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109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     109-378

======================================================================



 
                     HEALTH CARE CHOICE ACT OF 2005

                                _______
                                

               February 16, 2006.--Ordered to be printed

                                _______
                                

    Mr. Barton of Texas, from the Committee on Energy and Commerce, 
                        submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 2355]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Energy and Commerce, to whom was referred 
the bill (H.R. 2355) to amend the Public Health Service Act to 
provide for cooperative governing of individual health 
insurance coverage offered in interstate commerce, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     2
Purpose and Summary..............................................     9
Background and Need for Legislation..............................     9
Hearings.........................................................    10
Committee Consideration..........................................    10
Committee Votes..................................................    10
Committee Oversight Findings.....................................    27
Statement of General Performance Goals and Objectives............    27
New Budget Authority, Entitlement Authority, and Tax Expenditures    27
Committee Cost Estimate..........................................    27
Congressional Budget Office Estimate.............................    27
Federal Mandates Statement.......................................    33
Advisory Committee Statement.....................................    33
Constitutional Authority Statement...............................    34
Applicability to Legislative Branch..............................    34
Section-by-Section Analysis of the Legislation...................    34
Changes in Existing Law Made by the Bill, as Reported............    38
Dissenting Views.................................................    49

                               Amendment

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as ``Health Care Choice Act of 2005''.

SEC. 2. SPECIFICATION OF CONSTITUTIONAL AUTHORITY FOR ENACTMENT OF LAW.

  This Act is enacted pursuant to the power granted Congress under 
article I, section 8, clause 3, of the United States Constitution.

SEC. 3. FINDINGS.

  Congress finds the following:
          (1) The application of numerous and significant variations in 
        State law impacts the ability of insurers to offer, and 
        individuals to obtain, affordable individual health insurance 
        coverage, thereby impeding commerce in individual health 
        insurance coverage.
          (2) Individual health insurance coverage is increasingly 
        offered through the Internet, other electronic means, and by 
        mail, all of which are inherently part of interstate commerce.
          (3) In response to these issues, it is appropriate to 
        encourage increased efficiency in the offering of individual 
        health insurance coverage through a collaborative approach by 
        the States in regulating this coverage.
          (4) The establishment of risk-retention groups has provided a 
        successful model for the sale of insurance across State lines, 
        as the acts establishing those groups allow insurance to be 
        sold in multiple States but regulated by a single State.

SEC. 4. COOPERATIVE GOVERNING OF INDIVIDUAL HEALTH INSURANCE COVERAGE.

  (a) In General.--Title XXVII of the Public Health Service Act (42 
U.S.C. 300gg et seq.) is amended by adding at the end the following new 
part:

``Part D--Cooperative Governing of Individual Health Insurance Coverage

``SEC. 2795. DEFINITIONS.

  ``In this part:
          ``(1) Primary state.--The term `primary State' means, with 
        respect to individual health insurance coverage offered by a 
        health insurance issuer, the State designated by the issuer as 
        the State whose covered laws shall govern the health insurance 
        issuer in the sale of such coverage under this part. An issuer, 
        with respect to a particular policy, may only designate one 
        such State as its primary State with respect to all such 
        coverage it offers. Such an issuer may not change the 
        designated primary State with respect to individual health 
        insurance coverage once the policy is issued, except that such 
        a change may be made upon renewal of the policy. With respect 
        to such designated State, the issuer is deemed to be doing 
        business in that State.
          ``(2) Secondary state.--The term `secondary State' means, 
        with respect to individual health insurance coverage offered by 
        a health insurance issuer, any State that is not the primary 
        State. In the case of a health insurance issuer that is selling 
        a policy in, or to a resident of, a secondary State, the issuer 
        is deemed to be doing business in that secondary State.
          ``(3) Health insurance issuer.--The term `health insurance 
        issuer' has the meaning given such term in section 2791(b)(2), 
        except that such an issuer must be licensed in the primary 
        State and be qualified to sell individual health insurance 
        coverage in that State.
          ``(4) Individual health insurance coverage.--The term 
        `individual health insurance coverage' means health insurance 
        coverage offered in the individual market, as defined in 
        section 2791(e)(1).
          ``(5) Applicable state authority.--The term `applicable State 
        authority' means, with respect to a health insurance issuer in 
        a State, the State insurance commissioner or official or 
        officials designated by the State to enforce the requirements 
        of this title for the State with respect to the issuer.
          ``(6) Hazardous financial condition.--The term `hazardous 
        financial condition' means that, based on its present or 
        reasonably anticipated financial condition, a health insurance 
        issuer is unlikely to be able--
                  ``(A) to meet obligations to policyholders with 
                respect to known claims and reasonably anticipated 
                claims; or
                  ``(B) to pay other obligations in the normal course 
                of business.
          ``(7) Covered laws.--
                  ``(A) In general.--The term `covered laws' means the 
                laws, rules, regulations, agreements, and orders 
                governing the insurance business pertaining to--
                          ``(i) individual health insurance coverage 
                        issued by a health insurance issuer;
                          ``(ii) the offer, sale, rating (including 
                        medical underwriting), renewal, and issuance of 
                        individual health insurance coverage to an 
                        individual;
                          ``(iii) the provision to an individual in 
                        relation to individual health insurance 
                        coverage of health care and insurance related 
                        services;
                          ``(iv) the provision to an individual in 
                        relation to individual health insurance 
                        coverage of management, operations, and 
                        investment activities of a health insurance 
                        issuer; and
                          ``(v) the provision to an individual in 
                        relation to individual health insurance 
                        coverage of loss control and claims 
                        administration for a health insurance issuer 
                        with respect to liability for which the issuer 
                        provides insurance.
                  ``(B) Exception.--Such term does not include any law, 
                rule, regulation, agreement, or order governing the use 
                of care or cost management techniques, including any 
                requirement related to provider contracting, network 
                access or adequacy, health care data collection, or 
                quality assurance.
          ``(8) State.--The term `State' means only the 50 States and 
        the District of Columbia.
          ``(9) Unfair claims settlement practices.--The term `unfair 
        claims settlement practices' means only the following 
        practices:
                  ``(A) Knowingly misrepresenting to claimants and 
                insured individuals relevant facts or policy provisions 
                relating to coverage at issue.
                  ``(B) Failing to acknowledge with reasonable 
                promptness pertinent communications with respect to 
                claims arising under policies.
                  ``(C) Failing to adopt and implement reasonable 
                standards for the prompt investigation and settlement 
                of claims arising under policies.
                  ``(D) Failing to effectuate prompt, fair, and 
                equitable settlement of claims submitted in which 
                liability has become reasonably clear.
                  ``(E) Refusing to pay claims without conducting a 
                reasonable investigation.
                  ``(F) Failing to affirm or deny coverage of claims 
                within a reasonable period of time after having 
                completed an investigation related to those claims.
                  ``(G) A pattern or practice of compelling insured 
                individuals or their beneficiaries to institute suits 
                to recover amounts due under its policies by offering 
                substantially less than the amounts ultimately 
                recovered in suits brought by them.
                  ``(H) A pattern or practice of attempting to settle 
                or settling claims for less than the amount that a 
                reasonable person would believe the insured individual 
                or his or her beneficiary was entitled by reference to 
                written or printed advertising material accompanying or 
                made part of an application.
                  ``(I) Attempting to settle or settling claims on the 
                basis of an application that was materially altered 
                without notice to, or knowledge or consent of, the 
                insured.
                  ``(J) Failing to provide forms necessary to present 
                claims within 15 calendar days of a requests with 
                reasonable explanations regarding their use.
                  ``(K) Attempting to cancel a policy in less time than 
                that prescribed in the policy or by the law of the 
                primary State.
          ``(10) Fraud and abuse.--The term `fraud and abuse' means an 
        act or omission committed by a person who, knowingly and with 
        intent to defraud, commits, or conceals any material 
        information concerning, one or more of the following:
                  ``(A) Presenting, causing to be presented or 
                preparing with knowledge or belief that it will be 
                presented to or by an insurer, a reinsurer, broker or 
                its agent, false information as part of, in support of 
                or concerning a fact material to one or more of the 
                following:
                          ``(i) An application for the issuance or 
                        renewal of an insurance policy or reinsurance 
                        contract.
                          ``(ii) The rating of an insurance policy or 
                        reinsurance contract.
                          ``(iii) A claim for payment or benefit 
                        pursuant to an insurance policy or reinsurance 
                        contract.
                          ``(iv) Premiums paid on an insurance policy 
                        or reinsurance contract.
                          ``(v) Payments made in accordance with the 
                        terms of an insurance policy or reinsurance 
                        contract.
                          ``(vi) A document filed with the commissioner 
                        or the chief insurance regulatory official of 
                        another jurisdiction.
                          ``(vii) The financial condition of an insurer 
                        or reinsurer.
                          ``(viii) The formation, acquisition, merger, 
                        reconsolidation, dissolution or withdrawal from 
                        one or more lines of insurance or reinsurance 
                        in all or part of a State by an insurer or 
                        reinsurer.
                          ``(ix) The issuance of written evidence of 
                        insurance.
                          ``(x) The reinstatement of an insurance 
                        policy.
                  ``(B) Solicitation or acceptance of new or renewal 
                insurance risks on behalf of an insurer reinsurer or 
                other person engaged in the business of insurance by a 
                person who knows or should know that the insurer or 
                other person responsible for the risk is insolvent at 
                the time of the transaction.
                  ``(C) Transaction of the business of insurance in 
                violation of laws requiring a license, certificate of 
                authority or other legal authority for the transaction 
                of the business of insurance.
                  ``(D) Attempt to commit, aiding or abetting in the 
                commission of, or conspiracy to commit the acts or 
                omissions specified in this paragraph.

``SEC. 2796. APPLICATION OF LAW.

  ``(a) In General.--The covered laws of the primary State shall apply 
to individual health insurance coverage offered by a health insurance 
issuer in the primary State and in any secondary State, but only if the 
coverage and issuer comply with the conditions of this section with 
respect to the offering of coverage in any secondary State.
  ``(b) Exemptions From Covered Laws in a Secondary State.--Except as 
provided in this section, a health insurance issuer with respect to its 
offer, sale, rating (including medical underwriting), renewal, and 
issuance of individual health insurance coverage in any secondary State 
is exempt from any covered laws of the secondary State (and any rules, 
regulations, agreements, or orders sought or issued by such State under 
or related to such covered laws) to the extent that such laws would--
          ``(1) make unlawful, or regulate, directly or indirectly, the 
        operation of the health insurance issuer operating in the 
        secondary State, except that any secondary State may require 
        such an issuer--
                  ``(A) to pay, on a nondiscriminatory basis, 
                applicable premium and other taxes (including high risk 
                pool assessments) which are levied on insurers and 
                surplus lines insurers, brokers, or policyholders under 
                the laws of the State;
                  ``(B) to register with and designate the State 
                insurance commissioner as its agent solely for the 
                purpose of receiving service of legal documents or 
                process;
                  ``(C) to submit to an examination of its financial 
                condition by the State insurance commissioner in any 
                State in which the issuer is doing business to 
                determine the issuer's financial condition, if--
                          ``(i) the State insurance commissioner of the 
                        primary State has not done an examination 
                        within the period recommended by the National 
                        Association of Insurance Commissioners; and
                          ``(ii) any such examination is conducted in 
                        accordance with the examiners' handbook of the 
                        National Association of Insurance Commissioners 
                        and is coordinated to avoid unjustified 
                        duplication and unjustified repetition;
                  ``(D) to comply with a lawful order issued--
                          ``(i) in a delinquency proceeding commenced 
                        by the State insurance commissioner if there 
                        has been a finding of financial impairment 
                        under subparagraph (C); or
                          ``(ii) in a voluntary dissolution proceeding;
                  ``(E) to comply with an injunction issued by a court 
                of competent jurisdiction, upon a petition by the State 
                insurance commissioner alleging that the issuer is in 
                hazardous financial condition;
                  ``(F) to participate, on a nondiscriminatory basis, 
                in any insurance insolvency guaranty association or 
                similar association to which a health insurance issuer 
                in the State is required to belong;
                  ``(G) to comply with any State law regarding fraud 
                and abuse (as defined in section 2795(10)), except that 
                if the State seeks an injunction regarding the conduct 
                described in this subparagraph, such injunction must be 
                obtained from a court of competent jurisdiction;
                  ``(H) to comply with any State law regarding unfair 
                claims settlement practices (as defined in section 
                2795(9)); or
                  ``(I) to comply with the applicable requirements for 
                independent review under section 2798 with respect to 
                coverage offered in the State;
          ``(2) require any individual health insurance coverage issued 
        by the issuer to be countersigned by an insurance agent or 
        broker residing in that Secondary State; or
          ``(3) otherwise discriminate against the issuer issuing 
        insurance in both the primary State and in any secondary State.
  ``(c) Clear and Conspicuous Disclosure.--A health insurance issuer 
shall provide the following notice, in 12-point bold type, in any 
insurance coverage offered in a secondary State under this part by such 
a health insurance issuer and at renewal of the policy, with the 5 
blank spaces therein being appropriately filled with the name of the 
health insurance issuer, the name of primary State, the name of the 
secondary State, the name of the secondary State, and the name of the 
secondary State, respectively, for the coverage concerned:

                                `Notice

  `This policy is issued by _____ and is governed by the laws and 
regulations of the State of _____, and it has met all the laws of that 
State as determined by that State's Department of Insurance. This 
policy may be less expensive than others because it is not subject to 
all of the insurance laws and regulations of the State of _____, 
including coverage of some services or benefits mandated by the law of 
the State of _____. Additionally, this policy is not subject to all of 
the consumer protection laws or restrictions on rate changes of the 
State of _____. As with all insurance products, before purchasing this 
policy, you should carefully review the policy and determine what 
health care services the policy covers and what benefits it provides, 
including any exclusions, limitations, or conditions for such services 
or benefits.'.
  ``(d) Prohibition on Certain Reclassifications and Premium 
Increases.--
          ``(1) In general.--For purposes of this section, a health 
        insurance issuer that provides individual health insurance 
        coverage to an individual under this part in a primary or 
        secondary State may not upon renewal--
                  ``(A) move or reclassify the individual insured under 
                the health insurance coverage from the class such 
                individual is in at the time of issue of the contract 
                based on the health-status related factors of the 
                individual; or
                  ``(B) increase the premiums assessed the individual 
                for such coverage based on a health status-related 
                factor or change of a health status-related factor or 
                the past or prospective claim experience of the insured 
                individual.
          ``(2) Construction.--Nothing in paragraph (1) shall be 
        construed to prohibit a health insurance issuer--
                  ``(A) from terminating or discontinuing coverage or a 
                class of coverage in accordance with subsections (b) 
                and (c) of section 2742;
                  ``(B) from raising premium rates for all policy 
                holders within a class based on claims experience;
                  ``(C) from changing premiums or offering discounted 
                premiums to individuals who engage in wellness 
                activities at intervals prescribed by the issuer, if 
                such premium changes or incentives--
                          ``(i) are disclosed to the consumer in the 
                        insurance contract;
                          ``(ii) are based on specific wellness 
                        activities that are not applicable to all 
                        individuals; and
                          ``(iii) are not obtainable by all individuals 
                        to whom coverage is offered;
                  ``(D) from reinstating lapsed coverage; or
                  ``(E) from retroactively adjusting the rates charged 
                an insured individual if the initial rates were set 
                based on material misrepresentation by the individual 
                at the time of issue.
  ``(e) Prior Offering of Policy in Primary State.--A health insurance 
issuer may not offer for sale individual health insurance coverage in a 
secondary State unless that coverage is currently offered for sale in 
the primary State.
  ``(f) Licensing of Agents or Brokers for Health Insurance Issuers.--
Any State may require that a person acting, or offering to act, as an 
agent or broker for a health insurance issuer with respect to the 
offering of individual health insurance coverage obtain a license from 
that State, with commissions or other compensation subject to the 
provisions of the laws of that State, except that a State may not 
impose any qualification or requirement which discriminates against a 
nonresident agent or broker.
  ``(g) Documents for Submission to State Insurance Commissioner.--Each 
health insurance issuer issuing individual health insurance coverage in 
both primary and secondary States shall submit--
          ``(1) to the insurance commissioner of each State in which it 
        intends to offer such coverage, before it may offer individual 
        health insurance coverage in such State--
                  ``(A) a copy of the plan of operation or feasibility 
                study or any similar statement of the policy being 
                offered and its coverage (which shall include the name 
                of its primary State and its principal place of 
                business);
                  ``(B) written notice of any change in its designation 
                of its primary State; and
                  ``(C) written notice from the issuer of the issuer's 
                compliance with all the laws of the primary State; and
          ``(2) to the insurance commissioner of each secondary State 
        in which it offers individual health insurance coverage, a copy 
        of the issuer's quarterly financial statement submitted to the 
        primary State, which statement shall be certified by an 
        independent public accountant and contain a statement of 
        opinion on loss and loss adjustment expense reserves made by--
                  ``(A) a member of the American Academy of Actuaries; 
                or
                  ``(B) a qualified loss reserve specialist.
  ``(h) Power of Courts to Enjoin Conduct.--Nothing in this section 
shall be construed to affect the authority of any Federal or State 
court to enjoin--
          ``(1) the solicitation or sale of individual health insurance 
        coverage by a health insurance issuer to any person or group 
        who is not eligible for such insurance; or
          ``(2) the solicitation or sale of individual health insurance 
        coverage that violates the requirements of the law of a 
        secondary State which are described in subparagraphs (A) 
        through (H) of section 2796(b)(1).
  ``(i) Power of Secondary States to Take Administrative Action.--
Nothing in this section shall be construed to affect the authority of 
any State to enjoin conduct in violation of that State's laws described 
in section 2796(b)(1).
  ``(j) State Powers to Enforce State Laws.--
          ``(1) In general.--Subject to the provisions of subsection 
        (b)(1)(G) (relating to injunctions) and paragraph (2), nothing 
        in this section shall be construed to affect the authority of 
        any State to make use of any of its powers to enforce the laws 
        of such State with respect to which a health insurance issuer 
        is not exempt under subsection (b).
          ``(2) Courts of competent jurisdiction.--If a State seeks an 
        injunction regarding the conduct described in paragraphs (1) 
        and (2) of subsection (h), such injunction must be obtained 
        from a Federal or State court of competent jurisdiction.
  ``(k) States' Authority to Sue.--Nothing in this section shall affect 
the authority of any State to bring action in any Federal or State 
court.
  ``(l) Generally Applicable Laws.--Nothing in this section shall be 
construed to affect the applicability of State laws generally 
applicable to persons or corporations.
  ``(m) Guaranteed Availability of Coverage to HIPAA Eligible 
Individuals.--To the extent that a health insurance issuer is offering 
coverage in a primary State that does not accommodate residents of 
secondary States or does not provide a working mechanism for residents 
of a secondary State, and the issuer is offering coverage under this 
part in such secondary State which has not adopted a qualified high 
risk pool as its acceptable alternative mechanism (as defined in 
section 2744(c)(2)), the issuer shall, with respect to any individual 
health insurance coverage offered in a secondary State under this part, 
comply with the guaranteed availability requirements for eligible 
individuals in section 2741.

``SEC. 2797. PRIMARY STATE MUST MEET FEDERAL FLOOR BEFORE ISSUER MAY 
                    SELL INTO SECONDARY STATES.

  ``A health insurance issuer may not offer, sell, or issue individual 
health insurance coverage in a secondary State if the State insurance 
commissioner does not use a risk-based capital formula for the 
determination of capital and surplus requirements for all health 
insurance issuers.

``SEC. 2798. INDEPENDENT EXTERNAL APPEALS PROCEDURES.

  ``(a) Right to External Appeal.--A health insurance issuer may not 
offer, sell, or issue individual health insurance coverage in a 
secondary State under the provisions of this title unless----
          ``(1) both the secondary State and the primary State have 
        legislation or regulations in place establishing an independent 
        review process for individuals who are covered by individual 
        health insurance coverage, or
          ``(2) in any case in which the requirements of subparagraph 
        (A) are not met with respect to the either of such States, the 
        issuer provides an independent review mechanism substantially 
        identical (as determined by the applicable State authority of 
        such State) to that prescribed in the `Health Carrier External 
        Review Model Act' of the National Association of Insurance 
        Commissioners for all individuals who purchase insurance 
        coverage under the terms of this part, except that, under such 
        mechanism, the review is conducted by an independent medical 
        reviewer, or a panel of such reviewers, with respect to whom 
        the requirements of subsection (b) are met.
  ``(b) Qualifications of Independent Medical Reviewers.--In the case 
of any independent review mechanism referred to in subsection (a)(2)--
          ``(1) In general.--In referring a denial of a claim to an 
        independent medical reviewer, or to any panel of such 
        reviewers, to conduct independent medical review, the issuer 
        shall ensure that--
                  ``(A) each independent medical reviewer meets the 
                qualifications described in paragraphs (2) and (3);
                  ``(B) with respect to each review, each reviewer 
                meets the requirements of paragraph (4) and the 
                reviewer, or at least 1 reviewer on the panel, meets 
                the requirements described in paragraph (5); and
                  ``(C) compensation provided by the issuer to each 
                reviewer is consistent with paragraph (6).
          ``(2) Licensure and expertise.--Each independent medical 
        reviewer shall be a physician (allopathic or osteopathic) or 
        health care professional who--
                  ``(A) is appropriately credentialed or licensed in 1 
                or more States to deliver health care services; and
                  ``(B) typically treats the condition, makes the 
                diagnosis, or provides the type of treatment under 
                review.
          ``(3) Independence.--
                  ``(A) In general.--Subject to subparagraph (B), each 
                independent medical reviewer in a case shall--
                          ``(i) not be a related party (as defined in 
                        paragraph (7));
                          ``(ii) not have a material familial, 
                        financial, or professional relationship with 
                        such a party; and
                          ``(iii) not otherwise have a conflict of 
                        interest with such a party (as determined under 
                        regulations).
                  ``(B) Exception.--Nothing in subparagraph (A) shall 
                be construed to--
                          ``(i) prohibit an individual, solely on the 
                        basis of affiliation with the issuer, from 
                        serving as an independent medical reviewer if--
                                  ``(I) a non-affiliated individual is 
                                not reasonably available;
                                  ``(II) the affiliated individual is 
                                not involved in the provision of items 
                                or services in the case under review;
                                  ``(III) the fact of such an 
                                affiliation is disclosed to the issuer 
                                and the enrollee (or authorized 
                                representative) and neither party 
                                objects; and
                                  ``(IV) the affiliated individual is 
                                not an employee of the issuer and does 
                                not provide services exclusively or 
                                primarily to or on behalf of the 
                                issuer;
                          ``(ii) prohibit an individual who has staff 
                        privileges at the institution where the 
                        treatment involved takes place from serving as 
                        an independent medical reviewer merely on the 
                        basis of such affiliation if the affiliation is 
                        disclosed to the issuer and the enrollee (or 
                        authorized representative), and neither party 
                        objects; or
                          ``(iii) prohibit receipt of compensation by 
                        an independent medical reviewer from an entity 
                        if the compensation is provided consistent with 
                        paragraph (6).
          ``(4) Practicing health care professional in same field.--
                  ``(A) In general.--In a case involving treatment, or 
                the provision of items or services--
                          ``(i) by a physician, a reviewer shall be a 
                        practicing physician (allopathic or 
                        osteopathic) of the same or similar specialty, 
                        as a physician who, acting within the 
                        appropriate scope of practice within the State 
                        in which the service is provided or rendered, 
                        typically treats the condition, makes the 
                        diagnosis, or provides the type of treatment 
                        under review; or
                          ``(ii) by a non-physician health care 
                        professional, the reviewer, or at least 1 
                        member of the review panel, shall be a 
                        practicing non-physician health care 
                        professional of the same or similar specialty 
                        as the non-physician health care professional 
                        who, acting within the appropriate scope of 
                        practice within the State in which the service 
                        is provided or rendered, typically treats the 
                        condition, makes the diagnosis, or provides the 
                        type of treatment under review.
                  ``(B) Practicing defined.--For purposes of this 
                paragraph, the term `practicing' means, with respect to 
                an individual who is a physician or other health care 
                professional, that the individual provides health care 
                services to individual patients on average at least 2 
                days per week.
          ``(5) Pediatric expertise.--In the case of an external review 
        relating to a child, a reviewer shall have expertise under 
        paragraph (2) in pediatrics.
          ``(6) Limitations on reviewer compensation.--Compensation 
        provided by the issuer to an independent medical reviewer in 
        connection with a review under this section shall--
                  ``(A) not exceed a reasonable level; and
                  ``(B) not be contingent on the decision rendered by 
                the reviewer.
          ``(7) Related party defined.--For purposes of this section, 
        the term `related party' means, with respect to a denial of a 
        claim under a coverage relating to an enrollee, any of the 
        following:
                  ``(A) The issuer involved, or any fiduciary, officer, 
                director, or employee of the issuer.
                  ``(B) The enrollee (or authorized representative).
                  ``(C) The health care professional that provides the 
                items or services involved in the denial.
                  ``(D) The institution at which the items or services 
                (or treatment) involved in the denial are provided.
                  ``(E) The manufacturer of any drug or other item that 
                is included in the items or services involved in the 
                denial.
                  ``(F) Any other party determined under any 
                regulations to have a substantial interest in the 
                denial involved.
          ``(8) Definitions.--For purposes of this subsection:
                  ``(A) Enrollee.--The term `enrollee' means, with 
                respect to health insurance coverage offered by a 
                health insurance issuer, an individual enrolled with 
                the issuer to receive such coverage.
                  ``(B) Health care professional.--The term `health 
                care professional' means an individual who is licensed, 
                accredited, or certified under State law to provide 
                specified health care services and who is operating 
                within the scope of such licensure, accreditation, or 
                certification.

``SEC. 2799. ENFORCEMENT.

  ``(a) In General.--Subject to subsection (b), with respect to 
specific individual health insurance coverage the primary State for 
such coverage has sole jurisdiction to enforce the primary State's 
covered laws in the primary State and any secondary State.
  ``(b) Secondary State's Authority.--Nothing in subsection (a) shall 
be construed to affect the authority of a secondary State to enforce 
its laws as set forth in the exception specified in section 2796(b)(1).
  ``(c) Court Interpretation.--In reviewing action initiated by the 
applicable secondary State authority, the court of competent 
jurisdiction shall apply the covered laws of the primary State.
  ``(d) Notice of Compliance Failure.--In the case of individual health 
insurance coverage offered in a secondary State that fails to comply 
with the covered laws of the primary State, the applicable State 
authority of the secondary State may notify the applicable State 
authority of the primary State.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to individual health insurance coverage offered, issued, or sold after 
the date that is one year after the date of the enactment of this Act.
  (c) GAO Ongoing Study and Reports.--
          (1) Study.--The Comptroller General of the United States 
        shall conduct an ongoing study concerning the effect of the 
        amendment made by subsection (a) on--
                  (A) the number of uninsured and under-insured;
                  (B) the availability and cost of health insurance 
                policies for individuals with pre-existing medical 
                conditions;
                  (C) the availability and cost of health insurance 
                policies generally;
                  (D) the elimination or reduction of different types 
                of benefits under health insurance policies offered in 
                different States; and
                  (E) cases of fraud or abuse relating to health 
                insurance coverage offered under such amendment and the 
                resolution of such cases.
          (2) Annual reports.--The Comptroller General shall submit to 
        Congress an annual report, after the end of each of the 5 years 
        following the effective date of the amendment made by 
        subsection (a), on the ongoing study conducted under paragraph 
        (1).

SEC. 5. SEVERABILITY.

  If any provision of the Act or the application of such provision to 
any person or circumstance is held to be unconstitutional, the 
remainder of this Act and the application of the provisions of such to 
any other person or circumstance shall not be affected.

                          Purpose and Summary

    The purpose of H.R. 2355, The Health Care Choice Act of 
2005, is to allow for cooperative governing of individual 
health insurance coverage offered in interstate commerce.

                  Background and Need for Legislation

    States currently impose a variety of different health 
insurance regulations and benefit mandates that result in 
premiums that vary widely among states. State policies, such as 
guaranteed issue, which requires insurers to accept anyone who 
applies regardless of health status; community rating, which 
forces insurers to charge every insured person the same premium 
regardless of age, gender, geographic location, or health 
status; and benefit mandates, largely dictate the cost of 
health insurance policy premiums. This can cause large 
discrepancies between states. Premiums for a health insurance 
policy for an individual in one state could in many cases be 
reduced annually by thousands of dollars if that individual 
were allowed to purchase health insurance in a different state.
    A January 2005 study by the Council for Affordable Health 
Insurance (CAHI) concluded that there are currently 1,824 
cumulative mandates on state health insurers. A 2004 study by 
eHealthInsurance found monthly premiums varied widely across 
different states. The eHealthInsurance study found that an 
insurance product for a family with a $2,000 family deductible 
and 20 percent coinsurance could be obtained in Kansas City, 
MO, for a monthly premium of $171.86, while that same coverage 
in Boston, MA, would cost $767.30 a month. Another study 
conducted by the Maine Heritage Policy Center found that even 
in neighboring states the costs of health insurance could vary 
widely. In their analysis of similar health insurance products 
offered by Anthem Blue Cross Blue Shield in both Maine and New 
Hampshire, it was found that individual health insurance plans 
for a 25-year-old male that included a $1,500 deductible with 
20 percent co-insurance cost the Maine resident $495.89 a 
month, while a similar policy cost a 25-year-old New Hampshire 
resident just $127.65. That is a difference of $368.22 per 
month or $4,418.64 annually.
    H.R. 2355 would allow an insurer to designate a primary 
state whose covered laws would apply to that individual health 
insurance coverage offered by the insurer. It would then allow 
the insurer to offer that coverage in any secondary state. H.R. 
2355 would exempt a health insurer from the covered laws of the 
secondary state with respect to the regulation of its insurance 
products. It would also allow secondary states to require an 
insurer to (1) pay applicable premium and other taxes 
(including high risk pool assessments) that are levied on 
insurers under the laws of the state; (2) register with and 
designate the state insurance commissioner as its agent for the 
purposes of receiving service of legal documents or process; 
(3) submit to an examination of its financial condition by the 
state insurance commissioner if the insurance commissioner of 
the primary state has not done an examination within a period 
of time recommended by the National Association of Insurance 
Commissioners (NAIC) and in accordance with its examiner's 
handbook; (4) comply with a lawful order issued in a voluntary 
dissolution proceeding, or in a delinquency proceeding 
commenced by the State insurance commissioner where there has 
been a finding of financial impairment; (5) comply with an 
injunction issued by a court of competent jurisdiction, upon 
petition by the state insurance commissioner alleging that the 
issuer is in hazardous financial condition; (6) participate, on 
a nondiscriminatory basis, in any insurance insolvency guaranty 
association or similar association to which a health insurance 
issuer in the state is required to belong; (7) comply with any 
state law regarding fraud and abuse (as defined in the bill), 
except that if the state seeks an injunction regarding 
fraudulent conduct, such an injunction must be obtained from a 
court of competent jurisdiction; and, (8) comply with any state 
law regarding unfair claims settlement practices (as defined in 
the bill).
    In order to ensure that individuals buying coverage in a 
secondary state are aware that their policies are subject to 
the regulations of another state, H.R. 2355 requires a health 
insurer to inform purchasers in a secondary state that the 
policy is governed by the laws and regulations of the primary 
state. The bill would also prohibit insurers from offering 
health insurance in a secondary state unless that coverage is 
currently offered for sale in the primary state.

                                Hearings

    The Subcommittee on Health held a hearing on H.R. 2355 on 
June 28, 2005. The Subcommittee received testimony from: 
Merrill Matthews, Ph.D., Director, Council for Affordable 
Health Insurance (CAHI); Robert Garcia de Posada, Chairman/
President, The Latino Coalition; Dr. David Gratzer, Senior 
Fellow, the Manhattan Institute; Mike Kreidler, Washington 
State Insurance Commissioner, and, Hunter Limbaugh, Chair, 
Advocacy Committee, American Diabetes Association.

                        Committee Consideration

    On Wednesday, July 20, 2005, the Full Committee met in open 
markup session and favorably ordered H.R. 2355, reported to the 
House, as amended, by a recorded vote of 24 yeas and 23 nays, a 
quorum being present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
following are the recorded votes taken on amendments offered to 
the measure, including the names of those Members voting for 
and against. A motion by Mr. Barton to order H.R. 2355 reported 
to the House, as amended, was agreed to by a record vote of 24 
yeas and 23 nays.


                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee held a legislative 
hearing and made findings that are reflected in this report.

         Statement of General Performance Goals and Objectives

    The goal of H.R. 2355 is to lower health insurance premium 
costs and allow more people in the individual market to afford 
health insurance.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee finds that H.R. 
2355, The Health Care Choice Act of 2005, would result in no 
new or increased budget authority, entitlement authority, or 
tax expenditures or revenues.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 12, 2005.
Hon. Joe Barton,
Chairman, Committee on Energy and Commerce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2355, the Health 
Care Choice Act of 2005.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Tom Bradley.
            Sincerely,
                                     Douglas Holtz-Eakin, Director.
    Enclosure.

H.R. 2355--Health Care Choice Act of 2005

    Summary: H.R. 2355 would amend the Public Health Service 
Act to permit an entity licensed by one state (the ``primary'' 
state) to offer health insurance coverage to individuals 
residing in that state, to also offer that health insurance 
coverage to individuals residing in a ``secondary'' state. 
Enacting H.R. 2355 would affect the federal budget in two ways: 
it would increase federal revenues from payroll and income 
taxes, and it would increase direct spending for Medicaid. 
Those changes would begin in 2007, because the bill's 
provisions would take effect one year after enactment.
    The increase in revenues would result largely from a 
reduction in the number of people who receive health insurance 
through employer-sponsored plans. That would reduce the share 
of compensation that is tax-advantaged (health insurance 
premiums) and increase the share that is taxable (wages and 
salaries). CBO estimates that enacting H.R. 2355 would increase 
federal revenues by $1.9 billion over the 2007-2010 period and 
$12.6 billion over the 2007-2015 period. Social Security 
payroll taxes, which are off-budget, account for about 30 
percent of that amount.
    The increase in direct spending would result from the 
enrollment in Medicaid of people who, under current law, would 
either be covered through an employer-sponsored plan or 
purchase an individual insurance policy. CBO estimates that 
enacting H.R. 2355 would increase federal direct spending for 
Medicaid by $160 million over the 2007-2010 period and $1.0 
billion over the 2007-2015 period.
    Pursuant to section 407 of H. Con. Res. 95 (the Concurrent 
Resolution on the Budget, Fiscal Year 2006), CBO estimates that 
enacting H.R. 2355 would cause an increase in direct spending 
of greater than $5 billion in at least one of the 10-year 
periods between 2016 and 2055.
    H.R. 2355 would preempt a broad range of state insurance 
laws that otherwise would apply to health insurance issuers 
that are licensed in one state and sell policies in another. 
The preemptions would limit the application of state laws, and 
thus would be intergovernmental mandates as defined in the 
Unfunded Mandates Reform Act (UMRA). These preemptions of state 
regulatory authority would not result in additional spending by 
states. States may, however, lose some revenues as a result of 
lower collections for licensing fees, but those losses would be 
minimal. Consequently, CBO estimates that the cost of the 
mandates would be far below the threshold established in UMRA 
($62 million in 2005, adjusted annually for inflation).
    The bill would have other effects on state budgets--
increasing spending for Medicaid, but also increasing revenues 
from some tax sources. CBO estimates that increased enrollment 
in Medicaid would result in additional spending by states of 
$760 million over the 2007-2015 period.
    H.R. 2355 contains no private-sector mandates as defined in 
UMRA.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 2355 is shown in the following table. 
The costs of this legislation fall within budget function 550 
(health).

----------------------------------------------------------------------------------------------------------------
                                                     By fiscal year, in millions of dollars--
                                 -------------------------------------------------------------------------------
                                   2006    2007    2008    2009    2010    2011    2012    2013    2014    2015
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Income and HI Payroll Taxes (on-       0      70     170     370     640     980   1,340   1,520   1,620   1,710
 budget)........................
Social Security Payroll Taxes          0      40      90     200     330     490     660     740     780     820
 (off-budget)...................
                                 -------------------------------------------------------------------------------
    Total Changes in Revenues...       0     110     260     570     970   1,470   2,000   2,260   2,400   2,530

                                           CHANGES IN DIRECT SPENDING

Estimated Budget Authority......       0      10      20      50      80     120     160     170     190     200
Estimated Outlays...............       0      10      20      50      80     120     160     170     190     200
----------------------------------------------------------------------------------------------------------------
Note.--HI = Hospital Insurance (Part A of Medicare).

    Basis of estimate: The provisions of H.R. 2355 would take 
effect one year after enactment. For this estimate, CBO assumes 
that H.R. 2355 will be enacted in the fall of 2005. Therefore, 
the bill would affect spending and revenues beginning in fiscal 
year 2007. For simplicity, the following discussion of 
distributional effects (such as changes in premiums and in the 
number of people with health insurance coverage) assumes that 
the ultimate effects would be realized in the first year. The 
estimated budgetary effects, however, reflect CBO's expectation 
that it would take 5 to 10 years before the ultimate effects on 
health insurance markets of enacting the bill would be 
realized.
    H.R. 2355 would amend the Public Health Service Act to 
permit an entity licensed by one state to offer health 
insurance coverage to individuals residing in that state, to 
also offer that health insurance coverage to individuals 
residing in a secondary state. The bill would permit such 
individual health insurance coverage \1\ to be offered in a 
secondary state only if the primary state uses a risk-based 
capital formula for the determination of capital and surplus 
requirements for all health insurance issuers.
---------------------------------------------------------------------------
    \1\ Individual health insurance coverage is offered to individuals, 
rather than through a group (such as an employer.) Such individual 
coverage may provide health insurance benefits to a single individual, 
or to several people (such as the members of a family).
---------------------------------------------------------------------------
    The individual health insurance policies offered in a 
secondary state would be exempt from the laws and regulations 
of that state with respect to consumer protections, mandated 
coverage of services or benefits, and other rules affecting the 
offer, sale, rating (including medical underwriting), renewal, 
and issuance of individual health insurance coverage. Those 
policies would be required to comply with the laws and 
regulations of the primary state, and the insurance issuer 
would be required to provide for a process for covered 
individuals to appeal coverage decisions to an independent 
medical reviewer.
    Under current law, issuers of individual health insurance 
must be licensed in the state in which they offer such 
coverage, and the coverage must comply with the laws and 
regulations of that state. There is considerable variation 
across states in two areas that have a substantial effect on 
the price of individual health insurance:
           Mandates that require coverage of certain 
        services or benefits, and
           Rules affecting the extent to which insurers 
        may charge different prices for coverage offered to 
        individuals expected to incur costs above or below the 
        average.
    In general, health insurance that includes coverage of 
mandated benefits will cost more than it would if those 
benefits were not required. In aggregate, this estimate assumes 
that if only those benefit mandates imposed by the states with 
the lowest-cost mandates were in effect in all states, the 
price of individual health insurance would be reduced by about 
5 percent, on average.
    Limiting the extent of variation in the prices charged to 
individuals expected to incur costs above or below the average 
tends to increase the price charged to individuals expected to 
have lower-than-average costs, while lowering the price for 
people expected to have higher-than-average costs. Such price 
compression also tends to increase the average price compared 
to an alternative in which variation in the prices charged more 
closely reflects the costs that individuals are expected to 
incur. That is because price compression makes coverage more 
affordable to people who expect to incur relatively high costs 
(so more of them purchase the coverage), whereas price 
compression increases the cost of coverage for people who would 
be expected to incur relatively low costs (so fewer of them 
purchase the coverage than if those individuals were charged 
prices that more closely reflect their expected cost).
    Under H.R. 2355, CBO expects that individual health 
insurance would be offered across state lines to individuals in 
states with relatively expensive coverage mandates and rate-
setting rules that permit relatively little variation in the 
prices an insurer may charge. The insurers offering those 
policies would be licensed in, and regulated by, states that do 
not have those characteristics.
    For most people in a secondary state, the price of 
individual health insurance coverage offered by an insurer 
licensed in a primary state would be lower than the price under 
current law of individual coverage offered by an insurer 
licensed by their state. Conversely, individual health 
insurance coverage from out-of-state insurers either would not 
be offered to people expected to have relatively high health 
care costs, or it would be offered at a price that is higher 
than the price under current law of individual coverage offered 
by an insurer licensed by their state. The shift of individuals 
expected to have relatively low health care costs to out-of-
state insurance coverage would increase the price of coverage 
offered by insurers licensed in-state, and could lend to 
erosion of the availability of such coverage by insurers 
located in secondary states.

Federal revenues

    CBO estimates that enacting H.R. 2355 would increase 
federal tax revenues by $1.9 billion over the 2007-2010 period 
and $12.6 billion over the 2007-2015 period. (The bill would 
have no effect on revenues in 2006.) Social Security payroll 
taxes, which are off-budget, account for about 30 percent of 
those amounts. Those amounts are the net effect of increases in 
revenue resulting from a reduction in the number of people 
covered by employer-sponsored health insurance, increases in 
revenue from self-employed individuals who will purchase 
individual coverage under current law, and decreases in revenue 
from a rise in the number of self-employed individuals who 
purchase individual health insurance. The reduction in the 
number of people covered by employer-sponsored health insurance 
accounts for over 90 percent of the estimated change in federal 
tax revenues.
    Some employers (especially smaller ones) would find it 
desirable to stop offering coverage to their employees because 
the insurance available in the individual market had become 
cheaper. In addition, some people with relatively low health 
care costs who, under current law, will obtain health insurance 
coverage through an employer, would choose instead to purchase 
individual health insurance coverage from an out-of-state 
insurer. That would increase the per-person cost of the 
employer's group health insurance, and would result in 
additional employers deciding to drop the group coverage. Based 
on CBO's analysis of research on the responses of individuals 
and firms to changes in the price of health insurance, CBO 
estimates that, if the full effect of H.R. 2355 were realized 
immediately, about 1 million people--including both employees 
and covered dependents--would lose employer-sponsored health 
insurance coverage.
    Under current law, the employer's share of premiums for 
employer-sponsored health insurance and most of the employee's 
share of those premiums are exempt from taxation. By reducing 
the number of people covered by employer-sponsored health 
insurance, H.R. 2355 would reduce the share of employees' 
compensation that is tax-advantaged (health insurance premiums) 
and would increase the share that is taxable (wages and 
salaries). CBO estimates that H.R. 2355 ultimately would reduce 
annual spending on employer-sponsored health insurance by $5 
billion in 2006 dollars. (That change is less than 1 percent of 
total tax-advantaged spending on employer-sponsored health 
insurance in the United States.) Some of the resulting increase 
in taxable income from wages and salaries would be offset by 
higher itemized deductions for taxpayers who lose employer-
sponsored health insurance, itemize their deductions, and spend 
more than 7.5 percent of their adjusted gross income on health 
care and health insurance.
    The tax treatment of spending on individual health 
insurance coverage generally is less generous than for 
employer-sponsored coverage. However, spending on individual 
coverage by self-employed individuals is deductible. For the 
self-employed who will buy individual health insurance under 
current law, CBO estimates that H.R. 2355 ultimately would 
reduce spending on premiums by $600 million in 2006 dollars. 
Almost all of that reduction would result from a net reduction 
in premiums for self-employed people who continue to purchase 
individual insurance. (Some of those self-employed people who 
retain individual coverage would pay higher premiums.) Self-
employed individuals who would drop coverage in response to 
higher premiums account for less than $50 million of that 
estimated change in spending on premiums.
    H.R. 2355 would reduce the price of individual insurance 
for some self-employed people who are expected to incur 
relatively low health care costs, live in secondary states, and 
will be uninsured under current law. Ultimately, CBO estimates 
that some of those self-employed people would spend about $300 
million (in 2006 dollars) to buy individual coverage under H.R. 
2355.

Direct spending

    H.R. 2355 would affect the number of people who enroll in 
Medicaid. Some people who would lose employer-sponsored health 
insurance would enroll in Medicaid, whereas others who, under 
current law, would be covered by Medicaid would instead enroll 
in health insurance. On net, CBO estimates that enacting H.R. 
2355 would increase federal spending for Medicaid by $160 
million over the 2007-2010 period and $1.0 billion over the 
2007-2015 period.
    Medicaid Spending for People Who Lose Private Coverage. 
About 25 percent of employees are in families with incomes 
under 200 percent of the Federal Poverty Line (FPL). Some of 
those people would potentially be eligible for Medicaid. CBO 
estimates that about 40 percent of people losing employer-
sponsored coverage would have incomes under 200 percent of the 
FPL, about 25 percent of them would be eligible for Medicaid, 
and about 50 percent of them would enroll. CBO assumes that 
those people would be somewhat more costly than that average 
Medicaid-eligible individual, and that federal spending for 
Medicaid would increase by about $1.1 billion over the 2007-
2015 period.
    Medicaid Savings for People Who Gain Private Coverage. Of 
the people gaining employer-sponsored insurance under H.R. 
2355, CBO estimates that approximately 10 percent would have 
incomes under 200 percent of the FPL. Of these, about one-half 
are children and one-half are adults. About one-third of those 
children would otherwise be enrolled in Medicaid, and about 8 
percent of adults would otherwise be enrolled in Medicaid, CBO 
estimates. Assuming that those children and adults would be 
less costly than average, implementing H.R. 2355 would decrease 
federal Medicaid spending by about $100 million over the 2007-
2015 period as a result of this shift to private health 
insurance coverage.

Effect of H.R. 2355 on the number of people with and without health 
        insurance

    CBO estimates that enacting H.R. 2355 would not have a 
substantial effect on the number of people who have health 
insurance coverage: compared to current law, there could be a 
small increase or decrease in the number of uninsured 
individuals. We estimate that about 1 million people would lose 
or drop employer-sponsored coverage. Many of those people would 
obtain individual health insurance coverage, as would many 
people who are uninsured under current law--resulting in a 
small net impact on the number of people with health insurance.
    H.R. 2355 would reduce the price of individual health 
insurance coverage for people expected to have relatively low 
health care costs, while increasing the price of coverage for 
those expected to have relatively high health care costs. 
Therefore, CBO expects that there would be an increase in the 
number of relatively healthy individuals, and a decrease in the 
number of individuals expected to have relatively high cost, 
who buy individual coverage. Relatively healthy individuals are 
likely to be more price-sensitive than unhealthy individuals 
(and there are more relatively healthy people). As a result, 
CBO assumes that there would be a net increase in the total 
number of people with individual coverage. We expect that the 
magnitude of that increase would be roughly similar to the 
number of people who lost employer-sponsored coverage.
    Estimated long-term effects on direct spending: Pursuant to 
section 407 of H. Con. Res. 95 (the Concurrent Resolution on 
the Budget, Fiscal Year 2006), CBO estimates that enacting H.R. 
2355 would cause an increase in direct spending of greater than 
$5 billion in at least one of the 10-year periods between 2016 
and 2055. Those costs would come from increased spending on 
Medicaid. We estimate that the increase in Medicaid spending 
would reach $200 million in 2015, and would continue to grow.
    Estimated impact on state, local, and tribal governments: 
H.R. 2355 would preempt a broad range of insurance laws that 
otherwise would apply to health insurance issuers that are 
licensed in one state (the primary state) and provide insurance 
coverage in another state (a secondary state). The preemption 
would limit the application of state laws, and thus would be 
intergovernmental mandates as defined in UMRA. Health insurance 
issuers would be exempt from laws in secondary states that 
establish coverage requirements or regulate insurance with the 
exception of requirements to register with the secondary state, 
submit to financial reviews under limited circumstances, 
participate in solvency associations, or comply with state laws 
governing fraud, abuse, or unfair claims settlements. The bill 
specifically would allow secondary states to collect premium 
taxes on policies sold within the state.
    The preemption of state regulatory authority would impose 
no duty on states that would result in additional spending. 
States may, however, lose some revenues as a result of lower 
collections for licensing fees, but those loses would be 
minimal.
    The bill would have other effects on state budgets--
increasing spending for Medicaid, but also increasing revenues 
from state income taxes. CBO estimates that increased 
enrollment in Medicaid would result in additional spending by 
states of $760 million over the 2007-2015 period.
    CBO estimates that the bill would have a positive impact on 
income tax collections by state governments, but the magnitude 
of that change is unclear. A decrease in the proportion of 
employer-sponsored insurance, which many states exempt from 
income for tax purposes, as part of total compensation packages 
would result in more compensation that is subject to state 
income tax collections. Because of uncertainty about the 
expected changes in coverage among individual states and 
different tax rates in each state, CBO cannot estimate the 
magnitude of the increase. State collections of premium taxes 
would also change, but because of uncertainty about shifts 
between types of insurance that are taxable and those that are 
exempt from taxes and because of different tax rates among the 
states, CBO cannot estimate either the direction or the 
magnitude of any net change in those collections.
    Estimated impact on the private sector: H.R. 2355 contains 
no private-sector mandates as defined in UMRA.
    Estimate prepared by: Federal Costs: Tom Bradley, Shinobu 
Suzuki, and Jeanne De Sa. Impact on State, Local, and Tribal 
Governments: Leo Lex. Impact on the Private Sector: Stuart 
Hagen and David Auerbach.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional authority for this legislation is provided in 
Article I, section 8, clause 3, which grants Congress the power 
to regulate commerce with foreign nations, among the several 
States, and with the Indian tribes.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    Section 1 designates the title of the bill as the ``Health 
Care Choice Act of 2005.''

Section 2. Specification of constitutional authority for enactment of 
        law

    Section 2 specifies that this Act is enacted pursuant to 
the power granted Congress under article I, section 8, clause 
3, of the United States Constitution.

Section 3. Findings

    Section 3 establishes the findings for the legislation.

Section 4. Cooperative governing of individual health insurance 
        coverage

    Section 4(a) amends Title XXVII of the Public Health 
Service Act by adding at the end a new Part D entitled 
``Cooperative Governing of Individual Health Insurance 
Coverage'' as set out below.

Section 2795. Definitions

    The bill would add a new section 2795 to define the terms 
relating to the Cooperative Governing of Individual Health 
Insurance Coverage.

Section 2796. Application of law

    New section 2796(a) states that the applicable laws of a 
primary state shall apply to individual health insurance 
coverage offered by a health insurer in the primary state, and 
in any secondary state. This provision would only apply if the 
coverage and the issuer comply with the conditions of this 
section with respect to the offering of coverage in any 
secondary state.
    While H.R. 2355 would exempt a health insurer from the 
covered laws of the secondary state with respect to the 
regulation of its insurance products, new section 2796(b) would 
allow secondary states to require that primary state insurers 
do several things: This would include requiring the insurer to 
(1) pay applicable premium and other taxes (including high risk 
pool assessments) that are levied on insurers under the laws of 
the state; (2) register with and designate the state insurance 
commissioner as its agent for the purposes of receiving service 
of legal documents or process; (3) submit to an examination of 
its financial condition by the state insurance commissioner if 
the insurance commissioner of the primary state has not done an 
examination within a period of time recommended by the National 
Association of Insurance Commissioners (NAIC) and in accordance 
with its examiners' handbook; (4) comply with a lawful order 
issued in a voluntary dissolution proceeding, or in a 
delinquency proceeding commenced by the state insurance 
commissioner where there has been a finding of financial 
impairment; (5) comply with an injunction issued by a court of 
competent jurisdiction, upon petition by the state insurance 
commissioner alleging that the issuer is in hazardous financial 
condition; (6) participate, on a nondiscriminatory basis, in 
any insurance insolvency guaranty association or similar 
association to which a health insurer in the state is required 
to belong; (7) comply with any state law regarding fraud and 
abuse (as defined in the bill), except that if the state seeks 
an injunction regarding fraudulent conduct, such an injunction 
must be obtained from a court of competent jurisdiction; and, 
(8) comply with any state law regarding unfair claims 
settlement practices.
    New section 2796(c) requires that a health insurer offering 
coverage from a primary state into any secondary state must 
provide a notice to beneficiaries that the coverage they are 
offering is governed by the laws and regulations of another 
state. The notice must also contain information that the policy 
may be less expensive than others offered because it is not 
subject to all of the insurance laws and regulations of the 
secondary state, including coverage of some services or 
benefits mandated by the laws of the secondary state.
    New section 2796(d) prohibits the practice of re-
underwriting an individual based on a health status-related 
factor. However, this section does not prohibit a health 
insurer from terminating or discontinuing coverage or a class 
of coverage in accordance with subsections (b) and (c) of 
section 2742 of the Public Health Service Act. Further, it does 
not prohibit an insurer from (1) raising premium rates for all 
policy holders within a class based on claims experience; (2) 
changing premiums or offering discounted premiums to 
individuals who engage in wellness activities at intervals 
prescribed by the issuer; (3) reinstating lapsed coverage; or, 
(4) retroactively adjusting the rates charged an insured 
individual if the initial rates were set based on material 
misrepresentation by the individual at the time of issue.
    New section 2796(e) prohibits a health insurance issuer 
from offering individual health insurance coverage in a 
secondary state unless that coverage is currently offered for 
sale in the primary state.
    New section 2796(f) provides that any state may require a 
person acting, or offering to act, as an agent or broker for a 
health insurer with respect to the offering of individual 
health insurance coverage obtain a license from that state, 
with commissions or other compensation subject to the 
provisions of the laws of that state, except that a state may 
not impose any qualification or requirement which discriminates 
against a nonresident agent or broker.
    New section 2796(g) requires health insurance issuers that 
issue coverage in both primary and secondary states to submit 
to the insurance commissioner of each state (1) a copy of the 
plan of operation or feasibility study or any similar statement 
of the policy being offered and its coverage (which shall 
include the name of its primary State and its principal place 
of business); (2) written notice of any change in its 
designation of its primary state; and, (3) written notice from 
the issuer of the issuer's compliance with all the laws of the 
primary state. The issuer must also submit to any secondary 
state insurance commissioner a copy of the issuer's quarterly 
financial statement submitted to the primary state. This 
statement shall be certified by an independent public 
accountant and contain a statement of opinion on loss and loss 
adjustment expense reserves made by a member of the American 
Academy of Actuaries, or a qualified loss reserve specialist.
    New section 2796(h) states that nothing in this section 
shall be construed to affect the authority of Federal or state 
court from enjoining the solicitation or sale of individual 
health insurance coverage by a health insurance issuer to any 
person or group who is not eligible for such insurance, or the 
solicitation or sale of individual health insurance coverage 
that violates the requirements of section 2796(b)(1).
    New section 2796(i) clarifies that states have the ability 
to enjoin conduct that violate that state's laws to which the 
health insurer is subject.
    New section 2796(j) further clarifies that nothing in this 
legislation shall affect the authority of any state to make use 
of its powers to enforce the laws of the state to which the 
insurer is subject. However, any injunction regarding the 
conduct described in section 2796 (h) must be obtained from a 
Federal or state court of competent jurisdiction.
    New section 2796(k) clarifies the states' authority to sue, 
and states that nothing shall affect the authority of any state 
to bring action in any Federal or State court.
    New section 2796(l) clarifies that nothing in this section 
affects the applicability of state laws generally applicable to 
persons or corporations.
    New section 2796(m) clarifies the guaranteed availability 
of coverage to Health Insurance Portability and Accountability 
Act of 1996 HIPAA eligible individuals. If a health insurer is 
offering coverage in a primary state that does not accommodate 
residents of secondary states or does not provide a working 
mechanism for residents of a secondary state, and the secondary 
state has not adopted a qualified high risk pool, the issuer 
shall comply with the guaranteed availability requirements for 
eligible individuals in section 2741 of the Public Health 
Service Act.

Section 2797. Primary state must meet Federal floor before issuer may 
        sell into secondary states

    New section 2797 clarifies that a health insurer may not 
offer, sell, or issue individual insurance coverage in a 
secondary state if the state insurance commissioner does not 
use a risk-based capital formula for the determination of 
capital and surplus requirements for all health insurers.

Section 2798. Independent external appeals process.

    New section 2798 prohibits a health insurance issuer from 
offering, selling, or issuing individual health insurance 
coverage in a secondary state unless both the secondary and 
primary state do not have legislation or regulations in place 
establishing an independent review process for individuals 
covered by individual health insurance, or in the lack of 
legislation or regulations, the issuer provides an independent 
review mechanism substantially identical to that prescribed in 
the ``Health Carrier External Review Model Act'' of the 
National Association of Insurance Commissioners. Under this 
mechanism, the review must be conducted by an independent 
medical reviewer, or panel of such reviewers, which meet 
several qualification requirements. In referring a denial of a 
claim for an independent medical review, the panel must include 
a physician (allopathic or osteopathic) or other health care 
professional, defined as someone that provides health care 
services to individual patients on average at least two days 
per week. They must also be appropriately credentialed or 
licensed in one or more states to deliver health care services; 
and typically treat the condition, make the diagnosis, or 
provide the type of treatment under review. In the case of an 
external review relating to a child, a reviewer must have 
expertise in pediatrics. Compensation provided by the issuer to 
an independent medical reviewer in connection with a review 
under this section must be reasonable and not contingent on the 
decision. The reviewer must also not be directly involved in 
the case nor related to the parties involved.

Section 2799. Enforcement

    New section 2799 establishes the enforcement mechanism of 
the legislation. With respect to specific individual health 
insurance coverage, the primary state for such coverage has 
sole jurisdiction to enforce the primary state's covered laws 
in the primary state and any secondary state. However, any 
secondary state has the authority to enforce its laws as set 
forth in the exceptions specified in the bill. In reviewing 
action initiated by the applicable secondary state authority, 
the court of competent jurisdiction shall apply the covered 
laws of the primary state. In the case of individual health 
insurance coverage offered in a secondary state that fails to 
comply with the covered laws of the primary state, the 
applicable state authority of the secondary state may notify 
the applicable state authority of the primary state.
    Section 4(b) establishes the effective date of this Act to 
be one year after the date of enactment.
    Section 4(c) requires the Comptroller General of the United 
States to study and report to the Congress annually at the end 
of each of the five years following the effective date of this 
Act. This report shall include the number of uninsured and 
under-insured individuals, the availability and cost of health 
insurance policies for individuals with pre-existing medical 
conditions, the availability and cost of health insurance 
policies, the elimination or reduction of different types of 
benefits under health insurance policies offered in different 
states, and cases of fraud or abuse relating to health 
insurance coverage offered under such amendment and the 
resolution of such cases.

Section 5. Severability

    Section 5 provides that if any provision of the Act or the 
application of such provision to any person or circumstance is 
held to be unconstitutional, the remainder of this Act and the 
application of the provisions of such to any other person or 
circumstance shall not be affected.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

PUBLIC HEALTH SERVICE ACT

           *       *       *       *       *       *       *



TITLE XXVII--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE

           *       *       *       *       *       *       *



 Part D--Cooperative Governing of Individual Health Insurance Coverage

SEC. 2795. DEFINITIONS.

  In this part:
          (1) Primary state.--The term ``primary State'' means, 
        with respect to individual health insurance coverage 
        offered by a health insurance issuer, the State 
        designated by the issuer as the State whose covered 
        laws shall govern the health insurance issuer in the 
        sale of such coverage under this part. An issuer, with 
        respect to a particular policy, may only designate one 
        such State as its primary State with respect to all 
        such coverage it offers. Such an issuer may not change 
        the designated primary State with respect to individual 
        health insurance coverage once the policy is issued, 
        except that such a change may be made upon renewal of 
        the policy. With respect to such designated State, the 
        issuer is deemed to be doing business in that State.
          (2) Secondary state.--The term ``secondary State'' 
        means, with respect to individual health insurance 
        coverage offered by a health insurance issuer, any 
        State that is not the primary State. In the case of a 
        health insurance issuer that is selling a policy in, or 
        to a resident of, a secondary State, the issuer is 
        deemed to be doing business in that secondary State.
          (3) Health insurance issuer.--The term ``health 
        insurance issuer'' has the meaning given such term in 
        section 2791(b)(2), except that such an issuer must be 
        licensed in the primary State and be qualified to sell 
        individual health insurance coverage in that State.
          (4) Individual health insurance coverage.--The term 
        ``individual health insurance coverage'' means health 
        insurance coverage offered in the individual market, as 
        defined in section 2791(e)(1).
          (5) Applicable state authority.--The term 
        ``applicable State authority'' means, with respect to a 
        health insurance issuer in a State, the State insurance 
        commissioner or official or officials designated by the 
        State to enforce the requirements of this title for the 
        State with respect to the issuer.
          (6) Hazardous financial condition.--The term 
        ``hazardous financial condition'' means that, based on 
        its present or reasonably anticipated financial 
        condition, a health insurance issuer is unlikely to be 
        able--
                  (A) to meet obligations to policyholders with 
                respect to known claims and reasonably 
                anticipated claims; or
                  (B) to pay other obligations in the normal 
                course of business.
          (7) Covered laws.--
                  (A) In general.--The term ``covered laws'' 
                means the laws, rules, regulations, agreements, 
                and orders governing the insurance business 
                pertaining to--
                          (i) individual health insurance 
                        coverage issued by a health insurance 
                        issuer;
                          (ii) the offer, sale, rating 
                        (including medical underwriting), 
                        renewal, and issuance of individual 
                        health insurance coverage to an 
                        individual;
                          (iii) the provision to an individual 
                        in relation to individual health 
                        insurance coverage of health care and 
                        insurance related services;
                          (iv) the provision to an individual 
                        in relation to individual health 
                        insurance coverage of management, 
                        operations, and investment activities 
                        of a health insurance issuer; and
                          (v) the provision to an individual in 
                        relation to individual health insurance 
                        coverage of loss control and claims 
                        administration for a health insurance 
                        issuer with respect to liability for 
                        which the issuer provides insurance.
                  (B) Exception.--Such term does not include 
                any law, rule, regulation, agreement, or order 
                governing the use of care or cost management 
                techniques, including any requirement related 
                to provider contracting, network access or 
                adequacy, health care data collection, or 
                quality assurance.
          (8) State.--The term ``State'' means only the 50 
        States and the District of Columbia.
          (9) Unfair claims settlement practices.--The term 
        ``unfair claims settlement practices'' means only the 
        following practices:
                  (A) Knowingly misrepresenting to claimants 
                and insured individuals relevant facts or 
                policy provisions relating to coverage at 
                issue.
                  (B) Failing to acknowledge with reasonable 
                promptness pertinent communications with 
                respect to claims arising under policies.
                  (C) Failing to adopt and implement reasonable 
                standards for the prompt investigation and 
                settlement of claims arising under policies.
                  (D) Failing to effectuate prompt, fair, and 
                equitable settlement of claims submitted in 
                which liability has become reasonably clear.
                  (E) Refusing to pay claims without conducting 
                a reasonable investigation.
                  (F) Failing to affirm or deny coverage of 
                claims within a reasonable period of time after 
                having completed an investigation related to 
                those claims.
                  (G) A pattern or practice of compelling 
                insured individuals or their beneficiaries to 
                institute suits to recover amounts due under 
                its policies by offering substantially less 
                than the amounts ultimately recovered in suits 
                brought by them.
                  (H) A pattern or practice of attempting to 
                settle or settling claims for less than the 
                amount that a reasonable person would believe 
                the insured individual or his or her 
                beneficiary was entitled by reference to 
                written or printed advertising material 
                accompanying or made part of an application.
                  (I) Attempting to settle or settling claims 
                on the basis of an application that was 
                materially altered without notice to, or 
                knowledge or consent of, the insured.
                  (J) Failing to provide forms necessary to 
                present claims within 15 calendar days of a 
                requests with reasonable explanations regarding 
                their use.
                  (K) Attempting to cancel a policy in less 
                time than that prescribed in the policy or by 
                the law of the primary State.
          (10) Fraud and abuse.--The term ``fraud and abuse'' 
        means an act or omission committed by a person who, 
        knowingly and with intent to defraud, commits, or 
        conceals any material information concerning, one or 
        more of the following:
                  (A) Presenting, causing to be presented or 
                preparing with knowledge or belief that it will 
                be presented to or by an insurer, a reinsurer, 
                broker or its agent, false information as part 
                of, in support of or concerning a fact material 
                to one or more of the following:
                          (i) An application for the issuance 
                        or renewal of an insurance policy or 
                        reinsurance contract.
                          (ii) The rating of an insurance 
                        policy or reinsurance contract.
                          (iii) A claim for payment or benefit 
                        pursuant to an insurance policy or 
                        reinsurance contract.
                          (iv) Premiums paid on an insurance 
                        policy or reinsurance contract.
                          (v) Payments made in accordance with 
                        the terms of an insurance policy or 
                        reinsurance contract.
                          (vi) A document filed with the 
                        commissioner or the chief insurance 
                        regulatory official of another 
                        jurisdiction.
                          (vii) The financial condition of an 
                        insurer or reinsurer.
                          (viii) The formation, acquisition, 
                        merger, reconsolidation, dissolution or 
                        withdrawal from one or more lines of 
                        insurance or reinsurance in all or part 
                        of a State by an insurer or reinsurer.
                          (ix) The issuance of written evidence 
                        of insurance.
                          (x) The reinstatement of an insurance 
                        policy.
                  (B) Solicitation or acceptance of new or 
                renewal insurance risks on behalf of an insurer 
                reinsurer or other person engaged in the 
                business of insurance by a person who knows or 
                should know that the insurer or other person 
                responsible for the risk is insolvent at the 
                time of the transaction.
                  (C) Transaction of the business of insurance 
                in violation of laws requiring a license, 
                certificate of authority or other legal 
                authority for the transaction of the business 
                of insurance.
                  (D) Attempt to commit, aiding or abetting in 
                the commission of, or conspiracy to commit the 
                acts or omissions specified in this paragraph.

SEC. 2796. APPLICATION OF LAW.

  (a) In General.--The covered laws of the primary State shall 
apply to individual health insurance coverage offered by a 
health insurance issuer in the primary State and in any 
secondary State, but only if the coverage and issuer comply 
with the conditions of this section with respect to the 
offering of coverage in any secondary State.
  (b) Exemptions From Covered Laws in a Secondary State.--
Except as provided in this section, a health insurance issuer 
with respect to its offer, sale, rating (including medical 
underwriting), renewal, and issuance of individual health 
insurance coverage in any secondary State is exempt from any 
covered laws of the secondary State (and any rules, 
regulations, agreements, or orders sought or issued by such 
State under or related to such covered laws) to the extent that 
such laws would--
          (1) make unlawful, or regulate, directly or 
        indirectly, the operation of the health insurance 
        issuer operating in the secondary State, except that 
        any secondary State may require such an issuer--
                  (A) to pay, on a nondiscriminatory basis, 
                applicable premium and other taxes (including 
                high risk pool assessments) which are levied on 
                insurers and surplus lines insurers, brokers, 
                or policyholders under the laws of the State;
                  (B) to register with and designate the State 
                insurance commissioner as its agent solely for 
                the purpose of receiving service of legal 
                documents or process;
                  (C) to submit to an examination of its 
                financial condition by the State insurance 
                commissioner in any State in which the issuer 
                is doing business to determine the issuer's 
                financial condition, if--
                          (i) the State insurance commissioner 
                        of the primary State has not done an 
                        examination within the period 
                        recommended by the National Association 
                        of Insurance Commissioners; and
                          (ii) any such examination is 
                        conducted in accordance with the 
                        examiners' handbook of the National 
                        Association of Insurance Commissioners 
                        and is coordinated to avoid unjustified 
                        duplication and unjustified repetition;
                  (D) to comply with a lawful order issued--
                          (i) in a delinquency proceeding 
                        commenced by the State insurance 
                        commissioner if there has been a 
                        finding of financial impairment under 
                        subparagraph (C); or
                          (ii) in a voluntary dissolution 
                        proceeding;
                  (E) to comply with an injunction issued by a 
                court of competent jurisdiction, upon a 
                petition by the State insurance commissioner 
                alleging that the issuer is in hazardous 
                financial condition;
                  (F) to participate, on a nondiscriminatory 
                basis, in any insurance insolvency guaranty 
                association or similar association to which a 
                health insurance issuer in the State is 
                required to belong;
                  (G) to comply with any State law regarding 
                fraud and abuse (as defined in section 
                2795(10)), except that if the State seeks an 
                injunction regarding the conduct described in 
                this subparagraph, such injunction must be 
                obtained from a court of competent 
                jurisdiction;
                  (H) to comply with any State law regarding 
                unfair claims settlement practices (as defined 
                in section 2795(9)); or
                  (I) to comply with the applicable 
                requirements for independent review under 
                section 2798 with respect to coverage offered 
                in the State;
          (2) require any individual health insurance coverage 
        issued by the issuer to be countersigned by an 
        insurance agent or broker residing in that Secondary 
        State; or
          (3) otherwise discriminate against the issuer issuing 
        insurance in both the primary State and in any 
        secondary State.
  (c) Clear and Conspicuous Disclosure.--A health insurance 
issuer shall provide the following notice, in 12-point bold 
type, in any insurance coverage offered in a secondary State 
under this part by such a health insurance issuer and at 
renewal of the policy, with the 5 blank spaces therein being 
appropriately filled with the name of the health insurance 
issuer, the name of primary State, the name of the secondary 
State, the name of the secondary State, and the name of the 
secondary State, respectively, for the coverage concerned:

                                ``Notice

  ``This policy is issued by _____ and is governed by the laws 
and regulations of the State of _____, and it has met all the 
laws of that State as determined by that State's Department of 
Insurance. This policy may be less expensive than others 
because it is not subject to all of the insurance laws and 
regulations of the State of _____, including coverage of some 
services or benefits mandated by the law of the State of _____. 
Additionally, this policy is not subject to all of the consumer 
protection laws or restrictions on rate changes of the State of 
_____. As with all insurance products, before purchasing this 
policy, you should carefully review the policy and determine 
what health care services the policy covers and what benefits 
it provides, including any exclusions, limitations, or 
conditions for such services or benefits.''.
  (d) Prohibition on Certain Reclassifications and Premium 
Increases.--
          (1) In general.--For purposes of this section, a 
        health insurance issuer that provides individual health 
        insurance coverage to an individual under this part in 
        a primary or secondary State may not upon renewal--
                  (A) move or reclassify the individual insured 
                under the health insurance coverage from the 
                class such individual is in at the time of 
                issue of the contract based on the health-
                status related factors of the individual; or
                  (B) increase the premiums assessed the 
                individual for such coverage based on a health 
                status-related factor or change of a health 
                status-related factor or the past or 
                prospective claim experience of the insured 
                individual.
          (2) Construction.--Nothing in paragraph (1) shall be 
        construed to prohibit a health insurance issuer--
                  (A) from terminating or discontinuing 
                coverage or a class of coverage in accordance 
                with subsections (b) and (c) of section 2742;
                  (B) from raising premium rates for all policy 
                holders within a class based on claims 
                experience;
                  (C) from changing premiums or offering 
                discounted premiums to individuals who engage 
                in wellness activities at intervals prescribed 
                by the issuer, if such premium changes or 
                incentives--
                          (i) are disclosed to the consumer in 
                        the insurance contract;
                          (ii) are based on specific wellness 
                        activities that are not applicable to 
                        all individuals; and
                          (iii) are not obtainable by all 
                        individuals to whom coverage is 
                        offered;
                  (D) from reinstating lapsed coverage; or
                  (E) from retroactively adjusting the rates 
                charged an insured individual if the initial 
                rates were set based on material 
                misrepresentation by the individual at the time 
                of issue.
  (e) Prior Offering of Policy in Primary State.--A health 
insurance issuer may not offer for sale individual health 
insurance coverage in a secondary State unless that coverage is 
currently offered for sale in the primary State.
  (f) Licensing of Agents or Brokers for Health Insurance 
Issuers.--Any State may require that a person acting, or 
offering to act, as an agent or broker for a health insurance 
issuer with respect to the offering of individual health 
insurance coverage obtain a license from that State, with 
commissions or other compensation subject to the provisions of 
the laws of that State, except that a State may not impose any 
qualification or requirement which discriminates against a 
nonresident agent or broker.
  (g) Documents for Submission to State Insurance 
Commissioner.--Each health insurance issuer issuing individual 
health insurance coverage in both primary and secondary States 
shall submit--
          (1) to the insurance commissioner of each State in 
        which it intends to offer such coverage, before it may 
        offer individual health insurance coverage in such 
        State--
                  (A) a copy of the plan of operation or 
                feasibility study or any similar statement of 
                the policy being offered and its coverage 
                (which shall include the name of its primary 
                State and its principal place of business);
                  (B) written notice of any change in its 
                designation of its primary State; and
                  (C) written notice from the issuer of the 
                issuer's compliance with all the laws of the 
                primary State; and
          (2) to the insurance commissioner of each secondary 
        State in which it offers individual health insurance 
        coverage, a copy of the issuer's quarterly financial 
        statement submitted to the primary State, which 
        statement shall be certified by an independent public 
        accountant and contain a statement of opinion on loss 
        and loss adjustment expense reserves made by--
                  (A) a member of the American Academy of 
                Actuaries; or
                  (B) a qualified loss reserve specialist.
  (h) Power of Courts To Enjoin Conduct.--Nothing in this 
section shall be construed to affect the authority of any 
Federal or State court to enjoin--
          (1) the solicitation or sale of individual health 
        insurance coverage by a health insurance issuer to any 
        person or group who is not eligible for such insurance; 
        or
          (2) the solicitation or sale of individual health 
        insurance coverage that violates the requirements of 
        the law of a secondary State which are described in 
        subparagraphs (A) through (H) of section 2796(b)(1).
  (i) Power of Secondary States To Take Administrative 
Action.--Nothing in this section shall be construed to affect 
the authority of any State to enjoin conduct in violation of 
that State's laws described in section 2796(b)(1).
  (j) State Powers To Enforce State Laws.--
          (1) In general.--Subject to the provisions of 
        subsection (b)(1)(G) (relating to injunctions) and 
        paragraph (2), nothing in this section shall be 
        construed to affect the authority of any State to make 
        use of any of its powers to enforce the laws of such 
        State with respect to which a health insurance issuer 
        is not exempt under subsection (b).
          (2) Courts of competent jurisdiction.--If a State 
        seeks an injunction regarding the conduct described in 
        paragraphs (1) and (2) of subsection (h), such 
        injunction must be obtained from a Federal or State 
        court of competent jurisdiction.
  (k) States' Authority To Sue.--Nothing in this section shall 
affect the authority of any State to bring action in any 
Federal or State court.
  (l) Generally Applicable Laws.--Nothing in this section shall 
be construed to affect the applicability of State laws 
generally applicable to persons or corporations.
  (m) Guaranteed Availability of Coverage to HIPAA Eligible 
Individuals.--To the extent that a health insurance issuer is 
offering coverage in a primary State that does not accommodate 
residents of secondary States or does not provide a working 
mechanism for residents of a secondary State, and the issuer is 
offering coverage under this part in such secondary State which 
has not adopted a qualified high risk pool as its acceptable 
alternative mechanism (as defined in section 2744(c)(2)), the 
issuer shall, with respect to any individual health insurance 
coverage offered in a secondary State under this part, comply 
with the guaranteed availability requirements for eligible 
individuals in section 2741.

SEC. 2797. PRIMARY STATE MUST MEET FEDERAL FLOOR BEFORE ISSUER MAY SELL 
                    INTO SECONDARY STATES.

  A health insurance issuer may not offer, sell, or issue 
individual health insurance coverage in a secondary State if 
the State insurance commissioner does not use a risk-based 
capital formula for the determination of capital and surplus 
requirements for all health insurance issuers.

SEC. 2798. INDEPENDENT EXTERNAL APPEALS PROCEDURES.

  (a) Right to External Appeal.--A health insurance issuer may 
not offer, sell, or issue individual health insurance coverage 
in a secondary State under the provisions of this title 
unless----
          (1) both the secondary State and the primary State 
        have legislation or regulations in place establishing 
        an independent review process for individuals who are 
        covered by individual health insurance coverage, or
          (2) in any case in which the requirements of 
        subparagraph (A) are not met with respect to the either 
        of such States, the issuer provides an independent 
        review mechanism substantially identical (as determined 
        by the applicable State authority of such State) to 
        that prescribed in the ``Health Carrier External Review 
        Model Act'' of the National Association of Insurance 
        Commissioners for all individuals who purchase 
        insurance coverage under the terms of this part, except 
        that, under such mechanism, the review is conducted by 
        an independent medical reviewer, or a panel of such 
        reviewers, with respect to whom the requirements of 
        subsection (b) are met.
  (b) Qualifications of Independent Medical Reviewers.--In the 
case of any independent review mechanism referred to in 
subsection (a)(2)--
          (1) In general.--In referring a denial of a claim to 
        an independent medical reviewer, or to any panel of 
        such reviewers, to conduct independent medical review, 
        the issuer shall ensure that--
                  (A) each independent medical reviewer meets 
                the qualifications described in paragraphs (2) 
                and (3);
                  (B) with respect to each review, each 
                reviewer meets the requirements of paragraph 
                (4) and the reviewer, or at least 1 reviewer on 
                the panel, meets the requirements described in 
                paragraph (5); and
                  (C) compensation provided by the issuer to 
                each reviewer is consistent with paragraph (6).
          (2) Licensure and expertise.--Each independent 
        medical reviewer shall be a physician (allopathic or 
        osteopathic) or health care professional who--
                  (A) is appropriately credentialed or licensed 
                in 1 or more States to deliver health care 
                services; and
                  (B) typically treats the condition, makes the 
                diagnosis, or provides the type of treatment 
                under review.
          (3) Independence.--
                  (A) In general.--Subject to subparagraph (B), 
                each independent medical reviewer in a case 
                shall--
                          (i) not be a related party (as 
                        defined in paragraph (7));
                          (ii) not have a material familial, 
                        financial, or professional relationship 
                        with such a party; and
                          (iii) not otherwise have a conflict 
                        of interest with such a party (as 
                        determined under regulations).
                  (B) Exception.--Nothing in subparagraph (A) 
                shall be construed to--
                          (i) prohibit an individual, solely on 
                        the basis of affiliation with the 
                        issuer, from serving as an independent 
                        medical reviewer if--
                                  (I) a non-affiliated 
                                individual is not reasonably 
                                available;
                                  (II) the affiliated 
                                individual is not involved in 
                                the provision of items or 
                                services in the case under 
                                review;
                                  (III) the fact of such an 
                                affiliation is disclosed to the 
                                issuer and the enrollee (or 
                                authorized representative) and 
                                neither party objects; and
                                  (IV) the affiliated 
                                individual is not an employee 
                                of the issuer and does not 
                                provide services exclusively or 
                                primarily to or on behalf of 
                                the issuer;
                          (ii) prohibit an individual who has 
                        staff privileges at the institution 
                        where the treatment involved takes 
                        place from serving as an independent 
                        medical reviewer merely on the basis of 
                        such affiliation if the affiliation is 
                        disclosed to the issuer and the 
                        enrollee (or authorized 
                        representative), and neither party 
                        objects; or
                          (iii) prohibit receipt of 
                        compensation by an independent medical 
                        reviewer from an entity if the 
                        compensation is provided consistent 
                        with paragraph (6).
          (4) Practicing health care professional in same 
        field.--
                  (A) In general.--In a case involving 
                treatment, or the provision of items or 
                services--
                          (i) by a physician, a reviewer shall 
                        be a practicing physician (allopathic 
                        or osteopathic) of the same or similar 
                        specialty, as a physician who, acting 
                        within the appropriate scope of 
                        practice within the State in which the 
                        service is provided or rendered, 
                        typically treats the condition, makes 
                        the diagnosis, or provides the type of 
                        treatment under review; or
                          (ii) by a non-physician health care 
                        professional, the reviewer, or at least 
                        1 member of the review panel, shall be 
                        a practicing non-physician health care 
                        professional of the same or similar 
                        specialty as the non-physician health 
                        care professional who, acting within 
                        the appropriate scope of practice 
                        within the State in which the service 
                        is provided or rendered, typically 
                        treats the condition, makes the 
                        diagnosis, or provides the type of 
                        treatment under review.
                  (B) Practicing defined.--For purposes of this 
                paragraph, the term ``practicing'' means, with 
                respect to an individual who is a physician or 
                other health care professional, that the 
                individual provides health care services to 
                individual patients on average at least 2 days 
                per week.
          (5) Pediatric expertise.--In the case of an external 
        review relating to a child, a reviewer shall have 
        expertise under paragraph (2) in pediatrics.
          (6) Limitations on reviewer compensation.--
        Compensation provided by the issuer to an independent 
        medical reviewer in connection with a review under this 
        section shall--
                  (A) not exceed a reasonable level; and
                  (B) not be contingent on the decision 
                rendered by the reviewer.
          (7) Related party defined.--For purposes of this 
        section, the term ``related party'' means, with respect 
        to a denial of a claim under a coverage relating to an 
        enrollee, any of the following:
                  (A) The issuer involved, or any fiduciary, 
                officer, director, or employee of the issuer.
                  (B) The enrollee (or authorized 
                representative).
                  (C) The health care professional that 
                provides the items or services involved in the 
                denial.
                  (D) The institution at which the items or 
                services (or treatment) involved in the denial 
                are provided.
                  (E) The manufacturer of any drug or other 
                item that is included in the items or services 
                involved in the denial.
                  (F) Any other party determined under any 
                regulations to have a substantial interest in 
                the denial involved.
          (8) Definitions.--For purposes of this subsection:
                  (A) Enrollee.--The term ``enrollee'' means, 
                with respect to health insurance coverage 
                offered by a health insurance issuer, an 
                individual enrolled with the issuer to receive 
                such coverage.
                  (B) Health care professional.--The term 
                ``health care professional'' means an 
                individual who is licensed, accredited, or 
                certified under State law to provide specified 
                health care services and who is operating 
                within the scope of such licensure, 
                accreditation, or certification.

SEC. 2799. ENFORCEMENT.

  (a) In General.--Subject to subsection (b), with respect to 
specific individual health insurance coverage the primary State 
for such coverage has sole jurisdiction to enforce the primary 
State's covered laws in the primary State and any secondary 
State.
  (b) Secondary State's Authority.--Nothing in subsection (a) 
shall be construed to affect the authority of a secondary State 
to enforce its laws as set forth in the exception specified in 
section 2796(b)(1).
  (c) Court Interpretation.--In reviewing action initiated by 
the applicable secondary State authority, the court of 
competent jurisdiction shall apply the covered laws of the 
primary State.
  (d) Notice of Compliance Failure.--In the case of individual 
health insurance coverage offered in a secondary State that 
fails to comply with the covered laws of the primary State, the 
applicable State authority of the secondary State may notify 
the applicable State authority of the primary State.

           *       *       *       *       *       *       *


  DISSENTING VIEWS OF REPRESENTATIVES DINGELL, WAXMAN, MARKEY, TOWNS, 
PALLONE, BROWN OF OHIO, GORDON, RUSH, ESHOO, STUPAK, ENGEL, WYNN, GENE 
   GREEN OF TEXAS, STRICKLAND, DEGETTE, CAPPS, DOYLE, ALLEN, DAVIS, 
         SCHAKOWSKY, SOLIS, GONZALEZ, INSLEE, BALDWIN, AND ROSS

    H.R. 2355, the ``Health Care Choice Act of 2005'', is a 
serious threat to the individual health insurance market. This 
legislation would allow health insurance companies to be 
licensed in one State but then sell policies in any of the 
other 49 States without meeting the other State's consumer 
protection and insurance laws. Democrats strenuously objected 
to the legislation on a number of grounds and offered a series 
of amendments to correct its fundamental flaws.
Erosion of consumer protections
    One of the most serious concerns with this legislation is 
that it would erode State consumer protections. States would be 
powerless to stop out-of-State insurance companies from selling 
coverage in their State which did not meet important State 
consumer and benefit protections. The legislation would 
undermine access to coverage and benefits for all consumers in 
the individual insurance market, and it would particularly hurt 
those with either existing medical needs, such as diabetics, 
cancer patients, pregnant women, and asthmatics, or those who 
develop a need for care. It would allow insurers to craft 
policies that serve only the healthy and avoid the sick either 
by excluding them outright from coverage or by pricing policies 
out of reach.
    Numerous advocacy groups expressed concerns with H.R. 2355.
    The American Diabetes Association indicated: ``The 
Association is concerned that by permitting insurers to be 
licensed in only one State, H.R. 2355 could cause the end of 
guaranteed-issue individual health insurance policies. Many 
people with diabetes rely on this type of policy when employers 
do not offer coverage, or when they are self-employed. Under 
these policies, consumers can never be turned down for health 
insurance coverage because of their health status. However, 
insurers in other States without these types of provisions can 
and usually do deny coverage to individuals with diabetes 
because of their pre-existing condition.'' \1\
---------------------------------------------------------------------------
    \1\ June 24, 2005, letter from the American Diabetes Association to 
Representative John B. Shadegg.
---------------------------------------------------------------------------
    In a letter to Representative Ted Strickland on H.R. 2355, 
the National Mental Health Association noted: ``As you know, 
mental illnesses are the leading cause of disability and 
premature death in this country. Absent strong laws, 
discriminatory health-insurance practices that limit people's 
access to needed mental health care are widespread across the 
country. Enactment of this legislation would, in our view, be a 
setback for many people with mental illnesses who have won 
protections against such discrimination under State laws.'' \2\
---------------------------------------------------------------------------
    \2\ July 19, 2005, letter from Michael Faenza, National Mental 
Health Association, to Representative Ted Strickland.
---------------------------------------------------------------------------
    The March of Dimes stated in testimony submitted to the 
Committee: ``We have strong reservations about any proposal 
that would have the effect of putting at risk existing State 
coverage protections for pregnant women, infants and children. 
In our judgment, health insurers should not be allowed to sell 
coverage that excludes maternity and pediatric benefit 
protections approved by individual States. As illustrated by 
experience with maternity coverage in the individual insurance 
market, permitting exclusion of basic benefits can have the 
perverse result of making such benefits unaffordable or even 
unavailable.'' \3\
---------------------------------------------------------------------------
    \3\ March of Dimes testimony submitted to the Committee on Energy 
and Commerce on H.R. 2355, June 28, 2005.
---------------------------------------------------------------------------
    FamiliesUSA said: ``Under the Health Care Choice Act, the 
rights and protections granted by many States will be undercut 
by a small number of States that have fewer--or no--
protections.'' \4\
---------------------------------------------------------------------------
    \4\ Statement of Ron Pollack on H.R. 2355, the ``Health Care Choice 
Act'' for the record before the Committee on Energy and Commerce, June 
28, 2005.
---------------------------------------------------------------------------
    The National Partnership for Women and Families stated: 
``Insurers could select the State with the most lenient rules, 
and thereby circumvent State laws that protect consumers from 
unfair rates and rate hikes. These insurers would be exempt 
from critical consumer protections such as guaranteed coverage 
for individual with preexisting conditions, and required 
coverage of critical health benefits like mammography 
screenings and preventive care.'' \5\
---------------------------------------------------------------------------
    \5\ Statement of the National Partnership of Women and Families on 
H.R. 2355, ``National Health Care Advocate Opposes the Health Care 
Choice Act'', June 28, 2005.
---------------------------------------------------------------------------
    In an effort to protect such individuals from harm under 
this legislation, Democrats offered a number of amendments that 
would have prohibited insurers from discriminating against 
these groups by excluding needed benefits or excluding them 
from coverage. Amendments were offered that would require 
insurers operating in a State to comply with that State's laws 
regarding access to coverage and benefits for individuals with 
diabetes, mental illness, pediatric cancer, and breast cancer, 
as well as to protect access and benefits for pregnant women 
and children. Amendments were also offered to protect State 
laws regarding access to prescription drug coverage and 
ensuring access to immunizations for children. Unfortunately, 
all of these amendments were defeated by the Majority.
Creation of a regulatory void; increase in fraud
    The bill would strip regulatory authority from State 
insurance commissioners and prevent them from protecting 
residents of their State from unlicensed insurance companies. 
Section 2976 exempts a health insurer from complying with the 
covered laws of a State, such as consumer protections (i.e., 
access to emergency care, access to specialty care); benefit 
protections (i.e., diabetes coverage, maternity coverage, 
mental illness coverage, etc.); protections on premiums that 
can be charged; fraud and abuse laws (other than those that 
meet the narrow definition offraud and abuse in the 
legislation); protections on access to coverage (i.e., guarantee issue 
and renewability, pre-existing condition protections); and other laws 
relating to insurance. For these laws, if a consumer had a problem with 
an unlicensed insurance policy, he or she would have to request that an 
out-of-State insurance commissioner take action, if that other State 
even had such protections. The insurance commissioner in the consumer's 
home State could not assist them.
    Democrats offered a number of amendments to address this 
matter including: requiring the State insurance commissioners 
to certify that a policy licensed in another State would not 
cause harm to in-State consumers before such a policy could be 
sold in the State; allowing a State to enforce laws against an 
unlicensed insurance plan if the licensing State did not take 
action; and allowing a State to ban unlicensed bad actors from 
the State if the company was found to violate required laws. 
All of these amendments were defeated on near party-line votes.
    The removal of regulatory oversight by this legislation 
will provide an environment ripe for unscrupulous actors to 
enter States and defraud consumers. Rather than simplify 
insurance regulation, this legislation would make it more 
complex because of the varying State and Federal standards that 
would apply to companies operating without being licensed in 
that State. The insurance laws of the State where the company 
is licensed would apply in most instances, but in some 
instances, such as in the case of certain fraud laws or 
external appeals, the State laws where the consumer lives would 
apply. In other cases, a Federal standard would apply. For 
example, there is a Federal standard for premium 
reclassifications, enforced by the licensing State, and a 
Federal standard for external appeals in instances where a 
State has no policy, enforced by that State.
    Consumers would be required to sort through the different 
layers of regulation to determine to whom and where certain 
provisions applied and where they would go to enforce them. 
Today, consumers know to turn to their State office for 
assistance. Under this legislation, insurers could frequently 
change the State in which they are licensed. Consumers would 
have to canvass different States to find out where their policy 
was regulated at the time their problem occurred. Moreover, 
having to navigate a State insurance department hundreds of 
miles away in another State would create significant obstacles 
for consumers seeking to file complaints. Thus, the legislation 
establishes operational and practical barriers to filing and 
investigating complaints. The end result would likely be little 
oversight of insurers.
    Moreover, State insurance departments are not equipped to 
serve residents of other States. In addition, State insurance 
departments do not have the resources to enforce or even 
monitor the conduct of insurance companies beyond its borders 
in a State where the insurer is not licensed. Under this 
legislation many consumer complaints or problems would go 
unaddressed and insurance companies would get away with bad 
practices with no consequences.

Insufficient consumer information

    Adding to Democrats' concerns about fraud is the lack of 
information required to be provided to consumers about the 
policies licensed in another State they would be purchasing. 
The legislation, at section 2976(c), requires a brief notice to 
be provided to consumers indicating which State laws and 
regulations govern that policy. Democrats offered an amendment 
to improve the information provided to consumers by insurance 
companies in order to ensure that individuals were making an 
informed choice in purchasing a policy not licensed and 
regulated primarily by their State.
    The amendment would have required insurers offering 
coverage in a State where they were not licensed to provide an 
explanation in easy to understand language of any variance of 
that policy from the mandated benefits, consumer protections, 
fraud protections, or premium protections that would be 
provided under the State's laws where the insurer is not 
licensed that would not apply. In addition, the amendment would 
have required that each time an insurer changed the State in 
which it was licensed, it must notify policy holders in writing 
of the change, and must include a summary of any material 
changes in law and regulation between the old and new primary 
jurisdiction as well as where to contact in the State where the 
plan is licensed to file a complaint.
    Finally, the amendment would have required insurers to 
maintain a website (and provide information in each policy on 
how to access that site) containing: (1) copies of each 
insurance policy form sold in other States where it was not 
licensed; (2) copies of or links to the insurance law and 
regulation used in the State where it was licensed; (3) a 
discussion of the rating approach used by the licensing State 
including whether it varies by duration and how it approaches 
closed blocks of business; and (4) information on how the 
applicant or policy holder can file a complaint with the 
insurance regulator of the licensing State. This amendment, 
like all other Democratic amendments, was defeated.

Erosion of choice

    H.R. 2355 is likely to lead to an erosion of choice for 
consumers as a result of a number of different factors. 
Insurance companies that currently offer more diverse policies 
including broader benefits and using less restrictive 
underwriting rules would find it difficult to continue offering 
that coverage as unlicensed out-of-State insurers moved into 
the market. These out-of-State policies would siphon off the 
healthy ``good risks'' into bare-bones policies, raising costs 
in more comprehensive health insurance policies. Ultimately, 
this would create a competitive disadvantage for any insurer 
that wished to (or was required by law to) meet more 
comprehensive State consumer protection standards. Consumers 
would find that policies that offered more comprehensive 
coverage and protections were no longer available or were 
unaffordable.
    To address this matter, Democrats offered an amendment 
which would require any insurer wishing to offer a policy in a 
State where it was not licensed (and thus did not meet the 
States consumer protections, benefit protections, access, rate 
or other requirements) to also offer a second policy that did 
meet all of the State standards. This would ensure that 
consumers were, in fact, able to decide which type of policy 
best met their needs by guaranteeing that both State-regulated 
and out-of-State unlicensed policies were offered to consumers. 
The amendment was defeated.

Evisceration of State legislative authority

    Because this legislation would allow insurance companies to 
circumvent State laws by operating without a license in that 
State, it usurps the legislative authority of State 
legislatures. By allowing insurance companies to choose which 
State to be licensed in, this legislation would block the 
ability of State legislatures to enact laws that had stronger 
protections than those of another State. There would be no 
incentive for States to pass laws to protect residents if the 
insurer could just register elsewhere to avoid it. Rather than 
foster a climate of continual improvement in industry 
practices, it would encourage companies to choose as its 
primary State the one with the lowest standards. Democrats 
objected to the Federal Government supplanting State powers in 
this manner, particularly as the end result would be fewer 
protections for consumers. An amendment to return authority to 
State legislatures was also defeated.

Summary

    In short, we have grave reservations about H.R. 2355 and 
its effect on millions of Americans who obtain their health 
coverage in their State's individual health insurance market. 
This bill, which was brought directly to the full Committee for 
consideration after only one hearing in the Subcommittee on 
Health, clearly would allow health insurance companies to avoid 
important State consumer protections and as such avoid serving 
individuals with medical needs. The legislation also sets up a 
confusing and inadequate regulatory structure that is certain 
to lead to an increase in fraudulent health insurance companies 
operating across the Nation. States, under the legislation, 
will have little ability to enforce their laws for their 
residents against plans operating without a license in that 
State. And, licensing States will not have the resources or 
potentially even the desire to assist out-of-State consumers 
experiencing problems with an out-of-State insurance company.
    For all of these reasons, we strongly oppose this 
legislation.

                                   John D. Dingell.
                                   Henry A. Waxman.
                                   Edward J. Markey.
                                   Edolphus Towns.
                                   Frank Pallone, Jr.
                                   Sherrod Brown.
                                   Bart Gordon.
                                   Bobby L. Rush.
                                   Anna G. Eshoo.
                                   Bart Stupak.
                                   Eliot L. Engel.
                                   Albert R. Wynn.
                                   Gene Green.
                                   Ted Strickland.
                                   Diana DeGette.
                                   Lois Capps.
                                   Michael F. Doyle.
                                   Tom Allen.
                                   Jim Davis.
                                   Jan Schakowsky.
                                   Hilda L. Solis.
                                   Charles A. Gonzalez.
                                   Jay Inslee.
                                   Tammy Baldwin.
                                   Mike Ross.