104TH CONGRESS

2D SESSION H. R. 3103

AN ACT

To amend the Internal Revenue Code of 1986 to

surance, and for other purposes.erage, to simplify the administration of health inprove access to long-term care services and covmote the use of medical savings accounts, to imhealth insurance and health care delivery, to promarkets, to combat waste, fraud, and abuse insurance coverage in the group and individualimprove portability and continuity of health in-
104TH CONGRESS

2D SESSION H. R. 3103

AN ACT

To amend the Internal Revenue Code of 1986 to improve

portability and continuity of health insurance coverage

in the group and individual markets, to combat waste,

fraud, and abuse in health insurance and health care

delivery, to promote the use of medical savings accounts,

to improve access to long-term care services and cov-
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erage, to simplify the administration of health insurance,

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,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

5 ‘‘Health Coverage Availability and Affordability Act of

6 1996’’.

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

8 this Act is as follows:

Sec. 1. Short title; table of contents.

TITLE I—IMPROVED AVAILABILITY AND PORTABILITY OF

HEALTH INSURANCE COVERAGE

Subtitle A—Coverage Under Group Health Plans

Sec. 101. Portability of coverage for previously covered individuals.

Sec. 102. Limitation on preexisting condition exclusions; no application to certain newborns, adopted children, and pregnancy.

Sec. 103. Prohibiting exclusions based on health status and providing for enrollment periods.

Sec. 104. Enforcement.

Subtitle B—Certain Requirements for Insurers and HMOs in the Group and

Individual Markets

PART 1—AVAILABILITY OF GROUP HEALTH INSURANCE COVERAGE

Sec. 131. Guaranteed availability of general coverage in the small group market.

Sec. 132. Guaranteed renewability of group coverage.

PART 2—AVAILABILITY OF INDIVIDUAL HEALTH INSURANCE COVERAGE

Sec. 141. Guaranteed availability of individual health insurance coverage to certain individuals with prior group coverage.

Sec. 142. Guaranteed renewability of individual health insurance coverage.

PART 3—ENFORCEMENT

Sec. 151. Incorporation of provisions for State enforcement with Federal fallback authority.

Subtitle C—Affordable and Available Health Coverage Through Multiple

Employer Pooling Arrangements
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Sec. 161. Clarification of duty of the Secretary of Labor to implement provisions of current law providing for exemptions and solvency

standards for multiple employer health plans.

‘‘PART 7—RULES GOVERNING REGULATION OF MULTIPLE EMPLOYER

HEALTH PLANS

‘‘Sec. 701. Definitions.

‘‘Sec. 702. Clarification of duty of the Secretary to implement provisions

of current law providing for exemptions and solvency

standards for multiple employer health plans.

‘‘Sec. 703. Requirements relating to sponsors, boards of trustees, and plan

operations.

‘‘Sec. 704. Other requirements for exemption.

‘‘Sec. 705. Maintenance of reserves.

‘‘Sec. 706. Notice requirements for voluntary termination.

‘‘Sec. 707. Corrective actions and mandatory termination.

‘‘Sec. 708. Additional rules regarding State authority.

Sec. 162. Affordable and available fully insured health coverage through voluntary health insurance associations.

Sec. 163. State authority fully applicable to self-insured multiple employer welfare arrangements providing medical care which are not exempted under new part 7.

Sec. 164. Clarification of treatment of single employer arrangements.

Sec. 165. Clarification of treatment of certain collectively bargained arrangements.

Sec. 166. Treatment of church plans.

Sec. 167. Enforcement provisions relating to multiple employer welfare arrangements.

Sec. 168. Cooperation between Federal and State authorities.

Sec. 169. Filing and disclosure requirements for multiple employer welfare arrangements offering health benefits.

Sec. 170. Single annual filing for all participating employers.

Sec. 171. Effective date; transitional rule.

Subtitle D—Definitions; General Provisions

Sec. 191. Definitions; scope of coverage.

Sec. 192. State flexibility to provide greater protection.

Sec. 193. Effective date.

Sec. 194. Rule of construction.

Sec. 195. Findings relating to exercise of commerce clause authority.

TITLE II—PREVENTING HEALTH CARE FRAUD AND ABUSE;

ADMINISTRATIVE SIMPLIFICATION; MEDICAL LIABILITY REFORM

Sec. 200. References in title.

Subtitle A—Fraud and Abuse Control Program

Sec. 201. Fraud and abuse control program.

Sec. 202. Medicare integrity program.

Sec. 203. Beneficiary incentive programs.

Sec. 204. Application of certain health anti-fraud and abuse sanctions to fraud

and abuse against Federal health care programs.

Sec. 205. Guidance regarding application of health care fraud and abuse sanctions.
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Subtitle B—Revisions to Current Sanctions for Fraud and Abuse

Sec. 211. Mandatory exclusion from participation in medicare and State health

care programs.

Sec. 212. Establishment of minimum period of exclusion for certain individuals

and entities subject to permissive exclusion from medicare and

State health care programs.

Sec. 213. Permissive exclusion of individuals with ownership or control interest

in sanctioned entities.

Sec. 214. Sanctions against practitioners and persons for failure to comply with

statutory obligations.

Sec. 215. Intermediate sanctions for medicare health maintenance organizations.

Sec. 216. Additional exception to anti-kickback penalties for discounting and

managed care arrangements.

Sec. 217. Criminal penalty for fraudulent disposition of assets in order to obtain medicaid benefits.

Sec. 218. Effective date.

Subtitle C—Data Collection

Sec. 221. Establishment of the health care fraud and abuse data collection program.

Subtitle D—Civil Monetary Penalties

Sec. 231. Social security act civil monetary penalties.

Sec. 232. Clarification of level of intent required for imposition of sanctions.

Sec. 233. Penalty for false certification for home health services.

Subtitle E—Revisions to Criminal Law

Sec. 241. Definitions relating to Federal health care offense.

Sec. 242. Health care fraud.

Sec. 243. Theft or embezzlement.

Sec. 244. False statements.

Sec. 245. Obstruction of criminal investigations of health care offenses.

Sec. 246. Laundering of monetary instruments.

Sec. 247. Injunctive relief relating to health care offenses.

Sec. 248. Authorized investigative demand procedures.

Sec. 249. Forfeitures for Federal health care offenses.

Sec. 250. Relation to ERISA authority.

Subtitle F—Administrative Simplification

Sec. 251. Purpose.

Sec. 252. Administrative simplification.

‘‘PART C—ADMINISTRATIVE SIMPLIFICATION

‘‘Sec. 1171. Definitions.

‘‘Sec. 1172. General requirements for adoption of standards.

‘‘Sec. 1173. Standards for information transactions and data elements.

‘‘Sec. 1174. Timetables for adoption of standards.

‘‘Sec. 1175. Requirements.

‘‘Sec. 1176. General penalty for failure to comply with requirements and

standards.
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‘‘Sec. 1177. Wrongful disclosure of individually identifiable health information.

‘‘Sec. 1178. Effect on State law.

Sec. 253. Changes in membership and duties of National Committee on Vital

and Health Statistics.

Subtitle G—Duplication and Coordination of Medicare-Related Plans

Sec. 261. Duplication and coordination of medicare-related plans.

Subtitle H—Medical Liability Reform

PART 1—GENERAL PROVISIONS

Sec. 271. Federal reform of health care liability actions.

Sec. 272. Definitions.

Sec. 273. Effective date.

PART 2—UNIFORM STANDARDS FOR HEALTH CARE LIABILITY ACTIONS

Sec. 281. Statute of limitations.

Sec. 282. Calculation and payment of damages.

Sec. 283. Alternative dispute resolution.

TITLE III—TAX-RELATED HEALTH PROVISIONS

Sec. 300. Amendment of 1986 code.

Subtitle A—Medical Savings Accounts

Sec. 301. Medical savings accounts.

Subtitle B—Increase in Deduction for Health Insurance Costs of SelfEmployed Individuals

Sec. 311. Increase in deduction for health insurance costs of self-employed individuals.

Subtitle C—Long-Term Care Services and Contracts

PART I—GENERAL PROVISIONS

Sec. 321. Treatment of long-term care insurance.

Sec. 322. Qualified long-term care services treated as medical care.

Sec. 323. Reporting requirements.

PART II—CONSUMER PROTECTION PROVISIONS

Sec. 325. Policy requirements.

Sec. 326. Requirements for issuers of long-term care insurance policies.

Sec. 327. Coordination with State requirements.

Sec. 328. Effective dates.

Subtitle D—Treatment of Accelerated Death Benefits

Sec. 331. Treatment of accelerated death benefits by recipient.

Sec. 332. Tax treatment of companies issuing qualified accelerated death benefit riders.

Subtitle E—High-Risk Pools
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Sec. 341. Exemption from income tax for State-sponsored organizations providing health coverage for high-risk individuals.

Subtitle F—Organizations Subject to Section 833

Sec. 351. Organizations subject to section 833.

TITLE IV—REVENUE OFFSETS

Sec. 400. Amendment of 1986 Code.

Subtitle A—Repeal of Bad Debt Reserve Method for Thrift Savings

Associations

Sec. 401. Repeal of bad debt reserve method for thrift savings associations.

Subtitle B—Reform of the Earned Income Credit

Sec. 411. Earned income credit denied to individuals not authorized to be employed in the United States.

Subtitle C—Treatment of Individuals Who Lose United States Citizenship

Sec. 421. Revision of income, estate, and gift taxes on individuals who lose

United States citizenship.

Sec. 422. Information on individuals losing United States citizenship.

Sec. 423. Report on tax compliance by United States citizens and residents living abroad.

1 TITLE I—IMPROVED AVAILABIL2 ITY AND PORTABILITY OF

3 HEALTH INSURANCE COV4 ERAGE

5 Subtitle A—Coverage Under Group

6 Health Plans

7 SEC. 101. PORTABILITY OF COVERAGE FOR PREVIOUSLY

8 COVERED INDIVIDUALS.

9 (a) CREDITING PERIODS OF PREVIOUS COVERAGE

10 TOWARD PREEXISTING CONDITION RESTRICTIONS.—Sub11 ject to the succeeding provisions of this section, a group

12 health plan, and an insurer or health maintenance organi13 zation offering health insurance coverage in connection
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1 with a group health plan, shall provide that any preexist2 ing condition limitation period (as defined in subsection

3 (b)(2)) is reduced by the length of the aggregate period

4 of qualified prior coverage (if any, as defined in subsection

5 (b)(3)) applicable to the participant or beneficiary as of

6 the date of commencement of coverage under the plan.

7 (b) DEFINITIONS AND OTHER PROVISIONS RELAT8 ING TO PREEXISTING CONDITIONS.—

9 (1) PREEXISTING CONDITION.—

10 (A) IN GENERAL.—For purposes of this

11 subtitle, subject to subparagraph (B), the term

12 ‘‘preexisting condition’’ means a condition, re13 gardless of the cause of the condition, for which

14 medical advice, diagnosis, care, or treatment

15 was recommended or received within the 6-

16 month period ending on the day before—

17 (i) the effective date of the coverage

18 of such participant or beneficiary, or

19 (ii) the earliest date upon which such

20 coverage could have been effective if there

21 were no waiting period applicable,

22 whichever is earlier.

23 (B) TREATMENT OF GENETIC INFORMA24 TION.—For purposes of this section, genetic in25 formation shall not be considered to be a pre-
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1 existing condition, so long as treatment of the

2 condition to which the information is applicable

3 has not been sought during the 6-month period

4 described in subparagraph (A).

5 (2) PREEXISTING CONDITION LIMITATION PE6 RIOD.—For purposes of this subtitle, the term ‘‘pre7 existing condition limitation period’’ means, with re8 spect to coverage of an individual under a group

9 health plan or under health insurance coverage, the

10 period during which benefits with respect to treat11 ment of a condition of such individual are not pro12 vided based on the fact that the condition is a pre13 existing condition.

14 (3) AGGREGATE PERIOD OF QUALIFIED PRIOR

15 COVERAGE.—

16 (A) IN GENERAL.—For purposes of this

17 section, the term ‘‘aggregate period of qualified

18 prior coverage’’ means, with respect to com19 mencement of coverage of an individual under

20 a group health plan or health insurance cov21 erage offered in connection with a group health

22 plan, the aggregate of the qualified coverage pe23 riods (as defined in subparagraph (B)) of such

24 individual occurring before the date of such

25 commencement. Such period shall be treated as
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1 zero if there is more than a 60-day break in

2 coverage under a group health plan (or health

3 insurance coverage offered in connection with

4 such a plan) between the date the most recent

5 qualified coverage period ends and the date of

6 such commencement.

7 (B) QUALIFIED COVERAGE PERIOD.—

8 (i) IN GENERAL.—For purposes of

9 this paragraph, subject to subsection (c),

10 the term ‘‘qualified coverage period’’

11 means, with respect to an individual, any

12 period of coverage of the individual under

13 a group health plan, health insurance cov14 erage, under title XVIII or XIX of the So15 cial Security Act, coverage under the

16 TRICARE program under chapter 55 of

17 title 10, United States Code, a program of

18 the Indian Health Service, and State

19 health insurance coverage or risk pool, and

20 includes coverage under a health plan of21 fered under chapter 89 of title 5, United

22 States Code.

23 (ii) DISREGARDING PERIODS BEFORE

24 BREAKS IN COVERAGE.—Such term does

25 not include any period occurring before
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1 any 60-day break in coverage described in

2 subparagraph (A).

3 (C) WAITING PERIOD NOT TREATED AS A

4 BREAK IN COVERAGE.—For purposes of sub5 paragraphs (A) and (B), any period that is in

6 a waiting period for any coverage under a

7 group health plan (or for health insurance cov8 erage offered in connection with a group health

9 plan) shall not be considered to be a break in

10 coverage described in subparagraph (B)(ii).

11 (D) ESTABLISHMENT OF PERIOD.—A

12 qualified coverage period with respect to an in13 dividual shall be established through presen14 tation of certifications described in subsection

15 (c) or in such other manner as may be specified

16 in regulations to carry out this title.

17 (c) CERTIFICATIONS OF COVERAGE; CONFORMING

18 COVERAGE.—

19 (1) IN GENERAL.—The plan administrator of a

20 group health plan, or the insurer or HMO offering

21 health insurance coverage in connection with a group

22 health plan, shall, on request made on behalf of an

23 individual covered (or previously covered within the

24 previous 18 months) under the plan or coverage,

25 provide for a certification of the period of coverage
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1 of the individual under such plan or coverage and of

2 the waiting period (if any) imposed with respect to

3 the individual for any coverage under the plan.

4 (2) STANDARD METHOD.—Subject to paragraph

5 (3), a group health plan, or insurer or HMO offering

6 health insurance coverage in connection with a group

7 health plan, shall determine qualified coverage peri8 ods under subsection (b)(3)(B) by including all peri9 ods described in such subsection, without regard to

10 the specific benefits offered during such a period.

11 (3) ALTERNATIVE METHOD.—Such a plan, in12 surer, or HMO may elect to make such determina13 tion on a benefit-specific basis for all participants

14 and beneficiaries and not to include as a qualified

15 coverage period with respect to a specific benefit

16 coverage during a previous period unless such pre17 vious coverage for that benefit was included at the

18 end of the most recent period of coverage. In the

19 case of such an election—

20 (A) the plan, insurer, or HMO shall promi21 nently state in any disclosure statements con22 cerning the plan or coverage and to each en23 rollee at the time of enrollment under the plan

24 (or at the time the health insurance coverage is

25 offered for sale in the group health market)
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1 that the plan or coverage has made such elec2 tion and shall include a description of the effect

3 of this election; and

4 (B) upon the request of the plan, insurer,

5 or HMO, the entity providing a certification

6 under paragraph (1)—

7 (i) shall promptly disclose to the re8 questing plan, insurer, or HMO the plan

9 statement (insofar as it relates to health

10 benefits under the plan) or other detailed

11 benefit information on the benefits avail12 able under the previous plan or coverage,

13 and

14 (ii) may charge for the reasonable

15 cost of providing such information.

16 SEC. 102. LIMITATION ON PREEXISTING CONDITION EXCLU17 SIONS; NO APPLICATION TO CERTAIN

18 NEWBORNS, ADOPTED CHILDREN, AND PREG19 NANCY.

20 (a) LIMITATION OF PERIOD.—

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

22 provisions of this section, a group health plan, and

23 an insurer or HMO offering health insurance cov24 erage in connection with a group health plan, shall

25 provide that any preexisting condition limitation pe-
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1 riod (as defined in section 101(b)(2)) does not ex2 ceed 12 months, counting from the effective date of

3 coverage.

4 (2) EXTENSION OF PERIOD IN THE CASE OF

5 LATE ENROLLMENT.—In the case of a participant or

6 beneficiary whose initial coverage commences after

7 the date the participant or beneficiary first becomes

8 eligible for coverage under the group health plan,

9 the reference in paragraph (1) to ‘‘12 months’’ is

10 deemed a reference to ‘‘18 months’’.

11 (b) EXCLUSION NOT APPLICABLE TO CERTAIN

12 NEWBORNS AND CERTAIN ADOPTIONS.—

13 (1) IN GENERAL.—Subject to paragraph (2), a

14 group health plan, and an insurer or HMO offering

15 health insurance coverage in connection with a group

16 health plan, may not provide any limitation on bene17 fits based on the existence of a preexisting condition

18 in the case of—

19 (A) an individual who within the 30-day

20 period beginning with the date of birth, or

21 (B) an adopted child or a child placed for

22 adoption beginning at the time of adoption or

23 placement if the individual, within the 30-day

24 period beginning on the date of adoption or

25 placement,
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1 becomes covered under a group health plan or other2 wise becomes covered under health insurance cov3 erage (or covered for medical assistance under title

4 XIX of the Social Security Act).

5 (2) LOSS IF BREAK IN COVERAGE.—Paragraph

6 (1) shall no longer apply to an individual if the indi7 vidual does not have any coverage described in sec8 tion 101(b)(3)(B)(i) for a continuous period of 60

9 days, not counting in such period any days that are

10 in a waiting period for any coverage under a group

11 health plan.

12 (3) PLACED FOR ADOPTION DEFINED.—In this

13 subsection and section 103(e), the term ‘‘place14 ment’’, or being ‘‘placed’’, for adoption, in connec15 tion with any placement for adoption of a child with

16 any person, means the assumption and retention by

17 such person of a legal obligation for total or partial

18 support of such child in anticipation of adoption of

19 such child. The child’s placement with such person

20 terminates upon the termination of such legal obliga21 tion.

22 (c) EXCLUSION NOT APPLICABLE TO PREGNANCY.—

23 For purposes of this section, pregnancy shall not be treat24 ed as a preexisting condition.
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1 (d) ELIGIBILITY PERIOD IMPOSED BY HEALTH

2 MAINTENANCE ORGANIZATIONS AS ALTERNATIVE TO

3 PREEXISTING CONDITION LIMITATION.—A health mainte4 nance organization which offers health insurance coverage

5 in connection with a group health plan and which does

6 not use the preexisting condition limitations allowed under

7 this section and section 101 with respect to any particular

8 coverage option may impose an eligibility period for such

9 coverage option, but only if such period does not exceed—

10 (1) 60 days, in the case of a participant or ben11 eficiary whose initial coverage commences at the

12 time such participant or beneficiary first becomes el13 igible for coverage under the plan, or

14 (2) 90 days, in the case of a participant or ben15 eficiary whose initial coverage commences after the

16 date on which such participant or beneficiary first

17 becomes eligible for coverage.

18 Such an HMO may use alternative methods, from those

19 described in the previous sentence, to address adverse se20 lection as approved by the applicable State authority. For

21 purposes of this subsection, the term ‘‘eligibility period’’

22 means a period which, under the terms of the health insur23 ance coverage offered by the health maintenance organiza24 tion, must expire before the health insurance coverage be25 comes effective. Any such eligibility period shall be treated
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1 for purposes of this subtitle as a waiting period under the

2 plan and shall run concurrently with any other applicable

3 waiting period under the plan.

4 SEC. 103. PROHIBITING EXCLUSIONS BASED ON HEALTH

5 STATUS AND PROVIDING FOR ENROLLMENT

6 PERIODS.

7 (a) PROHIBITION OF EXCLUSION OF PARTICIPANTS

8 OR BENEFICIARIES BASED ON HEALTH STATUS.—

9 (1) IN GENERAL.—A group health plan, and an

10 insurer or HMO offering health insurance coverage

11 in connection with a group health plan, may not ex12 clude an employee or his or her beneficiary from

13 being (or continuing to be) enrolled as a participant

14 or beneficiary under the terms of such plan or cov15 erage based on health status (as defined in section

16 191(c)(6)).

17 (2) CONSTRUCTION.—Nothing in this sub18 section shall be construed as preventing the estab19 lishment of preexisting condition limitations and re20 strictions to the extent consistent with the provisions

21 of this subtitle.

22 (b) PROHIBITION OF DISCRIMINATION IN PREMIUM

23 CONTRIBUTIONS OF INDIVIDUAL PARTICIPANTS OR

24 BENEFICIARIES BASED ON HEALTH STATUS.—
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1 (1) IN GENERAL.—A group health plan, and an

2 insurer or HMO offering health insurance coverage

3 in connection with a group health plan, may not re4 quire a participant or beneficiary to pay a premium

5 or contribution which is greater than such premium

6 or contribution for a similarly situated participant or

7 beneficiary solely on the basis of the health status

8 of the participant or beneficiary.

9 (2) CONSTRUCTION.—Nothing in this sub10 section is intended—

11 (A) to effect the premium rates an insurer

12 or HMO may charge an employer for health in13 surance coverage provided in connection a

14 group health plan,

15 (B) to prevent a group health plan (or in16 surer or HMO in health insurance coverage of17 fered in connection with such a plan) from es18 tablishing premium discounts or modifying oth19 erwise applicable copayments or deductibles in

20 return for adherence to programs of health pro21 motion and disease prevention, or

22 (C) to prevent such a plan, insurer, or

23 HMO from varying the premiums or contribu24 tions required of participants or beneficiaries

25 based on factors (such as scope of benefits, geo-
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1 graphic area of residence, or wage levels) that

2 are not directly related to health status.

3 (c) ENROLLMENT OF ELIGIBLE INDIVIDUALS WHO

4 LOSE OTHER COVERAGE.—A group health plan shall per5 mit an uncovered employee who is otherwise eligible for

6 coverage under the terms of the plan (or an uncovered

7 dependent, as defined under the terms of the plan, of such

8 an employee, if family coverage is available) to enroll for

9 coverage under the plan under at least one benefit option

10 if each of the following conditions is met:

11 (1) The employee or dependent was covered

12 under a group health plan or had health insurance

13 coverage at the time coverage was previously offered

14 to the employee or individual.

15 (2) The employee stated in writing at such time

16 that coverage under a group health plan or health

17 insurance coverage was the reason for declining en18 rollment.

19 (3) The employee or dependent lost coverage

20 under a group health plan or health insurance cov21 erage (as a result of loss of eligibility for the cov22 erage, termination of employment, or reduction in

23 the number of hours of employment).
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1 (4) The employee requests such enrollment

2 within 30 days after the date of termination of such

3 coverage.

4 (d) DEPENDENT BENEFICIARIES.—

5 (1) IN GENERAL.—If a group health plan

6 makes family coverage available, the plan may not

7 require, as a condition of coverage of an individual

8 as a dependent (as defined under the terms of the

9 plan) of a participant in the plan, a waiting period

10 applicable to the coverage of a dependent who—

11 (A) is a newborn,

12 (B) is an adopted child or child placed for

13 adoption (within the meaning of section

14 102(b)(3)), at the time of adoption or place15 ment, or

16 (C) is a spouse, at the time of marriage,

17 if the participant has met any waiting period appli18 cable to that participant.

19 (2) TIMELY ENROLLMENT.—

20 (A) IN GENERAL.—Enrollment of a partici21 pant’s beneficiary described in paragraph (1)

22 shall be considered to be timely if a request for

23 enrollment is made within 30 days of the date

24 family coverage is first made available or, in the

25 case described in—
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1 (i) paragraph (1)(A), within 30 days

2 of the date of the birth,

3 (ii) paragraph (1)(B), within 30 days

4 of the date of the adoption or placement

5 for adoption, or

6 (iii) paragraph (1)(C), within 30 days

7 of the date of the marriage with such a

8 beneficiary who is the spouse of the partic9 ipant,

10 if family coverage is available as of such date.

11 (B) COVERAGE.—If available coverage in12 cludes family coverage and enrollment is made

13 under such coverage on a timely basis under

14 subparagraph (A), the coverage shall become ef15 fective not later than the first day of the first

16 month beginning 15 days after the date the

17 completed request for enrollment is received.

18 (e) MULTIEMPLOYER PLANS, MULTIPLE EMPLOYER

19 HEALTH PLANS, AND MULTIPLE EMPLOYER WELFARE

20 ARRANGEMENTS.—A group health plan which is a multi21 employer plan, a multiple employer health plan (as de22 fined in section 701(4) of the Employee Retirement In23 come Security Act of 1974), or a multiple employer wel24 fare arrangement (to the extent to which benefits under

25 the arrangement consist of medical care) may not deny
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1 an employer whose employees are covered under such a

2 plan or arrangement continued access to the same or dif3 ferent coverage under the terms of such a plan or ar4 rangement, other than—

5 (1) for nonpayment of contributions,

6 (2) for fraud or other intentional misrepresen7 tation of material fact by the employer,

8 (3) for noncompliance with material plan or ar9 rangement provisions,

10 (4) because the plan or arrangement is ceasing

11 to offer any coverage in a geographic area,

12 (5) for failure to meet the terms of an applica13 ble collective bargaining agreement, to renew a col14 lective bargaining or other agreement requiring or

15 authorizing contributions to the plan, or to employ

16 employees covered by such an agreement,

17 (6) in the case of a plan or arrangement to

18 which subparagraph (C), (D), or (E) of section

19 3(40) of the Employee Retirement Income Security

20 Act of 1974 applies, to the extent necessary to meet

21 the requirements of such subparagraph, or

22 (7) in the case of a multiple employer health

23 plan (as defined in section 701(4) of such Act), for

24 failure to meet the requirements under part 7 of
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1 subtitle B of title I of such Act for exemption under

2 section 514(b)(6)(B) of such Act.

3 SEC. 104. ENFORCEMENT.

4 (a) ENFORCEMENT THROUGH COBRA PROVISIONS

5 IN INTERNAL REVENUE CODE.—

6 (1) APPLICATION OF COBRA SANCTIONS.—Sub7 section (a) of section 4980B of the Internal Revenue

8 Code of 1986 is amended by striking ‘‘the require9 ments of’’ and all that follows and inserting ‘‘the re10 quirements of—

11 ‘‘(1) subsection (f) with respect to any qualified

12 beneficiary, or

13 ‘‘(2) subject to subsection (h)—

14 ‘‘(A) section 101 or 102 of the Health

15 Coverage Availability and Affordability Act of

16 1996 with respect to any individual covered

17 under the group health plan, or

18 ‘‘(B) section 103 (other than subsection

19 (e)) of such Act with respect to any individ20 ual.’’.

21 (2) NOTICE REQUIREMENT.—Section

22 4980B(f)(6)(A) of such Code is amended by insert23 ing before the period the following: ‘‘and subtitle A

24 of title I of the Health Coverage Availability and Af25 fordability Act of 1996’’.
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1 (3) SPECIAL RULES.—Section 4980B of such

2 Code is amended by adding at the end the following:

3 ‘‘(h) SPECIAL RULES.—For purposes of applying this

4 section in the case of requirements described in subsection

5 (a)(2) relating to section 101, section 102, or section 103

6 (other than subsection (e)) of the Health Coverage Avail7 ability and Affordability Act of 1996—

8 ‘‘(1) IN GENERAL.—

9 ‘‘(A) DEFINITION OF GROUP HEALTH

10 PLAN.—The term ‘group health plan’ has the

11 meaning given such term in section 191(a) of

12 the Health Coverage Availability and Afford13 ability Act of 1996.

14 ‘‘(B) QUALIFIED BENEFICIARY.—Sub15 sections (b), (c), and (e) shall be applied by

16 substituting the term ‘individual’ for the term

17 ‘qualified beneficiary’ each place it appears.

18 ‘‘(C) NONCOMPLIANCE PERIOD.—Clause

19 (ii) of subsection (b)(2)(B) and the second sen20 tence of subsection (b)(2) shall not apply.

21 ‘‘(D) LIMITATION ON TAX.—Subparagraph

22 (B) of subsection (c)(3) shall not apply.

23 ‘‘(E) LIABILITY FOR TAX.—Paragraph (2)

24 of subsection (e) shall not apply.
24

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1 ‘‘(2) DEFERRAL TO STATE REGULATION.—No

2 tax shall be imposed by this section on any failure

3 to meet the requirements of such section by any en4 tity which offers health insurance coverage and

5 which is an insurer or health maintenance organiza6 tion (as defined in section 191(c) of the Health Cov7 erage Availability and Affordability Act of 1996)

8 regulated by a State unless the Secretary of Health

9 and Human Services has made the determination

10 described in section 104(c)(2) of such Act with re11 spect to such State, section, and entity.

12 ‘‘(3) LIMITATION FOR INSURED PLANS.—In the

13 case of a group health plan of a small employer (as

14 defined in section 191 of the Health Coverage Avail15 ability and Affordability Act of 1996) that provides

16 health care benefits solely through a contract with

17 an insurer or health maintenance organization (as

18 defined in such section), no tax shall be imposed by

19 this section upon the employer on a failure to meet

20 such requirements if the failure is solely because of

21 the product offered by the insurer or organization

22 under such contract.

23 ‘‘(4) LIMITATION ON IMPOSITION OF TAX.—In

24 no case shall a tax be imposed by this section for a

25 failure to meet such a requirement if—
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1 ‘‘(A) a civil money penalty has been im2 posed by the Secretary of Labor under part 5

3 of subtitle A of title I of the Employee Retire4 ment Income Security Act of 1974 with respect

5 to such failure, or

6 ‘‘(B) a civil money penalty has been im7 posed by the Secretary of Health and Human

8 Services under section 104(c) of the Health

9 Coverage Availability and Affordability Act of

10 1996 with respect to such failure.’’.

11 (b) ENFORCEMENT THROUGH ERISA SANCTIONS

12 FOR CERTAIN GROUP HEALTH PLANS.—

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

14 provisions of this subsection, sections 101 through

15 103 of this subtitle (and subtitle D insofar as it is

16 applicable to such sections) shall be deemed to be

17 provisions of title I of the Employee Retirement In18 come Security Act of 1974 for purposes of applying

19 such title.

20 (2) FEDERAL ENFORCEMENT ONLY IF NO EN21 FORCEMENT THROUGH STATE.—The Secretary of

22 Labor shall enforce each section referred to in para23 graph (1) with respect to any entity which is an in24 surer or health maintenance organization regulated

25 by a State only if the Secretary of Labor determines
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1 that such State has not provided for enforcement of

2 State laws which govern the same matters as are

3 governed by such section and which require compli4 ance by such entity with at least the same require5 ments as those provided under such section.

6 (3) LIMITATIONS ON LIABILITY.—

7 (A) NO APPLICATION WHERE FAILURE

8 NOT DISCOVERED EXERCISING REASONABLE

9 DILIGENCE.—No liability shall be imposed

10 under this subsection on the basis of any failure

11 during any period for which it is established to

12 the satisfaction of the Secretary of Labor that

13 none of the persons against whom the liability

14 would be imposed knew, or exercising reason15 able diligence would have known, that such fail16 ure existed.

17 (B) NO APPLICATION WHERE FAILURE

18 CORRECTED WITHIN 30 DAYS.—No liability

19 shall be imposed under this subsection on the

20 basis of any failure if such failure was due to

21 reasonable cause and not to willful neglect, and

22 such failure is corrected during the 30-day pe23 riod beginning on the first day any of the per24 sons against whom the liability would be im-
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1 posed knew, or exercising reasonable diligence

2 would have known, that such failure existed.

3 (4) AVOIDING DUPLICATION OF CERTAIN PEN4 ALTIES.—In no case shall a civil money penalty be

5 imposed under the authority provided under para6 graph (1) for a violation of this subtitle for which

7 an excise tax has been imposed under section 4980B

8 of the Internal Revenue Code of 1986 or a civil

9 money penalty imposed under subsection (c).

10 (c) ENFORCEMENT THROUGH CIVIL MONEY PEN11 ALTIES.—

12 (1) IMPOSITION.—

13 (A) IN GENERAL.—Subject to the succeed14 ing provisions of this subsection, any group

15 health plan, insurer, or organization that fails

16 to meet a requirement of this subtitle (other

17 than section 103(e)) is subject to a civil money

18 penalty under this section.

19 (B) LIABILITY FOR PENALTY.—Rules simi20 lar to the rules described in section 4980B(e) of

21 the Internal Revenue Code of 1986 for liability

22 for a tax imposed under section 4980B(a) of

23 such Code shall apply to liability for a penalty

24 imposed under subparagraph (A).

25 (C) AMOUNT OF PENALTY.—
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1 (i) IN GENERAL.—The maximum

2 amount of penalty imposed under this

3 paragraph is $100 for each day for each

4 individual with respect to which such a

5 failure occurs.

6 (ii) CONSIDERATIONS IN IMPOSI7 TION.—In determining the amount of any

8 penalty to be assessed under this para9 graph, the Secretary of Health and Human

10 Services shall take into account the pre11 vious record of compliance of the person

12 being assessed with the applicable require13 ments of this subtitle, the gravity of the

14 violation, and the overall limitations for

15 unintentional failures provided under sec16 tion 4980B(c)(4) of the Internal Revenue

17 Code of 1986.

18 (iii) LIMITATIONS.—

19 (I) PENALTY NOT TO APPLY

20 WHERE FAILURE NOT DISCOVERED

21 EXERCISING REASONABLE DILI22 GENCE.—No civil money penalty shall

23 be imposed under this paragraph on

24 any failure during any period for

25 which it is established to the satisfac-
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1 tion of the Secretary that none of the

2 persons against whom the penalty

3 would be imposed knew, or exercising

4 reasonable diligence would have

5 known, that such failure existed.

6 (II) PENALTY NOT TO APPLY TO

7 FAILURES CORRECTED WITHIN 30

8 DAYS.—No civil money penalty shall

9 be imposed under this paragraph on

10 any failure if such failure was due to

11 reasonable cause and not to willful ne12 glect, and such failure is corrected

13 during the 30-day period beginning on

14 the first day any of the persons

15 against whom the penalty would be

16 imposed knew, or exercising reason17 able diligence would have known, that

18 such failure existed.

19 (D) ADMINISTRATIVE REVIEW.—

20 (i) OPPORTUNITY FOR HEARING.—

21 The person assessed shall be afforded an

22 opportunity for hearing by the Secretary

23 upon request made within 30 days after

24 the date of the issuance of a notice of as25 sessment. In such hearing the decision
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1 shall be made on the record pursuant to

2 section 554 of title 5, United States Code.

3 If no hearing is requested, the assessment

4 shall constitute a final and unappealable

5 order.

6 (ii) HEARING PROCEDURE.—If a

7 hearing is requested, the initial agency de8 cision shall be made by an administrative

9 law judge, and such decision shall become

10 the final order unless the Secretary modi11 fies or vacates the decision. Notice of in12 tent to modify or vacate the decision of the

13 administrative law judge shall be issued to

14 the parties within 30 days after the date of

15 the decision of the judge. A final order

16 which takes effect under this paragraph

17 shall be subject to review only as provided

18 under subparagraph (D).

19 (E) JUDICIAL REVIEW.—

20 (i) FILING OF ACTION FOR REVIEW.—

21 Any person against whom an order impos22 ing a civil money penalty has been entered

23 after an agency hearing under this para24 graph may obtain review by the United

25 States district court for any district in
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1 which such person is located or the United

2 States District Court for the District of

3 Columbia by filing a notice of appeal in

4 such court within 30 days from the date of

5 such order, and simultaneously sending a

6 copy of such notice be registered mail to

7 the Secretary.

8 (ii) CERTIFICATION OF ADMINISTRA9 TIVE RECORD.—The Secretary shall

10 promptly certify and file in such court the

11 record upon which the penalty was im12 posed.

13 (iii) STANDARD FOR REVIEW.—The

14 findings of the Secretary shall be set aside

15 only if found to be unsupported by sub16 stantial evidence as provided by section

17 706(2)(E) of title 5, United States Code.

18 (iv) APPEAL.—Any final decision,

19 order, or judgment of such district court

20 concerning such review shall be subject to

21 appeal as provided in chapter 83 of title 28

22 of such Code.

23 (F) FAILURE TO PAY ASSESSMENT; MAIN24 TENANCE OF ACTION.—
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1 (i) FAILURE TO PAY ASSESSMENT.—If

2 any person fails to pay an assessment after

3 it has become a final and unappealable

4 order, or after the court has entered final

5 judgment in favor of the Secretary, the

6 Secretary shall refer the matter to the At7 torney General who shall recover the

8 amount assessed by action in the appro9 priate United States district court.

10 (ii) NONREVIEWABILITY.—In such ac11 tion the validity and appropriateness of the

12 final order imposing the penalty shall not

13 be subject to review.

14 (G) PAYMENT OF PENALTIES.—Except as

15 otherwise provided, penalties collected under

16 this paragraph shall be paid to the Secretary

17 (or other officer) imposing the penalty and shall

18 be available without appropriation and until ex19 pended for the purpose of enforcing the provi20 sions with respect to which the penalty was im21 posed.

22 (2) FEDERAL ENFORCEMENT ONLY IF NO EN23 FORCEMENT THROUGH STATE.—Paragraph (1) shall

24 apply to enforcement of the requirements of section

25 101, 102, or 103 (other than section 103(e)) with
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1 respect to any entity which offers health insurance

2 coverage and which is an insurer or HMO regulated

3 by a State only if the Secretary of Health and

4 Human Services has determined that such State has

5 not provided for enforcement of State laws which

6 govern the same matters as are governed by such

7 section and which require compliance by such entity

8 with at least the same requirements as those pro9 vided under such section.

10 (3) NONDUPLICATION OF SANCTIONS.—In no

11 case shall a civil money penalty be imposed under

12 this subsection for a violation of this subtitle for

13 which an excise tax has been imposed under section

14 4980B of the Internal Revenue Code of 1986 or for

15 which a civil money penalty has been imposed under

16 the authority provided under subsection (b).

17 (d) COORDINATION IN ADMINISTRATION.—The Sec18 retaries of the Treasury, Labor, and Health and Human

19 Services shall issue regulations that are nonduplicative to

20 carry out this subtitle. Such regulations shall be issued

21 in a manner that assures coordination and nonduplication

22 in their activities under this subtitle.
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1 Subtitle B—Certain Requirements

2 for Insurers and HMOs in the

3 Group and Individual Markets

4 PART 1—AVAILABILITY OF GROUP HEALTH

5 INSURANCE COVERAGE

6 SEC. 131. GUARANTEED AVAILABILITY OF GENERAL COV7 ERAGE IN THE SMALL GROUP MARKET.

8 (a) ISSUANCE OF COVERAGE.—

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

10 subsections of this section, each insurer or HMO

11 that offers health insurance coverage in the small

12 group market in a State—

13 (A) must accept every small employer in

14 the State that applies for such coverage; and

15 (B) must accept for enrollment under such

16 coverage every eligible individual (as defined in

17 paragraph (2)) who applies for enrollment dur18 ing the initial period in which the individual

19 first becomes eligible for coverage under the

20 group health plan and may not place any re21 striction which is inconsistent with section

22 103(a) on an individual being a participant or

23 beneficiary so long as such individual is an eli24 gible individual.
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1 (2) ELIGIBLE INDIVIDUAL DEFINED.—In this

2 section, the term ‘‘eligible individual’’ means, with

3 respect to an insurer or HMO that offers health in4 surance coverage to any small employer in the small

5 group market, such an individual in relation to the

6 employer as shall be determined—

7 (A) in accordance with the terms of such

8 plan,

9 (B) as provided by the insurer or HMO

10 under rules of the insurer or HMO which are

11 uniformly applicable, and

12 (C) in accordance with all applicable State

13 laws governing such insurer or HMO.

14 (b) SPECIAL RULES FOR NETWORK PLANS AND

15 HMOS.—

16 (1) IN GENERAL.—In the case of an insurer

17 that offers health insurance coverage in the small

18 group market through a network plan and in the

19 case of an HMO that offers health insurance cov20 erage in connection with such a plan, the insurer or

21 HMO may—

22 (A) limit the employers that may apply for

23 such coverage to those with eligible individuals

24 whose place of employment or residence is in

25 the service area for such plan or HMO;
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1 (B) limit the individuals who may be en2 rolled under such coverage to those whose place

3 of residence or employment is within the service

4 area for such plan or HMO; and

5 (C) within the service area of such plan or

6 HMO, deny such coverage to such employers if

7 the insurer or HMO demonstrates that—

8 (i) it will not have the capacity to de9 liver services adequately to enrollees of any

10 additional groups because of its obligations

11 to existing group contract holders and en12 rollees, and

13 (ii) it is applying this paragraph uni14 formly to all employers without regard to

15 the claims experience of those employers

16 and their employees (and their bene17 ficiaries) or the health status of such em18 ployees and beneficiaries.

19 (2) 180-DAY SUSPENSION UPON DENIAL OF

20 COVERAGE.—An insurer or HMO, upon denying

21 health insurance coverage in any service area in ac22 cordance with paragraph (1)(C), may not offer cov23 erage in the small group market within such service

24 area for a period of 180 days after such coverage is

25 denied.
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1 (c) SPECIAL RULE FOR FINANCIAL CAPACITY LIM2 ITS.—

3 (1) IN GENERAL.—An insurer or HMO may

4 deny health insurance coverage in the small group

5 market if the insurer or HMO demonstrates to the

6 applicable State authority that—

7 (A) it does not have the financial reserves

8 necessary to underwrite additional coverage,

9 and

10 (B) it is applying this paragraph uniformly

11 to all employers without regard to the claims

12 experience or duration of coverage of those em13 ployers and their employees (and their bene14 ficiaries) or the health status of such employees

15 and beneficiaries.

16 (2) 180-DAY SUSPENSION UPON DENIAL OF

17 COVERAGE.—An insurer or HMO upon denying

18 health insurance coverage in connection with group

19 health plans in any service area in accordance with

20 paragraph (1) may not offer coverage in connection

21 with group health plans in the small group market

22 within such service area for a period of 180 days

23 after such coverage is denied.

24 (d) EXCEPTION TO REQUIREMENT FOR ISSUANCE OF

25 COVERAGE BY REASON OF FAILURE BY PLAN TO MEET
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1 CERTAIN MINIMUM PARTICIPATION OR CONTRIBUTION

2 RULES.—

3 (1) IN GENERAL.—Subsection (a) shall not

4 apply in the case of any group health plan with re5 spect to which—

6 (A) participation rules of an insurer or

7 HMO which are described in paragraph (2) are

8 not met, or

9 (B) contribution rules of an insurer or

10 HMO which are described in paragraph (3) are

11 not met.

12 (2) PARTICIPATION RULES.—For purposes of

13 paragraph (1)(A), participation rules (if any) of an

14 insurer or HMO shall be treated as met with respect

15 to a group health plan only if such rules are uni16 formly applicable and in accordance with applicable

17 State law and the number or percentage of eligible

18 individuals who, under the plan, are participants or

19 beneficiaries equals or exceeds a level which is deter20 mined in accordance with such rules.

21 (3) CONTRIBUTION RULES.—For purposes of

22 paragraph (1)(B), contribution rules (if any) of an

23 insurer or HMO shall be treated as met with respect

24 to a group health plan only if such rules are in ac25 cordance with applicable State law.
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1 SEC. 132. GUARANTEED RENEWABILITY OF GROUP COV2 ERAGE.

3 (a) IN GENERAL.—Except as provided in this section,

4 if an insurer or health maintenance organization offers

5 health insurance coverage in the small or large group mar6 ket, the insurer or organization must renew or continue

7 in force such coverage at the option of the employer.

8 (b) GENERAL EXCEPTIONS.—An insurer or organiza9 tion may nonrenew or discontinue health insurance cov10 erage offered an employer based only on one or more of

11 the following:

12 (1) NONPAYMENT OF PREMIUMS.—The em13 ployer has failed to pay premiums or contributions

14 in accordance with the terms of the health insurance

15 coverage or the insurer or organization has not re16 ceived timely premium payments.

17 (2) FRAUD.—The employer has performed an

18 act or practice that constitutes fraud or made an in19 tentional misrepresentation of material fact under

20 the terms of the coverage.

21 (3) VIOLATION WITH PARTICIPATION OR CON22 TRIBUTION RULES.—The employer has failed to

23 comply with a material plan provision relating to

24 participation or contribution rules in accordance

25 with section 131(d).
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1 (4) TERMINATION OF PLAN.—Subject to sub2 section (c), the insurer or organization is ceasing to

3 offer coverage in the small or large group market in

4 a State (or, in the case of a network plan or HMO,

5 in a geographic area).

6 (5) MOVEMENT OUTSIDE SERVICE AREA.—The

7 employer has changed the place of employment in

8 such manner that employees and dependents reside

9 and are employed outside the service area of the in10 surer or organization or outside the area for which

11 the insurer or organization is authorized to do busi12 ness.

13 Paragraph (5) shall apply to an insurer or HMO only if

14 it is applied uniformly without regard to the claims experi15 ence of employers and their employees (and their bene16 ficiaries) or the health status of such employees and bene17 ficiaries.

18 (c) EXCEPTIONS FOR UNIFORM TERMINATION OF

19 COVERAGE.—

20 (1) PARTICULAR TYPE OF COVERAGE NOT OF21 FERED.—In any case in which a insurer or HMO

22 decides to discontinue offering a particular type of

23 health insurance coverage in the small or large

24 group market, coverage of such type may be discon25 tinued by the insurer or organization only if—
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1 (A) the insurer or organization provides

2 notice to each employer provided coverage of

3 this type in such market (and participants and

4 beneficiaries covered under such coverage) of

5 such discontinuation at least 90 days prior to

6 the date of the discontinuation of such cov7 erage;

8 (B) the insurer or organization offers to

9 each employer in the small employer or large

10 employer market provided coverage of this type,

11 the option to purchase any other health insur12 ance coverage currently being offered by the in13 surer or organization for employers in such

14 market; and

15 (C) in exercising the option to discontinue

16 coverage of this type and in offering one or

17 more replacement coverage, the insurer or orga18 nization acts uniformly without regard to the

19 health status or insurability of participants or

20 beneficiaries covered or new participants or

21 beneficiaries who may become eligible for such

22 coverage.

23 (2) DISCONTINUANCE OF ALL COVERAGE.—

24 (A) IN GENERAL.—Subject to subpara25 graph (C), in any case in which an insurer or
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1 HMO elects to discontinue offering all health

2 insurance coverage in the small group market

3 or the large group market, or both markets, in

4 a State, health insurance coverage may be dis5 continued by the insurer or organization only

6 if—

7 (i) the insurer or organization pro8 vides notice to the applicable State author9 ity and to each employer (and participants

10 and beneficiaries covered under such cov11 erage) of such discontinuation at least 180

12 days prior to the date of the expiration of

13 such coverage, and

14 (ii) all health insurance issued or de15 livered for issuance in the State in such

16 market (or markets) are discontinued and

17 coverage under such health insurance cov18 erage in such market (or markets) is not

19 renewed.

20 (B) PROHIBITION ON MARKET REENTRY.—

21 In the case of a discontinuation under subpara22 graph (A) in one or both markets, the insurer

23 or organization may not provide for the issu24 ance of any health insurance coverage in the

25 market and State involved during the 5-year pe-
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1 riod beginning on the date of the discontinu2 ation of the last health insurance coverage not

3 so renewed.

4 (d) EXCEPTION FOR UNIFORM MODIFICATION OF

5 COVERAGE.—At the time of coverage renewal, an insurer

6 or HMO may modify the coverage offered to a group

7 health plan in the group health market so long as such

8 modification is effective on a uniform basis among group

9 health plans with that type of coverage.

10 PART 2—AVAILABILITY OF INDIVIDUAL HEALTH

11 INSURANCE COVERAGE

12 SEC. 141. GUARANTEED AVAILABILITY OF INDIVIDUAL

13 HEALTH INSURANCE COVERAGE TO CERTAIN

14 INDIVIDUALS WITH PRIOR GROUP COV15 ERAGE.

16 (a) GOALS.—The goals of this section are—

17 (1) to guarantee that any qualifying individual

18 (as defined in subsection (b)(1)) is able to obtain

19 qualifying coverage (as defined in subsection (b)(2));

20 and

21 (2) to assure that qualifying individuals obtain22 ing such coverage receive credit for their prior cov23 erage toward the new coverage’s preexisting condi24 tion exclusion period (if any) in a manner consistent

25 with subsection (b)(3).
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1 (b) QUALIFYING INDIVIDUAL AND HEALTH INSUR2 ANCE COVERAGE DEFINED.—In this section—

3 (1) QUALIFYING INDIVIDUAL.—The term

4 ‘‘qualifying individual’’ means an individual—

5 (A)(i) for whom, as of the date on which

6 the individual seeks coverage under this section,

7 the aggregate of the qualified coverage periods

8 (as defined in section 101(b)(3)(B)) is 18 or

9 more months and (ii) whose most recent prior

10 coverage was under a group health plan, gov11 ernmental plan, or church plan (or health insur12 ance coverage offered in connection with any

13 such plan);

14 (B) who is not eligible for coverage under

15 (i) a group health plan, (ii) part A or part B

16 of title XVIII of the Social Security Act, or (iii)

17 a State plan under title XIX of such Act (or

18 any successor program), and does not have in19 dividual health insurance coverage;

20 (C) with respect to whom the most recent

21 coverage within the coverage period described in

22 subparagraph (A)(i) was not terminated based

23 on a factor described in paragraph (1) or (2) of

24 section 132(b);
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1 (D) if the individual had been offered the

2 option of continuation coverage under a

3 COBRA continuation provision or under a simi4 lar State program, who elected such coverage;

5 and

6 (E) who, if the individual elected such con7 tinuation coverage, has exhausted such continu8 ation coverage.

9 In applying subparagraph (A)(i), the reference in

10 section 101(b)(3)(B)(ii) to a 60-day break in cov11 erage is deemed a reference to a 60-day break in

12 any coverage described in section 101(b)(3)(B)(i).

13 (2) QUALIFYING COVERAGE.—

14 (A) IN GENERAL.—The term ‘‘qualifying

15 coverage’’ means, with respect to an insurer or

16 HMO in relation to an qualifying individual, in17 dividual health insurance coverage for which the

18 actuarial value of the benefits is not less than—

19 (i) the weighted average actuarial

20 value of the benefits provided by all the in21 dividual health insurance coverage issued

22 by the insurer or HMO in the State during

23 the previous year (not including coverage

24 issued under this section), or
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1 (ii) the weighted average of the actu2 arial value of the benefits provided by all

3 the individual health insurance coverage is4 sued by all insurers and HMOs in the

5 State during the previous year (not includ6 ing coverage issued under this section),

7 as elected by the plan or by the State under

8 subsection (c)(1).

9 (B) ASSUMPTIONS.—For purposes of sub10 paragraph (A), the actuarial value of benefits

11 provided under individual health insurance cov12 erage shall be calculated based on a standard13 ized population and a set of standardized utili14 zation and cost factors.

15 (3) CREDITING FOR PREVIOUS COVERAGE.—

16 Crediting is consistent with this paragraph only if

17 any preexisting condition exclusion period is reduced

18 at least to the extent such a period would be reduced

19 if the coverage under this section were under a

20 group health plan to which section 101(a) applies. In

21 carrying out this subsection, provisions similar to

22 the provisions of section 101(c) shall apply.

23 (c) OPTIONAL STATE ESTABLISHMENT OF MECHA24 NISMS TO ACHIEVE GOALS OF GUARANTEEING AVAIL25 ABILITY OF COVERAGE.—
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1 (1) IN GENERAL.—Any State may establish, to

2 the extent of the State’s authority, public or private

3 mechanisms reasonably designed to meet the goals

4 specified in subsection (a). If a State implements

5 such a mechanism by the deadline specified in para6 graph (4), the State may elect to have such mecha7 nisms apply instead of having subsection (d)(3)

8 apply in the State. An election under this paragraph

9 shall be by notice from the chief executive officer of

10 the State to the Secretary of Health and Human

11 Services on a timely basis consistent with the dead12 lines specified in paragraph (4). In establishing what

13 is qualifying coverage under such a mechanism

14 under this subsection, a State may exercise the elec15 tion described in subsection (b)(2)(A) with respect to

16 each insurer or HMO in the State (or on a collective

17 basis after exercising such election for each such in18 surer or HMO).

19 (2) TYPES OF MECHANISMS.—State mecha20 nisms under this subsection may include one or

21 more (or a combination) of the following:

22 (A) Health insurance coverage pools or

23 programs authorized or established by the

24 State.

25 (B) Mandatory group conversion policies.
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1 (C) Guaranteed issue of one or more plans

2 of individual health insurance coverage to quali3 fying individuals.

4 (D) Open enrollment by one or more insur5 ers or HMOs.

6 The mechanisms described in the previous sentence

7 are not an exclusive list of the mechanisms (or com8 binations of mechanisms) that may be used under

9 this subsection.

10 (3) SAFE HARBOR FOR BENEFITS UNDER CUR11 RENT RISK POOLS.—In the case of a State that has

12 a health insurance coverage pool or risk pool in ef13 fect on March 12, 1996, and that implements the

14 mechanism described in paragraph (2)(A), the bene15 fits under such mechanism (or benefits the actuarial

16 value of which is not less than the actuarial value

17 of such current benefits, using the assumptions de18 scribed in subsection (b)(2)(B)) are deemed, for pur19 poses of this section, to constitute qualified coverage.

20 (4) DEADLINE FOR STATE IMPLEMENTATION.—

21 (A) IN GENERAL.—Subject to subpara22 graph (B), the deadline under this paragraph is

23 July 1, 1997.

24 (B) EXTENSION TO PERMIT LEGISLA25 TION.—The deadline under this paragraph is
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1 July 1, 1998, in the case of a State the legisla2 ture of which does not have a regular legislative

3 session at any time between January 1, 1997,

4 and June 30, 1997.

5 (C) CONSTRUCTION.—Nothing in this sec6 tion shall be construed as preventing a State

7 from—

8 (i) implementing guaranteed availabil9 ity mechanisms before the deadline,

10 (ii) continuing in effect mechanisms

11 that are in effect before the date of the en12 actment of this Act,

13 (iii) offering guaranteed availability of

14 coverage that is not qualifying coverage, or

15 (iv) offering guaranteed availability of

16 coverage to individuals who are not quali17 fying individuals.

18 (d) FALLBACK PROVISIONS.—

19 (1) NO STATE ELECTION.—If a State has not

20 provided notice to the Secretary of an election on a

21 timely basis under subsection (c), the Secretary shall

22 notify the State that paragraph (3) will be applied

23 in the State.

24 (2) PRELIMINARY DETERMINATION AFTER

25 STATE ELECTION.—If—
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1 (A) a State has provided notice of an elec2 tion on a timely basis under subsection (c), and

3 (B) the Secretary finds, after consultation

4 with the chief executive officer of the State and

5 the insurance commissioner or chief insurance

6 regulatory official of the State, that such a

7 mechanism (for which notice was provided) is

8 not reasonably designed to meet the goals speci9 fied in subsection (a),

10 the Secretary shall notify the State of such prelimi11 nary determination, of the consequences under para12 graph (3) of a failure to implement such a mecha13 nism, and permit the State a reasonable opportunity

14 in which to modify the mechanism (or to adopt an15 other mechanism) that is reasonably designed to

16 meet the goals specified in subsection (a). The Sec17 retary shall not make such a determination on any

18 basis other than the basis described in subparagraph

19 (B). If, after providing such notice and opportunity,

20 the Secretary finds that the State has not imple21 mented such a mechanism, the Secretary shall notify

22 the State that paragraph (3) will be applied in the

23 State.

24 (3) DESCRIPTION OF FALLBACK MECHANISM.—

25 As provided under paragraphs (1) and (2) and sub-
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1 ject to paragraph (5), each insurer or HMO in the

2 State involved that issues individual health insurance

3 coverage—

4 (A) shall offer qualifying health insurance

5 coverage, in which qualifying individuals obtain6 ing such coverage receive credit for their prior

7 coverage toward the new coverage’s preexisting

8 condition exclusion period (if any) in a manner

9 consistent with subsection (b)(3), to each quali10 fying individual in the State, and

11 (B) may not decline to issue such coverage

12 to such an individual based on health status

13 (except as permitted under paragraph (4)).

14 (4) APPLICATION OF NETWORK AND CAPACITY

15 LIMITS.—Under regulations, the provisions of sub16 sections (b) and (c) of section 131 shall apply to an

17 individual in the individual health insurance market

18 under this subsection in the same manner as they

19 apply under section 131 to an employer in the small

20 group market.

21 (5) TERMINATION OF FALLBACK MECHANISM.—

22 The provisions of this subsection shall cease to apply

23 to a State if the Secretary finds that a State has im24 plemented a mechanism that is reasonably designed

25 to meet the goals specified in subsection (a), and
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1 until the Secretary finds that such mechanism is no

2 longer being implemented.

3 (e) CONSTRUCTION.—

4 (1) PREMIUMS.—Nothing in this section shall

5 be construed to affect the determination of an in6 surer or HMO as to the amount of the premium

7 payable under an individual health insurance cov8 erage under applicable state law.

9 (2) MARKET REQUIREMENTS.—

10 (A) IN GENERAL.—The provisions of sub11 section (a) shall not be construed to require

12 that an insurer or HMO offering health insur13 ance coverage only in connection with a group

14 health plan or an association offer individual

15 health insurance coverage.

16 (B) CONVERSION POLICIES.—An insurer

17 or HMO offering health insurance coverage in

18 connection with a group health plan under sub19 title A shall not be deemed to be an insurer or

20 HMO offering an individual health insurance

21 coverage solely because such insurer or HMO

22 offers a conversion policy.

23 (3) DISREGARD OF ASSOCIATION COVERAGE.—

24 An insurer or HMO that offers health insurance cov25 erage only in connection with a group health plan or
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1 in connection with individuals based on affiliation

2 with one or more bona fide associations is not con3 sidered, for purposes of this subtitle, to be offering

4 individual health insurance coverage.

5 (4) MARKETING OF PLANS.—Nothing in this

6 section shall be construed to prevent a State from

7 requiring insurer or HMOs offering individual health

8 insurance coverage to actively market such coverage.

9 SEC. 142. GUARANTEED RENEWABILITY OF INDIVIDUAL

10 HEALTH INSURANCE COVERAGE.

11 (a) GUARANTEED RENEWABILITY.—Subject to the

12 succeeding provisions of this section, an insurer or HMO

13 that provides individual health insurance coverage to an

14 individual shall renew or continue such coverage at the

15 option of the individual.

16 (b) NONRENEWAL PERMITTED IN CERTAIN CASES.—

17 An insurer or HMO may nonrenew or discontinue individ18 ual health insurance coverage of an individual only based

19 on one or more of the following:

20 (1) NONPAYMENT.—The individual fails to pay

21 payment of premiums or contributions in accordance

22 with the terms of the coverage or the insurer or or23 ganization has not failed to receive timely premium

24 payments.
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1 (2) FRAUD.—The individual has performed an

2 act or practice that constitutes fraud or made an in3 tentional misrepresentation of material fact under

4 the terms of the coverage.

5 (3) TERMINATION OF COVERAGE.—Subject to

6 subsection (c), the insurer or HMO is ceasing to

7 offer health insurance coverage in the individual

8 market in a State (or, in the case of a network plan

9 or HMO, in a geographic area).

10 (4) MOVEMENT OUTSIDE SERVICE AREA.—The

11 individual has changed residence and resides outside

12 the service area of the insurer or organization or

13 outside the area for which the insurer or organiza14 tion is authorized to do business.

15 Paragraph (4) shall apply to an insurer or HMO only if

16 it is applied uniformly without regard to the claims experi17 ence of employers and their employees (and their bene18 ficiaries) or the health status of such employees and bene19 ficiaries.

20 (c) TERMINATION OF INDIVIDUAL COVERAGE.—The

21 provisions of section 132(c) shall apply to this section in

22 the same manner as they apply under section 132, except

23 that any reference to an employer or market is deemed

24 a reference to the covered individual or the individual mar25 ket, respectively.
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1 (d) EXCEPTION FOR UNIFORM MODIFICATION OF

2 COVERAGE.—The provisions of section 132(d) shall apply

3 to individual health insurance coverage in the individual

4 market under this section in the same manner as it applies

5 to health insurance coverage offered in connection with a

6 group health plan in the group market under such section.

7 PART 3—ENFORCEMENT

8 SEC. 151. INCORPORATION OF PROVISIONS FOR STATE EN9 FORCEMENT WITH FEDERAL FALLBACK AU10 THORITY.

11 The provisions of paragraphs (1) and (2) of section

12 104(c) shall apply to enforcement of requirements in each

13 section in part 1 or part 2 with respect to insurers and

14 HMOs regulated by a State in the same manner as such

15 provisions apply to enforcement of requirements in section

16 101, 102, or 103 with respect to insurers and HMOs regu17 lated by a State.
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1 Subtitle C—Affordable and Avail2 able Health Coverage Through

3 Multiple Employer Pooling Ar4 rangements

5 SEC. 161. CLARIFICATION OF DUTY OF THE SECRETARY OF

6 LABOR TO IMPLEMENT PROVISIONS OF CUR7 RENT LAW PROVIDING FOR EXEMPTIONS

8 AND SOLVENCY STANDARDS FOR MULTIPLE

9 EMPLOYER HEALTH PLANS.

10 (a) RULES GOVERNING REGULATION OF MULTIPLE

11 EMPLOYER HEALTH PLANS.—Subtitle B of title I of the

12 Employee Retirement Income Security Act of 1974 (as

13 amended by the preceding provisions of this title) is

14 amended by inserting after part 6 the following new part:

15 ‘‘PART 7—RULES GOVERNING REGULATION OF

16 MULTIPLE EMPLOYER HEALTH PLANS

17 ‘‘SEC. 701. DEFINITIONS.

18 ‘‘For purposes of this part—

19 ‘‘(1) FULLY INSURED.—A particular benefit

20 under a group health plan or a multiple employer

21 welfare arrangement is ‘fully insured’ if such benefit

22 (irrespective of any recourse available against other

23 parties) is provided by an insurer or a health main24 tenance organization in a manner so that such bene-
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1 fit constitutes insurance regulated by the law of a

2 State (within the meaning of section 514(b)(2)(A)).

3 ‘‘(2) INSURER.—The term ‘insurer’ means an

4 insurance company, insurance service, or insurance

5 organization which is licensed to engage in the busi6 ness of insurance in a State and which is subject to

7 State law which regulates insurance (within the

8 meaning of section 514(b)(2)(A)).

9 ‘‘(3) HEALTH MAINTENANCE ORGANIZATION.—

10 The terms ‘health maintenance organization’

11 means—

12 ‘‘(A) a Federally qualified health mainte13 nance organization (as defined in section

14 1301(a) of the Public Health Service Act (42

15 U.S.C. 300e(a))),

16 ‘‘(B) an organization recognized under

17 State law as a health maintenance organization,

18 or

19 ‘‘(C) a similar organization regulated

20 under State law for solvency in the same man21 ner and to the same extent as such a health

22 maintenance organization,

23 if it is subject to State law which regulates insur24 ance (within the meaning of section 514(b)(2)(A)).
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1 ‘‘(4) MULTIPLE EMPLOYER HEALTH PLAN.—

2 The term ‘multiple employer health plan’ means a

3 multiple employer welfare arrangement which pro4 vides medical care and which is or has been exempt

5 under section 514(b)(6)(B).

6 ‘‘(5) PARTICIPATING EMPLOYER.—The term

7 ‘participating employer’ means, in connection with a

8 multiple employer welfare arrangement, any em9 ployer if any of its employees, or any of the individ10 uals who are dependents (as defined under the terms

11 of the arrangement) of its employees, are or were

12 covered under such arrangement in connection with

13 the employment of the employees.

14 ‘‘(6) SPONSOR.—The term ‘sponsor’ means, in

15 connection with a multiple employer welfare arrange16 ment, the association or other entity which estab17 lishes or maintains the arrangement.

18 ‘‘(7) STATE INSURANCE COMMISSIONER.—The

19 term ‘State insurance commissioner’ means the in20 surance commissioner (or similar official) of a State.
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1 ‘‘SEC. 702. CLARIFICATION OF DUTY OF THE SECRETARY TO

2 IMPLEMENT PROVISIONS OF CURRENT LAW

3 PROVIDING FOR EXEMPTIONS AND SOL4 VENCY STANDARDS FOR MULTIPLE EM5 PLOYER HEALTH PLANS.

6 ‘‘(a) TREATMENT AS EMPLOYEE WELFARE BENEFIT

7 PLAN WHICH IS A GROUP HEALTH PLAN.—

8 ‘‘(1) IN GENERAL.—A multiple employer wel9 fare arrangement—

10 ‘‘(A) under which the benefits consist sole11 ly of medical care (disregarding such incidental

12 benefits as the Secretary shall specify by regu13 lation), and

14 ‘‘(B) under which some or all benefits are

15 not fully insured,

16 shall be treated for purposes of subtitle A and the

17 other parts of this title as an employee welfare bene18 fit plan which is a group health plan if the arrange19 ment is exempt under section 514(b)(6)(B) in ac20 cordance with this part.

21 ‘‘(2) EXCEPTION.—In the case of a multiple

22 employer welfare arrangement which would be de23 scribed in section 3(40)(A)(i) but solely for the fail24 ure to meet the requirements of section 3(40)(C)(ii),

25 paragraph (1) shall apply with respect to such ar-
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1 rangement, but only with respect to benefits pro2 vided thereunder which constitute medical care.

3 ‘‘(b) TREATMENT UNDER PREEMPTION RULES.—

4 ‘‘(1) IN GENERAL.—The Secretary shall pre5 scribe regulations described in section

6 514(b)(6)(B)(i), applicable to multiple employer wel7 fare arrangements described in subparagraphs (A)

8 and (B) of subsection (a)(1), providing a procedure

9 for granting exemptions from section

10 514(b)(6)(A)(ii) with respect to such arrangements.

11 Under such regulations, any such arrangement

12 treated under subsection (a) as an employee welfare

13 benefit plan shall be deemed to be an arrangement

14 described in section 514(b)(6)(B)(ii).

15 ‘‘(2) STANDARDS.—Under the procedure pre16 scribed pursuant to paragraph (1), the Secretary

17 shall grant an arrangement described in subsection

18 (a) an exemption described in subsection (a) only if

19 the Secretary finds that—

20 ‘‘(A) such exemption—

21 ‘‘(i) is administratively feasible,

22 ‘‘(ii) is not adverse to the interests of

23 the individuals covered under the arrange24 ment, and
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1 ‘‘(iii) is protective of the rights and

2 benefits of the individuals covered under

3 the arrangement,

4 ‘‘(B) the application for the exemption

5 meets the requirements of paragraph (3), and

6 ‘‘(C) the requirements of sections 703 and

7 704 are met with respect to the arrangement.

8 ‘‘(3) INFORMATION TO BE INCLUDED IN APPLI9 CATION FOR EXEMPTION.—An application for an ex10 emption described in subsection (a) meets the re11 quirements of this paragraph only if it includes, in

12 a manner and form prescribed in regulations of the

13 Secretary, at least the following information:

14 ‘‘(A) IDENTIFYING INFORMATION.—The

15 names and addresses of—

16 ‘‘(i) the sponsor, and

17 ‘‘(ii) the members of the board of

18 trustees of the arrangement.

19 ‘‘(B) STATES IN WHICH ARRANGEMENT IN20 TENDS TO DO BUSINESS.—The States in which

21 individuals covered under the arrangement are

22 to be located and the number of such individ23 uals expected to be located in each such State.

24 ‘‘(C) BONDING REQUIREMENTS.—Evidence

25 provided by the board of trustees that the bond-
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1 ing requirements of section 412 will be met as

2 of the date of the application or (if later) com3 mencement of operations.

4 ‘‘(D) PLAN DOCUMENTS.—A copy of the

5 documents governing the arrangement (includ6 ing any bylaws and trust agreements), the sum7 mary plan description, and other material de8 scribing the benefits and coverage that will be

9 provided to individuals covered under the ar10 rangement.

11 ‘‘(E) AGREEMENTS WITH SERVICE PROVID12 ERS.—A copy of any agreements between the

13 arrangement and contract administrators and

14 other service providers.

15 ‘‘(F) FUNDING REPORT.—A report setting

16 forth information determined as of a date with17 in the 120-day period ending with the date of

18 the application, including the following:

19 ‘‘(i) RESERVES.—A statement, cer20 tified by the board of trustees of the ar21 rangement, and a statement of actuarial

22 opinion, signed by a qualified actuary, that

23 all applicable requirements of section 705

24 are or will be met in accordance with regu25 lations which the Secretary shall prescribe.
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1 ‘‘(ii) ADEQUACY OF CONTRIBUTION

2 RATES.—A statement of actuarial opinion,

3 signed by a qualified actuary, which sets

4 forth a description of the extent to which

5 contribution rates are adequate to provide

6 for the payment of all obligations and the

7 maintenance of required reserves under the

8 arrangement for the 12-month period be9 ginning with such date within such 120-

10 day period, taking into account the ex11 pected coverage and experience of the ar12 rangement. If the contribution rates are

13 not fully adequate, the statement of actu14 arial opinion shall indicate the extent to

15 which the rates are inadequate and the

16 changes needed to ensure adequacy.

17 ‘‘(iii) CURRENT AND PROJECTED

18 VALUE OF ASSETS AND LIABILITIES.—A

19 statement of actuarial opinion signed by a

20 qualified actuary, which sets forth the cur21 rent value of the assets and liabilities accu22 mulated under the arrangement and a pro23 jection of the assets, liabilities, income,

24 and expenses of the arrangement for the

25 12-month period referred to in clause (ii).
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1 The income statement shall identify sepa2 rately the arrangement’s administrative ex3 penses and claims.

4 ‘‘(iv) COSTS OF COVERAGE TO BE

5 CHARGED AND OTHER EXPENSES.—A

6 statement of the costs of coverage to be

7 charged, including an itemization of

8 amounts for administration, reserves, and

9 other expenses associated with the oper10 ation of the arrangement.

11 ‘‘(v) OTHER INFORMATION.—Any

12 other information which may be prescribed

13 in regulations of the Secretary as nec14 essary to carry out the purposes of this

15 part.

16 ‘‘(4) FILING FEE.—Under the procedure pre17 scribed pursuant to paragraph (1), a multiple em18 ployer welfare arrangement shall pay to the Sec19 retary at the time of filing an application for an ex20 emption referred to in subsection (a) a filing fee in

21 the amount of $5,000, which shall be available, to

22 the extent provided in appropriation Acts, to the

23 Secretary for the sole purpose of administering the

24 exemption procedures applicable with respect to such

25 arrangement.
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1 ‘‘(5) CLASS EXEMPTION TREATMENT FOR EX2 ISTING LARGE ARRANGEMENTS.—Under the proce3 dure prescribed pursuant to paragraph (1), if—

4 ‘‘(A) at the time of application for an ex5 emption under section 514(b)(6)(B) with re6 spect to an arrangement which has been in ex7 istence as of the date of the enactment of the

8 Health Coverage Availability and Affordability

9 Act of 1996 for at least 3 years, either (A) the

10 arrangement covers at least 1,000 participants

11 and beneficiaries, or (B) with respect to the ar12 rangement there are at least 2,000 employees of

13 eligible participating employers,

14 ‘‘(B) a complete application for the exemp15 tion with respect to the arrangement has been

16 filed and is pending, and

17 ‘‘(C) the application meets such require18 ments (if any) as the Secretary may provide

19 with respect to class exemptions under this sub20 section,

21 the exemption shall be treated as having been grant22 ed with respect to the arrangement unless and until

23 the Secretary provides appropriate notice that the

24 exemption has been denied.
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1 ‘‘(c) FILING NOTICE OF EXEMPTION WITH

2 STATES.—An exemption granted under section

3 514(b)(6)(B) to a multiple employer welfare arrangement

4 shall not be effective unless written notice of such exemp5 tion is filed with the State insurance commissioner of each

6 State in which at least 5 percent of the individuals covered

7 under the arrangement are located. For purposes of this

8 subsection, an individual shall be considered to be located

9 in the State in which a known address of such individual

10 is located or in which such individual is employed. The

11 Secretary may by regulation provide in specified cases for

12 the application of the preceding sentence with lesser per13 centages in lieu of such 5 percent amount.

14 ‘‘(d) NOTICE OF MATERIAL CHANGES.—In the case

15 of any multiple employer welfare arrangement exempt

16 under section 514(b)(6)(B), descriptions of material

17 changes in any information which was required to be sub18 mitted with the application for the exemption under this

19 part shall be filed in such form and manner as shall be

20 prescribed in regulations of the Secretary. The Secretary

21 may require by regulation prior notice of material changes

22 with respect to specified matters which might serve as the

23 basis for suspension or revocation of the exemption.

24 ‘‘(e) REPORTING REQUIREMENTS.—Under regula25 tions of the Secretary, the requirements of sections 102,
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1 103, and 104 shall apply with respect to any multiple em2 ployer welfare arrangement which is or has been exempt

3 under section 514(b)(6)(B) in the same manner and to

4 the same extent as such requirements apply to employee

5 welfare benefit plans, irrespective of whether such exemp6 tion continues in effect. The annual report required under

7 section 103 for any plan year in the case of any such mul8 tiple employer welfare arrangement shall also include in9 formation described in subsection (b)(3)(F) with respect

10 to the plan year and, notwithstanding section

11 104(a)(1)(A), shall be filed not later than 90 days after

12 the close of the plan year.

13 ‘‘(f) ENGAGEMENT OF QUALIFIED ACTUARY.—The

14 board of trustees of each multiple employer welfare ar15 rangement which is or has been exempt under section

16 514(b)(6)(B) shall engage, on behalf of all covered individ17 uals, a qualified actuary who shall be responsible for the

18 preparation of the materials comprising information nec19 essary to be submitted by a qualified actuary under this

20 part. The qualified actuary shall utilize such assumptions

21 and techniques as are necessary to enable such actuary

22 to form an opinion as to whether the contents of the mat23 ters reported under this part—
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1 ‘‘(1) are in the aggregate reasonably related to

2 the experience of the arrangement and to reasonable

3 expectations, and

4 ‘‘(2) represent such actuary’s best estimate of

5 anticipated experience under the arrangement.

6 The opinion by the qualified actuary shall be made with

7 respect to, and shall be made a part of, the annual report.

8 ‘‘SEC. 703. REQUIREMENTS RELATING TO SPONSORS,

9 BOARDS OF TRUSTEES, AND PLAN OPER10 ATIONS.

11 ‘‘(a) IN GENERAL.—A complete application for an ex12 emption under section 514(b)(6)(B) shall include informa13 tion which the Secretary determines to be complete and

14 accurate and sufficient to demonstrate that the following

15 requirements are met with respect to the arrangement:

16 ‘‘(1) SPONSOR.—The sponsor is, and has been

17 (together with its immediate predecessor, if any) for

18 a continuous period of not less than 5 years before

19 the date of the application, organized and main20 tained in good faith, with a constitution and bylaws

21 specifically stating its purpose and providing for

22 periodic meetings on at least an annual basis, as a

23 trade association, an industry association, a profes24 sional association, or a chamber of commerce (or

25 similar business group, including a corporation or
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1 similar organization that operates on a cooperative

2 basis (within the meaning of section 1381 of the In3 ternal Revenue Code of 1986)), for substantial pur4 poses other than that of obtaining or providing med5 ical care (within the meaning of section 607(1)), and

6 the applicant demonstrates to the satisfaction of the

7 Secretary that the sponsor is established as a per8 manent entity which receives the active support of

9 its members and collects dues or contributions from

10 its members on a periodic basis, without condi11 tioning such dues or contributions on the basis of

12 the health status of the employees of such members

13 or the dependents of such employees or on the basis

14 of participation in a group health plan. Any sponsor

15 consisting of an association of entities meeting the

16 preceding requirements of this paragraph shall be

17 treated as meeting the requirements of this para18 graph.

19 ‘‘(2) BOARD OF TRUSTEES.—The arrangement

20 is operated, pursuant to a trust agreement, by a

21 board of trustees which has complete fiscal control

22 over the arrangement and which is responsible for

23 all operations of the arrangement, and the board of

24 trustees has in effect rules of operation and financial

25 controls, based on a 3-year plan of operation, ade-
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1 quate to carry out the terms of the arrangement and

2 to meet all requirements of this title applicable to

3 the arrangement. The members of the board of

4 trustees are individuals selected from individuals

5 who are the owners, officers, directors, or employees

6 of the participating employers or who are partners

7 in the participating employers and actively partici8 pate in the business. No such member is an owner,

9 officer, director, or employee of, or partner in, a con10 tract administrator or other service provider to the

11 arrangement, except that officers or employees of a

12 sponsor which is a service provider (other than a

13 contract administrator) to the arrangement may be

14 members of the board if they constitute not more

15 than 25 percent of the membership of the board and

16 they do not provide services to the arrangement

17 other than on behalf of the sponsor. The board has

18 sole authority to approve applications for participa19 tion in the arrangement and to contract with a serv20 ice provider to administer the day-to-day affairs of

21 the arrangement.

22 ‘‘(3) COVERED PERSONS.—The instruments

23 governing the arrangement include a written instru24 ment which provides that, effective upon becoming
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1 an arrangement exempt under section

2 514(b)(6)(B)—

3 ‘‘(A) all participating employers must be

4 members or affiliated members of the sponsor,

5 except that, in the case of a sponsor which is

6 a professional association or other individual7 based association, if at least one of the officers,

8 directors, or employees of an employer, or at

9 least one of the individuals who are partners in

10 an employer and who actively participates in

11 the business, is a member or affiliated member

12 of the sponsor, participating employers may

13 also include such employer,

14 ‘‘(B) all individuals thereafter commencing

15 coverage under the arrangement must be—

16 ‘‘(i) active or retired owners (includ17 ing self-employed individuals), officers, di18 rectors, or employees of, or partners in,

19 participating employers, or

20 ‘‘(ii) the beneficiaries of individuals

21 described in clause (i), and

22 ‘‘(C) no participating employer may pro23 vide health insurance coverage in the individual

24 market for any employee not covered under the

25 arrangement which is similar to the coverage
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1 contemporaneously provided to employees of the

2 employer under the arrangement, if such exclu3 sion of the employee from coverage under the

4 arrangement is based in whole or in part on the

5 health status of the employee and such em6 ployee would, but for such exclusion on such

7 basis, be eligible for coverage under the ar8 rangement.

9 ‘‘(4) INCLUSION OF ELIGIBLE EMPLOYERS AND

10 EMPLOYEES.—No employer described in paragraph

11 (3) is excluded as a participating employer (except

12 to the extent that requirements of the type referred

13 to in section 131(d)(2) of the Health Coverage

14 Availability and Affordability Act of 1996 are not

15 met) and the requirements of section 103 of such

16 Act (as referred to in section 104(b)(1) of such Act)

17 are met.

18 ‘‘(5) RESTRICTION ON VARIATIONS OF PREMIUM

19 RATES.—Premium rates under the arrangement with

20 respect to any particular employer do not vary on

21 the basis of the claims experience of such employer

22 alone.

23 ‘‘(b) TREATMENT OF FRANCHISE NETWORKS.—In

24 the case of a multiple employer welfare arrangement which

25 is established and maintained by a franchisor for a fran-
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1 chise network consisting of its franchisees, the require2 ments of subsection (a)(1) shall not apply with respect to

3 such network in any case in which such requirements

4 would be met if the franchisor were deemed to be the spon5 sor referred to in subsection (a)(1), such network were

6 deemed to be an association described in subsection (a)(1),

7 and each franchisee were deemed to be a member (of the

8 association and the sponsor) referred to in subsection

9 (a)(1).

10 ‘‘(c) CERTAIN COLLECTIVELY BARGAINED ARRANGE11 MENTS.—In the case of a multiple employer welfare ar12 rangement in existence on March 6, 1996, which would

13 be described in section 3(40)(A)(i) but solely for the fail14 ure to meet the requirements of section 3(40)(C)(ii) or

15 (to the extent provided in regulations of the Secretary)

16 solely for the failure to meet the requirements of subpara17 graph (D) or (F) of section 3(40)—

18 ‘‘(1) subsection (a)(1) shall not apply, and

19 ‘‘(2) the joint board of trustees shall be consid20 ered the board of trustees required under subsection

21 (a)(2).

22 ‘‘(d) CERTAIN ARRANGEMENTS NOT MEETING SIN23 GLE EMPLOYER REQUIREMENT.—

24 ‘‘(1) IN GENERAL.—In any case in which the

25 majority of the employees covered under a multiple
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1 employer welfare arrangement are employees of a

2 single employer (within the meaning of clauses (i)

3 and (ii) of section 3(40)(B)), if all other employees

4 covered under the arrangement are employed by em5 ployers who are related to such single employer—

6 ‘‘(A) subsection (a)(1) shall not apply if

7 the sponsor of the arrangement is the person

8 who would be the plan sponsor if the related

9 employers were disregarded in determining

10 whether the requirements of section 3(40)(B)

11 are met, and

12 ‘‘(B) subsection (a)(2) shall be treated as

13 satisfied if the board of trustees is the named

14 fiduciary in connection with the arrangement.

15 ‘‘(2) RELATED EMPLOYERS.—For purposes of

16 paragraph (1), employers are ‘related’ if there is

17 among all such employers a common ownership in18 terest or a substantial commonality of business oper19 ations based on common suppliers or customers.

20 ‘‘SEC. 704. OTHER REQUIREMENTS FOR EXEMPTION.

21 ‘‘A multiple employer welfare arrangement exempt

22 under section 514(b)(6)(B) shall meet the following re23 quirements:

24 ‘‘(1) CONTENTS OF GOVERNING INSTRU25 MENTS.—The instruments governing the arrange-
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1 ment include a written instrument, meeting the re2 quirements of an instrument required under section

3 402(a)(1), which—

4 ‘‘(A) provides that the board of trustees

5 serves as the named fiduciary required for plans

6 under section 402(a)(1) and serves in the ca7 pacity of a plan administrator (referred to in

8 section 3(16)(A)),

9 ‘‘(B) provides that the sponsor of the ar10 rangement is to serve as plan sponsor (referred

11 to in section 3(16)(B)), and

12 ‘‘(C) incorporates the requirements of sec13 tion 705.

14 ‘‘(2) CONTRIBUTION RATES.—The contribution

15 rates referred to in section 702(b)(3)(F)(ii) are ade16 quate.

17 ‘‘(3) REGULATORY REQUIREMENTS.—Such

18 other requirements as the Secretary may prescribe

19 by regulation as necessary to carry out the purposes

20 of this part.

21 ‘‘SEC. 705. MAINTENANCE OF RESERVES.

22 ‘‘(a) IN GENERAL.—Each multiple employer welfare

23 arrangement which is or has been exempt under section

24 514(b)(6)(B) and under which benefits are not fully in-
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1 sured shall establish and maintain reserves, consisting

2 of—

3 ‘‘(1) a reserve sufficient for unearned contribu4 tions,

5 ‘‘(2) a reserve sufficient for benefit liabilities

6 which have been incurred, which have not been satis7 fied, and for which risk of loss has not yet been

8 transferred, and for expected administrative costs

9 with respect to such benefit liabilities, and

10 ‘‘(3) a reserve, in an amount recommended by

11 the qualified actuary, for any other obligations of

12 the arrangement.

13 ‘‘(b) MINIMUM AMOUNT FOR CERTAIN RESERVES.—

14 The total of the reserves described in subsection (a)(2)

15 shall not be less than an amount equal to the greater of—

16 ‘‘(1) 25 percent of expected incurred claims and

17 expenses for the plan year, or

18 ‘‘(2) $400,000.

19 ‘‘(c) REQUIRED MARGIN.—In determining the

20 amounts of reserves required under this section in connec21 tion with any multiple employer welfare arrangement, the

22 qualified actuary shall include a margin for error and

23 other fluctuations taking into account the specific cir24 cumstances of such arrangement.
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1 ‘‘(d) ADDITIONAL REQUIREMENTS.—The Secretary

2 may provide such additional requirements relating to re3 serves and excess/stop loss coverage as the Secretary con4 siders appropriate. Such requirements may be provided,

5 by regulation or otherwise, with respect to any arrange6 ment or any class of arrangements.

7 ‘‘(e) ADJUSTMENTS FOR EXCESS/STOP LOSS COV8 ERAGE.—The Secretary may provide for adjustments to

9 the levels of reserves otherwise required under subsections

10 (a) and (b) with respect to any arrangement or class of

11 arrangements to take into account excess/stop loss cov12 erage provided with respect to such arrangement or ar13 rangements.

14 ‘‘(f) ALTERNATIVE MEANS OF COMPLIANCE.—The

15 Secretary may permit an arrangement to substitute, for

16 all or part of the requirements of this section, such secu17 rity, guarantee, hold-harmless arrangement, or other fi18 nancial arrangement as the Secretary determines to be

19 adequate to enable the arrangement to fully meet all its

20 financial obligations on a timely basis. The Secretary may

21 take into account, for purposes of this subsection, evidence

22 provided by the arrangement or sponsor which dem23 onstrates an assumption of liability with respect to the ar24 rangement. Such evidence may be in the form of a con25 tract of indemnification, lien, bonding, insurance, letter of
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1 credit, recourse under applicable terms of the arrangement

2 in the form of assessments of participating employers, se3 curity, or other financial arrangement.

4 ‘‘SEC. 706. NOTICE REQUIREMENTS FOR VOLUNTARY TER5 MINATION.

6 ‘‘Except as provided in section 707(b), a multiple em7 ployer welfare arrangement which is or has been exempt

8 under section 514(b)(6)(B) may terminate only if the

9 board of trustees—

10 ‘‘(1) not less than 60 days before the proposed

11 termination date, provides to the participants and

12 beneficiaries a written notice of intent to terminate

13 stating that such termination is intended and the

14 proposed termination date,

15 ‘‘(2) develops a plan for winding up the affairs

16 of the arrangement in connection with such termi17 nation in a manner which will result in timely pay18 ment of all benefits for which the arrangement is ob19 ligated, and

20 ‘‘(3) submits such plan in writing to the Sec21 retary.

22 Actions required under this paragraph shall be taken in

23 such form and manner as may be prescribed in regulations

24 of the Secretary.
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1 ‘‘SEC. 707. CORRECTIVE ACTIONS AND MANDATORY TERMI2 NATION.

3 ‘‘(a) ACTIONS TO AVOID DEPLETION OF RE4 SERVES.—A multiple employer welfare arrangement which

5 is or has been exempt under section 514(b)(6)(B) shall

6 continue to meet the requirements of section 705, irrespec7 tive of whether such exemption continues in effect. The

8 board of trustees of such arrangement shall determine

9 quarterly whether the requirements of section 705 are

10 met. In any case in which the committee determines that

11 there is reason to believe that there is or will be a failure

12 to meet such requirements, or the Secretary makes such

13 a determination and so notifies the committee, the com14 mittee shall immediately notify the qualified actuary en15 gaged by the arrangement, and such actuary shall, not

16 later than the end of the next following month, make such

17 recommendations to the committee for corrective action as

18 the actuary determines necessary to ensure compliance

19 with section 705. Not later than 10 days after receiving

20 from the actuary recommendations for corrective actions,

21 the committee shall notify the Secretary (in such form and

22 manner as the Secretary may prescribe by regulation) of

23 such recommendations of the actuary for corrective action,

24 together with a description of the actions (if any) that the

25 committee has taken or plans to take in response to such

26 recommendations. The committee shall thereafter report
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1 to the Secretary, in such form and frequency as the Sec2 retary may specify to the committee, regarding corrective

3 action taken by the committee until the requirements of

4 section 705 are met.

5 ‘‘(b) MANDATORY TERMINATION.—In any case in

6 which—

7 ‘‘(1) the Secretary has been notified under sub8 section (a) of a failure of a multiple employer wel9 fare arrangement which is or has been exempt under

10 section 514(b)(6)(B) to meet the requirements of

11 section 705 and has not been notified by the board

12 of trustees of the arrangement that corrective action

13 has restored compliance with such requirements, and

14 ‘‘(2) the Secretary determines that the continu15 ing failure to meet the requirements of section 705

16 can be reasonably expected to result in a continuing

17 failure to pay benefits for which the arrangement is

18 obligated,

19 the board of trustees of the arrangement shall, at the di20 rection of the Secretary, terminate the arrangement and,

21 in the course of the termination, take such actions as the

22 Secretary may require, including recovering for the ar23 rangement any liability under section 705(f), as necessary

24 to ensure that the affairs of the arrangement will be, to

25 the maximum extent possible, wound up in a manner
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1 which will result in timely provision of all benefits for

2 which the arrangement is obligated.

3 ‘‘SEC. 708. ADDITIONAL RULES REGARDING STATE AU4 THORITY.

5 ‘‘(a) EXCLUSION OF ARRANGEMENTS FROM THE

6 SMALL GROUP MARKET IN ANY STATE UPON STATE’S

7 CERTIFICATION OF GUARANTEED ACCESS TO HEALTH

8 INSURANCE COVERAGE IN SUCH STATE.—

9 ‘‘(1) IN GENERAL.—If a State certifies to the

10 Secretary that such State provides to its residents

11 guaranteed access to health insurance coverage, dur12 ing the period for which such certification is in ef13 fect, the law of such State may regulate any health

14 care coverage provided in the small group market in

15 such State (or prohibit the provision of such cov16 erage) by a multiple employer welfare arrangement

17 which is otherwise exempt under section

18 514(b)(6)(B) and whose sponsor is described in sec19 tion 703(a)(1), notwithstanding such exemption.

20 Any such certification shall be in effect for such pe21 riod, not greater than 3 years, as is designated in

22 such certification. Such certification shall apply with

23 respect to such arrangements as are identified, indi24 vidually or by class, in the certification.
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1 ‘‘(2) GUARANTEED ACCESS.—For purposes of

2 this subsection, the certification by a State that such

3 State provides ‘guaranteed access’ to health insur4 ance coverage to the residents of such State

5 means—

6 ‘‘(A) certification that the number of resi7 dents of such State who are covered by a group

8 health plan or otherwise have health insurance

9 coverage exceeds 90 percent of the total number

10 of the residents of such State, or

11 ‘‘(B) certification that—

12 ‘‘(i) the small group market in such

13 State provides guaranteed issue for em14 ployees with respect to at least one option

15 of health insurance coverage offered by in16 surers and health maintenance organiza17 tions in such market, and

18 ‘‘(ii) the State has implemented rating

19 reforms in the small group market in such

20 State which are designed to make health

21 insurance coverage more affordable.

22 ‘‘(b) EXCEPTIONS.—

23 ‘‘(1) CERTAIN MULTISTATE ASSOCIATIONS.—

24 Subsection (a) shall not apply in the case of a mul25 tiple employer welfare arrangement operating in any
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1 State which has made a certification under sub2 section (a)(2)(B) if—

3 ‘‘(A) in the application for the exemption

4 under section 514(b)(6)(B), the sponsor of such

5 arrangement demonstrates to the Secretary (in

6 such form and manner as shall be prescribed in

7 regulations of the Secretary) that—

8 ‘‘(i) such sponsor operates in the ma9 jority of the 50 States and in at least 2 of

10 the regions of the United States, and

11 ‘‘(ii) the arrangement covers, or is to

12 cover (in the case of a newly established

13 arrangement), at least 7,500 participants

14 and beneficiaries, and

15 ‘‘(B) at the time of such application, the

16 arrangement does not have pending against it

17 any enforcement action by the State.

18 ‘‘(2) EXISTING ARRANGEMENTS.—Subsection

19 (a) shall not apply with respect to an arrangement

20 operating in any State if—

21 ‘‘(A) such arrangement was operating in

22 such State as of March 6, 1996, and

23 ‘‘(B) at the time of the application for the

24 exemption under section 514(b)(6), the ar-
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1 rangement does not have pending against it any

2 enforcement action by the State.

3 ‘‘(3) LIMITATIONS.—Paragraphs (1) and (2)

4 shall not apply in the case of any State which has

5 made a certification under subsection (a) and which,

6 as of January 1, 1996, had enacted a law that ei7 ther—

8 ‘‘(A) provided guaranteed issue of individ9 ual health insurance coverage offered by insur10 ers and health maintenance organizations in the

11 individual market using pure community rating

12 and did not provide for any transition period

13 (after the effective date of the guaranteed issue

14 requirement) in the implementation of pure

15 community rating; or

16 ‘‘(B) required insurers offering health in17 surance coverage in connection with group

18 health plans to reimburse insurers offering indi19 vidual health insurance coverage for losses re20 sulting from those insurers offering individual

21 health insurance coverage on an open enroll22 ment basis.

23 Regulations under this part may provide for an ex24 emption from the applicability of paragraph (1) in
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1 the case of certain arrangements that are limited to

2 a single industry.

3 ‘‘(c) ASSESSMENT AUTHORITY WITH RESPECT TO

4 NEW ARRANGEMENTS.—

5 ‘‘(1) IN GENERAL.—Notwithstanding section

6 514, a State may impose by law a premium tax on

7 multiple employer welfare arrangements which are

8 otherwise exempt under section 514(b)(6)(B) and

9 the sponsor of which is described in section

10 703(a)(1)—

11 ‘‘(A) in the case of an arrangement estab12 lished after March 6, 1996, and

13 ‘‘(B) in the case of an arrangement in ex14 istence as of March 6, 1996, if the arrangement

15 commenced operations in such State after

16 March 6, 1996.

17 ‘‘(2) PREMIUM TAX.—For purposes of this sub18 section, the term ‘premium tax’ imposed by a State

19 on a multiple employer welfare arrangement means

20 any tax imposed by such State if—

21 ‘‘(A) such tax is computed by applying a

22 rate to the amount of premiums or contribu23 tions received by the arrangement from partici24 pating employers located in such State with re-
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1 spect to individuals covered under the arrange2 ment who are residents of such State,

3 ‘‘(B) the rate of such tax does not exceed

4 the rate of any tax imposed by such State on

5 premiums or contributions received by insurers

6 or health maintenance organizations for health

7 insurance coverage offered in such State in con8 nection with a group health plan,

9 ‘‘(C) such tax is otherwise nondiscrim10 inatory, and

11 ‘‘(D) the amount of any such tax assessed

12 on the arrangement is reduced by the amount

13 of any tax or assessment imposed by the State

14 on premiums or contributions received by insur15 ers or health maintenance organizations for

16 health insurance coverage (or other insurance

17 related to the provision of medical care under

18 the arrangement) provided by such insurers or

19 health maintenance organizations in such State

20 to such arrangement.

21 ‘‘(d) DEFINITIONS.—For purposes of this section—

22 ‘‘(1) SMALL GROUP MARKET.—The term ‘small

23 group market’ means the health insurance coverage

24 market under which individuals obtain health insur25 ance coverage (directly or through any arrangement)
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1 on behalf of themselves (and their dependents) on

2 the basis of employment or other relationship with

3 respect to a small employer.

4 ‘‘(2) SMALL EMPLOYER.—The term ‘small em5 ployer’ means, in connection with a group health

6 plan with respect to a calandar year, an employer

7 who employs at least 2 but fewer than 51 employees

8 on a typical business day in the year. For purposes

9 of this paragraph, 2 or more trades or businesses,

10 whether or not incorporated, shall be deemed a sin11 gle employer if such trades or businesses are within

12 the same control group (within the meaning of sec13 tion 3(40)(B)(ii)).

14 ‘‘(3) REGION.—The term ‘region’ means any of

15 the following regions:

16 ‘‘(A) The East Region, consisting of the

17 States of Maine, New Hampshire, Vermont,

18 New York, Massachusetts, Rhode Island, Con19 necticut, New Jersey, Pennsylvania, Delaware,

20 Maryland, West Virginia, and Ohio, and the

21 District of Columbia.

22 ‘‘(B) The Southeast Region, consisting of

23 the States of Texas, Arkansas, Louisiana, Mis24 sissippi, Alabama, Georgia, Florida, South
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1 Carolina, North Carolina, Virginia, and Ten2 nessee.

3 ‘‘(C) The Midwest Region, consisting of

4 the States of Montana, South Dakota, North

5 Dakota, Nebraska, Kansas, Oklahoma, Min6 nesota, Iowa, Missouri, Wisconsin, Michigan, Il7 linois, and Indiana.

8 ‘‘(D) The West Region, consisting of the

9 States of Oregon, Washington, Idaho, Nevada,

10 California, New Mexico, Arizona, Nebraska,

11 Wyoming, Hawaii, Alaska, Colorado, and

12 Utah.’’.

13 (b) CONFORMING AMENDMENTS TO PREEMPTION

14 RULES.—

15 (1) Section 514(b)(6)(A)(i) of such Act (29

16 U.S.C. 1144(b)(6)(A)(i)) is amended by striking ‘‘is

17 fully insured’’ and inserting ‘‘under which all bene18 fits are fully insured’’, and by inserting ‘‘and which

19 is not described in section 702(a)(1)’’ after ‘‘sub20 paragraph (B)’’.

21 (2) Section 514(b)(6)(B) of such Act (29

22 U.S.C. 1144(b)(6)(B)) is amended—

23 (A) by inserting ‘‘(i)’’ after ‘‘(B)’’;
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1 (B) by striking ‘‘which are not fully in2 sured’’ and inserting ‘‘under which any benefit

3 is not fully insured’’; and

4 (C) by striking ‘‘Any such exemption’’ and

5 inserting:

6 ‘‘(ii) Subject to part 7, any exemption under clause

7 (i)’’.

8 (c) CONFORMING AMENDMENT TO DEFINITION OF

9 PLAN SPONSOR.—Section 3(16)(B) of such Act (29

10 U.S.C. 1002(16)(B)) is amended by adding at the end the

11 following new sentence: ‘‘Such term also includes the spon12 sor (as defined in section 701(6)) of a multiple employer

13 welfare arrangement which is or has been a multiple em14 ployer health plan (as defined in section 701(4)).’’.

15 (d) DEFINITIONS.—

16 (1) GROUP HEALTH PLAN.—Section 3 of such

17 Act (29 U.S.C. 1002) is amended by adding at the

18 end the following new paragraph:

19 ‘‘(42) Except as otherwise provided in this title, the

20 term ‘group health plan’ means an employee welfare bene21 fit plan to the extent that the plan provides medical care

22 (within the meaning of section 607(1)) to employees or

23 their dependents (as defined under the terms of the plan)

24 directly or through insurance, reimbursement, or other25 wise.’’.
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1 (2) INCLUSION OF CERTAIN PARTNERS AND

2 SELF-EMPLOYED SPONSORS IN DEFINITION OF PAR3 TICIPANT.—Section 3(7) of such Act (29 U.S.C.

4 1002(7)) is amended—

5 (A) by inserting ‘‘(A)’’ after ‘‘(7)’’; and

6 (B) by adding at the end the following new

7 paragraph:

8 ‘‘(B) In the case of a group health plan, such term

9 includes—

10 ‘‘(i) in connection with a group health plan

11 maintained by a partnership, an individual who is a

12 partner in relation to the partnership, or

13 ‘‘(ii) in connection with a group health plan

14 maintained by a self-employed individual (under

15 which one or more employees are participants), the

16 self-employed individual,

17 if such individual is or may become eligible to receive a

18 benefit under the plan or such individual’s beneficiaries

19 may be eligible to receive any such benefit.’’.

20 (3) HEALTH INSURANCE COVERAGE.—Section 3

21 of such Act (as amended by paragraph (1)) is

22 amended further by adding at the end the following

23 new paragraph:

24 ‘‘(43)(A) Except as provided in subparagraph (B),

25 the term ‘health insurance coverage’ means benefits con-
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1 sisting of medical care (provided directly, through insur2 ance or reimbursement, or otherwise) under any hospital

3 or medical service policy or certificate, hospital or medical

4 service plan contract, or health maintenance organization

5 group contract offered by an insurer or a health mainte6 nance organization.

7 ‘‘(B) Such term does not include coverage under any

8 separate policy, certificate, or contract only for one or

9 more of any of the following:

10 ‘‘(i) Coverage for accident, credit-only, vision,

11 disability income, long-term care, nursing home care,

12 community-based care dental, on-site medical clinics,

13 or employee assistance programs, or any combina14 tion thereof.

15 ‘‘(ii) Medicare supplemental health insurance

16 (within the meaning of section 1882(g)(1) of the So17 cial Security Act (42 U.S.C. 1395ss(g)(1))) and

18 similar supplemental coverage provided under a

19 group health plan.

20 ‘‘(iii) Coverage issued as a supplement to liabil21 ity insurance.

22 ‘‘(iv) Liability insurance, including general li23 ability insurance and automobile liability insurance.

24 ‘‘(v) Workers’ compensation or similar insur25 ance.
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1 ‘‘(vi) Automobile medical-payment insurance.

2 ‘‘(vii) Coverage for a specified disease or illness.

3 ‘‘(viii) Hospital or fixed indemnity insurance.

4 ‘‘(ix) Short-term limited duration insurance.

5 ‘‘(x) Such other coverage, comparable to that

6 described in previous clauses, as may be specified in

7 regulations.’’.

8 (4) MEDICAL CARE.—Section 607(1) of such

9 Act (29 U.S.C. 1167(1)) is amended—

10 (A) by striking ‘‘The term’’ and inserting

11 the following:

12 ‘‘(A) IN GENERAL.—The term’’;

13 (B) by striking ‘‘(as defined’’ and all that

14 follows through ‘‘1986)’’; and

15 (C) by adding at the end the following new

16 subparagraph:

17 ‘‘(B) MEDICAL CARE.—For purposes of

18 this paragraph, the term ‘medical care’

19 means—

20 ‘‘(i) amounts paid for, or items or

21 services in the form of, the diagnosis, cure,

22 mitigation, treatment, or prevention of dis23 ease, or amounts paid for, or items or serv24 ices provided for, the purpose of affecting

25 any structure or function of the body,
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1 ‘‘(ii) amounts paid for, or services in

2 the form of, transportation primarily for

3 and essential to medical care referred to in

4 clause (i), and

5 ‘‘(iii) amounts paid for insurance cov6 ering medical care referred to in clauses (i)

7 and (ii).’’.

8 (5) OTHER DEFINITIONS.—Section 514 of such

9 Act is further amended by adding at the end the fol10 lowing new subsection:

11 ‘‘(e) For purposes of this section, the terms ‘fully in12 sured’, ‘health maintenance organization’, and ‘insurer’

13 have the meanings given such terms in section 701.’’.

14 (e) CLERICAL AMENDMENT.—The table of contents

15 in section 1 of the Employee Retirement Income Security

16 Act of 1974 (as amended by section 102(g)) is amended

17 by inserting after the item relating to section 609 the fol18 lowing new items:

‘‘PART 7—RULES GOVERNING REGULATION OF MULTIPLE EMPLOYER

HEALTH PLANS

‘‘Sec. 701. Definitions.

‘‘Sec. 702. Clarification of duty of the Secretary to implement provisions of current law provising for exemptions and solvency standards for

multiple employer health plans.

‘‘Sec. 703. Requirements relating to sponsors, boards of trustees, and plan operations.

‘‘Sec. 704. Other requirements for exemption.

‘‘Sec. 705. Maintenance of reserves.

‘‘Sec. 706. Notice requirements for voluntary termination.

‘‘Sec. 707. Corrective actions and mandatory termination.

‘‘Sec. 708. Additional rules regarding State authority.’’.
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1 SEC. 162. AFFORDABLE AND AVAILABLE FULLY INSURED

2 HEALTH COVERAGE THROUGH VOLUNTARY

3 HEALTH INSURANCE ASSOCIATIONS.

4 Section 514 of the Employee Retirement Income Se5 curity Act of 1974 is amended—

6 (1) by redesignating subsections (d) as sub7 section (e); and

8 (2) by inserting after subsection (c) the follow9 ing new subsection:

10 ‘‘(d)(1) The provisions of this title shall supercede

11 any and all State laws which regulate insurance insofar

12 as they may now or hereafter—

13 ‘‘(A) preclude an insurer or health maintenance

14 organization from offering health insurance coverage

15 under voluntary health insurance associations,

16 ‘‘(B) preclude an insurer or health maintenance

17 organization from setting premium rates under a

18 voluntary health insurance association based on the

19 claims experience of the voluntary health insurance

20 association (without varying the premium rates of

21 any particular employer on the basis of the claims

22 experience of such employer alone), or

23 ‘‘(C) require—

24 ‘‘(i) health insurance coverage in connec25 tion with a voluntary health insurance associa-
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1 tion to include specific items or services consist2 ing of medical care, or

3 ‘‘(ii) an insurer or health maintenance or4 ganization offering health insurance coverage in

5 connection with a voluntary health insurance

6 association to include in such health insurance

7 coverage specific items or services consisting of

8 medical care,

9 except to the extent that such State laws prohibit an

10 exclusion for a specific disease in such health insur11 ance coverage.

12 Subparagraph (C) shall apply only with respect to items

13 and services which shall be specified in a list which shall

14 be prescribed in regulations of the Secretary.

15 ‘‘(2)(A) If a State certifies to the Secretary that such

16 State provides to its residents guaranteed access to health

17 insurance coverage, during the period for which such cer18 tification is in effect, the law of such State may regulate

19 any health insurance coverage provided in the small group

20 market in such State (or prohibit the provision of such

21 coverage) by a voluntary health insurance association. Any

22 such certification shall be in effect for such period, not

23 greater than 3 years, as is designated in such certification.

24 ‘‘(B) For purposes of this paragraph, the certification

25 by a State that such State provides ‘guaranteed access’
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1 to health insurance coverage to the residents of such State

2 means—

3 ‘‘(i) certification that the number of residents

4 of such State who are covered by a group health

5 plan or otherwise have health insurance coverage ex6 ceeds 90 percent of the total number of the residents

7 of such State, or

8 ‘‘(ii) certification that—

9 ‘‘(I) the small group market in such State

10 provides guaranteed issue for employees with

11 respect to at least one option of health insur12 ance coverage offered by insurers and health

13 maintenance organizations in such market, and

14 ‘‘(II) the State has implemented rating re15 forms in the small group market in such State

16 which are designed to make health insurance

17 coverage more affordable.

18 ‘‘(3)(A) Paragraph (2) shall not apply in the case of

19 any voluntary health insurance association with respect to

20 any State if the qualified association demonstrates to the

21 Secretary (in such form and manner as shall be prescribed

22 in regulations of the Secretary) that—

23 ‘‘(i) such qualified association operates in the

24 majority of the 50 States and in at least 2 of the

25 regions of the United States,
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1 ‘‘(ii) the arrangement covers, or is to cover (in

2 the case of a newly established arrangement), at

3 least 7,500 participants and beneficiaries, and

4 ‘‘(iii) under the terms of the arrangement, ei5 ther—

6 ‘‘(I) the qualified association does not ex7 clude from membership any small employer in

8 the State, or

9 ‘‘(II) the arrangement accepts every small

10 employer in the State that applies for coverage.

11 ‘‘(B)(i) Subject to clause (ii), paragraph (2) shall not

12 apply with respect to a voluntary health insurance associa13 tion operating in any State if such association was operat14 ing in such State as of March 6, 1996.

15 ‘‘(ii) Clause (i) shall apply in the case of an arrange16 ment in connection with any State only if the qualified

17 association demonstrates to the Secretary (in such form

18 and manner as shall be prescribed in regulations of the

19 Secretary) either—

20 ‘‘(I) that the qualified association does not ex21 clude from membership any small employer in the

22 State, or

23 ‘‘(II) that the arrangement accepts every small

24 employer in such State that applies for coverage.
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1 ‘‘(C) Subparagraphs (A) and (B) shall not apply in

2 the case of any State which has made a certification under

3 paragraph (2) and which, as of January 1, 1996, had en4 acted a law that either—

5 ‘‘(i) provided guaranteed issue of individual

6 health insurance coverage offered by insurers and

7 health maintenance organizations in the individual

8 market using pure community rating and did not

9 provide for any transition period (after the effective

10 date of the guaranteed issue requirement) in the im11 plementation of pure community rating; or

12 ‘‘(ii) required insurers offering health insurance

13 coverage in connection with group health plans to re14 imburse insurers offering individual health insurance

15 coverage for losses resulting from those insurers of16 fering individual health insurance coverage on an

17 open enrollment basis.

18 ‘‘(5) For purposes of this subsection—

19 ‘‘(A) The term ‘voluntary health insurance as20 sociation’ means a multiple employer welfare ar21 rangement—

22 ‘‘(i) under which benefits include medical

23 care (within the meaning of section 607(1)),

24 ‘‘(ii) under which all benefits consisting of

25 such medical care are fully insured,
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1 ‘‘(iii) which is maintained by a qualified

2 association,

3 ‘‘(iv) under which no employer is excluded

4 as a participating employer (except to the ex5 tent that requirements of the type referred to in

6 section 131(d)(2) of the Health Coverage Avail7 ability and Affordability Act of 1996 are not

8 met), the requirements of section 103 of such

9 Act (as referred to in section 104(b)(1) of such

10 Act) are met, and all health insurance coverage

11 options are aggressively marketed to eligible

12 employees and their dependents, and

13 ‘‘(v) under which, with respect to the oper14 ations of the arrangement in any State, the

15 health insurance coverage is provided by an in16 surer or health maintenance organization to

17 which the laws of such State applies.

18 ‘‘(B) The term ‘qualified association’ means an

19 association with respect to which the following re20 quirements are met:

21 ‘‘(i) The sponsor of the association is, and

22 has been (together with its immediate prede23 cessor, if any) for a continuous period of not

24 less than 5 years, organized and maintained in

25 good faith, with a constitution and bylaws spe-
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1 cifically stating its purpose, as a trade associa2 tion, an industry association, a professional as3 sociation, or a chamber of commerce (or similar

4 business group), for substantial purposes other

5 than that of obtaining or providing medical care

6 (within the meaning of section 607(1)).

7 ‘‘(ii) The sponsor of the association is es8 tablished as a permanent entity which receives

9 the active support of its members.

10 ‘‘(iii) The constitution and bylaws of the

11 association provide for periodic meetings on at

12 least an annual basis.

13 ‘‘(iv) The association collects dues or con14 tributions from its members on a periodic basis,

15 without conditioning such dues or contributions

16 on the basis of the health status of the employ17 ees of such members or the dependents of such

18 employees or on the basis of participation in a

19 group health plan or voluntary health insurance

20 association.

21 Such term includes a group of qualified associations,

22 as defined in the preceding provisions of this clause.

23 ‘‘(C) The term ‘small group market’ means the

24 health insurance coverage market under which indi25 viduals obtain health insurance coverage (directly or
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1 through any arrangement) on behalf of themselves

2 (and their dependents) on the basis of employment

3 or other relationship with respect to a small em4 ployer.

5 ‘‘(D) The term ‘small employer’ means, in con6 nection with a group health plan with respect to a

7 calandar year, an employer who employs at least 2

8 but fewer than 51 employees on a typical business

9 day in the year. For purposes of this paragraph, 2

10 or more trades or businesses, whether or not incor11 porated, shall be deemed a single employer if such

12 trades or businesses are within the same control

13 group (within the meaning of section 3(40)(B)(ii)).

14 ‘‘(E) The term ‘region’ means any of the follow15 ing regions:

16 ‘‘(i) The East Region, consisting of the

17 States of Maine, New Hampshire, Vermont,

18 New York, Massachusetts, Rhode Island, Con19 necticut, New Jersey, Pennsylvania, Delaware,

20 Maryland, West Virginia, and Ohio and the

21 District of Columbia.

22 ‘‘(ii) The Southeast Region, consisting of

23 the States of Texas, Arkansas, Louisiana, Mis24 sissippi, Alabama, Georgia, Florida, South
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1 Carolina, North Carolina, Virginia, and Ten2 nessee.

3 ‘‘(iii) The Midwest Region, consisting of

4 the States of Montana, South Dakota, North

5 Dakota, Nebraska, Kansas, Oklahoma, Min6 nesota, Iowa, Missouri, Wisconsin, Michigan, Il7 linois, and Indiana.

8 ‘‘(iv) The West Region, consisting of the

9 States of Oregon, Washington, Idaho, Nevada,

10 California, New Mexico, Arizona, Nebraska,

11 Wyoming, Hawaii, Alaska, Colorado, and

12 Utah.’’.

13 SEC. 163. STATE AUTHORITY FULLY APPLICABLE TO SELF14 INSURED MULTIPLE EMPLOYER WELFARE

15 ARRANGEMENTS PROVIDING MEDICAL CARE

16 WHICH ARE NOT EXEMPTED UNDER NEW

17 PART 7.

18 (a) IN GENERAL.—Section 514(b)(6)(A)(ii) of the

19 Employee Retirement Income Security Act of 1974 (29

20 U.S.C. 1144(b)(6)(A)(ii)) is amended by inserting before

21 the period the following: ‘‘, except that, in any such case,

22 if the arrangement provides medical care (within the

23 meaning of section 607(1)), such a law of any State may

24 apply without limitation under this title’’.
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1 (b) CROSS-REFERENCE.—Section 514(b)(6) of such

2 Act (29 U.S.C. 1144(b)(6)) (as amended by section 301)

3 is amended by adding at the end the following new sub4 paragraph:

5 ‘‘(G) For additional rules relating to exemption from

6 subparagraph (A)(ii) of multiple employer health plans,

7 see part 7.’’.

8 SEC. 164. CLARIFICATION OF TREATMENT OF SINGLE EM9 PLOYER ARRANGEMENTS.

10 Section 3(40)(B) of the Employee Retirement Income

11 Security Act of 1974 (29 U.S.C. 1002(40)(B)) is amend12 ed—

13 (1) in clause (i), by inserting ‘‘for any plan year

14 of any such plan, or any fiscal year of any such

15 other arrangement,’’ after ‘‘single employer’’, and by

16 inserting ‘‘during such year or at any time during

17 the preceding 1-year period’’ after ‘‘control group’’;

18 (2) in clause (iii)—

19 (A) by striking ‘‘common control shall not

20 be based on an interest of less than 25 percent’’

21 and inserting ‘‘an interest of greater than 25

22 percent may not be required as the minimum

23 interest necessary for common control’’; and

24 (B) by striking ‘‘similar to’’ and inserting

25 ‘‘consistent and coextensive with’’;
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1 (3) by redesignating clauses (iv) and (v) as

2 clauses (v) and (vi), respectively; and

3 (4) by inserting after clause (iii) the following

4 new clause:

5 ‘‘(iv) in determining, after the application of

6 clause (i), whether benefits are provided to employ7 ees of two or more employers, the arrangement shall

8 be treated as having only 1 participating employer

9 if, after the application of clause (i), the number of

10 individuals who are employees and former employees

11 of any one participating employer and who are cov12 ered under the arrangement is greater than 75 per13 cent of the aggregate number of all individuals who

14 are employees or former employees of participating

15 employers and who are covered under the arrange16 ment,’’.

17 SEC. 165. CLARIFICATION OF TREATMENT OF CERTAIN

18 COLLECTIVELY BARGAINED ARRANGE19 MENTS.

20 (a) IN GENERAL.—Section 3(40)(A)(i) of the Em21 ployee Retirement Income Security Act of 1974 (29

22 U.S.C. 1002(40)(A)(i)) is amended to read as follows:

23 ‘‘(i)(I) under or pursuant to one or more collec24 tive bargaining agreements which are reached pursu25 ant to collective bargaining described in section 8(d)
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1 of the National Labor Relations Act (29 U.S.C.

2 158(d)) or paragraph Fourth of section 2 of the

3 Railway Labor Act (45 U.S.C. 152, paragraph

4 Fourth) or which are reached pursuant to labor5 management negotiations under similar provisions of

6 State public employee relations laws, and (II) in ac7 cordance with subparagraphs (C), (D), and (E),’’.

8 (b) LIMITATIONS.—Section 3(40) of such Act (29

9 U.S.C. 1002(40)) is amended by adding at the end the

10 following new subparagraphs:

11 ‘‘(C) A plan or other arrangement is established or

12 maintained in accordance with this subparagraph only if

13 the following requirements are met:

14 ‘‘(i) The plan or other arrangement, and the

15 employee organization or any other entity sponsoring

16 the plan or other arrangement, do not—

17 ‘‘(I) utilize the services of any licensed in18 surance agent or broker for soliciting or enroll19 ing employers or individuals as participating

20 employers or covered individuals under the plan

21 or other arrangement, or

22 ‘‘(II) pay a commission or any other type

23 of compensation to a person, other than a full

24 time employee of the employee organization (or

25 a member of the organization to the extent pro-
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1 vided in regulations of the Secretary), that is

2 related either to the volume or number of em3 ployers or individuals solicited or enrolled as

4 participating employers or covered individuals

5 under the plan or other arrangement, or to the

6 dollar amount or size of the contributions made

7 by participating employers or covered individ8 uals to the plan or other arrangement,

9 except to the extent that the services used by the

10 plan, arrangement, organization, or other entity con11 sist solely of preparation of documents necessary for

12 compliance with the reporting and disclosure re13 quirements of part 1 or administrative, investment,

14 or consulting services unrelated to solicitation or en15 rollment of covered individuals.

16 ‘‘(ii) As of the end of the preceding plan year,

17 the number of covered individuals under the plan or

18 other arrangement who are identified to the plan or

19 arrangement and who are neither—

20 ‘‘(I) employed within a bargaining unit

21 covered by any of the collective bargaining

22 agreements with a participating employer (nor

23 covered on the basis of an individual’s employ24 ment in such a bargaining unit), nor
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1 ‘‘(II) present employees (or former employ2 ees who were covered while employed) of the

3 sponsoring employee organization, of an em4 ployer who is or was a party to any of the col5 lective bargaining agreements, or of the plan or

6 other arrangement or a related plan or arrange7 ment (nor covered on the basis of such present

8 or former employment),

9 does not exceed 15 percent of the total number of

10 individuals who are covered under the plan or ar11 rangement and who are present or former employees

12 who are or were covered under the plan or arrange13 ment pursuant to a collective bargaining agreement

14 with a participating employer. The requirements of

15 the preceding provisions of this clause shall be treat16 ed as satisfied if, as of the end of the preceding plan

17 year, such covered individuals are comprised solely

18 of individuals who were covered individuals under

19 the plan or other arrangement as of the date of the

20 enactment of the Health Coverage Availability and

21 Affordability Act 1996 and, as of the end of the pre22 ceding plan year, the number of such covered indi23 viduals does not exceed 25 percent of the total num24 ber of present and former employees enrolled under

25 the plan or other arrangement.
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1 ‘‘(iii) The employee organization or other entity

2 sponsoring the plan or other arrangement certifies

3 to the Secretary each year, in a form and manner

4 which shall be prescribed in regulations of the Sec5 retary that the plan or other arrangement meets the

6 requirements of clauses (i) and (ii).

7 ‘‘(D) A plan or arrangement is established or main8 tained in accordance with this subparagraph only if—

9 ‘‘(i) all of the benefits provided under the plan

10 or arrangement are fully insured (as defined in sec11 tion 701(2)), or

12 ‘‘(ii)(I) the plan or arrangement is a multiem13 ployer plan, and

14 ‘‘(II) the requirements of clause (B) of the pro15 viso to clause (5) of section 302(c) of the Labor

16 Management Relations Act, 1947 (29 U.S.C.

17 186(c)) are met with respect to such plan or other

18 arrangement.

19 ‘‘(E) A plan or arrangement is established or main20 tained in accordance with this subparagraph only if—

21 ‘‘(i) the plan or arrangement is in effect as of

22 the date of the enactment of the Health Coverage

23 Availability and Affordability Act of 1996, or

24 ‘‘(ii) the employee organization or other entity

25 sponsoring the plan or arrangement—
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1 ‘‘(I) has been in existence for at least 3

2 years or is affiliated with another employee or3 ganization which has been in existence for at

4 least 3 years, or

5 ‘‘(II) demonstrates to the satisfaction of

6 the Secretary that the requirements of subpara7 graphs (C) and (D) are met with respect to the

8 plan or other arrangement.’’.

9 (c) CONFORMING AMENDMENTS TO DEFINITIONS OF

10 PARTICIPANT AND BENEFICIARY.—Section 3(7) of such

11 Act (29 U.S.C. 1002(7)) is amended by adding at the end

12 the following new sentence: ‘‘Such term includes an indi13 vidual who is a covered individual described in paragraph

14 (40)(C)(ii).’’.

15 SEC. 166. TREATMENT OF CHURCH PLANS.

16 (a) SPECIAL RULES FOR CHURCH PLANS.—

17 (1) IN GENERAL.—Part 7 of subtitle B of title

18 I of such Act (as added and amended by the preced19 ing provisions of this Act) is amended by adding at

20 the end the following new section:

21 ‘‘SEC. 709. SPECIAL RULES FOR CHURCH PLANS.

22 ‘‘(a) ELECTION FOR CHURCH PLANS.—

23 ‘‘(1) IN GENERAL.—Notwithstanding section

24 4(b)(2), if the church or convention or association of

25 churches which maintains a church plan covered
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1 under this section makes an election with respect to

2 such plan under this subsection (in such form and

3 manner as the Secretary may by regulations pre4 scribe), then, subject to this section, the provisions

5 of this part (and other provisions of this title to the

6 extent that they apply to group health plans which

7 are multiple employer welfare arrangements) shall

8 apply to such church plan, with respect to benefits

9 provided under such plan consisting of medical care,

10 as if—

11 ‘‘(A) section 4(b)(2) did not contain an ex12 clusion for church plans, and

13 ‘‘(B) such plan were an arrangement eligi14 ble to apply for an exemption under this part.

15 ‘‘(2) ELECTION IRREVOCABLE.—An election

16 under this subsection with respect to any church

17 plan shall be binding with respect to such plan, and,

18 once made, shall be irrevocable.

19 ‘‘(b) COVERED CHURCH PLANS.—A church plan is

20 covered under this section if such plan provides benefits

21 which include medical care and some or all of such benefits

22 are not fully insured.

23 ‘‘(c) SPONSOR AND BOARD OF TRUSTEES.—For pur24 poses of this part, in the case of a church plan to which

25 this part applies pursuant to an election under subsection
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1 (a), in treating such plan as if it were a multiple employer

2 welfare arrangement under this part—

3 ‘‘(1) the church, convention or association of

4 churches, or other organization described in section

5 3(33)(C)(i) which is the entity maintaining the plan

6 shall be treated as the sponsor referred to in section

7 703(a)(1), and the requirements of section 703(a)(1)

8 shall not apply, and

9 ‘‘(2) the board of trustees, board of directors,

10 or other similar governing body of such sponsor shall

11 be treated as the board of trustees referred to in

12 section 703(a)(2), and the requirements of section

13 703(a)(2) shall be deemed satisfied with respect to

14 the board of trustees.

15 ‘‘(d) DEEMED SATISFACTION OF TRUST REQUIRE16 MENTS.—The requirements of section 403 shall not be

17 treated as not satisfied with respect to a church plan to

18 which this part applies pursuant to an election under sub19 section (a) solely because assets of the plan are held by

20 an organization described in section 3(33)(C)(i), if—

21 ‘‘(1) such organization is incorporated sepa22 rately from the church or convention or association

23 of churches involved, and

24 ‘‘(2) such assets with respect to medical care

25 are separately accounted for.
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1 ‘‘(e) DEEMED SATISFACTION OF EXCLUSIVE BENE2 FIT REQUIREMENTS.—The requirements of section 404

3 shall not be treated as not satisfied with respect to a

4 church plan to which this part applies pursuant to an elec5 tion under subsection (a) solely because assets of the plan

6 which are in excess of reserves required for exemption

7 under section 514(b)(6)(B) are held in a fund in which

8 such assets are pooled with assets of other church plans,

9 if the assets held by such fund may not, under the terms

10 of the plan and the terms governing such fund, be used

11 for, or diverted to, any purpose other than for the exclu12 sive benefit of the participants and beneficiaries of the

13 church plans whose assets are pooled in such fund.

14 ‘‘(f) INAPPLICABILITY OF CERTAIN PROVISIONS.—

15 ‘‘(1) PROHIBITED TRANSACTIONS.—Section 406

16 shall not apply to a church plan by reason of an

17 election under subsection (a).

18 ‘‘(2) CONTINUATION COVERAGE.—Section 601

19 shall not apply to a church plan by reason of an

20 election under subsection (a).’’.

21 (b) CONFORMING AMENDMENTS.—

22 (1) Section 4(b)(2) of such Act (29 U.S.C.

23 1003(b)(2)) is amended by inserting before the semi24 colon the following: ‘‘, except with respect to provi-
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1 sions made applicable under any election made

2 under section 704(a) of this Act’’.

3 (2) Section 514 of such Act (29 U.S.C. 1144)

4 is amended—

5 (A) in subsection (a), by inserting ‘‘(in6 cluding a church plan which is not exempt

7 under section 4(b)(2) by reason of an election

8 under section 704)’’ before the period in the

9 first sentence; and

10 (B) in subsection (b)(2)(B), by inserting

11 ‘‘and including a church plan which is not ex12 empt under section 4(b)(2) by reason of an

13 election under section 704’’ after ‘‘death bene14 fits’’.

15 (c) CLERICAL AMENDMENT.—The table of contents

16 in section 1 of such Act (as amended by the preceding

17 provisions of this title) is further amended by inserting

18 after the item relating to section 703 the following new

19 item:

‘‘Sec. 709. Special rules for church plans.’’.

20 SEC. 167. ENFORCEMENT PROVISIONS RELATING TO MUL21 TIPLE EMPLOYER WELFARE ARRANGE22 MENTS.

23 (a) ENFORCEMENT OF FILING REQUIREMENTS.—

24 Section 502 of the Employee Retirement Income Security
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1 Act of 1974 (29 U.S.C. 1132) (as amended by sections

2 102(c)) is further amended—

3 (1) in subsection (a)(6), by striking ‘‘paragraph

4 (2) or (5)’’ and inserting ‘‘paragraph (2), (5), or

5 (6)’’; and

6 (2) by adding at the end of subsection (c) the

7 following new paragraph:

8 ‘‘(6) The Secretary may assess a civil penalty against

9 any person of up to $1,000 a day from the date of such

10 person’s failure or refusal to file the information required

11 to be filed with the Secretary under section 101(g).’’.

12 (b) ACTIONS BY STATES IN FEDERAL COURT.—Sec13 tion 502(a) of such Act (29 U.S.C. 1132(a)) is amended—

14 (1) in paragraph (8), by striking ‘‘or’’ at the

15 end;

16 (2) in paragraph (9), by striking the period and

17 inserting ‘‘, or’’; and

18 (3) by adding at the end the following:

19 ‘‘(10) by a State official having authority under

20 the law of such State to enforce the laws of such

21 State regulating insurance, to enjoin any act or

22 practice which violates any requirement under part

23 7 for an exemption under section 514(b)(6)(B)

24 which such State has the power to enforce pursuant

25 to section 506(c)(1).’’.
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1 (c) CRIMINAL PENALTIES FOR CERTAIN WILLFUL

2 MISREPRESENTATIONS.—Section 501 of such Act (29

3 U.S.C. 1131) is amended—

4 (1) by inserting ‘‘(a)’’ after ‘‘SEC. 501.’’; and

5 (2) by adding at the end the following new sub6 section:

7 ‘‘(b) Any person who, either willfully or with willful

8 blindness, falsely represents, to any employee, any employ9 ee’s beneficiary, any employer, the Secretary, or any State,

10 an arrangement established or maintained for the purpose

11 of offering or providing any benefit described in section

12 3(1) to employees or their beneficiaries as—

13 ‘‘(1) being a multiple employer welfare arrange14 ment to which an exemption has been granted under

15 section 514(b)(6)(B),

16 ‘‘(2) having been established or maintained

17 under or pursuant to one or more collective bargain18 ing agreements which are reached pursuant to col19 lective bargaining described in section 8(d) of the

20 National Labor Relations Act (29 U.S.C. 158(d)) or

21 paragraph Fourth of section 2 of the Railway Labor

22 Act (45 U.S.C. 152, paragraph Fourth) or which are

23 reached pursuant to labor-management negotiations

24 under similar provisions of State public employee re25 lations laws, or
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1 ‘‘(3) being a plan or arrangement with respect

2 to which the requirements of subparagraph (C), (D),

3 or (E) of section 3(40) are met,

4 shall, upon conviction, be imprisoned not more than five

5 years, be fined under title 18, United States Code, or

6 both.’’.

7 (d) CESSATION OF ACTIVITIES IN ABSENCE OF EF8 FECTIVE STATE REGULATION UNLESS STANDARDS

9 UNDER ERISA EXEMPTION ARE MET.—Section 502 of

10 such Act (29 U.S.C. 1132) is amended by adding at the

11 end the following new subsection:

12 ‘‘(n)(1) Subject to paragraph (2), upon application

13 by the Secretary showing the operation, promotion, or

14 marketing of a multiple employer welfare arrangement

15 providing benefits consisting of medical care (within the

16 meaning of section 607(1)) that—

17 ‘‘(A) is not licensed, registered, or otherwise ap18 proved under the insurance laws of the States in

19 which the arrangement offers or provides benefits,

20 and

21 ‘‘(B) if there is in effect with respect to such

22 arrangement an exemption under section

23 514(b)(6)(B), is not operating in accordance with

24 the requirements under part 7 for such an exemp25 tion,
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1 a district court of the United States shall enter an order

2 requiring that the arrangement cease activities.

3 ‘‘(2) Paragraph (1) shall not apply in the case of a

4 multiple employer welfare arrangement if the arrangement

5 shows that—

6 ‘‘(A) all benefits under it referred to in para7 graph (1) are fully insured, within the meaning of

8 section 701(1), and

9 ‘‘(B) with respect to each State in which the ar10 rangement offers or provides benefits, the arrange11 ment is operating in accordance with applicable

12 State insurance laws that are not superseded under

13 section 514.

14 ‘‘(3) The court may grant such additional equitable

15 relief, including any relief available under this title, as it

16 deems necessary to protect the interests of the public and

17 of persons having claims for benefits against the arrange18 ment.’’.

19 (e) RESPONSIBILITY FOR CLAIMS PROCEDURE.—

20 Section 503 of such Act (29 U.S.C. 1133) is amended by

21 adding at the end (after and below paragraph (2)) the fol22 lowing new sentence: ‘‘The terms of each multiple em23 ployer health plan (within the meaning of section 701(4))

24 shall require the board of trustees or the named fiduciary

25 (as applicable) to ensure that the requirements of this sec-
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1 tion are met in connection with claims filed under the

2 plan.’’.

3 SEC. 168. COOPERATION BETWEEN FEDERAL AND STATE

4 AUTHORITIES.

5 Section 506 of the Employee Retirement Income Se6 curity Act of 1974 (29 U.S.C. 1136) is amended by adding

7 at the end the following new subsection:

8 ‘‘(c) STATE AUTHORITY WITH RESPECT TO MUL9 TIPLE EMPLOYER WELFARE ARRANGEMENTS.—

10 ‘‘(1) STATE ENFORCEMENT.—

11 ‘‘(A) AGREEMENTS WITH STATES.—A

12 State may enter into an agreement with the

13 Secretary for delegation to the State of some or

14 all of the Secretary’s authority under sections

15 502 and 504 to enforce the requirements under

16 section 514(d) or the requirements under part

17 7 for an exemption under section 514(b)(6)(B).

18 The Secretary shall enter into the agreement if

19 the Secretary determines that the delegation

20 provided for therein would not result in a lower

21 level or quality of enforcement of the provisions

22 of this title.

23 ‘‘(B) DELEGATIONS.—Any department,

24 agency, or instrumentality of a State to which

25 authority is delegated pursuant to an agree-
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1 ment entered into under this paragraph may, if

2 authorized under State law and to the extent

3 consistent with such agreement, exercise the

4 powers of the Secretary under this title which

5 relate to such authority.

6 ‘‘(C) CONCURRENT AUTHORITY OF THE

7 SECRETARY.—If the Secretary delegates author8 ity to a State in an agreement entered into

9 under subparagraph (A), the Secretary may

10 continue to exercise such authority concurrently

11 with the State.

12 ‘‘(D) RECOGNITION OF PRIMARY DOMICILE

13 STATE.—In entering into any agreement with a

14 State under subparagraph (A), the Secretary

15 shall ensure that, as a result of such agreement

16 and all other agreements entered into under

17 subparagraph (A), only one State will be recog18 nized, with respect to any particular multiple

19 employer welfare arrangement, as the primary

20 domicile State to which authority has been dele21 gated pursuant to such agreements.

22 ‘‘(2) ASSISTANCE TO STATES.—The Secretary

23 shall—

24 ‘‘(A) provide enforcement assistance to the

25 States with respect to multiple employer welfare
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1 arrangements, including, but not limited to, co2 ordinating Federal and State efforts through

3 the establishment of cooperative agreements

4 with appropriate State agencies under which

5 the Pension and Welfare Benefits Administra6 tion keeps the States informed of the status of

7 its cases and makes available to the States in8 formation obtained by it,

9 ‘‘(B) provide continuing technical assist10 ance to the States with respect to issues involv11 ing multiple employer welfare arrangements

12 and this Act,

13 ‘‘(C) make readily available to the States

14 timely and complete responses to requests for

15 advisory opinions on issues described in sub16 paragraph (B), and

17 ‘‘(D) distribute copies of all advisory opin18 ions described in subparagraph (C) to the State

19 insurance commissioner of each State.’’.

20 SEC. 169. FILING AND DISCLOSURE REQUIREMENTS FOR

21 MULTIPLE EMPLOYER WELFARE ARRANGE22 MENTS OFFERING HEALTH BENEFITS.

23 (a) IN GENERAL.—Section 101 of the Employee Re24 tirement Income Security Act of 1974 (29 U.S.C. 1021)

25 is amended—
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1 (1) by redesignating subsection (g) as sub2 section (i); and

3 (2) by inserting after subsection (f) the follow4 ing new subsections:

5 ‘‘(g) REGISTRATION OF MULTIPLE EMPLOYER WEL6 FARE ARRANGEMENTS.—(1) Each multiple employer wel7 fare arrangement shall file with the Secretary a registra8 tion statement described in paragraph (2) within 60 days

9 before commencing operations (in the case of an arrange10 ment commencing operations on or after January 1, 1997)

11 and no later than February 15 of each year (in the case

12 of an arrangement in operation since the beginning of

13 such year), unless, as of the date by which such filing oth14 erwise must be made, such arrangement provides no bene15 fits consisting of medical care (within the meaning of sec16 tion 607(1)).

17 ‘‘(2) Each registration statement—

18 ‘‘(A) shall be filed in such form, and contain

19 such information concerning the multiple employer

20 welfare arrangement and any persons involved in its

21 operation (including whether coverage under the ar22 rangement is fully insured), as shall be provided in

23 regulations which shall be prescribed by the Sec24 retary, and
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1 ‘‘(B) if any benefits under the arrangement

2 consisting of medical care (within the meaning of

3 section 607(1)) are not fully insured, shall contain

4 a certification that copies of such registration state5 ment have been transmitted by certified mail to—

6 ‘‘(i) in the case of an arrangement which

7 is a multiple employer health plan (as defined

8 in section 701(4)), the State insurance commis9 sioner of the domicile State of such arrange10 ment, or

11 ‘‘(ii) in the case of an arrangement which

12 is not a multiple employer health plan, the

13 State insurance commissioner of each State in

14 which the arrangement is located.

15 ‘‘(3) The person or persons responsible for filing the

16 annual registration statement are—

17 ‘‘(A) the trustee or trustees so designated by

18 the terms of the instrument under which the mul19 tiple employer welfare arrangement is established or

20 maintained, or

21 ‘‘(B) in the case of a multiple employer welfare

22 arrangement for which the trustee or trustees can23 not be identified, or upon the failure of the trustee

24 or trustees of an arrangement to file, the person or

25 persons actually responsible for the acquisition, dis-
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1 position, control, or management of the cash or

2 property of the arrangement, irrespective of whether

3 such acquisition, disposition, control, or management

4 is exercised directly by such person or persons or

5 through an agent designated by such person or per6 sons.

7 ‘‘(4) Any agreement entered into under section

8 506(c) with a State as the primary domicile State with

9 respect to any multiple employer welfare arrangement

10 shall provide for simultaneous filings of reports required

11 under this subsection with the Secretary and with the

12 State insurance commissioner of such State.

13 ‘‘(5) For purposes of this subsection, the term ‘domi14 cile State’ means, in connection with a multiple employer

15 welfare arrangement, the State in which, according to the

16 application for an exemption under this 514(b)(6)(B),

17 most individuals to be covered under the arrangement are

18 located, except that, in any case in which information con19 tained in the latest annual report of the arrangement filed

20 under this part indicates that most individuals covered

21 under the arrangement are located in a different State,

22 such term means such different State.

23 ‘‘(6) The Secretary may exempt from the require24 ments of this subsection such class of multiple employer

25 welfare arrangements as the Secretary deems appropriate.
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1 ‘‘(h) FILING REQUIREMENTS FOR MULTIPLE EM2 PLOYER WELFARE ARRANGEMENTS.—

3 ‘‘(1) IN GENERAL.—A multiple employer wel4 fare arrangement which provides benefits consisting

5 of medical care (within the meaning of section

6 607(1)) shall issue to each participating employer—

7 ‘‘(A) a document equivalent to the sum8 mary plan description required of plans under

9 this part,

10 ‘‘(B) information describing the contribu11 tion rates applicable to participating employers,

12 and

13 ‘‘(C) a statement indicating—

14 ‘‘(i) that the arrangement is not a li15 censed insurer under the laws of any State,

16 ‘‘(ii) the extent to which any benefits

17 under the arrangement are fully insured,

18 ‘‘(iii) if any benefits under the ar19 rangement are not fully insured, whether

20 the arrangement has been granted an ex21 emption under section 514(b)(6)(B) (or

22 whether such an exemption has ceased to

23 be effective).

24 ‘‘(2) TIME FOR DISCLOSURE.—Such informa25 tion shall be issued to employers within such reason-
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1 able period of time before becoming participating

2 employers as may be prescribed in regulations of the

3 Secretary.’’.

4 (b) EFFECTIVE DATES.—Section 101(g) of the Em5 ployee Retirement Income Security Act of 1974 (added by

6 subsection (a)) shall take effect on the date of the enact7 ment of this Act. Section 101(h) of such Act (added by

8 subsection (a)) shall take effect as provided in section 171.

9 SEC. 170. SINGLE ANNUAL FILING FOR ALL PARTICIPATING

10 EMPLOYERS.

11 (a) IN GENERAL.—Section 110 of the Employee Re12 tirement Income Security Act of 1974 (29 U.S.C. 1030)

13 is amended by adding at the end the following new sub14 section:

15 ‘‘(c) The Secretary shall prescribe by regulation or

16 otherwise an alternative method providing for the filing

17 of a single annual report (as referred to in section

18 104(a)(1)(A)) with respect to all employers who are par19 ticipating employers under a multiple employer welfare ar20 rangement under which all coverage consists of medical

21 care (within the meaning of section 607(1)) and is fully

22 insured (as defined in section 701(1)).’’.

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

24 subsection (a) shall take effect on the date of the enact25 ment of this Act. The Secretary of Labor shall prescribe
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1 the alternative method referred to in section 110(c) of the

2 Employee Retirement Income Security Act of 1974, as

3 added by such amendment, within 90 days after the date

4 of the enactment of this Act.

5 SEC. 171. EFFECTIVE DATE; TRANSITIONAL RULE.

6 (a) EFFECTIVE DATE.—Except as otherwise provided

7 in section 170(b), the amendments made by this subtitle

8 shall take effect January 1, 1998. The Secretary shall

9 issue all regulations necessary to carry out the amend10 ments made by this subtitle before January 1, 1998.

11 (b) TRANSITIONAL RULE.—

12 (1) IN GENERAL.—If the sponsor of a multiple

13 employer welfare arrangement which, as of the effec14 tive date specified in subsection (a), provides bene15 fits consisting of medical care (within the meaning

16 of section 607(1) of the Employee Retirement In17 come Security Act of 1974) files with the Secretary

18 of Labor an application for an exemption under sec19 tion 514(b)(6)(B) of such Act within 180 days after

20 such date and the Secretary has not, as of 90 days

21 after receipt of such application, found such applica22 tion to be materially deficient, then section

23 514(b)(6)(A) of such Act (29 U.S.C. 1144(b)(6)(A))

24 shall not apply with respect to such arrangement
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1 during the period following such date and ending on

2 the earlier of—

3 (A) the date on which the Secretary denies

4 the application under the amendments made by

5 this title or determines, in the Secretary’s sole

6 discretion, that such exclusion from coverage

7 under the provisions of such section

8 514(b)(6)(A) of such arrangement would be

9 detrimental to the interests of individuals cov10 ered under such arrangement, or

11 (B) 18 months after such effective date.

12 (2) NO PENDING STATE ACTION.—Subpara13 graph (A) shall apply in the case of an arrangement

14 only if, at the time of the application for the exemp15 tion under section 514(b)(6)(B), the arrangement

16 does not have pending against it an enforcement ac17 tion by a State.

18 Subtitle D—Definitions; General

19 Provisions

20 SEC. 191. DEFINITIONS; SCOPE OF COVERAGE.

21 (a) GROUP HEALTH PLAN.—

22 (1) DEFINITION.—Subject to the succeeding

23 provisions of this subsection and subsection (d)(1),

24 the term ‘‘group health plan’’ means an employee

25 welfare benefit plan to the extent that the plan pro-
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1 vides medical care (as defined in subsection (c)(9))

2 to employees or their dependents (as defined under

3 the terms of the plan) directly or through insurance,

4 reimbursement, or otherwise, and includes a group

5 health plan (within the meaning of section

6 5000(b)(1) of the Internal Revenue Code of 1986).

7 (2) LIMITATION OF REQUIREMENTS TO PLANS

8 WITH 2 OR MORE EMPLOYEE PARTICIPANTS.—The

9 requirements of subtitle A and part 1 of subtitle B

10 shall apply in the case of a group health plan for

11 any plan year, or for health insurance coverage of12 fered in connection with a group health plan for a

13 year, only if the group health plan has two or more

14 participants as current employees on the first day of

15 the plan year.

16 (3) EXCLUSION OF PLANS WITH LIMITED COV17 ERAGE.—An employee welfare benefit plan shall be

18 treated as a group health plan under this title only

19 with respect to medical care which is provided under

20 the plan and which does not consist of coverage ex21 cluded from the definition of health insurance cov22 erage under subsection (c)(4)(B).

23 (4) TREATMENT OF CHURCH PLANS.—
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1 (A) EXCLUSION.—The requirements of

2 this title insofar as they apply to group health

3 plans shall not apply to church plans.

4 (B) OPTIONAL DISREGARD IN DETERMIN5 ING PERIOD OF COVERAGE.—For purposes of

6 applying section 101(b)(3)(B)(i), a group health

7 plan may elect to disregard periods of coverage

8 of an individual under a church plan that, pur9 suant to subparagraph (A), is not subject to the

10 requirements of this title.

11 (5) TREATMENT OF GOVERNMENTAL PLANS.—

12 (A) ELECTION TO BE EXCLUDED.—If the

13 plan sponsor of a governmental plan which is a

14 group health plan to which the provisions of

15 this subtitle otherwise apply makes an election

16 under this paragraph for any specified period

17 (in such form and manner as the Secretary of

18 Health and Human Services may by regulations

19 prescribe), then the requirements of this title

20 insofar as they apply to group health plans

21 shall not apply to such governmental plans for

22 such period.

23 (B) OPTIONAL DISREGARD IN DETERMIN24 ING PERIOD OF COVERAGE IF ELECTION

25 MADE.—For purposes of applying section
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1 101(b)(3)(B)(i), a group health plan may elect

2 to disregard periods of coverage of an individual

3 under a governmental plan that, under an elec4 tion under subparagraph (A), is not subject to

5 the requirements of this title.

6 (6) TREATMENT OF MEDICAID PLAN AS GROUP

7 HEALTH PLAN.—A State plan under title XIX of the

8 Social Security Act shall be treated as a group

9 health plan for purposes of applying section

10 101(c)(1), unless the State elects not to be so treat11 ed.

12 (7) TREATMENT OF MEDICARE AND INDIAN

13 HEALTH SERVICE PROGRAMS AS GROUP HEALTH

14 PLAN.—Title XVIII of the Social Security Act and

15 a program of the Indian Health Service shall be

16 treated as a group health plan for purposes of apply17 ing section 101(c)(1).

18 (b) INCORPORATION OF CERTAIN DEFINITIONS IN

19 EMPLOYEE RETIREMENT INCOME SECURITY ACT OF

20 1974.—Except as provided in this section, the terms ‘‘ben21 eficiary’’, ‘‘church plan’’, ‘‘employee’’, ‘‘employee welfare

22 benefit plan’’, ‘‘employer’’, ‘‘governmental plan’’, ‘‘multi23 employer plan’’, ‘‘multiple employer welfare arrange24 ment’’, ‘‘participant’’, ‘‘plan sponsor’’, and ‘‘State’’ have
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1 the meanings given such terms in section 3 of the Em2 ployee Retirement Income Security Act of 1974.

3 (c) OTHER DEFINITIONS.—For purposes of this title:

4 (1) APPLICABLE STATE AUTHORITY.—The term

5 ‘‘applicable State authority’’ means, with respect to

6 an insurer or health maintenance organization in a

7 State, the State insurance commissioner or official

8 or officials designated by the State to enforce the re9 quirements of this title for the State involved with

10 respect to such insurer or organization.

11 (2) BONA FIDE ASSOCIATION.—The term ‘‘bona

12 fide association’’ means an association which—

13 (A) has been actively in existence for at

14 least 5 years,

15 (B) has been formed and maintained in

16 good faith for purposes other than obtaining in17 surance,

18 (C) does not condition membership in the

19 association on health status,

20 (D) makes health insurance coverage of21 fered through the association available to all

22 members regardless of health status,

23 (E) does not make health insurance cov24 erage offered through the association available

25 to any individual who is not a member (or de-
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1 pendent of a member) of the association at the

2 time the coverage is initially issued,

3 (F) does not impose preexisting condition

4 exclusions except in a manner consistent with

5 the requirements of sections 101 and 102 as

6 they relate to group health plans, and

7 (G) provides for renewal and continuation

8 of health insurance coverage in a manner con9 sistent with the requirements of section 132 as

10 they relate to the renewal and continuation in

11 force of coverage in a group market.

12 (3) COBRA CONTINUATION PROVISION.—The

13 term ‘‘COBRA continuation provision’’ means any of

14 the following:

15 (A) Section 4980B of the Internal Revenue

16 Code of 1986, other than subsection (f)(1) of

17 such section insofar as it relates to pediatric

18 vaccines.

19 (B) Part 6 of subtitle B of title I of the

20 Employee Retirement Income Security Act of

21 1974 (29 U.S.C. 1161 et seq.), other than sec22 tion 609.

23 (C) Title XXII of the Public Health Serv24 ice Act.

25 (4) HEALTH INSURANCE COVERAGE.—
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1 (A) IN GENERAL.—Except as provided in

2 subparagraph (B), the term ‘‘health insurance

3 coverage’’ means benefits consisting of medical

4 care (provided directly, through insurance or re5 imbursement, or otherwise) under any hospital

6 or medical service policy or certificate, hospital

7 or medical service plan contract, or health

8 maintenance organization group contract of9 fered by an insurer or a health maintenance or10 ganization.

11 (B) EXCEPTION.—Such term does not in12 clude coverage under any separate policy, cer13 tificate, or contract only for one or more of any

14 of the following:

15 (i) Coverage for accident, credit-only,

16 vision, disability income, long-term care,

17 nursing home care, community-based care

18 dental, on-site medical clinics, or employee

19 assistance programs, or any combination

20 thereof.

21 (ii) Medicare supplemental health in22 surance (within the meaning of section

23 1882(g)(1) of the Social Security Act (42

24 U.S.C. 1395ss(g)(1))) and similar supple-
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1 mental coverage provided under a group

2 health plan.

3 (iii) Coverage issued as a supplement

4 to liability insurance.

5 (iv) Liability insurance, including gen6 eral liability insurance and automobile li7 ability insurance.

8 (v) Workers’ compensation or similar

9 insurance.

10 (vi) Automobile medical-payment in11 surance.

12 (vii) Coverage for a specified disease

13 or illness.

14 (viii) Hospital or fixed indemnity in15 surance.

16 (ix) Short-term limited duration in17 surance.

18 (x) Such other coverage, comparable

19 to that described in previous clauses, as

20 may be specified in regulations prescribed

21 under this title.

22 (5) HEALTH MAINTENANCE ORGANIZATION;

23 HMO.—The terms ‘‘health maintenance organiza24 tion’’ and ‘‘HMO’’ mean—
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1 (A) a Federally qualified health mainte2 nance organization (as defined in section

3 1301(a) of the Public Health Service Act (42

4 U.S.C. 300e(a))),

5 (B) an organization recognized under State

6 law as a health maintenance organization, or

7 (C) a similar organization regulated under

8 State law for solvency in the same manner and

9 to the same extent as such a health mainte10 nance organization,

11 if (other than for purposes of part 2 of subtitle B)

12 it is subject to State law which regulates insurance

13 (within the meaning of section 514(b)(2) of the Em14 ployee Retirement Income Security Act of 1974).

15 (6) HEALTH STATUS.—The term ‘‘health sta16 tus’’ includes, with respect to an individual, medical

17 condition, claims experience, receipt of health care,

18 medical history, genetic information, evidence of in19 surability (including conditions arising out of acts of

20 domestic violence), or disability.

21 (7) INDIVIDUAL HEALTH INSURANCE COV22 ERAGE.—The term ‘‘individual health insurance cov23 erage’’ means health insurance coverage offered to

24 individuals if the coverage is not offered in connec25 tion with a group health plan (other than such a
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1 plan that has fewer than two participants as current

2 employees on the first day of the plan year).

3 (8) INSURER.—The term ‘‘insurer’’ means an

4 insurance company, insurance service, or insurance

5 organization which is licensed to engage in the busi6 ness of insurance in a State and which (except for

7 purposes of part 2 of subtitle B) is subject to State

8 law which regulates insurance (within the meaning

9 of section 514(b)(2)(A) of the Employee Retirement

10 Income Security Act of 1974).

11 (9) MEDICAL CARE.—The term ‘‘medical care’’

12 means—

13 (A) amounts paid for, or items or services

14 in the form of, the diagnosis, cure, mitigation,

15 treatment, or prevention of disease, or amounts

16 paid for, or items or services provided for, the

17 purpose of affecting any structure or function

18 of the body,

19 (B) amounts paid for, or services in the

20 form of, transportation primarily for and essen21 tial to medical care referred to in subparagraph

22 (A), and

23 (C) amounts paid for insurance covering

24 medical care referred to in subparagraphs (A)

25 and (B).
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1 (10) NETWORK PLAN.—The term ‘‘network

2 plan’’ means, with respect to health insurance cov3 erage, an arrangement of an insurer or a health

4 maintenance organization under which the financing

5 and delivery of medical care are provided, in whole

6 or in part, through a defined set of providers under

7 contract with the insurer or health maintenance or8 ganization.

9 (11) WAITING PERIOD.—The term ‘‘waiting pe10 riod’’ means, with respect to a group health plan

11 and an individual who is a potential participant or

12 beneficiary in the plan, the minimum period that

13 must pass with respect to the individual before the

14 individual is eligible to be covered for benefits under

15 the plan.

16 (d) TREATMENT OF PARTNERSHIPS.—

17 (1) TREATMENT AS A GROUP HEALTH PLAN.—

18 Any plan, fund, or program which would not be (but

19 for this paragraph) an employee welfare benefit plan

20 and which is established or maintained by a partner21 ship, to the extent that such plan, fund, or program

22 provides medical care to present or former partners

23 in the partnership or to their dependents (as defined

24 under the terms of the plan, fund, or program), di25 rectly or through insurance, reimbursement, or oth-
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1 erwise, shall be treated (subject to paragraph (1)) as

2 an employee welfare benefit plan which is a group

3 health plan.

4 (2) TREATMENT OF PARTNERSHIP AND PART5 NERS AND EMPLOYER AND PARTICIPANTS.—In the

6 case of a group health plan—

7 (A) the term ‘‘employer’’ includes the part8 nership in relation to any partner; and

9 (B) the term ‘‘participant’’ includes—

10 (i) in connection with a group health

11 plan maintained by a partnership, an indi12 vidual who is a partner in relation to the

13 partnership, or

14 (ii) in connection with a group health

15 plan maintained by a self-employed individ16 ual (under which one or more employees

17 are participants), the self-employed individ18 ual,

19 if such individual is or may become eligible to

20 receive a benefit under the plan or such individ21 ual’s beneficiaries may be eligible to receive any

22 such benefit.

23 (e) DEFINITIONS RELATING TO MARKETS AND

24 SMALL EMPLOYERS.—As used in this title:
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1 (1) INDIVIDUAL MARKET.—The term ‘‘individ2 ual market’’ means the market for health insurance

3 coverage offered to individuals and not to employers

4 or in connection with a group health plan and does

5 not include the market for such coverage issued only

6 by an insurer or HMO that makes such coverage

7 available only on the basis of affiliation with a bona

8 fide association (as defined in subsection (c)(2)).

9 (2) LARGE GROUP MARKET.—The term ‘‘large

10 group market’’ means the market for health insur11 ance coverage offered to employers (other than small

12 employers) on behalf of their employees (and their

13 dependents) and does not include health insurance

14 coverage available solely in connection with a bona

15 fide association (as defined in subsection (c)(2)).

16 (3) SMALL EMPLOYER.—The term ‘‘small em17 ployer’’ means, in connection with a group health

18 plan with respect to a calendar year, an employer

19 who employs at least 2 but fewer than 51 employees

20 on a typical business day in the year. All persons

21 treated as a single employer under subsection (a) or

22 (b) of section 52 of the Internal Revenue Code of

23 1986 shall be treated as a single employer for pur24 poses of this title.
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1 (4) SMALL GROUP MARKET.—The term ‘‘small

2 group market’’ means the health insurance market

3 under which individuals obtain health insurance cov4 erage (directly or through any arrangement) on be5 half of themselves (and their dependents) on the

6 basis of employment or other relationship with re7 spect to a small employer and does not include

8 health insurance coverage available solely in connec9 tion with a bona fide association (as defined in sub10 section (c)(2)).

11 SEC. 192. STATE FLEXIBILITY TO PROVIDE GREATER PRO12 TECTION.

13 (a) STATE FLEXIBILITY TO PROVIDE GREATER PRO14 TECTION.—Subject to subsection (b), nothing in this sub15 title or subtitle A or B shall be construed to preempt State

16 laws—

17 (1) that relate to matters not specifically ad18 dressed in such subtitles; or

19 (2) that require insurers or HMOs—

20 (A) to impose a limitation or exclusion of

21 benefits relating to the treatment of a preexist22 ing condition for a period that is shorter than

23 the applicable period provided for under such

24 subtitles;
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1 (B) to allow individuals, participants, and

2 beneficiaries to be considered to be in a period

3 of previous qualifying coverage if such individ4 ual, participant, or beneficiary experiences a

5 lapse in coverage that is greater than the 60-

6 day periods provided for under sections

7 101(b)(3)(A), 101(b)(3)(B)(ii), and 102(b)(2);

8 or

9 (C) in defining pre-existing condition, to

10 have a look-back period that is shorter than the

11 6-month period described in section

12 101(b)(1)(A).

13 (b) NO OVERRIDE OF ERISA PREEMPTION.—Except

14 as provided specifically in subtitle C, nothing in this Act

15 shall be construed to affect or modify the provisions of

16 section 514 of the Employee Retirement Income Security

17 Act of 1974 (29 U.S.C. 1144).

18 SEC. 193. EFFECTIVE DATE.

19 (a) IN GENERAL.—Except as otherwise provided for

20 in this title, the provisions of this title shall apply with

21 respect to—

22 (1) group health plans, and health insurance

23 coverage offered in connection with group health

24 plans, for plan years beginning on or after January

25 1, 1998, and
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1 (2) individual health insurance coverage issued,

2 renewed, in effect, or operated on or after July 1,

3 1998.

4 (b) CONSIDERATION OF PREVIOUS COVERAGE.—The

5 Secretaries of Health and Human Services, Treasury, and

6 Labor shall jointly establish rules regarding the treatment

7 (in determining qualified coverage periods under sections

8 102(b) and 141(b)) of coverage before the applicable effec9 tive date specified in subsection (a).

10 (c) TIMELY ISSUANCE OF REGULATIONS.—The Sec11 retaries of Health and Human Services, the Treasury, and

12 Labor shall issue such regulations on a timely basis as

13 may be required to carry out this title.

14 SEC. 194. RULE OF CONSTRUCTION.

15 Nothing in this title or any amendment made thereby

16 may be construed to require (or to authorize any regula17 tion that requires) the coverage of any specific procedure,

18 treatment, or service under a group health plan or health

19 insurance coverage.

20 SEC. 195. FINDINGS RELATING TO EXERCISE OF COM21 MERCE CLAUSE AUTHORITY.

22 Congress finds the following in relation to the provi23 sions of this title:

24 (1) Provisions in group health plans and health

25 insurance coverage that impose certain pre-existing
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1 conditions impact the ability of employees to seek

2 employment in interstate commerce, thereby imped3 ing such commerce.

4 (2) Health insurance coverage is commercial in

5 nature and is in and affects interstate commerce.

6 (3) It is a necessary and proper exercise of

7 Congressional authority to impose requirements

8 under this title on group health plans and health in9 surance coverage (including coverage offered to indi10 viduals previously covered under group health plans)

11 in order to promote commerce among the States.

12 (4) Congress, however, intends to defer to

13 States, to the maximum extent practicable, in carry14 ing out such requirements with respect to insurers

15 and health maintenance organizations that are sub16 ject to State regulation, consistent with the provi17 sions of the Employee Retirement Income Security

18 Act of 1974.
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1 TITLE II—PREVENTING HEALTH

2 CARE FRAUD AND ABUSE; AD3 MINISTRATIVE SIMPLIFICA4 TION; MEDICAL LIABILITY RE5 FORM

6 SEC. 200. REFERENCES IN TITLE.

7 Except as otherwise specifically provided, whenever in

8 this title an amendment is expressed in terms of an

9 amendment to or repeal of a section or other provision,

10 the reference shall be considered to be made to that sec11 tion or other provision of the Social Security Act.

12 Subtitle A—Fraud and Abuse

13 Control Program

14 SEC. 201. FRAUD AND ABUSE CONTROL PROGRAM.

15 (a) ESTABLISHMENT OF PROGRAM.—Title XI (42

16 U.S.C. 1301 et seq.) is amended by inserting after section

17 1128B the following new section:

18 ‘‘FRAUD AND ABUSE CONTROL PROGRAM

19 ‘‘SEC. 1128C. (a) ESTABLISHMENT OF PROGRAM.—

20 ‘‘(1) IN GENERAL.—Not later than January 1,

21 1997, the Secretary, acting through the Office of the

22 Inspector General of the Department of Health and

23 Human Services, and the Attorney General shall es24 tablish a program—
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1 ‘‘(A) to coordinate Federal, State, and

2 local law enforcement programs to control fraud

3 and abuse with respect to health plans,

4 ‘‘(B) to conduct investigations, audits,

5 evaluations, and inspections relating to the de6 livery of and payment for health care in the

7 United States,

8 ‘‘(C) to facilitate the enforcement of the

9 provisions of sections 1128, 1128A, and 1128B

10 and other statutes applicable to health care

11 fraud and abuse,

12 ‘‘(D) to provide for the modification and

13 establishment of safe harbors and to issue advi14 sory opinions and special fraud alerts pursuant

15 to section 1128D, and

16 ‘‘(E) to provide for the reporting and dis17 closure of certain final adverse actions against

18 health care providers, suppliers, or practitioners

19 pursuant to the data collection system estab20 lished under section 1128E.

21 ‘‘(2) COORDINATION WITH HEALTH PLANS.—In

22 carrying out the program established under para23 graph (1), the Secretary and the Attorney General

24 shall consult with, and arrange for the sharing of

25 data with representatives of health plans.
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1 ‘‘(3) GUIDELINES.—

2 ‘‘(A) IN GENERAL.—The Secretary and the

3 Attorney General shall issue guidelines to carry

4 out the program under paragraph (1). The pro5 visions of sections 553, 556, and 557 of title 5,

6 United States Code, shall not apply in the issu7 ance of such guidelines.

8 ‘‘(B) INFORMATION GUIDELINES.—

9 ‘‘(i) IN GENERAL.—Such guidelines

10 shall include guidelines relating to the fur11 nishing of information by health plans,

12 providers, and others to enable the Sec13 retary and the Attorney General to carry

14 out the program (including coordination

15 with health plans under paragraph (2)).

16 ‘‘(ii) CONFIDENTIALITY.—Such guide17 lines shall include procedures to assure

18 that such information is provided and uti19 lized in a manner that appropriately pro20 tects the confidentiality of the information

21 and the privacy of individuals receiving

22 health care services and items.

23 ‘‘(iii) QUALIFIED IMMUNITY FOR PRO24 VIDING INFORMATION.—The provisions of

25 section 1157(a) (relating to limitation on
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1 liability) shall apply to a person providing

2 information to the Secretary or the Attor3 ney General in conjunction with their per4 formance of duties under this section.

5 ‘‘(4) ENSURING ACCESS TO DOCUMENTATION.—

6 The Inspector General of the Department of Health

7 and Human Services is authorized to exercise such

8 authority described in paragraphs (3) through (9) of

9 section 6 of the Inspector General Act of 1978 (5

10 U.S.C. App.) as necessary with respect to the activi11 ties under the fraud and abuse control program es12 tablished under this subsection.

13 ‘‘(5) AUTHORITY OF INSPECTOR GENERAL.—

14 Nothing in this Act shall be construed to diminish

15 the authority of any Inspector General, including

16 such authority as provided in the Inspector General

17 Act of 1978 (5 U.S.C. App.).

18 ‘‘(b) ADDITIONAL USE OF FUNDS BY INSPECTOR

19 GENERAL.—

20 ‘‘(1) REIMBURSEMENTS FOR INVESTIGA21 TIONS.—The Inspector General of the Department

22 of Health and Human Services is authorized to re23 ceive and retain for current use reimbursement for

24 the costs of conducting investigations and audits and

25 for monitoring compliance plans when such costs are
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1 ordered by a court, voluntarily agreed to by the

2 payor, or otherwise.

3 ‘‘(2) CREDITING.—Funds received by the In4 spector General under paragraph (1) as reimburse5 ment for costs of conducting investigations shall be

6 deposited to the credit of the appropriation from

7 which initially paid, or to appropriations for similar

8 purposes currently available at the time of deposit,

9 and shall remain available for obligation for 1 year

10 from the date of the deposit of such funds.

11 ‘‘(c) HEALTH PLAN DEFINED.—For purposes of this

12 section, the term ‘health plan’ means a plan or program

13 that provides health benefits, whether directly, through in14 surance, or otherwise, and includes—

15 ‘‘(1) a policy of health insurance;

16 ‘‘(2) a contract of a service benefit organiza17 tion; and

18 ‘‘(3) a membership agreement with a health

19 maintenance organization or other prepaid health

20 plan.’’.

21 (b) ESTABLISHMENT OF HEALTH CARE FRAUD AND

22 ABUSE CONTROL ACCOUNT IN FEDERAL HOSPITAL IN23 SURANCE TRUST FUND.—Section 1817 (42 U.S.C. 1395i)

24 is amended by adding at the end the following new sub25 section:
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1 ‘‘(k) HEALTH CARE FRAUD AND ABUSE CONTROL

2 ACCOUNT.—

3 ‘‘(1) ESTABLISHMENT.—There is hereby estab4 lished in the Trust Fund an expenditure account to

5 be known as the ‘Health Care Fraud and Abuse

6 Control Account’ (in this subsection referred to as

7 the ‘Account’).

8 ‘‘(2) APPROPRIATED AMOUNTS TO TRUST

9 FUND.—

10 ‘‘(A) IN GENERAL.—There are hereby ap11 propriated to the Trust Fund—

12 ‘‘(i) such gifts and bequests as may be

13 made as provided in subparagraph (B);

14 ‘‘(ii) such amounts as may be depos15 ited in the Trust Fund as provided in sec16 tions 242(b) and 249(c) of the Health Cov17 erage Availability and Affordability Act of

18 1996, and title XI; and

19 ‘‘(iii) such amounts as are transferred

20 to the Trust Fund under subparagraph

21 (C).

22 ‘‘(B) AUTHORIZATION TO ACCEPT GIFTS.—

23 The Trust Fund is authorized to accept on be24 half of the United States money gifts and be25 quests made unconditionally to the Trust Fund,
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1 for the benefit of the Account or any activity fi2 nanced through the Account.

3 ‘‘(C) TRANSFER OF AMOUNTS.—The Man4 aging Trustee shall transfer to the Trust Fund,

5 under rules similar to the rules in section 9601

6 of the Internal Revenue Code of 1986, an

7 amount equal to the sum of the following:

8 ‘‘(i) Criminal fines recovered in cases

9 involving a Federal health care offense (as

10 defined in section 982(a)(6)(B) of title 18,

11 United States Code).

12 ‘‘(ii) Civil monetary penalties and as13 sessments imposed in health care cases, in14 cluding amounts recovered under titles XI,

15 XVIII, and XIX, and chapter 38 of title

16 31, United States Code (except as other17 wise provided by law).

18 ‘‘(iii) Amounts resulting from the for19 feiture of property by reason of a Federal

20 health care offense.

21 ‘‘(iv) Penalties and damages obtained

22 and otherwise creditable to miscellaneous

23 receipts of the general fund of the Treas24 ury obtained under sections 3729 through

25 3733 of title 31, United States Code
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1 (known as the False Claims Act), in cases

2 involving claims related to the provision of

3 health care items and services (other than

4 funds awarded to a relator, for restitution

5 or otherwise authorized by law).

6 ‘‘(3) APPROPRIATED AMOUNTS TO ACCOUNT

7 FOR FRAUD AND ABUSE CONTROL PROGRAM, ETC.—

8 ‘‘(A) DEPARTMENTS OF HEALTH AND

9 HUMAN SERVICES AND JUSTICE.—

10 ‘‘(i) IN GENERAL.—There are hereby

11 appropriated to the Account from the

12 Trust Fund such sums as the Secretary

13 and the Attorney General certify are nec14 essary to carry out the purposes described

15 in subparagraph (C), to be available with16 out further appropriation, in an amount

17 not to exceed—

18 ‘‘(I) for fiscal year 1997,

19 $104,000,000,

20 ‘‘(II) for each of the fiscal years

21 1998 through 2003, the limit for the

22 preceding fiscal year, increased by 15

23 percent; and
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1 ‘‘(III) for each fiscal year after

2 fiscal year 2003, the limit for fiscal

3 year 2003.

4 ‘‘(ii) MEDICARE AND MEDICAID AC5 TIVITIES.—For each fiscal year, of the

6 amount appropriated in clause (i), the fol7 lowing amounts shall be available only for

8 the purposes of the activities of the Office

9 of the Inspector General of the Depart10 ment of Health and Human Services with

11 respect to the medicare and medicaid pro12 grams—

13 ‘‘(I) for fiscal year 1997, not less

14 than $60,000,000 and not more than

15 $70,000,000;

16 ‘‘(II) for fiscal year 1998, not

17 less than $80,000,000 and not more

18 than $90,000,000;

19 ‘‘(III) for fiscal year 1999, not

20 less than $90,000,000 and not more

21 than $100,000,000;

22 ‘‘(IV) for fiscal year 2000, not

23 less than $110,000,000 and not more

24 than $120,000,000;
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1 ‘‘(V) for fiscal year 2001, not

2 less than $120,000,000 and not more

3 than $130,000,000;

4 ‘‘(VI) for fiscal year 2002, not

5 less than $140,000,000 and not more

6 than $150,000,000; and

7 ‘‘(VII) for each fiscal year after

8 fiscal year 2002, not less than

9 $150,000,000 and not more than

10 $160,000,000.

11 ‘‘(B) FEDERAL BUREAU OF INVESTIGA12 TION.—There are hereby appropriated from the

13 general fund of the United States Treasury and

14 hereby appropriated to the Account for transfer

15 to the Federal Bureau of Investigation to carry

16 out the purposes described in subparagraph

17 (C), to be available without further appropria18 tion—

19 ‘‘(i) for fiscal year 1997, $47,000,000;

20 ‘‘(ii) for fiscal year 1998,

21 $56,000,000;

22 ‘‘(iii) for fiscal year 1999,

23 $66,000,000;

24 ‘‘(iv) for fiscal year 2000,

25 $76,000,000;
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1 ‘‘(v) for fiscal year 2001,

2 $88,000,000;

3 ‘‘(vi) for fiscal year 2002,

4 $101,000,000; and

5 ‘‘(vii) for each fiscal year after fiscal

6 year 2002, $114,000,000.

7 ‘‘(C) USE OF FUNDS.—The purposes de8 scribed in this subparagraph are to cover the

9 costs (including equipment, salaries and bene10 fits, and travel and training) of the administra11 tion and operation of the health care fraud and

12 abuse control program established under section

13 1128C(a), including the costs of—

14 ‘‘(i) prosecuting health care matters

15 (through criminal, civil, and administrative

16 proceedings);

17 ‘‘(ii) investigations;

18 ‘‘(iii) financial and performance audits

19 of health care programs and operations;

20 ‘‘(iv) inspections and other evalua21 tions; and

22 ‘‘(v) provider and consumer education

23 regarding compliance with the provisions of

24 title XI.
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1 ‘‘(4) APPROPRIATED AMOUNTS TO ACCOUNT

2 FOR MEDICARE INTEGRITY PROGRAM.—

3 ‘‘(A) IN GENERAL.—There are hereby ap4 propriated to the Account from the Trust Fund

5 for each fiscal year such amounts as are nec6 essary to carry out the Medicare Integrity Pro7 gram under section 1893, subject to subpara8 graph (B) and to be available without further

9 appropriation.

10 ‘‘(B) AMOUNTS SPECIFIED.—The amount

11 appropriated under subparagraph (A) for a fis12 cal year is as follows:

13 ‘‘(i) For fiscal year 1997, such

14 amount shall be not less than

15 $430,000,000 and not more than

16 $440,000,000.

17 ‘‘(ii) For fiscal year 1998, such

18 amount shall be not less than

19 $490,000,000 and not more than

20 $500,000,000.

21 ‘‘(iii) For fiscal year 1999, such

22 amount shall be not less than

23 $550,000,000 and not more than

24 $560,000,000.
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1 ‘‘(iv) For fiscal year 2000, such

2 amount shall be not less than

3 $620,000,000 and not more than

4 $630,000,000.

5 ‘‘(v) For fiscal year 2001, such

6 amount shall be not less than

7 $670,000,000 and not more than

8 $680,000,000.

9 ‘‘(vi) For fiscal year 2002, such

10 amount shall be not less than

11 $690,000,000 and not more than

12 $700,000,000.

13 ‘‘(vii) For each fiscal year after fiscal

14 year 2002, such amount shall be not less

15 than $710,000,000 and not more than

16 $720,000,000.

17 ‘‘(5) ANNUAL REPORT.—The Secretary and the

18 Attorney General shall submit jointly an annual re19 port to Congress on the amount of revenue which is

20 generated and disbursed, and the justification for

21 such disbursements, by the Account in each fiscal

22 year.’’.
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1 SEC. 202. MEDICARE INTEGRITY PROGRAM.

2 (a) ESTABLISHMENT OF MEDICARE INTEGRITY PRO3 GRAM.—Title XVIII is amended by adding at the end the

4 following new section:

5 ‘‘MEDICARE INTEGRITY PROGRAM

6 ‘‘SEC. 1893. (a) ESTABLISHMENT OF PROGRAM.—

7 There is hereby established the Medicare Integrity Pro8 gram (in this section referred to as the ‘Program’) under

9 which the Secretary shall promote the integrity of the

10 medicare program by entering into contracts in accord11 ance with this section with eligible private entities to carry

12 out the activities described in subsection (b).

13 ‘‘(b) ACTIVITIES DESCRIBED.—The activities de14 scribed in this subsection are as follows:

15 ‘‘(1) Review of activities of providers of services

16 or other individuals and entities furnishing items

17 and services for which payment may be made under

18 this title (including skilled nursing facilities and

19 home health agencies), including medical and utiliza20 tion review and fraud review (employing similar

21 standards, processes, and technologies used by pri22 vate health plans, including equipment and software

23 technologies which surpass the capability of the

24 equipment and technologies used in the review of

25 claims under this title as of the date of the enact26 ment of this section).
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1 ‘‘(2) Audit of cost reports.

2 ‘‘(3) Determinations as to whether payment

3 should not be, or should not have been, made under

4 this title by reason of section 1862(b), and recovery

5 of payments that should not have been made.

6 ‘‘(4) Education of providers of services, bene7 ficiaries, and other persons with respect to payment

8 integrity and benefit quality assurance issues.

9 ‘‘(5) Developing (and periodically updating) a

10 list of items of durable medical equipment in accord11 ance with section 1834(a)(15) which are subject to

12 prior authorization under such section.

13 ‘‘(c) ELIGIBILITY OF ENTITIES.—An entity is eligible

14 to enter into a contract under the Program to carry out

15 any of the activities described in subsection (b) if—

16 ‘‘(1) the entity has demonstrated capability to

17 carry out such activities;

18 ‘‘(2) in carrying out such activities, the entity

19 agrees to cooperate with the Inspector General of

20 the Department of Health and Human Services, the

21 Attorney General of the United States, and other

22 law enforcement agencies, as appropriate, in the in23 vestigation and deterrence of fraud and abuse in re24 lation to this title and in other cases arising out of

25 such activities;
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1 ‘‘(3) the entity demonstrates to the Secretary

2 that the entity’s financial holdings, interests, or rela3 tionships will not interfere with its ability to perform

4 the functions to be required by the contract in an ef5 fective and impartial manner; and

6 ‘‘(4) the entity meets such other requirements

7 as the Secretary may impose.

8 In the case of the activity described in subsection (b)(5),

9 an entity shall be deemed to be eligible to enter into a

10 contract under the Program to carry out the activity if

11 the entity is a carrier with a contract in effect under sec12 tion 1842.

13 ‘‘(d) PROCESS FOR ENTERING INTO CONTRACTS.—

14 The Secretary shall enter into contracts under the Pro15 gram in accordance with such procedures as the Secretary

16 shall by regulation establish, except that such procedures

17 shall include the following:

18 ‘‘(1) The Secretary shall determine the appro19 priate number of separate contracts which are nec20 essary to carry out the Program and the appropriate

21 times at which the Secretary shall enter into such

22 contracts.

23 ‘‘(2)(A) Except as provided in subparagraph

24 (B), the provisions of section 1153(e)(1) shall apply
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1 to contracts and contracting authority under this

2 section.

3 ‘‘(B) Competitive procedures must be used

4 when entering into new contracts under this section,

5 or at any other time considered appropriate by the

6 Secretary, except that the Secretary may contract

7 with entities that are carrying out the activities de8 scribed in this section pursuant to agreements under

9 section 1816 or contracts under section 1842 in ef10 fect on the date of the enactment of this section.

11 ‘‘(3) A contract under this section may be re12 newed without regard to any provision of law requir13 ing competition if the contractor has met or ex14 ceeded the performance requirements established in

15 the current contract.

16 ‘‘(e) LIMITATION ON CONTRACTOR LIABILITY.—The

17 Secretary shall by regulation provide for the limitation of

18 a contractor’s liability for actions taken to carry out a con19 tract under the Program, and such regulation shall, to the

20 extent the Secretary finds appropriate, employ the same

21 or comparable standards and other substantive and proce22 dural provisions as are contained in section 1157.’’.

23 (b) ELIMINATION OF FI AND CARRIER RESPONSIBIL24 ITY FOR CARRYING OUT ACTIVITIES SUBJECT TO PRO25 GRAM.—
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1 (1) RESPONSIBILITIES OF FISCAL

2 INTERMEDIARIES UNDER PART A.—Section 1816

3 (42 U.S.C. 1395h) is amended by adding at the end

4 the following new subsection:

5 ‘‘(l) No agency or organization may carry out (or re6 ceive payment for carrying out) any activity pursuant to

7 an agreement under this section to the extent that the ac8 tivity is carried out pursuant to a contract under the Med9 icare Integrity Program under section 1893.’’.

10 (2) RESPONSIBILITIES OF CARRIERS UNDER

11 PART B.—Section 1842(c) (42 U.S.C. 1395u(c)) is

12 amended by adding at the end the following new

13 paragraph:

14 ‘‘(6) No carrier may carry out (or receive payment

15 for carrying out) any activity pursuant to a contract under

16 this subsection to the extent that the activity is carried

17 out pursuant to a contract under the Medicare Integrity

18 Program under section 1893. The previous sentence shall

19 not apply with respect to the activity described in section

20 1893(b)(5) (relating to prior authorization of certain

21 items of durable medical equipment under section

22 1834(a)(15)).’’.

23 SEC. 203. BENEFICIARY INCENTIVE PROGRAMS.

24 (a) CLARIFICATION OF REQUIREMENT TO PROVIDE

25 EXPLANATION OF MEDICARE BENEFITS.—The Secretary
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1 of Health and Human Services (in this section referred

2 to as the ‘‘Secretary’’) shall provide an explanation of ben3 efits under the medicare program under title XVIII of the

4 Social Security Act with respect to each item or service

5 for which payment may be made under the program which

6 is furnished to an individual, without regard to whether

7 or not a deductible or coinsurance may be imposed against

8 the individual with respect to the item or service.

9 (b) PROGRAM TO COLLECT INFORMATION ON FRAUD

10 AND ABUSE.—

11 (1) ESTABLISHMENT OF PROGRAM.—Not later

12 than 3 months after the date of the enactment of

13 this Act, the Secretary shall establish a program

14 under which the Secretary shall encourage individ15 uals to report to the Secretary information on indi16 viduals and entities who are engaging or who have

17 engaged in acts or omissions which constitute

18 grounds for the imposition of a sanction under sec19 tion 1128, section 1128A, or section 1128B of the

20 Social Security Act, or who have otherwise engaged

21 in fraud and abuse against the medicare program

22 for which there is a sanction provided under law.

23 The program shall discourage provision of, and not

24 consider, information which is frivolous or otherwise
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1 not relevant or material to the imposition of such a

2 sanction.

3 (2) PAYMENT OF PORTION OF AMOUNTS COL4 LECTED.—If an individual reports information to

5 the Secretary under the program established under

6 paragraph (1) which serves as the basis for the col7 lection by the Secretary or the Attorney General of

8 any amount of at least $100 (other than any

9 amount paid as a penalty under section 1128B of

10 the Social Security Act), the Secretary may pay a

11 portion of the amount collected to the individual

12 (under procedures similar to those applicable under

13 section 7623 of the Internal Revenue Code of 1986

14 to payments to individuals providing information on

15 violations of such Code).

16 (c) PROGRAM TO COLLECT INFORMATION ON PRO17 GRAM EFFICIENCY.—

18 (1) ESTABLISHMENT OF PROGRAM.—Not later

19 than 3 months after the date of the enactment of

20 this Act, the Secretary shall establish a program

21 under which the Secretary shall encourage individ22 uals to submit to the Secretary suggestions on meth23 ods to improve the efficiency of the medicare pro24 gram.
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1 (2) PAYMENT OF PORTION OF PROGRAM SAV2 INGS.—If an individual submits a suggestion to the

3 Secretary under the program established under

4 paragraph (1) which is adopted by the Secretary and

5 which results in savings to the program, the Sec6 retary may make a payment to the individual of

7 such amount as the Secretary considers appropriate.

8 SEC. 204. APPLICATION OF CERTAIN HEALTH ANTI-FRAUD

9 AND ABUSE SANCTIONS TO FRAUD AND

10 ABUSE AGAINST FEDERAL HEALTH CARE

11 PROGRAMS.

12 (a) IN GENERAL.—Section 1128B (42 U.S.C.

13 1320a–7b) is amended as follows:

14 (1) In the heading, by striking ‘‘MEDICARE OR

15 STATE HEALTH CARE PROGRAMS’’ and inserting

16 ‘‘FEDERAL HEALTH CARE PROGRAMS’’.

17 (2) In subsection (a)(1), by striking ‘‘a program

18 under title XVIII or a State health care program (as

19 defined in section 1128(h))’’ and inserting ‘‘a Fed20 eral health care program’’.

21 (3) In subsection (a)(5), by striking ‘‘a program

22 under title XVIII or a State health care program’’

23 and inserting ‘‘a Federal health care program’’.

24 (4) In the second sentence of subsection (a)—
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1 (A) by striking ‘‘a State plan approved

2 under title XIX’’ and inserting ‘‘a Federal

3 health care program’’, and

4 (B) by striking ‘‘the State may at its op5 tion (notwithstanding any other provision of

6 that title or of such plan)’’ and inserting ‘‘the

7 administrator of such program may at its op8 tion (notwithstanding any other provision of

9 such program)’’.

10 (5) In subsection (b), by striking ‘‘title XVIII

11 or a State health care program’’ each place it ap12 pears and inserting ‘‘a Federal health care pro13 gram’’.

14 (6) In subsection (c), by inserting ‘‘(as defined

15 in section 1128(h))’’ after ‘‘a State health care pro16 gram’’.

17 (7) By adding at the end the following new sub18 section:

19 ‘‘(f) For purposes of this section, the term ‘Federal

20 health care program’ means—

21 ‘‘(1) any plan or program that provides health

22 benefits, whether directly, through insurance, or oth23 erwise, which is funded directly, in whole or in part,

24 by the United States Government (other than the
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1 health insurance program under chapter 89 of title

2 5, United States Code); or

3 ‘‘(2) any State health care program, as defined

4 in section 1128(h).’’.

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

6 this section shall take effect on January 1, 1997.

7 SEC. 205. GUIDANCE REGARDING APPLICATION OF HEALTH

8 CARE FRAUD AND ABUSE SANCTIONS.

9 Title XI (42 U.S.C. 1301 et seq.), as amended by

10 section 201, is amended by inserting after section 1128C

11 the following new section:

12 ‘‘GUIDANCE REGARDING APPLICATION OF HEALTH CARE

13 FRAUD AND ABUSE SANCTIONS

14 ‘‘SEC. 1128D. (a) SOLICITATION AND PUBLICATION

15 OF MODIFICATIONS TO EXISTING SAFE HARBORS AND

16 NEW SAFE HARBORS.—

17 ‘‘(1) IN GENERAL.—

18 ‘‘(A) SOLICITATION OF PROPOSALS FOR

19 SAFE HARBORS.—Not later than January 1,

20 1997, and not less than annually thereafter, the

21 Secretary shall publish a notice in the Federal

22 Register soliciting proposals, which will be ac23 cepted during a 60-day period, for—

24 ‘‘(i) modifications to existing safe har25 bors issued pursuant to section 14(a) of

26 the Medicare and Medicaid Patient and
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1 Program Protection Act of 1987 (42

2 U.S.C. 1320a–7b note);

3 ‘‘(ii) additional safe harbors specifying

4 payment practices that shall not be treated

5 as a criminal offense under section

6 1128B(b) and shall not serve as the basis

7 for an exclusion under section 1128(b)(7);

8 ‘‘(iii) advisory opinions to be issued

9 pursuant to subsection (b); and

10 ‘‘(iv) special fraud alerts to be issued

11 pursuant to subsection (c).

12 ‘‘(B) PUBLICATION OF PROPOSED MODI13 FICATIONS AND PROPOSED ADDITIONAL SAFE

14 HARBORS.—After considering the proposals de15 scribed in clauses (i) and (ii) of subparagraph

16 (A), the Secretary, in consultation with the At17 torney General, shall publish in the Federal

18 Register proposed modifications to existing safe

19 harbors and proposed additional safe harbors, if

20 appropriate, with a 60-day comment period.

21 After considering any public comments received

22 during this period, the Secretary shall issue

23 final rules modifying the existing safe harbors

24 and establishing new safe harbors, as appro25 priate.
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1 ‘‘(C) REPORT.—The Inspector General of

2 the Department of Health and Human Services

3 (in this section referred to as the ‘Inspector

4 General’) shall, in an annual report to Congress

5 or as part of the year-end semiannual report re6 quired by section 5 of the Inspector General

7 Act of 1978 (5 U.S.C. App.), describe the pro8 posals received under clauses (i) and (ii) of sub9 paragraph (A) and explain which proposals

10 were included in the publication described in

11 subparagraph (B), which proposals were not in12 cluded in that publication, and the reasons for

13 the rejection of the proposals that were not in14 cluded.

15 ‘‘(2) CRITERIA FOR MODIFYING AND ESTAB16 LISHING SAFE HARBORS.—In modifying and estab17 lishing safe harbors under paragraph (1)(B), the

18 Secretary may consider the extent to which provid19 ing a safe harbor for the specified payment practice

20 may result in any of the following:

21 ‘‘(A) An increase or decrease in access to

22 health care services.

23 ‘‘(B) An increase or decrease in the quality

24 of health care services.
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1 ‘‘(C) An increase or decrease in patient

2 freedom of choice among health care providers.

3 ‘‘(D) An increase or decrease in competi4 tion among health care providers.

5 ‘‘(E) An increase or decrease in the ability

6 of health care facilities to provide services in

7 medically underserved areas or to medically un8 derserved populations.

9 ‘‘(F) An increase or decrease in the cost to

10 Federal health care programs (as defined in

11 section 1128B(f)).

12 ‘‘(G) An increase or decrease in the poten13 tial overutilization of health care services.

14 ‘‘(H) The existence or nonexistence of any

15 potential financial benefit to a health care pro16 fessional or provider which may vary based on

17 their decisions of—

18 ‘‘(i) whether to order a health care

19 item or service; or

20 ‘‘(ii) whether to arrange for a referral

21 of health care items or services to a par22 ticular practitioner or provider.

23 ‘‘(I) Any other factors the Secretary deems

24 appropriate in the interest of preventing fraud
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1 and abuse in Federal health care programs (as

2 so defined).

3 ‘‘(b) ADVISORY OPINIONS.—

4 ‘‘(1) ISSUANCE OF ADVISORY OPINIONS.—The

5 Secretary shall issue written advisory opinions as

6 provided in this subsection.

7 ‘‘(2) MATTERS SUBJECT TO ADVISORY OPIN8 IONS.—The Secretary shall issue advisory opinions

9 as to the following matters:

10 ‘‘(A) What constitutes prohibited remu11 neration within the meaning of section

12 1128B(b).

13 ‘‘(B) Whether an arrangement or proposed

14 arrangement satisfies the criteria set forth in

15 section 1128B(b)(3) for activities which do not

16 result in prohibited remuneration.

17 ‘‘(C) Whether an arrangement or proposed

18 arrangement satisfies the criteria which the

19 Secretary has established, or shall establish by

20 regulation for activities which do not result in

21 prohibited remuneration.

22 ‘‘(D) What constitutes an inducement to

23 reduce or limit services to individuals entitled to

24 benefits under title XVIII or title XIX or title

25 XXI within the meaning of section 1128B(b).
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1 ‘‘(E) Whether any activity or proposed ac2 tivity constitutes grounds for the imposition of

3 a sanction under section 1128, 1128A, or

4 1128B.

5 ‘‘(3) MATTERS NOT SUBJECT TO ADVISORY

6 OPINIONS.—Such advisory opinions shall not address

7 the following matters:

8 ‘‘(A) Whether the fair market value shall

9 be, or was paid or received for any goods, serv10 ices or property.

11 ‘‘(B) Whether an individual is a bona fide

12 employee within the requirements of section

13 3121(d)(2) of the Internal Revenue Code of

14 1986.

15 ‘‘(4) EFFECT OF ADVISORY OPINIONS.—

16 ‘‘(A) BINDING AS TO SECRETARY AND

17 PARTIES INVOLVED.—Each advisory opinion is18 sued by the Secretary shall be binding as to the

19 Secretary and the party or parties requesting

20 the opinion.

21 ‘‘(B) FAILURE TO SEEK OPINION.—The

22 failure of a party to seek an advisory opinion

23 may not be introduced into evidence to prove

24 that the party intended to violate the provisions

25 of sections 1128, 1128A, or 1128B.
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1 ‘‘(5) REGULATIONS.—

2 ‘‘(A) IN GENERAL.—Not later than 180

3 days after the date of the enactment of this sec4 tion, the Secretary shall issue regulations to

5 carry out this section. Such regulations shall

6 provide for—

7 ‘‘(i) the procedure to be followed by a

8 party applying for an advisory opinion;

9 ‘‘(ii) the procedure to be followed by

10 the Secretary in responding to a request

11 for an advisory opinion;

12 ‘‘(iii) the interval in which the Sec13 retary shall respond;

14 ‘‘(iv) the reasonable fee to be charged

15 to the party requesting an advisory opin16 ion; and

17 ‘‘(v) the manner in which advisory

18 opinions will be made available to the pub19 lic.

20 ‘‘(B) SPECIFIC CONTENTS.—Under the

21 regulations promulgated pursuant to subpara22 graph (A)—

23 ‘‘(i) the Secretary shall be required to

24 respond to a party requesting an advisory
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1 opinion by not later than 30 days after the

2 request is received; and

3 ‘‘(ii) the fee charged to the party re4 questing an advisory opinion shall be equal

5 to the costs incurred by the Secretary in

6 responding to the request.

7 ‘‘(c) SPECIAL FRAUD ALERTS.—

8 ‘‘(1) IN GENERAL.—

9 ‘‘(A) REQUEST FOR SPECIAL FRAUD

10 ALERTS.—Any person may present, at any

11 time, a request to the Inspector General for a

12 notice which informs the public of practices

13 which the Inspector General considers to be

14 suspect or of particular concern under the med15 icare program or a State health care program,

16 as defined in section 1128(h) (in this subsection

17 referred to as a ‘special fraud alert’).

18 ‘‘(B) ISSUANCE AND PUBLICATION OF SPE19 CIAL FRAUD ALERTS.—Upon receipt of a re20 quest described in subparagraph (A), the In21 spector General shall investigate the subject

22 matter of the request to determine whether a

23 special fraud alert should be issued. If appro24 priate, the Inspector General shall issue a spe25 cial fraud alert in response to the request. All
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1 special fraud alerts issued pursuant to this sub2 paragraph shall be published in the Federal

3 Register.

4 ‘‘(2) CRITERIA FOR SPECIAL FRAUD ALERTS.—

5 In determining whether to issue a special fraud alert

6 upon a request described in paragraph (1), the In7 spector General may consider—

8 ‘‘(A) whether and to what extent the prac9 tices that would be identified in the special

10 fraud alert may result in any of the con11 sequences described in subsection (a)(2); and

12 ‘‘(B) the volume and frequency of the con13 duct that would be identified in the special

14 fraud alert.’’.

15 Subtitle B—Revisions to Current

16 Sanctions for Fraud and Abuse

17 SEC. 211. MANDATORY EXCLUSION FROM PARTICIPATION

18 IN MEDICARE AND STATE HEALTH CARE PRO19 GRAMS.

20 (a) INDIVIDUAL CONVICTED OF FELONY RELATING

21 TO HEALTH CARE FRAUD.—

22 (1) IN GENERAL.—Section 1128(a) (42 U.S.C.

23 1320a–7(a)) is amended by adding at the end the

24 following new paragraph:
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1 ‘‘(3) FELONY CONVICTION RELATING TO

2 HEALTH CARE FRAUD.—Any individual or entity

3 that has been convicted after the date of the enact4 ment of the Health Coverage Availability and Af5 fordability Act of 1996, under Federal or State law,

6 in connection with the delivery of a health care item

7 or service or with respect to any act or omission in

8 a health care program (other than those specifically

9 described in paragraph (1)) operated by or financed

10 in whole or in part by any Federal, State, or local

11 government agency, of a criminal offense consisting

12 of a felony relating to fraud, theft, embezzlement,

13 breach of fiduciary responsibility, or other financial

14 misconduct.’’.

15 (2) CONFORMING AMENDMENT.—Paragraph (1)

16 of section 1128(b) (42 U.S.C. 1320a–7(b)) is

17 amended to read as follows:

18 ‘‘(1) CONVICTION RELATING TO FRAUD.—Any

19 individual or entity that has been convicted after the

20 date of the enactment of the Health Coverage Avail21 ability and Affordability Act of 1996, under Federal

22 or State law—

23 ‘‘(A) of a criminal offense consisting of a

24 misdemeanor relating to fraud, theft, embezzle-
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1 ment, breach of fiduciary responsibility, or

2 other financial misconduct—

3 ‘‘(i) in connection with the delivery of

4 a health care item or service, or

5 ‘‘(ii) with respect to any act or omis6 sion in a health care program (other than

7 those specifically described in subsection

8 (a)(1)) operated by or financed in whole or

9 in part by any Federal, State, or local gov10 ernment agency; or

11 ‘‘(B) of a criminal offense relating to

12 fraud, theft, embezzlement, breach of fiduciary

13 responsibility, or other financial misconduct

14 with respect to any act or omission in a pro15 gram (other than a health care program) oper16 ated by or financed in whole or in part by any

17 Federal, State, or local government agency.’’.

18 (b) INDIVIDUAL CONVICTED OF FELONY RELATING

19 TO CONTROLLED SUBSTANCE.—

20 (1) IN GENERAL.—Section 1128(a) (42 U.S.C.

21 1320a–7(a)), as amended by subsection (a), is

22 amended by adding at the end the following new

23 paragraph:

24 ‘‘(4) FELONY CONVICTION RELATING TO CON25 TROLLED SUBSTANCE.—Any individual or entity
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1 that has been convicted after the date of the enact2 ment of the Health Coverage Availability and Af3 fordability Act of 1996, under Federal or State law,

4 of a criminal offense consisting of a felony relating

5 to the unlawful manufacture, distribution, prescrip6 tion, or dispensing of a controlled substance.’’.

7 (2) CONFORMING AMENDMENT.—Section

8 1128(b)(3) (42 U.S.C. 1320a–7(b)(3)) is amended—

9 (A) in the heading, by striking ‘‘CONVIC10 TION’’ and inserting ‘‘MISDEMEANOR CONVIC11 TION’’; and

12 (B) by striking ‘‘criminal offense’’ and in13 serting ‘‘criminal offense consisting of a mis14 demeanor’’.

15 SEC. 212. ESTABLISHMENT OF MINIMUM PERIOD OF EX16 CLUSION FOR CERTAIN INDIVIDUALS AND

17 ENTITIES SUBJECT TO PERMISSIVE EXCLU18 SION FROM MEDICARE AND STATE HEALTH

19 CARE PROGRAMS.

20 Section 1128(c)(3) (42 U.S.C. 1320a–7(c)(3)) is

21 amended by adding at the end the following new subpara22 graphs:

23 ‘‘(D) In the case of an exclusion of an individual or

24 entity under paragraph (1), (2), or (3) of subsection (b),

25 the period of the exclusion shall be 3 years, unless the
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1 Secretary determines in accordance with published regula2 tions that a shorter period is appropriate because of miti3 gating circumstances or that a longer period is appro4 priate because of aggravating circumstances.

5 ‘‘(E) In the case of an exclusion of an individual or

6 entity under subsection (b)(4) or (b)(5), the period of the

7 exclusion shall not be less than the period during which

8 the individual’s or entity’s license to provide health care

9 is revoked, suspended, or surrendered, or the individual

10 or the entity is excluded or suspended from a Federal or

11 State health care program.

12 ‘‘(F) In the case of an exclusion of an individual or

13 entity under subsection (b)(6)(B), the period of the exclu14 sion shall be not less than 1 year.’’.

15 SEC. 213. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH

16 OWNERSHIP OR CONTROL INTEREST IN

17 SANCTIONED ENTITIES.

18 Section 1128(b) (42 U.S.C. 1320a–7(b)) is amended

19 by adding at the end the following new paragraph:

20 ‘‘(15) INDIVIDUALS CONTROLLING A SANC21 TIONED ENTITY.—(A) Any individual—

22 ‘‘(i) who has a direct or indirect ownership

23 or control interest in a sanctioned entity and

24 who knows or should know (as defined in sec25 tion 1128A(i)(6)) of the action constituting the
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1 basis for the conviction or exclusion described

2 in subparagraph (B); or

3 ‘‘(ii) who is an officer or managing em4 ployee (as defined in section 1126(b)) of such

5 an entity.

6 ‘‘(B) For purposes of subparagraph (A), the

7 term ‘sanctioned entity’ means an entity—

8 ‘‘(i) that has been convicted of any offense

9 described in subsection (a) or in paragraph (1),

10 (2), or (3) of this subsection; or

11 ‘‘(ii) that has been excluded from partici12 pation under a program under title XVIII or

13 under a State health care program.’’.

14 SEC. 214. SANCTIONS AGAINST PRACTITIONERS AND PER15 SONS FOR FAILURE TO COMPLY WITH STATU16 TORY OBLIGATIONS.

17 (a) MINIMUM PERIOD OF EXCLUSION FOR PRACTI18 TIONERS AND PERSONS FAILING TO MEET STATUTORY

19 OBLIGATIONS.—

20 (1) IN GENERAL.—The second sentence of sec21 tion 1156(b)(1) (42 U.S.C. 1320c–5(b)(1)) is

22 amended by striking ‘‘may prescribe)’’ and inserting

23 ‘‘may prescribe, except that such period may not be

24 less than 1 year)’’.
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1 (2) CONFORMING AMENDMENT.—Section

2 1156(b)(2) (42 U.S.C. 1320c–5(b)(2)) is amended

3 by striking ‘‘shall remain’’ and inserting ‘‘shall (sub4 ject to the minimum period specified in the second

5 sentence of paragraph (1)) remain’’.

6 (b) REPEAL OF ‘‘UNWILLING OR UNABLE’’ CONDI7 TION FOR IMPOSITION OF SANCTION.—Section 1156(b)(1)

8 (42 U.S.C. 1320c–5(b)(1)) is amended—

9 (1) in the second sentence, by striking ‘‘and de10 termines’’ and all that follows through ‘‘such obliga11 tions,’’; and

12 (2) by striking the third sentence.

13 SEC. 215. INTERMEDIATE SANCTIONS FOR MEDICARE

14 HEALTH MAINTENANCE ORGANIZATIONS.

15 (a) APPLICATION OF INTERMEDIATE SANCTIONS FOR

16 ANY PROGRAM VIOLATIONS.—

17 (1) IN GENERAL.—Section 1876(i)(1) (42

18 U.S.C. 1395mm(i)(1)) is amended by striking ‘‘the

19 Secretary may terminate’’ and all that follows and

20 inserting ‘‘in accordance with procedures established

21 under paragraph (9), the Secretary may at any time

22 terminate any such contract or may impose the in23 termediate sanctions described in paragraph (6)(B)

24 or (6)(C) (whichever is applicable) on the eligible or-
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1 ganization if the Secretary determines that the orga2 nization—

3 ‘‘(A) has failed substantially to carry out the

4 contract;

5 ‘‘(B) is carrying out the contract in a manner

6 substantially inconsistent with the efficient and ef7 fective administration of this section; or

8 ‘‘(C) no longer substantially meets the applica9 ble conditions of subsections (b), (c), (e), and (f).’’.

10 (2) OTHER INTERMEDIATE SANCTIONS FOR

11 MISCELLANEOUS PROGRAM VIOLATIONS.—Section

12 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is amended by

13 adding at the end the following new subparagraph:

14 ‘‘(C) In the case of an eligible organization for which

15 the Secretary makes a determination under paragraph (1)

16 the basis of which is not described in subparagraph (A),

17 the Secretary may apply the following intermediate sanc18 tions:

19 ‘‘(i) Civil money penalties of not more than

20 $25,000 for each determination under paragraph (1)

21 if the deficiency that is the basis of the determina22 tion has directly adversely affected (or has the sub23 stantial likelihood of adversely affecting) an individ24 ual covered under the organization’s contract.
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1 ‘‘(ii) Civil money penalties of not more than

2 $10,000 for each week beginning after the initiation

3 of procedures by the Secretary under paragraph (9)

4 during which the deficiency that is the basis of a de5 termination under paragraph (1) exists.

6 ‘‘(iii) Suspension of enrollment of individuals

7 under this section after the date the Secretary noti8 fies the organization of a determination under para9 graph (1) and until the Secretary is satisfied that

10 the deficiency that is the basis for the determination

11 has been corrected and is not likely to recur.’’.

12 (3) PROCEDURES FOR IMPOSING SANCTIONS.—

13 Section 1876(i) (42 U.S.C. 1395mm(i)) is amended

14 by adding at the end the following new paragraph:

15 ‘‘(9) The Secretary may terminate a contract with an

16 eligible organization under this section or may impose the

17 intermediate sanctions described in paragraph (6) on the

18 organization in accordance with formal investigation and

19 compliance procedures established by the Secretary under

20 which—

21 ‘‘(A) the Secretary first provides the organiza22 tion with the reasonable opportunity to develop and

23 implement a corrective action plan to correct the de24 ficiencies that were the basis of the Secretary’s de-
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1 termination under paragraph (1) and the organiza2 tion fails to develop or implement such a plan;

3 ‘‘(B) in deciding whether to impose sanctions,

4 the Secretary considers aggravating factors such as

5 whether an organization has a history of deficiencies

6 or has not taken action to correct deficiencies the

7 Secretary has brought to the organization’s atten8 tion;

9 ‘‘(C) there are no unreasonable or unnecessary

10 delays between the finding of a deficiency and the

11 imposition of sanctions; and

12 ‘‘(D) the Secretary provides the organization

13 with reasonable notice and opportunity for hearing

14 (including the right to appeal an initial decision) be15 fore imposing any sanction or terminating the con16 tract.’’.

17 (4) CONFORMING AMENDMENTS.—Section

18 1876(i)(6)(B) (42 U.S.C. 1395mm(i)(6)(B)) is

19 amended by striking the second sentence.

20 (b) AGREEMENTS WITH PEER REVIEW ORGANIZA21 TIONS.—Section 1876(i)(7)(A) (42 U.S.C.

22 1395mm(i)(7)(A)) is amended by striking ‘‘an agreement’’

23 and inserting ‘‘a written agreement’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply with respect to contract years be3 ginning on or after January 1, 1996.

4 SEC. 216. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PEN5 ALTIES FOR DISCOUNTING AND MANAGED

6 CARE ARRANGEMENTS.

7 (a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C.

8 1320a–7b(b)(3)) is amended—

9 (1) by striking ‘‘and’’ at the end of subpara10 graph (D);

11 (2) by striking the period at the end of sub12 paragraph (E) and inserting ‘‘; and’’; and

13 (3) by adding at the end the following new sub14 paragraph:

15 ‘‘(F) any remuneration between an organization

16 and an individual or entity providing items or serv17 ices, or a combination thereof, pursuant to a written

18 agreement between the organization and the individ19 ual or entity if the organization is an eligible organi20 zation under section 1876 or if the written agree21 ment places the individual or entity at substantial fi22 nancial risk for the cost or utilization of the items

23 or services, or a combination thereof, which the indi24 vidual or entity is obligated to provide, whether

25 through a withhold, capitation, incentive pool, per
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1 diem payment, or any other similar risk arrange2 ment which places the individual or entity at sub3 stantial financial risk.’’.

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

5 this section shall apply to written agreements entered into

6 on or after January 1, 1997.

7 SEC. 217. CRIMINAL PENALTY FOR FRAUDULENT DISPOSI8 TION OF ASSETS IN ORDER TO OBTAIN MED9 ICAID BENEFITS.

10 Section 1128B(a) (42 U.S.C. 1320a–7b(a)) is

11 amended—

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

13 (4);

14 (2) by adding ‘‘or’’ at the end of paragraph (5);

15 and

16 (3) by inserting after paragraph (5) the follow17 ing new paragraph:

18 ‘‘(6) knowingly and willfully disposes of assets

19 (including by any transfer in trust) in order for an

20 individual to become eligible for medical assistance

21 under a State plan under title XIX, if disposing of

22 the assets results in the imposition of a period of in23 eligibility for such assistance under section

24 1917(c),’’.
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1 SEC. 218. EFFECTIVE DATE.

2 Except as otherwise provided, the amendments made

3 by this subtitle shall take effect January 1, 1997.

4 Subtitle C—Data Collection

5 SEC. 221. ESTABLISHMENT OF THE HEALTH CARE FRAUD

6 AND ABUSE DATA COLLECTION PROGRAM.

7 (a) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.),

8 as amended by sections 201 and 205, is amended by in9 serting after section 1128D the following new section:

10 ‘‘HEALTH CARE FRAUD AND ABUSE DATA COLLECTION

11 PROGRAM

12 ‘‘SEC. 1128E. (a) GENERAL PURPOSE.—Not later

13 than January 1, 1997, the Secretary shall establish a na14 tional health care fraud and abuse data collection program

15 for the reporting of final adverse actions (not including

16 settlements in which no findings of liability have been

17 made) against health care providers, suppliers, or practi18 tioners as required by subsection (b), with access as set

19 forth in subsection (c).

20 ‘‘(b) REPORTING OF INFORMATION.—

21 ‘‘(1) IN GENERAL.—Each Government agency

22 and health plan shall report any final adverse action

23 (not including settlements in which no findings of li24 ability have been made) taken against a health care

25 provider, supplier, or practitioner.
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1 ‘‘(2) INFORMATION TO BE REPORTED.—The in2 formation to be reported under paragraph (1) in3 cludes:

4 ‘‘(A) The name and TIN (as defined in

5 section 7701(a)(41) of the Internal Revenue

6 Code of 1986) of any health care provider, sup7 plier, or practitioner who is the subject of a

8 final adverse action.

9 ‘‘(B) The name (if known) of any health

10 care entity with which a health care provider,

11 supplier, or practitioner is affiliated or associ12 ated.

13 ‘‘(C) The nature of the final adverse action

14 and whether such action is on appeal.

15 ‘‘(D) A description of the acts or omissions

16 and injuries upon which the final adverse action

17 was based, and such other information as the

18 Secretary determines by regulation is required

19 for appropriate interpretation of information re20 ported under this section.

21 ‘‘(3) CONFIDENTIALITY.—In determining what

22 information is required, the Secretary shall include

23 procedures to assure that the privacy of individuals

24 receiving health care services is appropriately pro25 tected.
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1 ‘‘(4) TIMING AND FORM OF REPORTING.—The

2 information required to be reported under this sub3 section shall be reported regularly (but not less often

4 than monthly) and in such form and manner as the

5 Secretary prescribes. Such information shall first be

6 required to be reported on a date specified by the

7 Secretary.

8 ‘‘(5) TO WHOM REPORTED.—The information

9 required to be reported under this subsection shall

10 be reported to the Secretary.

11 ‘‘(c) DISCLOSURE AND CORRECTION OF INFORMA12 TION.—

13 ‘‘(1) DISCLOSURE.—With respect to the infor14 mation about final adverse actions (not including

15 settlements in which no findings of liability have

16 been made) reported to the Secretary under this sec17 tion respecting a health care provider, supplier, or

18 practitioner, the Secretary shall, by regulation, pro19 vide for—

20 ‘‘(A) disclosure of the information, upon

21 request, to the health care provider, supplier, or

22 licensed practitioner, and

23 ‘‘(B) procedures in the case of disputed ac24 curacy of the information.
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1 ‘‘(2) CORRECTIONS.—Each Government agency

2 and health plan shall report corrections of informa3 tion already reported about any final adverse action

4 taken against a health care provider, supplier, or

5 practitioner, in such form and manner that the Sec6 retary prescribes by regulation.

7 ‘‘(d) ACCESS TO REPORTED INFORMATION.—

8 ‘‘(1) AVAILABILITY.—The information in this

9 database shall be available to Federal and State gov10 ernment agencies and health plans pursuant to pro11 cedures that the Secretary shall provide by regula12 tion.

13 ‘‘(2) FEES FOR DISCLOSURE.—The Secretary

14 may establish or approve reasonable fees for the dis15 closure of information in this database (other than

16 with respect to requests by Federal agencies). The

17 amount of such a fee shall be sufficient to recover

18 the full costs of operating the database. Such fees

19 shall be available to the Secretary or, in the Sec20 retary’s discretion to the agency designated under

21 this section to cover such costs.

22 ‘‘(e) PROTECTION FROM LIABILITY FOR REPORT23 ING.—No person or entity, including the agency des24 ignated by the Secretary in subsection (b)(5) shall be held

25 liable in any civil action with respect to any report made
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1 as required by this section, without knowledge of the fal2 sity of the information contained in the report.

3 ‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur4 poses of this section:

5 ‘‘(1) FINAL ADVERSE ACTION.—

6 ‘‘(A) IN GENERAL.—The term ‘final ad7 verse action’ includes:

8 ‘‘(i) Civil judgments against a health

9 care provider, supplier, or practitioner in

10 Federal or State court related to the deliv11 ery of a health care item or service.

12 ‘‘(ii) Federal or State criminal convic13 tions related to the delivery of a health

14 care item or service.

15 ‘‘(iii) Actions by Federal or State

16 agencies responsible for the licensing and

17 certification of health care providers, sup18 pliers, and licensed health care practition19 ers, including—

20 ‘‘(I) formal or official actions,

21 such as revocation or suspension of a

22 license (and the length of any such

23 suspension), reprimand, censure or

24 probation,
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1 ‘‘(II) any other loss of license or

2 the right to apply for, or renew, a li3 cense of the provider, supplier, or

4 practitioner, whether by operation of

5 law, voluntary surrender, non-renew6 ability, or otherwise, or

7 ‘‘(III) any other negative action

8 or finding by such Federal or State

9 agency that is publicly available infor10 mation.

11 ‘‘(iv) Exclusion from participation in

12 Federal or State health care programs.

13 ‘‘(v) Any other adjudicated actions or

14 decisions that the Secretary shall establish

15 by regulation.

16 ‘‘(B) EXCEPTION.—The term does not in17 clude any action with respect to a malpractice

18 claim.

19 ‘‘(2) PRACTITIONER.—The terms ‘licensed

20 health care practitioner’, ‘licensed practitioner’, and

21 ‘practitioner’ mean, with respect to a State, an indi22 vidual who is licensed or otherwise authorized by the

23 State to provide health care services (or any individ24 ual who, without authority holds himself or herself

25 out to be so licensed or authorized).
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1 ‘‘(3) GOVERNMENT AGENCY.—The term ‘Gov2 ernment agency’ shall include:

3 ‘‘(A) The Department of Justice.

4 ‘‘(B) The Department of Health and

5 Human Services.

6 ‘‘(C) Any other Federal agency that either

7 administers or provides payment for the deliv8 ery of health care services, including, but not

9 limited to the Department of Defense and the

10 Veterans’ Administration.

11 ‘‘(D) State law enforcement agencies.

12 ‘‘(E) State medicaid fraud control units.

13 ‘‘(F) Federal or State agencies responsible

14 for the licensing and certification of health care

15 providers and licensed health care practitioners.

16 ‘‘(4) HEALTH PLAN.—The term ‘health plan’

17 has the meaning given such term by section

18 1128C(c).

19 ‘‘(5) DETERMINATION OF CONVICTION.—For

20 purposes of paragraph (1), the existence of a convic21 tion shall be determined under paragraph (4) of sec22 tion 1128(i).’’.

23 (b) IMPROVED PREVENTION IN ISSUANCE OF MEDI24 CARE PROVIDER NUMBERS.—Section 1842(r) (42 U.S.C.

25 1395u(r)) is amended by adding at the end the following
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1 new sentence: ‘‘Under such system, the Secretary may im2 pose appropriate fees on such physicians to cover the costs

3 of investigation and recertification activities with respect

4 to the issuance of the identifiers.’’.

5 Subtitle D—Civil Monetary

6 Penalties

7 SEC. 231. SOCIAL SECURITY ACT CIVIL MONETARY PEN8 ALTIES.

9 (a) GENERAL CIVIL MONETARY PENALTIES.—Sec10 tion 1128A (42 U.S.C. 1320a–7a) is amended as follows:

11 (1) In the third sentence of subsection (a), by

12 striking ‘‘programs under title XVIII’’ and inserting

13 ‘‘Federal health care programs (as defined in section

14 1128B(f)(1))’’.

15 (2) In subsection (f)—

16 (A) by redesignating paragraph (3) as

17 paragraph (4); and

18 (B) by inserting after paragraph (2) the

19 following new paragraph:

20 ‘‘(3) With respect to amounts recovered arising

21 out of a claim under a Federal health care program

22 (as defined in section 1128B(f)), the portion of such

23 amounts as is determined to have been paid by the

24 program shall be repaid to the program, and the

25 portion of such amounts attributable to the amounts
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1 recovered under this section by reason of the amend2 ments made by the Health Coverage Availability and

3 Affordability Act of 1996 (as estimated by the Sec4 retary) shall be deposited into the Federal Hospital

5 Insurance Trust Fund pursuant to section

6 1817(k)(2)(C).’’.

7 (3) In subsection (i)—

8 (A) in paragraph (2), by striking ‘‘title V,

9 XVIII, XIX, or XX of this Act’’ and inserting

10 ‘‘a Federal health care program (as defined in

11 section 1128B(f))’’,

12 (B) in paragraph (4), by striking ‘‘a health

13 insurance or medical services program under

14 title XVIII or XIX of this Act’’ and inserting

15 ‘‘a Federal health care program (as so de16 fined)’’, and

17 (C) in paragraph (5), by striking ‘‘title V,

18 XVIII, XIX, or XX’’ and inserting ‘‘a Federal

19 health care program (as so defined)’’.

20 (4) By adding at the end the following new sub21 section:

22 ‘‘(m)(1) For purposes of this section, with respect to

23 a Federal health care program not contained in this Act,

24 references to the Secretary in this section shall be deemed

25 to be references to the Secretary or Administrator of the
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1 department or agency with jurisdiction over such program

2 and references to the Inspector General of the Department

3 of Health and Human Services in this section shall be

4 deemed to be references to the Inspector General of the

5 applicable department or agency.

6 ‘‘(2)(A) The Secretary and Administrator of the de7 partments and agencies referred to in paragraph (1) may

8 include in any action pursuant to this section, claims with9 in the jurisdiction of other Federal departments or agen10 cies as long as the following conditions are satisfied:

11 ‘‘(i) The case involves primarily claims submit12 ted to the Federal health care programs of the de13 partment or agency initiating the action.

14 ‘‘(ii) The Secretary or Administrator of the de15 partment or agency initiating the action gives notice

16 and an opportunity to participate in the investiga17 tion to the Inspector General of the department or

18 agency with primary jurisdiction over the Federal

19 health care programs to which the claims were sub20 mitted.

21 ‘‘(B) If the conditions specified in subparagraph (A)

22 are fulfilled, the Inspector General of the department or

23 agency initiating the action is authorized to exercise all

24 powers granted under the Inspector General Act of 1978

25 with respect to the claims submitted to the other depart-
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1 ments or agencies to the same manner and extent as pro2 vided in that Act with respect to claims submitted to such

3 departments or agencies.’’.

4 (b) EXCLUDED INDIVIDUAL RETAINING OWNERSHIP

5 OR CONTROL INTEREST IN PARTICIPATING ENTITY.—

6 Section 1128A(a) (42 U.S.C. 1320a–7a(a)) is amended—

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

8 (1)(D);

9 (2) by striking ‘‘, or’’ at the end of paragraph

10 (2) and inserting a semicolon;

11 (3) by striking the semicolon at the end of

12 paragraph (3) and inserting ‘‘; or’’; and

13 (4) by inserting after paragraph (3) the follow14 ing new paragraph:

15 ‘‘(4) in the case of a person who is not an orga16 nization, agency, or other entity, is excluded from

17 participating in a program under title XVIII or a

18 State health care program in accordance with this

19 subsection or under section 1128 and who, at the

20 time of a violation of this subsection—

21 ‘‘(A) retains a direct or indirect ownership

22 or control interest in an entity that is partici23 pating in a program under title XVIII or a

24 State health care program, and who knows or
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1 should know of the action constituting the basis

2 for the exclusion; or

3 ‘‘(B) is an officer or managing employee

4 (as defined in section 1126(b)) of such an en5 tity;’’.

6 (c) MODIFICATIONS OF AMOUNTS OF PENALTIES

7 AND ASSESSMENTS.—Section 1128A(a) (42 U.S.C.

8 1320a–7a(a)), as amended by subsection (b), is amended

9 in the matter following paragraph (4)—

10 (1) by striking ‘‘$2,000’’ and inserting

11 ‘‘$10,000’’;

12 (2) by inserting ‘‘; in cases under paragraph

13 (4), $10,000 for each day the prohibited relationship

14 occurs’’ after ‘‘false or misleading information was

15 given’’; and

16 (3) by striking ‘‘twice the amount’’ and insert17 ing ‘‘3 times the amount’’.

18 (d) CLAIM FOR ITEM OR SERVICE BASED ON INCOR19 RECT CODING OR MEDICALLY UNNECESSARY SERV20 ICES.—Section 1128A(a)(1) (42 U.S.C. 1320a–7a(a)(1))

21 is amended—

22 (1) in subparagraph (A) by striking ‘‘claimed,’’

23 and inserting ‘‘claimed, including any person who

24 engages in a pattern or practice of presenting or

25 causing to be presented a claim for an item or serv-
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1 ice that is based on a code that the person knows

2 or should know will result in a greater payment to

3 the person than the code the person knows or should

4 know is applicable to the item or service actually

5 provided,’’;

6 (2) in subparagraph (C), by striking ‘‘or’’ at

7 the end; and

8 (3) by inserting after subparagraph (D) the fol9 lowing new subparagraph:

10 ‘‘(E) is for a medical or other item or serv11 ice that a person knows or should know is not

12 medically necessary; or’’.

13 (e) SANCTIONS AGAINST PRACTITIONERS AND PER14 SONS FOR FAILURE TO COMPLY WITH STATUTORY OBLI15 GATIONS.—Section 1156(b)(3) (42 U.S.C. 1320c–5(b)(3))

16 is amended by striking ‘‘the actual or estimated cost’’ and

17 inserting ‘‘up to $10,000 for each instance’’.

18 (f) PROCEDURAL PROVISIONS.—Section 1876(i)(6)

19 (42 U.S.C. 1395mm(i)(6)), as amended by section

20 215(a)(2), is amended by adding at the end the following

21 new subparagraph:

22 ‘‘(D) The provisions of section 1128A (other than

23 subsections (a) and (b)) shall apply to a civil money pen24 alty under subparagraph (B)(i) or (C)(i) in the same man-
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1 ner as such provisions apply to a civil money penalty or

2 proceeding under section 1128A(a).’’.

3 (g) PROHIBITION AGAINST OFFERING INDUCEMENTS

4 TO INDIVIDUALS ENROLLED UNDER PROGRAMS OR

5 PLANS.—

6 (1) OFFER OF REMUNERATION.—Section

7 1128A(a) (42 U.S.C. 1320a–7a(a)), as amended by

8 subsection (b), is amended—

9 (A) by striking ‘‘or’’ at the end of para10 graph (3);

11 (B) by striking the semicolon at the end of

12 paragraph (4) and inserting ‘‘; or’’; and

13 (D) by inserting after paragraph (4) the

14 following new paragraph:

15 ‘‘(5) offers to or transfers remuneration to any

16 individual eligible for benefits under title XVIII of

17 this Act, or under a State health care program (as

18 defined in section 1128(h)) that such person knows

19 or should know is likely to influence such individual

20 to order or receive from a particular provider, practi21 tioner, or supplier any item or service for which pay22 ment may be made, in whole or in part, under title

23 XVIII, or a State health care program (as so de24 fined);’’.
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1 (2) REMUNERATION DEFINED.—Section

2 1128A(i) (42 U.S.C. 1320a–7a(i)) is amended by

3 adding at the end the following new paragraph:

4 ‘‘(6) The term ‘remuneration’ includes the waiv5 er of coinsurance and deductible amounts (or any

6 part thereof), and transfers of items or services for

7 free or for other than fair market value. The term

8 ‘remuneration’ does not include—

9 ‘‘(A) the waiver of coinsurance and deduct10 ible amounts by a person, if—

11 ‘‘(i) the waiver is not offered as part

12 of any advertisement or solicitation;

13 ‘‘(ii) the person does not routinely

14 waive coinsurance or deductible amounts;

15 and

16 ‘‘(iii) the person—

17 ‘‘(I) waives the coinsurance and

18 deductible amounts after determining

19 in good faith that the individual is in

20 financial need;

21 ‘‘(II) fails to collect coinsurance

22 or deductible amounts after making

23 reasonable collection efforts; or

24 ‘‘(III) provides for any permis25 sible waiver as specified in section
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1 1128B(b)(3) or in regulations issued

2 by the Secretary;

3 ‘‘(B) differentials in coinsurance and de4 ductible amounts as part of a benefit plan de5 sign as long as the differentials have been dis6 closed in writing to all beneficiaries, third party

7 payers, and providers, to whom claims are pre8 sented and as long as the differentials meet the

9 standards as defined in regulations promulgated

10 by the Secretary not later than 180 days after

11 the date of the enactment of the Health Cov12 erage Availability and Affordability Act of

13 1996; or

14 ‘‘(C) incentives given to individuals to pro15 mote the delivery of preventive care as deter16 mined by the Secretary in regulations so pro17 mulgated.’’.

18 (h) EFFECTIVE DATE.—The amendments made by

19 this section shall take effect January 1, 1997.

20 SEC. 232. CLARIFICATION OF LEVEL OF INTENT REQUIRED

21 FOR IMPOSITION OF SANCTIONS.

22 (a) CLARIFICATION OF LEVEL OF KNOWLEDGE RE23 QUIRED FOR IMPOSITION OF CIVIL MONETARY PEN24 ALTIES.—
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1 (1) IN GENERAL.—Section 1128A(a) (42

2 U.S.C. 1320a–7a(a)) is amended—

3 (A) in paragraphs (1) and (2), by inserting

4 ‘‘knowingly’’ before ‘‘presents’’ each place it ap5 pears; and

6 (B) in paragraph (3), by striking ‘‘gives’’

7 and inserting ‘‘knowingly gives or causes to be

8 given’’.

9 (2) DEFINITION OF STANDARD.—Section

10 1128A(i) (42 U.S.C. 1320a–7a(i)), as amended by

11 section 231(g)(2), is amended by adding at the end

12 the following new paragraph:

13 ‘‘(7) The term ‘should know’ means that a per14 son, with respect to information—

15 ‘‘(A) acts in deliberate ignorance of the

16 truth or falsity of the information; or

17 ‘‘(B) acts in reckless disregard of the truth

18 or falsity of the information,

19 and no proof of specific intent to defraud is re20 quired.’’.

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

22 this section shall apply to acts or omissions occurring on

23 or after January 1, 1997.
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1 SEC. 233. PENALTY FOR FALSE CERTIFICATION FOR HOME

2 HEALTH SERVICES.

3 (a) IN GENERAL.—Section 1128A(b) (42 U.S.C.

4 1320a–7a(b)) is amended by adding at the end the follow5 ing new paragraph:

6 ‘‘(3)(A) Any physician who executes a document de7 scribed in subparagraph (B) with respect to an individual

8 knowing that all of the requirements referred to in such

9 subparagraph are not met with respect to the individual

10 shall be subject to a civil monetary penalty of not more

11 than the greater of—

12 ‘‘(i) $5,000, or

13 ‘‘(ii) three times the amount of the payments

14 under title XVIII for home health services which are

15 made pursuant to such certification.

16 ‘‘(B) A document described in this subparagraph is

17 any document that certifies, for purposes of title XVIII,

18 that an individual meets the requirements of section

19 1814(a)(2)(C) or 1835(a)(2)(A) in the case of home

20 health services furnished to the individual.’’.

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

22 subsection (a) shall apply to certifications made on or

23 after the date of the enactment of this Act.
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1 Subtitle E—Revisions to Criminal

2 Law

3 SEC. 241. DEFINITIONS RELATING TO FEDERAL HEALTH

4 CARE OFFENSE.

5 (a) IN GENERAL.—Chapter 1 of title 18, United

6 States Code, is amended by adding at the end the follow7 ing:

8 ‘‘§ 24. Definitions relating to Federal health care of9 fense

10 ‘‘(a) As used in this title, the term ‘Federal health

11 care offense’ means a violation of, or a criminal conspiracy

12 to violate—

13 ‘‘(1) section 669, 1035, 1347, or 1518 of this

14 title; or

15 ‘‘(2) section 287, 371, 664, 666, 1001, 1027,

16 1341, 1343, or 1954 of this title, if the violation or

17 conspiracy relates to a health care benefit program.

18 ‘‘(b) As used in this title, the term ‘health care bene19 fit program’ means any public or private plan or contract,

20 affecting commerce, under which any medical benefit,

21 item, or service is provided to any individual, and includes

22 any individual or entity who is providing a medical benefit,

23 item, or service for which payment may be made under

24 the plan or contract.’’.
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1 (b) CLERICAL AMENDMENT.—The table of sections

2 at the beginning of chapter 2 of title 18, United States

3 Code, is amended by inserting after the item relating to

4 section 23 the following new item:

‘‘24. Definitions relating to Federal health care offense.’’.

5 SEC. 242. HEALTH CARE FRAUD.

6 (a) OFFENSE.—

7 (1) IN GENERAL.—Chapter 63 of title 18, Unit8 ed States Code, is amended by adding at the end the

9 following:

10 ‘‘§ 1347. Health care fraud

11 ‘‘Whoever knowingly executes, or attempts to execute,

12 a scheme or artifice—

13 ‘‘(1) to defraud any health care benefit pro14 gram; or

15 ‘‘(2) to obtain, by means of false or fraudulent

16 pretenses, representations, or promises, any of the

17 money or property owned by, or under the custody

18 or control of, any health care benefit program,

19 in connection with the delivery of or payment for health

20 care benefits, items, or services, shall be fined under this

21 title or imprisoned not more than 10 years, or both. If

22 the violation results in serious bodily injury (as defined

23 in section 1365 of this title), such person shall be fined

24 under this title or imprisoned not more than 20 years, or

25 both; and if the violation results in death, such person
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1 shall be fined under this title, or imprisoned for any term

2 of years or for life, or both.’’.

3 (2) CLERICAL AMENDMENT.—The table of sec4 tions at the beginning of chapter 63 of title 18,

5 United States Code, is amended by adding at the

6 end the following:

‘‘1347. Health care fraud.’’.

7 (b) CRIMINAL FINES DEPOSITED IN FEDERAL HOS8 PITAL INSURANCE TRUST FUND.—The Secretary of the

9 Treasury shall deposit into the Federal Hospital Insurance

10 Trust Fund pursuant to section 1817(k)(2)(C) of the So11 cial Security Act (42 U.S.C. 1395i) an amount equal to

12 the criminal fines imposed under section 1347 of title 18,

13 United States Code (relating to health care fraud).

14 SEC. 243. THEFT OR EMBEZZLEMENT.

15 (a) IN GENERAL.—Chapter 31 of title 18, United

16 States Code, is amended by adding at the end the follow17 ing:

18 ‘‘§ 669. Theft or embezzlement in connection with

19 health care

20 ‘‘(a) Whoever embezzles, steals, or otherwise without

21 authority knowingly converts to the use of any person

22 other than the rightful owner, or intentionally misapplies

23 any of the moneys, funds, securities, premiums, credits,

24 property, or other assets of a health care benefit program,

25 shall be fined under this title or imprisoned not more than
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1 10 years, or both; but if the value of such property does

2 not exceed the sum of $100 the defendant shall be fined

3 under this title or imprisoned not more than one year, or

4 both.

5 ‘‘(b) As used in this section, the term ‘health care

6 benefit program’ has the meaning given such term in sec7 tion 1347(b) of this title.’’.

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

9 at the beginning of chapter 31 of title 18, United States

10 Code, is amended by adding at the end the following:

‘‘669. Theft or embezzlement in connection with health care.’’.

11 SEC. 244. FALSE STATEMENTS.

12 (a) IN GENERAL.—Chapter 47 of title 18, United

13 States Code, is amended by adding at the end the follow14 ing:

15 ‘‘§ 1035. False statements relating to health care mat16 ters

17 ‘‘(a) Whoever, in any matter involving a health care

18 benefit program, knowingly—

19 ‘‘(1) falsifies, conceals, or covers up by any

20 trick, scheme, or device a material fact; or

21 ‘‘(2) makes any false, fictitious, or fraudulent

22 statements or representations, or makes or uses any

23 false writing or document knowing the same to con24 tain any false, fictitious, or fraudulent statement or

25 entry,
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1 in connection with the delivery of or payment for health

2 care benefits, items, or services, shall be fined under this

3 title or imprisoned not more than 5 years, or both.

4 ‘‘(b) As used in this section, the term ‘health care

5 benefit program’ has the meaning given such term in sec6 tion 1347(b) of this title.’’.

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

8 at the beginning of chapter 47 of title 18, United States

9 Code, is amended by adding at the end the following new

10 item:

‘‘1035. False statements relating to health care matters.’’.

11 SEC. 245. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF

12 HEALTH CARE OFFENSES.

13 (a) IN GENERAL.—Chapter 73 of title 18, United

14 States Code, is amended by adding at the end the follow15 ing:

16 ‘‘§ 1518. Obstruction of criminal investigations of

17 health care offenses

18 ‘‘(a) Whoever willfully prevents, obstructs, misleads,

19 delays or attempts to prevent, obstruct, mislead, or delay

20 the communication of information or records relating to

21 a violation of a Federal health care offense to a criminal

22 investigator shall be fined under this title or imprisoned

23 not more than 5 years, or both.

24 ‘‘(b) As used in this section the term ‘criminal inves25 tigator’ means any individual duly authorized by a depart-
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1 ment, agency, or armed force of the United States to con2 duct or engage in investigations for prosecutions for viola3 tions of health care offenses.’’.

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

5 at the beginning of chapter 73 of title 18, United States

6 Code, is amended by adding at the end the following new

7 item:

‘‘1518. Obstruction of criminal investigations of health care offenses.’’.

8 SEC. 246. LAUNDERING OF MONETARY INSTRUMENTS.

9 Section 1956(c)(7) of title 18, United States Code,

10 is amended by adding at the end the following:

11 ‘‘(F) Any act or activity constituting an of12 fense involving a Federal health care offense.’’.

13 SEC. 247. INJUNCTIVE RELIEF RELATING TO HEALTH CARE

14 OFFENSES.

15 (a) IN GENERAL.—Section 1345(a)(1) of title 18,

16 United States Code, is amended—

17 (1) by striking ‘‘or’’ at the end of subparagraph

18 (A);

19 (2) by inserting ‘‘or’’ at the end of subpara20 graph (B); and

21 (3) by adding at the end the following:

22 ‘‘(C) committing or about to commit a Federal

23 health care offense.’’.
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1 (b) FREEZING OF ASSETS.—Section 1345(a)(2) of

2 title 18, United States Code, is amended by inserting ‘‘or

3 a Federal health care offense’’ after ‘‘title)’’.

4 SEC. 248. AUTHORIZED INVESTIGATIVE DEMAND PROCE5 DURES.

6 (a) IN GENERAL.—Chapter 223 of title 18, United

7 States Code, is amended by adding after section 3485 the

8 following:

9 ‘‘§ 3486. Authorized investigative demand procedures

10 ‘‘(a) AUTHORIZATION.—In any investigation relating

11 to any act or activity involving a Federal health care of12 fense, the Attorney General or the Attorney General’s des13 ignee may issue in writing and cause to be served a sub14 poena requiring the production of any records (including

15 any books, papers, documents, electronic media, or other

16 objects or tangible things), which may be relevant to an

17 authorized law enforcement inquiry, that a person or legal

18 entity may possess or have care, custody, or control. A

19 subpoena shall describe the objects required to be pro20 duced and prescribe a return date within a reasonable pe21 riod of time within which the objects can be assembled

22 and made available.

23 ‘‘(b) SERVICE.—A subpoena issued under this section

24 may be served by any person designated in the subpoena

25 to serve it. Service upon a natural person may be made
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1 by personal delivery of the subpoena to him. Service may

2 be made upon a domestic or foreign corporation or upon

3 a partnership or other unincorporated association which

4 is subject to suit under a common name, by delivering the

5 subpoena to an officer, to a managing or general agent,

6 or to any other agent authorized by appointment or by

7 law to receive service of process. The affidavit of the per8 son serving the subpoena entered on a true copy thereof

9 by the person serving it shall be proof of service.

10 ‘‘(c) ENFORCEMENT.—In the case of contumacy by

11 or refusal to obey a subpoena issued to any person, the

12 Attorney General may invoke the aid of any court of the

13 United States within the jurisdiction of which the inves14 tigation is carried on or of which the subpoenaed person

15 is an inhabitant, or in which he carries on business or may

16 be found, to compel compliance with the subpoena. The

17 court may issue an order requiring the subpoenaed person

18 to appear before the Attorney General to produce records,

19 if so ordered, or to give testimony touching the matter

20 under investigation. Any failure to obey the order of the

21 court may be punished by the court as a contempt thereof.

22 All process in any such case may be served in any judicial

23 district in which such person may be found.

24 ‘‘(d) IMMUNITY FROM CIVIL LIABILITY.—Notwith25 standing any Federal, State, or local law, any person, in-
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1 cluding officers, agents, and employees, receiving a sum2 mons under this section, who complies in good faith with

3 the summons and thus produces the materials sought,

4 shall not be liable in any court of any State or the United

5 States to any customer or other person for such produc6 tion or for nondisclosure of that production to the cus7 tomer.

8 ‘‘(e) LIMITATION ON USE.—(1) Health information

9 about an individual that is disclosed under this section

10 may not be used in, or disclosed to any person for use

11 in, any administrative, civil, or criminal action or inves12 tigation directed against the individual who is the subject

13 of the information unless the action or investigation arises

14 out of and is directly related to receipt of health care or

15 payment for health care or action involving a fraudulent

16 claim related to health; or if authorized by an appropriate

17 order of a court of competent jurisdiction, granted after

18 application showing good cause therefor.

19 ‘‘(2) In assessing good cause, the court shall weigh

20 the public interest and the need for disclosure against the

21 injury to the patient, to the physician-patient relationship,

22 and to the treatment services.

23 ‘‘(3) Upon the granting of such order, the court, in

24 determining the extent to which any disclosure of all or
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1 any part of any record is necessary, shall impose appro2 priate safeguards against unauthorized disclosure.’’.

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

4 at the beginning of chapter 223 of title 18, United States

5 Code, is amended by inserting after the item relating to

6 section 3485 the following new item:

‘‘3486. Authorized investigative demand procedures.’’.

7 (c) CONFORMING AMENDMENT.—Section

8 1510(b)(3)(B) of title 18, United States Code, is amended

9 by inserting ‘‘or a Department of Justice subpoena (issued

10 under section 3486 of title 18),’’ after ‘‘subpoena’’.

11 SEC. 249. FORFEITURES FOR FEDERAL HEALTH CARE OF12 FENSES.

13 (a) IN GENERAL.—Section 982(a) of title 18, United

14 States Code, is amended by adding after paragraph (5)

15 the following new paragraph:

16 ‘‘(6) The court, in imposing sentence on a person con17 victed of a Federal health care offense, shall order the per18 son to forfeit property, real or personal, that constitutes

19 or is derived, directly or indirectly, from gross proceeds

20 traceable to the commission of the offense.’’.

21 (b) CONFORMING AMENDMENT.—Section

22 982(b)(1)(A) of title 18, United States Code, is amended

23 by inserting ‘‘or (a)(6)’’ after ‘‘(a)(1)’’.

24 (c) PROPERTY FORFEITED DEPOSITED IN FEDERAL

25 HOSPITAL INSURANCE TRUST FUND.—
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1 (1) IN GENERAL.—After the payment of the

2 costs of asset forfeiture has been made, and notwith3 standing any other provision of law, the Secretary of

4 the Treasury shall deposit into the Federal Hospital

5 Insurance Trust Fund pursuant to section

6 1817(k)(2)(C) of the Social Security Act, as added

7 by section 301(b), an amount equal to the net

8 amount realized from the forfeiture of property by

9 reason of a Federal health care offense pursuant to

10 section 982(a)(6) of title 18, United States Code.

11 (2) COSTS OF ASSET FORFEITURE.—For pur12 poses of paragraph (1), the term ‘‘payment of the

13 costs of asset forfeiture’’ means—

14 (A) the payment, at the discretion of the

15 Attorney General, of any expenses necessary to

16 seize, detain, inventory, safeguard, maintain,

17 advertise, sell, or dispose of property under sei18 zure, detention, or forfeited, or of any other

19 necessary expenses incident to the seizure, de20 tention, forfeiture, or disposal of such property,

21 including payment for—

22 (i) contract services;

23 (ii) the employment of outside con24 tractors to operate and manage properties

25 or provide other specialized services nec-
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1 essary to dispose of such properties in an

2 effort to maximize the return from such

3 properties; and

4 (iii) reimbursement of any Federal,

5 State, or local agency for any expenditures

6 made to perform the functions described in

7 this subparagraph;

8 (B) at the discretion of the Attorney Gen9 eral, the payment of awards for information or

10 assistance leading to a civil or criminal forfeit11 ure involving any Federal agency participating

12 in the Health Care Fraud and Abuse Control

13 Account;

14 (C) the compromise and payment of valid

15 liens and mortgages against property that has

16 been forfeited, subject to the discretion of the

17 Attorney General to determine the validity of

18 any such lien or mortgage and the amount of

19 payment to be made, and the employment of at20 torneys and other personnel skilled in State real

21 estate law as necessary;

22 (D) payment authorized in connection with

23 remission or mitigation procedures relating to

24 property forfeited; and
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1 (E) the payment of State and local prop2 erty taxes on forfeited real property that ac3 crued between the date of the violation giving

4 rise to the forfeiture and the date of the forfeit5 ure order.

6 SEC. 250. RELATION TO ERISA AUTHORITY.

7 Nothing in this subtitle shall be construed as affect8 ing the authority of the Secretary of Labor under section

9 506(b) of the Employee Retirement Income Security Act

10 of 1974, including the Secretary’s authority with respect

11 to violations of title 18, United States Code (as amended

12 by this subtitle).

13 Subtitle F—Administrative

14 Simplification

15 SEC. 251. PURPOSE.

16 It is the purpose of this subtitle to improve the medi17 care program under title XVIII of the Social Security Act,

18 the medicaid program under title XIX of such Act, and

19 the efficiency and effectiveness of the health care system,

20 by encouraging the development of a health information

21 system through the establishment of standards and re22 quirements for the electronic transmission of certain

23 health information.
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1 SEC. 252. ADMINISTRATIVE SIMPLIFICATION.

2 (a) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.)

3 is amended by adding at the end the following:

4 ‘‘PART C—ADMINISTRATIVE SIMPLIFICATION

5 ‘‘DEFINITIONS

6 ‘‘SEC. 1171. For purposes of this part:

7 ‘‘(1) CLEARINGHOUSE.—The term ‘clearing8 house’ means a public or private entity that proc9 esses or facilitates the processing of nonstandard

10 data elements of health information into standard

11 data elements.

12 ‘‘(2) CODE SET.—The term ‘code set’ means

13 any set of codes used for encoding data elements,

14 such as tables of terms, medical concepts, medical

15 diagnostic codes, or medical procedure codes.

16 ‘‘(3) HEALTH CARE PROVIDER.—The term

17 ‘health care provider’ includes a provider of services

18 (as defined in section 1861(u)), a provider of medi19 cal or other health services (as defined in section

20 1861(s)), and any other person furnishing health

21 care services or supplies.

22 ‘‘(4) HEALTH INFORMATION.—The term ‘health

23 information’ means any information, whether oral or

24 recorded in any form or medium that—

25 ‘‘(A) is created or received by a health care

26 provider, health plan, public health authority,
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1 employer, life insurer, school or university, or

2 clearinghouse; and

3 ‘‘(B) relates to the past, present, or future

4 physical or mental health or condition of an in5 dividual, the provision of health care to an indi6 vidual, or the past, present, or future payment

7 for the provision of health care to an individual.

8 ‘‘(5) HEALTH PLAN.—The term ‘health plan’

9 means a plan which provides, or pays the cost of,

10 health benefits. Such term includes the following,

11 and any combination thereof:

12 ‘‘(A) Part A or part B of the medicare

13 program under title XVIII.

14 ‘‘(B) The medicaid program under title

15 XIX.

16 ‘‘(C) A medicare supplemental policy (as

17 defined in section 1882(g)(1)).

18 ‘‘(D) A long-term care policy, including a

19 nursing home fixed indemnity policy (unless the

20 Secretary determines that such a policy does

21 not provide sufficiently comprehensive coverage

22 of a benefit so that the policy should be treated

23 as a health plan).

24 ‘‘(E) Health benefits of an employee wel25 fare benefit plan, as defined in section 3(1) of
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1 the Employee Retirement Income Security Act

2 of 1974 (29 U.S.C. 1002(1)), but only to the

3 extent the plan is established or maintained for

4 the purpose of providing health benefits and

5 has 50 or more participants (as defined in sec6 tion 3(7) of such Act).

7 ‘‘(F) An employee welfare benefit plan or

8 any other arrangement which is established or

9 maintained for the purpose of offering or pro10 viding health benefits to the employees of 2 or

11 more employers.

12 ‘‘(G) The health care program for active

13 military personnel under title 10, United States

14 Code.

15 ‘‘(H) The veterans health care program

16 under chapter 17 of title 38, United States

17 Code.

18 ‘‘(I) The Civilian Health and Medical Pro19 gram of the Uniformed Services (CHAMPUS),

20 as defined in section 1073(4) of title 10, United

21 States Code.

22 ‘‘(J) The Indian health service program

23 under the Indian Health Care Improvement Act

24 (25 U.S.C. 1601 et seq.).
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1 ‘‘(K) The Federal Employees Health Bene2 fit Plan under chapter 89 of title 5, United

3 States Code.

4 ‘‘(6) INDIVIDUALLY IDENTIFIABLE HEALTH IN5 FORMATION.—The term ‘individually identifiable

6 health information’ means any information, includ7 ing demographic information collected from an indi8 vidual, that—

9 ‘‘(A) is created or received by a health care

10 provider, health plan, employer, or clearing11 house; and

12 ‘‘(B) relates to the past, present, or future

13 physical or mental health or condition of an in14 dividual, the provision of health care to an indi15 vidual, or the past, present, or future payment

16 for the provision of health care to an individual,

17 and—

18 ‘‘(i) identifies the individual; or

19 ‘‘(ii) with respect to which there is a

20 reasonable basis to believe that the infor21 mation can be used to identify the individ22 ual.

23 ‘‘(7) STANDARD.—The term ‘standard’, when

24 used with reference to a data element of health in25 formation or a transaction referred to in section
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1 1173(a)(1), means any such data element or trans2 action that meets each of the standards and imple3 mentation specifications adopted or established by

4 the Secretary with respect to the data element or

5 transaction under sections 1172 through 1174.

6 ‘‘(8) STANDARD SETTING ORGANIZATION.—The

7 term ‘standard setting organization’ means a stand8 ard setting organization accredited by the American

9 National Standards Institute, including the National

10 Council for Prescription Drug Programs, that devel11 ops standards for information transactions, data ele12 ments, or any other standard that is necessary to,

13 or will facilitate, the implementation of this part.

14 ‘‘GENERAL REQUIREMENTS FOR ADOPTION OF

15 STANDARDS

16 ‘‘SEC. 1172. (a) APPLICABILITY.—Any standard

17 adopted under this part shall apply, in whole or in part,

18 to the following persons:

19 ‘‘(1) A health plan.

20 ‘‘(2) A clearinghouse.

21 ‘‘(3) A health care provider who transmits any

22 health information in electronic form in connection

23 with a transaction referred to in section 1173(a)(1).

24 ‘‘(b) REDUCTION OF COSTS.—Any standard adopted

25 under this part shall be consistent with the objective of
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1 reducing the administrative costs of providing and paying

2 for health care.

3 ‘‘(c) ROLE OF STANDARD SETTING ORGANIZA4 TIONS.—

5 ‘‘(1) IN GENERAL.—Except as provided in para6 graph (2), any standard adopted under this part

7 shall be a standard that has been developed, adopt8 ed, or modified by a standard setting organization.

9 ‘‘(2) SPECIAL RULES.—

10 ‘‘(A) DIFFERENT STANDARDS.—The Sec11 retary may adopt a standard that is different

12 from any standard developed, adopted, or modi13 fied by a standard setting organization, if—

14 ‘‘(i) the different standard will sub15 stantially reduce administrative costs to

16 health care providers and health plans

17 compared to the alternatives; and

18 ‘‘(ii) the standard is promulgated in

19 accordance with the rulemaking procedures

20 of subchapter III of chapter 5 of title 5,

21 United States Code.

22 ‘‘(B) NO STANDARD BY STANDARD SET23 TING ORGANIZATION.—If no standard setting

24 organization has developed, adopted, or modi25 fied any standard relating to a standard that
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1 the Secretary is authorized or required to adopt

2 under this part—

3 ‘‘(i) paragraph (1) shall not apply;

4 and

5 ‘‘(ii) subsection (f) shall apply.

6 ‘‘(d) IMPLEMENTATION SPECIFICATIONS.—The Sec7 retary shall establish specifications for implementing each

8 of the standards adopted under this part.

9 ‘‘(e) PROTECTION OF TRADE SECRETS.—Except as

10 otherwise required by law, a standard adopted under this

11 part shall not require disclosure of trade secrets or con12 fidential commercial information by a person required to

13 comply with this part.

14 ‘‘(f) ASSISTANCE TO THE SECRETARY.—In complying

15 with the requirements of this part, the Secretary shall rely

16 on the recommendations of the National Committee on

17 Vital and Health Statistics established under section

18 306(k) of the Public Health Service Act (42 U.S.C.

19 242k(k)) and shall consult with appropriate Federal and

20 State agencies and private organizations. The Secretary

21 shall publish in the Federal Register any recommendation

22 of the National Committee on Vital and Health Statistics

23 regarding the adoption of a standard under this part.

24 ‘‘(g) APPLICATION TO MODIFICATIONS OF STAND25 ARDS.—This section shall apply to a modification to a
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1 standard (including an addition to a standard) adopted

2 under section 1174(b) in the same manner as it applies

3 to an initial standard adopted under section 1174(a).

4 ‘‘STANDARDS FOR INFORMATION TRANSACTIONS AND

5 DATA ELEMENTS

6 ‘‘SEC. 1173. (a) STANDARDS TO ENABLE ELEC7 TRONIC EXCHANGE.—

8 ‘‘(1) IN GENERAL.—The Secretary shall adopt

9 standards for transactions, and data elements for

10 such transactions, to enable health information to be

11 exchanged electronically, that are appropriate for—

12 ‘‘(A) the financial and administrative

13 transactions described in paragraph (2); and

14 ‘‘(B) other financial and administrative

15 transactions determined appropriate by the Sec16 retary consistent with the goals of improving

17 the operation of the health care system and re18 ducing administrative costs.

19 ‘‘(2) TRANSACTIONS.—The transactions re20 ferred to in paragraph (1)(A) are the following:

21 ‘‘(A) Claims (including coordination of

22 benefits) or equivalent encounter information.

23 ‘‘(B) Claims attachments.

24 ‘‘(C) Enrollment and disenrollment.

25 ‘‘(D) Eligibility.
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1 ‘‘(E) Health care payment and remittance

2 advice.

3 ‘‘(F) Premium payments.

4 ‘‘(G) First report of injury.

5 ‘‘(H) Claims status.

6 ‘‘(I) Referral certification and authoriza7 tion.

8 ‘‘(3) ACCOMMODATION OF SPECIFIC PROVID9 ERS.—The standards adopted by the Secretary

10 under paragraph (1) shall accommodate the needs of

11 different types of health care providers.

12 ‘‘(b) UNIQUE HEALTH IDENTIFIERS.—

13 ‘‘(1) IN GENERAL.—The Secretary shall adopt

14 standards providing for a standard unique health

15 identifier for each individual, employer, health plan,

16 and health care provider for use in the health care

17 system. In carrying out the preceding sentence for

18 each health plan and health care provider, the Sec19 retary shall take into account multiple uses for iden20 tifiers and multiple locations and specialty classifica21 tions for health care providers.

22 ‘‘(2) USE OF IDENTIFIERS.—The standards

23 adopted under paragraphs (1) shall specify the pur24 poses for which a unique health identifier may be

25 used.
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1 ‘‘(c) CODE SETS.—

2 ‘‘(1) IN GENERAL.—The Secretary shall adopt

3 standards that—

4 ‘‘(A) select code sets for appropriate data

5 elements for the transactions referred to in sub6 section (a)(1) from among the code sets that

7 have been developed by private and public enti8 ties; or

9 ‘‘(B) establish code sets for such data ele10 ments if no code sets for the data elements

11 have been developed.

12 ‘‘(2) DISTRIBUTION.—The Secretary shall es13 tablish efficient and low-cost procedures for distribu14 tion (including electronic distribution) of code sets

15 and modifications made to such code sets under sec16 tion 1174(b).

17 ‘‘(d) SECURITY STANDARDS FOR HEALTH INFORMA18 TION.—

19 ‘‘(1) SECURITY STANDARDS.—The Secretary

20 shall adopt security standards that—

21 ‘‘(A) take into account—

22 ‘‘(i) the technical capabilities of record

23 systems used to maintain health informa24 tion;

25 ‘‘(ii) the costs of security measures;
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1 ‘‘(iii) the need for training persons

2 who have access to health information;

3 ‘‘(iv) the value of audit trails in com4 puterized record systems; and

5 ‘‘(v) the needs and capabilities of

6 small health care providers and rural

7 health care providers (as such providers

8 are defined by the Secretary); and

9 ‘‘(B) ensure that a clearinghouse, if it is

10 part of a larger organization, has policies and

11 security procedures which isolate the activities

12 of the clearinghouse with respect to processing

13 information in a manner that prevents unau14 thorized access to such information by such

15 larger organization.

16 ‘‘(2) SAFEGUARDS.—Each person described in

17 section 1172(a) who maintains or transmits health

18 information shall maintain reasonable and appro19 priate administrative, technical, and physical safe20 guards—

21 ‘‘(A) to ensure the integrity and confiden22 tiality of the information;

23 ‘‘(B) to protect against any reasonably an24 ticipated—
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1 ‘‘(i) threats or hazards to the security

2 or integrity of the information; and

3 ‘‘(ii) unauthorized uses or disclosures

4 of the information; and

5 ‘‘(C) otherwise to ensure compliance with

6 this part by the officers and employees of such

7 person.

8 ‘‘(e) PRIVACY STANDARDS FOR HEALTH INFORMA9 TION.—The Secretary shall adopt standards with respect

10 to the privacy of individually identifiable health informa11 tion transmitted in connection with the transactions re12 ferred to in subsection (a)(1). Such standards shall in13 clude standards concerning at least the following:

14 ‘‘(1) The rights of an individual who is a sub15 ject of such information.

16 ‘‘(2) The procedures to be established for the

17 exercise of such rights.

18 ‘‘(3) The uses and disclosures of such informa19 tion that are authorized or required.

20 ‘‘(f) ELECTRONIC SIGNATURE.—

21 ‘‘(1) IN GENERAL.—

22 ‘‘(A) STANDARDS.—The Secretary, in co23 ordination with the Secretary of Commerce,

24 shall adopt standards specifying procedures for

25 the electronic transmission and authentication
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1 of signatures with respect to the transactions

2 referred to in subsection (a)(1).

3 ‘‘(B) EFFECT OF COMPLIANCE.—Compli4 ance with the standards adopted under sub5 paragraph (A) shall be deemed to satisfy Fed6 eral and State statutory requirements for writ7 ten signatures with respect to the transactions

8 referred to in subsection (a)(1).

9 ‘‘(2) PAYMENTS FOR SERVICES AND PRE10 MIUMS.—Nothing in this part shall be construed to

11 prohibit payment for health care services or insur12 ance plan premiums by debit, credit, payment card

13 or numbers, or other electronic means.

14 ‘‘(g) TRANSFER OF INFORMATION AMONG HEALTH

15 PLANS.—The Secretary shall adopt standards for trans16 ferring among health plans appropriate standard data ele17 ments needed for the coordination of benefits, the sequen18 tial processing of claims, and other data elements for indi19 viduals who have more than one health plan.

20 ‘‘TIMETABLES FOR ADOPTION OF STANDARDS

21 ‘‘SEC. 1174. (a) INITIAL STANDARDS.—The Sec22 retary shall carry out section 1173 not later than 18

23 months after the date of the enactment of the Health Cov24 erage Availability and Affordability Act of 1996, except

25 that standards relating to claims attachments shall be

26 adopted not later than 30 months after such date.
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1 ‘‘(b) ADDITIONS AND MODIFICATIONS TO STAND2 ARDS.—

3 ‘‘(1) IN GENERAL.—Except as provided in para4 graph (2), the Secretary shall review the standards

5 adopted under section 1173, and shall adopt modi6 fications to the standards (including additions to the

7 standards), as determined appropriate, but not more

8 frequently than once every 6 months. Any addition

9 or modification to a standard shall be completed in

10 a manner which minimizes the disruption and cost

11 of compliance.

12 ‘‘(2) SPECIAL RULES.—

13 ‘‘(A) FIRST 12-MONTH PERIOD.—Except

14 with respect to additions and modifications to

15 code sets under subparagraph (B), the Sec16 retary may not adopt any modification to a

17 standard adopted under this part during the

18 12-month period beginning on the date the

19 standard is initially adopted, unless the Sec20 retary determines that the modification is nec21 essary in order to permit compliance with the

22 standard.

23 ‘‘(B) ADDITIONS AND MODIFICATIONS TO

24 CODE SETS.—
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1 ‘‘(i) IN GENERAL.—The Secretary

2 shall ensure that procedures exist for the

3 routine maintenance, testing, enhancement,

4 and expansion of code sets.

5 ‘‘(ii) ADDITIONAL RULES.—If a code

6 set is modified under this subsection, the

7 modified code set shall include instructions

8 on how data elements of health informa9 tion that were encoded prior to the modi10 fication may be converted or translated so

11 as to preserve the informational value of

12 the data elements that existed before the

13 modification. Any modification to a code

14 set under this subsection shall be imple15 mented in a manner that minimizes the

16 disruption and cost of complying with such

17 modification.

18 ‘‘REQUIREMENTS

19 ‘‘SEC. 1175. (a) CONDUCT OF TRANSACTIONS BY

20 PLANS.—

21 ‘‘(1) IN GENERAL.—If a person desires to con22 duct a transaction referred to in section 1173(a)(1)

23 with a health plan as a standard transaction—

24 ‘‘(A) the health plan may not refuse to

25 conduct such transaction as a standard trans26 action;
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1 ‘‘(B) the insurance plan may not delay

2 such transaction, or otherwise adversely affect,

3 or attempt to adversely affect, the person or the

4 transaction on the ground that the transaction

5 is a standard transaction; and

6 ‘‘(C) the information transmitted and re7 ceived in connection with the transaction shall

8 be in the form of standard data elements of

9 health information.

10 ‘‘(2) SATISFACTION OF REQUIREMENTS.—A

11 health plan may satisfy the requirements under

12 paragraph (1) by—

13 ‘‘(A) directly transmitting and receiving

14 standard data elements of health information;

15 or

16 ‘‘(B) submitting nonstandard data ele17 ments to a clearinghouse for processing into

18 standard data elements and transmission by the

19 clearinghouse, and receiving standard data ele20 ments through the clearinghouse.

21 ‘‘(3) TIMETABLE FOR COMPLIANCE.—Para22 graph (1) shall not be construed to require a health

23 plan to comply with any standard, implementation

24 specification, or modification to a standard or speci25 fication adopted or established by the Secretary
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1 under sections 1172 through 1174 at any time prior

2 to the date on which the plan is required to comply

3 with the standard or specification under subsection

4 (b).

5 ‘‘(b) COMPLIANCE WITH STANDARDS.—

6 ‘‘(1) INITIAL COMPLIANCE.—

7 ‘‘(A) IN GENERAL.—Not later than 24

8 months after the date on which an initial stand9 ard or implementation specification is adopted

10 or established under sections 1172 and 1173,

11 each person to whom the standard or imple12 mentation specification applies shall comply

13 with the standard or specification.

14 ‘‘(B) SPECIAL RULE FOR SMALL HEALTH

15 PLANS.—In the case of a small health plan,

16 paragraph (1) shall be applied by substituting

17 ‘36 months’ for ‘24 months’. For purposes of

18 this subsection, the Secretary shall determine

19 the plans that qualify as small health plans.

20 ‘‘(2) COMPLIANCE WITH MODIFIED STAND21 ARDS.—If the Secretary adopts a modification to a

22 standard or implementation specification under this

23 part, each person to whom the standard or imple24 mentation specification applies shall comply with the

25 modified standard or implementation specification at
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1 such time as the Secretary determines appropriate,

2 taking into account the time needed to comply due

3 to the nature and extent of the modification. The

4 time determined appropriate under the preceding

5 sentence may not be earlier than the last day of the

6 180-day period beginning on the date such modifica7 tion is adopted. The Secretary may extend the time

8 for compliance for small health plans, if the Sec9 retary determines that such extension is appropriate.

10 ‘‘GENERAL PENALTY FOR FAILURE TO COMPLY WITH

11 REQUIREMENTS AND STANDARDS

12 ‘‘SEC. 1176. (a) GENERAL PENALTY.—

13 ‘‘(1) IN GENERAL.—Except as provided in sub14 section (b), the Secretary shall impose on any person

15 who violates a provision of this part a penalty of not

16 more than $100 for each such violation, except that

17 the total amount imposed on the person for all viola18 tions of an identical requirement or prohibition dur19 ing a calendar year may not exceed $25,000.

20 ‘‘(2) PROCEDURES.—The provisions of section

21 1128A (other than subsections (a) and (b) and the

22 second sentence of subsection (f)) shall apply to the

23 imposition of a civil money penalty under this sub24 section in the same manner as such provisions apply

25 to the imposition of a penalty under such section

26 1128A.
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1 ‘‘(b) LIMITATIONS.—

2 ‘‘(1) OFFENSES OTHERWISE PUNISHABLE.—A

3 penalty may not be imposed under subsection (a)

4 with respect to an act if the act constitutes an of5 fense punishable under section 1177.

6 ‘‘(2) NONCOMPLIANCE NOT DISCOVERED.—A

7 penalty may not be imposed under subsection (a)

8 with respect to a provision of this part if it is estab9 lished to the satisfaction of the Secretary that the

10 person liable for the penalty did not know, and by

11 exercising reasonable diligence would not have

12 known, that such person violated the provision.

13 ‘‘(3) FAILURES DUE TO REASONABLE CAUSE.—

14 ‘‘(A) IN GENERAL.—Except as provided in

15 subparagraph (B), a penalty may not be im16 posed under subsection (a) if—

17 ‘‘(i) the failure to comply was due to

18 reasonable cause and not to willful neglect;

19 and

20 ‘‘(ii) the failure to comply is corrected

21 during the 30-day period beginning on the

22 first date the person liable for the penalty

23 knew, or by exercising reasonable diligence

24 would have known, that the failure to com25 ply occurred.
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1 ‘‘(B) EXTENSION OF PERIOD.—

2 ‘‘(i) NO PENALTY.—The period re3 ferred to in subparagraph (A)(ii) may be

4 extended as determined appropriate by the

5 Secretary based on the nature and extent

6 of the failure to comply.

7 ‘‘(ii) ASSISTANCE.—If the Secretary

8 determines that a person failed to comply

9 because the person was unable to comply,

10 the Secretary may provide technical assist11 ance to the person during the period de12 scribed in subparagraph (A)(ii). Such as13 sistance shall be provided in any manner

14 determined appropriate by the Secretary.

15 ‘‘(4) REDUCTION.—In the case of a failure to

16 comply which is due to reasonable cause and not to

17 willful neglect, any penalty under subsection (a) that

18 is not entirely waived under paragraph (3) may be

19 waived to the extent that the payment of such pen20 alty would be excessive relative to the compliance

21 failure involved.

22 ‘‘WRONGFUL DISCLOSURE OF INDIVIDUALLY

23 IDENTIFIABLE HEALTH INFORMATION

24 ‘‘SEC. 1177. (a) OFFENSE.—A person who knowingly

25 and in violation of this part—
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1 ‘‘(1) uses or causes to be used a unique health

2 identifier;

3 ‘‘(2) obtains individually identifiable health in4 formation relating to an individual; or

5 ‘‘(3) discloses individually identifiable health in6 formation to another person,

7 shall be punished as provided in subsection (b).

8 ‘‘(b) PENALTIES.—A person described in subsection

9 (a) shall—

10 ‘‘(1) be fined not more than $50,000, impris11 oned not more than 1 year, or both;

12 ‘‘(2) if the offense is committed under false pre13 tenses, be fined not more than $100,000, imprisoned

14 not more than 5 years, or both; and

15 ‘‘(3) if the offense is committed with intent to

16 sell, transfer, or use individually identifiable health

17 information for commercial advantage, personal

18 gain, or malicious harm, fined not more than

19 $250,000, imprisoned not more than 10 years, or

20 both.

21 ‘‘EFFECT ON STATE LAW

22 ‘‘SEC. 1178. (a) GENERAL EFFECT.—

23 ‘‘(1) GENERAL RULE.—Except as provided in

24 paragraph (2), a provision or requirement under this

25 part, or a standard or implementation specification

26 adopted or established under sections 1172 through
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1 1174, shall supersede any contrary provision of

2 State law, including a provision of State law that re3 quires medical or health plan records (including bill4 ing information) to be maintained or transmitted in

5 written rather than electronic form.

6 ‘‘(2) EXCEPTIONS.—A provision or requirement

7 under this part, or a standard or implementation

8 specification adopted or established under sections

9 1172 through 1174, shall not supersede a contrary

10 provision of State law, if the provision of State

11 law—

12 ‘‘(A) imposes requirements, standards, or

13 implementation specifications that are more

14 stringent than the requirements, standards, or

15 implementation specifications under this part

16 with respect to the privacy of individually iden17 tifiable health information; or

18 ‘‘(B) is a provision the Secretary deter19 mines—

20 ‘‘(i) is necessary to prevent fraud and

21 abuse, or for other purposes; or

22 ‘‘(ii) addresses controlled substances.

23 ‘‘(b) PUBLIC HEALTH REPORTING.—Nothing in this

24 part shall be construed to invalidate or limit the authority,

25 power, or procedures established under any law providing
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1 for the reporting of disease or injury, child abuse, birth,

2 or death, public health surveillance, or public health inves3 tigation or intervention.’’.

4 (b) CONFORMING AMENDMENTS.—

5 (1) REQUIREMENT FOR MEDICARE PROVID6 ERS.—Section 1866(a)(1) (42 U.S.C. 1395cc(a)(1))

7 is amended—

8 (A) by striking ‘‘and’’ at the end of sub9 paragraph (P);

10 (B) by striking the period at the end of

11 subparagraph (Q) and inserting ‘‘; and’’; and

12 (C) by inserting immediately after sub13 paragraph (Q) the following new subparagraph:

14 ‘‘(R) to contract only with a clearinghouse (as

15 defined in section 1171) that meets each standard

16 and implementation specification adopted or estab17 lished under part C of title XI on or after the date

18 on which the clearinghouse is required to comply

19 with the standard or specification.’’.

20 (2) TITLE HEADING.—Title XI (42 U.S.C.

21 1301 et seq.) is amended by striking the title head22 ing and inserting the following:
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1 ‘‘TITLE XI—GENERAL PROVISIONS, PEER RE2 VIEW, AND ADMINISTRATIVE SIMPLIFICA3 TION’’.

4 SEC. 253. CHANGES IN MEMBERSHIP AND DUTIES OF NA5 TIONAL COMMITTEE ON VITAL AND HEALTH

6 STATISTICS.

7 Section 306(k) of the Public Health Service Act (42

8 U.S.C. 242k(k)) is amended—

9 (1) in paragraph (1), by striking ‘‘16’’ and in10 serting ‘‘18’’;

11 (2) by amending paragraph (2) to read as fol12 lows:

13 ‘‘(2) The members of the Committee shall be ap14 pointed from among persons who have distinguished them15 selves in the fields of health statistics, electronic inter16 change of health care information, privacy and security

17 of electronic information, population-based public health,

18 purchasing or financing health care services, integrated

19 computerized health information systems, health services

20 research, consumer interests in health information, health

21 data standards, epidemiology, and the provision of health

22 services. Members of the Committee shall be appointed for

23 terms of 4 years.’’;
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1 (3) by redesignating paragraphs (3) through

2 (5) as paragraphs (4) through (6), respectively, and

3 inserting after paragraph (2) the following:

4 ‘‘(3) Of the members of the Committee—

5 ‘‘(A) 1 shall be appointed, not later than 60

6 days after the date of the enactment of the Health

7 Coverage Availability and Affordability Act of 1996,

8 by the Speaker of the House of Representatives

9 after consultation with the minority leader of the

10 House of Representatives;

11 ‘‘(B) 1 shall be appointed, not later than 60

12 days after the date of the enactment of the Health

13 Coverage Availability and Affordability Act of 1996,

14 by the President pro tempore of the Senate after

15 consultation with the minority leader of the Senate;

16 and

17 ‘‘(C) 16 shall be appointed by the Secretary.’’;

18 (4) by amending paragraph (5) (as so redesig19 nated) to read as follows:

20 ‘‘(5) The Committee—

21 ‘‘(A) shall assist and advise the Secretary—

22 ‘‘(i) to delineate statistical problems bear23 ing on health and health services which are of

24 national or international interest;
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1 ‘‘(ii) to stimulate studies of such problems

2 by other organizations and agencies whenever

3 possible or to make investigations of such prob4 lems through subcommittees;

5 ‘‘(iii) to determine, approve, and revise the

6 terms, definitions, classifications, and guidelines

7 for assessing health status and health services,

8 their distribution and costs, for use (I) within

9 the Department of Health and Human Services,

10 (II) by all programs administered or funded by

11 the Secretary, including the Federal-State-local

12 cooperative health statistics system referred to

13 in subsection (e), and (III) to the extent pos14 sible as determined by the head of the agency

15 involved, by the Department of Veterans Af16 fairs, the Department of Defense, and other

17 Federal agencies concerned with health and

18 health services;

19 ‘‘(iv) with respect to the design of and ap20 proval of health statistical and health informa21 tion systems concerned with the collection, proc22 essing, and tabulation of health statistics within

23 the Department of Health and Human Services,

24 with respect to the Cooperative Health Statis25 tics System established under subsection (e),
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1 and with respect to the standardized means for

2 the collection of health information and statis3 tics to be established by the Secretary under

4 subsection (j)(1);

5 ‘‘(v) to review and comment on findings

6 and proposals developed by other organizations

7 and agencies and to make recommendations for

8 their adoption or implementation by local,

9 State, national, or international agencies;

10 ‘‘(vi) to cooperate with national committees

11 of other countries and with the World Health

12 Organization and other national agencies in the

13 studies of problems of mutual interest;

14 ‘‘(vii) to issue an annual report on the

15 state of the Nation’s health, its health services,

16 their costs and distributions, and to make pro17 posals for improvement of the Nation’s health

18 statistics and health information systems; and

19 ‘‘(viii) in complying with the requirements

20 imposed on the Secretary under part C of title

21 XI of the Social Security Act;

22 ‘‘(B) shall study the issues related to the adop23 tion of uniform data standards for patient medical

24 record information and the electronic exchange of

25 such information;
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1 ‘‘(C) shall report to the Secretary not later than

2 4 years after the date of the enactment of the

3 Health Coverage Availability and Affordability Act

4 of 1996 recommendations and legislative proposals

5 for such standards and electronic exchange; and

6 ‘‘(D) shall be responsible generally for advising

7 the Secretary and the Congress on the status of the

8 implementation of part C of title XI of the Social

9 Security Act.’’; and

10 (5) by adding at the end the following:

11 ‘‘(7) Not later than 1 year after the date of the enact12 ment of the Health Coverage Availability and Affordability

13 Act of 1996, and annually thereafter, the Committee shall

14 submit to the Congress, and make public, a report regard15 ing—

16 ‘‘(A) the extent to which persons required to

17 comply with part C of title XI of the Social Security

18 Act are cooperating in implementing the standards

19 adopted under such part;

20 ‘‘(B) the extent to which such entities are meet21 ing the privacy and security standards adopted

22 under such part and the types of penalties assessed

23 for noncompliance with such standards;
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1 ‘‘(C) whether the Federal and State Govern2 ments are receiving information of sufficient quality

3 to meet their responsibilities under such part;

4 ‘‘(D) any problems that exist with respect to

5 implementation of such part; and

6 ‘‘(E) the extent to which timetables under such

7 part are being met.’’.

8 Subtitle G—Duplication and Co9 ordination of Medicare-Related

10 Plans

11 SEC. 261. DUPLICATION AND COORDINATION OF MEDI12 CARE-RELATED PLANS.

13 (a) TREATMENT OF CERTAIN HEALTH INSURANCE

14 POLICIES AS NONDUPLICATIVE.—Effective as if included

15 in the enactment of section 4354 of the Omnibus Budget

16 Reconciliation Act of 1990, section 1882(d)(3)(A) (42

17 U.S.C. 1395ss(d)(3)(A)) is amended—

18 (1) in clause (iii), by striking ‘‘clause (i)’’ and

19 inserting ‘‘clause (i)(II)’’; and

20 (2) by adding at the end the following:

21 ‘‘(iv) For purposes of this subparagraph, a health in22 surance policy providing for benefits which are payable to

23 or on behalf of an individual without regard to other

24 health benefit coverage of such individual is not considered

25 to ‘duplicate’ any health benefits under this title, under
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1 title XIX, or under a health insurance policy, and

2 subclauses (I) and (III) of clause (i) does not apply to

3 such a policy.

4 ‘‘(v)(I) For purposes of this subparagraph, a health

5 insurance policy (or a rider to an insurance contract which

6 is not a health insurance policy), providing benefits for

7 long-term care, nursing home care, home health care, or

8 community-based care and that coordinates against or ex9 cludes items and services available or paid for under this

10 title and (for policies sold or issued on or after 90 days

11 after the date of enactment of this clause) that discloses

12 such coordination or exclusion in the policy’s outline of

13 coverage, is not considered to ‘duplicate’ health benefits

14 under this title.

15 ‘‘(II) For purposes of this subparagraph, a health in16 surance policy (which may be a contract with a health

17 maintenance organization) that is a replacement product

18 for another health insurance policy that is being termi19 nated by the issuer, that is being provided to an individual

20 entitled to benefits under part A on the basis of section

21 226(b), and that coordinates against or excludes items and

22 services available or paid for under this title is not consid23 ered to ‘duplicate’ health benefits under this title.

24 ‘‘(III) For purposes of this clause, the terms ‘coordi25 nates’ and ‘coordination’ mean, with respect to a policy
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1 in relation to health benefits under this title, that the pol2 icy under its terms is secondary to, or excludes from pay3 ment, items and services to the extent available or paid

4 for under this title.

5 ‘‘(vi) Notwithstanding any other provision of law, no

6 criminal or civil penalty may be imposed at any time under

7 this subparagraph and no legal action may be brought or

8 continued at any time in any Federal or State court if

9 the penalty or action is based on an act or omission that

10 occurred after November 5, 1991, and before the date of

11 the enactment of this clause, and relates to the sale, issu12 ance, or renewal of any health insurance policy or rider

13 during such period, if such policy or rider meets the non14 duplication requirements of clause (iv) or (v).

15 ‘‘(vii) A State may not impose, in the case of the sale,

16 issuance, or renewal of a health insurance policy (other

17 than a medicare supplemental policy) or rider to an insur18 ance contract which is not a health insurance policy, that

19 meets the nonduplication requirements of this section pur20 suant to clause (iv) or (v) to an individual entitled to bene21 fits under part A or enrolled under part B, any require22 ment relating to any duplication (or nonduplication) of

23 health benefits under such policy or rider with health ben24 efits to which the individual is otherwise entitled to under

25 this title.’’.
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1 (b) CONFORMING AMENDMENTS.—Section

2 1882(d)(3) (42 U.S.C. 1395ss(d)(3)) is amended—

3 (1) in subparagraph (C)—

4 (A) by striking ‘‘with respect to (i)’’ and

5 inserting ‘‘with respect to’’, and

6 (B) by striking ‘‘, (ii) the sale’’ and all

7 that follows up to the period at the end; and

8 (2) by striking subparagraph (D).

9 Subtitle H—Medical Liability

10 Reform

11 PART 1—GENERAL PROVISIONS

12 SEC. 271. FEDERAL REFORM OF HEALTH CARE LIABILITY

13 ACTIONS.

14 (a) APPLICABILITY.—This subtitle shall apply with

15 respect to any health care liability action brought in any

16 State or Federal court, except that this subtitle shall not

17 apply to—

18 (1) an action for damages arising from a vac19 cine-related injury or death to the extent that title

20 XXI of the Public Health Service Act applies to the

21 action, or

22 (2) an action under the Employee Retirement

23 Income Security Act of 1974 (29 U.S.C. 1001 et

24 seq.).
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1 (b) PREEMPTION.—This subtitle shall preempt any

2 State law to the extent such law is inconsistent with the

3 limitations contained in this subtitle. This subtitle shall

4 not preempt any State law that provides for defenses or

5 places limitations on a person’s liability in addition to

6 those contained in this subtitle or otherwise imposes great7 er restrictions than those provided in this subtitle.

8 (c) EFFECT ON SOVEREIGN IMMUNITY AND CHOICE

9 OF LAW OR VENUE.—Nothing in subsection (b) shall be

10 construed to—

11 (1) waive or affect any defense of sovereign im12 munity asserted by any State under any provision of

13 law;

14 (2) waive or affect any defense of sovereign im15 munity asserted by the United States;

16 (3) affect the applicability of any provision of

17 the Foreign Sovereign Immunities Act of 1976;

18 (4) preempt State choice-of-law rules with re19 spect to claims brought by a foreign nation or a citi20 zen of a foreign nation; or

21 (5) affect the right of any court to transfer

22 venue or to apply the law of a foreign nation or to

23 dismiss a claim of a foreign nation or of a citizen

24 of a foreign nation on the ground of inconvenient

25 forum.
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1 (d) AMOUNT IN CONTROVERSY.—In an action to

2 which this subtitle applies and which is brought under sec3 tion 1332 of title 28, United States Code, the amount of

4 noneconomic damages or punitive damages, and attorneys’

5 fees or costs, shall not be included in determining whether

6 the matter in controversy exceeds the sum or value of

7 $50,000.

8 (e) FEDERAL COURT JURISDICTION NOT ESTAB9 LISHED ON FEDERAL QUESTION GROUNDS.—Nothing in

10 this subtitle shall be construed to establish any jurisdiction

11 in the district courts of the United States over health care

12 liability actions on the basis of section 1331 or 1337 of

13 title 28, United States Code.

14 SEC. 272. DEFINITIONS.

15 As used in this subtitle:

16 (1) ACTUAL DAMAGES.—The term ‘‘actual dam17 ages’’ means damages awarded to pay for economic

18 loss.

19 (2) ALTERNATIVE DISPUTE RESOLUTION SYS20 TEM; ADR.—The term ‘‘alternative dispute resolution

21 system’’ or ‘‘ADR’’ means a system established

22 under Federal or State law that provides for the res23 olution of health care liability claims in a manner

24 other than through health care liability actions.
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1 (3) CLAIMANT.—The term ‘‘claimant’’ means

2 any person who brings a health care liability action

3 and any person on whose behalf such an action is

4 brought. If such action is brought through or on be5 half of an estate, the term includes the claimant’s

6 decedent. If such action is brought through or on be7 half of a minor or incompetent, the term includes

8 the claimant’s legal guardian.

9 (4) CLEAR AND CONVINCING EVIDENCE.—The

10 term ‘‘clear and convincing evidence’’ is that meas11 ure or degree of proof that will produce in the mind

12 of the trier of fact a firm belief or conviction as to

13 the truth of the allegations sought to be established.

14 Such measure or degree of proof is more than that

15 required under preponderance of the evidence but

16 less than that required for proof beyond a reason17 able doubt.

18 (5) COLLATERAL SOURCE PAYMENTS.—The

19 term ‘‘collateral source payments’’ means any

20 amount paid or reasonably likely to be paid in the

21 future to or on behalf of a claimant, or any service,

22 product, or other benefit provided or reasonably like23 ly to be provided in the future to or on behalf of a

24 claimant, as a result of an injury or wrongful death,

25 pursuant to—
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1 (A) any State or Federal health, sickness,

2 income-disability, accident or workers’ com3 pensation Act;

4 (B) any health, sickness, income-disability,

5 or accident insurance that provides health bene6 fits or income-disability coverage;

7 (C) any contract or agreement of any

8 group, organization, partnership, or corporation

9 to provide, pay for, or reimburse the cost of

10 medical, hospital, dental, or income disability

11 benefits; and

12 (D) any other publicly or privately funded

13 program.

14 (6) DRUG.—The term ‘‘drug’’ has the meaning

15 given such term in section 201(g)(1) of the Federal

16 Food, Drug, and Cosmetic Act (21 U.S.C.

17 321(g)(1)).

18 (7) ECONOMIC LOSS.—The term ‘‘economic

19 loss’’ means any pecuniary loss resulting from injury

20 (including the loss of earnings or other benefits re21 lated to employment, medical expense loss, replace22 ment services loss, loss due to death, burial costs,

23 and loss of business or employment opportunities),

24 to the extent recovery for such loss is allowed under

25 applicable State law.
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1 (8) HARM.—The term ‘‘harm’’ means any le2 gally cognizable wrong or injury for which punitive

3 damages may be imposed.

4 (9) HEALTH BENEFIT PLAN.—The term

5 ‘‘health benefit plan’’ means—

6 (A) a hospital or medical expense incurred

7 policy or certificate,

8 (B) a hospital or medical service plan con9 tract,

10 (C) a health maintenance subscriber con11 tract,

12 (D) a multiple employer welfare arrange13 ment or employee benefit plan (as defined

14 under the Employee Retirement Income Secu15 rity Act of 1974), or

16 (E) a MedicarePlus product (offered under

17 part C of title XVIII of the Social Security

18 Act),

19 that provides benefits with respect to health care

20 services.

21 (10) HEALTH CARE LIABILITY ACTION.—The

22 term ‘‘health care liability action’’ means a civil ac23 tion brought in a State or Federal court against a

24 health care provider, an entity which is obligated to

25 provide or pay for health benefits under any health
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1 benefit plan (including any person or entity acting

2 under a contract or arrangement to provide or ad3 minister any health benefit), or the manufacturer,

4 distributor, supplier, marketer, promoter, or seller of

5 a medical product, in which the claimant alleges a

6 claim (including third party claims, cross claims,

7 counter claims, or distribution claims) based upon

8 the provision of (or the failure to provide or pay for)

9 health care services or the use of a medical product,

10 regardless of the theory of liability on which the

11 claim is based or the number of plaintiffs, defend12 ants, or causes of action.

13 (11) HEALTH CARE LIABILITY CLAIM.—The

14 term ‘‘health care liability claim’’ means a claim in

15 which the claimant alleges that injury was caused by

16 the provision of (or the failure to provide) health

17 care services.

18 (12) HEALTH CARE PROVIDER.—The term

19 ‘‘health care provider’’ means any person that is en20 gaged in the delivery of health care services in a

21 State and that is required by the laws or regulations

22 of the State to be licensed or certified by the State

23 to engage in the delivery of such services in the

24 State.
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1 (13) HEALTH CARE SERVICE.—The term

2 ‘‘health care service’’ means any service for which

3 payment may be made under a health benefit plan

4 including services related to the delivery or adminis5 tration of such service.

6 (14) MEDICAL DEVICE.—The term ‘‘medical de7 vice’’ has the meaning given such term in section

8 201(h) of the Federal Food, Drug, and Cosmetic

9 Act (21 U.S.C. 321(h)).

10 (15) NONECONOMIC DAMAGES.—The term

11 ‘‘noneconomic damages’’ means damages paid to an

12 individual for pain and suffering, inconvenience,

13 emotional distress, mental anguish, loss of consor14 tium, injury to reputation, humiliation, and other

15 nonpecuniary losses.

16 (16) PERSON.—The term ‘‘person’’ means any

17 individual, corporation, company, association, firm,

18 partnership, society, joint stock company, or any

19 other entity, including any governmental entity.

20 (17) PRODUCT SELLER.—The term ‘‘product

21 seller’’ means a person who, in the course of a busi22 ness conducted for that purpose, sells, distributes,

23 rents, leases, prepares, blends, packages, labels a

24 product, is otherwise involved in placing a product in

25 the stream of commerce, or installs, repairs, or
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1 maintains the harm-causing aspect of a product.

2 The term does not include—

3 (A) a seller or lessor of real property;

4 (B) a provider of professional services in

5 any case in which the sale or use of a product

6 is incidental to the transaction and the essence

7 of the transaction is the furnishing of judg8 ment, skill, or services; or

9 (C) any person who—

10 (i) acts in only a financial capacity

11 with respect to the sale of a product; or

12 (ii) leases a product under a lease ar13 rangement in which the selection, posses14 sion, maintenance, and operation of the

15 product are controlled by a person other

16 than the lessor.

17 (18) PUNITIVE DAMAGES.—The term ‘‘punitive

18 damages’’ means damages awarded against any per19 son not to compensate for actual injury suffered, but

20 to punish or deter such person or others from en21 gaging in similar behavior in the future.

22 (19) STATE.—The term ‘‘State’’ means each of

23 the several States, the District of Columbia, Puerto

24 Rico, the Virgin Islands, Guam, American Samoa,
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1 the Northern Mariana Islands, and any other terri2 tory or possession of the United States.

3 SEC. 273. EFFECTIVE DATE.

4 This subtitle will apply to any health care liability ac5 tion brought in a Federal or State court and to any health

6 care liability claim subject to an alternative dispute resolu7 tion system, that is initiated on or after the date of enact8 ment of this subtitle, except that any health care liability

9 claim or action arising from an injury occurring prior to

10 the date of enactment of this subtitle shall be governed

11 by the applicable statute of limitations provisions in effect

12 at the time the injury occurred.

13 PART 2—UNIFORM STANDARDS FOR HEALTH

14 CARE LIABILITY ACTIONS

15 SEC. 281. STATUTE OF LIMITATIONS.

16 A health care liability action may not be brought

17 after the expiration of the 2-year period that begins on

18 the date on which the alleged injury that is the subject

19 of the action was discovered or should reasonably have

20 been discovered, but in no case after the expiration of the

21 5-year period that begins on the date the alleged injury

22 occurred.

23 SEC. 282. CALCULATION AND PAYMENT OF DAMAGES.

24 (a) TREATMENT OF NONECONOMIC DAMAGES.—
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1 (1) LIMITATION ON NONECONOMIC DAMAGES.—

2 The total amount of noneconomic damages that may

3 be awarded to a claimant for losses resulting from

4 the injury which is the subject of a health care liabil5 ity action may not exceed $250,000, regardless of

6 the number of parties against whom the action is

7 brought or the number of actions brought with re8 spect to the injury.

9 (2) JOINT AND SEVERAL LIABILITY.—In any

10 health care liability action brought in State or Fed11 eral court, a defendant shall be liable only for the

12 amount of noneconomic damages attributable to

13 such defendant in direct proportion to such defend14 ant’s share of fault or responsibility for the claim15 ant’s actual damages, as determined by the trier of

16 fact. In all such cases, the liability of a defendant

17 for noneconomic damages shall be several and not

18 joint.

19 (b) TREATMENT OF PUNITIVE DAMAGES.—

20 (1) GENERAL RULE.—Punitive damages may,

21 to the extent permitted by applicable State law, be

22 awarded in any health care liability action for harm

23 in any Federal or State court against a defendant if

24 the claimant establishes by clear and convincing evi-
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1 dence that the harm suffered was the result of con2 duct—

3 (A) specifically intended to cause harm, or

4 (B) conduct manifesting a conscious, fla5 grant indifference to the rights or safety of oth6 ers.

7 (2) PROPORTIONAL AWARDS.—The amount of

8 punitive damages that may be awarded in any health

9 care liability action subject to this subtitle shall not

10 exceed 3 times the amount of damages awarded to

11 the claimant for economic loss, or $250,000, which12 ever is greater. This paragraph shall be applied by

13 the court and shall not be disclosed to the jury.

14 (3) APPLICABILITY.—This subsection shall

15 apply to any health care liability action brought in

16 any Federal or State court on any theory where pu17 nitive damages are sought. This subsection does not

18 create a cause of action for punitive damages. This

19 subsection does not preempt or supersede any State

20 or Federal law to the extent that such law would

21 further limit the award of punitive damages.

22 (4) BIFURCATION.—At the request of any

23 party, the trier of fact shall consider in a separate

24 proceeding whether punitive damages are to be

25 awarded and the amount of such award. If a sepa-
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1 rate proceeding is requested, evidence relevant only

2 to the claim of punitive damages, as determined by

3 applicable State law, shall be inadmissible in any

4 proceeding to determine whether actual damages are

5 to be awarded.

6 (5) DRUGS AND DEVICES.—

7 (A) IN GENERAL.—(i) Punitive damages

8 shall not be awarded against a manufacturer or

9 product seller of a drug or medical device which

10 caused the claimant’s harm where—

11 (I) such drug or device was subject to

12 premarket approval by the Food and Drug

13 Administration with respect to the safety

14 of the formulation or performance of the

15 aspect of such drug or device which caused

16 the claimant’s harm, or the adequacy of

17 the packaging or labeling of such drug or

18 device which caused the harm, and such

19 drug, device, packaging, or labeling was

20 approved by the Food and Drug Adminis21 tration; or

22 (II) the drug is generally recognized

23 as safe and effective pursuant to conditions

24 established by the Food and Drug Admin-
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1 istration and applicable regulations, includ2 ing packaging and labeling regulations.

3 (ii) Clause (i) shall not apply in any case

4 in which the defendant, before or after pre5 market approval of a drug or device—

6 (I) intentionally and wrongfully with7 held from or misrepresented to the Food

8 and Drug Administration information con9 cerning such drug or device required to be

10 submitted under the Federal Food, Drug,

11 and Cosmetic Act (21 U.S.C. 301 et seq.)

12 or section 351 of the Public Health Service

13 Act (42 U.S.C. 262) that is material and

14 relevant to the harm suffered by the claim15 ant, or

16 (II) made an illegal payment to an of17 ficial or employee of the Food and Drug

18 Administration for the purpose of securing

19 or maintaining approval of such drug or

20 device.

21 (B) PACKAGING.—In a health care liability

22 action for harm which is alleged to relate to the

23 adequacy of the packaging or labeling of a drug

24 which is required to have tamper-resistant

25 packaging under regulations of the Secretary of
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1 Health and Human Services (including labeling

2 regulations related to such packaging), the

3 manufacturer or product seller of the drug shall

4 not be held liable for punitive damages unless

5 such packaging or labeling is found by the court

6 by clear and convincing evidence to be substan7 tially out of compliance with such regulations.

8 (c) PERIODIC PAYMENTS FOR FUTURE LOSSES.—

9 (1) GENERAL RULE.—In any health care liabil10 ity action in which the damages awarded for future

11 economic and noneconomic loss exceeds $50,000, a

12 person shall not be required to pay such damages in

13 a single, lump-sum payment, but shall be permitted

14 to make such payments periodically based on when

15 the damages are found likely to occur, as such pay16 ments are determined by the court.

17 (2) FINALITY OF JUDGMENT.—The judgment

18 of the court awarding periodic payments under this

19 subsection may not, in the absence of fraud, be re20 opened at any time to contest, amend, or modify the

21 schedule or amount of the payments.

22 (3) LUMP-SUM SETTLEMENTS.—This sub23 section shall not be construed to preclude a settle24 ment providing for a single, lump-sum payment.
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1 (d) TREATMENT OF COLLATERAL SOURCE PAY2 MENTS.—

3 (1) INTRODUCTION INTO EVIDENCE.—In any

4 health care liability action, any defendant may intro5 duce evidence of collateral source payments. If any

6 defendant elects to introduce such evidence, the

7 claimant may introduce evidence of any amount paid

8 or contributed or reasonably likely to be paid or con9 tributed in the future by or on behalf of the claim10 ant to secure the right to such collateral source pay11 ments.

12 (2) NO SUBROGATION.—No provider of collat13 eral source payments shall recover any amount

14 against the claimant or receive any lien or credit

15 against the claimant’s recovery or be equitably or le16 gally subrogated the right of the claimant in a

17 health care liability action.

18 (3) APPLICATION TO SETTLEMENTS.—This sub19 section shall apply to an action that is settled as well

20 as an action that is resolved by a fact finder.

21 SEC. 283. ALTERNATIVE DISPUTE RESOLUTION.

22 Any ADR used to resolve a health care liability action

23 or claim shall contain provisions relating to statute of limi24 tations, non-economic damages, joint and several liability,

25 punitive damages, collateral source rule, and periodic pay-
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1 ments which are identical to the provisions relating to

2 such matters in this subtitle.

3 TITLE III—TAX-RELATED

4 HEALTH PROVISIONS

5 SEC. 300. AMENDMENT OF 1986 CODE.

6 Except as otherwise expressly provided, whenever in

7 this title an amendment or repeal is expressed in terms

8 of an amendment to, or repeal of, a section or other provi9 sion, the reference shall be considered to be made to a

10 section or other provision of the Internal Revenue Code

11 of 1986.

12 Subtitle A—Medical Savings

13 Accounts

14 SEC. 301. MEDICAL SAVINGS ACCOUNTS.

15 (a) IN GENERAL.—Part VII of subchapter B of chap16 ter 1 (relating to additional itemized deductions for indi17 viduals) is amended by redesignating section 220 as sec18 tion 221 and by inserting after section 219 the following

19 new section:

20 ‘‘SEC. 220. MEDICAL SAVINGS ACCOUNTS.

21 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi22 vidual who is an eligible individual for any month during

23 the taxable year, there shall be allowed as a deduction for

24 the taxable year an amount equal to the aggregate amount
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1 paid in cash during such taxable year by such individual

2 to a medical savings account of such individual.

3 ‘‘(b) LIMITATIONS.—

4 ‘‘(1) IN GENERAL.—Except as otherwise pro5 vided in this subsection, the amount allowable as a

6 deduction under subsection (a) to an individual for

7 the taxable year shall not exceed—

8 ‘‘(A) except as provided in subparagraph

9 (B), the lesser of—

10 ‘‘(i) $2,000, or

11 ‘‘(ii) the annual deductible limit for

12 any individual covered under the high de13 ductible health plan, or

14 ‘‘(B) in the case of a high deductible

15 health plan covering the taxpayer and any other

16 eligible individual who is the spouse or any de17 pendent (as defined in section 152) of the tax18 payer, the lesser of—

19 ‘‘(i) $4,000, or

20 ‘‘(ii) the annual limit under the plan

21 on the aggregate amount of deductibles re22 quired to be paid by all individuals.

23 The preceding sentence shall not apply if the spouse

24 of such individual is covered under any other high

25 deductible health plan.
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1 ‘‘(2) SPECIAL RULE FOR MARRIED INDIVID2 UALS.—

3 ‘‘(A) IN GENERAL.—This subsection shall

4 be applied separately for each married individ5 ual.

6 ‘‘(B) SPECIAL RULE.—If individuals who

7 are married to each other are covered under the

8 same high deductible health plan, then the

9 amounts applicable under paragraph (1)(B)

10 shall be divided equally between them unless

11 they agree on a different division.

12 ‘‘(3) COORDINATION WITH EXCLUSION FOR EM13 PLOYER CONTRIBUTIONS.—No deduction shall be al14 lowed under this section for any amount paid for

15 any taxable year to a medical savings account of an

16 individual if—

17 ‘‘(A) any amount is paid to any medical

18 savings account of such individual which is ex19 cludable from gross income under section

20 106(b) for such year, or

21 ‘‘(B) in a case described in paragraph

22 (2)(B), any amount is paid to any medical sav23 ings account of either spouse which is so ex24 cludable for such year.

25 ‘‘(4) PRORATION OF LIMITATION.—
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1 ‘‘(A) IN GENERAL.—The limitation under

2 paragraph (1) shall be the sum of the monthly

3 limitations for months during the taxable year

4 that the individual is an eligible individual if—

5 ‘‘(i) such individual is not an eligible

6 individual for all months of the taxable

7 year,

8 ‘‘(ii) the deductible under the high de9 ductible health plan covering such individ10 ual is not the same throughout such tax11 able year, or

12 ‘‘(iii) such limitation is determined

13 under paragraph (1)(B) for some but not

14 all months during such taxable year.

15 ‘‘(B) MONTHLY LIMITATION.—The month16 ly limitation for any month shall be an amount

equal to 1 17 ⁄12 of the limitation which would (but

18 for this paragraph and paragraph (3)) be deter19 mined under paragraph (1) if the facts and cir20 cumstances as of the first day of such month

21 that such individual is covered under a high de22 ductible health plan were true for the entire

23 taxable year.

24 ‘‘(5) DENIAL OF DEDUCTION TO DEPEND25 ENTS.—No deduction shall be allowed under this
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1 section to any individual with respect to whom a de2 duction under section 151 is allowable to another

3 taxpayer for a taxable year beginning in the cal4 endar year in which such individual’s taxable year

5 begins.

6 ‘‘(c) DEFINITIONS.—For purposes of this section—

7 ‘‘(1) ELIGIBLE INDIVIDUAL.—

8 ‘‘(A) IN GENERAL.—The term ‘eligible in9 dividual’ means, with respect to any month, any

10 individual—

11 ‘‘(i) who is covered under a high de12 ductible health plan as of the 1st day of

13 such month, and

14 ‘‘(ii) who is not, while covered under

15 a high deductible health plan, covered

16 under any health plan—

17 ‘‘(I) which is not a high deduct18 ible health plan, and

19 ‘‘(II) which provides coverage for

20 any benefit which is covered under the

21 high deductible health plan.

22 ‘‘(B) CERTAIN COVERAGE DIS23 REGARDED.—Subparagraph (A)(ii) shall be ap24 plied without regard to—
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1 ‘‘(i) coverage for any benefit provided

2 by permitted insurance, and

3 ‘‘(ii) coverage (whether through insur4 ance or otherwise) for accidents, disability,

5 dental care, vision care, or long-term care.

6 ‘‘(2) HIGH DEDUCTIBLE HEALTH PLAN.—The

7 term ‘high deductible health plan’ means a health

8 plan which—

9 ‘‘(A) has an annual deductible limit for

10 each individual covered by the plan which is not

11 less than $1,500, and

12 ‘‘(B) has an annual limit on the aggregate

13 amount of deductibles required to be paid with

14 respect to all individuals covered by the plan

15 which is not less than $3,000.

16 Such term does not include a health plan if substan17 tially all of its coverage is coverage described in

18 paragraph (1)(B). A plan shall not fail to be treated

19 as a high deductible health plan by reason of failing

20 to have a deductible for preventive care if the ab21 sence of a deductible for such care is required by

22 State law.

23 ‘‘(3) PERMITTED INSURANCE.—The term ‘per24 mitted insurance’ means—

25 ‘‘(A) Medicare supplemental insurance,
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1 ‘‘(B) insurance if substantially all of the

2 coverage provided under such insurance relates

3 to—

4 ‘‘(i) liabilities incurred under workers’

5 compensation laws,

6 ‘‘(ii) tort liabilities,

7 ‘‘(iii) liabilities relating to ownership

8 or use of property, or

9 ‘‘(iv) such other similar liabilities as

10 the Secretary may specify by regulations,

11 ‘‘(C) insurance for a specified disease or

12 illness, and

13 ‘‘(D) insurance paying a fixed amount per

14 day (or other period) of hospitalization.

15 ‘‘(d) MEDICAL SAVINGS ACCOUNT.—For purposes of

16 this section—

17 ‘‘(1) MEDICAL SAVINGS ACCOUNT.—The term

18 ‘medical savings account’ means a trust created or

19 organized in the United States exclusively for the

20 purpose of paying the qualified medical expenses of

21 the account holder, but only if the written governing

22 instrument creating the trust meets the following re23 quirements:
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1 ‘‘(A) Except in the case of a rollover con2 tribution described in subsection (f)(5), no con3 tribution will be accepted—

4 ‘‘(i) unless it is in cash, or

5 ‘‘(ii) to the extent such contribution,

6 when added to previous contributions to

7 the trust for the calendar year, exceeds

8 $4,000.

9 ‘‘(B) The trustee is a bank (as defined in

10 section 408(n)), an insurance company (as de11 fined in section 816), or another person who

12 demonstrates to the satisfaction of the Sec13 retary that the manner in which such person

14 will administer the trust will be consistent with

15 the requirements of this section.

16 ‘‘(C) No part of the trust assets will be in17 vested in life insurance contracts.

18 ‘‘(D) The assets of the trust will not be

19 commingled with other property except in a

20 common trust fund or common investment

21 fund.

22 ‘‘(E) The interest of an individual in the

23 balance in his account is nonforfeitable.

24 ‘‘(2) QUALIFIED MEDICAL EXPENSES.—
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1 ‘‘(A) IN GENERAL.—The term ‘qualified

2 medical expenses’ means, with respect to an ac3 count holder, amounts paid by such holder for

4 medical care (as defined in section 213(d)) for

5 such individual, the spouse of such individual,

6 and any dependent (as defined in section 152)

7 of such individual, but only to the extent such

8 amounts are not compensated for by insurance

9 or otherwise.

10 ‘‘(B) HEALTH INSURANCE MAY NOT BE

11 PURCHASED FROM ACCOUNT.—

12 ‘‘(i) IN GENERAL.—Subparagraph (A)

13 shall not apply to any payment for insur14 ance.

15 ‘‘(ii) EXCEPTIONS.—Clause (i) shall

16 not apply to any expense for coverage

17 under—

18 ‘‘(I) a health plan during any pe19 riod of continuation coverage required

20 under any Federal law,

21 ‘‘(II) a qualified long-term care

22 insurance contract (as defined in sec23 tion 7702B(b)), or

24 ‘‘(III) a health plan during a pe25 riod in which the individual is receiv-
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1 ing unemployment compensation

2 under any Federal or State law.

3 ‘‘(3) ACCOUNT HOLDER.—The term ‘account

4 holder’ means the individual on whose behalf the

5 medical savings account was established.

6 ‘‘(4) CERTAIN RULES TO APPLY.—Rules similar

7 to the following rules shall apply for purposes of this

8 section:

9 ‘‘(A) Section 219(d)(2) (relating to no de10 duction for rollovers).

11 ‘‘(B) Section 219(f)(3) (relating to time

12 when contributions deemed made).

13 ‘‘(C) Except as provided in section 106(b),

14 section 219(f)(5) (relating to employer pay15 ments).

16 ‘‘(D) Section 408(g) (relating to commu17 nity property laws).

18 ‘‘(E) Section 408(h) (relating to custodial

19 accounts).

20 ‘‘(e) TAX TREATMENT OF ACCOUNTS.—

21 ‘‘(1) IN GENERAL.—A medical savings account

22 is exempt from taxation under this subtitle unless

23 such account has ceased to be a medical savings ac24 count by reason of paragraph (2) or (3). Notwith25 standing the preceding sentence, any such account is
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1 subject to the taxes imposed by section 511 (relating

2 to imposition of tax on unrelated business income of

3 charitable, etc. organizations).

4 ‘‘(2) ACCOUNT TERMINATIONS.—Rules similar

5 to the rules of paragraphs (2) and (4) of section

6 408(e) shall apply to medical savings accounts, and

7 any amount treated as distributed under such rules

8 shall be treated as not used to pay qualified medical

9 expenses.

10 ‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—

11 ‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL

12 EXPENSES.—

13 ‘‘(A) IN GENERAL.—Any amount paid or

14 distributed out of a medical savings account

15 which is used exclusively to pay qualified medi16 cal expenses of any account holder (or any

17 spouse or dependent of the holder) shall not be

18 includible in gross income.

19 ‘‘(B) TREATMENT AFTER DEATH OF AC20 COUNT HOLDER.—

21 ‘‘(i) TREATMENT IF HOLDER IS

22 SPOUSE.—If, after the death of the ac23 count holder, the account holder’s interest

24 is payable to (or for the benefit of) the

25 holder’s spouse, the medical savings ac-
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1 count shall be treated as if the spouse were

2 the account holder.

3 ‘‘(ii) TREATMENT IF DESIGNATED

4 HOLDER IS NOT SPOUSE.—In the case of

5 an account holder’s interest in a medical

6 savings account which is payable to (or for

7 the benefit of) any person other than such

8 holder’s spouse upon the death of such

9 holder—

10 ‘‘(I) such account shall cease to

11 be a medical savings account as of the

12 date of death, and

13 ‘‘(II) an amount equal to the fair

14 market value of the assets in such ac15 count on such date shall be includible

16 if such person is not the estate of

17 such holder, in such person’s gross in18 come for the taxable year which in19 cludes such date, or if such person is

20 the estate of such holder, in such

21 holder’s gross income for the last tax22 able year of such holder.

23 ‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR

24 QUALIFIED MEDICAL EXPENSES.—
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1 ‘‘(A) IN GENERAL.—Any amount paid or

2 distributed out of a medical savings account

3 which is not used exclusively to pay the quali4 fied medical expenses of the account holder or

5 of the spouse or dependents of such holder shall

6 be included in the gross income of such holder.

7 ‘‘(B) SPECIAL RULES.—For purposes of

8 subparagraph (A)—

9 ‘‘(i) all medical savings accounts of

10 the account holder shall be treated as 1 ac11 count,

12 ‘‘(ii) all payments and distributions

13 during any taxable year shall be treated as

14 1 distribution, and

15 ‘‘(iii) any distribution of property

16 shall be taken into account at its fair mar17 ket value on the date of the distribution.

18 ‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE19 FORE DUE DATE OF RETURN.—If the aggregate con20 tributions (other than rollover contributions) for a

21 taxable year to the medical savings accounts of an

22 individual exceed the amount allowable as a deduc23 tion under this section for such contributions, para24 graph (2) shall not apply to distributions from such
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1 accounts (in an amount not greater than such ex2 cess) if—

3 ‘‘(A) such distribution is received by the

4 individual on or before the last day prescribed

5 by law (including extensions of time) for filing

6 such individual’s return for such taxable year,

7 and

8 ‘‘(B) such distribution is accompanied by

9 the amount of net income attributable to such

10 excess contribution.

11 Any net income described in subparagraph (B) shall

12 be included in the gross income of the individual for

13 the taxable year in which it is received.

14 ‘‘(4) PENALTY FOR DISTRIBUTIONS NOT USED

15 FOR QUALIFIED MEDICAL EXPENSES.—

16 ‘‘(A) IN GENERAL.—The tax imposed by

17 this chapter on the account holder for any tax18 able year in which there is a payment or dis19 tribution from a medical savings account of

20 such holder which is includible in gross income

21 under paragraph (2) shall be increased by 10

22 percent of the amount which is so includible.

23 ‘‘(B) EXCEPTION FOR DISABILITY OR

24 DEATH.—Subparagraph (A) shall not apply if

25 the payment or distribution is made after the
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1 account holder becomes disabled within the

2 meaning of section 72(m)(7) or dies.

3 ‘‘(C) EXCEPTION FOR DISTRIBUTIONS

AFTER AGE 591 4 ⁄2.—Subparagraph (A) shall not

5 apply to any payment or distribution after the

6 date on which the account holder attains age

591 7 ⁄2.

8 ‘‘(5) ROLLOVER CONTRIBUTION.—An amount is

9 described in this paragraph as a rollover contribu10 tion if it meets the requirements of subparagraphs

11 (A) and (B).

12 ‘‘(A) IN GENERAL.—Paragraph (2) shall

13 not apply to any amount paid or distributed

14 from a medical savings account to the account

15 holder to the extent the amount received is paid

16 into a medical savings account for the benefit

17 of such holder not later than the 60th day after

18 the day on which the holder receives the pay19 ment or distribution.

20 ‘‘(B) LIMITATION.—This paragraph shall

21 not apply to any amount described in subpara22 graph (A) received by an individual from a

23 medical savings account if, at any time during

24 the 1-year period ending on the day of such re25 ceipt, such individual received any other amount
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1 described in subparagraph (A) from a medical

2 savings account which was not includible in the

3 individual’s gross income because of the appli4 cation of this paragraph.

5 ‘‘(6) COORDINATION WITH MEDICAL EXPENSE

6 DEDUCTION.—For purposes of determining the

7 amount of the deduction under section 213, any pay8 ment or distribution out of a medical savings ac9 count for qualified medical expenses shall not be

10 treated as an expense paid for medical care.

11 ‘‘(7) TRANSFER OF ACCOUNT INCIDENT TO DI12 VORCE.—The transfer of an individual’s interest in

13 a medical savings account to an individual’s spouse

14 or former spouse under a divorce or separation in15 strument described in subparagraph (A) of section

16 71(b)(2) shall not be considered a taxable transfer

17 made by such individual notwithstanding any other

18 provision of this subtitle, and such interest shall,

19 after such transfer, be treated as a medical savings

20 account with respect to which the spouse is the ac21 count holder.

22 ‘‘(g) COST-OF-LIVING ADJUSTMENT.—

23 ‘‘(1) IN GENERAL.—In the case of any taxable

24 year beginning in a calendar year after 1997, each

25 dollar amount in subsection (b)(1), (c)(2), or
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1 (d)(1)(A) shall be increased by an amount equal

2 to—

3 ‘‘(A) such dollar amount, multiplied by

4 ‘‘(B) the medical care cost adjustment for

5 such calendar year.

6 If any increase under the preceding sentence is not

7 a multiple of $50, such increase shall be rounded to

8 the nearest multiple of $50.

9 ‘‘(2) MEDICAL CARE COST ADJUSTMENT.—For

10 purposes of paragraph (1), the medical care cost ad11 justment for any calendar year is the percentage (if

12 any) by which—

13 ‘‘(A) the medical care component of the

14 Consumer Price Index (as defined in section

15 1(f)(5)) for August of the preceding calendar

16 year, exceeds

17 ‘‘(B) such component for August of 1996.

18 ‘‘(h) REPORTS.—The Secretary may require the

19 trustee of a medical savings account to make such reports

20 regarding such account to the Secretary and to the ac21 count holder with respect to contributions, distributions,

22 and such other matters as the Secretary determines appro23 priate. The reports required by this subsection shall be

24 filed at such time and in such manner and furnished to
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1 such individuals at such time and in such manner as may

2 be required by those regulations.’’

3 (b) DEDUCTION ALLOWED WHETHER OR NOT INDI4 VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a)

5 of section 62 is amended by inserting after paragraph (15)

6 the following new paragraph:

7 ‘‘(16) MEDICAL SAVINGS ACCOUNTS.—The de8 duction allowed by section 220.’’

9 (c) EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO

10 MEDICAL SAVINGS ACCOUNTS.—

11 (1) EXCLUSION FROM INCOME TAX.—The text

12 of section 106 (relating to contributions by employer

13 to accident and health plans) is amended to read as

14 follows:

15 ‘‘(a) GENERAL RULE.—Except as otherwise provided

16 in this section, gross income of an employee does not in17 clude employer-provided coverage under an accident or

18 health plan.

19 ‘‘(b) CONTRIBUTIONS TO MEDICAL SAVINGS AC20 COUNTS.—

21 ‘‘(1) IN GENERAL.—In the case of an employee

22 who is an eligible individual, gross income does not

23 include amounts contributed by such employee’s em24 ployer to any medical savings account of such em25 ployee.
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1 ‘‘(2) COORDINATION WITH DEDUCTION LIMITA2 TION.—The amount excluded from the gross income

3 of an employee under this subsection for any taxable

4 year shall not exceed the limitation under section

5 220(b)(1) (determined without regard to this sub6 section) which is applicable to such employee for

7 such taxable year.

8 ‘‘(3) NO CONSTRUCTIVE RECEIPT.—No amount

9 shall be included in the gross income of any em10 ployee solely because the employee may choose be11 tween the contributions referred to in paragraph (1)

12 and employer contributions to another health plan of

13 the employer.

14 ‘‘(4) SPECIAL RULE FOR DEDUCTION OF EM15 PLOYER CONTRIBUTIONS.—Any employer contribu16 tion to a medical savings account, if otherwise allow17 able as a deduction under this chapter, shall be al18 lowed only for the taxable year in which paid.

19 ‘‘(5) DEFINITIONS.—For purposes of this sub20 section, the terms ‘eligible individual’ and ‘medical

21 savings account’ have the respective meanings given

22 to such terms by section 220.’’

23 (2) EXCLUSION FROM EMPLOYMENT TAXES.—

24 (A) SOCIAL SECURITY TAXES.—
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1 (i) Subsection (a) of section 3121 is

2 amended by striking ‘‘or’’ at the end of

3 paragraph (20), by striking the period at

4 the end of paragraph (21) and inserting ‘‘;

5 or’’, and by inserting after paragraph (21)

6 the following new paragraph:

7 ‘‘(22) any payment made to or for the benefit

8 of an employee if at the time of such payment it is

9 reasonable to believe that the employee will be able

10 to exclude such payment from income under section

11 106(b).’’

12 (ii) Subsection (a) of section 209 of

13 the Social Security Act is amended by

14 striking ‘‘or’’ at the end of paragraph (17),

15 by striking the period at the end of para16 graph (18) and inserting ‘‘; or’’, and by in17 serting after paragraph (18) the following

18 new paragraph:

19 ‘‘(19) any payment made to or for the benefit

20 of an employee if at the time of such payment it is

21 reasonable to believe that the employee will be able

22 to exclude such payment from income under section

23 106(b) of the Internal Revenue Code of 1986.’’
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1 (B) RAILROAD RETIREMENT TAX.—Sub2 section (e) of section 3231 is amended by add3 ing at the end the following new paragraph:

4 ‘‘(10) MEDICAL SAVINGS ACCOUNT CONTRIBU5 TIONS.—The term ‘compensation’ shall not include

6 any payment made to or for the benefit of an em7 ployee if at the time of such payment it is reason8 able to believe that the employee will be able to ex9 clude such payment from income under section

10 106(b).’’

11 (C) UNEMPLOYMENT TAX.—Subsection (b)

12 of section 3306 is amended by striking ‘‘or’’ at

13 the end of paragraph (15), by striking the pe14 riod at the end of paragraph (16) and inserting

15 ‘‘; or’’, and by inserting after paragraph (16)

16 the following new paragraph:

17 ‘‘(17) any payment made to or for the benefit

18 of an employee if at the time of such payment it is

19 reasonable to believe that the employee will be able

20 to exclude such payment from income under section

21 106(b).’’

22 (D) WITHHOLDING TAX.—Subsection (a)

23 of section 3401 is amended by striking ‘‘or’’ at

24 the end of paragraph (19), by striking the pe25 riod at the end of paragraph (20) and inserting
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1 ‘‘; or’’, and by inserting after paragraph (20)

2 the following new paragraph:

3 ‘‘(21) any payment made to or for the benefit

4 of an employee if at the time of such payment it is

5 reasonable to believe that the employee will be able

6 to exclude such payment from income under section

7 106(b).’’

8 (d) MEDICAL SAVINGS ACCOUNT CONTRIBUTIONS

9 NOT AVAILABLE UNDER CAFETERIA PLANS.—Subsection

10 (f) of section 125 of such Code is amended by inserting

11 ‘‘106(b),’’ before ‘‘117’’.

12 (e) EXCLUSION OF MEDICAL SAVINGS ACCOUNTS

13 FROM ESTATE TAX.—Part IV of subchapter A of chapter

14 11 is amended by adding at the end the following new

15 section:

16 ‘‘SEC. 2057. MEDICAL SAVINGS ACCOUNTS.

17 ‘‘For purposes of the tax imposed by section 2001,

18 the value of the taxable estate shall be determined by de19 ducting from the value of the gross estate an amount

20 equal to the value of any medical savings account (as de21 fined in section 220(d)) included in the gross estate.’’

22 (f) TAX ON EXCESS CONTRIBUTIONS.—Section 4973

23 (relating to tax on excess contributions to individual re24 tirement accounts, certain section 403(b) contracts, and

25 certain individual retirement annuities) is amended—
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1 (1) by inserting ‘‘MEDICAL SAVINGS AC2 COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of

3 such section,

4 (2) by striking ‘‘or’’ at the end of paragraph

5 (1) of subsection (a),

6 (3) by redesignating paragraph (2) of sub7 section (a) as paragraph (3) and by inserting after

8 paragraph (1) the following:

9 ‘‘(2) a medical savings account (within the

10 meaning of section 220(d)), or’’, and

11 (4) by adding at the end the following new sub12 section:

13 ‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS

14 ACCOUNTS.—For purposes of this section, in the case of

15 a medical savings accounts (within the meaning of section

16 220(d)), the term ‘excess contributions’ means the sum

17 of—

18 ‘‘(1) the amount by which the amount contrib19 uted for the taxable year to the accounts (other than

20 rollover contributions described in section 220(f)(5))

21 exceeds the amount allowable as a deduction under

22 section 220 for such contributions, and

23 ‘‘(2) the amount determined under this sub24 section for the preceding taxable year, reduced by

25 the sum of distributions out of the account included
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1 in gross income under section 220(f) (2) or (3) and

2 the excess (if any) of the maximum amount allow3 able as a deduction under section 220 for the tax4 able year over the amount contributed to the ac5 counts.

6 For purposes of this subsection, any contribution which

7 is distributed out of the medical savings account in a dis8 tribution to which section 220(f)(3) applies shall be treat9 ed as an amount not contributed.’’

10 (g) TAX ON PROHIBITED TRANSACTIONS.—

11 (1) Section 4975 (relating to tax on prohibited

12 transactions) is amended by adding at the end of

13 subsection (c) the following new paragraph:

14 ‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC15 COUNTS.—An individual for whose benefit a medical

16 savings account (within the meaning of section

17 220(d)) is established shall be exempt from the tax

18 imposed by this section with respect to any trans19 action concerning such account (which would other20 wise be taxable under this section) if, with respect

21 to such transaction, the account ceases to be a medi22 cal savings account by reason of the application of

23 section 220(e)(2) to such account.’’

24 (2) Paragraph (1) of section 4975(e) is amend25 ed to read as follows:
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1 ‘‘(1) PLAN.—For purposes of this section, the

2 term ‘plan’ means—

3 ‘‘(A) a trust described in section 401(a)

4 which forms a part of a plan, or a plan de5 scribed in section 403(a), which trust or plan is

6 exempt from tax under section 501(a),

7 ‘‘(B) an individual retirement account de8 scribed in section 408(a),

9 ‘‘(C) an individual retirement annuity de10 scribed in section 408(b),

11 ‘‘(D) a medical savings account described

12 in section 220(d), or

13 ‘‘(E) a trust, plan, account, or annuity

14 which, at any time, has been determined by the

15 Secretary to be described in any preceding sub16 paragraph of this paragraph.’’

17 (h) FAILURE TO PROVIDE REPORTS ON MEDICAL

18 SAVINGS ACCOUNTS.—

19 (1) Subsection (a) of section 6693 (relating to

20 failure to provide reports on individual retirement

21 accounts or annuities) is amended to read as follows:

22 ‘‘(a) REPORTS.—

23 ‘‘(1) IN GENERAL.—If a person required to file

24 a report under a provision referred to in paragraph

25 (2) fails to file such report at the time and in the
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1 manner required by such provision, such person

2 shall pay a penalty of $50 for each failure unless it

3 is shown that such failure is due to reasonable

4 cause.

5 ‘‘(2) PROVISIONS.—The provisions referred to

6 in this paragraph are—

7 ‘‘(A) subsections (i) and (l) of section 408

8 (relating to individual retirement plans), and

9 ‘‘(B) section 220(h) (relating to medical

10 savings accounts).’’

11 (i) EXCEPTION FROM CAPITALIZATION OF POLICY

12 ACQUISITION EXPENSES.—Subparagraph (B) of section

13 848(e)(1) (defining specified insurance contract) is

14 amended by striking ‘‘and’’ at the end of clause (ii), by

15 striking the period at the end of clause (iii) and inserting

16 ‘‘, and’’, and by adding at the end the following new

17 clause:

18 ‘‘(iv) any contract which is a medical

19 savings account (as defined in section

20 220(d)).’’.

21 (j) CLERICAL AMENDMENTS.—

22 (1) The table of sections for part VII of sub23 chapter B of chapter 1 is amended by striking the

24 last item and inserting the following:

‘‘Sec. 220. Medical savings accounts.

‘‘Sec. 221. Cross reference.’’.
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1 (2) The table of sections for part IV of sub2 chapter A of chapter 11 is amended by adding at

3 the end the following new item:

‘‘Sec. 2057. Medical savings accounts.’’.

4 (k) EFFECTIVE DATE.—The amendments made by

5 this section shall apply to taxable years beginning after

6 December 31, 1996.

7 Subtitle B—Increase in Deduction

8 for Health Insurance Costs of

9 Self-Employed Individuals

10 SEC. 311. INCREASE IN DEDUCTION FOR HEALTH INSUR11 ANCE COSTS OF SELF-EMPLOYED INDIVID12 UALS.

13 (a) IN GENERAL.—Paragraph (1) of section 162(l)

14 is amended to read as follows:

15 ‘‘(1) ALLOWANCE OF DEDUCTION.—

16 ‘‘(A) IN GENERAL.—In the case of an indi17 vidual who is an employee within the meaning

18 of section 401(c)(1), there shall be allowed as

19 a deduction under this section an amount equal

20 to the applicable percentage of the amount paid

21 during the taxable year for insurance which

22 constitutes medical care for the taxpayer, his

23 spouse, and dependents.

24 ‘‘(B) APPLICABLE PERCENTAGE.—For

25 purposes of subparagraph (A), the applicable
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1 percentage shall be determined under the fol2 lowing table:

‘‘For taxable years beginning The applicable

in calendar year— percentage is—

1998 ........................................................... 35 percent

1999, 2000, or 2001 .................................. 40 percent

2002 ........................................................... 45 percent

2003 or thereafter ..................................... 50 percent.’’.

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

4 this section shall apply to taxable years beginning after

5 December 31, 1997.

6 Subtitle C—Long-Term Care

7 Services and Contracts

8 PART I—GENERAL PROVISIONS

9 SEC. 321. TREATMENT OF LONG-TERM CARE INSURANCE.

10 (a) GENERAL RULE.—Chapter 79 (relating to defini11 tions) is amended by inserting after section 7702A the fol12 lowing new section:

13 ‘‘SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE

14 INSURANCE.

15 ‘‘(a) IN GENERAL.—For purposes of this title—

16 ‘‘(1) a qualified long-term care insurance con17 tract shall be treated as an accident and health in18 surance contract,

19 ‘‘(2) amounts (other than policyholder divi20 dends, as defined in section 808, or premium re21 funds) received under a qualified long-term care in22 surance contract shall be treated as amounts re-
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1 ceived for personal injuries and sickness and shall be

2 treated as reimbursement for expenses actually in3 curred for medical care (as defined in section

4 213(d)),

5 ‘‘(3) any plan of an employer providing cov6 erage under a qualified long-term care insurance

7 contract shall be treated as an accident and health

8 plan with respect to such coverage,

9 ‘‘(4) except as provided in subsection (e)(3),

10 amounts paid for a qualified long-term care insur11 ance contract providing the benefits described in

12 subsection (b)(2)(A) shall be treated as payments

13 made for insurance for purposes of section

14 213(d)(1)(D), and

15 ‘‘(5) a qualified long-term care insurance con16 tract shall be treated as a guaranteed renewable con17 tract subject to the rules of section 816(e).

18 ‘‘(b) QUALIFIED LONG-TERM CARE INSURANCE

19 CONTRACT.—For purposes of this title—

20 ‘‘(1) IN GENERAL.—The term ‘qualified long21 term care insurance contract’ means any insurance

22 contract if—

23 ‘‘(A) the only insurance protection pro24 vided under such contract is coverage of quali25 fied long-term care services,
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1 ‘‘(B) such contract does not pay or reim2 burse expenses incurred for services or items to

3 the extent that such expenses are reimbursable

4 under title XVIII of the Social Security Act or

5 would be so reimbursable but for the applica6 tion of a deductible or coinsurance amount,

7 ‘‘(C) such contract is guaranteed renew8 able,

9 ‘‘(D) such contract does not provide for a

10 cash surrender value or other money that can

11 be—

12 ‘‘(i) paid, assigned, or pledged as col13 lateral for a loan, or

14 ‘‘(ii) borrowed,

15 other than as provided in subparagraph (E) or

16 paragraph (2)(C),

17 ‘‘(E) all refunds of premiums, and all pol18 icyholder dividends or similar amounts, under

19 such contract are to be applied as a reduction

20 in future premiums or to increase future bene21 fits, and

22 ‘‘(F) such contract meets the requirements

23 of subsection (f).

24 ‘‘(2) SPECIAL RULES.—
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1 ‘‘(A) PER DIEM, ETC. PAYMENTS PER2 MITTED.—A contract shall not fail to be de3 scribed in subparagraph (A) or (B) of para4 graph (1) by reason of payments being made on

5 a per diem or other periodic basis without re6 gard to the expenses incurred during the period

7 to which the payments relate.

8 ‘‘(B) SPECIAL RULES RELATING TO MEDI9 CARE.—

10 ‘‘(i) Paragraph (1)(B) shall not apply

11 to expenses which are reimbursable under

12 title XVIII of the Social Security Act only

13 as a secondary payor.

14 ‘‘(ii) No provision of law shall be con15 strued or applied so as to prohibit the of16 fering of a qualified long-term care insur17 ance contract on the basis that the con18 tract coordinates its benefits with those

19 provided under such title.

20 ‘‘(C) REFUNDS OF PREMIUMS.—Paragraph

21 (1)(E) shall not apply to any refund on the

22 death of the insured, or on a complete surren23 der or cancellation of the contract, which can24 not exceed the aggregate premiums paid under

25 the contract. Any refund on a complete surren-
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1 der or cancellation of the contract shall be in2 cludible in gross income to the extent that any

3 deduction or exclusion was allowable with re4 spect to the premiums.

5 ‘‘(c) QUALIFIED LONG-TERM CARE SERVICES.—For

6 purposes of this section—

7 ‘‘(1) IN GENERAL.—The term ‘qualified long8 term care services’ means necessary diagnostic, pre9 ventive, therapeutic, curing, treating, mitigating, and

10 rehabilitative services, and maintenance or personal

11 care services, which—

12 ‘‘(A) are required by a chronically ill indi13 vidual, and

14 ‘‘(B) are provided pursuant to a plan of

15 care prescribed by a licensed health care practi16 tioner.

17 ‘‘(2) CHRONICALLY ILL INDIVIDUAL.—

18 ‘‘(A) IN GENERAL.—The term ‘chronically

19 ill individual’ means any individual who has

20 been certified by a licensed health care practi21 tioner as—

22 ‘‘(i) being unable to perform (without

23 substantial assistance from another indi24 vidual) at least 2 activities of daily living
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1 for a period of at least 90 days due to a

2 loss of functional capacity,

3 ‘‘(ii) having a level of disability simi4 lar (as determined by the Secretary in con5 sultation with the Secretary of Health and

6 Human Services) to the level of disability

7 described in clause (i), or

8 ‘‘(iii) requiring substantial supervision

9 to protect such individual from threats to

10 health and safety due to severe cognitive

11 impairment.

12 Such term shall not include any individual oth13 erwise meeting the requirements of the preced14 ing sentence unless within the preceding 12-

15 month period a licensed health care practitioner

16 has certified that such individual meets such re17 quirements.

18 ‘‘(B) ACTIVITIES OF DAILY LIVING.—For

19 purposes of subparagraph (A), each of the fol20 lowing is an activity of daily living:

21 ‘‘(i) Eating.

22 ‘‘(ii) Toileting.

23 ‘‘(iii) Transferring.

24 ‘‘(iv) Bathing.

25 ‘‘(v) Dressing.
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1 ‘‘(vi) Continence.

2 Nothing in this section shall be construed to re3 quire a contract to take into account all of the

4 preceding activities of daily living.

5 ‘‘(3) MAINTENANCE OR PERSONAL CARE SERV6 ICES.—The term ‘maintenance or personal care serv7 ices’ means any care the primary purpose of which

8 is the provision of needed assistance with any of the

9 disabilities as a result of which the individual is a

10 chronically ill individual (including the protection

11 from threats to health and safety due to severe cog12 nitive impairment).

13 ‘‘(4) LICENSED HEALTH CARE PRACTI14 TIONER.—The term ‘licensed health care practi15 tioner’ means any physician (as defined in section

16 1861(r)(1) of the Social Security Act) and any reg17 istered professional nurse, licensed social worker, or

18 other individual who meets such requirements as

19 may be prescribed by the Secretary.

20 ‘‘(d) AGGREGATE PAYMENTS IN EXCESS OF LIM21 ITS.—

22 ‘‘(1) IN GENERAL.—If the aggregate amount of

23 periodic payments under all qualified long-term care

24 insurance contracts with respect to an insured for

25 any period exceeds the dollar amount in effect for
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1 such period under paragraph (3), such excess pay2 ments shall be treated as made for qualified long3 term care services only to the extent of the costs in4 curred by the payee (not otherwise compensated for

5 by insurance or otherwise) for qualified long-term

6 care services provided during such period for such

7 insured.

8 ‘‘(2) PERIODIC PAYMENTS.—For purposes of

9 paragraph (1), the term ‘periodic payment’ means

10 any payment (whether on a periodic basis or other11 wise) made without regard to the extent of the costs

12 incurred by the payee for qualified long-term care

13 services.

14 ‘‘(3) DOLLAR AMOUNT.—The dollar amount in

15 effect under this subsection shall be $175 per day

16 (or the equivalent amount in the case of payments

17 on another periodic basis).

18 ‘‘(4) INFLATION ADJUSTMENT.—In the case of

19 a calendar year after 1997, the dollar amount con20 tained in paragraph (3) shall be increased at the

21 same time and in the same manner as amounts are

22 increased pursuant to section 213(d)(10).

23 ‘‘(e) TREATMENT OF COVERAGE PROVIDED AS PART

24 OF A LIFE INSURANCE CONTRACT.—Except as otherwise

25 provided in regulations prescribed by the Secretary, in the
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1 case of any long-term care insurance coverage (whether

2 or not qualified) provided by a rider on or as part of a

3 life insurance contract—

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

5 if the portion of the contract providing such cov6 erage is a separate contract.

7 ‘‘(2) APPLICATION OF 7702.—Section

8 7702(c)(2) (relating to the guideline premium limi9 tation) shall be applied by increasing the guideline

10 premium limitation with respect to a life insurance

11 contract, as of any date—

12 ‘‘(A) by the sum of any charges (but not

13 premium payments) against the life insurance

14 contract’s cash surrender value (within the

15 meaning of section 7702(f)(2)(A)) for such cov16 erage made to that date under the contract, less

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

18 which reduces the premiums paid for the con19 tract (within the meaning of section

20 7702(f)(1)).

21 ‘‘(3) APPLICATION OF SECTION 213.—No deduc22 tion shall be allowed under section 213(a) for

23 charges against the life insurance contract’s cash

24 surrender value described in paragraph (2), unless

25 such charges are includible in income as a result of
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1 the application of section 72(e)(10) and the rider is

2 a qualified long-term care insurance contract under

3 subsection (b).

4 ‘‘(4) PORTION DEFINED.—For purposes of this

5 subsection, the term ‘portion’ means only the terms

6 and benefits under a life insurance contract that are

7 in addition to the terms and benefits under the con8 tract without regard to the coverage under a quali9 fied long-term care insurance contract.’’

10 (b) LONG-TERM CARE INSURANCE NOT PERMITTED

11 UNDER CAFETERIA PLANS OR FLEXIBLE SPENDING AR12 RANGEMENTS.—

13 (1) CAFETERIA PLANS.—Section 125(f) is

14 amended by adding at the end the following new

15 sentence: ‘‘Such term shall not include any long16 term care insurance contract (as defined in section

17 4980C).’’

18 (2) FLEXIBLE SPENDING ARRANGEMENTS.—

19 Section 106 (relating to contributions by employer to

20 accident and health plans), as amended by section

21 301(c), is amended by adding at the end the follow22 ing new subsection:

23 ‘‘(c) INCLUSION OF LONG-TERM CARE BENEFITS

24 PROVIDED THROUGH FLEXIBLE SPENDING ARRANGE25 MENTS.—
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1 ‘‘(1) IN GENERAL.—Effective on and after Jan2 uary 1, 1997, gross income of an employee shall in3 clude employer-provided coverage for qualified long4 term care services (as defined in section 7702B(c))

5 to the extent that such coverage is provided through

6 a flexible spending or similar arrangement.

7 ‘‘(2) FLEXIBLE SPENDING ARRANGEMENT.—

8 For purposes of this subsection, a flexible spending

9 arrangement is a benefit program which provides

10 employees with coverage under which—

11 ‘‘(A) specified incurred expenses may be

12 reimbursed (subject to reimbursement maxi13 mums and other reasonable conditions), and

14 ‘‘(B) the maximum amount of reimburse15 ment which is reasonably available to a partici16 pant for such coverage is less than 500 percent

17 of the value of such coverage.

18 In the case of an insured plan, the maximum

19 amount reasonably available shall be determined on

20 the basis of the underlying coverage.’’

21 (c) CONTINUATION COVERAGE EXCISE TAX NOT TO

22 APPLY.—Subsection (f) of section 4980B is amended by

23 adding at the end the following new paragraph:

24 ‘‘(9) CONTINUATION OF LONG-TERM CARE COV25 ERAGE NOT REQUIRED.—A group health plan shall
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1 not be treated as failing to meet the requirements of

2 this subsection solely by reason of failing to provide

3 coverage under any qualified long-term care insur4 ance contract (as defined in section 7702B(b)).’’

5 (d) 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 qualified long-term care insurance.’’.

8 (e) EFFECTIVE DATE.—

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

10 this section shall apply to contracts issued after De11 cember 31, 1996.

12 (2) CONTINUATION OF EXISTING POLICIES.—In

13 the case of any contract issued before January 1,

14 1997, which met the long-term care insurance re15 quirements of the State in which the contract was

16 sitused at the time the contract was issued—

17 (A) such contract shall be treated for pur18 poses of the Internal Revenue Code of 1986 as

19 a qualified long-term care insurance contract

20 (as defined in section 7702B(b) of such Code),

21 and

22 (B) services provided under, or reimbursed

23 by, such contract shall be treated for such pur24 poses as qualified long-term care services (as

25 defined in section 7702B(c) of such Code).
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1 (3) EXCHANGES OF EXISTING POLICIES.—If,

2 after the date of enactment of this Act and before

3 January 1, 1998, a contract providing for long-term

4 care insurance coverage is exchanged solely for a

5 qualified long-term care insurance contract (as de6 fined in section 7702B(b) of such Code), no gain or

7 loss shall be recognized on the exchange. If, in addi8 tion to a qualified long-term care insurance contract,

9 money or other property is received in the exchange,

10 then any gain shall be recognized to the extent of

11 the sum of the money and the fair market value of

12 the other property received. For purposes of this

13 paragraph, the cancellation of a contract providing

14 for long-term care insurance coverage and reinvest15 ment of the cancellation proceeds in a qualified long16 term care insurance contract within 60 days there17 after shall be treated as an exchange.

18 (4) ISSUANCE OF CERTAIN RIDERS PER19 MITTED.—For purposes of applying sections 101(f),

20 7702, and 7702A of the Internal Revenue Code of

21 1986 to any contract—

22 (A) the issuance of a rider which is treated

23 as a qualified long-term care insurance contract

24 under section 7702B, and
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1 (B) the addition of any provision required

2 to conform any other long-term care rider to be

3 so treated,

4 shall not be treated as a modification or material

5 change of such contract.

6 SEC. 322. QUALIFIED LONG-TERM CARE SERVICES TREAT7 ED AS MEDICAL CARE.

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

9 213(d) (defining medical care) is amended by striking

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

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

12 after subparagraph (B) the following new subparagraph:

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

14 (as defined in section 7702B(c)), or’’.

15 (b) TECHNICAL AMENDMENTS.—

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

17 redesignated by subsection (a)) is amended by in18 serting before the period ‘‘or for any qualified long19 term care insurance contract (as defined in section

20 7702B(b))’’.

21 (2)(A) Paragraph (1) of section 213(d) is

22 amended by adding at the end the following new

23 flush sentence:

24 ‘‘In the case of a qualified long-term care insurance

25 contract (as defined in section 7702B(b)), only eligi-
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1 ble long-term care premiums (as defined in para2 graph (10)) shall be taken into account under sub3 paragraph (D).’’

4 (B) Subsection (d) of section 213 is amended

5 by adding at the end the following new paragraphs:

6 ‘‘(10) ELIGIBLE LONG-TERM CARE PRE7 MIUMS.—

8 ‘‘(A) IN GENERAL.—For purposes of this

9 section, the term ‘eligible long-term care pre10 miums’ means the amount paid during a tax11 able year for any qualified long-term care insur12 ance contract (as defined in section 7702B(b))

13 covering an individual, to the extent such

14 amount does not exceed the limitation deter15 mined under the following table:

‘‘In the case of an individual

with an attained age before the The limitation

close of the taxable year of: is:

40 or less ................................................... $ 200

More than 40 but not more than 50 ......... 375

More than 50 but not more than 60 ......... 750

More than 60 but not more than 70 ......... 2,000

More than 70 ............................................. 2,500.

16 ‘‘(B) INDEXING.—

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

18 taxable year beginning in a calendar year

19 after 1997, each dollar amount contained

20 in subparagraph (A) shall be increased by

21 the medical care cost adjustment of such
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1 amount for such calendar year. If any in2 crease determined under the preceding sen3 tence is not a multiple of $10, such in4 crease shall be rounded to the nearest mul5 tiple of $10.

6 ‘‘(ii) MEDICAL CARE COST ADJUST7 MENT.—For purposes of clause (i), the

8 medical care cost adjustment for any cal9 endar year is the percentage (if any) by

10 which—

11 ‘‘(I) the medical care component

12 of the Consumer Price Index (as de13 fined in section 1(f)(5)) for August of

14 the preceding calendar year, exceeds

15 ‘‘(II) such component for August

16 of 1996.

17 The Secretary shall, in consultation with

18 the Secretary of Health and Human Serv19 ices, prescribe an adjustment which the

20 Secretary determines is more appropriate

21 for purposes of this paragraph than the

22 adjustment described in the preceding sen23 tence, and the adjustment so prescribed

24 shall apply in lieu of the adjustment de25 scribed in the preceding sentence.
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1 ‘‘(11) CERTAIN PAYMENTS TO RELATIVES

2 TREATED AS NOT PAID FOR MEDICAL CARE.—An

3 amount paid for a qualified long-term care service

4 (as defined in section 7702B(c)) provided to an indi5 vidual shall be treated as not paid for medical care

6 if such service is provided—

7 ‘‘(A) by the spouse of the individual or by

8 a relative (directly or through a partnership,

9 corporation, or other entity) unless the service

10 is provided by a licensed professional with re11 spect to such service, or

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

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

14 or 707(b)) to the individual.

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

16 means an individual bearing a relationship to the in17 dividual which is described in any of paragraphs (1)

18 through (8) of section 152(a). This paragraph shall

19 not apply for purposes of section 105(b) with respect

20 to reimbursements through insurance.’’ .

21 (3) Paragraph (6) of section 213(d) is

22 amended—

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

24 (B)’’ and inserting ‘‘subparagraphs (A), (B),

25 and (C)’’, and
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1 (B) by striking ‘‘paragraph (1)(C)’’ in sub2 paragraph (A) and inserting ‘‘paragraph

3 (1)(D)’’.

4 (4) Paragraph (7) of section 213(d) is amended

5 by striking ‘‘subparagraphs (A) and (B)’’ and insert6 ing ‘‘subparagraphs (A), (B), and (C)’’.

7 (c) EFFECTIVE DATE.—

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

9 this section shall apply to taxable years beginning

10 after December 31, 1996.

11 (2) DEDUCTION FOR LONG-TERM CARE SERV12 ICES.—Amounts paid for qualified long-term care

13 services (as defined in section 7702B(c) of the Inter14 nal Revenue Code of 1986, as added by this Act)

15 furnished in any taxable year beginning before Janu16 ary 1, 1998, shall not be taken into account under

17 section 213 of the Internal Revenue Code of 1986.

18 SEC. 323. REPORTING REQUIREMENTS.

19 (a) IN GENERAL.—Subpart B of part III of sub20 chapter A of chapter 61 is amended by adding at the end

21 the following new section:

22 ‘‘SEC. 6050Q. CERTAIN LONG-TERM CARE BENEFITS.

23 ‘‘(a) REQUIREMENT OF REPORTING.—Any person

24 who pays long-term care benefits shall make a return, ac-
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1 cording to the forms or regulations prescribed by the Sec2 retary, setting forth—

3 ‘‘(1) the aggregate amount of such benefits

4 paid by such person to any individual during any

5 calendar year, and

6 ‘‘(2) the name, address, and TIN of such indi7 vidual.

8 ‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS

9 WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—

10 Every person required to make a return under subsection

11 (a) shall furnish to each individual whose name is required

12 to be set forth in such return a written statement show13 ing—

14 ‘‘(1) the name of the person making the pay15 ments, and

16 ‘‘(2) the aggregate amount of long-term care

17 benefits paid to the individual which are required to

18 be shown on such return.

19 The written statement required under the preceding sen20 tence shall be furnished to the individual on or before Jan21 uary 31 of the year following the calendar year for which

22 the return under subsection (a) was required to be made.

23 ‘‘(c) LONG-TERM CARE BENEFITS.—For purposes of

24 this section, the term ‘long-term care benefit’ means—
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1 ‘‘(1) any amount paid under a long-term care

2 insurance policy (within the meaning of section

3 4980C(e)), and

4 ‘‘(2) payments which are excludable from gross

5 income by reason of section 101(g).’’.

6 (b) PENALTIES.—

7 (1) Subparagraph (B) of section 6724(d)(1) is

8 amended by redesignating clauses (ix) through (xiv)

9 as clauses (x) through (xv), respectively, and by in10 serting after clause (viii) the following new clause:

11 ‘‘(ix) section 6050Q (relating to cer12 tain long-term care benefits),’’.

13 (2) Paragraph (2) of section 6724(d) is amend14 ed by redesignating subparagraphs (Q) through (T)

15 as subparagraphs (R) through (U), respectively, and

16 by inserting after subparagraph (P) the following

17 new subparagraph:

18 ‘‘(Q) section 6050Q(b) (relating to certain

19 long-term care benefits),’’.

20 (c) CLERICAL AMENDMENT.—The table of sections

21 for subpart B of part III of subchapter A of chapter 61

22 is amended by adding at the end the following new item:

‘‘Sec. 6050Q. Certain long-term care benefits.’’.

23 (d) EFFECTIVE DATE.—The amendments made by

24 this section shall apply to benefits paid after December

25 31, 1996.
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1 PART II—CONSUMER PROTECTION PROVISIONS

2 SEC. 325. POLICY REQUIREMENTS.

3 Section 7702B (as added by section 321) is amended

4 by adding at the end the following new subsection:

5 ‘‘(f) CONSUMER PROTECTION PROVISIONS.—

6 ‘‘(1) IN GENERAL.—The requirements of this

7 subsection are met with respect to any contract if

8 any long-term care insurance policy issued under the

9 contract meets—

10 ‘‘(A) the requirements of the model regula11 tion and model Act described in paragraph (2),

12 ‘‘(B) the disclosure requirement of para13 graph (3), and

14 ‘‘(C) the requirements relating to

15 nonforfeitability under paragraph (4).

16 ‘‘(2) REQUIREMENTS OF MODEL REGULATION

17 AND ACT.—

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

19 this paragraph are met with respect to any pol20 icy if such policy meets—

21 ‘‘(i) MODEL REGULATION.—The fol22 lowing requirements of the model regula23 tion:

24 ‘‘(I) Section 7A (relating to guar25 anteed renewal or noncancellability),

26 and the requirements of section 6B of
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1 the model Act relating to such section

2 7A.

3 ‘‘(II) Section 7B (relating to pro4 hibitions on limitations and exclu5 sions).

6 ‘‘(III) Section 7C (relating to ex7 tension of benefits).

8 ‘‘(IV) Section 7D (relating to

9 continuation or conversion of cov10 erage).

11 ‘‘(V) Section 7E (relating to dis12 continuance and replacement of poli13 cies).

14 ‘‘(VI) Section 8 (relating to unin15 tentional lapse).

16 ‘‘(VII) Section 9 (relating to dis17 closure), other than section 9F there18 of.

19 ‘‘(VIII) Section 10 (relating to

20 prohibitions against post-claims un21 derwriting).

22 ‘‘(IX) Section 11 (relating to

23 minimum standards).

24 ‘‘(X) Section 12 (relating to re25 quirement to offer inflation protec-
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1 tion), except that any requirement for

2 a signature on a rejection of inflation

3 protection shall permit the signature

4 to be on an application or on a sepa5 rate form.

6 ‘‘(XI) Section 23 (relating to pro7 hibition against preexisting conditions

8 and probationary periods in replace9 ment policies or certificates).

10 ‘‘(ii) MODEL ACT.—The following re11 quirements of the model Act:

12 ‘‘(I) Section 6C (relating to pre13 existing conditions).

14 ‘‘(II) Section 6D (relating to

15 prior hospitalization).

16 ‘‘(B) DEFINITIONS.—For purposes of this

17 paragraph—

18 ‘‘(i) MODEL PROVISIONS.—The terms

19 ‘model regulation’ and ‘model Act’ mean

20 the long-term care insurance model regula21 tion, and the long-term care insurance

22 model Act, respectively, promulgated by

23 the National Association of Insurance

24 Commissioners (as adopted as of January

25 1993).
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1 ‘‘(ii) COORDINATION.—Any provision

2 of the model regulation or model Act listed

3 under clause (i) or (ii) of subparagraph

4 (A) shall be treated as including any other

5 provision of such regulation or Act nec6 essary to implement the provision.

7 ‘‘(iii) DETERMINATION.—For pur8 poses of this section and section 4980C,

9 the determination of whether any require10 ment of a model regulation or the model

11 Act has been met shall be made by the

12 Secretary.

13 ‘‘(3) DISCLOSURE REQUIREMENT.—The re14 quirement of this paragraph is met with respect to

15 any policy if such policy meets the requirements of

16 section 4980C(d)(1).

17 ‘‘(4) NONFORFEITURE REQUIREMENTS.—

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

19 this paragraph are met with respect to any level

20 premium long-term care insurance policy, if the

21 issuer of such policy offers to the policyholder,

22 including any group policyholder, a

23 nonforfeiture provision meeting the require24 ments of subparagraph (B).
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1 ‘‘(B) REQUIREMENTS OF PROVISION.—The

2 nonforfeiture provision required under subpara3 graph (A) shall meet the following require4 ments:

5 ‘‘(i) The nonforfeiture provision shall

6 be appropriately captioned.

7 ‘‘(ii) The nonforfeiture provision shall

8 provide for a benefit available in the event

9 of a default in the payment of any pre10 miums and the amount of the benefit may

11 be adjusted subsequent to being initially

12 granted only as necessary to reflect

13 changes in claims, persistency, and interest

14 as reflected in changes in rates for pre15 mium paying policies approved by the Sec16 retary for the same policy form.

17 ‘‘(iii) The nonforfeiture provision shall

18 provide at least one of the following:

19 ‘‘(I) Reduced paid-up insurance.

20 ‘‘(II) Extended term insurance.

21 ‘‘(III) Shortened benefit period.

22 ‘‘(IV) Other similar offerings ap23 proved by the Secretary.

24 ‘‘(5) LONG-TERM CARE INSURANCE POLICY DE25 FINED.—For purposes of this subsection, the term
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1 ‘long-term care insurance policy’ has the meaning

2 given such term by section 4980C(e).’’.

3 SEC. 326. REQUIREMENTS FOR ISSUERS OF LONG-TERM

4 CARE INSURANCE POLICIES.

5 (a) IN GENERAL.—Chapter 43 is amended by adding

6 at the end the following new section:

7 ‘‘SEC. 4980C. REQUIREMENTS FOR ISSUERS OF LONG-TERM

8 CARE INSURANCE POLICIES.

9 ‘‘(a) GENERAL RULE.—There is hereby imposed on

10 any person failing to meet the requirements of subsection

11 (c) or (d) a tax in the amount determined under sub12 section (b).

13 ‘‘(b) AMOUNT.—

14 ‘‘(1) IN GENERAL.—The amount of the tax im15 posed by subsection (a) shall be $100 per policy for

16 each day any requirements of subsection (c) or (d)

17 are not met with respect to each long-term care in18 surance policy.

19 ‘‘(2) WAIVER.—In the case of a failure which is

20 due to reasonable cause and not to willful neglect,

21 the Secretary may waive part or all of the tax im22 posed by subsection (a) to the extent that payment

23 of the tax would be excessive relative to the failure

24 involved.
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1 ‘‘(c) RESPONSIBILITIES.—The requirements of this

2 subsection are as follows:

3 ‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.—

4 ‘‘(A) MODEL REGULATION.—The following

5 requirements of the model regulation must be

6 met:

7 ‘‘(i) Section 13 (relating to application

8 forms and replacement coverage).

9 ‘‘(ii) Section 14 (relating to reporting

10 requirements), except that the issuer shall

11 also report at least annually the number of

12 claims denied during the reporting period

13 for each class of business (expressed as a

14 percentage of claims denied), other than

15 claims denied for failure to meet the wait16 ing period or because of any applicable

17 preexisting condition.

18 ‘‘(iii) Section 20 (relating to filing re19 quirements for marketing).

20 ‘‘(iv) Section 21 (relating to standards

21 for marketing), including inaccurate com22 pletion of medical histories, other than sec23 tions 21C(1) and 21C(6) thereof, except

24 that—
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1 ‘‘(I) in addition to such require2 ments, no person shall, in selling or

3 offering to sell a long-term care insur4 ance policy, misrepresent a material

5 fact; and

6 ‘‘(II) no such requirements shall

7 include a requirement to inquire or

8 identify whether a prospective appli9 cant or enrollee for long-term care in10 surance has accident and sickness in11 surance.

12 ‘‘(v) Section 22 (relating to appro13 priateness of recommended purchase).

14 ‘‘(vi) Section 24 (relating to standard

15 format outline of coverage).

16 ‘‘(vii) Section 25 (relating to require17 ment to deliver shopper’s guide).

18 ‘‘(B) MODEL ACT.—The following require19 ments of the model Act must be met:

20 ‘‘(i) Section 6F (relating to right to

21 return), except that such section shall also

22 apply to denials of applications and any re23 fund shall be made within 30 days of the

24 return or denial.
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1 ‘‘(ii) Section 6G (relating to outline of

2 coverage).

3 ‘‘(iii) Section 6H (relating to require4 ments for certificates under group plans).

5 ‘‘(iv) Section 6I (relating to policy

6 summary).

7 ‘‘(v) Section 6J (relating to monthly

8 reports on accelerated death benefits).

9 ‘‘(vi) Section 7 (relating to incontest10 ability period).

11 ‘‘(C) DEFINITIONS.—For purposes of this

12 paragraph, the terms ‘model regulation’ and

13 ‘model Act’ have the meanings given such terms

14 by section 7702B(f)(2)(B).

15 ‘‘(2) DELIVERY OF POLICY.—If an application

16 for a long-term care insurance policy (or for a cer17 tificate under a group long-term care insurance pol18 icy) is approved, the issuer shall deliver to the appli19 cant (or policyholder or certificateholder) the policy

20 (or certificate) of insurance not later than 30 days

21 after the date of the approval.

22 ‘‘(3) INFORMATION ON DENIALS OF CLAIMS.—

23 If a claim under a long-term care insurance policy

24 is denied, the issuer shall, within 60 days of the date
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1 of a written request by the policyholder or

2 certificateholder (or representative)—

3 ‘‘(A) provide a written explanation of the

4 reasons for the denial, and

5 ‘‘(B) make available all information di6 rectly relating to such denial.

7 ‘‘(d) DISCLOSURE.—The requirements of this sub8 section are met if the issuer of a long-term care insurance

9 policy discloses in such policy and in the outline of cov10 erage required under subsection (c)(1)(B)(ii) that the pol11 icy is intended to be a qualified long-term care insurance

12 contract under section 7702B(b).

13 ‘‘(e) LONG-TERM CARE INSURANCE POLICY DE14 FINED.—For purposes of this section, the term ‘long-term

15 care insurance policy’ means any product which is adver16 tised, marketed, or offered as long-term care insurance.’’.

17 (b) CONFORMING AMENDMENT.—The table of sec18 tions for chapter 43 is amended by adding at the end the

19 following new item:

‘‘Sec. 4980C. Requirements for issuers of long-term care insurance policies.’’.

20 SEC. 327. COORDINATION WITH STATE REQUIREMENTS.

21 Nothing in this part shall prevent a State from estab22 lishing, implementing, or continuing in effect standards

23 related to the protection of policyholders of long-term care

24 insurance policies (as defined in section 4980C(e) of the
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1 Internal Revenue Code of 1986), if such standards are not

2 in conflict with or inconsistent with the standards estab3 lished under such Code.

4 SEC. 328. EFFECTIVE DATES.

5 (a) IN GENERAL.—The provisions of, and amend6 ments made by, this part shall apply to contracts issued

7 after December 31, 1996. The provisions of section 321(g)

8 (relating to transition rule) shall apply to such contracts.

9 (b) ISSUERS.—The amendments made by section 326

10 shall apply to actions taken after December 31, 1996.

11 Subtitle D—Treatment of

12 Accelerated Death Benefits

13 SEC. 331. TREATMENT OF ACCELERATED DEATH BENEFITS

14 BY RECIPIENT.

15 (a) IN GENERAL.—Section 101 (relating to certain

16 death benefits) is amended by adding at the end the fol17 lowing new subsection:

18 ‘‘(g) TREATMENT OF CERTAIN ACCELERATED

19 DEATH BENEFITS.—

20 ‘‘(1) IN GENERAL.—For purposes of this sec21 tion, the following amounts shall be treated as an

22 amount paid by reason of the death of an insured:

23 ‘‘(A) Any amount received under a life in24 surance contract on the life of an insured who

25 is a terminally ill individual.
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1 ‘‘(B) Any amount received under a life in2 surance contract on the life of an insured who

3 is a chronically ill individual (as defined in sec4 tion 7702B(c)(2)) but only if such amount is

5 received under a rider or other provision of

6 such contract which is treated as a qualified

7 long-term care insurance contract under section

8 7702B and such amount is treated under sec9 tion 7702B (after the application of subsection

10 (d) thereof) as a payment for qualified long11 term care services (as defined in such section).

12 ‘‘(2) TREATMENT OF VIATICAL SETTLE13 MENTS.—

14 ‘‘(A) IN GENERAL.—In the case of a life

15 insurance contract on the life of an insured de16 scribed in paragraph (1), if—

17 ‘‘(i) any portion of such contract is

18 sold to any viatical settlement provider, or

19 ‘‘(ii) any portion of the death benefit

20 is assigned to such a provider,

21 the amount paid for such sale or assignment

22 shall be treated as an amount paid under the

23 life insurance contract by reason of the death of

24 such insured.
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1 ‘‘(B) VIATICAL SETTLEMENT PROVIDER.—

2 The term ‘viatical settlement provider’ means

3 any person regularly engaged in the trade or

4 business of purchasing, or taking assignments

5 of, life insurance contracts on the lives of

6 insureds described in paragraph (1) if—

7 ‘‘(i) such person is licensed for such

8 purposes in the State in which the insured

9 resides, or

10 ‘‘(ii) in the case of an insured who re11 sides in a State not requiring the licensing

12 of such persons for such purposes—

13 ‘‘(I) such person meets the re14 quirements of sections 8 and 9 of the

15 Viatical Settlements Model Act of the

16 National Association of Insurance

17 Commissioners, and

18 ‘‘(II) meets the requirements of

19 the Model Regulations of the National

20 Association of Insurance Commis21 sioners (relating to standards for eval22 uation of reasonable payments) in de23 termining amounts paid by such per24 son in connection with such purchases

25 or assignments.
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1 ‘‘(3) DEFINITIONS.—For purposes of this sub2 section—

3 ‘‘(A) TERMINALLY ILL INDIVIDUAL.—The

4 term ‘terminally ill individual’ means an indi5 vidual who has been certified by a physician as

6 having an illness or physical condition which

7 can reasonably be expected to result in death in

8 24 months or less after the date of the certifi9 cation.

10 ‘‘(B) PHYSICIAN.—The term ‘physician’

11 has the meaning given to such term by section

12 1861(r)(1) of the Social Security Act (42

13 U.S.C. 1395x(r)(1)).

14 ‘‘(4) EXCEPTION FOR BUSINESS-RELATED POLI15 CIES.—This subsection shall not apply in the case of

16 any amount paid to any taxpayer other than the in17 sured if such taxpayer has an insurable interest with

18 respect to the life of the insured by reason of the in19 sured being a director, officer, or employee of the

20 taxpayer or by reason of the insured being finan21 cially interested in any trade or business carried on

22 by the taxpayer.’’.

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

24 subsection (a) shall apply to amounts received after De25 cember 31, 1996.
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1 SEC. 332. 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 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 if the

19 only payments under the rider are payments meeting

20 the requirements of section 101(g).

21 ‘‘(3) EXCEPTION FOR LONG-TERM CARE RID22 ERS.—Paragraph (1) shall not apply to any rider

23 which is treated as a long-term care insurance con24 tract under section 7702B.’’.

25 (b) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—The amendment made by

2 this section shall take effect on January 1, 1997.

3 (2) ISSUANCE OF RIDER NOT TREATED AS MA4 TERIAL CHANGE.—For purposes of applying sections

5 101(f), 7702, and 7702A of the Internal Revenue

6 Code of 1986 to any contract—

7 (A) the issuance of a qualified accelerated

8 death benefit rider (as defined in section 818(g)

9 of such Code (as added by this Act)), and

10 (B) the addition of any provision required

11 to conform an accelerated death benefit rider to

12 the requirements of such section 818(g),

13 shall not be treated as a modification or material

14 change of such contract.

15 Subtitle E—High-Risk Pools

16 SEC. 341. EXEMPTION FROM INCOME TAX FOR STATE-SPON17 SORED ORGANIZATIONS PROVIDING HEALTH

18 COVERAGE FOR HIGH-RISK INDIVIDUALS.

19 (a) IN GENERAL.—Subsection (c) of section 501 (re20 lating to list of exempt organizations) is amended by add21 ing at the end the following new paragraph:

22 ‘‘(26) Any membership organization if—

23 ‘‘(A) such organization is established by a

24 State exclusively to provide coverage for medical

25 care (as defined in section 213(d)) on a not-for-
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1 profit basis to individuals described in subpara2 graph (B) through—

3 ‘‘(i) insurance issued by the organiza4 tion, or

5 ‘‘(ii) a health maintenance organiza6 tion under an arrangement with the orga7 nization,

8 ‘‘(B) the only individuals receiving such

9 coverage through the organization are individ10 uals—

11 ‘‘(i) who are residents of such State,

12 and

13 ‘‘(ii) who, by reason of the existence

14 or history of a medical condition, are un15 able to acquire medical care coverage for

16 such condition through insurance or from

17 a health maintenance organization or are

18 able to acquire such coverage only at a

19 rate which is substantially in excess of the

20 rate for such coverage through the mem21 bership organization,

22 ‘‘(C) the composition of the membership in

23 such organization is specified by such State,

24 and
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1 ‘‘(D) no part of the net earnings of the or2 ganization inures to the benefit of any private

3 shareholder or individual.’’.

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

5 this section shall apply to taxable years beginning after

6 December 31, 1996.

7 Subtitle F—Organizations Subject

8 to Section 833

9 SEC. 351. ORGANIZATIONS SUBJECT TO SECTION 833.

10 (a) IN GENERAL.—Section 833(c) (relating to orga11 nization to which section applies) is amended by adding

12 at the end the following new paragraph:

13 ‘‘(4) TREATMENT AS EXISTING BLUE CROSS OR

14 BLUE SHIELD ORGANIZATION.—

15 ‘‘(A) IN GENERAL.—Paragraph (2) shall

16 be applied to an organization described in sub17 paragraph (B) as if it were a Blue Cross or

18 Blue Shield organization.

19 ‘‘(B) APPLICABLE ORGANIZATION.—An or20 ganization is described in this subparagraph if

21 it—

22 ‘‘(i) is organized under, and governed

23 by, State laws which are specifically and

24 exclusively applicable to not-for-profit
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1 health insurance or health service type or2 ganizations, and

3 ‘‘(ii) is not a Blue Cross or Blue

4 Shield organization or health maintenance

5 organization.’’.

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

7 this section shall apply to taxable years ending after De8 cember 31, 1996.

9 TITLE IV—REVENUE OFFSETS

10 SEC. 400. AMENDMENT OF 1986 CODE.

11 Except as otherwise expressly provided, whenever in

12 this title an amendment or repeal is expressed in terms

13 of an amendment to, or repeal of, a section or other provi14 sion, the reference shall be considered to be made to a

15 section or other provision of the Internal Revenue Code

16 of 1986.

17 Subtitle A—Repeal of Bad Debt Re18 serve Method for Thrift Savings

19 Associations

20 SEC. 401. REPEAL OF BAD DEBT RESERVE METHOD FOR

21 THRIFT SAVINGS ASSOCIATIONS.

22 (a) IN GENERAL.—Section 593 (relating to reserves

23 for losses on loans) is amended by adding at the end the

24 following new subsections:
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1 ‘‘(f) TERMINATION OF RESERVE METHOD.—Sub2 sections (a), (b), (c), and (d) shall not apply to any taxable

3 year beginning after December 31, 1995.

4 ‘‘(g) 6-YEAR SPREAD OF ADJUSTMENTS.—

5 ‘‘(1) IN GENERAL.—In the case of any taxpayer

6 who is required by reason of subsection (f) to change

7 its method of computing reserves for bad debts—

8 ‘‘(A) such change shall be treated as a

9 change in a method of accounting,

10 ‘‘(B) such change shall be treated as initi11 ated by the taxpayer and as having been made

12 with the consent of the Secretary, and

13 ‘‘(C) the net amount of the adjustments

14 required to be taken into account by the tax15 payer under section 481(a)—

16 ‘‘(i) shall be determined by taking into

17 account only applicable excess reserves,

18 and

19 ‘‘(ii) as so determined, shall be taken

20 into account ratably over the 6-taxable

21 year period beginning with the first taxable

22 year beginning after December 31, 1995.

23 ‘‘(2) APPLICABLE EXCESS RESERVES.—
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1 ‘‘(A) IN GENERAL.—For purposes of para2 graph (1), the term ‘applicable excess reserves’

3 means the excess (if any) of—

4 ‘‘(i) the balance of the reserves de5 scribed in subsection (c)(1) (other than the

6 supplemental reserve) as of the close of the

7 taxpayer’s last taxable year beginning be8 fore December 31, 1995, over

9 ‘‘(ii) the lesser of—

10 ‘‘(I) the balance of such reserves

11 as of the close of the taxpayer’s last

12 taxable year beginning before January

13 1, 1988, or

14 ‘‘(II) the balance of the reserves

15 described in subclause (I), reduced in

16 the same manner as under section

17 585(b)(2)(B)(ii) on the basis of the

18 taxable years described in clause (i)

19 and this clause.

20 ‘‘(B) SPECIAL RULE FOR THRIFTS WHICH

21 BECOME SMALL BANKS.—In the case of a bank

22 (as defined in section 581) which was not a

23 large bank (as defined in section 585(c)(2)) for

24 its first taxable year beginning after December

25 31, 1995—
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1 ‘‘(i) the balance taken into account

2 under subparagraph (A)(ii) shall not be

3 less than the amount which would be the

4 balance of such reserves as of the close of

5 its last taxable year beginning before such

6 date if the additions to such reserves for

7 all taxable years had been determined

8 under section 585(b)(2)(A), and

9 ‘‘(ii) the opening balance of the re10 serve for bad debts as of the beginning of

11 such first taxable year shall be the balance

12 taken into account under subparagraph

13 (A)(ii) (determined after the application of

14 clause (i) of this subparagraph).

15 The preceding sentence shall not apply for pur16 poses of paragraphs (5) and (6) or subsection

17 (e)(1).

18 ‘‘(3) RECAPTURE OF PRE-1988 RESERVES

19 WHERE TAXPAYER CEASES TO BE BANK.—If, during

20 any taxable year beginning after December 31,

21 1995, a taxpayer to which paragraph (1) applied is

22 not a bank (as defined in section 581), paragraph

23 (1) shall apply to the reserves described in para24 graph (2)(A)(ii) and the supplemental reserve; ex25 cept that such reserves shall be taken into account
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1 ratably over the 6-taxable year period beginning with

2 such taxable year.

3 ‘‘(4) SUSPENSION OF RECAPTURE IF RESIDEN4 TIAL LOAN REQUIREMENT MET.—

5 ‘‘(A) IN GENERAL.—In the case of a bank

6 which meets the residential loan requirement of

7 subparagraph (B) for the first taxable year be8 ginning after December 31, 1995, or for the

9 following taxable year—

10 ‘‘(i) no adjustment shall be taken into

11 account under paragraph (1) for such tax12 able year, and

13 ‘‘(ii) such taxable year shall be dis14 regarded in determining—

15 ‘‘(I) whether any other taxable

16 year is a taxable year for which an

17 adjustment is required to be taken

18 into account under paragraph (1), and

19 ‘‘(II) the amount of such adjust20 ment.

21 ‘‘(B) RESIDENTIAL LOAN REQUIRE22 MENT.—A taxpayer meets the residential loan

23 requirement of this subparagraph for any tax24 able year if the principal amount of the residen25 tial loans made by the taxpayer during such
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1 year is not less than the base amount for such

2 year.

3 ‘‘(C) RESIDENTIAL LOAN.—For purposes

4 of this paragraph, the term ‘residential loan’

5 means any loan described in clause (v) of sec6 tion 7701(a)(19)(C) but only if such loan is in7 curred in acquiring, constructing, or improving

8 the property described in such clause.

9 ‘‘(D) BASE AMOUNT.—For purposes of

10 subparagraph (B), the base amount is the aver11 age of the principal amounts of the residential

12 loans made by the taxpayer during the 6 most

13 recent taxable years beginning on or before De14 cember 31, 1995. At the election of the tax15 payer who made such loans during each of such

16 6 taxable years, the preceding sentence shall be

17 applied without regard to the taxable year in

18 which such principal amount was the highest

19 and the taxable year in such principal amount

20 was the lowest. Such an election may be made

21 only for the first taxable year beginning after

22 such date, and, if made for such taxable year,

23 shall apply to the succeeding taxable year un24 less revoked with the consent of the Secretary.
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1 ‘‘(E) CONTROLLED GROUPS.—In the case

2 of a taxpayer which is a member of any con3 trolled group of corporations described in sec4 tion 1563(a)(1), subparagraph (B) shall be ap5 plied with respect to such group.

6 ‘‘(5) CONTINUED APPLICATION OF FRESH

7 START UNDER SECTION 585 TRANSITIONAL RULES.—

8 In the case of a taxpayer to which paragraph (1) ap9 plied and which was not a large bank (as defined in

10 section 585(c)(2)) for its first taxable year beginning

11 after December 31, 1995:

12 ‘‘(A) IN GENERAL.—For purposes of deter13 mining the net amount of adjustments referred

14 to in section 585(c)(3)(A)(iii), there shall be

15 taken into account only the excess (if any) of

16 the reserve for bad debts as of the close of the

17 last taxable year before the disqualification year

18 over the balance taken into account by such

19 taxpayer under paragraph (2)(A)(ii) of this sub20 section.

21 ‘‘(B) TREATMENT UNDER ELECTIVE CUT22 OFF METHOD.—For purposes of applying sec23 tion 585(c)(4)—

24 ‘‘(i) the balance of the reserve taken

25 into account under subparagraph (B)
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1 thereof shall be reduced by the balance

2 taken into account by such taxpayer under

3 paragraph (2)(A)(ii) of this subsection,

4 and

5 ‘‘(ii) no amount shall be includible in

6 gross income by reason of such reduction.

7 ‘‘(6) SUSPENDED RESERVE INCLUDED AS SEC8 TION 381(c) ITEMS.—The balance taken into account

9 by a taxpayer under paragraph (2)(A)(ii) of this

10 subsection and the supplemental reserve shall be

11 treated as items described in section 381(c).

12 ‘‘(7) CONVERSIONS TO CREDIT UNIONS.—In the

13 case of a taxpayer to which paragraph (1) applied

14 which becomes a credit union described in section

15 501(c) and exempt from taxation under section

16 501(a)—

17 ‘‘(A) any amount required to be included

18 in the gross income of the credit union by rea19 son of this subsection shall be treated as de20 rived from an unrelated trade or business (as

21 defined in section 513), and

22 ‘‘(B) for purposes of paragraph (3), the

23 credit union shall not be treated as if it were

24 a bank.
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1 ‘‘(8) REGULATIONS.—The Secretary shall pre2 scribe such regulations as may be necessary to carry

3 out this subsection and subsection (e), including reg4 ulations providing for the application of such sub5 sections in the case of acquisitions, mergers, spin6 offs, and other reorganizations.’’.

7 (b) CONFORMING AMENDMENTS.—

8 (1) Subsection (d) of section 50 is amended by

9 adding at the end the following new sentence:

10 ‘‘Paragraphs (1)(A), (2)(A), and (4) of the section 46(e)

11 referred to in paragraph (1) of this subsection shall not

12 apply to any taxable year beginning after December 31,

13 1995.’’

14 (2) Subsection (e) of section 52 is amended by

15 striking paragraph (1) and by redesignating para16 graphs (2) and (3) as paragraphs (1) and (2), re17 spectively.

18 (3) Subsection (a) of section 57 is amended by

19 striking paragraph (4).

20 (4) Section 246 is amended by striking sub21 section (f).

22 (5) Clause (i) of section 291(e)(1)(B) is amend23 ed by striking ‘‘or to which section 593 applies’’.
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1 (6) Subparagraph (A) of section 585(a)(2) is

2 amended by striking ‘‘other than an organization to

3 which section 593 applies’’.

4 (7)(A) The material preceding subparagraph

5 (A) of section 593(e)(1) is amended by striking ‘‘by

6 a domestic building and loan association or an insti7 tution that is treated as a mutual savings bank

8 under section 591(b)’’ and inserting ‘‘by a taxpayer

9 having a balance described in subsection

10 (g)(2)(A)(ii)’’.

11 (B) Subparagraph (B) of section 593(e)(1) is

12 amended to read as follows:

13 ‘‘(B) then out of the balance taken into ac14 count under subsection (g)(2)(A)(ii) (properly

15 adjusted for amounts charged against such re16 serves for taxable years beginning after Decem17 ber 31, 1987),’’.

18 (C) Paragraph (1) of section 593(e) is amended

19 by adding at the end the following new sentence:

20 ‘‘This paragraph shall not apply to any distribution

21 of all of the stock of a bank (as defined in section

22 581) to another corporation if, immediately after the

23 distribution, such bank and such other corporation

24 are members of the same affiliated group (as defined

25 in section 1504) and the provisions of section 5(e)
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1 of the Federal Deposit Insurance Act (as in effect

2 on December 31, 1995) or similar provisions are in

3 effect.’’

4 (8) Section 595 is hereby repealed.

5 (9) Section 596 is hereby repealed.

6 (10) Subsection (a) of section 860E is amend7 ed—

8 (A) by striking ‘‘Except as provided in

9 paragraph (2), the’’ in paragraph (1) and in10 serting ‘‘The’’,

11 (B) by striking paragraphs (2) and (4) and

12 redesignating paragraphs (3) and (5) as para13 graphs (2) and (3), respectively, and

14 (C) by striking in paragraph (2) (as so re15 designated) all that follows ‘‘subsection’’ and

16 inserting a period.

17 (11) Paragraph (3) of section 992(d) is amend18 ed by striking ‘‘or 593’’.

19 (12) Section 1038 is amended by striking sub20 section (f).

21 (13) Clause (ii) of section 1042(c)(4)(B) is

22 amended by striking ‘‘or 593’’.

23 (14) Subsection (c) of section 1277 is amended

24 by striking ‘‘or to which section 593 applies’’.
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1 (15) Subparagraph (B) of section 1361(b)(2) is

2 amended by striking ‘‘or to which section 593 ap3 plies’’.

4 (16) The table of sections for part II of sub5 chapter H of chapter 1 is amended by striking the

6 items relating to sections 595 and 596.

7 (c) EFFECTIVE DATES.—

8 (1) IN GENERAL.—Except as otherwise pro9 vided in this subsection, the amendments made by

10 this section shall apply to taxable years beginning

11 after December 31, 1995.

12 (2) SUBSECTION (b)(7).—The amendments

13 made by subsection (b)(7) shall not apply to any dis14 tribution with respect to preferred stock if—

15 (A) such stock is outstanding at all times

16 after October 31, 1995, and before the distribu17 tion, and

18 (B) such distribution is made before the

19 date which is 1 year after the date of the enact20 ment of this Act (or, in the case of stock which

21 may be redeemed, if later, the date which is 30

22 days after the earliest date that such stock may

23 be redeemed).

24 (3) SUBSECTION (b)(8).—The amendment

25 made by subsection (b)(8) shall apply to property
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1 acquired in taxable years beginning after December

2 31, 1995.

3 (4) SUBSECTION (b)(10).—The amendments

4 made by subsection (b)(10) shall not apply to any

5 residual interest held by a taxpayer if such interest

6 has been held by such taxpayer at all times after Oc7 tober 31, 1995.

8 Subtitle B—Reform of the Earned

9 Income Credit

10 SEC. 411. EARNED INCOME CREDIT DENIED TO INDIVID11 UALS NOT AUTHORIZED TO BE EMPLOYED IN

12 THE UNITED STATES.

13 (a) IN GENERAL.—Section 32(c)(1) (relating to indi14 viduals eligible to claim the earned income credit) is

15 amended by adding at the end the following new subpara16 graph:

17 ‘‘(F) IDENTIFICATION NUMBER REQUIRE18 MENT.—The term ‘eligible individual’ does not

19 include any individual who does not include on

20 the return of tax for the taxable year—

21 ‘‘(i) such individual’s taxpayer identi22 fication number, and

23 ‘‘(ii) if the individual is married (with24 in the meaning of section 7703), the tax-
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1 payer identification number of such indi2 vidual’s spouse.’’.

3 (b) SPECIAL IDENTIFICATION NUMBER.—Section 32

4 is amended by adding at the end the following new sub5 section:

6 ‘‘(l) IDENTIFICATION NUMBERS.—Solely for pur7 poses of subsections (c)(1)(F) and (c)(3)(D), a taxpayer

8 identification number means a social security number is9 sued to an individual by the Social Security Administra10 tion (other than a social security number issued pursuant

11 to clause (II) (or that portion of clause (III) that relates

12 to clause (II)) of section 205(c)(2)(B)(i) of the Social Se13 curity Act).’’.

14 (c) EXTENSION OF PROCEDURES APPLICABLE TO

15 MATHEMATICAL OR CLERICAL ERRORS.—Section

16 6213(g)(2) (relating to the definition of mathematical or

17 clerical errors) is amended by striking ‘‘and’’ at the end

18 of subparagraph (D), by striking the period at the end

19 of subparagraph (E) and inserting a comma, and by in20 serting after subparagraph (E) the following new subpara21 graphs:

22 ‘‘(F) an omission of a correct taxpayer

23 identification number required under section 32

24 (relating to the earned income credit) to be in25 cluded on a return, and
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1 ‘‘(G) an entry on a return claiming the

2 credit under section 32 with respect to net

3 earnings from self-employment described in sec4 tion 32(c)(2)(A) to the extent the tax imposed

5 by section 1401 (relating to self-employment

6 tax) on such net earnings has not been paid.’’.

7 (d) EFFECTIVE DATE.—The amendments made by

8 this section shall apply to taxable years beginning after

9 December 31, 1995.

10 Subtitle C—Treatment of Individ11 uals Who Lose United States

12 Citizenship

13 SEC. 421. REVISION OF INCOME, ESTATE, AND GIFT TAXES

14 ON INDIVIDUALS WHO LOSE UNITED STATES

15 CITIZENSHIP.

16 (a) IN GENERAL.—Subsection (a) of section 877 is

17 amended to read as follows:

18 ‘‘(a) TREATMENT OF EXPATRIATES.—

19 ‘‘(1) IN GENERAL.—Every nonresident alien in20 dividual who, within the 10-year period immediately

21 preceding the close of the taxable year, lost United

22 States citizenship, unless such loss did not have for

23 1 of its principal purposes the avoidance of taxes

24 under this subtitle or subtitle B, shall be taxable for

25 such taxable year in the manner provided in sub-
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1 section (b) if the tax imposed pursuant to such sub2 section exceeds the tax which, without regard to this

3 section, is imposed pursuant to section 871.

4 ‘‘(2) CERTAIN INDIVIDUALS TREATED AS HAV5 ING TAX AVOIDANCE PURPOSE.—For purposes of

6 paragraph (1), an individual shall be treated as hav7 ing a principal purpose to avoid such taxes if—

8 ‘‘(A) the average annual net income tax

9 (as defined in section 38(c)(1)) of such individ10 ual for the period of 5 taxable years ending be11 fore the date of the loss of United States citi12 zenship is greater than $100,000, or

13 ‘‘(B) the net worth of the individual as of

14 such date is $500,000 or more.

15 In the case of the loss of United States citizenship

16 in any calendar year after 1996, such $100,000 and

17 $500,000 amounts shall be increased by an amount

18 equal to such dollar amount multiplied by the cost19 of-living adjustment determined under section

20 1(f)(3) for such calendar year by substituting ‘1994’

21 for ‘1992’ in subparagraph (B) thereof. Any in22 crease under the preceding sentence shall be round23 ed to the nearest multiple of $1,000.’’.

24 (b) EXCEPTIONS.—
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1 (1) IN GENERAL.—Section 877 is amended by

2 striking subsection (d), by redesignating subsection

3 (c) as subsection (d), and by inserting after sub4 section (b) the following new subsection:

5 ‘‘(c) TAX AVOIDANCE NOT PRESUMED IN CERTAIN

6 CASES.—

7 ‘‘(1) IN GENERAL.—Subsection (a)(2) shall not

8 apply to an individual if—

9 ‘‘(A) such individual is described in a sub10 paragraph of paragraph (2) of this subsection,

11 and

12 ‘‘(B) within the 1-year period beginning on

13 the date of the loss of United States citizenship,

14 such individual submits a ruling request for the

15 Secretary’s determination as to whether such

16 loss has for 1 of its principal purposes the

17 avoidance of taxes under this subtitle or subtitle

18 B.

19 ‘‘(2) INDIVIDUALS DESCRIBED.—

20 ‘‘(A) DUAL CITIZENSHIP, ETC.—An indi21 vidual is described in this subparagraph if—

22 ‘‘(i) the individual became at birth a

23 citizen of the United States and a citizen

24 of another country and continues to be a

25 citizen of such other country, or
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1 ‘‘(ii) the individual becomes (not later

2 than the close of a reasonable period after

3 loss of United States citizenship) a citizen

4 of the country in which—

5 ‘‘(I) such individual was born,

6 ‘‘(II) if such individual is mar7 ried, such individual’s spouse was

8 born, or

9 ‘‘(III) either of such individual’s

10 parents were born.

11 ‘‘(B) LONG-TERM FOREIGN RESIDENTS.—

12 An individual is described in this subparagraph

13 if, for each year in the 10-year period ending on

14 the date of loss of United States citizenship, the

15 individual was present in the United States for

16 30 days or less. The rule of section

17 7701(b)(3)(D)(ii) shall apply for purposes of

18 this subparagraph.

19 ‘‘(C) RENUNCIATION UPON REACHING AGE

20 OF MAJORITY.—An individual is described in

21 this subparagraph if the individual’s loss of

22 United States citizenship occurs before such individual attains age 181 23 ⁄2.

24 ‘‘(D) INDIVIDUALS SPECIFIED IN REGULA25 TIONS.—An individual is described in this sub-
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1 paragraph if the individual is described in a

2 category of individuals prescribed by regulation

3 by the Secretary.’’

4 (2) TECHNICAL AMENDMENT.—Paragraph (1)

5 of section 877(b) of such Code is amended by strik6 ing ‘‘subsection (c)’’ and inserting ‘‘subsection (d)’’.

7 (c) TREATMENT OF PROPERTY DISPOSED OF IN

8 NONRECOGNITION TRANSACTIONS; TREATMENT OF DIS9 TRIBUTIONS FROM CERTAIN CONTROLLED FOREIGN

10 CORPORATIONS.—Subsection (d) of section 877, as redes11 ignated by subsection (b), is amended to read as follows:

12 ‘‘(d) SPECIAL RULES FOR SOURCE, ETC.—For pur13 poses of subsection (b)—

14 ‘‘(1) SOURCE RULES.—The following items of

15 gross income shall be treated as income from sources

16 within the United States:

17 ‘‘(A) SALE OF PROPERTY.—Gains on the

18 sale or exchange of property (other than stock

19 or debt obligations) located in the United

20 States.

21 ‘‘(B) STOCK OR DEBT OBLIGATIONS.—

22 Gains on the sale or exchange of stock issued

23 by a domestic corporation or debt obligations of

24 United States persons or of the United States,
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1 a State or political subdivision thereof, or the

2 District of Columbia.

3 ‘‘(C) INCOME OR GAIN DERIVED FROM

4 CONTROLLED FOREIGN CORPORATION.—Any in5 come or gain derived from stock in a foreign

6 corporation but only—

7 ‘‘(i) if the individual losing United

8 States citizenship owned (within the mean9 ing of section 958(a)), or is considered as

10 owning (by applying the ownership rules of

11 section 958(b)), at any time during the 2-

12 year period ending on the date of the loss

13 of United States citizenship, more than 50

14 percent of—

15 ‘‘(I) the total combined voting

16 power of all classes of stock entitled

17 to vote of such corporation, or

18 ‘‘(II) the total value of the stock

19 of such corporation, and

20 ‘‘(ii) to the extent such income or gain

21 does not exceed the earnings and profits

22 attributable to such stock which were

23 earned or accumulated before the loss of

24 citizenship and during periods that the
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1 ownership requirements of clause (i) are

2 met.

3 ‘‘(2) GAIN RECOGNITION ON CERTAIN EX4 CHANGES.—

5 ‘‘(A) IN GENERAL.—In the case of any ex6 change of property to which this paragraph ap7 plies, notwithstanding any other provision of

8 this title, such property shall be treated as sold

9 for its fair market value on the date of such ex10 change, and any gain shall be recognized for

11 the taxable year which includes such date.

12 ‘‘(B) EXCHANGES TO WHICH PARAGRAPH

13 APPLIES.—This paragraph shall apply to any

14 exchange during the 10-year period described in

15 subsection (a) if—

16 ‘‘(i) gain would not (but for this para17 graph) be recognized on such exchange in

18 whole or in part for purposes of this sub19 title,

20 ‘‘(ii) income derived from such prop21 erty was from sources within the United

22 States (or, if no income was so derived,

23 would have been from such sources), and
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1 ‘‘(iii) income derived from the prop2 erty acquired in the exchange would be

3 from sources outside the United States.

4 ‘‘(C) EXCEPTION.—Subparagraph (A)

5 shall not apply if the individual enters into an

6 agreement with the Secretary which specifies

7 that any income or gain derived from the prop8 erty acquired in the exchange (or any other

9 property which has a basis determined in whole

10 or part by reference to such property) during

11 such 10-year period shall be treated as from

12 sources within the United States. If the prop13 erty transferred in the exchange is disposed of

14 by the person acquiring such property, such

15 agreement shall terminate and any gain which

16 was not recognized by reason of such agreement

17 shall be recognized as of the date of such dis18 position.

19 ‘‘(D) SECRETARY MAY EXTEND PERIOD.—

20 To the extent provided in regulations prescribed

21 by the Secretary, subparagraph (B) shall be ap22 plied by substituting the 15-year period begin23 ning 5 years before the loss of United States

24 citizenship for the 10-year period referred to

25 therein.
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1 ‘‘(E) SECRETARY MAY REQUIRE RECOGNI2 TION OF GAIN IN CERTAIN CASES.—To the ex3 tent provided in regulations prescribed by the

4 Secretary—

5 ‘‘(i) the removal of appreciated tan6 gible personal property from the United

7 States, and

8 ‘‘(ii) any other occurrence which

9 (without recognition of gain) results in a

10 change in the source of the income or gain

11 from property from sources within the

12 United States to sources outside the Unit13 ed States,

14 shall be treated as an exchange to which this

15 paragraph applies.

16 ‘‘(3) SUBSTANTIAL DIMINISHING OF RISKS OF

17 OWNERSHIP.—For purposes of determining whether

18 this section applies to any gain on the sale or ex19 change of any property, the running of the 10-year

20 period described in subsection (a) shall be suspended

21 for any period during which the individual’s risk of

22 loss with respect to the property is substantially di23 minished by—

24 ‘‘(A) the holding of a put with respect to

25 such property (or similar property),
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1 ‘‘(B) the holding by another person of a

2 right to acquire the property, or

3 ‘‘(C) a short sale or any other trans4 action.’’.

5 (d) CREDIT FOR FOREIGN TAXES IMPOSED ON

6 UNITED STATES SOURCE INCOME.—

7 (1) Subsection (b) of section 877 is amended by

8 adding at the end the following new sentence: ‘‘The

9 tax imposed solely by reason of this section shall be

10 reduced (but not below zero) by the amount of any

11 income, war profits, and excess profits taxes (within

12 the meaning of section 903) paid to any foreign

13 country or possession of the United States on any

14 income of the taxpayer on which tax is imposed sole15 ly by reason of this section.’’

16 (2) Subsection (a) of section 877, as amended

17 by subsection (a), is amended by inserting ‘‘(after

18 any reduction in such tax under the last sentence of

19 such subsection)’’ after ‘‘such subsection’’.

20 (e) COMPARABLE ESTATE AND GIFT TAX TREAT21 MENT.—

22 (1) ESTATE TAX.—

23 (A) IN GENERAL.—Subsection (a) of sec24 tion 2107 is amended to read as follows:

25 ‘‘(a) TREATMENT OF EXPATRIATES.—
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1 ‘‘(1) RATE OF TAX.—A tax computed in accord2 ance with the table contained in section 2001 is

3 hereby imposed on the transfer of the taxable estate,

4 determined as provided in section 2106, of every de5 cedent nonresident not a citizen of the United States

6 if, within the 10-year period ending with the date

7 of death, such decedent lost United States citizen8 ship, unless such loss did not have for 1 of its prin9 cipal purposes the avoidance of taxes under this sub10 title or subtitle A.

11 ‘‘(2) CERTAIN INDIVIDUALS TREATED AS HAV12 ING TAX AVOIDANCE PURPOSE.—

13 ‘‘(A) IN GENERAL.—For purposes of para14 graph (1), an individual shall be treated as hav15 ing a principal purpose to avoid such taxes if

16 such individual is so treated under section

17 877(a)(2).

18 ‘‘(B) EXCEPTION.—Subparagraph (A)

19 shall not apply to a decedent meeting the re20 quirements of section 877(c)(1).’’.

21 (B) CREDIT FOR FOREIGN DEATH

22 TAXES.—Subsection (c) of section 2107 is

23 amended by redesignating paragraph (2) as

24 paragraph (3) and by inserting after paragraph

25 (1) the following new paragraph:
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1 ‘‘(2) CREDIT FOR FOREIGN DEATH TAXES.—

2 ‘‘(A) IN GENERAL.—The tax imposed by

3 subsection (a) shall be credited with the amount

4 of any estate, inheritance, legacy, or succession

5 taxes actually paid to any foreign country in re6 spect of any property which is included in the

7 gross estate solely by reason of subsection (b).

8 ‘‘(B) LIMITATION ON CREDIT.—The credit

9 allowed by subparagraph (A) for such taxes

10 paid to a foreign country shall not exceed the

11 lesser of—

12 ‘‘(i) the amount which bears the same

13 ratio to the amount of such taxes actually

14 paid to such foreign country in respect of

15 property included in the gross estate as the

16 value of the property included in the gross

17 estate solely by reason of subsection (b)

18 bears to the value of all property subjected

19 to such taxes by such foreign country, or

20 ‘‘(ii) such property’s proportionate

21 share of the excess of—

22 ‘‘(I) the tax imposed by sub23 section (a), over
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1 ‘‘(II) the tax which would be im2 posed by section 2101 but for this

3 section.

4 ‘‘(C) PROPORTIONATE SHARE.—For pur5 poses of subparagraph (B), a property’s propor6 tionate share is the percentage of the value of

7 the property which is included in the gross es8 tate solely by reason of subsection (b) bears to

9 the total value of the gross estate.’’.

10 (C) EXPANSION OF INCLUSION IN GROSS

11 ESTATE OF STOCK OF FOREIGN CORPORA12 TIONS.—Paragraph (2) of section 2107(b) is

13 amended by striking ‘‘more than 50 percent of’’

14 and all that follows and inserting ‘‘more than

15 50 percent of—

16 ‘‘(A) the total combined voting power of all

17 classes of stock entitled to vote of such corpora18 tion, or

19 ‘‘(B) the total value of the stock of such

20 corporation,’’.

21 (2) GIFT TAX.—

22 (A) IN GENERAL.—Paragraph (3) of sec23 tion 2501(a) is amended to read as follows:

24 ‘‘(3) EXCEPTION.—
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1 ‘‘(A) CERTAIN INDIVIDUALS.—Paragraph

2 (2) shall not apply in the case of a donor who,

3 within the 10-year period ending with the date

4 of transfer, lost United States citizenship, un5 less such loss did not have for 1 of its principal

6 purposes the avoidance of taxes under this sub7 title or subtitle A.

8 ‘‘(B) CERTAIN INDIVIDUALS TREATED AS

9 HAVING TAX AVOIDANCE PURPOSE.—For pur10 poses of subparagraph (A), an individual shall

11 be treated as having a principal purpose to

12 avoid such taxes if such individual is so treated

13 under section 877(a)(2).

14 ‘‘(C) EXCEPTION FOR CERTAIN INDIVID15 UALS.—Subparagraph (B) shall not apply to a

16 decedent meeting the requirements of section

17 877(c)(1).

18 ‘‘(D) CREDIT FOR FOREIGN GIFT TAXES.—

19 The tax imposed by this section solely by reason

20 of this paragraph shall be credited with the

21 amount of any gift tax actually paid to any for22 eign country in respect of any gift which is tax23 able under this section solely by reason of this

24 paragraph.’’.
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1 (f) COMPARABLE TREATMENT OF LAWFUL PERMA2 NENT RESIDENTS WHO CEASE TO BE TAXED AS RESI3 DENTS.—

4 (1) IN GENERAL.—Section 877 is amended by

5 redesignating subsection (e) as subsection (f) and by

6 inserting after subsection (d) the following new sub7 section:

8 ‘‘(e) COMPARABLE TREATMENT OF LAWFUL PERMA9 NENT RESIDENTS WHO CEASE TO BE TAXED AS RESI10 DENTS.—

11 ‘‘(1) IN GENERAL.—Any long-term resident of

12 the United States who—

13 ‘‘(A) ceases to be a lawful permanent resi14 dent of the United States (within the meaning

15 of section 7701(b)(6)), or

16 ‘‘(B) commences to be treated as a resi17 dent of a foreign country under the provisions

18 of a tax treaty between the United States and

19 the foreign country and who does not waive the

20 benefits of such treaty applicable to residents of

21 the foreign country,

22 shall be treated for purposes of this section and sec23 tions 2107, 2501, and 6039F in the same manner

24 as if such resident were a citizen of the United
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1 States who lost United States citizenship on the date

2 of such cessation or commencement.

3 ‘‘(2) LONG-TERM RESIDENT.—For purposes of

4 this subsection, the term ‘long-term resident’ means

5 any individual (other than a citizen of the United

6 States) who is a lawful permanent resident of the

7 United States in at least 8 taxable years during the

8 period of 15 taxable years ending with the taxable

9 year during which the event described in subpara10 graph (A) or (B) of paragraph (1) occurs. For pur11 poses of the preceding sentence, an individual shall

12 not be treated as a lawful permanent resident for

13 any taxable year if such individual is treated as a

14 resident of a foreign country for the taxable year

15 under the provisions of a tax treaty between the

16 United States and the foreign country and does not

17 waive the benefits of such treaty applicable to resi18 dents of the foreign country.

19 ‘‘(3) SPECIAL RULES.—

20 ‘‘(A) EXCEPTIONS NOT TO APPLY.—Sub21 section (c) shall not apply to an individual who

22 is treated as provided in paragraph (1).

23 ‘‘(B) STEP-UP IN BASIS.—Solely for pur24 poses of determining any tax imposed by reason

25 of this subsection, property which was held by
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1 the long-term resident on the date the individ2 ual first became a resident of the United States

3 shall be treated as having a basis on such date

4 of not less than the fair market value of such

5 property on such date. The preceding sentence

6 shall not apply if the individual elects not to

7 have such sentence apply. Such an election,

8 once made, shall be irrevocable.

9 ‘‘(4) AUTHORITY TO EXEMPT INDIVIDUALS.—

10 This subsection shall not apply to an individual who

11 is described in a category of individuals prescribed

12 by regulation by the Secretary.

13 ‘‘(5) REGULATIONS.—The Secretary shall pre14 scribe such regulations as may be appropriate to

15 carry out this subsection, including regulations pro16 viding for the application of this subsection in cases

17 where an alien individual becomes a resident of the

18 United States during the 10-year period after being

19 treated as provided in paragraph (1).’’.

20 (2) CONFORMING AMENDMENTS.—

21 (A) Section 2107 is amended by striking

22 subsection (d), by redesignating subsection (e)

23 as subsection (d), and by inserting after sub24 section (d) (as so redesignated) the following

25 new subsection:
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1 ‘‘(e) CROSS REFERENCE.—

‘‘For comparable treatment of long-term lawful

permanent residents who ceased to be taxed as residents, see section 877(e).’’.

2 (B) Paragraph (3) of section 2501(a) (as

3 amended by subsection (e)) is amended by add4 ing at the end the following new subparagraph:

5 ‘‘(E) CROSS REFERENCE.—

‘‘For comparable treatment of long-term lawful

permanent residents who ceased to be taxed as residents, see section 877(e).’’.

6 (g) EFFECTIVE DATE.—

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

8 this section shall apply to—

9 (A) individuals losing United States citi10 zenship (within the meaning of section 877 of

11 the Internal Revenue Code of 1986) on or after

12 February 6, 1995, and

13 (B) long-term residents of the United

14 States with respect to whom an event described

15 in subparagraph (A) or (B) of section 877(e)(1)

16 of such Code occurs on or after February 6,

17 1995.

18 (2) SPECIAL RULE.—

19 (A) IN GENERAL.—In the case of an indi20 vidual who performed an act of expatriation

21 specified in paragraph (1), (2), (3), or (4) of

22 section 349(a) of the Immigration and Nation-
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1 ality Act (8 U.S.C. 1481(a)(1)–(4)) before Feb2 ruary 6, 1995, but who did not, on or before

3 such date, furnish to the United States Depart4 ment of State a signed statement of voluntary

5 relinquishment of United States nationality con6 firming the performance of such act, the

7 amendments made by this section and section

8 11349 shall apply to such individual except

9 that—

10 (i) the 10-year period described in

11 section 877(a) of such Code shall not ex12 pire before the end of the 10-year period

13 beginning on the date such statement is so

14 furnished, and

15 (ii) the 1-year period referred to in

16 section 877(c) of such Code, as amended

17 by this section, shall not expire before the

18 date which is 1 year after the date of the

19 enactment of this Act.

20 (B) EXCEPTION.—Subparagraph (A) shall

21 not apply if the individual establishes to the

22 satisfaction of the Secretary of the Treasury

23 that such loss of United States citizenship oc24 curred before February 6, 1994.
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1 SEC. 422. INFORMATION ON INDIVIDUALS LOSING UNITED

2 STATES CITIZENSHIP.

3 (a) IN GENERAL.—Subpart A of part III of sub4 chapter A of chapter 61 is amended by inserting after sec5 tion 6039E the following new section:

6 ‘‘SEC. 6039F. INFORMATION ON INDIVIDUALS LOSING UNIT7 ED STATES CITIZENSHIP.

8 ‘‘(a) IN GENERAL.—Notwithstanding any other pro9 vision of law, any individual who loses United States citi10 zenship (within the meaning of section 877(a)) shall pro11 vide a statement which includes the information described

12 in subsection (b). Such statement shall be—

13 ‘‘(1) provided not later than the earliest date of

14 any act referred to in subsection (c), and

15 ‘‘(2) provided to the person or court referred to

16 in subsection (c) with respect to such act.

17 ‘‘(b) INFORMATION TO BE PROVIDED.—Information

18 required under subsection (a) shall include—

19 ‘‘(1) the taxpayer’s TIN,

20 ‘‘(2) the mailing address of such individual’s

21 principal foreign residence,

22 ‘‘(3) the foreign country in which such individ23 ual is residing,

24 ‘‘(4) the foreign country of which such individ25 ual is a citizen,
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1 ‘‘(5) in the case of an individual having a net

2 worth of at least the dollar amount applicable under

3 section 877(a)(2)(B), information detailing the as4 sets and liabilities of such individual, and

5 ‘‘(6) such other information as the Secretary

6 may prescribe.

7 ‘‘(c) ACTS DESCRIBED.—For purposes of this sec8 tion, the acts referred to in this subsection are—

9 ‘‘(1) the individual’s renunciation of his United

10 States nationality before a diplomatic or consular of11 ficer of the United States pursuant to paragraph (5)

12 of section 349(a) of the Immigration and Nationality

13 Act (8 U.S.C. 1481(a)(5)),

14 ‘‘(2) the individual’s furnishing to the United

15 States Department of State a signed statement of

16 voluntary relinquishment of United States national17 ity confirming the performance of an act of expatria18 tion specified in paragraph (1), (2), (3), or (4) of

19 section 349(a) of the Immigration and Nationality

20 Act (8 U.S.C. 1481(a)(1)–(4)),

21 ‘‘(3) the issuance by the United States Depart22 ment of State of a certificate of loss of nationality

23 to the individual, or
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1 ‘‘(4) the cancellation by a court of the United

2 States of a naturalized citizen’s certificate of natu3 ralization.

4 ‘‘(d) PENALTY.—Any individual failing to provide a

5 statement required under subsection (a) shall be subject

6 to a penalty for each year (of the 10-year period beginning

7 on the date of loss of United States citizenship) during

8 any portion of which such failure continues in an amount

9 equal to the greater of—

10 ‘‘(1) 5 percent of the tax required to be paid

11 under section 877 for the taxable year ending during

12 such year, or

13 ‘‘(2) $1,000,

14 unless it is shown that such failure is due to reasonable

15 cause and not to willful neglect.

16 ‘‘(e) INFORMATION TO BE PROVIDED TO SEC17 RETARY.—Notwithstanding any other provision of law—

18 ‘‘(1) any Federal agency or court which collects

19 (or is required to collect) the statement under sub20 section (a) shall provide to the Secretary—

21 ‘‘(A) a copy of any such statement, and

22 ‘‘(B) the name (and any other identifying

23 information) of any individual refusing to com24 ply with the provisions of subsection (a),
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1 ‘‘(2) the Secretary of State shall provide to the

2 Secretary a copy of each certificate as to the loss of

3 American nationality under section 358 of the Immi4 gration and Nationality Act which is approved by

5 the Secretary of State, and

6 ‘‘(3) the Federal agency primarily responsible

7 for administering the immigration laws shall provide

8 to the Secretary the name of each lawful permanent

9 resident of the United States (within the meaning of

10 section 7701(b)(6)) whose status as such has been

11 revoked or has been administratively or judicially de12 termined to have been abandoned.

13 Notwithstanding any other provision of law, not later than

14 30 days after the close of each calendar quarter, the Sec15 retary shall publish in the Federal Register the name of

16 each individual losing United States citizenship (within

17 the meaning of section 877(a)) with respect to whom the

18 Secretary receives information under the preceding sen19 tence during such quarter.

20 ‘‘(f) REPORTING BY LONG-TERM LAWFUL PERMA21 NENT RESIDENTS WHO CEASE TO BE TAXED AS RESI22 DENTS.—In lieu of applying the last sentence of sub23 section (a), any individual who is required to provide a

24 statement under this section by reason of section

25 877(e)(1) shall provide such statement with the return of
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1 tax imposed by chapter 1 for the taxable year during

2 which the event described in such section occurs.

3 ‘‘(g) EXEMPTION.—The Secretary may by regula4 tions exempt any class of individuals from the require5 ments of this section if he determines that applying this

6 section to such individuals is not necessary to carry out

7 the purposes of this section.’’.

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

9 for such subpart A is amended by inserting after the item

10 relating to section 6039E the following new item:

‘‘Sec. 6039F. Information on individuals losing United States citizenship.’’.

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

12 this section shall apply to—

13 (1) individuals losing United States citizenship

14 (within the meaning of section 877 of the Internal

15 Revenue Code of 1986) on or after February 6,

16 1995, and

17 (2) long-term residents of the United States

18 with respect to whom an event described in subpara19 graph (A) or (B) of section 877(e)(1) of such Code

20 occurs on or after such date.

21 In no event shall any statement required by such amend22 ments be due before the 90th day after the date of the

23 enactment of this Act.
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1 SEC. 423. REPORT ON TAX COMPLIANCE BY UNITED STATES

2 CITIZENS AND RESIDENTS LIVING ABROAD.

3 Not later than 90 days after the date of the enact4 ment of this Act, the Secretary of the Treasury shall pre5 pare and submit to the Committee on Ways and Means

6 of the House of Representatives and the Committee on

7 Finance of the Senate a report—

8 (1) describing the compliance with subtitle A of

9 the Internal Revenue Code of 1986 by citizens and

10 lawful permanent residents of the United States

11 (within the meaning of section 7701(b)(6) of such

12 Code) residing outside the United States, and

13 (2) recommending measures to improve such

14 compliance (including improved coordination be15 tween executive branch agencies).

Passed the House of Representatives March 28,

1996.

Attest:

Clerk.