Title4 — Health Hippo

title4

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996

(Public Law 104-191 104th Congress)

TITLE IV–APPLICATION AND ENFORCEMENT OF GROUP HEALTH PLAN REQUIREMENTS

Subtitle A–Application and Enforcement of Group Health Plan
Requirements
- Sec. 401. Group health plan
  portability, access, and renewability requirements.
- Sec. 402. Penalty on failure to
  meet certain group health plan requirements.
Subtitle B–Clarification of Certain Continuation Coverage
Requirements
- Sec. 421. COBRA clarifications.

Subtitle A–Application and Enforcement of Group Health Plan
Requirements

SEC. 401. GROUP HEALTH PLAN PORTABILITY,
ACCESS, AND RENEWABILITY REQUIREMENTS.

(a) In General.–The Internal Revenue Code of 1986 is amended by
adding at the end the following new subtitle:

Subtitle K–Group Health Plan Portability, Access, and
Renewability Requirements

Chapter 100. Group health plan portability, access, and
renewability requirements.

CHAPTER 100–GROUP HEALTH PLAN PORTABILITY, ACCESS, AND
RENEWABILITY REQUIREMENTS

Sec. 9801. Increased portability through limitation on preexisting
condition exclusions.

Sec. 9802. Prohibiting discrimination against individual
participants and beneficiaries based on health status.

Sec. 9803. Guaranteed renewability in multiemployer plans and
certain multiple employer welfare arrangements.

Sec. 9804. General exceptions.

Sec. 9805. Definitions.

Sec. 9806. Regulations.

SEC. 9801. INCREASED PORTABILITY THROUGH LIMITATION ON PREEXISTING
CONDITION EXCLUSIONS.

(a) Limitation on Preexisting Condition Exclusion Period;
Crediting for Periods of Previous Coverage.–Subject to subsection
(d), a group health plan may, with respect to a participant or
beneficiary, impose a preexisting condition exclusion only if– (1)
such exclusion relates to a condition (whether physical or mental),
regardless of the cause of the condition, for which medical advice,
diagnosis, care, or treatment was recommended or received within the
6-month period ending on the enrollment date; (2) such exclusion
extends for a period of not more than 12 months (or 18 months in the
case of a late enrollee) after the enrollment date; and (3) the
period of any such preexisting condition exclusion is reduced by the
length of the aggregate of the periods of creditable coverage (if
any) applicable to the participant or beneficiary as of the
enrollment date.

(b) Definitions.–For purposes of this section– (1) Preexisting
condition exclusion.– (A) In general.–The term `preexisting
condition exclusion’ means, with respect to coverage, a limitation or
exclusion of benefits relating to a condition based on the fact that
the condition was present before the date of enrollment for such
coverage, whether or not any medical advice, diagnosis, care, or
treatment was recommended or received before such date.

(B) Treatment of genetic information.–For purposes of this
section, genetic information shall not be treated as a condition
described in subsection (a)(1) in the absence of a diagnosis of the
condition related to such information.

(2) Enrollment date.–The term `enrollment date’ means, with
respect to an individual covered under a group health plan, the date
of enrollment of the individual in the plan or, if earlier, the first
day of the waiting period for such enrollment.

(3) Late enrollee.–The term `late enrollee’ means, with respect
to coverage under a group health plan, a participant or beneficiary
who enrolls under the plan other than during– (A) the first period
in which the individual is eligible to enroll under the plan, or (B)
a special enrollment period under subsection (f).

(4) Waiting period.–The term `waiting period’ means, with respect
to a group health plan and an individual who is a potential
participant or beneficiary in the plan, the period that must pass
with respect to the individual before the individual is eligible to
be covered for benefits under the terms of the plan.

(c) Rules Relating to Crediting Previous Coverage.– (1)
Creditable coverage defined.–For purposes of this part, the term
`creditable coverage’ means, with respect to an individual, coverage
of the individual under any of the following: (A) A group health
plan.

(B) Health insurance coverage.

(D) Title XIX of the Social Security Act, other than coverage
consisting solely of benefits under section 1928.

(E) Chapter 55 of title 10, United States Code.

(F) A medical care program of the Indian Health Service or of a
tribal organization.

(G) A State health benefits risk pool.

(H) A health plan offered under chapter 89 of title 5, United
States Code.

(I) A public health plan (as defined in regulations).

(J) A health benefit plan under section 5(e) of the Peace Corps
Act (22 U.S.C. 2504(e)).

Such term does not include coverage consisting solely of coverage
of excepted benefits (as defined in section 9805(c)).

(2) Not counting periods before significant breaks in coverage.–
(A) In general.–A period of creditable coverage shall not be
counted, with respect to enrollment of an individual under a group
health plan, if, after such period and before the enrollment date,
there was a 63- day period during all of which the individual was not
covered under any creditable coverage.

(B) Waiting period not treated as a break in coverage.–For
purposes of subparagraph (A) and subsection (d)(4), any period that
an individual is in a waiting period for any coverage under a group
health plan or is in an affiliation period shall not be taken into
account in determining the continuous period under subpara- graph
(A).

(C) Affiliation period.– (i) In general.–For purposes of this
section, the term `affiliation period’ means a period which, under
the terms of the health insurance coverage offered by the health
maintenance organization, must expire before the health insurance
coverage becomes effective.

During such an affiliation period, the organization is not
required to provide health care services or benefits and no premium
shall be charged to the participant or beneficiary.

(ii) Beginning.–Such period shall begin on the enrollment date.

(iii) Runs concurrently with waiting periods.–Any such
affiliation period shall run concurrently with any waiting period
under the plan.

(3) Method of crediting coverage.– (A) Standard method.–Except
as otherwise provided under subparagraph (B), for purposes of
applying subsection (a)(3), a group health plan shall count a period
of creditable coverage without regard to the specific benefits for
which coverage is offered during the period.

(B) Election of alternative method.–A group health plan may elect
to apply subsection (a)(3) based on coverage of any benefits within
each of several classes or categories of benefits specified in
regulations rather than as provided under subparagraph (A). Such
election shall be made on a uniform basis for all participants and
beneficiaries. Under such election a group health plan shall count a
period of creditable coverage with respect to any class or category
of benefits if any level of benefits is covered within such class or
category.

(C) Plan notice.–In the case of an election with respect to a
group health plan under subparagraph (B), the plan shall– (i)
prominently state in any disclosure statements concerning the plan,
and state to each enrollee at the time of enrollment under the plan,
that the plan has made such election, and (ii) include in such
statements a description of the effect of this election.

(4) Establishment of period.–Periods of creditable coverage with
respect to an individual shall be established through presentation of
certifications described in subsection (e) or in such other manner as
may be specified in regulations.

(d) Exceptions.– (1) Exclusion not applicable to certain
newborns.–Subject to paragraph (4), a group health plan may not
impose any preexisting condition exclusion in the case of an
individual who, as of the last day of the 30-day period beginning
with the date of birth, is covered under creditable coverage.

(2) Exclusion not applicable to certain adopted children.–Subject
to paragraph (4), a group health plan may not impose any preexisting
condition exclusion in the case of a child who is adopted or placed
for adoption before attaining 18 years of age and who, as of the last
day of the 30-day period beginning on the date of the adoption or
placement for adoption, is covered under creditable coverage. The
previous sentence shall not apply to coverage before the date of such
adoption or placement for adoption.

(3) Exclusion not applicable to pregnancy.–For purposes of this
section, a group health plan may not impose any preexisting condition
exclusion relating to pregnancy as a preexisting condition.

(4) Loss if break in coverage.–Paragraphs (1) and (2) shall no
longer apply to an individual after the end of the first 63-day
period during all of which the individual was not covered under any
creditable coverage.

(e) Certifications and Disclosure of Coverage.– (1) Requirement
for certification of period of creditable coverage.– (A) In
general.–A group health plan shall provide the certification
described in subparagraph (B)– (i) at the time an individual ceases
to be covered under the plan or otherwise becomes covered under a
COBRA continuation provision, (ii) in the case of an individual
becoming covered under such a provision, at the time the individual
ceases to be covered under such provision, and (iii) on the request
on behalf of an individual made not later than 24 months after the
date of cessation of the coverage described in clause (i) or (ii),
whichever is later.

The certification under clause (i) may be provided, to the extent
practicable, at a time consistent with notices required under any
applicable COBRA continuation provision.

(B) Certification.–The certification described in this
subparagraph is a written certification of– (i) the period of
creditable coverage of the individual under such plan and the
coverage under such COBRA continuation provision, and (ii) the
waiting period (if any) (and affiliation period, if applicable)
imposed with respect to the individual for any coverage under such
plan.

(C) Issuer compliance.–To the extent that medical care under a
group health plan consists of health insurance coverage offered in
connection with the plan, the plan is deemed to have satisfied the
certification requirement under this paragraph if the issuer provides
for such certification in accordance with this paragraph.

(2) Disclosure of information on previous benefits.– (A) In
general.–In the case of an election described in subsection
(c)(3)(B) by a group health plan, if the plan enrolls an individual
for coverage under the plan and the individual provides a
certification of coverage of the individual under paragraph (1)– (i)
upon request of such plan, the entity which issued the certification
provided by the individual shall promptly disclose to such requesting
plan information on coverage of classes and categories of health
benefits available under such entity’s plan, and (ii) such entity may
charge the requesting plan or issuer for the reasonable cost of
disclosing such information.

(3) Regulations.–The Secretary shall establish rules to prevent
an entity’s failure to provide information under paragraph (1) or (2)
with respect to previous coverage of an individual from adversely
affecting any subsequent coverage of the individual under another
group health plan or health insurance coverage.

(f) Special Enrollment Periods.– (1) Individuals losing other
coverage.–A group health plan shall permit an employee who is
eligible, but not enrolled, for coverage under the terms of the plan
(or a dependent of such an employee if the dependent is eligible, but
not enrolled, for coverage under such terms) to enroll for coverage
under the terms of the plan if each of the following conditions is
met: (A) The employee or dependent was covered under a group health
plan or had health insurance coverage at the time coverage was
previously offered to the employee or individual.

(B) The employee stated in writing at such time that coverage
under a group health plan or health insurance coverage was the reason
for declining enrollment, but only if the plan sponsor (or the health
insurance issuer offering health insurance coverage in connection
with the plan) required such a statement at such time and provided
the employee with notice of such requirement (and the consequences of
such requirement) at such time.

(C) The employee’s or dependent’s coverage described in
subparagraph (A)– (i) was under a COBRA continuation provi- sion and
the coverage under such provision was exhausted; or (ii) was not
under such a provision and either the coverage was terminated as a
result of loss of eligibility for the coverage (including as a result
of legal separation, divorce, death, termination of employment, or
reduction in the number of hours of employment) or employer
contributions toward such coverage were terminated.

(D) Under the terms of the plan, the employee requests such
enrollment not later than 30 days after the date of exhaustion of
coverage described in subparagraph (C)(i) or termination of coverage
or employer contribution described in subparagraph (C)(ii).

(2) For dependent beneficiaries.– (A) In general.–If– (i) a
group health plan makes coverage available with respect to a
dependent of an individual, (ii) the individual is a participant
under the plan (or has met any waiting period applicable to becoming
a participant under the plan and is eligible to be enrolled under the
plan but for a failure to enroll during a previous enrollment
period), and (iii) a person becomes such a dependent of the
individual through marriage, birth, or adoption or placement for
adoption, the group health plan shall provide for a dependent special
enrollment period described in subparagraph (B) during which the
person (or, if not otherwise enrolled, the individual) may be
enrolled under the plan as a dependent of the individual, and in the
case of the birth or adoption of a child, the spouse of the
individual may be enrolled as a dependent of the individual if such
spouse is otherwise eligible for coverage.

(B) Dependent special enrollment period.–The dependent special
enrollment period under this subparagraph shall be a period of not
less than 30 days and shall begin on the later of– (i) the date
dependent coverage is made avail- able, or (ii) the date of the
marriage, birth, or adoption or placement for adoption (as the case
may be) described in subparagraph (A)(iii).

(C) No waiting period.–If an individual seeks coverage of a
dependent during the first 30 days of such a dependent special
enrollment period, the coverage of the dependent shall become
effective– (i) in the case of marriage, not later than the first day
of the first month beginning after the date the completed request for
enrollment is received; (ii) in the case of a dependent’s birth, as
of the date of such birth; or (iii) in the case of a dependent’s
adoption or placement for adoption, the date of such adoption or
placement for adoption.

SEC. 9802. PROHIBITING DISCRIMINATION AGAINST INDIVIDUAL
PARTICIPANTS AND BENEFICIARIES BASED ON HEALTH STATUS.

(a) In Eligibility to Enroll.– (1) In general.–Subject to
paragraph (2), a group health plan may not establish rules for
eligibility (including continued eligibility) of any individual to
enroll under the terms of the plan based on any of the following
factors in relation to the individual or a dependent of the
individual: (A) Health status.

(B) Medical condition (including both physical and mental
illnesses).

(D) Receipt of health care.

(E) Medical history.

(F) Genetic information.

(G) Evidence of insurability (including conditions arising out of
acts of domestic violence).

(H) Disability.

(2) No application to benefits or exclusions.–To the extent
consistent with section 9801, paragraph (1) shall not be construed–
(A) to require a group health plan to provide particular benefits (or
benefits with respect to a specific procedure, treatment, or service)
other than those provided under the terms of such plan; or (B) to
prevent such a plan from establishing limitations or restrictions on
the amount, level, extent, or nature of the benefits or coverage for
similarly situated individuals enrolled in the plan or coverage.

(3) Construction.–For purposes of paragraph (1), rules for
eligibility to enroll under a plan include rules defining any
applicable waiting periods for such enrollment.

(b) In Premium Contributions.– (1) In general.–A group health
plan may not require any individual (as a condition of enrollment or
continued enrollment under the plan) to pay a premium or contribution
which is greater than such premium or contribution for a similarly
situated individual enrolled in the plan on the basis of any factor
described in subsection (a)(1) in relation to the individual or to an
individual enrolled under the plan as a dependent of the individual.

(2) Construction.–Nothing in paragraph (1) shall be construed–
(A) to restrict the amount that an employer may be charged for
coverage under a group health plan; or (B) to prevent a group health
plan from establishing premium discounts or rebates or modifying
otherwise applicable copayments or deductibles in return for
adherence to programs of health promotion and disease prevention.

SEC. 9803. GUARANTEED RENEWABILITY IN MULTIEMPLOYER PLANS AND
CERTAIN MULTIPLE EMPLOYER WELFARE ARRANGEMENTS.

(a) In General.–A group health plan which is a multiemployer plan
(as defined in section 414(f)) or which is a multiple employer
welfare arrangement may not deny an employer continued access to the
same or different coverage under such plan, other than– (1) for
nonpayment of contributions; (2) for fraud or other intentional
misrepresentation of material fact by the employer; (3) for
noncompliance with material plan provisions; (4) because the plan is
ceasing to offer any coverage in a geographic area; (5) in the case
of a plan that offers benefits through a network plan, because there
is no longer any individual enrolled through the employer who lives,
resides, or works in the service area of the network plan and the
plan applies this paragraph uniformly without regard to the claims
experience of employers or a factor described in section 9802(a)(1)
in relation to such individuals or their dependents; or (6) for
failure to meet the terms of an applicable collective bargaining
agreement, to renew a collective bargaining or other agreement
requiring or authorizing contributions to the plan, or to employ
employees covered by such an agreement.

(b) Multiple Employer Welfare Arrangement.–For purposes of
subsection (a), the term `multiple employer welfare arrangement’ has
the meaning given such term by section 3(40) of the Employee
Retirement Income Security Act of 1974, as in effect on the date of
the enactment of this section.

SEC. 9804. GENERAL EXCEPTIONS.

(a) Exception for Certain Plans.–The requirements of this chapter
shall not apply to– (1) any governmental plan, and (2) any group
health plan for any plan year if, on the first day of such plan year,
such plan has less than 2 participants who are current employees.

(b) Exception for Certain Benefits.–The requirements of this
chapter shall not apply to any group health plan in relation to its
provision of excepted benefits described in section 9805(c)(1).

(c) Exception for Certain Benefits if Certain Conditions Met.–
(1) Limited, excepted benefits.–The requirements of this chapter
shall not apply to any group health plan in relation to its provision
of excepted benefits described in section 9805(c)(2) if the
benefits– (A) are provided under a separate policy, certificate, or
contract of insurance; or (B) are otherwise not an integral part of
the plan.

(2) Noncoordinated, excepted benefits.–The requirements of this
chapter shall not apply to any group health plan in relation to its
provision of excepted benefits described in section 9805(c)(3) if all
of the following conditions are met: (A) The benefits are provided
under a separate policy, certificate, or contract of insurance.

(B) There is no coordination between the provision of such
benefits and any exclusion of benefits under any group health plan
maintained by the same plan sponsor.

(C) Such benefits are paid with respect to an event without regard
to whether benefits are provided with respect to such an event under
any group health plan maintained by the same plan sponsor.

(3) Supplemental excepted benefits.–The requirements of this
chapter shall not apply to any group health plan in relation to its
provision of excepted benefits described in section 9805(c)(4) if the
benefits are provided under a separate policy, certificate, or
contract of insurance.

SEC. 9805. DEFINITIONS.

(a) Group Health Plan.–For purposes of this chapter, the term
`group health plan’ has the meaning given to such term by section
5000(b)(1).

(b) Definitions Relating to Health Insurance.–For purposes of
this chapter– (1) Health insurance coverage.– (A) In
general.–Except as provided in subparagraph (B), the term `health
insurance coverage’ means benefits consisting of medical care
(provided directly, through insurance or reimbursement, or otherwise)
under any hospital or medical service policy or certificate, hospital
or medical service plan contract, or health maintenance organization
contract offered by a health insurance issuer.

(B) No application to certain excepted benefits.– In applying
subparagraph (A), excepted benefits described in subsection (c)(1)
shall not be treated as benefits consisting of medical care.

(2) Health insurance issuer.–The term `health insurance issuer’
means an insurance company, insurance service, or insurance
organization (including a health maintenance organization, as defined
in paragraph (3)) which is licensed to engage in the business of
insurance in a State and which is subject to State law which
regulates insurance (within the meaning of section 514(b)(2) of the
Employee Retirement Income Security Act of 1974, as in effect on the
date of the enactment of this section). Such term does not include a
group health plan.

(3) Health maintenance organization.–The term `health maintenance
organization’ means– (A) a federally qualified health maintenance
organization (as defined in section 1301(a) of the Public Health
Service Act (42 U.S.C. 300e(a))), (B) an organization recognized
under State law as a health maintenance organization, or (C) a
similar organization regulated under State law for solvency in the
same manner and to the same extent as such a health maintenance
organization.

(c) Excepted Benefits.–For purposes of this chapter, the term
`excepted benefits’ means benefits under one or more (or any
combination thereof) of the following: (1) Benefits not subject to
requirements.– (A) Coverage only for accident, or disability income
insurance, or any combination thereof.

(B) Coverage issued as a supplement to liability in- surance.

(D) Workers’ compensation or similar insurance.

(E) Automobile medical payment insurance.

(F) Credit-only insurance.

(G) Coverage for on-site medical clinics.

(H) Other similar insurance coverage, specified in regulations,
under which benefits for medical care are secondary or incidental to
other insurance benefits.

(2) Benefits not subject to requirements if offered separately.–
(A) Limited scope dental or vision benefits.

(B) Benefits for long-term care, nursing home care, home health
care, community-based care, or any combination thereof.

(3) Benefits not subject to requirements if offered as
independent, noncoordinated benefits.– (A) Coverage only for a
specified disease or illness.

(B) Hospital indemnity or other fixed indemnity in- surance.

(4) Benefits not subject to requirements if offered as separate
insurance policy.–Medicare supplemental health insurance (as defined
under section 1882(g)(1) of the Social Security Act), coverage
supplemental to the coverage provided under chapter 55 of title 10,
United States Code, and similar supplemental coverage provided to
coverage under a group health plan.

(d) Other Definitions.–For purposes of this chapter– (1) COBRA
continuation provision.–The term `COBRA continuation provision’
means any of the following: (A) Section 4980B, other than subsection
(f)(1) thereof insofar as it relates to pediatric vaccines.

(B) Part 6 of subtitle B of title I of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1161 et seq.), other than
section 609 of such Act.

(2) Governmental plan.–The term `governmental plan’ has the
meaning given such term by section 414(d).

(3) Medical care.–The term `medical care’ has the meaning given
such term by section 213(d) determined without regard to– (A)
paragraph (1)(C) thereof, and (B) so much of paragraph (1)(D) thereof
as relates to qualified long-term care insurance.

(4) Network plan.–The term `network plan’ means health insurance
coverage of a health insurance issuer under which the financing and
delivery of medical care are provided, in whole or in part, through a
defined set of providers under contract with the issuer.

(5) Placed for adoption defined.–The term `placement’, or being
`placed’, for adoption, in connection with any placement for adoption
of a child with any person, means the assumption and retention by
such person of a legal obligation for total or partial support of
such child in anticipation of adoption of such child. The child’s
placement with such person terminates upon the termination of such
legal obligation.

SEC. 9806. REGULATIONS.

The Secretary, consistent with section 104 of the Health Care
Portability and Accountability Act of 1996, may promulgate such
regulations as may be necessary or appropriate to carry out the
provisions of this chapter. The Secretary may promulgate any interim
final rules as the Secretary determines are appropriate to carry out
this chapter.”.

(b) Clerical Amendment.–The table of subtitles of such Code is
amended by adding at the end the following new item:

Subtitle K. Group health plan portability, access, and
renewability requirements.

(c) Effective <<NOTE: 26 USC 9801 note.>> Date.– (1)
In general.–The amendments made by this section shall apply to plan
years beginning after June 30, 1997.

(2) Determination of creditable coverage.– (A) Period of
coverage.– (i) In general.–Subject to clause (ii), no period before
July 1, 1996, shall be taken into account under chapter 100 of the
Internal Revenue Code of 1986 (as added by this section) in
determining creditable coverage.

(ii) Special rule for certain periods.–The Secretary of the
Treasury, consistent with section 104, shall provide for a process
whereby individuals who need to establish creditable coverage for
periods before July 1, 1996, and who would have such coverage
credited but for clause (i) may be given credit for creditable
coverage for such periods through the presentation of documents or
other means.

(B) Certifications, etc.– (i) In general.–Subject to clauses
(ii) and (iii), subsection (e) of section 9801 of the Internal
Revenue Code of 1986 (as added by this section) shall apply to events
occurring after June 30, 1996.

(ii) No certification required to be provided before june 1,
1997.–In no case is a certification required to be provided under
such subsection before June 1, 1997.

(iii) Certification only on written request for events occurring
before october 1, 1996.–In the case of an event occurring after June
30, 1996, and before October 1, 1996, a certification is not required
to be provided under such subsection unless an individual (with
respect to whom the certification is otherwise required to be made)
requests such certification in writing.

(C) Transitional rule.–In the case of an individual who seeks to
establish creditable coverage for any period for which certification
is not required because it relates to an event occurring before June
30, 1996– (i) the individual may present other credible evidence of
such coverage in order to establish the period of creditable
coverage; and (ii) a group health plan and a health insurance issuer
shall not be subject to any penalty or enforcement action with
respect to the plan’s or issuer’s crediting (or not crediting) such
coverage if the plan or issuer has sought to comply in good faith
with the applicable requirements under the amendments made by this
section.

(3) Special rule for collective bargaining agreements.– Except as
provided in paragraph (2), in the case of a group health plan
maintained pursuant to 1 or more collective bargaining agreements
between employee representatives and one or more employers ratified
before the date of the enactment of this Act, the amendments made by
this section shall not apply to plan years beginning before the later
of– (A) the date on which the last of the collective bargaining
agreements relating to the plan terminates (determined without regard
to any extension thereof agreed to after the date of the enactment of
this Act), or (B) July 1, 1997.

For purposes of subparagraph (A), any plan amendment made pursuant
to a collective bargaining agreement relating to the plan which
amends the plan solely to conform to any requirement added by this
section shall not be treated as a termination of such collective
bargaining agreement.

(4) Timely regulations.–The Secretary of the Treasury, consistent
with section 104, shall first issue by not later than April 1, 1997,
such regulations as may be necessary to carry out the amendments made
by this section.

(5) Limitation on actions.–No enforcement action shall be taken,
pursuant to the amendments made by this section, against a group
health plan or health insurance issuer with respect to a violation of
a requirement imposed by such amendments before January 1, 1998, or,
if later, the date of issuance of regulations referred to in
paragraph (4), if the plan or issuer has sought to comply in good
faith with such requirements.

SEC. 402. PENALTY ON FAILURE TO MEET
CERTAIN GROUP HEALTH PLAN REQUIREMENTS.

(a) In General.–Chapter 43 of the Internal Revenue Code of 1986
(relating to qualified pension, etc., plans) is amended by adding
after section 4980C the following new section: SEC. 4980D. FAILURE TO
MEET CERTAIN GROUP HEALTH PLAN REQUIREMENTS.

(a) General Rule.–There is hereby imposed a tax on any failure of
a group health plan to meet the requirements of chapter 100 (relating
to group health plan portability, access, and renewability
requirements).

(b) Amount of Tax.– (1) In general.–The amount of the tax
imposed by subsection (a) on any failure shall be $100 for each day
in the noncompliance period with respect to each individual to whom
such failure relates.

(2) Noncompliance period.–For purposes of this section, the term
`noncompliance period’ means, with respect to any failure, the
period– (A) beginning on the date such failure first occurs, and (B)
ending on the date such failure is corrected.

(3) Minimum tax for noncompliance period where failure discovered
after notice of examination.–Notwithstanding paragraphs (1) and (2)
of subsection (c)– (A) In general.–In the case of 1 or more
failures with respect to an individual– (i) which are not corrected
before the date a notice of examination of income tax liability is
sent to the employer, and (ii) which occurred or continued during the
period under examination, the amount of tax imposed by subsection (a)
by reason of such failures with respect to such individual shall not
be less than the lesser of $2,500 or the amount of tax which would be
imposed by subsection (a) without regard to such paragraphs.

(B) Higher minimum tax where violations are more than de
minimis.–To the extent violations for which any person is liable
under subsection (e) for any year are more than de minimis,
subparagraph (A) shall be applied by substituting `$15,000′ for
`$2,500′ with respect to such person.

(C) Exception for church plans.–This paragraph shall not apply to
any failure under a church plan (as defined in section 414(e)).

(c) Limitations on Amount of Tax.– (1) Tax not to apply where
failure not discovered exercising reasonable diligence.–No tax shall
be imposed by subsection (a) on any failure during any period for
which it is established to the satisfaction of the Secretary that the
person otherwise liable for such tax did not know, and exercising
reasonable diligence would not have known, that such failure existed.

(2) Tax not to apply to failures corrected within certain
periods.–No tax shall be imposed by subsection (a) on any failure
if– (A) such failure was due to reasonable cause and not to willful
neglect, and (B)(i) in the case of a plan other than a church plan
(as defined in section 414(e)), such failure is corrected during the
30-day period beginning on the first date the person otherwise liable
for such tax knew, or exercising reasonable diligence would have
known, that such failure existed, and (ii) in the case of a church
plan (as so defined), such failure is corrected before the close of
the correction period (determined under the rules of section
414(e)(4)(C)).

(3) Overall limitation for unintentional failures.–In the case of
failures which are due to reasonable cause and not to willful
neglect– (A) Single employer plans.– (i) In general.–In the case
of failures with respect to plans other than specified multiple
employer health plans, the tax imposed by subsection (a) for failures
during the taxable year of the employer shall not exceed the amount
equal to the lesser of– (I) 10 percent of the aggregate amount paid
or incurred by the employer (or predecessor employer) during the
preceding taxable year for group health plans, or (II) $500,000.

(ii) Taxable years in the case of certain controlled groups.–For
purposes of this subparagraph, if not all persons who are treated as
a single employer for purposes of this section have the same taxable
year, the taxable years taken into account shall be determined under
principles similar to the principles of section 1561.

(B) Specified multiple employer health plans.– (i) In
general.–In the case of failures with respect to a specified
multiple employer health plan, the tax imposed by subsection (a) for
failures during the taxable year of the trust forming part of such
plan shall not exceed the amount equal to the lesser of– (I) 10
percent of the amount paid or incurred by such trust during such
taxable year to provide medical care (as defined in section
9805(d)(3)) directly or through insurance, reimbursement, or
otherwise, or (II) $500,000.

For purposes of the preceding sentence, all plans of which the
same trust forms a part shall be treated as one plan.

(ii) Special rule for employers required to pay tax.–If an
employer is assessed a tax imposed by subsection (a) by reason of a
failure with respect to a specified multiple employer health plan,
the limit shall be determined under subparagraph (A) (and not under
this subparagraph) and as if such plan were not a specified multiple
employer health plan.

(4) Waiver by secretary.–In the case of a failure which is due to
reasonable cause and not to willful neglect, the Secretary may waive
part or all of the tax imposed by subsection (a) to the extent that
the payment of such tax would be excessive relative to the failure
involved.

(d) Tax Not To Apply to Certain Insured Small Employer Plans.–
(1) In general.–In the case of a group health plan of a small
employer which provides health insurance coverage solely through a
contract with a health insurance issuer, no tax shall be imposed by
this section on the employer on any failure which is solely because
of the health insurance coverage offered by such issuer.

(2) Small employer.– (A) In general.–For purposes of paragraph
(1), the term `small employer’ means, with respect to a calendar year
and a plan year, an employer who employed an average of at least 2
but not more than 50 employees on business days during the preceding
calendar year and who employs at least 2 employees on the first day
of the plan year. For purposes of the preceding sentence, all persons
treated as a single employer under subsection (b), (c), (m), or (o)
of section 414 shall be treated as one employer.

(B) Employers not in existence in preceding year.–In the case of
an employer which was not in existence throughout the preceding
calendar year, the determination of whether such employer is a small
employer shall be based on the average number of employees that it is
reasonably expected such employer will employ on business days in the
current calendar year.

(C) Predecessors.–Any reference in this paragraph to an employer
shall include a reference to any predecessor of such employer.

(3) Health insurance coverage; health insurance issuer.– For
purposes of paragraph (1), the terms `health insurance coverage’ and
`health insurance issuer’ have the respective meanings given such
terms by section 9805.

(e) Liability for Tax.–The following shall be liable for the tax
imposed by subsection (a) on a failure: (1) Except as otherwise
provided in this subsection, the employer.

(2) In the case of a multiemployer plan, the plan.

(3) In the case of a failure under section 9803 (relating to
guaranteed renewability) with respect to a plan described in
subsection (f)(2)(B), the plan.

(f) Definitions.–For purposes of this section– (1) Group health
plan.–The term `group health plan’ has the meaning given such term
by section 9805(a).

(2) Specified multiple employer health plan.–The term `specified
multiple employer health plan’ means a group health plan which is–
(A) any multiemployer plan, or (B) any multiple employer welfare
arrangement (as defined in section 3(40) of the Employee Retirement
Income Security Act of 1974, as in effect on the date of the
enactment of this section).

(3) Correction.–A failure of a group health plan shall be treated
as corrected if– (A) such failure is retroactively undone to the
extent possible, and (B) the person to whom the failure relates is
placed in a financial position which is as good as such person would
have been in had such failure not occurred.”.

(b) Clerical Amendment.–The table of sections for chapter 43 of
such Code is amended by adding after the item relating to section
4980C the following new item:

Sec. 4980D. Failure to meet certain group health plan
requirements.”.

(c) Effective <<NOTE: 26 USC 4980D note.>> Date.–The
amendments made by this section shall apply to failures under chapter
100 of the Internal Revenue Code of 1986 (as added by section 401 of
this Act).

Subtitle B–Clarification of Certain Continuation Coverage
Requirements

SEC. 421. COBRA CLARIFICATIONS.

(a) Public Health Service Act.– (1) Period of coverage.–Section
2202(2) of the Public Health Service Act (42 U.S.C. 300bb-2(2)) is
amended– (A) in subparagraph (A)– (i) by transferring the sentence
immediately preceding clause (iv) so as to appear immediately
following such clause (iv); and (ii) in the last sentence (as so
transferred)– (I) by striking an individual” and inserting a
qualified beneficiary”; (II) by striking at the time of a qualifying
event described in section 2203(2)” and inserting at any time during
the first 60 days of continuation coverage under this title”; (III)
by striking with respect to such event,”; and (IV) by inserting
(with respect to all qualified beneficiaries)” after 29 months”;
(B) in subparagraph (D)(i), by inserting before , or” the following:
(other than such an exclusion or limitation which does not apply to
(or is satisfied by) such beneficiary by reason of chapter 100 of the
Internal Revenue Code of 1986, part 7 of subtitle B of title I of the
Employee Retirement Income Security Act of 1974, or title XXVII of
this Act)”; and (C) in subparagraph (E), by striking at the time of
a qualifying event described in section 2203(2)” and inserting at
any time during the first 60 days of continuation coverage under this
title”.

(2) Notices.–Section 2206(3) of the Public Health Service Act (42
U.S.C. 300bb-6(3)) is amended by striking at the time of a qualifying
event described in section 2203(2)” and inserting at any time during
the first 60 days of continuation coverage under this title”.

(3) Birth or adoption of a child.–Section 2208(3)(A) of the
Public Health Service Act (42 U.S.C. 300bb-8(3)(A)) is amended by
adding at the end thereof the following new flush sentence:

Such term shall also include a child who is born to or placed for
adoption with the covered employee during the period of continuation
coverage under this title.”.

(b) Employee Retirement Income Security Act of 1974.– (1) Period
of coverage.–Section 602(2) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1162(2)) is amended– (A) in the last
sentence of subparagraph (A)– (i) by striking an individual” and
inserting a qualified beneficiary”; (ii) by striking at the time of
a qualifying event described in section 603(2)” and inserting at any
time during the first 60 days of continuation coverage under this
part”; (iii) by striking with respect to such event”; and (iv) by
inserting (with respect to all qualified beneficiaries)” after 29
months”; (B) in subparagraph (D)(i), by inserting before , or” the
following: (other than such an exclusion or limitation which does not
apply to (or is satisfied by) such beneficiary by reason of chapter
100 of the Internal Revenue Code of 1986, part 7 of this subtitle, or
title XXVII of the Public Health Service Act)”; and (C) in
subparagraph (E), by striking at the time of a qualifying event
described in section 603(2)” and inserting at any time during the
first 60 days of continuation coverage under this part”.

(2) Notices.–Section 606(a)(3) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1166(a)(3)) is amended by striking at
the time of a qualifying event described in section 603(2)” and
inserting at any time during the first 60 days of continuation
coverage under this part”.

(3) Birth or adoption of a child.–Section 607(3)(A) of the
Employee Retirement Income Security Act of 1974 (29 U.S.C.

1167(3)) is amended by adding at the end thereof the following new
flush sentence:

Such term shall also include a child who is born to or placed for
adoption with the covered employee during the period of continuation
coverage under this part.”.

(c) Internal Revenue Code of 1986.– (1) Period of
coverage.–Section 4980B(f)(2)(B) of the Internal Revenue Code of
1986 is amended– (A) in the last sentence of clause (i)– (i) by
striking at the time of a qualifying event described in paragraph
(3)(B)” and inserting at any time during the first 60 days of
continuation coverage under this section”; (ii) by striking with
respect to such event”; and (iii) by inserting (with respect to all
qualified beneficiaries)” after 29 months”; (B) in clause (iv)(I),
by inserting before , or” the following: (other than such an
exclusion or limitation which does not apply to (or is satisfied by)
such beneficiary by reason of chapter 100 of this title, part 7 of
subtitle B of title I of the Employee Retirement Income Security Act
of 1974, or title XXVII of the Public Health Service Act)”; and (C)
in clause (v), by striking at the time of a qualifying event
described in paragraph (3)(B)” and inserting at any time during the
first 60 days of continuation coverage under this section”.

(2) Notices.–Section 4980B(f)(6)(C) of the Internal Revenue Code
of 1986 is amended by striking at the time of a qualifying event
described in paragraph (3)(B)” and inserting at any time during the
first 60 days of continuation coverage under this section”.

(3) Birth or adoption of a child.–Section 4980B(g)(1)(A) of the
Internal Revenue Code of 1986 is amended by adding at the end thereof
the following new flush sentence: Such term shall also include a
child who is born to or placed for adoption with the covered employee
during the period of continuation coverage under this section.”.

(d) Effective <<NOTE: 26 USC 4980B note.>> Date.–The
amendments made by this section shall become effective on January 1,
1997, regardless of whether the qualifying event occurred before, on,
or after such date.

(e) Notification <<NOTE: 26 USC 4980B note.>> of
Changes.–Not later than November 1, 1996, each group health plan
(covered under title XXII of the Public Health Service Act, part 6 of
subtitle B of title I of the Employee Retirement Income Security Act
of 1974, and section 4980B(f) of the Internal Revenue Code of 1986)
shall notify each qualified beneficiary who has elected continuation
coverage under such title, part or section of the amendments made by
this section.