I

104TH CONGRESS

1ST SESSION H. R. 2571

To establish a program to provide Federal payment to States for the operation

of programs for long-term care services for needy individuals with disabilities, to amend the Internal Revenue Code of 1986 to revise the tax

treatment of expenses for long-term care insurance and services, to

reform standards for the long-term care insurance market, and for other

purposes.

IN THE HOUSE OF REPRESENTATIVES

NOVEMBER 1, 1995

Mr. PETERSON of Florida (for himself, Mrs. MEEK of Florida, Mr. DELLUMS,

Mr. JOHNSTON of Florida, and Mr. JEFFERSON) introduced the following

bill; which was referred to the Committee on Ways and Means, and in

addition to the Committees on Commerce, and Economic and Educational

Opportunities, for a period to be subsequently determined by the Speaker,

in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

A BILL

To establish a program to provide Federal payment to States

for the operation of programs for long-term care services

for needy individuals with disabilities, to amend the Internal Revenue Code of 1986 to revise the tax treatment

of expenses for long-term care insurance and services,

to reform standards for the long-term care insurance

market, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

2 (a) SHORT TITLE.—This Act may be cited as the

3 ‘‘Comprehensive Long-Term Care Reform Act of 1995’’.

4 (b) TABLE OF CONTENTS.—The table of contents of

5 this Act is as follows:

Sec. 1. Short title; table of contents.

TITLE I—STATE PROGRAMS FOR LONG-TERM CARE SERVICES

FOR NEEDY INDIVIDUALS WITH DISABILITIES

Subtitle A—State Long-Term Care Programs

Sec. 101. State programs for long-term care services for needy individuals with

disabilities.

Sec. 102. State plans.

Sec. 103. Individuals with disabilities and needy individual defined.

Sec. 104. Long-term care services covered under State plan.

Sec. 105. Cost sharing.

Sec. 106. Quality assurance and safeguards.

Sec. 107. Advisory groups.

Sec. 108. Payments to States.

Sec. 109. Total Federal budget; allotments to States.

Subtitle B—Increase in SSI Personal Needs Allowance

Sec. 111. Increase in SSI personal needs allowance.

Subtitle C—Repeal of Coverage Under the Medicaid Program of Long-Term

Care Services

Sec. 121. Repeal of coverage under the medicaid program of long-term care

services covered under State plan.

TITLE II—TAX TREATMENT OF LONG-TERM CARE INSURANCE

AND SERVICES

Sec. 201. Amendment of 1986 code.

Sec. 202. Qualified long-term care services treated as medical care.

Sec. 203. Treatment of long-term care insurance.

Sec. 204. Tax treatment of accelerated death benefits under life insurance contracts.

Sec. 205. Tax treatment of companies issuing qualified accelerated death benefit riders.

Sec. 206. Exclusion from gross income for amounts withdrawn from certain

plans to pay qualified long-term care insurance premiums.

Sec. 207. Nonrecognition of gain on sale of principal residence to extent proceeds used for entrance into continuing care retirement community.

TITLE III—LONG-TERM CARE INSURANCE REFORM

Subtitle A—General Provisions
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Sec. 301. Federal regulations; prior application or certain requirements.

Sec. 302. Definitions.

Subtitle B—Federal Standards and Requirements

Sec. 321. Requirements to facilitate understanding and comparison of benefits.

Sec. 322. Requirements relating to coverage.

Sec. 323. Requirements relating to premiums.

Sec. 324. Requirements relating to sales practices.

Sec. 325. Continuation, renewal, replacement, conversion, and cancellation of

policies.

Sec. 326. Requirements relating to payment of benefits.

Subtitle C—Enforcement

Sec. 341. State programs for enforcement of standards.

Sec. 342. Authorization of appropriations for State programs.

Sec. 343. Allotments to States.

Sec. 344. Payments to States.

Sec. 345. Federal oversight of State enforcement.

Subtitle D—Recommendations for Consumer Education Program

Sec. 361. Recommendations for consumer education program.

TITLE IV—FINANCING

Sec. 401. Phase in of 24-cent/pack increase in excise taxes on cigarettes.

1 TITLE I—STATE PROGRAMS FOR

2 LONG-TERM CARE SERVICES

3 FOR NEEDY INDIVIDUALS

4 WITH DISABILITIES

5 Subtitle A—State Long-Term Care

6 Programs

7 SEC. 101. STATE PROGRAMS FOR LONG-TERM CARE SERV8 ICES FOR NEEDY INDIVIDUALS WITH DIS9 ABILITIES.

10 (a) IN GENERAL.—Each State that has a plan for

11 the long-term care services to needy individuals with dis12 abilities submitted to and approved by the Secretary under
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1 section 102(b) is entitled to payment in accordance with

2 section 108.

3 (b) NO INDIVIDUAL ENTITLEMENT ESTABLISHED.—

4 Nothing in this subtitle shall be construed to create an

5 entitlement for individuals or a requirement that a State

6 with such an approved plan expend the entire amount of

7 funds to which it is entitled in any year.

8 (c) STATE DEFINED.—In this Act, the term ‘‘State’’

9 includes the District of Columbia, Puerto Rico, the Virgin

10 Islands, Guam, American Samoa, and the Northern Mari11 ana Islands.

12 SEC. 102. STATE PLANS.

13 (a) PLAN REQUIREMENTS.—In order to be approved

14 under subsection (b), a State plan for long-term care serv15 ices for needy individuals with disabilities must meet the

16 following requirements:

17 (1) ELIGIBILITY.—

18 (A) IN GENERAL.—Within the amounts

19 provided by the State (and under section 108)

20 for such plan, the plan shall provide that serv21 ices under the plan will be available to needy in22 dividuals with disabilities (as defined in section

23 103(a)) in the State.

24 (B) INITIAL SCREENING.—The plan shall

25 provide a process for the initial screening of in-
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1 dividuals who appear to have some reasonable

2 likelihood of being an individual with disabil3 ities.

4 (C) RESTRICTIONS.—The plan may not

5 limit the eligibility of needy individuals with dis6 abilities based on—

7 (i) age,

8 (ii) geography,

9 (iii) nature, severity, or category of

10 disability,

11 (iv) residential setting (other than an

12 institutional setting), or

13 (v) other grounds specified by the

14 Secretary.

15 (D) MAINTENANCE OF EFFORT.—The plan

16 must provide assurances that, in the case of an

17 individual receiving medical assistance for home

18 and community-based services under the State

19 medicaid plan as of the date of the enactment

20 of this Act, the State will continue to make

21 available (either under this plan or otherwise)

22 to such individual an appropriate level of assist23 ance for home and community-based services,

24 taking into account the level of assistance pro-
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1 vided as of such date and the individual’s need

2 for home and community-based services.

3 (2) SERVICES.—

4 (A) SPECIFICATION.—Consistent with sec5 tion 104, the plan shall specify—

6 (i) the services made available under

7 the plan,

8 (ii) the extent and manner in which

9 such services are allocated and made avail10 able to individuals with disabilities, and

11 (iii) the manner in which services

12 under the plan are coordinated with each

13 other and with health and long-term care

14 services available outside the plan for indi15 viduals with disabilities.

16 (B) ALLOCATION.—The State plan—

17 (i) shall specify how it will allocate

18 services under the plan, during and after

19 the 4-fiscal-year phase-in period beginning

20 with fiscal year 1998, among covered indi21 viduals with disabilities, and

22 (ii) may not allocate such services

23 based on the income or other financial re24 sources of such individuals.
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1 (C) LIMITATION ON LICENSURE OR CER2 TIFICATION.—The State may not subject

3 consumer-directed providers of personal assist4 ance services to licensure, certification, or other

5 requirements which the Secretary finds not to

6 be necessary for the health and safety of indi7 viduals with disabilities.

8 (D) CONSUMER CHOICE.—To the extent

9 possible, the choice of an individual with dis10 abilities (and that individual’s family) regarding

11 which covered services to receive and the pro12 viders who will provide such services shall be

13 followed.

14 (3) COST SHARING.—The plan shall impose cost

15 sharing with respect to covered services only in ac16 cordance with section 105.

17 (4) TYPES OF PROVIDERS AND REQUIREMENTS

18 FOR PARTICIPATION.—The plan shall specify—

19 (A) the types of service providers eligible

20 to participate in the program under the plan,

21 which shall include consumer-directed providers

22 for home and community-based services, and

23 (B) any requirements for participation ap24 plicable to each type of service provider.
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1 (5) BUDGET.—The plan shall specify how the

2 State will manage Federal and State funds available

3 under the plan for each fiscal year during the period

4 beginning with fiscal year 1998 and ending with fis5 cal year 2002 and for each 5-fiscal-year periods

6 thereafter to serve all categories of individuals with

7 disabilities and meet the requirements of this sub8 section. If the Secretary makes an adjustment under

9 section 109(a)(5)(C) for a year, each State shall up10 date the specifications under this paragraph to re11 flect the impact of such an adjustment.

12 (6) PROVIDER REIMBURSEMENT.—

13 (A) PAYMENT METHODS.—The plan shall

14 specify the payment methods to be used to re15 imburse providers for services furnished under

16 the plan. Such methods may include retrospec17 tive reimbursement on a fee-for-service basis,

18 prepayment on a capitation basis, payment by

19 cash or vouchers to individuals with disabilities,

20 or any combination of these methods. In the

21 case of the use of cash or vouchers, the plan

22 shall specify how the plan will assure compli23 ance with applicable employment tax provisions.

24 (B) PAYMENT RATES.—The plan shall

25 specify the methods and criteria to be used to
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1 set payment rates for services furnished under

2 the plan (including rates for cash payments or

3 vouchers to individuals with disabilities).

4 (C) PLAN PAYMENT AS PAYMENT IN

5 FULL.—The plan shall restrict payment under

6 the plan for covered services to those providers

7 that agree to accept the payment under the

8 plan (at the rates established pursuant to sub9 paragraph (B)) and any cost sharing permitted

10 or provided for under section 105 as payment

11 in full for services furnished under the plan.

12 (7) QUALITY ASSURANCE AND SAFEGUARDS.—

13 The State plan shall provide for quality assurance

14 and safeguards for applicants and beneficiaries in

15 accordance with section 106.

16 (8) ADVISORY GROUP.—The State plan shall—

17 (A) assure the establishment and mainte18 nance of an advisory group under section

19 107(b), and

20 (B) include the documentation prepared by

21 the group under section 107(b)(4).

22 (9) ADMINISTRATION.—

23 (A) STATE AGENCY.—The plan shall des24 ignate a State agency or agencies to administer

25 (or to supervise the administration of) the plan.
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1 (B) ADMINISTRATIVE EXPENDITURES.—

2 Effective beginning with fiscal year 2003, the

3 plan shall contain assurances that not more

4 than 10 percent of expenditures under the plan

5 for all quarters in any fiscal year shall be for

6 administrative costs.

7 (C) COORDINATION.—The plan shall speci8 fy how the plan—

9 (i) will be integrated with the State

10 medicaid plan, titles V and XX of the So11 cial Security Act, programs under the

12 Older Americans Act of 1965, programs

13 under the Developmental Disabilities As14 sistance and Bill of Rights Act, the Indi15 viduals with Disabilities Education Act, the

16 Rehabilitation Act of 1973, and any other

17 Federal or State programs that provide

18 services or assistance targeted to individ19 uals with disabilities, and

20 (ii) will be coordinated with health

21 plans.

22 (10) REPORTS AND INFORMATION TO SEC23 RETARY; AUDITS.—The plan shall provide that the

24 State will furnish to the Secretary—
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1 (A) such reports, and will cooperate with

2 such audits, as the Secretary determines are

3 needed concerning the State’s administration of

4 its plan under this subtitle, including the proc5 essing of claims under the plan, and

6 (B) such data and information as the Sec7 retary may require in order to carry out the

8 Secretary’s responsibilities.

9 (11) USE OF STATE FUNDS FOR MATCHING.—

10 The plan shall provide assurances that Federal

11 funds will not be used to provide for the State share

12 of expenditures under this subtitle.

13 (b) APPROVAL OF PLANS.—The Secretary shall ap14 prove a plan submitted by a State if the Secretary deter15 mines that the plan—

16 (1) was developed by the State after consulta17 tion with individuals with disabilities and representa18 tives of groups of such individuals, and

19 (2) meets the requirements of subsection (a).

20 The approval of such a plan shall take effect as of the

21 first day of the first fiscal year beginning after the date

22 of such approval (except that any approval made before

23 January 1, 1998, shall be effective as of January 1, 1998).

24 In order to budget funds allotted under this subtitle, the

25 Secretary may establish a deadline for the submission of
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1 such a plan before the beginning of a fiscal year as a con2 dition of its approval effective with that fiscal year.

3 (c) MONITORING.—The Secretary shall monitor the

4 compliance of State plans with the eligibility requirements

5 of section 103 and may monitor the compliance of such

6 plans with other requirements of this subtitle.

7 (d) REGULATIONS.—The Secretary shall issue such

8 regulations as may be appropriate to carry out this sub9 title on a timely basis.

10 SEC. 103. INDIVIDUALS WITH DISABILITIES AND NEEDY IN11 DIVIDUAL DEFINED.

12 (a) IN GENERAL.—In this subtitle, for purposes of

13 both home and community-based services and institutional

14 services, the term ‘‘individual with disabilities’’ means any

15 individual within one or more of the following 4 categories

16 of individuals:

17 (1) INDIVIDUALS REQUIRING HELP WITH AC18 TIVITIES OF DAILY LIVING.—An individual of any

19 age who—

20 (A) requires hands-on or standby assist21 ance, supervision, or cueing (as defined in regu22 lations) to perform—

23 (i) with respect to home and commu24 nity-based services, two or more activities
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1 of daily living (as defined in subsection

2 (c)), or

3 (ii) with respect to institutional serv4 ices, three or more activities of daily living;

5 and

6 (B) is expected to require such assistance,

7 supervision, or cueing over a period of at least

8 120 days.

9 (2) INDIVIDUALS WITH SEVERE COGNITIVE OR

10 MENTAL IMPAIRMENT.—An individual of any age—

11 (A) whose score, on a standard mental sta12 tus protocol (or protocols) appropriate for

13 measuring the individual’s particular condition

14 specified by the Secretary, indicates either se15 vere cognitive impairment or severe mental im16 pairment, or both;

17 (B) who—

18 (i) requires hands-on or standby as19 sistance, supervision, or cueing with one or

20 more activities of daily living,

21 (ii) requires hands-on or standby as22 sistance, supervision, or cueing with at

23 least such instrumental activity (or activi24 ties) of daily living related to cognitive or
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1 mental impairment as the Secretary speci2 fies, or

3 (iii) displays symptoms of one or more

4 serious behavioral problems (that is on a

5 list of such problems specified by the Sec6 retary) which create a need for supervision

7 to prevent harm to self or others; and

8 (C) is expected to meet the requirements of

9 subparagraphs (A) and (B) over a period of at

10 least 100 days.

11 (3) INDIVIDUALS WITH SEVERE OR PROFOUND

12 MENTAL RETARDATION.—An individual of any age

13 who has severe or profound mental retardation (as

14 determined according to a protocol specified by the

15 Secretary).

16 (4) SEVERELY DISABLED CHILDREN.—An indi17 vidual under 6 years of age who—

18 (A) has a severe disability or chronic medi19 cal condition,

20 (B) but for receiving personal assistance

21 services or any of the services described in sec22 tion 104(d)(1), would require institutionaliza23 tion in a hospital, nursing facility, or intermedi24 ate care facility for the mentally retarded, and
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1 (C) is expected to have such disability or

2 condition and require such services over a pe3 riod of at least 100 days.

4 (b) DETERMINATION OF DISABILITY.—

5 (1) IN GENERAL.—The determination of wheth6 er an individual is an individual with disabilities

7 shall be made, by persons or entities specified under

8 the State plan, using a uniform protocol consisting

9 of an initial screening and assessment specified by

10 the Secretary. A State may collect additional infor11 mation, at the time of obtaining information to

12 make such determination, in order to provide for the

13 assessment and plan described in section 104(b) or

14 for other purposes. The State shall establish a fair

15 hearing process for appeals of such determinations.

16 (2) PERIODIC REASSESSMENT.—The determina17 tion that an individual is an individual with disabil18 ities shall be considered to be effective under the

19 State plan for a period of not more than 12 months

20 (or for such longer period in such cases as a signifi21 cant change in an individual’s condition that may af22 fect such determination is unlikely). A reassessment

23 shall be made if there is a significant change in an

24 individual’s condition that may affect such deter25 mination.
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1 (c) ACTIVITY OF DAILY LIVING DEFINED.—In this

2 subtitle, the term ‘‘activity of daily living’’ means any of

3 the following: eating, toileting, dressing, bathing, and

4 transferring.

5 (d) NEEDY INDIVIDUAL DEFINED; DETERMINATION

6 OF INCOME AND RESOURCES.—

7 (1) NEEDY INDIVIDUAL DEFINED.—In this

8 title, the term ‘‘needy individual’’ means an individ9 ual—

10 (A) whose income (as determined under

11 paragraph (2)) is less than 100 percent of the

12 official poverty line (as defined by the Office of

13 Management and Budget, and revised annually

14 in accordance with section 673(2) of the Omni15 bus Budget Reconciliation Act of 1981) applica16 ble to a family of the size involved, and

17 (B) whose resources (as determined under

18 paragraph (3)(A)) are less than the amount

19 specified by the State consistent with paragraph

20 (3)(B).

21 (2) DETERMINATION OF INCOME.—

22 (A) IN GENERAL.—The State plan shall

23 specify the methodology to be used to determine

24 the income of an individual with disabilities for
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1 purposes of paragraph (1) and section 105 (re2 lating to cost sharing).

3 (B) STANDARDS.—Such methodology shall

4 be consistent with standards specified by the

5 Secretary. Such standards shall be consistent

6 with the methodology generally used by States

7 as of the date of the enactment of this Act and

8 shall—

9 (i) provide for taking into account ex10 penses incurred for medical care or other

11 types of remedial care recognized under

12 State law, and

13 (ii) be consistent with the provisions

14 of section 105(a) and the rules provided

15 under section 1924 of the Social Security

16 Act (with respect to institutionalized

17 spouses).

18 (3) DETERMINATION OF RESOURCES.—

19 (A) METHODOLOGY.—

20 (i) IN GENERAL.—The State plan

21 shall specify the methodology to be used to

22 determine the resources of an individual

23 with disabilities for purposes of paragraph

24 (1) and section 105 (relating to cost shar25 ing).
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1 (ii) STANDARDS.—Such methodology

2 shall be consistent with standards and

3 methodology specified by the Secretary.

4 Such standards and methodology shall—

5 (I) be based on the methodology

6 used under the supplemental security

7 income program, and

8 (II) take into account the provi9 sions of section 105(a) and the rules

10 provided under section 1924 of the

11 Social Security Act (with respect to

12 institutionalized spouses).

13 (B) RESOURCE LEVEL.—

14 (i) IN GENERAL.—The resource level

15 specified in this subparagraph is—

16 (I) $3,500 for an individual who

17 has no spouse with whom the individ18 ual is living, and

19 (II) $7,500 for an individual who

20 has a spouse with whom the individual

21 is living.

22 (ii) ADJUSTMENT.—A State may in23 crease either or both of the levels specified

24 under clause (i) to up to $12,000.
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1 (4) SPECIAL RULE FOR CURRENT MEDICAID

2 BENEFICIARIES.—In the case of an individual who

3 as of January 1, 1998, was receiving medical assist4 ance for long-term care services under a State plan

5 under title XIX of the Social Security Act, the indi6 vidual shall be deemed to be a needy individual so

7 long as the individual would have been eligible to re8 ceive such assistance under such plan (as in effect

9 on such date), but for section 1931 of such Act (as

10 added by section 121(a)).

11 (5) APPLICATION OF TRANSFER OF ASSET

12 RULES.—Except as specifically provided, the State

13 shall apply rules similar to the rules described in

14 sections 1917(c) and 1917(d) of the Social Security

15 Act with respect to the disposal of assets for less

16 than fair market value.

17 SEC. 104. LONG-TERM CARE SERVICES COVERED UNDER

18 STATE PLAN.

19 (a) SPECIFICATION.—

20 (1) IN GENERAL.—Subject to the succeeding

21 provisions of this section, the State plan under this

22 subtitle shall specify—

23 (A) the long-term care services available

24 under the plan to individuals with disabilities

25 (or to such categories of such individuals), and
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1 (B) any limits with respect to such serv2 ices.

3 (2) FLEXIBILITY IN MEETING INDIVIDUAL

4 NEEDS.—The services shall be specified in a manner

5 that permits sufficient flexibility for providers to

6 meet the needs of individuals with disabilities in a

7 cost effective manner consistent with the individual8 ized plan of care. Subject to subsection (e)(1)(B),

9 such services may be delivered in an individual’s

10 home, a range of community residential arrange11 ments, or outside the home.

12 (b) REQUIREMENT FOR NEEDS ASSESSMENT AND

13 PLAN OF CARE.—

14 (1) IN GENERAL.—The State plan shall provide

15 for long-term care services to an individual with dis16 abilities only if—

17 (A) a comprehensive assessment of the in18 dividual’s need for long-term care services (re19 gardless of whether all needed services are

20 available under the plan) has been made by a

21 care manager (who meets qualifications speci22 fied in the State plan),

23 (B) an individualized plan of care based on

24 such assessment is developed by such manager,

25 and
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1 (C) such services are provided consistent

2 with such plan of care.

3 (2) INVOLVEMENT OF INDIVIDUALS.—The indi4 vidualized plan of care under paragraph (1)(B) for

5 an individual with disabilities shall—

6 (A) be developed by the care manager who

7 performed the comprehensive assessment,

8 (B) be developed and implemented in close

9 consultation with the individual and the individ10 ual’s family,

11 (C) be approved by the individual (or the

12 individual’s representative), and

13 (D) be reviewed and updated not less often

14 than every 6 months.

15 (3) PLAN OF CARE.—The plan of care under

16 paragraph (1)(B) shall—

17 (A) specify which services specified under

18 the individual plan will be provided under the

19 State plan under this subtitle,

20 (B) identify (to the extent possible) how

21 the individual will be provided any services

22 specified under the plan of care and not pro23 vided under the State plan, and

24 (C) specify how the provision of services to

25 the individual under the plan will be coordi-
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1 nated with the provision of other health care

2 services to the individual.

3 The State shall make reasonable efforts to identify

4 and arrange for services described in subparagraph

5 (B). Nothing in this subsection shall be construed as

6 requiring a State (under the State plan or other7 wise) to provide all the services specified in such a

8 plan.

9 (c) LONG-TERM CARE SERVICES DEFINED.—

10 (1) IN GENERAL.—In this title, the term ‘‘long11 term care services’’ means—

12 (A) home and community-based services

13 (as defined in subsection (d)), and

14 (B) institutional services (as defined in

15 section (e)).

16 (2) SECONDARY PAYER TO MEDICARE AND

17 OTHER HEALTH PLANS.—A State plan may not pro18 vide for coverage of any items and services to the ex19 tent coverage is provided for the individual under a

20 health plan or the medicare program.

21 (d) HOME AND COMMUNITY-BASED SERVICES.—

22 (1) IN GENERAL.—In this subtitle, the term

23 ‘‘home and community-based services’’—

24 (A) includes, for all categories of individ25 uals with disabilities, both agency-administered
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1 and consumer-directed personal assistance serv2 ices (as defined in paragraph (3)); and

3 (B) subject to paragraph (4), includes any

4 (or all) of the following:

5 (i) Case management.

6 (ii) Homemaker and chore assistance.

7 (iii) Home modifications.

8 (iv) Respite services.

9 (v) Assistive devices.

10 (vi) Adult day services.

11 (vii) Habilitation and rehabilitation.

12 (viii) Supported employment.

13 (ix) Home health services.

14 (x) Hospice services.

15 (xi) Care or assisted services provided

16 in an assisted living facility, continuing

17 care retirement community or other resi18 dential care facility, excluding room and

19 board.

20 (xii) Any other care or assistive serv21 ices (approved by the Secretary) that the

22 State determines will help individuals with

23 disabilities to remain in their homes and

24 communities.
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1 (2) CRITERIA FOR SELECTION OF SERVICES.—

2 The State plan shall specify—

3 (A) the methods and standards used to se4 lect the types, and the amount, duration, and

5 scope, of home and community-based services

6 described in paragraph (1)(B) to be covered

7 under the plan and to be available to each cat8 egory of individuals with disabilities, and

9 (B) how the types, and the amount, dura10 tion, and scope, of such services specified meet

11 the needs of individuals within each of the 4

12 categories of individuals with disabilities.

13 (3) PERSONAL ASSISTANCE SERVICES.—

14 (A) IN GENERAL.—In this section, the

15 term ‘‘personal assistance services’’ means

16 those services specified under the State plan as

17 personal assistance services and shall include at

18 least hands-on and standby assistance, super19 vision, and cueing with activities of daily living,

20 whether agency-administered or consumer-di21 rected (as defined in subparagraph (B)).

22 (B) CONSUMER-DIRECTED; AGENCY-AD23 MINISTERED.—In this subtitle:

24 (i) The term ‘‘consumer-directed’’

25 means, with reference to personal assist-
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1 ance services or the provider of such serv2 ices, services that are provided by an indi3 vidual who is selected and managed (and,

4 at the individual’s option, trained) by the

5 individual receiving the services.

6 (ii) The term ‘‘agency-administered’’

7 means, with respect to such services, serv8 ices that are not consumer-directed.

9 (4) EXCLUSIONS AND LIMITATIONS.—

10 (A) IN GENERAL.—A State plan may not

11 provide for coverage as home and community12 based services of—

13 (i) room and board, or

14 (ii) services furnished in a hospital,

15 nursing facility, intermediate care facility

16 for the mentally retarded, or other institu17 tional setting specified by the Secretary.

18 (B) TAKING INTO ACCOUNT INFORMAL

19 CARE.—A State plan may take into account, in

20 determining the amount and array of home and

21 community-based services made available to

22 covered individuals with disabilities, the avail23 ability of informal care.

24 (e) INSTITUTIONAL SERVICES DEFINED.—In this

25 subtitle, the term ‘‘institutional services’’ means services
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1 furnished in a nursing facility, intermediate care facility

2 for the mentally retarded, or any other institutional facil3 ity (at the approval of the Secretary) that the State deter4 mines will assist individuals with disabilities.

5 (f) PAYMENT FOR SERVICES.—A State plan may pro6 vide for the use of—

7 (1) vouchers,

8 (2) capitation payments to health plans, and

9 (3) payment to providers,

10 to pay for covered services.

11 SEC. 105. COST SHARING.

12 (a) HOME AND COMMUNITY-BASED SERVICES.—

13 With respect to home and community-based services pro14 vided under the State plan, the State plan may impose

15 nominal cost sharing.

16 (b) INSTITUTIONAL SERVICES.—

17 (1) IN GENERAL.—With respect to institutional

18 services provided under the State plan, the cost

19 sharing shall be the amount of income, other than

20 the allowances provided under paragraph (2).

21 (2) ALLOWANCES.—The allowances under this

22 paragraph are as follows:

23 (A) PERSONAL NEEDS ALLOWANCE.—A

24 personal needs allowance of $66 per month for

25 an institutionalized individual and $125 per
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1 month for an institutionalized couple (if both

2 are aged, blind, or disabled, and their incomes

3 are considered available to each other in deter4 mining eligibility).

5 (B) COMMUNITY SPOUSE ALLOWANCE.—In

6 the case of an individual with a community

7 spouse (as defined in section 1924 of the Social

8 Security Act), an amount of income equivalent

9 to the amount of income that would be pro10 tected under section 1924 of the Social Security

11 Act (determined without regard to subsection

12 (d)(1)(A) thereof).

13 (3) RULES FOR DETERMINATION OF INCOME OF

14 INSTITUTIONALIZED SPOUSES.—In determining in15 come of an institutionalized spouse for purposes of

16 this subsection, the State shall apply rules similar to

17 the rules described in section 1924 of the Social Se18 curity Act consistent with paragraph (2).

19 (4) INSTITUTIONALIZED AND COMMUNITY

20 SPOUSE DEFINED.—In this subsection, the terms

21 ‘‘institutionalized spouse’’ and ‘‘community spouse’’

22 have the meanings given such terms in section

23 1924(h) of the Social Security Act.
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1 SEC. 106. QUALITY ASSURANCE AND SAFEGUARDS.

2 (a) QUALITY ASSURANCE.—The State plan shall

3 specify how the State will ensure and monitor the quality

4 of services (including both home and community-based

5 services and institutional services), including—

6 (1) safeguarding the health and safety of indi7 viduals with disabilities,

8 (2) the minimum standards for agency provid9 ers and how such standards will be enforced,

10 (3) the minimum competency requirements for

11 agency provider employees who provide direct serv12 ices under this subtitle and how the competency of

13 such employees will be enforced,

14 (4) obtaining meaningful consumer input, in15 cluding consumer surveys that measure the extent to

16 which participants receive the services described in

17 the plan of care and participant satisfaction with

18 such services,

19 (5) participation in quality assurance activities,

20 and

21 (6) specifying the role of the long-term care om22 budsman (under the Older Americans Act of 1965),

23 the Protection and Advocacy Agency (under the De24 velopmental Disabilities Assistance and Bill of

25 Rights Act), and the State advocacy agency for the

26 mentally ill (under the Protection and Advocacy for
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1 Mentally Ill Individuals Act of 1986) in assuring

2 quality of services and protecting the rights of indi3 viduals with disabilities.

4 (b) SAFEGUARDS.—

5 (1) CONFIDENTIALITY.—The State plan shall

6 provide safeguards which restrict the use or disclo7 sure of information concerning applicants and bene8 ficiaries to purposes directly connected with the ad9 ministration of the plan (including performance re10 views under section 2602).

11 (2) SAFEGUARDS AGAINST ABUSE.—The State

12 plans shall provide safeguards against physical, emo13 tional, or financial abuse or exploitation (specifically

14 including appropriate safeguards in cases where pay15 ment for program benefits is made by cash pay16 ments or vouchers given directly to individuals with

17 disabilities).

18 SEC. 107. ADVISORY GROUPS.

19 (a) FEDERAL ADVISORY GROUP.—

20 (1) ESTABLISHMENT.—The Secretary shall es21 tablish an advisory group, to advise the Secretary

22 and States on all aspects of the program under this

23 subtitle.

24 (2) COMPOSITION.—The group shall be com25 posed of individuals with disabilities and their rep-
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1 resentatives, providers, Federal and State officials,

2 and local community implementing agencies. A ma3 jority of its members shall be individuals with dis4 abilities and their representatives.

5 (b) STATE ADVISORY GROUPS.—

6 (1) IN GENERAL.—Each State plan shall pro7 vide for the establishment and maintenance of an

8 advisory group to advise the State on all aspects of

9 the State plan under this subtitle.

10 (2) COMPOSITION.—Members of each advisory

11 group shall be appointed by the Governor (or other

12 chief executive officer of the State) and shall include

13 individuals with disabilities and their representa14 tives, providers, State officials, and local community

15 implementing agencies. A majority of its members

16 shall be individuals with disabilities and their rep17 resentatives.

18 (3) SELECTION OF MEMBERS.—Each State

19 shall establish a process whereby all residents of the

20 State, including individuals with disabilities and

21 their representatives, shall be given the opportunity

22 to nominate members to the advisory group.

23 (4) PARTICULAR CONCERNS.—Each advisory

24 group shall—
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1 (A) before the State plan is developed, ad2 vise the State on guiding principles and values,

3 policy directions, and specific components of the

4 plan,

5 (B) meet regularly with State officials in6 volved in developing the plan, during the devel7 opment phase, to review and comment on all as8 pects of the plan,

9 (C) participate in the public hearings to

10 help assure that public comments are addressed

11 to the extent practicable,

12 (D) document any differences between the

13 group’s recommendations and the plan,

14 (E) document specifically the degree to

15 which the plan is consumer-directed, and

16 (F) meet regularly with officials of the des17 ignated State agency (or agencies) to provide

18 advice on all aspects of implementation and

19 evaluation of the plan.

20 SEC. 108. PAYMENTS TO STATES.

21 (a) IN GENERAL.—Subject to section 102(a)(9)(B)

22 (relating to limitation on payment for administrative

23 costs), the Secretary, in accordance with the Cash Man24 agement Improvement Act, shall authorize payment to

25 each State with a plan approved under this subtitle, for
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1 each quarter (beginning on or after January 1, 1998),

2 from its allotment under section 109(b), an amount equal

3 to—

4 (1) the Federal matching percentage (as de5 fined in subsection (b)) of the amount demonstrated

6 by State claims to have been expended during the

7 quarter for long-term care services under the plan

8 for individuals with disabilities; plus

9 (2) an amount equal to 90 percent of the

10 amount expended during the quarter under the plan

11 for activities (including preliminary screening) relat12 ing to determination of eligibility and performance

13 of needs assessment; plus

14 (3) an amount equal to 90 percent (or, begin15 ning with quarters in fiscal year 2003, 75 percent)

16 of the amount expended during the quarter for the

17 design, development, and installation of mechanical

18 claims processing systems and for information re19 trieval; plus

20 (4) an amount equal to 50 percent of the re21 mainder of the amounts expended during the quar22 ter as found necessary by the Secretary for the prop23 er and efficient administration of the State plan.

24 (b) FEDERAL MATCHING PERCENTAGE.—
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1 (1) STATES AND THE DISTRICT OF COLUM2 BIA.—

3 (A) IN GENERAL.—In subsection (a), ex4 cept as provided in paragraph (3), the term

5 ‘‘Federal matching percentage’’ means, for each

6 of the 50 States and the District of Columbia,

7 100 percent reduced by the product of the

8 budget neutrality percentage (as defined in sub9 paragraph (B)) and the ratio of—

10 (i)(I) for each of the 50 States, the

11 total taxable resources ratio (as defined in

12 subparagraph (C)) of the State, or

13 (II) for the District of Columbia, the

14 per capita income ratio (as defined in sub15 paragraph (D)), to—

16 (ii) the disabled population in poverty

17 ratio (as defined in subparagraph (E)) of

18 the State or District.

19 (B) BUDGET NEUTRALITY PERCENTAGE

20 DEFINED.—For purposes of this subsection, the

21 term ‘‘budget neutrality percentage’’ means a

22 percentage estimated by the Secretary with the

23 advice of the General Accounting Office that,

24 when applied under subparagraph (A), would

25 result (taking into account paragraph (2)) in an
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1 amount of aggregate payments under this title

2 for the fiscal year involved equal to the total

3 Federal budget amount under section 109(a).

4 (C) TOTAL TAXABLE RESOURCES RATIO

5 DEFINED.—For purposes of this subsection, the

6 term ‘‘total taxable resources ratio’’ means—

7 (i) an amount equal to the most re8 cent 3-year average of the total taxable re9 sources of the State, as determined by the

10 Secretary of the Treasury, divided by

11 (ii) an amount equal to the sum of the

12 3-year averages determined under clause

13 (i) for each of the 50 States.

14 (D) PER CAPITA INCOME RATIO DE15 FINED.—For purposes of this subsection, the

16 term ‘‘per capita income ratio’’ means—

17 (i) an amount equal to the most re18 cent 3-year average of the total personal

19 income of the District of Columbia, as de20 termined in accordance with the provisions

21 of section 1101(a)(8)(B) of the Social Se22 curity Act, divided by

23 (ii) an amount equal to the total per24 sonal income of the continental United

25 States (including Alaska) and Hawaii, as
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1 determined under section 1101(a)(8)(B) of

2 such Act.

3 (E) DISABLED POPULATION IN POVERTY

4 RATIO DEFINED.—For purposes of this sub5 section, the term ‘‘disabled population in pov6 erty ratio’’ means—

7 (i) an amount equal to the 3-year-av8 erage of the number of individuals with

9 disabilities in the State (or the District of

10 Columbia) whose family income is below

11 100 percent of the income official poverty

12 line (as defined by the Office of Manage13 ment and Budget and revised annually in

14 accordance with section 673(2) of the Om15 nibus Budget Reconciliation Act of 1981),

16 divided by

17 (ii) an amount equal to the sum of the

18 averages determined under clause (i) for

19 the 50 States.

20 (2) TERRITORIES.—The Federal matching per21 centage for Puerto Rico, the Virgin Islands, Guam,

22 the Northern Mariana Islands, and American Samoa

23 shall be 40 percent.
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1 (3) PERMISSIBLE RANGE.—The Federal match2 ing percentage shall in no case be less than 50 per3 cent or more than 75 percent.

4 (c) PAYMENTS ON ESTIMATES WITH RETROSPEC5 TIVE ADJUSTMENTS.—The method of computing and

6 making payments under this section shall be as follows:

7 (1) The Secretary shall, prior to the beginning

8 of each quarter, estimate the amount to be paid to

9 the State under subsection (a) for such quarter,

10 based on a report filed by the State containing its

11 estimate of the total sum to be expended in such

12 quarter, and such other information as the Secretary

13 may find necessary.

14 (2) From the allotment available therefore, the

15 Secretary shall provide for payment of the amount

16 so estimated, reduced or increased, as the case may

17 be, by any sum (not previously adjusted under this

18 section) by which the Secretary finds that the esti19 mate of the amount to be paid the State for any

20 prior period under this section was greater or less

21 than the amount which should have been paid.

22 (d) APPLICATION OF RULES REGARDING LIMITA23 TIONS ON PROVIDER-RELATED DONATIONS AND HEALTH

24 CARE RELATED TAXES.—The provisions of section

25 1903(w) of the Social Security Act shall apply to pay-
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1 ments to States under this section in the same manner

2 as they apply to payments to States under section 1903(a)

3 of such Act .

4 SEC. 109. TOTAL FEDERAL BUDGET; ALLOTMENTS TO

5 STATES.

6 (a) TOTAL FEDERAL BUDGET.—

7 (1) FISCAL YEAR 1998—

8 (A) GAO STUDY AND REPORT.—The

9 Comptroller General shall conduct a study of

10 the estimated need for Federal payments to

11 States under this title for fiscal year 1998,

12 based on the eligibility requirements and fund13 ing formula under this title. The Comptroller

14 General shall submit to Congress a report on

15 such study by not later than February 1, 1997.

16 (B) ESTABLISHMENT OF BUDGET LEVEL

17 THROUGH AUTHORIZATION AND APPROPRIA18 TIONS PROCESS.—Subject to paragraph (5)(C),

19 for purposes of this subtitle, the total Federal

20 budget for State plans under this subtitle for

21 fiscal year 1998 is such amount as the Con22 gress authorizes and appropriates to carry out

23 this title for such fiscal year.

24 (2) SUBSEQUENT FISCAL YEARS.—For pur25 poses of this subtitle, the total Federal budget for
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1 State plans under this subtitle for each fiscal year

2 after fiscal year 1998 is the total Federal budget

3 under this subsection for the preceding fiscal year

4 multiplied by—

5 (A) a factor (described in paragraph (3))

6 reflecting the change in the CPI for the fiscal

7 year, and

8 (B) a factor (described in paragraph (4))

9 reflecting the change in the number of individ10 uals with disabilities for the fiscal year.

11 (3) CPI INCREASE FACTOR.—For purposes of

12 paragraph (2)(A), the factor described in this para13 graph for a fiscal year is the ratio of—

14 (A) the annual average index of the

15 consumer price index for the preceding fiscal

16 year, to—

17 (B) such index, as so measured, for the

18 second preceding fiscal year.

19 (4) DISABLED POPULATION FACTOR.—For pur20 poses of paragraph (2)(B), the factor described in

21 this paragraph for a fiscal year is 100 percent plus

22 (or minus) the percentage increase (or decrease)

23 change in the disabled population of the United

24 States (as determined for purposes of the most re25 cent update under subsection (b)(3)(D)).
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1 (5) ADDITIONAL FUNDS DUE TO MEDICAID

2 OFFSETS.—

3 (A) IN GENERAL.—Each participating

4 State must provide the Secretary with informa5 tion concerning offsets and reductions in the

6 medicaid program resulting from long-term care

7 services provided individuals with disabilities

8 under this subtitle, that would have been paid

9 for such individuals under the State medicaid

10 plan but for the provision of similar services

11 under the program under this subtitle. At the

12 time a State first submits its plan under this

13 title and before each subsequent fiscal year

14 (through fiscal year 2003), the State also must

15 provide the Secretary with such budgetary in16 formation (for each fiscal year through fiscal

17 year 2003), as the Secretary determines to be

18 necessary to carry out this paragraph.

19 (B) REPORTS.—Each State with a pro20 gram under this subtitle shall submit such re21 ports to the Secretary as the Secretary may re22 quire in order to monitor compliance with sub23 paragraph (A).

24 (C) ADJUSTMENTS TO FEDERAL BUDG25 ET.—
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1 (i) IN GENERAL.—For each fiscal year

2 (beginning with fiscal year 1998 and end3 ing with fiscal year 2003) and based on a

4 review of information submitted under sub5 paragraph (A), the Secretary shall deter6 mine the amount by which the total Fed7 eral budget under subsection (a) will in8 crease. The amount of such increase for a

9 fiscal year shall be limited to the reduction

10 in Federal expenditures of medical assist11 ance (as determined by Secretary) that

12 would have been made under title XIX of

13 the Social Security Act for home and com14 munity based services for disabled individ15 uals but for the provision of similar serv16 ices under the program under this subtitle.

17 (ii) ANNUAL PUBLICATION.—The Sec18 retary shall publish before the beginning of

19 such fiscal year, the revised total Federal

20 budget under this subsection for such fis21 cal year (and succeeding fiscal years before

22 fiscal year 2003).

23 (D) NO DUPLICATE PAYMENT.—No pay24 ment may be made to a State under this section

25 for any services to the extent that the State re-
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1 ceived payment for such services under section

2 1903(a) of the Social Security Act.

3 (E) CONSTRUCTION.—Nothing in this sub4 section shall be construed as requiring States to

5 determine eligibility for medical assistance

6 under the State medicaid plan on behalf of indi7 viduals receiving assistance under this subtitle.

8 (b) ALLOTMENTS TO STATES.—

9 (1) IN GENERAL.—The Secretary shall allot to

10 each State for each fiscal year an amount that bears

11 the same ratio to the total Federal budget for the

12 fiscal year (specified under paragraph (1) or (2) of

13 subsection (a)) as the State allotment factor (under

14 paragraph (2) for the State for the fiscal year) bears

15 to the sum of such factors for all States for that fis16 cal year.

17 (2) STATE ALLOTMENT FACTOR.—

18 (A) IN GENERAL.—For each State for each

19 fiscal year, the Secretary shall compute a State

20 allotment factor equal to the sum of—

21 (i) the base allotment factor (specified

22 in subparagraph (B)), and

23 (ii) the low income allotment factor

24 (specified in subparagraph (C)),

25 for the State for the fiscal year.
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1 (B) BASE ALLOTMENT FACTOR.—The base

2 allotment factor, specified in this subparagraph,

3 for a State for a fiscal year is equal to the

4 product of the following:

5 (i) NUMBER OF INDIVIDUALS WITH

6 DISABILITIES.—The number of individuals

7 with disabilities in the State (determined

8 under paragraph (3)) for the fiscal year.

9 (ii) 80 PERCENT OF THE NATIONAL

10 PER CAPITA BUDGET.—80 percent of the

11 national average per capita budget amount

12 (determined under paragraph (4)) for the

13 fiscal year.

14 (iii) WAGE ADJUSTMENT FACTOR.—

15 The wage adjustment factor (determined

16 under paragraph (5)) for the State for the

17 fiscal year.

18 (iv) FEDERAL MATCHING RATE.—The

19 Federal matching rate (determined under

20 section 108(b)) for the fiscal year.

21 (C) LOW INCOME ALLOTMENT FACTOR.—

22 The low income allotment factor, specified in

23 this subparagraph, for a State for a fiscal year

24 is equal to the product of the following:
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1 (i) NUMBER OF INDIVIDUALS WITH

2 DISABILITIES.—The number of individuals

3 with disabilities in the State (determined

4 under paragraph (3)) for the fiscal year.

5 (ii) 10 PERCENT OF THE NATIONAL

6 PER CAPITA BUDGET.—10 percent of the

7 national average per capita budget amount

8 (determined under paragraph (4)) for the

9 fiscal year.

10 (iii) WAGE ADJUSTMENT FACTOR.—

11 The wage adjustment factor (determined

12 under paragraph (5)) for the State for the

13 fiscal year.

14 (iv) FEDERAL MATCHING RATE.—The

15 Federal matching rate (determined under

16 section 108(b)) for the fiscal year.

17 (v) LOW INCOME INDEX.—The low in18 come index (determined under paragraph

19 (6)) for the State for the preceding fiscal

20 year.

21 (3) NUMBER OF INDIVIDUALS WITH DISABIL22 ITIES.—The number of individuals with disabilities

23 in a State for a fiscal year shall be determined as

24 follows:
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1 (A) BASE.—The Secretary shall determine

2 the number of individuals in the State by age,

3 sex, and income category, based on the 1990

4 decennial census, adjusted (as appropriate) by

5 the March 1994 current population survey.

6 (B) DISABILITY PREVALENCE LEVEL BY

7 POPULATION CATEGORY.—The Secretary shall

8 determine, for each such age, sex, and income

9 category, the national average proportion of the

10 population of such category that represents in11 dividuals with disabilities. The Secretary may

12 conduct periodic surveys in order to determine

13 such proportions.

14 (C) BASE DISABLED POPULATION IN A

15 STATE.—The number of individuals with dis16 abilities in a State in 1996 is equal to the sum

17 of the products, for such each age, sex, and in18 come category, of—

19 (i) the population of individuals in the

20 State in the category (determined under

21 subparagraph (A)), and

22 (ii) the national average proportion

23 for such category (determined under sub24 paragraph (B)).
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1 (D) UPDATE.—The Secretary shall deter2 mine the number of individuals with disabilities

3 in a State in a fiscal year equal to the number

4 determined under subparagraph (C) for the

5 State increased (or decreased) by the percent6 age increase (or decrease) in the disabled popu7 lation of the State as determined under the cur8 rent population survey from 1994 to the year

9 before the fiscal year involved.

10 (4) NATIONAL PER CAPITA BUDGET AMOUNT.—

11 The national average per capita budget amount, for

12 a fiscal year, is—

13 (A) the total Federal budget specified

14 under subsection (a) for the fiscal year; divided

15 by

16 (B) the sum, for the fiscal year, of the

17 numbers of individuals with disabilities (deter18 mined under paragraph (3)) for all the States

19 for the fiscal year.

20 (5) WAGE ADJUSTMENT FACTOR.—The wage

21 adjustment factor, for a State for a fiscal year, is

22 equal to the ratio of—

23 (A) the average hourly wages for service

24 workers (other than household or protective

25 services) in the State, to
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1 (B) the national average hourly wages for

2 service workers (other than household or protec3 tive services).

4 The hourly wages shall be determined under this

5 paragraph based on data from the most recent de6 cennial census for which such data are available.

7 (6) LOW INCOME INDEX.—The low income

8 index for each State for a fiscal year is the ratio, de9 termined for the preceding fiscal year, of—

10 (A) the percentage of the State’s popu11 lation that has income below 150 percent of the

12 poverty level, to

13 (B) the percentage of the population of the

14 United States that has income below 150 per15 cent of the poverty level.

16 Such percentages shall be based on data from the

17 most recent decennial census for which such data

18 are available, adjusted by data from the most recent

19 current population survey as determined appropriate

20 by the Secretary.

21 (c) STATE ENTITLEMENT.—This subtitle constitutes

22 budget authority in advance of appropriations Acts, and

23 represents the obligation of the Federal Government to

24 provide for the payment to States of amounts described

25 in subsection (a).
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1 Subtitle B—Increase in SSI

2 Personal Needs Allowance

3 SEC. 111. INCREASE IN SSI PERSONAL NEEDS ALLOWANCE.

4 (a) IN GENERAL.—Section 1611(e)(1)(B) of the So5 cial Security Act (42 U.S.C. 1382(e)(1)(B)) is amended—

6 (1) in clauses (i) and (ii)(I), by striking ‘‘$360’’

7 and inserting ‘‘$600’’; and

8 (2) in clause (iii), by striking ‘‘$720’’ and in9 serting ‘‘$1,000’’.

10 (b) EFFECTIVE DATE.—The amendments made by

11 subsection (a) shall apply with respect to months begin12 ning with January 1998.

13 Subtitle C—Repeal of Coverage

14 Under the Medicaid Program of

15 Long-Term Care Services

16 SEC. 121. REPEAL OF COVERAGE UNDER THE MEDICAID

17 PROGRAM OF LONG-TERM CARE SERVICES

18 COVERED UNDER STATE PLAN.

19 (a) IN GENERAL.—Title XIX of the Social Security

20 Act is amended by redesignating section 1931 as section

21 1932 and by inserting after section 1930 the following new

22 section:
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1 ‘‘TREATMENT OF LONG-TERM CARE SERVICES COVERED

2 UNDER STATE PROGRAMS FOR NEEDY INDIVIDUALS

3 WITH DISABILITIES

4 ‘‘SEC. 1931. (a) NO COVERAGE OF SERVICES RE5 QUIRED.—Notwithstanding any other provision of this

6 title, the State plan under this title is not required to pro7 vide medical assistance consisting of payment for any

8 long-term care services for needy individuals with disabil9 ities for which coverage is provided under a State plan

10 under subtitle A of title I of the Comprehensive Long11 Term Care Act of 1995.

12 ‘‘(b) DEFINITIONS.—In this section—

13 ‘‘(1) the term ‘needy individual with a disabil14 ity’ means an individual with a disability (as defined

15 in section 103(a) of the Comprehensive Long-Term

16 Care Act of 1995) who is a needy individual (as de17 fined in section 103(d) of such Act); and

18 ‘‘(2) the term ‘long-term care services’ has the

19 meaning given such term in section 104(c) of the

20 Comprehensive Long-Term Care Act of 1995.’’.

21 (b) NO FEDERAL FINANCIAL PARTICIPATION.—Sec22 tion 1903(i) of the Social Security Act (42 U.S.C.

23 1396b(i)) is amended—

24 (1) by striking ‘‘or’’ at the end of paragraph

25 (14),
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1 (2) by striking the period at the end of para2 graph (15) and inserting ‘‘; or’’, and

3 (3) by inserting after paragraph (15) the fol4 lowing new paragraph:

5 ‘‘(16) with respect to long-term care services

6 (as defined in section 1931(b)(2)) for needy individ7 uals with disabilities (as defined in section

8 1931(b)(1)) for which coverage is provided under a

9 State plan under subtitle A of title I of the Com10 prehensive Long-Term Care Act of 1995.’’.

11 (c) EFFECTIVE DATE.—The amendments made by

12 this section shall apply with respect to services furnished

13 in a State on or after January 1, 1998.

14 TITLE II—TAX TREATMENT OF

15 LONG-TERM CARE INSUR16 ANCE AND SERVICES

17 SEC. 201. AMENDMENT OF 1986 CODE.

18 Except as otherwise expressly provided, whenever in

19 this title an amendment or repeal is expressed in terms

20 of an amendment to, or repeal of, a section or other provi21 sion, the reference shall be considered to be made to a

22 section or other provision of the Internal Revenue Code

23 of 1986.
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1 SEC. 202. QUALIFIED LONG-TERM CARE SERVICES TREAT2 ED AS MEDICAL CARE.

3 (a) GENERAL RULE.—Paragraph (1) of section

4 213(d) (defining medical care) is amended by striking

5 ‘‘or’’ at the end of subparagraph (B), by redesignating

6 subparagraph (C) as subparagraph (D), and by inserting

7 after subparagraph (B) the following new subparagraph:

8 ‘‘(C) for qualified long-term care services

9 (as defined in subsection (g)), or’’.

10 (b) ADJUSTED GROSS INCOME THRESHOLD NOT TO

11 APPLY TO AMOUNTS PAID FOR LONG-TERM CARE.—Sub12 section (a) of section 213 (relating to medical, dental, etc.,

13 expenses) is amended to read as follows:

14 ‘‘(a) ALLOWANCE OF DEDUCTION.—There shall be

15 allowed as a deduction the following amounts, not com16 pensated for by insurance or otherwise—

17 ‘‘(1) the amount by which the amount of the

18 expenses paid during the taxable year (reduced by

19 any amount deductible under paragraph (2)) for

20 medical care of the taxpayer, his spouse, or a de21 pendent exceeds 7.5 percent of adjusted gross in22 come, and

23 ‘‘(2) the amounts paid during the taxable year

24 for—
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1 ‘‘(A) a qualified long-term care insurance

2 policy which constitutes medical care for the

3 taxpayer, his spouse, or a dependent, and

4 ‘‘(B) for qualified long-term care services

5 for the taxpayer, his spouse, or a dependent.

6 For purposes of this subsection, the term ‘dependent’ has

7 the meaning given such term by section 152.’’

8 (c) QUALIFIED LONG-TERM CARE SERVICES DE9 FINED.—Section 213 (relating to the deduction for medi10 cal, dental, etc., expenses) is amended by adding at the

11 end thereof the following new subsection:

12 ‘‘(g) QUALIFIED LONG-TERM CARE SERVICES.—For

13 purposes of this section—

14 ‘‘(1) IN GENERAL.—The term ‘qualified long15 term care services’ means necessary diagnostic, cur16 ing, mitigating, treating, preventive, therapeutic, and

17 rehabilitative services, and maintenance and per18 sonal care services (whether performed in a residen19 tial or nonresidential setting) which—

20 ‘‘(A) are required by an individual during

21 any period the individual is an incapacitated in22 dividual (as defined in paragraph (2)),

23 ‘‘(B) have as their primary purpose—
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1 ‘‘(i) the provision of needed assistance

2 with 1 or more activities of daily living (as

3 defined in paragraph (3)), or

4 ‘‘(ii) protection from threats to health

5 and safety due to severe cognitive impair6 ment, and

7 ‘‘(C) are provided pursuant to a continuing

8 plan of care prescribed by a licensed profes9 sional (as defined in paragraph (4)).

10 ‘‘(2) INCAPACITATED INDIVIDUAL.—The term

11 ‘incapacitated individual’ means any individual

12 who—

13 ‘‘(A) is unable to perform, without sub14 stantial assistance from another individual (in15 cluding assistance involving cueing or substan16 tial supervision), at least 2 activities of daily

17 living selected under paragraph (3)(B), or

18 ‘‘(B) has severe cognitive impairment as

19 defined by the Secretary in consultation with

20 the Secretary of Health and Human Services.

21 Such term shall not include any individual otherwise

22 meeting the requirements of the preceding sentence

23 unless a licensed professional within the preceding

24 12-month period has certified that such individual

25 meets such requirements.
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1 ‘‘(3) ACTIVITIES OF DAILY LIVING.—

2 ‘‘(A) IN GENERAL.—Subject to subpara3 graph (B), each of the following is an activity

4 of daily living:

5 ‘‘(i) Eating.

6 ‘‘(ii) Toileting.

7 ‘‘(iii) Transferring.

8 ‘‘(iv) Bathing.

9 ‘‘(v) Dressing.

10 ‘‘(vi) Continence.

11 ‘‘(B) SELECTION OF 5 ACTIVITIES OF

12 DAILY LIVING.—The insurance company issuing

13 a long-term care insurance policy shall select 5

14 of the 6 activities of daily living which shall be

15 included within the policy.

16 ‘‘(4) LICENSED PROFESSIONAL.—The term ‘li17 censed professional’ means—

18 ‘‘(A) a physician or registered professional

19 nurse, or

20 ‘‘(B) any other individual who meets such

21 requirements as may be prescribed by the Sec22 retary after consultation with the Secretary of

23 Health and Human Services.
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1 ‘‘(5) CERTAIN SERVICES NOT INCLUDED.—The

2 term ‘qualified long-term care services’ shall not in3 clude any services provided to an individual—

4 ‘‘(A) by a relative (directly or through a

5 partnership, corporation, or other entity) unless

6 the relative is a licensed professional with re7 spect to such services, or

8 ‘‘(B) by a corporation or partnership which

9 is related (within the meaning of section 267(b)

10 or 707(b)) to the individual.

11 For purposes of this paragraph, the term ‘relative’

12 means an individual bearing a relationship to the in13 dividual which is described in paragraphs (1)

14 through (8) of section 152(a).’’

15 (d) TECHNICAL AMENDMENTS.—

16 (1) Subparagraph (D) of section 213(d)(1) (as

17 redesignated by subsection (a)) is amended to read

18 as follows:

19 ‘‘(D) for insurance (including amounts

20 paid as premiums under part B of title XVIII

21 of the Social Security Act, relating to supple22 mentary medical insurance for the aged) cover23 ing medical care referred to in—

24 ‘‘(i) subparagraphs (A) and (B), or
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1 ‘‘(ii) subparagraph (C), but only if

2 such insurance is provided under a quali3 fied long-term care insurance policy (as de4 fined in section 7702B(b)) and the amount

5 paid for such insurance is not disallowed

6 under section 7702B(d)(4).’’

7 (2) Paragraph (6) of section 213(d) is amend8 ed—

9 (A) by striking ‘‘subparagraphs (A) and

10 (B)’’ and inserting ‘‘subparagraph (A), (B),

11 and (C)’’, and

12 (B) by striking ‘‘paragraph (1)(C)’’ in sub13 paragraph (A) and inserting ‘‘paragraph

14 (1)(D)’’.

15 (e) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to taxable years beginning after

17 December 31, 1996.

18 SEC. 203. TREATMENT OF LONG-TERM CARE INSURANCE.

19 (a) GENERAL RULE.—Chapter 79 (relating to defini20 tions) is amended by inserting after section 7702A the fol21 lowing new section:

22 ‘‘SEC. 7702B. TREATMENT OF LONG-TERM CARE INSUR23 ANCE.

24 ‘‘(a) IN GENERAL.—For purposes of this title—
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1 ‘‘(1) a qualified long-term care insurance policy

2 (as defined in subsection (b)) shall be treated as an

3 accident and health insurance contract,

4 ‘‘(2) amounts (other than policyholder dividends

5 (as defined in section 808) or premium refunds) re6 ceived under a qualified long-term care insurance

7 policy shall be treated as amounts received for per8 sonal injuries and sickness and shall be treated as

9 reimbursement for expenses actually incurred for

10 medical care (as defined in section 213(d)),

11 ‘‘(3) any plan of an employer providing cov12 erage under a qualified long-term care insurance pol13 icy shall be treated as an accident and health plan

14 with respect to such coverage,

15 ‘‘(4) amounts paid for a qualified long-term

16 care insurance policy providing the benefits de17 scribed in subsection (b)(6)(B) shall be treated as

18 payments made for insurance for purposes of section

19 213(d)(1)(D), and

20 ‘‘(5) a qualified long-term care insurance policy

21 shall be treated as a guaranteed renewable contract

22 subject to the rules of section 816(e).

23 ‘‘(b) QUALIFIED LONG-TERM CARE INSURANCE POL24 ICY.—For purposes of this title—
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1 ‘‘(1) IN GENERAL.—The term ‘qualified long2 term care insurance policy’ means any long-term

3 care insurance policy (as defined in section 302(9)

4 of the Comprehensive Long-Term Care Reform Act

5 of 1995) that—

6 ‘‘(A) satisfies the requirements of title III

7 of such Act,

8 ‘‘(B) limits benefits under such policy to

9 individuals who are certified by a licensed pro10 fessional (as defined in section 213(g)(4)) with11 in the preceding 12-month period as being un12 able to perform, without substantial assistance

13 from another individual (including assistance

14 involving cueing or substantial supervision), 2

15 or more activities of daily living (of those se16 lected under section 213(g)(3)(B)), or who have

17 a severe cognitive impairment (as defined in

18 section 213(g)(2)(B)), and

19 ‘‘(C) satisfies the requirements of para20 graphs (2), (3), (4), (5), and (6).

21 ‘‘(2) PREMIUM REQUIREMENTS.—The require22 ments of this paragraph are met with respect to a

23 policy if such policy provides that premium pay24 ments may not be made earlier than the date such

25 payments would have been made if the contract pro-
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1 vided for level annual payments over the life expect2 ancy of the insured. A policy shall not be treated as

3 failing to meet the requirements of the preceding

4 sentence solely by reason of a provision in the policy

5 providing for a waiver of premiums if the insured

6 becomes an individual certified in accordance with

7 paragraph (1)(B).

8 ‘‘(3) PROHIBITION OF CASH VALUE.—The re9 quirements of this paragraph are met if the policy

10 does not provide for a cash value or other money

11 that can be paid, assigned, pledged as collateral for

12 a loan, or borrowed, other than as provided in para13 graph (4).

14 ‘‘(4) REFUNDS OF PREMIUMS AND DIVI15 DENDS.—The requirements of this paragraph are

16 met with respect to a policy if such policy provides

17 that—

18 ‘‘(A) policyholder dividends are required to

19 be applied as a reduction in future premiums

20 or, to the extent permitted under paragraph

21 (6), to increase benefits described in subsection

22 (a)(2), and

23 ‘‘(B) refunds of premiums upon a partial

24 surrender or a partial cancellation are required
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1 to be applied as a reduction in future pre2 miums, and

3 ‘‘(C) any refund on the death of the in4 sured, or on a complete surrender or cancella5 tion of the policy, cannot exceed the aggregate

6 premiums paid under the contract.

7 Any refund on a complete surrender or cancellation

8 of the policy shall be includible in gross income to

9 the extent that any deduction or exclusion was allow10 able with respect to the premiums.

11 ‘‘(5) COORDINATION WITH OTHER ENTITLE12 MENTS.—The requirements of this paragraph are

13 met with respect to a policy if such policy does not

14 cover expenses incurred to the extent that such ex15 penses are covered under the health coverage de16 scribed in section 322 of the Comprehensive Long17 Term Care Reform Act of 1995.

18 ‘‘(6) MAXIMUM BENEFIT.—

19 ‘‘(A) IN GENERAL.—The requirements of

20 this paragraph are met if the benefits payable

21 under the policy for any period (whether on a

22 periodic basis or otherwise) shall not exceed the

23 dollar amount in effect for such period.

24 ‘‘(B) NONREIMBURSEMENT PAYMENTS

25 PERMITTED.—Benefits shall include all pay-
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1 ments described in subsection (a)(2) to or on

2 behalf of an insured individual without regard

3 to the expenses incurred during the period to

4 which the payments relate. For purposes of sec5 tion 213(a), such payments shall be treated as

6 compensation for expenses paid for medical

7 care.

8 ‘‘(C) DOLLAR AMOUNT.—The dollar

9 amount in effect under this paragraph shall be

10 $150 per day (or the equivalent amount within

11 the calendar year in the case of payments on

12 other than a per diem basis).

13 ‘‘(D) ADJUSTMENTS FOR INCREASED

14 COSTS.—

15 ‘‘(i) IN GENERAL.—In the case of any

16 calendar year after 1998, the dollar

17 amount in effect under subparagraph (C)

18 for any period or portion thereof occurring

19 during such calendar year shall be equal to

20 the sum of—

21 ‘‘(I) the amount in effect under

22 subparagraph (C) for the preceding

23 calendar year (after application of this

24 subparagraph), plus
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1 ‘‘(II) the product of the amount

2 referred to in subclause (I) multiplied

3 by the cost-of-living adjustment for

4 the calendar year of the amount

5 under subclause (I).

6 ‘‘(ii) COST-OF-LIVING ADJUSTMENT.—

7 For purposes of clause (i), the cost-of-liv8 ing adjustment for any calendar year is the

9 percentage (if any) by which the cost index

10 under clause (iii) for the preceding cal11 endar year exceeds such index for the sec12 ond preceding calendar year.

13 ‘‘(iii) COST INDEX.—The Secretary, in

14 consultation with the Secretary of Health

15 and Human Services, shall before July 1,

16 1997, establish a cost index to measure in17 creases in costs of nursing home and simi18 lar facilities. The Secretary may from time

19 to time revise such index to the extent nec20 essary to accurately measure increases or

21 decreases in such costs.

22 ‘‘(iv) SPECIAL RULE FOR CALENDAR

23 YEAR 1999.—Notwithstanding clause (ii),

24 for purposes of clause (i), the cost-of-living

25 adjustment for calendar year 1999 is the
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sum of 11 1 ⁄2 percent plus the percentage by

2 which the CPI for calendar year 1998 (as

3 defined in section 1(f)(4)) exceeds the CPI

4 for calendar year 1997 (as so defined).

5 ‘‘(E) PERIOD.—For purposes of this para6 graph, a period begins on the date that an indi7 vidual has a condition which would qualify for

8 certification under subsection (b)(1)(B) and

9 ends on the earlier of the date upon which—

10 ‘‘(i) such individual has not been so

11 certified within the preceding 12-months,

12 or

13 ‘‘(ii) the individual’s condition ceases

14 to be such as to qualify for certification

15 under subsection (b)(1)(B).

16 ‘‘(F) AGGREGATION RULE.—For purposes

17 of this paragraph, all policies issued with re18 spect to the same insured shall be treated as

19 one policy.

20 ‘‘(c) TREATMENT OF LONG-TERM CARE INSURANCE

21 POLICIES.—For purposes of this title, any amount re22 ceived or coverage provided under a long-term care insur23 ance policy that is not a qualified long-term care insurance

24 policy shall not be treated as an amount received for per25 sonal injuries or sickness or provided under an accident
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1 and health plan and shall not be treated as excludible from

2 gross income under any provision of this title.

3 ‘‘(d) TREATMENT OF COVERAGE PROVIDED AS PART

4 OF A LIFE INSURANCE CONTRACT.—Except as otherwise

5 provided in regulations prescribed by the Secretary, in the

6 case of any long-term care insurance coverage (whether

7 or not qualified) provided by rider on a life insurance con8 tract—

9 ‘‘(1) IN GENERAL.—This section shall apply as

10 if the portion of the contract providing such cov11 erage is a separate contract or policy.

12 ‘‘(2) PREMIUMS AND CHARGES FOR LONG-TERM

13 CARE COVERAGE.—Premium payments for coverage

14 under a long-term care insurance policy and charges

15 against the life insurance contract’s cash surrender

16 value (within the meaning of section 7702(f)(2)(A))

17 for such coverage shall be treated as premiums for

18 purposes of subsection (b)(2).

19 ‘‘(3) APPLICATION OF 7702.—Section

20 7702(c)(2) (relating to the guideline premium limi21 tation) shall be applied by increasing the guideline

22 premium limitation with respect to a life insurance

23 contract, as of any date—
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1 ‘‘(A) by the sum of any charges (but not

2 premium payments) described in paragraph (2)

3 made to that date under the contract, less

4 ‘‘(B) any such charges the imposition of

5 which reduces the premiums paid for the con6 tract (within the meaning of section

7 7702(f)(1)).

8 ‘‘(4) APPLICATION OF SECTION 213.—No deduc9 tion shall be allowed under section 213(a) for

10 charges against the life insurance contract’s cash

11 surrender value described in paragraph (2), unless

12 such charges are includible in income as a result of

13 the application of section 72(e)(10) and the coverage

14 provided by the rider is a qualified long-term care

15 insurance policy under subsection (b).

16 For purposes of this subsection, the term ‘portion’ means

17 only the terms and benefits under a life insurance contract

18 that are in addition to the terms and benefits under the

19 contract without regard to the coverage under a long-term

20 care insurance policy.

21 ‘‘(e) PROHIBITION OF DISCRIMINATION.—

22 ‘‘(1) IN GENERAL.—Notwithstanding subsection

23 (a)(3), any plan of an employer providing coverage

24 under a qualified long-term care insurance policy
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1 shall qualify as an accident and health plan with re2 spect to such coverage only if—

3 ‘‘(A) the plan allows all employees, except

4 as provided in paragraph (2), to participate,

5 and

6 ‘‘(B) the benefits provided under the plan

7 are identical for all employees that choose to

8 participate.

9 ‘‘(2) EXCLUSION OF CERTAIN EMPLOYEES.—

10 For purposes of paragraph (1), there may be ex11 cluded from consideration—

12 ‘‘(A) employees who have not completed 3

13 years of service;

14 ‘‘(B) employees who have not attained age

15 25;

16 ‘‘(C) part-time or seasonal employees; and

17 ‘‘(D) employees who are nonresident aliens

18 and who receive no earned income (within the

19 meaning of section 911(d)(2)) from the em20 ployer which constitutes income from sources

21 within the United States (within the meaning of

22 section 861(a)(3)).

23 ‘‘(f) REGULATIONS.—The Secretary shall prescribe

24 such regulations as may be necessary to carry out the re25 quirements of this section, including regulations to prevent
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1 the avoidance of this section by providing long-term care

2 insurance coverage under a life insurance contract and to

3 provide for the proper allocation of amounts between the

4 long-term care and life insurance portions of a contract.’’.

5 (b) CLERICAL AMENDMENT.—The table of sections

6 for chapter 79 is amended by inserting after the item re7 lating to section 7702A the following new item:

‘‘Sec. 7702B. Treatment of long-term care insurance.’’.

8 (c) EFFECTIVE DATE.—

9 (1) IN GENERAL.—The amendments made by

10 this section shall apply to policies issued after De11 cember 31, 1997. Solely for purposes of the preced12 ing sentence, a policy issued prior to January 1,

13 1998, that satisfies the requirements of a qualified

14 long-term care insurance policy as set forth in sec15 tion 7702B(b) or the requirements of model laws

16 and regulations of the National Association of Insur17 ance Commissioners (relating to long-term care in18 surance policies) as of the date the policy was is19 sued, shall, on and after January 1, 1998, be treat20 ed as being issued after December 31, 1997.

21 (2) TRANSITION RULE.—If, after the date of

22 enactment of this Act and before January 1, 1998,

23 a policy providing for long-term care insurance cov24 erage is exchanged solely for a qualified long-term

25 care insurance policy (as defined in section
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1 7702B(b)), no gain or loss shall be recognized on

2 the exchange. If, in addition to a qualified long-term

3 care insurance policy, money or other property is re4 ceived in the exchange, then any gain shall be recog5 nized to the extent of the sum of the money and the

6 fair market value of the other property received. For

7 purposes of this paragraph, the cancellation of a pol8 icy providing for long-term care insurance coverage

9 and reinvestment of the cancellation proceeds in a

10 qualified long-term care insurance policy within 60

11 days thereafter shall be treated as an exchange.

12 (3) ISSUANCE OF CERTAIN RIDERS PER13 MITTED.—For purposes of determining whether sec14 tion 7702 or 7702A of the Internal Revenue Code

15 of 1986 applies to any contract, the issuance, wheth16 er before, on, or after December 31, 1997, of a rider

17 on a life insurance contract providing long-term care

18 insurance coverage shall not be treated as a modi19 fication or material change of such contract.

20 SEC. 204. TAX TREATMENT OF ACCELERATED DEATH BENE21 FITS UNDER LIFE INSURANCE CONTRACTS.

22 (a) GENERAL RULE.—Section 101 (relating to cer23 tain death benefits) is amended by adding at the end

24 thereof the following new subsection:
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1 ‘‘(g) TREATMENT OF CERTAIN ACCELERATED

2 DEATH BENEFITS.—

3 ‘‘(1) IN GENERAL.—For purposes of this sec4 tion, any amount distributed to an individual under

5 a life insurance contract on the life of an insured

6 who is a terminally ill individual (as defined in para7 graph (3)) shall be treated as an amount paid by

8 reason of the death of such insured.

9 ‘‘(2) NECESSARY CONDITIONS.—

10 ‘‘(A) Paragraph (1) shall not apply to any

11 distribution unless—

12 ‘‘(i) the distribution is not less than

13 the present value (determined under sub14 paragraph (B)) of the reduction in the

15 death benefit otherwise payable in the

16 event of the death of the insured, and

17 ‘‘(ii) the percentage derived from di18 viding the cash surrender value of the con19 tract, if any, immediately after the dis20 tribution by the cash surrender value of

21 the contract immediately before the dis22 tribution is equal to or greater than the

23 percentage derived by dividing the death

24 benefit immediately after the distribution
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1 by the death benefit immediately before the

2 distribution.

3 ‘‘(B) The present value of the reduction in

4 the death benefit occurring on the distribution

5 must be determined by—

6 ‘‘(i) using as the discount rate a rate

7 not to exceed the highest rate set forth in

8 subparagraph (C), and

9 ‘‘(ii) assuming that the death benefit

10 (or the portion thereof) would have been

11 paid at the end of a period that is no more

12 than the insured’s life expectancy from the

13 date of the distribution or 12 months,

14 whichever is shorter.

15 ‘‘(C) RATES.—The rates set forth in this

16 subparagraph are the following:

17 ‘‘(i) the 90-day Treasury bill yield,

18 ‘‘(ii) the rate described as Moody’s

19 Corporate Bond Yield Average-Monthly

20 Average Corporates as published by

21 Moody’s Investors Service, Inc., or any

22 successor thereto for the calendar month

23 ending 2 months before the date on which

24 the rate is determined,
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1 ‘‘(iii) the rate used to compute the

2 cash surrender values under the contract

3 during the applicable period plus 1 percent

4 per annum, and

5 ‘‘(iv) the maximum permissible inter6 est rate applicable to policy loans under

7 the contract.

8 ‘‘(3) TERMINALLY ILL INDIVIDUAL.—For pur9 poses of this subsection, the term ‘terminally ill indi10 vidual’ means an individual who the insurer has de11 termined, after receipt of an acceptable certification

12 by a licensed physician, has an illness or physical

13 condition which can reasonably be expected to result

14 in death within 12 months of the date of certifi15 cation.

16 ‘‘(4) APPLICATION OF SECTION 72(e)(10).—For

17 purposes of section 72(e)(10) (relating to the treat18 ment of modified endowment contracts), section

19 72(e)(4)(A)(i) shall not apply to distributions de20 scribed in paragraph (1).’’

21 (b) EFFECTIVE DATE.—The amendment made by

22 subsection (a) shall apply to taxable years beginning after

23 December 31, 1996.
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1 SEC. 205. TAX TREATMENT OF COMPANIES ISSUING QUALI2 FIED ACCELERATED DEATH BENEFIT RID3 ERS.

4 (a) QUALIFIED ACCELERATED DEATH BENEFIT RID5 ERS TREATED AS LIFE INSURANCE.—Section 818 (relat6 ing to other definitions and special rules) is amended by

7 adding at the end thereof the following new subsection:

8 ‘‘(g) QUALIFIED ACCELERATED DEATH BENEFIT

9 RIDERS TREATED AS LIFE INSURANCE.—For purposes of

10 this part—

11 ‘‘(1) IN GENERAL.—Any reference to a life in12 surance contract shall be treated as including a ref13 erence to a qualified accelerated death benefit rider

14 on such contract.

15 ‘‘(2) QUALIFIED ACCELERATED DEATH BENE16 FIT RIDERS.—For purposes of this subsection, the

17 term ‘qualified accelerated death benefit rider’

18 means any rider on a life insurance contract which

19 provides for a distribution to an individual upon the

20 insured becoming a terminally ill individual (as de21 fined in section 101(g)(3)).’’

22 (b) DEFINITIONS OF LIFE INSURANCE AND MODI23 FIED ENDOWMENT CONTRACTS.—Paragraph (5)(A) of

24 section 7702(f) is amended by striking ‘‘or’’ at the end

25 of clause (iv), by redesignating clause (v) as clause (vi),

26 and by inserting after clause (iv) the following new clause:
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1 ‘‘(v) any qualified accelerated death

2 benefit rider (as defined in section 818(g)),

3 or’’.

4 (c) EFFECTIVE DATE.—

5 (1) IN GENERAL.—The amendments made by

6 this section shall apply to contracts issued after De7 cember 31, 1996.

8 (2) TRANSITIONAL RULE.—For purposes of de9 termining whether section 7702 or 7702A of the In10 ternal Revenue Code of 1986 applies to any con11 tract, the issuance, whether before, on, or after De12 cember 31, 1996, of a rider on a life insurance con13 tract permitting the acceleration of death benefits

14 (as described in section 101(g) of such Code) shall

15 not be treated as a modification or material change

16 of such contract.

17 SEC. 206. EXCLUSION FROM GROSS INCOME FOR AMOUNTS

18 WITHDRAWN FROM CERTAIN PLANS TO PAY

19 QUALIFIED LONG-TERM CARE INSURANCE

20 PREMIUMS.

21 (a) IN GENERAL.—Part III of subchapter B of chap22 ter 1 of the Internal Revenue Code of 1986 (relating to

23 items specifically excluded from gross income) is amended

24 by redesignating section 137 as section 138 and by insert25 ing after section 136 the following new section:
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1 ‘‘SEC. 137. AMOUNTS WITHDRAWN FROM CERTAIN PLANS

2 TO PAY QUALIFIED LONG-TERM CARE INSUR3 ANCE PREMIUMS.

4 ‘‘The gross income of an individual shall not include

5 any distribution from an individual retirement plan, or

6 from amounts attributable to employer contributions made

7 pursuant to elective deferrals described in subparagraph

8 (A) or (C) of section 402(g)(3) or section

9 501(c)(18)(D)(iii), if—

‘‘(1) such individual has attained age 591 10 ⁄2 be11 fore the date of such distribution, and

12 ‘‘(2) such distribution is used by such individual

13 (before the close of the 60th day after the day on

14 which such distribution is received) to pay premiums

15 on any qualified long-term care insurance policy (as

16 defined in section 7702B) covering such individual

17 or the spouse of such individual.’’

18 (b) CLERICAL AMENDMENT.—The table of sections

19 for such part III is amended by striking the last item and

20 inserting the following new items:

‘‘Sec. 137. Amounts withdrawn from certain plans to pay qualified long-term care insurance premiums.

‘‘Sec. 138. Cross references to other Acts.’’

21 (c) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to distributions after December 31,

23 1996, in taxable years ending after such date.
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1 SEC. 207. NONRECOGNITION OF GAIN ON SALE OF PRIN2 CIPAL RESIDENCE TO EXTENT PROCEEDS

3 USED FOR ENTRANCE INTO CONTINUING

4 CARE RETIREMENT COMMUNITY.

5 (a) IN GENERAL.—Section 1034 of the Internal Rev6 enue Code of 1986 (relating to rollover of gain of sale of

7 principal residence) is amended by redesignating sub8 section (l) as subsection (m) and by inserting after sub9 section (k) the following new subsection:

10 ‘‘(l) NONRECOGNITION OF GAIN IF NEW RESIDENCE

11 IS QUALIFIED CONTINUING CARE RETIREMENT COMMU12 NITY.—

13 ‘‘(1) IN GENERAL.—Gross income shall not in14 clude gain from the sale of the principal residence

15 of the taxpayer if—

16 ‘‘(A) the taxpayer attained age 55 before

17 the date of such sale, and

18 ‘‘(B) within the 2-year period beginning on

19 such date, the taxpayer has as his principal res20 idence a qualified continuing care retirement

21 community.

22 ‘‘(2) LIMITATION.—The amount excluded from

23 gross income under paragraph (1) shall not exceed

24 the amount paid by the taxpayer during such 2-year

25 period to such retirement community as an entrance
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1 fee in order for the taxpayer or his spouse (or both)

2 to reside in such community.

3 ‘‘(3) RECAPTURE IN CERTAIN CASES.—If the

4 taxpayer ceases to have as his principal residence

5 (other than by reason of death) a qualified continu6 ing care retirement community at any time during

7 the 2-year period beginning on the date such com8 munity began being the taxpayer’s principal resi9 dence, the amount excluded from gross income

10 under paragraph (1) shall be included in the tax11 payer’s gross income (as long-term capital gain) for

12 the taxable year in which such cessation occurs.

13 ‘‘(4) SPECIAL RULES FOR MARRIED INDIVID14 UALS.—In the case of a husband and wife who file

15 a joint return for the taxable year which includes the

16 date of the sale of the old residence—

17 ‘‘(A) the age requirement of paragraph

18 (1)(A) shall be treated as met if either spouse

19 meets such requirement, and

20 ‘‘(B) paragraph (3) shall be applied by

21 taking into account one-half of the gain with re22 spect to each spouse if such spouses do not file

23 a joint return for the taxable year in which the

24 cessation referred to in paragraph (3) occurs.
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1 ‘‘(5) QUALIFIED CONTINUING CARE RETIRE2 MENT COMMUNITY.—For purposes of this sub3 section, the term ‘qualified continuing care retire4 ment community’ has the meaning given such term

5 by section 7872(g).’’

6 (b) EFFECTIVE DATE.—The amendments made by

7 this section shall apply to old residences sold after Decem8 ber 31, 1996.

9 TITLE III—LONG-TERM CARE

10 INSURANCE REFORM

11 Subtitle A—General Provisions

12 SEC. 301. FEDERAL REGULATIONS; PRIOR APPLICATION OR

13 CERTAIN REQUIREMENTS.

14 (a) IN GENERAL.—The Secretary, with the advice

15 and assistance of the National Association of Insurance

16 Commissioners, as appropriate, shall promulgate regula17 tions as necessary to implement the provisions of this title,

18 in accordance with the timetable specified in subsection

19 (b).

20 (b) TIMETABLE FOR PUBLICATION OF REGULA21 TIONS.—

22 (1) FEDERAL REGISTER NOTICE.—Within 120

23 days after the date of the enactment of this Act, the

24 Secretary shall publish in the Federal Register a no25 tice setting forth the projected timetable for promul-
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1 gation of regulations required under this title. Such

2 timetable shall indicate which regulations are pro3 posed to be published by the end of the first, second,

4 and third years after the date of the enactment of

5 this Act.

6 (2) FINAL DEADLINE.—All regulations required

7 under this title shall be published by the end of the

8 third year after the date of the enactment of this

9 Act.

10 (3) REVISION OF REGULATIONS.—The Sec11 retary may periodically revise and update the regula12 tions published under this title. However, any such

13 revisions shall not become effective until States have

14 been provided an adequate period of time in which

15 to implement such revisions.

16 (4) CONGRESSIONAL DISAPPROVAL.—A regula17 tion, or revision or update of a regulation, under this

18 section shall take effect unless—

19 (A) the regulation, revision, or update is

20 submitted to Congress, and

21 (B) a joint resolution or Act disapproving

22 such regulation, revision, or update is enacted

23 before the end of the 60-day period beginning

24 on the date on which such regulation, revision,

25 or update is submitted.
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1 (c) PROVISIONS EFFECTIVE WITHOUT REGARD TO

2 PROMULGATION OF REGULATIONS.—

3 (1) IN GENERAL.—Notwithstanding any other

4 provision of this title, insurers shall be required, not

5 later than 6 months after the enactment of this Act,

6 regardless of whether final implementing regulations

7 have been promulgated by the Secretary, to comply

8 with the following provisions of this title:

9 (A) Section 321(c) (standard outline of

10 coverage).

11 (B) Section 321(d) (reporting to State in12 surance commissioners).

13 (C) Section 322(b) (preexisting condition

14 exclusions).

15 (D) Section 322(c) (limiting conditions on

16 benefits).

17 (E) Section 322(d) (inflation protection).

18 (F) Section 324 (sales practices).

19 (G) Section 325 (continuation, renewal, re20 placement, conversion, and cancellation of poli21 cies).

22 (H) Section 326 (payment of benefits).

23 (2) INTERIM REQUIREMENTS.—Before the ef24 fective date of applicable regulations promulgated by

25 the Secretary implementing requirements of this title
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1 as specified below, such requirements will be consid2 ered to be met—

3 (A) in the case of section 321(c) (requiring

4 a standard outline of coverage), if the long-term

5 care insurance policy meets the requirements of

6 section 6.G.(2) of the NAIC Model Act and of

7 section 24 of the NAIC Model Regulation;

8 (B) in the case of section 321(d) (requiring

9 reporting to the State insurance commissioner),

10 if the insurer meets the requirements of section

11 14 of the NAIC Model Regulation;

12 (C) in the case of section 322(c)(1) (gen13 eral requirements concerning limiting conditions

14 on benefits), if such policy meets the require15 ments of section 6.D. of the NAIC Model Act;

16 (D) in the case of section 322(c)(2) (limit17 ing conditions on home health care or commu18 nity-based services) if such policy meets the re19 quirements of section 11 of the NAIC Model

20 Regulations;

21 (E) in the case of section 322(d) (concern22 ing inflation protection), if the insurer meets

23 the requirements of section 12 of the NAIC

24 Model Regulation;
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1 (F) in the case of section 324(b) (concern2 ing applications for the purchase of insurance),

3 if the insurer meets the requirements of section

4 10 of the NAIC Model Regulation;

5 (G) in the case of section 324(g) (concern6 ing sales through employers or membership or7 ganizations), if the insurer and the membership

8 organization meet the requirements of section

9 21.C. of the NAIC Model Regulation;

10 (H) in the case of section 324(h) (concern11 ing interstate sales of group policies), if the in12 surer and the policy meet the requirements of

13 section 5 of the NAIC Model Act; and

14 (I) in the case of section 325(f) (concern15 ing continuation, renewal, replacement, and

16 conversion of policies), if the insurer and the

17 policy meet the requirements of section 7 of the

18 NAIC Model Regulation.

19 SEC. 302. DEFINITIONS.

20 For purposes of this title:

21 (1) ACTIVITY OF DAILY LIVING.—The term ‘‘ac22 tivity of daily living’’ means any of the following:

23 eating, toileting, dressing, bathing, transferring, and

24 continence.
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1 (2) ADULT DAY CARE.—The term ‘‘adult day

2 care’’ means a program providing social and health3 related services during the day to six or more adults

4 with disabilities (or such smaller number as the Sec5 retary may specify in regulations) in a community

6 group setting outside the home.

7 (3) CERTIFICATE.—The term ‘‘certificate’’

8 means a document issued to an individual as evi9 dence of such individual’s coverage under a group

10 insurance policy.

11 (4) CONTINUING CARE RETIREMENT COMMU12 NITY.—The term ‘‘continuing care retirement com13 munity’’ means a residential community operated by

14 a private entity that enters into contractual agree15 ments with residents under which such entity guar16 antees, in consideration for residents’ purchase of or

17 periodic payment for membership in the community,

18 to provide for such residents’ future long-term care

19 needs.

20 (5) DESIGNATED REPRESENTATIVE.—The term

21 ‘‘designated representative’’ means the person (if

22 any) designated by an insured individual (or, if such

23 individual is incapacitated, pursuant to an appro24 priate administrative or judicial procedure) to com-
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1 municate with the insurer on behalf of such individ2 ual in the event of such individual’s incapacitation.

3 (6) HOME HEALTH CARE.—The term ‘‘home

4 health care’’ means medical and nonmedical services

5 including such services as homemaker services, as6 sistance with activities of daily living, and respite

7 care provided to individuals in their residences.

8 (7) INSURED INDIVIDUAL.—The term ‘‘insured

9 individual’’ means, with respect to a long-term care

10 insurance policy, any individual who has coverage of

11 benefits under such policy.

12 (8) INSURER.—The term ‘‘insurer’’ means any

13 person that offers or sells an individual or group

14 long-term care insurance policy under which such

15 person is at risk for all or part of the cost of bene16 fits under the policy, and includes any agent of such

17 person.

18 (9) LONG-TERM CARE INSURANCE POLICY.—

19 The term ‘‘long-term care insurance policy’’ has the

20 meaning given that term in section 4 of the NAIC

21 Model Act, except that the last sentence of such sec22 tion shall not apply.

23 (10) NAIC.—The term ‘‘NAIC’’ means the Na24 tional Association of Insurance Commissioners.
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1 (11) NAIC MODEL ACT.—The term ‘‘NAIC

2 Model Act’’ means the Long-Term Care Insurance

3 Model Act published by the NAIC, as amended

4 through January 1993.

5 (12) NAIC MODEL REGULATION.—The term

6 ‘‘NAIC Model Regulation’’ means the Long-Term

7 Care Insurance Model Regulation published by the

8 NAIC, as amended through January 1993.

9 (13) NURSING FACILITY.—The term ‘‘nursing

10 facility’’ means a facility licensed by the State to

11 provide to residents—

12 (A) skilled nursing care and related serv13 ices for residents who require medical or nurs14 ing care;

15 (B) rehabilitation services for the rehabili16 tation of injured, disabled, or sick individuals,

17 or

18 (C) on a regular basis, health-related care

19 and services to individuals who because of their

20 mental or physical condition require care and

21 services (above the level of room and board)

22 which can be made available to them only

23 through institutional facilities.
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1 (14) POLICYHOLDER.—The term ‘‘policyholder’’

2 means the entity which is the holder of record of a

3 group long-term care insurance policy.

4 (15) RESIDENTIAL CARE FACILITY.—The term

5 ‘‘residential care facility’’ means a facility (including

6 a nursing facility) that—

7 (A) provides to residents medical or per8 sonal care services (including at a minimum as9 sistance with activities of daily living) in a set10 ting other than an individual or single-family

11 home, and

12 (B) does not provide services of a higher

13 level than can be provided by a nursing facility.

14 (16) RESPITE CARE.—The term ‘‘respite care’’

15 means the temporary provision of care (including as16 sistance with activities of daily living) to an individ17 ual, in the individual’s home or another setting in

18 the community, for the purpose of affording such in19 dividual’s unpaid caregiver a respite from the re20 sponsibilities of such care.

21 (17) STATE INSURANCE COMMISSIONER.—The

22 term ‘‘State insurance commissioner’’ means the

23 State official bearing such title, or, in the case of a

24 jurisdiction where such title is not used, the State
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1 official with primary responsibility for the regulation

2 of insurance.

3 Subtitle B—Federal Standards and

4 Requirements

5 SEC. 321. REQUIREMENTS TO FACILITATE UNDERSTAND6 ING AND COMPARISON OF BENEFITS.

7 (a) IN GENERAL.—The Secretary, after considering

8 (where appropriate) recommendations of the NAIC, shall

9 promulgate regulations designed to standardize formats

10 and terminology used in long-term care insurance policies,

11 to require insurers to provide to customers and bene12 ficiaries information on the range of public and private

13 long-term care coverage available, and to establish such

14 other requirements as may be appropriate to promote

15 consumer understanding and facilitate comparison of ben16 efits, which shall include at a minimum the requirements

17 specified in this section.

18 (b) UNIFORM TERMS, DEFINITIONS, AND FOR19 MATS.—Insurers shall be required to use, in long-term

20 care insurance policies, uniform terminology, definitions of

21 terms, and formats, in accordance with regulations pro22 mulgated by the Secretary, after considering recommenda23 tions of the NAIC.

24 (c) STANDARD OUTLINE OF COVERAGE.—
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1 (1) IN GENERAL.—Insurers shall be required to

2 develop for each long-term care insurance policy of3 fered or sold, to include as a part of each such pol4 icy, and to make available to each potential pur5 chaser and furnish to each insured individual and

6 policyholder, an outline of coverage under such pol7 icy that—

8 (A) includes the elements specified in para9 graph (2),

10 (B) is in a uniform format (as prescribed

11 by the Secretary on the basis of recommenda12 tions by the NAIC),

13 (C) accurately and clearly reflects the con14 tents of the policy, and

15 (D) is updated periodically on such time16 table as may be required by the Secretary (or

17 more frequently as necessary to reflect signifi18 cant changes in outlined information).

19 (2) CONTENTS OF OUTLINE.—The outline of

20 coverage for each long-term care insurance policy

21 shall include at least the following:

22 (A) BENEFITS.—A description of—

23 (i) the principal benefits covered, in24 cluding the extent of—
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1 (I) benefits for services furnished

2 in residential care facilities, and

3 (II) other benefits,

4 (ii) the principal exclusions from and

5 limitations on coverage,

6 (iii) the terms and conditions, if any,

7 upon which the insured individual may ob8 tain upgraded benefits, and

9 (iv) the threshold conditions for enti10 tlement to receive benefits.

11 (B) CONTINUATION, RENEWAL, AND CON12 VERSION.—A statement of the terms under

13 which a policy may be—

14 (i) returned (and premium refunded)

15 during an initial examination period,

16 (ii) continued in force or renewed,

17 (iii) converted to an individual policy

18 (in the case of coverage under a group pol19 icy),

20 (C) CANCELLATION.—A statement of the

21 circumstances in which a policy may be termi22 nated, and the refund or nonforfeitures benefits

23 (if any) applicable in each such circumstance,

24 including—

25 (i) death of the insured individual,
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1 (ii) nonpayment of premiums,

2 (iii) election by the insured individual

3 not to renew,

4 (iv) any other circumstance.

5 (D) PREMIUM.—A statement of—

6 (i) the total annual premium,

7 (ii) any reservation by the insurer of

8 a right to change premiums,

9 (iii) any expected premium increases

10 associated with automatic or optional bene11 fit increases (including inflation protec12 tion), and

13 (iv) any circumstances under which

14 payment of premium is waived.

15 (E) DECLARATION CONCERNING SUM16 MARY.—A statement, in bold face type on the

17 face of the document in language understand18 able to the average individual, that the outline

19 of coverage is a summary only, not a contract

20 of insurance, and that the policy contains the

21 contractual provisions that govern.

22 (F) COST/VALUE COMPARISON.—

23 (i) A comparison of benefits, over a

24 period of at least 20 years, for policies

25 with and without inflation protection.
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1 (ii) A declaration as to whether the

2 amount of benefits will increase over time,

3 and, if so, a statement of the type and

4 amount of, any limitations on, and any

5 premium increases for, such benefit in6 creases.

7 (G) TAX TREATMENT.—A statement of the

8 Federal income tax treatment of premiums and

9 benefits under the policy, as determined by the

10 Secretary of the Treasury.

11 (H) OTHER.—Such other information as

12 the Secretary may require.

13 (d) REPORTING TO STATE INSURANCE COMMIS14 SIONER.—Each insurer shall be required to report at least

15 annually, to the State insurance commissioner of each

16 State in which any long-term care insurance policy of the

17 insurer is sold, such information, in such format, as the

18 Secretary may specify with respect to each such policy,

19 including—

20 (1) the standard outline of coverage required

21 pursuant to subsection (c);

22 (2) lapse rates and replacement rates for such

23 policies (including, by percentage, the reasons for

24 the lapse);
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1 (3) the ratio of premiums collected to benefits

2 paid;

3 (4) reserves;

4 (5) written materials used in sale or promotion

5 of such policy; and

6 (6) any other information the Secretary may re7 quire.

8 SEC. 322. REQUIREMENTS RELATING TO COVERAGE.

9 (a) IN GENERAL.—The Secretary, after considering

10 (where appropriate) recommendations of the NAIC, shall

11 promulgate regulations establishing requirements with re12 spect to the terms of and benefits under long-term care

13 insurance policies, which shall include at a minimum the

14 requirements specified in this section.

15 (b) LIMITATIONS ON PREEXISTING CONDITION EX16 CLUSIONS.—

17 (1) INITIAL POLICIES.—A long-term care insur18 ance policy may not exclude or limit coverage for

19 any service or benefit, the need for which is the re20 sult of a medical condition or disability because an

21 insured individual received medical treatment for, or

22 was diagnosed as having, such condition before the

23 issuance of the policy, unless—

24 (A) the insurer, prior to issuance of the

25 policy, determines and documents (with evi-
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1 dence including written evidence that such con2 dition has been treated or diagnosed by a quali3 fied health care professional) that the insured

4 individual had such condition during the 6-

5 month period (or such longer period as the Sec6 retary may specify) ending on the effective date

7 of the policy; and

8 (B) the need or such service or benefit be9 gins within 6 months (or such longer period as

10 the Secretary may specify) following the effec11 tive date of the policy.

12 (2) REPLACEMENT POLICIES.—Solely for pur13 poses of the requirements of paragraph (1), with re14 spect to an insured individual, the effective date of

15 a long-term care insurance policy issued to replace

16 a previous policy, with respect to benefits which are

17 the same as or substantially equivalent to benefits

18 under such previous policy, shall be considered to be

19 the effective date of such previous policy with re20 spect to such individual.

21 (c) LIMITING CONDITIONS ON BENEFITS.—

22 (1) IN GENERAL.—A long-term care insurance

23 policy may not—

24 (A) condition eligibility for benefits for a

25 type of service on the need for or receipt of any
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1 other type of service (such as prior hospitaliza2 tion or institutionalization, or a higher level of

3 care than the care for which benefits are cov4 ered);

5 (B) condition eligibility for any benefit

6 (where the need for such benefit has been es7 tablished by an independent assessment of im8 pairment) on any particular medical diagnosis

9 (including any acute condition) or on one of a

10 group of diagnoses;

11 (C) condition eligibility for benefits fur12 nished by licensed or certified providers on com13 pliance by such providers with conditions not

14 required under Federal or State law; or

15 (D) condition coverage of any service on

16 provision of such service by a provider, or in a

17 setting, providing a higher level of care than

18 that required by an insured individual.

19 (2) HOME CARE OR COMMUNITY-BASED SERV20 ICES.—A long-term care insurance policy that pro21 vides benefits for any home care or community-based

22 services—

23 (A) may not limit such benefits to services

24 provided by registered nurses or licensed prac25 tical nurses;
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1 (B) may not limit such benefits to services

2 furnished by persons or entities participating in

3 programs under titles XVIII and XIX of the

4 Social Security Act and in part 1 of this title;

5 and

6 (C) must provide, at a minimum, benefits

7 for personal assistance with activities of daily

8 living, home health care, adult day care, and

9 respite care.

10 (3) NURSING FACILITY SERVICES.—A long-term

11 care insurance policy that provides benefits for any

12 nursing facility services—

13 (A) must provide benefits for such services

14 provided by all types of nursing facilities li15 censed by the State, and

16 (B) may provide benefits for care in other

17 residential facilities.

18 (4) PROHIBITION OF DISCRIMINATION BY DIAG19 NOSIS.—A long-term care insurance policy may not

20 provide for treatment of any of the following medical

21 conditions different from the treatment of any other

22 medical condition for purposes of determining

23 whether threshold conditions for the receipt of bene24 fits have been met, or the amount of benefits under

25 the policy:
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1 (A) Alzheimer’s disease or any other pro2 gressive degenerative dementia of an organic or3 igin.

4 (B) Any organic or inorganic mental ill5 ness.

6 (C) Mental retardation or any other cog7 nitive or mental impairment.

8 (D) HIV infection or AIDS.

9 (d) INFLATION PROTECTION.—

10 (1) REQUIREMENT TO OFFER.—An insurer of11 fering for sale any long-term care insurance policy

12 shall be required to afford the purchaser the option

13 to obtain coverage under such policy (upon payment

14 of increased premiums) of annual increases in bene15 fits at rates in accordance with paragraph (2).

16 (2) RATE INCREASE IN BENEFITS.—For pur17 poses of paragraph (1), the benefits under a policy

18 for each year shall be increased by a percentage of

19 the full value of benefits under the policy for the

20 previous year, which shall be not less than 5 percent

21 of such value.

22 (3) REQUIREMENT OF WRITTEN REJECTION.—

23 Inflation protection in accordance with paragraph

24 (1) may be excluded from the coverage under a pol25 icy only if the insured individual (or, if different, the
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1 person responsible for payment of premiums) has re2 jected in writing the option to obtain such coverage.

3 SEC. 323. REQUIREMENTS RELATING TO PREMIUMS.

4 (a) IN GENERAL.—The Secretary, after considering

5 (where appropriate) recommendations of the NAIC, shall

6 promulgate regulations establishing requirements applica7 ble to premiums for long-term care insurance policies,

8 which shall include at a minimum the requirements speci9 fied in this section.

10 (b) LIMITATIONS ON RATES AND INCREASES.—The

11 Secretary, after considering recommendations of the

12 NAIC, may establish by regulation such standards and re13 quirements as may be determined appropriate with respect

14 to—

15 (1) mandatory or optional State procedures for

16 review and approval of premium rates and rate in17 creases or decreases; and

18 (2) the factors to be taken into consideration by

19 an insurer in proposing, and by a State in approving

20 or disapproving, premium rates and increases.

21 SEC. 324. REQUIREMENTS RELATING TO SALES PRACTICES.

22 (a) IN GENERAL.—The Secretary, after considering

23 (where appropriate) recommendations of the NAIC, shall

24 promulgate regulations establishing requirements applica25 ble to the sale or offering for sale of long-term care insur-
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1 ance policies, which shall include at a minimum the re2 quirements specified in this section.

3 (b) APPLICATIONS.—Any insurer that offers any

4 long-term care insurance policy (including any group pol5 icy) shall be required to meet such requirements with re6 spect to the content, format, and use of application forms

7 for long-term care insurance as the Secretary may require

8 by regulation.

9 (c) AGENT TRAINING AND CERTIFICATION.—An in10 surer may not sell or offer for sale a long-term care insur11 ance policy through an agent who does not comply with

12 minimum standards with respect to training and certifi13 cation established by the Secretary after consideration of

14 recommendations by the NAIC.

15 (d) PROHIBITED SALES PRACTICES.—The following

16 practices by insurers shall be prohibited with respect to

17 the sale or offer for sale of long-term care insurance poli18 cies:

19 (1) FALSE AND MISLEADING REPRESENTA20 TIONS.—Making any statement or representation—

21 (A) which the insurer knows or should

22 know is false or misleading (including the inac23 curate, incomplete, or misleading comparison of

24 long-term care insurance policies or insurers),

25 and
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1 (B) which is intended, or would be likely,

2 to induce any person to purchase, retain, termi3 nate, forfeit, permit to lapse, pledge, assign,

4 borrow against, convert, or effect a change with

5 respect to, any long-term care insurance policy.

6 (2) INACCURATE COMPLETION OF MEDICAL

7 HISTORY.—Making or causing to be made (by any

8 means including failure to inquire about or to record

9 information relating to preexisting conditions) state10 ments or omissions, in records detailing the medical

11 history of an applicant for insurance, which the in12 surer knows or should know render such records

13 false, incomplete, or misleading in any way material

14 to such applicant’s eligibility for or coverage under

15 a long-term care insurance policy.

16 (3) UNDUE PRESSURE.—Employing force,

17 fright, threat, or other undue pressure, whether ex18 plicit or implicit, which is intended, or would be like19 ly, to induce the purchase of a long-term care insur20 ance policy.

21 (4) COLD LEAD ADVERTISING.—Using, directly

22 or indirectly, any method of contacting consumers

23 (including any method designed to induce consumers

24 to contact the insurer or agent) for the purpose of

25 inducing the purchase of long-term care insurance
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1 (regardless of whether such purpose is the sole or

2 primary purpose of the contact) without conspicu3 ously disclosing such purpose.

4 (e) PROHIBITION ON SALE OF DUPLICATE BENE5 FITS.—An insurer or agent may not sell or issue to an

6 individual a long-term care insurance policy that the in7 surer or agent knows or should know provides for coverage

8 that duplicates coverage already provided in another long9 term care insurance policy held by such individual (unless

10 the policy is intended to replace such other policy.

11 (f) SALES THROUGH EMPLOYERS OR MEMBERSHIP

12 ORGANIZATIONS.—

13 (1) REQUIREMENTS CONCERNING SUCH AR14 RANGEMENTS.—In any case where an employer, or15 ganization, association, or other entity (referred to

16 as a ‘‘membership entity’’) endorses a long-term

17 care insurance policy to, or such policy is marketed

18 or sold through such membership entity to, employ19 ees, members, or other individuals affiliated with

20 such membership entity, the insurer offering such

21 policy shall not permit its marketing or sale through

22 such entity unless the requirements of this sub23 section are met.

24 (2) DISCLOSURE AND INFORMATION REQUIRE25 MENTS.—A membership entity that endorses a long-
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1 term care insurance policy, or through which such

2 policy is sold, to individuals affiliated with such en3 tity, shall—

4 (A) disclose prominently, in a form and

5 manner designed to ensure that each such indi6 vidual who receives information concerning any

7 such policy through such entity is aware of and

8 understands such disclosure—

9 (i) the manner in which the insurer

10 and policy were selected;

11 (ii) the extent (if any) to which a per12 son independent of the insurer with exper13 tise in long-term care insurance analyzed

14 the advantages and disadvantages of such

15 policy from the standpoint of such individ16 uals (including such matters as the merits

17 of the policy compared to other available

18 benefit packages, and the financial stability

19 of the insurer), and the results of any such

20 analysis;

21 (iii) any organizational or financial

22 ties between the entity (or a related entity)

23 and the insurer (or a related entity);

24 (iv) the nature of compensation ar25 rangements (if any) and the amount of
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1 compensation (including all fees, commis2 sions, and other forms of financial sup3 port) for the endorsement or sale of such

4 policy (which amount may be stated as a

5 percental of the total annual premiums

6 earned); and

7 (B) make available to such individuals, ei8 ther directly or through referrals, appropriate

9 counseling to assist such individuals to make

10 educated and informed decisions concerning the

11 purchase of such policies.

12 SEC. 325. CONTINUATION, RENEWAL, REPLACEMENT, CON13 VERSION, AND CANCELLATION OF POLICIES.

14 (a) IN GENERAL.—The Secretary, after considering

15 (where appropriate) recommendations of the NAIC, shall

16 promulgate regulations establishing requirements applica17 ble to the renewal, replacement, conversion, and cancella18 tion of long-term care insurance policies, which shall in19 clude at a minimum the requirements specified in this sec20 tion.

21 (b) INSURED’S RIGHT TO CANCEL DURING EXAM22 INATION PERIOD.—Each individual insured (or, if dif23 ferent, each individual liable for payment of premiums)

24 under a long-term care insurance policy shall have the un25 conditional right to return the policy within 30 days after
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1 the date of its issuance and delivery, and to obtain a full

2 refund of any premium paid.

3 (c) INSURER’S RIGHT TO CANCEL (OR DENY BENE4 FITS) BASED ON FRAUD OR NONDISCLOSURE.—An in5 surer shall have the right to cancel a long-term care insur6 ance policy, or to refuse to pay a claim for benefits, based

7 on evidence that the insured falsely represented or failed

8 to disclose information material to the determination of

9 eligibility to purchase such insurance, but only if—

10 (1) the insurer presents written documentation,

11 developed at the time the insured applied for such

12 insurance, of the insurer’s request for the informa13 tion thus withheld or misrepresented, and the in14 sured individual’s response to such request;

15 (2) the insurer presents medical records or

16 other evidence showing that the insured individual

17 knew or should have known that such response was

18 false, incomplete, or misleading;

19 (3) notice of cancellation is furnished to the in20 sured individual before the date 3 years after the ef21 fective date of the policy (or such earlier date as the

22 Secretary may specify in regulations); and

23 (4) the insured individual is afforded the oppor24 tunity to review and refute the evidence presented by

25 the insurer pursuant to paragraphs (1) and (2).
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1 (d) INSURER’S RIGHT TO CANCEL FOR

2 NONPAYMENT OF PREMIUMS.—

3 (1) IN GENERAL.—Insurers shall have the right

4 to cancel long-term care insurance policies for

5 nonpayment of premiums, subject to the provisions

6 of this subsection and subsection (e) (relating to

7 nonforfeiture).

8 (2) NOTICE AND ACKNOWLEDGEMENT.—

9 (A) IN GENERAL.—The insurer may not

10 cancel coverage of an insured individual until—

11 (i) the insurer, not earlier than the

12 date when such payment is 30 days past

13 due, has given written notice to the insured

14 individual (by registered letter or the

15 equivalent) of such intent, and

16 (ii) 30 days have elapsed since the in17 surer obtained written acknowledgment of

18 receipt of such notice from the insured in19 dividual (or the designated representative,

20 at the insured individual’s option or in the

21 case of an insured individual determined to

22 be incapacitated in accordance with para23 graph (4)).

24 (B) ADDITIONAL REQUIREMENT FOR

25 GROUP POLICIES.—In the case of a group long-
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1 term care insurance policy, the notice and ac2 knowledgement requirements of subparagraph

3 (A) apply with respect to the policyholder and

4 to each insured individual.

5 (3) REINSTATEMENT OF COVERAGE OF INCA6 PACITATED INDIVIDUALS.—In any case where the

7 coverage of an individual under a long-term care in8 surance policy has been canceled pursuant to para9 graph (2), the insurer shall be required to reinstate

10 full coverage of such individual under such policy,

11 retroactive to the effective date of cancellation, if the

12 insurer receives from such individual (or the des13 ignated representative of such individual), within 5

14 months after such date—

15 (A) evidence of a determination of such in16 dividual’s incapacitation in accordance with

17 paragraph (4) (whether made before or after

18 such date), and

19 (B) payment of all premiums due and past

20 due, and all charges for late payment.

21 (4) DETERMINATION OF INCAPACITATION.—For

22 purposes of this subsection, the term ‘‘determination

23 of incapacitation’’ means a determination by a quali24 fied health professional (in accordance with such re25 quirements as the Secretary may specify), that an
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1 insured individual has suffered a cognitive impair2 ment which could reasonably be expected to render

3 the individual permanently unable to deal with busi4 ness or financial matters. The standard used to

5 make such determination shall not be more stringent

6 than the threshold conditions for the receipt of cov7 ered benefits.

8 (5) DESIGNATION OF REPRESENTATIVE.—The

9 insurer shall be required to notify the insured indi10 vidual, at the time of sale or issuance of a long-term

11 care insurance policy, of the individual’s right to

12 designate a representative for purposes of commu13 nication with the insurer concerning premium pay14 ments in the event the insured individual cannot be

15 located or is incapacitated.

16 (e) NONFORFEITURE.—

17 (1) IN GENERAL.—The Secretary, after consid18 eration of recommendations by the NAIC, shall by

19 regulation require appropriate nonforfeiture benefits

20 to be offered with respect to each long-term care in21 surance policy that lapses for any reason (including

22 nonpayment of premiums, cancellation, or failure to

23 renew, but excluding lapses due to death) after re24 maining in effect beyond a specified minimum

25 period.
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1 (2) NONFORFEITURE BENEFITS.—The stand2 ards established under this subsection shall require

3 that the amount or percentage of any such

4 nonforfeiture benefits shall increase proportionally

5 with the amount of premiums paid by a policyholder,

6 but shall not be required to exceed the asset share

7 remaining in the policy.

8 (f) CONTINUATION, RENEWAL, REPLACEMENT, AND

9 CONVERSION OF POLICIES.—

10 (1) IN GENERAL.—Insurers shall not be per11 mitted to cancel, or refuse to renew (or replace with

12 a substantial equivalent), any long-term care insur13 ance policy for any reason other than for fraud or

14 material misrepresentation (as provided in sub15 section (c)) or for nonpayment of premium (as pro16 vided in subsection (d)).

17 (2) DURATION AND RENEWAL OF POLICIES.—

18 Each long-term care insurance policy shall contain a

19 provision that clearly states—

20 (A) the duration of the policy,

21 (B) the right of the insured individual (or

22 policyholder) to renewal (or to replacement with

23 a substantial equivalent),
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1 (C) the date by which, and the manner in

2 which, the option to renew must be exercised,

3 and

4 (D) any applicable restrictions or limita5 tions (which may not be inconsistent with the

6 requirements of this title).

7 (3) REPLACEMENT OF POLICIES.—

8 (A) IN GENERAL.—Except as provided in

9 subparagraph (B), an insurer shall not be per10 mitted to sell any long-term care insurance pol11 icy as a replacement for another such policy un12 less coverage under such replacement policy is

13 available to an individual insured for benefits

14 covered under the previous policy to the same

15 extent as under such previous policy (including

16 every individual insured under a group policy)

17 on the date of termination of such previous pol18 icy, without exclusions or limitations that did

19 not apply under such previous policy.

20 (B) INSURED’S OPTION TO REDUCE COV21 ERAGE.—In any case where an insured individ22 ual covered under a long-term care insurance

23 policy knowingly and voluntarily elects to sub24 stitute for such policy a policy that provides less
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1 coverage, substitute policy shall be considered a

2 replacement policy for purposes of this title.

3 (3) CONTINUATION AND CONVERSION RIGHTS

4 WITH RESPECT TO GROUP POLICIES.—

5 (A) IN GENERAL.—Insurers shall be re6 quired to include in each group long-term care

7 insurance policy, a provision affording to each

8 insured individual, when such policy would oth9 erwise terminate, the opportunity (at the insur10 er’s option, subject to approval of the State in11 surance commissioner) either to continue or to

12 convert coverage under such policy in accord13 ance with this paragraph.

14 (B) RIGHTS OF RELATED INDIVIDUALS.—

15 In the case of any insured individual whose eli16 gibility for coverage under a group policy is

17 based on relationship to another individual, the

18 insurer shall be required to continue such cov19 erage upon termination of the relationship due

20 to divorce or death.

21 (C) CONTINUATION OF COVERAGE.—A

22 group policy shall be considered to meet the re23 quirements of this paragraph with respect to

24 rights of an insured individual to continuation

25 of coverage if coverage of the same (or substan-
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1 tially equivalent) benefits for such individual

2 under such policy is maintained, subject only to

3 timely payment of premiums.

4 (D) CONVERSION OF COVERAGE.—A group

5 policy shall be considered to meet the require6 ments of this paragraph with respect to conver7 sion if it entitles each individual who has been

8 continuously covered under the policy for at

9 least 6 months before the date of the termi10 nation to issuance of a replacement policy pro11 viding benefits identical to, substantially equiva12 lent to, or in excess of, the benefits under such

13 terminated group policy—

14 (i) without requiring evidence of in15 surability with respect to benefits covered

16 under such previous policy, and

17 (ii) at premium rates no higher than

18 would apply if the insured individual had

19 initially obtained coverage under such re20 placement policy on the date such insured

21 individual initially obtained coverage under

22 such group policy.

23 (4) TREATMENT OF SUBSTANTIAL EQUIVA24 LENCE.—
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1 (A) UNDER SECRETARY’S GUIDELINES.—

2 The Secretary, after considering recommenda3 tions by the NAIC, shall develop guidelines for

4 comparing long-term care insurance policies for

5 the purpose of determining whether benefits

6 under such policies are substantially equivalent.

7 (B) BEFORE EFFECTIVE DATE OF SEC8 RETARY’S GUIDELINES.—During the period

9 prior to the effective date of guidelines pub10 lished by the Secretary under this paragraph,

11 insurers shall comply with standards for deter12 minations of substantial equivalence established

13 by State insurance commissioners.

14 (5) ADDITIONAL REQUIREMENTS.—Insurers

15 shall comply with such other requirements relating

16 to continuation, renewal, replacement, and conver17 sion of long-term care insurance policies as the Sec18 retary may establish.

19 SEC. 326. REQUIREMENTS RELATING TO PAYMENT OF BEN20 EFITS.

21 (a) IN GENERAL.—The Secretary, after considering

22 (where appropriate) recommendations of the NAIC, shall

23 promulgate regulations establishing requirements with re24 spect to claims for and payment of benefits under long-
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1 term care insurance policies, which shall include at a mini2 mum the requirements specified in this section.

3 (b) STANDARDS RELATING TO THRESHOLD CONDI4 TIONS FOR RECEIPT OF COVERED BENEFITS.—Each

5 long-term care insurance policy shall meet the following

6 requirements with respect to identification of, and deter7 mination of whether an insured individual meets, the

8 threshold conditions for receipt of benefits covered under

9 such policy:

10 (1) DECLARATION OF THRESHOLD CONDI11 TIONS.—

12 (A) IN GENERAL.—The policy shall specify

13 the level (or levels) of functional or cognitive

14 mental impairment (or combination of impair15 ments) required as a threshold condition of en16 titlement to receive benefits under the policy

17 (which threshold condition or conditions shall

18 be consistent with any regulations promulgated

19 by the Secretary pursuant to subsection (B)).

20 (B) SECRETARIAL RESPONSIBILITY.—The

21 Secretary (after considering the views of the

22 NAIC on current practices of insurers concern23 ing, and the appropriateness of standardizing,

24 threshold conditions) may promulgate such reg25 ulations as the Secretary finds appropriate es-
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1 tablishing standardized thresholds to be used

2 under such policies as preconditions for varying

3 levels of benefits.

4 (2) INDEPENDENT PROFESSIONAL ASSESS5 MENT.—The policy shall provide for a procedure for

6 determining whether the threshold conditions speci7 fied under paragraph (1) have been met with respect

8 to an insured individual which—

9 (A) applies such uniform assessment

10 standards, procedures, and formats as the Sec11 retary may specify, after consideration of rec12 ommendations by the NAIC;

13 (B) permits an initial evaluation (or, if the

14 initial evaluation was performed by a qualified

15 independent assessor selected by the insurer, a

16 reevaluation) to be made by a qualified inde17 pendent assessor selected by the insured indi18 vidual (or designated representative) as to

19 whether the threshold conditions for receipt of

20 benefits have been met;

21 (C) permits the insurer the option to ob22 tain a reevaluation by a qualified independent

23 assessor selected and reimbursed by the insurer;
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1 (D) provides that the insurer will consider

2 that the threshold conditions have been met in

3 any case where—

4 (i) the assessment under subpara5 graph (B) concluded that such conditions

6 had been met, and the insurer declined the

7 option under subparagraph (C), or

8 (ii) assessments under both subpara9 graphs (B) and (C) concluded that such

10 conditions had been met; and

11 (E) provides for final resolution of the

12 question by a State agency or other impartial

13 third party in any case where assessments

14 under subparagraphs (B) and (C) reach incon15 sistent conclusions.

16 (3) QUALIFIED INDEPENDENT ASSESSOR.—For

17 purposes of paragraph (2), the term ‘‘qualified inde18 pendent assessor’’ means a licensed or certified pro19 fessional, as appropriate, who—

20 (A) meets such standards with respect to

21 professional qualifications as may be established

22 by the Secretary, after consulting with the Sec23 retary of the Treasury, and

24 (B) has no significant or controlling finan25 cial interest in, is not an employee of, and does
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1 not derive more than 5 percent of gross income

2 from, the insurer (or any provider of services

3 for which benefits are available under the policy

4 and in which the insurer has a significant or

5 controlling financial interest).

6 (c) REQUIREMENTS RELATING TO CLAIMS FOR BEN7 EFITS.—Insurers shall be required—

8 (1) to promptly pay or deny claims for benefits

9 submitted by (or on behalf of) insured individuals

10 who have been determined pursuant to subsection

11 (b) to meet the threshold conditions for payment of

12 benefits;

13 (2) to provide an explanation in writing of the

14 reasons for payment, partial payment, or denial of

15 each such claim; and

16 (3) to provide an administrative procedure

17 under which an insured individual may appeal the

18 denial of any claim.

19 Subtitle C—Enforcement

20 SEC. 341. STATE PROGRAMS FOR ENFORCEMENT OF

21 STANDARDS.

22 (a) REQUIREMENT FOR STATE PROGRAMS IMPLE23 MENTING FEDERAL STANDARDS.—In order for a State to

24 be eligible for grants under this subtitle, the State must

25 have in effect a program (including such laws and proce-
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1 dures as may be necessary) for the regulation of long-term

2 care insurance which the Secretary has determined—

3 (1) includes the elements required under this

4 title, and

5 (2) is designed to ensure the compliance of

6 long-term care insurance policies sold in the State,

7 and insurers offering such policies and their agents,

8 with the requirements established pursuant to sub9 title B.

10 (b) ACTIVITIES UNDER STATE PROGRAM.—A State

11 program approved under this subtitle shall provide for the

12 following procedures and activities:

13 (1) MONITORING OF INSURERS AND POLI14 CIES.—Procedures for ongoing monitoring of the

15 compliance of insurers doing business in the State,

16 and of long-term care insurance policies sold in the

17 State, with requirements under this subtitle, includ18 ing at least the following:

19 (A) POLICY REVIEW AND CERTIFI20 CATION.—A program for review and certifi21 cation (and annual recertification) of each such

22 policy sold in the State.

23 (B) REPORTING BY INSURERS.—Require24 ments of annual reporting by insurers selling or

25 servicing long-term care insurance policies in
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1 the State, in such form and containing such in2 formation as the State may require to deter3 mine whether the insurer (and policies) are in

4 compliance with requirements under this sub5 title.

6 (C) DATA COLLECTION.—Procedures for

7 collection, from insurers, service providers, in8 sured individuals, and others, of information re9 quired by the State for purposes of carrying out

10 its responsibilities under this subtitle (including

11 authority to compel compliance of insurers with

12 requests for such information).

13 (D) MARKETING OVERSIGHT.—Procedures

14 for monitoring (through sampling or other ap15 propriate procedures) the sales practices of in16 surers and agents, including review of market17 ing literature.

18 (E) OVERSIGHT OF ADMINISTRATION OF

19 BENEFITS.—Procedures for monitoring

20 (through sampling or other appropriate proce21 dures) insurers’ administration of benefits, in22 cluding monitoring of—

23 (i) determinations of insured individ24 uals’ eligibility to receive benefits, and

25 (ii) disposition of claims for payment.
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1 (2) CONSUMER COMPLAINTS AND DISPUTE RES2 OLUTION.—Administrative procedures for the inves3 tigation and resolution of complaints by consumers,

4 and disputes between consumers and insurers, with

5 respect to long-term care insurance, including—

6 (A) procedures for the filing, investigation,

7 and adjudication of consumer complaints with

8 respect to the compliance of insurers and poli9 cies with requirements under this subtitle, or

10 other requirements under State law; and

11 (B) procedures for resolution of disputes

12 between insured individuals and insurers con13 cerning eligibility for, or the amount of, benefits

14 payable under such policies, and other issues

15 with respect to the rights and responsibilities of

16 insurers and insured individuals under such

17 policies.

18 (3) TECHNICAL ASSISTANCE TO INSURERS.—

19 Provision of technical assistance to insurers to help

20 them to understand and comply with the require21 ments of this subtitle, and other State laws, concern22 ing long-term care insurance policies and business

23 practices.

24 (c) STATE ENFORCEMENT AUTHORITIES.—A State

25 program meeting the requirements of this subtitle shall
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1 ensure that the State insurance commissioner (or other

2 appropriate official or agency) has the following authority

3 with respect to long-term care insurers and policies:

4 (1) PROHIBITION OF SALE.—Authority to pro5 hibit the sale, or offering for sale, of any long-term

6 care insurance policy that fails to comply with all

7 applicable requirements under this subtitle.

8 (2) PLANS OF CORRECTION.—Authority, in

9 cases where the business practices of an insurer are

10 determined not to comply with requirements under

11 this subtitle, to require the insurer to develop, sub12 mit for State approval, and implement a plan of cor13 rection which must be fulfilled within the shortest

14 period possible (not to exceed a year) as a condition

15 of continuing to do business in the State.

16 (3) CORRECTIVE ACTION ORDERS.—Authority,

17 in cases where an insurer is determined to have

18 failed to comply with requirements of this subtitle,

19 or with the terms of a policy, with respect to a

20 consumer or insured individual, to direct the insurer

21 (subject to appropriate due process) to eliminate

22 such noncompliance within 30 days.

23 (4) CIVIL MONEY PENALTIES.—Authority to as24 sess civil money penalties, in amounts for each viola-
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1 tive act up to the greater of $10,000 or three times

2 the amount of any commission involved—

3 (A) for violations of subsections (d) (con4 cerning prohibited sales practices) and (e) (pro5 hibition on sale of duplicate benefits) of section

6 324,

7 (B) for such other violative acts as the

8 Secretary may specify in regulations, and

9 (C) in such other cases as the State finds

10 appropriate.

11 (5) OTHER AUTHORITIES.—Such other authori12 ties as the State finds necessary or appropriate to

13 enforce requirements under this subtitle.

14 (d) RECORDS, REPORTS, AND AUDITS.—As a condi15 tion of approval of its program under this subtitle, a State

16 must agree to maintain such records, make such reports

17 (including expenditure reports), and cooperate with such

18 audits, as the Secretary finds necessary to determine the

19 compliance of such State program (and insurers and poli20 cies regulated under such program) with the requirements

21 of this subtitle.

22 (e) SECRETARIAL RESPONSIBILITY FOR APPROVAL

23 OF STATE PROGRAMS.—The Secretary shall approve a

24 State program meeting the requirements of this subtitle.
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1 SEC. 342. AUTHORIZATION OF APPROPRIATIONS FOR

2 STATE PROGRAMS.

3 There are authorized to be appropriated $10,000,000

4 for fiscal year 1998, $10,000,000 for fiscal year 1999,

5 $7,500,000 for fiscal year 2000, and $5,000,000 for fiscal

6 year 2001 and each succeeding fiscal year, for grants to

7 States with programs meeting the requirements of this

8 subtitle, to remain available until expended.

9 SEC. 343. ALLOTMENTS TO STATES.

10 The allotment for any fiscal year to a State with a

11 program approved under this subtitle shall be an amount

12 determined by the Secretary, taking into account the num13 bers of long-term care insurance policies sold, and of elder14 ly individuals residing, in the State, and such other factors

15 as the Secretary finds appropriate.

16 SEC. 344. PAYMENTS TO STATES.

17 (a) IN GENERAL.—Each State with a program ap18 proved under this subtitle shall be entitled to payment

19 under this subtitle for each fiscal year in an amount equal

20 to its allotment for such fiscal year, for expenditure by

21 such State for up to 50 percent of the cost of activities

22 under such program.

23 (b) STATE SHARE OF PROGRAM EXPENDITURES.—

24 No Federal funds from any source may be used as any

25 part of the non-Federal share of expenditures under the

26 State program under this subtitle.
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1 (c) TRANSFER AND DEPOSIT REQUIREMENTS.—The

2 Secretary shall make payments under this section in ac3 cordance with section 6503 of title 31, United States

4 Code.

5 SEC. 345. FEDERAL OVERSIGHT OF STATE ENFORCEMENT.

6 (a) IN GENERAL.—The Secretary shall periodically

7 review State regulatory programs approved under section

8 341 to determine whether they continue to comply with

9 the requirements of this subtitle.

10 (b) NOTICE OF DETERMINATION OF NONCOMPLI11 ANCE.—The Secretary shall promptly notify the State of

12 a determination that a State program fails to comply with

13 this subtitle, specifying the requirement or requirements

14 not met and the elements of the State program requiring

15 correction.

16 (c) OPPORTUNITY FOR CORRECTION.—

17 (1) IN GENERAL.—The Secretary shall afford a

18 State notified of noncompliance pursuant to sub19 section (b) a reasonable opportunity to eliminate

20 such noncompliance.

21 (2) CORRECTION PLANS.—In a case where sub22 stantial corrections are needed to eliminate non23 compliance of a State program, the Secretary may—

24 (A) permit the State a reasonable time

25 after the date of the notice pursuant to sub-
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1 section (b) to develop and obtain the Sec2 retary’s approval of a correction plan, and

3 (B) permit the State a reasonable time

4 after the date of approval of such plan to elimi5 nate the noncompliance.

6 (d) WITHDRAWAL OF PROGRAM APPROVAL.—In the

7 case of a State that fails to eliminate noncompliance with

8 requirements under this subtitle by the date specified by

9 the Secretary pursuant to subsection (c), the Secretary

10 shall withdraw the approval of the State program pursu11 ant to section 341(e).

12 Subtitle D—Recommendations for

13 Consumer Education Program

14 SEC. 361. RECOMMENDATIONS FOR CONSUMER EDU15 CATION PROGRAM.

16 (a) DESIGN.—

17 (1) IN GENERAL.—The Secretary shall design

18 programs for educating consumers concerning long19 term care and long-term care insurance.

20 (2) GOALS.—The programs shall be designed to

21 achieve the goals of increasing consumers’ under22 standing and awareness of options available to them

23 with respect to long-term care insurance (and alter24 natives, such as public long-term care programs), in25 cluding—
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1 (A) the risk of needing long-term care;

2 (B) the costs associated with long-term

3 care services;

4 (C) the lack of long-term care coverage

5 under the Medicare program, Medicare supple6 mental (Medigap) policies, and standard private

7 health insurance;

8 (D) the limitations on (and conditions of

9 eligibility for) long-term care coverage under

10 State programs;

11 (E) the availability, and variations in cov12 erage and cost, of private long-term care insur13 ance;

14 (F) features common to many private long15 term care insurance policies; and

16 (G) pitfalls to avoid when purchasing a

17 long-term care insurance policy.

18 (3) ACTIVITIES.—The program may include—

19 (A) improving coordination of the activities

20 of State agencies and private entities;

21 (B) collecting, analyzing, publishing, and

22 disseminating information,

23 (C) conducting or sponsoring of consumer

24 education, outreach, and information programs,

25 and
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1 (D) providing (directly or through referral)

2 counseling and consultation services to consum3 ers to assist them in choosing long-term care

4 insurance coverage appropriate to their cir5 cumstances.

6 (b) REPORT TO CONGRESS.—The Secretary shall

7 submit to Congress a specific legislative proposal to pro8 vide for the authorization of appropriations of Federal

9 funds to support the program design completed under sub10 section (a).

11 TITLE IV—FINANCING

12 SEC. 401. PHASE IN OF 24-CENT/PACK INCREASE IN EXCISE

13 TAXES ON CIGARETTES.

14 (a) CIGARETTES.—Subsection (b) of section 5701 of

15 the Internal Revenue Code of 1986 is amended—

16 (1) by striking ‘‘$12 per thousand ($10 per

17 thousand on cigarettes removed during 1991 or

18 1992)’’ in paragraph (1) and inserting ‘‘$24 per

19 thousand ($20 per thousand on cigarettes removed

20 during 1999, $16 per thousand on cigarettes re21 moved during 1998)’’, and

22 (2) by striking ‘‘$25.20 per thousand ($21 per

23 thousand on cigarettes removed during 1991 or

24 1992)’’ in paragraph (2) and inserting ‘‘$50.40 per

25 thousand ($42 per thousand on cigarettes removed
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1 during 1999, $33.60 per thousand on cigarettes re2 moved during 1998)’’.

3 (b) EFFECTIVE DATE.—The amendment made by

4 subsection (a) shall apply to cigarettes removed after De5 cember 31, 1997.

6 (c) FLOOR STOCKS TAXES.—

7 (1) IMPOSITION OF TAX.—On cigarettes manu8 factured in or imported into the United States which

9 are removed before any tax-increase date and held

10 on such date for sale by any person, there shall be

11 imposed the following taxes:

12 (A) SMALL CIGARETTES.—On cigarettes,

13 weighing not more than 3 pounds per thousand,

14 $4 per thousand.

15 (B) LARGE CIGARETTES.—On cigarettes

16 weighing more than 3 pounds per thousand,

17 $8.40 per thousand; except that, if more than

61 18 ⁄2 inches in length, they shall be taxable at

19 the rate prescribed for cigarettes weighing not

20 more than 3 pounds per thousand, counting

each 23 21 ⁄4 inches, or fraction thereof, of the

22 length of each as one cigarette.

23 (2) EXCEPTION FOR CERTAIN AMOUNTS OF

24 CIGARETTES.—
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1 (A) IN GENERAL.—No tax shall be im2 posed by paragraph (1) on cigarettes held on

3 any tax-increase date by any person if—

4 (i) the aggregate number of cigarettes

5 held by such person on such date does not

6 exceed 30,000, and

7 (ii) such person submits to the Sec8 retary (at the time and in the manner re9 quired by the Secretary) such information

10 as the Secretary shall require for purposes

11 of this subparagraph.

12 For purposes of this subparagraph, in the case

of cigarettes measuring more than 61 13 ⁄2 inches

in length, each 23 14 ⁄4 inches (or fraction thereof)

15 of the length of each shall be counted as one

16 cigarette.

17 (B) AUTHORITY TO EXEMPT CIGARETTES

18 HELD IN VENDING MACHINES.—To the extent

19 provided in regulations prescribed by the Sec20 retary, no tax shall be imposed by paragraph

21 (1) on cigarettes held for retail sale on any tax22 increase date by any person in any vending ma23 chine. If the Secretary provides such a benefit

24 with respect to any person, the Secretary may

25 reduce the 30,000 amount in subparagraph (A)
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1 and the $60 amount in paragraph (3) with re2 spect to such person.

3 (3) CREDIT AGAINST TAX.—Each person shall

4 be allowed as a credit against the taxes imposed by

5 paragraph (1) an amount equal to $60. Such credit

6 shall not exceed the amount of taxes imposed by

7 paragraph (1) for which such person is liable.

8 (4) LIABILITY FOR TAX AND METHOD OF PAY9 MENT.—

10 (A) LIABILITY FOR TAX.—A person hold11 ing cigarettes on any tax-increase date to which

12 any tax imposed by paragraph (1) applies shall

13 be liable for such tax.

14 (B) METHOD OF PAYMENT.—The tax im15 posed by paragraph (1) shall be paid in such

16 manner as the Secretary shall prescribe by reg17 ulations.

18 (C) TIME FOR PAYMENT.—The tax im19 posed by paragraph (1) shall be paid on or be20 fore the 1st June 30 following the tax-increase

21 date.

22 (5) DEFINITIONS.—For purposes of this sub23 section—
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1 (A) TAX-INCREASE DATE.—The term ‘‘tax2 increase date’’ means January 1, 1998, Janu3 ary 1, 1999, and January 1, 2000.

4 (B) OTHER DEFINITIONS.—Terms used in

5 this subsection which are also used in section

6 5702 of the Internal Revenue Code of 1986

7 shall have the respective meanings such terms

8 have in such section.

9 (C) SECRETARY.—The term ‘‘Secretary’’

10 means the Secretary of the Treasury or his del11 egate.

12 (6) CONTROLLED GROUPS.—Rules similar to

13 the rules of section 5061(e)(3) of such Code shall

14 apply for purposes of this subsection.

15 (7) ARTICLES IN FOREIGN TRADE ZONES.—

16 Notwithstanding the Act of June 18, 1934 (48 Stat.

17 998, 19 U.S.C. 81a) and any other provision of law,

18 any article which is located in a foreign trade zone

19 on a tax-increase date shall be subject to the tax im20 posed by paragraph (1) if—

21 (A) internal revenue taxes have been deter22 mined, or customs duties liquidated, with re23 spect to such article before such date pursuant

24 to a request made under the 1st proviso of sec25 tion 3(a) of such Act, or
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1 (B) such article is held on such date under

2 the supervision of a customs officer pursuant to

3 the 2d proviso of such section 3(a).

4 (8) OTHER LAWS APPLICABLE.—All provisions

5 of law, including penalties, applicable with respect to

6 the taxes imposed by section 5701 of such Code

7 shall, insofar as applicable and not inconsistent with

8 the provisions of this subsection, apply to the floor

9 stocks taxes imposed by paragraph (1), to the same

10 extent as if such taxes were imposed by such section

11 5701.

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