[Congressional Record Volume 152, Number 35 (Monday, March 27, 2006)]
[Senate]
[Pages S2417-S2422]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. Snowe:
  S. 2457. A bill to amend the Internal Revenue Code to provide 
incentives for supplying health insurance to employees of small 
employers, and for other purposes; to the Committee on Finance.
  Ms. SNOWE. Mr. President, I rise to introduce legislation that would 
address the crisis that faces small businesses when it comes to 
purchasing quality, affordable health insurance. This isn't a new 
crisis. Nearly 46 million Americans are uninsured, and we've now 
experienced double digit percentage increases in health insurance 
premiums in four of the past five years.
  Last year, I introduced the Small Business Health Fairness Act, S. 
406, which would allow small businesses to pool together, through 
national Association Health Plans, also known as Small Business Health 
Plans, SBHPs, to offer uniform health insurance products to their 
employees. Small businesses would receive the same benefits currently 
enjoyed by larger employers and union plans under Federal law.
  I am encouraged by the considerable progress that has been made on 
SBHPs in this Senate. I would like to commend Senator Mike Enzi for his 
continuing commitment to the SBHP issue, and for marking-up SBHP 
legislation in the Health, Education, Labor, and Pensions Committee. 
Plain and simple, the Senate must take up--and pass--SBHP legislation 
to provide small businesses with much-needed, long-awaited relief.
  While I continue to believe that SBHPs are a crucial solution to the 
small business health insurance crisis, we in Congress must look for 
other means by which to encourage small businesses to offer health 
insurance. I believe that we should do this by: 1. providing targeted 
tax incentives that encourage the smallest businesses to offer health 
insurance; and 2. using the tax code to inject much-needed competition 
in dysfunctional State small group markets.
  The Small Business Health Insurance Relief Act of 2006 would achieve 
both of these objectives. First, I propose a targeted tax credit that 
would encourage our Nation's smallest businesses to offer health 
insurance as a workplace benefit.
  Study after study tells us that the smallest businesses are the ones 
least likely to offer insurance and most in need of assistance. 
According to the Employee Benefit Research Institute, of the working 
uninsured, who make up 83 percent of our Nation's uninsured population, 
60.6 percent either work for a small business with fewer than 100 
employees or are self-employed.
  Small businesses in my own State of Maine have it particularly bad. 
Last summer, the Maine Center for Economic Policy, MECEP, reported a 15 
percent average premium increase for small businesses in Maine over the 
past three years. The MECEP report also highlighted several other 
alarming trends: Half of the small businesses surveyed raised 
deductibles over the past three years. Over one quarter have either 
increased co-payments or reduced coverage, or have delayed pay raises 
to cover increased costs. Eight percent of Maine's small businesses 
have dropped health coverage entirely.
  Furthermore, coverage trends for small businesses are getting worse, 
not better. According to the Kaiser Family Foundation's Employer Health 
Benefits 2005 Annual Survey: only 47 percent of the smallest employers, 
those with 3 to 9 workers, now offer health insurance as a workplace 
benefit. This is down from 52 percent in 2004, and 58 percent in 2002. 
In sharp contrast, 98 percent of larger businesses, those with 200 or 
more workers, offer health insurance as a benefit.
  The targeted tax incentives in my bill would help ensure that our 
Nation's smallest businesses can offer health insurance--in the same 
way that larger businesses currently do. My legislation targets small 
businesses with 50 or fewer employees because these are the small 
businesses most desperately in need. The maximum tax credit under the 
proposal would be $1,500 for single coverage and $3,000 for family 
coverage. The tax credit would phase out as a business increases in 
size. Notably, my proposal is neutral between types of insurance: small 
businesses and their employees can choose

[[Page S2418]]

what works best for them--traditional employer-sponsored health 
insurance or health savings accounts, HSAs.
  Under my legislation, a small business with five employees would be 
eligible for a per-participant tax credit of $3,000 for a family health 
insurance plan, and a potential total tax credit of $15,000. Small 
businesses cite escalating cost as the number one impediment to 
providing health insurance. Putting $15,000 in the hands of a small 
business owner could certainly help to overcome this barrier.
  My proposal would also allow small businesses to establish cafeteria 
tax plans so that they can provide their employees with nontaxable 
benefits. Under current law, many larger businesses and the Federal 
Government enable their employees to purchase health insurance and 
other qualified benefits with tax-free dollars. However, small 
businesses face difficulty in offering cafeteria plans because they 
must satisfy strict nondiscrimination rules under the tax code. 
Although these non-discrimination rules serve a legitimate purpose, 
many small businesses simply cannot satisfy those mechanical rules 
because, through no fault of their own, they have relatively few 
employees and a high proportion of owners considered highly compensated 
individuals. This makes it difficult for small firms to offer benefits 
through a cafeteria plan.
  It is vital that we allow small businesses to offer their employees 
nontaxable benefits so that they can effectively compete with their 
larger counterparts. Small businesses are the engine that drives 
economic growth and job creation, and it is critical that we put them 
on an equal footing with large businesses in the quest for talent.

  Second, my legislation also would provide a necessary reform of the 
State small group health insurance markets. Plain and simple, there is 
no competition in the small group market, and coverage and 
affordability are real problems. I recently requested, along with 
Senators Christopher Bond and Jim Talent, that the Government 
Accountability Office, GAO, survey: 1. the number of insurance carriers 
licensed in the small group market; 2. the largest carriers and their 
market share; 3. the market share of the five largest carriers in the 
small group market; and 4. the combined market share of all Blue Cross 
and Blue Shield, BCBS, carriers in each State.
  The GAO reported a frightening consolidation of control over State 
insurance markets. The five largest carriers now have more than 75 
percent market share in 26 States, up from 19 in 2002, and more than 90 
percent market share in 12 States, as opposed to 7 in 2002. In Maine, 
BCBS carriers now have a 63 percent market share, up from 39.1 percent 
in 2002, and the five largest carriers have a 98 percent share. Across 
the country, BCBS carriers now control 44 percent of small group 
market, up from 34 percent in 2002.
  To counter this market consolidation, my legislation would provide 
insurers with a 50 percent tax deduction for claims and expenses 
incurred in serving the small group market and Small Business Health 
Plans, SBHPs. I believe this incentive will serve as a powerful 
motivator for new insurers to enter this dysfunctional marketplace.
  My legislation would reduce barriers insurance companies face in 
entering new markets. Specifically, it would provide a tax credit to 
defray the cost of State licensing requirements. Under the proposal, an 
insurer can claim a tax credit of the lesser of 50 percent of qualified 
costs or $10,000 to cover the administrative costs and expenses 
incurred in satisfying State licensing requirements. Available with 
respect to each State in which an insurer operates, this incentive 
should encourage a host of insurers to provide products in the State 
small group market.
  Finally, my legislation would establish a pilot grant program for 
Small Business Development Centers to provide educational programs to 
small businesses designed to increase awareness regarding health 
insurance options available in their areas. Recent research has found 
that with a short, less than 10 minute education session, organizations 
can increase small business knowledge and interest in offering health 
insurance by about 33 percent.
  Together with SBHP legislation, I believe that these proposals could 
help to solve the small business health insurance crisis. I look 
forward to working in a bipartisan fashion, with my colleagues on both 
the Finance and HELP Committees to push these proposals through the 
Senate.
  The time for words has long passed. Now is a time for action. The 
Senate must take action this year to provide small businesses with 
much-needed relief.
  I ask unanimous consent that the text of my bill be printed in the 
Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 2457

       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--

[[Page S2419]]

       ``(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

[[Page S2420]]

     (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

[[Page S2421]]

     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

[[Page S2422]]

     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.
                                 ______