107TH CONGRESS REPT. 107–235 " ! HOUSE OF REPRESENTATIVES 1st Session Part I

FEDERAL LONG-TERM CARE AMENDMENTS OF 2001

OCTOBER 11, 2001.—Ordered to be printed

Mr. SENSENBRENNER, from the Committee on the Judiciary,

submitted the following

REPORT

[To accompany H.R. 2559]

[Including cost estimate of the Congressional Budget Office]

The Committee on the Judiciary, to whom was referred the bill

(H.R. 2559) to amend chapter 90 of title 5, United States Code, relating to Federal long-term care insurance, having considered the

same, reports favorably thereon without amendment and recommends that the bill do pass.

CONTENTS

Page

Purpose and Summary ............................................................................................ 1

Background and Need for the Legislation ............................................................. 2

Hearings ................................................................................................................... 4

Committee Consideration ........................................................................................ 4

Vote of the Committee ............................................................................................. 4

Committee Oversight Findings ............................................................................... 4

Performance Goals and Objectives ......................................................................... 4

New Budget Authority and Tax Expenditures ...................................................... 4

Congressional Budget Office Cost Estimate .......................................................... 4

Constitutional Authority Statement ...................................................................... 7

Section-by-Section Analysis and Discussion .......................................................... 7

Changes in Existing Law Made by the Bill, as Reported ..................................... 8

Markup Transcript .................................................................................................. 9

PURPOSE AND SUMMARY

The Long-Term Care Security Act (LTCSA) was established to

permit qualified Federal employees to purchase private long-term

care insurance at a group discount. While the legislation contained

broad preemption language, it did not exempt LTCSA insurance

premiums from State and local taxes. H.R. 2559 makes enrollment

in the program more affordable to potential enrollees by amending

the LTCSA to exempt these premiums from State and local taxes.

2

1Pub. L. No. 106–265, 114 Stat. 762 (2000). 2 H.R. REP. NO. 106–610, at 6 (2000). 3 Id.

The bill also expands coverage to include government personnel

who presently receive a deferred annuity under Federal retirement

programs.

BACKGROUND AND NEED FOR THE LEGISLATION

THE LONG-TERM CARE SECURITY ACT

Background

Last year, the LTCSA (H.R. 4040, 106th) was introduced by Rep.

Scarborough, Chairman of the Government Reform Committee’s

Subcommittee on Civil Service and Agency Organization. It was sequentially referred to the Government Reform Committee and to

the Armed Services Committee. The measure (S. 2420 in the Senate) obtained wide bipartisan support in both Houses of Congress

and was signed into law on September 19, 2000.1

The LTCSA permits Federal civilian employees, members of the

uniformed services, as well as civilian and military retirees to purchase private, long-term care insurance for themselves and qualified relatives at a group discount. The Office of Personnel Management (OPM) estimates resulting savings will reduce the cost of

long-term care insurance premiums for covered employees by up to

20 percent.

‘‘Long-term care’’ refers to a broad range of supportive, medical,

personal, and social services designed for individuals who are limited in their ability to function independently on a daily basis.

Long-term care needs may arise at any time due to an injury,

chronic illness, or the effects of the natural aging process. According to OPM, about 20 million people will be eligible for coverage

under the LTCSA. OPM further estimates that from 300,000 to

600,00 eligible employees will enroll in the program.

Functional dependency is generally defined as the inability to

function independently, perform essential activities of daily living

such as dressing, bathing, eating, transferring (e.g., from a bed to

a chair), walking, or the inability to perform instrumental activities

of daily living such as shopping, preparing meals, taking medicine,

and housekeeping.2 Assistance with these activities may require

hands-on assistance or direction, instruction, or supervision from

another individual. Long-term care services can be provided in a

nursing home, an assisted living facility, the community or in the

home.3 While section 9005 of the Act contains broad Federal preemption language, the LTCSA does not specifically prohibit States

and localities from taxing LTCSA insurance premiums. These premiums have been estimated to add between three and five percent

to the cost of enrollment in the program.

H.R. 2559

Introduced by Rep. Scarborough on July 18, 2001, H.R. 2559

remedies this perceived oversight by amending LTCSA to exempt

its premiums from State and local taxes. H.R. 2559 was referred

to the Committee on the Judiciary on July 17, 2001 and to the Subcommittee on Commercial and Administrative Law on August 6,

3

4See 5 U.S.C. § 8909 (f)(1) and 5 U.S.C. § 8714(c)(1) (2000). 5 Act of Oct. 6, 1942, 1041 56 Stat. 777 (codified at 50 U.S.C. App. § 574). 6 Act of July 19, 1977, Pub. L. No. 95–67, 91 Stat. 271 (codified at 4 U.S.C. § 113 (1994)). 7See ‘‘The State Taxation of Pension Income Act of 1995,’’ Pub. L. No. 104–95 (1996), 109 Stat.

979 (codified at 4 U.S.C. § 11(c) (1996)). 8Pub. L. No. 105–261 (1998), codified at 4 U.S.C. §§ 114–115 (2000).

2001. It was discharged by the Full Committee on October 2, 2001.

H.R. 2559’s State and local tax exemption provision tracks the language found in both the Federal Employees Health Benefits Program (FEHBP) and the Federal Employees Group Life Insurance

Program (FEGLI).4 The measure also extends coverage to Federal

employees who currently receive a deferred annuity under existing

Federal retirement programs such as the Civil Service Retirement

System (CSRS) or the Federal Employees Retirement System

(FERS).

Prevalence of Federal Legislation Limiting State Taxing Authority

The Constitution establishes the dual sovereignty of the States

and the Federal Government. One of the primary tenets of sovereignty reserved to States is the authority to define their own taxing systems. While exempting certain individuals or programs from

State taxation sometimes occasions considerable opposition from

States, Congress has periodically withdrawn State and local taxing

authority in the exercise of its Commerce Clause authority.

There are a number of examples. Congress has provided that

members of the Armed Forces are subject to taxes only in their respective States of residence, not the States in which they are stationed.5 It has also exempted Members of Congress from multiple

State taxes. Under the legislation, only States represented by the

member have taxing jurisdiction over that member’s congressional

income.6 In 1995, Congress passed legislation prohibiting States

from collecting taxes on the qualified pension income of nonresidents.7

Congress subsequently enacted legislation prohibiting Oregon

from taxing residents of Washington who worked on hydroelectric

facilities spanning the Columbia River. In that legislation, South

Dakota residents working along the Missouri River were extended

congressional protection from multiple State taxes.8 This legislation

also exempted Tennessee residents from paying Kentucky income

taxes if they worked at Fort Campbell, Kentucky, which straddles

both States.

Timing Considerations

The LTCSA will not be fully implemented until late 2002. Final

long-term care insurance proposals were submitted on August 22,

2001. Submitted bids reflected the assumption that premiums

would not be exempt from State and local taxes. OPM’s target date

for selecting a winning candidate is October 15, 2001. The open

season for enrollment in this program is October 1, 2002. Prompt

passage of H.R. 2559 will help ensure submitted LTCSA bids can

be amended to reflect the reduced administrative costs that exemption from State and local tax collection would place on the prevailing bidder.

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HEARINGS

No hearings were held on H.R. 2559.

COMMITTEE CONSIDERATION

On October 3, 2001, the Committee met in open session and ordered favorably reported the bill H.R. 2559 without amendment by

voice vote, a quorum being present.

VOTE OF THE COMMITTEE

No recorded votes were taken on the bill H.R. 2559 during Committee consideration.

COMMITTEE OVERSIGHT FINDINGS

In compliance with clause 3(c)(1) of rule XIII of the Rules of the

House of Representatives, the Committee reports that the findings

and recommendations of the Committee, based on oversight activities under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report.

PERFORMANCE GOALS AND OBJECTIVES

H.R. 2559 does not authorize funding. Therefore, clause 3(c) of

rule XIII of the Rules of the House of Representatives is inapplicable.

H.R. 2559 is intended to make long-term care insurance coverage

more affordable to eligible enrollees by exempting LTCSA premiums from State and local taxes. The bill also extends eligibility

to enroll in the program to Federal employees who currently receive an annunity under existing Federal retirement programs.

NEW BUDGET AUTHORITY AND TAX EXPENDITURES

Clause 3(c)(2) of House rule XIII is inapplicable because this legislation does not provide new budgetary authority or increased tax

expenditures.

CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the

House of Representatives, the Committee sets forth, with respect to

the bill, H.R. 2559, the following estimate and comparison prepared

by the Director of the Congressional Budget Office under section

402 of the Congressional Budget Act of 1974:

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, October 9, 2001.

Hon. F. JAMES SENSENBRENNER, Jr., Chairman,

Committee on the Judiciary,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 2559, a bill to amend

chapter 90 of title 5, United States Code, relating to Federal longterm care insurance.

5

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contact is Charles L. Betley, who

can be reached at 226–9010.

Sincerely,

DAN L. CRIPPEN, Director.

Enclosure

cc: Honorable John Conyers Jr.

Ranking Member

Identical letter sent to Honorable Dan Burton.

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE,

Washington, DC, October 9, 2001.

Hon. DAN BURTON, Chairman,

Committee on the Government Reform,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 2559, a bill to amend

chapter 90 of title 5, United States Code, relating to Federal longterm care insurance.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contact is Charles L. Betley, who

can be reached at 226–9010.

Sincerely,

DAN L. CRIPPEN, Director.

Enclosure

cc: Honorable Henry A. Waxman

Ranking Member

Identical letter sent to Honorable F. James Sensenbrenner Jr.

H.R. 2559—A bill to amend chapter 90 of title 5, United States

Code, relating to Federal long-term care insurance.

SUMMARY

H.R. 2559 would expand eligibility for long-term care insurance

authorized under the Long Term Care Security Act (Public Law

106–265) to persons who had deferred their eligibility for a Federal

retirement annuity and who, under current law, would not be able

to participate when the enrollment period opens in 2003. CBO estimates that enactment of H.R. 2559 would not have a significant effect on Federal spending. Because the bill would affect direct

spending, pay-as-you-go procedures would apply.

H.R. 2559 would preempt state premium taxes on long-term care

insurance offered to Federal employees, members of the uniformed

services, civilian and military retirees, and a number of their relatives. This preemption would be an intergovernmental mandate as

defined in the Unfunded Mandates Reform Act (UMRA). CBO estimates that states would lose revenues totaling about $8 million annually beginning in 2003; thus, the threshold established in UMRA

($56 million in 2001, adjusted annually for inflation) would not be

6

exceeded. The bill contains no private-sector mandates as defined

in UMRA.

ESTIMATED COST TO THE FEDERAL GOVERNMENT

Under current law, Federal retirees who are receiving an annuity

would be able to participate in the long-term care insurance program for Federal employees, but those who defer receiving their

annuity are not eligible. H.R. 2559 would allow this group to participate. CBO estimates that the number of annuitants who would

be newly eligible for the long-term care insurance program for Federal employees because of H.R. 2559 would be about 2,000, and of

these, only a portion would purchase coverage though the Federal

program. Because the Federal Government does not contribute to

enrollees’ premiums, and the insurer or insurers would be required

to reimburse the Office of Personnel Management (OPM) for its expenses in setting up and administering the plan, net Federal outlays would be zero over the long run.

The expenses that OPM would incur before collecting premiums

from enrollees and reimbursement from the insurers would be

funded by outlays from the Federal Government’s Employees’ Life

Insurance Fund. H.R. 2559 would not affect the administrative

costs of designing the plan and negotiating contracts with insurers.

However, the Federal Government would incur additional costs to

inform the additional annuitants of their eligibility (which would

primarily consist of postage and printing additional brochures

about plan choices) and the costs incurred by OPM in registering

those who choose to participate. CBO estimates that these additional costs would total less than $500,000, in fiscal year 2002. The

costs of this legislation fall within budget function 600 (income security).

PAY-AS-YOU-GO CONSIDERATIONS

The Balanced Budget and Emergency Deficit Control Act sets up

pay-as-you-go procedures for legislation affecting direct spending or

receipts. Although the additional outlays from the Employees’ Life

Insurance Fund would be direct spending, CBO estimates that they

would total less than $500,000.

ESTIMATED IMPACT ON STATE, LOCAL AND TRIBAL GOVERNMENTS

The Long-Term Care Security Act authorized a program through

the Office of Personnel Management to offer long-term care insurance to Federal employees, members of the uniformed services, civilian and military retirees, and a number of their relatives. That

law preempted state laws requiring certain levels of coverage or

benefit requirements that would have applied to long-term care insurance offered under the program. This bill would extend the preemption to cover insurance premium taxes, prohibiting states from

collecting tax revenues that otherwise would apply to the policies.

This preemption would be an intergovernmental mandate as defined in UMRA. CBO estimates that states would lose revenues totaling about $8 million annually beginning in 2003; thus, the

threshold established in UMRA ($56 million in 2001, adjusted annually for inflation) would not be exceeded.

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Almost all states levy premium taxes on health care insurance,

and in most cases those taxes also would apply to policies providing

coverage for long-term care. Premium tax rates on health insurance

generally range from less than 1 percent to about 2.75 percent,

with a large number at about 2 percent. CBO has estimated that

about 220,000 employees and retirees would take advantage of the

new long-term care insurance and that about half of those individuals would have at least one eligible relative who also would purchase the insurance. Assuming an average premium of about

$1,300 annually for such insurance, CBO estimates that states

would lose about $8 million annually in lost revenues from the preemption of their premium taxes.

ESTIMATED IMPACT ON THE PRIVATE SECTOR

CBO estimates that the bill would have no private-sector mandates as defined in UMRA.

ESTIMATE PREPARED BY:

Federal Costs: Charles L. Betley (226–9010)

Impact on State, Local, and Tribal Governments: Leo Lex (225–

3220)

Impact on the Private Sector: Stuart Hagen (225–2644)

ESTIMATE APPROVED BY:

Peter H. Fontaine

Deputy Assistant Director for Budget Analysis

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House

of Representatives, the Committee finds the authority for this legislation in article I section 8, clause 3 of the Constitution.

SECTION-BY-SECTION ANALYSIS AND DISCUSSION

Section 1. This section amends 5 U.S.C. § 9001(2) to allow all individuals over the age of 18 who are entitled to an annuity under

the Civil Service Retirement System, the Federal Employees Retirement System, or any other retirement system for Federal employees to purchase private long-term care insurance through the

program established in the Long-Term Care Security Act, Public

Law 106–265. Without this change, individuals who receive a deferred annuity (or a survivor annuity based upon a deferred annuity) would not be eligible to participate.

Section 2. This section amends 5 U.S.C. § 9005 to exempt longterm care insurance policies issued through this program from premium taxes imposed by States, local governments, or the Commonwealth of Puerto Rico.

Section 3. This section makes these revisions retroactively effective.

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the

House of Representatives, changes in existing law made by the bill,

as reported, are shown as follows (existing law proposed to be omitVerDate 11-MAY-2000 19:03 Oct 11, 2001 Jkt 099006 PO 00000 Frm 00007 Fmt 6659 Sfmt 6601 E:\HR\OC\HR235P1.XXX pfrm01 PsN: HR235P1
8

ted is enclosed in black brackets, new matter is printed in italics,

existing law in which no change is proposed is shown in roman):

TITLE 5, UNITED STATES CODE

* * * * * * *

PART III—EMPLOYEES

* * * * * * *

Subpart G—Insurance and Annuities

* * * * * * *

CHAPTER 90—LONG-TERM CARE INSURANCE

* * * * * * *

§ 9001. Definitions

For purposes of this chapter:

(1) * * *

ø(2) ANNUITANT.—The term ‘‘annuitant’’ has the meaning

such term would have under paragraph (3) of section 8901 if,

for purposes of such paragraph, the term ‘‘employee’’ were considered to have the meaning given to it under paragraph (1)

of this subsection.¿

(2) ANNUITANT.—The term ‘‘annuitant’’ means—

(A) any individual who would satisfy the requirements

of paragraph (3) of section 8901 if, for purposes of such

paragraph, the term ‘‘employee’’ were considered to have the

meaning given to it under paragraph (1) of this subsection;

and

(B) any individual who—

(i) satisfies all requirements for title to an annuity

under subchapter III of chapter 83, chapter 84, or any

other retirement system for employees of the Government (whether based on the service of such individual

or otherwise), and files application therefor;

(ii) is at least 18 years of age; and

(iii) would not (but for this subparagraph) otherwise satisfy the requirements of this paragraph.

* * * * * * *

§ 9005. Preemption

(a) CONTRACTUAL PROVISIONS.—The terms of any contract

under this chapter which relate to the nature, provision, or extent

of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law, or any

regulation issued thereunder, which relates to long-term care insurance or contracts.

(b) PREMIUMS.—

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(1) IN GENERAL.—No tax, fee, or other monetary payment

may be imposed or collected, directly or indirectly, by any State,

the District of Columbia, or the Commonwealth of Puerto Rico,

or by any political subdivision or other governmental authority

thereof, on, or with respect to, any premium paid for an insurance policy under this chapter.

(2) RULE OF CONSTRUCTION.—Paragraph (1) shall not be

construed to exempt any company or other entity issuing a policy of insurance under this chapter from the imposition, payment, or collection of a tax, fee, or other monetary payment on

the net income or profit accruing to or realized by such entity

from business conducted under this chapter, if that tax, fee, or

payment is applicable to a broad range of business activity.

* * * * * * *

MARKUP TRANSCRIPT

BUSINESS MEETING

WEDNESDAY, OCTOBER 3, 2001

HOUSE OF REPRESENTATIVES,

COMMITTEE ON THE JUDICIARY,

Washington, DC.

The Committee met, pursuant to notice, at 2:00 p.m., in Room

2141, Rayburn House Office Building, Hon. F. James Sensenbrenner, Jr. [Chairman of the Committee] presiding.

Now, pursuant to notice, I call up the bill H.R. 2559, a bill to

amend chapter 90 of title V of United States Code relating to Federal long-term care insurance for purposes of markup and move its

favorable recommendation to the House. Without objection, the bill

will be considered as read and open for amendment at any point.

[The bill, H.R. 2559, follows:]

10

11

12

The Chair recognizes himself. Last year, Congress enacted the

Long-Term Security Care Act introduced by Representative Scarborough, a former Member of this Committee. The measure obtained broad bipartisan support and overwhelmingly passed before

being signed. The legislation established a program under which

Federal civilian employees, members of the armed forces, military

and civilian retirees can purchase private long-term care insurance

13

for themselves and qualified relatives at a group discount. According to OPM, about 25 million people will be eligible for coverage

under this program when it is fully implemented late next year.

While section 9005 of the act contains broad Federal preemption

language, the act does not specifically prohibit State and localities

from taxing these insurance premiums. As a result, participating

employees and military personnel will have to pay an additional 3

to 5 percent of the costs of enrollment to obtain coverage. This bill

remedies this problem by amending the LTSCA to exempt premiums from State and local taxes. It also makes qualified Federal

employees who are members of Federal retirement plans eligible

for coverage under this program.

The bill was referred to Government Reform and Armed Services,

but we got it because it deals with an exemption of premiums from

State and local taxes.

The events of September 11 have again reminded us of the sacrifices of our uniformed services and we ought to open up this benefit to them, and I strongly urge the Committee to approve it without objection. Further opening statements will be included in the

record.

Gentleman from Georgia.

Mr. BARR. I thank the Chairman. Mr. Chairman, I would like to

express my strong support for H.R. 2559 and applaud the Chairman for taking steps to ensure prompt consideration of this bill. I

would also like to commend former Committee Member Joe Scarborough for his efforts to secure passage of the Long-Term Care

and Security Act in the last Congress and for introducing H.R.

2559 this Congress.

Military service members and their families are asked to make

personal sacrifices on a regular basis. Often the costs of premiums

for membership in long-term care insurance plans are prohibitive

to men and women in uniform. The Long-Term Care Security Act

addresses this problem by allowing members of the military and

other Federal employees to purchase long term health care insurance for themselves and their families at a group discount. H.R.

2559 makes this insurance even more affordable by exempting

these premiums from State and local taxes.

H.R. 2559 was referred to the Commercial and Administrative

Law Subcommittee, which I chair. I applaud the Chairman for

scheduling H.R. 2559 for expedited passage and urge all Members

to support this important legislation supporting our military and

military retirees.

Chairman SENSENBRENNER. Are there amendments? Hearing

none, question occurs—the Chair notes the report and quorum is

present. The question occurs on the motion to report the bill H.R.

2559 favorably. Those in favor will say aye. Opposed no. The ayes

appear to have it. The ayes have it. The motion is agreed to, and

the bill is favorably reported without objection.

The Chair is authorized to move to go to conference pursuant to

House rules. Without objection, the staff is directed to make any

technical and conforming changes and all Members will be given 2

days, as provided by House rules, in which to submit additional

supplemental dissenting or minority views.

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[Intervening business.]

And the Committee is adjourned.

[Whereupon, at 8:30 p.m., the Committee was adjourned.]

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