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                                                       Calendar No. 205
104th Congress                                                   Report
                                 SENATE

 1st Session                                                    104-156
_______________________________________________________________________


 
                THE HEALTH INSURANCE REFORM ACT OF 1995

                                _______


 October 12 (legislative day, October 10), 1995.--Ordered to be printed

_______________________________________________________________________


   Mrs. Kassebaum, from the Committee on Labor and Human Resources, 
                        submitted the following

                              R E P O R T

  [To accompany S. 1028, ``The Health Insurance Reform Act of 1995'']

    The Committee on Labor and Human Resources, to which was 
referred the bill (S. 1028, ``The Health Insurance Reform Act 
of 1995'') 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 of the legislation...........................1
 II. Background and need for the legislation..........................3
III. Legislative consideration and votes in committee................10
 IV. Explanation of the legislation and committee views..............13
  V. Cost estimate...................................................33
 VI. Regulatory impact statement.....................................35
VII. Section-by-section analysis.....................................35
VIII.Changes in existing law.........................................43


               I. Purpose and Summary of the Legislation

    The current health insurance market provides too little 
protection for individuals and families with significant health 
problems and makes it too difficult for employers--particularly 
small employers--to obtain adequate coverage for their 
employees. The Health Insurance Reform Act of 1995 (S. 1028) 
will reduce many of the current barriers to obtaining health 
coverage by making it easier for people who change jobs or lose 
their jobs to maintain adequate coverage, and by providing 
increased purchasing power to small businesses and individuals.
    The legislation builds upon successful State reforms and 
strengthens the private market by requiring health plans to 
compete based on quality, price, and service instead of 
refusing to offer coverage to those who are in poor health and 
who need it the most. The General Accounting Office estimates 
that passage of S. 1028 would help at least 25 million 
Americans each year.
    1. The legislation limits exclusions for preexisting 
conditions.--The bill prohibits health plans from limiting or 
denying coverage for more than 12 months for a medical 
condition that was diagnosed or treated during the previous 6 
months. Once the 12-month limit expires, no new preexisting 
condition limit may ever be imposed on people maintaining their 
coverage, even if they change jobs or health plans.
    The bill provides that coverage of less than 12 months may 
be credited against any preexisting condition exclusion under a 
new health plan. For example, an individual who has had 
coverage for 6 months when he or she changes jobs or health 
plans would face a maximum additional exclusion of 6 months, 
rather than the normal 12 months.
    2. The legislation guarantees availability of health 
coverage.--The bill prohibits insurance carriers, health 
maintenance organizations and other entities issuing health 
coverage from denying coverage to employers with two or more 
employees. It also prevents employment-based health plans from 
excluding any employee from coverage based on health status.
    3. The legislation guarantees renewability of health 
coverage to employers and individuals.--Except in the case of 
fraud or misrepresentation by the policy holder, the bill 
generally requires health plans to renew coverage for groups 
and individuals as long as premiums are paid.
    4. The legislation ends ``job lock'' by making health 
coverage portable.--Because the bill limits preexisting 
condition exclusions and provides credit for prior continuous 
coverage, workers will no longer be locked into jobs or 
prevented from starting their own businesses for fear of losing 
their health coverage.
    5. The legislation promotes group purchasing.--The bill 
assists employers and individuals in forming private, voluntary 
coalitions to purchase health insurance and negotiate with 
providers and health plans. State laws prohibiting such 
associations or excessively restricting their ability to 
bargain with health plans are preempted. These coalitions can 
provide small employers and individuals the kind of clout in 
the marketplace currently enjoyed by large employers.
    6. The legislation improves COBRA coverage for disabled 
individuals and newborns.--Under current law, the Consolidated 
Omnibus Reconciliation Act of 1986 (COBRA) allows disabled 
workers to extend their employment-based coverage for an 
additional 11 months (beyond the original 18 months available 
to all workers) if they become disabled during the course of 
employment with that employer. This law is designed to allow 
disabled individuals to maintain private health coverage until 
they are eligible for Medicare. Senate bill 1028 would allow 
individuals who have disabled family members or who become 
disabled during the original 18-month period of COBRA coverage 
to take advantage of the additional extended coverage currently 
available only to workers who already are disabled at the time 
they leave employment.
    In addition, the legislation also allows newborns and 
adopted children to have access to their parents COBRA coverage 
immediately, instead of waiting until the health plan's next 
open enrollment period.
    7. The legislation helps individuals leaving group coverage 
maintain health coverage.--The bill guarantees the availability 
of individual health coverage to individuals who have had 
employment-based coverage for at least 18 months and who are 
ineligible for or have exhausted COBRA coverage. Because the 
States are experimenting with methods of guaranteeing 
individual coverage and the National Association of Insurance 
Commissioners (NAIC) is developing a model law in this area, 
the legislation provides maximum flexibility for the States to 
address the issue of group-to-individual portability and 
directs the Secretary of Health and Human Services (HHS) to 
study current State efforts.
    8. The legislation applies to all employment-based health 
plans.--The reforms contained in S. 1028 generally apply to all 
group health plans sponsored by employers and unions, including 
self-insured plans, and to all employers with two or more 
employers.
    9. The legislation promotes state flexibility.--With 
respect to policies offered by insurance carriers, health 
maintenance organizations and other entities that currently may 
be regulated by the States, the bill allows States to enact 
insurance reforms providing additional protection for consumers 
beyond the minimum requirements contained in the legislation.

              II. Background and Need for the Legislation

                              a. overview

    An estimated 43 million Americans (18.7 percent of the 
nonelderly population) will be without health insurance 
coverage for some period of time in 1995, one million more than 
in 1994.1 In addition, an estimated 81 million Americans 
suffer from some type of preexisting medical condition that 
could make it difficult for them to obtain health coverage, 
especially for that condition.2
    \1\ New York Times, August 27, 1995, page 1.
    \2\ Citizens Fund, ``Health Insurance at Risk,'' June 1991, page 8.
---------------------------------------------------------------------------
    There are two principle barriers to obtaining health 
coverage: affordability and availability. Underwriting and 
rating practices utilized by insurers and some employer-
sponsored health plans restrict the availability of coverage 
for people with preexisting medical conditions and other 
characteristics associated with above-average utilization of 
health care.3 These practices make it particularly 
difficult for small businesses and individuals to obtain 
affordable health coverage.
    \3\ Congressional Research Service Report for Congress, ``Health 
Insurance: Reforming the Private Market,'' August 3, 1995.
---------------------------------------------------------------------------
    In 1994, 61 percent of Americans under the age of 65 
received health coverage through the employment-based 
system.4 However, the current market provides too little 
protection for individuals and families with significant health 
problems. Because of the prevalence of participation 
requirements, preexisting condition clauses, and discriminatory 
enrollment practices, many workers have had to limit their 
employment choices to hold on to their health coverage while 
others live with the fear of knowing that a job layoff could 
mean a total loss of health coverage.
    \4\ The Urban Institute, February 1995.
---------------------------------------------------------------------------
    In fact, millions of Americans are at risk of becoming 
uninsured or subject to preexisting condition exclusions under 
the current system because they change jobs, lose jobs, or work 
for employers who change insurance policies. According to the 
General Accounting Office (GAO), 25 million Americans would be 
helped by Federal portability reforms contained in S. 1028; 
roughly 12 million workers with employer-based health care 
coverage leave their jobs every year and millions more lose 
their jobs.5 In addition, employers that provide health 
coverage to their employees often change health insurance 
plans, further exposing those with medical conditions to gaps 
in coverage. Small employers generally change policies every 3 
to 4 years.6
    \5\ GAO, ``National Portability Standards Would Facilitate Changing 
Health Plans,'' July 18, 1995.
    \6\ American Academy of Actuaries (staff discussion).
---------------------------------------------------------------------------
    Small employers face some distinct problems in trying to 
provide health coverage for their workers. Statistically, small 
businesses are more likely to be low-wage firms for whom health 
insurance coverage may represent a substantial increase in 
total compensation costs. In addition, small employers 
sometimes are more economically fragile than medium-sized and 
large-sized businesses. A major cause of the difficulties faced 
by small businesses, however, lies in the nature of the private 
insurance market itself. Because they have less purchasing 
power, small firms often are unable to buy coverage at any 
price, must pay more for coverage when they are able to obtain 
it, and cannot count on stable premiums.

          B. evolution of the private health insurance market

    The private health insurance system has evolved gradually 
over the course of this century, largely in response to 
competitive pressures. One important trend has been a gradual 
move away from cross-subsidization of the costs of health care 
coverage. In the 1930's, the original Blue Cross plans, along 
with similar plans developed by providers and consumers of 
care, offered insurance at standard rates to all purchasers. 
Under this community-rating system, low-risk, low-cost 
individuals and groups subsidized the costs for the higher-risk 
segments of the insured population.
    The rise in competition from commercial insurance companies 
in the 1940's led to ``experience rating'' for large groups 
and, as a result, increasing segmentation of the private 
insurance market. Low-cost groups demanded that the rates they 
paid for coverage be related to the costs incurred for their 
group alone, and the commercial insurers met this demand. 
Ultimately, the Blues were obliged to follow their lead and to 
offer experience rated insurance to large groups. Some groups 
found that they had sufficient resources to withdraw from the 
insurance market altogether and insure themselves, further 
reducing the pool of firms seeking coverage--and further 
increasing costs--in the community-rated market. A combination 
of high administrative costs charged by insurance carriers, 
State mandates, and medical inflation contributed to this 
withdrawal. The resulting market segmentation has exacerbated 
the difficulties many small employers face in obtaining 
affordable coverage.
    As health care costs continued to climb, insurance carriers 
also began to utilize experience rating and increasingly 
aggressive underwriting practices in the small group market. As 
a result, competition among insurers in today's small group 
insurance market is based largely on risk selection and not on 
the basis of efficiency or service to the customer. The logic 
of a competitive insurance market has thus worked to reduce the 
degree of cross-subsidy in the cost of health insurance, as 
insurers compete for the business of groups representing the 
most favorable or predictable risks. Attempts to remedy this 
situation have proven difficult because of the division of 
roles between the Federal and State governments in regulating 
health plans.

                     c. regulation of health plans

    Currently, responsibility for regulating health plans is 
divided between the Federal Government and the States. Under 
the Employee Retirement Income Security Act [ERISA], the 
Federal Government regulates private health plans offered by 
employers and unions. The States are responsible for regulating 
health coverage sold by insurance carriers. Today, self-funded 
employer plans cover 40-50 percent of the privately insured 
population,7 and data shows that self-funding is 
increasing, particularly among smaller firms.8
    \7\ CRS, ``Health Insurance: Reforming the Private Market,'' August 
3, 1995.
    \8\ GAO, ``ERISA and Health Reform,'' July 1995.
---------------------------------------------------------------------------
    According to the Employee Benefit Research Institute 
(EBRI), 74 percent of employers with 500 or more employees 
self-funded their health plans in 1994, up from 63 percent in 
1993. EBRI also reports that an estimated 22 million full-time 
employees in private industry and State and local governments 
participated in self-funded employment-based health plans in 
1994. Because ERISA prohibits States from regulating self-
insured health plans provided by employers and unions, States 
are not able to control the health care coverage offered to at 
least half of the employed population. Preemption has fostered 
innovation and efficiency, particularly by large employers, but 
also has left many employees vulnerable to potential abuse and 
has allowed job lock to perpetuate in the majority of the work 
force.

1. Self-funded plans

    Currently, many employers retain the risk for paying the 
cost of claims directly out of company assets rather than 
purchasing commercial health insurance. In addition, 
multiemployer plans established pursuant to collective 
bargaining agreements (known as ``Taft Hartley'' plans) between 
workers' unions and workers' employers also may be self-funded.
    Although the terms ``self-funded'' and ``self-insured'' 
have become synonymous with ERISA plans, these terms are not 
found in ERISA. Instead, they have been created and applied by 
the courts and, as a result, there is ambiguity and uncertainty 
among many employers and employees as to the status of certain 
employee benefit plans. Much of the current ambiguity is 
fostered by the practice of purchasing stop-loss coverage by 
employers and unions who cannot, or choose not to, bear the 
entire risk or providing benefits to plan participants.9 
In testimony before this committee in July 1995, several 
witnesses told the committee that the use of increasingly lower 
stop-loss levels has increased confusion about the legal status 
of self-insured plans and resulted in further segmentation of 
the insurance market.
    \9\ As the United States' General Accounting Office stated in a 
recent report: ``Accurately assessing [the degree to which firms are 
self-funding] is difficult given the dynamic nature of the health 
market and the increasingly blurred distinctions between self-funded 
and insured plans. In many cases, employees do not know whether their 
employer-based health plan is self funded or purchased through an 
insurer. This results partly because employers are increasingly 
adopting funding arrangements that are neither fully insured or self-
insured.'' GAO Report, ``ERISA and Health Reform,'' July 1995, page 3.
---------------------------------------------------------------------------
    Under current law, these ``self-funded'' or ``self-
insured'' health plans are preempted from State regulation 
under ERISA. ERISA was crafted to leave the content and design 
of employer health plans to employers in negotiation with their 
work force, without requiring employers and multiemployer plans 
to comply with numerous, conflicting State laws. While ERISA 
does establish certain regulations for health benefit plans in 
the area of reporting and disclosure, fiduciary standards, 
claims review, and enforcement, these regulations do little to 
assure the portability of health benefits. For example, Federal 
law currently does not place any limitations on the use or 
definition of preexisting condition limitations by employer-
sponsored, self-funded health plans.
    Under ERISA, employers and unions that operate health 
benefit plans on a self-funded basis restrict coverage for 
preexisting medical conditions in the same manner as insurance 
carriers. Studies show that at least 60 percent of non-Health 
Maintenance Organization (HMO) plans offered by firms with 100 
or more full-time employees had preexisting condition clauses 
in 1993.10 Some employers deny health insurance altogether 
to individual employees or their dependents due to their 
current or past health problems.
    \10\ See CRS ``Health Insurance: Reforming the Private Market,'' 
August 3, 1995.
---------------------------------------------------------------------------

2. Group health insurance market

    The group health insurance market, regulated by the States, 
is typically divided into two separate markets: the large group 
insurance market and small group insurance market. 
Traditionally, State regulation of the health insurance 
industry has focused on such areas as financial stability, 
marketing practices, covered services, and policy forms. 
Recently, however, as small employers faced special problems in 
trying to provide health insurance for their workers, States 
initiated broader sets of reforms in the small group insurance 
market (typically defined as 2 or 3 to 25 or 50 employees).
    In recent years, the majority of States have passed laws: 
(1) requiring carriers to sell health insurance without regard 
to the medical history or health status of employers or 
individual employees on a guaranteed renewable basis; (2) 
limiting the amount that insurance carriers may charge for 
their policies; (3) guaranteeing renewability of insurance 
policies; and (4) guaranteeing portability of insurance by 
limiting preexisting condition exclusions and crediting waiting 
periods satisfied under previous coverage.
     Currently, 45 States have passed some type of small group 
health insurance reform law in an attempt to level the playing 
field within the insured marketplace. However, these State 
reforms vary in their ability to guarantee renewability and 
portability of health insurance coverage, and a handful of 
States have not addressed these issues at all. Moreover, 
because only a limited number of States have extended similar 
reforms to larger employers and State reforms do not apply to 
self-funded ERISA plans, a majority of workers still lack 
access to reliable health coverage.

 3. Individual insurance market

     Recognizing the interaction between the small group and 
individual insurance markets, several States recently have 
begun to turn their attention to reforming the individual 
insurance market, and the National Association of Insurance 
Commissioners (NAIC) plans to propose a model law on individual 
market reform within the next few months.
     There are an estimated 10 million to 20 million 
individuals who currently purchase health insurance in the 
individual insurance market. Individuals seeking coverage in 
the individual health insurance market are much less likely to 
have access to affordable and guaranteed renewable coverage 
than those purchasing insurance in the group market. Moreover, 
these individuals generally face higher premium costs than 
those covered under a group plan, they are subject to 
discriminatory rating practices (such as tier rating), and they 
lack portability of coverage. States also are finding that 
there is increasing risk segmentation between the individual 
and small group markets, as employers and group insurance 
carriers sometimes force unhealthy employees to purchase 
coverage in the individual market rather than covering them 
under a group health plan.
     In order to provide access to insurance coverage for 
individuals, States have historically relied on limited 
mechanisms such as high risk pools and special State 
legislation that enables Blue Cross/Blue Shield plans to avoid 
some of the requirements ordinarily imposed on commercial 
insurers in exchange for providing coverage to individuals on 
an open enrollment basis. Only 20 States have individual market 
reform laws, and these laws have thus far been relatively 
limited in scope. Therefore, the majority of individuals may 
face barriers to obtaining health coverage if they lose their 
job, are hired by an employer that does not offer coverage, or 
leave a job with health coverage to become self-employed.

                  D. Lack of dependable health coverage

1. Denial and cancellation of coverage

     In the current market, many health plans attempt to avoid 
enrolling older or sicker individuals and groups. In 
considering what employer groups to accept, insurers consider 
characteristics of the entire group, such as the type of 
business in which the firm is engaged, as well as 
characteristics of individual members of the group that may 
predict their future need for health services. Whole industries 
have been redlined out of coverage because they are thought to 
employ people who are likely to get sick. A study by the 
Congressional Research Service (CRS) found that one typical 
insurer routinely denied coverage to 35 separate types of 
businesses, ranging from auto dealers to restaurants.11
    \11\ ``Insuring the Uninsured: Options and Analysis,'' 
Congressional Research Service, Library of Congress, October 1988.
---------------------------------------------------------------------------
     Even businesses and individuals with health insurance 
cannot be sure of maintaining their coverage if illness 
strikes. Insurers can collect premiums for years--and then 
suddenly refuse to renew coverage if individuals or employees 
begin to incur large health costs. For example, during his 
testimony before the committee on July 18, Mr. Tom Hall of 
Oklahoma City, Oklahoma, explained that when he bought out his 
partners and started his own business, he was denied individual 
insurance coverage because of his preexisting heart condition 
by the same insurance carrier that had provided him coverage 
under a group policy for nearly 30 years.

2. Exclusions for preexisting conditions and lack of portability

     Health plans often deny coverage for the very conditions 
most likely to require insurance. As many as 81 million 
Americans have preexisting medical conditions that could affect 
their insurability.12 Preexisting condition limits are 
routinely imposed in plans offered to small and large 
businesses, and to individuals. More than half of all workers 
are enrolled in employment-based plans that impose some form of 
preexisting condition exclusion or limitation.13
    \12\ Citizens Fund, ``Health Insurance at Risk'' June 1991, page 8.
    \13\ Gabel, Liston, Jensen and Marsteller, ``The Health Insurance 
Picture in 1993: Some Rare Good News'' Health Affairs, Spring (I) 1994, 
page 328.
---------------------------------------------------------------------------
     Such limitations are often justified as a means of 
preventing people from gaming the system and buying insurance 
only when they become sick. But those who have bought insurance 
and faithfully paid premiums for years can find themselves 
subjected to exclusions if their employer changes insurance 
carriers or if they change jobs or lose their jobs.
          An estimated 23 million people lose insurance 
        coverage annually;
          Eighteen million Americans change insurance policies 
        annually when someone in their family changes jobs;
          Small businesses providing insurance to their 
        employees typically change policies every 3 to 4 years.
     Because health plans impose exclusions for preexisting 
conditions and deny coverage for those considered poor health 
risks, millions of Americans are caught in ``job lock.'' They 
would like to change jobs or start their own business to 
advance their careers and improve their family's standard of 
living--but the risk of losing their health coverage is too 
great. A Washington Post/CBS News survey found that one-quarter 
of all American workers stay in jobs they otherwise would leave 
because they fear losing their health coverage.

    E. lack of purchasing power for individuals and small businesses

     In recent years, large businesses have been able to use 
their purchasing power to promote competition among health 
plans and providers, improve the quality of health care for 
their employees, and negotiate more favorable rates. For small 
businesses, however, the cost of health insurance continues to 
climb. According to a recent survey, health costs for large 
employers declined 1.9 percent in 1994, while small employers 
experienced an average increase of 6.5 percent. Firms with 
fewer than 10 workers were not included in the survey, and 
probably experienced even higher increases. Small businesses 
also pay more in administrative costs and contribute more to 
insurance company profits for the insurance they are able to 
purchase--as much as 40 or even 50 percent of the amount paid 
out in medical claims, compared to just 5 percent for the 
largest firms.

             f. federal and state insurance reform efforts

     Congress has wrestled with insurance reform legislation 
with little success since the early part of this decade. The 
last several Congresses repeatedly have considered legislation 
that would limit the ability of health plans to deny or 
restrict coverage, or to vary premium rates, on the basis of 
health status. In the 102d Congress, the Senate twice passed a 
small group insurance reform proposal developed by Senator 
Bentsen, first as part of the Senate amendment to H.R. 4210, 
the Tax Fairness and Economic Growth Act of 1992, and again in 
the Senate amendment to H.R. 11, the Revenue Act of 1992. 
However, the health insurance provisions were dropped in 
conference on both bills.
     In the absence of congressional action, the States have 
taken the lead in reforming the health insurance market. In 
1992, the NAIC, representing the insurance commissioners of the 
50 States, issued a model law for reform of the small group 
insurance market. By the end of 1994, 45 States had adopted 
similar or identical reforms. Most commonly, such reforms 
require carriers to sell health insurance to small employers 
without regard to the medical history or health status of the 
group or individual members of the group on a guaranteed 
renewable basis. These reforms also establish limits on how 
much premiums may differ among businesses insured by the same 
carrier. As of mid-1995, about 20 States had extended some type 
of underwriting and rating restrictions to health insurance 
policies sold to individuals. In 1995, the NAIC approved a 
revised small group health insurance model law that, among 
other changes, would expand small group reforms to firms with 
only one employee and further tighten premium rating 
restrictions. In addition, the NAIC is expected to adopt an 
individual insurance reform model later this year.
     However, State insurance reforms are inherently limited. 
First, by definition, most State reforms are targeted to small 
employers. According to EBRI, 70 percent of workers with health 
coverage work for firms with more than 100 employees. Moreover, 
State reforms cannot affect a large portion of the market 
because ``self-insured'' health benefit plans sponsored by 
employers and unions are beyond the reach of State regulators 
because of the preemption provisions of the Employee Retirement 
Income Security Act (ERISA). Finally, individual States are 
powerless to ensure portability of health coverage to 
individuals who move from one State to another or cross State 
borders to obtain health care services.

         III. Legislative Consideration and Votes in Committee

    The Health Insurance Reform Act of 1995, S. 1028, was 
introduced on July 13, 1995, by Senators Kassebaum, Kennedy, 
Frist, Dodd, Jeffords, Mikulski, Gregg, Wellstone, Gorton, 
Pell, Hatch, Simon, Chafee, and Lieberman. The bill was 
referred to the Senate Committee on Labor and Human Resources, 
which held a hearing to consider the legislation on July 18. 
Prior to the drafting of the legislation, the committee held 
two days of hearings on March 14 and 15 of this year, entitled 
``Effective Health Care Reform in a Changing Marketplace,'' to 
examine changes in the health care market and possible 
directions for reform.
    On August 2, 1995, the committee held an executive session 
to consider S. 1028. An amendment in the nature of a substitute 
was brought up for consideration by Chairman Kassebaum, and 
Senators Kennedy, Frist, Dodd, Jeffords, Mikulski, Gregg, 
Wellstone, Gorton, Pell, and Simon. Five amendments were 
adopted in executive session, including two ``sense of the 
committee amendments,'' and S. 1028 was reported favorably by a 
unanimous roll call vote of 16 to 0.

      A. Amendments adopted by voice vote during executive session

    Three amendments were adopted in executive session by voice 
vote.
    1. Senator Jeffords and Senator Kassebaum offered an 
amendment that amended section 104(b)(1) of the Employee 
Retirement Income Security Act (ERISA) to require employer-
sponsored health plans to provide timely notice to participants 
of material reductions in covered services. The amendment, 
which was adopted by voice vote, requires plan sponsors to 
provide notice to participants within 60 days of the adoption 
of such material reductions or, in the alternative, at regular 
intervals of 90 days. Under current law, notice of material 
modifications to a plan (including material reductions in 
covered services) must be provided to participants within 210 
days of the close of the plan year.
    The Jeffords-Kassebaum amendment also amended section 
102(b) of ERISA to require plan sponsors to provide more 
specific information to participants regarding the 
administration, financing, and resolution of claims under the 
plan. More specifically, the amendment requires plan sponsors 
to notify participants of the plan's financing arrangements. In 
the case of a self-funded employer plan, for example, the 
employer would be identified as the source of financing. In the 
case of a plan that is financed through arrangements with stop-
loss carriers or carriers offering fully insured group health 
plans, the carrier also should be identified. In addition, the 
amendment requires plan sponsors to notify participants of the 
office, contact or title of the individual at the United States 
Department of Labor from whom participants may obtain 
information regarding their rights under this act and ERISA.
    2. Senator Jeffords also offered an amendment to modify 
section 131(h) of the legislation. The amendment would have 
preempted State benefit mandates to allow health plan 
purchasing cooperatives (HPPC's) formed under the bill to 
design their own benefit packages or, in those States that have 
adopted scaled-back benefit designs for small employers, to 
utilize those small group plan designs. After a brief colloquy, 
Senator Jeffords agreed to modify his amendment, and the 
modified amendment was subsequently adopted by voice vote. The 
modified Jeffords amendment allows HPPC's to offer scaled-back 
benefit packages in those States that have allowed such 
packages to be sold to small employers. Unlike the original 
amendment, State mandates of general applicability are not 
preempted except under these conditions.
    3. Senator Wellstone offered an amendment to clarify the 
definition of ``preexisting condition'' in section 103(e) of 
the legislation. The amendment, which was adopted by voice 
vote, clarifies that the term ``preexisting condition'' as used 
in the legislation means ``a condition, regardless of the cause 
of the condition, for which medical advice, diagnosis, care, or 
treatment was recommended or received'' during the 6-month 
period prior to an individual's enrollment in a health plan. 
While the language of the Wellstone amendment would require 
that preexisting condition exclusions be applied equally to 
similar medical conditions without regard to the cause of such 
conditions (i.e., subject to a maximum exclusion of 12 months), 
this amendment was designed primarily to prohibit the use by 
insurance companies of preexisting medical conditions to deny 
or limit coverage to victims of domestic abuse.

         B. Three rollcall votes taken during executive session

    Rollcall votes were taken on three ``sense of the 
committee'' amendments during the August 2 executive session.
    1. Senators Frist, Coats, Gregg, and Abraham offered an 
amendment to include language in the legislation stating that 
it is the ``sense of the committee'' that medical savings 
accounts ``should be encouraged as part of any health insurance 
reform legislation passed by the Senate * * *.'' The amendment 
was adopted by a roll call vote of 9 yeas to 7 nays.
        YEAS                          NAYS
Kassebaum                           Kennedy
Jeffords                            Pell
Coats                               Dodd
Gregg                               Simon
Frist                               Harkin
DeWine                              Mikulski
Ashcroft                            Wellstone
Abraham
Gorton

    2. Senator Harkin offered an amendment stating that it was 
the ``sense of the committee'' that the Senate should not adopt 
any legislation that: (1) would have the impact of increasing 
the number of uninsured Americans or (2) would require middle 
and low-income senior citizens to pay a larger share of 
Medicare program costs than they pay now. The Harkin amendment 
was defeated by a roll call vote of 7 yeas to 9 nays.
        YEAS                          NAYS
Kennedy                             Kassebaum
Pell                                Jeffords
Dodd                                Coats
Simon                               Gregg
Harkin                              Frist
Mikulski                            DeWine
Wellstone                           Ashcroft
                                    Abraham
                                    Gorton

    3. In response to the Harkin amendment, Senators Kassebaum 
and Abraham offered an amendment stating that it was the 
``sense of the committee'' that the Senate ``should take 
measures necessary to reform the Medicare program, to provide 
increased choice for seniors, and to respond to the findings of 
the public trustees by protecting the short-term solvency and 
long-term sustainability of the Medicare program.'' The 
Kassebaum-Abraham amendment noted that the public trustees of 
Medicare had concluded in their 1995 annual report that: (1) 
``the Medicare program is clearly unsustainable in its present 
form''; (2) ``the Hospital Insurance Trust Fund, which pays 
inpatient hospital expenses, will be able to pay benefits for 
only about 7 years and is severely out of financial balance in 
the long range''; and (3) the trustees ``strongly recommend 
that the crisis presented by the financial condition of the 
Medicare trust funds be urgently addressed on a comprehensive 
basis, including a review of the programs' financing methods, 
benefit provisions, and delivery mechanisms.'' The Kassebaum-
Abraham amendment was adopted by a roll call vote of 9 yeas to 
7 nays.
        YEAS                          NAYS
Kassebaum                           Kennedy
Jeffords                            Pell
Coats                               Dodd
Gregg                               Simon
Frist                               Harkin
DeWine                              Mikulski
Ashcroft                            Wellstone
Abraham
Gorton

     C. Two amendments offered and subsequently withdrawn without 
                 consideration during executive session

    Three amendments were offered, and then withdrawn without 
consideration, during the executive session on August 2.
    1. Senator Harkin offered, and then withdrew, an amendment 
to add the term ``genetic information'' to the list of factors 
upon which employment-based and individual health plans may not 
base the establishment of eligibility, continuation, enrollment 
or premium contribution requirements. During a brief colloquy, 
the committee agreed that the terms ``health status'' and 
``medical history'' as used in both section 101(a)(1)(B) 
relating to employment-based health plans and 110(a) relating 
to individual health plans were intended to be broad enough to 
include ``genetic information.'' Therefore, the chairman 
indicated that this report would reflect the committee's 
intention in that regard.
    2. Senator Wellstone offered, and then withdrew, an 
amendment to prohibit insurance carriers from declining to 
offer coverage or imposing preexisting condition limitations 
based on the cause of a condition for which medical advice, 
diagnosis, care, or treatment was recommended or received.
    3. Senator Jeffords offered, and then withdrew, an 
amendment to prohibit the imposition of lifetime limits in all 
health plans.

         IV. Explanation of the Legislation and Committee Views

                     A. General Overview of S. 1028

    The primary purpose of the reforms contained in the Health 
Insurance Reform Act of 1995, S. 1028, is to provide greater 
access, security, and portability of health benefits. The 
legislation is designed to curtail the most common abuses in 
the current system by requiring health plans to compete based 
on quality, price, service, and efficiency, instead of refusing 
to offer coverage to those who are in poor health and who need 
health coverage the most.
    Senate bill 1028 encourages private market forces to help 
restrain health care costs by empowering more individuals and 
employers to become active purchasers of health care services. 
The committee's unanimous approval of S. 1028 should not be 
read as a sign that certain members of the committee have 
surrendered the goal of universal coverage. Instead, it should 
be viewed as a recognition that many positive changes short of 
universal coverage can significantly increase the availability, 
portability, and security of health coverage.14
    \14\ Several witnesses commented during the committee's July 18 
hearing that the scope of S. 1028 was appropriate, and the design of 
its provisions was sound. For example, Kevin Haugh from the Institute 
for Health Policy Solutions testified:

      I believe what distinguishes this bill from many other 
      pieces of legislation is its coherency of purpose. The bill 
      establishes a clear set of reasonable objectives and holds 
      to them. The bill avoids provisions which prey on each 
      other, and in the process compromise the whole. The bill 
      also importantly recognizes and utilizes the various 
      different parties necessary to effectively carry out its 
      objectives--the private sector, States and the Federal 
---------------------------------------------------------------------------
      Government.

Testimony of Kevin Haugh, Institute for Health Policy Solutions, before 
the Senate Committee on Labor and Human Resources, July 18, 1995.
    The committee is very concerned about the affordability of 
health coverage. It recognizes, however, that a majority of 
State small group reform laws include rating restrictions which 
limit the amount by which insurance companies and HMO's may 
vary premiums. Moreover, the committee anticipates that States 
may adjust their rating laws to take into consideration the 
broader group of employers and individuals who will be covered 
by this legislation. In addition, many States are in the 
process of adopting new rating standards recently recommended 
by the NAIC. Therefore, the committee believes it is not 
appropriate to enact federal rating standards at this time. As 
a result, S. 1028 requires the Secretary of Health and Human 
Services (HHS) to evaluate and report on the various mechanisms 
used by States to ensure the availability of reasonably priced 
health insurance to employers purchasing small-group coverage 
as well as individuals purchasing coverage on a nongroup basis.
    While some of the more comprehensive reforms contained in 
past legislation have not been included, S. 1028 nevertheless 
contains many important consumer protections that will benefit 
millions of Americans. Perhaps most significantly, the reforms 
in S. 1028 extend to self-insured ERISA plans, to policies 
offered to large and medium-sized employers, and to individuals 
leaving group coverage. As the NAIC testified during the July 
18 hearing: ``Since portability is a prime concern among 
consumers regarding insurance, and since State regulators 
cannot affect portability with respect to ERISA plans, we are 
pleased you have taken this step with your bill.'' Testimony of 
the Special Committee on Health Care Reform of the National 
Association of Insurance Commissioners before the Senate 
Committee on Labor and Human Resources, Josephine Musser, 
Recording Secretary, NAIC, July 18, 1995, pages 2-3.15
    \15\ See also Testimony of Blue Cross and Blue Shield, page 4 
(``[o]nly the Federal Government can establish these portability 
standards for all groups, both large and small''); Testimony of Kevin 
Haugh, Institute for Health Policy Solutions, page 4 (``[p]roviding 
continuity of coverage across the large employer market and between the 
large and small employer markets requires Federal action.'').
---------------------------------------------------------------------------
    At the same time, as testimony by the NAIC reflected, the 
legislation does not preempt many of the innovative and 
effective protections which the States have developed and 
implemented, and encourages further innovations with regard to 
State insurance reforms.16 For example, as of May 1995, 14 
States had passed laws that define small groups down to a 
single life, while 17 States define small groups as two or more 
employees. With respect to the number of days necessary to 
satisfy continuous coverage requirements, 19 States allow 
individuals a gap of more than 30 days and one State allows a 
9-month gap in coverage.
    \16\ Testimony of the National Association of Insurance 
Commissioners, before the Committee on Labor and Human Resources, 
United States Senate, pre-sented by Josephine Musser, Wisconsin 
Commissioner of Insurance, July 1, 1995, page 2.
---------------------------------------------------------------------------
    The committee acknowledges that S. 1028 will not cure all 
of the ills in the Nation's health insurance system. But, as 
the General Accounting Office (GAO) testified before the 
committee in July 1995, it will help at least 25 million 
Americans each year by making it easier for employers and 
individuals to buy and keep health insurance--even when an 
employee or family member becomes ill. And it will allow people 
to change jobs without fear of losing their health insurance. 
As one witness testified during the committee's July 18 
hearing, S. 1028 will immediately give the 137 million 
Americans covered by group health plans greater assurance that 
they will be able to maintain coverage when they change jobs. 
See Testimony of Blue Cross and Blue Shield Association, page 
2.

B. overview of substantive changes to S. 1028 contained in legislation 
                        adopted by the committee

     In addition to the amendments discussed in section III 
above, the substitute amendment proposed by the chairman 
contained several substantive modifications to the original 
legislation.

 1. Major modifications to individual market portability provisions

     The main substantive difference between the bill that was 
introduced July 13 and the chairman's substitute amendment for 
S. 1028 are the provisions on individual market reform. Section 
112 of the original bill made clear that State individual 
market reforms, including guarantee issue, open enrollment, 
conversion policies, and high risk pools, would apply in lieu 
of the group-to-individual portability and individual 
renewability provisions of section 110 and 111 of the 
legislation unless the Secretary of HHS determined that those 
State reforms were not ``at least as effective'' as the 
individual reforms contained in S. 1028. This approach was 
fully embraced by the NAIC and the National Governors 
Association. See Testimony of Josephine Musser, page 7; August 
1 letter from Governor Howard Dean and Governor Tommy G. 
Thompson on behalf of the National Governors' Association to 
the Honorable Nancy Kassebaum, August 1, 1995, page 2 (``[w]e 
believe * * * that there is value in a federal standard [for 
individual market reform] as long as States have some latitude 
within that standard. Toward that end, your bill recognizes the 
advances made by States in the individual market by including a 
carefully crafted test for Federal preemption.'').
     Despite this presumption in favor of State reforms, there 
was some concern that the language in the original legislation 
was too open-ended and granted the Secretary of HHS too much 
authority to override State individual market reforms. The 
bill, as reported, clearly responds to these concerns by 
clarifying further that deference should be given by the 
Secretary to State programs achieving the goals of the bill 
through alternative mechanisms.
     Second, in response to concern about adverse selection 
among those who move from group to individual coverage, the 
substitute requires individuals to maintain group coverage for 
18 months and to exhaust eligibility for COBRA before becoming 
eligible for individual coverage on a guaranteed issue basis. 
The original legislation required continuous group coverage for 
only 12 months.
     Recognizing that affordability is a major concern in the 
individual insurance market, the legislation provides a limited 
continuity of coverage right for individuals leaving the group 
market. Clearly, these requirements do not go nearly as far as 
the ``guaranteed issue'' requirements that are in effect in 
some States. Under State-guaranteed issue requirements, 
insurance companies are required to sell policies to 
individuals, regardless of whether they have maintained prior 
coverage. In addition, the legislation does not require 
portability between individual policies. The legislation leaves 
to the States decisions as to whether to enact broader reforms 
such as individual guarantee issue and individual-to-individual 
portability. As described in section 302 of the legislation, 
the committee has asked for a report to evaluate the 
effectiveness of the provisions of the legislation, and the 
various State insurance reforms, in ensuring the availability 
of reasonably priced health insurance to employers and 
individuals purchasing coverage.
     The committee believes that any increased costs associated 
with the group-to-individual portability provisions of S. 1028 
will be minimal. Moreover, the legislation provides States with 
ample flexibility to spread any increased costs more broadly 
and to adopt alternative individual market reforms that may be 
more appropriate in a particular locale.17
    \17\ The testimony of several witnesses at the committee's July 18 
hearing support this point. For example Kevin Haugh of the Institute 
for Health Policy Solutions testified at the committee's July 18 
hearing that ``[i]n my opinion, the very limited nature of this 
provision will minimize the potential financial impact * * * on the 
individual market. Evidence from employer surveys and insurer 
experience in the States suggests that a small percent of individuals 
leaving an employer elect COBRA or other continuation and a very, very 
small percent of individuals eligible for individual conversion 
following continuation choose to convert * * * In addition, the bill, 
in my opinion, strikes a nice State-Federal balance by allowing States 
to meet the bill's requirements to the extent they have measures in 
place which achieve similar goals. See Statement of Kevin Haugh, at 
page 6 (italic in original).
---------------------------------------------------------------------------
     Moreover, an independent analysis by the American Academy 
of Actuaries determined that if the group-to-individual 
portability provisions of S. 1028 were enacted they could cause 
a premium increase of as little as 3 percent.18 This is 
supported by an actuarial analysis by the accounting firm of 
Coopers & Lybrand, which found that individual market reforms 
contemplated in the State of California that are much broader 
than those contained in S. 1028 would cause premiums to rise by 
only 4 percent and have a minimal impact on coverage.19
    \18\ American Academy of Actuaries, August 2, 1995, correspondence 
to the Senate Committee on Labor and Human Resources.
    \19\ Coopers & Lybrand, internal memorandum dated March 6, 1995, on 
``Estimating the Effects of Guaranteed Issue for Individuals and Groups 
of Two on the Current California Small Group Insurance Market.
---------------------------------------------------------------------------

2. COBRA provisions slightly modified

    Because S. 1028 limits the use of preexisting condition 
exclusions for individuals who maintain continuous coverage, it 
seemed feasible to amend COBRA to avoid unnecessary duplicative 
coverage in the case of persons who are now eligible for direct 
employment-based coverage without preexisting condition 
exclusions. Therefore, section 121 of the legislation was 
modified slightly from the original legislation.

3. Study modified

    The study contained in section 302 of the legislation was 
modified to require that the Secretary of HHS conduct a two-
part study on the effectiveness of State laws and the Health 
Insurance Reform Act of 1995. As a result, the Secretary is no 
longer directed to submit a legislative proposal. By January 1, 
1997, the Secretary of HHS must provide to Congress: (1) an 
evaluation of the various mechanisms used to ensure the 
availability of reasonably priced health insurance to employers 
and individuals; and (2) an evaluation of whether standards 
that limit the variation in health insurance premiums will 
further the purposes of this act. The Secretary must submit a 
second report by January 1, 1998, evaluating the effectiveness 
of the provisions of the legislation, and the various State 
insurance reform laws, in ensuring the availability of 
reasonably priced health insurance to employers and 
individuals.

4. Definitions and preemption language modified

    While not a substantive change, it should be noted that the 
legislation as reported by the committee contains modifications 
to several definitions and the preemption language. These 
changes were intended primarily to make clear that self-insured 
ERISA plans continue to be governed by uniform, Federal 
standards and are subject to oversight by the Federal 
Government, not the States. It is the intent of the committee 
that the bill not alter in any way the current preemption 
language of ERISA.

C. Detailed explanation of key provisions of the legislation adopted by 
                             the committee

1. Structure of the legislation

    Senate bill 1028 is divided into three titles: Title I--
Health Care Access, Portability, and Renewability; Title II--
Application and Enforcement; and Title III--Miscellaneous. 
Title I contains the four main subtitles of the legislation: 
Subtitle A--Group Market Rules; Subtitle B--Individual Market 
Rules; Subtitle C--COBRA Clarifications; and Subtitle D--
Private Health Plan Purchasing Cooperatives. Title II 
delineates State and Federal Government responsibilities for 
enforcement of the provisions of the legislation. Finally, 
Title III amends the Public Health Service Act to allow 
federally qualified health maintenance organizations to charge 
a deductible in connection with medical savings accounts and 
contains several ``sense of the committee'' provisions relating 
to matters outside of the committee's jurisdiction.

                         Section 2--Definitions

    The legislation reported by the committee contains several 
modifications of note in the definition section.

2. Definition of Health Plan Issuer

    Rather than the term ``insurance carrier'' or ``insurer'', 
as used in S. 1028 as introduced, the legislation reported by 
the committee contains a definition of the term ``Health Plan 
Issuer.'' The committee intends for the reforms contained in 
this legislation to extend to entities beyond traditional 
insurers and therefore believes that the term ``insurer'' may 
have been too narrow for purposes of this legislation. For 
example, HMO's and other entities that offer health coverage in 
the group market and individual market are not necessarily 
considered insurance carriers and are not always regulated 
under State insurance laws. Nevertheless, the legislation 
clearly is designed to extend reforms to HMO's and other 
entities issuing group and individual health plans. The term 
``health plan issuer'' therefore is designed to be broad enough 
to cover traditional insurance carriers, as well as HMO's and 
other entities subject to State regulation that offer group 
health plans and individual health plans, as defined in the 
legislation.

3. Definition of Employee Health Benefit Plan and Group Health Plan

    One of the challenges of constructing the legislation was 
to extend Federal portability reforms to both the insured and 
the self-insured market without further blurring the lines of 
State and Federal responsibility for regulating health plans. 
To more clearly delineate the roles of the States and the 
Federal Government, as well as the requirements placed by this 
legislation on health plan issuers and on health plans offered 
by employers and unions, the legislation reported by the 
committee uses two separate terms to describe the types of 
health coverage offered by these separate entities.
    The term ``group health plan'' is meant to define an 
insured product, subject to State regulation, that is offered 
by a health plan issuer to employers or others purchasing on 
behalf of a group. The term ``employee health benefit plan'' is 
meant to define a range of employment-based health benefit 
plans, whether fully insured or self-insured, that are offered 
by employers, unions, State governments and churches. 
Therefore, while an employee health benefit plan should not be 
construed to be a group health plan or health plan issuer, an 
employee health benefit plan offering fully-insured health 
benefits to participants would be providing benefits to 
participants through a group health plan offered by a health 
plan issuer. The requirements in the legislation relating to 
these employee health benefit plans generally are enforced by 
the Secretary of Labor.
    These definitions are designed to be both functional and 
forward-looking. The committee recognizes that currently there 
is uncertainty about the legal status of certain arrangements 
providing health care benefits. This legislation is not 
designed to settle such issues. However, it is the intent of 
the committee that as the health care market continues to 
evolve and the courts further illuminate the reaches of section 
514 of ERISA, such arrangements will be covered by the reforms 
contained in this legislation in one way or another--they will 
be considered either health plan issuers or employee health 
benefit plans.

       Title I--Health Care Access, Portability, and Renewability

                     Subtitle A--Group Market Rules

4. Guaranteed availability and nondiscrimination in the group market

    Guaranteed availability.--Section 101(a)(1)(A) of the 
legislation prohibits insurance carriers, HMO's and other 
entities issuing health coverage (``health plan issuers'') from 
declining to offer coverage to any employer with two or more 
employees desiring to purchase coverage. In the current market, 
insurers and HMO's may refuse to offer coverage to employers 
that they consider to have an unhealthy work force, or they may 
offer coverage only to healthy employees. The committee intends 
for the term ``whole group coverage'' to require health plan 
issuers to offer coverage to any employee or dependent whom the 
employer wishes to cover under the terms of its employee health 
benefit plan, and to prohibit health plan issuers from 
excluding any eligible employee or dependent from coverage 
based on his or her health status.
    While this section requires health plan issuers to offer 
coverage to certain employers, neither this section nor any 
other provision of the legislation should be construed to 
require employers to offer or provide health coverage to their 
employees.
    All-markets requirement.--The chairman's substitute added 
the construction clause contained in section 101(c)(2) to make 
clear that section 101(a) does not require health plan issuers 
to offer coverage involuntarily in a particular market (defined 
as the large employer or small employer market). For example, 
an insurance carrier that sells policies only to large 
employers would not be required by this legislation to sell 
policies to small employers.
    Capacity limits.--Health plan issuers may decline to offer 
coverage to employers only if the health plan issuer: (1) 
generally offers coverage on a first-come, first-served basis; 
(2) ceases to enroll any new employers; and (3) demonstrates to 
the State insurance commissioner that its financial or provider 
capacity will be impaired if it is required to enroll 
additional employers. A health plan issuer that ceases 
enrollment under this section may not begin enrolling new 
employers for at least 6 months. This provision is intended to 
balance the desire to maintain quality service to current 
enrollees while prohibiting health plan issuers from engaging 
in ``cherry-picking'' by offering coverage only to healthy 
groups.
    Nondiscrimination.--Section 101(a)(1)(B) prohibits all 
employee health benefit plans, whether insured or self-insured, 
and group health plans offered by health plan issuers from 
establishing eligibility, enrollment, continuation, or premium 
contribution requirements based on health status, medical 
condition, claims experience, medical history, evidence of 
insurability or disability. The legislation does not preclude 
such health plans from establishing eligibility, enrollment, 
continuation or contribution rules based on other factors, such 
as the number of hours per week that an individual works, 
length of employment, or other factors unrelated to health 
status, medical condition, claims experience, medical history, 
evidence of insurability or disability.
    The committee recognizes that employer-sponsored group 
health plans and multiemployer plans have adopted many 
innovative techniques and programs to control costs. In some 
cases, such plans actually provide greater benefits or medical 
services to those in poor health. The committee wishes to make 
clear that it does not intend for section 101(a)(1)(B) to 
preclude such practices.
    The purpose of section 101(a)(1)(B) is to establish a fair 
and nondiscriminatory right to participation in a group health 
plan or employee health benefit plan. The committee does not 
intend for the language in section 101(a)(1)(B) to prohibit 
plans from setting uniformly applicable limits on coverage of 
particular or aggregate benefits, inhibit case-management and 
other techniques to control improper utilization of covered 
services, or change rights under the continuation of coverage 
rules established by COBRA or under the Americans with 
Disabilities Act. Of course, the committee does not intend to 
allow such rules if they are merely a subterfuge for 
discrimination based on health status. For example, a change in 
eligibility that clearly was directed at one sick employee 
would not be permissible under this legislation.
    Health promotion and disease prevention.--Because of the 
difficulty of constructing language which allows such 
beneficial practices to continue, while prohibiting plan 
designs and practices that are intended to discriminate based 
on health status or other related factors, section 101(a)(2) of 
the legislation expressly allows employee health benefit plans 
and health plan issuers offering group health plans to modify 
premiums, copayments, and deductibles in return for adherence 
to programs of health promotion and disease prevention. For 
example, an employer could offer a reduced premium to non-
smokers.
    Genetic information.--As medical science continues to 
develop more advanced tests for analyzing and deciphering 
genetic information, the committee is concerned about 
individuals being denied access to health care coverage based 
on genetic information that may be available to insurance 
carriers, employers, and others offering health coverage. 
Recent advances have allowed researchers to identify a growing 
number of genetic characteristics that place individuals at 
higher-than-average risk of developing disease. Genetic 
information is unique because it is potentially powerful 
information not only about an individual's medical future, but 
also about the medical future of an individual's family 
members. While genetic information about a person's risk for 
future disease may help to avoid or manage illness better, it 
also may put certain individuals at a disadvantage in obtaining 
health coverage.
    Therefore, it is the committee's intent that the terms 
``health status'' and ``medical history'' as used in section 
101(a)(1)(B) of the legislation be interpreted to include 
information about past, present, or future health status and 
medical history, including genetic information. The terms 
``health status'' and ``medical history'' in section 110(a)(1) 
of subtitle B also should be read to prohibit discrimination 
based on the use of genetic information in individual health 
plans. Therefore, the provisions of the bill forbidding group 
health plans and individual health plans from discriminating 
based on health status and medical history also should be read 
to prohibit such plans from establishing eligibility, 
enrollment, continuation, or premium contribution requirements 
based on genetic information.
    The committee acknowledges that a generally recognized 
definition of ``genetic information'' does not exist and that 
the term may be defined differently under different 
circumstances. For purposes of this legislation, however, the 
committee generally intends for the term ``genetic 
information'' to mean information about the genes, gene 
products, or inherited characteristics of an individual covered 
under the terms of a plan, or about his or her family members. 
This construction is intended to protect individuals who have, 
or whose family members have, a gene associated with a genetic 
disorder. It also is intended to protect couples who are 
healthy, but have the gene or genes for a recessive disorder 
that might affect their children.

 5. Guaranteed renewability of group coverage

    Renewal and reasons for nonrenewal.--Section 102(a)(1) of 
the legislation requires health plan issuers to renew group 
health plans sold to employers with two or more employees at 
the option of the employer. Health plan issuers may refuse to 
renew group health plans only for four specified reasons: (1) 
nonpayment of premiums or untimely payment of premiums; (2) 
fraud or misrepresentation of material fact; (3) termination of 
the plan; and (4) failure to meet contribution and 
participation requirements. Employers who provide coverage for 
their employees under a contract or policy with a health plan 
issuer may not be denied renewal by the health plan issuer for 
any reason other than those specified in this section of the 
legislation.20
    \20\ Health maintenance organizations and other network plans may 
refuse to renew coverage to individuals for an additional reason. 
Section 102(c) allows health maintenance organizations and network 
plans to deny renewal to individuals who neither live nor work in the 
group health plan's service area, but only if the denial is applied 
uniformly and without regard to health status.
---------------------------------------------------------------------------
    This section does not require employers or unions to 
continue to provide health coverage to employees or group 
members. Where an employer elects to continue offering coverage 
under an employee health benefit plan or group health plan, 
however, section 102(a)(2) requires that coverage be renewed at 
the option of participants who were covered under the plan. 
Employee health benefit plans and health plan issuers renewing 
group health plans may decline to cover previously covered 
participants and beneficiaries only for five specified reasons: 
(1) nonpayment of premiums or untimely payment of premiums; (2) 
fraud or misrepresentation of material fact; (3) termination of 
the plan; (4) loss of eligibility for COBRA continuation 
coverage; and (5) failure to meet eligibility requirements not 
prohibited by this legislation. Participants and beneficiaries 
who are covered under an employee health benefit plan or group 
health plan may not be denied renewal for any reasons other 
than those specified in this section of the legislation.
    Plan modifications.--Section 102(b)(1) provides rules which 
health plan issuers must follow in order to modify the terms of 
a policy or to discontinue a specific policy and replace it 
with another. For example, this provision would allow insurance 
carriers or HMO's to modify the applicable copayment under the 
plan or to reduce the number of inpatient hospital days covered 
by the plan if the carrier or HMO provided notice of those 
changes 90 days prior to the discontinuation of the current 
plan and offered each plan sponsor or individual purchasing on 
behalf of a group the option to purchase any other group health 
plan offered by the carrier.
    Plan termination.--Section 102(b)(2) provides rules which 
health plan issuers must follow if they decide to discontinue 
group health plans and not to replace them. Under this 
scenario, health plan issuers may discontinue a group health 
plan only if they discontinue coverage to all employers, 
participants, and beneficiaries covered under the plan in the 
State, and provide at least 180 days notice of the 
discontinuation to the State Insurance Commissioner and to each 
employer, participant, and beneficiary covered under the plan. 
Moreover, this section provides that health plan issuers that 
discontinue a group health plan without replacing such plan may 
not sell any group plans in the State for 5 years. Health plan 
issuers may choose to terminate all group health plans offered 
in the State, or all group health plans offered to small 
employers only.

6. Portability of health coverage and limitations on preexisting 
        condition exclusions

    Limits on preexisting conditions.--Section 103 of the 
legislation provides that employee health benefit plans and 
health plan issuers offering group health plans may not limit 
or exclude coverage under such plan for more than 12 months for 
a health condition for which medical advice, diagnosis, care, 
or treatment was recommended or received during the 6-month 
period prior to an individual's enrollment in the plan (without 
regard to waiting periods). The 12-month preexisting condition 
limitation does not apply to newborns covered within 30 days of 
birth, or to pregnancy.
    Cause of the condition irrelevant.--An amendment offered by 
Senator Wellstone, and accepted by voice vote during the 
executive session on August 2, clarifies the intent of the 
legislation that preexisting conditions are to be treated 
equally under the terms of the legislation, regardless of their 
cause. This modification is not intended to prohibit employee 
health benefit plans and group health plans from applying any 
preexisting condition limitations to victims of domestic abuse. 
It is the committee's understanding that most employer-
sponsored plans, whether insured or self-insured, generally do 
not vary the length of preexisting condition periods or limit 
benefits during a period of exclusion based on the cause of a 
medical condition. While the language of the provision is broad 
and applies to all causes of preexisting conditions, the major 
purpose of Senator Wellstone's amendment was to end the 
egregious practice by some health plans of denying or limiting 
health coverage to individuals--particularly women--simply 
because they have been the victim of domestic abuse.
    Employee benefits remain voluntary.--The committee wishes 
to emphasize that nothing in this legislation changes the 
voluntary nature of employee benefits. This point is emphasized 
by section 201(c) of the legislation. For example, if an 
employer-sponsored group health plan or multiemployer plan does 
not ordinarily provide certain benefits or services under the 
terms of the plan, or if the plan provides services that are 
less comprehensive than those available under an individual's 
prior health coverage, it will not be required by this 
legislation to provide more comprehensive benefits or services. 
Similarly, section 103(a)(3) of the legislation should not be 
read to require an employee health benefit plan or group health 
plan to provide any benefits relating to pregnancy that the 
plan does not provide voluntarily or to require a group health 
plan to provide any benefits relating to pregnancy not 
otherwise required by applicable State or Federal law.
    Similar coverage standard.--Section 103(b)(4) allows 
employee health benefit plans and health plan issuers offering 
group health plans to exclude coverage for preexisting 
conditions ``only to the extent'' that a service or benefit was 
not covered under the plan in which the individual was enrolled 
immediately prior to enrollment in the employee health benefit 
plan or group health plan. For example, if an individual was 
covered under a catastrophic health plan immediately prior to 
enrollment in a more comprehensive employee health benefit plan 
or group health plan and that catastrophic plan had a 
deductible of $3,000, the current plan could require the 
individual to cover the first $3,000 of treatments necessitated 
by a preexisting medical condition, even though the health plan 
otherwise provides first dollar coverage. This provision is 
intended to prevent individuals from waiting to obtain 
comprehensive coverage until they are sick and to protect more 
comprehensive health plans from adverse selection.
    Late enrollees.--To encourage individuals to obtain 
coverage at the first available opportunity, employee health 
benefit plans and group health plans offered by health plan 
issuers may exclude coverage for preexisting health conditions 
for 18 months for those individuals who enroll in a the plan at 
a time other than their first opportunity to enroll, except as 
provided in section 104 of the legislation (special enrollment 
periods). In order for a longer waiting period to be imposed, 
the enrollment period during which such individual declined 
coverage must have lasted for at least 30 days.
    Affiliation periods.--Under section 103(d) of the 
legislation, network plans that do not utilize preexisting 
condition limitations may substitute a 60-day affiliation 
period (90 days for late enrollees), during which the plan may 
not be required to provide health benefits and no premium shall 
be charged to an individual. The purpose of section 103(d) is 
to provide equitable treatment for plans, such as HMO's, that 
do not wish to address adverse selection by imposing 
preexisting condition exclusions.
    Credit for prior coverage.--Section 103(b) of the 
legislation provides that the 12-month maximum preexisting 
condition period allowed under section 103(a) of the bill shall 
be reduced by one month for each month that an individual was 
continuously covered under a prior health plan. An individual 
is considered ``continuously covered'' if he or she has 
maintained coverage under a group or individual health plan 
without a break in coverage of greater than 30 days.
    Therefore, an individual who has maintained continuous 
coverage during the year immediately prior to his or her 
enrollment in a new employee health benefit plan or group 
health plan (i.e., coverage for at least 11 of the last 12 
months) may not be denied coverage for a preexisting condition 
under a new employee health benefit plan or group health plan. 
Furthermore, the individual will receive one month of credit 
against any preexisting condition exclusion under the new plan 
for each month he or she was covered under the previous plan, 
even if the individual had been covered under the previous plan 
for less than 12 months. This provision is the key to providing 
portability of health coverage and providing incentives for 
individuals voluntarily to purchase health coverage in a 
voluntary, employment-based system.
    Neither section 103(d) nor any other provision of the 
legislation should be construed to limit waiting periods that 
may be applied by employers or unions, as long as such periods 
are applied uniformly and without regard to health status. For 
example, an employer-sponsored plan would not be prohibited by 
this legislation from denying health coverage to all employees, 
or to all part-time employees, until they have been with the 
firm for 3 months.
    The committee wishes to emphasize, however, that a waiting 
period cannot be counted against the time an individual is 
considered to be continuously covered. Therefore, if an 
individual has otherwise maintained continuous coverage as 
provided in section 103(b)(3) of the legislation, the 
individual should be considered to have maintained continuous 
coverage if he or she enrolls in a new plan within 30 days of 
the time he or she becomes eligible for such coverage, 
regardless of the length of any waiting period.
    The following examples are designed to illustrate how the 
provisions of section 103 will work to provide continuity of 
coverage.
    Example 1: Full 12-month exclusion applied: Derek is hired 
by the XYZ corporation and wants to enroll in the group health 
plan offered to all XYZ employees. XYZ offers a group health 
plan through an insurance policy with the Safe & Secure 
Insurance Corporation, which uses a 12-month preexisting 
condition exclusion (with a 6-month look-back). Derek did not 
enroll in the group health plan offered by his previous 
employer, the ABC corporation (or alternatively, ABC did not 
offer coverage to its employees). Derek is treated for a back 
condition 2 months before taking the job with XYZ corporation. 
The Safe & Secure Insurance Corporation may deny coverage for 
Derek's back condition for up to 12 months.
    Example 2: 12-month exclusion partially reduced: In the 
example above, Derek was covered under the ABC corporations's 
health plan for 9 months prior to taking his new job with the 
XYZ corporation. Safe & Secure may deny payments for Derek's 
back treatments for only 3 months.
    Example 3: 12-month exclusion completely reduced: Same as 
Example 2, except Derek was covered under ABC corporation's 
health plan for 12 months or more. Safe & Secure may not deny 
coverage for Derek's preexisting back condition.
    During the committee's hearing on July 18, Mrs. Susan Rogan 
from Herndon, Virginia, provided a real-life example of how the 
portability provisions contained in S. 1028 bill will help 
families who face insurmountable barriers to maintaining health 
insurance coverage under the current system. Mrs. Rogan 
testified that her husband changed jobs five times during a 
ten-year period. Each time, he had to maintain the COBRA 
coverage available from his previous employer for at least one 
year, in addition to contributing towards the group health plan 
offered by his new employer. The family essentially was 
required to maintain double coverage during these periods 
because the health coverage offered through each new employer 
did not cover their daughter's preexisting medical condition. 
Mrs. Rogan described her family's efforts to maintain 
continuous coverage as ``a nightmare.'' See testimony of Susan 
M. Rogan, before the Senate Committee on Labor and Human 
Resources, July 18, 1995.
    The committee wishes to emphasize that, under the 
provisions of S. 1028, it would be unnecessary for the Rogans 
to maintain dual coverage because their daughter could not be 
excluded from coverage under a new group health plan once she 
was covered under a prior plan for 12 months.
    Portability from individual, group, and governmental 
plans.--The committee intends for this section to require 
employee health benefit plans and group health plans to credit 
prior continuous coverage obtained under a group health plan, 
an employee health benefit plan, an individual health plan, or 
a health plan established under State or Federal law, such as 
Medicaid. The committee believes that requiring employment-
based health plans to credit previous continuous coverage under 
governmental programs like Medicaid and high-risk pools, will 
provide additional incentives for individuals to move into the 
work force without the fear of losing their health coverage.
    Protection for children under the age of one.--The 
chairman's substitute added a provision to section 103(b) of 
the legislation to make clear that newborns who are enrolled in 
a group health plan within 30 days of birth may not be excluded 
from coverage under a group or individual health plan during 
the child's first 12 months of life. Also, as is the case with 
individuals who are previously enrolled, children cannot be 
subject to a preexisting condition exclusion once the condition 
has been diagnosed, if the condition was previously covered. 
This provision is intended to ensure that children under the 
age of one are not subjected to new preexisting condition 
exclusions when their parents change jobs or health plans 
simply because of their age.
    Administrative burden.--Section 103(b)(2) of the 
legislation requires that employee health benefit plans provide 
participants and beneficiaries with information about benefits, 
cost-sharing, and dates of coverage after they become 
ineligible for coverage under the employee health benefit plan. 
It then becomes the responsibility of the participant or 
beneficiary to carry this information forward to his or her new 
employer so that the subsequent plan can readily determine 
whether the individual is eligible for coverage or whether he 
or she will face any exclusions or limitations of coverage. 
This provision is intended to avoid any administrative burden 
and potential confusion by clearly delineating responsibilities 
for certifying previous coverage.
    State flexibility.--The committee bill provides a 12-month 
exclusion period and 18-month exclusion period for late 
enrollees in order to eliminate possible abuses of preexisting 
condition exclusions and to provide incentives in a voluntary 
market for individuals to obtain coverage at the earliest 
possible opportunity.
    A majority of States utilize a 12-month exclusion period in 
the small group market. Recognizing, however, that some State 
laws allow for shorter periods and some States may want to 
adopt shorter periods in the future, the standards set forth in 
section 103 of the legislation represent minimum Federal 
standards with regard to group health plans offered by health 
plan issuers. Section 103(f) of the legislation specifically 
permits States to establish shorter preexisting condition 
limitation periods for group health plans offered by insurance 
carriers, HMO's and other State-regulated entities that issue 
contracts or policies of health benefits and to allow 
individuals to be considered to be in a period of ``qualifying 
previous coverage'' if an individual experiences a gap in 
coverage of greater than 30 days. The committee wishes to 
emphasize that States may not alter the standards contained in 
section 103 (or in any other section of this legislation) with 
regard to self-insured ERISA plans.

7. Special enrollment periods

    Section 104 of the legislation allows individuals enrolled 
in an employee health benefit plan or group health plan, 
including COBRA beneficiaries, to change their enrollment 
status, under certain circumstances, without being subject to 
penalties for late enrollment or experiencing gaps in coverage. 
Section 104 would, for example, allow a recently married 
individual to change his or her enrollment status from 
``single'' to ``family''. This section of the legislation also 
would allow a participant to add a newborn or adopted child to 
his or her policy as a beneficiary if the employee health 
benefit plan or group health plan provides coverage for 
newborns and adopted children. Section 104 also would provide 
protection in the situation where a married couple elected 
family coverage under the health plan offered by one spouse's 
employer and that spouse subsequently lost his or her job or 
otherwise lost eligibility for coverage through that employer. 
In that case, the provision would allow the couple to enroll 
under the other health plan sponsored by the other employer.

8. Disclosure of information

    Section 105 of the legislation requires health plan issuers 
to disclose their rating, renewal, and preexisting condition 
practices to small employers, and to provide information about 
the benefits and premiums offered under all group health plans 
available to small employers. States which have adopted 
provisions requiring health plan issuers to provide this type 
of information have found that it has had the effect of 
empowering employer purchasers by providing them with more 
comparable and easily understood health plan choices.
    Notice of material reductions in covered services.--An 
amendment by Senators Jeffords and Kassebaum, accepted by voice 
vote at the executive session on August 2, amends section 
104(b)(1) of ERISA to require plans to notify plan participants 
of ``material reductions in covered services'' within 60 days 
of such reductions or, in the alternative, at 90-day intervals. 
The Secretary of Labor is directed to issue regulations 
providing for a list of alternative, cost-effective means of 
notifying plan participants of such changes.
    The provision was added because the committee was concerned 
that current law, which requires plan sponsors to notify 
participants of material modifications to a plan (including 
material reductions in covered services) must be provided to 
participants within 210 days of the close of the plan year, 
does not provide sufficient protection to consumers. Because 
participants in some cases may not receive notice of reductions 
in covered benefits or services for over a year after such 
modifications are made, they may unknowingly incur health costs 
for which they are fully responsible.
    The Jeffords-Kassebaum amendment also amended section 
102(b) of ERISA to require plan sponsors to provide more 
specific information to participants in the summary plan 
description regarding the administration, financing, and 
resolution of claims. The amendment requires plan sponsors to 
notify participants of the plan's financing arrangements. In 
the case of a self-funded employer plan, for example, the 
employer would be identified as the source of financing. In the 
case of a plan that is financed through arrangements with stop-
loss carriers or carriers offering fully insured group health 
plans, the carrier also should be identified. In addition, the 
amendment requires plan sponsors to notify participants of the 
office, contact, or title of the individual at the United 
States Department of Labor from whom participants may obtain 
information regarding their rights under this act and ERISA.
    As the health care market continues to evolve, the 
functions of many health plans are becoming increasingly 
diversified and spread among various individuals and entities 
that fall within different regulatory schemes. As a result, 
plan participants may turn to a State insurance commissioner 
for assistance when, in fact, the plan falls under Federal 
authority. Therefore, the committee believes this provision 
will help clarify some existing confusion regarding the 
administration and enforcement of rights under this legislation 
and ERISA.

                  Subtitle B--Individual Market Rules

9. Individual health plan portability

    Section 110 of the legislation requires insurance carriers, 
HMO's and other health plan issuers offering individual health 
policies to provide coverage to individuals wishing to purchase 
coverage under certain circumstances. To be eligible for 
individual coverage under this provision, an individual: (1) 
must have had continuous coverage for at least 18 months under 
an employee health benefit plan or group health plan; (2) must 
not be eligible for coverage under an employee health benefit 
plan or group health plan or have been terminated from such 
plan for fraud or failure to make required payments; and (3) 
must be ineligible for COBRA continuation coverage or must have 
exhausted eligibility for COBRA continuation coverage.
    This section is designed to allow individuals who have 
maintained employment-based health coverage for at least 18 
months (without a break in coverage of more than 30 days) and 
who have exhausted or are not eligible for COBRA continuation 
coverage to have access to individual insurance coverage 
without regard to health status when they lose their job, leave 
their job to start their own business, or take a job with an 
employer who does not offer group health coverage.
    As discussed in more detail in section IV.B.1. above, this 
provision was carefully crafted to guarantee access to 
individuals who make an effort to maintain continuous coverage 
while addressing the concerns of those who fear that premiums 
might rise from broader availability of guaranteed coverage in 
the individual market.

10. Guaranteed renewability of individual health coverage

    Renewability.--Section 111 is nearly identical to the 
provisions contained in section 102 of the legislation 
governing renewal of group health plans. It requires health 
plan issuers to renew individual health policies at the option 
of the individual, unless: (1) the individual fails to pay 
premiums or fails to pay premiums in a timely fashion; (2) 
there is fraud or misrepresentation of material fact on the 
part of the individual; or (3) the policy is terminated under 
the procedures specified in the legislation.
    Plan termination.--The provisions regarding termination of 
individual insurance policies also are nearly identical to 
those contained in section 102 of the legislation governing 
group policies.

11. State flexibility in individual market reforms

    The committee recognizes that States are experimenting with 
different methods of making coverage available in the 
individual market and will, in some cases, go further than the 
committee proposal in guaranteeing affordable coverage. 
Accordingly, the committee wanted to provide maximum 
flexibility for States to experiment with different methods of 
achieving the goals of the legislation. In particular, the 
committee wished to respond to constructive suggestions made by 
the National Governors Association (NGA) and the NAIC and to 
criticisms from the insurance industry, that, unless carefully 
crafted, the bill would hinder desirable State 
experimentation.21
    \21\ During her testimony before the committee on July 18, Mary 
Nell Lehnhard from the Blue Cross-Blue Shield Association stated that 
the NAIC ``has taken as its number one priority the development of 
several model acts to provide options and guidance to States as they 
attempt to solve the problem of group-to-individual portability. We 
believe these efforts should be allowed to evolve--and not be cut short 
by Federal legislation.'' She added that Blue Cross-Blue Shield hoped 
the committee would determine ``how the Federal Government could best 
support state reform efforts.'' Testimony of Mary Nell Lehnhard, Blue 
Cross-Blue Shield Association, page 11.
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    Specifically, the section now provides that State reforms 
of the individual market will apply rather than the rules 
contained in Section 110 and 111 of the legislation, if they 
achieve the objectives of the legislation.
    In evaluating State reforms under this more lenient 
standard, the legislation requires the Secretary of HHS to 
consult with a State's governor and insurance commissioner and 
to consider only those four criteria set forth in section 
112(b)(1).
    It is the committee's strong intent: (1) that this section 
provide the framework for a collaborative and consultative 
process between the Secretary of HHS and the State governor and 
insurance commissioner; (2) that the Secretary of HHS grant 
substantial deference to State solutions in evaluating whether 
a State law meets the goals of providing access to affordable 
coverage for individuals; and (3) that the Secretary consider 
only the four factors in section 112(b)(1) in arriving at a 
determination.
    In addition to providing substantial deference to 
alternative State solutions, the committee intends that, in 
making a determination under this section, the Secretary of HHS 
will take a common-sense, flexible approach to determining 
whether a State plan achieves the broad goals of this bill and 
will place greater weight on some of the factors specified in 
subsection 112(b)(1) than on others.
    Thus, the committee intends that a program which limits 
choice of plan beyond what otherwise would be provided in the 
bill, e.g., through a high-risk pool with only a few coverage 
options rather than through a guaranteed issue program, would 
not necessarily be inconsistent with the goals of the bill, 
particularly if such an approach would keep insurance premiums 
for all participants in the individual market more affordable 
than would otherwise be the case. Similarly, a State plan which 
met the minimum requirements of guaranteed access to affordable 
coverage but used an entirely different mechanism for achieving 
this goal than the one provided in the bill, such as 
participation in a Medicaid buy-in, could also be acceptable if 
it would result in more affordable coverage for the individual 
market as a whole, as provided under criterion (b)(1)(D).
    With regard to subsection 112(b)(1)(C), the committee's 
intent is to assure that individuals are not faced with a 
choice of plans so limited that they would be unable to obtain 
a comprehensive plan.
    With regard to subsection 112(b)(1)(D), the committee's 
intent is that the Secretary of HHS weigh heavily the impact 
that requiring a State to modify or replace a current program 
would have on overall affordability and access for all those 
who may wish to purchase individual insurance coverage in the 
State. Moreover, the committee emphasizes that neither this 
provision nor any of the four factors outlined in section 
112(b)(1) are intended to be dispositive, or considered alone. 
Rather, the Secretary of HHS is expected to consider the 
totality of the State program with respect to the goals of the 
legislation, as expressed in the four factors listed in this 
subsection.
    Section 112 is intended to provide substantial leeway for 
States to craft individualized solutions. State reforms need 
not be identical to the provisions of section 110 or 111. In 
this regard, the committee notes that, currently, 20 States 
have enacted some type of individual insurance market reform. 
Fourteen States have enacted guaranteed renewability in the 
individual market, and 18 States have extended some portability 
reforms to the individual market. Nine States have enacted 
guaranteed issue requirements in the individual market and Blue 
Cross-Blue Shield provides guaranteed issue in an additional 
eight.
    In addition, approximately 25 States offer individuals 
access to high-risk pools, so that people unable to buy 
insurance in the private individual market can buy from the 
pool. States use a variety of different mechanisms to subsidize 
the excess costs of the pools in order to keep insurance 
affordable. While such programs would not automatically satisfy 
the criteria set forth in the legislation, many may provide an 
adequate substitute for the requirements of sections 110 and 
111.
    Finally, to assure maximum State flexibility, the committee 
provides a ``safe harbor'' for any State plan that meets model 
standards adopted by the NAIC, if the Secretary determines that 
such standards meet the goals of sections 110 and 111.

                    Subtitle C--COBRA Clarifications

12. COBRA clarifications

    Section 121 of the legislation contains two modifications 
to COBRA designed to minimize gaps in health coverage for 
newborns and adopted children, and individuals with 
disabilities.
    Modifications improving access for disabled individuals.--
Under current rules, individuals who have coverage through 
firms with 20 or more workers and lose their coverage because 
they leave their job, or for certain other reasons, may extend 
their coverage for an additional 18 months by paying 102 
percent of the normal premium. Disabled workers may extend 
their coverage for an additional 11 months if they pay up to 
150 percent of the premium for coverage beyond the initial 18 
months. The modification contained in section 121 would allow 
individuals who have disabled family members or who became 
disabled at any time during their coverage under an initial 
COBRA extension period to extend their coverage for the 
additional 11-month period currently granted only to workers 
who are disabled at the time they lose their coverage.
    Modifications improving access for newborns and adopted 
children.--In addition, the committee intends for section 121 
to clarify that newborns and adopted children may be covered 
immediately under a parent's COBRA policy. As COBRA currently 
is interpreted, newborns and adopted children are not eligible 
for coverage until the group health plan's next open enrollment 
period.

        Subtitle D--Private Health Plan Purchasing Cooperatives

13. Section 131. Health plan purchasing cooperatives

    Because small employers and individuals are at a 
significant disadvantage in terms of access to affordable 
health insurance, section 131 of the legislation creates 
incentives for individuals and employers to form private, 
voluntary cooperatives to purchase health insurance and 
negotiate with providers and health plans.
    The provisions of subtitle D are intended to create special 
benefits for cooperatives meeting the standards of this 
subtitle. It is not intended to affect in any way the legal 
status or rights of purchasing cooperatives, employer 
coalitions, multi-employer plans, multiple employer welfare 
arrangements, or similar arrangements not meeting the standards 
of subtitle D. States are not required to establish 
cooperatives. Individuals and employers are not required to 
purchase health insurance through cooperatives, and the 
legislation does not prohibit or preclude any other type of 
group purchasing arrangements from existing.
    Health plan purchasing cooperatives under this legislation 
are certified under State law and registered with the Secretary 
of Labor. They must purchase insured products, may not bear 
risk, or be controlled by, or affiliated with, health plan 
issuers. Cooperatives must be governed by a board of directors 
representing a broad cross-section of employers, employees, and 
individuals participating in the cooperative. Individuals 
associated with health plan issuers may not underwrite 
cooperatives nor serve on their board of directors. In 
addition, cooperatives must contract with multiple, 
unaffiliated health plans. The purpose of these requirements is 
to ensure that cooperatives are employer-controlled and to 
prevent against the possibility that they become captives of 
any health plan issuer. However, the committee does not intend 
by these provisions to prohibit a cooperative from contracting 
with insurance companies, brokers, or others with appropriate 
expertise to provide administrative or consultative services.
    Moreover, it should be emphasized that the rules regarding 
individual health plans and group health plans established 
elsewhere in the legislation (e.g., guaranteed renewal, 
nondiscrimination, portability), or by State laws not preempted 
by the legislation, also apply to health plans offered by 
health plan issuers to a cooperative.
    Cooperatives may determine the maximum size of the employer 
they wish to include, whether they wish to include individuals 
as well as groups, or individuals or groups alone, and the 
marketing area they wish to serve (unless a State requires a 
cooperative to serve a specific geographic area). They must 
then accept all employers and individuals who meet these 
requirements, regardless of health status, on a first-come, 
first-served basis. The committee anticipates that cooperatives 
will compete, in part, on the basis of membership fees charged 
to enrollees. The legislation permits cooperatives to charge 
enrollment fees and allows such fees to vary based on factors--
such as the size of an employer--that are not based on ``health 
status, medical condition, claims experience, receipt of health 
care, medical history, evidence of insurability, or 
disability'' as prohibited by section 131(g)(3). Nothing in the 
legislation should be read to prohibit organizations sponsoring 
cooperatives, such as chambers of commerce, from charging one 
fee to cover both membership in the cooperative and in the 
sponsoring organization, as long as such fee is not based on 
health status or the other factors listed in section 131(g)(3).
    In order to facilitate the formation of health plan 
purchasing cooperatives and allow them to be active purchasers 
in the health care market, Section 131(h) of the legislation 
preempts certain State laws that prevent groups of employers 
from joining together to purchase insurance (``fictitious group 
laws'') and negotiate with health plans and providers. In 
addition, pursuant to an amendment offered by Senator Jeffords 
and accepted by voice vote during the executive session on 
August 2, this section allows health plan issuers to offer 
less-costly, scaled-back benefit packages to cooperatives in 
those States that have adopted such packages for small 
employers. Cooperatives operating in States that have not 
adopted such benefit packages as part of their small group 
insurance reforms must continue to comply with all State-
mandated benefits, if any.

           Title II--Application and Enforcement of Standards

Applicability, preemption, and enforcement

    Applicability.--Section 201 of the bill provides that 
nothing in the legislation shall be construed to prevent States 
from establishing, implementing, or continuing in effect health 
insurance standards and requirements not prescribed in the 
legislation or standards and requirements that are related to 
the issuance, renewal, or portability of health insurance, or 
the establishment or operation of group purchasing 
arrangements, that are consistent with and are not in direct 
conflict with the provisions of this legislation, and provide 
greater protection or benefit to individuals.
    For example, States may require insurance companies to 
publish report cards or other types of consumer information 
other than what is required under this bill. In addition, 
States may require that insurance companies wait more than 5 
years before reentering a particular market, as specified in 
this legislation. In both of these cases, State regulation 
provides greater protection or benefit to individuals and is 
not in direct conflict with the provisions of this legislation.
    Section 201(b) emphasizes again that nothing in the 
legislation shall be construed to affect or modify ERISA's 
preemption provisions. It is the intent of the committee that 
the bill not alter in any way the current preemption language 
of ERISA. The States traditionally have regulated the business 
of insurance. Health benefit plans offered by employers and 
unions have been governed by a national scheme under ERISA for 
over two decades. Senate bill 1028 builds upon and enhances 
that structure; it should not be read to modify it.
    Enforcement.--Section 202 of the legislation provides that 
requirements or standards imposed on health plan issuers 
offering group health plans or individual health plans shall be 
enforced by the State insurance commissioner for the State 
involved, or the official or officials designated by the State 
to enforce the requirements of this act. It also requires 
States to file an enforcement plan with the Secretary. The 
legislation does not mandate the type of enforcement mechanisms 
States must use. Instead, it allows each State the flexibility 
to adopt whatever sanction or allow whatever remedy a State 
believes necessary to carry out the purposes of this 
legislation.
    The Secretary of Labor will enforce the requirements of the 
legislation with regard to employee health benefit plans, and 
the legislation provides specific enforcement authority for 
this purpose. If a State fails to substantially enforce the 
standards contained in the legislation, the Secretary of Labor 
will enforce those standards directly against health plan 
issuers. While the NAIC and NGA support the division of 
authority provided in this section of the legislation, and the 
committee does not envision a State surrendering its authority 
and responsibility for the regulation of health insurance, the 
committee believes that this provision is necessary to avoid 
the current prohibition on Federal legislation containing 
unfunded State mandates.
    The committee intends for the enforcement provisions to 
build upon and maintain, to the extent possible, the current 
division of enforcement authority between the States and the 
Federal Government. Therefore, except in the case of a 
substantial State failure to enforce the provisions of this act 
under section 202(c), the Secretary shall not enforce the 
standards of the act with respect to health plan issuers and, 
in no case, shall a State enforce the standards of the act 
relating to employee health benefit plans.

                  Title III--Miscellaneous Provisions

15. HMO's allowed to offer plans with deductibles to individuals with 
        medical savings accounts

    Section 301 of the legislation amends the Public Health 
Service Act to allow health maintenance organizations to charge 
deductibles to an HMO member if the member has a medical 
savings account. The Public Health Service Act currently does 
not allow HMO's to charge deductibles in connection with 
medical savings accounts. This provision would clear away the 
one Federal legal hurdle to HMO's offering medical savings 
accounts. The committee emphasizes that the decision of an HMO 
to offer such an option would be voluntary.
    Section 301 also contains language stating that it is the 
``sense of the Senate that Congress should take measures to 
further the purposes of this act, including any necessary 
changes to the Internal Revenue Code of 1986, to encourage 
groups and individuals to obtain health coverage, and to 
promote access, equity, portability, affordability, and 
security of health benefits.'' This represents the recognition 
that many desirable tax code changes are outside this 
committee's jurisdiction.
    MSA amendment.--An amendment to this section offered by 
Senators Frist, Coats, Gregg, and Abraham during the 
committee's executive session on August 2, which passed by a 
roll call vote of 9 yeas to 7 nays, states that it is the 
``sense of the Committee on Labor and Human Resources that the 
establishment of medical savings accounts * * * should be 
encouraged as part of any health insurance reform legislation 
passed by the Senate'' through the use of tax incentives. 
Members of the committee supporting the Frist amendment believe 
that medical savings accounts offer an important opportunity to 
reduce health care costs and expand choices for individuals. 
While such accounts are not under the jurisdiction of the 
Committee on Labor and Human Resources, they wished to express 
their support for inclusion of such a proposal in reform 
legislation.

                            V. Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 22, 1995.
Hon. Nancy Landon Kassebaum,
Chairman, Committee on Labor and Human Resources, U.S. Senate, 
        Washington, DC.
    Dear Madam Chairman: The Congressional Budget Office [CBO] 
has reviewed S. 1028, the Health Insurance Reform Act of 1995, 
as ordered reported by the Senate Committee on Labor and Human 
Resources on August 2, 1995. CBO estimates that enactment of S. 
1028 would not significantly affect the federal budget. (Each 
state's insurance commissioner would ensure that the 
requirements of this legislation are carried out by health 
insurance carriers in their state; CBO has not attempted to 
estimate the amount by which state government spending could be 
changed.) Pay-as-you-go procedures would apply because the bill 
could affect direct spending and receipts. The estimated change 
in direct spending and receipts, however, is not significant.
    This bill would create uniform national standards intended 
to improve the portability of private health insurance 
policies. For example, these standards would allow workers with 
employment-based policies to continue their coverage more 
easily when changing or leaving jobs. Because most private 
insurance plans require a waiting period before new enrollees 
become eligible for coverage, especially for preexisting 
medical conditions, workers with chronic conditions or other 
health risks may face gaps in their coverage when they change 
jobs. Alternatively, such workers may be hesitant to change 
jobs because they fear the temporary loss of coverage, a 
situation known as ``job-lock.''
    S. 1028 would reduce the effective length of exclusions for 
preexisting conditions by crediting enrollees for continuous 
coverage by a previous insurer. Insurance companies would be 
prohibited from denying certain coverages based on the medical 
status or experience of individuals or groups and would be 
required to renew coverage in most cases. Insurers could not 
deny coverage to individuals who have exhausted their 
continuing coverage from a previous employer. This bill would 
allow individuals to change their enrollment status without 
being subject to penalties for late enrollment if their family 
or employment status changes during the year. To the extent 
that states have not already implemented similar rules, these 
changes would clarify the insurance situation and possibly 
reduce gaps in coverage for many people.\1\
    \1\ For additional discussion, see GAO testimony ``Health Insurance 
Regulations, National Portability Standards Would Facilitate Changing 
Health Plans,'' July 18, 1995, before the Senate Committee on Labor and 
Human Resources.
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    Because the bill would not regulate the premiums that plans 
could charge, the net number of people covered by health 
insurance and the premiums that they pay would continue to be 
influenced primarily by current market forces. In other words, 
although insurance would become more portable for some people 
under this bill, it would not become any more or less available 
in general.
    S. 1028 could affect the federal budget in two primary 
ways. First, if the bill changed the amount of employer-paid 
health premiums, total federal tax revenues could change. For 
example, if the amount employers paid for premiums rose, cash 
wages would probably fall, thereby reducing income and payroll 
tax revenues. If individuals paid more for individually-
purchased insurance, they could increase their itemized 
deductions for health expenses. Second, if the bill caused 
people insured by Medicaid or government health programs to 
purchase private coverage, then federal outlays for those 
programs could change.
    According to the General Accounting Office [GAO], 38 states 
have enacted legislation to improve the portability and 
renewability of health plans among small employers.\2\ The 
state laws do not apply to employees of larger firms with self-
funded insurance plans, however, and the GAO report finds that 
state laws generally do not apply to the market for 
individually-purchased insurance.
    \2\ Health Insurance Regulation: Variation in Recent State Small 
Employer Health Insurance Reforms (GAO/HEHS-95-161FS, June 12, 1995).
---------------------------------------------------------------------------
    Because many insurance reforms have already been 
implemented by the states, GAO assumes that the new national 
standards created by S. 1028 would not significantly change the 
insurance market for most people. Although the national 
standards created by S. 1028 would improve the portability of 
health insurance for some additional groups or individuals, GAO 
assumes that the incremental change in the insurance 
marketplace would be minor. Any changes to overall insurance 
coverage or premiums caused by the bill would probably be 
small, and the direction of the change is uncertain. Most 
people subject to the new insurance rules would have had 
coverage under the old rules, so their total health spending 
would probably not be noticeably different. Therefore federal 
revenues would be unlikely to change.\3\
    \3\ CBO cooperates with the Joint Committee on Taxation to produce 
estimates of revenue changes under proposals that would change the 
private health insurance market. Following CBO's estimate that S. 1028 
would not significantly change spending for private health insurance, 
the Joint Committee assumes that federal revenues would not change.
---------------------------------------------------------------------------
    CBO estimates that federal outlays for Medicaid would not 
change because any persons eligible for free coverage from 
Medicaid under current law would also seek out Medicaid 
coverage if S. 1028 was enacted. CBO also estimates that the 
bill would cause no appreciable changes to federal outlays for 
Medicare, Federal Employees Health Benefits, or other federal 
programs.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Jeff Lemieux.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).

                    VI. Regulatory Impact Statement

    The committee has determined there will be only a 
negligible increase in the regulatory burden of paperwork as 
the result of this legislation.

                    VII. Section-by-Section Analysis

Sec. 1. Short title; Table of contents

    Section 1 provides that the Act be cited as the ``Health 
Insurance Reform Act of 1995''.
    Section 1(b) contains the table of contents.

Sec. 2. Definitions

    Subsection (1) defines ``beneficiary'' as that term is 
defined under section 3(8) of the Employee Retirement Income 
Security Act of 1974.
    Subsection (2) defines ``employee'' as that term is defined 
under section 3(6) of the Employee Retirement Income Security 
Act of 1974.
    Subsection (3) defines ``employer'' as that term is defined 
under section 3(5) of the Employee Retirement Income Security 
Act, except that the term includes only employers of two or 
more employees.
    Subsection (4) defines ``employee health benefit plan'' as 
any employee welfare benefit plan, governmental plan, or church 
plan (as defined under the Employee Retirement Income Security 
Act of 1974) that provides or pays for health benefits, such as 
provider and hospital benefits, for participants and 
beneficiaries whether directly, through a group health plan, or 
otherwise.
    An ``employee health benefit plan'' does not include the 
following or any combination of the following: (1) coverage 
only for accident, or disability income insurance, or any 
combination thereof; (2) Medicare supplemental health 
insurance; (3) coverage issued as a supplement to liability 
insurance; (4) liability insurance, including general liability 
insurance and automobile liability insurance; (5) workers 
compensation or similar insurance; (6) automobile medical 
payment insurance; (7) coverage for a specified disease or 
illness; (8) hospital or fixed indemnity insurance; (9) short-
term limited duration insurance; (10) credit-only, dental-only, 
or vision-only insurance; (11) a health insurance policy 
providing benefits only for long-term care, nursing home care, 
home health care, community-based care, or any combination 
thereof.
    Subsection (5) defines a ``family'' as an individual, the 
individual's spouse, and the child of the individual, if any 
and defines ``child'' as any individual who is a child within 
the meaning of the Internal Revenue Code of 1986.
    Subsection (6) defines a ``group health plan'' as any 
contract, policy, certificate, or other arrangement offered by 
a health plan issuer to a group purchaser that provides or pays 
for health benefits, such as provider and hospital benefits, in 
connection with an employee health benefit plan.
    A ``group health plan'' does not include the following or 
any combination of the following: (1) coverage only for 
accident, or disability income insurance, or any combination 
thereof; (2) Medicare supplemental health insurance; (3) 
coverage issued as a supplement to liability insurance; (4) 
liability insurance, including general liability insurance and 
automobile liability insurance; (5) workers compensation or 
similar insurance; (6) automobile medical payment insurance; 
(7) coverage for a specified disease or illness; (8) hospital 
or fixed indemnity insurance; (9) short-term limited duration 
insurance; (10) credit-only, dental-only, or vision-only 
insurance; (11) a health insurance policy providing benefits 
only for long-term care, nursing home care, home health care, 
community-based care, or any combination thereof.
    Subsection (7) defines ``group purchaser'' as any person or 
entity that purchases or pays for health benefits, such as 
provider or hospital benefits, on behalf of two or more 
participants or beneficiaries in connection with an employee 
health benefit plan. However, a health plan purchasing 
cooperative defined under section 131 shall not be considered 
to be a group purchaser.
    Subsection (8) defines ``health plan issuer'' as any entity 
that is licensed by a State to offer a group health plan or an 
individual health plan.
    Subsection (9) defines ``participant'' as that term is 
defined under section 3(7) of the Employee Retirement Income 
Security Act of 1974.
    Subsection (10) defines ``plan sponsor'' as that term is 
defined under section 3(16)(B) of the Employee Retirement 
Income Security Act of 1974.
    Subsection (11) defines ``Secretary'' as the Secretary of 
Labor, unless otherwise specified.
    Subsection (12) defines ``State'' as each of the several 
States, the District of Columbia, Puerto Rico, the United 
States Virgin Islands, Guam, American Samoa, and the 
Commonwealth of the Northern Mariana Islands.

       Title I--Health Care Access, Portability, and Renewability

                     Subtitle A--Group Market Rules

Sec. 101. Guaranteed availability of health coverage

    Section 101(a)(1)(A) requires health plan issuers to offer 
whole group coverage to any group purchaser desiring to 
purchase coverage. Section 101(a)(1)(B) prohibits employee 
health benefit plans and health plan issuers offering group 
health plans from establishing eligibility, continuation of 
eligibility, enrollment, or premium contribution requirements 
based on health status, medical conditions, claims experience, 
receipt of health care, medical history, evidence of 
insurability, or disability.
    Section 101(a)(2) allows an employee health benefit plan or 
a health plan issuer to offer premium discounts or modify 
copayments or deductibles in return for adherence to programs 
of health promotion and disease prevention.
    Section 101(b)(1) allows a health plan issuer offering a 
group health plan to cease offering coverage to group 
purchasers only where the health issuer ceases to offer 
coverage to any additional group purchasers or where the health 
plan issuer can demonstrate that its financial or provider 
capacity to serve previously covered participants and 
beneficiaries will be impaired if the health plan issuer is 
required to offer coverage to additional group purchasers. Once 
a health plan issuer ceases to offer coverage to group 
purchasers, that health plan issuer is prohibited from offering 
coverage for a 6-month period or until the health plan issuer 
can demonstrate adequate capacity, whichever is later.
    Section 101(b)(2) requires health plan issuers that want to 
begin offering health plans after a period of cessation as 
described in section 101(b)(1) to offer coverage on a first-
come first-served basis or other basis determined by the State 
to assure a fair opportunity to enroll in the plan and avoid 
risk selection.

Sec. 102. Guaranteed renewability of health coverage

    Section 102(a)(1) requires that health plan issuers renew 
group health plans at the option of group purchasers, except in 
the case of nonpayment or untimely payment of premiums or 
contributions, fraud or misrepresentation of material fact on 
the part of the group purchaser, the termination of the group 
health plan, or the failure of the group purchaser to meet 
contribution or participation requirements. Subsection 
102(a)(2) allows participants to renew coverage under an 
employee health benefit plan or group health plan if the group 
purchaser elects to continue to provide coverage under a group 
health plan, except under certain circumstances.
    Section 102(b) defines the terms under which a health plan 
issuer may discontinue a particular type of group health plan 
or all group health plans in a State. If a health plan issuer 
discontinues all group health plans in a State, the health plan 
issuer may not issue any group health plan in the State for a 
5-year period beginning on the date of the discontinuation of 
the last group health plan.
    Section 102(c) permits network plans to deny continued 
participation to participants or beneficiaries who neither 
live, reside, nor work in an area in which the network plan is 
offered, but only if the denial is applied uniformly and 
without regard to health status or the insurability of 
particular participants.

Sec. 103. Portability of health coverage and limitation on preexisting 
        condition exclusions

    Section 103(a) allows an employee health benefit plan and a 
health plan issuer offering a group health plan to impose a 
limitation or exclusion of benefits relating to treatment of a 
preexisting condition only if the limitation or exclusion: (1) 
extends for not more than 12 months after the date of 
enrollment in the plan; (2) is not applicable to an individual 
who within 30 days of the date of birth or placement for 
adoption, was covered under the plan; and (3) is not applicable 
to a pregnancy.
    Section 103(b) requires crediting of previous qualifying 
coverage for individuals. Under this provision, any period of 
exclusion or limitation of coverage with respect to a 
preexisting condition shall be reduced by 1 month for each 
month of previous qualifying coverage. Previous qualifying 
coverage means the period beginning on the date the participant 
or beneficiary is enrolled in a group health plan or an 
employee health benefit plan, and ending on the date not 
enrolled. It also means the period beginning on the date an 
individual is enrolled under an individual health plan or under 
a public or private plan established under State or Federal 
law, and ending on the date the individual is not enrolled.
    Under Section 103(b)(2), an employee health benefit plan 
shall provide documentation of coverage to participants and 
beneficiaries whose coverage is terminated under the plan. The 
documentation shall include the dates of coverage and the 
benefits and cost-sharing arrangements available.
    With respect to late enrollees in a group health plan or an 
employee health benefit plan, section 103(c) allows for a 
preexisting condition exclusion that does not exceed 18 months 
beginning on the date of coverage under the plan.
    Section 103(d) allows a group health plan or employee 
health benefit plan to apply a 60-day affiliation period if the 
plan does not utilize a preexisting condition limitation or 
exclusion, and a 90-day affiliation period for late enrollees.
    Section 103(e) defines ``preexisting condition'' as a 
condition, regardless of the cause, for which medical advice, 
diagnosis, care, or treatment was recommended or received 
within the 6-month period prior to coverage.
    Section 103(f) clarifies that nothing in this section 
should be construed to preempt State laws that require health 
plan issuers to impose a preexisting condition limitation or 
exclusion period that is shorter than provided for under this 
section, and that nothing in this section shall be construed to 
preempt State laws that allow individuals, participants, and 
beneficiaries to be considered in a period of previous 
qualifying coverage if there is a lapse of greater than the 30-
day period provided for in this act.

Sec. 104. Special enrollment periods

    Section 104 provides that in the case of a participant, 
beneficiary or family member who, under a group health plan, an 
individual health plan, or an employee health benefit plan, 
experiences a change in family composition affecting 
eligibility, experiences a loss of eligibility or experiences a 
change in employment status, each group health plan and 
employee health benefit shall provide for a special enrollment 
period that would permit the participant to change the 
individual or family basis of coverage or to enroll in the plan 
under certain circumstances.

Sec. 105. Disclosure of information

    Section 105(a) requires health plan issuers offering group 
health plans to small employers to make a reasonable disclosure 
to such employers of: (1) the provisions of a group health plan 
concerning the health plan issuer's right to change premium 
rates and factors that may affect changes in premium rates; (2) 
the provisions of a group health plan relating to renewability 
of coverage; (3) the provisions of a group health plan relating 
to any preexisting condition provision; and (4) descriptive 
information about the benefits and premiums available under all 
group health plans for which the employer is qualified.
    Section 105(b)(1) amends section 104(b)(1) of the Employee 
Retirement Income Security Act to require ERISA plans to notify 
plan participants of ``material reductions in covered 
services'' within 60 days of such reductions or, in the 
alternative, at 90-day intervals. The Secretary of Labor is 
directed to issue regulations providing for a list of 
alternative, cost-effective means of notifying plan 
participants of such changes.
    Section 105(b)(2) amends section 102(b) of the Employee 
Retirement Income Security Act to require plan sponsors to 
provide more specific information to participants in the 
summary plan description regarding the administration, 
financing, and resolution of claims.

                  Subtitle B--Individual Market Rules

Section 110. Individual health plan portability

    Section 110(a) requires health plan issuers offering 
individual health plans to provide coverage to individuals 
wishing to purchase coverage under certain circumstances. 
Section 110(a) also allows health plan issuers to offer premium 
discounts or modify copayments or deductibles in return for 
adherence to programs of health promotion and disease 
prevention. To be eligible for individual coverage under this 
provision, an individual: (1) must have had continuous coverage 
for at least 18 months under an employee health benefit plan or 
group health plan; (2) must not be eligible for coverage under 
an employee health benefit plan or group health plan or have 
been terminated from such plan for fraud or failure to make 
required payments; and (3) must be ineligible for COBRA 
continuation coverage or must have exhausted eligibility for 
COBRA continuation coverage.
    Section 110(c) allows a health plan issuer offering an 
individual health plan to cease offering coverage to 
individuals only where the health issuer ceases to offer 
coverage to any additional individuals or where the health plan 
issuer can demonstrate that its financial or provider capacity 
to serve previously covered individuals will be impaired if the 
health plan issuer is required to offer coverage to additional 
individuals purchasers. Once a health plan issuer ceases to 
offer coverage under this section, that health plan issuer is 
prohibited from offering coverage for a 6-month period or until 
the health plan issuer can demonstrate adequate capacity, 
whichever is later. At that time, the health plan issuer must 
offer coverage on a first-come first-served basis or other 
basis determined by the State to assure a fair opportunity to 
enroll in the plan and avoid risk selection.

 Section 111. Guaranteed renewability of individual health coverage

    Section 111 is nearly identical to the provisions contained 
in section 102 of the legislation governing renewal of group 
health plans. It requires health plan issuers to renew 
individual health plans at the option of the individual, 
unless: (1) the individual fails to pay premiums or fails to 
pay premiums in a timely fashion; (2) there is fraud or 
misrepresentation of material fact on the part of the 
individual; or (3) the health plan is terminated under the 
procedures specified in the legislation.
    The provisions regarding termination of individual health 
plans also are nearly identical to those contained in section 
102 of the legislation governing group health plans.

Section 112. State flexibility in individual market reforms

    Section 112 provides that State reforms of the individual 
market will apply in lieu of the provisions contained in 
sections 110 and 111 of the act, unless the Secretary of HHS 
determines that such State reforms do not achieve the goals of 
providing access to affordable coverage for individuals 
described in sections 110 and 111 of the act.
    The Secretary of HHS must consult with a State's governor 
and insurance commissioner and consider only those four 
criteria set forth in section 112(b)(1): (1) whether the State 
law or program provides access to affordable coverage; (2) 
whether the State law or program provides coverage for 
preexisting conditions; (3) whether the State law or program 
provides individuals with a choice of health plans or 
comprehensive coverage; and (2) whether the State law or 
program will have an adverse impact on the number of 
individuals having access to affordable coverage.
    In addition, if a State plan meets model individual market 
reform standards adopted by the NAIC and approved by the 
Secretary of HHS, a State shall be deemed to have met the 
requirements of sections 110 and 111 of the act without further 
review.

Section 113. Definition

    Section 113 defines an individual health plan as a 
contract, policy, certificate, or other arrangement offered by 
a health plan issuer to individuals that provides or pays for 
health benefits, such as provider and hospital benefits. An 
individual health plan does not include the following or any 
combination of the following: (1) coverage only for accident, 
or disability income insurance, or any combination thereof; (2) 
Medicare supplemental health insurance; (3) coverage issued as 
a supplement to liability insurance; (4) liability insurance, 
including general liability insurance and automobile liability 
insurance; (5) workers compensation or similar insurance; (6) 
automobile medical payment insurance; (7) coverage for a 
specified disease or illness; (8) hospital or fixed indemnity 
insurance; (9) short-term limited duration insurance; (10) 
credit only, dental-only, or vision-only insurance; (11) a 
health insurance policy providing benefits only for long-term 
care, nursing home care, home health care, community-based 
care, or any combination thereof.

                    Subtitle C--COBRA Clarifications

Sec. 121. COBRA clarifications

    Section 121 amends the Consolidated Omnibus Budget 
Reconciliation Act (COBRA) to allow individuals who have 
disabled family members or who become disabled at any time 
during their coverage under an initial COBRA extension period 
to extend their coverage for the additional 11-month period 
currently available only to workers who are disabled at the 
time they lose their coverage.
    Section 121 also amends COBRA to clarify that newborns and 
adopted children may be covered immediately under a parent's 
COBRA policy.

        Subtitle D--Private Health Plan Purchasing Cooperatives

Section 131. Private health plan purchasing cooperatives

    Section 131(a) defines a health plan purchasing cooperative 
as a group of individuals or employers that form a cooperative 
on a voluntary basis to purchase individual or group health 
plans.
    Section 131(b) provides that a group desiring to form a 
health plan purchasing cooperative under this act be certified 
by a State and registered with the Secretary and that, in the 
case of a State refusal to certify, the Secretary shall certify 
cooperatives.
    Section 131(c) requires each health plan purchasing 
cooperative to have a board of directors and provides 
requirements for such board.
    Section 131(d) allows health plan purchasing cooperatives 
to establish limits on the size of employers and decide whether 
to accept individuals as members. Once membership criteria are 
set, a health plan purchasing cooperative must accept members 
on a first come, first-served basis. Section 131(d) also allows 
health plan purchasing cooperatives to establish a marketing 
area in those States that do not define such marketing areas.
    Section 131(e) provides certain mandatory and permissible 
health plan purchasing cooperative activities and section 
131(f) provides certain limitations on activities of a health 
plan purchasing cooperative.
    Section 131(g)(1) preempts State fictitious group laws with 
respect to health plan purchasing cooperatives meeting the 
requirements of this section. Section 131(g)(2) provides for 
limited preemption of State rating laws and benefit mandates 
with respect to group health plans and individual health plans 
offered by health plan issuers to a health plan purchasing 
cooperative meeting the requirements of this section.

           Title II--Application and Enforcement of Standards

Sec. 201. Applicability

    Section 201(a) provides that: (1) requirements or standards 
imposed under the act on group health plans and individual 
health plans shall be deemed to be requirements imposed on 
health plan issuers; (2) requirements or standards imposed 
under the act on group health plans offered by health plan 
issuers in connection with employee health benefit plans shall 
be enforced by the State insurance commissioner for the State 
involved or other official designated by the State to enforce 
the requirements of the Act; and (3) except in the case of a 
substantial State failure to enforce the provisions of this act 
under section 202(c), the Secretary shall not enforce the 
standards of the act with respect to health plan issuers and, 
in no case, shall a State enforce the standards of the act 
relating to employee health benefit plans.
    Section 201(a) also provides that nothing in the 
legislation shall be construed to prevent States from 
establishing, implementing, or continuing in effect health 
insurance standards and requirements not prescribed in the 
legislation or standards and requirements that are related to 
the issuance, renewal, or portability of health insurance, or 
the establishment or operation of group purchasing 
arrangements, that are consistent with and are not in direct 
conflict with the provisions of this legislation, and provide 
greater protection or benefit to individuals.
    Section 201(b) provides that nothing in the legislation 
shall be construed to affect or modify the preemption 
provisions of the Employee Retirement Income Security Act.

Sec. 202. Enforcement of standards

    Section 202 requires each State to file an enforcement plan 
with the Secretary of Labor. The Secretary will enforce the 
requirements of the legislation with regard to employee health 
benefit plans. If a State fails to substantially enforce the 
standards contained in the legislation, the Secretary of Labor 
will enforce those standards directly against health plan 
issuers.
    Section 202(e) allows the Secretary to promulgate 
regulations necessary or appropriate to carry out this act. 
Section 202(f) amends the Employee Retirement Income Security 
Act to allow the Secretary to use appropriated funds to enforce 
the requirements of this act.

                  Title III--Miscellaneous Provisions

Sec. 301. HMO's allowed to offer plans with deductibles to individuals 
        with medical savings accounts

    Section 301(a) amends section 1301(b) of the Public Health 
Service Act to allow health maintenance organizations to charge 
deductibles to an HMO member if the member has a medical 
savings account.
    Section 301(b) states that it is the ``sense of the 
Committee on Labor and Human Resources'' that the establishment 
of medical savings accounts should be encouraged as part of any 
health insurance reform legislation passed by the Senate 
through the use of tax incentives.
    Section 301(c) further states that it is the ``sense of the 
Senate'' that Congress should take measures to further the 
purposes of this act, including any necessary changes to the 
Internal Revenue Code of 1986, to encourage groups and 
individuals to obtain health coverage, and to promote access, 
equity, portability, affordability, and security of health 
benefits.

Sec. 302. Health coverage availability study

    Section 302 requires the Secretary of HHS conduct a two-
part study on the effectiveness of State laws and the Health 
Insurance Reform Act of 1995. By January 1, 1997, the Secretary 
of HHS must provide to Congress: (1) an evaluation of the 
various mechanisms used to ensure the availability of 
reasonably priced health insurance to employers and 
individuals; and (2) an evaluation of whether standards that 
limit the variation in health insurance premiums will further 
the purposes of this act. The Secretary must submit a second 
report by January 1, 1998, evaluating the effectiveness of the 
provisions of the legislation, and the various State insurance 
reform laws, in ensuring the availability of reasonably priced 
health insurance to employers and individuals.

Sec. 303. Sense of the committee concerning Medicare

    Section 303 states that it is the ``sense of the Committee 
on Labor and Human Resources'' that the Senate should take 
measures necessary to reform the Medicare program, to provide 
increased choice for seniors, and to respond to the findings of 
the Public Trustees by protecting the short-term solvency and 
long-term sustainability of the Medicare program.

Sec. 304. Effective date

    Section 304 provides that the provisions of the act, except 
where otherwise provided, shall apply to all group health plans 
and individual health plans offered, sold, issued, renewed, in 
effect, or operated on or after January 1, 1996, and shall 
apply to all employee health benefit plans on the first day of 
the first plan year beginning on or after January 1, 1996.

Sec. 305. Severability

    Section 305 provides that if any provision of the act or 
application of such provision is held to be unconstitutional, 
the remainder of the act shall not be affected.

                     VIII. 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):
          * * * * * * *

                  HEALTH INSURANCE REFORM ACT OF 1995

          * * * * * * *

                          TITLE 29, U.S. CODE

          * * * * * * *
    Sec. 1024 * * *
          * * * * * * *
    (b) * * *
          * * * * * * *
          (1) The administrator shall furnish to each 
        participant, and each beneficiary receiving benefits 
        under the plan, a copy of the summary plan description, 
        and all modifications and changes referred to in 
        section [102(a)(1)] 102(a)(1) that is not a material 
        reduction in covered services or benefits provided,
          * * * * * * *
                  (B) * * *
          * * * * * * *
If there is a modification or change described in section 
102(a)(1) that is a material reduction in covered services or 
benefits provided, a summary description of such modification 
or changes shall be furnished to participants not later than 60 
days after the date of the adoption of the modification or 
change. In the alternative, the plan sponsors may provide such 
description at regular intervals of not more than 90 days. The 
Secretary shall issue regulations within 180 days after the 
date of enactment of the Health Insurance Reform Act of 1995, 
providing alternative mechanisms to delivery by mail through 
which employee health benefit plans may notify participants of 
material reductions in covered services or benefits.
          * * * * * * *
    (c) Statement of rights. The Secretary may by regulation 
require that the administrator of any employee benefit plan 
furnish to each participant and to each beneficiary receiving 
benefits under the plan a statement of the rights of 
participants and beneficiaries under this title. Such statement 
may include information regarding the extent to which benefits 
under such plan are provided through arrangements with 
insurance or financed by the plan sponsor, and information 
regarding the enforcement of the rights of participants and 
beneficiaries under this title or under the laws of any State.
          * * * * * * *
    Sec. 1022 * * *
          * * * * * * *
    (b) The plan description and summary plan description shall 
contain the following information: The name and type of 
administration of the plan including the office or title of the 
individual who is responsible for approving or denying claims 
for coverage of benefits ; the name and address of the person 
designated as agent for the service of legal process, if such 
person is not the administrator; the name and address of the 
administrator; names, titles and addresses of any trustee or 
trustees (if they are persons different from the 
administrator); a description of the relevant provisions of any 
applicable collective bargaining agreement; the plan's 
requirements respecting eligibility for participation and 
benefits; a description of the provisions providing for 
nonforfeitable pension benefits; circumstances which may result 
in disqualification, ineligibility, or denial or loss of 
benefits; the source of financing of the plan including the 
name of the organization responsible for financing claims and 
the identity of any organization through which benefits are 
provided; the date of the end of the plan year and whether the 
records of the plan are kept on a calendar, policy, or fiscal 
year basis; the procedures to be followed in presenting claims 
for benefits under the plan including the office, contact, or 
title of the individual at the Department of Labor through 
which participants may seek assistance or information regarding 
their rights under this Act and the Health Insurance Reform Act 
of 1995 with respect to health benefits that are not offered 
through a group health plan and the remedies available under 
the plan for the redress of claims which are denied in whole or 
in part (including procedures required under section 503 of 
this Act).
          * * * * * * *

                          TITLE 42, U.S. CODE

          * * * * * * *
    Sec. 300bb-2 * * *
          * * * * * * *
        (2) * * *
          * * * * * * *
                  (A) * * *
          * * * * * * *
                          (iv) * * *
    In the case of an individual, or a beneficiary-family 
member of the individual, who is determined, under title II or 
XVI of the Social Security Act, to have been disabled at the 
time of a qualifying event described in section 2203(2)
          * * * * * * *
                  (D) * * *
          * * * * * * *
                          (i) covered under any other group 
                        health plan (as an employee or 
                        otherwise) which does not contain any 
                        exclusion except that the exclusion or 
                        limitation contained in this clause 
                        shall not be considered to apply to a 
                        plan under which a preexisting 
                        condition or exclusion does not apply 
                        to an individual otherwise eligible for 
                        continuation coverage under this 
                        section because of the provision of the 
                        Health Insurance Reform Act of 1995 or 
                        limitation with respect to any 
                        preexisting condition of such 
                        beneficiary, or
          * * * * * * *
                  (E) Termination of extended coverage for 
                disability. In the case of a qualified 
                beneficiary who is disabled [at the time of a 
                qualifying event described in section 2203(2)] 
                at any time during the initial 18-month period 
                of continuing coverage under this title, the 
                month that begins more than 30 days after the 
                date of the final determination under title II 
                or XVI of the Social Security Act that the 
                qualified beneficiary is no longer disabled.
          * * * * * * *
    Sec. 300bb-5 * * *
          * * * * * * *
        (1) * * *
          * * * * * * *
                          (C) * * *
                                  (i) the date described in 
                                subparagraph (A), [or]
                                  (ii) in the case of any 
                                qualified beneficiary who 
                                receives notice under section 
                                2206(4), the date of such 
                                notice[.] or,
                                  (iii) in the case of an 
                                individual described in the 
                                last sentence of section 
                                2202(2)(A), or a beneficiary-
                                family member of the 
                                individual, the date such 
                                individual is determined to 
                                have been disabled.
          * * * * * * *
    (3) Limitation.--To the extent that an individual is 
enrolled in a group health plan and a limitation or exclusion 
of benefits relating to the treatment of a preexisting 
condition (as defined in section 103(e) of the Health Insurance 
Reform Act of 1995) would not apply to such individual, such 
individual shall not be entitled to elect continuation coverage 
under this title, except that nothing in this paragraph shall 
be construed to require continuation coverage under this title 
for an individual who is not subject to a preexisting condition 
exclusion as a result of the enactment of the Health Insurance 
Reform Act of 1995.
          * * * * * * *
    Sec. 300bb-6 * * *
          * * * * * * *
        (3) each covered employee or qualified beneficiary is 
        responsible for notifying the plan administrator of the 
        occurrence of any qualifying event described in 
        paragraph (3) or (5) of section 2203 within 60 days 
        after the date of the qualifying event and each 
        qualified beneficiary who is determined, under title II 
        or XVI of the Social Security Act, to have been 
        disabled [at the time of a qualifying event described 
        in section 2203(2)] at any time during the initial 18-
        month period of continuing coverage under this title is 
        responsible for notifying the plan administrator of 
        such determination within 60 days after the date of the 
        determination and for notifying the plan administrator 
        within 30 days after the date of any final 
        determination under such title or titles that the 
        qualified beneficiary is no longer disabled, and
          * * * * * * *
    Sec. 300bb-8 * * *
          * * * * * * *
        (3) * * *
                  (A) * * *
          * * * * * * *
                          (ii) * * *
Such term shall also include a child who is born to or placed 
for adoption with the covered employee during the period of 
continued coverage under this title.
          * * * * * * *

                          TITLE 29, U.S. CODE

    Sec. 1162 * * *
          * * * * * * *
        (2) * * *
          * * * * * * *
                  (v) * * *
    In the case of an individual or a beneficiary-family member 
of the individual, who is determined, under title II or XVI of 
the Social Security Act, to have been disabled [at the time of 
a qualifying event described in section 603(2)] at any time 
during the initial 18-month period of continuing coverage under 
this part, any reference in clause (i) or (ii) to 18 months 
with respect to such event is deemed a reference to 29 months, 
but only if the qualified beneficiary has provided notice of 
such determination under section 603(3) before the end of such 
18 months.
          * * * * * * *
          (D) * * *
          * * * * * * *
                  (i) covered under any other group health plan 
                (as an employee or otherwise) which does not 
                contain any exclusion except that the exclusion 
                or limitation contained in this clause shall 
                not be considered to apply to a plan under 
                which a preexisting condition or exclusion does 
                not apply to an individual otherwise eligible 
                for continuation coverage under this section 
                because of the provision of the Health 
                Insurance Reform Act of 1995 or limitation with 
                respect to any preexisting condition of such 
                beneficiary, or
          * * * * * * *
        (E) Termination of extended coverage for disability. In 
        the case of a qualified beneficiary who is disabled [at 
        the time of a qualifying event described in section 
        603(2)], at any time during the initial 18-month period 
        of continuing coverage under this part the month that 
        begins more than 30 days after the date of the final 
        determination under title II or XVI of the Social 
        Security Act that the qualified beneficiary is no 
        longer disabled.
          * * * * * * *
    Sec. 1165 * * *
        (1) * * *
          * * * * * * *
                  (C) * * *
                          (i) the date described in 
                        subparagraph (A), [or]
                          (ii) in the case of any qualified 
                        beneficiary who receives notice under 
                        section 606(4), the date of such 
                        notice[.], or
                          (iii) in the case of an individual 
                        described in the last sentence of 
                        section 602(2)(A), or a beneficiary-
                        family member of the individual, the 
                        date such individual is determined to 
                        have been disabled.
          * * * * * * *
        (3) Limitation.--To the extent that an individual is 
        enrolled in a group health plan and a limitation or 
        exclusion of benefits relating to the treatment of a 
        preexisting condition (as defined in section 103(e) of 
        the Health Insurance Reform Act of 1995) would not 
        apply to such individual, such individual shall not be 
        entitled to elect continuation coverage under this 
        part, except that nothing in this paragraph shall be 
        construed to require continuation coverage under this 
        part for an individual who is not subject to a 
        preexisting condition exclusion as a result of the 
        enactment of the Health Insurance Reform Act of 1995.
          * * * * * * *
    Sec. 1166 * * *
          * * * * * * *
                (a) * * *
          * * * * * *
          (3) each covered employee or qualified beneficiary is 
        responsible for notifying the administrator of the 
        occurrence of any qualifying event described in 
        paragraph (3) or (5) of section 603 within 60 days 
        after the date of the qualifying event and each 
        qualified beneficiary who is determined, under title II 
        or XVI of the Social Security Act, to have been 
        disabled [at the time of a qualifying event described 
        in section 603(2)] at any time during the initial 18-
        month period of continuing coverage under this part is 
        responsible for notifying the plan administrator of 
        such determination within 60 days after the date of the 
        determination and for notifying the plan administrator 
        within 30 days after the date of any final 
        determination under such title or titles that the 
        qualified beneficiary is no longer disabled, and
          * * * * * * *
    Sec. 1167 * * *
          * * * * * * *
        (5) * * *
          * * * * * * *
                  (B) * * *
Such term shall also include a child who is born to or placed 
for adoption with the covered employee during the period of 
continued coverage under this part.
                              ----------                              

          * * * * * * *

                     INTERNAL REVENUE CODE OF 1986

                          TITLE 26, U.S. CODE

          * * * * * * *
    Sec. 4980B * * *
          * * * * * * *
    (f) * * *
          * * * * * * *
          (2) * * *
          * * * * * * *
                  (B) * * *
          * * * * * * *
                          (i) * * *
          * * * * * * *
                  (V) * * *
          * * * * * * *
    In the case of a qualified beneficiary who is determined, 
under title II or XVI of the Social Security Act, to have been 
disabled [at the time of a qualifying event described in 
paragraph (3)(B)] at any time during the initial 18-month 
period of continuing coverage under this section, any reference 
in subclause (I) or (II) to 18 months with respect to such 
event is deemed a reference to 29 months, but only if the 
qualified beneficiary has provided notice of such determination 
under paragraph (6)(C) before the end of such 18 months.
          * * * * * * *
                          (iv) * * *
                                  (I) covered under any other 
                                group health plan (as an 
                                employee or otherwise), which 
                                does not contain any exclusion 
                                except that the exclusion or 
                                limitation contained in this 
                                subclause shall not be 
                                considered to apply to a plan 
                                under which a preexisting 
                                condition or exclusion does not 
                                apply to an individual 
                                otherwise eligible for 
                                continuation coverage under 
                                this subsection because of the 
                                provision of the Health 
                                Insurance Reform Act of 1995 or 
                                limitation with respect to any 
                                preexisting condition of such 
                                beneficiary, or
          * * * * * * *
                          (v) Termination of extended coverage 
                        for disability. In the case of a 
                        qualified beneficiary who is disabled 
                        [at the time of a qualifying event 
                        described in paragraph (3)(B)], at any 
                        time during the initial 18-month period 
                        of continuing coverage under this 
                        section the month that begins more than 
                        30 days after the date of the final 
                        determination under title II or XVI of 
                        the Social Security Act that the 
                        qualified beneficiary is no longer 
                        disabled.
          * * * * * * *
          (5) * * *
          * * * * * * *
                  (A) * * *
          * * * * * * *
                          (iii) * * *
                                  (I) the date described in 
                                clause (i), [or]
                                  (II) in the case of any 
                                qualified beneficiary who 
                                receives notice under paragraph 
                                (6)(D), the date of such 
                                notice[.], or
                                  (III) in the case of a 
                                qualified beneficiary described 
                                in the last sentence of 
                                paragraph (2)(B)(i), the date 
                                such individual is determined 
                                to have been disabled.
                          (iv) Limitation.--To the extent that 
                        an individual is enrolled in a group 
                        health plan and a limitation or 
                        exclusion of benefits relating to the 
                        treatment of a preexisting condition 
                        (as defined in section 103(e) of the 
                        Health Insurance Reform Act of 1995) 
                        would not apply to such individual, 
                        such individual shall not be entitled 
                        to elect continuation coverage under 
                        this part, except that nothing in this 
                        clause shall be construed to require 
                        continuation coverage under this 
                        subsection for an individual who is not 
                        subject to a preexisting condition 
                        exclusion as a result of the enactment 
                        of the Health Insurance Reform Act of 
                        1995.
          * * * * * * *
          (6) * * *
          * * * * * * *
                  (C) Each covered employee or qualified 
                beneficiary is responsible for notifying the 
                plan administrator of the occurrence of any 
                qualifying event described in subparagraph (C) 
                or (E) of paragraph (3) within 60 days after 
                the date of the qualifying event and each 
                qualified beneficiary who is determined, under 
                title II or XVI of the Social Security Act, to 
                have been disabled [at the time of a qualifying 
                event described in paragraph (3)(B)] at any 
                time during the initial 18-month period of 
                continuing coverage under this section is 
                responsible for notifying the plan 
                administrator of such determination within 60 
                days after the date of the determination and 
                for notifying the plan administrator within 30 
                days of the date of any final determination 
                under such title or titles that the qualified 
                beneficiary is no longer disabled.
          * * * * * * *
    (g) * * *
          * * * * * * *
          (1) * * *
          * * * * * * *
                  (A) * * *
          * * * * * * *
                          (ii) * * *
Such term shall also include a child who is born to or placed 
for adoption with the covered employee during the period of 
continued coverage under this section.
          * * * * * * *

                          TITLE 29, U.S. CODE

    Sec. 1138. Appropriations--There are hereby authorized to 
be appropriated such sums as may be necessary to enable the 
Secretary to carry out his functions and duties under this Act 
and under the Health Insurance Reform Act of 1995.
          * * * * * * *

                          TITLE 42, U.S. CODE

          * * * * * * *
    Sec. 300e * * *
    (b) * * *
          * * * * * * *
          (5) * * *
          * * * * * * *
          (6)(A) If a member certifies that a medical savings 
        account has been established for the benefit of such 
        member, a health maintenance organization may, at the 
        request of such member reduce the basic health services 
        payment otherwise determined under paragraph (1) by 
        requiring the payment of a deductible by the member for 
        basic health services.
          (B) For purposes of this paragraph, the term 
        ``medical savings account'' means an account which, by 
        its terms, allows the deposit of funds and the use of 
        such funds and income derived from the investment of 
        such funds for the payment of the deductible described 
        in subparagraph (A).
          * * * * * * *