of sections for part VI of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:



“Sec. 199A. Physician charity and uncompensated care.”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 301. Pool reform for individual membership expansion.

The Public Health Service Act is amended by inserting after title XXXIII the following new title:

“TITLE XXXIV — Pool Reform for Individual Membership Expansion

“SEC. 3400. Purpose.

“The purpose of this title is to provide, through the establishment of independent health pools (referred to in this title as ‘IHP’), for the reform of, and expansion of enrollment in, health insurance coverage for individuals and small employers.

“SEC. 3401. Definition of independent health pool.

“(a) In General.—For purposes of this title, the terms ‘individual health pool’ and ‘IHP’ mean a legal nonprofit entity that meets the following requirements:

“(1) ORGANIZATION.—The IHP—

“(A) has been formed and maintained in good faith for a purpose that includes the formation of a risk pool in order to offer health insurance coverage to its members;

“(B) does not condition membership in the IHP on any health status-related factor relating to an individual (including an employee of an employer or a dependent of an employee);

“(C) does not make health insurance coverage offered through the IHP available other than in connection with a member of the IHP;

“(D) is not a health insurance issuer; and

“(E) does not receive any consideration directly or indirectly from any health insurance issuer in connection with the enrollment of any individuals, or employees of employers, in any health insurance coverage, except in conjunction with services offered through the IHP.

“(2) OFFERING HEALTH BENEFITS COVERAGE.—

“(A) DIFFERENT GROUPS.—The IHP, in conjunction with those health insurance issuers that offer health benefits coverage through the IHP, makes available health benefits coverage in the manner described in subsection (b) to all members of the IHP and the dependents of such members (and, in the case of small employers, employees and their dependents) in the manner described in subsection (c)(2) at rates that are established by the health insurance issuer on a policy or product specific basis and that may vary for individuals covered through an IHP.

“(B) NONDISCRIMINATION IN COVERAGE OFFERED.—

“(i) IN GENERAL.—Subject to clause (ii), the IHP may not offer health benefits coverage to a member of an IHP unless the same coverage is offered to all such members of the IHP.

“(ii) CONSTRUCTION.—Nothing in this title shall be construed as requiring or permitting a health insurance issuer to provide coverage outside the service area of the issuer, as approved under State law, or preventing a health insurance issuer from underwriting or from excluding or limiting the coverage on any individual, subject to the requirement of section 2741 (relating to guaranteed availability of individual health insurance coverage to certain individuals with prior group coverage).

“(C) NO ASSUMPTION OF INSURANCE RISK BY IHP.—The IHP provides health benefits coverage only through contracts with health insurance issuers and does not assume insurance risk with respect to such coverage.

“(3) GEOGRAPHIC AREAS.—Nothing in this title shall be construed as preventing the establishment and operation of more than one IHP in a geographic area or as limiting the number of IHPs that may operate in any area.

“(4) PROVISION OF ADMINISTRATIVE SERVICES TO PURCHASERS.—The IHP may provide administrative services for members. Such services may include accounting, billing, and enrollment information.

“(b) Health benefits coverage requirements.—

“(1) COMPLIANCE WITH CONSUMER PROTECTION REQUIREMENTS.—Except as provided in section 3402, any health benefits coverage offered through an IHP—

“(A) shall be issued by a health insurance issuer that meets all applicable State standards relating to consumer protection;

“(B) shall be approved or otherwise permitted to be offered under State law; and

“(C) may not impose any exclusion of a specific disease from such coverage.

“(2) WELLNESS BONUSES FOR HEALTH PROMOTION.—Nothing in this title shall be construed as precluding a health insurance issuer offering health benefits coverage through an IHP from establishing premium discounts or rebates for members or from modifying otherwise applicable copayments or deductibles in return for adherence to programs of health promotion and disease prevention so long as such programs are agreed to in advance by the IHP and comply with all other provisions of this title and do not discriminate among similarly situated members.

“(c) Members; health insurance issuers.—

“(1) MEMBERS.—

“(A) IN GENERAL.—Under rules established to carry out this title, with respect to an individual or small employer who is a member of an IHP, the individual may enroll for health benefits coverage (including coverage for dependents of such individual) or the employer may enroll employees for health benefits coverage (including coverage for dependents of such employees) offered by a health insurance issuer through the IHP.

“(B) RULES FOR ENROLLMENT.—Nothing in this paragraph shall preclude an IHP from establishing rules of enrollment and reenrollment of members. Such rules shall be applied consistently to all members within the IHP and shall not be based in any manner on health status-related factors.

“(2) HEALTH INSURANCE ISSUERS.—The contract between an IHP and a health insurance issuer shall provide, with respect to a member enrolled with health benefits coverage offered by the issuer through the IHP, for the payment to the issuer of the premiums (if any) collected by the IHP for health insurance coverage offered by the issuer.

“SEC. 3402. Application of certain laws and requirements.

“(a) Preemption of State laws restricting formation of IHPs.—Any State law or regulation relating to the composition or organization of an IHP is preempted to the extent the law or regulation is inconsistent with the provisions of this title.

“(b) Preemption of State requirements relating to health benefit coverage.—

“(1) BENEFIT REQUIREMENTS.—

“(A) IN GENERAL.—Subject to subparagraph (B), State laws are superseded, and shall not apply to health benefits coverage made available through an IHP, insofar as such laws impose benefit requirements for such coverage, including requirements relating to coverage of specific providers, specific services or conditions, or the amount, duration, or scope of benefits.

“(B) EXCEPTION FOR FEDERALLY IMPOSED REQUIREMENTS AND FOR REQUIREMENTS PROHIBITING DISEASE-SPECIFIC EXCLUSIONS.—Subparagraph (A) shall not apply to a requirement to the extent the requirement—

“(i) implements title XXVII or other Federal law; or

“(ii) prohibits imposition of an exclusion of a specific disease from health benefits coverage.

“(2) OTHER REQUIREMENTS PREVENTING OFFERING OF COVERAGE THROUGH AN IHP.—State laws are superseded, and shall not apply to health benefits coverage made available through an IHP, insofar as such laws impose any other requirements (including limitations on compensation arrangements) that, directly or indirectly, preclude (or have the effect of precluding) the offering of such coverage through an IHP, if the IHP meets the requirements of this title.

“(c) Preemption of State premium rating requirements.—State laws are superseded, and shall not apply to the premiums imposed for health benefits coverage made available through an IHP, insofar as such laws impose restrictions on the variation of premiums among such coverage offered to members of the IHP.

“SEC. 3403. Definitions.

“For purposes of this title:

“(1) DEPENDENT.—The term ‘dependent’, as applied to health insurance coverage offered by a health insurance issuer licensed (or otherwise regulated) in a State, shall have the meaning applied to such term with respect to such coverage under the laws of the State relating to such coverage and such an issuer. Such term may include the spouse and children of the individual involved.

“(2) HEALTH BENEFITS COVERAGE.—The term ‘health benefits coverage’ has the meaning given the term ‘health insurance coverage’ in section 2791(b)(1), and does not include excepted benefits (as defined in section 2791(c)).

“(3) HEALTH INSURANCE ISSUER.—The term ‘health insurance issuer’ has the meaning given such term in section 2791(b)(2).

“(4) HEALTH STATUS-RELATED FACTOR.—The term ‘health status-related factor’ has the meaning given such term in section 2791(d)(9).

“(5) MEMBER.—The term ‘member’ means, with respect to an IHP, an individual or small employer who is a member of the legal entity described in section 3401(a)(1) to which the IHP is offering coverage.

“(6) SMALL EMPLOYER.—The term ‘small employer’ has the meaning given such term in section 712(c)(1)(B) of the Employee Retirement Income Security Act of 1974.”.

SEC. 302. Cooperative governing of individual health insurance coverage.

(a) In General.—Title XXVII of the Public Health Service Act (42 U.S.C. 300gg et seq.) is amended by adding at the end the following new part:

“PART D — Cooperative Governing of Individual Health Insurance Coverage

“SEC. 2795. Definitions.

“In this part:

“(1) PRIMARY STATE.—The term ‘primary State’ means, with respect to individual health insurance coverage offered by a health insurance issuer, the State designated by the issuer as the State whose covered laws shall govern the health insurance issuer in the sale of such coverage under this part. An issuer, with respect to a particular policy, may only designate one such State as its primary State with respect to all such coverage it offers. Such an issuer may not change the designated primary State with respect to individual health insurance coverage once the policy is issued, except that such a change may be made upon renewal of the policy. With respect to such designated State, the issuer is deemed to be doing business in that State.

“(2) SECONDARY STATE.—The term ‘secondary State’ means, with respect to individual health insurance coverage offered by a health insurance issuer, any State that is not the primary State. In the case of a health insurance issuer that is selling a policy in, or to a resident of, a secondary State, the issuer is deemed to be doing business in that secondary State.

“(3) HEALTH INSURANCE ISSUER.—The term ‘health insurance issuer’ has the meaning given such term in section 2791(b)(2), except that such an issuer must be licensed in the primary State and be qualified to sell individual health insurance coverage in that State.

“(4) INDIVIDUAL HEALTH INSURANCE COVERAGE.—The term ‘individual health insurance coverage’ means health insurance coverage offered in the individual market, as defined in section 2791(e)(1).

“(5) APPLICABLE STATE AUTHORITY.—The term ‘applicable State authority’ means, with respect to a health insurance issuer in a State, the State insurance commissioner or official or officials designated by the State to enforce the requirements of this title for the State with respect to the issuer.

“(6) HAZARDOUS FINANCIAL CONDITION.—The term ‘hazardous financial condition’ means that, based on its present or reasonably anticipated financial condition, a health insurance issuer is unlikely to be able—

“(A) to meet obligations to policyholders with respect to known claims and reasonably anticipated claims; or

“(B) to pay other obligations in the normal course of business.

“(7) COVERED LAWS.—

“(A) IN GENERAL.—The term ‘covered laws’ means the laws, rules, regulations, agreements, and orders governing the insurance business pertaining to—

“(i) individual health insurance coverage issued by a health insurance issuer;

“(ii) the offer, sale, rating (including medical underwriting), renewal, and issuance of individual health insurance coverage to an individual;

“(iii) the provision to an individual in relation to individual health insurance coverage of health care and insurance related services;

“(iv) the provision to an individual in relation to individual health insurance coverage of management, operations, and investment activities of a health insurance issuer; and

“(v) the provision to an individual in relation to individual health insurance coverage of loss control and claims administration for a health insurance issuer with respect to liability for which the issuer provides insurance.

“(B) EXCEPTION.—Such term does not include any law, rule, regulation, agreement, or order governing the use of care or cost management techniques, including any requirement related to provider contracting, network access or adequacy, health care data collection, or quality assurance.

“(8) STATE.—The term ‘State’ means the 50 States and includes the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands.

“(9) UNFAIR CLAIMS SETTLEMENT PRACTICES.—The term ‘unfair claims settlement practices’ means only the following practices:

“(A) Knowingly misrepresenting to claimants and insured individuals relevant facts or policy provisions relating to coverage at issue.

“(B) Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under policies.

“(C) Failing to adopt and implement reasonable standards for the prompt investigation and settlement of claims arising under policies.

“(D) Failing to effectuate prompt, fair, and equitable settlement of claims submitted in which liability has become reasonably clear.

“(E) Refusing to pay claims without conducting a reasonable investigation.

“(F) Failing to affirm or deny coverage of claims within a reasonable period of time after having completed an investigation related to those claims.

“(G) A pattern or practice of compelling insured individuals or their beneficiaries to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them.

“(H) A pattern or practice of attempting to settle or settling claims for less than the amount that a reasonable person would believe the insured individual or his or her beneficiary was entitled by reference to written or printed advertising material accompanying or made part of an application.

“(I) Attempting to settle or settling claims on the basis of an application that was materially altered without notice to, or knowledge or consent of, the insured.

“(J) Failing to provide forms necessary to present claims within 15 calendar days of requests with reasonable explanations regarding their use.

“(K) Attempting to cancel a policy in less time than that prescribed in the policy or by the law of the primary State.

“(10) FRAUD AND ABUSE.—The term ‘fraud and abuse’ means an act or omission committed by a person who, knowingly and with intent to defraud, commits, or conceals any material information concerning, one or more of the following:

“(A) Presenting, causing to be presented, or preparing with knowledge or belief that it will be presented to or by an insurer, a reinsurer, or broker or its agent, false information as part of, in support of, or concerning a fact material to one or more of the following:

“(i) An application for the issuance or renewal of an insurance policy or reinsurance contract.

“(ii) The rating of an insurance policy or reinsurance contract.

“(iii) A claim for payment or benefit pursuant to an insurance policy or reinsurance contract.

“(iv) Premiums paid on an insurance policy or reinsurance contract.

“(v) Payments made in accordance with the terms of an insurance policy or reinsurance contract.

“(vi) A document filed with the commissioner or the chief insurance regulatory official of another jurisdiction.

“(vii) The financial condition of an insurer or reinsurer.

“(viii) The formation, acquisition, merger, reconsolidation, dissolution or withdrawal from one or more lines of insurance or reinsurance in all or part of a State by an insurer or reinsurer.

“(ix) The issuance of written evidence of insurance.

“(x) The reinstatement of an insurance policy.

“(B) Solicitation or acceptance of new or renewal insurance risks on behalf of an insurer, reinsurer, or other person engaged in the business of insurance by a person who knows or should know that the insurer or other person responsible for the risk is insolvent at the time of the transaction.

“(C) Transaction of the business of insurance in violation of laws requiring a license, certificate of authority, or other legal authority for the transaction of the business of insurance.

“(D) Attempt to commit, aiding or abetting in the commission of, or conspiracy to commit the acts or omissions specified in this paragraph.

“SEC. 2796. Application of law.

“(a) In General.—The covered laws of the primary State shall apply to individual health insurance coverage offered by a health insurance issuer in the primary State and in any secondary State, but only if the coverage and issuer comply with the conditions of this section with respect to the offering of coverage in any secondary State.

“(b) Exemptions From Covered Laws in a Secondary State.—Except as provided in this section, a health insurance issuer with respect to its offer, sale, rating (including medical underwriting), renewal, and issuance of individual health insurance coverage in any secondary State is exempt from any covered laws of the secondary State (and any rules, regulations, agreements, or orders sought or issued by such State under or related to such covered laws) to the extent that such laws would—

“(1) make unlawful, or regulate, directly or indirectly, the operation of the health insurance issuer operating in the secondary State, except that any secondary State may require such an issuer—

“(A) to pay, on a nondiscriminatory basis, applicable premium and other taxes (including high risk pool assessments) which are levied on insurers and surplus lines insurers, brokers, or policyholders under the laws of the State;

“(B) to register with and designate the State insurance commissioner as its agent solely for the purpose of receiving service of legal documents or process;

“(C) to submit to an examination of its financial condition by the State insurance commissioner in any State in which the issuer is doing business to determine the issuer’s financial condition, if—

“(i) the State insurance commissioner of the primary State has not done an examination within the period recommended by the National Association of Insurance Commissioners; and

“(ii) any such examination is conducted in accordance with the examiners’ handbook of the National Association of Insurance Commissioners and is coordinated to avoid unjustified duplication and unjustified repetition;

“(D) to comply with a lawful order issued—

“(i) in a delinquency proceeding commenced by the State insurance commissioner if there has been a finding of financial impairment under subparagraph (C); or

“(ii) in a voluntary dissolution proceeding;

“(E) to comply with an injunction issued by a court of competent jurisdiction, upon a petition by the State insurance commissioner alleging that the issuer is in hazardous financial condition;

“(F) to participate, on a nondiscriminatory basis, in any insurance insolvency guaranty association or similar association to which a health insurance issuer in the State is required to belong;

“(G) to comply with any State law regarding fraud and abuse (as defined in section 2795(10)), except that if the State seeks an injunction regarding the conduct described in this subparagraph, such injunction must be obtained from a court of competent jurisdiction;

“(H) to comply with any State law regarding unfair claims settlement practices (as defined in section 2795(9)); or

“(I) to comply with the applicable requirements for independent review under section 2798 with respect to coverage offered in the State;

“(2) require any individual health insurance coverage issued by the issuer to be countersigned by an insurance agent or broker residing in that secondary State; or

“(3) otherwise discriminate against the issuer issuing insurance in both the primary State and in any secondary State.

“(c) Clear and Conspicuous Disclosure.—A health insurance issuer shall provide the following notice, in 12-point bold type, in any insurance coverage offered in a secondary State under this part by such a health insurance issuer and at renewal of the policy, with the 5 blank spaces therein being appropriately filled with the name of the health insurance issuer, the name of the primary State, the name of the secondary State, the name of the secondary State, and the name of the secondary State, respectively, for the coverage concerned:

Notice “ ‘This policy is issued by _____ and is governed by the laws and regulations of the _____, and it has met all the laws of that State as determined by that State’s Department of Insurance. This policy may be less expensive than others because it is not subject to all of the insurance laws and regulations of the _____, including coverage of some services or benefits mandated by the law of the _____. Additionally, this policy is not subject to all of the consumer protection laws or restrictions on rate changes of the _____. As with all insurance products, before purchasing this policy, you should carefully review the policy and determine what health care services the policy covers and what benefits it provides, including any exclusions, limitations, or conditions for such services or benefits.’ .

“(d) Prohibition on Certain Reclassifications and Premium Increases.—

“(1) IN GENERAL.—For purposes of this section, a health insurance issuer that provides individual health insurance coverage to an individual under this part in a primary or secondary State may not upon renewal—

“(A) move or reclassify the individual insured under the health insurance coverage from the class such individual is in at the time of issue of the contract based on the health-status related factors of the individual; or

“(B) increase the premiums assessed the individual for such coverage based on a health status-related factor or change of a health status-related factor or the past or prospective claim experience of the insured individual.

“(2) CONSTRUCTION.—Nothing in paragraph (1) shall be construed to prohibit a health insurance issuer—

“(A) from terminating or discontinuing coverage or a class of coverage in accordance with subsections (b) and (c) of section 2742;

“(B) from raising premium rates for all policy holders within a class based on claims experience;

“(C) from changing premiums or offering discounted premiums to individuals who engage in wellness activities at intervals prescribed by the issuer, if such premium changes or incentives—

“(i) are disclosed to the consumer in the insurance contract;

“(ii) are based on specific wellness activities that are not applicable to all individuals; and

“(iii) are not obtainable by all individuals to whom coverage is offered;

“(D) from reinstating lapsed coverage; or

“(E) from retroactively adjusting the rates charged an insured individual if the initial rates were set based on material misrepresentation by the individual at the time of issue.

“(e) Prior Offering of Policy in Primary State.—A health insurance issuer may not offer for sale individual health insurance coverage in a secondary State unless that coverage is currently offered for sale in the primary State.

“(f) Licensing of Agents or Brokers for Health Insurance Issuers.—Any State may require that a person acting, or offering to act, as an agent or broker for a health insurance issuer with respect to the offering of individual health insurance coverage obtain a license from that State, with commissions or other compensation subject to the provisions of the laws of that State, except that a State may not impose any qualification or requirement which discriminates against a nonresident agent or broker.

“(g) Documents for Submission to State Insurance Commissioner.—Each health insurance issuer issuing individual health insurance coverage in both primary and secondary States shall submit—

“(1) to the insurance commissioner of each State in which it intends to offer such coverage, before it may offer individual health insurance coverage in such State—

“(A) a copy of the plan of operation or feasibility study or any similar statement of the policy being offered and its coverage (which shall include the name of its primary State and its principal place of business);

“(B) written notice of any change in its designation of its primary State; and

“(C) written notice from the issuer of the issuer’s compliance with all the laws of the primary State; and

“(2) to the insurance commissioner of each secondary State in which it offers individual health insurance coverage, a copy of the issuer’s quarterly financial statement submitted to the primary State, which statement shall be certified by an independent public accountant and contain a statement of opinion on loss and loss adjustment expense reserves made by—

“(A) a member of the American Academy of Actuaries; or

“(B) a qualified loss reserve specialist.

“(h) Power of Courts To Enjoin Conduct.—Nothing in this section shall be construed to affect the authority of any Federal or State court to enjoin—

“(1) the solicitation or sale of individual health insurance coverage by a health insurance issuer to any person or group who is not eligible for such insurance; or

“(2) the solicitation or sale of individual health insurance coverage that violates the requirements of the law of a secondary State which are described in subparagraphs (A) through (H) of section 2796(b)(1).

“(i) Power of Secondary States To Take Administrative Action.—Nothing in this section shall be construed to affect the authority of any State to enjoin conduct in violation of that State’s laws described in section 2796(b)(1).

“(j) State Powers To Enforce State Laws.—

“(1) IN GENERAL.—Subject to the provisions of subsection (b)(1)(G) (relating to injunctions) and paragraph (2), nothing in this section shall be construed to affect the authority of any State to make use of any of its powers to enforce the laws of such State with respect to which a health insurance issuer is not exempt under subsection (b).

“(2) COURTS OF COMPETENT JURISDICTION.—If a State seeks an injunction regarding the conduct described in paragraphs (1) and (2) of subsection (h), such injunction must be obtained from a Federal or State court of competent jurisdiction.

“(k) States’ Authority To Sue.—Nothing in this section shall affect the authority of any State to bring action in any Federal or State court.

“(l) Generally Applicable Laws.—Nothing in this section shall be construed to affect the applicability of State laws generally applicable to persons or corporations.

“(m) Guaranteed Availability of Coverage to HIPAA Eligible Individuals.—To the extent that a health insurance issuer is offering coverage in a primary State that does not accommodate residents of secondary States or does not provide a working mechanism for residents of a secondary State, and the issuer is offering coverage under this part in such secondary State which has not adopted a qualified high risk pool as its acceptable alternative mechanism (as defined in section 2744(c)(2)), the issuer shall, with respect to any individual health insurance coverage offered in a secondary State under this part, comply with the guaranteed availability requirements for eligible individuals in section 2741.

“SEC. 2797. Primary State must meet Federal floor before issuer may sell into secondary States.

“A health insurance issuer may not offer, sell, or issue individual health insurance coverage in a secondary State if the State insurance commissioner does not use a risk-based capital formula for the determination of capital and surplus requirements for all health insurance issuers.

“SEC. 2798. Independent external appeals procedures.

“(a) Right to External Appeal.—A health insurance issuer may not offer, sell, or issue individual health insurance coverage in a secondary State under the provisions of this title unless—

“(1) both the secondary State and the primary State have legislation or regulations in place establishing an independent review process for individuals who are covered by individual health insurance coverage; or

“(2) in any case in which the requirements of paragraph (1) are not met with respect to the either of such States, the issuer provides an independent review mechanism substantially identical (as determined by the applicable State authority of such State) to that prescribed in the ‘Health Carrier External Review Model Act’ of the National Association of Insurance Commissioners for all individuals who purchase insurance coverage under the terms of this part, except that, under such mechanism, the review is conducted by an independent medical reviewer, or a panel of such reviewers, with respect to whom the requirements of subsection (b) are met.

“(b) Qualifications of Independent Medical Reviewers.—In the case of any independent review mechanism referred to in subsection (a)(2):

“(1) IN GENERAL.—In referring a denial of a claim to an independent medical reviewer, or to any panel of such reviewers, to conduct independent medical review, the issuer shall ensure that—

“(A) each independent medical reviewer meets the qualifications described in paragraphs (2) and (3);

“(B) with respect to each review, each reviewer meets the requirements of paragraph (4) and the reviewer, or at least 1 reviewer on the panel, meets the requirements described in paragraph (5); and

“(C) compensation provided by the issuer to each reviewer is consistent with paragraph (6).

“(2) LICENSURE AND EXPERTISE.—Each independent medical reviewer shall be a physician (allopathic or osteopathic) or health care professional who—

“(A) is appropriately credentialed or licensed in one or more States to deliver health care services; and

“(B) typically treats the condition, makes the diagnosis, or provides the type of treatment under review.

“(3) INDEPENDENCE.—

“(A) IN GENERAL.—Subject to subparagraph (B), each independent medical reviewer in a case shall—

“(i) not be a related party (as defined in paragraph (7));

“(ii) not have a material familial, financial, or professional relationship with such a party; and

“(iii) not otherwise have a conflict of interest with such a party (as determined under regulations).

“(B) EXCEPTION.—Nothing in subparagraph (A) shall be construed to—

“(i) prohibit an individual, solely on the basis of affiliation with the issuer, from serving as an independent medical reviewer if—

“(I) a non-affiliated individual is not reasonably available;

“(II) the affiliated individual is not involved in the provision of items or services in the case under review;

“(III) the fact of such an affiliation is disclosed to the issuer and the enrollee (or authorized representative) and neither party objects; and

“(IV) the affiliated individual is not an employee of the issuer and does not provide services exclusively or primarily to or on behalf of the issuer;

“(ii) prohibit an individual who has staff privileges at the institution where the treatment involved takes place from serving as an independent medical reviewer merely on the basis of such affiliation if the affiliation is disclosed to the issuer and the enrollee (or authorized representative), and neither party objects; or

“(iii) prohibit receipt of compensation by an independent medical reviewer from an entity if the compensation is provided consistent with paragraph (6).

“(4) PRACTICING HEALTH CARE PROFESSIONAL IN SAME FIELD.—

“(A) IN GENERAL.—In a case involving treatment, or the provision of items or services—

“(i) by a physician, a reviewer shall be a practicing physician (allopathic or osteopathic) of the same or similar specialty, as a physician who, acting within the appropriate scope of practice within the State in which the service is provided or rendered, typically treats the condition, makes the diagnosis, or provides the type of treatment under review; or

“(ii) by a non-physician health care professional, the reviewer, or at least 1 member of the review panel, shall be a practicing non-physician health care professional of the same or similar specialty as the non-physician health care professional who, acting within the appropriate scope of practice within the State in which the service is provided or rendered, typically treats the condition, makes the diagnosis, or provides the type of treatment under review.

“(B) PRACTICING DEFINED.—For purposes of this paragraph, the term ‘practicing’ means, with respect to an individual who is a physician or other health care professional, that the individual provides health care services to individual patients on average at least 2 days per week.

“(5) PEDIATRIC EXPERTISE.—In the case of an external review relating to a child, a reviewer shall have expertise under paragraph (2) in pediatrics.

“(6) LIMITATIONS ON REVIEWER COMPENSATION.—Compensation provided by the issuer to an independent medical reviewer in connection with a review under this section shall—

“(A) not exceed a reasonable level; and

“(B) not be contingent on the decision rendered by the reviewer.

“(7) RELATED PARTY DEFINED.—For purposes of this section, the term ‘related party’ means, with respect to a denial of a claim under a coverage relating to an enrollee, any of the following:

“(A) The issuer involved, or any fiduciary, officer, director, or employee of the issuer.

“(B) The enrollee (or authorized representative).

“(C) The health care professional that provides the items or services involved in the denial.

“(D) The institution at which the items or services (or treatment) involved in the denial are provided.

“(E) The manufacturer of any drug or other item that is included in the items or services involved in the denial.

“(F) Any other party determined under any regulations to have a substantial interest in the denial involved.

“(8) DEFINITIONS.—For purposes of this subsection—

“(A) ENROLLEE.—The term ‘enrollee’ means, with respect to health insurance coverage offered by a health insurance issuer, an individual enrolled with the issuer to receive such coverage.

“(B) HEALTH CARE PROFESSIONAL.—The term ‘health care professional’ means an individual who is licensed, accredited, or certified under State law to provide specified health care services and who is operating within the scope of such licensure, accreditation, or certification.

“SEC. 2799. Enforcement.

“(a) In General.—Subject to subsection (b), with respect to specific individual health insurance coverage the primary State for such coverage has sole jurisdiction to enforce the primary State’s covered laws in the primary State and any secondary State.

“(b) Secondary State’s Authority.—Nothing in subsection (a) shall be construed to affect the authority of a secondary State to enforce its laws as set forth in the exception specified in section 2796(b)(1).

“(c) Court Interpretation.—In reviewing action initiated by the applicable secondary State authority, the court of competent jurisdiction shall apply the covered laws of the primary State.

“(d) Notice of Compliance Failure.—In the case of individual health insurance coverage offered in a secondary State that fails to comply with the covered laws of the primary State, the applicable State authority of the secondary State may notify the applicable State authority of the primary State.”.

(b) Effective Date.—The amendment made by subsection (a) shall apply to individual health insurance coverage offered, issued, or sold after the date that is one year after the date of the enactment of this Act.

(c) GAO Ongoing Study and Reports.—

(1) STUDY.—The Comptroller General of the United States shall conduct an ongoing study concerning the effect of the amendment made by subsection (a) on—

(A) the number of uninsured and underinsured;

(B) the availability and cost of health insurance policies for individuals with pre-existing medical conditions;

(C) the availability and cost of health insurance policies generally;

(D) the elimination or reduction of different types of benefits under health insurance policies offered in different States; and

(E) cases of fraud or abuse relating to health insurance coverage offered under such amendment and the resolution of such cases.

(2) ANNUAL REPORTS.—The Comptroller General shall submit to Congress an annual report, after the end of each of the 5 years following the effective date of the amendment made by subsection (a), on the ongoing study conducted under paragraph (1).

SEC. 401. Rules governing association health plans.

(a) In General.—Subtitle B of title I of the Employee Retirement Income Security Act of 1974 is amended by adding after part 7 the following new part:

“PART 8 — Rules governing association health plans

“SEC. 801. Association health plans.

“(a) In General.—For purposes of this part, the term ‘association health plan’ means a group health plan whose sponsor is (or is deemed under this part to be) described in subsection (b).

“(b) Sponsorship.—The sponsor of a group health plan is described in this subsection if such sponsor—

“(1) is organized and maintained in good faith, with a constitution and bylaws specifically stating its purpose and providing for periodic meetings on at least an annual basis, as a bona fide trade association, a bona fide industry association (including a rural electric cooperative association or a rural telephone cooperative association), a bona fide professional association, or a bona fide chamber of commerce (or similar bona fide business association, including a corporation or similar organization that operates on a cooperative basis (within the meaning of section 1381 of the Internal Revenue Code of 1986)), for substantial purposes other than that of obtaining or providing medical care;

“(2) is established as a permanent entity which receives the active support of its members and requires for membership payment on a periodic basis of dues or payments necessary to maintain eligibility for membership in the sponsor; and

“(3) does not condition membership, such dues or payments, or coverage under the plan on the basis of health status-related factors with respect to the employees of its members (or affiliated members), or the dependents of such employees, and does not condition such dues or payments on the basis of group health plan participation.

Any sponsor consisting of an association of entities which meet the requirements of paragraphs (1), (2), and (3) shall be deemed to be a sponsor described in this subsection.

“SEC. 802. Certification of association health plans.

“(a) In General.—The applicable authority shall prescribe by regulation a procedure under which, subject to subsection (b), the applicable authority shall certify association health plans which apply for certification as meeting the requirements of this part.

“(b) Standards.—Under the procedure prescribed pursuant to subsection (a), in the case of an association health plan that provides at least one benefit option which does not consist of health insurance coverage, the applicable authority shall certify such plan as meeting the requirements of this part only if the applicable authority is satisfied that the applicable requirements of this part are met (or, upon the date on which the plan is to commence operations, will be met) with respect to the plan.

“(c) Requirements Applicable to Certified Plans.—An association health plan with respect to which certification under this part is in effect shall meet the applicable requirements of this part, effective on the date of certification (or, if later, on the date on which the plan is to commence operations).

“(d) Requirements for Continued Certification.—The applicable authority may provide by regulation for continued certification of association health plans under this part.

“(e) Class Certification for Fully Insured Plans.—The applicable authority shall establish a class certification procedure for association health plans under which all benefits consist of health insurance coverage. Under such procedure, the applicable authority shall provide for the granting of certification under this part to the plans in each class of such association health plans upon appropriate filing under such procedure in connection with plans in such class and payment of the prescribed fee under section 807(a).

“(f) Certification of Self-Insured Association Health Plans.—An association health plan which offers one or more benefit options which do not consist of health insurance coverage may be certified under this part only if such plan consists of—

“(1) a plan which offered such coverage on the date of the enactment of the Obamacare Replacement Act;

“(2) a plan under which the sponsor does not restrict membership to one or more trades and businesses or industries and whose eligible participating employers represent a broad cross-section of trades and businesses or industries; or

“(3) a plan whose eligible participating employers represent one or more trades or businesses, or one or more industries, consisting of any of the following: agriculture; equipment and automobile dealerships; barbering and cosmetology; certified public accounting practices; child care; construction; dance, theatrical and orchestra productions; disinfecting and pest control; financial services; fishing; food service establishments; hospitals; labor organizations; logging; manufacturing (metals); mining; medical and dental practices; medical laboratories; professional consulting services; sanitary services; transportation (local and freight); warehousing; wholesaling/distributing; or any other trade or business or industry which has been indicated as having average or above-average risk or health claims experience by reason of State rate filings, denials of coverage, proposed premium rate levels, or other means demonstrated by such plan in accordance with regulations.

“SEC. 803. Requirements relating to sponsors and boards of trustees.

“(a) Sponsor.—The requirements of this subsection are met with respect to an association health plan if the sponsor has met (or is deemed under this part to have met) the requirements of section 801(b) for a continuous period of not less than 3 years ending with the date of the application for certification under this part.

“(b) Board of Trustees.—The requirements of this subsection are met with respect to an association health plan if the following requirements are met:

“(1) FISCAL CONTROL.—The plan is operated, pursuant to a trust agreement, by a board of trustees which has complete fiscal control over the plan and which is responsible for all operations of the plan.

“(2) RULES OF OPERATION AND FINANCIAL CONTROLS.—The board of trustees has in effect rules of operation and financial controls, based on a 3-year plan of operation, adequate to carry out the terms of the plan and to meet all requirements of this title applicable to the plan.

“(3) RULES GOVERNING RELATIONSHIP TO PARTICIPATING EMPLOYERS AND TO CONTRACTORS.—

“(A) BOARD MEMBERSHIP.—

“(i) IN GENERAL.—Except as provided in clauses (ii) and (iii), the members of the board of trustees are individuals selected from individuals who are the owners, officers, directors, or employees of the participating employers or who are partners in the participating employers and actively participate in the business.

“(ii) LIMITATION.—

“(I) GENERAL RULE.—Except as provided in subclauses (II) and (III), no such member is an owner, officer, director, or employee of, or partner in, a contract administrator or other service provider to the plan.

“(II) LIMITED EXCEPTION FOR PROVIDERS OF SERVICES SOLELY ON BEHALF OF THE SPONSOR.—Officers or employees of a sponsor which is a service provider (other than a contract administrator) to the plan may be members of the board if they constitute not more than 25 percent of the membership of the board and they do not provide services to the plan other than on behalf of the sponsor.

“(III) TREATMENT OF PROVIDERS OF MEDICAL CARE.—In the case of a sponsor which is an association whose membership consists primarily of providers of medical care, subclause (I) shall not apply in the case of any service provider described in subclause (I) who is a provider of medical care under the plan.

“(iii) CERTAIN PLANS EXCLUDED.—Clause (i) shall not apply to an association health plan which is in existence on the date of the enactment of the Obamacare Replacement Act.

“(B) SOLE AUTHORITY.—The board has sole authority under the plan to approve applications for participation in the plan and to contract with a service provider to administer the day-to-day affairs of the plan.

“(c) Treatment of Franchise Networks.—In the case of a group health plan which is established and maintained by a franchiser for a franchise network consisting of its franchisees—

“(1) the requirements of subsection (a) and section 801(a) shall be deemed met if such requirements would otherwise be met if the franchiser were deemed to be the sponsor referred to in section 801(b), such network were deemed to be an association described in section 801(b), and each franchisee were deemed to be a member (of the association and the sponsor) referred to in section 801(b); and

“(2) the requirements of section 804(a)(1) shall be deemed met.

The Secretary may by regulation define for purposes of this subsection the terms ‘franchiser’, ‘franchise network’, and ‘franchisee’.

“SEC. 804. Participation and coverage requirements.

“(a) Covered Employers and Individuals.—The requirements of this subsection are met with respect to an association health plan if, under the terms of the plan—

“(1) each participating employer must be—

“(A) a member of the sponsor;

“(B) the sponsor; or

“(C) an affiliated member of the sponsor with respect to which the requirements of subsection (b) are met,

except that, in the case of a sponsor which is a professional association or other individual-based association, if at least one of the officers, directors, or employees of an employer, or at least one of the individuals who are partners in an employer and who actively participates in the business, is a member or such an affiliated member of the sponsor, participating employers may also include such employer; and

“(2) all individuals commencing coverage under the plan after certification under this part must be—

“(A) active or retired owners (including self-employed individuals), officers, directors, or employees of, or partners in, participating employers; or

“(B) the beneficiaries of individuals described in subparagraph (A).

“(b) Coverage of Previously Uninsured Employees.—In the case of an association health plan in existence on the date of the enactment of the Obamacare Replacement Act, an affiliated member of the sponsor of the plan may be offered coverage under the plan as a participating employer only if—

“(1) the affiliated member was an affiliated member on the date of certification under this part; or

“(2) during the 12-month period preceding the date of the offering of such coverage, the affiliated member has not maintained or contributed to a group health plan with respect to any of its employees who would otherwise be eligible to participate in such association health plan.

“(c) Individual Market Unaffected.—The requirements of this subsection are met with respect to an association health plan if, under the terms of the plan, no participating employer may provide health insurance coverage in the individual market for any employee not covered under the plan which is similar to the coverage contemporaneously provided to employees of the employer under the plan, if such exclusion of the employee from coverage under the plan is based on a health status-related factor with respect to the employee and such employee would, but for such exclusion on such basis, be eligible for coverage under the plan.

“(d) Prohibition of Discrimination Against Employers and Employees Eligible To Participate.—The requirements of this subsection are met with respect to an association health plan if—

“(1) under the terms of the plan, all employers meeting the preceding requirements of this section are eligible to qualify as participating employers for all geographically available coverage options, unless, in the case of any such employer, participation or contribution requirements of the type referred to in section 2711 of the Public Health Service Act are not met;

“(2) upon request, any employer eligible to participate is furnished information regarding all coverage options available under the plan; and

“(3) the applicable requirements of sections 701, 702, and 703 are met with respect to the plan.

“SEC. 805. Other requirements relating to plan documents, contribution rates, and benefit options.

“(a) In General.—The requirements of this section are met with respect to an association health plan if the following requirements are met:

“(1) CONTENTS OF GOVERNING INSTRUMENTS.—The instruments governing the plan include a written instrument, meeting the requirements of an instrument required under section 402(a)(1), which—

“(A) provides that the board of trustees serves as the named fiduciary required for plans under section 402(a)(1) and serves in the capacity of a plan administrator (referred to in section 3(16)(A));

“(B) provides that the sponsor of the plan is to serve as plan sponsor (referred to in section 3(16)(B)); and

“(C) incorporates the requirements of section 806.

“(2) CONTRIBUTION RATES MUST BE NONDISCRIMINATORY.—

“(A) The contribution rates for any participating small employer do not vary on the basis of any health status-related factor in relation to employees of such employer or their beneficiaries and do not vary on the basis of the type of business or industry in which such employer is engaged.

“(B) Nothing in this title or any other provision of law shall be construed to preclude an association health plan, or a health insurance issuer offering health insurance coverage in connection with an association health plan, from—

“(i) setting contribution rates based on the claims experience of the plan; or

“(ii) varying contribution rates for small employers in a State to the extent that such rates could vary using the same methodology employed in such State for regulating premium rates in the small group market with respect to health insurance coverage offered in connection with bona fide associations (within the meaning of section 2791(d)(3) of the Public Health Service Act),

subject to the requirements of section 702(b) relating to contribution rates.

“(3) FLOOR FOR NUMBER OF COVERED INDIVIDUALS WITH RESPECT TO CERTAIN PLANS.—If any benefit option under the plan does not consist of health insurance coverage, the plan has as of the beginning of the plan year not fewer than 1,000 participants and beneficiaries.

“(4) MARKETING REQUIREMENTS.—

“(A) IN GENERAL.—If a benefit option which consists of health insurance coverage is offered under the plan, State-licensed insurance agents shall be used to distribute to small employers coverage which does not consist of health insurance coverage in a manner comparable to the manner in which such agents are used to distribute health insurance coverage.

“(B) STATE-LICENSED INSURANCE AGENTS.—For purposes of subparagraph (A), the term ‘State-licensed insurance agents’ means one or more agents who are licensed in a State and are subject to the laws of such State relating to licensure, qualification, testing, examination, and continuing education of persons authorized to offer, sell, or solicit health insurance coverage in such State.

“(5) REGULATORY REQUIREMENTS.—Such other requirements as the applicable authority determines are necessary to carry out the purposes of this part, which shall be prescribed by the applicable authority by regulation.

“(b) Ability of Association Health Plans To Design Benefit Options.—Subject to section 514(d), nothing in this part or any provision of State law (as defined in section 514(c)(1)) shall be construed to preclude an association health plan, or a health insurance issuer offering health insurance coverage in connection with an association health plan, from exercising its sole discretion in selecting the specific items and services consisting of medical care to be included as benefits under such plan or coverage, except (subject to section 514) in the case of (1) any law to the extent that it is not preempted under section 731(a)(1) with respect to matters governed by section 711, 712, or 713, or (2) any law of the State with which filing and approval of a policy type offered by the plan was initially obtained to the extent that such law prohibits an exclusion of a specific disease from such coverage.

“SEC. 806. Maintenance of reserves and provisions for solvency for plans providing health benefits in addition to health insurance coverage.

“(a) In General.—The requirements of this section are met with respect to an association health plan if—

“(1) the benefits under the plan consist solely of health insurance coverage; or

“(2) if the plan provides any additional benefit options which do not consist of health insurance coverage, the plan—

“(A) establishes and maintains reserves with respect to such additional benefit options, in amounts recommended by the qualified health actuary, consisting of—

“(i) a reserve sufficient for unearned contributions;

“(ii) a reserve sufficient for benefit liabilities which have been incurred, which have not been satisfied, and for which risk of loss has not yet been transferred, and for expected administrative costs with respect to such benefit liabilities;

“(iii) a reserve sufficient for any other obligations of the plan; and

“(iv) a reserve sufficient for a margin of error and other fluctuations, taking into account the specific circumstances of the plan; and

“(B) establishes and maintains aggregate and specific excess/stop loss insurance and solvency indemnification, with respect to such additional benefit options for which risk of loss has not yet been transferred, as follows:

“(i) The plan shall secure aggregate excess/stop loss insurance for the plan with an attachment point which is not greater than 125 percent of expected gross annual claims. The applicable authority may by regulation provide for upward adjustments in the amount of such percentage in specified circumstances in which the plan specifically provides for and maintains reserves in excess of the amounts required under subparagraph (A).

“(ii) The plan shall secure specific excess/stop loss insurance for the plan with an attachment point which is at least equal to an amount recommended by the plan’s qualified health actuary. The applicable authority may by regulation provide for adjustments in the amount of such insurance in specified circumstances in which the plan specifically provides for and maintains reserves in excess of the amounts required under subparagraph (A).

“(iii) The plan shall secure indemnification insurance for any claims which the plan is unable to satisfy by reason of a plan termination.

Any person issuing to a plan insurance described in clause (i), (ii), or (iii) of subparagraph (B) shall notify the Secretary of any failure of premium payment meriting cancellation of the policy prior to undertaking such a cancellation. Any regulations prescribed by the applicable authority pursuant to clause (i) or (ii) of subparagraph (B) may allow for such adjustments in the required levels of excess/stop loss insurance as the qualified health actuary may recommend, taking into account the specific circumstances of the plan.

“(b) Minimum Surplus in Addition to Claims Reserves.—In the case of any association health plan described in subsection (a)(2), the requirements of this subsection are met if the plan establishes and maintains surplus in an amount at least equal to—

“(1) $500,000; or

“(2) such greater amount (but not greater than $2,000,000) as may be set forth in regulations prescribed by the applicable authority, considering the level of aggregate and specific excess/stop loss insurance provided with respect to such plan and other factors related to solvency risk, such as the plan’s projected levels of participation or claims, the nature of the plan’s liabilities, and the types of assets available to assure that such liabilities are met.

“(c) Additional Requirements.—In the case of any association health plan described in subsection (a)(2), the applicable authority may provide such additional requirements relating to reserves, excess/stop loss insurance, and indemnification insurance as the applicable authority considers appropriate. Such requirements may be provided by regulation with respect to any such plan or any class of such plans.

“(d) Adjustments for Excess/Stop Loss Insurance.—The applicable authority may provide for adjustments to the levels of reserves otherwise required under subsections (a) and (b) with respect to any plan or class of plans to take into account excess/stop loss insurance provided with respect to such plan or plans.

“(e) Alternative Means of Compliance.—The applicable authority may permit an association health plan described in subsection (a)(2) to substitute, for all or part of the requirements of this section (except subsection (a)(2)(B)(iii)), such security, guarantee, hold-harmless arrangement, or other financial arrangement as the applicable authority determines to be adequate to enable the plan to fully meet all its financial obligations on a timely basis and is otherwise no less protective of the interests of participants and beneficiaries than the requirements for which it is substituted. The applicable authority may take into account, for purposes of this subsection, evidence provided by the plan or sponsor which demonstrates an assumption of liability with respect to the plan. Such evidence may be in the form of a contract of indemnification, lien, bonding, insurance, letter of credit, recourse under applicable terms of the plan in the form of assessments of participating employers, security, or other financial arrangement.

“(f) Measures To Ensure Continued Payment of Benefits by Certain Plans in Distress.—

“(1) PAYMENTS BY CERTAIN PLANS TO ASSOCIATION HEALTH PLAN FUND.—

“(A) IN GENERAL.—In the case of an association health plan described in subsection (a)(2), the requirements of this subsection are met if the plan makes payments into the Association Health Plan Fund under this subparagraph when they are d