[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 715 Introduced in Senate (IS)]







104th CONGRESS
  1st Session
                                 S. 715

      To provide for portability of health insurance, guaranteed 
 renewability, high risk pools, medical care savings accounts, and for 
                            other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                April 7 (legislative day, April 5), 1995

  Mr. D'Amato (for himself, Mr. Inhofe, and Mr. Hatch) introduced the 
 following bill; which was read twice and referred to the Committee on 
                                Finance

_______________________________________________________________________

                                 A BILL


 
      To provide for portability of health insurance, guaranteed 
 renewability, high risk pools, medical care savings accounts, 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; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Health Insurance 
Portability and Guaranteed Renewability Act of 1995''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
          TITLE I--AMENDMENTS OF INTERNAL REVENUE CODE OF 1986

               Subtitle A--Medical Care Savings Accounts

Sec. 101. Medical care savings benefits.
Sec. 102. Medical care savings accounts.
Sec. 103. Unused amounts in flexible spending accounts transferable to 
                            medical care savings accounts.
          Subtitle B--Expansion of COBRA Continuation Coverage

Sec. 111. Expansion of COBRA continuation coverage.
Sec. 112. Expansion of COBRA options and continuation coverage 
                            requirements.
Sec. 113. Continuation coverage must offer conversion option at end of 
                            required coverage period.
                       TITLE II--INSURANCE REFORM

               Subtitle A--Employer Insurance Protections

Sec. 201. Small group employer insurance protections.
Sec. 202. General portability requirement for employer-based health 
                            insurance.
Sec. 203. Enforcement.
Sec. 204. Definitions.
Sec. 205. Effective date.
     Subtitle B--Guaranteeing Portability of Health Insurance for 
                              Individuals

Sec. 211. Coverage of individual health benefit plans.
Sec. 212. Portability protections.
Sec. 213. Limitations on nonrenewal and premium increases.
Sec. 214. Definitions.
Sec. 215. Effective date.
    Subtitle C--Assuring Health Insurance Coverage for Uninsurable 
                              Individuals

Sec. 221. Establishment of high risk health insurance pools.
Sec. 222. Uninsurable individuals eligible for coverage.
Sec. 223. Qualified health insurance coverage under pool.
Sec. 224. Funding of pool.
Sec. 225. Administration.

          TITLE I--AMENDMENTS OF INTERNAL REVENUE CODE OF 1986

               Subtitle A--Medical Care Savings Accounts

SEC. 101. MEDICAL CARE SAVINGS BENEFITS.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by inserting after section 125 
the following new section:

``SEC. 125A. MEDICAL CARE SAVINGS BENEFITS.

    ``(a) In General.--A medical care savings benefit is a qualified 
benefit which consists of a health plan meeting the requirements of 
this section that includes, as part thereof, a medical care savings 
account, as set forth in section 408A.
    ``(b) Establishment of Medical Care Savings Benefit.--A medical 
care savings benefit shall be established as a health plan which 
provides that all or part of the premium differential realized by 
instituting a qualified higher deductible health plan is credited to a 
participating employee during a plan year to pay for medical care 
described in section 213(d) subject to the limitations set forth in 
subsection (e) hereof. To the extent that any amount remains credited 
to that participant at the end of each plan year, such amount shall be 
deposited to a section 408A medical care savings account (which may 
also be referred to as a `Medical IRA') for that participant.
    ``(c) Payments from Account Balance.--If the plan provides for 
level installment payments, the plan may also provide that the maximum 
amount of reimbursement at a particular time during the period of 
coverage may be limited to the amount of actual contributions to the 
participant's benefit account. A participant may be advanced, interest 
free, such amounts necessary to cover incurred medical expenses which 
exceed the amount then credited to the participant's benefit account, 
upon the participant's agreement to repay such advancement from future 
installments or upon ceasing to be a participant.
    ``(d) Reporting.--Employers shall cause to be issued to 
participating employees, not less frequently than quarterly, a 
statement setting forth amounts remaining in their accounts.
    ``(e) Limitations on Medical Care Savings Benefits.--For purposes 
of this section--
            ``(1) In general.--In the case of an employer who has a 
        health plan in existence immediately prior to the adoption of 
        the medical care savings benefit, the maximum amount that may 
        be contributed annually to a participant's benefit account 
        shall be equal to--
                    ``(A) the cost of that health plan for that 
                participant's type of coverage; plus
                    ``(B) a cost of living adjustment for the calendar 
                year in which the plan year begins, determined under 
                section 1(f)(3) as adjusted annually based on the CPI-
                medical cost of living component.
            ``(2) Other employers.--In the case of an employer to whom 
        paragraph (1) does not apply, the contribution limit shall be 
        equal to the excess of the annual cost of the catastrophic 
        health plan covering the individual (whether or not such cost 
        is borne by the employer or the employee) over the annual 
        aggregate cost (including the government and employee share) of 
        the standard option of the Blue Cross-Blue Shield plan offered 
        under the Federal Employees Health Benefits Program under 
        chapter 89 of title 5, United States Code for the same type of 
        family coverage.
            ``(3) Overall limitation.--In no event may any contribution 
        described above exceed the deductible amount of the qualified 
        higher deductible plan.
    ``(f) Health Plan.--The term `health plan' means an employee 
welfare benefit plan providing medical care (as defined in section 
213(d)) to participants or beneficiaries directly or through insurance, 
reimbursement, or otherwise.
    ``(g) Qualified Higher Deductible Plan.--The term `qualified higher 
deductible plan' is a health plan which provides for payment of covered 
benefits in excess of the higher deductible, which higher deductible 
shall not exceed $5,000 in 1996 and, adjusted annually thereafter for 
increases in the cost of living in accordance with regulations 
prescribed by the Secretary.
    ``(h) Coordination With Health Flexible Spending Accounts.--If, 
during a plan year, a participating employee has a medical care savings 
benefit in effect and a health flexible spending account established 
under section 125, coverage under the health flexible spending account, 
for the type of medical expenses that may be reimbursed under the 
medical care savings benefit, would be limited to 100 percent of the 
deductible under the qualified higher deductible plan, less the amount 
credited in the current year to the employee's medical care savings 
account. For purposes of section 125, a medical care savings benefit is 
not considered to involve the deferral of compensation for purposes of 
this title.
    ``(i) Separate Determinations for Categories of Employees and 
Separate Lines of Business.--Contributions to Health Plans established 
by an Employer may be separately determined on the basis of:
            ``(1) Types of coverage.
            ``(2) Reasonable classifications of employees based on such 
        classifications as hours of work per week, retirement status, 
        coverage by a collective bargaining agreement.
            ``(3) Employees within separate lines of business, within 
        the meaning of section 414(r).
    ``(j) Other Definitions for Purposes of this Section.--
            ``(1) Employee.--The term `employee' means any individual 
        employed by an employer, including--
                    ``(A) an individual who is an employee within the 
                meaning of section 401(c)(1); and
                    ``(B) former employees.
            ``(2) Types of coverage.--The types of coverage are--
                    ``(A) self-only coverage; and
                    ``(B) coverage other than self-only coverage.
    ``(k) Preventative Health Care.--By allowing medical expenses 
payable from a medical care savings benefit to be those permitted under 
section 213(d), participating employees are encouraged to use this 
benefit to promote good health, to use preventative medical and health 
procedures, and to seek appropriate consultative and second opinions.
    ``(l) Nonduplication of Benefits.--Policies issued as a part of a 
medical care savings benefit shall not be required to duplicate 
expenses that may be proper expenses covered by the medical care 
savings benefit. Additionally, the qualified higher deductible plan may 
provide that the deductible specified in the insurance policy may be 
increased by the amount of any benefits payable by any other health 
benefits program or plan.''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of such Code is amended by inserting after 
the item relating to section 125 the following new item:

                              ``Sec. 125A. Medical care savings 
                                        benefits.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 102. MEDICAL CARE SAVINGS ACCOUNTS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 408 the following new section:

``SEC. 408A. MEDICAL CARE SAVINGS ACCOUNTS.

    ``(a) General Rule.--For purposes of this title, the term `medical 
care savings account' (which may also be referred to as a `Medical 
IRA') means a trust created or organized in the United States for the 
exclusive benefit of an individual and the individual's spouse and 
dependents (as defined in section 152), but only if the written 
instrument creating the trust meets the following requirements:
            ``(1) Except in the case of a rollover contribution 
        described in subsection (c)(3), no contribution will be 
        accepted unless it is in cash and contributions will not be 
        accepted during any calendar year in excess of the amount 
        permitted under section 125A(b).
            ``(2) The trustee is a bank (as defined in section 408(n)), 
        insurance company (as defined in section 816), or such other 
        person who demonstrates to the satisfaction of the Secretary 
        that the manner in which such other person will administer the 
        trust will be consistent with the requirements of this section.
            ``(3) No part of the trust funds will be invested in life 
        insurance contracts.
            ``(4) The interest of an individual in the balance of the 
        account is nonforfeitable.
            ``(5) The assets of the trust will not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
    ``(b) Tax Treatment of Accounts.--
            ``(1) Account taxed as grantor trust.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the account beneficiary of a medical 
                care savings account shall be treated for purposes of 
                this title as the owner of such account and shall be 
                subject to tax thereon in accordance with subpart E of 
                part I of subchapter J of this chapter (relating to 
                grantors and others treated as substantial owners).
                    ``(B) Treatment of capital losses.--With respect to 
                assets held in a medical care savings account, any 
                capital loss for a taxable year from the sale or 
                exchange of such an asset shall be allowed only to the 
                extent of capital gains from such assets for such 
                taxable year. Any capital loss which is disallowed 
                under the preceding sentence shall be treated as a 
                capital loss from the sale or exchange of such an asset 
                in the next taxable year. For purposes of this 
                subparagraph, all medical care savings accounts of the 
account beneficiary shall be treated as 1 account.
            ``(2) Account terminates if individual engages in 
        prohibited transaction.--
                    ``(A) In general.--If, during any taxable year of 
                the account beneficiary, such beneficiary engages in 
                any transaction prohibited by section 4975 with respect 
                to the account, the account ceases to be a medical care 
                savings account as of the first day of that taxable 
                year.
                    ``(B) Account treated as distributing all its 
                assets.--In any case in which any account ceases to be 
                a medical care savings account by reason of 
                subparagraph (A) on the first day of any taxable year, 
                subsection (c) shall be applied as if--
                            ``(i) there were a distribution on such 
                        first day in an amount equal to the fair market 
                        value (on such first day) of all assets in the 
                        account (on such first day), and
                            ``(ii) no portion of such distribution were 
                        used to pay qualified expenses.
            ``(3) Effect of pledging account as security.--If, during 
        any taxable year, the account beneficiary uses the account or 
        any portion thereof as security for a loan, the portion so used 
        is treated as distributed and not used to pay qualified 
        expenses.
    ``(c) Tax Treatment of Distributions.--
            ``(1) Inclusion of amounts not used for qualified medical 
        expenses.--
                    ``(A) In general.--Any amount paid or distributed 
                out of a medical care savings account which is not used 
                exclusively to pay the qualified medical expenses of 
                the account beneficiary or of the spouse or dependents 
                of such beneficiary shall be included in the gross 
                income of such beneficiary to the extent such amount 
                does not exceed the excess of--
                            ``(i) the aggregate contributions by the 
                        employer to such account which were not 
                        includible in gross income, over
                            ``(ii) the aggregate prior payments or 
                        distributions from such account which were 
                        includible in gross income under this 
                        paragraph.
                    ``(B) Special rules.--For purposes of subparagraph 
                (A)--
                            ``(i) all medical care savings accounts of 
                        the account beneficiary shall be treated as 1 
                        account,
                            ``(ii) all payments and distributions 
                        during any taxable year shall be treated as 1 
                        distribution, and
                            ``(iii) any distribution of property shall 
                        be taken into account at its fair market value 
                        on the date of the distribution.
            ``(2) Penalty for distributions not used for qualified 
        expenses.--
                    ``(A) In general.--The tax imposed by this chapter 
                for any taxable year in which there is a payment or 
                distribution from a medical care savings account which 
                is includible in gross income under paragraph (1) shall 
                be increased by 10 percent of the amount which is so 
                includible.
                    ``(B) Exception for distributions after age 59\1/
                2\.--Subparagraph (A) shall not apply to any 
                distribution or payment after the date on which the 
                account beneficiary attains age 59\1/2\.
                    ``(C) Disability or death cases.--Subparagraph (A) 
                shall not apply if the payment or distribution is made 
                after the account beneficiary becomes disabled within 
                the meaning of section 72(m)(7) or dies.
            ``(3) Rollover contribution.--An amount is described in 
        this paragraph as a rollover contribution if it meets the 
        requirements of subparagraphs (A) and (B).
                    ``(A) In general.--Paragraph (1) does not apply to 
                any amount paid or distributed out of a medical care 
                savings account to the account beneficiary if the 
                entire amount received is paid into a medical care 
                savings account for the benefit of such beneficiary not 
                later than the 60th day after the day on which he 
                receives the payment or distribution.
                    ``(B) Limitation.--This paragraph does not apply to 
                any amount described in subparagraph (A) received by an 
                individual from a medical care savings account if at 
                any time during the one-year period ending on the day 
                of such receipt such individual received any other 
                amount described in subparagraph (A) from a medical 
                care savings account which was not includible in his 
                gross income because of the application of this 
                paragraph.
                    ``(C) Treatment after death of account 
                beneficiary.--
                            ``(i) In general.--After the death of the 
                        account beneficiary, the assets in such 
                        beneficiary's medical care savings account may 
                        continue to be used for the benefit of the 
                        beneficiary's spouse and dependents if, not 
                        more than 60 days after the beneficiary's 
                        death--
                                    ``(I) the beneficiary's medical 
                                care savings account is transferred to 
                                a new account administrator; or
                                    ``(II) the legatee requests in 
                                writing that the account administrator 
                                remain the administrator of the 
                                account, and the account administrator 
                                agrees to retain the account.
                            ``(ii) Failure to give notice.--If the 
                        former account administrator of a medical care 
                        savings account of a deceased beneficiary is 
                        not informed, within 90 days after the 
                        beneficiary's death, of the name and address of 
                        an account administrator to which the medical 
                        care savings account has been transferred under 
                        clause (i), the former account administrator 
                        shall liquidate the assets in such account and 
                        pay the proceeds to the estate of the 
beneficiary.
                            ``(iii) Account administrator unwilling to 
                        maintain account.--If--
                                    ``(I) the legatee makes a request 
                                described in clause (i)(II); and
                                    ``(II) the account administrator 
                                does not agree to retain the account;
                        the account administrator shall, within 90 days 
                        after the beneficiary's death, liquidate the 
                        assets in such account and pay the proceeds to 
                        the estate of the beneficiary.
                            ``(iv) Treatment of transfers to estate.--
                        Any transfer to the estate of a decedent under 
                        clause (ii) or (iii) shall not be includible in 
                        the gross income of the beneficiary or of the 
                        estate.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Qualified expenses.--The term `qualified expenses' 
        means any of the following expenses which are incurred for the 
        benefit of the account beneficiary or the spouse or dependents 
        (as defined in section 152) of such beneficiary:
                    ``(A) Expenses for medical care (as defined in 
                section 213(d)).
                    ``(B) Expenses for long-term care services (or 
                premiums for long-term care insurance).
            ``(2) Account beneficiary.--The term `account beneficiary' 
        means the individual for whose benefit the medical care savings 
        account is established.
    ``(e) Custodial Accounts.--For purposes of this section, a 
custodial account shall be treated as a trust if--
            ``(1) the assets of such account are held by a bank (as 
        defined in section 408(n)), insurance company (as defined in 
        section 816), or another person who demonstrates to the 
        satisfaction of the Secretary that the manner in which he will 
        administer the account will be consistent with the requirements 
        of this section, and
            ``(2) the custodial account would, except for the fact that 
        it is not a trust, constitute a medical care savings account 
        described in subsection (a).
For purposes of this title, in the case of a custodial account treated 
as a trust by reason of the preceding sentence, the custodian of such 
account shall be treated as the trustee thereof.
    ``(f) Reports.--The trustee of a medical care savings account shall 
make such reports regarding such account to the Secretary and to the 
account beneficiary with respect to contributions, distributions, and 
such other matters as the Secretary may require under regulations. The 
reports required by this subsection shall be filed at such time and in 
such manner and furnished to such individuals at such time and in such 
manner as may be required by those regulations.''
    (b) Employer Payments Excluded From Employment Tax Base.--
            (1) Social security taxes.--
                    (A) Subsection (a) of section 3121 of such Code is 
                amended by striking ``or'' at the end of paragraph 
                (20), by striking the period at the end of paragraph 
                (21) and inserting ``; or'', and by inserting after 
                paragraph (21) the following new paragraph:
            ``(22) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from gross income under chapter 1.''
                    (B) Subsection (a) of section 209 of the Social 
                Security Act is amended by striking ``or'' at the end 
                of paragraph (18), by striking the period at the end of 
                paragraph (19) and inserting ``; or'', and by inserting 
                after paragraph (19) the following new paragraph:
            ``(20) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from gross income under chapter 1 of the Internal Revenue Code 
        of 1986.''
            (2) Railroad retirement tax.--Subsection (e) of section 
        3231 of such Code is amended by adding at the end the following 
        new paragraph:
            ``(10) Medical care savings account contributions.--The 
        term `compensation' shall not include any payment made to or 
        for the benefit of an employee if at the time of such payment 
        it is reasonable to believe that the employee will be able to 
        exclude such payment from gross income under chapter 1.''
            (3) Unemployment tax.--Subsection (b) of section 3306 of 
        such Code is amended by striking ``or'' at the end of paragraph 
        (15), by striking the period at the end of paragraph (16) and 
        inserting ``; or'', and by inserting after paragraph (16) the 
        following new paragraph:
            ``(17) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from gross income under chapter 1.''
            (4) Withholding tax.--Subsection (a) of section 3401 of 
        such Code is amended by striking ``or'' at the end of paragraph 
        (19), by striking the period at the end of paragraph (20) and 
        inserting ``; or'', and by inserting after paragraph (20) the 
        following new paragraph:
            ``(21) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from gross income under chapter 1.''
    (c) Tax on Prohibited Transactions.--Section 4975 of such Code 
(relating to prohibited transactions) is amended--
            (1) by adding at the end of subsection (c) the following 
        new paragraph:
            ``(4) Special rule for medical care savings accounts.--An 
        individual for whose benefit a medical care savings account 
        (within the meaning of section 408A) is established shall be 
        exempt from the tax imposed by this section with respect to any 
        transaction concerning such account (which would otherwise be 
taxable under this section) if, with respect to such transaction, the 
account ceases to be a medical care savings account by reason of the 
application of section 408A(b)(2)(A) to such account.'', and
            (2) by inserting ``or a medical care savings account 
        described in section 408A'' in subsection (e)(1) after 
        ``described in section 408(a)''.
    (d) Failure To Provide Reports on Medical Care Savings Accounts.--
Section 6693 of such Code (relating to failure to provide reports on 
individual retirement account or annuities) is amended--
            (1) by inserting ``or on medical care savings accounts'' 
        after ``annuities'' in the heading of such section, and
            (2) by adding at the end of subsection (a) the following: 
        ``The person required by section 408A(f) to file a report 
        regarding a medical care savings account at the time and in the 
        manner required by such section shall pay a penalty of $50 for 
        each failure unless it is shown that such failure is due to 
        reasonable cause.''
    (e) Clerical Amendments.--
            (1) The table of sections for subpart A of part I of 
        subchapter D of chapter 1 of such Code is amended by inserting 
        after the item relating to section 408 the following:

                              ``Sec. 408A. Medical care savings 
                                        accounts.''
            (2) The table of sections for chapter 43 of such Code is 
        amended by striking the item relating to section 4973 and 
        inserting the following:

                              ``Sec. 4973. Tax on excess contributions 
                                        to individual retirement 
                                        accounts, medical care savings 
                                        accounts, certain 403(b) 
                                        contracts, and certain 
                                        individual retirement 
                                        annuities.''
            (3) The table of sections for subchapter B of chapter 68 of 
        such Code is amended by inserting ``or on medical care savings 
        accounts'' after ``annuities'' in the item relating to section 
        6693.
    (f) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1996.

SEC. 103. UNUSED AMOUNTS IN FLEXIBLE SPENDING ACCOUNTS TRANSFERABLE TO 
              MEDICAL CARE SAVINGS ACCOUNTS.

    (a) In General.--Subsection (d) of section 125 of the Internal 
Revenue Code of 1986 (relating to cafeteria plans) is amended by adding 
at the end thereof the following new paragraph:
            ``(3) Unused amounts transferable to medical care savings 
        accounts.--Subsection (a) shall not fail to apply to a 
        participant in a plan, and a plan shall not fail to be treated 
        as a cafeteria plan, solely because under the plan amounts not 
        paid out as reimbursements under a flexible spending 
        arrangement for medical care (as defined in section 213(d)) for 
        an individual or such individual's spouse and dependents) are 
        contributed on the last day of the plan year of the cafeteria 
        plan to a medical care savings account (as defined in section 
        408A) of such individual.''
    (b) Effective Date.--The amendment made by this section shall apply 
to cafeteria plan years ending after December 31, 1995.

          Subtitle B--Expansion of COBRA Continuation Coverage

SEC. 111. EXPANSION OF COBRA CONTINUATION COVERAGE.

    (a) Amendments to Internal Revenue Code.--
            (1) Smaller employers subject to requirements.--Paragraph 
        (1) of section 4980B(d) of the Internal Revenue Code of 1986 
        (relating to tax not to apply to certain plans) is amended by 
        striking ``20 employees'' and inserting ``2 employees''.
            (2) Period of coverage extended to 36 months.--
                    (A) In general.--Clause (i) of section 
                4980B(f)(2)(B) of such Code (relating to period of 
                coverage) is amended to read as follows:
                            ``(i) Maximum required period.--
                                    ``(I) In general.--The date which 
                                is 36 months after the date of the 
                                qualifying event.
                                    ``(II) Special rule for certain 
                                bankruptcy proceedings.--In the case of 
                                a qualifying event described in 
                                paragraph (3)(F) (relating to 
                                bankruptcy proceedings), the date of 
                                the death of the covered employee or 
                                qualified beneficiary (described in 
                                subsection (g)(1)(D)(iii)), or in the 
                                case of the surviving spouse or 
                                dependent children of the covered 
                                employee, 36 months after the date of 
                                the death of the covered employee.
                                    ``(III) Qualifying event involving 
                                medicare entitlement.--In the case of 
                                an event described in paragraph (3)(D) 
                                (without regard to whether such event 
                                is a qualifying event), the period of 
                                coverage for qualified beneficiaries 
                                other than the covered employee for 
                                such event or any subsequent qualifying 
                                event shall not terminate before the 
                                close of the 36-month period beginning 
                                on the date the covered employee 
                                becomes entitled to benefits under 
                                title XVIII of the Social Security 
                                Act.''
                    (B) Technical amendment.--The last sentence of 
                section 4980B(f)(2)(C) of such Code is amended to read 
                as follows: ``In the case of a qualified beneficiary 
                who is determined, under title II or XVI of the Social 
                Security Act, to have been disabled at the time of a 
                qualifying event described in paragraph (3)(B), any 
                reference in clause (i) to `102 percent' is deemed a 
                reference to `150 percent' for any month after the 36th 
                month of continuation coverage.''
            (3) Substantially similar coverage under new employer's 
        health plan to terminate continuation coverage obligation of 
        prior employer.--Clause (iv) of section 4980B(f)(2)(B) of such 
        Code is amended by striking ``or'' at the end of subclause (I), 
        by redesignating subclause (II) as subclause (III), and by 
inserting after subclause (I) the following new subclause:
                                    ``(II) covered under any other 
                                group health plan by reason of the 
                                reemployment of the covered employee if 
                                such coverage is substantially similar 
                                to (or in all respects greater than) 
                                the coverage provided by reason of this 
                                section, or''.
    (b) Amendments to Employee Retirement Income Security Act of 
1974.--
            (1) Smaller employers subject to requirements.--Subsection 
        (b) of section 601 of the Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1161) (relating to exception for certain 
        plans) is amended by striking ``20 employees'' and inserting 
        ``2 employees''.
            (2) Period of coverage extended to 36 months.--
                    (A) In general.--Subparagraph (A) of section 602(2) 
                of such Act (29 U.S.C. 1161(2)) (relating to period of 
                coverage) is amended to read as follows:
                    ``(A) Maximum required period.--
                            ``(i) In general.--The date which is 36 
                        months after the date of the qualifying event.
                            ``(ii) Special rule for certain bankruptcy 
                        proceedings.--In the case of a qualifying event 
                        described in section 603(6) (relating to 
                        bankruptcy proceedings), the date of the death 
                        of the covered employee or qualified 
                        beneficiary (described in section 
                        607(3)(C)(iii)), or in the case of the 
                        surviving spouse or dependent children of the 
                        covered employee, 36 months after the date of 
                        the death of the covered employee.
                            ``(iii) Qualifying event involving medicare 
                        entitlement.--In the case of an event described 
                        in section 603(4) (without regard to whether 
                        such event is a qualifying event), the period 
                        of coverage for qualified beneficiaries other 
                        than the covered employee for such event or any 
                        subsequent qualifying event shall not terminate 
                        before the close of the 36-month period 
                        beginning on the date the covered employee 
                        becomes entitled to benefits under title XVIII 
                        of the Social Security Act.''
                    (B) Technical amendment.--The last sentence of 
                section 602(3) of such Act is amended to read as 
                follows: ``In the case of an individual who is 
                determined, under title II or XVI of the Social 
                Security Act, to have been disabled at the time of a 
                qualifying event described in section 603(2), any 
                reference in subparagraph (A) to `102 percent' is 
                deemed a reference to `150 percent' for any month after 
                the 36th month of continuation coverage.''
            (3) Substantially similar coverage under new employer's 
        health plan to terminate continuation coverage obligation of 
        prior employer.--Subparagraph (D) of section 602(2) of such Act 
        is amended by striking ``or'' at the end of clause (i), by 
        redesignating clause (ii) as clause (iii), and by inserting 
after clause (i) the following new subclause:
                                    ``(ii) covered under any other 
                                group health plan by reason of the 
                                reemployment of the covered employee if 
                                such coverage is substantially similar 
                                to (or in all respects greater than) 
                                the coverage provided by reason of this 
                                section, or''.
    (c) Amendments to Public Health Service Act.--
            (1) Smaller employers subject to requirements.--Paragraph 
        (1) of section 2201(b) of the Public Health Service Act (42 
        U.S.C. 300bb-1(b)) (relating to exception for certain plans) is 
        amended by striking ``20 employees'' and inserting ``4 
        employees''.
            (2) Period of coverage extended to 36 months.--
                    (A) In general.--Subparagraph (A) of section 
                2202(2) of such Act (42 U.S.C. 300bb-2(2)) (relating to 
                period of coverage) is amended to read as follows:
                    ``(A) Maximum required period.--
                            ``(i) In general.--The date which is 36 
                        months after the date of the qualifying event.
                            ``(ii) Qualifying event involving medicare 
                        entitlement.--In the case of an event described 
                        in section 2203(4) (without regard to whether 
                        such event is a qualifying event), the period 
                        of coverage for qualified beneficiaries other 
                        than the covered employee for such event or any 
                        subsequent qualifying event shall not terminate 
                        before the close of the 36-month period 
                        beginning on the date the covered employee 
                        becomes entitled to benefits under title XVIII 
                        of the Social Security Act.''
                    (B) Technical amendment.--The last sentence of 
                section 2202(3) of such Act is amended to read as 
                follows: ``In the case of an individual who is 
                determined, under title II or XVI of the Social 
                Security Act, to have been disabled at the time of a 
                qualifying event described in section 2203(2), any 
                reference in subparagraph (A) to `102 percent' is 
                deemed a reference to `150 percent' for any month after 
                the 36th month of continuation coverage.''
            (3) Substantially similar coverage under new employer's 
        health plan to terminate continuation coverage obligation of 
        prior employer.--Subparagraph (D) of section 2202(2) of such 
        Act is amended by striking ``or'' at the end of clause (i), by 
        redesignating clause (ii) as clause (iii), and by inserting 
        after clause (i) the following new clause:
                                    ``(ii) covered under any other 
                                group health plan by reason of the 
                                reemployment of the covered employee if 
                                such coverage is substantially similar 
                                to (or in all respects greater than) 
                                the coverage provided by reason of this 
                                section, or''.
    (d) Effective Date.--The amendments made by this section shall 
apply to--
            (1) qualifying events occurring after December 31, 1995, 
        and
            (2) qualifying events occurring on or before such date if 
        the period of continuation coverage required under section 
        4980B of the Internal Revenue Code of 1986 (determined without 
        regard to the amendments made by this section) has not expired 
        on or before such date.

SEC. 112. EXPANSION OF COBRA OPTIONS AND CONTINUATION COVERAGE 
              REQUIREMENTS.

    (a) Amendments to Internal Revenue Code.--Subparagraph (A) of 
section 4980B(f)(2) of the Internal Revenue Code of 1986 (relating to 
continuation coverage requirements of group health plans) is amended to 
read as follows:
                    ``(A) Type of benefit coverage.--The coverage must 
                consist of coverage which, as of the time the coverage 
                is being provided--
                            ``(i) is identical to the coverage provided 
                        under the plan to similarly situated 
                        beneficiaries under the plan with respect to 
                        whom a qualifying event has not occurred,
                            ``(ii) is so identical, except such 
                        coverage is offered with an annual $1,000 
                        deductible, or
                            ``(iii) is so identical, except such 
                        coverage is offered with an annual $3,000 
                        deductible.
                If coverage under the plan is modified for any group of 
                similarly situated beneficiaries, the coverage shall 
                also be modified in the same manner for all individuals 
                who are qualified beneficiaries under the plan pursuant 
                to this subsection in connection with such group.''
    (b) Amendments to Employee Retirement Income Security Act of 
1974.--Paragraph (1) of section 602 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1162) is amended to read as follows:
            ``(1) Type of benefit coverage.--The coverage must consist 
        of coverage which, as of the time the coverage is being 
        provided--
                    ``(A) is identical to the coverage provided under 
                the plan to similarly situated beneficiaries under the 
                plan with respect to whom a qualifying event has not 
                occurred,
                    ``(B) is so identical, except such coverage is 
                offered with an annual $1,000 deductible, or
                    ``(C) is so identical, except such coverage is 
                offered with an annual $3,000 deductible.
        If coverage under the plan is modified for any group of 
        similarly situated beneficiaries, the coverage shall also be 
        modified in the same manner for all individuals who are 
        qualified beneficiaries under the plan pursuant to this part in 
        connection with such group.''
    (c) Amendments to Public Health Service Act.--Paragraph (1) of 
section 2202 of the Public Health Service Act (42 U.S.C. 300bb-2) is 
amended to read as follows:
            ``(1) Type of benefit coverage.--The coverage must consist 
        of coverage which, as of the time the coverage is being 
        provided--
                    ``(A) is identical to the coverage provided under 
                the plan to similarly situated beneficiaries under the 
                plan with respect to whom a qualifying event has not 
                occurred,
                    ``(B) is so identical, except such coverage is 
                offered with an annual $1,000 deductible, or
                    ``(C) is so identical, except such coverage is 
                offered with an annual $3,000 deductible.
        If coverage under the plan is modified for any group of 
        similarly situated beneficiaries, the coverage shall also be 
        modified in the same manner for all individuals who are 
        qualified beneficiaries under the plan pursuant to this part in 
        connection with such group.''
    (d) Effective Date.--The amendments made by this section shall 
apply to--
            (1) qualifying events occurring after December 31, 1996, 
        and
            (2) qualifying events occurring on or before such date if 
        the period of continuation coverage required under section 
        4980B of the Internal Revenue Code of 1986 (determined without 
        regard to the amendments made by this Act) has not expired on 
        or before such date.

SEC. 113. CONTINUATION COVERAGE MUST OFFER CONVERSION OPTION AT END OF 
              REQUIRED COVERAGE PERIOD.

    (a) Amendments to Internal Revenue Code.--Paragraph (1) of section 
4980B(f) of the Internal Revenue Code of 1986 is amended to read as 
follows:
            ``(1) In general.--A group health plan meets the 
        requirements of this subsection only if--
                    ``(A) the coverage of the costs of pediatric 
                vaccines (as defined under section 2162 of the Public 
                Health Service Act) is not reduced below the coverage 
                provided by the plan as of May 1, 1993,
                    ``(B) each qualified beneficiary who would lose 
                coverage under the plan as a result of a qualifying 
                event is entitled to elect, within the election period, 
                continuation coverage under the plan, and
                    ``(C) in the case of a group health plan provided 
                through insurance, at the termination of the 
                continuation coverage period with respect to any 
                qualified beneficiary (other than a period which 
                terminates by reason of paragraph (2)(B)(iv)), such 
                beneficiary has the option to be covered under another 
                health plan provided through insurance issued by such 
the insurer (or an affiliated insurer)--
                            ``(i) which does not contain any exclusion 
                        or limitation with respect to any preexisting 
                        condition of such beneficiary,
                            ``(ii) which provides coverage which is 
                        substantially similar to (or in all respects 
                        greater than) the coverage being terminated, 
                        and
                            ``(iii) the premium for which is based on 
                        the new, normal business rate within the class 
                        of business involved for individuals with 
                        similar demographic characteristics and which 
                        is adjusted only for age and sex.''
    (b) Amendments to Employee Retirement Income Security Act of 
1974.--Subsection (a) of section 601 of such Act is amended to read as 
follows:
    ``(a) In General.--The plan sponsor of each group health plan shall 
provide, in accordance with this part, that--
            ``(1) each qualified beneficiary who would lose coverage 
        under the plan as a result of a qualifying event is entitled, 
        under the plan, to elect, within the election period, 
        continuation coverage under the plan, and
            ``(2) in the case of such a group health plan provided 
        through insurance, at the termination of the continuation 
        coverage period with respect to any qualified beneficiary 
        (other than a period which terminates by reason of section 
        602(2)(D)), such beneficiary has the option to be covered under 
        another health plan provided through insurance issued by such 
        the insurer (or an affiliated insurer) which does not contain 
        any exclusion or limitation with respect to any preexisting 
        condition of such beneficiary and which provides coverage which 
        is substantially similar to (or in all respects greater than) 
        the coverage being terminated.''.
    (c) Amendments to Public Health Service Act.--Subsection (a) of 
section 2201 of the Public Health Service Act is amended to read as 
follows:
    ``(a) In General.--In accordance with regulations which the 
Secretary shall prescribe, each group health plan that is maintained by 
any State that receives funds under this Act, by any political 
subdivision of such a State, or by any agency or instrumentality of 
such a State or political subdivision, shall provide, in accordance 
with this title, that--
            ``(1) each qualified beneficiary who would lose coverage 
        under the plan as a result of a qualifying event is entitled, 
        under the plan, to elect, within the election period, 
        continuation coverage under the plan, and
            ``(2) in the case of such a group health plan provided 
        through insurance, at the termination of the continuation 
        coverage period with respect to any qualified beneficiary 
        (other than a period which terminates by reason of section 
        2202(2)(D)), such beneficiary has the option to be covered 
        under another health plan provided through insurance issued by 
        such the insurer (or an affiliated insurer) which does not 
        contain any exclusion or limitation with respect to any 
        preexisting condition of such beneficiary and which provides 
        coverage which is substantially similar to (or in all respects 
        greater than) the coverage being terminated.''
    (d) Effective Date.--The amendments made by this section shall 
apply to--
            (1) qualifying events occurring after December 31, 1996, 
        and
            (2) qualifying events occurring on or before such date if 
        the period of continuation coverage required under section 
        4980B of the Internal Revenue Code of 1986 (determined without 
        regard to the amendments made by this Act) has not expired on 
        or before such date.

                       TITLE II--INSURANCE REFORM

               Subtitle A--Employer Insurance Protections

SEC. 201. SMALL GROUP EMPLOYER INSURANCE PROTECTIONS.

    (a) Requirements for Insurers.--Any health benefit insurer that 
provides or offers a small group health benefit plan within a State (in 
this subtitle referred to as a ``covered insurer'') must meet the 
requirements specified in this section with respect to such a plan.
    (b) Small Employer Protection Against Termination or Non-Renewal or 
Industry Blacklisting.--
            (1) In general.--A covered insurer may not--
                    (A) cancel or nonrenew an individual small employer 
                group except for a reason specified in paragraph (2), 
                or
                    (B) refuse to provide coverage to such a group 
                based solely on the nature of the employer's business 
                or industry.
        A covered insurer may not single out and cancel a small group 
        health benefit plan for an individual small employer group 
        because of claims experience relating to the group.
            (2) Permissible termination.--A covered insurer may cancel 
        or nonrenew a small group health benefit plan for an individual 
        small employer group for any of the following:
                    (A) Nonpayment of required premium.
                    (B) Fraud or misrepresentation on the part of the 
                employer.
                    (C) Noncompliance with provisions of the plan.
                    (D) Nonrenewal upon 90 days written notice with 
                respect to all persons insured under the small group 
                health benefit plan in a State.
            (3) Limitation on market reentry.--A covered insurer that 
        exercises its right of nonrenewal as provided under paragraph 
        (2)(D) may not accept any new health business of the type it 
        nonrenewed for a period of 5 years, after the date it provides 
        notice of such nonrenewal.
    (c) Limits on Premium Rates.--The annual increase in the premium 
rate charged to a small employer group by a covered insurer may not 
exceed the sum of the following:
            (1) The percentage change in the premium rate for new 
        business for employers with similar case characteristics, as 
        measured between the first day of the year in which the new 
        rates take effect and the first day of the previous year.
            (2) A percentage (not to exceed 15 percent) based on claims 
        experience, health status, or duration of coverage.
            (3) Any adjustment due to changes in the coverage provided 
        or changes in the case characteristics of the small employer 
        group.
    (d) Limit on Variation in Premiums.--
            (1) Across classes of business.--The index rate for a 
        rating period for any class of business shall not exceed the 
        index rate for any other class of business by more than 20 
        percent.
            (2) Within a class of business.--For a class of business, 
        the premium rates charged during a rating period to small 
        employer groups with similar case characteristics for the same 
        or similar coverage (or rates that could be charged to such 
        employers under the rating system for that class of business) 
        shall not vary from the index rate for such class by more than 
        25 percent of the index rate.
            (3) Use of industry as a case characteristic.--
                    (A) In general.--Subject to subparagraph (B), a 
                covered insurer may utilize industry as a case 
                characteristic in establishing premium rates.
                    (B) Limitation on variation.--If a covered insurer 
                that utilizes industry as a case characteristic in 
                establishing premium rates, the highest rate factor 
                associated with an industry classification may not 
                exceed the lowest rate associated with any industry 
                classification by more than 15 percent.

SEC. 202. GENERAL PORTABILITY REQUIREMENT FOR EMPLOYER-BASED HEALTH 
              INSURANCE.

    (a) Limitations on Use of Preexisting Conditions.--
            (1) In general.--A group health benefit plan of an employer 
        shall not exclude or limit coverage for a preexisting condition 
        for a covered individual for a period beyond 12 months 
        following the effective date of the individual's coverage.
            (2) Restrictions on definition of preexisting condition.--
        For purposes of paragraph (1), such a plan shall not define a 
        preexisting condition more restrictively than the following:
                    (A) A condition that would have caused an 
                ordinarily prudent person to seek medical advice, 
                diagnosis, care, or treatment during the 6 months 
                immediately preceding the effective date of coverage.
                    (B) A condition for which medical advice, 
                diagnosis, care, or treatment was recommended or 
                received during the 6 months immediately preceding the 
                effective date of coverage.
                    (C) A pregnancy existing on the effective date of 
                coverage.
            (3) Limitations on riders.--
                    (A) In general.--Except as provided in subparagraph 
                (B), an insurer issuing a group health plan may not 
                modify the plan with respect to an eligible individual, 
                eligible employee, or dependent.
                    (B) Relation to preexisting condition exclusion 
                period.--
                            (i) In general.--To the extent that a 
                        preexisting condition limitation applies, an 
                        insurer may restrict or exclude coverage or 
                        benefits for a specific condition for a maximum 
                        period of 12 months from the effective date of 
                        coverage of an eligible individual by way of 
                        rider or endorsement.
                            (ii) No addition riders.--No other rider or 
                        endorsement may be placed on the group health 
                        plan to restrict further coverage.
                            (iii) Combination.--If both a rider and a 
                        preexisting condition exclusion period are 
                        used, the combined limitation period may not 
                        exceed 12 months.
                    (C) No disclosure of condition required.--A 
                preexisting condition limitation period may be applied 
                whether or not the specific condition has been 
                disclosed on the application for coverage under the 
                individual health benefit plan.
                    (D) Portability of coverage.--The preexisting 
                condition limitation period under any group health plan 
                with respect to particular services shall be reduced by 
                one month for each month of continuous coverage the 
                eligible individual had under prior similar coverage.
    (b) Limitation on Underwriting.--
            (1) In general.--In the case of a previously covered 
        individual who becomes an employee of an employer, the group 
        health plan of the employer shall accept the individual for 
        coverage upon the date of application for coverage on the basis 
        relating to the individual's health status as of the date the 
        individual applied for employment with the previous employer.
            (2) Previously covered individual defined.--For purposes of 
        paragraph (1), the term ``previously covered individual'' 
        means, with respect to an employer, an individual who before 
        employment by the employer was an employee of another employer 
        and was provided coverage under a group health plan of (or 
        contributed to by) the previous employer.
    (c) Restrictions for Small Employer Health Plans.--If a small 
employer insurer offers coverage to a small employer, the small 
employer insurer shall offer coverage to all of the eligible employees 
of the small employer and their dependents. A small employer insurer 
shall not offer coverage to only certain individuals in a small 
employer group or to only part of the group, except in the case of late 
enrollees.
    (d) Construction.--Nothing in this section shall be construed as 
requiring an insurer or health benefit plan to provide benefits greater 
than those provided to an individual insured as a standard risk had the 
previous coverage remained in force.
    (e) Definitions.--For purposes of this section:
            (1) Covered individual.--The term ``covered individual'' 
        means--
                    (A) an individual who is (or will be) provided 
                coverage under a group health plan by virtue of the 
                performance of services by the individual for 1 or more 
                persons maintaining the plan (including as an employee 
                defined in section 401(c)(1) of the Internal Revenue 
                Code of 1986), and
                    (B) the spouse or any dependent child of such 
                individual.
            (2) Group health plan.--The term ``group health plan'' has 
        the meaning given such term by section 5000(b)(1) of the 
        Internal Revenue Code of 1986.

SEC. 203. ENFORCEMENT.

    (a) In General.--Chapter 47 of the Internal Revenue Code of 1986 
(relating to taxes on group health plans) is amended by adding at the 
end thereof the following new section:

``SEC. 5000A. ENFORCEMENT OF REQUIREMENTS FOR EMPLOYER HEALTH BENEFIT 
              PLANS.

    ``(a) General Rule.--There is hereby imposed a penalty on the 
failure of an insurer or group health plan to meet the applicable 
requirements of section 201 or 202 of the Health Insurance Portability 
and Guaranteed Renewability Act of 1995 with respect to any covered 
individual.
    ``(b) Amount of Penalty.--
            ``(1) In general.--The amount of the penalty imposed by 
        subsection (a) on any failure with respect to--
                    ``(A) a requirement in such section 201 shall be 
                $100 for each day in the noncompliance period with 
                respect to such failure; or
                    ``(B) a requirement in such section 202 with 
                respect to a covered individual shall be $100 for each 
                day in the noncompliance period with respect to such 
                failure.
            ``(2) Noncompliance period.--For purposes of this section, 
        the term `noncompliance period' means, with respect to any 
        failure, the period--
                    ``(A) beginning on the date such failure first 
                occurs, and
                    ``(B) ending on the date such failure is corrected.
            ``(3) Correction.--A failure of a group health plan to meet 
        the requirements of section 202 of the Health Insurance 
        Portability and Guaranteed Renewability Act of 1995 with 
        respect to any covered individual shall be treated as corrected 
        if--
                    ``(A) such failure is retroactively undone to the 
                extent possible, and
                    ``(B) the covered individual is placed in a 
                financial position which is as good as such individual 
                would have been in had such failure not occurred.
        For purposes of applying subparagraph (B), the covered 
        individual shall be treated as if the individual had elected 
        the most favorable coverage in light of the expenses incurred 
        since the failure first occurred.
    ``(c) Limitations on Amount of Penalty.--
            ``(1) Penalty not to apply where failure not discovered 
        exercising reasonable diligence.--No penalty shall be imposed 
        by subsection (a) on any failure during any period for which it 
        is established to the satisfaction of the Secretary that none 
        of the persons referred to in subsection (d) knew, or 
        exercising reasonable diligence would have known, that such 
        failure existed.
            ``(2) Penalty not to apply to failures corrected within 30 
        days.--No penalty shall be imposed by subsection (a) on any 
        failure if--
                    ``(A) such failure was due to reasonable cause and 
                not to willful neglect, and
                    ``(B) such failure is corrected during the 30-day 
                period beginning on the first date any of the persons 
                referred to in subsection (d) knew, or exercising 
                reasonable diligence would have known, that such 
                failure existed.
            ``(3) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the penalty imposed by 
        subsection (a) to the extent that the payment of such penalty 
        would be excessive relative to the failure involved.
    ``(d) Liability for Penalty.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the following shall be liable for the penalty 
        imposed by subsection (a) on a failure:
                    ``(A) In the case of a group health plan other than 
                a self-insured group health plan, the issuer.
                    ``(B)(i) In the case of a self-insured group health 
                plan other than a multiemployer group health plan, the 
                employer.
                    ``(ii) In the case of a self-insured group health 
                multiemployer plan, the plan.
                    ``(C) Each person who is responsible (other than in 
                a capacity as an employee) for administering or 
                providing benefits under the group health plan, health 
                insurance plan, or other health benefit arrangement 
                (including a self-insured plan) and whose act or 
                failure to act caused (in whole or in part) the 
                failure.
            ``(2) Special rules for persons described in paragraph 
        (1)(c).--A person described in subparagraph (C) (and not in 
        subparagraphs (A) and (B)) of paragraph (1) shall be liable for 
        the penalty imposed by subsection (a) on any failure only if 
        such person assumed (under a legally enforceable written 
        agreement) responsibility for the performance of the act to 
        which the failure relates.
    ``(e) Penalty Treated as Tax.--For purposes of subtitle F, any 
penalty imposed by this section shall be treated as a tax.''
    (b) Nondeductibility of Penalty.--Paragraph (6) of section 275(a) 
of such Code (relating to nondeductibility of certain taxes) is amended 
by inserting ``47,'' after ``46,''.
    (c) Clerical Amendments.--The table of sections for such chapter 47 
is amended by adding at the end thereof the following new item:

                              ``Sec. 5000A. Enforcement of requirements 
                                        for employer health benefit 
                                        plans.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 204. DEFINITIONS.

    In this subtitle:
            (1) Case characteristics.--The term ``case 
        characteristics'' means demographic, geographic, and other 
        relevant characteristics as determined by the insurer that are 
        considered by the insurer in the determination of premium rates 
        for a small employer, but not including--
                    (A) claims experience,
                    (B) health status, and
                    (C) duration of coverage since date of issue.
            (2) Class of business.--The term ``class of business'' 
        means each separate class of business established by an insurer 
        to reflect substantial differences in expected claims 
        experience or administrative costs related only to one or more 
        of the following:
                    (A) The insurer's use of more than one type of 
                system for the marketing and sale of health benefit 
                plans to small employers.
                    (B) The insurer's acquisition of a class of 
                business from another insurer.
                    (C) The insurer providing coverage to one or more 
                association groups.
            (3) Dependent.--The term ``dependent'' means, in relation 
        to an individual--
                    (A) the spouse of the individual,
                    (B) an unmarried child of the individual if the 
                child (i) is under 19 years of age or (ii) is a full-
                time student, under 23 years of age, and financially 
                dependent upon the individual, and
                    (C) an unmarried child of the individual of any age 
                if the child is medically certified as disabled and the 
                child is financially dependent upon the individual.
            (4) Eligible employee.--The term ``eligible employee'' 
        means a permanent employee who has a normal work week of 30 
        hours or more. Such term includes a sole proprietor or a 
        general partner of a partnership.
            (5) Health benefit plan.--The term ``health benefit plan'' 
        means any employee welfare benefit plan (as defined in the 
        Employee Retirement Income Security Act of 1974) that is 
        insured by an insurer that provides medical, surgical, or 
        hospital care or benefits to employees of a small employer and 
        their dependents and to which the employer contributes 50 
        percent or more of the single coverage cost at the time of 
        purchase. Such term does not include any individual major 
        medical policies and group insurance that are not designed or 
        administered as a health benefit plan to be provided by an 
        employer for its employees.
            (6) Index rate.--The term ``index rate'' means, for a class 
        of business as to a small employer's rating period with similar 
        case characteristics, the arithmetic average of the applicable 
        base premium rate and the corresponding highest premium rate.
            (7) Insurer.--The term ``insurer'' means an entity that 
        provides health insurance in a State.
            (8) Small employer.--The term ``small employer'' means a 
        business that, during the most recent calendar year, employed 
        at least 2, but not more than 25, employees who are eligible 
        for coverage under a health benefit plan on at least 50 percent 
        of that business' working days.

SEC. 205. EFFECTIVE DATE.

    This title shall take effect on January 1, 1996.

     Subtitle B--Guaranteeing Portability of Health Insurance for 
                              Individuals

SEC. 211. COVERAGE OF INDIVIDUAL HEALTH BENEFIT PLANS.

    (a) In General.--This subtitle applies only to health benefit plans 
delivered or issued for delivery to individuals in a State and does not 
apply to--
            (1) any employer-based health benefit plan, or
            (2) any eligible individual whose prior similar health 
        benefit plan was provided--
                    (A) by a State high risk pool (as defined by the 
                Secretary of Health and Human Services),
                    (B) under title XVIII or XIX of the Social Security 
                Act, or
                    (C) under another State or Federal program, unless 
                the eligible individual was previously covered as an 
                employee of the State or Federal Government.
    (b) Individual Health Benefit Plan.--In this subtitle, the term 
``individual health benefit plan'' means a health benefit plan 
described in subsection (a).

SEC. 212. PORTABILITY PROTECTIONS.

    (a) Consideration of Applications.--If an eligible individual or 
eligible family applies for an individual health benefit plan, the 
insurer offering the plan must either--
            (1) offer coverage to all eligible individuals applying on 
        the same application, or
            (2) deny coverage to all eligible individuals applying on 
        the application.
    (b) Limitations on Use of Preexisting Conditions.--
            (1) In general.--No policy provision of an individual 
        health benefit plan shall exclude or limit coverage for a 
preexisting condition for a covered individual for a period beyond 12 
months following the effective date of the individual's coverage.
            (2) Restrictions on definition of preexisting condition.--
        For purposes of paragraph (1), such a plan shall not define a 
        preexisting condition more restrictively than the following:
                    (A) A condition that would have caused an 
                ordinarily prudent person to seek medical advice, 
                diagnosis, care, or treatment during the 6 months 
                immediately preceding the effective date of coverage.
                    (B) A condition for which medical advice, 
                diagnosis, care, or treatment was recommended or 
                received during the 6 months immediately preceding the 
                effective date of coverage.
                    (C) A pregnancy existing on the effective date of 
                coverage.
    (c) Portability of Coverage.--The preexisting condition limitation 
period under any individual health benefit plan with respect to 
particular services shall be reduced by one month for each month of 
continuous coverage the eligible individual had under prior similar 
coverage.
    (d) Limitation on Riders.--
            (1) In general.--Except as provided in paragraph (2), an 
        insurer issuing an individual health benefit plan may not 
        modify the plan with respect to an eligible individual or 
        eligible family member.
            (2) Relation to preexisting condition exclusion period.--
                    (A) In general.--To the extent that a preexisting 
                condition limitation applies, an insurer may restrict 
                or exclude coverage or benefits for a specific 
                condition for a maximum period of 12 months from the 
                effective date of coverage of an eligible individual or 
                eligible family member by way of rider or endorsement.
                    (B) No addition riders.--No other rider or 
                endorsement may be placed on the health benefit plan to 
                restrict further coverage.
                    (C) Combination.--If both a rider and a preexisting 
                condition exclusion period are used, the combined 
                limitation period may not exceed 12 months.
    (e) No Disclosure of Condition Required.--A preexisting condition 
limitation period may be applied whether or not the specific condition 
has been disclosed on the application for coverage under the individual 
health benefit plan.
    (f) Offer of Continued Coverage for Certain Dependents.--An insurer 
shall offer to a person who was covered as a dependent under an 
individual health benefit plan who would otherwise lose eligibility for 
such coverage because the person is a child and has attained the 
termination age under the policy, because of the death of the primary 
insured, or because of the divorce from the primary insured, identical 
coverage to that which was previously issued the individual by that 
insurer. The insurer may not apply additional underwriting, waiting 
periods, or preexisting condition limitations to such coverage if the 
person requests such coverage not later than 31 days after the date of 
loss of coverage.

SEC. 213. LIMITATIONS ON NONRENEWAL AND PREMIUM INCREASES.

    (a) In General.--An insurer issuing an individual health benefit 
plan may not--
            (1) cancel or nonrenew an individual health benefit plan 
        except for a reason specified in subsection (b),
            (2) single out and cancel an individual health benefit plan 
        of an individual because of claims experience relating to the 
        individual, and
            (3) single out an individual for a rate increase upon 
        renewal because of claims experience relating to the 
        individual.
    (b) Permissible Nonrenewal.--An insurer may cancel or nonrenew an 
individual health benefit plan for any of the following:
            (1) Nonpayment of required premium.
            (2) Fraud or misrepresentation on the part of the 
        individual.
            (3) Noncompliance with provisions of the plan.
            (4) Nonrenewal upon 90 days written notice with respect to 
        all individuals insured under the individual health benefit 
        plans in a State.
    (c) Limitation on Market Reentry.--An insurer that exercises its 
right of nonrenewal as provided under subsection (b)(4) may not accept 
any new health business of the type it nonrenewed for a period of 5 
years, after the date it provides notice of such nonrenewal.

SEC. 214. DEFINITIONS.

    In this subtitle:
            (1) Eligible family.--The term ``eligible family'' means an 
        applicant, an applicant's spouse, and any eligible individual 
        who is a dependent child of the applicant.
            (2) Eligible individual.--The term ``eligible individual'' 
        means an individual who was insured under a prior similar 
        health benefit plan which was continuous to a date not more 
        than 30 days prior to the effective date of the new health 
        benefit plan for that individual.
            (3) Health benefit plan.--
                    (A) In general.--The term ``health benefit plan'' 
                means any hospital or medical expense insured policy or 
                certificate, hospital or medical service plan contract, 
                or health maintenance organization subscriber contract.
                    (B) Exclusion.--Such term does not include any of 
                the following:
                            (i) short-term limited duration insurance,
                            (ii) accident-only, credit-only, dental-
                        only, vision-only insurance,
                            (iii) medicare supplement insurance,
                            (iv) hospital indemnity insurance,
                            (v) long-term care or disability income 
                        insurance,
                            (vi) coverage issued as a supplement to 
                        liability insurance,
                            (vii) workmen's compensation or similar 
                        insurance, or
                            (viii) automobile medical-payment 
                        insurance.
            (4) Prior similar health benefit plan.--The term ``prior 
        similar health benefit plan'' means a health benefit plan under 
        which an eligible individual was previously covered and which 
        provides benefits who do not materially differ from the new 
        health benefit plan in any of the following respects:
                    (A) The type of medical benefits provided.
                    (B) The level of medical benefits available based 
                on deductibles, coinsurance, or copayments, or any 
                combination thereof.
                    (C) The maximum benefits available for specific 
                services.
                    (D) Cost containment provisions.

SEC. 215. EFFECTIVE DATE.

    This subtitle shall apply to each health benefit plan that is 
delivered or issued for delivery to an individual on or after January 
1, 1996.

    Subtitle C--Assuring Health Insurance Coverage for Uninsurable 
                              Individuals

SEC. 221. ESTABLISHMENT OF HIGH RISK HEALTH INSURANCE POOLS.

    (a) In General.--
            (1) Requirement.--For years beginning with 1997, each 
        health insurer, health service organization, and health 
        maintenance organization shall be a participant in a high risk 
        health insurance pool (in this subtitle referred to as a ``high 
        risk pool'') in each State in which it operates. Such a pool 
        may be established by the State or, if not so established, 
        shall be established by such insurers and organizations.
            (2) Functions.--Any such pool shall assure, in accordance 
        with this subtitle, the availability of qualified health 
        insurance coverage to uninsurable individuals.
            (3) Funding.--Any such pool shall be funded by an 
        assessment against health insurers, health service 
        organizations, and health maintenance organizations on a pro 
        rata basis of ``lives covered'' in the State. The costs of the 
        assessment may be added by a health insurer, health service 
        organization, or health maintenance organization to the costs 
        of its health insurance or health coverage provided in the 
        State.
    (b) Deadline.--Pools required under subsection (a) shall be 
established by not later than January 1, 1997.
    (c) Waiver.--Subsection (a) shall not apply in the case of insurers 
and organizations operating in a State if the State has established a 
comprehensive health insurance program that assures the availability of 
qualified health insurance coverage to all eligible individuals 
residing in the State.
    (d) Recommendation for Compliance Requirement.--Not later than 
January 1, 1996, the Secretary of Health and Human Services shall 
submit to Congress a recommendation on appropriate sanctions for 
insurers and organizations that fail to meet the requirement of 
subsection (a).

SEC. 222. UNINSURABLE INDIVIDUALS ELIGIBLE FOR COVERAGE.

    (a) Uninsurable and Eligible Individual Defined.--In this subtitle:
            (1) Uninsurable individual.--The term ``uninsurable 
        individual'' means, with respect to a State, an eligible 
        individual who presents proof of uninsurability by a private 
        insurer in accordance with subsection (b) or proof of a 
        condition previously recognized as uninsurable by the State.
            (2) Eligible individual.--
                    (A) In general.--The term ``eligible individual'' 
                means, with respect to a State, a citizen or national 
                of the United States (or an alien lawfully admitted for 
                permanent residence) who is a resident of the State for 
                at least 90 days.
                    (B) Exception.--An individual is not an ``eligible 
                individual'' if the individual--
                            (i) is covered by or eligible for benefits 
                        under a State medicaid plan approved under 
                        title XIX of the Social Security Act,
                            (ii) has voluntarily terminated plan 
                        coverage,
                            (iii) has received the maximum benefit 
                        payable under the plan, or
                            (iv) is an inmate in a public institution 
                        or is eligible for other public programs or has 
                        the individual's premium paid for or reimbursed 
                        under any government-sponsored program or by 
                        any government agency or health care provider.
    (b) Proof of Uninsurability.--
            (1) In general.--The proof of uninsurability for an 
        individual shall be in the form of--
                    (A) a notice of rejection or refusal to issue 
                substantially similar insurance for health reasons,
                    (B) a notice of refusal to insure except at a rate 
                in excess of the plan rate, or
                    (C) an offer to insure but only subject to a 
                reduction or an exclusion of coverage for a preexisting 
                condition for a period exceeding 12 months.
            (2) Exception.--A State may waive the requirement of proof 
        described in paragraph (1) in the case of an individual who 
        demonstrates a provable medical or health condition.

SEC. 223. QUALIFIED HEALTH INSURANCE COVERAGE UNDER POOL.

    In this subtitle, the term ``qualified health insurance coverage'' 
means health insurance coverage that provides benefits typical of major 
medical insurance available in the individual health insurance market.

SEC. 224. FUNDING OF POOL.

    (a) Limitations on Premiums.--
            (1) In general.--The applicable premium established under a 
        high risk pool may not exceed 135 percent of the applicable 
        standard risk rate, except as provided in paragraph (2).
            (2) Surcharge for avoidable health risks.--A high risk pool 
        may impose a surcharge on premiums for individuals with 
        avoidable high risks, such as smoking.
    (b) Additional Funding.--A high risk pool shall provide for 
additional funding through an assessment on all health insurers, health 
service organizations, and health maintenance organizations in the 
State through a nonprofit association consisting of all such insurers 
and organizations doing business in the State on an equitable and pro 
rata basis consistent with section 221.

SEC. 225. ADMINISTRATION.

    A high risk pool in a State shall be administered through a 
contract with one or more insurers operating in the State.
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