[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 2457 Introduced in Senate (IS)]








109th CONGRESS
  2d Session
                                S. 2457

To amend the Internal Revenue Code to provide incentives for supplying 
    health insurance to employees of small employers, and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 27, 2006

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

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code to provide incentives for supplying 
    health insurance to employees of small employers, 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 ``Small Business 
Health Insurance Relief Act of 2006''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
   TITLE I--HEALTH CARE COVERAGE TAX INCENTIVES FOR SMALL BUSINESSES

          Subtitle A--Credit for Provision of Health Insurance

Sec. 101. Credit for health care contributions by small business 
                            employers.
                   Subtitle B--Simple Cafeteria Plans

Sec. 111. Establishment of simple cafeteria plans for small businesses.
Sec. 112. Modifications of rules applicable to cafeteria plans.
Sec. 113. Modification of rules applicable to flexible spending 
                            arrangements.
             Subtitle C--Incentives for Insurance Companies

Sec. 121. Special deduction for certain health insurance companies in 
                            the small group market.
Sec. 122. Credit for licensing costs of certain health insurance 
                            companies.
  TITLE II--SMALL BUSINESS HEALTH INSURANCE INFORMATION PILOT PROGRAM

Sec. 201. Purpose.
Sec. 202. Definitions.
Sec. 203. Small Business Health Insurance Information Pilot Program.
Sec. 204. Reports.
Sec. 205. Authorization of appropriations.

   TITLE I--HEALTH CARE COVERAGE TAX INCENTIVES FOR SMALL BUSINESSES

          Subtitle A--Credit for Provision of Health Insurance

SEC. 101. CREDIT FOR HEALTH CARE CONTRIBUTIONS BY SMALL BUSINESS 
              EMPLOYERS.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to other credits) is 
amended by adding at the end the following new section:

``SEC. 30D. SMALL EMPLOYER HEALTH CARE CONTRIBUTIONS.

    ``(a) General Rule.--In the case of an eligible employer, there 
shall be allowed as a credit against the tax imposed by this chapter 
for the taxable year an amount equal to the applicable percentage of 
the sum of--
            ``(1) the amounts contributed by such employer for 
        qualified health insurance coverage with respect to any full-
        time employee during the taxable year, plus
            ``(2) the amounts contributed by such employer to any 
        health savings account (as defined in section 223(d)) of any 
        full-time employee who is an eligible individual (as defined in 
        section 223(c)(1)) during the taxable year.
    ``(b) Limitations.--
            ``(1) In general.--The amount of the credit allowed under 
        subsection (a) with respect to any employee for any taxable 
        year shall not exceed--
                    ``(A) in the case of an employee with self-only 
                coverage, $1,500, and
                    ``(B) in the case of an employee with family 
                coverage, $3,000.
            ``(2) Limitation on premiums.--The amount taken into 
        account under subsection (a)(1) with respect to any employee 
        for any taxable year shall not exceed an amount equal to the 
        product of--
                    ``(A) $1,500 ($3,000 if coverage for all months 
                described in subparagraph (B)(i) is family coverage), 
                and
                    ``(B) a fraction--
                            ``(i) the numerator of which is the number 
                        of months during the taxable year for which 
                        such employee participated in qualified health 
                        insurance coverage, and
                            ``(ii) the denominator of which is the 
                        number of months in the taxable year.
            ``(3) Limitation on hsa contributions.--The amount taken 
        into account under subsection (a)(2) with respect to any 
        employee for any taxable year shall not exceed an amount equal 
        to the product of--
                    ``(A) $1,500 ($3,000 if coverage for all months 
                described in subparagraph (B)(i) is family coverage), 
                and
                    ``(B) a fraction--
                            ``(i) the numerator of which is the number 
                        of months that the employee was covered under a 
                        high deductible health plan (as defined under 
                        section 223(c)(2)) maintained by the employer, 
                        and
                            ``(ii) the denominator of which is the 
                        number of months in the taxable year.
    ``(c) Applicable Percentage.--For purposes of subsection (a), the 
applicable percentage shall be--
            ``(1) in the case of an eligible employer with less than 10 
        employees, 100 percent,
            ``(2) in the case of an eligible employer with more than 9 
        employees but less than 20 employees, 80 percent,
            ``(3) in the case of an eligible employer with more than 19 
        employees but less than 30 employees, 60 percent,
            ``(4) in the case of an eligible employer with more than 29 
        employees but less than 40 employees, 40 percent, and
            ``(5) in the case of an eligible employer with more than 39 
        employees, 20 percent.
    ``(d) Eligible Employer.--For purposes of this section, the term 
`eligible employer' means, with respect to any taxable year, an 
employer--
            ``(1) with 50 or fewer employees, and
            ``(2) whose average annual gross receipts for the 3-taxable 
        year period ending with the taxable year preceding such taxable 
        year does not exceed $10,000,000.
    ``(e) Qualified Health Insurance Coverage.--For purposes of this 
section, the term `qualified health insurance coverage' means health 
insurance coverage purchased or provided by an eligible employer. Such 
term includes health insurance coverage purchased through a small 
business health plan (as defined in section 833(b)(4)(C)).
    ``(f) Special Rules.--For purposes of this section--
            ``(1) Determination of number of employees.--
                    ``(A) In general.--The number of employees of an 
                employer with respect to any year shall be determined 
                by the using the average number of full-time employees 
                of the employer on business days during the 2 preceding 
                years. For purposes of this subparagraph, a year may 
                only be taken into account if the employer was in 
                existence throughout the year.
                    ``(B) Employers not in existence in preceding 
                year.--In the case of an employer which was not in 
                existence throughout the preceding calendar year, the 
                determination under subparagraph (A) shall be based on 
                the average number of full-time employees that it is 
                reasonably expected such employer will employ on 
                business days in the current calendar year.
                    ``(C) Special rules.--
                            ``(i) Predecessors.--Any reference in this 
                        paragraph to an employer shall include a 
                        reference to any predecessor of such employer.
                            ``(ii) Aggregation rules.--All persons 
                        treated as a single employer under subsection 
                        (a) or (b) of section 52, or subsection (n) or 
                        (o) of section 414, shall be treated as one 
                        person.
            ``(2) Self-employed individual treated as employee.--For 
        purposes of this section, rules similar to the rules of section 
        401(c) shall apply.
            ``(3) Salary reduction contributions.--For purposes of 
        subsection (a)(1), amounts contributed under a cafeteria plan 
        under section 125 shall not be considered to be amounts 
        contributed by the eligible employer for qualified health 
        insurance coverage.
            ``(4) Disallowance of deduction.--No deduction shall be 
        allowed for the taxable year for that portion of amounts 
        contributed for qualified health insurance coverage and to 
        health savings accounts during the taxable year which is equal 
        to the credit determined under subsection (a).
            ``(5) Election not to claim credit.--This section shall not 
        apply to a taxpayer for any taxable year if such taxpayer 
        elects to have this section not apply for such taxable year.
            ``(6) Special rule for married individuals.--For purposes 
        of subsection (b)(2), rules similar to the rules of section 
        223(b)(5) (other than subparagraph (B)(i) thereof) shall apply.
    ``(g) Carryover of Unused Credit Amounts.--
            ``(1) In general.--If the credit allowable under subsection 
        (a) for a taxable year exceeds the limitation under paragraph 
        (1) for such taxable year, such excess shall be allowed--
                    ``(A) as a credit carryback to each of the 3 
                taxable years preceding such year, and
                    ``(B) as a credit carryforward to each of the 10 
                taxable years following such year.
            ``(2) Amount carried to each year.--For purposes of this 
        paragraph, rules similar to the rules of section 39(a)(2) shall 
        apply.
    ``(h) Cost-of-Living Adjustments.--
            ``(1) Limitation.--In the case of taxable years beginning 
        after 2007, each of the $1,500 and $3,000 amounts under 
        subsection (b) shall each be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `2006' for `1992' in subparagraph (B) thereof.
        If any dollar amount as increased under this clause is not a 
        multiple of $100, such dollar amount shall be rounded to the 
        next lowest multiple of $100.
            ``(2) Eligible employer.--In the case of taxable years 
        beginning after 2007, the $10,000,000 amount under subsection 
        (d)(2) shall be increased by an amount equal to--
                    ``(A) $10,000,000, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `2006' for `1992' in subparagraph (B) thereof.
        If any dollar amount as increased under this clause is not a 
        multiple of $100,000, such dollar amount shall be rounded to 
        the next lowest multiple of $100.
    ``(i) Regulations.--The Secretary shall promulgate regulations to 
prevent employer contributions to health savings accounts under 
subsection (a)(2) to be used for purposes other than qualified medical 
expenses (as defined in section 223(d)(2)).''.
    (b) Conforming Amendment.--Section 6501(m) of the Internal Revenue 
Code of 1986 is amended by inserting ``30D(f)(5),'' after 
``30C(e)(4),''.
    (c) Clerical Amendment.--The table of sections for subpart B 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 30C the 
following new item:

``Sec. 30D. Small employer health care contributions.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to contributions made in taxable years beginning after December 
31, 2006.

                   Subtitle B--Simple Cafeteria Plans

SEC. 111. ESTABLISHMENT OF SIMPLE CAFETERIA PLANS FOR SMALL BUSINESSES.

    (a) In General.--Section 125 of the Internal Revenue Code of 1986 
(relating to cafeteria plans) is amended by redesignating subsections 
(h) and (i) as subsections (i) and (j), respectively, and by inserting 
after subsection (g) the following new subsection:
    ``(h) Simple Cafeteria Plans for Small Businesses.--
            ``(1) In general.--An eligible employer maintaining a 
        simple cafeteria plan with respect to which the requirements of 
        this subsection are met for any year shall be treated as 
        meeting any applicable nondiscrimination requirement with 
        respect to benefits provided under the plan during such year.
            ``(2) Simple cafeteria plan.--For purposes of this 
        subsection, the term `simple cafeteria plan' means a cafeteria 
        plan--
                    ``(A) which is established and maintained by an 
                eligible employer, and
                    ``(B) with respect to which the contribution 
                requirements of paragraph (3), and the eligibility and 
                participation requirements of paragraph (4), are met.
            ``(3) Contributions requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if, under the plan--
                            ``(i) the employer makes matching 
                        contributions on behalf of each employee who is 
                        eligible to participate in the plan and who is 
                        not a highly compensated or key employee in an 
                        amount equal to the elective plan contributions 
                        of the employee to the plan to the extent the 
                        employee's elective plan contributions do not 
                        exceed 3 percent of the employee's 
                        compensation, or
                            ``(ii) the employer is required, without 
                        regard to whether an employee makes any 
                        elective plan contribution, to make a 
                        contribution to the plan on behalf of each 
                        employee who is not a highly compensated or key 
                        employee and who is eligible to participate in 
                        the plan in an amount equal to at least 2 
                        percent of the employee's compensation.
                    ``(B) Matching contributions on behalf of highly 
                compensated and key employees.--The requirements of 
                subparagraph (A)(i) shall not be treated as met if, 
                under the plan, the rate of matching contribution with 
                respect to any elective plan contribution of a highly 
                compensated or key employee at any rate of contribution 
                is greater than that with respect to an employee who is 
                not a highly compensated or key employee.
                    ``(C) Special rules.--
                            ``(i) Time for making contributions.--An 
                        employer shall not be treated as failing to 
                        meet the requirements of this paragraph with 
                        respect to any elective plan contributions of 
                        any compensation, or employer contributions 
                        required under this paragraph with respect to 
                        any compensation, if such contributions are 
                        made no later than the 15th day of the month 
                        following the last day of the calendar quarter 
                        which includes the date of payment of the 
                        compensation.
                            ``(ii) Form of contributions.--Employer 
                        contributions required under this paragraph may 
                        be made either to the plan to provide benefits 
                        offered under the plan or to any person as 
                        payment for providing benefits offered under 
                        the plan.
                            ``(iii) Additional contributions.--Subject 
                        to subparagraph (B), nothing in this paragraph 
                        shall be treated as prohibiting an employer 
                        from making contributions to the plan in 
                        addition to contributions required under 
                        subparagraph (A).
                    ``(D) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Elective plan contribution.--The term 
                        `elective plan contribution' means any amount 
                        which is contributed at the election of the 
                        employee and which is not includible in gross 
                        income by reason of this section.
                            ``(ii) Highly compensated employee.--The 
                        term `highly compensated employee' has the 
                        meaning given such term by section 414(q).
                            ``(iii) Key employee.--The term `key 
                        employee' has the meaning given such term by 
                        section 416(i).
            ``(4) Minimum eligibility and participation requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph shall be treated as met with respect to any 
                year if, under the plan--
                            ``(i) all employees who had at least 1,000 
                        hours of service for the preceding plan year 
                        are eligible to participate, and
                            ``(ii) each employee eligible to 
                        participate in the plan may, subject to terms 
                        and conditions applicable to all participants, 
                        elect any benefit available under the plan.
                    ``(B) Certain employees may be excluded.--For 
                purposes of subparagraph (A)(i), an employer may elect 
                to exclude under the plan employees--
                            ``(i) who have less than 1 year of service 
                        with the employer as of any day during the plan 
                        year,
                            ``(ii) who have not attained the age of 21 
                        before the close of a plan year,
                            ``(iii) who are covered under an agreement 
                        which the Secretary of Labor finds to be a 
                        collective bargaining agreement if there is 
                        evidence that the benefits covered under the 
                        cafeteria plan were the subject of good faith 
                        bargaining between employee representatives and 
                        the employer, or
                            ``(iv) who are described in section 
                        410(b)(3)(C) (relating to nonresident aliens 
                        working outside the United States).
                A plan may provide a shorter period of service or 
                younger age for purposes of clause (i) or (ii).
            ``(5) Eligible employer.--For purposes of this subsection--
                    ``(A) In general.--The term `eligible employer' 
                means, with respect to any year, any employer if such 
                employer employed an average of 100 or fewer employees 
                on business days during either of the 2 preceding 
                years. For purposes of this subparagraph, a year may 
                only be taken into account if the employer was in 
                existence throughout the year.
                    ``(B) Employers not in existence during preceding 
                year.--If an employer was not in existence throughout 
                the preceding year, the determination under 
                subparagraph (A) shall be based on the average number 
                of employees that it is reasonably expected such 
                employer will employ on business days in the current 
                year.
                    ``(C) Growing employers retain treatment as small 
                employer.--If--
                            ``(i) an employer was an eligible employer 
                        for any year (a `qualified year'), and
                            ``(ii) such employer establishes a simple 
                        cafeteria plan for its employees for such year, 
                        then, notwithstanding the fact the employer 
                        fails to meet the requirements of subparagraph 
                        (A) for any subsequent year, such employer 
                        shall be treated as an eligible employer for 
                        such subsequent year with respect to employees 
                        (whether or not employees during a qualified 
                        year) of any trade or business which was 
                        covered by the plan during any qualified year. 
                        This subparagraph shall cease to apply if the 
                        employer employs an average of 200 more 
                        employees on business days during any year 
                        preceding any such subsequent year.
                    ``(D) Special rules.--
                            ``(i) Predecessors.--Any reference in this 
                        paragraph to an employer shall include a 
                        reference to any predecessor of such employer.
                            ``(ii) Aggregation rules.--All persons 
                        treated as a single employer under subsection 
                        (a) or (b) of section 52, or subsection (n) or 
                        (o) of section 414, shall be treated as one 
                        person.
            ``(6) Applicable nondiscrimination requirement.--For 
        purposes of this subsection, the term `applicable 
        nondiscrimination requirement' means any requirement under 
        subsection (b) of this section, section 79(d), section 105(h), 
        or paragraph (2), (3), (4), or (8) of section 129(d).
            ``(7) Compensation.--The term `compensation' has the 
        meaning given such term by section 414(s).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2006.

SEC. 112. MODIFICATIONS OF RULES APPLICABLE TO CAFETERIA PLANS.

    (a) Application to Self-Employed Individuals.--
            (1) In general.--Section 125(d) of the Internal Revenue 
        Code of 1986 (defining cafeteria plan) is amended by adding at 
        the end the following new paragraph:
            ``(3) Employee to include self-employed.--
                    ``(A) In general.--The term `employee' includes an 
                individual who is an employee within the meaning of 
                section 401(c)(1) (relating to self-employed 
                individuals).
                    ``(B) Limitation.--The amount which may be excluded 
                under subsection (a) with respect to a participant in a 
                cafeteria plan by reason of being an employee under 
                subparagraph (A) shall not exceed the employee's earned 
                income (within the meaning of section 401(c)) derived 
                from the trade or business with respect to which the 
                cafeteria plan is established.''.
            (2) Application to benefits which may be provided under 
        cafeteria plan.--
                    (A) Group-term life insurance.--Section 79 of such 
                Code (relating to group-term life insurance provided to 
                employees) is amended by adding at the end the 
                following new subsection:
    ``(f) Employee Includes Self-Employed.--
            ``(1) In general.--For purposes of this section, the term 
        `employee' includes an individual who is an employee within the 
        meaning of section 401(c)(1) (relating to self-employed 
        individuals).
            ``(2) Limitation.--The amount which may be excluded under 
        the exceptions contained in subsection (a) or (b) with respect 
        to an individual treated as an employee by reason of paragraph 
        (1) shall not exceed the employee's earned income (within the 
        meaning of section 401(c)) derived from the trade or business 
        with respect to which the individual is so treated.''.
                    (B) Accident and health plans.--Section 105(g) of 
                such Code is amended to read as follows:
    ``(g) Employee Includes Self-Employed.--
            ``(1) In general.--For purposes of this section, the term 
        `employee' includes an individual who is an employee within the 
        meaning of section 401(c)(1) (relating to self-employed 
        individuals).
            ``(2) Limitation.--The amount which may be excluded under 
        this section by reason of subsection (b) or (c) with respect to 
        an individual treated as an employee by reason of paragraph (1) 
        shall not exceed the employee's earned income (within the 
        meaning of section 401(c)) derived from the trade or business 
        with respect to which the accident or health insurance was 
        established.''.
                    (C) Contributions by employers to accident and 
                health plans.--
                            (i) In general.--Section 106 of such Code, 
                        as amended by subsection (b), is amended by 
                        adding after subsection (b) the following new 
                        subsection:
    ``(c) Employer to Include Self-Employed.--
            ``(1) In general.--For purposes of this section, the term 
        `employee' includes an individual who is an employee within the 
        meaning of section 401(c)(1) (relating to self-employed 
        individuals).
            ``(2) Limitation.--The amount which may be excluded under 
        subsection (a) with respect to an individual treated as an 
        employee by reason of paragraph (1) shall not exceed the 
        employee's earned income (within the meaning of section 401(c)) 
        derived from the trade or business with respect to which the 
        accident or health insurance was established.''.
                            (ii) Clarification of limitations on other 
                        coverage.--The first sentence of section 
                        162(l)(2)(B) is amended to read as follows: 
                        ``Paragraph (1) shall not apply to any taxpayer 
                        for any calendar month for which the taxpayer 
                        participates in any subsidized health plan 
                        maintained by any employer (other than an 
                        employer described in section 401(c)(4)) of the 
                        taxpayer or the spouse of the taxpayer.''.
    (b) Long-Term Care Insurance Permitted to Be Offered Under 
Cafeteria Plans and Flexible Spending Arrangements.--
            (1) Cafeteria plans.--The last sentence of section 125(f) 
        of the Internal Revenue Code of 1986 (defining qualified 
        benefits) is amended to read as follows: ``Such term shall 
        include the payment of premiums for any qualified long-term 
        care insurance contract (as defined in section 7702B) to the 
        extent the amount of such payment does not exceed the eligible 
        long-term care premiums (as defined in section 213(d)(10)) for 
        such contract.''.
            (2) Flexible spending arrangements.--Section 106 of such 
        Code (relating to contributions by employer to accident and 
        health plans) is amended by striking subsection (c).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 113. MODIFICATION OF RULES APPLICABLE TO FLEXIBLE SPENDING 
              ARRANGEMENTS.

    (a) In General.--Section 125 of the Internal Revenue Code of 1986, 
as amended by section 111, is amended by redesignating subsections (i) 
and (j) as subsections (j) and (k), respectively, and by inserting 
after subsection (h) the following new subsection:
    ``(i) Special Rules Applicable to Flexible Spending Arrangements.--
            ``(1) In general.--For purposes of this title, a plan or 
        other arrangement shall not fail to be treated as a flexible 
        spending or similar arrangement solely because under the plan 
        or arrangement--
                    ``(A) the amount of the reimbursement for covered 
                expenses at any time may not exceed the balance in the 
                participant's account for the covered expenses as of 
                such time,
                    ``(B) except as provided in paragraph (4)(A)(ii), a 
                participant may elect at any time specified by the plan 
                or arrangement to make or modify any election regarding 
                the covered benefits, or the level of covered benefits, 
                of the participant under the plan, and
                    ``(C) a participant is permitted access to any 
                unused balance in the participant's accounts under such 
                plan or arrangement in the manner provided under 
                paragraph (2) or (3).
            ``(2) Carryovers and rollovers of unused benefits in health 
        and dependent care arrangements.--
                    ``(A) In general.--A plan or arrangement may permit 
                a participant in a health flexible spending arrangement 
                or dependent care flexible spending arrangement to 
                elect--
                            ``(i) to carry forward any aggregate unused 
                        balances in the participant's accounts under 
                        such arrangement as of the close of any year to 
                        the succeeding year, or
                            ``(ii) to have such balance transferred to 
                        a plan described in subparagraph (E).
                Such carryforward or transfer shall be treated as 
                having occurred within 30 days of the close of the 
                year.
                    ``(B) Dollar limit on carryforwards.--
                            ``(i) In general.--The amount which a 
                        participant may elect to carry forward under 
                        subparagraph (A)(i) from any year shall not 
                        exceed $500. For purposes of this paragraph, 
                        all plans and arrangements maintained by an 
                        employer or any related person shall be treated 
                        as 1 plan.
                            ``(ii) Cost-of-living adjustment.--In the 
                        case of any taxable year beginning in a 
                        calendar year after 2007, the $500 amount under 
                        clause (i) shall be increased by an amount 
                        equal to--
                                    ``(I) $500, multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for such calendar year, 
                                determined by substituting `2006' for 
                                `1992' in subparagraph (B) thereof.
                        If any dollar amount as increased under this 
                        clause is not a multiple of $100, such amount 
                        shall be rounded to the next lowest multiple of 
                        $100.
                    ``(C) Exclusion from gross income.--No amount shall 
                be required to be included in gross income under this 
                chapter by reason of any carryforward or transfer under 
                this paragraph.
                    ``(D) Coordination with limits.--
                            ``(i) Carryforwards.--The maximum amount 
                        which may be contributed to a health flexible 
                        spending arrangement or dependent care flexible 
                        spending arrangement for any year to which an 
                        unused amount is carried under this paragraph 
                        shall be reduced by such amount.
                            ``(ii) Rollovers.--Any amount transferred 
                        under subparagraph (A)(ii) shall be treated as 
                        an eligible rollover under section 219, 
                        223(f)(5), 401(k), 403(b), or 457, whichever is 
                        applicable, except that--
                                    ``(I) the amount of the 
                                contributions which a participant may 
                                make to the plan under any such section 
                                for the taxable year including the 
                                transfer shall be reduced by the amount 
                                transferred, and
                                    ``(II) in the case of a transfer to 
                                a plan described in clause (ii) or 
                                (iii) of subparagraph (E), the 
                                transferred amounts shall be treated as 
                                elective deferrals for such taxable 
                                year.
                    ``(E) Plans.--A plan is described in this 
                subparagraph if it is--
                            ``(i) an individual retirement plan,
                            ``(ii) a qualified cash or deferred 
                        arrangement described in section 401(k),
                            ``(iii) a plan under which amounts are 
                        contributed by an individual's employer for an 
                        annuity contract described in section 403(b),
                            ``(iv) an eligible deferred compensation 
                        plan described in section 457, or
                            ``(v) a health savings account described in 
                        section 223.
            ``(3) Distribution upon termination.--
                    ``(A) In general.--A plan or arrangement may permit 
                a participant (or any designated heir of the 
                participant) to receive a cash payment equal to the 
                aggregate unused account balances in the plan or 
                arrangement as of the date the individual is separated 
                (including by death or disability) from employment with 
                the employer maintaining the plan or arrangement.
                    ``(B) Inclusion in income.--Any payment under 
                subparagraph (A) shall be includible in gross income 
                for the taxable year in which such payment is 
                distributed to the employee.
            ``(4) Terms relating to flexible spending arrangements.--
                    ``(A) Flexible spending arrangements.--
                            ``(i) In general.--For purposes of this 
                        subsection, a flexible spending arrangement is 
                        a benefit program which provides employees with 
                        coverage under which specified incurred 
                        expenses may be reimbursed (subject to 
                        reimbursement maximums and other reasonable 
                        conditions).
                            ``(ii) Elections required.--A plan or 
                        arrangement shall not be treated as a flexible 
                        spending arrangement unless a participant may 
                        at least 4 times during any year make or modify 
                        any election regarding covered benefits or the 
                        level of covered benefits.
                    ``(B) Health and dependent care arrangements.--The 
                terms `health flexible spending arrangement' and 
                `dependent care flexible spending arrangement' means 
                any flexible spending arrangement (or portion thereof) 
                which provides payments for expenses incurred for 
                medical care (as defined in section 213(d)) or 
                dependent care (within the meaning of section 129), 
                respectively.''.
    (b) Conforming Amendment.--
            (1) The heading for section 125 of the Internal Revenue 
        Code of 1986 is amended by inserting ``and flexible spending 
        arrangements'' after ``plans''.
            (2) The item relating to section 125 of such Code in the 
        table of sections for part III of subchapter B of chapter 1 is 
        amended by inserting ``and flexible spending arrangements'' 
        after ``plans''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2006.

             Subtitle C--Incentives for Insurance Companies

SEC. 121. SPECIAL DEDUCTION FOR CERTAIN HEALTH INSURANCE COMPANIES IN 
              THE SMALL GROUP MARKET.

    (a) In General.--Section 833 of the Internal Revenue Code of 1986 
is amended to read as follows:

``SEC. 833. SPECIAL DEDUCTION FOR HEALTH INSURANCE RELATED TO SMALL 
              GROUP COVERAGE AND SMALL BUSINESS HEALTH PLANS.

    ``(a) General Rule.--In the case of any insurance company other 
than a life insurance company, the deduction determined under 
subsection (b) for any taxable year shall be allowed.
    ``(b) Amount of Deduction.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        deduction determined under this subsection for any taxable year 
        is the excess (if any) of--
                    ``(A) 50 percent of the claims incurred during the 
                taxable year and liabilities incurred during the 
                taxable year under cost-plus contracts, over
                    ``(B) the adjusted surplus as of the beginning of 
                the taxable year.
            ``(2) Limitation.--The deduction determined under paragraph 
        (1) for any taxable year shall not exceed taxable income for 
        such taxable year (determined without regard to such 
        deduction).
            ``(3) Adjusted surplus.--For purposes of this subsection--
                    ``(A) In general.--The adjusted surplus as of the 
                beginning of any taxable year is an amount equal to the 
                adjusted surplus as of the beginning of the preceding 
                taxable year--
                            ``(i) increased by the amount of any 
                        adjusted taxable income for such preceding 
                        taxable year, or
                            ``(ii) decreased by the amount of any 
                        adjusted net operating loss for such preceding 
                        taxable year.
                    ``(B) Special rule.--The adjusted surplus as of the 
                beginning of the organization's 1st taxable year 
                beginning after December 31, 2006, shall be its surplus 
                as of such time. For purposes of the preceding 
                sentence, the term `surplus' means the excess of the 
                total assets over the total liabilities as shown on the 
                annual statement.
                    ``(C) Adjusted taxable income.--The term `adjusted 
                taxable income' means taxable income determined--
                            ``(i) without regard to the deduction 
                        determined under this subsection,
                            ``(ii) without regard to any carryforward 
                        or carryback to such taxable year, and
                            ``(iii) by increasing gross income by an 
                        amount equal to the net exempt income for the 
                        taxable year.
                    ``(D) Adjusted net operating loss.--The term 
                `adjusted net operating loss' means the net operating 
                loss for any taxable year determined with the 
                adjustments set forth in subparagraph (C).
                    ``(E) Net exempt income.--The term `net exempt 
                income' means--
                            ``(i) any tax-exempt interest received or 
                        accrued during the taxable year, reduced by any 
                        amount (not otherwise deductible) which would 
                        have been allowable as a deduction for the 
                        taxable year if such interest were not tax-
                        exempt, and
                            ``(ii) the aggregate amount allowed as a 
                        deduction for the taxable year under sections 
                        243, 244, and 245.
                The amount determined under clause (ii) shall be 
                reduced by the amount of any decrease in deductions 
                allowable for the taxable year by reason of section 
                832(b)(5)(B) to the extent such decrease is 
                attributable to deductions under sections 243, 244, and 
                245.
            ``(4) Only certain health-related items taken into 
        account.--
                    ``(A) In general.--Any determination under this 
                subsection shall be made by only taking into account 
                items attributable to the qualified health-related 
                business of the taxpayer.
                    ``(B) Qualified health related business.--For 
                purposes of this paragraph, the term `qualified health-
                related business' means health-related business which 
                is attributable to--
                            ``(i) the small group market (as defined 
                        under section 2791(e)(6) of the Public Health 
                        Service Act), and
                            ``(ii) small business health plans.
                    ``(C) Small business health plan.--
                            ``(i) In general.--For purposes of this 
                        section, the term `small business health plan' 
                        means a group health plan whose sponsor is (or 
                        is deemed under this section to be) described 
                        in clause (ii).
                            ``(ii) Sponsorship.--The sponsor of a group 
                        health plan is described in this clause if such 
                        sponsor--
                                    ``(I) 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, 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)), or a bona fide labor 
                                union, for substantial purposes other 
                                than that of obtaining or providing 
                                medical care,
                                    ``(II) 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
                                    ``(III) 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 
                        subclause (I), (II), and (III) shall be deemed 
                        to be a sponsor described in this clause.''.
    (b) Conforming Amendment.--The table of section for part II of 
subchapter L of chapter 1 of the Internal Revenue Code of 1986 is 
amended by striking the item relating to section 833 and inserting the 
following:

        ``Sec. 833. Special deduction for health insurance related to 
                            small group coverage.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 122. CREDIT FOR LICENSING COSTS OF CERTAIN HEALTH INSURANCE 
              COMPANIES.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to business related 
credits) is amended by adding at the end the following new section:

``SEC. 45N. HEALTH INSURANCE LICENSING CREDIT.

    ``(a) Determination of Amount.--For purposes of section 38, the 
health insurance licensing credit determined under this section with 
respect to any eligible entity for any taxable year is an amount equal 
to the qualified licensing costs paid or incurred by such eligible 
entity in each State during the taxable year.
    ``(b) Limitation.--The qualified licensing costs taken into account 
under subsection (a) with respect to any State for any taxable year 
shall not exceed the lesser of--
            ``(1) 50 percent of qualified licensing costs paid or 
        incurred by such eligible entity with respect to such State 
        during the taxable year, or
            ``(2) $10,000.
    ``(c) Eligible Entity.--For purposes of this section, the term 
`eligible entity' means an insurance company (as defined in section 
816(a)) other than life which conducts qualified health-related 
business during the taxable year in the State in which the qualifying 
licensing costs are incurred.
    ``(d) Qualified Licensing Costs.--For purposes of this section, the 
term `qualified licensing costs' means costs in connection with 
satisfying State licensing requirements related to conducting a 
qualified health-related business in such State.
    ``(e) Qualified Health-Related Business.--For purposes of this 
section, the term `qualified health-related business' has the meaning 
given such term under section 833(b)(4).
    ``(f) Regulations.--Not later than 6 months after the date of the 
enactment of this section, the Secretary shall promulgate regulations 
on allocating qualified licensing costs between a qualified health-
related business and other businesses of an eligible entity.
    ``(g) Termination.--This section shall not apply to costs paid or 
incurred in taxable years beginning after December 31, 2011.''.
    (b) Credit Treated as Business Credit.--Section 38(b) of the 
Internal Revenue Code of 1986 (relating to current year business 
credit) is amended by striking ``and'' at the end of paragraph (28), by 
striking the period at the end of paragraph (29) and inserting ``, 
plus'', and by adding at the end the following new paragraph:
            ``(30) the health insurance licensing credit determined 
        under section 45N(a).''.
    (c) Clerical Amendment.--The table of sections for subpart D 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 item:

``Sec. 45N. Health insurance licensing credit.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

  TITLE II--SMALL BUSINESS HEALTH INSURANCE INFORMATION PILOT PROGRAM

SEC. 201. PURPOSE.

    The purpose of this title is to establish a 4-year pilot program to 
provide information and educational materials to small business 
concerns regarding health insurance options, including coverage options 
within the small group market.

SEC. 202. DEFINITIONS.

    In this title:
            (1) Administrator.--The term ``Administrator'' means the 
        Administrator of the Small Business Administration, acting 
        through the Associate Administrator for Small Business 
        Development Centers.
            (2) Association.--The term ``association'' means an 
        association established under section 21(a)(3)(A) of the Small 
        Business Act (15 U.S.C. 648(a)(3)(A)) representing a majority 
        of small business development centers.
            (3) Participating small business development center.--The 
        term ``participating small business development center'' means 
        a small business development center described in section 21 of 
        the Small Business Act (15 U.S.C. 648) that--
                    (A) is certified under section 21(k)(2) of the 
                Small Business Act (15 U.S.C. 648(k)(2)); and
                    (B) receives a grant under the pilot program.
            (4) Pilot program.--The term ``pilot program'' means the 
        small business health insurance information pilot program 
        established under this title.
            (5) Small business concern.--The term ``small business 
        concern'' has the same meaning as in section 3 of the Small 
        Business Act (15 U.S.C. 632).
            (6) State.--The term ``State'' means each of the several 
        States, the District of Columbia, the Commonwealth of Puerto 
        Rico, the Virgin Islands, American Samoa, and Guam.

SEC. 203. SMALL BUSINESS HEALTH INSURANCE INFORMATION PILOT PROGRAM.

    (a) Authority.--The Administrator shall establish a pilot program 
to make grants to small business development centers to provide 
information and educational materials regarding health insurance 
options, including coverage options within the small group market, to 
small business concerns.
    (b) Applications.--
            (1) Posting of information.--Not later than 90 days after 
        the date of enactment of this Act, the Administrator shall post 
        on the website of the Small Business Administration and publish 
        in the Federal Register a guidance document describing--
                    (A) the requirements of an application for a grant 
                under the pilot program; and
                    (B) the types of informational and educational 
                materials regarding health insurance options to be 
                created under the pilot program, including by 
                referencing such materials developed by the Healthcare 
                Leadership Council.
            (2) Submission.--A small business development center 
        desiring a grant under the pilot program shall submit an 
        application at such time, in such manner, and accompanied by 
        such information as the Administrator may reasonably require.
    (c) Selection of Participating SBDCs.--
            (1) In general.--The Administrator shall select not more 
        than 20 small business development centers to receive a grant 
        under the pilot program.
            (2) Selection of programs.--In selecting small business 
        development centers under paragraph (1), the Administrator 
        shall not select--
                    (A) more than 2 programs from each of the groups of 
                States described in paragraph (3); and
                    (B) more than 1 program in any State.
            (3) Groupings.--The groups of States described in this 
        paragraph are the following:
                    (A) Group 1.--Group 1 shall consist of Maine, 
                Massachusetts, New Hampshire, Connecticut, Vermont, and 
                Rhode Island.
                    (B) Group 2.--Group 2 shall consist of New York, 
                New Jersey, Puerto Rico, and the Virgin Islands.
                    (C) Group 3.--Group 3 shall consist of 
                Pennsylvania, Maryland, West Virginia, Virginia, the 
                District of Columbia, and Delaware.
                    (D) Group 4.--Group 4 shall consist of Georgia, 
                Alabama, North Carolina, South Carolina, Mississippi, 
                Florida, Kentucky, and Tennessee.
                    (E) Group 5.--Group 5 shall consist of Illinois, 
                Ohio, Michigan, Indiana, Wisconsin, and Minnesota.
                    (F) Group 6.--Group 6 shall consist of Texas, New 
                Mexico, Arkansas, Oklahoma, and Louisiana.
                    (G) Group 7.--Group 7 shall consist of Missouri, 
                Iowa, Nebraska, and Kansas.
                    (H) Group 8.--Group 8 shall consist of Colorado, 
                Wyoming, North Dakota, South Dakota, Montana, and Utah.
                    (I) Group 9.--Group 9 shall consist of California, 
                Guam, American Samoa, Hawaii, Nevada, and Arizona.
                    (J) Group 10.--Group 10 shall consist of 
                Washington, Alaska, Idaho, and Oregon.
            (4) Deadline for selection.--The Administrator shall make 
        selections under this subsection not later than 6 months after 
        the later of the date on which the information described in 
        subsection (b)(1) is posted on the website of the Small 
        Business Administration and the date on which the information 
        described in subsection (b)(1) is published in the Federal 
        Register.
    (d) Use of Funds.--
            (1) In general.--A participating small business development 
        center shall use funds provided under the pilot program to--
                    (A) create and distribute informational materials; 
                and
                    (B) conduct training and educational activities.
            (2) Content of materials.--In creating materials under the 
        pilot program, a participating small business development 
        center shall evaluate and incorporate relevant portions of 
        existing informational materials regarding health insurance 
        options, such as the materials created by the Healthcare 
        Leadership Council.
    (e) Grant Amounts.--Each participating small business development 
center program shall receive a grant in an amount equal to--
            (1) not less than $150,000 per fiscal year; and
            (2) not more than $300,000 per fiscal year.
    (f) Matching Requirement.--Subparagraphs (A) and (B) of section 
21(a)(4) of the Small Business Act (15 U.S.C. 648(a)(4)) shall apply to 
assistance made available under the pilot program.

SEC. 204. REPORTS.

    Each participating small business development center shall transmit 
to the Administrator and the Chief Counsel for Advocacy of the Small 
Business Administration, as the Administrator may direct, a quarterly 
report that includes--
            (1) a summary of the information and educational materials 
        regarding health insurance options provided by the 
        participating small business development center under the pilot 
        program; and
            (2) the number of small business concerns assisted under 
        the pilot program.

SEC. 205. AUTHORIZATION OF APPROPRIATIONS.

    (a) In General.--There are authorized to be appropriated to carry 
out this title--
            (1) $5,000,000 for the first fiscal year beginning after 
        the date of enactment of this Act; and
            (2) $5,000,000 for each of the 3 fiscal years following the 
        fiscal year described in paragraph (1).
    (b) Limitation on Use of Other Funds.--The Administrator may carry 
out the pilot program only with amounts appropriated in advance 
specifically to carry out this title.
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