To amend the Internal Revenue Code of 1986 to provide for a tax credit for offering employer-based health insurance coverage and to provide for the establishment of health insurance purchasing pools.

November 20, 2003

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

To amend the Internal Revenue Code of 1986 to provide for a tax credit for offering employer-based health insurance coverage and to provide for the establishment of health insurance purchasing pools.

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

SECTION 1. SHORT TITLE.

This Act may be cited as the `Small Business Health Care Act of 2003'.

SEC. 2. CREDIT FOR EMPLOYEE HEALTH INSURANCE EXPENSES.

(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:

`SEC. 45G. EMPLOYEE HEALTH INSURANCE EXPENSES.

`(a) GENERAL RULE- For purposes of section 38, in the case of a qualified small employer, the employee health insurance expenses credit determined under this section is an amount equal to the applicable percentage of the amount paid by the taxpayer during the taxable year for qualified employee health insurance expenses.

`(b) APPLICABLE PERCENTAGE-

`(1) IN GENERAL- For purposes of subsection (a), the applicable percentage is--

`(A) 50 percent in the case of an employer with less than 26 qualified employees,

`(B) 40 percent in the case of an employer with more than 25 but less than 36 qualified employees,

`(C) 30 percent in the case of an employer with more than 35 but less than 51 qualified employees,

`(D) 20 percent in the case of an employer with more than 50 but less than 76 qualified employees, and

`(E) 10 percent in the case of an employer with more than 75 but less than 101 qualified employees.

`(2) HIGH CONTRIBUTION BONUS- With respect to any taxable year during which a qualified small employer pays 100 percent of qualified employee health insurance expenses for the qualified employees of the small employer, the applicable percentage otherwise determined for such taxable year under the preceding paragraph shall be increased by 5 percentage points.

`(c) PER EMPLOYEE DOLLAR LIMITATION- The amount of qualified employee health insurance expenses taken into account under subsection (a) with respect to any qualified employee for any taxable year shall not exceed the maximum employer contribution for self-only coverage or family coverage (as applicable) determined under section 8906(a) of title 5, United States Code, for the calendar year in which such taxable year begins.

`(d) DEFINITIONS AND SPECIAL RULES- For purposes of this section--

`(1) QUALIFIED SMALL EMPLOYER-

`(A) IN GENERAL- The term `qualified small employer' means any small employer which--

`(i) provides eligibility for health insurance coverage (after any waiting period (as defined in section 9801(b)(4))) to all qualified employees of the employer,

`(ii) pays at least 70 percent of the cost of such coverage (60 percent in the case of family coverage) for each qualified employee, and

`(iii) in the case of a small employer which is located in a State which has established a health insurance purchasing pool under section 3 of the Small Business Health Care Act of 2003, joins such pool.

`(B) TRANSITION RULE FOR NEW PLANS-

`(i) IN GENERAL- If a small employer (or any predecessor) did not provide health insurance coverage to the qualified employees of the employer during the employer's precompliance period, then subparagraph (A) shall be applied to such employer for the first 5 taxable years following such period by substituting `50 percent' for `70 percent' in clause (ii) (or for `60 percent' in such clause, in the case of family coverage).

`(ii) PRECOMPLIANCE PERIOD- For purposes of clause (i), the precompliance periods are--

`(I) the period beginning with the small employer's taxable year preceding its first taxable year beginning after the date of the enactment of this section, and

`(II) the period beginning with the small employer's taxable year preceding the first taxable year for which the employer meets the requirement of subparagraph (A)(i).

An employer not in existence for any period shall be treated in the same manner as an employer which is in existence and not providing coverage.

`(C) SMALL EMPLOYER-

`(i) IN GENERAL- For purposes of this paragraph, the term `small employer' means, with respect to any calendar year, any employer if such employer employed an average of not less than 2 and not more

than 100 qualified employees on business days during either of the 2 preceding calendar years. For purposes of the preceding sentence, a preceding calendar year may be taken into account only if the employer was in existence throughout such year.

`(ii) EMPLOYERS NOT IN EXISTENCE IN PRECEDING YEAR- In the case of an employer which was not in existence throughout the 1st preceding calendar year, the determination under clause (i) shall be based on the average number of qualified employees that it is reasonably expected such employer will employ on business days in the current calendar year.

`(2) QUALIFIED EMPLOYEE HEALTH INSURANCE EXPENSES-

`(A) IN GENERAL- The term `qualified employee health insurance expenses' means any amount paid by an employer for health insurance coverage to the extent such amount is attributable to coverage provided to any employee while such employee is a qualified employee.

`(B) EXCEPTION FOR AMOUNTS PAID UNDER SALARY REDUCTION ARRANGEMENTS- No amount paid or incurred for health insurance coverage pursuant to a salary reduction arrangement shall be taken into account under subparagraph (A).

`(C) HEALTH INSURANCE COVERAGE- The term `health insurance coverage' has the meaning given such term by section 9832(b)(1).

`(3) QUALIFIED EMPLOYEE- The term `qualified employee' means an employee of an employer who, with respect to any period, is not provided health insurance coverage under--

`(A) a health plan of the employee's spouse,

`(B) title XVIII, XIX, or XXI of the Social Security Act,

`(C) chapter 17 of title 38, United States Code,

`(D) chapter 55 of title 10, United States Code,

`(E) chapter 89 of title 5, United States Code, or

`(F) any other provision of law.

`(4) EMPLOYEE--The term `employee'--

`(A) means any individual, with respect to any calendar year, who is reasonably expected to receive at least $5,000 and not more than $100,000 of compensation from the employer during such year,

`(B) does not include an employee within the meaning of section 401(c)(1), and

`(C) includes a leased employee within the meaning of section 414(n).

`(5) COMPENSATION- The term `compensation' means amounts described in section 6051(a)(3).

`(e) CERTAIN RULES MADE APPLICABLE- For purposes of this section, rules similar to the rules of section 52 shall apply.

`(f) DENIAL OF DOUBLE BENEFIT- No deduction or credit under any other provision of this chapter shall be allowed with respect to qualified employee health insurance expenses taken into account under subsection (a).'.

(b) CREDIT TO BE PART OF GENERAL BUSINESS CREDIT- Section 38(b) of the Internal Revenue Code of 1986 (relating to current year business credit) is amended by striking `plus' at the end of paragraph (14), by striking the period at the end of paragraph (15) and inserting `, plus', and by adding at the end the following:

`(16) the employee health insurance expenses credit determined under section 45G.'.

(c) NO CARRYBACKS- Subsection (d) of section 39 of the Internal Revenue Code of 1986 (relating to carryback and carryforward of unused credits) is amended by adding at the end the following:

`(11) NO CARRYBACK OF SECTION 45G CREDIT BEFORE EFFECTIVE DATE- No portion of the unused business credit for any taxable year which is attributable to the employee health insurance expenses credit determined under section 45G may be carried back to a taxable year ending before the date of the enactment of section 45G.'.

(d) 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:

`Sec. 45G. Employee health insurance expenses.'.

(e) EMPLOYER OUTREACH- The Internal Revenue Service shall, in conjunction with the Small Business Administration, develop materials and implement an educational program to ensure that business personnel are aware of--

(1) the eligibility criteria for the tax credit provided under section 45G of the Internal Revenue Code of 1986 (as added by this section),

(2) the methods to be used in calculating such credit, and

(3) the documentation needed in order to claim such credit,

so that the maximum number of eligible businesses may claim the tax credit.

(f) EFFECTIVE DATE- The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after the date of the enactment of this Act.

SEC. 3. HEALTH INSURANCE PURCHASING POOLS.

(a) MATCHING FUNDS FOR OPERATION OF POOLS-

(1) IN GENERAL- In the case of a State or a unit of local government that establishes a health insurance purchasing pool, the Secretary of Health and Human Services shall provide, from the funds allocated under subsection (b), a grant equal to the applicable percentage of the administrative costs associated with such pool.

(2) APPLICABLE PERCENTAGE- For purposes of paragraph (1), the applicable percentage is--

(A) 75 percent for the initial year of the grant;

(B) 50 percent for year succeeding the year to which subparagraph (A) is applicable;

(C) 25 percent for the year succeeding the year to which subparagraph (B) is applicable; and

(D) zero thereafter.

(3) SPECIAL RULE FOR LOCAL GOVERNMENT PURCHASING POOLS- The Secretary of Health and Human Services shall not provide a grant under this section to any unit of a local government unless such unit of local government submits to the Secretary a certificate from the State in which such unit of local government is located authorizing such grant.

(4) HEALTH INSURANCE PURCHASING POOL- For purposes of this section, the term `health insurance purchasing pool' means a purchasing pool for small employers (as defined under section 45G of the Internal Revenue Code of 1986) for the purpose of providing health insurance coverage (as defined in such section) to qualified employees (as defined in such section).

(b) FUNDING- Out of the money in the Treasury of the United States not otherwise appropriated, there are authorized and appropriated such sums as are necessary to carry out this section.

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