[Senate Report 109-121]
[From the U.S. Government Publishing Office]



                                                         Calendar No. 2
109th Congress                                                   Report
                                 SENATE
 1st Session                                                    109-121

======================================================================
 
           STATE HIGH RISK POOL FUNDING EXTENSION ACT OF 2005

                                _______
                                

                 July 29, 2005.--Ordered to be printed

                                _______
                                

Mr. Enzi, from the Committee on Health, Education, Labor, and Pensions, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 288]

    The Committee on Health, Education, Labor, and Pensions, to 
which was referred the bill (S. 288) to extend Federal funding 
for operation of State high risk health insurance pools, having 
considered the same, reports favorably thereon with an 
amendment in the nature of a substitute and recommends that the 
bill (as amended) do pass.

                                CONTENTS

                                                                   Page
  I. Purpose and summary..............................................1
 II. Background and need for legislation..............................3
III. Legislative history and votes in committee.......................4
 IV. Explanation of bill and committee views..........................4
  V. Cost estimate....................................................6
 VI. Application of law to the legislative branch.....................8
VII. Regulatory impact statement......................................8
VIII.Section-by-section analysis......................................8

 IX. Changes in existing law.........................................10

               I. Purpose and Summary of the Legislation

    The purpose of this legislation is to provide Federal 
financial assistance to States to encourage them to establish, 
maintain, and improve their high risk health insurance pools. 
High-risk pools are State-created and funded initiatives 
designed to serve a critical segment of the population that has 
existing health conditions and would otherwise be uninsured. 
They also help to stabilize State health insurance markets, 
particularly the individual market.
    The legislation achieves this goal by reauthorizing and 
expanding the high-risk pool grant program that was created as 
part of the Trade Adjustment Assistance Reform Act (TAA) in 
2002. It authorizes grants to States for several purposes.
    The legislation authorizes $15 million in seed money for 
fiscal years 2005 and 2006 to encourage States to establish 
qualified high risk pools. The Secretary may award a grant of 
up to $1 million to each State that qualifies.
    The legislation also authorizes $75 million in grant money 
for fiscal years 2005 through 2009 for States with existing 
qualified high risk pools. These grants must be allotted to 
States based on a formula whereby 50 percent of the 
appropriated amount is allocated in equal amounts among each 
eligible State. Twenty-five percent of the appropriated amount 
is allocated to an eligible State based on the number of 
uninsured individuals in the State, and, 25 percent of the 
appropriated amounts are allocated among the States based on 
the number of individuals enrolled in health care coverage 
through the qualified high risk pool.
    The $75 million grant authorization includes two elements. 
The first element allows the Secretary to award grants to 
States to offset the losses incurred by the State in connection 
with the operation of a qualified high risk pool. Two-thirds of 
the amount appropriated for existing high risk pools can be 
used for this purpose. To qualify a State high risk pool would 
have to restrict premiums to no more than 150 percent of the 
standard risk rate, offer a choice of two or more coverage 
options, and have a mechanism in effect to ensure continued 
funding of losses.
    The second element allows the Secretary of Health and Human 
Services to award grants to States with existing high risk 
pools for purposes of providing supplemental consumer benefits, 
such as a low-income premium subsidy, lower premiums, richer 
benefits, greater enrollment, looser eligibility requirements, 
increased benefits, or disease management. One-third of the $75 
million can be awarded for this purpose. No State can be 
awarded more than 10 percent of the amount appropriated. Any 
amounts not used will be reallocated and distributed to States 
receiving operational grants in amounts determined appropriate 
by the Secretary.
    The legislation generally follows the definition of 
``qualified high risk pool'' established under the Health 
Insurance Portability and Accountability Act (HIPAA). However, 
in order to qualify for a grant, a qualified risk pool must 
accept all HIPAA-eligible individuals and cannot set premiums 
that exceed 150 percent of the standard risk rate. In addition, 
a State's high risk pool would qualify under this legislation 
if the State instead provides for the enrollment of eligible 
individuals through a combination of a qualified high risk pool 
and a HIPAA alternative mechanism.
    Alternatively, a State may qualify for a high risk pool 
grant if it provides HIPAA-eligible individuals, who would 
otherwise be eligible for coverage in their high risk pool, 
with access to private-market HIPAA-guaranteed issue insurance 
coverage that provides substantial protections, including 
guaranteed access (as defined by the Public Health Service Act 
Section 2741) and a health care plan that provides for State-
defined limits on premiums that do not exceed 150 percent of 
the standard risk rate. A State can also qualify if it provides 
guaranteed access, even though some plan premiums exceed 150 
percent of the standard risk rate by no more than 25 percentage 
points, as long as the plans whose premiums exceed 150 percent 
provide for more generous coverage in the form of first dollar 
coverage, lower cost-sharing and comprehensive benefits.
    The legislation defines ``standard risk rate'' to mean a 
rate based on premiums rates charge by other health insurers in 
the individual market. It must be established using reasonable 
actuarial techniques, and reflect anticipated claims experience 
and expenses for the coverage involved.

                II. Background and Need for Legislation

    Federal funding for State high risk pools first became 
available in 2002 as part of the Trade Adjustment Assistance 
Reform Act (TAA), which created the high risk pool grant 
program under the Public Health Service Act. The TAA authorized 
$20 million in seed grants for 2003 to encourage States to 
launch high risk pools. States launching qualified new high 
risk pools could receive up to $1 million in funding. It also 
provided grant money to existing qualifying State high risk 
pools to offset up to 50 percent of losses incurred by the 
State in connection with the operation of the pool. Under the 
TAA, the operational grants were allocated based on the number 
of uninsured individuals in each State.
    State high risk pools are State-created and funded non-
profit initiatives designed to give individuals with existing 
health conditions access to private insurance and help 
stabilize the State health insurance market, particularly the 
individual market. They help a segment of the population that 
is not eligible for employer-sponsored coverage or government 
programs, and would otherwise be uninsured because of their 
existing health care needs. The first State high risk pools 
were established in 1976. Today, the number of States with risk 
pools has risen to 33.
    State high risk pools provide a way for otherwise 
uninsurable individuals to obtain health insurance with rates 
that are pegged to comparable coverage in the market. However, 
the capped rate combined with the nature of the risk of the 
individuals insured, virtually guarantees that claims paid will 
exceed premiums collected. States employ a variety of funding 
mechanisms, the most common being an assessment on insurance 
carriers in the State.
    Total claims for all risk pools operating as of June 2004 
topped $1.3 billion, for the 181,000 people covered in the 
pools. In 2004, the 31 operating State high risk pools had a 
combined deficit of over $540 million, an increase of 15 
percent from the prior year. Like the private insurance market, 
high risk pool premiums have also experienced sharp increases 
in recent years, contributing to the increased losses.
    The program established under the TAA has provided crucial 
help to States for their high risk pools. The grants have 
helped States to maintain the operations of their high risk 
pools. In fiscal year 2003, 19 States received a total of $40 
million in grants to offset their operational losses, and six 
States received a total of $4.2 million in seed money. In 
fiscal year 2004, 14 States received a total of $25.6 million 
in grants to offset their operational losses. A second round of 
operational grant funding will take place in the fall of 2005.
    The State High Risk Pool Funding Extension Act will extend 
and expand Federal financial assistance for State high risk 
pools. The TAA bill authorized seed money for start-up pools 
for fiscal year 2003, but only four were able to meet the 
deadline. More States report they would apply for start up 
funds if the program were extended. And States with existing 
pools report that additional funding will help them maintain 
their pools in their current form during this period of health 
care cost inflation. In addition, some States report that they 
would provide supplemental consumer benefits, such as expanded 
enrollment or premium subsidies, if additional Federal funding 
were made available.

            III. Legislative History and Votes in Committee

    On February 3, 2005, Senator Gregg introduced, for himself 
and Senators Baucus, DeWine, Bingaman, Roberts, Lieberman, 
Cochran, and Enzi, S. 288, the ``State High Risk Pool Funding 
Extension Act of 2005.'' The bill was referred to the Committee 
on Health, Education, Labor, and Pensions. On February 10, 
2005, the committee held an executive session and considered S. 
288.
    During the executive session, Senator Enzi offered a 
manager's amendment in the nature of a substitute to S. 288, 
which was approved unanimously. The committee then approved S. 
288, as amended, by unanimous voice vote.

              IV. Explanation of Bill and Committee Views

    The committee believes that State high risk insurance pools 
are an important mechanism that many States have employed to 
achieve the dual goals of providing health coverage to a 
critical segment of their uninsured population and to help keep 
theirinsurance markets viable. The committee also generally 
believes that the funding and operation of high risk pools should 
remain under State jurisdiction. The committee is concerned that high 
risk pools are, by definition, designed to operate at a loss, and 
intends to pursue alternative long term solutions that prevent future 
escalations in Federal support for State high risk pools.
    However, the committee also recognizes better alternatives 
may not be available at this time. Thus, the committee believes 
that limited Federal financial assistance, as provided for in 
the State High Risk Pool Funding Extension Act, will provide 
needed relief to States, their uninsured residents, and their 
insurance markets until conditions change or more viable 
reforms can be implemented.
    It is the committee's view that the State high risk pool 
grant program created in the PHSA by the TAA should be 
extended, but with some modifications. First, the committee 
believes that re-authorizing $15 million in seed grants for 
fiscal years 2005 and 2006 will encourage more States to 
establish high risk pools. Only four States were able to meet 
the deadline under the current program. The committee believes 
that several more States that are currently in the process of 
establishing high risk pools will take advantage of these 
grants and that the existence of the seed money will encourage 
additional States to adopt high risk pools.
    Second, the legislation increases the amount of grant money 
available for operational losses and strikes the limitation 
that a State cannot receive a grant in excess of 50 percent of 
its high risk pool's operational losses. The legislation also 
modifies the formula by which the operational grants are 
allocated. The current formula, which is based on the number of 
uninsured in a State, directs the bulk of the funds to a few 
large States with large uninsured populations. The committee 
believes that this formula fails to provide a base level of 
support for small States with high risk pools.
    The committee believes that the new formula in this 
legislation is more equitable than current law and achieves 
multiple public policy goals. The formula provides each State 
with an equal incentive to establish and or improve their high 
risk pool. At the same time the formula provides extra 
assistance to States that operate large risk pools and 
maintains the public policy goal of reducing the uninsured.
    The legislation increases from current law the amount 
authorized for operational losses from $40 million to $75 
million. The committee is aware that increasing health care 
costs and other factors have resulted in greater losses for 
many State high risk pools and believes that the additional 
funding will help offset the increased losses. Two-thirds of 
the $75 million authorization is allotted for this purpose.
    Third, the legislation includes a new bonus pool that can 
be tapped by States to provide supplemental consumer benefits 
in connection with their high risk pool. One-third of the $75 
million for operational losses can be used for this purpose. In 
establishing this bonus pool, the committee recognizes that, 
although most high risk pools experience losses, each high risk 
pool has a unique structure and funding and faces unique 
challenges and opportunities. Some States have been able to add 
benefits, lower premiums, or employ other strategies to make 
their risk pools more accessible, especially to low income 
residents, while other States have just established their pools 
or are struggling to keep them open.
    It is the committee's view that providing private health 
insurance coverage for formerly uninsurable individuals is an 
important consumer benefit that a State high risk pool can 
provide, and that this consumer benefit can't be realized 
unless high risk pools are solvent. However, the committee also 
believes that the bonus pool for supplemental benefits will 
encourage and enable some States to provide additional consumer 
benefits to make insurance more affordable or accessible that 
they may not be able to provide without the funding provided by 
this legislation. By reallocating any undistributed funds under 
the bonus pool for operational losses, the committee believes 
that the legislation properly prioritizes the ongoing operation 
of risk pools and basic benefits, while simultaneously 
encouraging States that have the capacity to provide 
supplemental benefits.
    Finally, the legislation maintains some elements of the 
current law definition ``qualified high risk pool,'' but 
modifies other elements. HIPAA's original definition of 
``qualified high risk pool,'' permits high risk pools to set 
premiums consistent with the NAIC model regulations, which 
permit premiums of up to 200 percent of the standard risk rate. 
The TAA legislation required States to limit premiums to 150 
percent of the standard risk rate in order to qualify for a 
grant. This legislation maintains that requirement. It is the 
committee's view that the grant money made available by this 
legislation should help States lower their premiums to no more 
than 150 percent, thereby expanding access to more uninsured 
individuals, many of whom are unable to afford the premiums 
required by high risk pools.
    The committee has learned that some States did not qualify 
for high risk pool grants under current law because, rather 
than allowing all HIPAA-eligible into their high risk pool, 
they provide for the enrollment of HIPAA-eligible individuals 
through a combination of a qualified high risk pool and a HIPAA 
alternative mechanism. The committee believes that this 
restriction, which prevented certain States from qualifying for 
high risk pool grants, had the unintended consequence of 
penalizing the uninsured population of certain States that 
complied with the original provisions of HIPAA, and thus struck 
the requirement.
    The committee has also learned that some States have capped 
appropriations that require the State to periodically cap high 
risk pool enrollment, which prevents them from qualifying for 
high risk pool grants, even if they provide alternative private 
market coverage that is comparable or more generous than 
coverage under their high risk pool. Thus, the legislation 
makes an additional exception to ensure that States in this 
situation are not disqualified from receiving high risk pool 
grants, so long as the private coverage provides the 
substantial protections.
    The committee understands some States are exploring 
innovative approaches to high risk pool structures, such as 
using a risk pool as a reinsurance or risk adjustment 
mechanism. Under this approach, ``high risk'' individuals could 
sign up for coverage with commercial carriers rather than be 
segregated into a separate pool, and the reinsurance pool would 
serve as a risk adjustment mechanism among carriers. As the 
committee understands it, this approach is consistent with more 
traditional high risk pools in that it is designed to provide 
high risk individuals with private coverage options and protect 
individual carriers from adverse selection, while lowering the 
cost of insurance to all individuals in the non-group market. 
The committee believes that this model is consistent with the 
goals of high risk pools and the requirements of law governing 
high risk pools, including this legislation, and encourages 
federal administrators to consider such innovative approaches 
in awarding grants under this legislation.

                            V. Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, February 16, 2005.
Hon. Mike B. Enzi,
Chairman, Committee on Health, Education, Labor, and Pensions,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 288, the State High 
Risk Pool Funding Extension Act of 2005.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Shinobu 
Suzuki.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

S. 288--State High Risk Pool Funding Extension Act of 2005

    Summary: S. 288 would amend the Public Health Service Act 
to extend the funding for the creation and operation of a state 
high-risk health insurance pool. The high-risk pools offer 
health insurance to individuals who cannot obtain coverage in 
the marketplace. Under an authorization that expired in 2004, 
the Department of Health and Human Services (HHS) provided seed 
grants to States to create a high-risk health insurance pool 
and operational grants for the losses incurred in connection 
with the operation of a pool. S. 288 would extend the funding 
for the seed grants through 2006 and would increase and extend 
the funding for the operational grants through 2009. In 
addition, the bill would alter how grants are allotted to 
States. CBO estimates that enacting S. 288 would increase 
direct spending by $14 million in 2005 and $355 million over 
the 2005-2010 period. Enacting S. 288 would not affect 
revenues.
    S. 288 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would extend and expand appropriations for grants to States 
that operate high-risk insurance pools. Any costs associated 
with the requirements of those grants would be incurred 
voluntarily.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 288 is shown in the following table. The 
costs of this legislation fall within budget function 550 
(health).

----------------------------------------------------------------------------------------------------------------
                                                                     By fiscal year, in millions of dollars--
                                                                 -----------------------------------------------
                                                                   2005    2006    2007    2008    2009    2010
----------------------------------------------------------------------------------------------------------------
                                           CHANGES IN DIRECT SPENDING

Estimated Budget Authority......................................      90      75      75      75      75       0
Estimated Outlays...............................................      14      53      75      75      75      63
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: S. 288 would amend the Public Health 
Service Act to reauthorize a program that provided grants to 
States that establish a qualifying health insurance pool for 
high-risk individuals. The bill would appropriate $15 million 
in 2005 and 2006 for seed grants to States to establish 
qualified high-risk health insurance pools, and would 
appropriate $75 million a year for fiscal years 2005 through 
2009 for grants to States to defray the cost of operating high-
risk pools. The original program appropriated funds for seed 
grants during 2003 and for grants to defray operating costs 
during 2003 and 2004. CBO estimates that enacting S. 228 would 
increase direct spending by $14 million in 2005 and $355 
million over the 2005-2010 period.
    The seed grant program would provide grants of up to $1 
million to each State that establishes a qualified high-risk 
insurance program. Based on the experience of the original seed 
grant program, and on information from HHS regarding the number 
of States likely to qualify for seed grants in 2005, CBO 
estimates that direct spending for seed grants would total $2 
million in 2005 and $5 million over the 2005-2010 period.
    S. 288 would eliminate both the original requirement that 
each State match the amount of the Federal grant to defray the 
cost of operating a high-risk pool and the corresponding limit 
on the Federal contribution to no more than half of the 
operating loss of the pool. The bill would require that a 
portion of the funds for operational grants be used for grants 
to provide supplemental benefits, such as premium subsidies for 
low-income individuals, a reduction in premiums or other cost-
sharing requirements, an expansion or broadening of the pool of 
individuals eligible for coverage, or increased benefits to 
enrollees or potential enrollees in a qualified high-risk pool. 
However, on June 30 of each fiscal year, unspent funds 
allocated to grants for supplemental benefits would be 
distributed to the States receiving operational grants that 
cover incurred losses.
    The bill also would modify the formula for allocating funds 
to States to give half of the funds to eligible States equally 
and apportion the other half based on the number of uninsured 
individuals in each State and the number of enrollees in the 
State's qualified high-risk pool. Previously, all funds were 
allotted based solely on the number of uninsured individuals in 
the State. Based on the operating losses of the existing pools 
(in 31 States), CBO expects that all of the appropriated funds 
would be spent, with direct spending of $14 million in 2005 and 
$355 million over the 2005-2010 period.
    Intergovernmental and private-sector impact: S. 288 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would expand appropriations for grants to 
States that operate high-risk insurance pools. Any costs 
associated with the requirements of those grants would be 
incurred voluntarily. This bill contains no private-sector 
mandates as defined in UMRA.
    Estimate prepared by: Federal Costs: Shinobu Suzuki. Impact 
on State, Local, and Tribal Governments: Leo Lex. Impact on the 
Private Sector: Chapin White.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

            VI. Application of Law to the Legislative Branch

    Section 102(b)(3) of Public Law 104-1, the Congressional 
Accountability Act (CAA) requires a description of the 
application of this bill to the legislative branch. The 
committee has determined that there is no impact on the 
legislative branch.

                    VII. Regulatory Impact Statement

    Pursuant to the requirements of paragraph 11(b) of rule 
XXVI of the Standing Rules of the Senate, the committee has 
determined that the bill will not have a significant regulatory 
impact.

                    VII. Section-by-Section Analysis

    Section 1. Short title. Establishes the short title as the 
``State High Risk Pool Funding Extension Act of 2005''.
    Section 2. Extension of Funding for Operation of State High 
Risk Health Insurance Pools--Amends section 2745, Promotion of 
Qualified High Risk Pools, of the Public Health Service Act (42 
U.S.C. 300gg-45).
    Subsection (a)--Extension of Seed Grants to States--
Authorizes the Secretary to award grants under subsection 
(d)(1)(A) of up to $1,000,000 to each State that has not 
created a qualified high-risk pool as of the date of the 
enactment of this section for the State's costs of creation and 
initial operation of such a pool.
    Subsection (b)--Grants for Operational Losses--
    Paragraph (1)--Authorizes the Secretary to award grants for 
losses incurred by the State in connection with the operation 
of the pool. To qualify, a risk pool must restrict premiums 
charged under the pool to no more than 150 percent of the 
premium for applicable standard risk rate; offer a choice of 
two or more coverage options through the pool; and have in 
place a mechanism to ensure continued funding of losses 
incurred by the State after the end of fiscal year 2004 in 
connection with operation of the pool.
    Paragraph (2)--Allotment--The amounts appropriated shall be 
made available as follows:
    Subparagraph (A)--An amount equal to 50 percent of the 
appropriated amount for the fiscal year to be allocated equally 
to each State that applies for assistance.
    Subparagraph (B)--An amount equal to 25 percent of the 
appropriated amount for the fiscal year to be allocated among 
the States so that the amount is the same ratio as that 
available to the number of uninsured individuals in all States.
    Subparagraph (C)--An amount equal to 25 percent of the 
appropriated amount for the fiscal year to a State that bears 
the same ratio as the number of individuals enrolled in the 
respective State's high risk pool as compared to those in all 
States.
    Subsection (c)--Bonus Grants for Supplemental Consumer 
Benefits--
    Paragraph (1)--In General. If a State has an established 
qualified high-risk pool, the Secretary may award grants for 
supplemental consumer benefits to enrollees or potential 
enrollees.
    Paragraph (2)--Benefits--A State shall use amounts received 
to provide one or more of the following benefits: (A) a low-
income premium subsidy, (B) a reduction in premiums, (C) trends 
or cost-sharing, an expansion or broadening eligibility, (D) 
waiver of pre-existing conditions, (E) increased benefits, or 
(G) the establishment of disease management programs.
    Paragraph (3)--Limitation--No State shall receive an amount 
that exceeds 10 percent of the amount appropriated for the 
fiscal year.
    Paragraph (4)--Rule of Construction--Nothing prohibits 
States that are in the process of implementing supplemental 
consumer benefits, on the date of enactment of the State High 
Risk Pool Funding Extension Act of 2004, from being eligible 
for a grant under this subsection.
    Subsection (d)--Funding--
    Paragraph (1)--Authorizes and appropriates funds.
    Subparagraph (A)--$15,000,000 for the period of fiscal 
years 2005 and 2006 to carry out seed grants to States under 
subsection (a).
    Subparagraph (b) $75,000,000 for each of the fiscal years 
2005 through 2009, of which (i) two-thirds of the amount shall 
be made available for allotments for operational losses under 
subsection (b)(2); and (ii) one-third of the amount shall be 
made available for allotments for supplemental consumer 
benefits under subsection (c)(2).
    Paragraph (2)--Availability--Funds shall remain available 
for obligation through the end of the following fiscal year.
    Paragraph (3)--Reallotment--If on June 30 of each fiscal 
year, the Secretary determines that all the amounts 
appropriated for supplemental consumer benefits under 
subsection (c)(2), then the remainder shall be allotted among 
States receiving operational loss grants under subsection 
(b)(2) in amounts determined appropriate by the Secretary.
    Paragraph (4)--No Entitlement--No State is entitled to a 
grant.
    Subsection (e)--Applications--To be eligible for a grant, a 
State must comply with timing, manner, and content that the 
Secretary requires for an application for a grant.
    Subsection (f)--Definitions--
    Paragraph (1)--Qualified High Risk Pool.
    Paragraph (2)--Standard Risk Rate.
    Paragraph (3)--State.

                      IX. Changes in Existing Law

    In compliance with rule XXVI paragraph 12 of the Standing 
Rules of the Senate, the following provides a print of the 
statute or the part or section thereof to be amended or 
replaced (existing law proposed to be omitted is enclosed in 
black brackets, new matter is printed in italic, existing law 
in which no change is proposed is shown in roman):

Public Health Service Act

           *       *       *       *       *       *       *


[SEC. 2745. PROMOTION OF QUALIFIED HIGH RISK POOLS.

    [(a) Seed Grants to States.--The Secretary shall provide 
from the funds appropriated under subsection (c)(1) a grant of 
up to $1,000,000 to each State that has not created a qualified 
high risk pool as of the date of the enactment of this section 
for the State's costs of creation and initial operation of such 
a pool.
    [(b) Matching Funds for Operation of Pools.--
          [(1) In General.--In the case of a State that has 
        established a qualified high risk pool that--
                  [(A) restricts premiums charged under the 
                pool to no more than 150 percent of the premium 
                for applicable standard risk rates;
                  [(B) offers a choice of two or more coverage 
                options through the pool; and
                  [(C) has in effect a mechanism reasonably 
                designed to ensure continued funding of losses 
                incurred by the State after the end of fiscal 
                year 2004 in connection with operation of the 
                pool;

the Secretary shall provide, from the funds appropriated under 
subsection (c)(2) and allotted to the State under paragraph 
(2), a grant of up to 50 percent of the losses incurred by the 
State in connection with the operation of the pool.
          [(2) Allotment.--The amounts appropriated under 
        subsection (c)(2) for a fiscal year shall be made 
        available to the States in accordance with a formula 
        that is based upon the number of uninsured individuals 
        in the States.
    [(c) Funding.--Out of any money in the Treasury of the 
United States not otherwise appropriated, there are authorized 
and appropriated--
          [(1) $20,000,000 for fiscal year 2003 to carry out 
        subsection (a); and
          [(2) $40,000,000 for each of fiscal years 2003 and 
        2004 to carry out subsection (b).

Funds appropriated under this subsection for a fiscal year 
shall remain available for obligation through the end of the 
following fiscal year. Nothing in this section shall be 
construed as providing a State with an entitlement to a grant 
under this section.
    [(d) Qualified High Risk Pool and State Defined.--For 
purposes of this section, the term ``qualified high risk pool'' 
has the meaning given such term in section 2744(c)(2) and the 
term ``State'' means any of the 50 States and the District of 
Columbia.]

SEC. 2745. PROMOTION OF QUALIFIED HIGH RISK POOLS.

    (a) Extension of Seed Grants to States.--The Secretary 
shall provide from the funds appropriated under subsection 
(d)(1)(A) a grant of up to $1,000,000 to each State that has 
not created a qualified high risk pool as of the date of 
enactment of this section for the State's costs of creation and 
initial operation of such a pool.
    (b) Grants for Operational Losses.--
          (1) In general.--In the case of a State that has 
        established a qualified high risk pool that--
                  (A) restricts premiums charged under the pool 
                to no more than 150 percent of the premium for 
                applicable standard risk rates;
                  (B) offers a choice of two or more coverage 
                options through the pool; and
                  (C) has in effect a mechanism reasonably 
                designed to ensure continued funding of losses 
                incurred by the State after the end of fiscal 
                year 2004 in connection with operation of the 
                pool;

the Secretary shall provide, from the funds appropriated under 
subsection (d)(1)(B)(i) and allotted tothe State under 
paragraph (2), a grant for the losses incurred by the State in 
connection with the operation of the pool.
          (2) Allotment.--The amounts appropriated under 
        subsection (d)(1)(B)(i) for a fiscal year shall be made 
        available to the States (or the entities that operate 
        the high risk pool under applicable State law) as 
        follows:
                  (A) An amount equal to 50 percent of the 
                appropriated amount for the fiscal year shall 
                be allocated in equal amounts among each 
                eligible State that applies for assistance 
                under this subsection.
                  (B) An amount equal to 25 percent of the 
                appropriated amount for the fiscal year shall 
                be allocated among the States so that the 
                amount provided to a State bears the same ratio 
                to such available amount as the number of 
                uninsured individuals in the State bears to the 
                total number of uninsured individuals in all 
                States (as determined by the Secretary).
                  (C) An amount equal to 25 percent of the 
                appropriated amount for the fiscal year shall 
                be allocated among the States so that the 
                amount provided to a State bears the same ratio 
                to such available amount as the number of 
                individuals enrolled in health care coverage 
                through the qualified high risk pool of the 
                State bears to the total number of individuals 
                so enrolled through qualified high risk pools 
                in all States (as determined by the Secretary).
  (c) Bonus Grants for Supplemental Consumer Benefits.--
          (1) In general.--In the case of a State that has 
        established a qualified high risk pool, the Secretary 
        shall provide, from the funds appropriated under 
        subsection (d)(1)(B)(ii) and allotted to the State 
        under paragraph (3), a grant to be used to provide 
        supplemental consumer benefits to enrollees or 
        potential enrollees (or defined subsets of such 
        enrollees or potential enrollees) in qualified high 
        risk pools.
          (2) Benefits.--A State shall use amounts received 
        under a grant under this subsection to provide one or 
        more of the following benefits:
                  (A) Low-income premium subsidies.
                  (B) A reduction in premium trends, actual 
                premiums, or other cost-sharing requirements.
                  (C) An expansion or broadening of the pool of 
                individuals eligible for coverage, including 
                eliminating waiting lists, increasing enroll-
ment caps, or providing flexibility in enrollment rules.
                  (D) Less stringent rules, or additional 
                waiver authority, with respect to coverage of 
                pre-existing conditions.
                  (E) Increased benefits.
                  (F) The establishment of disease management 
                programs.
          (3) Limitation.--In allotting amounts under this 
        subsection, the Secretary shall ensure that no State 
        receives an amount that exceeds 10 percent of the 
        amount appropriated for the fiscal year involved under 
        subsection (d)(1)(B)(ii).
          (4) Rule of construction.--Nothing in this subsection 
        shall be construed to prohibit States that, on the date 
        of enactment of the State High Risk Pool Funding 
        Extension Act of 2005, are in the process of 
        implementing programs to provide benefits of the type 
        described in paragraph (2), from being eligible for a 
        grant under this subsection.
    (d) Funding.--
          (1) In general.--Out of any money in the Treasury of 
        the United States not otherwise appropriated, there are 
        authorized and appropriated--
                  (A) $15,000,000 for the period of fiscal 
                years 2005 and 2006 to carry out subsection 
                (a); and
                  (B) $75,000,000 for each of fiscal years 2005 
                through 2009, of which--
                          (i) two-thirds of the amount 
                        appropriated for a fiscal year shall be 
                        made available for allotments under 
                        subsection (b)(2); and
                          (ii) one-third of the amount 
                        appropriated for a fiscal year shall be 
                        made available for allotments under 
                        subsection (c)(2).
          (2) Availability.--Funds appropriated under this 
        subsection for a fiscal year shall remain available for 
        obligation through the end of the following fiscal 
        year.
          (3) Reallotment.--If, on June 30 of each fiscal year, 
        the Secretary determines that all amounts appropriated 
        under paragraph (1)(B)(ii) for the fiscal year are not 
        allotted, such remaining amounts shall be allotted 
        among States receiving grants under subsection (b) for 
        the fiscal year in amounts determined appropriate by 
        the Secretary.
          (4) No entitlement.--Nothing in this section shall be 
        construed as providing a State with an entitlement to a 
        grant under this section.
    (e) Applications.--To be eligible for a grant under this 
section, a State shall submit to the Secretary an application 
at such time, in such manner, and containing such information 
as the Secretary may require.
    (f) Definitions.--In this section:
          (1) Qualified high risk pool.--
                  (A) In general.--The term ``qualified high 
                risk pool'' has the meaning given such term in 
                section 2744(c)(2), except that with respect to 
                subparagraph (A) of such section a State may 
                elect to provide for the enrollment of eligible 
                individuals through--
                          (i) a combination of a qualified high 
                        risk pool and an acceptable alternative 
                        mechanism; or
                          (ii) other health insurance coverage 
                        described in subparagraph (B).
                  (B) Health insurance coverage.--Health 
                insurance coverage described in this 
                subparagraph is individual health insurance 
                coverage--
                          (i) that meets the requirements of 
                        section 2741;
                          (ii) that is subject to limits on the 
                        rates charged to individuals;
                          (iii) that is available to all 
                        individuals eligible for health 
                        insurance coverage under this title who 
                        are not able to participate in a 
                        qualified high risk pool; and
                          (iv) the defined rate limit of which 
                        does not exceed the limit allowed for a 
                        qualified risk pool that is otherwise 
                        eligible to receive assistance under a 
                        grant under this section.
                  (C) Other coverage.--In addition to coverage 
                described in subparagraph (B), a State may 
                provide for the offering of health insurance 
                coverage that provides first dollar coverage, 
                limits on cost-sharing, and comprehensive 
                medical, hospital and surgical coverage, if the 
                limits on rates for such coverage do not exceed 
                125 percent of the limit described in 
                subparagraph (B)(iv).
          (2) Standard risk rate.--The term ``standard risk 
        rate'' means a rate--
                  (A) determined under the State high risk pool 
                by considering the premium rates charged by 
                other health insurers offering health insurance 
                coverage to individuals in the insurance market 
                served;
                  (B) that is established using reasonable 
                actuarial techniques; and
                  (C) that reflects anticipated claims 
                experience and expenses for the coverage 
                involved.
          (3) State.--The term ``State'' means any of the 50 
        States and the District of Columbia.

                                  
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