TITLE XI TRANSITIONAL INSURANCE REFORM

table of contents of title                                                Page

Sec. 11001. Imposition of requirements                                    1335

Sec. 11002. Enforcement                                                   1337

Sec. 11003. Requirements relating to preserving current coverage          1338

Sec. 11004. Restrictions on premium increases during transition           1340

Sec. 11005. Requirements relating to portability                          1350

Sec. 11006. Requirements limiting reduction of benefits                   1353

Sec. 11007. National transitional health insurance risk pool              1354

Sec. 11008. Definitions                                                   1358

Sec. 11009. Termination                                                   1363


SEC. 11001. IMPOSITION OF REQUIREMENTS.

  (a) In General. The Secretary and the Secretary of Labor shall apply the
provisions of this title to assure, to the extent possible, the maintenance of
current health care coverage and benefits during the period between the
enactment of this Act and the dates its provisions are implemented in the
various States.

  (b) Enforcement.

  (1) Health insurance plans. The Secretary shall enforce the requirements of
this title with respect to health insurance plans. The Secretary shall
promulgate regulations to carry out the requirements under this title with
respect to health insurance plans. The Secretary shall promulgate regulations
with respect to section 11004 within 90 days after the date of the enactment
of this Act.

  (2) Self-insured plans. The Secretary of Labor shall enforce the
requirements of this title with respect to self-insured plans. Such Secretary
shall promulgate regulations to carry out the requirements under this title as
they relate to self-funded plans.

  (3) Arrangements with states. The Secretary and the Secretary of Labor may
enter into arrangements with a State to enforce the requirements of this title
with respect to health insurance plans and self-insured plans issued or sold,
or established and maintained, in the State.

  (c) Preemption. The requirements of this title do not preempt any State law
unless State law directly conflicts with such requirements. The provision of
additional protections under State law shall not be considered to directly
conflict with such requirements. The Secretary (or, in the case of a
self-insured plan, the Secretary of Labor) may issue letter determinations
with respect to whether this Act preempts a provision of State law.

  (d) Interim Final Regulations. Section 1911 shall apply to regulations
issued to carry out this title. The Secretary may consult with States and the
National Association of Insurance Commissioners in issuing regulations and
guidelines under this title.

  (e) Construction. The provisions of this title shall be construed in a
manner that assures, to the greatest extent practicable, continuity of health
benefits under health benefit plans in effect on the effective date of this
Act.

  (f) Special Rules for Acquisitions and Transfers. The Secretary may issue
regulations regarding the application of this title in the case of health
insurance plans (or groups of such plans) which are transferred from one
insurer to another insurer through assumption, acquisition, or otherwise.

SEC. 11002. ENFORCEMENT.

  (a) In General. Any health insurer or health benefit plan sponsor that
violates a requirement of this title shall be subject to a civil money penalty
of not more than $25,000 for each such violation.  The provisions of section
1128A of the Social Security Act (other than subsections (a) and (b)) shall
apply to civil money penalties under this subsection in the same manner as
they apply to a penalty or proceeding under section 1128A(a) of such Act.

  (b) Equitable Remedies.

  (1) In general. A civil action may be brought by the applicable Secretary

  (A) to enjoin any act or practice which violates any provision of this
title, or

  (B) to obtain other appropriate equitable relief (i) to redress such
violations, or (ii) to enforce any provision of this title, including, in the
case of a wrongful termination of (or refusal to renew) coverage, reinstating
coverage effective as of the date of the violation.

SEC. 11003. REQUIREMENTS RELATING TO PRESERVING CURRENT COVERAGE.

  (a) Prohibition of Termination.

  (1) Group health insurance plans. Each health insurer that provides a group
health insurance plan may not terminate (or fail to renew) coverage for any
covered employee if the employer of the employee continues the plan, except in
the case of

  (A) nonpayment of required premiums,

  (B) fraud, or

  (C) misrepresentation of a material fact relating to an application for
coverage or claim for benefits.

  (2) Individual health insurance plans. Each health insurer that provides
coverage to a covered individual under an individual health insurance plan may
not terminate (or fail to renew) coverage for such individual (or a covered
dependent), except in the case of

  (A) nonpayment of required premiums,

  (B) fraud, or

  (C) misrepresentation of a material fact relating to an application for
coverage or claim for benefits.

  (2) Effective date of title.

  (A) In general. This subsection shall take effect on the effective date of
this title and shall apply to coverage on or after such date.

  (B) Definition. Except as otherwise provided, in this title the term
"effective date of this title'' means the date of the enactment of this Act.

  (b) Acceptance of New Members in a Group Health Insurance Plan.

  (1) In general. In the case of a health insurer that provides a group health
insurance plan that is in effect on the effective date of this title, the
insurer is required

  (A) to accept all individuals, and their eligible dependents, who become
full-time employees (as defined in section 1901(b)(2)(C)) of an employer
covered after such effective date;

  (B) to establish and apply premium rates that are consistent with section
11004(b); and

  (C) to limit the application of pre-existing condition restrictions in
accordance with section 11005.

  (2) Consistent application of rules relating to dependents and waiting
periods. In this subsection, the term "eligible dependent'', with respect to a
group health insurance plan, has the meaning provided under the plan as of
October 27, 1993, or, in the case of a plan not established as of such date,
as of the date of establishment of the plan.

SEC. 11004. RESTRICTIONS ON PREMIUM INCREASES DURING TRANSITION.

  (a) Division of Health Insurance Plans by Sector. For purposes of this
section, each health insurer shall divide its health insurance business into
the following 3 sectors:

  (1) Health insurance for groups with at least 100 covered lives (in this
section referred to as the "large group sector'')

  (2) Health insurance for groups with fewer than 100 covered lives (in this
section referred as the "small group sector'').

  (3) Health insurance for individuals, and not for groups (in this section
referred to as the "individual sector'').

  (b) Premium Changes to Reflect Changes in Group or Individual
Characteristics or Terms of Coverage.

  (1) Application. The provisions of this subsection shall apply to changes in
premiums that reflect

  (A) changes in the number of individuals covered under a plan;

  (B) changes in the group or individual characteristics (including age,
gender, family composition or geographic area but not including health status,
claims experience or duration of coverage under the plan) of individuals
covered under a plan;

  (C) changes in the level of benefits (including changes in cost-sharing)
under the plan; and

  (D) changes in any material terms and conditions of the health insurance
plan (other than factors related to health status, claims experience, and
duration of coverage under the plan).

  (2) Specification of reference rate for each sector. Each health insurer
shall calculate a reference rate for each such sector. The reference rate for
a sector shall be calculated so that, if it were applied using the rate
factors specified under paragraph (3), the average premium rate for
individuals and groups in that sector would approximate the average premium
rate charged individuals and groups in the sector as of the effective date of
this title.

  (3) Single set of rate factors within each sector.

  (A) In general. Each health insurer shall develop for each sector a single
set of rate factors which will be used to calculate any changes in premium
that relate to the reasons described in subparagraphs (B) through (D) of
paragraph (1).

  (B) Standards. Such rate factors

  (i) shall relate to reasonable and objective differences in demographic
characteristics, in the design and in levels of coverage, and in other terms
and conditions of a contract,

  (ii) shall not relate to expected health status, claims experience, or
duration of coverage of the one or more groups or individuals, and

  (iii) shall comply with regulations established under subsection (f).

  (4) Computation of Premium Changes.

  (A) In general. Changes in premium rates that relate to the reasons
described in paragraph (1) shall be calculated using the rate factors
developed pursuant to paragraph (3).

  (B) Application to changes in number of covered individuals. In the case of
a change in premium rates related to the reason described in paragraph (1)(A),
the change in premium rates shall be calculated to reflect, with respect to
the enrollees who enroll or disenroll in a health insurance plan, the sum of
the products, for such individuals, of the reference rate (determined under
paragraph (2)) and the rate factors (specified under paragraph (3)) applicable
to such enrollees.

  (C) Application of other factors.

  (i) In general. In the case of a change in premium rates related to a reason
described in subparagraph (B), (C), or (D) of paragraph (1), the change in
premium rates with respect to each health insurance plan in each sector shall
reflect the rate factors specified under paragraph (3) applicable to the
reason as applied to the current premium charged for the health insurance
plan. Such rate factors shall be applied in a manner so that the resulting
adjustment, to the extent possible, reflects the premium that would have been
charged under the plan if the reason for the change in premium had existed at
the time that the current premium rate was calculated.

  (ii) No reflection of change in health status. In applying the rate factors
under this subparagraph, the adjustment shall not reflect any change in the
health status, claims experience or duration of coverage with respect to any
employer or individual covered under the plan.

  (5) Limitation on application. This subsection shall only apply

  (A) to changes in premiums occurring on or after the date of the enactment
of this Act to groups and individuals covered as of such date, and

  (B) with respect to groups and individuals subsequently covered, to changes
in premiums subsequent to such coverage.

  (6) Application to community-rated plans. Nothing in this subsection shall
require the application of rate factors related to individual or group
characteristics with respect to community-rated plans.

  (c) Limitations on Changes in Premiums Related to Increases in Health Care
Costs and Utilization.

  (1) Application. The provisions of this subsection shall apply to changes in
premiums that reflect increases in health care costs and utilization.

  (2) Equal increase for all plans in all sectors.

  (A) In general. Subject to subparagraph (B), the annual percentage increase
in premiums by a health insurer for health insurance plans in the individual
sector, small group sector, and large group sector, to the extent such
increase reflect increases in health care costs and utilization, shall be the
same for all such plans in those sectors.

  (B) Special rule for large group sector. The annual percentage increase in
premiums by a health insurer for health insurance plans in the large group
sector may vary among such plans based on the claims experience of an employer
(to the extent the experience is credible), so long as the weighted average of
such increases for all such plans in the sector complies with the requirement
of subparagraph (A).

  (C) Geographic application. Subparagraphs (A) and (B)

  (i) may be applied on a national level, or

  (ii) may vary based on geographic area, but only if (I) such areas are
sufficiently large to provide credible data on which to calculate the
variation and (II) the variation is due to reasonable factors related to the
objective differences among such areas in costs and utilization of health
services.

  (D) Exceptions to accommodate state rate reform efforts. Subparagraphs (A)
and (B) shall not apply, in accordance with guidelines of the Secretary, to
the extent necessary to permit a State to narrow the variations in premiums
among health insurance plans offered by health insurers to similarly situated
groups or individuals within a sector.

  (E) Exception for rates subject to prior approval. Subparagraphs (A) and (B)
shall not apply to premiums that are subject to prior approval by a State
insurance commissioner (or similar official) and are approved by such
official.

  (F) Other reasons specified by the secretary. The Secretary may specify
through regulations such other exceptions to the provisions of this subsection
as the Secretary determines are required to enhance stability of the health
insurance market and continued availability of coverage.

  (3) Even application throughout a year. In applying the provisions of this
subsection to health insurance plans that are renewed in different months of a
year, the annual percentage increase shall be applied in a consistent, even
manner so that any variations in the rate of increase applied in consecutive
months are even and continuous during the year.

  (4) Petition for exception. A health insurer may petition the Secretary (or
a State acting under a contract with the Secretary under section 11001(b)(3))
for an exception from the application of the provisions of this subsection.
The Secretary may approve such an exception if

  (A) the health insurer demonstrates that the application of this subsection
would threaten the financial viability of the insurer, and

  (B) the health insurer offers an alternative method for increasing premiums
that is not substantially discriminatory to any sector or to any group or
individual covered by a health insurance plan offered by the insurer.

  (d) Prior Approval for Certain Rate Increases.

  (1) In general. If the percentage increase in the premium rate for the
individual and small group sector exceeds a percentage specified by the
Secretary under paragraph (2), annualized over any 12-month period, the
increase shall not take effect unless the Secretary (or a State acting under a
contract with the Secretary under section 11001(b)(3)) has approved the
increase.

  (2) Percentage. The Secretary shall specify, for each 12-month period
beginning after the date of the enactment of this Act, a percentage that will
apply under paragraph (1). Such percentage shall be determined taking into
consideration the rate of increase in health care costs and utilization,
previous trends in health insurance premiums, and the conditions in the health
insurance market. Within 30 days after the date of the enactment of this Act,
the Secretary shall first specify a percentage under this paragraph.

  (e) Documentation of Compliance.

  (1) Period for conformance. Effective 1 year after the date of the enactment
of this Act, the premium for each health insurance plan shall be conformed in
a manner that complies with the provisions of this section.

  (2) Methodology. Each health insurer shall document the methodology used in
applying subsections (b) and (c) with respect to each sector (and each
applicable health plan). Such documentation shall be sufficient to permit the
auditing of the application of such methodology to determine if such
application was consistent with such subsections.

  (3) Certification. For each 6-month period in which this section is
effective, each health insurer shall file a certification with the Secretary
(or with a State with which the Secretary has entered into an arrangement
under section 11001(b)(3)) that the insurer is in compliance with such
requirements.

  (f) Regulations. The Secretary shall establish regulations to carry out this
section. Such regulations may include guidelines relating to the permissible
variation that results from the use of demographic or other characteristics in
the development of rate factors. Such guidelines may be based on the
guidelines currently used by States in applying rate limitations under State
insurance regulations.

  (g) Effective Period. This section shall apply to premium increases
occurring during the period beginning on the date of the enactment of this Act
and ending, for a health insurance plan provided in a State, on the first day
of the State's first year.

SEC. 11005. REQUIREMENTS RELATING TO PORTABILITY.

  (a) Treatment of Preexisting Condition Exclusions.

  (1) In general. Subject to the succeeding provisions of this subsection, a
group health benefit plan may exclude coverage with respect to services
related to treatment of a preexisting condition, but the period of such
exclusion may not exceed 6 months. The exclusion of coverage shall not apply
to services furnished to newborns or in the case of a plan that did not apply
such exclusions as of the effective date of this title.

  (2)  Crediting of previous coverage.

  (A) In general. A group health benefit plan shall provide that if an
individual covered under such plan is in a period of continuous coverage (as
defined in subparagraph (B)(i)) with respect to particular services as of the
date of initial coverage under such plan, any period of exclusion of coverage
with respect to a preexisting condition for such services or type of services
shall be reduced by 1 month for each month in the period of continuous
coverage.

  (B) Definitions. As used in this paragraph:

  (i) Period of continuous coverage. The term "period of continuous coverage''
means, with respect to particular services, the period beginning on the date
an individual is enrolled under a group or individual health benefit plan,
self-insured plan, the medicare program, a State medicaid plan, or other
health benefit arrangement which provides benefits with respect to such
services and ends on the date the individual is not so enrolled for a
continuous period of more than 3 months.

  (ii) Preexisting condition. The term "preexisting condition'' means, with
respect to coverage under a health benefits plan, a condition which has been
diagnosed or treated during the 6-month period ending on the day before the
first date of such coverage (without regard to any waiting period).

  (b) Waiting Periods. A self-insured plan, and an employer with respect to a
group health insurance plan, may not discriminate among employees in the
establishment of a waiting period before making health insurance coverage
available based on the health status, claims experience, receipt of health
care, medical history, or lack of evidence of insurability, of the employee or
the employee's dependents.

SEC. 11006. REQUIREMENTS LIMITING REDUCTION OF BENEFITS.

  (a) In General. A self-insured sponsor may not make a modification of
benefits described in subsection (b).

  (b) Modification of Benefits Described.

  (1) In general. A modification of benefits described in this subsection is
any reduction or limitation in coverage, effected on or after the effective
date of this title, with respect to any medical condition or course of
treatment for which the anticipated cost is likely to exceed $5,000 in any
12-month period.

  (2) Treatment of termination. A modification of benefits includes the
termination of a plan if the sponsor, within a period (specified by the
Secretary of Labor) establishes a substitute plan that reflects the reduction
or limitation described in paragraph (1).

  (c) Remedy. Any modification made in violation of this section shall not be
effective and the self-insured sponsor shall continue to provide benefits as
though the modification (described in subsection (b)) had not occurred.

SEC. 11007. NATIONAL TRANSITIONAL HEALTH INSURANCE RISK POOL.

  (a) Establishment. In order to assure access to health insurance during the
transition, the Secretary is authorized to establish a National Transitional
Health Insurance Risk Pool (in this section referred to as the "national risk
pool'') in accordance with this section.

  (b) Administration.

  (1) In general. The Secretary may administer the national risk pool through
contracts with

  (A) one or more existing State health insurance risk pools,

  (B) one or more private health insurers, or

  (C) such other contracts as the Secretary deems appropriate.

  (2) Coordination with state risk pools. The Secretary may enter into such
arrangements with existing State health insurance risk pools to coordinate the
coverage under such pools with the coverage under the national risk pool. Such
coordination may address eligibility and funding of coverage for individuals
currently covered under State risk pools.

  (c) Eligibility for Coverage. The national risk pool shall provide health
insurance coverage to individuals who are unable to secure health insurance
coverage from private health insurers because of their health status or
condition (as determined in accordance with rules and procedures specified by
the Secretary).

  (d) Benefits.

  (1) In general. Benefits and terms of coverage provided through the national
risk pool shall include items and services, conditions of coverage, and cost
sharing (subject to out-of-pocket limits on cost sharing) comparable to the
benefits and terms of coverage available in State health insurance risk pools.

  (2) Payment rates. Payments under the national risk pool for covered items
and services shall be made at rates (specified by the Secretary) based on
payment rates for comparable items and services under the medicare program.
Providers who accept payment from the national risk pool shall accept such
payment as payment in full for the service, other than for cost sharing
provided under the national risk pool.

  (e) Premiums.

  (1) In general. Premiums for coverage in the national risk pool shall be set
in a manner specified by the Secretary.

  (2) Variation. Such premiums shall vary based upon age, place of residence,
and other traditional underwriting factors other than on the basis of health
status or claims experience.

  (3) Limitation. The premiums charged individuals shall be set at a level
that is no less than 150 percent of the premiums that the Secretary estimates
would be charged to a population of average risk for the covered benefits.

  (f) Treatment of Shortfalls.

  (1) Estimates. The Secretary shall estimate each year the extent to which
the total premiums collected under subsection (e) in the year are insufficient
to cover the expenses of the national risk pool with respect to the year.

  (2) Temporary borrowing authority. The Secretary of the Treasury is
authorized to advance to the Secretary amounts sufficient to cover the amount
estimated under paragraph (1) during the year before assessments are collected
under paragraph (3), except that the total balance of such Treasury advances
at any time shall not exceed $1,500,000,000. The Secretary shall repay such
amounts, with interest at a rate specified by the Secretary of the Treasury,
from the assessments under paragraph (3).

  (3) Assessments.

  (A) In general. Each health benefit plan sponsor shall be liable for an
assessment in the amount specified in subparagraph (C).

  (B) Amount. For each year for which amounts are advanced under paragraph
(2), the Secretary shall

  (i) estimate the total amount of premiums (and premium equivalents) for
health benefits under health benefit plans for the succeeding year, and

  (ii) calculate a percentage equal to (I) the total amounts repayable by the
Secretary to the Secretary of the Treasury under paragraph (2) for the year,
divided by the amount determined under clause (i).

  (C) Assessment amount. The amount of an assessment for a sponsor of a health
benefit plan for a year shall be equal to the percentage calculated under
subparagraph (B)(ii) (or, if less, \1/2\ of 1 percent) of the total amount of
premiums (and premium equivalents) for health benefits under the plan for the
previous year.

  (D) Self-insured plans. The amount of premiums (and premium equivalents)
under this paragraph shall be estimated

  (i) by the Secretary for health insurance plans, and

  (ii) by the Secretary of Labor for self-insured plans.

Such estimates may be based on a methodology that requires plans liable for
assessment to file information with the applicable Secretary.

SEC. 11008. DEFINITIONS.

  In this title:

  (1) Applicable secretary. The term "applicable Secretary'' means

  (A) the Secretary with respect to health insurance plans and insurers, or

  (B) the Secretary of Labor with respect to self-insured plans and
self-insured plan sponsors.

  (2) Covered employee. The term "covered employee'' means an employee (or
dependent of such an employee) covered under a group health benefits plan.

  (3) Covered individual. The "covered individual'' means, with respect to a
health benefit plan, an individual insured, enrolled, eligible for benefits,
or otherwise covered under the plan.

  (4) Group health benefits plan. The term "group health benefits plan'' means
a group health insurance plan and a self-insured plan.

  (5) Group health insurance plan.

  (A) In general. The term "group health insurance plan'' means a health
insurance plan offered primarily to employers for the purpose of providing
health insurance to the employees (and dependents) of the employer.

  (B) Inclusion of association plans and mewas. Such term includes

  (i) any arrangement in which coverage for health benefits is offered to
employers through an association, trust, or other arrangement, and

  (ii) a multiple employer welfare arrangement (as defined in section 3(40) of
the Employee Retirement Income Security Act of 1974), whether funded through
insurance or otherwise.

  (6) Health benefits plan. The term "health benefits plan'' means health
insurance plan and a self-insured health benefit plan.

  (7) Health benefit plan sponsor. The term "health benefit plan sponsor''
means,  with respect to a health insurance plan or self-insured plan, the
insurer offering the plan or the self-insured sponsor for the plan,
respectively.

  (8) Health insurance plan.

  (A) In general. Except as provided in subparagraph (B), the term "health
insurance plan'' means any contract of health insurance, including any
hospital or medical service policy or certificate, any major medical policy or
certificate, any hospital or medical service plan contract, or health
maintenance organization subscriber contract offered by an insurer.

  (B) Exception. Such term does not include any of the following

  (i) coverage only for accident, dental, vision, disability income, or
long-term care insurance, or any combination thereof,

  (ii) medicare supplemental health insurance,

  (iii) coverage issued as a supplement to liability insurance,

  (iv) worker's compensation or similar insurance, or

  (v) automobile medical payment insurance,

or any combination thereof.

  (C) Stop loss insurance not covered. Such term does not include any
aggregate or specific stop-loss insurance or similar coverage applicable to a
self-insured plan. The Secretary may develop rules determining the
applicability of this subparagraph with respect to minimum premium plans or
other partially insured plans.

  (9) Health insurer. The term "health insurer'' means a licensed insurance
company, a prepaid hospital or medical service plan, a health maintenance
organization, or other entity providing a plan of health insurance or health
benefits with respect to which the State insurance laws are not preempted
under section 514 of the Employee Retirement Income Security Act of 1974.

  (10) Individual health insurance plan.

  (A) In general. The term "individual health insurance plan'' means any
health insurance plan directly purchased by an individual or offered primarily
to individuals (including families) for the purpose of permitting individuals
(without regard to an employer contribution) to purchase health insurance
coverage.

  (B) Inclusion of association plans. Such term includes any arrangement in
which coverage for health benefits is offered to individuals through an
association, trust, list-billing arrangement, or other arrangement in which
the individual purchaser is primarily responsible for the payment of any
premium associated with the contract.

  (C) Treatment of certain association plans. In the case of a health
insurance plan sponsored by an association, trust, or other arrangement that
provides health insurance coverage both to employers and to individuals, the
plan shall be treated as

  (i) a group health insurance plan with respect to such employers, and

  (ii) an individual health insurance plan with respect to such individuals.

  (11) Self-insured plan. The term "self-insured plan'' means an employee
welfare benefit plan or other arrangement insofar as the plan or arrangement
provides benefits with respect to some or all of the items and services
included in the comprehensive benefit package (as in effect as of January 1,
1996) that is funded in a manner other than through the purchase of one or
more health insurance plans. Such term shall not include a group health
insurance plan described in paragraph (5)(B)(ii).

  (12) Self-insured sponsor. The term "self-insured sponsor'' includes,  with
respect to a self-insured plan, any entity which establishes or maintains the
plan.

  (13) State commissioner of insurance. The term "State commissioner of
insurance'' includes a State superintendent of insurance.

SEC. 11009. TERMINATION.

  (a) Health Insurance Plans. The provisions of this title shall not apply to
a health insurance plan provided in a State on and after the first day of the
first year for the State.

  (b) Self-Insured Plans. The provisions of this title shall not apply to a
self-insured plan that

  (1) is sponsored by a sponsor that is an eligible sponsor of a corporate
alliance (described in section 1311(b)(1)), as of the effective date of the
election under section 1312(c); and

  (2) is sponsored by a sponsor that is not such an eligible sponsor, with
respect to individuals or groups in a State on and after the first day of the
first year for the State.