(A) TAXES ON INDIVIDUALS NOT OBTAINING ACCEPTABLE COVERAGE.-The amounts received in the Treasury under section 59B of the Internal Revenue Code of 1986 (relating to requirement of health insurance coverage for individuals).

(B) EMPLOYMENT TAXES ON EMPLOYERS NOT PROVIDING ACCEPTABLE COVERAGE. The amounts received in the Treasury under section 3111(c) of the Internal Revenue Code of 1986 (relating to employers electing to not provide health benefits).

(C) EXCISE TAX ON FAILURES TO MEET CERTAIN HEALTH COVERAGE REQUIREMENTS.-The amounts received in the Treasury under section 4980H(b) (relating to excise tax with respect to failure to meet health coverage participation requirements).

(2) APPROPRIATIONS TO COVER GOVERNMENT CONTRIBUTIONS.-There are hereby appropriated, out of any moneys in the Treasury not otherwise appropriated, to the Trust Fund, an amount equivalent to the amount of payments made from the Trust Fund under subsection (b) plus such amounts as are necessary reduced by the amounts deposited under paragraph (1).

(d) APPLICATION OF CERTAIN RULES.-Rules similar to the rules of subchapter B of chapter 98 of the Internal Revenue Code of 1986 shall apply with respect to the Trust Fund.

SEC. 208. OPTIONAL OPERATION OF STATE-BASED HEALTH INSURANCE EXCHANGES. (a) IN GENERAL.—If—

(1) a State (or group of States, subject to the approval of the Commissioner) applies to the Commissioner for approval of a State-based Health Insurance Exchange to operate in the State (or group of States); and

(2) the Commissioner approves such State-based Health Insurance Exchange, then, subject to subsections (c) and (d), the State-based Health Insurance Exchange shall operate, instead of the Health Insurance Exchange, with respect to such State (or group of States). The Commissioner shall approve a State-based Health Insurance Exchange if it meets the requirements for approval under subsection (b). (b) REQUIREMENTS FOR APPROVAL.

(1) IN GENERAL.-The Commissioner may not approve a State-based Health Insurance Exchange under this section unless the following requirements are met:

(A) The State-based Health Insurance Exchange must demonstrate the capacity to and provide assurances satisfactory to the Commissioner that the State-based Health Insurance Exchange will carry out the functions specified for the Health Insurance Exchange in the State (or States) involved, including

(i) negotiating and contracting with QHBP offering entities for the offering of Exchange-participating health benefits plan, which satisfy the standards and requirements of this title and title I;

(ii) enrolling Exchange-eligible individuals and employers in such State in such plans;

(iii) the establishment of sufficient local offices to meet the needs of Exchange-eligible individuals and employers;

(iv) administering affordability credits under subtitle B using the same methodologies (and at least the same income verification methods) as would otherwise apply under such subtitle and at a cost to the Federal Government which does exceed the cost to the Federal Government if this section did not apply; and

(v) enforcement activities consistent with federal requirements. (B) There is no more than one Health Insurance Exchange operating with respect to any one State.

(C) The State provides assurances satisfactory to the Commissioner that approval of such an Exchange will not result in any net increase in expenditures to the Federal Government.

(D) The State provides for reporting of such information as the Commissioner determines and assurances satisfactory to the Commissioner that it will vigorously enforce violations of applicable requirements.

(E) The State is eligible to receive an incentive payment for enacting and implementing medical liability reforms as specified in subsection (g). (F) Such other requirements as the Commissioner may specify. (2) PRESUMPTION FOR CERTAIN STATE-OPERATED EXCHANGES.

(A) IN GENERAL.-In the case of a State operating an Exchange prior to January 1, 2010 that seeks to operate the State-based Health Insurance Exchange under this section, the Commissioner shall presume that such Exchange meets the standards under this section unless the Commissioner de

termines, after completion of the process established under subparagraph (B), that the Exchange does not comply with such standards.

(B) PROCESS.-The Commissioner shall establish a process to work with a State described in subparagraph (A) to provide assistance necessary to assure that the State's Exchange comes into compliance with the standards for approval under this section.

(c) CEASING OPERATION.

(1) IN GENERAL.-A State-based Health Insurance Exchange may, at the option of each State involved, and only after providing timely and reasonable notice to the Commissioner, cease operation as such an Exchange, in which case the Health Insurance Exchange shall operate, instead of such State-based Health Insurance Exchange, with respect to such State (or States).

(2) TERMINATION; HEALTH INSURANCE EXCHANGE RESUMPTION OF FUNCTIONS. The Commissioner may terminate the approval (for some or all functions) of a State-based Health Insurance Exchange under this section if the Commissioner determines that such Exchange no longer meets the requirements of subsection (b) or is no longer capable of carrying out such functions in accordance with the requirements of this subtitle. In lieu of terminating such approval, the Commissioner may temporarily assume some or all functions of the State-based Health Insurance Exchange until such time as the Commissioner determines the State-based Health Insurance Exchange meets such requirements of subsection (b) and is capable of carrying out such functions in accordance with the requirements of this subtitle.

(3) EFFECTIVENESS.-The ceasing or termination of a State-based Health Insurance Exchange under this subsection shall be effective in such time and manner as the Commissioner shall specify.

(d) RETENTION OF AUTHORITY.—

(1) AUTHORITY RETAINED.-Enforcement authorities of the Commissioner shall be retained by the Commissioner.

(2) DISCRETION TO RETAIN ADDITIONAL AUTHORITY.-The Commissioner may specify functions of the Health Insurance Exchange that

(A) may not be performed by a State-based Health Insurance Exchange under this section; or

(B) may be performed by the Commissioner and by such a State-based Health Insurance Exchange.

(e) REFERENCES.-In the case of a State-based Health Insurance Exchange, except as the Commissioner may otherwise specify under subsection (d), any references in this subtitle to the Health Insurance Exchange or to the Commissioner in the area in which the State-based Health Insurance Exchange operates shall be deemed a reference to the State-based Health Insurance Exchange and the head of such Exchange, respectively.

(f) FUNDING.-In the case of a State-based Health Insurance Exchange, there shall be assistance provided for the operation of such Exchange in the form of a matching grant with a State share of expenditures required.

(g) MEDICAL LIABILITY ALTERNATIVES.

(1) PURPOSES.-The purposes of this subsection are—

(A) to ensure quality healthcare is readily available by providing an alternative framework to reduce the costs of defensive medicine and allow victims of malpractice to be fairly compensated; and

(B) to do the above without limiting attorneys fees or imposing caps on damages.

(2) INCENTIVE PAYMENTS FOR MEDICAL LIABILITY REFORM.—

(A) IN GENERAL.-Each State is eligible to receive an incentive payment, in an amount determined by the Secretary subject to the availability of appropriations, if the State enacts after the date of the enactment of this subsection, and is implementing, an alternative medical liability law that complies with this subsection.

(B) DETERMINATION BY SECRETARY.-The Secretary shall determine that a State's alternative medical liability law complies with this subsection if the Secretary is satisfied that the State

(i) has enacted and is currently implementing that law; and
(ii) that law is effective.

(C) CONSIDERATIONS FOR DETERMINATION.-In making a determination of the effectiveness of a law, the Secretary shall consider whether the law— (i) makes the medical liability system more reliable through prevention of or prompt and fair resolution of disputes;

(ii) encourages the disclosure of health care errors; and
(iii) maintains access to affordable liability insurance.

(D) OPTIONAL CONTENTS OF ALTERNATIVE MEDICAL LIABILITY LAW.—An alternative medical liability law shall contain any one or a combination of the following litigation alternatives:

(i) Certificate of Merit.

(ii) Early offer.

(E) USE OF INCENTIVE PAYMENTS.-The State shall use an incentive payment received under this subsection to improve health care in that State. (3) APPLICATION.-Each State seeking an incentive payment under this subsection shall submit to the Secretary an application, at such time, in such manner, and containing such information as the Secretary may require.

(4) TECHNICAL ASSISTANCE.-The Secretary may provide technical assistance to the States applying for or awarded an incentive payment under this sub

section.

(5) REPORTS.-Beginning not later than one year after the date of the enactment of this subsection, the Secretary shall submit to Congress an annual report on the progress States have made in adopting and implementing alternative medical liability laws that comply with this subsection. Such reports shall contain sufficient documentation regarding the effectiveness of such laws to enable an objective comparative analysis of them.

(6) RULEMAKING. The Secretary may make rules to carry out this subsection. (7) DEFINITION.-In this subsection

(A) the term "Secretary" means the Secretary of Health and Human Services; and

(B) the term "State" includes the District of Columbia, Puerto Rico, and each other territory or possession of the United States.

(8) AUTHORIZATION OF APPROPRIATIONS.-There are authorized to be appropriated to carry out this subsection such sums as may be necessary, to remain available until expended.

SEC. 209. LIMITATION ON PREMIUM INCREASES UNDER EXCHANGE-PARTICIPATING HEALTH BENEFITS PLANS.

(a) IN GENERAL.-The annual increase in the premiums charged under any Exchange-participating health benefits plan may not exceed 150 percent of the annual percentage increase in medical inflation for the 12-month period ending in June of the prior year, unless the plan receives approval for a higher rate increase in accordance with subsection (b) or (c).

(b) EXCEPTION FOR ADDITIONAL REQUIRED BENEFITS.-If the Health Choices Commissioner requires Exchange-participating health benefits plans to provide additional benefits, the annual increase permitted under subsection (a) with respect to the first year to which such benefits are required shall be increased to take into account the costs of such additional benefits.

(c) EXCEPTION TO WHERE FINANCIAL VIABILITY THREATENED.-Subsection (a) shall not apply to any Exchange-participating health benefits plan for any year if such plan demonstrates to the Commissioner (or, if determined appropriate by the Commissioner, the insurance commissioner for the State in which the plan is offered) that complying with subsection (a) for such year would threaten its financial viability or its ability to provide timely benefits to plan participants.

(d) NON-PREEMPTION.-Nothing in this section shall be construed as preempting existing State prior approval laws.

Subtitle B-Public Health Insurance Option

SEC. 221. ESTABLISHMENT AND ADMINISTRATION OF A PUBLIC HEALTH INSURANCE OPTION AS AN EXCHANGE-QUALIFIED HEALTH BENEFITS PLAN.

(a) ESTABLISHMENT.-For years beginning with Y1, the Secretary of Health and Human Services (in this subtitle referred to as the "Secretary") shall provide for the offering of an Exchange-participating health benefits plan (in this division referred to as the "public health insurance option") that ensures choice, competition, and stability of affordable, high quality coverage throughout the United States in accordance with this subtitle. In designing the option, the Secretary's primary responsibility is to create a low-cost plan without compromising quality or access to care. (b) OFFERING AS AN EXCHANGE-PARTICIPATING HEALTH BENEFITS PLAN.

(1) EXCLUSIVE TO THE EXCHANGE.-The public health insurance option shall only be made available through the Health Insurance Exchange.

(2) ENSURING A LEVEL PLAYING FIELD.-Consistent with this subtitle, the public health insurance option shall comply with requirements that are applicable under this title to an Exchange-participating health benefits plan, including re

quirements related to benefits, benefit levels, provider networks, notices, consumer protections, and cost sharing.

(3) PROVISION OF BENEFIT LEVELS.-The public health insurance option

(A) shall offer basic, enhanced, and premium plans; and

(B) may offer premium-plus plans.

(c) ADMINISTRATIVE CONTRACTING.-The Secretary may enter into contracts for the purpose of performing administrative functions (including functions described in subsection (a)(4) of section 1874A of the Social Security Act) with respect to the public health insurance option in the same manner as the Secretary may enter into contracts under subsection (a)(1) of such section. The Secretary has the same authority with respect to the public health insurance option as the Secretary has under subsections (a)(1) and (b) of section 1874A of the Social Security Act with respect to title XVIII of such Act. Contracts under this subsection shall not involve the transfer of insurance risk to such entity.

(d) OMBUDSMAN.-The Secretary shall establish an office of the ombudsman for the public health insurance option which shall have duties with respect to the public health insurance option similar to the duties of the Medicare Beneficiary Ombudsman under section 1808(c)(2) of the Social Security Act.

(e) DATA COLLECTION.-The Secretary shall collect such data as may be required to establish premiums and payment rates for the public health insurance option and for other purposes under this subtitle, including to improve quality and to reduce racial, ethnic, and other disparities in health and health care.

(f) TREATMENT OF PUBLIC HEALTH INSURANCE OPTION.-With respect to the public health insurance option, the Secretary shall be treated as a QHBP offering entity offering an Exchange-participating health benefits plan.

(g) ACCESS TO FEDERAL COURTS.-The provisions of Medicare (and related provisions of title II of the Social Security Act) relating to access of Medicare beneficiaries to Federal courts for the enforcement of rights under Medicare, including with respect to amounts in controversy, shall apply to the public health insurance option and individuals enrolled under such option under this title in the same manner as such provisions apply to Medicare and Medicare beneficiaries.

SEC. 222. PREMIUMS AND FINANCING.

(a) ESTABLISHMENT OF PREMIUMS.

(1) IN GENERAL.-The Secretary shall establish geographically-adjusted premium rates for the public health insurance option in a manner

(A) that complies with the premium rules established by the Commissioner under section 113 for Exchange-participating health benefit plans;

and

(B) at a level sufficient to fully finance the costs of

(i) health benefits provided by the public health insurance option; and

(ii) administrative costs related to operating the public health insurance option.

(2) CONTINGENCY MARGIN.-In establishing premium rates under paragraph (1), the Secretary shall include an appropriate amount for a contingency margin (which shall be not less than 90 days of estimated claims). Before setting such appropriate amount for years starting with Y3, the Secretary shall solicit a recommendation on such amount from the American Academy of Actuaries. (b) ACCOUNT.

(1) ESTABLISHMENT.-There is established in the Treasury of the United States an Account for the receipts and disbursements attributable to the operation of the public health insurance option, including the start-up funding under paragraph (2). Section 1854(g) of the Social Security Act shall apply to receipts described in the previous sentence in the same manner as such section applies to payments or premiums described in such section.

(2) START-UP FUNDING.

(A) IN GENERAL.-In order to provide for the establishment of the public health insurance option there is hereby appropriated to the Secretary, out of any funds in the Treasury not otherwise appropriated, $2,000,000,000. In order to provide for initial claims reserves before the collection of premiums, there is hereby appropriated to the Secretary, out of any funds in the Treasury not otherwise appropriated, such sums as necessary to cover 90 days worth of claims reserves based on projected enrollment.

(B) AMORTIZATION OF START-UP FUNDING.-The Secretary shall provide for the repayment of the startup funding provided under subparagraph (A) to the Treasury in an amortized manner over the 10-year period beginning with Y1.

(C) LIMITATION ON FUNDING.-Nothing in this section shall be construed as authorizing any additional appropriations to the Account, other than such amounts as are otherwise provided with respect to other Exchangeparticipating health benefits plans.

(3) NO BAILOUTS.-In no case shall the public health insurance option receive any Federal funds for purposes of insolvency in any manner similar to the manner in which entities receive Federal funding under the Troubled Assets Relief Program of the Secretary of the Treasury.

SEC. 223. NEGOTIATED PAYMENT RATES FOR ITEMS AND SERVICES.

(a) NEGOTIATION OF PAYMENT RATES.

(1) IN GENERAL.-The Secretary shall negotiate payment rates for the public health insurance option for services and health care providers consistent with this section and section 224.

(2) MANNER OF NEGOTIATION.-The Secretary shall negotiate such rates in a manner that results in payment rates that are not lower, in the aggregate, than rates under title XVIII of the Social Security Act, and not higher, in the aggregate, than the average rates paid by other QHBP offering entities for services and health care providers.

(3) INNOVATIVE PAYMENT METHODS.-Nothing in this subsection shall be construed as preventing the use of innovative payment methods such as those described in section 224 in connection with the negotiation of payment rates under this subsection.

(4) PRESCRIPTION DRUGS.-Notwithstanding any other provision of law, the Secretary shall establish a particular formulary for prescription drugs under the public health insurance option.

(b) ESTABLISHMENT OF A PROVIDER NETWORK.—

(1) IN GENERAL.-Health care providers (including physicians and hospitals) participating in Medicare are participating providers in the public health insurance option unless they opt out in a process established by the Secretary consistent with this subsection.

(2) REQUIREMENTS FOR OPT-OUT PROCESS.-Under the process established under paragraph (1)—

(A) providers described in such subparagraph shall be provided at least a 1-year period prior to the first day of Y1 to opt out of participating in the public health insurance option;

(B) no provider shall be subject to a penalty for not participating in the public health insurance option;

(C) the Secretary shall include information on how providers participating in Medicare who chose to opt out of participating in the public health insurance option may opt back in; and

(D) there shall be an annual enrollment period in which providers may decide whether to participate in the public health insurance option.

(3) RULEMAKING.-Not later than 18 months before the first day of Y1, the Secretary shall promulgate rules (pursuant to notice and comment) for the process described in paragraph (1).

(c) LIMITATIONS ON REVIEW.-There shall be no administrative or judicial review of a payment rate or methodology established under this section or under section 224.

SEC. 224. MODERNIZED PAYMENT INITIATIVES AND DELIVERY SYSTEM REFORM.

(a) IN GENERAL.-For plan years beginning with Y1, the Secretary may utilize innovative payment mechanisms and policies to determine payments for items and services under the public health insurance option. The payment mechanisms and policies under this section may include patient-centered medical home and other care management payments, accountable care organizations, value-based purchasing, bundling of services, differential payment rates, performance or utilization based payments, partial capitation, and direct contracting with providers.

(b) REQUIREMENTS FOR ÎNNOVATIVE PAYMENTS.-The Secretary shall design and implement the payment mechanisms and policies under this section in a manner that

(1) seeks to

(A) improve health outcomes;

(B) reduce health disparities (including racial, ethnic, and other disparities);

(C) provide efficient and affordable care;

(D) address geographic variation in the provision of health services; or

(E) prevent or manage chronic illness; and

(2) promotes care that is integrated, patient-centered, quality, and efficient.