To amend the Internal Revenue Code of 1986 to provide tax incentives to encourage small business health plans, and for other purposes.

April 28, 2005

Mr. MOORE of Kansas introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committees on Energy and Commerce and Small Business, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

To amend the Internal Revenue Code of 1986 to provide tax incentives to encourage small business health plans, and for other purposes.

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

SECTION 1. SHORT TITLE.

This Act may be cited as the `Small Business Health Insurance Affordability Act of 2005'.

SEC. 2. CREDIT FOR HEALTH INSURANCE EXPENSES OF SMALL BUSINESSES.

(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. 45J. SMALL BUSINESS HEALTH INSURANCE EXPENSES.

`(a) General Rule- For purposes of section 38, in the case of a small employer, the health insurance credit determined under this section for the taxable year is an amount equal to the applicable percentage of the expenses paid or incurred by the taxpayer during the taxable year for health insurance coverage for such year for employees of such employer.

`(b) Applicable Percentage- For purposes of subsection (a), the applicable percentage is--

`(1) in the case of insurance purchased as a member of a qualified health benefit purchasing coalition (as defined in section 9841), 40 percent, and

`(2) in the case of insurance not described in paragraph (1), 30 percent.

`(c) Limitations-

`(1) PER EMPLOYEE DOLLAR LIMITATION- The amount of expenses taken into account under subsection (a) with respect to any employee for any taxable year shall not exceed--

`(A) in the case of insurance purchased as a member of a coalition referred to in subsection (b)(1)--

`(i) $800 in the case of self-only coverage, and

`(ii) $2,000 in the case of family coverage, and

`(B) in any other case--

`(i) $600 in the case of self-only coverage, and

`(ii) $1,500 in the case of family coverage.

In the case of an employee who is covered for only a portion of such taxable year, the limitation under the preceding sentence shall be an amount which bears the same ratio to such limitation (determined without regard to this sentence) as such portion bears to the entire taxable year.

`(2) PERIOD OF COVERAGE- Expenses may be taken into account under subsection (a) only with respect to coverage for the 4-year period beginning on the later of--

`(A) the date of the enactment of this section, or

`(B) the earliest date that the employee is covered under the plan.

`(3) EMPLOYER MUST BEAR 65 PERCENT OF COST AND COVER 70 PERCENT OF QUALIFIED EMPLOYEES- Expenses may be taken into account under subsection (a) only if--

`(A) at least 65 percent of the cost of the coverage (without regard to this section) is borne by the employer, and

`(B) the plan provides health insurance coverage to at least 70 percent of the qualified employees of such employer.

`(d) Definitions- For purposes of this section--

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

`(2) QUALIFIED EMPLOYEE-

`(A) IN GENERAL- The term `qualified employee' means any employee of an employer if the annual rate of such employee's compensation (as defined in section 414(s)) does not exceed $40,000.

`(B) TREATMENT OF CERTAIN EMPLOYEES- The term `employee' shall include a leased employee within the meaning of section 414(n).

`(C) REDUCTION OF CREDIT FOR EMPLOYEES EARNING MORE THAN $30,000- If the annual rate of an employee's compensation (as defined in section 414(s)) exceeds $30,000, the applicable limitation under subsection (c)(1) (determined without regard to this clause) shall be reduced (but not below zero) by an amount which bears the same ratio to such limitation as such excess bears to $10,000.

`(D) EMPLOYEES HAVING FAMILY COVERAGE- In the case of an employee who has family coverage--

`(i) subparagraph (A) shall be applied by substituting `$50,000' for `$40,000', and

`(ii) subparagraph (C) shall be applied by substituting `$40,000' for `$30,000'.

`(3) SMALL EMPLOYER- The term `small employer' has the meaning given to such term by section 4980D(d)(2); except that only qualified employees shall be taken into account.

`(e) Special Rules-

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

`(2) AMOUNTS PAID UNDER SALARY REDUCTION ARRANGEMENTS- No amount paid or incurred pursuant to a salary reduction arrangement shall be taken into account under subsection (a).

`(3) INFLATION ADJUSTMENT- In the case of any taxable year beginning in a calendar year after 2006, each dollar amount contained in subsections (c)(1) and (d)(2)(B) shall 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 `calendar year 2005' for `calendar year 1992' in subparagraph (B) thereof.

Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $50.

`(f) Termination- This section shall not apply to expenses paid or incurred by an employer with respect to any arrangement established on or after January 1, 2010.'.

(b) Credit to Be Part of General Business Credit- Section 38(b) of such Code (relating to current year business credit) is amended by striking `plus' at the end of paragraph (18), by striking the period at the end of paragraph (19) and inserting `, plus', and by adding at the end the following:

`(20) in the case of a small employer (as defined in section 45J(d)(3)), the health insurance credit determined under section 45J(a).'.

(c) Denial of Double Benefit- Section 280C of such Code is amended by adding at the end the following new subsection:

`(e) Credit for Small Business Health Insurance Expenses-

`(1) IN GENERAL- No deduction shall be allowed for that portion of the expenses (otherwise allowable as a deduction) taken into account in determining the credit under section 45J for the taxable year which is equal to the amount of the credit determined for such taxable year under section 45J(a).

`(2) CONTROLLED GROUPS- Persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as 1 person for purposes of this section.'.

(d) Clerical Amendment- The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by adding at the end the following:

`Sec. 45J. Small business health insurance expenses.'.

(e) Effective Date- The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2005.

SEC. 3. CERTAIN GRANTS BY PRIVATE FOUNDATIONS TO QUALIFIED HEALTH BENEFIT PURCHASING COALITIONS.

(a) In General- Section 4942 of the Internal Revenue Code of 1986 (relating to taxes on failure to distribute income) is amended by adding at the end the following:

`(k) Certain Qualified Health Benefit Purchasing Coalition Distributions-

`(1) IN GENERAL- For purposes of subsection (g), sections 170, 501, 507, 509, and 2522, and this chapter, a qualified health benefit purchasing coalition distribution by a private foundation shall be considered to be a distribution for a charitable purpose.

`(2) QUALIFIED HEALTH BENEFIT PURCHASING COALITION DISTRIBUTION- For purposes of paragraph (1)--

`(A) IN GENERAL- The term `qualified health benefit purchasing coalition distribution' means any amount paid or incurred by a private foundation to or on behalf of a qualified health benefit purchasing coalition (as defined in section 9841) for purposes of payment or reimbursement of amounts paid or incurred in connection with the establishment and maintenance of such coalition.

`(B) EXCLUSIONS- Such term shall not include any amount used by a qualified health benefit purchasing coalition (as so defined)--

`(i) for the purchase of real property,

`(ii) as payment to, or for the benefit of, members (or employees or affiliates of such members) of such coalition, or

`(iii) for any expense paid or incurred more than 48 months after the date of establishment of such coalition.

`(3) TERMINATION- This subsection shall not apply--

`(A) to qualified health benefit purchasing coalition distributions paid or incurred after December 31, 2010, and

`(B) with respect to start-up costs of a coalition which are paid or incurred after December 31, 2012.'.

(b) Qualified Health Benefit Purchasing Coalition-

(1) IN GENERAL- Chapter 100 of such Code (relating to group health plan requirements) is amended by adding at the end the following new subchapter:

`Subchapter D--Qualified Health Benefit Purchasing Coalition

`Sec. 9841. Qualified health benefit purchasing coalition.

`SEC. 9841. QUALIFIED HEALTH BENEFIT PURCHASING COALITION.

`(a) In General- A qualified health benefit purchasing coalition is a private not-for-profit corporation which--

`(1) sells health insurance through State licensed health insurance issuers in the State in which the employers to which such coalition is providing insurance are located, and

`(2) establishes to the Secretary, under State certification procedures or other procedures as the Secretary may provide by regulation, that such coalition meets the requirements of this section.

`(b) Board of Directors-

`(1) IN GENERAL- Each purchasing coalition under this section shall be governed by a Board of Directors.

`(2) ELECTION- The Secretary shall establish procedures governing election of such Board.

`(3) MEMBERSHIP- The Board of Directors shall--

`(A) be composed of representatives of the members of the coalition, in equal number, including small employers and employee representatives of such employers, but

`(B) not include other interested parties, such as health care service providers, health insurers, or insurance agents or brokers which may have a conflict of interest with the purposes of the coalition.

`(c) Membership of Coalition-

`(1) IN GENERAL- A purchasing coalition shall accept all small employers residing within the area served by the coalition as members if such employers request such membership.

`(2) OTHER MEMBERS- The coalition, at the discretion of its Board of Directors, may be open to individuals and large employers.

`(3) VOTING- Members of a purchasing coalition shall have voting rights consistent with the rules established by the State.

`(d) Duties of Purchasing Coalitions- Each purchasing coalition shall--

`(1) enter into agreements with small employers (and, at the discretion of its Board, with individuals and other employers) to provide health insurance benefits to employees and retirees of such employers,

`(2) where it is feasible and advisable, enter into agreements with 3 or more unaffiliated, qualified licensed health plans, to offer benefits to members,

`(3) offer to members at least 1 open enrollment period of at least 30 days per calendar year,

`(4)(A) serve a geographical area which, under the State certification procedures referred to in subsection (a)(2), is significant, and

`(B) market to all eligible members in that area, and

`(5) carry out other functions provided for under this section.

`(e) Limitation on Activities- A purchasing coalition shall not--

`(1) perform any activity (including certification or enforcement) relating to compliance or licensing of health plans,

`(2) assume insurance or financial risk in relation to any health plan, or

`(3) perform other activities identified by the State as being inconsistent with the performance of its duties under this section.

`(f) Additional Requirements for Purchasing Coalitions- As provided by the Secretary in regulations, a purchasing coalition shall be subject to requirements similar to the requirements of a group health plan under this chapter.

`(g) Relation to Other Laws-

`(1) PREEMPTION OF STATE FICTITIOUS GROUP LAWS- Requirements (commonly referred to as fictitious group laws) relating to grouping and similar requirements for health insurance coverage are preempted to the extent such requirements impede the establishment and operation of qualified health benefit purchasing coalitions.

`(2) ALLOWING SAVINGS TO BE PASSED THROUGH- Any State law that prohibits health insurance issuers from reducing premiums on health insurance coverage sold through a qualified health benefit purchasing coalition to reflect administrative savings is preempted. This paragraph shall not be construed to preempt State laws that impose restrictions on premiums based on health status, claims history, industry, age, gender, or other underwriting factors.

`(3) NO WAIVER OF HIPAA REQUIREMENTS- Nothing in this section shall be construed to change the obligation of health insurance issuers to comply with the requirements of title XXVII of the Public Health Service Act with respect to health insurance coverage offered to small employers in the small group market through a qualified health benefit purchasing coalition.

`(h) Definition of Small Employer- For purposes of this section--

`(1) IN GENERAL- The term `small employer' means, with respect to any calendar year, any employer if such employer employed an average of at least 2 and not more than 50 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.

`(2) 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 paragraph (1) 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) CONFORMING AMENDMENT- The table of subchapters for chapter 100 of such Code is amended by adding at the end the following item:

`SUBCHAPTER D. QUALIFIED HEALTH BENEFIT PURCHASING COALITION'.

(c) Effective Date- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2004.

SEC. 4. STATE GRANT PROGRAM FOR MARKET INNOVATION.

(a) In General- The Secretary of Health and Human Services (in this section referred to as the `Secretary') shall establish a program (in this section referred to as the `program') to award demonstration grants under this section to States to allow States to demonstrate the effectiveness of innovative ways to increase access to health insurance through market reforms and other innovative means. Such innovative means may include (and are not limited to) any of the following:

(1) Alternative group purchasing or pooling arrangements, such as a purchasing cooperatives for small businesses, reinsurance pools, or high risk pools.

(2) Individual or small group market reforms.

(3) Consumer education and outreach.

(4) Subsidies to individuals, employers, or both, in obtaining health insurance.

(b) Scope; Duration- The program shall be limited to not more than 10 States and to a total period of 5 years, beginning on the date the first demonstration grant is made.

(c) Conditions for Demonstration Grants-

(1) IN GENERAL- The Secretary may not provide for a demonstration grant to a State under the program unless the Secretary finds that under the proposed demonstration grant--

(A) the State will provide for demonstrated increase of access for some portion of the existing uninsured population through a market innovation (other than merely through a financial expansion of a program initiated before the date of the enactment of this Act);

(B) the State will comply with applicable Federal laws;

(C) the State will not discriminate among participants on the basis of any health status-related factor (as defined in section 2791(d)(9) of the Public Health Service Act), except to the extent a State wishes to focus on populations that otherwise would not obtain health insurance because of such factors; and

(D) the State will provide for such evaluation, in coordination with the evaluation required under subsection (d), as the Secretary may specify.

(2) APPLICATION- The Secretary shall not provide a demonstration grant under the program to a State unless--

(A) the State submits to the Secretary such an application, in such a form and manner, as the Secretary specifies;

(B) the application includes information regarding how the demonstration grant will address issues such as governance, targeted population, expected cost, and continuation after the completion of the demonstration grant period; and

(C) the Secretary determines that the demonstration grant will be used in a manner consistent with this section.

(3) FOCUS- A demonstration grant proposal under this section need not cover all uninsured individuals in a State or all health care benefits with respect to such individuals.

(d) Evaluation- The Secretary shall enter into a contract with an appropriate entity outside the Department of Health and Human Services to conduct an overall evaluation of the program at the end of the program period. Such evaluation shall include an analysis of improvements in access, costs, quality of care, or choice of coverage, under different demonstration grants.

(e) Option to Provide for Initial Planning Grants- The Secretary may provide for a portion of the amounts appropriated under subsection (f) (not to exceed $5,000,000) to be made available to any State for initial planning grants to permit States to develop demonstration grant proposals under this section.

(f) Authorization of Appropriations- There are authorized to be appropriated $100,000,000 for each fiscal year to carry out this section. Amounts appropriated under this subsection shall remain available until expended.

(g) State Defined- For purposes of this section, the term `State' has the meaning given such term for purposes of title XIX of the Social Security Act.

SEC. 5. GRANT PROGRAM TO FACILITATE HEALTH BENEFITS INFORMATION FOR SMALL EMPLOYERS.

(a) In General- The Small Business Administration shall award grants to 1 or more States, local governments, and non-profit organizations for the purposes of--

(1) demonstrating new and effective ways to provide information about the benefits of health insurance to small employers, including tax benefits, increased productivity of employees, and decreased turnover of employees,

(2) making employers aware of their current rights in the marketplace under State and Federal health insurance reforms, and

(3) making employers aware of the tax treatment of insurance premiums.

(b) Authorization- There is authorized to be appropriated $10,000,000 for each of the first 5 fiscal years beginning after the date of the enactment of this Act for grants under subsection (a).

END