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[House Report 107-235]
[From the U.S. Government Publishing Office]

107th Congress                                            Rept. 107-235
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part I

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               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

                              R E P O R T

                        [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. 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\
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    \1\ Pub. L. No. 106-265, 114 Stat. 762 (2000).
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    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.
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    \2\ H.R. Rep. No. 106-610, at 6 (2000).
    \3\ Id.
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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, 
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).
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    \4\ See 5 U.S.C. Sec. 8909 (f)(1) and 5 U.S.C. Sec. 8714(c)(1) 
(2000).
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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\
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    \5\ Act of Oct. 6, 1942, 1041 56 Stat. 777 (codified at 50 U.S.C. 
App. Sec. 574).
    \6\ Act of July 19, 1977, Pub. L. No. 95-67, 91 Stat. 271 (codified 
at 4 U.S.C. Sec. 113 (1994)).
    \7\ See ``The State Taxation of Pension Income Act of 1995,'' Pub. 
L. No. 104-95 (1996), 109 Stat. 979 (codified at 4 U.S.C. Sec. 11(c) 
(1996)).
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    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.
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    \8\ Pub. L. No. 105-261 (1998), codified at 4 U.S.C. Sec. Sec. 114-
115 (2000).
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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.

                                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 long-term 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 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 long-term 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 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.
    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. Sec. 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. Sec. 9005 to exempt 
long-term 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 omitted 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

           *       *       *       *       *       *       *

Sec. 9001. Definitions

    For purposes of this chapter:
            (1) * * *
            [(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.

           *       *       *       *       *       *       *

Sec. 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.--
            (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:]

    
    
    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 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.
    [Intervening business.]
    And the Committee is adjourned.
    [Whereupon, at 8:30 p.m., the Committee was adjourned.]

                                
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