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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3103 Engrossed in House (EH)]

  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 coverage, to simplify 
    the administration of health insurance, and for other purposes.
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
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 coverage, to simplify 
    the administration of health insurance, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Health Coverage 
Availability and Affordability Act of 1996''.
    (b) Table of Contents.--The table of contents of 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

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.
     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.
        ``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 Self-
                          Employed 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

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.

  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.

    (a) Crediting Periods of Previous Coverage Toward Preexisting 
Condition Restrictions.--Subject to the succeeding provisions of this 
section, a group health plan, and an insurer or health maintenance 
organization offering health insurance coverage in connection with a 
group health plan, shall provide that any preexisting condition 
limitation period (as defined in subsection (b)(2)) is reduced by the 
length of the aggregate period of qualified prior coverage (if any, as 
defined in subsection (b)(3)) applicable to the participant or 
beneficiary as of the date of commencement of coverage under the plan.
    (b) Definitions and Other Provisions Relating to Preexisting 
Conditions.--
            (1) Preexisting condition.--
                    (A) In general.--For purposes of this subtitle, 
                subject to subparagraph (B), the term ``preexisting 
                condition'' means a condition, regardless of the cause 
                of the condition, for which medical advice, diagnosis, 
                care, or treatment was recommended or received within 
                the 6-month period ending on the day before--
                            (i) the effective date of the coverage of 
                        such participant or beneficiary, or
                            (ii) the earliest date upon which such 
                        coverage could have been effective if there 
                        were no waiting period applicable,
                whichever is earlier.
                    (B) Treatment of genetic information.--For purposes 
                of this section, genetic information shall not be 
                considered to be a preexisting condition, so long as 
                treatment of the condition to which the information is 
                applicable has not been sought during the 6-month 
                period described in subparagraph (A).
            (2) Preexisting condition limitation period.--For purposes 
        of this subtitle, the term ``preexisting condition limitation 
        period'' means, with respect to coverage of an individual under 
        a group health plan or under health insurance coverage, the 
        period during which benefits with respect to treatment of a 
        condition of such individual are not provided based on the fact 
        that the condition is a preexisting condition.
            (3) Aggregate period of qualified prior coverage.--
                    (A) In general.--For purposes of this section, the 
                term ``aggregate period of qualified prior coverage'' 
                means, with respect to commencement of coverage of an 
                individual under a group health plan or health 
                insurance coverage offered in connection with a group 
                health plan, the aggregate of the qualified coverage 
                periods (as defined in subparagraph (B)) of such 
                individual occurring before the date of such 
                commencement. Such period shall be treated as zero if 
                there is more than a 60-day break in coverage under a 
                group health plan (or health insurance coverage offered 
                in connection with such a plan) between the date the 
                most recent qualified coverage period ends and the date 
                of such commencement.
                    (B) Qualified coverage period.--
                            (i) In general.--For purposes of this 
                        paragraph, subject to subsection (c), the term 
                        ``qualified coverage period'' means, with 
                        respect to an individual, any period of 
                        coverage of the individual under a group health 
                        plan, health insurance coverage, under title 
                        XVIII or XIX of the Social Security Act, 
                        coverage under the TRICARE program under 
                        chapter 55 of title 10, United States Code, a 
                        program of the Indian Health Service, and State 
                        health insurance coverage or risk pool, and 
                        includes coverage under a health plan offered 
                        under chapter 89 of title 5, United States 
                        Code.
                            (ii) Disregarding periods before breaks in 
                        coverage.--Such term does not include any 
                        period occurring before any 60-day break in 
                        coverage described in subparagraph (A).
                    (C) Waiting period not treated as a break in 
                coverage.--For purposes of subparagraphs (A) and (B), 
                any period that is in a waiting period for any coverage 
                under a group health plan (or for health insurance 
                coverage offered in connection with a group health 
                plan) shall not be considered to be a break in coverage 
                described in subparagraph (B)(ii).
                    (D) Establishment of period.--A qualified coverage 
                period with respect to an individual shall be 
                established through presentation of certifications 
                described in subsection (c) or in such other manner as 
                may be specified in regulations to carry out this 
                title.
    (c) Certifications of Coverage; Conforming Coverage.--
            (1) In general.--The plan administrator of a group health 
        plan, or the insurer or HMO offering health insurance coverage 
        in connection with a group health plan, shall, on request made 
        on behalf of an individual covered (or previously covered 
        within the previous 18 months) under the plan or coverage, 
        provide for a certification of the period of coverage of the 
        individual under such plan or coverage and of the waiting 
        period (if any) imposed with respect to the individual for any 
        coverage under the plan.
            (2) Standard method.--Subject to paragraph (3), a group 
        health plan, or insurer or HMO offering health insurance 
        coverage in connection with a group health plan, shall 
        determine qualified coverage periods under subsection (b)(3)(B) 
        by including all periods described in such subsection, without 
        regard to the specific benefits offered during such a period.
            (3) Alternative method.--Such a plan, insurer, or HMO may 
        elect to make such determination on a benefit-specific basis 
        for all participants and beneficiaries and not to include as a 
        qualified coverage period with respect to a specific benefit 
        coverage during a previous period unless such previous coverage 
        for that benefit was included at the end of the most recent 
        period of coverage. In the case of such an election--
                    (A) the plan, insurer, or HMO shall prominently 
                state in any disclosure statements concerning the plan 
                or coverage and to each enrollee at the time of 
                enrollment under the plan (or at the time the health 
                insurance coverage is offered for sale in the group 
                health market) that the plan or coverage has made such 
                election and shall include a description of the effect 
                of this election; and
                    (B) upon the request of the plan, insurer, or HMO, 
                the entity providing a certification under paragraph 
                (1)--
                            (i) shall promptly disclose to the 
                        requesting plan, insurer, or HMO the plan 
                        statement (insofar as it relates to health 
                        benefits under the plan) or other detailed 
                        benefit information on the benefits available 
                        under the previous plan or coverage, and
                            (ii) may charge for the reasonable cost of 
                        providing such information.

SEC. 102. LIMITATION ON PREEXISTING CONDITION EXCLUSIONS; NO 
              APPLICATION TO CERTAIN NEWBORNS, ADOPTED CHILDREN, AND 
              PREGNANCY.

    (a) Limitation of Period.--
            (1) In general.--Subject to the succeeding provisions of 
        this section, a group health plan, and an insurer or HMO 
        offering health insurance coverage in connection with a group 
        health plan, shall provide that any preexisting condition 
        limitation period (as defined in section 101(b)(2)) does not 
        exceed 12 months, counting from the effective date of coverage.
            (2) Extension of period in the case of late enrollment.--In 
        the case of a participant or beneficiary whose initial coverage 
        commences after the date the participant or beneficiary first 
        becomes eligible for coverage under the group health plan, the 
        reference in paragraph (1) to ``12 months'' is deemed a 
        reference to ``18 months''.
    (b) Exclusion Not Applicable to Certain Newborns and Certain 
Adoptions.--
            (1) In general.--Subject to paragraph (2), a group health 
        plan, and an insurer or HMO offering health insurance coverage 
        in connection with a group health plan, may not provide any 
limitation on benefits based on the existence of a preexisting 
condition in the case of--
                    (A) an individual who within the 30-day period 
                beginning with the date of birth, or
                    (B) an adopted child or a child placed for adoption 
                beginning at the time of adoption or placement if the 
                individual, within the 30-day period beginning on the 
                date of adoption or placement,
        becomes covered under a group health plan or otherwise becomes 
        covered under health insurance coverage (or covered for medical 
        assistance under title XIX of the Social Security Act).
            (2) Loss if break in coverage.--Paragraph (1) shall no 
        longer apply to an individual if the individual does not have 
        any coverage described in section 101(b)(3)(B)(i) for a 
        continuous period of 60 days, not counting in such period any 
        days that are in a waiting period for any coverage under a 
        group health plan.
            (3) Placed for adoption defined.--In this subsection and 
        section 103(e), the term ``placement'', or being ``placed'', 
        for adoption, in connection with any placement for adoption of 
        a child with any person, means the assumption and retention by 
        such person of a legal obligation for total or partial support 
        of such child in anticipation of adoption of such child. The 
        child's placement with such person terminates upon the 
        termination of such legal obligation.
    (c) Exclusion Not Applicable to Pregnancy.--For purposes of this 
section, pregnancy shall not be treated as a preexisting condition.
    (d) Eligibility Period Imposed by Health Maintenance Organizations 
as Alternative to Preexisting Condition Limitation.--A health 
maintenance organization which offers health insurance coverage in 
connection with a group health plan and which does not use the 
preexisting condition limitations allowed under this section and 
section 101 with respect to any particular coverage option may impose 
an eligibility period for such coverage option, but only if such period 
does not exceed--
            (1) 60 days, in the case of a participant or beneficiary 
        whose initial coverage commences at the time such participant 
        or beneficiary first becomes eligible for coverage under the 
        plan, or
            (2) 90 days, in the case of a participant or beneficiary 
        whose initial coverage commences after the date on which such 
        participant or beneficiary first becomes eligible for coverage.
Such an HMO may use alternative methods, from those described in the 
previous sentence, to address adverse selection as approved by the 
applicable State authority. For purposes of this subsection, the term 
``eligibility period'' means a period which, under the terms of the 
health insurance coverage offered by the health maintenance 
organization, must expire before the health insurance coverage becomes 
effective. Any such eligibility period shall be treated for purposes of 
this subtitle as a waiting period under the plan and shall run 
concurrently with any other applicable waiting period under the plan.

SEC. 103. PROHIBITING EXCLUSIONS BASED ON HEALTH STATUS AND PROVIDING 
              FOR ENROLLMENT PERIODS.

    (a) Prohibition of Exclusion of Participants or Beneficiaries Based 
on Health Status.--
            (1) In general.--A group health plan, and an insurer or HMO 
        offering health insurance coverage in connection with a group 
        health plan, may not exclude an employee or his or her 
        beneficiary from being (or continuing to be) enrolled as a 
        participant or beneficiary under the terms of such plan or 
        coverage based on health status (as defined in section 
        191(c)(6)).
            (2) Construction.--Nothing in this subsection shall be 
        construed as preventing the establishment of preexisting 
        condition limitations and restrictions to the extent consistent 
        with the provisions of this subtitle.
    (b) Prohibition of Discrimination in Premium Contributions of 
Individual Participants or Beneficiaries Based on Health Status.--
            (1) In general.--A group health plan, and an insurer or HMO 
        offering health insurance coverage in connection with a group 
        health plan, may not require a participant or beneficiary to 
        pay a premium or contribution which is greater than such 
        premium or contribution for a similarly situated participant or 
        beneficiary solely on the basis of the health status of the 
        participant or beneficiary.
            (2) Construction.--Nothing in this subsection is intended--
                    (A) to effect the premium rates an insurer or HMO 
                may charge an employer for health insurance coverage 
                provided in connection a group health plan,
                    (B) to prevent a group health plan (or insurer or 
                HMO in health insurance coverage offered in connection 
                with such a plan) from establishing premium discounts 
                or modifying otherwise applicable copayments or 
                deductibles in return for adherence to programs of 
                health promotion and disease prevention, or
                    (C) to prevent such a plan, insurer, or HMO from 
                varying the premiums or contributions required of 
                participants or beneficiaries based on factors (such as 
                scope of benefits, geographic area of residence, or 
                wage levels) that are not directly related to health 
                status.
    (c) Enrollment of Eligible Individuals Who Lose Other Coverage.--A 
group health plan shall permit an uncovered employee who is otherwise 
eligible for coverage under the terms of the plan (or an uncovered 
dependent, as defined under the terms of the plan, of such an employee, 
if family coverage is available) to enroll for coverage under the plan 
under at least one benefit option if each of the following conditions 
is met:
            (1) The employee or dependent was covered under a group 
        health plan or had health insurance coverage at the time 
        coverage was previously offered to the employee or individual.
            (2) The employee stated in writing at such time that 
        coverage under a group health plan or health insurance coverage 
        was the reason for declining enrollment.
            (3) The employee or dependent lost coverage under a group 
        health plan or health insurance coverage (as a result of loss 
        of eligibility for the coverage, termination of employment, or 
        reduction in the number of hours of employment).
            (4) The employee requests such enrollment within 30 days 
        after the date of termination of such coverage.
    (d) Dependent Beneficiaries.--
            (1) In general.--If a group health plan makes family 
        coverage available, the plan may not require, as a condition of 
        coverage of an individual as a dependent (as defined under the 
        terms of the plan) of a participant in the plan, a waiting 
        period applicable to the coverage of a dependent who--
                    (A) is a newborn,
                    (B) is an adopted child or child placed for 
                adoption (within the meaning of section 102(b)(3)), at 
                the time of adoption or placement, or
                    (C) is a spouse, at the time of marriage,
        if the participant has met any waiting period applicable to 
        that participant.
            (2) Timely enrollment.--
                    (A) In general.--Enrollment of a participant's 
                beneficiary described in paragraph (1) shall be 
                considered to be timely if a request for enrollment is 
                made within 30 days of the date family coverage is 
                first made available or, in the case described in--
                            (i) paragraph (1)(A), within 30 days of the 
                        date of the birth,
                            (ii) paragraph (1)(B), within 30 days of 
                        the date of the adoption or placement for 
                        adoption, or
                            (iii) paragraph (1)(C), within 30 days of 
                        the date of the marriage with such a 
                        beneficiary who is the spouse of the 
                        participant,
                if family coverage is available as of such date.
                    (B) Coverage.--If available coverage includes 
                family coverage and enrollment is made under such 
                coverage on a timely basis under subparagraph (A), the 
                coverage shall become effective not later than the 
                first day of the first month beginning 15 days after 
                the date the completed request for enrollment is 
                received.
        (e) Multiemployer Plans, Multiple Employer Health Plans, and 
Multiple Employer Welfare Arrangements.--A group health plan which is a 
multi-employer plan, a multiple employer health plan (as defined in 
section 701(4) of the Employee Retirement Income Security Act of 1974), 
or a multiple employer welfare arrangement (to the extent to which 
benefits under the arrangement consist of medical care) may not deny an 
employer whose employees are covered under such a plan or arrangement 
continued access to the same or different coverage under the terms of 
such a plan or arrangement, other than--
            (1) for nonpayment of contributions,
            (2) for fraud or other intentional misrepresentation of 
        material fact by the employer,
            (3) for noncompliance with material plan or arrangement 
        provisions,
            (4) because the plan or arrangement is ceasing to offer any 
        coverage in a geographic area,
            (5) for failure to meet the terms of an applicable 
        collective bargaining agreement, to renew a collective 
        bargaining or other agreement requiring or authorizing 
        contributions to the plan, or to employ employees covered by 
        such an agreement,
            (6) in the case of a plan or arrangement to which 
        subparagraph (C), (D), or (E) of section 3(40) of the Employee 
        Retirement Income Security Act of 1974 applies, to the extent 
        necessary to meet the requirements of such subparagraph, or
            (7) in the case of a multiple employer health plan (as 
        defined in section 701(4) of such Act), for failure to meet the 
        requirements under part 7 of subtitle B of title I of such Act 
        for exemption under section 514(b)(6)(B) of such Act.

SEC. 104. ENFORCEMENT.

    (a) Enforcement Through COBRA Provisions in Internal Revenue 
Code.--
            (1) Application of cobra sanctions.--Subsection (a) of 
        section 4980B of the Internal Revenue Code of 1986 is amended 
        by striking ``the requirements of'' and all that follows and 
        inserting ``the requirements of--
            ``(1) subsection (f) with respect to any qualified 
        beneficiary, or
            ``(2) subject to subsection (h)--
                    ``(A) section 101 or 102 of the Health Coverage 
                Availability and Affordability Act of 1996 with respect 
                to any individual covered under the group health plan, 
                or
                    ``(B) section 103 (other than subsection (e)) of 
                such Act with respect to any individual.''.
            (2) Notice requirement.--Section 4980B(f)(6)(A) of such 
        Code is amended by inserting before the period the following: 
        ``and subtitle A of title I of the Health Coverage Availability 
        and Affordability Act of 1996''.
            (3) Special rules.--Section 4980B of such Code is amended 
        by adding at the end the following:
    ``(h) Special Rules.--For purposes of applying this section in the 
case of requirements described in subsection (a)(2) relating to section 
101, section 102, or section 103 (other than subsection (e)) of the 
Health Coverage Availability and Affordability Act of 1996--
            ``(1) In general.--
                    ``(A) Definition of group health plan.--The term 
                `group health plan' has the meaning given such term in 
                section 191(a) of the Health Coverage Availability and 
                Affordability Act of 1996.
                    ``(B) Qualified beneficiary.--Subsections (b), (c), 
                and (e) shall be applied by substituting the term 
                `individual' for the term `qualified beneficiary' each 
                place it appears.
                    ``(C) Noncompliance period.--Clause (ii) of 
                subsection (b)(2)(B) and the second sentence of 
                subsection (b)(2) shall not apply.
                    ``(D) Limitation on tax.--Subparagraph (B) of 
                subsection (c)(3) shall not apply.
                    ``(E)  Liability for tax.--Paragraph (2) of 
                subsection (e) shall not apply.
            ``(2) Deferral to state regulation.--No tax shall be 
        imposed by this section on any failure to meet the requirements 
        of such section by any entity which offers health insurance 
        coverage and which is an insurer or health maintenance 
        organization (as defined in section 191(c) of the Health 
        Coverage Availability and Affordability Act of 1996) regulated 
        by a State unless the Secretary of Health and Human Services 
        has made the determination described in section 104(c)(2) of 
        such Act with respect to such State, section, and entity.
            ``(3) Limitation for insured plans.--In the case of a group 
        health plan of a small employer (as defined in section 191 of 
        the Health Coverage Availability and Affordability Act of 1996) 
        that provides health care benefits solely through a contract 
        with an insurer or health maintenance organization (as defined 
        in such section), no tax shall be imposed by this section upon 
        the employer on a failure to meet such requirements if the 
        failure is solely because of the product offered by the insurer 
        or organization under such contract.
            ``(4) Limitation on imposition of tax.--In no case shall a 
        tax be imposed by this section for a failure to meet such a 
        requirement if--
                    ``(A) a civil money penalty has been imposed by the 
                Secretary of Labor under part 5 of subtitle A of title 
                I of the Employee Retirement Income Security Act of 
                1974 with respect to such failure, or
                    ``(B) a civil money penalty has been imposed by the 
                Secretary of Health and Human Services under section 
                104(c) of the Health Coverage Availability and 
                Affordability Act of 1996 with respect to such 
                failure.''.
    (b) Enforcement Through ERISA Sanctions for Certain Group Health 
Plans.--
            (1) In general.--Subject to the succeeding provisions of 
        this subsection, sections 101 through 103 of this subtitle (and 
        subtitle D insofar as it is applicable to such sections) shall 
        be deemed to be provisions of title I of the Employee 
        Retirement Income Security Act of 1974 for purposes of applying 
        such title.
            (2) Federal enforcement only if no enforcement through 
        state.--The Secretary of Labor shall enforce each section 
        referred to in paragraph (1) with respect to any entity which 
        is an insurer or health maintenance organization regulated by a 
        State only if the Secretary of Labor determines that such State 
        has not provided for enforcement of State laws which govern the 
        same matters as are governed by such section and which require 
        compliance by such entity with at least the same requirements 
        as those provided under such section.
            (3) Limitations on liability.--
                    (A) No application where failure not discovered 
                exercising reasonable diligence.--No liability shall be 
                imposed under this subsection on the basis of any 
                failure during any period for which it is established 
                to the satisfaction of the Secretary of Labor that none 
                of the persons against whom the liability would be 
                imposed knew, or exercising reasonable diligence would 
                have known, that such failure existed.
                    (B) No application where failure corrected within 
                30 days.--No liability shall be imposed under this 
                subsection on the basis of any failure if such failure 
                was due to reasonable cause and not to willful neglect, 
                and such failure is corrected during the 30-day period 
                beginning on the first day any of the persons against 
                whom the liability would be imposed knew, or exercising 
                reasonable diligence would have known, that such 
                failure existed.
            (4) Avoiding duplication of certain penalties.--In no case 
        shall a civil money penalty be imposed under the authority 
        provided under paragraph (1) for a violation of this subtitle 
        for which an excise tax has been imposed under section 4980B of 
        the Internal Revenue Code of 1986 or a civil money penalty 
        imposed under subsection (c).
    (c) Enforcement Through Civil Money Penalties.--
            (1) Imposition.--
                    (A) In general.--Subject to the succeeding 
                provisions of this subsection, any group health plan, 
                insurer, or organization that fails to meet a 
                requirement of this subtitle (other than section 
                103(e)) is subject to a civil money penalty under this 
                section.
                    (B) Liability for penalty.--Rules similar to the 
                rules described in section 4980B(e) of the Internal 
                Revenue Code of 1986 for liability for a tax imposed 
                under section 4980B(a) of such Code shall apply to 
                liability for a penalty imposed under subparagraph (A).
                    (C) Amount of penalty.--
                            (i) In general.--The maximum amount of 
                        penalty imposed under this paragraph is $100 
                        for each day for each individual with respect 
                        to which such a failure occurs.
                            (ii) Considerations in imposition.--In 
                        determining the amount of any penalty to be 
                        assessed under this paragraph, the Secretary of 
                        Health and Human Services shall take into 
                        account the previous record of compliance of 
                        the person being assessed with the applicable 
                        requirements of this subtitle, the gravity of 
                        the violation, and the overall limitations for 
                        unintentional failures provided under section 
                        4980B(c)(4) of the Internal Revenue Code of 
                        1986.
                            (iii) Limitations.--
                                    (I) Penalty not to apply where 
                                failure not discovered exercising 
                                reasonable diligence.--No civil money 
                                penalty shall be imposed under this 
                                paragraph on any failure during any 
                                period for which it is established to 
                                the satisfaction of the Secretary that 
                                none of the persons against whom the 
                                penalty would be imposed knew, or 
                                exercising reasonable diligence would 
                                have known, that such failure existed.
                                    (II) Penalty not to apply to 
                                failures corrected within 30 days.--No 
                                civil money penalty shall be imposed 
                                under this paragraph on any failure if 
                                such failure was due to reasonable 
                                cause and not to willful neglect, and 
                                such failure is corrected during the 
                                30-day period beginning on the first 
                                day any of the persons against whom the 
                                penalty would be imposed knew, or 
                                exercising reasonable diligence would 
                                have known, that such failure existed.
                    (D) Administrative review.--
                            (i) Opportunity for hearing.--The person 
                        assessed shall be afforded an opportunity for 
                        hearing by the Secretary upon request made 
                        within 30 days after the date of the issuance 
                        of a notice of assessment. In such hearing the 
                        decision shall be made on the record pursuant 
                        to section 554 of title 5, United States Code. 
                        If no hearing is requested, the assessment 
                        shall constitute a final and unappealable 
                        order.
                            (ii) Hearing procedure.--If a hearing is 
                        requested, the initial agency decision shall be 
                        made by an administrative law judge, and such 
                        decision shall become the final order unless 
                        the Secretary modifies or vacates the decision. 
                        Notice of intent to modify or vacate the 
                        decision of the administrative law judge shall 
                        be issued to the parties within 30 days after 
                        the date of the decision of the judge. A final 
                        order which takes effect under this paragraph 
                        shall be subject to review only as provided 
                        under subparagraph (D).
                    (E) Judicial review.--
                            (i) Filing of action for review.--Any 
                        person against whom an order imposing a civil 
                        money penalty has been entered after an agency 
                        hearing under this paragraph may obtain review 
                        by the United States district court for any 
                        district in which such person is located or the 
                        United States District Court for the District 
                        of Columbia by filing a notice of appeal in 
                        such court within 30 days from the date of such 
                        order, and simultaneously sending a copy of 
                        such notice be registered mail to the 
                        Secretary.
                            (ii) Certification of administrative 
                        record.--The Secretary shall promptly certify 
                        and file in such court the record upon which 
                        the penalty was imposed.
                            (iii) Standard for review.--The findings of 
                        the Secretary shall be set aside only if found 
                        to be unsupported by substantial evidence as 
                        provided by section 706(2)(E) of title 5, 
                        United States Code.
                            (iv) Appeal.--Any final decision, order, or 
                        judgment of such district court concerning such 
                        review shall be subject to appeal as provided 
                        in chapter 83 of title 28 of such Code.
                    (F) Failure to pay assessment; maintenance of 
                action.--
                            (i) Failure to pay assessment.--If any 
                        person fails to pay an assessment after it has 
                        become a final and unappealable order, or after 
                        the court has entered final judgment in favor 
                        of the Secretary, the Secretary shall refer the 
                        matter to the Attorney General who shall 
                        recover the amount assessed by action in the 
                        appropriate United States district court.
                            (ii) Nonreviewability.--In such action the 
                        validity and appropriateness of the final order 
                        imposing the penalty shall not be subject to 
                        review.
                    (G) Payment of penalties.--Except as otherwise 
                provided, penalties collected under this paragraph 
                shall be paid to the Secretary (or other officer) 
                imposing the penalty and shall be available without 
                appropriation and until expended for the purpose of 
                enforcing the provisions with respect to which the 
                penalty was imposed.
            (2) Federal enforcement only if no enforcement through 
        state.--Paragraph (1) shall apply to enforcement of the 
        requirements of section 101, 102, or 103 (other than section 
        103(e)) with respect to any entity which offers health 
        insurance coverage and which is an insurer or HMO regulated by 
        a State only if the Secretary of Health and Human Services has 
        determined that such State has not provided for enforcement of 
        State laws which govern the same matters as are governed by 
        such section and which require compliance by such entity with 
        at least the same requirements as those provided under such 
        section.
            (3) Nonduplication of sanctions.--In no case shall a civil 
        money penalty be imposed under this subsection for a violation 
        of this subtitle for which an excise tax has been imposed under 
        section 4980B of the Internal Revenue Code of 1986 or for which 
        a civil money penalty has been imposed under the authority 
        provided under subsection (b).
    (d) Coordination in Administration.--The Secretaries of the 
Treasury, Labor, and Health and Human Services shall issue regulations 
that are nonduplicative to carry out this subtitle. Such regulations 
shall be issued in a manner that assures coordination and 
nonduplication in their activities under this subtitle.

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.

    (a) Issuance of Coverage.--
            (1) In general.--Subject to the succeeding subsections of 
        this section, each insurer or HMO that offers health insurance 
        coverage in the small group market in a State--
                    (A) must accept every small employer in the State 
                that applies for such coverage; and
                    (B) must accept for enrollment under such coverage 
                every eligible individual (as defined in paragraph (2)) 
                who applies for enrollment during the initial period in 
                which the individual first becomes eligible for 
                coverage under the group health plan and may not place 
                any restriction which is inconsistent with section 
                103(a) on an individual being a participant or 
                beneficiary so long as such individual is an eligible 
                individual.
            (2) Eligible individual defined.--In this section, the term 
        ``eligible individual'' means, with respect to an insurer or 
HMO that offers health insurance coverage to any small employer in the 
small group market, such an individual in relation to the employer as 
shall be determined--
                    (A) in accordance with the terms of such plan,
                    (B) as provided by the insurer or HMO under rules 
                of the insurer or HMO which are uniformly applicable, 
                and
                    (C) in accordance with all applicable State laws 
                governing such insurer or HMO.
    (b) Special Rules for Network Plans and HMOs.--
            (1) In general.--In the case of an insurer that offers 
        health insurance coverage in the small group market through a 
        network plan and in the case of an HMO that offers health 
        insurance coverage in connection with such a plan, the insurer 
        or HMO may--
                    (A) limit the employers that may apply for such 
                coverage to those with eligible individuals whose place 
                of employment or residence is in the service area for 
                such plan or HMO;
                    (B) limit the individuals who may be enrolled under 
                such coverage to those whose place of residence or 
                employment is within the service area for such plan or 
                HMO; and
                    (C) within the service area of such plan or HMO, 
                deny such coverage to such employers if the insurer or 
                HMO demonstrates that--
                            (i) it will not have the capacity to 
                        deliver services adequately to enrollees of any 
                        additional groups because of its obligations to 
                        existing group contract holders and enrollees, 
                        and
                            (ii) it is applying this paragraph 
                        uniformly to all employers without regard to 
                        the claims experience of those employers and 
                        their employees (and their beneficiaries) or 
                        the health status of such employees and 
                        beneficiaries.
            (2) 180-day suspension upon denial of coverage.--An insurer 
        or HMO, upon denying health insurance coverage in any service 
        area in accordance with paragraph (1)(C), may not offer 
        coverage in the small group market within such service area for 
        a period of 180 days after such coverage is denied.
    (c) Special Rule for Financial Capacity Limits.--
            (1) In general.--An insurer or HMO may deny health 
        insurance coverage in the small group market if the insurer or 
        HMO demonstrates to the applicable State authority that--
                    (A) it does not have the financial reserves 
                necessary to underwrite additional coverage, and
                    (B) it is applying this paragraph uniformly to all 
                employers without regard to the claims experience or 
                duration of coverage of those employers and their 
                employees (and their beneficiaries) or the health 
                status of such employees and beneficiaries.
            (2) 180-day suspension upon denial of coverage.--An insurer 
        or HMO upon denying health insurance coverage in connection 
        with group health plans in any service area in accordance with 
        paragraph (1) may not offer coverage in connection with group 
        health plans in the small group market within such service area 
        for a period of 180 days after such coverage is denied.
    (d) Exception to Requirement for Issuance of Coverage by Reason of 
Failure by Plan To Meet Certain Minimum Participation or Contribution 
Rules.--
            (1) In general.--Subsection (a) shall not apply in the case 
        of any group health plan with respect to which--
                    (A) participation rules of an insurer or HMO which 
                are described in paragraph (2) are not met, or
                    (B) contribution rules of an insurer or HMO which 
                are described in paragraph (3) are not met.
            (2) Participation rules.--For purposes of paragraph (1)(A), 
        participation rules (if any) of an insurer or HMO shall be 
        treated as met with respect to a group health plan only if such 
        rules are uniformly applicable and in accordance with 
        applicable State law and the number or percentage of eligible 
individuals who, under the plan, are participants or beneficiaries 
equals or exceeds a level which is determined in accordance with such 
rules.
            (3) Contribution rules.--For purposes of paragraph (1)(B), 
        contribution rules (if any) of an insurer or HMO shall be 
        treated as met with respect to a group health plan only if such 
        rules are in accordance with applicable State law.

SEC. 132. GUARANTEED RENEWABILITY OF GROUP COVERAGE.

    (a) In General.--Except as provided in this section, if an insurer 
or health maintenance organization offers health insurance coverage in 
the small or large group market, the insurer or organization must renew 
or continue in force such coverage at the option of the employer.
    (b) General Exceptions.--An insurer or organization may nonrenew or 
discontinue health insurance coverage offered an employer based only on 
one or more of the following:
            (1) Nonpayment of premiums.--The employer has failed to pay 
        premiums or contributions in accordance with the terms of the 
        health insurance coverage or the insurer or organization has 
        not received timely premium payments.
            (2) Fraud.--The employer has performed an act or practice 
        that constitutes fraud or made an intentional misrepresentation 
        of material fact under the terms of the coverage.
            (3) Violation with participation or contribution rules.--
        The employer has failed to comply with a material plan 
        provision relating to participation or contribution rules in 
        accordance with section 131(d).
            (4) Termination of plan.--Subject to subsection (c), the 
        insurer or organization is ceasing to offer coverage in the 
        small or large group market in a State (or, in the case of a 
        network plan or HMO, in a geographic area).
            (5) Movement outside service area.--The employer has 
        changed the place of employment in such manner that employees 
        and dependents reside and are employed outside the service area 
        of the insurer or organization or outside the area for which 
        the insurer or organization is authorized to do business.
Paragraph (5) shall apply to an insurer or HMO only if it is applied 
uniformly without regard to the claims experience of employers and 
their employees (and their beneficiaries) or the health status of such 
employees and beneficiaries.
    (c) Exceptions for Uniform Termination of Coverage.--
            (1) Particular type of coverage not offered.--In any case 
        in which a insurer or HMO decides to discontinue offering a 
        particular type of health insurance coverage in the small or 
        large group market, coverage of such type may be discontinued 
        by the insurer or organization only if--
                    (A) the insurer or organization provides notice to 
                each employer provided coverage of this type in such 
                market (and participants and beneficiaries covered 
                under such coverage) of such discontinuation at least 
                90 days prior to the date of the discontinuation of 
                such coverage;
                    (B) the insurer or organization offers to each 
                employer in the small employer or large employer market 
                provided coverage of this type, the option to purchase 
                any other health insurance coverage currently being 
                offered by the insurer or organization for employers in 
                such market; and
                    (C) in exercising the option to discontinue 
                coverage of this type and in offering one or more 
                replacement coverage, the insurer or organization acts 
                uniformly without regard to the health status or 
                insurability of participants or beneficiaries covered 
                or new participants or beneficiaries who may become 
                eligible for such coverage.
            (2) Discontinuance of all coverage.--
                    (A) In general.--Subject to subparagraph (C), in 
                any case in which an insurer or HMO elects to 
                discontinue offering all health insurance coverage in 
                the small group market or the large group market, or 
                both markets, in a State, health insurance coverage may 
                be discontinued by the insurer or organization only 
                if--
                            (i) the insurer or organization provides 
                        notice to the applicable State authority and to 
                        each employer (and participants and 
                        beneficiaries covered under such coverage) of 
                        such discontinuation at least 180 days prior to 
                        the date of the expiration of such coverage, 
                        and
                            (ii) all health insurance issued or 
                        delivered for issuance in the State in such 
                        market (or markets) are discontinued and 
                        coverage under such health insurance coverage 
                        in such market (or markets) is not renewed.
                    (B) Prohibition on market reentry.--In the case of 
                a discontinuation under subparagraph (A) in one or both 
                markets, the insurer or organization may not provide 
                for the issuance of any health insurance coverage in 
                the market and State involved during the 5-year period 
                beginning on the date of the discontinuation of the 
                last health insurance coverage not so renewed.
    (d) Exception for Uniform Modification of Coverage.--At the time of 
coverage renewal, an insurer or HMO may modify the coverage offered to 
a group health plan in the group health market so long as such 
modification is effective on a uniform basis among group health plans 
with that type of 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.

    (a) Goals.--The goals of this section are--
            (1) to guarantee that any qualifying individual (as defined 
        in subsection (b)(1)) is able to obtain qualifying coverage (as 
        defined in subsection (b)(2)); and
            (2) to assure that qualifying individuals obtaining such 
        coverage receive credit for their prior coverage toward the new 
        coverage's preexisting condition exclusion period (if any) in a 
        manner consistent with subsection (b)(3).
    (b) Qualifying Individual and Health Insurance Coverage Defined.--
In this section--
            (1) Qualifying individual.--The term ``qualifying 
        individual'' means an individual--
                    (A)(i) for whom, as of the date on which the 
                individual seeks coverage under this section, the 
                aggregate of the qualified coverage periods (as defined 
                in section 101(b)(3)(B)) is 18 or more months and (ii) 
                whose most recent prior coverage was under a group 
                health plan, governmental plan, or church plan (or 
                health insurance coverage offered in connection with 
                any such plan);
                    (B) who is not eligible for coverage under (i) a 
                group health plan, (ii) part A or part B of title XVIII 
                of the Social Security Act, or (iii) a State plan under 
                title XIX of such Act (or any successor program), and 
                does not have individual health insurance coverage;
                    (C) with respect to whom the most recent coverage 
                within the coverage period described in subparagraph 
                (A)(i) was not terminated based on a factor described 
                in paragraph (1) or (2) of section 132(b);
                    (D) if the individual had been offered the option 
                of continuation coverage under a COBRA continuation 
                provision or under a similar State program, who elected 
                such coverage; and
                    (E) who, if the individual elected such 
                continuation coverage, has exhausted such continuation 
                coverage.
        In applying subparagraph (A)(i), the reference in section 
        101(b)(3)(B)(ii) to a 60-day break in coverage is deemed a 
        reference to a 60-day break in any coverage described in 
        section 101(b)(3)(B)(i).
            (2) Qualifying coverage.--
                    (A) In general.--The term ``qualifying coverage'' 
                means, with respect to an insurer or HMO in relation to 
                an qualifying individual, individual health insurance 
                coverage for which the actuarial value of the benefits 
                is not less than--
                            (i) the weighted average actuarial value of 
                        the benefits provided by all the individual 
                        health insurance coverage issued by the insurer 
                        or HMO in the State during the previous year 
                        (not including coverage issued under this 
                        section), or
                            (ii) the weighted average of the actuarial 
                        value of the benefits provided by all the 
                        individual health insurance coverage issued by 
                        all insurers and HMOs in the State during the 
                        previous year (not including coverage issued 
                        under this section),
                as elected by the plan or by the State under subsection 
                (c)(1).
                    (B) Assumptions.--For purposes of subparagraph (A), 
                the actuarial value of benefits provided under 
                individual health insurance coverage shall be 
                calculated based on a standardized population and a set 
                of standardized utilization and cost factors.
            (3) Crediting for previous coverage.--Crediting is 
        consistent with this paragraph only if any preexisting 
        condition exclusion period is reduced at least to the extent 
        such a period would be reduced if the coverage under this 
        section were under a group health plan to which section 101(a) 
        applies. In carrying out this subsection, provisions similar to 
        the provisions of section 101(c) shall apply.
    (c) Optional State Establishment of Mechanisms To Achieve Goals of 
Guaranteeing Availability of Coverage.--
            (1) In general.--Any State may establish, to the extent of 
        the State's authority, public or private mechanisms reasonably 
        designed to meet the goals specified in subsection (a). If a 
        State implements such a mechanism by the deadline specified in 
        paragraph (4), the State may elect to have such mechanisms 
        apply instead of having subsection (d)(3) apply in the State. 
        An election under this paragraph shall be by notice from the 
        chief executive officer of the State to the Secretary of Health 
        and Human Services on a timely basis consistent with the 
        deadlines specified in paragraph (4). In establishing what is 
        qualifying coverage under such a mechanism under this 
        subsection, a State may exercise the election described in 
        subsection (b)(2)(A) with respect to each insurer or HMO in the 
        State (or on a collective basis after exercising such election 
        for each such insurer or HMO).
            (2) Types of mechanisms.--State mechanisms under this 
        subsection may include one or more (or a combination) of the 
        following:
                    (A) Health insurance coverage pools or programs 
                authorized or established by the State.
                    (B) Mandatory group conversion policies.
                    (C) Guaranteed issue of one or more plans of 
                individual health insurance coverage to qualifying 
                individuals.
                    (D) Open enrollment by one or more insurers or 
                HMOs.
        The mechanisms described in the previous sentence are not an 
        exclusive list of the mechanisms (or combinations of 
        mechanisms) that may be used under this subsection.
            (3) Safe harbor for benefits under current risk pools.--In 
        the case of a State that has a health insurance coverage pool 
        or risk pool in effect on March 12, 1996, and that implements 
        the mechanism described in paragraph (2)(A), the benefits under 
        such mechanism (or benefits the actuarial value of which is not 
        less than the actuarial value of such current benefits, using 
        the assumptions described in subsection (b)(2)(B)) are deemed, 
        for purposes of this section, to constitute qualified coverage.
            (4) Deadline for state implementation.--
                    (A) In general.--Subject to subparagraph (B), the 
                deadline under this paragraph is July 1, 1997.
                    (B) Extension to permit legislation.--The deadline 
                under this paragraph is July 1, 1998, in the case of a 
                State the legislature of which does not have a regular 
                legislative session at any time between January 1, 
                1997, and June 30, 1997.
                    (C) Construction.--Nothing in this section shall be 
                construed as preventing a State from--
                            (i) implementing guaranteed availability 
                        mechanisms before the deadline,
                            (ii) continuing in effect mechanisms that 
                        are in effect before the date of the enactment 
                        of this Act,
                            (iii) offering guaranteed availability of 
                        coverage that is not qualifying coverage, or
                            (iv) offering guaranteed availability of 
                        coverage to individuals who are not qualifying 
                        individuals.
    (d) Fallback Provisions.--
            (1) No state election.--If a State has not provided notice 
        to the Secretary of an election on a timely basis under 
        subsection (c), the Secretary shall notify the State that 
        paragraph (3) will be applied in the State.
            (2) Preliminary determination after state election.--If--
                    (A) a State has provided notice of an election on a 
                timely basis under subsection (c), and
                    (B) the Secretary finds, after consultation with 
                the chief executive officer of the State and the 
                insurance commissioner or chief insurance regulatory 
                official of the State, that such a mechanism (for which 
                notice was provided) is not reasonably designed to meet 
                the goals specified in subsection (a),
        the Secretary shall notify the State of such preliminary 
        determination, of the consequences under paragraph (3) of a 
        failure to implement such a mechanism, and permit the State a 
        reasonable opportunity in which to modify the mechanism (or to 
        adopt another mechanism) that is reasonably designed to meet 
        the goals specified in subsection (a). The Secretary shall not 
        make such a determination on any basis other than the basis 
        described in subparagraph (B). If, after providing such notice 
        and opportunity, the Secretary finds that the State has not 
        implemented such a mechanism, the Secretary shall notify the 
        State that paragraph (3) will be applied in the State.
            (3) Description of fallback mechanism.--As provided under 
        paragraphs (1) and (2) and subject to paragraph (5), each 
        insurer or HMO in the State involved that issues individual 
        health insurance coverage--
                    (A) shall offer qualifying health insurance 
                coverage, in which qualifying individuals obtaining 
                such coverage receive credit for their prior coverage 
                toward the new coverage's preexisting condition 
                exclusion period (if any) in a manner consistent with 
                subsection (b)(3), to each qualifying individual in the 
                State, and
                    (B) may not decline to issue such coverage to such 
                an individual based on health status (except as 
                permitted under paragraph (4)).
            (4) Application of network and capacity limits.--Under 
        regulations, the provisions of subsections (b) and (c) of 
        section 131 shall apply to an individual in the individual 
        health insurance market under this subsection in the same 
        manner as they apply under section 131 to an employer in the 
        small group market.
            (5) Termination of fallback mechanism.--The provisions of 
        this subsection shall cease to apply to a State if the 
        Secretary finds that a State has implemented a mechanism that 
        is reasonably designed to meet the goals specified in 
        subsection (a), and until the Secretary finds that such 
        mechanism is no longer being implemented.
    (e) Construction.--
            (1) Premiums.--Nothing in this section shall be construed 
        to affect the determination of an insurer or HMO as to the 
        amount of the premium payable under an individual health 
        insurance coverage under applicable state law.
            (2) Market requirements.--
                    (A) In general.--The provisions of subsection (a) 
                shall not be construed to require that an insurer or 
                HMO offering health insurance coverage only in 
                connection with a group health plan or an association 
                offer individual health insurance coverage.
                    (B) Conversion policies.--An insurer or HMO 
                offering health insurance coverage in connection with a 
                group health plan under subtitle A shall not be deemed 
                to be an insurer or HMO offering an individual health 
                insurance coverage solely because such insurer or HMO 
                offers a conversion policy.
            (3) Disregard of association coverage.--An insurer or HMO 
        that offers health insurance coverage only in connection with a 
        group health plan or in connection with individuals based on 
        affiliation with one or more bona fide associations is not 
        considered, for purposes of this subtitle, to be offering 
        individual health insurance coverage.
            (4) Marketing of plans.--Nothing in this section shall be 
        construed to prevent a State from requiring insurer or HMOs 
        offering individual health insurance coverage to actively 
        market such coverage.

SEC. 142. GUARANTEED RENEWABILITY OF INDIVIDUAL HEALTH INSURANCE 
              COVERAGE.

    (a) Guaranteed Renewability.--Subject to the succeeding provisions 
of this section, an insurer or HMO that provides individual health 
insurance coverage to an individual shall renew or continue such 
coverage at the option of the individual.
    (b) Nonrenewal Permitted in Certain Cases.--An insurer or HMO may 
nonrenew or discontinue individual health insurance coverage of an 
individual only based on one or more of the following:
            (1) Nonpayment.--The individual fails to pay payment of 
        premiums or contributions in accordance with the terms of the 
        coverage or the insurer or organization has not failed to 
        receive timely premium payments.
            (2) Fraud.--The individual has performed an act or practice 
        that constitutes fraud or made an intentional misrepresentation 
        of material fact under the terms of the coverage.
            (3) Termination of coverage.--Subject to subsection (c), 
        the insurer or HMO is ceasing to offer health insurance 
        coverage in the individual market in a State (or, in the case 
        of a network plan or HMO, in a geographic area).
            (4) Movement outside service area.--The individual has 
        changed residence and resides outside the service area of the 
        insurer or organization or outside the area for which the 
        insurer or organization is authorized to do business.
Paragraph (4) shall apply to an insurer or HMO only if it is applied 
uniformly without regard to the claims experience of employers and 
their employees (and their beneficiaries) or the health status of such 
employees and beneficiaries.
    (c) Termination of Individual Coverage.--The provisions of section 
132(c) shall apply to this section in the same manner as they apply 
under section 132, except that any reference to an employer or market 
is deemed a reference to the covered individual or the individual 
market, respectively.
    (d) Exception for Uniform Modification of Coverage.--The provisions 
of section 132(d) shall apply to individual health insurance coverage 
in the individual market under this section in the same manner as it 
applies to health insurance coverage offered in connection with a group 
health plan in the group market under such section.

                          PART 3--ENFORCEMENT

SEC. 151. INCORPORATION OF PROVISIONS FOR STATE ENFORCEMENT WITH 
              FEDERAL FALLBACK AUTHORITY.

    The provisions of paragraphs (1) and (2) of section 104(c) shall 
apply to enforcement of requirements in each section in part 1 or part 
2 with respect to insurers and HMOs regulated by a State in the same 
manner as such provisions apply to enforcement of requirements in 
section 101, 102, or 103 with respect to insurers and HMOs regulated by 
a State.

 Subtitle C--Affordable and Available Health Coverage Through Multiple 
                     Employer Pooling Arrangements

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.

    (a) Rules Governing Regulation of Multiple Employer Health Plans.--
Subtitle B of title I of the Employee Retirement Income Security Act of 
1974 (as amended by the preceding provisions of this title) is amended 
by inserting after part 6 the following new part:

 ``PART 7--RULES GOVERNING REGULATION OF MULTIPLE EMPLOYER HEALTH PLANS

``SEC. 701. DEFINITIONS.

    ``For purposes of this part--
            ``(1) Fully insured.--A particular benefit under a group 
        health plan or a multiple employer welfare arrangement is 
        `fully insured' if such benefit (irrespective of any recourse 
        available against other parties) is provided by an insurer or a 
        health maintenance organization in a manner so that such 
        benefit constitutes insurance regulated by the law of a State 
        (within the meaning of section 514(b)(2)(A)).
            ``(2) Insurer.--The term `insurer' means an insurance 
        company, insurance service, or insurance organization which is 
        licensed to engage in the business of insurance in a State and 
        which is subject to State law which regulates insurance (within 
        the meaning of section 514(b)(2)(A)).
            ``(3) Health maintenance organization.--The terms `health 
        maintenance organization' means--
                    ``(A) a Federally qualified health maintenance 
                organization (as defined in section 1301(a) of the 
                Public Health Service Act (42 U.S.C. 300e(a))),
                    ``(B) an organization recognized under State law as 
                a health maintenance organization, or
                    ``(C) a similar organization regulated under State 
                law for solvency in the same manner and to the same 
                extent as such a health maintenance organization,
        if it is subject to State law which regulates insurance (within 
        the meaning of section 514(b)(2)(A)).
            ``(4) Multiple employer health plan.--The term `multiple 
        employer health plan' means a multiple employer welfare 
        arrangement which provides medical care and which is or has 
        been exempt under section 514(b)(6)(B).
            ``(5) Participating employer.--The term `participating 
        employer' means, in connection with a multiple employer welfare 
        arrangement, any employer if any of its employees, or any of 
        the individuals who are dependents (as defined under the terms 
        of the arrangement) of its employees, are or were covered under 
        such arrangement in connection with the employment of the 
        employees.
            ``(6) Sponsor.--The term `sponsor' means, in connection 
        with a multiple employer welfare arrangement, the association 
        or other entity which establishes or maintains the arrangement.
            ``(7) State insurance commissioner.--The term `State 
        insurance commissioner' means the insurance commissioner (or 
        similar official) of a State.

``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.

    ``(a) Treatment as Employee Welfare Benefit Plan Which Is a Group 
Health Plan.--
            ``(1) In general.--A multiple employer welfare 
        arrangement--
                    ``(A) under which the benefits consist solely of 
                medical care (disregarding such incidental benefits as 
                the Secretary shall specify by regulation), and
                    ``(B) under which some or all benefits are not 
                fully insured,
        shall be treated for purposes of subtitle A and the other parts 
        of this title as an employee welfare benefit plan which is a 
        group health plan if the arrangement is exempt under section 
        514(b)(6)(B) in accordance with this part.
            ``(2) Exception.--In the case of a multiple employer 
        welfare arrangement which would be described in section 
        3(40)(A)(i) but solely for the failure to meet the requirements 
        of section 3(40)(C)(ii), paragraph (1) shall apply with respect 
        to such arrangement, but only with respect to benefits provided 
        thereunder which constitute medical care.
    ``(b) Treatment Under Preemption Rules.--
            ``(1) In general.--The Secretary shall prescribe 
        regulations described in section 514(b)(6)(B)(i), applicable to 
        multiple employer welfare arrangements described in 
        subparagraphs (A) and (B) of subsection (a)(1), providing a 
        procedure for granting exemptions from section 514(b)(6)(A)(ii) 
        with respect to such arrangements. Under such regulations, any 
        such arrangement treated under subsection (a) as an employee 
        welfare benefit plan shall be deemed to be an arrangement 
        described in section 514(b)(6)(B)(ii).
            ``(2) Standards.--Under the procedure prescribed pursuant 
        to paragraph (1), the Secretary shall grant an arrangement 
        described in subsection (a) an exemption described in 
        subsection (a) only if the Secretary finds that--
                    ``(A) such exemption--
                            ``(i) is administratively feasible,
                            ``(ii) is not adverse to the interests of 
                        the individuals covered under the arrangement, 
                        and
                            ``(iii) is protective of the rights and 
                        benefits of the individuals covered under the 
                        arrangement,
                    ``(B) the application for the exemption meets the 
                requirements of paragraph (3), and
                    ``(C) the requirements of sections 703 and 704 are 
                met with respect to the arrangement.
            ``(3) Information to be included in application for 
        exemption.--An application for an exemption described in 
        subsection (a) meets the requirements of this paragraph only if 
        it includes, in a manner and form prescribed in regulations of 
        the Secretary, at least the following information:
                    ``(A) Identifying information.--The names and 
                addresses of--
                            ``(i) the sponsor, and
                            ``(ii) the members of the board of trustees 
                        of the arrangement.
                    ``(B) States in which arrangement intends to do 
                business.--The States in which individuals covered 
                under the arrangement are to be located and the number 
                of such individuals expected to be located in each such 
                State.
                    ``(C) Bonding requirements.--Evidence provided by 
                the board of trustees that the bonding requirements of 
                section 412 will be met as of the date of the 
                application or (if later) commencement of operations.
                    ``(D) Plan documents.--A copy of the documents 
                governing the arrangement (including any bylaws and 
                trust agreements), the summary plan description, and 
                other material describing the benefits and coverage 
that will be provided to individuals covered under the arrangement.
                    ``(E) Agreements with service providers.--A copy of 
                any agreements between the arrangement and contract 
                administrators and other service providers.
                    ``(F) Funding report.--A report setting forth 
                information determined as of a date within the 120-day 
                period ending with the date of the application, 
                including the following:
                            ``(i) Reserves.--A statement, certified by 
                        the board of trustees of the arrangement, and a 
                        statement of actuarial opinion, signed by a 
                        qualified actuary, that all applicable 
                        requirements of section 705 are or will be met 
                        in accordance with regulations which the 
                        Secretary shall prescribe.
                            ``(ii) Adequacy of contribution rates.--A 
                        statement of actuarial opinion, signed by a 
                        qualified actuary, which sets forth a 
                        description of the extent to which contribution 
                        rates are adequate to provide for the payment 
                        of all obligations and the maintenance of 
                        required reserves under the arrangement for the 
                        12-month period beginning with such date within 
                        such 120-day period, taking into account the 
                        expected coverage and experience of the 
                        arrangement. If the contribution rates are not 
                        fully adequate, the statement of actuarial 
                        opinion shall indicate the extent to which the 
                        rates are inadequate and the changes needed to 
                        ensure adequacy.
                            ``(iii) Current and projected value of 
                        assets and liabilities.--A statement of 
                        actuarial opinion signed by a qualified 
                        actuary, which sets forth the current value of 
                        the assets and liabilities accumulated under 
                        the arrangement and a projection of the assets, 
                        liabilities, income, and expenses of the 
                        arrangement for the 12-month period referred to 
                        in clause (ii). The income statement shall 
                        identify separately the arrangement's 
                        administrative expenses and claims.
                            ``(iv) Costs of coverage to be charged and 
                        other expenses.--A statement of the costs of 
                        coverage to be charged, including an 
                        itemization of amounts for administration, 
                        reserves, and other expenses associated with 
                        the operation of the arrangement.
                            ``(v) Other information.--Any other 
                        information which may be prescribed in 
                        regulations of the Secretary as necessary to 
                        carry out the purposes of this part.
            ``(4) Filing fee.--Under the procedure prescribed pursuant 
        to paragraph (1), a multiple employer welfare arrangement shall 
        pay to the Secretary at the time of filing an application for 
        an exemption referred to in subsection (a) a filing fee in the 
        amount of $5,000, which shall be available, to the extent 
        provided in appropriation Acts, to the Secretary for the sole 
        purpose of administering the exemption procedures applicable 
        with respect to such arrangement.
            ``(5) Class exemption treatment for existing large 
        arrangements.--Under the procedure prescribed pursuant to 
        paragraph (1), if--
                    ``(A) at the time of application for an exemption 
                under section 514(b)(6)(B) with respect to an 
                arrangement which has been in existence as of the date 
                of the enactment of the Health Coverage Availability 
                and Affordability Act of 1996 for at least 3 years, 
                either (A) the arrangement covers at least 1,000 
                participants and beneficiaries, or (B) with respect to 
                the arrangement there are at least 2,000 employees of 
                eligible participating employers,
                    ``(B) a complete application for the exemption with 
                respect to the arrangement has been filed and is 
                pending, and
                    ``(C) the application meets such requirements (if 
                any) as the Secretary may provide with respect to class 
                exemptions under this subsection,
        the exemption shall be treated as having been granted with 
        respect to the arrangement unless and until the Secretary 
        provides appropriate notice that the exemption has been denied.
    ``(c) Filing Notice of Exemption With States.--An exemption granted 
under section 514(b)(6)(B) to a multiple employer welfare arrangement 
shall not be effective unless written notice of such exemption is filed 
with the State insurance commissioner of each State in which at least 5 
percent of the individuals covered under the arrangement are located. 
For purposes of this subsection, an individual shall be considered to 
be located in the State in which a known address of such individual is 
located or in which such individual is employed. The Secretary may by 
regulation provide in specified cases for the application of the 
preceding sentence with lesser percentages in lieu of such 5 percent 
amount.
    ``(d) Notice of Material Changes.--In the case of any multiple 
employer welfare arrangement exempt under section 514(b)(6)(B), 
descriptions of material changes in any information which was required 
to be submitted with the application for the exemption under this part 
shall be filed in such form and manner as shall be prescribed in 
regulations of the Secretary. The Secretary may require by regulation 
prior notice of material changes with respect to specified matters 
which might serve as the basis for suspension or revocation of the 
exemption.
    ``(e) Reporting Requirements.--Under regulations of the Secretary, 
the requirements of sections 102, 103, and 104 shall apply with respect 
to any multiple employer welfare arrangement which is or has been 
exempt under section 514(b)(6)(B) in the same manner and to the same 
extent as such requirements apply to employee welfare benefit plans, 
irrespective of whether such exemption continues in effect. The annual 
report required under section 103 for any plan year in the case of any 
such multiple employer welfare arrangement shall also include 
information described in subsection (b)(3)(F) with respect to the plan 
year and, notwithstanding section 104(a)(1)(A), shall be filed not 
later than 90 days after the close of the plan year.
    ``(f) Engagement of Qualified Actuary.--The board of trustees of 
each multiple employer welfare arrangement which is or has been exempt 
under section 514(b)(6)(B) shall engage, on behalf of all covered 
individuals, a qualified actuary who shall be responsible for the 
preparation of the materials comprising information necessary to be 
submitted by a qualified actuary under this part. The qualified actuary 
shall utilize such assumptions and techniques as are necessary to 
enable such actuary to form an opinion as to whether the contents of 
the matters reported under this part--
            ``(1) are in the aggregate reasonably related to the 
        experience of the arrangement and to reasonable expectations, 
        and
            ``(2) represent such actuary's best estimate of anticipated 
        experience under the arrangement.
The opinion by the qualified actuary shall be made with respect to, and 
shall be made a part of, the annual report.

``SEC. 703. REQUIREMENTS RELATING TO SPONSORS, BOARDS OF TRUSTEES, AND 
              PLAN OPERATIONS.

    ``(a) In General.--A complete application for an exemption under 
section 514(b)(6)(B) shall include information which the Secretary 
determines to be complete and accurate and sufficient to demonstrate 
that the following requirements are met with respect to the 
arrangement:
            ``(1) Sponsor.--The sponsor is, and has been (together with 
        its immediate predecessor, if any) for a continuous period of 
        not less than 5 years before the date of the application, 
        organized and maintained in good faith, with a constitution and 
        bylaws specifically stating its purpose and providing for 
        periodic meetings on at least an annual basis, as a trade 
        association, an industry association, a professional 
        association, or a chamber of commerce (or similar business 
        group, including a corporation or similar organization that 
        operates on a cooperative basis (within the meaning of section 
        1381 of the Internal Revenue Code of 1986)), for substantial 
        purposes other than that of obtaining or providing medical care 
        (within the meaning of section 607(1)), and the applicant 
        demonstrates to the satisfaction of the Secretary that the 
        sponsor is established as a permanent entity which receives the 
        active support of its members and collects dues or 
        contributions from its members on a periodic basis, without 
        conditioning such dues or contributions on the basis of the 
        health status of the employees of such members or the 
        dependents of such employees or on the basis of participation 
        in a group health plan. Any sponsor consisting of an 
        association of entities meeting the preceding requirements of 
        this paragraph shall be treated as meeting the requirements of 
        this paragraph.
            ``(2) Board of trustees.--The arrangement is operated, 
        pursuant to a trust agreement, by a board of trustees which has 
        complete fiscal control over the arrangement and which is 
        responsible for all operations of the arrangement, and the 
        board of trustees has in effect rules of operation and 
        financial controls, based on a 3-year plan of operation, 
        adequate to carry out the terms of the arrangement and to meet 
        all requirements of this title applicable to the arrangement. 
        The members of the board of trustees are individuals selected 
        from individuals who are the owners, officers, directors, or 
        employees of the participating employers or who are partners in 
        the participating employers and actively participate in the 
        business. No such member is an owner, officer, director, or 
        employee of, or partner in, a contract administrator or other 
        service provider to the arrangement, except that officers or 
        employees of a sponsor which is a service provider (other than 
        a contract administrator) to the arrangement may be members of 
        the board if they constitute not more than 25 percent of the 
        membership of the board and they do not provide services to 
the arrangement other than on behalf of the sponsor. The board has sole 
authority to approve applications for participation in the arrangement 
and to contract with a service provider to administer the day-to-day 
affairs of the arrangement.
            ``(3) Covered persons.--The instruments governing the 
        arrangement include a written instrument which provides that, 
        effective upon becoming an arrangement exempt under section 
        514(b)(6)(B)--
                    ``(A) all participating employers must be members 
                or affiliated members of the sponsor, except that, in 
                the case of a sponsor which is a professional 
                association or other individual-based association, if 
                at least one of the officers, directors, or employees 
                of an employer, or at least one of the individuals who 
                are partners in an employer and who actively 
                participates in the business, is a member or affiliated 
                member of the sponsor, participating employers may also 
                include such employer,
                    ``(B) all individuals thereafter commencing 
                coverage under the arrangement must be--
                            ``(i) active or retired owners (including 
                        self-employed individuals), officers, 
                        directors, or employees of, or partners in, 
                        participating employers, or
                            ``(ii) the beneficiaries of individuals 
                        described in clause (i), and
                    ``(C) no participating employer may provide health 
                insurance coverage in the individual market for any 
                employee not covered under the arrangement which is 
                similar to the coverage contemporaneously provided to 
                employees of the employer under the arrangement, if 
                such exclusion of the employee from coverage under the 
                arrangement is based in whole or in part on the health 
                status of the employee and such employee would, but for 
                such exclusion on such basis, be eligible for coverage 
                under the arrangement.
            ``(4) Inclusion of eligible employers and employees.--No 
        employer described in paragraph (3) is excluded as a 
        participating employer (except to the extent that requirements 
        of the type referred to in section 131(d)(2) of the Health 
        Coverage Availability and Affordability Act of 1996 are not 
        met) and the requirements of section 103 of such Act (as 
        referred to in section 104(b)(1) of such Act) are met.
            ``(5) Restriction on variations of premium rates.--Premium 
        rates under the arrangement with respect to any particular 
        employer do not vary on the basis of the claims experience of 
        such employer alone.
    ``(b) Treatment of Franchise Networks.--In the case of a multiple 
employer welfare arrangement which is established and maintained by a 
franchisor for a franchise network consisting of its franchisees, the 
requirements of subsection (a)(1) shall not apply with respect to such 
network in any case in which such requirements would be met if the 
franchisor were deemed to be the sponsor referred to in subsection 
(a)(1), such network were deemed to be an association described in 
subsection (a)(1), and each franchisee were deemed to be a member (of 
the association and the sponsor) referred to in subsection (a)(1).
    ``(c) Certain Collectively Bargained Arrangements.--In the case of 
a multiple employer welfare arrangement in existence on March 6, 1996, 
which would be described in section 3(40)(A)(i) but solely for the 
failure to meet the requirements of section 3(40)(C)(ii) or (to the 
extent provided in regulations of the Secretary) solely for the failure 
to meet the requirements of subparagraph (D) or (F) of section 3(40)--
            ``(1) subsection (a)(1) shall not apply, and
            ``(2) the joint board of trustees shall be considered the 
        board of trustees required under subsection (a)(2).
    ``(d) Certain Arrangements Not Meeting Single Employer 
Requirement.--
            ``(1) In general.--In any case in which the majority of the 
        employees covered under a multiple employer welfare arrangement 
        are employees of a single employer (within the meaning of 
        clauses (i) and (ii) of section 3(40)(B)), if all other 
        employees covered under the arrangement are employed by 
        employers who are related to such single employer--
                    ``(A) subsection (a)(1) shall not apply if the 
                sponsor of the arrangement is the person who would be 
                the plan sponsor if the related employers were 
                disregarded in determining whether the requirements of 
                section 3(40)(B) are met, and
                    ``(B) subsection (a)(2) shall be treated as 
                satisfied if the board of trustees is the named 
                fiduciary in connection with the arrangement.
            ``(2) Related employers.--For purposes of paragraph (1), 
        employers are `related' if there is among all such employers a 
        common ownership interest or a substantial commonality of 
        business operations based on common suppliers or customers.

``SEC. 704. OTHER REQUIREMENTS FOR EXEMPTION.

    ``A multiple employer welfare arrangement exempt under section 
514(b)(6)(B) shall meet the following requirements:
            ``(1) Contents of governing instruments.--The instruments 
        governing the arrangement include a written instrument, meeting 
        the requirements of an instrument required under section 
        402(a)(1), which--
                    ``(A) provides that the board of trustees serves as 
                the named fiduciary required for plans under section 
                402(a)(1) and serves in the capacity of a plan 
                administrator (referred to in section 3(16)(A)),
                    ``(B) provides that the sponsor of the arrangement 
                is to serve as plan sponsor (referred to in section 
                3(16)(B)), and
                    ``(C) incorporates the requirements of section 705.
            ``(2) Contribution rates.--The contribution rates referred 
        to in section 702(b)(3)(F)(ii) are adequate.
            ``(3) Regulatory requirements.--Such other requirements as 
        the Secretary may prescribe by regulation as necessary to carry 
        out the purposes of this part.

``SEC. 705. MAINTENANCE OF RESERVES.

    ``(a) In General.--Each multiple employer welfare arrangement which 
is or has been exempt under section 514(b)(6)(B) and under which 
benefits are not fully insured shall establish and maintain reserves, 
consisting of--
            ``(1) a reserve sufficient for unearned contributions,
            ``(2) a reserve sufficient for benefit liabilities which 
        have been incurred, which have not been satisfied, and for 
        which risk of loss has not yet been transferred, and for 
        expected administrative costs with respect to such benefit 
        liabilities, and
            ``(3) a reserve, in an amount recommended by the qualified 
        actuary, for any other obligations of the arrangement.
    ``(b) Minimum Amount for Certain Reserves.--The total of the 
reserves described in subsection (a)(2) shall not be less than an 
amount equal to the greater of--
            ``(1) 25 percent of expected incurred claims and expenses 
        for the plan year, or
            ``(2) $400,000.
    ``(c) Required Margin.--In determining the amounts of reserves 
required under this section in connection with any multiple employer 
welfare arrangement, the qualified actuary shall include a margin for 
error and other fluctuations taking into account the specific 
circumstances of such arrangement.
    ``(d) Additional Requirements.--The Secretary may provide such 
additional requirements relating to reserves and excess/stop loss 
coverage as the Secretary considers appropriate. Such requirements may 
be provided, by regulation or otherwise, with respect to any 
arrangement or any class of arrangements.
    ``(e) Adjustments for Excess/Stop Loss Coverage.--The Secretary may 
provide for adjustments to the levels of reserves otherwise required 
under subsections (a) and (b) with respect to any arrangement or class 
of arrangements to take into account excess/stop loss coverage provided 
with respect to such arrangement or arrangements.
    ``(f) Alternative Means of Compliance.--The Secretary may permit an 
arrangement to substitute, for all or part of the requirements of this 
section, such security, guarantee, hold-harmless arrangement, or other 
financial arrangement as the Secretary determines to be adequate to 
enable the arrangement to fully meet all its financial obligations on a 
timely basis. The Secretary may take into account, for purposes of this 
subsection, evidence provided by the arrangement or sponsor which 
demonstrates an assumption of liability with respect to the 
arrangement. Such evidence may be in the form of a contract of 
indemnification, lien, bonding, insurance, letter of credit, recourse 
under applicable terms of the arrangement in the form of assessments of 
participating employers, security, or other financial arrangement.

``SEC. 706. NOTICE REQUIREMENTS FOR VOLUNTARY TERMINATION.

    ``Except as provided in section 707(b), a multiple employer welfare 
arrangement which is or has been exempt under section 514(b)(6)(B) may 
terminate only if the board of trustees--
            ``(1) not less than 60 days before the proposed termination 
        date, provides to the participants and beneficiaries a written 
        notice of intent to terminate stating that such termination is 
        intended and the proposed termination date,
            ``(2) develops a plan for winding up the affairs of the 
        arrangement in connection with such termination in a manner 
        which will result in timely payment of all benefits for which 
        the arrangement is obligated, and
            ``(3) submits such plan in writing to the Secretary.
Actions required under this paragraph shall be taken in such form and 
manner as may be prescribed in regulations of the Secretary.

``SEC. 707. CORRECTIVE ACTIONS AND MANDATORY TERMINATION.

    ``(a) Actions To Avoid Depletion of Reserves.--A multiple employer 
welfare arrangement which is or has been exempt under section 
514(b)(6)(B) shall continue to meet the requirements of section 705, 
irrespective of whether such exemption continues in effect. The board 
of trustees of such arrangement shall determine quarterly whether the 
requirements of section 705 are met. In any case in which the committee 
determines that there is reason to believe that there is or will be a 
failure to meet such requirements, or the Secretary makes such a 
determination and so notifies the committee, the committee shall 
immediately notify the qualified actuary engaged by the arrangement, 
and such actuary shall, not later than the end of the next following 
month, make such recommendations to the committee for corrective action 
as the actuary determines necessary to ensure compliance with section 
705. Not later than 10 days after receiving from the actuary 
recommendations for corrective actions, the committee shall notify the 
Secretary (in such form and manner as the Secretary may prescribe by 
regulation) of such recommendations of the actuary for corrective 
action, together with a description of the actions (if any) that the 
committee has taken or plans to take in response to such 
recommendations. The committee shall thereafter report to the 
Secretary, in such form and frequency as the Secretary may specify to 
the committee, regarding corrective action taken by the committee until 
the requirements of section 705 are met.
    ``(b) Mandatory Termination.--In any case in which--
            ``(1) the Secretary has been notified under subsection (a) 
        of a failure of a multiple employer welfare arrangement which 
        is or has been exempt under section 514(b)(6)(B) to meet the 
        requirements of section 705 and has not been notified by the 
        board of trustees of the arrangement that corrective action has 
        restored compliance with such requirements, and
            ``(2) the Secretary determines that the continuing failure 
        to meet the requirements of section 705 can be reasonably 
        expected to result in a continuing failure to pay benefits for 
        which the arrangement is obligated,
the board of trustees of the arrangement shall, at the direction of the 
Secretary, terminate the arrangement and, in the course of the 
termination, take such actions as the Secretary may require, including 
recovering for the arrangement any liability under section 705(f), as 
necessary to ensure that the affairs of the arrangement will be, to the 
maximum extent possible, wound up in a manner which will result in 
timely provision of all benefits for which the arrangement is 
obligated.

``SEC. 708. ADDITIONAL RULES REGARDING STATE AUTHORITY.

    ``(a) Exclusion of Arrangements From the Small Group Market in any 
State Upon State's Certification of Guaranteed Access to Health 
Insurance Coverage in Such State.--
            ``(1) In general.--If a State certifies to the Secretary 
        that such State provides to its residents guaranteed access to 
        health insurance coverage, during the period for which such 
        certification is in effect, the law of such State may regulate 
        any health care coverage provided in the small group market in 
        such State (or prohibit the provision of such coverage) by a 
        multiple employer welfare arrangement which is otherwise exempt 
        under section 514(b)(6)(B) and whose sponsor is described in 
        section 703(a)(1), notwithstanding such exemption. Any such 
        certification shall be in effect for such period, not greater 
        than 3 years, as is designated in such certification. Such 
        certification shall apply with respect to such arrangements as 
        are identified, individually or by class, in the certification.
            ``(2) Guaranteed access.--For purposes of this subsection, 
        the certification by a State that such State provides 
        `guaranteed access' to health insurance coverage to the 
        residents of such State means--
                    ``(A) certification that the number of residents of 
                such State who are covered by a group health plan or 
                otherwise have health insurance coverage exceeds 90 
                percent of the total number of the residents of such 
                State, or
                    ``(B) certification that--
                            ``(i) the small group market in such State 
                        provides guaranteed issue for employees with 
                        respect to at least one option of health 
                        insurance coverage offered by insurers and 
                        health maintenance organizations in such 
                        market, and
                            ``(ii) the State has implemented rating 
                        reforms in the small group market in such State 
                        which are designed to make health insurance 
                        coverage more affordable.
    ``(b) Exceptions.--
            ``(1) Certain multistate associations.--Subsection (a) 
        shall not apply in the case of a multiple employer welfare 
        arrangement operating in any State which has made a 
        certification under subsection (a)(2)(B) if--
                    ``(A) in the application for the exemption under 
                section 514(b)(6)(B), the sponsor of such arrangement 
                demonstrates to the Secretary (in such form and manner 
                as shall be prescribed in regulations of the Secretary) 
                that--
                            ``(i) such sponsor operates in the majority 
                        of the 50 States and in at least 2 of the 
                        regions of the United States, and
                            ``(ii) the arrangement covers, or is to 
                        cover (in the case of a newly established 
                        arrangement), at least 7,500 participants and 
                        beneficiaries, and
                    ``(B) at the time of such application, the 
                arrangement does not have pending against it any 
                enforcement action by the State.
            ``(2) Existing arrangements.--Subsection (a) shall not 
        apply with respect to an arrangement operating in any State 
        if--
                    ``(A) such arrangement was operating in such State 
                as of March 6, 1996, and
                    ``(B) at the time of the application for the 
                exemption under section 514(b)(6), the arrangement does 
                not have pending against it any enforcement action by 
                the State.
            ``(3) Limitations.--Paragraphs (1) and (2) shall not apply 
        in the case of any State which has made a certification under 
        subsection (a) and which, as of January 1, 1996, had enacted a 
        law that either--
                    ``(A) provided guaranteed issue of individual 
                health insurance coverage offered by insurers and 
                health maintenance organizations in the individual 
                market using pure community rating and did not provide 
                for any transition period (after the effective date of 
                the guaranteed issue requirement) in the implementation 
                of pure community rating; or
                    ``(B) required insurers offering health insurance 
                coverage in connection with group health plans to 
                reimburse insurers offering individual health insurance 
                coverage for losses resulting from those insurers 
                offering individual health insurance coverage on an 
                open enrollment basis.
        Regulations under this part may provide for an exemption from 
        the applicability of paragraph (1) in the case of certain 
        arrangements that are limited to a single industry.
    ``(c) Assessment Authority With Respect to New Arrangements.--
            ``(1) In general.--Notwithstanding section 514, a State may 
        impose by law a premium tax on multiple employer welfare 
        arrangements which are otherwise exempt under section 
        514(b)(6)(B) and the sponsor of which is described in section 
        703(a)(1)--
                    ``(A) in the case of an arrangement established 
                after March 6, 1996, and
                    ``(B) in the case of an arrangement in existence as 
                of March 6, 1996, if the arrangement commenced 
                operations in such State after March 6, 1996.
            ``(2) Premium tax.--For purposes of this subsection, the 
        term `premium tax' imposed by a State on a multiple employer 
        welfare arrangement means any tax imposed by such State if--
                    ``(A) such tax is computed by applying a rate to 
                the amount of premiums or contributions received by the 
                arrangement from participating employers located in 
                such State with respect to individuals covered under 
                the arrangement who are residents of such State,
                    ``(B) the rate of such tax does not exceed the rate 
                of any tax imposed by such State on premiums or 
                contributions received by insurers or health 
                maintenance organizations for health insurance coverage 
                offered in such State in connection with a group health 
                plan,
                    ``(C) such tax is otherwise nondiscriminatory, and
                    ``(D) the amount of any such tax assessed on the 
                arrangement is reduced by the amount of any tax or 
                assessment imposed by the State on premiums or 
                contributions received by insurers or health 
                maintenance organizations for health insurance coverage 
                (or other insurance related to the provision of medical 
                care under the arrangement) provided by such insurers 
                or health maintenance organizations in such State to 
                such arrangement.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Small group market.--The term `small group market' 
        means the health insurance coverage market under which 
        individuals obtain health insurance coverage (directly or 
        through any arrangement) on behalf of themselves (and their 
        dependents) on the basis of employment or other relationship 
        with respect to a small employer.
            ``(2) Small employer.--The term `small employer' means, in 
        connection with a group health plan with respect to a calandar 
        year, an employer who employs at least 2 but fewer than 51 
        employees on a typical business day in the year. For purposes 
        of this paragraph, 2 or more trades or businesses, whether or 
        not incorporated, shall be deemed a single employer if such 
        trades or businesses are within the same control group (within 
        the meaning of section 3(40)(B)(ii)).
            ``(3) Region.--The term `region' means any of the following 
        regions:
                    ``(A) The East Region, consisting of the States of 
                Maine, New Hampshire, Vermont, New York, Massachusetts, 
                Rhode Island, Connecticut, New Jersey, Pennsylvania, 
                Delaware, Maryland, West Virginia, and Ohio, and the 
                District of Columbia.
                    ``(B) The Southeast Region, consisting of the 
                States of Texas, Arkansas, Louisiana, Mississippi, 
                Alabama, Georgia, Florida, South Carolina, North 
                Carolina, Virginia, and Tennessee.
                    ``(C) The Midwest Region, consisting of the States 
                of Montana, South Dakota, North Dakota, Nebraska, 
                Kansas, Oklahoma, Minnesota, Iowa, Missouri, Wisconsin, 
                Michigan, Illinois, and Indiana.
                    ``(D) The West Region, consisting of the States of 
                Oregon, Washington, Idaho, Nevada, California, New 
                Mexico, Arizona, Nebraska, Wyoming, Hawaii, Alaska, 
                Colorado, and Utah.''.
    (b) Conforming Amendments to Preemption Rules.--
            (1) Section 514(b)(6)(A)(i) of such Act (29 U.S.C. 
        1144(b)(6)(A)(i)) is amended by striking ``is fully insured'' 
        and inserting ``under which all benefits are fully insured'', 
        and by inserting ``and which is not described in section 
        702(a)(1)'' after ``subparagraph (B)''.
            (2) Section 514(b)(6)(B) of such Act (29 U.S.C. 
        1144(b)(6)(B)) is amended--
                    (A) by inserting ``(i)'' after ``(B)'';
                    (B) by striking ``which are not fully insured'' and 
                inserting ``under which any benefit is not fully 
                insured''; and
                    (C) by striking ``Any such exemption'' and 
                inserting:
    ``(ii) Subject to part 7, any exemption under clause (i)''.
    (c) Conforming Amendment to Definition of Plan Sponsor.--Section 
3(16)(B) of such Act (29 U.S.C. 1002(16)(B)) is amended by adding at 
the end the following new sentence: ``Such term also includes the 
sponsor (as defined in section 701(6)) of a multiple employer welfare 
arrangement which is or has been a multiple employer health plan (as 
defined in section 701(4)).''.
    (d) Definitions.--
            (1) Group health plan.--Section 3 of such Act (29 U.S.C. 
        1002) is amended by adding at the end the following new 
        paragraph:
    ``(42) Except as otherwise provided in this title, the term `group 
health plan' means an employee welfare benefit plan to the extent that 
the plan provides medical care (within the meaning of section 607(1)) 
to employees or their dependents (as defined under the terms of the 
plan) directly or through insurance, reimbursement, or otherwise.''.
            (2) Inclusion of certain partners and self-employed 
        sponsors in definition of participant.--Section 3(7) of such 
        Act (29 U.S.C. 1002(7)) is amended--
                    (A) by inserting ``(A)'' after ``(7)''; and
                    (B) by adding at the end the following new 
                paragraph:
    ``(B) In the case of a group health plan, such term includes--
            ``(i) in connection with a group health plan maintained by 
        a partnership, an individual who is a partner in relation to 
        the partnership, or
            ``(ii) in connection with a group health plan maintained by 
        a self-employed individual (under which one or more employees 
        are participants), the self-employed individual,
if such individual is or may become eligible to receive a benefit under 
the plan or such individual's beneficiaries may be eligible to receive 
any such benefit.''.
            (3) Health insurance coverage.--Section 3 of such Act (as 
        amended by paragraph (1)) is amended further by adding at the 
        end the following new paragraph:
    ``(43)(A) Except as provided in subparagraph (B), the term `health 
insurance coverage' means benefits consisting of medical care (provided 
directly, through insurance or reimbursement, or otherwise) under any 
hospital or medical service policy or certificate, hospital or medical 
service plan contract, or health maintenance organization group 
contract offered by an insurer or a health maintenance organization.
    ``(B) Such term does not include coverage under any separate 
policy, certificate, or contract only for one or more of any of the 
following:
            ``(i) Coverage for accident, credit-only, vision, 
        disability income, long-term care, nursing home care, 
        community-based care dental, on-site medical clinics, or 
        employee assistance programs, or any combination thereof.
            ``(ii) Medicare supplemental health insurance (within the 
        meaning of section 1882(g)(1) of the Social Security Act (42 
        U.S.C. 1395ss(g)(1))) and similar supplemental coverage 
        provided under a group health plan.
            ``(iii) Coverage issued as a supplement to liability 
        insurance.
            ``(iv) Liability insurance, including general liability 
        insurance and automobile liability insurance.
            ``(v) Workers' compensation or similar insurance.
            ``(vi) Automobile medical-payment insurance.
            ``(vii) Coverage for a specified disease or illness.
            ``(viii) Hospital or fixed indemnity insurance.
            ``(ix) Short-term limited duration insurance.
            ``(x) Such other coverage, comparable to that described in 
        previous clauses, as may be specified in regulations.''.
            (4) Medical care.--Section 607(1) of such Act (29 U.S.C. 
        1167(1)) is amended--
                    (A) by striking ``The term'' and inserting the 
                following:
                    ``(A) In general.--The term'';
                    (B) by striking ``(as defined'' and all that 
                follows through ``1986)''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(B) Medical care.--For purposes of this 
                paragraph, the term `medical care' means--
                            ``(i) amounts paid for, or items or 
                        services in the form of, the diagnosis, cure, 
                        mitigation, treatment, or prevention of 
                        disease, or amounts paid for, or items or 
                        services provided for, the purpose of affecting 
                        any structure or function of the body,
                            ``(ii) amounts paid for, or services in the 
                        form of, transportation primarily for and 
                        essential to medical care referred to in clause 
                        (i), and
                            ``(iii) amounts paid for insurance covering 
                        medical care referred to in clauses (i) and 
                        (ii).''.
            (5) Other definitions.--Section 514 of such Act is further 
        amended by adding at the end the following new subsection:
    ``(e) For purposes of this section, the terms `fully insured', 
`health maintenance organization', and `insurer' have the meanings 
given such terms in section 701.''.
    (e) Clerical Amendment.--The table of contents in section 1 of the 
Employee Retirement Income Security Act of 1974 (as amended by section 
102(g)) is amended by inserting after the item relating to section 609 
the following 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.''.

SEC. 162. AFFORDABLE AND AVAILABLE FULLY INSURED HEALTH COVERAGE 
              THROUGH VOLUNTARY HEALTH INSURANCE ASSOCIATIONS.

    Section 514 of the Employee Retirement Income Security Act of 1974 
is amended--
            (1) by redesignating subsections (d) as subsection (e); and
            (2) by inserting after subsection (c) the following new 
        subsection:
    ``(d)(1) The provisions of this title shall supercede any and all 
State laws which regulate insurance insofar as they may now or 
hereafter--
            ``(A) preclude an insurer or health maintenance 
        organization from offering health insurance coverage under 
        voluntary health insurance associations,
            ``(B) preclude an insurer or health maintenance 
        organization from setting premium rates under a voluntary 
        health insurance association based on the claims experience of 
        the voluntary health insurance association (without varying the 
        premium rates of any particular employer on the basis of the 
        claims experience of such employer alone), or
            ``(C) require--
                    ``(i) health insurance coverage in connection with 
                a voluntary health insurance association to include 
                specific items or services consisting of medical care, 
                or
                    ``(ii) an insurer or health maintenance 
                organization offering health insurance coverage in 
                connection with a voluntary health insurance 
                association to include in such health insurance 
coverage specific items or services consisting of medical care,
        except to the extent that such State laws prohibit an exclusion 
        for a specific disease in such health insurance coverage.
Subparagraph (C) shall apply only with respect to items and services 
which shall be specified in a list which shall be prescribed in 
regulations of the Secretary.
    ``(2)(A) If a State certifies to the Secretary that such State 
provides to its residents guaranteed access to health insurance 
coverage, during the period for which such certification is in effect, 
the law of such State may regulate any health insurance coverage 
provided in the small group market in such State (or prohibit the 
provision of such coverage) by a voluntary health insurance 
association. Any such certification shall be in effect for such period, 
not greater than 3 years, as is designated in such certification.
    ``(B) For purposes of this paragraph, the certification by a State 
that such State provides `guaranteed access' to health insurance 
coverage to the residents of such State means--
            ``(i) certification that the number of residents of such 
        State who are covered by a group health plan or otherwise have 
        health insurance coverage exceeds 90 percent of the total 
        number of the residents of such State, or
            ``(ii) certification that--
                    ``(I) the small group market in such State provides 
                guaranteed issue for employees with respect to at least 
                one option of health insurance coverage offered by 
                insurers and health maintenance organizations in such 
                market, and
                    ``(II) the State has implemented rating reforms in 
                the small group market in such State which are designed 
                to make health insurance coverage more affordable.
    ``(3)(A) Paragraph (2) shall not apply in the case of any voluntary 
health insurance association with respect to any State if the qualified 
association demonstrates to the Secretary (in such form and manner as 
shall be prescribed in regulations of the Secretary) that--
            ``(i) such qualified association operates in the majority 
        of the 50 States and in at least 2 of the regions of the United 
        States,
            ``(ii) the arrangement covers, or is to cover (in the case 
        of a newly established arrangement), at least 7,500 
        participants and beneficiaries, and
            ``(iii) under the terms of the arrangement, either--
                    ``(I) the qualified association does not exclude 
                from membership any small employer in the State, or
                    ``(II) the arrangement accepts every small employer 
                in the State that applies for coverage.
    ``(B)(i) Subject to clause (ii), paragraph (2) shall not apply with 
respect to a voluntary health insurance association operating in any 
State if such association was operating in such State as of March 6, 
1996.
    ``(ii) Clause (i) shall apply in the case of an arrangement in 
connection with any State only if the qualified association 
demonstrates to the Secretary (in such form and manner as shall be 
prescribed in regulations of the Secretary) either--
            ``(I) that the qualified association does not exclude from 
        membership any small employer in the State, or
            ``(II) that the arrangement accepts every small employer in 
        such State that applies for coverage.
    ``(C) Subparagraphs (A) and (B) shall not apply in the case of any 
State which has made a certification under paragraph (2) and which, as 
of January 1, 1996, had enacted a law that either--
            ``(i) provided guaranteed issue of individual health 
        insurance coverage offered by insurers and health maintenance 
        organizations in the individual market using pure community 
        rating and did not provide for any transition period (after the 
        effective date of the guaranteed issue requirement) in the 
        implementation of pure community rating; or
            ``(ii) required insurers offering health insurance coverage 
        in connection with group health plans to reimburse insurers 
        offering individual health insurance coverage for losses 
        resulting from those insurers offering individual health 
        insurance coverage on an open enrollment basis.
    ``(5) For purposes of this subsection--
            ``(A) The term `voluntary health insurance association' 
        means a multiple employer welfare arrangement--
                    ``(i) under which benefits include medical care 
                (within the meaning of section 607(1)),
                    ``(ii) under which all benefits consisting of such 
                medical care are fully insured,
                    ``(iii) which is maintained by a qualified 
                association,
                    ``(iv) under which no employer is excluded as a 
                participating employer (except to the extent that 
                requirements of the type referred to in section 
                131(d)(2) of the Health Coverage Availability and 
                Affordability Act of 1996 are not met), the 
                requirements of section 103 of such Act (as referred to 
                in section 104(b)(1) of such Act) are met, and all 
                health insurance coverage options are aggressively 
                marketed to eligible employees and their dependents, 
                and
                    ``(v) under which, with respect to the operations 
                of the arrangement in any State, the health insurance 
                coverage is provided by an insurer or health 
                maintenance organization to which the laws of such 
                State applies.
            ``(B) The term `qualified association' means an association 
        with respect to which the following requirements are met:
                    ``(i) The sponsor of the association is, and has 
                been (together with its immediate predecessor, if any) 
                for a continuous period of not less than 5 years, 
                organized and maintained in good faith, with a 
                constitution and bylaws specifically stating its 
                purpose, as a trade association, an industry 
                association, a professional association, or a chamber 
                of commerce (or similar business group), for 
                substantial purposes other than that of obtaining or 
                providing medical care (within the meaning of section 
                607(1)).
                    ``(ii) The sponsor of the association is 
                established as a permanent entity which receives the 
                active support of its members.
                    ``(iii) The constitution and bylaws of the 
                association provide for periodic meetings on at least 
                an annual basis.
                    ``(iv) The association collects dues or 
                contributions from its members on a periodic basis, 
                without conditioning such dues or contributions on the 
                basis of the health status of the employees of such 
                members or the dependents of such employees or on the 
                basis of participation in a group health plan or 
                voluntary health insurance association.
        Such term includes a group of qualified associations, as 
        defined in the preceding provisions of this clause.
            ``(C) The term `small group market' means the health 
        insurance coverage market under which individuals obtain health 
        insurance coverage (directly or through any arrangement) on 
        behalf of themselves (and their dependents) on the basis of 
        employment or other relationship with respect to a small 
        employer.
            ``(D) The term `small employer' means, in connection with a 
        group health plan with respect to a calandar year, an employer 
        who employs at least 2 but fewer than 51 employees on a typical 
        business day in the year. For purposes of this paragraph, 2 or 
        more trades or businesses, whether or not incorporated, shall 
        be deemed a single employer if such trades or businesses are 
        within the same control group (within the meaning of section 
        3(40)(B)(ii)).
            ``(E) The term `region' means any of the following regions:
                    ``(i) The East Region, consisting of the States of 
                Maine, New Hampshire, Vermont, New York, Massachusetts, 
                Rhode Island, Connecticut, New Jersey, Pennsylvania, 
                Delaware, Maryland, West Virginia, and Ohio and the 
                District of Columbia.
                    ``(ii) The Southeast Region, consisting of the 
                States of Texas, Arkansas, Louisiana, Mississippi, 
                Alabama, Georgia, Florida, South Carolina, North 
                Carolina, Virginia, and Tennessee.
                    ``(iii) The Midwest Region, consisting of the 
                States of Montana, South Dakota, North Dakota, 
                Nebraska, Kansas, Oklahoma, Minnesota, Iowa, Missouri, 
                Wisconsin, Michigan, Illinois, and Indiana.
                    ``(iv) The West Region, consisting of the States of 
                Oregon, Washington, Idaho, Nevada, California, New 
                Mexico, Arizona, Nebraska, Wyoming, Hawaii, Alaska, 
                Colorado, and Utah.''.

SEC. 163. STATE AUTHORITY FULLY APPLICABLE TO SELF-INSURED MULTIPLE 
              EMPLOYER WELFARE ARRANGEMENTS PROVIDING MEDICAL CARE 
              WHICH ARE NOT EXEMPTED UNDER NEW PART 7.

    (a) In General.--Section 514(b)(6)(A)(ii) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1144(b)(6)(A)(ii)) is 
amended by inserting before the period the following: ``, except that, 
in any such case, if the arrangement provides medical care (within the 
meaning of section 607(1)), such a law of any State may apply without 
limitation under this title''.
    (b) Cross-Reference.--Section 514(b)(6) of such Act (29 U.S.C. 
1144(b)(6)) (as amended by section 301) is amended by adding at the end 
the following new subparagraph:
    ``(G) For additional rules relating to exemption from subparagraph 
(A)(ii) of multiple employer health plans, see part 7.''.

SEC. 164. CLARIFICATION OF TREATMENT OF SINGLE EMPLOYER ARRANGEMENTS.

    Section 3(40)(B) of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1002(40)(B)) is amended--
            (1) in clause (i), by inserting ``for any plan year of any 
        such plan, or any fiscal year of any such other arrangement,'' 
        after ``single employer'', and by inserting ``during such year 
        or at any time during the preceding 1-year period'' after 
        ``control group'';
            (2) in clause (iii)--
                    (A) by striking ``common control shall not be based 
                on an interest of less than 25 percent'' and inserting 
                ``an interest of greater than 25 percent may not be 
                required as the minimum interest necessary for common 
                control''; and
                    (B) by striking ``similar to'' and inserting 
                ``consistent and coextensive with'';
            (3) by redesignating clauses (iv) and (v) as clauses (v) 
        and (vi), respectively; and
            (4) by inserting after clause (iii) the following new 
        clause:
            ``(iv) in determining, after the application of clause (i), 
        whether benefits are provided to employees of two or more 
        employers, the arrangement shall be treated as having only 1 
        participating employer if, after the application of clause (i), 
        the number of individuals who are employees and former 
        employees of any one participating employer and who are covered 
        under the arrangement is greater than 75 percent of the 
        aggregate number of all individuals who are employees or former 
        employees of participating employers and who are covered under 
        the arrangement,''.

SEC. 165. CLARIFICATION OF TREATMENT OF CERTAIN COLLECTIVELY BARGAINED 
              ARRANGEMENTS.

    (a) In General.--Section 3(40)(A)(i) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1002(40)(A)(i)) is amended to 
read as follows:
            ``(i)(I) under or pursuant to one or more collective 
        bargaining agreements which are reached pursuant to collective 
        bargaining described in section 8(d) of the National Labor 
        Relations Act (29 U.S.C. 158(d)) or paragraph Fourth of section 
        2 of the Railway Labor Act (45 U.S.C. 152, paragraph Fourth) or 
        which are reached pursuant to labor-management negotiations 
        under similar provisions of State public employee relations 
        laws, and (II) in accordance with subparagraphs (C), (D), and 
        (E),''.
    (b) Limitations.--Section 3(40) of such Act (29 U.S.C. 1002(40)) is 
amended by adding at the end the following new subparagraphs:
    ``(C) A plan or other arrangement is established or maintained in 
accordance with this subparagraph only if the following requirements 
are met:
            ``(i) The plan or other arrangement, and the employee 
        organization or any other entity sponsoring the plan or other 
        arrangement, do not--
                    ``(I) utilize the services of any licensed 
                insurance agent or broker for soliciting or enrolling 
                employers or individuals as participating employers or 
                covered individuals under the plan or other 
                arrangement, or
                    ``(II) pay a commission or any other type of 
                compensation to a person, other than a full time 
                employee of the employee organization (or a member of 
                the organization to the extent provided in regulations 
                of the Secretary), that is related either to the volume 
                or number of employers or individuals solicited or 
                enrolled as participating employers or covered 
                individuals under the plan or other arrangement, or to 
                the dollar amount or size of the contributions made by 
                participating employers or covered individuals to the 
                plan or other arrangement,
        except to the extent that the services used by the plan, 
        arrangement, organization, or other entity consist solely of 
        preparation of documents necessary for compliance with the 
        reporting and disclosure requirements of part 1 or 
        administrative, investment, or consulting services unrelated to 
        solicitation or enrollment of covered individuals.
            ``(ii) As of the end of the preceding plan year, the number 
        of covered individuals under the plan or other arrangement who 
        are identified to the plan or arrangement and who are neither--
                    ``(I) employed within a bargaining unit covered by 
                any of the collective bargaining agreements with a 
                participating employer (nor covered on the basis of an 
                individual's employment in such a bargaining unit), nor
                    ``(II) present employees (or former employees who 
                were covered while employed) of the sponsoring employee 
                organization, of an employer who is or was a party to 
                any of the collective bargaining agreements, or of the 
                plan or other arrangement or a related plan or 
                arrangement (nor covered on the basis of such present 
                or former employment),
        does not exceed 15 percent of the total number of individuals 
        who are covered under the plan or arrangement and who are 
        present or former employees who are or were covered under the 
        plan or arrangement pursuant to a collective bargaining 
        agreement with a participating employer. The requirements of 
        the preceding provisions of this clause shall be treated as 
        satisfied if, as of the end of the preceding plan year, such 
        covered individuals are comprised solely of individuals who 
        were covered individuals under the plan or other arrangement as 
        of the date of the enactment of the Health Coverage 
        Availability and Affordability Act 1996 and, as of the end of 
        the preceding plan year, the number of such covered individuals 
        does not exceed 25 percent of the total number of present and 
        former employees enrolled under the plan or other arrangement.
            ``(iii) The employee organization or other entity 
        sponsoring the plan or other arrangement certifies to the 
        Secretary each year, in a form and manner which shall be 
        prescribed in regulations of the Secretary that the plan or 
        other arrangement meets the requirements of clauses (i) and 
        (ii).
    ``(D) A plan or arrangement is established or maintained in 
accordance with this subparagraph only if--
            ``(i) all of the benefits provided under the plan or 
        arrangement are fully insured (as defined in section 701(2)), 
        or
            ``(ii)(I) the plan or arrangement is a multiemployer plan, 
        and
            ``(II) the requirements of clause (B) of the proviso to 
        clause (5) of section 302(c) of the Labor Management Relations 
        Act, 1947 (29 U.S.C. 186(c)) are met with respect to such plan 
        or other arrangement.
    ``(E) A plan or arrangement is established or maintained in 
accordance with this subparagraph only if--
            ``(i) the plan or arrangement is in effect as of the date 
        of the enactment of the Health Coverage Availability and 
        Affordability Act of 1996, or
            ``(ii) the employee organization or other entity sponsoring 
        the plan or arrangement--
                    ``(I) has been in existence for at least 3 years or 
                is affiliated with another employee organization which 
                has been in existence for at least 3 years, or
                    ``(II) demonstrates to the satisfaction of the 
                Secretary that the requirements of subparagraphs (C) 
                and (D) are met with respect to the plan or other 
                arrangement.''.
    (c) Conforming Amendments to Definitions of Participant and 
Beneficiary.--Section 3(7) of such Act (29 U.S.C. 1002(7)) is amended 
by adding at the end the following new sentence: ``Such term includes 
an individual who is a covered individual described in paragraph 
(40)(C)(ii).''.

SEC. 166. TREATMENT OF CHURCH PLANS.

    (a) Special Rules for Church Plans.--
            (1) In general.--Part 7 of subtitle B of title I of such 
        Act (as added and amended by the preceding provisions of this 
        Act) is amended by adding at the end the following new section:

``SEC. 709. SPECIAL RULES FOR CHURCH PLANS.

    ``(a) Election for Church Plans.--
            ``(1) In general.--Notwithstanding section 4(b)(2), if the 
        church or convention or association of churches which maintains 
        a church plan covered under this section makes an election with 
        respect to such plan under this subsection (in such form and 
        manner as the Secretary may by regulations prescribe), then, 
        subject to this section, the provisions of this part (and other 
        provisions of this title to the extent that they apply to group 
        health plans which are multiple employer welfare arrangements) 
        shall apply to such church plan, with respect to benefits 
        provided under such plan consisting of medical care, as if--
                    ``(A) section 4(b)(2) did not contain an exclusion 
                for church plans, and
                    ``(B) such plan were an arrangement eligible to 
                apply for an exemption under this part.
            ``(2) Election irrevocable.--An election under this 
        subsection with respect to any church plan shall be binding 
        with respect to such plan, and, once made, shall be 
        irrevocable.
    ``(b) Covered Church Plans.--A church plan is covered under this 
section if such plan provides benefits which include medical care and 
some or all of such benefits are not fully insured.
    ``(c) Sponsor and Board of Trustees.--For purposes of this part, in 
the case of a church plan to which this part applies pursuant to an 
election under subsection (a), in treating such plan as if it were a 
multiple employer welfare arrangement under this part--
            ``(1) the church, convention or association of churches, or 
        other organization described in section 3(33)(C)(i) which is 
        the entity maintaining the plan shall be treated as the sponsor 
        referred to in section 703(a)(1), and the requirements of 
        section 703(a)(1) shall not apply, and
            ``(2) the board of trustees, board of directors, or other 
        similar governing body of such sponsor shall be treated as the 
        board of trustees referred to in section 703(a)(2), and the 
requirements of section 703(a)(2) shall be deemed satisfied with 
respect to the board of trustees.
    ``(d) Deemed Satisfaction of Trust Requirements.--The requirements 
of section 403 shall not be treated as not satisfied with respect to a 
church plan to which this part applies pursuant to an election under 
subsection (a) solely because assets of the plan are held by an 
organization described in section 3(33)(C)(i), if--
            ``(1) such organization is incorporated separately from the 
        church or convention or association of churches involved, and
            ``(2) such assets with respect to medical care are 
        separately accounted for.
    ``(e) Deemed Satisfaction of Exclusive Benefit Requirements.--The 
requirements of section 404 shall not be treated as not satisfied with 
respect to a church plan to which this part applies pursuant to an 
election under subsection (a) solely because assets of the plan which 
are in excess of reserves required for exemption under section 
514(b)(6)(B) are held in a fund in which such assets are pooled with 
assets of other church plans, if the assets held by such fund may not, 
under the terms of the plan and the terms governing such fund, be used 
for, or diverted to, any purpose other than for the exclusive benefit 
of the participants and beneficiaries of the church plans whose assets 
are pooled in such fund.
    ``(f) Inapplicability of Certain Provisions.--
            ``(1) Prohibited transactions.--Section 406 shall not apply 
        to a church plan by reason of an election under subsection (a).
            ``(2) Continuation coverage.--Section 601 shall not apply 
        to a church plan by reason of an election under subsection 
        (a).''.
    (b) Conforming Amendments.--
            (1) Section 4(b)(2) of such Act (29 U.S.C. 1003(b)(2)) is 
        amended by inserting before the semicolon the following: ``, 
        except with respect to provisions made applicable under any 
        election made under section 704(a) of this Act''.
            (2) Section 514 of such Act (29 U.S.C. 1144) is amended--
                    (A) in subsection (a), by inserting ``(including a 
                church plan which is not exempt under section 4(b)(2) 
                by reason of an election under section 704)'' before 
                the period in the first sentence; and
                    (B) in subsection (b)(2)(B), by inserting ``and 
                including a church plan which is not exempt under 
                section 4(b)(2) by reason of an election under section 
                704'' after ``death benefits''.
    (c) Clerical Amendment.--The table of contents in section 1 of such 
Act (as amended by the preceding provisions of this title) is further 
amended by inserting after the item relating to section 703 the 
following new item:

``Sec. 709. Special rules for church plans.''.

SEC. 167. ENFORCEMENT PROVISIONS RELATING TO MULTIPLE EMPLOYER WELFARE 
              ARRANGEMENTS.

    (a) Enforcement of Filing Requirements.--Section 502 of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1132) (as 
amended by sections 102(c)) is further amended--
            (1) in subsection (a)(6), by striking ``paragraph (2) or 
        (5)'' and inserting ``paragraph (2), (5), or (6)''; and
            (2) by adding at the end of subsection (c) the following 
        new paragraph:
    ``(6) The Secretary may assess a civil penalty against any person 
of up to $1,000 a day from the date of such person's failure or refusal 
to file the information required to be filed with the Secretary under 
section 101(g).''.
    (b) Actions by States in Federal Court.--Section 502(a) of such Act 
(29 U.S.C. 1132(a)) is amended--
            (1) in paragraph (8), by striking ``or'' at the end;
            (2) in paragraph (9), by striking the period and inserting 
        ``, or''; and
            (3) by adding at the end the following:
            ``(10) by a State official having authority under the law 
        of such State to enforce the laws of such State regulating 
        insurance, to enjoin any act or practice which violates any 
        requirement under part 7 for an exemption under section 
        514(b)(6)(B) which such State has the power to enforce pursuant 
        to section 506(c)(1).''.
    (c) Criminal Penalties for Certain Willful Misrepresentations.--
Section 501 of such Act (29 U.S.C. 1131) is amended--
            (1) by inserting ``(a)'' after ``Sec. 501.''; and
            (2) by adding at the end the following new subsection:
    ``(b) Any person who, either willfully or with willful blindness, 
falsely represents, to any employee, any employee's beneficiary, any 
employer, the Secretary, or any State, an arrangement established or 
maintained for the purpose of offering or providing any benefit 
described in section 3(1) to employees or their beneficiaries as--
            ``(1) being a multiple employer welfare arrangement to 
        which an exemption has been granted under section 514(b)(6)(B),
            ``(2) having been established or maintained under or 
        pursuant to one or more collective bargaining agreements which 
        are reached pursuant to collective bargaining described in 
        section 8(d) of the National Labor Relations Act (29 U.S.C. 
        158(d)) or paragraph Fourth of section 2 of the Railway Labor 
        Act (45 U.S.C. 152, paragraph Fourth) or which are reached 
        pursuant to labor-management negotiations under similar 
        provisions of State public employee relations laws, or
            ``(3) being a plan or arrangement with respect to which the 
        requirements of subparagraph (C), (D), or (E) of section 3(40) 
        are met,
shall, upon conviction, be imprisoned not more than five years, be 
fined under title 18, United States Code, or both.''.
    (d) Cessation of Activities in Absence of Effective State 
Regulation unless Standards under ERISA Exemption Are Met.--Section 502 
of such Act (29 U.S.C. 1132) is amended by adding at the end the 
following new subsection:
    ``(n)(1) Subject to paragraph (2), upon application by the 
Secretary showing the operation, promotion, or marketing of a multiple 
employer welfare arrangement providing benefits consisting of medical 
care (within the meaning of section 607(1)) that--
            ``(A) is not licensed, registered, or otherwise approved 
        under the insurance laws of the States in which the arrangement 
        offers or provides benefits, and
            ``(B) if there is in effect with respect to such 
        arrangement an exemption under section 514(b)(6)(B), is not 
        operating in accordance with the requirements under part 7 for 
        such an exemption,
a district court of the United States shall enter an order requiring 
that the arrangement cease activities.
    ``(2) Paragraph (1) shall not apply in the case of a multiple 
employer welfare arrangement if the arrangement shows that--
            ``(A) all benefits under it referred to in paragraph (1) 
        are fully insured, within the meaning of section 701(1), and
            ``(B) with respect to each State in which the arrangement 
        offers or provides benefits, the arrangement is operating in 
        accordance with applicable State insurance laws that are not 
        superseded under section 514.
    ``(3) The court may grant such additional equitable relief, 
including any relief available under this title, as it deems necessary 
to protect the interests of the public and of persons having claims for 
benefits against the arrangement.''.
    (e) Responsibility for Claims Procedure.--Section 503 of such Act 
(29 U.S.C. 1133) is amended by adding at the end (after and below 
paragraph (2)) the following new sentence: ``The terms of each multiple 
employer health plan (within the meaning of section 701(4)) shall 
require the board of trustees or the named fiduciary (as applicable) to 
ensure that the requirements of this section are met in connection with 
claims filed under the plan.''.

SEC. 168. COOPERATION BETWEEN FEDERAL AND STATE AUTHORITIES.

    Section 506 of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1136) is amended by adding at the end the following new 
subsection:
    ``(c) State Authority With Respect to Multiple Employer Welfare 
Arrangements.--
            ``(1) State enforcement.--
                    ``(A) Agreements with states.--A State may enter 
                into an agreement with the Secretary for delegation to 
                the State of some or all of the Secretary's authority 
                under sections 502 and 504 to enforce the requirements 
                under section 514(d) or the requirements under part 7 
                for an exemption under section 514(b)(6)(B). The 
                Secretary shall enter into the agreement if the 
                Secretary determines that the delegation provided for 
                therein would not result in a lower level or quality of 
                enforcement of the provisions of this title.
                    ``(B) Delegations.--Any department, agency, or 
                instrumentality of a State to which authority is 
                delegated pursuant to an agreement entered into under 
                this paragraph may, if authorized under State law and 
                to the extent consistent with such agreement, exercise 
                the powers of the Secretary under this title which 
                relate to such authority.
                    ``(C) Concurrent authority of the secretary.--If 
                the Secretary delegates authority to a State in an 
                agreement entered into under subparagraph (A), the 
                Secretary may continue to exercise such authority 
                concurrently with the State.
                    ``(D) Recognition of primary domicile state.--In 
                entering into any agreement with a State under 
                subparagraph (A), the Secretary shall ensure that, as a 
                result of such agreement and all other agreements 
                entered into under subparagraph (A), only one State 
                will be recognized, with respect to any particular 
                multiple employer welfare arrangement, as the primary 
                domicile State to which authority has been delegated 
                pursuant to such agreements.
            ``(2) Assistance to states.--The Secretary shall--
                    ``(A) provide enforcement assistance to the States 
                with respect to multiple employer welfare arrangements, 
                including, but not limited to, coordinating Federal and 
                State efforts through the establishment of cooperative 
                agreements with appropriate State agencies under which 
                the Pension and Welfare Benefits Administration keeps 
                the States informed of the status of its cases and 
                makes available to the States information obtained by 
                it,
                    ``(B) provide continuing technical assistance to 
                the States with respect to issues involving multiple 
                employer welfare arrangements and this Act,
                    ``(C) make readily available to the States timely 
                and complete responses to requests for advisory 
                opinions on issues described in subparagraph (B), and
                    ``(D) distribute copies of all advisory opinions 
                described in subparagraph (C) to the State insurance 
                commissioner of each State.''.

SEC. 169. FILING AND DISCLOSURE REQUIREMENTS FOR MULTIPLE EMPLOYER 
              WELFARE ARRANGEMENTS OFFERING HEALTH BENEFITS.

    (a) In General.--Section 101 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1021) is amended--
            (1) by redesignating subsection (g) as subsection (i); and
            (2) by inserting after subsection (f) the following new 
        subsections:
    ``(g) Registration of Multiple Employer Welfare Arrangements.--(1) 
Each multiple employer welfare arrangement shall file with the 
Secretary a registration statement described in paragraph (2) within 60 
days before commencing operations (in the case of an arrangement 
commencing operations on or after January 1, 1997) and no later than 
February 15 of each year (in the case of an arrangement in operation 
since the beginning of such year), unless, as of the date by which such 
filing otherwise must be made, such arrangement provides no benefits 
consisting of medical care (within the meaning of section 607(1)).
    ``(2) Each registration statement--
            ``(A) shall be filed in such form, and contain such 
        information concerning the multiple employer welfare 
        arrangement and any persons involved in its operation 
        (including whether coverage under the arrangement is fully 
        insured), as shall be provided in regulations which shall be 
        prescribed by the Secretary, and
            ``(B) if any benefits under the arrangement consisting of 
        medical care (within the meaning of section 607(1)) are not 
        fully insured, shall contain a certification that copies of 
        such registration statement have been transmitted by certified 
        mail to--
                    ``(i) in the case of an arrangement which is a 
                multiple employer health plan (as defined in section 
                701(4)), the State insurance commissioner of the 
                domicile State of such arrangement, or
                    ``(ii) in the case of an arrangement which is not a 
                multiple employer health plan, the State insurance 
                commissioner of each State in which the arrangement is 
                located.
    ``(3) The person or persons responsible for filing the annual 
registration statement are--
            ``(A) the trustee or trustees so designated by the terms of 
        the instrument under which the multiple employer welfare 
        arrangement is established or maintained, or
            ``(B) in the case of a multiple employer welfare 
        arrangement for which the trustee or trustees cannot be 
        identified, or upon the failure of the trustee or trustees of 
        an arrangement to file, the person or persons actually 
        responsible for the acquisition, disposition, control, or 
        management of the cash or property of the arrangement, 
        irrespective of whether such acquisition, disposition, control, 
        or management is exercised directly by such person or persons 
        or through an agent designated by such person or persons.
    ``(4) Any agreement entered into under section 506(c) with a State 
as the primary domicile State with respect to any multiple employer 
welfare arrangement shall provide for simultaneous filings of reports 
required under this subsection with the Secretary and with the State 
insurance commissioner of such State.
    ``(5) For purposes of this subsection, the term `domicile State' 
means, in connection with a multiple employer welfare arrangement, the 
State in which, according to the application for an exemption under 
this 514(b)(6)(B), most individuals to be covered under the arrangement 
are located, except that, in any case in which information contained in 
the latest annual report of the arrangement filed under this part 
indicates that most individuals covered under the arrangement are 
located in a different State, such term means such different State.
    ``(6) The Secretary may exempt from the requirements of this 
subsection such class of multiple employer welfare arrangements as the 
Secretary deems appropriate.
    ``(h) Filing Requirements for Multiple Employer Welfare 
Arrangements.--
            ``(1) In general.--A multiple employer welfare arrangement 
        which provides benefits consisting of medical care (within the 
        meaning of section 607(1)) shall issue to each participating 
        employer--
                    ``(A) a document equivalent to the summary plan 
                description required of plans under this part,
                    ``(B) information describing the contribution rates 
                applicable to participating employers, and
                    ``(C) a statement indicating--
                            ``(i) that the arrangement is not a 
                        licensed insurer under the laws of any State,
                            ``(ii) the extent to which any benefits 
                        under the arrangement are fully insured,
                            ``(iii) if any benefits under the 
                        arrangement are not fully insured, whether the 
                        arrangement has been granted an exemption under 
                        section 514(b)(6)(B) (or whether such an 
                        exemption has ceased to be effective).
            ``(2) Time for disclosure.--Such information shall be 
        issued to employers within such reasonable period of time 
        before becoming participating employers as may be prescribed in 
        regulations of the Secretary.''.
    (b) Effective Dates.--Section 101(g) of the Employee Retirement 
Income Security Act of 1974 (added by subsection (a)) shall take effect 
on the date of the enactment of this Act. Section 101(h) of such Act 
(added by subsection (a)) shall take effect as provided in section 171.

SEC. 170. SINGLE ANNUAL FILING FOR ALL PARTICIPATING EMPLOYERS.

    (a) In General.--Section 110 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1030) is amended by adding at the end 
the following new subsection:
    ``(c) The Secretary shall prescribe by regulation or otherwise an 
alternative method providing for the filing of a single annual report 
(as referred to in section 104(a)(1)(A)) with respect to all employers 
who are participating employers under a multiple employer welfare 
arrangement under which all coverage consists of medical care (within 
the meaning of section 607(1)) and is fully insured (as defined in 
section 701(1)).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act. The Secretary of 
Labor shall prescribe the alternative method referred to in section 
110(c) of the Employee Retirement Income Security Act of 1974, as added 
by such amendment, within 90 days after the date of the enactment of 
this Act.

SEC. 171. EFFECTIVE DATE; TRANSITIONAL RULE.

    (a) Effective Date.--Except as otherwise provided in section 
170(b), the amendments made by this subtitle shall take effect January 
1, 1998. The Secretary shall issue all regulations necessary to carry 
out the amendments made by this subtitle before January 1, 1998.
    (b) Transitional Rule.--
            (1) In general.--If the sponsor of a multiple employer 
        welfare arrangement which, as of the effective date specified 
        in subsection (a), provides benefits consisting of medical care 
        (within the meaning of section 607(1) of the Employee 
        Retirement Income Security Act of 1974) files with the 
        Secretary of Labor an application for an exemption under 
        section 514(b)(6)(B) of such Act within 180 days after such 
        date and the Secretary has not, as of 90 days after receipt of 
        such application, found such application to be materially 
        deficient, then section 514(b)(6)(A) of such Act (29 U.S.C. 
        1144(b)(6)(A)) shall not apply with respect to such arrangement 
        during the period following such date and ending on the earlier 
        of--
                    (A) the date on which the Secretary denies the 
                application under the amendments made by this title or 
                determines, in the Secretary's sole discretion, that 
                such exclusion from coverage under the provisions of 
                such section 514(b)(6)(A) of such arrangement would be 
                detrimental to the interests of individuals covered 
                under such arrangement, or
                    (B) 18 months after such effective date.
            (2) No pending state action.--Subparagraph (A) shall apply 
        in the case of an arrangement only if, at the time of the 
        application for the exemption under section 514(b)(6)(B), the 
        arrangement does not have pending against it an enforcement 
        action by a State.

              Subtitle D--Definitions; General Provisions

SEC. 191. DEFINITIONS; SCOPE OF COVERAGE.

    (a) Group Health Plan.--
            (1) Definition.--Subject to the succeeding provisions of 
        this subsection and subsection (d)(1), the term ``group health 
        plan'' means an employee welfare benefit plan to the extent 
that the plan provides medical care (as defined in subsection (c)(9)) 
to employees or their dependents (as defined under the terms of the 
plan) directly or through insurance, reimbursement, or otherwise, and 
includes a group health plan (within the meaning of section 5000(b)(1) 
of the Internal Revenue Code of 1986).
            (2) Limitation of requirements to plans with 2 or more 
        employee participants.--The requirements of subtitle A and part 
        1 of subtitle B shall apply in the case of a group health plan 
        for any plan year, or for health insurance coverage offered in 
        connection with a group health plan for a year, only if the 
        group health plan has two or more participants as current 
        employees on the first day of the plan year.
            (3) Exclusion of plans with limited coverage.--An employee 
        welfare benefit plan shall be treated as a group health plan 
        under this title only with respect to medical care which is 
        provided under the plan and which does not consist of coverage 
        excluded from the definition of health insurance coverage under 
        subsection (c)(4)(B).
            (4) Treatment of church plans.--
                    (A) Exclusion.--The requirements of this title 
                insofar as they apply to group health plans shall not 
                apply to church plans.
                    (B) Optional disregard in determining period of 
                coverage.--For purposes of applying section 
                101(b)(3)(B)(i), a group health plan may elect to 
                disregard periods of coverage of an individual under a 
                church plan that, pursuant to subparagraph (A), is not 
                subject to the requirements of this title.
            (5) Treatment of governmental plans.--
                    (A) Election to be excluded.--If the plan sponsor 
                of a governmental plan which is a group health plan to 
                which the provisions of this subtitle otherwise apply 
                makes an election under this paragraph for any 
                specified period (in such form and manner as the 
                Secretary of Health and Human Services may by 
                regulations prescribe), then the requirements of this 
                title insofar as they apply to group health plans shall 
                not apply to such governmental plans for such period.
                    (B) Optional disregard in determining period of 
                coverage if election made.--For purposes of applying 
                section 101(b)(3)(B)(i), a group health plan may elect 
                to disregard periods of coverage of an individual under 
                a governmental plan that, under an election under 
                subparagraph (A), is not subject to the requirements of 
                this title.
            (6) Treatment of medicaid plan as group health plan.--A 
        State plan under title XIX of the Social Security Act shall be 
        treated as a group health plan for purposes of applying section 
        101(c)(1), unless the State elects not to be so treated.
            (7) Treatment of medicare and indian health service 
        programs as group health plan.--Title XVIII of the Social 
        Security Act and a program of the Indian Health Service shall 
        be treated as a group health plan for purposes of applying 
        section 101(c)(1).
    (b) Incorporation of Certain Definitions in Employee Retirement 
Income Security Act of 1974.--Except as provided in this section, the 
terms ``beneficiary'', ``church plan'', ``employee'', ``employee 
welfare benefit plan'', ``employer'', ``governmental plan'', 
``multiemployer plan'', ``multiple employer welfare arrangement'', 
``participant'', ``plan sponsor'', and ``State'' have the meanings 
given such terms in section 3 of the Employee Retirement Income 
Security Act of 1974.
    (c) Other Definitions.--For purposes of this title:
            (1) Applicable state authority.--The term ``applicable 
        State authority'' means, with respect to an insurer or health 
        maintenance organization in a State, the State insurance 
        commissioner or official or officials designated by the State 
        to enforce the requirements of this title for the State 
        involved with respect to such insurer or organization.
            (2) Bona fide association.--The term ``bona fide 
        association'' means an association which--
                    (A) has been actively in existence for at least 5 
                years,
                    (B) has been formed and maintained in good faith 
                for purposes other than obtaining insurance,
                    (C) does not condition membership in the 
                association on health status,
                    (D) makes health insurance coverage offered through 
                the association available to all members regardless of 
                health status,
                    (E) does not make health insurance coverage offered 
                through the association available to any individual who 
                is not a member (or dependent of a member) of the 
                association at the time the coverage is initially 
                issued,
                    (F) does not impose preexisting condition 
                exclusions except in a manner consistent with the 
                requirements of sections 101 and 102 as they relate to 
                group health plans, and
                    (G) provides for renewal and continuation of health 
                insurance coverage in a manner consistent with the 
                requirements of section 132 as they relate to the 
                renewal and continuation in force of coverage in a 
                group market.
            (3) COBRA continuation provision.--The term ``COBRA 
        continuation provision'' means any of the following:
                    (A) Section 4980B of the Internal Revenue Code of 
                1986, other than subsection (f)(1) of such section 
                insofar as it relates to pediatric vaccines.
                    (B) Part 6 of subtitle B of title I of the Employee 
                Retirement Income Security Act of 1974 (29 U.S.C. 1161 
                et seq.), other than section 609.
                    (C) Title XXII of the Public Health Service Act.
            (4) Health insurance coverage.--
                    (A) In general.--Except as provided in subparagraph 
                (B), the term ``health insurance coverage'' means 
                benefits consisting of medical care (provided directly, 
                through insurance or reimbursement, or otherwise) under 
                any hospital or medical service policy or certificate, 
                hospital or medical service plan contract, or health 
                maintenance organization group contract offered by an 
                insurer or a health maintenance organization.
                    (B) Exception.--Such term does not include coverage 
                under any separate policy, certificate, or contract 
                only for one or more of any of the following:
                            (i) Coverage for accident, credit-only, 
                        vision, disability income, long-term care, 
                        nursing home care, community-based care dental, 
                        on-site medical clinics, or employee assistance 
                        programs, or any combination thereof.
                            (ii) Medicare supplemental health insurance 
                        (within the meaning of section 1882(g)(1) of 
                        the Social Security Act (42 U.S.C. 
                        1395ss(g)(1))) and similar supplemental 
                        coverage provided under a group health plan.
                            (iii) Coverage issued as a supplement to 
                        liability insurance.
                            (iv) Liability insurance, including general 
                        liability insurance and automobile liability 
                        insurance.
                            (v) Workers' compensation or similar 
                        insurance.
                            (vi) Automobile medical-payment insurance.
                            (vii) Coverage for a specified disease or 
                        illness.
                            (viii) Hospital or fixed indemnity 
                        insurance.
                            (ix) Short-term limited duration insurance.
                            (x) Such other coverage, comparable to that 
                        described in previous clauses, as may be 
                        specified in regulations prescribed under this 
                        title.
            (5) Health maintenance organization; hmo.--The terms 
        ``health maintenance organization'' and ``HMO'' mean--
                    (A) a Federally qualified health maintenance 
                organization (as defined in section 1301(a) of the 
                Public Health Service Act (42 U.S.C. 300e(a))),
                    (B) an organization recognized under State law as a 
                health maintenance organization, or
                    (C) a similar organization regulated under State 
                law for solvency in the same manner and to the same 
                extent as such a health maintenance organization,
        if (other than for purposes of part 2 of subtitle B) it is 
        subject to State law which regulates insurance (within the 
        meaning of section 514(b)(2) of the Employee Retirement Income 
        Security Act of 1974).
            (6) Health status.--The term ``health status'' includes, 
        with respect to an individual, medical condition, claims 
        experience, receipt of health care, medical history, genetic 
        information, evidence of insurability (including conditions 
        arising out of acts of domestic violence), or disability.
            (7) Individual health insurance coverage.--The term 
        ``individual health insurance coverage'' means health insurance 
        coverage offered to individuals if the coverage is not offered 
        in connection with a group health plan (other than such a plan 
        that has fewer than two participants as current employees on 
        the first day of the plan year).
            (8) Insurer.--The term ``insurer'' means an insurance 
        company, insurance service, or insurance organization which is 
        licensed to engage in the business of insurance in a State and 
        which (except for purposes of part 2 of subtitle B) is subject 
        to State law which regulates insurance (within the meaning of 
        section 514(b)(2)(A) of the Employee Retirement Income Security 
        Act of 1974).
            (9) Medical care.--The term ``medical care'' means--
                    (A) amounts paid for, or items or services in the 
                form of, the diagnosis, cure, mitigation, treatment, or 
                prevention of disease, or amounts paid for, or items or 
                services provided for, the purpose of affecting any 
                structure or function of the body,
                    (B) amounts paid for, or services in the form of, 
                transportation primarily for and essential to medical 
                care referred to in subparagraph (A), and
                    (C) amounts paid for insurance covering medical 
                care referred to in subparagraphs (A) and (B).
            (10) Network plan.--The term ``network plan'' means, with 
        respect to health insurance coverage, an arrangement of an 
        insurer or a health maintenance organization under which the 
        financing and delivery of medical care are provided, in whole 
        or in part, through a defined set of providers under contract 
        with the insurer or health maintenance organization.
            (11) Waiting period.--The term ``waiting period'' means, 
        with respect to a group health plan and an individual who is a 
        potential participant or beneficiary in the plan, the minimum 
        period that must pass with respect to the individual before the 
        individual is eligible to be covered for benefits under the 
        plan.
    (d) Treatment of Partnerships.--
            (1) Treatment as a group health plan.--Any plan, fund, or 
        program which would not be (but for this paragraph) an employee 
        welfare benefit plan and which is established or maintained by 
        a partnership, to the extent that such plan, fund, or program 
        provides medical care to present or former partners in the 
        partnership or to their dependents (as defined under the terms 
        of the plan, fund, or program), directly or through insurance, 
        reimbursement, or otherwise, shall be treated (subject to 
        paragraph (1)) as an employee welfare benefit plan which is a 
        group health plan.
            (2) Treatment of partnership and partners and employer and 
        participants.--In the case of a group health plan--
                    (A) the term ``employer'' includes the partnership 
                in relation to any partner; and
                    (B) the term ``participant'' includes--
                            (i) in connection with a group health plan 
                        maintained by a partnership, an individual who 
                        is a partner in relation to the partnership, or
                            (ii) in connection with a group health plan 
                        maintained by a self-employed individual (under 
                        which one or more employees are participants), 
                        the self-employed individual,
                if such individual is or may become eligible to receive 
                a benefit under the plan or such individual's 
                beneficiaries may be eligible to receive any such 
                benefit.
    (e) Definitions Relating to Markets and Small Employers.--As used 
in this title:
            (1) Individual market.--The term ``individual market'' 
        means the market for health insurance coverage offered to 
        individuals and not to employers or in connection with a group 
        health plan and does not include the market for such coverage 
        issued only by an insurer or HMO that makes such coverage 
        available only on the basis of affiliation with a bona fide 
        association (as defined in subsection (c)(2)).
            (2) Large group market.--The term ``large group market'' 
        means the market for health insurance coverage offered to 
        employers (other than small employers) on behalf of their 
        employees (and their dependents) and does not include health 
        insurance coverage available solely in connection with a bona 
        fide association (as defined in subsection (c)(2)).
            (3) Small employer.--The term ``small employer'' means, in 
        connection with a group health plan with respect to a calendar 
        year, an employer who employs at least 2 but fewer than 51 
        employees on a typical business day in the year. All persons 
        treated as a single employer under subsection (a) or (b) of 
        section 52 of the Internal Revenue Code of 1986 shall be 
        treated as a single employer for purposes of this title.
            (4) Small group market.--The term ``small group market'' 
        means the health insurance market under which individuals 
        obtain health insurance coverage (directly or through any 
        arrangement) on behalf of themselves (and their dependents) on 
        the basis of employment or other relationship with respect to a 
        small employer and does not include health insurance coverage 
        available solely in connection with a bona fide association (as 
        defined in subsection (c)(2)).

SEC. 192. STATE FLEXIBILITY TO PROVIDE GREATER PROTECTION.

    (a) State Flexibility To Provide Greater Protection.--Subject to 
subsection (b), nothing in this subtitle or subtitle A or B shall be 
construed to preempt State laws--
            (1) that relate to matters not specifically addressed in 
        such subtitles; or
            (2) that require insurers or HMOs--
                    (A) to impose a limitation or exclusion of benefits 
                relating to the treatment of a preexisting condition 
                for a period that is shorter than the applicable period 
                provided for under such subtitles;
                    (B) to allow individuals, participants, and 
                beneficiaries to be considered to be in a period of 
                previous qualifying coverage if such individual, 
                participant, or beneficiary experiences a lapse in 
                coverage that is greater than the 60-day periods 
                provided for under sections 101(b)(3)(A), 
                101(b)(3)(B)(ii), and 102(b)(2); or
                    (C) in defining pre-existing condition, to have a 
                look-back period that is shorter than the 6-month 
                period described in section 101(b)(1)(A).
    (b) No Override of ERISA Preemption.--Except as provided 
specifically in subtitle C, nothing in this Act shall be construed to 
affect or modify the provisions of section 514 of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1144).

SEC. 193. EFFECTIVE DATE.

    (a) In General.--Except as otherwise provided for in this title, 
the provisions of this title shall apply with respect to--
            (1) group health plans, and health insurance coverage 
        offered in connection with group health plans, for plan years 
        beginning on or after January 1, 1998, and
            (2) individual health insurance coverage issued, renewed, 
        in effect, or operated on or after July 1, 1998.
    (b) Consideration of Previous Coverage.--The Secretaries of Health 
and Human Services, Treasury, and Labor shall jointly establish rules 
regarding the treatment (in determining qualified coverage periods 
under sections 102(b) and 141(b)) of coverage before the applicable 
effective date specified in subsection (a).
    (c) Timely Issuance of Regulations.--The Secretaries of Health and 
Human Services, the Treasury, and Labor shall issue such regulations on 
a timely basis as may be required to carry out this title.

SEC. 194. RULE OF CONSTRUCTION.

    Nothing in this title or any amendment made thereby may be 
construed to require (or to authorize any regulation that requires) the 
coverage of any specific procedure, treatment, or service under a group 
health plan or health insurance coverage.

SEC. 195. FINDINGS RELATING TO EXERCISE OF COMMERCE CLAUSE AUTHORITY.

    Congress finds the following in relation to the provisions of this 
title:
            (1) Provisions in group health plans and health insurance 
        coverage that impose certain pre-existing conditions impact the 
        ability of employees to seek employment in interstate commerce, 
        thereby impeding such commerce.
            (2) Health insurance coverage is commercial in nature and 
        is in and affects interstate commerce.
            (3) It is a necessary and proper exercise of Congressional 
        authority to impose requirements under this title on group 
        health plans and health insurance coverage (including coverage 
        offered to individuals previously covered under group health 
        plans) in order to promote commerce among the States.
            (4) Congress, however, intends to defer to States, to the 
        maximum extent practicable, in carrying out such requirements 
        with respect to insurers and health maintenance organizations 
        that are subject to State regulation, consistent with the 
        provisions of the Employee Retirement Income Security Act of 
        1974.

   TITLE II--PREVENTING HEALTH CARE FRAUD AND ABUSE; ADMINISTRATIVE 
                SIMPLIFICATION; MEDICAL LIABILITY REFORM

SEC. 200. REFERENCES IN TITLE.

    Except as otherwise specifically provided, whenever in this title 
an amendment is expressed in terms of an amendment to or repeal of a 
section or other provision, the reference shall be considered to be 
made to that section or other provision of the Social Security Act.

              Subtitle A--Fraud and Abuse Control Program

SEC. 201. FRAUD AND ABUSE CONTROL PROGRAM.

    (a) Establishment of Program.--Title XI (42 U.S.C. 1301 et seq.) is 
amended by inserting after section 1128B the following new section:

                   ``fraud and abuse control program

    ``Sec. 1128C. (a) Establishment of Program.--
            ``(1) In general.--Not later than January 1, 1997, the 
        Secretary, acting through the Office of the Inspector General 
        of the Department of Health and Human Services, and the 
        Attorney General shall establish a program--
                    ``(A) to coordinate Federal, State, and local law 
                enforcement programs to control fraud and abuse with 
                respect to health plans,
                    ``(B) to conduct investigations, audits, 
                evaluations, and inspections relating to the delivery 
                of and payment for health care in the United States,
                    ``(C) to facilitate the enforcement of the 
                provisions of sections 1128, 1128A, and 1128B and other 
                statutes applicable to health care fraud and abuse,
                    ``(D) to provide for the modification and 
                establishment of safe harbors and to issue advisory 
                opinions and special fraud alerts pursuant to section 
                1128D, and
                    ``(E) to provide for the reporting and disclosure 
                of certain final adverse actions against health care 
                providers, suppliers, or practitioners pursuant to the 
                data collection system established under section 1128E.
            ``(2) Coordination with health plans.--In carrying out the 
        program established under paragraph (1), the Secretary and the 
        Attorney General shall consult with, and arrange for the 
        sharing of data with representatives of health plans.
            ``(3) Guidelines.--
                    ``(A) In general.--The Secretary and the Attorney 
                General shall issue guidelines to carry out the program 
                under paragraph (1). The provisions of sections 553, 
                556, and 557 of title 5, United States Code, shall not 
                apply in the issuance of such guidelines.
                    ``(B) Information guidelines.--
                            ``(i) In general.--Such guidelines shall 
                        include guidelines relating to the furnishing 
                        of information by health plans, providers, and 
                        others to enable the Secretary and the Attorney 
                        General to carry out the program (including 
                        coordination with health plans under paragraph 
                        (2)).
                            ``(ii) Confidentiality.--Such guidelines 
                        shall include procedures to assure that such 
                        information is provided and utilized in a 
                        manner that appropriately protects the 
                        confidentiality of the information and the 
                        privacy of individuals receiving health care 
                        services and items.
                            ``(iii) Qualified immunity for providing 
                        information.--The provisions of section 1157(a) 
                        (relating to limitation on liability) shall 
                        apply to a person providing information to the 
                        Secretary or the Attorney General in 
                        conjunction with their performance of duties 
                        under this section.
            ``(4) Ensuring access to documentation.--The Inspector 
        General of the Department of Health and Human Services is 
        authorized to exercise such authority described in paragraphs 
        (3) through (9) of section 6 of the Inspector General Act of 
        1978 (5 U.S.C. App.) as necessary with respect to the 
        activities under the fraud and abuse control program 
        established under this subsection.
            ``(5) Authority of inspector general.--Nothing in this Act 
        shall be construed to diminish the authority of any Inspector 
        General, including such authority as provided in the Inspector 
        General Act of 1978 (5 U.S.C. App.).
    ``(b) Additional Use of Funds by Inspector General.--
            ``(1) Reimbursements for investigations.--The Inspector 
        General of the Department of Health and Human Services is 
        authorized to receive and retain for current use reimbursement 
        for the costs of conducting investigations and audits and for 
        monitoring compliance plans when such costs are ordered by a 
        court, voluntarily agreed to by the payor, or otherwise.
            ``(2) Crediting.--Funds received by the Inspector General 
        under paragraph (1) as reimbursement for costs of conducting 
        investigations shall be deposited to the credit of the 
        appropriation from which initially paid, or to appropriations 
        for similar purposes currently available at the time of 
        deposit, and shall remain available for obligation for 1 year 
        from the date of the deposit of such funds.
    ``(c) Health Plan Defined.--For purposes of this section, the term 
`health plan' means a plan or program that provides health benefits, 
whether directly, through insurance, or otherwise, and includes--
            ``(1) a policy of health insurance;
            ``(2) a contract of a service benefit organization; and
            ``(3) a membership agreement with a health maintenance 
        organization or other prepaid health plan.''.
    (b) Establishment of Health Care Fraud and Abuse Control Account in 
Federal Hospital Insurance Trust Fund.--Section 1817 (42 U.S.C. 1395i) 
is amended by adding at the end the following new subsection:
    ``(k) Health Care Fraud and Abuse Control Account.--
            ``(1) Establishment.--There is hereby established in the 
        Trust Fund an expenditure account to be known as the `Health 
        Care Fraud and Abuse Control Account' (in this subsection 
        referred to as the `Account').
            ``(2) Appropriated amounts to trust fund.--
                    ``(A) In general.--There are hereby appropriated to 
                the Trust Fund--
                            ``(i) such gifts and bequests as may be 
                        made as provided in subparagraph (B);
                            ``(ii) such amounts as may be deposited in 
                        the Trust Fund as provided in sections 242(b) 
                        and 249(c) of the Health Coverage Availability 
                        and Affordability Act of 1996, and title XI; 
                        and
                            ``(iii) such amounts as are transferred to 
                        the Trust Fund under subparagraph (C).
                    ``(B) Authorization to accept gifts.--The Trust 
                Fund is authorized to accept on behalf of the United 
                States money gifts and bequests made unconditionally to 
                the Trust Fund, for the benefit of the Account or any 
                activity financed through the Account.
                    ``(C) Transfer of amounts.--The Managing Trustee 
                shall transfer to the Trust Fund, under rules similar 
                to the rules in section 9601 of the Internal Revenue 
                Code of 1986, an amount equal to the sum of the 
                following:
                            ``(i) Criminal fines recovered in cases 
                        involving a Federal health care offense (as 
                        defined in section 982(a)(6)(B) of title 18, 
                        United States Code).
                            ``(ii) Civil monetary penalties and 
                        assessments imposed in health care cases, 
                        including amounts recovered under titles XI, 
                        XVIII, and XIX, and chapter 38 of title 31, 
                        United States Code (except as otherwise 
                        provided by law).
                            ``(iii) Amounts resulting from the 
                        forfeiture of property by reason of a Federal 
                        health care offense.
                            ``(iv) Penalties and damages obtained and 
                        otherwise creditable to miscellaneous receipts 
                        of the general fund of the Treasury obtained 
                        under sections 3729 through 3733 of title 31, 
                        United States Code (known as the False Claims 
                        Act), in cases involving claims related to the 
                        provision of health care items and services 
                        (other than funds awarded to a relator, for 
                        restitution or otherwise authorized by law).
            ``(3) Appropriated amounts to account for fraud and abuse 
        control program, etc.--
                    ``(A) Departments of health and human services and 
                justice.--
                            ``(i) In general.--There are hereby 
                        appropriated to the Account from the Trust Fund 
                        such sums as the Secretary and the Attorney 
                        General certify are necessary to carry out the 
                        purposes described in subparagraph (C), to be 
                        available without further appropriation, in an 
                        amount not to exceed--
                                    ``(I) for fiscal year 1997, 
                                $104,000,000,
                                    ``(II) for each of the fiscal years 
                                1998 through 2003, the limit for the 
                                preceding fiscal year, increased by 15 
                                percent; and
                                    ``(III) for each fiscal year after 
                                fiscal year 2003, the limit for fiscal 
                                year 2003.
                            ``(ii) Medicare and medicaid activities.--
                        For each fiscal year, of the amount 
                        appropriated in clause (i), the following 
                        amounts shall be available only for the 
                        purposes of the activities of the Office of the 
                        Inspector General of the Department of Health 
                        and Human Services with respect to the medicare 
                        and medicaid programs--
                                    ``(I) for fiscal year 1997, not 
                                less than $60,000,000 and not more than 
                                $70,000,000;
                                    ``(II) for fiscal year 1998, not 
                                less than $80,000,000 and not more than 
                                $90,000,000;
                                    ``(III) for fiscal year 1999, not 
                                less than $90,000,000 and not more than 
                                $100,000,000;
                                    ``(IV) for fiscal year 2000, not 
                                less than $110,000,000 and not more 
                                than $120,000,000;
                                    ``(V) for fiscal year 2001, not 
                                less than $120,000,000 and not more 
                                than $130,000,000;
                                    ``(VI) for fiscal year 2002, not 
                                less than $140,000,000 and not more 
                                than $150,000,000; and
                                    ``(VII) for each fiscal year after 
                                fiscal year 2002, not less than 
                                $150,000,000 and not more than 
                                $160,000,000.
                    ``(B) Federal bureau of investigation.--There are 
                hereby appropriated from the general fund of the United 
                States Treasury and hereby appropriated to the Account 
                for transfer to the Federal Bureau of Investigation to 
                carry out the purposes described in subparagraph (C), 
                to be available without further appropriation--
                            ``(i) for fiscal year 1997, $47,000,000;
                            ``(ii) for fiscal year 1998, $56,000,000;
                            ``(iii) for fiscal year 1999, $66,000,000;
                            ``(iv) for fiscal year 2000, $76,000,000;
                            ``(v) for fiscal year 2001, $88,000,000;
                            ``(vi) for fiscal year 2002, $101,000,000; 
                        and
                            ``(vii) for each fiscal year after fiscal 
                        year 2002, $114,000,000.
                    ``(C) Use of funds.--The purposes described in this 
                subparagraph are to cover the costs (including 
                equipment, salaries and benefits, and travel and 
                training) of the administration and operation of the 
                health care fraud and abuse control program established 
                under section 1128C(a), including the costs of--
                            ``(i) prosecuting health care matters 
                        (through criminal, civil, and administrative 
                        proceedings);
                            ``(ii) investigations;
                            ``(iii) financial and performance audits of 
                        health care programs and operations;
                            ``(iv) inspections and other evaluations; 
                        and
                            ``(v) provider and consumer education 
                        regarding compliance with the provisions of 
                        title XI.
            ``(4) Appropriated amounts to account for medicare 
        integrity program.--
                    ``(A) In general.--There are hereby appropriated to 
                the Account from the Trust Fund for each fiscal year 
                such amounts as are necessary to carry out the Medicare 
                Integrity Program under section 1893, subject to 
                subparagraph (B) and to be available without further 
                appropriation.
                    ``(B) Amounts specified.--The amount appropriated 
                under subparagraph (A) for a fiscal year is as follows:
                            ``(i) For fiscal year 1997, such amount 
                        shall be not less than $430,000,000 and not 
                        more than $440,000,000.
                            ``(ii) For fiscal year 1998, such amount 
                        shall be not less than $490,000,000 and not 
                        more than $500,000,000.
                            ``(iii) For fiscal year 1999, such amount 
                        shall be not less than $550,000,000 and not 
                        more than $560,000,000.
                            ``(iv) For fiscal year 2000, such amount 
                        shall be not less than $620,000,000 and not 
                        more than $630,000,000.
                            ``(v) For fiscal year 2001, such amount 
                        shall be not less than $670,000,000 and not 
                        more than $680,000,000.
                            ``(vi) For fiscal year 2002, such amount 
                        shall be not less than $690,000,000 and not 
                        more than $700,000,000.
                            ``(vii) For each fiscal year after fiscal 
                        year 2002, such amount shall be not less than 
                        $710,000,000 and not more than $720,000,000.
            ``(5) Annual report.--The Secretary and the Attorney 
        General shall submit jointly an annual report to Congress on 
        the amount of revenue which is generated and disbursed, and the 
        justification for such disbursements, by the Account in each 
        fiscal year.''.

SEC. 202. MEDICARE INTEGRITY PROGRAM.

    (a) Establishment of Medicare Integrity Program.--Title XVIII is 
amended by adding at the end the following new section:

                      ``medicare integrity program

    ``Sec. 1893. (a) Establishment of Program.--There is hereby 
established the Medicare Integrity Program (in this section referred to 
as the `Program') under which the Secretary shall promote the integrity 
of the medicare program by entering into contracts in accordance with 
this section with eligible private entities to carry out the activities 
described in subsection (b).
    ``(b) Activities Described.--The activities described in this 
subsection are as follows:
            ``(1) Review of activities of providers of services or 
        other individuals and entities furnishing items and services 
        for which payment may be made under this title (including 
        skilled nursing facilities and home health agencies), including 
        medical and utilization review and fraud review (employing 
        similar standards, processes, and technologies used by private 
        health plans, including equipment and software technologies 
        which surpass the capability of the equipment and technologies 
        used in the review of claims under this title as of the date of 
        the enactment of this section).
            ``(2) Audit of cost reports.
            ``(3) Determinations as to whether payment should not be, 
        or should not have been, made under this title by reason of 
        section 1862(b), and recovery of payments that should not have 
        been made.
            ``(4) Education of providers of services, beneficiaries, 
        and other persons with respect to payment integrity and benefit 
        quality assurance issues.
            ``(5) Developing (and periodically updating) a list of 
        items of durable medical equipment in accordance with section 
        1834(a)(15) which are subject to prior authorization under such 
        section.
    ``(c) Eligibility of Entities.--An entity is eligible to enter into 
a contract under the Program to carry out any of the activities 
described in subsection (b) if--
            ``(1) the entity has demonstrated capability to carry out 
        such activities;
            ``(2) in carrying out such activities, the entity agrees to 
        cooperate with the Inspector General of the Department of 
        Health and Human Services, the Attorney General of the United 
        States, and other law enforcement agencies, as appropriate, in 
        the investigation and deterrence of fraud and abuse in relation 
        to this title and in other cases arising out of such 
        activities;
            ``(3) the entity demonstrates to the Secretary that the 
        entity's financial holdings, interests, or relationships will 
        not interfere with its ability to perform the functions to be 
        required by the contract in an effective and impartial manner; 
        and
            ``(4) the entity meets such other requirements as the 
        Secretary may impose.
In the case of the activity described in subsection (b)(5), an entity 
shall be deemed to be eligible to enter into a contract under the 
Program to carry out the activity if the entity is a carrier with a 
contract in effect under section 1842.
    ``(d) Process for Entering Into Contracts.--The Secretary shall 
enter into contracts under the Program in accordance with such 
procedures as the Secretary shall by regulation establish, except that 
such procedures shall include the following:
            ``(1) The Secretary shall determine the appropriate number 
        of separate contracts which are necessary to carry out the 
        Program and the appropriate times at which the Secretary shall 
        enter into such contracts.
            ``(2)(A) Except as provided in subparagraph (B), the 
        provisions of section 1153(e)(1) shall apply to contracts and 
        contracting authority under this section.
            ``(B) Competitive procedures must be used when entering 
        into new contracts under this section, or at any other time 
        considered appropriate by the Secretary, except that the 
        Secretary may contract with entities that are carrying out the 
        activities described in this section pursuant to agreements 
        under section 1816 or contracts under section 1842 in effect on 
        the date of the enactment of this section.
            ``(3) A contract under this section may be renewed without 
        regard to any provision of law requiring competition if the 
        contractor has met or exceeded the performance requirements 
        established in the current contract.
    ``(e) Limitation on Contractor Liability.--The Secretary shall by 
regulation provide for the limitation of a contractor's liability for 
actions taken to carry out a contract under the Program, and such 
regulation shall, to the extent the Secretary finds appropriate, employ 
the same or comparable standards and other substantive and procedural 
provisions as are contained in section 1157.''.
    (b) Elimination of FI and Carrier Responsibility for Carrying Out 
Activities Subject to Program.--
            (1) Responsibilities of fiscal intermediaries under part 
        a.--Section 1816 (42 U.S.C. 1395h) is amended by adding at the 
        end the following new subsection:
    ``(l) No agency or organization may carry out (or receive payment 
for carrying out) any activity pursuant to an agreement under this 
section to the extent that the activity is carried out pursuant to a 
contract under the Medicare Integrity Program under section 1893.''.
            (2) Responsibilities of carriers under part b.--Section 
        1842(c) (42 U.S.C. 1395u(c)) is amended by adding at the end 
        the following new paragraph:
    ``(6) No carrier may carry out (or receive payment for carrying 
out) any activity pursuant to a contract under this subsection to the 
extent that the activity is carried out pursuant to a contract under 
the Medicare Integrity Program under section 1893. The previous 
sentence shall not apply with respect to the activity described in 
section 1893(b)(5) (relating to prior authorization of certain items of 
durable medical equipment under section 1834(a)(15)).''.

SEC. 203. BENEFICIARY INCENTIVE PROGRAMS.

    (a) Clarification of Requirement to Provide Explanation of Medicare 
Benefits.--The Secretary of Health and Human Services (in this section 
referred to as the ``Secretary'') shall provide an explanation of 
benefits under the medicare program under title XVIII of the Social 
Security Act with respect to each item or service for which payment may 
be made under the program which is furnished to an individual, without 
regard to whether or not a deductible or coinsurance may be imposed 
against the individual with respect to the item or service.
    (b) Program To Collect Information on Fraud and Abuse.--
            (1) Establishment of program.--Not later than 3 months 
        after the date of the enactment of this Act, the Secretary 
        shall establish a program under which the Secretary shall 
        encourage individuals to report to the Secretary information on 
        individuals and entities who are engaging or who have engaged 
        in acts or omissions which constitute grounds for the 
        imposition of a sanction under section 1128, section 1128A, or 
        section 1128B of the Social Security Act, or who have otherwise 
        engaged in fraud and abuse against the medicare program for 
        which there is a sanction provided under law. The program shall 
        discourage provision of, and not consider, information which is 
        frivolous or otherwise not relevant or material to the 
        imposition of such a sanction.
            (2) Payment of portion of amounts collected.--If an 
        individual reports information to the Secretary under the 
        program established under paragraph (1) which serves as the 
        basis for the collection by the Secretary or the Attorney 
        General of any amount of at least $100 (other than any amount 
        paid as a penalty under section 1128B of the Social Security 
        Act), the Secretary may pay a portion of the amount collected 
        to the individual (under procedures similar to those applicable 
        under section 7623 of the Internal Revenue Code of 1986 to 
        payments to individuals providing information on violations of 
        such Code).
    (c) Program To Collect Information on Program Efficiency.--
            (1) Establishment of program.--Not later than 3 months 
        after the date of the enactment of this Act, the Secretary 
        shall establish a program under which the Secretary shall 
        encourage individuals to submit to the Secretary suggestions on 
        methods to improve the efficiency of the medicare program.
            (2) Payment of portion of program savings.--If an 
        individual submits a suggestion to the Secretary under the 
        program established under paragraph (1) which is adopted by the 
        Secretary and which results in savings to the program, the 
        Secretary may make a payment to the individual of such amount 
        as the Secretary considers appropriate.

SEC. 204. APPLICATION OF CERTAIN HEALTH ANTI-FRAUD AND ABUSE SANCTIONS 
              TO FRAUD AND ABUSE AGAINST FEDERAL HEALTH CARE PROGRAMS.

    (a) In General.--Section 1128B (42 U.S.C. 1320a-7b) is amended as 
follows:
            (1) In the heading, by striking ``medicare or state health 
        care programs'' and inserting ``federal health care programs''.
            (2) In subsection (a)(1), by striking ``a program under 
        title XVIII or a State health care program (as defined in 
        section 1128(h))'' and inserting ``a Federal health care 
        program''.
            (3) In subsection (a)(5), by striking ``a program under 
        title XVIII or a State health care program'' and inserting ``a 
        Federal health care program''.
            (4) In the second sentence of subsection (a)--
                    (A) by striking ``a State plan approved under title 
                XIX'' and inserting ``a Federal health care program'', 
                and
                    (B) by striking ``the State may at its option 
                (notwithstanding any other provision of that title or 
                of such plan)'' and inserting ``the administrator of 
                such program may at its option (notwithstanding any 
                other provision of such program)''.
            (5) In subsection (b), by striking ``title XVIII or a State 
        health care program'' each place it appears and inserting ``a 
        Federal health care program''.
            (6) In subsection (c), by inserting ``(as defined in 
        section 1128(h))'' after ``a State health care program''.
            (7) By adding at the end the following new subsection:
    ``(f) For purposes of this section, the term `Federal health care 
program' means--
            ``(1) any plan or program that provides health benefits, 
        whether directly, through insurance, or otherwise, which is 
        funded directly, in whole or in part, by the United States 
        Government (other than the health insurance program under 
        chapter 89 of title 5, United States Code); or
            ``(2) any State health care program, as defined in section 
        1128(h).''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1997.

SEC. 205. GUIDANCE REGARDING APPLICATION OF HEALTH CARE FRAUD AND ABUSE 
              SANCTIONS.

    Title XI (42 U.S.C. 1301 et seq.), as amended by section 201, is 
amended by inserting after section 1128C the following new section:

    ``guidance regarding application of health care fraud and abuse 
                               sanctions

    ``Sec. 1128D. (a) Solicitation and Publication of Modifications to 
Existing Safe Harbors and New Safe Harbors.--
            ``(1) In general.--
                    ``(A) Solicitation of proposals for safe harbors.--
                Not later than January 1, 1997, and not less than 
                annually thereafter, the Secretary shall publish a 
                notice in the Federal Register soliciting proposals, 
                which will be accepted during a 60-day period, for--
                            ``(i) modifications to existing safe 
                        harbors issued pursuant to section 14(a) of the 
                        Medicare and Medicaid Patient and Program 
                        Protection Act of 1987 (42 U.S.C. 1320a-7b 
                        note);
                            ``(ii) additional safe harbors specifying 
                        payment practices that shall not be treated as 
                        a criminal offense under section 1128B(b) and 
                        shall not serve as the basis for an exclusion 
                        under section 1128(b)(7);
                            ``(iii) advisory opinions to be issued 
                        pursuant to subsection (b); and
                            ``(iv) special fraud alerts to be issued 
                        pursuant to subsection (c).
                    ``(B) Publication of proposed modifications and 
                proposed additional safe harbors.--After considering 
                the proposals described in clauses (i) and (ii) of 
                subparagraph (A), the Secretary, in consultation with 
                the Attorney General, shall publish in the Federal 
                Register proposed modifications to existing safe 
                harbors and proposed additional safe harbors, if 
                appropriate, with a 60-day comment period. After 
                considering any public comments received during this 
                period, the Secretary shall issue final rules modifying 
                the existing safe harbors and establishing new safe 
                harbors, as appropriate.
                    ``(C) Report.--The Inspector General of the 
                Department of Health and Human Services (in this 
                section referred to as the `Inspector General') shall, 
                in an annual report to Congress or as part of the year-
                end semiannual report required by section 5 of the 
                Inspector General Act of 1978 (5 U.S.C. App.), describe 
                the proposals received under clauses (i) and (ii) of 
                subparagraph (A) and explain which proposals were 
                included in the publication described in subparagraph 
                (B), which proposals were not included in that 
                publication, and the reasons for the rejection of the 
                proposals that were not included.
            ``(2) Criteria for modifying and establishing safe 
        harbors.--In modifying and establishing safe harbors under 
        paragraph (1)(B), the Secretary may consider the extent to 
        which providing a safe harbor for the specified payment 
        practice may result in any of the following:
                    ``(A) An increase or decrease in access to health 
                care services.
                    ``(B) An increase or decrease in the quality of 
                health care services.
                    ``(C) An increase or decrease in patient freedom of 
                choice among health care providers.
                    ``(D) An increase or decrease in competition among 
                health care providers.
                    ``(E) An increase or decrease in the ability of 
                health care facilities to provide services in medically 
                underserved areas or to medically underserved 
                populations.
                    ``(F) An increase or decrease in the cost to 
                Federal health care programs (as defined in section 
                1128B(f)).
                    ``(G) An increase or decrease in the potential 
                overutilization of health care services.
                    ``(H) The existence or nonexistence of any 
                potential financial benefit to a health care 
                professional or provider which may vary based on their 
                decisions of--
                            ``(i) whether to order a health care item 
                        or service; or
                            ``(ii) whether to arrange for a referral of 
                        health care items or services to a particular 
                        practitioner or provider.
                    ``(I) Any other factors the Secretary deems 
                appropriate in the interest of preventing fraud and 
                abuse in Federal health care programs (as so defined).
    ``(b) Advisory Opinions.--
            ``(1) Issuance of advisory opinions.--The Secretary shall 
        issue written advisory opinions as provided in this subsection.
            ``(2) Matters subject to advisory opinions.--The Secretary 
        shall issue advisory opinions as to the following matters:
                    ``(A) What constitutes prohibited remuneration 
                within the meaning of section 1128B(b).
                    ``(B) Whether an arrangement or proposed 
                arrangement satisfies the criteria set forth in section 
                1128B(b)(3) for activities which do not result in 
                prohibited remuneration.
                    ``(C) Whether an arrangement or proposed 
                arrangement satisfies the criteria which the Secretary 
                has established, or shall establish by regulation for 
                activities which do not result in prohibited 
                remuneration.
                    ``(D) What constitutes an inducement to reduce or 
                limit services to individuals entitled to benefits 
                under title XVIII or title XIX or title XXI within the 
                meaning of section 1128B(b).
                    ``(E) Whether any activity or proposed activity 
                constitutes grounds for the imposition of a sanction 
                under section 1128, 1128A, or 1128B.
            ``(3) Matters not subject to advisory opinions.--Such 
        advisory opinions shall not address the following matters:
                    ``(A) Whether the fair market value shall be, or 
                was paid or received for any goods, services or 
                property.
                    ``(B) Whether an individual is a bona fide employee 
                within the requirements of section 3121(d)(2) of the 
                Internal Revenue Code of 1986.
            ``(4) Effect of advisory opinions.--
                    ``(A) Binding as to secretary and parties 
                involved.--Each advisory opinion issued by the 
                Secretary shall be binding as to the Secretary and the 
                party or parties requesting the opinion.
                    ``(B) Failure to seek opinion.--The failure of a 
                party to seek an advisory opinion may not be introduced 
                into evidence to prove that the party intended to 
                violate the provisions of sections 1128, 1128A, or 
                1128B.
            ``(5) Regulations.--
                    ``(A) In general.--Not later than 180 days after 
                the date of the enactment of this section, the 
                Secretary shall issue regulations to carry out this 
                section. Such regulations shall provide for--
                            ``(i) the procedure to be followed by a 
                        party applying for an advisory opinion;
                            ``(ii) the procedure to be followed by the 
                        Secretary in responding to a request for an 
                        advisory opinion;
                            ``(iii) the interval in which the Secretary 
                        shall respond;
                            ``(iv) the reasonable fee to be charged to 
                        the party requesting an advisory opinion; and
                            ``(v) the manner in which advisory opinions 
                        will be made available to the public.
                    ``(B) Specific contents.--Under the regulations 
                promulgated pursuant to subparagraph (A)--
                            ``(i) the Secretary shall be required to 
                        respond to a party requesting an advisory 
                        opinion by not later than 30 days after the 
                        request is received; and
                            ``(ii) the fee charged to the party 
                        requesting an advisory opinion shall be equal 
                        to the costs incurred by the Secretary in 
                        responding to the request.
    ``(c) Special Fraud Alerts.--
            ``(1) In general.--
                    ``(A) Request for special fraud alerts.--Any person 
                may present, at any time, a request to the Inspector 
                General for a notice which informs the public of 
                practices which the Inspector General considers to be 
                suspect or of particular concern under the medicare 
                program or a State health care program, as defined in 
                section 1128(h) (in this subsection referred to as a 
                `special fraud alert').
                    ``(B) Issuance and publication of special fraud 
                alerts.--Upon receipt of a request described in 
                subparagraph (A), the Inspector General shall 
                investigate the subject matter of the request to 
                determine whether a special fraud alert should be 
                issued. If appropriate, the Inspector General shall 
                issue a special fraud alert in response to the request. 
                All special fraud alerts issued pursuant to this 
                subparagraph shall be published in the Federal 
                Register.
            ``(2) Criteria for special fraud alerts.--In determining 
        whether to issue a special fraud alert upon a request described 
        in paragraph (1), the Inspector General may consider--
                    ``(A) whether and to what extent the practices that 
                would be identified in the special fraud alert may 
                result in any of the consequences described in 
                subsection (a)(2); and
                    ``(B) the volume and frequency of the conduct that 
                would be identified in the special fraud alert.''.

     Subtitle B--Revisions to Current Sanctions for Fraud and Abuse

SEC. 211. MANDATORY EXCLUSION FROM PARTICIPATION IN MEDICARE AND STATE 
              HEALTH CARE PROGRAMS.

    (a) Individual Convicted of Felony Relating to Health Care Fraud.--
            (1) In general.--Section 1128(a) (42 U.S.C. 1320a-7(a)) is 
        amended by adding at the end the following new paragraph:
            ``(3) Felony conviction relating to health care fraud.--Any 
        individual or entity that has been convicted after the date of 
        the enactment of the Health Coverage Availability and 
        Affordability Act of 1996, under Federal or State law, in 
        connection with the delivery of a health care item or service 
        or with respect to any act or omission in a health care program 
        (other than those specifically described in paragraph (1)) 
        operated by or financed in whole or in part by any Federal, 
        State, or local government agency, of a criminal offense 
        consisting of a felony relating to fraud, theft, embezzlement, 
        breach of fiduciary responsibility, or other financial 
        misconduct.''.
            (2) Conforming amendment.--Paragraph (1) of section 1128(b) 
        (42 U.S.C. 1320a-7(b)) is amended to read as follows:
            ``(1) Conviction relating to fraud.--Any individual or 
        entity that has been convicted after the date of the enactment 
        of the Health Coverage Availability and Affordability Act of 
        1996, under Federal or State law--
                    ``(A) of a criminal offense consisting of a 
                misdemeanor relating to fraud, theft, embezzlement, 
                breach of fiduciary responsibility, or other financial 
                misconduct--
                            ``(i) in connection with the delivery of a 
                        health care item or service, or
                            ``(ii) with respect to any act or omission 
                        in a health care program (other than those 
                        specifically described in subsection (a)(1)) 
                        operated by or financed in whole or in part by 
                        any Federal, State, or local government agency; 
                        or
                    ``(B) of a criminal offense relating to fraud, 
                theft, embezzlement, breach of fiduciary 
                responsibility, or other financial misconduct with 
                respect to any act or omission in a program (other than 
                a health care program) operated by or financed in whole 
                or in part by any Federal, State, or local government 
                agency.''.
    (b) Individual Convicted of Felony Relating to Controlled 
Substance.--
            (1) In general.--Section 1128(a) (42 U.S.C. 1320a-7(a)), as 
        amended by subsection (a), is amended by adding at the end the 
        following new paragraph:
            ``(4) Felony conviction relating to controlled substance.--
        Any individual or entity that has been convicted after the date 
        of the enactment of the Health Coverage Availability and 
        Affordability Act of 1996, under Federal or State law, of a 
        criminal offense consisting of a felony relating to the 
        unlawful manufacture, distribution, prescription, or dispensing 
        of a controlled substance.''.
            (2) Conforming amendment.--Section 1128(b)(3) (42 U.S.C. 
        1320a-7(b)(3)) is amended--
                    (A) in the heading, by striking ``Conviction'' and 
                inserting ``Misdemeanor conviction''; and
                    (B) by striking ``criminal offense'' and inserting 
                ``criminal offense consisting of a misdemeanor''.

SEC. 212. ESTABLISHMENT OF MINIMUM PERIOD OF EXCLUSION FOR CERTAIN 
              INDIVIDUALS AND ENTITIES SUBJECT TO PERMISSIVE EXCLUSION 
              FROM MEDICARE AND STATE HEALTH CARE PROGRAMS.

    Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended by adding 
at the end the following new subparagraphs:
    ``(D) In the case of an exclusion of an individual or entity under 
paragraph (1), (2), or (3) of subsection (b), the period of the 
exclusion shall be 3 years, unless the Secretary determines in 
accordance with published regulations that a shorter period is 
appropriate because of mitigating circumstances or that a longer period 
is appropriate because of aggravating circumstances.
    ``(E) In the case of an exclusion of an individual or entity under 
subsection (b)(4) or (b)(5), the period of the exclusion shall not be 
less than the period during which the individual's or entity's license 
to provide health care is revoked, suspended, or surrendered, or the 
individual or the entity is excluded or suspended from a Federal or 
State health care program.
    ``(F) In the case of an exclusion of an individual or entity under 
subsection (b)(6)(B), the period of the exclusion shall be not less 
than 1 year.''.

SEC. 213. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH OWNERSHIP OR CONTROL 
              INTEREST IN SANCTIONED ENTITIES.

    Section 1128(b) (42 U.S.C. 1320a-7(b)) is amended by adding at the 
end the following new paragraph:
            ``(15) Individuals controlling a sanctioned entity.--(A) 
        Any individual--
                    ``(i) who has a direct or indirect ownership or 
                control interest in a sanctioned entity and who knows 
                or should know (as defined in section 1128A(i)(6)) of 
                the action constituting the basis for the conviction or 
                exclusion described in subparagraph (B); or
                    ``(ii) who is an officer or managing employee (as 
                defined in section 1126(b)) of such an entity.
            ``(B) For purposes of subparagraph (A), the term 
        `sanctioned entity' means an entity--
                    ``(i) that has been convicted of any offense 
                described in subsection (a) or in paragraph (1), (2), 
                or (3) of this subsection; or
                    ``(ii) that has been excluded from participation 
                under a program under title XVIII or under a State 
                health care program.''.

SEC. 214. SANCTIONS AGAINST PRACTITIONERS AND PERSONS FOR FAILURE TO 
              COMPLY WITH STATUTORY OBLIGATIONS.

    (a) Minimum Period of Exclusion for Practitioners and Persons 
Failing To Meet Statutory Obligations.--
            (1) In general.--The second sentence of section 1156(b)(1) 
        (42 U.S.C. 1320c-5(b)(1)) is amended by striking ``may 
        prescribe)'' and inserting ``may prescribe, except that such 
        period may not be less than 1 year)''.
            (2) Conforming amendment.--Section 1156(b)(2) (42 U.S.C. 
        1320c-5(b)(2)) is amended by striking ``shall remain'' and 
        inserting ``shall (subject to the minimum period specified in 
        the second sentence of paragraph (1)) remain''.
    (b) Repeal of ``Unwilling or Unable'' Condition for Imposition of 
Sanction.--Section 1156(b)(1) (42 U.S.C. 1320c-5(b)(1)) is amended--
            (1) in the second sentence, by striking ``and determines'' 
        and all that follows through ``such obligations,''; and
            (2) by striking the third sentence.

SEC. 215. INTERMEDIATE SANCTIONS FOR MEDICARE HEALTH MAINTENANCE 
              ORGANIZATIONS.

    (a) Application of Intermediate Sanctions for any Program 
Violations.--
            (1) In general.--Section 1876(i)(1) (42 U.S.C. 
        1395mm(i)(1)) is amended by striking ``the Secretary may 
        terminate'' and all that follows and inserting ``in accordance 
        with procedures established under paragraph (9), the Secretary 
        may at any time terminate any such contract or may impose the 
        intermediate sanctions described in paragraph (6)(B) or (6)(C) 
        (whichever is applicable) on the eligible organization if the 
        Secretary determines that the organization--
            ``(A) has failed substantially to carry out the contract;
            ``(B) is carrying out the contract in a manner 
        substantially inconsistent with the efficient and effective 
        administration of this section; or
            ``(C) no longer substantially meets the applicable 
        conditions of subsections (b), (c), (e), and (f).''.
            (2) Other intermediate sanctions for miscellaneous program 
        violations.--Section 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is 
        amended by adding at the end the following new subparagraph:
    ``(C) In the case of an eligible organization for which the 
Secretary makes a determination under paragraph (1) the basis of which 
is not described in subparagraph (A), the Secretary may apply the 
following intermediate sanctions:
            ``(i) Civil money penalties of not more than $25,000 for 
        each determination under paragraph (1) if the deficiency that 
        is the basis of the determination has directly adversely 
        affected (or has the substantial likelihood of adversely 
        affecting) an individual covered under the organization's 
        contract.
            ``(ii) Civil money penalties of not more than $10,000 for 
        each week beginning after the initiation of procedures by the 
        Secretary under paragraph (9) during which the deficiency that 
        is the basis of a determination under paragraph (1) exists.
            ``(iii) Suspension of enrollment of individuals under this 
        section after the date the Secretary notifies the organization 
        of a determination under paragraph (1) and until the Secretary 
        is satisfied that the deficiency that is the basis for the 
        determination has been corrected and is not likely to recur.''.
            (3) Procedures for imposing sanctions.--Section 1876(i) (42 
        U.S.C. 1395mm(i)) is amended by adding at the end the following 
        new paragraph:
    ``(9) The Secretary may terminate a contract with an eligible 
organization under this section or may impose the intermediate 
sanctions described in paragraph (6) on the organization in accordance 
with formal investigation and compliance procedures established by the 
Secretary under which--
            ``(A) the Secretary first provides the organization with 
        the reasonable opportunity to develop and implement a 
        corrective action plan to correct the deficiencies that were 
        the basis of the Secretary's determination under paragraph (1) 
        and the organization fails to develop or implement such a plan;
            ``(B) in deciding whether to impose sanctions, the 
        Secretary considers aggravating factors such as whether an 
        organization has a history of deficiencies or has not taken 
        action to correct deficiencies the Secretary has brought to the 
        organization's attention;
            ``(C) there are no unreasonable or unnecessary delays 
        between the finding of a deficiency and the imposition of 
        sanctions; and
            ``(D) the Secretary provides the organization with 
        reasonable notice and opportunity for hearing (including the 
        right to appeal an initial decision) before imposing any 
        sanction or terminating the contract.''.
            (4) Conforming amendments.--Section 1876(i)(6)(B) (42 
        U.S.C. 1395mm(i)(6)(B)) is amended by striking the second 
        sentence.
    (b) Agreements With Peer Review Organizations.--Section 
1876(i)(7)(A) (42 U.S.C. 1395mm(i)(7)(A)) is amended by striking ``an 
agreement'' and inserting ``a written agreement''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to contract years beginning on or after January 1, 
1996.

SEC. 216. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PENALTIES FOR 
              DISCOUNTING AND MANAGED CARE ARRANGEMENTS.

    (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is 
amended--
            (1) by striking ``and'' at the end of subparagraph (D);
            (2) by striking the period at the end of subparagraph (E) 
        and inserting ``; and''; and
            (3) by adding at the end the following new subparagraph:
            ``(F) any remuneration between an organization and an 
        individual or entity providing items or services, or a 
        combination thereof, pursuant to a written agreement between 
        the organization and the individual or entity if the 
        organization is an eligible organization under section 1876 or 
        if the written agreement places the individual or entity at 
        substantial financial risk for the cost or utilization of the 
        items or services, or a combination thereof, which the 
        individual or entity is obligated to provide, whether through a 
        withhold, capitation, incentive pool, per diem payment, or any 
        other similar risk arrangement which places the individual or 
        entity at substantial financial risk.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to written agreements entered into on or after January 1, 1997.

SEC. 217. CRIMINAL PENALTY FOR FRAUDULENT DISPOSITION OF ASSETS IN 
              ORDER TO OBTAIN MEDICAID BENEFITS.

    Section 1128B(a) (42 U.S.C. 1320a-7b(a)) is amended--
            (1) by striking ``or'' at the end of paragraph (4);
            (2) by adding ``or'' at the end of paragraph (5); and
            (3) by inserting after paragraph (5) the following new 
        paragraph:
            ``(6) knowingly and willfully disposes of assets (including 
        by any transfer in trust) in order for an individual to become 
        eligible for medical assistance under a State plan under title 
        XIX, if disposing of the assets results in the imposition of a 
        period of ineligibility for such assistance under section 
        1917(c),''.

SEC. 218. EFFECTIVE DATE.

    Except as otherwise provided, the amendments made by this subtitle 
shall take effect January 1, 1997.

                      Subtitle C--Data Collection

SEC. 221. ESTABLISHMENT OF THE HEALTH CARE FRAUD AND ABUSE DATA 
              COLLECTION PROGRAM.

    (a) In General.--Title XI (42 U.S.C. 1301 et seq.), as amended by 
sections 201 and 205, is amended by inserting after section 1128D the 
following new section:

         ``health care fraud and abuse data collection program

    ``Sec. 1128E. (a) General Purpose.--Not later than January 1, 1997, 
the Secretary shall establish a national health care fraud and abuse 
data collection program for the reporting of final adverse actions (not 
including settlements in which no findings of liability have been made) 
against health care providers, suppliers, or practitioners as required 
by subsection (b), with access as set forth in subsection (c).
    ``(b) Reporting of Information.--
            ``(1) In general.--Each Government agency and health plan 
        shall report any final adverse action (not including 
        settlements in which no findings of liability have been made) 
        taken against a health care provider, supplier, or 
        practitioner.
            ``(2) Information to be reported.--The information to be 
        reported under paragraph (1) includes:
                    ``(A) The name and TIN (as defined in section 
                7701(a)(41) of the Internal Revenue Code of 1986) of 
                any health care provider, supplier, or practitioner who 
                is the subject of a final adverse action.
                    ``(B) The name (if known) of any health care entity 
                with which a health care provider, supplier, or 
                practitioner is affiliated or associated.
                    ``(C) The nature of the final adverse action and 
                whether such action is on appeal.
                    ``(D) A description of the acts or omissions and 
                injuries upon which the final adverse action was based, 
                and such other information as the Secretary determines 
                by regulation is required for appropriate 
                interpretation of information reported under this 
                section.
            ``(3) Confidentiality.--In determining what information is 
        required, the Secretary shall include procedures to assure that 
        the privacy of individuals receiving health care services is 
        appropriately protected.
            ``(4) Timing and form of reporting.--The information 
        required to be reported under this subsection shall be reported 
        regularly (but not less often than monthly) and in such form 
        and manner as the Secretary prescribes. Such information shall 
        first be required to be reported on a date specified by the 
        Secretary.
            ``(5) To whom reported.--The information required to be 
        reported under this subsection shall be reported to the 
        Secretary.
    ``(c) Disclosure and Correction of Information.--
            ``(1) Disclosure.--With respect to the information about 
        final adverse actions (not including settlements in which no 
        findings of liability have been made) reported to the Secretary 
        under this section respecting a health care provider, supplier, 
        or practitioner, the Secretary shall, by regulation, provide 
        for--
                    ``(A) disclosure of the information, upon request, 
                to the health care provider, supplier, or licensed 
                practitioner, and
                    ``(B) procedures in the case of disputed accuracy 
                of the information.
            ``(2) Corrections.--Each Government agency and health plan 
        shall report corrections of information already reported about 
        any final adverse action taken against a health care provider, 
        supplier, or practitioner, in such form and manner that the 
        Secretary prescribes by regulation.
    ``(d) Access to Reported Information.--
            ``(1) Availability.--The information in this database shall 
        be available to Federal and State government agencies and 
        health plans pursuant to procedures that the Secretary shall 
        provide by regulation.
            ``(2) Fees for disclosure.--The Secretary may establish or 
        approve reasonable fees for the disclosure of information in 
        this database (other than with respect to requests by Federal 
        agencies). The amount of such a fee shall be sufficient to 
        recover the full costs of operating the database. Such fees 
        shall be available to the Secretary or, in the Secretary's 
        discretion to the agency designated under this section to cover 
        such costs.
    ``(e) Protection From Liability for Reporting.--No person or 
entity, including the agency designated by the Secretary in subsection 
(b)(5) shall be held liable in any civil action with respect to any 
report made as required by this section, without knowledge of the 
falsity of the information contained in the report.
    ``(f) Definitions and Special Rules.--For purposes of this section:
            ``(1) Final adverse action.--
                    ``(A) In general.--The term `final adverse action' 
                includes:
                            ``(i) Civil judgments against a health care 
                        provider, supplier, or practitioner in Federal 
                        or State court related to the delivery of a 
                        health care item or service.
                            ``(ii) Federal or State criminal 
                        convictions related to the delivery of a health 
                        care item or service.
                            ``(iii) Actions by Federal or State 
                        agencies responsible for the licensing and 
                        certification of health care providers, 
                        suppliers, and licensed health care 
                        practitioners, including--
                                    ``(I) formal or official actions, 
                                such as revocation or suspension of a 
                                license (and the length of any such 
                                suspension), reprimand, censure or 
                                probation,
                                    ``(II) any other loss of license or 
                                the right to apply for, or renew, a 
                                license of the provider, supplier, or 
                                practitioner, whether by operation of 
                                law, voluntary surrender, non-
                                renewability, or otherwise, or
                                    ``(III) any other negative action 
                                or finding by such Federal or State 
                                agency that is publicly available 
                                information.
                            ``(iv) Exclusion from participation in 
                        Federal or State health care programs.
                            ``(v) Any other adjudicated actions or 
                        decisions that the Secretary shall establish by 
                        regulation.
                    ``(B) Exception.--The term does not include any 
                action with respect to a malpractice claim.
            ``(2) Practitioner.--The terms `licensed health care 
        practitioner', `licensed practitioner', and `practitioner' 
        mean, with respect to a State, an individual who is licensed or 
        otherwise authorized by the State to provide health care 
        services (or any individual who, without authority holds 
        himself or herself out to be so licensed or authorized).
            ``(3) Government agency.--The term `Government agency' 
        shall include:
                    ``(A) The Department of Justice.
                    ``(B) The Department of Health and Human Services.
                    ``(C) Any other Federal agency that either 
                administers or provides payment for the delivery of 
                health care services, including, but not limited to the 
                Department of Defense and the Veterans' Administration.
                    ``(D) State law enforcement agencies.
                    ``(E) State medicaid fraud control units.
                    ``(F) Federal or State agencies responsible for the 
                licensing and certification of health care providers 
                and licensed health care practitioners.
            ``(4) Health plan.--The term `health plan' has the meaning 
        given such term by section 1128C(c).
            ``(5) Determination of conviction.--For purposes of 
        paragraph (1), the existence of a conviction shall be 
        determined under paragraph (4) of section 1128(i).''.
    (b) Improved Prevention in Issuance of Medicare Provider Numbers.--
Section 1842(r) (42 U.S.C. 1395u(r)) is amended by adding at the end 
the following new sentence: ``Under such system, the Secretary may 
impose appropriate fees on such physicians to cover the costs of 
investigation and recertification activities with respect to the 
issuance of the identifiers.''.

                  Subtitle D--Civil Monetary Penalties

SEC. 231. SOCIAL SECURITY ACT CIVIL MONETARY PENALTIES.

    (a) General Civil Monetary Penalties.--Section 1128A (42 U.S.C. 
1320a-7a) is amended as follows:
            (1) In the third sentence of subsection (a), by striking 
        ``programs under title XVIII'' and inserting ``Federal health 
        care programs (as defined in section 1128B(f)(1))''.
            (2) In subsection (f)--
                    (A) by redesignating paragraph (3) as paragraph 
                (4); and
                    (B) by inserting after paragraph (2) the following 
                new paragraph:
            ``(3) With respect to amounts recovered arising out of a 
        claim under a Federal health care program (as defined in 
        section 1128B(f)), the portion of such amounts as is determined 
        to have been paid by the program shall be repaid to the 
        program, and the portion of such amounts attributable to the 
        amounts recovered under this section by reason of the 
        amendments made by the Health Coverage Availability and 
        Affordability Act of 1996 (as estimated by the Secretary) shall 
        be deposited into the Federal Hospital Insurance Trust Fund 
        pursuant to section 1817(k)(2)(C).''.
            (3) In subsection (i)--
                    (A) in paragraph (2), by striking ``title V, XVIII, 
                XIX, or XX of this Act'' and inserting ``a Federal 
                health care program (as defined in section 1128B(f))'',
                    (B) in paragraph (4), by striking ``a health 
                insurance or medical services program under title XVIII 
                or XIX of this Act'' and inserting ``a Federal health 
                care program (as so defined)'', and
                    (C) in paragraph (5), by striking ``title V, XVIII, 
                XIX, or XX'' and inserting ``a Federal health care 
                program (as so defined)''.
            (4) By adding at the end the following new subsection:
    ``(m)(1) For purposes of this section, with respect to a Federal 
health care program not contained in this Act, references to the 
Secretary in this section shall be deemed to be references to the 
Secretary or Administrator of the department or agency with 
jurisdiction over such program and references to the Inspector General 
of the Department of Health and Human Services in this section shall be 
deemed to be references to the Inspector General of the applicable 
department or agency.
    ``(2)(A) The Secretary and Administrator of the departments and 
agencies referred to in paragraph (1) may include in any action 
pursuant to this section, claims within the jurisdiction of other 
Federal departments or agencies as long as the following conditions are 
satisfied:
            ``(i) The case involves primarily claims submitted to the 
        Federal health care programs of the department or agency 
        initiating the action.
            ``(ii) The Secretary or Administrator of the department or 
        agency initiating the action gives notice and an opportunity to 
        participate in the investigation to the Inspector General of 
        the department or agency with primary jurisdiction over the 
        Federal health care programs to which the claims were 
        submitted.
    ``(B) If the conditions specified in subparagraph (A) are 
fulfilled, the Inspector General of the department or agency initiating 
the action is authorized to exercise all powers granted under the 
Inspector General Act of 1978 with respect to the claims submitted to 
the other departments or agencies to the same manner and extent as 
provided in that Act with respect to claims submitted to such 
departments or agencies.''.
    (b) Excluded Individual Retaining Ownership or Control Interest in 
Participating Entity.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is 
amended--
            (1) by striking ``or'' at the end of paragraph (1)(D);
            (2) by striking ``, or'' at the end of paragraph (2) and 
        inserting a semicolon;
            (3) by striking the semicolon at the end of paragraph (3) 
        and inserting ``; or''; and
            (4) by inserting after paragraph (3) the following new 
        paragraph:
            ``(4) in the case of a person who is not an organization, 
        agency, or other entity, is excluded from participating in a 
        program under title XVIII or a State health care program in 
        accordance with this subsection or under section 1128 and who, 
        at the time of a violation of this subsection--
                    ``(A) retains a direct or indirect ownership or 
                control interest in an entity that is participating in 
                a program under title XVIII or a State health care 
                program, and who knows or should know of the action 
                constituting the basis for the exclusion; or
                    ``(B) is an officer or managing employee (as 
                defined in section 1126(b)) of such an entity;''.
    (c) Modifications of Amounts of Penalties and Assessments.--Section 
1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by subsection (b), is 
amended in the matter following paragraph (4)--
            (1) by striking ``$2,000'' and inserting ``$10,000'';
            (2) by inserting ``; in cases under paragraph (4), $10,000 
        for each day the prohibited relationship occurs'' after ``false 
        or misleading information was given''; and
            (3) by striking ``twice the amount'' and inserting ``3 
        times the amount''.
    (d) Claim for Item or Service Based on Incorrect Coding or 
Medically Unnecessary Services.--Section 1128A(a)(1) (42 U.S.C. 1320a-
7a(a)(1)) is amended--
            (1) in subparagraph (A) by striking ``claimed,'' and 
        inserting ``claimed, including any person who engages in a 
        pattern or practice of presenting or causing to be presented a 
        claim for an item or service that is based on a code that the 
        person knows or should know will result in a greater payment to 
        the person than the code the person knows or should know is 
        applicable to the item or service actually provided,'';
            (2) in subparagraph (C), by striking ``or'' at the end; and
            (3) by inserting after subparagraph (D) the following new 
        subparagraph:
                    ``(E) is for a medical or other item or service 
                that a person knows or should know is not medically 
                necessary; or''.
    (e) Sanctions Against Practitioners and Persons for Failure To 
Comply With Statutory Obligations.--Section 1156(b)(3) (42 U.S.C. 
1320c-5(b)(3)) is amended by striking ``the actual or estimated cost'' 
and inserting ``up to $10,000 for each instance''.
    (f) Procedural Provisions.--Section 1876(i)(6) (42 U.S.C. 
1395mm(i)(6)), as amended by section 215(a)(2), is amended by adding at 
the end the following new subparagraph:
    ``(D) The provisions of section 1128A (other than subsections (a) 
and (b)) shall apply to a civil money penalty under subparagraph (B)(i) 
or (C)(i) in the same manner as such provisions apply to a civil money 
penalty or proceeding under section 1128A(a).''.
    (g) Prohibition Against Offering Inducements to Individuals 
Enrolled Under Programs or Plans.--
            (1) Offer of remuneration.--Section 1128A(a) (42 U.S.C. 
        1320a-7a(a)), as amended by subsection (b), is amended--
                    (A) by striking ``or'' at the end of paragraph (3);
                    (B) by striking the semicolon at the end of 
                paragraph (4) and inserting ``; or''; and
                    (D) by inserting after paragraph (4) the following 
                new paragraph:
            ``(5) offers to or transfers remuneration to any individual 
        eligible for benefits under title XVIII of this Act, or under a 
        State health care program (as defined in section 1128(h)) that 
        such person knows or should know is likely to influence such 
        individual to order or receive from a particular provider, 
        practitioner, or supplier any item or service for which payment 
        may be made, in whole or in part, under title XVIII, or a State 
        health care program (as so defined);''.
            (2) Remuneration defined.--Section 1128A(i) (42 U.S.C. 
        1320a-7a(i)) is amended by adding at the end the following new 
        paragraph:
            ``(6) The term `remuneration' includes the waiver of 
        coinsurance and deductible amounts (or any part thereof), and 
        transfers of items or services for free or for other than fair 
        market value. The term `remuneration' does not include--
                    ``(A) the waiver of coinsurance and deductible 
                amounts by a person, if--
                            ``(i) the waiver is not offered as part of 
                        any advertisement or solicitation;
                            ``(ii) the person does not routinely waive 
                        coinsurance or deductible amounts; and
                            ``(iii) the person--
                                    ``(I) waives the coinsurance and 
                                deductible amounts after determining in 
                                good faith that the individual is in 
                                financial need;
                                    ``(II) fails to collect coinsurance 
                                or deductible amounts after making 
                                reasonable collection efforts; or
                                    ``(III) provides for any 
                                permissible waiver as specified in 
                                section 1128B(b)(3) or in regulations 
                                issued by the Secretary;
                    ``(B) differentials in coinsurance and deductible 
                amounts as part of a benefit plan design as long as the 
                differentials have been disclosed in writing to all 
                beneficiaries, third party payers, and providers, to 
                whom claims are presented and as long as the 
                differentials meet the standards as defined in 
                regulations promulgated by the Secretary not later than 
                180 days after the date of the enactment of the Health 
                Coverage Availability and Affordability Act of 1996; or
                    ``(C) incentives given to individuals to promote 
                the delivery of preventive care as determined by the 
                Secretary in regulations so promulgated.''.
    (h) Effective Date.--The amendments made by this section shall take 
effect January 1, 1997.

SEC. 232. CLARIFICATION OF LEVEL OF INTENT REQUIRED FOR IMPOSITION OF 
              SANCTIONS.

    (a) Clarification of Level of Knowledge Required for Imposition of 
Civil Monetary Penalties.--
            (1) In general.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) 
        is amended--
                    (A) in paragraphs (1) and (2), by inserting 
                ``knowingly'' before ``presents'' each place it 
                appears; and
                    (B) in paragraph (3), by striking ``gives'' and 
                inserting ``knowingly gives or causes to be given''.
            (2) Definition of standard.--Section 1128A(i) (42 U.S.C. 
        1320a-7a(i)), as amended by section 231(g)(2), is amended by 
        adding at the end the following new paragraph:
            ``(7) The term `should know' means that a person, with 
        respect to information--
                    ``(A) acts in deliberate ignorance of the truth or 
                falsity of the information; or
                    ``(B) acts in reckless disregard of the truth or 
                falsity of the information,
        and no proof of specific intent to defraud is required.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to acts or omissions occurring on or after January 1, 1997.

SEC. 233. PENALTY FOR FALSE CERTIFICATION FOR HOME HEALTH SERVICES.

    (a) In General.--Section 1128A(b) (42 U.S.C. 1320a-7a(b)) is 
amended by adding at the end the following new paragraph:
    ``(3)(A) Any physician who executes a document described in 
subparagraph (B) with respect to an individual knowing that all of the 
requirements referred to in such subparagraph are not met with respect 
to the individual shall be subject to a civil monetary penalty of not 
more than the greater of--
            ``(i) $5,000, or
            ``(ii) three times the amount of the payments under title 
        XVIII for home health services which are made pursuant to such 
        certification.
    ``(B) A document described in this subparagraph is any document 
that certifies, for purposes of title XVIII, that an individual meets 
the requirements of section 1814(a)(2)(C) or 1835(a)(2)(A) in the case 
of home health services furnished to the individual.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to certifications made on or after the date of the enactment of 
this Act.

                 Subtitle E--Revisions to Criminal Law

SEC. 241. DEFINITIONS RELATING TO FEDERAL HEALTH CARE OFFENSE.

    (a) In General.--Chapter 1 of title 18, United States Code, is 
amended by adding at the end the following:
``Sec. 24. Definitions relating to Federal health care offense
    ``(a) As used in this title, the term `Federal health care offense' 
means a violation of, or a criminal conspiracy to violate--
            ``(1) section 669, 1035, 1347, or 1518 of this title; or
            ``(2) section 287, 371, 664, 666, 1001, 1027, 1341, 1343, 
        or 1954 of this title, if the violation or conspiracy relates 
        to a health care benefit program.
    ``(b) As used in this title, the term `health care benefit program' 
means any public or private plan or contract, affecting commerce, under 
which any medical benefit, item, or service is provided to any 
individual, and includes any individual or entity who is providing a 
medical benefit, item, or service for which payment may be made under 
the plan or contract.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 2 of title 18, United States Code, is amended by inserting 
after the item relating to section 23 the following new item:

``24. Definitions relating to Federal health care offense.''.

SEC. 242. HEALTH CARE FRAUD.

    (a) Offense.--
            (1) In general.--Chapter 63 of title 18, United States 
        Code, is amended by adding at the end the following:
``Sec. 1347. Health care fraud
    ``Whoever knowingly executes, or attempts to execute, a scheme or 
artifice--
            ``(1) to defraud any health care benefit program; or
            ``(2) to obtain, by means of false or fraudulent pretenses, 
        representations, or promises, any of the money or property 
        owned by, or under the custody or control of, any health care 
        benefit program,
in connection with the delivery of or payment for health care benefits, 
items, or services, shall be fined under this title or imprisoned not 
more than 10 years, or both. If the violation results in serious bodily 
injury (as defined in section 1365 of this title), such person shall be 
fined under this title or imprisoned not more than 20 years, or both; 
and if the violation results in death, such person shall be fined under 
this title, or imprisoned for any term of years or for life, or 
both.''.
            (2) Clerical amendment.--The table of sections at the 
        beginning of chapter 63 of title 18, United States Code, is 
        amended by adding at the end the following:

``1347. Health care fraud.''.
    (b) Criminal Fines Deposited in Federal Hospital Insurance Trust 
Fund.--The Secretary of the Treasury shall deposit into the Federal 
Hospital Insurance Trust Fund pursuant to section 1817(k)(2)(C) of the 
Social Security Act (42 U.S.C. 1395i) an amount equal to the criminal 
fines imposed under section 1347 of title 18, United States Code 
(relating to health care fraud).

SEC. 243. THEFT OR EMBEZZLEMENT.

    (a) In General.--Chapter 31 of title 18, United States Code, is 
amended by adding at the end the following:
``Sec. 669. Theft or embezzlement in connection with health care
    ``(a) Whoever embezzles, steals, or otherwise without authority 
knowingly converts to the use of any person other than the rightful 
owner, or intentionally misapplies any of the moneys, funds, 
securities, premiums, credits, property, or other assets of a health 
care benefit program, shall be fined under this title or imprisoned not 
more than 10 years, or both; but if the value of such property does not 
exceed the sum of $100 the defendant shall be fined under this title or 
imprisoned not more than one year, or both.
    ``(b) As used in this section, the term `health care benefit 
program' has the meaning given such term in section 1347(b) of this 
title.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 31 of title 18, United States Code, is amended by adding at the 
end the following:

``669. Theft or embezzlement in connection with health care.''.

SEC. 244. FALSE STATEMENTS.

    (a) In General.--Chapter 47 of title 18, United States Code, is 
amended by adding at the end the following:
``Sec. 1035. False statements relating to health care matters
    ``(a) Whoever, in any matter involving a health care benefit 
program, knowingly--
            ``(1) falsifies, conceals, or covers up by any trick, 
        scheme, or device a material fact; or
            ``(2) makes any false, fictitious, or fraudulent statements 
        or representations, or makes or uses any false writing or 
        document knowing the same to contain any false, fictitious, or 
        fraudulent statement or entry,
in connection with the delivery of or payment for health care benefits, 
items, or services, shall be fined under this title or imprisoned not 
more than 5 years, or both.
    ``(b) As used in this section, the term `health care benefit 
program' has the meaning given such term in section 1347(b) of this 
title.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 47 of title 18, United States Code, is amended by adding at the 
end the following new item:

``1035. False statements relating to health care matters.''.

SEC. 245. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF HEALTH CARE 
              OFFENSES.

    (a) In General.--Chapter 73 of title 18, United States Code, is 
amended by adding at the end the following:
``Sec. 1518. Obstruction of criminal investigations of health care 
              offenses
    ``(a) Whoever willfully prevents, obstructs, misleads, delays or 
attempts to prevent, obstruct, mislead, or delay the communication of 
information or records relating to a violation of a Federal health care 
offense to a criminal investigator shall be fined under this title or 
imprisoned not more than 5 years, or both.
    ``(b) As used in this section the term `criminal investigator' 
means any individual duly authorized by a department, agency, or armed 
force of the United States to conduct or engage in investigations for 
prosecutions for violations of health care offenses.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 73 of title 18, United States Code, is amended by adding at the 
end the following new item:

``1518. Obstruction of criminal investigations of health care 
                            offenses.''.

SEC. 246. LAUNDERING OF MONETARY INSTRUMENTS.

    Section 1956(c)(7) of title 18, United States Code, is amended by 
adding at the end the following:
                    ``(F) Any act or activity constituting an offense 
                involving a Federal health care offense.''.

SEC. 247. INJUNCTIVE RELIEF RELATING TO HEALTH CARE OFFENSES.

    (a) In General.--Section 1345(a)(1) of title 18, United States 
Code, is amended--
            (1) by striking ``or'' at the end of subparagraph (A);
            (2) by inserting ``or'' at the end of subparagraph (B); and
            (3) by adding at the end the following:
            ``(C) committing or about to commit a Federal health care 
        offense.''.
    (b) Freezing of Assets.--Section 1345(a)(2) of title 18, United 
States Code, is amended by inserting ``or a Federal health care 
offense'' after ``title)''.

SEC. 248. AUTHORIZED INVESTIGATIVE DEMAND PROCEDURES.

    (a) In General.--Chapter 223 of title 18, United States Code, is 
amended by adding after section 3485 the following:
``Sec. 3486. Authorized investigative demand procedures
    ``(a) Authorization.--In any investigation relating to any act or 
activity involving a Federal health care offense, the Attorney General 
or the Attorney General's designee may issue in writing and cause to be 
served a subpoena requiring the production of any records (including 
any books, papers, documents, electronic media, or other objects or 
tangible things), which may be relevant to an authorized law 
enforcement inquiry, that a person or legal entity may possess or have 
care, custody, or control. A subpoena shall describe the 
objects required to be produced and prescribe a return date within a 
reasonable period of time within which the objects can be assembled and 
made available.
    ``(b) Service.--A subpoena issued under this section may be served 
by any person designated in the subpoena to serve it. Service upon a 
natural person may be made by personal delivery of the subpoena to him. 
Service may be made upon a domestic or foreign corporation or upon a 
partnership or other unincorporated association which is subject to 
suit under a common name, by delivering the subpoena to an officer, to 
a managing or general agent, or to any other agent authorized by 
appointment or by law to receive service of process. The affidavit of 
the person serving the subpoena entered on a true copy thereof by the 
person serving it shall be proof of service.
    ``(c) Enforcement.--In the case of contumacy by or refusal to obey 
a subpoena issued to any person, the Attorney General may invoke the 
aid of any court of the United States within the jurisdiction of which 
the investigation is carried on or of which the subpoenaed person is an 
inhabitant, or in which he carries on business or may be found, to 
compel compliance with the subpoena. The court may issue an order 
requiring the subpoenaed person to appear before the Attorney General 
to produce records, if so ordered, or to give testimony touching the 
matter under investigation. Any failure to obey the order of the court 
may be punished by the court as a contempt thereof. All process in any 
such case may be served in any judicial district in which such person 
may be found.
    ``(d) Immunity From Civil Liability.--Notwithstanding any Federal, 
State, or local law, any person, including officers, agents, and 
employees, receiving a summons under this section, who complies in good 
faith with the summons and thus produces the materials sought, shall 
not be liable in any court of any State or the United States to any 
customer or other person for such production or for nondisclosure of 
that production to the customer.
    ``(e) Limitation on Use.--(1) Health information about an 
individual that is disclosed under this section may not be used in, or 
disclosed to any person for use in, any administrative, civil, or 
criminal action or investigation directed against the individual who is 
the subject of the information unless the action or investigation 
arises out of and is directly related to receipt of health care or 
payment for health care or action involving a fraudulent claim related 
to health; or if authorized by an appropriate order of a court of 
competent jurisdiction, granted after application showing good cause 
therefor.
    ``(2) In assessing good cause, the court shall weigh the public 
interest and the need for disclosure against the injury to the patient, 
to the physician-patient relationship, and to the treatment services.
    ``(3) Upon the granting of such order, the court, in determining 
the extent to which any disclosure of all or any part of any record is 
necessary, shall impose appropriate safeguards against unauthorized 
disclosure.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 223 of title 18, United States Code, is amended by inserting 
after the item relating to section 3485 the following new item:

``3486. Authorized investigative demand procedures.''.
    (c) Conforming Amendment.--Section 1510(b)(3)(B) of title 18, 
United States Code, is amended by inserting ``or a Department of 
Justice subpoena (issued under section 3486 of title 18),'' after 
``subpoena''.

SEC. 249. FORFEITURES FOR FEDERAL HEALTH CARE OFFENSES.

    (a) In General.--Section 982(a) of title 18, United States Code, is 
amended by adding after paragraph (5) the following new paragraph:
    ``(6) The court, in imposing sentence on a person convicted of a 
Federal health care offense, shall order the person to forfeit 
property, real or personal, that constitutes or is derived, directly or 
indirectly, from gross proceeds traceable to the commission of the 
offense.''.
    (b) Conforming Amendment.--Section 982(b)(1)(A) of title 18, United 
States Code, is amended by inserting ``or (a)(6)'' after ``(a)(1)''.
    (c) Property Forfeited Deposited in Federal Hospital Insurance 
Trust Fund.--
            (1) In general.--After the payment of the costs of asset 
        forfeiture has been made, and notwithstanding any other 
        provision of law, the Secretary of the Treasury shall deposit 
        into the Federal Hospital Insurance Trust Fund pursuant to 
        section 1817(k)(2)(C) of the Social Security Act, as added by 
        section 301(b), an amount equal to the net amount realized from 
        the forfeiture of property by reason of a Federal health care 
        offense pursuant to section 982(a)(6) of title 18, United 
        States Code.
            (2) Costs of asset forfeiture.--For purposes of paragraph 
        (1), the term ``payment of the costs of asset forfeiture'' 
        means--
                    (A) the payment, at the discretion of the Attorney 
                General, of any expenses necessary to seize, detain, 
                inventory, safeguard, maintain, advertise, sell, or 
                dispose of property under seizure, detention, or 
                forfeited, or of any other necessary expenses incident 
                to the seizure, detention, forfeiture, or disposal of 
                such property, including payment for--
                            (i) contract services;
                            (ii) the employment of outside contractors 
                        to operate and manage properties or provide 
                        other specialized services necessary to dispose 
                        of such properties in an effort to maximize the 
                        return from such properties; and
                            (iii) reimbursement of any Federal, State, 
                        or local agency for any expenditures made to 
                        perform the functions described in this 
                        subparagraph;
                    (B) at the discretion of the Attorney General, the 
                payment of awards for information or assistance leading 
                to a civil or criminal forfeiture involving any Federal 
                agency participating in the Health Care Fraud and Abuse 
                Control Account;
                    (C) the compromise and payment of valid liens and 
                mortgages against property that has been forfeited, 
                subject to the discretion of the Attorney General to 
                determine the validity of any such lien or mortgage and 
                the amount of payment to be made, and the employment of 
                attorneys and other personnel skilled in State real 
                estate law as necessary;
                    (D) payment authorized in connection with remission 
                or mitigation procedures relating to property 
                forfeited; and
                    (E) the payment of State and local property taxes 
                on forfeited real property that accrued between the 
                date of the violation giving rise to the forfeiture and 
                the date of the forfeiture order.

SEC. 250. RELATION TO ERISA AUTHORITY.

    Nothing in this subtitle shall be construed as affecting the 
authority of the Secretary of Labor under section 506(b) of the 
Employee Retirement Income Security Act of 1974, including the 
Secretary's authority with respect to violations of title 18, United 
States Code (as amended by this subtitle).

               Subtitle F--Administrative Simplification

SEC. 251. PURPOSE.

    It is the purpose of this subtitle to improve the medicare program 
under title XVIII of the Social Security Act, the medicaid program 
under title XIX of such Act, and the efficiency and effectiveness of 
the health care system, by encouraging the development of a health 
information system through the establishment of standards and 
requirements for the electronic transmission of certain health 
information.

SEC. 252. ADMINISTRATIVE SIMPLIFICATION.

    (a) In General.--Title XI (42 U.S.C. 1301 et seq.) is amended by 
adding at the end the following:

                ``Part C--Administrative Simplification

                             ``definitions

    ``Sec. 1171. For purposes of this part:
            ``(1) Clearinghouse.--The term `clearinghouse' means a 
        public or private entity that processes or facilitates the 
        processing of nonstandard data elements of health information 
        into standard data elements.
            ``(2) Code set.--The term `code set' means any set of codes 
        used for encoding data elements, such as tables of terms, 
        medical concepts, medical diagnostic codes, or medical 
        procedure codes.
            ``(3) Health care provider.--The term `health care 
        provider' includes a provider of services (as defined in 
        section 1861(u)), a provider of medical or other health 
        services (as defined in section 1861(s)), and any other person 
        furnishing health care services or supplies.
            ``(4) Health information.--The term `health information' 
        means any information, whether oral or recorded in any form or 
        medium that--
                    ``(A) is created or received by a health care 
                provider, health plan, public health authority, 
                employer, life insurer, school or university, or 
                clearinghouse; and
                    ``(B) relates to the past, present, or future 
                physical or mental health or condition of an 
                individual, the provision of health care to an 
                individual, or the past, present, or future payment for 
                the provision of health care to an individual.
            ``(5) Health plan.--The term `health plan' means a plan 
        which provides, or pays the cost of, health benefits. Such term 
        includes the following, and any combination thereof:
                    ``(A) Part A or part B of the medicare program 
                under title XVIII.
                    ``(B) The medicaid program under title XIX.
                    ``(C) A medicare supplemental policy (as defined in 
                section 1882(g)(1)).
                    ``(D) A long-term care policy, including a nursing 
                home fixed indemnity policy (unless the Secretary 
                determines that such a policy does not provide 
                sufficiently comprehensive coverage of a benefit so 
                that the policy should be treated as a health plan).
                    ``(E) Health benefits of an employee welfare 
                benefit plan, as defined in section 3(1) of the 
                Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1002(1)), but only to the extent the plan is 
                established or maintained for the purpose of providing 
                health benefits and has 50 or more participants (as 
                defined in section 3(7) of such Act).
                    ``(F) An employee welfare benefit plan or any other 
                arrangement which is established or maintained for the 
                purpose of offering or providing health benefits to the 
                employees of 2 or more employers.
                    ``(G) The health care program for active military 
                personnel under title 10, United States Code.
                    ``(H) The veterans health care program under 
                chapter 17 of title 38, United States Code.
                    ``(I) The Civilian Health and Medical Program of 
                the Uniformed Services (CHAMPUS), as defined in section 
                1073(4) of title 10, United States Code.
                    ``(J) The Indian health service program under the 
                Indian Health Care Improvement Act (25 U.S.C. 1601 et 
                seq.).
                    ``(K) The Federal Employees Health Benefit Plan 
                under chapter 89 of title 5, United States Code.
            ``(6) Individually identifiable health information.--The 
        term `individually identifiable health information' means any 
        information, including demographic information collected from 
        an individual, that--
                    ``(A) is created or received by a health care 
                provider, health plan, employer, or clearinghouse; and
                    ``(B) relates to the past, present, or future 
                physical or mental health or condition of an 
                individual, the provision of health care to an 
                individual, or the past, present, or future payment for 
                the provision of health care to an individual, and--
                            ``(i) identifies the individual; or
                            ``(ii) with respect to which there is a 
                        reasonable basis to believe that the 
                        information can be used to identify the 
                        individual.
            ``(7) Standard.--The term `standard', when used with 
        reference to a data element of health information or a 
        transaction referred to in section 1173(a)(1), means any such 
        data element or transaction that meets each of the standards 
        and implementation specifications adopted or established by the 
        Secretary with respect to the data element or transaction under 
        sections 1172 through 1174.
            ``(8) Standard setting organization.--The term `standard 
        setting organization' means a standard setting organization 
        accredited by the American National Standards Institute, 
        including the National Council for Prescription Drug Programs, 
        that develops standards for information transactions, data 
        elements, or any other standard that is necessary to, or will 
        facilitate, the implementation of this part.

            ``general requirements for adoption of standards

    ``Sec. 1172. (a) Applicability.--Any standard adopted under this 
part shall apply, in whole or in part, to the following persons:
            ``(1) A health plan.
            ``(2) A clearinghouse.
            ``(3) A health care provider who transmits any health 
        information in electronic form in connection with a transaction 
        referred to in section 1173(a)(1).
    ``(b) Reduction of Costs.--Any standard adopted under this part 
shall be consistent with the objective of reducing the administrative 
costs of providing and paying for health care.
    ``(c) Role of Standard Setting Organizations.--
            ``(1) In general.--Except as provided in paragraph (2), any 
        standard adopted under this part shall be a standard that has 
        been developed, adopted, or modified by a standard setting 
        organization.
            ``(2) Special rules.--
                    ``(A) Different standards.--The Secretary may adopt 
                a standard that is different from any standard 
                developed, adopted, or modified by a standard setting 
                organization, if--
                            ``(i) the different standard will 
                        substantially reduce administrative costs to 
                        health care providers and health plans compared 
                        to the alternatives; and
                            ``(ii) the standard is promulgated in 
                        accordance with the rulemaking procedures of 
                        subchapter III of chapter 5 of title 5, United 
                        States Code.
                    ``(B) No standard by standard setting 
                organization.--If no standard setting organization has 
                developed, adopted, or modified any standard relating 
                to a standard that the Secretary is authorized or 
                required to adopt under this part--
                            ``(i) paragraph (1) shall not apply; and
                            ``(ii) subsection (f) shall apply.
    ``(d) Implementation Specifications.--The Secretary shall establish 
specifications for implementing each of the standards adopted under 
this part.
    ``(e) Protection of Trade Secrets.--Except as otherwise required by 
law, a standard adopted under this part shall not require disclosure of 
trade secrets or confidential commercial information by a person 
required to comply with this part.
    ``(f) Assistance to the Secretary.--In complying with the 
requirements of this part, the Secretary shall rely on the 
recommendations of the National Committee on Vital and Health 
Statistics established under section 306(k) of the Public Health 
Service Act (42 U.S.C. 242k(k)) and shall consult with appropriate 
Federal and State agencies and private organizations. The Secretary 
shall publish in the Federal Register any recommendation of the 
National Committee on Vital and Health Statistics regarding the 
adoption of a standard under this part.
    ``(g) Application to Modifications of Standards.--This section 
shall apply to a modification to a standard (including an addition to a 
standard) adopted under section 1174(b) in the same manner as it 
applies to an initial standard adopted under section 1174(a).

       ``standards for information transactions and data elements

    ``Sec. 1173. (a) Standards to Enable Electronic Exchange.--
            ``(1) In general.--The Secretary shall adopt standards for 
        transactions, and data elements for such transactions, to 
        enable health information to be exchanged electronically, that 
        are appropriate for--
                    ``(A) the financial and administrative transactions 
                described in paragraph (2); and
                    ``(B) other financial and administrative 
                transactions determined appropriate by the Secretary 
                consistent with the goals of improving the operation of 
                the health care system and reducing administrative 
                costs.
            ``(2) Transactions.--The transactions referred to in 
        paragraph (1)(A) are the following:
                    ``(A) Claims (including coordination of benefits) 
                or equivalent encounter information.
                    ``(B) Claims attachments.
                    ``(C) Enrollment and disenrollment.
                    ``(D) Eligibility.
                    ``(E) Health care payment and remittance advice.
                    ``(F) Premium payments.
                    ``(G) First report of injury.
                    ``(H) Claims status.
                    ``(I) Referral certification and authorization.
            ``(3) Accommodation of specific providers.--The standards 
        adopted by the Secretary under paragraph (1) shall accommodate 
        the needs of different types of health care providers.
    ``(b) Unique Health Identifiers.--
            ``(1) In general.--The Secretary shall adopt standards 
        providing for a standard unique health identifier for each 
        individual, employer, health plan, and health care provider for 
        use in the health care system. In carrying out the preceding 
        sentence for each health plan and health care provider, the 
        Secretary shall take into account multiple uses for identifiers 
        and multiple locations and specialty classifications for health 
        care providers.
            ``(2) Use of identifiers.--The standards adopted under 
        paragraphs (1) shall specify the purposes for which a unique 
        health identifier may be used.
    ``(c) Code Sets.--
            ``(1) In general.--The Secretary shall adopt standards 
        that--
                    ``(A) select code sets for appropriate data 
                elements for the transactions referred to in subsection 
                (a)(1) from among the code sets that have been 
                developed by private and public entities; or
                    ``(B) establish code sets for such data elements if 
                no code sets for the data elements have been developed.
            ``(2) Distribution.--The Secretary shall establish 
        efficient and low-cost procedures for distribution (including 
        electronic distribution) of code sets and modifications made to 
        such code sets under section 1174(b).
    ``(d) Security Standards for Health Information.--
            ``(1) Security standards.--The Secretary shall adopt 
        security standards that--
                    ``(A) take into account--
                            ``(i) the technical capabilities of record 
                        systems used to maintain health information;
                            ``(ii) the costs of security measures;
                            ``(iii) the need for training persons who 
                        have access to health information;
                            ``(iv) the value of audit trails in 
                        computerized record systems; and
                            ``(v) the needs and capabilities of small 
                        health care providers and rural health care 
                        providers (as such providers are defined by the 
                        Secretary); and
                    ``(B) ensure that a clearinghouse, if it is part of 
                a larger organization, has policies and security 
                procedures which isolate the activities of the 
                clearinghouse with respect to processing information in 
                a manner that prevents unauthorized access to such 
                information by such larger organization.
            ``(2) Safeguards.--Each person described in section 1172(a) 
        who maintains or transmits health information shall maintain 
        reasonable and appropriate administrative, technical, and 
        physical safeguards--
                    ``(A) to ensure the integrity and confidentiality 
                of the information;
                    ``(B) to protect against any reasonably 
                anticipated--
                            ``(i) threats or hazards to the security or 
                        integrity of the information; and
                            ``(ii) unauthorized uses or disclosures of 
                        the information; and
                    ``(C) otherwise to ensure compliance with this part 
                by the officers and employees of such person.
    ``(e) Privacy Standards for Health Information.--The Secretary 
shall adopt standards with respect to the privacy of individually 
identifiable health information transmitted in connection with the 
transactions referred to in subsection (a)(1). Such standards shall 
include standards concerning at least the following:
            ``(1) The rights of an individual who is a subject of such 
        information.
            ``(2) The procedures to be established for the exercise of 
        such rights.
            ``(3) The uses and disclosures of such information that are 
        authorized or required.
    ``(f) Electronic Signature.--
            ``(1) In general.--
                    ``(A) Standards.--The Secretary, in coordination 
                with the Secretary of Commerce, shall adopt standards 
                specifying procedures for the electronic transmission 
                and authentication of signatures with respect to the 
                transactions referred to in subsection (a)(1).
                    ``(B) Effect of compliance.--Compliance with the 
                standards adopted under subparagraph (A) shall be 
                deemed to satisfy Federal and State statutory 
                requirements for written signatures with respect to the 
                transactions referred to in subsection (a)(1).
            ``(2) Payments for services and premiums.--Nothing in this 
        part shall be construed to prohibit payment for health care 
        services or insurance plan premiums by debit, credit, payment 
        card or numbers, or other electronic means.
    ``(g) Transfer of Information Among Health Plans.--The Secretary 
shall adopt standards for transferring among health plans appropriate 
standard data elements needed for the coordination of benefits, the 
sequential processing of claims, and other data elements for 
individuals who have more than one health plan.

                 ``timetables for adoption of standards

    ``Sec. 1174. (a) Initial Standards.--The Secretary shall carry out 
section 1173 not later than 18 months after the date of the enactment 
of the Health Coverage Availability and Affordability Act of 1996, 
except that standards relating to claims attachments shall be adopted 
not later than 30 months after such date.
    ``(b) Additions and Modifications to Standards.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        Secretary shall review the standards adopted under section 
        1173, and shall adopt modifications to the standards (including 
        additions to the standards), as determined appropriate, but not 
        more frequently than once every 6 months. Any addition or 
        modification to a standard shall be completed in a manner which 
        minimizes the disruption and cost of compliance.
            ``(2) Special rules.--
                    ``(A) First 12-month period.--Except with respect 
                to additions and modifications to code sets under 
                subparagraph (B), the Secretary may not adopt any 
                modification to a standard adopted under this part 
                during the 12-month period beginning on the date the 
                standard is initially adopted, unless the Secretary 
                determines that the modification is necessary in order 
                to permit compliance with the standard.
                    ``(B) Additions and modifications to code sets.--
                            ``(i) In general.--The Secretary shall 
                        ensure that procedures exist for the routine 
                        maintenance, testing, enhancement, and 
                        expansion of code sets.
                            ``(ii) Additional rules.--If a code set is 
                        modified under this subsection, the modified 
                        code set shall include instructions on how data 
                        elements of health information that were 
                        encoded prior to the modification may be 
                        converted or translated so as to preserve the 
                        informational value of the data elements that 
                        existed before the modification. Any 
                        modification to a code set under this 
                        subsection shall be implemented in a manner 
                        that minimizes the disruption and cost of 
                        complying with such modification.

                             ``requirements

    ``Sec. 1175. (a) Conduct of Transactions by Plans.--
            ``(1) In general.--If a person desires to conduct a 
        transaction referred to in section 1173(a)(1) with a health 
        plan as a standard transaction--
                    ``(A) the health plan may not refuse to conduct 
                such transaction as a standard transaction;
                    ``(B) the insurance plan may not delay such 
                transaction, or otherwise adversely affect, or attempt 
                to adversely affect, the person or the transaction on 
                the ground that the transaction is a standard 
                transaction; and
                    ``(C) the information transmitted and received in 
                connection with the transaction shall be in the form of 
                standard data elements of health information.
            ``(2) Satisfaction of requirements.--A health plan may 
        satisfy the requirements under paragraph (1) by--
                    ``(A) directly transmitting and receiving standard 
                data elements of health information; or
                    ``(B) submitting nonstandard data elements to a 
                clearinghouse for processing into standard data 
                elements and transmission by the clearinghouse, and 
                receiving standard data elements through the 
                clearinghouse.
            ``(3) Timetable for compliance.--Paragraph (1) shall not be 
        construed to require a health plan to comply with any standard, 
        implementation specification, or modification to a standard or 
        specification adopted or established by the Secretary under 
        sections 1172 through 1174 at any time prior to the date on 
        which the plan is required to comply with the standard or 
specification under subsection (b).
    ``(b) Compliance With Standards.--
            ``(1) Initial compliance.--
                    ``(A) In general.--Not later than 24 months after 
                the date on which an initial standard or implementation 
                specification is adopted or established under sections 
                1172 and 1173, each person to whom the standard or 
                implementation specification applies shall comply with 
                the standard or specification.
                    ``(B) Special rule for small health plans.--In the 
                case of a small health plan, paragraph (1) shall be 
                applied by substituting `36 months' for `24 months'. 
                For purposes of this subsection, the Secretary shall 
                determine the plans that qualify as small health plans.
            ``(2) Compliance With modified standards.--If the Secretary 
        adopts a modification to a standard or implementation 
        specification under this part, each person to whom the standard 
        or implementation specification applies shall comply with the 
        modified standard or implementation specification at such time 
        as the Secretary determines appropriate, taking into account 
        the time needed to comply due to the nature and extent of the 
        modification. The time determined appropriate under the 
        preceding sentence may not be earlier than the last day of the 
        180-day period beginning on the date such modification is 
        adopted. The Secretary may extend the time for compliance for 
        small health plans, if the Secretary determines that such 
        extension is appropriate.

``general penalty for failure to comply with requirements and standards

    ``Sec. 1176. (a) General Penalty.--
            ``(1) In general.--Except as provided in subsection (b), 
        the Secretary shall impose on any person who violates a 
        provision of this part a penalty of not more than $100 for each 
        such violation, except that the total amount imposed on the 
        person for all violations of an identical requirement or 
        prohibition during a calendar year may not exceed $25,000.
            ``(2) Procedures.--The provisions of section 1128A (other 
        than subsections (a) and (b) and the second sentence of 
        subsection (f)) shall apply to the imposition of a civil money 
        penalty under this subsection in the same manner as such 
        provisions apply to the imposition of a penalty under such 
        section 1128A.
    ``(b) Limitations.--
            ``(1) Offenses otherwise punishable.--A penalty may not be 
        imposed under subsection (a) with respect to an act if the act 
        constitutes an offense punishable under section 1177.
            ``(2) Noncompliance not discovered.--A penalty may not be 
        imposed under subsection (a) with respect to a provision of 
        this part if it is established to the satisfaction of the 
        Secretary that the person liable for the penalty did not know, 
        and by exercising reasonable diligence would not have known, 
        that such person violated the provision.
            ``(3) Failures due to reasonable cause.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), a penalty may not be imposed under 
                subsection (a) if--
                            ``(i) the failure to comply was due to 
                        reasonable cause and not to willful neglect; 
                        and
                            ``(ii) the failure to comply is corrected 
                        during the 30-day period beginning on the first 
                        date the person liable for the penalty knew, or 
                        by exercising reasonable diligence would have 
                        known, that the failure to comply occurred.
                    ``(B) Extension of period.--
                            ``(i) No penalty.--The period referred to 
                        in subparagraph (A)(ii) may be extended as 
                        determined appropriate by the Secretary based 
                        on the nature and extent of the failure to 
                        comply.
                            ``(ii) Assistance.--If the Secretary 
                        determines that a person failed to comply 
                        because the person was unable to comply, the 
                        Secretary may provide technical assistance to 
                        the person during the period described in 
                        subparagraph (A)(ii). Such assistance shall be 
                        provided in any manner determined appropriate 
                        by the Secretary.
            ``(4) Reduction.--In the case of a failure to comply which 
        is due to reasonable cause and not to willful neglect, any 
        penalty under subsection (a) that is not entirely waived under 
        paragraph (3) may be waived to the extent that the payment of 
        such penalty would be excessive relative to the compliance 
        failure involved.

 ``wrongful disclosure of individually identifiable health information

    ``Sec. 1177. (a) Offense.--A person who knowingly and in violation 
of this part--
            ``(1) uses or causes to be used a unique health identifier;
            ``(2) obtains individually identifiable health information 
        relating to an individual; or
            ``(3) discloses individually identifiable health 
        information to another person,
shall be punished as provided in subsection (b).
    ``(b) Penalties.--A person described in subsection (a) shall--
            ``(1) be fined not more than $50,000, imprisoned not more 
        than 1 year, or both;
            ``(2) if the offense is committed under false pretenses, be 
        fined not more than $100,000, imprisoned not more than 5 years, 
        or both; and
            ``(3) if the offense is committed with intent to sell, 
        transfer, or use individually identifiable health information 
        for commercial advantage, personal gain, or malicious harm, 
        fined not more than $250,000, imprisoned not more than 10 
        years, or both.

                         ``effect on state law

    ``Sec. 1178. (a) General Effect.--
            ``(1) General rule.--Except as provided in paragraph (2), a 
        provision or requirement under this part, or a standard or 
        implementation specification adopted or established under 
        sections 1172 through 1174, shall supersede any contrary 
        provision of State law, including a provision of State law that 
        requires medical or health plan records (including billing 
        information) to be maintained or transmitted in written rather 
        than electronic form.
            ``(2) Exceptions.--A provision or requirement under this 
        part, or a standard or implementation specification adopted or 
        established under sections 1172 through 1174, shall not 
        supersede a contrary provision of State law, if the provision 
        of State law--
                    ``(A) imposes requirements, standards, or 
                implementation specifications that are more stringent 
                than the requirements, standards, or implementation 
                specifications under this part with respect to the 
                privacy of individually identifiable health 
                information; or
                    ``(B) is a provision the Secretary determines--
                            ``(i) is necessary to prevent fraud and 
                        abuse, or for other purposes; or
                            ``(ii) addresses controlled substances.
    ``(b) Public Health Reporting.--Nothing in this part shall be 
construed to invalidate or limit the authority, power, or procedures 
established under any law providing for the reporting of disease or 
injury, child abuse, birth, or death, public health surveillance, or 
public health investigation or intervention.''.
    (b) Conforming Amendments.--
            (1) Requirement for medicare providers.--Section 1866(a)(1) 
        (42 U.S.C. 1395cc(a)(1)) is amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (P);
                    (B) by striking the period at the end of 
                subparagraph (Q) and inserting ``; and''; and
                    (C) by inserting immediately after subparagraph (Q) 
                the following new subparagraph:
            ``(R) to contract only with a clearinghouse (as defined in 
        section 1171) that meets each standard and implementation 
        specification adopted or established under part C of title XI 
        on or after the date on which the clearinghouse is required to 
        comply with the standard or specification.''.
            (2) Title heading.--Title XI (42 U.S.C. 1301 et seq.) is 
        amended by striking the title heading and inserting the 
        following:

    ``TITLE XI--GENERAL PROVISIONS, PEER REVIEW, AND ADMINISTRATIVE 
                           SIMPLIFICATION''.

SEC. 253. CHANGES IN MEMBERSHIP AND DUTIES OF NATIONAL COMMITTEE ON 
              VITAL AND HEALTH STATISTICS.

    Section 306(k) of the Public Health Service Act (42 U.S.C. 242k(k)) 
is amended--
            (1) in paragraph (1), by striking ``16'' and inserting 
        ``18'';
            (2) by amending paragraph (2) to read as follows:
    ``(2) The members of the Committee shall be appointed from among 
persons who have distinguished themselves in the fields of health 
statistics, electronic interchange of health care information, privacy 
and security of electronic information, population-based public health, 
purchasing or financing health care services, integrated computerized 
health information systems, health services research, consumer 
interests in health information, health data standards, epidemiology, 
and the provision of health services. Members of the Committee shall be 
appointed for terms of 4 years.'';
            (3) by redesignating paragraphs (3) through (5) as 
        paragraphs (4) through (6), respectively, and inserting after 
        paragraph (2) the following:
    ``(3) Of the members of the Committee--
            ``(A) 1 shall be appointed, not later than 60 days after 
        the date of the enactment of the Health Coverage Availability 
        and Affordability Act of 1996, by the Speaker of the House of 
        Representatives after consultation with the minority leader of 
        the House of Representatives;
            ``(B) 1 shall be appointed, not later than 60 days after 
        the date of the enactment of the Health Coverage Availability 
        and Affordability Act of 1996, by the President pro tempore of 
        the Senate after consultation with the minority leader of the 
        Senate; and
            ``(C) 16 shall be appointed by the Secretary.'';
            (4) by amending paragraph (5) (as so redesignated) to read 
        as follows:
    ``(5) The Committee--
            ``(A) shall assist and advise the Secretary--
                    ``(i) to delineate statistical problems bearing on 
                health and health services which are of national or 
                international interest;
                    ``(ii) to stimulate studies of such problems by 
                other organizations and agencies whenever possible or 
                to make investigations of such problems through 
                subcommittees;
                    ``(iii) to determine, approve, and revise the 
                terms, definitions, classifications, and guidelines for 
                assessing health status and health services, their 
                distribution and costs, for use (I) within the 
                Department of Health and Human Services, (II) by all 
                programs administered or funded by the Secretary, 
                including the Federal-State-local cooperative health 
                statistics system referred to in subsection (e), and 
                (III) to the extent possible as determined by the head 
                of the agency involved, by the Department of Veterans 
                Affairs, the Department of Defense, and other Federal 
                agencies concerned with health and health services;
                    ``(iv) with respect to the design of and approval 
                of health statistical and health information systems 
                concerned with the collection, processing, and 
                tabulation of health statistics within the Department 
                of Health and Human Services, with respect to the 
                Cooperative Health Statistics System established under 
                subsection (e), and with respect to the standardized 
                means for the collection of health information and 
statistics to be established by the Secretary under subsection (j)(1);
                    ``(v) to review and comment on findings and 
                proposals developed by other organizations and agencies 
                and to make recommendations for their adoption or 
                implementation by local, State, national, or 
                international agencies;
                    ``(vi) to cooperate with national committees of 
                other countries and with the World Health Organization 
                and other national agencies in the studies of problems 
                of mutual interest;
                    ``(vii) to issue an annual report on the state of 
                the Nation's health, its health services, their costs 
                and distributions, and to make proposals for 
                improvement of the Nation's health statistics and 
                health information systems; and
                    ``(viii) in complying with the requirements imposed 
                on the Secretary under part C of title XI of the Social 
                Security Act;
            ``(B) shall study the issues related to the adoption of 
        uniform data standards for patient medical record information 
        and the electronic exchange of such information;
            ``(C) shall report to the Secretary not later than 4 years 
        after the date of the enactment of the Health Coverage 
        Availability and Affordability Act of 1996 recommendations and 
        legislative proposals for such standards and electronic 
        exchange; and
            ``(D) shall be responsible generally for advising the 
        Secretary and the Congress on the status of the implementation 
        of part C of title XI of the Social Security Act.''; and
            (5) by adding at the end the following:
    ``(7) Not later than 1 year after the date of the enactment of the 
Health Coverage Availability and Affordability Act of 1996, and 
annually thereafter, the Committee shall submit to the Congress, and 
make public, a report regarding--
            ``(A) the extent to which persons required to comply with 
        part C of title XI of the Social Security Act are cooperating 
        in implementing the standards adopted under such part;
            ``(B) the extent to which such entities are meeting the 
        privacy and security standards adopted under such part and the 
        types of penalties assessed for noncompliance with such 
        standards;
            ``(C) whether the Federal and State Governments are 
        receiving information of sufficient quality to meet their 
        responsibilities under such part;
            ``(D) any problems that exist with respect to 
        implementation of such part; and
            ``(E) the extent to which timetables under such part are 
        being met.''.

   Subtitle G--Duplication and Coordination of Medicare-Related Plans

SEC. 261. DUPLICATION AND COORDINATION OF MEDICARE-RELATED PLANS.

    (a) Treatment of Certain Health Insurance Policies as 
Nonduplicative.--Effective as if included in the enactment of section 
4354 of the Omnibus Budget Reconciliation Act of 1990, section 
1882(d)(3)(A) (42 U.S.C. 1395ss(d)(3)(A)) is amended--
            (1) in clause (iii), by striking ``clause (i)'' and 
        inserting ``clause (i)(II)''; and
            (2) by adding at the end the following:
    ``(iv) For purposes of this subparagraph, a health insurance policy 
providing for benefits which are payable to or on behalf of an 
individual without regard to other health benefit coverage of such 
individual is not considered to `duplicate' any health benefits under 
this title, under title XIX, or under a health insurance policy, and 
subclauses (I) and (III) of clause (i) does not apply to such a policy.
    ``(v)(I) For purposes of this subparagraph, a health insurance 
policy (or a rider to an insurance contract which is not a health 
insurance policy), providing benefits for long-term care, nursing home 
care, home health care, or community-based care and that coordinates 
against or excludes items and services available or paid for under this 
title and (for policies sold or issued on or after 90 days after the 
date of enactment of this clause) that discloses such coordination or 
exclusion in the policy's outline of coverage, is not considered to 
`duplicate' health benefits under this title.
    ``(II) For purposes of this subparagraph, a health insurance policy 
(which may be a contract with a health maintenance organization) that 
is a replacement product for another health insurance policy that is 
being terminated by the issuer, that is being provided to an individual 
entitled to benefits under part A on the basis of section 226(b), and 
that coordinates against or excludes items and services available or 
paid for under this title is not considered to `duplicate' health 
benefits under this title.
    ``(III) For purposes of this clause, the terms `coordinates' and 
`coordination' mean, with respect to a policy in relation to health 
benefits under this title, that the policy under its terms is secondary 
to, or excludes from payment, items and services to the extent 
available or paid for under this title.
    ``(vi) Notwithstanding any other provision of law, no criminal or 
civil penalty may be imposed at any time under this subparagraph and no 
legal action may be brought or continued at any time in any Federal or 
State court if the penalty or action is based on an act or omission 
that occurred after November 5, 1991, and before the date of the 
enactment of this clause, and relates to the sale, issuance, or renewal 
of any health insurance policy or rider during such period, if such 
policy or rider meets the nonduplication requirements of clause (iv) or 
(v).
    ``(vii) A State may not impose, in the case of the sale, issuance, 
or renewal of a health insurance policy (other than a medicare 
supplemental policy) or rider to an insurance contract which is not a 
health insurance policy, that meets the nonduplication requirements of 
this section pursuant to clause (iv) or (v) to an individual entitled 
to benefits under part A or enrolled under part B, any requirement 
relating to any duplication (or nonduplication) of health benefits 
under such policy or rider with health benefits to which the individual 
is otherwise entitled to under this title.''.
    (b) Conforming Amendments.--Section 1882(d)(3) (42 U.S.C. 
1395ss(d)(3)) is amended--
            (1) in subparagraph (C)--
                    (A) by striking ``with respect to (i)'' and 
                inserting ``with respect to'', and
                    (B) by striking ``, (ii) the sale'' and all that 
                follows up to the period at the end; and
            (2) by striking subparagraph (D).

                  Subtitle H--Medical Liability Reform

                       PART 1--GENERAL PROVISIONS

SEC. 271. FEDERAL REFORM OF HEALTH CARE LIABILITY ACTIONS.

    (a) Applicability.--This subtitle shall apply with respect to any 
health care liability action brought in any State or Federal court, 
except that this subtitle shall not apply to--
            (1) an action for damages arising from a vaccine-related 
        injury or death to the extent that title XXI of the Public 
        Health Service Act applies to the action, or
            (2) an action under the Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1001 et seq.).
    (b) Preemption.--This subtitle shall preempt any State law to the 
extent such law is inconsistent with the limitations contained in this 
subtitle. This subtitle shall not preempt any State law that provides 
for defenses or places limitations on a person's liability in addition 
to those contained in this subtitle or otherwise imposes greater 
restrictions than those provided in this subtitle.
    (c) Effect on Sovereign Immunity and Choice of Law or Venue.--
Nothing in subsection (b) shall be construed to--
            (1) waive or affect any defense of sovereign immunity 
        asserted by any State under any provision of law;
            (2) waive or affect any defense of sovereign immunity 
        asserted by the United States;
            (3) affect the applicability of any provision of the 
        Foreign Sovereign Immunities Act of 1976;
            (4) preempt State choice-of-law rules with respect to 
        claims brought by a foreign nation or a citizen of a foreign 
        nation; or
            (5) affect the right of any court to transfer venue or to 
        apply the law of a foreign nation or to dismiss a claim of a 
        foreign nation or of a citizen of a foreign nation on the 
        ground of inconvenient forum.
    (d) Amount in Controversy.--In an action to which this subtitle 
applies and which is brought under section 1332 of title 28, United 
States Code, the amount of noneconomic damages or punitive damages, and 
attorneys' fees or costs, shall not be included in determining whether 
the matter in controversy exceeds the sum or value of $50,000.
    (e) Federal Court Jurisdiction Not Established on Federal Question 
Grounds.--Nothing in this subtitle shall be construed to establish any 
jurisdiction in the district courts of the United States over health 
care liability actions on the basis of section 1331 or 1337 of title 
28, United States Code.

SEC. 272. DEFINITIONS.

    As used in this subtitle:
            (1) Actual damages.--The term ``actual damages'' means 
        damages awarded to pay for economic loss.
            (2) Alternative dispute resolution system; adr.--The term 
        ``alternative dispute resolution system'' or ``ADR'' means a 
        system established under Federal or State law that provides for 
        the resolution of health care liability claims in a manner 
        other than through health care liability actions.
            (3) Claimant.--The term ``claimant'' means any person who 
        brings a health care liability action and any person on whose 
        behalf such an action is brought. If such action is brought 
        through or on behalf of an estate, the term includes the 
        claimant's decedent. If such action is brought through or on 
        behalf of a minor or incompetent, the term includes the 
        claimant's legal guardian.
            (4) Clear and convincing evidence.--The term ``clear and 
        convincing evidence'' is that measure or degree of proof that 
        will produce in the mind of the trier of fact a firm belief or 
        conviction as to the truth of the allegations sought to be 
        established. Such measure or degree of proof is more than that 
        required under preponderance of the evidence but less than that 
        required for proof beyond a reasonable doubt.
            (5) Collateral source payments.--The term ``collateral 
        source payments'' means any amount paid or reasonably likely to 
        be paid in the future to or on behalf of a claimant, or any 
        service, product, or other benefit provided or reasonably 
        likely to be provided in the future to or on behalf of a 
        claimant, as a result of an injury or wrongful death, pursuant 
        to--
                    (A) any State or Federal health, sickness, income-
                disability, accident or workers' compensation Act;
                    (B) any health, sickness, income-disability, or 
                accident insurance that provides health benefits or 
                income-disability coverage;
                    (C) any contract or agreement of any group, 
                organization, partnership, or corporation to provide, 
                pay for, or reimburse the cost of medical, hospital, 
                dental, or income disability benefits; and
                    (D) any other publicly or privately funded program.
            (6) Drug.--The term ``drug'' has the meaning given such 
        term in section 201(g)(1) of the Federal Food, Drug, and 
        Cosmetic Act (21 U.S.C. 321(g)(1)).
            (7) Economic loss.--The term ``economic loss'' means any 
        pecuniary loss resulting from injury (including the loss of 
        earnings or other benefits related to employment, medical 
        expense loss, replacement services loss, loss due to death, 
        burial costs, and loss of business or employment 
        opportunities), to the extent recovery for such loss is allowed 
        under applicable State law.
            (8) Harm.--The term ``harm'' means any legally cognizable 
        wrong or injury for which punitive damages may be imposed.
            (9) Health benefit plan.--The term ``health benefit plan'' 
        means--
                    (A) a hospital or medical expense incurred policy 
                or certificate,
                    (B) a hospital or medical service plan contract,
                    (C) a health maintenance subscriber contract,
                    (D) a multiple employer welfare arrangement or 
                employee benefit plan (as defined under the Employee 
                Retirement Income Security Act of 1974), or
                    (E) a MedicarePlus product (offered under part C of 
                title XVIII of the Social Security Act),
        that provides benefits with respect to health care services.
            (10) Health care liability action.--The term ``health care 
        liability action'' means a civil action brought in a State or 
        Federal court against a health care provider, an entity which 
        is obligated to provide or pay for health benefits under any 
        health benefit plan (including any person or entity acting 
        under a contract or arrangement to provide or administer any 
        health benefit), or the manufacturer, distributor, supplier, 
        marketer, promoter, or seller of a medical product, in which 
        the claimant alleges a claim (including third party claims, 
        cross claims, counter claims, or distribution claims) based 
        upon the provision of (or the failure to provide or pay for) 
        health care services or the use of a medical product, 
        regardless of the theory of liability on which the claim is 
        based or the number of plaintiffs, defendants, or causes of 
        action.
            (11) Health care liability claim.--The term ``health care 
        liability claim'' means a claim in which the claimant alleges 
        that injury was caused by the provision of (or the failure to 
        provide) health care services.
            (12) Health care provider.--The term ``health care 
        provider'' means any person that is engaged in the delivery of 
        health care services in a State and that is required by the 
        laws or regulations of the State to be licensed or certified by 
        the State to engage in the delivery of such services in the 
        State.
            (13) Health care service.--The term ``health care service'' 
        means any service for which payment may be made under a health 
        benefit plan including services related to the delivery or 
        administration of such service.
            (14) Medical device.--The term ``medical device'' has the 
        meaning given such term in section 201(h) of the Federal Food, 
        Drug, and Cosmetic Act (21 U.S.C. 321(h)).
            (15) Noneconomic damages.--The term ``noneconomic damages'' 
        means damages paid to an individual for pain and suffering, 
        inconvenience, emotional distress, mental anguish, loss of 
        consortium, injury to reputation, humiliation, and other 
        nonpecuniary losses.
            (16) Person.--The term ``person'' means any individual, 
        corporation, company, association, firm, partnership, society, 
        joint stock company, or any other entity, including any 
        governmental entity.
            (17) Product seller.--The term ``product seller'' means a 
        person who, in the course of a business conducted for that 
        purpose, sells, distributes, rents, leases, prepares, blends, 
        packages, labels a product, is otherwise involved in placing a 
        product in the stream of commerce, or installs, repairs, or 
        maintains the harm-causing aspect of a product. The term does 
        not include--
                    (A) a seller or lessor of real property;
                    (B) a provider of professional services in any case 
                in which the sale or use of a product is incidental to 
                the transaction and the essence of the transaction is 
                the furnishing of judgment, skill, or services; or
                    (C) any person who--
                            (i) acts in only a financial capacity with 
                        respect to the sale of a product; or
                            (ii) leases a product under a lease 
                        arrangement in which the selection, possession, 
                        maintenance, and operation of the product are 
                        controlled by a person other than the lessor.
            (18) Punitive damages.--The term ``punitive damages'' means 
        damages awarded against any person not to compensate for actual 
        injury suffered, but to punish or deter such person or others 
        from engaging in similar behavior in the future.
            (19) State.--The term ``State'' means each of the several 
        States, the District of Columbia, Puerto Rico, the Virgin 
        Islands, Guam, American Samoa, the Northern Mariana Islands, 
        and any other territory or possession of the United States.

SEC. 273. EFFECTIVE DATE.

    This subtitle will apply to any health care liability action 
brought in a Federal or State court and to any health care liability 
claim subject to an alternative dispute resolution system, that is 
initiated on or after the date of enactment of this subtitle, except 
that any health care liability claim or action arising from an injury 
occurring prior to the date of enactment of this subtitle shall be 
governed by the applicable statute of limitations provisions in effect 
at the time the injury occurred.

      PART 2--UNIFORM STANDARDS FOR HEALTH CARE LIABILITY ACTIONS

SEC. 281. STATUTE OF LIMITATIONS.

    A health care liability action may not be brought after the 
expiration of the 2-year period that begins on the date on which the 
alleged injury that is the subject of the action was discovered or 
should reasonably have been discovered, but in no case after the 
expiration of the 5-year period that begins on the date the alleged 
injury occurred.

SEC. 282. CALCULATION AND PAYMENT OF DAMAGES.

    (a) Treatment of Noneconomic Damages.--
            (1) Limitation on noneconomic damages.--The total amount of 
        noneconomic damages that may be awarded to a claimant for 
        losses resulting from the injury which is the subject of a 
        health care liability action may not exceed $250,000, 
        regardless of the number of parties against whom the action is 
        brought or the number of actions brought with respect to the 
        injury.
            (2) Joint and several liability.--In any health care 
        liability action brought in State or Federal court, a defendant 
        shall be liable only for the amount of noneconomic damages 
        attributable to such defendant in direct proportion to such 
        defendant's share of fault or responsibility for the claimant's 
        actual damages, as determined by the trier of fact. In all such 
        cases, the liability of a defendant for noneconomic damages 
        shall be several and not joint.
    (b) Treatment of Punitive Damages.--
            (1) General rule.--Punitive damages may, to the extent 
        permitted by applicable State law, be awarded in any health 
        care liability action for harm in any Federal or State court 
        against a defendant if the claimant establishes by clear and 
        convincing evidence that the harm suffered was the result of 
        conduct--
                    (A) specifically intended to cause harm, or
                    (B) conduct manifesting a conscious, flagrant 
                indifference to the rights or safety of others.
            (2) Proportional awards.--The amount of punitive damages 
        that may be awarded in any health care liability action subject 
        to this subtitle shall not exceed 3 times the amount of damages 
        awarded to the claimant for economic loss, or $250,000, 
        whichever is greater. This paragraph shall be applied by the 
        court and shall not be disclosed to the jury.
            (3) Applicability.--This subsection shall apply to any 
        health care liability action brought in any Federal or State 
        court on any theory where punitive damages are sought. This 
        subsection does not create a cause of action for punitive 
        damages. This subsection does not preempt or supersede any 
        State or Federal law to the extent that such law would further 
        limit the award of punitive damages.
            (4) Bifurcation.--At the request of any party, the trier of 
        fact shall consider in a separate proceeding whether punitive 
        damages are to be awarded and the amount of such award. If a 
        separate proceeding is requested, evidence relevant only to the 
        claim of punitive damages, as determined by applicable State 
        law, shall be inadmissible in any proceeding to determine 
        whether actual damages are to be awarded.
            (5) Drugs and devices.--
                    (A) In general.--(i) Punitive damages shall not be 
                awarded against a manufacturer or product seller of a 
                drug or medical device which caused the claimant's harm 
                where--
                            (I) such drug or device was subject to 
                        premarket approval by the Food and Drug 
                        Administration with respect to the safety of 
                        the formulation or performance of the aspect of 
                        such drug or device which caused the claimant's 
                        harm, or the adequacy of the packaging or 
                        labeling of such drug or device which caused 
                        the harm, and such drug, device, packaging, or 
                        labeling was approved by the Food and Drug 
                        Administration; or
                            (II) the drug is generally recognized as 
                        safe and effective pursuant to conditions 
                        established by the Food and Drug Administration 
                        and applicable regulations, including packaging 
                        and labeling regulations.
                    (ii) Clause (i) shall not apply in any case in 
                which the defendant, before or after premarket approval 
                of a drug or device--
                            (I) intentionally and wrongfully withheld 
                        from or misrepresented to the Food and Drug 
                        Administration information concerning such drug 
                        or device required to be submitted under the 
                        Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
                        301 et seq.) or section 351 of the Public 
                        Health Service Act (42 U.S.C. 262) that is 
                        material and relevant to the harm suffered by 
                        the claimant, or
                            (II) made an illegal payment to an official 
                        or employee of the Food and Drug Administration 
                        for the purpose of securing or maintaining 
                        approval of such drug or device.
                    (B) Packaging.--In a health care liability action 
                for harm which is alleged to relate to the adequacy of 
                the packaging or labeling of a drug which is required 
                to have tamper-resistant packaging under regulations of 
                the Secretary of Health and Human Services (including 
                labeling regulations related to such packaging), the 
                manufacturer or product seller of the drug shall not be 
                held liable for punitive damages unless such packaging 
                or labeling is found by the court by clear and 
                convincing evidence to be substantially out of 
                compliance with such regulations.
    (c) Periodic Payments for Future Losses.--
            (1) General rule.--In any health care liability action in 
        which the damages awarded for future economic and noneconomic 
        loss exceeds $50,000, a person shall not be required to pay 
        such damages in a single, lump-sum payment, but shall be 
        permitted to make such payments periodically based on when the 
        damages are found likely to occur, as such payments are 
        determined by the court.
            (2) Finality of judgment.--The judgment of the court 
        awarding periodic payments under this subsection may not, in 
        the absence of fraud, be reopened at any time to contest, 
        amend, or modify the schedule or amount of the payments.
            (3) Lump-sum settlements.--This subsection shall not be 
        construed to preclude a settlement providing for a single, 
        lump-sum payment.
    (d) Treatment of Collateral Source Payments.--
            (1) Introduction into evidence.--In any health care 
        liability action, any defendant may introduce evidence of 
        collateral source payments. If any defendant elects to 
        introduce such evidence, the claimant may introduce evidence of 
        any amount paid or contributed or reasonably likely to be paid 
        or contributed in the future by or on behalf of the claimant to 
        secure the right to such collateral source payments.
            (2) No subrogation.--No provider of collateral source 
        payments shall recover any amount against the claimant or 
        receive any lien or credit against the claimant's recovery or 
        be equitably or legally subrogated the right of the claimant in 
        a health care liability action.
            (3) Application to settlements.--This subsection shall 
        apply to an action that is settled as well as an action that is 
        resolved by a fact finder.

SEC. 283. ALTERNATIVE DISPUTE RESOLUTION.

    Any ADR used to resolve a health care liability action or claim 
shall contain provisions relating to statute of limitations, non-
economic damages, joint and several liability, punitive damages, 
collateral source rule, and periodic payments which are identical to 
the provisions relating to such matters in this subtitle.

                TITLE III--TAX-RELATED HEALTH PROVISIONS

SEC. 300. AMENDMENT OF 1986 CODE.

    Except as otherwise expressly provided, whenever in this title an 
amendment or repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be considered to 
be made to a section or other provision of the Internal Revenue Code of 
1986.

                  Subtitle A--Medical Savings Accounts

SEC. 301. MEDICAL SAVINGS ACCOUNTS.

    (a) In General.--Part VII of subchapter B of chapter 1 (relating to 
additional itemized deductions for individuals) is amended by 
redesignating section 220 as section 221 and by inserting after section 
219 the following new section:

``SEC. 220. MEDICAL SAVINGS ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an individual who is an 
eligible individual for any month during the taxable year, there shall 
be allowed as a deduction for the taxable year an amount equal to the 
aggregate amount paid in cash during such taxable year by such 
individual to a medical savings account of such individual.
    ``(b) Limitations.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the amount allowable as a deduction under 
        subsection (a) to an individual for the taxable year shall not 
        exceed--
                    ``(A) except as provided in subparagraph (B), the 
                lesser of--
                            ``(i) $2,000, or
                            ``(ii) the annual deductible limit for any 
                        individual covered under the high deductible 
                        health plan, or
                    ``(B) in the case of a high deductible health plan 
                covering the taxpayer and any other eligible individual 
                who is the spouse or any dependent (as defined in 
                section 152) of the taxpayer, the lesser of--
                            ``(i) $4,000, or
                            ``(ii) the annual limit under the plan on 
                        the aggregate amount of deductibles required to 
                        be paid by all individuals.
        The preceding sentence shall not apply if the spouse of such 
        individual is covered under any other high deductible health 
        plan.
            ``(2) Special rule for married individuals.--
                    ``(A) In general.--This subsection shall be applied 
                separately for each married individual.
                    ``(B) Special rule.--If individuals who are married 
                to each other are covered under the same high 
                deductible health plan, then the amounts applicable 
                under paragraph (1)(B) shall be divided equally between 
                them unless they agree on a different division.
            ``(3) Coordination with exclusion for employer 
        contributions.--No deduction shall be allowed under this 
        section for any amount paid for any taxable year to a medical 
        savings account of an individual if--
                    ``(A) any amount is paid to any medical savings 
                account of such individual which is excludable from 
                gross income under section 106(b) for such year, or
                    ``(B) in a case described in paragraph (2)(B), any 
                amount is paid to any medical savings account of either 
                spouse which is so excludable for such year.
            ``(4) Proration of limitation.--
                    ``(A) In general.--The limitation under paragraph 
                (1) shall be the sum of the monthly limitations for 
                months during the taxable year that the individual is 
                an eligible individual if--
                            ``(i) such individual is not an eligible 
                        individual for all months of the taxable year,
                            ``(ii) the deductible under the high 
                        deductible health plan covering such individual 
                        is not the same throughout such taxable year, 
                        or
                            ``(iii) such limitation is determined under 
                        paragraph (1)(B) for some but not all months 
                        during such taxable year.
                    ``(B) Monthly limitation.--The monthly limitation 
                for any month shall be an amount equal to \1/12\ of the 
                limitation which would (but for this paragraph and 
                paragraph (3)) be determined under paragraph (1) if the 
                facts and circumstances as of the first day of such 
                month that such individual is covered under a high 
                deductible health plan were true for the entire taxable 
                year.
            ``(5) Denial of deduction to dependents.--No deduction 
        shall be allowed under this section to any individual with 
        respect to whom a deduction under section 151 is allowable to 
        another taxpayer for a taxable year beginning in the calendar 
        year in which such individual's taxable year begins.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible individual.--
                    ``(A) In general.--The term `eligible individual' 
                means, with respect to any month, any individual--
                            ``(i) who is covered under a high 
                        deductible health plan as of the 1st day of 
                        such month, and
                            ``(ii) who is not, while covered under a 
                        high deductible health plan, covered under any 
                        health plan--
                                    ``(I) which is not a high 
                                deductible health plan, and
                                    ``(II) which provides coverage for 
                                any benefit which is covered under the 
                                high deductible health plan.
                    ``(B) Certain coverage disregarded.--Subparagraph 
                (A)(ii) shall be applied without regard to--
                            ``(i) coverage for any benefit provided by 
                        permitted insurance, and
                            ``(ii) coverage (whether through insurance 
                        or otherwise) for accidents, disability, dental 
                        care, vision care, or long-term care.
            ``(2) High deductible health plan.--The term `high 
        deductible health plan' means a health plan which--
                    ``(A) has an annual deductible limit for each 
                individual covered by the plan which is not less than 
                $1,500, and
                    ``(B) has an annual limit on the aggregate amount 
                of deductibles required to be paid with respect to all 
                individuals covered by the plan which is not less than 
                $3,000.
        Such term does not include a health plan if substantially all 
        of its coverage is coverage described in paragraph (1)(B). A 
        plan shall not fail to be treated as a high deductible health 
        plan by reason of failing to have a deductible for preventive 
        care if the absence of a deductible for such care is required 
        by State law.
            ``(3) Permitted insurance.--The term `permitted insurance' 
        means--
                    ``(A) Medicare supplemental insurance,
                    ``(B) insurance if substantially all of the 
                coverage provided under such insurance relates to--
                            ``(i) liabilities incurred under workers' 
                        compensation laws,
                            ``(ii) tort liabilities,
                            ``(iii) liabilities relating to ownership 
                        or use of property, or
                            ``(iv) such other similar liabilities as 
                        the Secretary may specify by regulations,
                    ``(C) insurance for a specified disease or illness, 
                and
                    ``(D) insurance paying a fixed amount per day (or 
                other period) of hospitalization.
    ``(d) Medical Savings Account.--For purposes of this section--
            ``(1) Medical savings account.--The term `medical savings 
        account' means a trust created or organized in the United 
        States exclusively for the purpose of paying the qualified 
        medical expenses of the account holder, but only if the written 
        governing instrument creating the trust meets the following 
        requirements:
                    ``(A) Except in the case of a rollover contribution 
                described in subsection (f)(5), no contribution will be 
                accepted--
                            ``(i) unless it is in cash, or
                            ``(ii) to the extent such contribution, 
                        when added to previous contributions to the 
                        trust for the calendar year, exceeds $4,000.
                    ``(B) The trustee is a bank (as defined in section 
                408(n)), an insurance company (as defined in section 
                816), or another person who demonstrates to the 
                satisfaction of the Secretary that the manner in which 
                such person will administer the trust will be 
                consistent with the requirements of this section.
                    ``(C) No part of the trust assets will be invested 
                in life insurance contracts.
                    ``(D) The assets of the trust will not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
                    ``(E) The interest of an individual in the balance 
                in his account is nonforfeitable.
            ``(2) Qualified medical expenses.--
                    ``(A) In general.--The term `qualified medical 
                expenses' means, with respect to an account holder, 
                amounts paid by such holder for medical care (as 
                defined in section 213(d)) for such individual, the 
                spouse of such individual, and any dependent (as 
                defined in section 152) of such individual, but only to 
                the extent such amounts are not compensated for by 
                insurance or otherwise.
                    ``(B) Health insurance may not be purchased from 
                account.--
                            ``(i) In general.--Subparagraph (A) shall 
                        not apply to any payment for insurance.
                            ``(ii) Exceptions.--Clause (i) shall not 
                        apply to any expense for coverage under--
                                    ``(I) a health plan during any 
                                period of continuation coverage 
                                required under any Federal law,
                                    ``(II) a qualified long-term care 
                                insurance contract (as defined in 
                                section 7702B(b)), or
                                    ``(III) a health plan during a 
                                period in which the individual is 
                                receiving unemployment compensation 
                                under any Federal or State law.
            ``(3) Account holder.--The term `account holder' means the 
        individual on whose behalf the medical savings account was 
        established.
            ``(4) Certain rules to apply.--Rules similar to the 
        following rules shall apply for purposes of this section:
                    ``(A) Section 219(d)(2) (relating to no deduction 
                for rollovers).
                    ``(B) Section 219(f)(3) (relating to time when 
                contributions deemed made).
                    ``(C) Except as provided in section 106(b), section 
                219(f)(5) (relating to employer payments).
                    ``(D) Section 408(g) (relating to community 
                property laws).
                    ``(E) Section 408(h) (relating to custodial 
                accounts).
    ``(e) Tax Treatment of Accounts.--
            ``(1) In general.--A medical savings account is exempt from 
        taxation under this subtitle unless such account has ceased to 
        be a medical savings account by reason of paragraph (2) or (3). 
        Notwithstanding the preceding sentence, any such account is 
        subject to the taxes imposed by section 511 (relating to 
        imposition of tax on unrelated business income of charitable, 
        etc. organizations).
            ``(2) Account terminations.--Rules similar to the rules of 
        paragraphs (2) and (4) of section 408(e) shall apply to medical 
        savings accounts, and any amount treated as distributed under 
        such rules shall be treated as not used to pay qualified 
        medical expenses.
    ``(f) Tax Treatment of Distributions.--
            ``(1) Amounts used for qualified medical expenses.--
                    ``(A) In general.--Any amount paid or distributed 
                out of a medical savings account which is used 
                exclusively to pay qualified medical expenses of any 
                account holder (or any spouse or dependent of the 
                holder) shall not be includible in gross income.
                    ``(B) Treatment after death of account holder.--
                            ``(i) Treatment if holder is spouse.--If, 
                        after the death of the account holder, the 
                        account holder's interest is payable to (or for 
                        the benefit of) the holder's spouse, the 
                        medical savings account shall be treated as if 
                        the spouse were the account holder.
                            ``(ii) Treatment if designated holder is 
                        not spouse.--In the case of an account holder's 
                        interest in a medical savings account which is 
                        payable to (or for the benefit of) any person 
                        other than such holder's spouse upon the death 
                        of such holder--
                                    ``(I) such account shall cease to 
                                be a medical savings account as of the 
                                date of death, and
                                    ``(II) an amount equal to the fair 
                                market value of the assets in such 
                                account on such date shall be 
                                includible if such person is not the 
                                estate of such holder, in such person's 
                                gross income for the taxable year which 
                                includes such date, or if such person 
                                is the estate of such holder, in such 
                                holder's gross income for the last 
                                taxable year of such holder.
            ``(2) Inclusion of amounts not used for qualified medical 
        expenses.--
                    ``(A) In general.--Any amount paid or distributed 
                out of a medical savings account which is not used 
                exclusively to pay the qualified medical expenses of 
                the account holder or of the spouse or dependents of 
                such holder shall be included in the gross income of 
                such holder.
                    ``(B) Special rules.--For purposes of subparagraph 
                (A)--
                            ``(i) all medical savings accounts of the 
                        account holder shall be treated as 1 account,
                            ``(ii) all payments and distributions 
                        during any taxable year shall be treated as 1 
                        distribution, and
                            ``(iii) any distribution of property shall 
                        be taken into account at its fair market value 
                        on the date of the distribution.
            ``(3) Excess contributions returned before due date of 
        return.--If the aggregate contributions (other than rollover 
        contributions) for a taxable year to the medical savings 
        accounts of an individual exceed the amount allowable as a 
        deduction under this section for such contributions, paragraph 
        (2) shall not apply to distributions from such accounts (in an 
        amount not greater than such excess) if--
                    ``(A) such distribution is received by the 
                individual on or before the last day prescribed by law 
                (including extensions of time) for filing such 
                individual's return for such taxable year, and
                    ``(B) such distribution is accompanied by the 
                amount of net income attributable to such excess 
                contribution.
        Any net income described in subparagraph (B) shall be included 
        in the gross income of the individual for the taxable year in 
        which it is received.
            ``(4) Penalty for distributions not used for qualified 
        medical expenses.--
                    ``(A) In general.--The tax imposed by this chapter 
                on the account holder for any taxable year in which 
                there is a payment or distribution from a medical 
                savings account of such holder which is includible in 
                gross income under paragraph (2) shall be increased by 
                10 percent of the amount which is so includible.
                    ``(B) Exception for disability or death.--
                Subparagraph (A) shall not apply if the payment or 
                distribution is made after the account holder becomes 
                disabled within the meaning of section 72(m)(7) or 
                dies.
                    ``(C) Exception for distributions after age 59\1/
                2\.--Subparagraph (A) shall not apply to any payment or 
                distribution after the date on which the account holder 
                attains age 59\1/2\.
            ``(5) Rollover contribution.--An amount is described in 
        this paragraph as a rollover contribution if it meets the 
        requirements of subparagraphs (A) and (B).
                    ``(A) In general.--Paragraph (2) shall not apply to 
                any amount paid or distributed from a medical savings 
                account to the account holder to the extent the amount 
received is paid into a medical savings account for the benefit of such 
holder not later than the 60th day after the day on which the holder 
receives the payment or distribution.
                    ``(B) Limitation.--This paragraph shall not apply 
                to any amount described in subparagraph (A) received by 
                an individual from a medical savings account if, at any 
                time during the 1-year period ending on the day of such 
                receipt, such individual received any other amount 
                described in subparagraph (A) from a medical savings 
                account which was not includible in the individual's 
                gross income because of the application of this 
                paragraph.
            ``(6) Coordination with medical expense deduction.--For 
        purposes of determining the amount of the deduction under 
        section 213, any payment or distribution out of a medical 
        savings account for qualified medical expenses shall not be 
        treated as an expense paid for medical care.
            ``(7)  Transfer of account incident to divorce.--The 
        transfer of an individual's interest in a medical savings 
        account to an individual's spouse or former spouse under a 
        divorce or separation instrument described in subparagraph (A) 
        of section 71(b)(2) shall not be considered a taxable transfer 
        made by such individual notwithstanding any other provision of 
        this subtitle, and such interest shall, after such transfer, be 
        treated as a medical savings account with respect to which the 
        spouse is the account holder.
    ``(g) Cost-of-Living Adjustment.--
            ``(1) In general.--In the case of any taxable year 
        beginning in a calendar year after 1997, each dollar amount in 
        subsection (b)(1), (c)(2), or (d)(1)(A) shall be increased by 
        an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the medical care cost adjustment for such 
                calendar year.
        If any increase under the preceding sentence is not a multiple 
        of $50, such increase shall be rounded to the nearest multiple 
        of $50.
            ``(2) Medical care cost adjustment.--For purposes of 
        paragraph (1), the medical care cost adjustment for any 
        calendar year is the percentage (if any) by which--
                    ``(A) the medical care component of the Consumer 
                Price Index (as defined in section 1(f)(5)) for August 
                of the preceding calendar year, exceeds
                    ``(B) such component for August of 1996.
    ``(h) Reports.--The Secretary may require the trustee of a medical 
savings account to make such reports regarding such account to the 
Secretary and to the account holder with respect to contributions, 
distributions, and such other matters as the Secretary determines 
appropriate. The reports required by this subsection shall be filed at 
such time and in such manner and furnished to such individuals at such 
time and in such manner as may be required by those regulations.''
    (b) Deduction Allowed Whether or Not Individual Itemizes Other 
Deductions.--Subsection (a) of section 62 is amended by inserting after 
paragraph (15) the following new paragraph:
            ``(16) Medical savings accounts.--The deduction allowed by 
        section 220.''
    (c) Exclusions for Employer Contributions to Medical Savings 
Accounts.--
            (1) Exclusion from income tax.--The text of section 106 
        (relating to contributions by employer to accident and health 
        plans) is amended to read as follows:
    ``(a) General Rule.--Except as otherwise provided in this section, 
gross income of an employee does not include employer-provided coverage 
under an accident or health plan.
    ``(b) Contributions to Medical Savings Accounts.--
            ``(1) In general.--In the case of an employee who is an 
        eligible individual, gross income does not include amounts 
        contributed by such employee's employer to any medical savings 
        account of such employee.
            ``(2) Coordination with deduction limitation.--The amount 
        excluded from the gross income of an employee under this 
        subsection for any taxable year shall not exceed the limitation 
        under section 220(b)(1) (determined without regard to this 
        subsection) which is applicable to such employee for such 
        taxable year.
            ``(3) No constructive receipt.--No amount shall be included 
        in the gross income of any employee solely because the employee 
        may choose between the contributions referred to in paragraph 
        (1) and employer contributions to another health plan of the 
        employer.
            ``(4) Special rule for deduction of employer 
        contributions.--Any employer contribution to a medical savings 
        account, if otherwise allowable as a deduction under this 
        chapter, shall be allowed only for the taxable year in which 
        paid.
            ``(5) Definitions.--For purposes of this subsection, the 
        terms `eligible individual' and `medical savings account' have 
        the respective meanings given to such terms by section 220.''
            (2) Exclusion from employment taxes.--
                    (A) Social security taxes.--
                            (i) Subsection (a) of section 3121 is 
                        amended by striking ``or'' at the end of 
                        paragraph (20), by striking the period at the 
                        end of paragraph (21) and inserting ``; or'', 
                        and by inserting after paragraph (21) the 
                        following new paragraph:
            ``(22) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(b).''
                            (ii) Subsection (a) of section 209 of the 
                        Social Security Act is amended by striking 
                        ``or'' at the end of paragraph (17), by 
                        striking the period at the end of paragraph 
                        (18) and inserting ``; or'', and by inserting 
                        after paragraph (18) the following new 
                        paragraph:
            ``(19) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(b) of the Internal Revenue Code 
        of 1986.''
                    (B) Railroad retirement tax.--Subsection (e) of 
                section 3231 is amended by adding at the end the 
                following new paragraph:
            ``(10) Medical savings account contributions.--The term 
        `compensation' shall not include any payment made to or for the 
        benefit of an employee if at the time of such payment it is 
        reasonable to believe that the employee will be able to exclude 
        such payment from income under section 106(b).''
                    (C) Unemployment tax.--Subsection (b) of section 
                3306 is amended by striking ``or'' at the end of 
                paragraph (15), by striking the period at the end of 
                paragraph (16) and inserting ``; or'', and by inserting 
                after paragraph (16) the following new paragraph:
            ``(17) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(b).''
                    (D) Withholding tax.--Subsection (a) of section 
                3401 is amended by striking ``or'' at the end of 
                paragraph (19), by striking the period at the end of 
                paragraph (20) and inserting ``; or'', and by inserting 
                after paragraph (20) the following new paragraph:
            ``(21) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(b).''
    (d) Medical Savings Account Contributions Not Available Under 
Cafeteria Plans.--Subsection (f) of section 125 of such Code is amended 
by inserting ``106(b),'' before ``117''.
    (e) Exclusion of Medical Savings Accounts From Estate Tax.--Part IV 
of subchapter A of chapter 11 is amended by adding at the end the 
following new section:

``SEC. 2057. MEDICAL SAVINGS ACCOUNTS.

    ``For purposes of the tax imposed by section 2001, the value of the 
taxable estate shall be determined by deducting from the value of the 
gross estate an amount equal to the value of any medical savings 
account (as defined in section 220(d)) included in the gross estate.''
    (f) Tax on Excess Contributions.--Section 4973 (relating to tax on 
excess contributions to individual retirement accounts, certain section 
403(b) contracts, and certain individual retirement annuities) is 
amended--
            (1) by inserting ``medical savings accounts,'' after 
        ``accounts,'' in the heading of such section,
            (2) by striking ``or'' at the end of paragraph (1) of 
        subsection (a),
            (3) by redesignating paragraph (2) of subsection (a) as 
        paragraph (3) and by inserting after paragraph (1) the 
        following:
            ``(2) a medical savings account (within the meaning of 
        section 220(d)), or'', and
            (4) by adding at the end the following new subsection:
    ``(d) Excess Contributions to Medical Savings Accounts.--For 
purposes of this section, in the case of a medical savings accounts 
(within the meaning of section 220(d)), the term `excess contributions' 
means the sum of--
            ``(1) the amount by which the amount contributed for the 
        taxable year to the accounts (other than rollover contributions 
        described in section 220(f)(5)) exceeds the amount allowable as 
        a deduction under section 220 for such contributions, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year, reduced by the sum of distributions out 
        of the account included in gross income under section 220(f) 
        (2) or (3) and the excess (if any) of the maximum amount 
        allowable as a deduction under section 220 for the taxable year 
        over the amount contributed to the accounts.
For purposes of this subsection, any contribution which is distributed 
out of the medical savings account in a distribution to which section 
220(f)(3) applies shall be treated as an amount not contributed.''
    (g) Tax on Prohibited Transactions.--
            (1) Section 4975 (relating to tax on prohibited 
        transactions) is amended by adding at the end of subsection (c) 
        the following new paragraph:
            ``(4) Special rule for medical savings accounts.--An 
        individual for whose benefit a medical savings account (within 
        the meaning of section 220(d)) is established shall be exempt 
        from the tax imposed by this section with respect to any 
        transaction concerning such account (which would otherwise be 
        taxable under this section) if, with respect to such 
        transaction, the account ceases to be a medical savings account 
        by reason of the application of section 220(e)(2) to such 
        account.''
            (2) Paragraph (1) of section 4975(e) is amended to read as 
        follows:
            ``(1) Plan.--For purposes of this section, the term `plan' 
        means--
                    ``(A) a trust described in section 401(a) which 
                forms a part of a plan, or a plan described in section 
                403(a), which trust or plan is exempt from tax under 
                section 501(a),
                    ``(B) an individual retirement account described in 
                section 408(a),
                    ``(C) an individual retirement annuity described in 
                section 408(b),
                    ``(D) a medical savings account described in 
                section 220(d), or
                    ``(E) a trust, plan, account, or annuity which, at 
                any time, has been determined by the Secretary to be 
                described in any preceding subparagraph of this 
                paragraph.''
    (h) Failure To Provide Reports on Medical Savings Accounts.--
            (1) Subsection (a) of section 6693 (relating to failure to 
        provide reports on individual retirement accounts or annuities) 
        is amended to read as follows:
    ``(a) Reports.--
            ``(1) In general.--If a person required to file a report 
        under a provision referred to in paragraph (2) fails to file 
        such report at the time and in the manner required by such 
        provision, such person shall pay a penalty of $50 for each 
        failure unless it is shown that such failure is due to 
        reasonable cause.
            ``(2) Provisions.--The provisions referred to in this 
        paragraph are--
                    ``(A) subsections (i) and (l) of section 408 
                (relating to individual retirement plans), and
                    ``(B) section 220(h) (relating to medical savings 
                accounts).''
    (i) Exception From Capitalization of Policy Acquisition Expenses.--
Subparagraph (B) of section 848(e)(1) (defining specified insurance 
contract) is amended by striking ``and'' at the end of clause (ii), by 
striking the period at the end of clause (iii) and inserting ``, and'', 
and by adding at the end the following new clause:
                            ``(iv) any contract which is a medical 
                        savings account (as defined in section 
                        220(d)).''.
    (j) Clerical Amendments.--
            (1) The table of sections for part VII of subchapter B of 
        chapter 1 is amended by striking the last item and inserting 
        the following:

                              ``Sec. 220. Medical savings accounts.
                              ``Sec. 221. Cross reference.''.
            (2) The table of sections for part IV of subchapter A of 
        chapter 11 is amended by adding at the end the following new 
        item:

                              ``Sec. 2057. Medical savings accounts.''.
    (k) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

 Subtitle B--Increase in Deduction for Health Insurance Costs of Self-
                          Employed Individuals

SEC. 311. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
              EMPLOYED INDIVIDUALS.

    (a) In General.--Paragraph (1) of section 162(l) is amended to read 
as follows:
            ``(1) Allowance of deduction.--
                    ``(A) In general.--In the case of an individual who 
                is an employee within the meaning of section 401(c)(1), 
                there shall be allowed as a deduction under this 
                section an amount equal to the applicable percentage of 
                the amount paid during the taxable year for insurance 
                which constitutes medical care for the taxpayer, his 
                spouse, and dependents.
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), the applicable percentage shall be 
                determined under the following 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.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1997.

           Subtitle C--Long-Term Care Services and Contracts

                       PART I--GENERAL PROVISIONS

SEC. 321. TREATMENT OF LONG-TERM CARE INSURANCE.

    (a) General Rule.--Chapter 79 (relating to definitions) is amended 
by inserting after section 7702A the following new section:

``SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE INSURANCE.

    ``(a) In General.--For purposes of this title--
            ``(1) a qualified long-term care insurance contract shall 
        be treated as an accident and health insurance contract,
            ``(2) amounts (other than policyholder dividends, as 
        defined in section 808, or premium refunds) received under a 
        qualified long-term care insurance contract shall be treated as 
        amounts received for personal injuries and sickness and shall 
        be treated as reimbursement for expenses actually incurred for 
        medical care (as defined in section 213(d)),
            ``(3) any plan of an employer providing coverage under a 
        qualified long-term care insurance contract shall be treated as 
        an accident and health plan with respect to such coverage,
            ``(4) except as provided in subsection (e)(3), amounts paid 
        for a qualified long-term care insurance contract providing the 
        benefits described in subsection (b)(2)(A) shall be treated as 
        payments made for insurance for purposes of section 
        213(d)(1)(D), and
            ``(5) a qualified long-term care insurance contract shall 
        be treated as a guaranteed renewable contract subject to the 
        rules of section 816(e).
    ``(b) Qualified Long-Term Care Insurance Contract.--For purposes of 
this title--
            ``(1) In general.--The term `qualified long-term care 
        insurance contract' means any insurance contract if--
                    ``(A) the only insurance protection provided under 
                such contract is coverage of qualified long-term care 
                services,
                    ``(B) such contract does not pay or reimburse 
                expenses incurred for services or items to the extent 
                that such expenses are reimbursable under title XVIII 
                of the Social Security Act or would be so reimbursable 
                but for the application of a deductible or coinsurance 
                amount,
                    ``(C) such contract is guaranteed renewable,
                    ``(D) such contract does not provide for a cash 
                surrender value or other money that can be--
                            ``(i) paid, assigned, or pledged as 
                        collateral for a loan, or
                            ``(ii) borrowed,
                other than as provided in subparagraph (E) or paragraph 
                (2)(C),
                    ``(E) all refunds of premiums, and all policyholder 
                dividends or similar amounts, under such contract are 
                to be applied as a reduction in future premiums or to 
                increase future benefits, and
                    ``(F) such contract meets the requirements of 
                subsection (f).
            ``(2) Special rules.--
                    ``(A) Per diem, etc. payments permitted.--A 
                contract shall not fail to be described in subparagraph 
                (A) or (B) of paragraph (1) by reason of payments being 
                made on a per diem or other periodic basis without 
                regard to the expenses incurred during the period to 
                which the payments relate.
                    ``(B) Special rules relating to medicare.--
                            ``(i) Paragraph (1)(B) shall not apply to 
                        expenses which are reimbursable under title 
                        XVIII of the Social Security Act only as a 
                        secondary payor.
                            ``(ii) No provision of law shall be 
                        construed or applied so as to prohibit the 
                        offering of a qualified long-term care 
                        insurance contract on the basis that the 
contract coordinates its benefits with those provided under such title.
                    ``(C) Refunds of premiums.--Paragraph (1)(E) shall 
                not apply to any refund on the death of the insured, or 
                on a complete surrender or cancellation of the 
                contract, which cannot exceed the aggregate premiums 
                paid under the contract. Any refund on a complete 
                surrender or cancellation of the contract shall be 
                includible in gross income to the extent that any 
                deduction or exclusion was allowable with respect to 
                the premiums.
    ``(c) Qualified Long-Term Care Services.--For purposes of this 
section--
            ``(1) In general.--The term `qualified long-term care 
        services' means necessary diagnostic, preventive, therapeutic, 
        curing, treating, mitigating, and rehabilitative services, and 
        maintenance or personal care services, which--
                    ``(A) are required by a chronically ill individual, 
                and
                    ``(B) are provided pursuant to a plan of care 
                prescribed by a licensed health care practitioner.
            ``(2) Chronically ill individual.--
                    ``(A) In general.--The term `chronically ill 
                individual' means any individual who has been certified 
                by a licensed health care practitioner as--
                            ``(i) being unable to perform (without 
                        substantial assistance from another individual) 
                        at least 2 activities of daily living for a 
                        period of at least 90 days due to a loss of 
                        functional capacity,
                            ``(ii) having a level of disability similar 
                        (as determined by the Secretary in consultation 
                        with the Secretary of Health and Human 
                        Services) to the level of disability described 
                        in clause (i), or
                            ``(iii) requiring substantial supervision 
                        to protect such individual from threats to 
                        health and safety due to severe cognitive 
                        impairment.
                Such term shall not include any individual otherwise 
                meeting the requirements of the preceding sentence 
                unless within the preceding 12-month period a licensed 
                health care practitioner has certified that such 
                individual meets such requirements.
                    ``(B) Activities of daily living.--For purposes of 
                subparagraph (A), each of the following is an activity 
                of daily living:
                            ``(i) Eating.
                            ``(ii) Toileting.
                            ``(iii) Transferring.
                            ``(iv) Bathing.
                            ``(v) Dressing.
                            ``(vi) Continence.
                Nothing in this section shall be construed to require a 
                contract to take into account all of the preceding 
                activities of daily living.
            ``(3) Maintenance or personal care services.--The term 
        `maintenance or personal care services' means any care the 
        primary purpose of which is the provision of needed assistance 
        with any of the disabilities as a result of which the 
        individual is a chronically ill individual (including the 
        protection from threats to health and safety due to severe 
        cognitive impairment).
            ``(4) Licensed health care practitioner.--The term 
        `licensed health care practitioner' means any physician (as 
        defined in section 1861(r)(1) of the Social Security Act) and 
        any registered professional nurse, licensed social worker, or 
        other individual who meets such requirements as may be 
        prescribed by the Secretary.
    ``(d) Aggregate Payments in Excess of Limits.--
            ``(1) In general.--If the aggregate amount of periodic 
        payments under all qualified long-term care insurance contracts 
        with respect to an insured for any period exceeds the dollar 
        amount in effect for such period under paragraph (3), such 
        excess payments shall be treated as made for qualified long-
        term care services only to the extent of the costs incurred by 
        the payee (not otherwise compensated for by insurance or 
otherwise) for qualified long-term care services provided during such 
period for such insured.
            ``(2) Periodic payments.--For purposes of paragraph (1), 
        the term `periodic payment' means any payment (whether on a 
        periodic basis or otherwise) made without regard to the extent 
        of the costs incurred by the payee for qualified long-term care 
        services.
            ``(3) Dollar amount.--The dollar amount in effect under 
        this subsection shall be $175 per day (or the equivalent amount 
        in the case of payments on another periodic basis).
            ``(4) Inflation adjustment.--In the case of a calendar year 
        after 1997, the dollar amount contained in paragraph (3) shall 
        be increased at the same time and in the same manner as amounts 
        are increased pursuant to section 213(d)(10).
    ``(e) Treatment of Coverage Provided as Part of a Life Insurance 
Contract.--Except as otherwise provided in regulations prescribed by 
the Secretary, in the case of any long-term care insurance coverage 
(whether or not qualified) provided by a rider on or as part of a life 
insurance contract--
            ``(1) In general.--This section shall apply as if the 
        portion of the contract providing such coverage is a separate 
        contract.
            ``(2) Application of 7702.--Section 7702(c)(2) (relating to 
        the guideline premium limitation) shall be applied by 
        increasing the guideline premium limitation with respect to a 
        life insurance contract, as of any date--
                    ``(A) by the sum of any charges (but not premium 
                payments) against the life insurance contract's cash 
                surrender value (within the meaning of section 
                7702(f)(2)(A)) for such coverage made to that date 
                under the contract, less
                    ``(B) any such charges the imposition of which 
                reduces the premiums paid for the contract (within the 
                meaning of section 7702(f)(1)).
            ``(3) Application of section 213.--No deduction shall be 
        allowed under section 213(a) for charges against the life 
        insurance contract's cash surrender value described in 
        paragraph (2), unless such charges are includible in income as 
        a result of the application of section 72(e)(10) and the rider 
        is a qualified long-term care insurance contract under 
        subsection (b).
            ``(4) Portion defined.--For purposes of this subsection, 
        the term `portion' means only the terms and benefits under a 
        life insurance contract that are in addition to the terms and 
        benefits under the contract without regard to the coverage 
        under a qualified long-term care insurance contract.''
    (b) Long-Term Care Insurance Not Permitted Under Cafeteria Plans or 
Flexible Spending Arrangements.--
            (1) Cafeteria plans.--Section 125(f) is amended by adding 
        at the end the following new sentence: ``Such term shall not 
        include any long-term care insurance contract (as defined in 
        section 4980C).''
            (2) Flexible spending arrangements.--Section 106 (relating 
        to contributions by employer to accident and health plans), as 
        amended by section 301(c), is amended by adding at the end the 
        following new subsection:
    ``(c) Inclusion of Long-Term Care Benefits Provided Through 
Flexible Spending Arrangements.--
            ``(1) In general.--Effective on and after January 1, 1997, 
        gross income of an employee shall include employer-provided 
        coverage for qualified long-term care services (as defined in 
        section 7702B(c)) to the extent that such coverage is provided 
        through a flexible spending or similar arrangement.
            ``(2) Flexible spending arrangement.--For purposes of this 
        subsection, a flexible spending arrangement is a benefit 
        program which provides employees with coverage under which--
                    ``(A) specified incurred expenses may be reimbursed 
                (subject to reimbursement maximums and other reasonable 
                conditions), and
                    ``(B) the maximum amount of reimbursement which is 
                reasonably available to a participant for such coverage 
                is less than 500 percent of the value of such coverage.
        In the case of an insured plan, the maximum amount reasonably 
        available shall be determined on the basis of the underlying 
        coverage.''
    (c) Continuation Coverage Excise Tax Not To Apply.--Subsection (f) 
of section 4980B is amended by adding at the end the following new 
paragraph:
            ``(9) Continuation of long-term care coverage not 
        required.--A group health plan shall not be treated as failing 
        to meet the requirements of this subsection solely by reason of 
        failing to provide coverage under any qualified long-term care 
        insurance contract (as defined in section 7702B(b)).''
    (d) Clerical Amendment.--The table of sections for chapter 79 is 
amended by inserting after the item relating to section 7702A the 
following new item:

                              ``Sec. 7702B. Treatment of qualified 
                                        long-term care insurance.''.
    (e) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to contracts issued after December 31, 1996.
            (2) Continuation of existing policies.--In the case of any 
        contract issued before January 1, 1997, which met the long-term 
        care insurance requirements of the State in which the contract 
        was sitused at the time the contract was issued--
                    (A) such contract shall be treated for purposes of 
                the Internal Revenue Code of 1986 as a qualified long-
                term care insurance contract (as defined in section 
                7702B(b) of such Code), and
                    (B) services provided under, or reimbursed by, such 
                contract shall be treated for such purposes as 
                qualified long-term care services (as defined in 
                section 7702B(c) of such Code).
            (3) Exchanges of existing policies.--If, after the date of 
        enactment of this Act and before January 1, 1998, a contract 
        providing for long-term care insurance coverage is exchanged 
        solely for a qualified long-term care insurance contract (as 
        defined in section 7702B(b) of such Code), no gain or loss 
        shall be recognized on the exchange. If, in addition to a 
        qualified long-term care insurance contract, money or other 
        property is received in the exchange, then any gain shall be 
        recognized to the extent of the sum of the money and the fair 
        market value of the other property received. For purposes of 
        this paragraph, the cancellation of a contract providing for 
        long-term care insurance coverage and reinvestment of the 
        cancellation proceeds in a qualified long-term care insurance 
        contract within 60 days thereafter shall be treated as an 
        exchange.
            (4) Issuance of certain riders permitted.--For purposes of 
        applying sections 101(f), 7702, and 7702A of the Internal 
        Revenue Code of 1986 to any contract--
                    (A) the issuance of a rider which is treated as a 
                qualified long-term care insurance contract under 
                section 7702B, and
                    (B) the addition of any provision required to 
                conform any other long-term care rider to be so 
                treated,
        shall not be treated as a modification or material change of 
        such contract.

SEC. 322. QUALIFIED LONG-TERM CARE SERVICES TREATED AS MEDICAL CARE.

    (a) General Rule.--Paragraph (1) of section 213(d) (defining 
medical care) is amended by striking ``or'' at the end of subparagraph 
(B), by redesignating subparagraph (C) as subparagraph (D), and by 
inserting after subparagraph (B) the following new subparagraph:
                    ``(C) for qualified long-term care services (as 
                defined in section 7702B(c)), or''.
    (b) Technical Amendments.--
            (1) Subparagraph (D) of section 213(d)(1) (as redesignated 
        by subsection (a)) is amended by inserting before the period 
        ``or for any qualified long-term care insurance contract (as 
        defined in section 7702B(b))''.
            (2)(A) Paragraph (1) of section 213(d) is amended by adding 
        at the end the following new flush sentence:
        ``In the case of a qualified long-term care insurance contract 
        (as defined in section 7702B(b)), only eligible long-term care 
        premiums (as defined in paragraph (10)) shall be taken into 
        account under subparagraph (D).''
            (B) Subsection (d) of section 213 is amended by adding at 
        the end the following new paragraphs:
            ``(10) Eligible long-term care premiums.--
                    ``(A) In general.--For purposes of this section, 
                the term `eligible long-term care premiums' means the 
                amount paid during a taxable year for any qualified 
                long-term care insurance contract (as defined in 
                section 7702B(b)) covering an individual, to the extent 
                such amount does not exceed the limitation determined 
                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            375   
                            than 50.
                            More than 50 but not more            750   
                            than 60.
                            More than 60 but not more          2,000   
                            than 70.
                            More than 70.............          2,500.  
                    ``(B) Indexing.--
                            ``(i) In general.--In the case of any 
                        taxable year beginning in a calendar year after 
                        1997, each dollar amount contained in 
                        subparagraph (A) shall be increased by the 
                        medical care cost adjustment of such amount for 
                        such calendar year. If any increase determined 
                        under the preceding sentence is not a multiple 
                        of $10, such increase shall be rounded to the 
                        nearest multiple of $10.
                            ``(ii) Medical care cost adjustment.--For 
                        purposes of clause (i), the medical care cost 
                        adjustment for any calendar year is the 
                        percentage (if any) by which--
                                    ``(I) the medical care component of 
                                the Consumer Price Index (as defined in 
                                section 1(f)(5)) for August of the 
                                preceding calendar year, exceeds
                                    ``(II) such component for August of 
                                1996.
                        The Secretary shall, in consultation with the 
                        Secretary of Health and Human Services, 
                        prescribe an adjustment which the Secretary 
                        determines is more appropriate for purposes of 
                        this paragraph than the adjustment described in 
                        the preceding sentence, and the adjustment so 
                        prescribed shall apply in lieu of the 
                        adjustment described in the preceding sentence.
            ``(11) Certain payments to relatives treated as not paid 
        for medical care.--An amount paid for a qualified long-term 
        care service (as defined in section 7702B(c)) provided to an 
        individual shall be treated as not paid for medical care if 
        such service is provided--
                    ``(A) by the spouse of the individual or by a 
                relative (directly or through a partnership, 
                corporation, or other entity) unless the service is 
                provided by a licensed professional with respect to 
                such service, or
                    ``(B) by a corporation or partnership which is 
                related (within the meaning of section 267(b) or 
                707(b)) to the individual.
        For purposes of this paragraph, the term `relative' means an 
        individual bearing a relationship to the individual which is 
        described in any of paragraphs (1) through (8) of section 
        152(a). This paragraph shall not apply for purposes of section 
105(b) with respect to reimbursements through insurance.'' .
            (3) Paragraph (6) of section 213(d) is amended--
                    (A) by striking ``subparagraphs (A) and (B)'' and 
                inserting ``subparagraphs (A), (B), and (C)'', and
                    (B) by striking ``paragraph (1)(C)'' in 
                subparagraph (A) and inserting ``paragraph (1)(D)''.
            (4) Paragraph (7) of section 213(d) is amended by striking 
        ``subparagraphs (A) and (B)'' and inserting ``subparagraphs 
        (A), (B), and (C)''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 1996.
            (2) Deduction for long-term care services.--Amounts paid 
        for qualified long-term care services (as defined in section 
        7702B(c) of the Internal Revenue Code of 1986, as added by this 
        Act) furnished in any taxable year beginning before January 1, 
        1998, shall not be taken into account under section 213 of the 
        Internal Revenue Code of 1986.

SEC. 323. REPORTING REQUIREMENTS.

    (a) In General.--Subpart B of part III of subchapter A of chapter 
61 is amended by adding at the end the following new section:

``SEC. 6050Q. CERTAIN LONG-TERM CARE BENEFITS.

    ``(a) Requirement of Reporting.--Any person who pays long-term care 
benefits shall make a return, according to the forms or regulations 
prescribed by the Secretary, setting forth--
            ``(1) the aggregate amount of such benefits paid by such 
        person to any individual during any calendar year, and
            ``(2) the name, address, and TIN of such individual.
    ``(b) Statements To Be Furnished to Persons With Respect to Whom 
Information Is Required.--Every person required to make a return under 
subsection (a) shall furnish to each individual whose name is required 
to be set forth in such return a written statement showing--
            ``(1) the name of the person making the payments, and
            ``(2) the aggregate amount of long-term care benefits paid 
        to the individual which are required to be shown on such 
        return.
The written statement required under the preceding sentence shall be 
furnished to the individual on or before January 31 of the year 
following the calendar year for which the return under subsection (a) 
was required to be made.
    ``(c) Long-Term Care Benefits.--For purposes of this section, the 
term `long-term care benefit' means--
            ``(1) any amount paid under a long-term care insurance 
        policy (within the meaning of section 4980C(e)), and
            ``(2) payments which are excludable from gross income by 
        reason of section 101(g).''.
    (b) Penalties.--
            (1) Subparagraph (B) of section 6724(d)(1) is amended by 
        redesignating clauses (ix) through (xiv) as clauses (x) through 
        (xv), respectively, and by inserting after clause (viii) the 
        following new clause:
                            ``(ix) section 6050Q (relating to certain 
                        long-term care benefits),''.
            (2) Paragraph (2) of section 6724(d) is amended by 
        redesignating subparagraphs (Q) through (T) as subparagraphs 
        (R) through (U), respectively, and by inserting after 
        subparagraph (P) the following new subparagraph:
                    ``(Q) section 6050Q(b) (relating to certain long-
                term care benefits),''.
    (c) Clerical Amendment.--The table of sections for subpart B of 
part III of subchapter A of chapter 61 is amended by adding at the end 
the following new item:

                              ``Sec. 6050Q. Certain long-term care 
                                        benefits.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to benefits paid after December 31, 1996.

                PART II--CONSUMER PROTECTION PROVISIONS

SEC. 325. POLICY REQUIREMENTS.

    Section 7702B (as added by section 321) is amended by adding at the 
end the following new subsection:
    ``(f) Consumer Protection Provisions.--
            ``(1) In general.--The requirements of this subsection are 
        met with respect to any contract if any long-term care 
        insurance policy issued under the contract meets--
                    ``(A) the requirements of the model regulation and 
                model Act described in paragraph (2),
                    ``(B) the disclosure requirement of paragraph (3), 
                and
                    ``(C) the requirements relating to 
                nonforfeitability under paragraph (4).
            ``(2) Requirements of model regulation and act.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any policy if such 
                policy meets--
                            ``(i) Model regulation.--The following 
                        requirements of the model regulation:
                                    ``(I) Section 7A (relating to 
                                guaranteed renewal or 
                                noncancellability), and the 
                                requirements of section 6B of the model 
                                Act relating to such section 7A.
                                    ``(II) Section 7B (relating to 
                                prohibitions on limitations and 
                                exclusions).
                                    ``(III) Section 7C (relating to 
                                extension of benefits).
                                    ``(IV) Section 7D (relating to 
                                continuation or conversion of 
                                coverage).
                                    ``(V) Section 7E (relating to 
                                discontinuance and replacement of 
                                policies).
                                    ``(VI) Section 8 (relating to 
                                unintentional lapse).
                                    ``(VII) Section 9 (relating to 
                                disclosure), other than section 9F 
                                thereof.
                                    ``(VIII) Section 10 (relating to 
                                prohibitions against post-claims 
                                underwriting).
                                    ``(IX) Section 11 (relating to 
                                minimum standards).
                                    ``(X) Section 12 (relating to 
                                requirement to offer inflation 
                                protection), except that any 
                                requirement for a signature on a 
                                rejection of inflation protection shall 
                                permit the signature to be on an 
                                application or on a separate form.
                                    ``(XI) Section 23 (relating to 
                                prohibition against preexisting 
                                conditions and probationary periods in 
                                replacement policies or certificates).
                            ``(ii) Model act.--The following 
                        requirements of the model Act:
                                    ``(I) Section 6C (relating to 
                                preexisting conditions).
                                    ``(II) Section 6D (relating to 
                                prior hospitalization).
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Model provisions.--The terms `model 
                        regulation' and `model Act' mean the long-term 
                        care insurance model regulation, and the long-
                        term care insurance model Act, respectively, 
                        promulgated by the National Association of 
                        Insurance Commissioners (as adopted as of 
                        January 1993).
                            ``(ii) Coordination.--Any provision of the 
                        model regulation or model Act listed under 
                        clause (i) or (ii) of subparagraph (A) shall be 
                        treated as including any other provision of 
                        such regulation or Act necessary to implement 
                        the provision.
                            ``(iii) Determination.--For purposes of 
                        this section and section 4980C, the 
                        determination of whether any requirement of a 
                        model regulation or the model Act has been met 
shall be made by the Secretary.
            ``(3) Disclosure requirement.--The requirement of this 
        paragraph is met with respect to any policy if such policy 
        meets the requirements of section 4980C(d)(1).
            ``(4) Nonforfeiture requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any level premium 
                long-term care insurance policy, if the issuer of such 
                policy offers to the policyholder, including any group 
                policyholder, a nonforfeiture provision meeting the 
                requirements of subparagraph (B).
                    ``(B) Requirements of provision.--The nonforfeiture 
                provision required under subparagraph (A) shall meet 
                the following requirements:
                            ``(i) The nonforfeiture provision shall be 
                        appropriately captioned.
                            ``(ii) The nonforfeiture provision shall 
                        provide for a benefit available in the event of 
                        a default in the payment of any premiums and 
                        the amount of the benefit may be adjusted 
                        subsequent to being initially granted only as 
                        necessary to reflect changes in claims, 
                        persistency, and interest as reflected in 
                        changes in rates for premium paying policies 
                        approved by the Secretary for the same policy 
                        form.
                            ``(iii) The nonforfeiture provision shall 
                        provide at least one of the following:
                                    ``(I) Reduced paid-up insurance.
                                    ``(II) Extended term insurance.
                                    ``(III) Shortened benefit period.
                                    ``(IV) Other similar offerings 
                                approved by the Secretary.
            ``(5) Long-term care insurance policy defined.--For 
        purposes of this subsection, the term `long-term care insurance 
        policy' has the meaning given such term by section 4980C(e).''.

SEC. 326. REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE INSURANCE 
              POLICIES.

    (a) In General.--Chapter 43 is amended by adding at the end the 
following new section:

``SEC. 4980C. REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE INSURANCE 
              POLICIES.

    ``(a) General Rule.--There is hereby imposed on any person failing 
to meet the requirements of subsection (c) or (d) a tax in the amount 
determined under subsection (b).
    ``(b) Amount.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) shall be $100 per policy for each day any 
        requirements of subsection (c) or (d) are not met with respect 
        to each long-term care insurance policy.
            ``(2) Waiver.--In the case of a failure which is due to 
        reasonable cause and not to willful neglect, the Secretary may 
        waive part or all of the tax imposed by subsection (a) to the 
        extent that payment of the tax would be excessive relative to 
        the failure involved.
    ``(c) Responsibilities.--The requirements of this subsection are as 
follows:
            ``(1) Requirements of model provisions.--
                    ``(A) Model regulation.--The following requirements 
                of the model regulation must be met:
                            ``(i) Section 13 (relating to application 
                        forms and replacement coverage).
                            ``(ii) Section 14 (relating to reporting 
                        requirements), except that the issuer shall 
                        also report at least annually the number of 
                        claims denied during the reporting period for 
                        each class of business (expressed as a 
                        percentage of claims denied), other than claims 
                        denied for failure to meet the waiting period 
                        or because of any applicable preexisting 
                        condition.
                            ``(iii) Section 20 (relating to filing 
                        requirements for marketing).
                            ``(iv) Section 21 (relating to standards 
                        for marketing), including inaccurate completion 
                        of medical histories, other than sections 
                        21C(1) and 21C(6) thereof, except that--
                                    ``(I) in addition to such 
                                requirements, no person shall, in 
                                selling or offering to sell a long-term 
                                care insurance policy, misrepresent a 
                                material fact; and
                                    ``(II) no such requirements shall 
                                include a requirement to inquire or 
                                identify whether a prospective 
                                applicant or enrollee for long-term 
                                care insurance has accident and 
                                sickness insurance.
                            ``(v) Section 22 (relating to 
                        appropriateness of recommended purchase).
                            ``(vi) Section 24 (relating to standard 
                        format outline of coverage).
                            ``(vii) Section 25 (relating to requirement 
                        to deliver shopper's guide).
                    ``(B) Model act.--The following requirements of the 
                model Act must be met:
                            ``(i) Section 6F (relating to right to 
                        return), except that such section shall also 
                        apply to denials of applications and any refund 
                        shall be made within 30 days of the return or 
                        denial.
                            ``(ii) Section 6G (relating to outline of 
                        coverage).
                            ``(iii) Section 6H (relating to 
                        requirements for certificates under group 
                        plans).
                            ``(iv) Section 6I (relating to policy 
                        summary).
                            ``(v) Section 6J (relating to monthly 
                        reports on accelerated death benefits).
                            ``(vi) Section 7 (relating to 
                        incontestability period).
                    ``(C) Definitions.--For purposes of this paragraph, 
                the terms `model regulation' and `model Act' have the 
                meanings given such terms by section 7702B(f)(2)(B).
            ``(2) Delivery of policy.--If an application for a long-
        term care insurance policy (or for a certificate under a group 
        long-term care insurance policy) is approved, the issuer shall 
        deliver to the applicant (or policyholder or certificateholder) 
        the policy (or certificate) of insurance not later than 30 days 
        after the date of the approval.
            ``(3) Information on denials of claims.--If a claim under a 
        long-term care insurance policy is denied, the issuer shall, 
        within 60 days of the date of a written request by the 
        policyholder or certificateholder (or representative)--
                    ``(A) provide a written explanation of the reasons 
                for the denial, and
                    ``(B) make available all information directly 
                relating to such denial.
    ``(d) Disclosure.--The requirements of this subsection are met if 
the issuer of a long-term care insurance policy discloses in such 
policy and in the outline of coverage required under subsection 
(c)(1)(B)(ii) that the policy is intended to be a qualified long-term 
care insurance contract under section 7702B(b).
    ``(e) Long-Term Care Insurance Policy Defined.--For purposes of 
this section, the term `long-term care insurance policy' means any 
product which is advertised, marketed, or offered as long-term care 
insurance.''.
    (b) Conforming Amendment.--The table of sections for chapter 43 is 
amended by adding at the end the following new item:

                              ``Sec. 4980C. Requirements for issuers of 
                                        long-term care insurance 
                                        policies.''.

SEC. 327. COORDINATION WITH STATE REQUIREMENTS.

    Nothing in this part shall prevent a State from establishing, 
implementing, or continuing in effect standards related to the 
protection of policyholders of long-term care insurance policies (as 
defined in section 4980C(e) of the Internal Revenue Code of 1986), if 
such standards are not in conflict with or inconsistent with the 
standards established under such Code.

SEC. 328. EFFECTIVE DATES.

    (a) In General.--The provisions of, and amendments made by, this 
part shall apply to contracts issued after December 31, 1996. The 
provisions of section 321(g) (relating to transition rule) shall apply 
to such contracts.
    (b) Issuers.--The amendments made by section 326 shall apply to 
actions taken after December 31, 1996.

          Subtitle D--Treatment of Accelerated Death Benefits

SEC. 331. TREATMENT OF ACCELERATED DEATH BENEFITS BY RECIPIENT.

    (a) In General.--Section 101 (relating to certain death benefits) 
is amended by adding at the end the following new subsection:
    ``(g) Treatment of Certain Accelerated Death Benefits.--
            ``(1) In general.--For purposes of this section, the 
        following amounts shall be treated as an amount paid by reason 
        of the death of an insured:
                    ``(A) Any amount received under a life insurance 
                contract on the life of an insured who is a terminally 
                ill individual.
                    ``(B) Any amount received under a life insurance 
                contract on the life of an insured who is a chronically 
                ill individual (as defined in section 7702B(c)(2)) but 
                only if such amount is received under a rider or other 
                provision of such contract which is treated as a 
                qualified long-term care insurance contract under 
                section 7702B and such amount is treated under section 
                7702B (after the application of subsection (d) thereof) 
                as a payment for qualified long-term care services (as 
                defined in such section).
            ``(2) Treatment of viatical settlements.--
                    ``(A) In general.--In the case of a life insurance 
                contract on the life of an insured described in 
                paragraph (1), if--
                            ``(i) any portion of such contract is sold 
                        to any viatical settlement provider, or
                            ``(ii) any portion of the death benefit is 
                        assigned to such a provider,
                the amount paid for such sale or assignment shall be 
                treated as an amount paid under the life insurance 
                contract by reason of the death of such insured.
                    ``(B) Viatical settlement provider.--The term 
                `viatical settlement provider' means any person 
                regularly engaged in the trade or business of 
                purchasing, or taking assignments of, life insurance 
                contracts on the lives of insureds described in 
                paragraph (1) if--
                            ``(i) such person is licensed for such 
                        purposes in the State in which the insured 
                        resides, or
                            ``(ii) in the case of an insured who 
                        resides in a State not requiring the licensing 
                        of such persons for such purposes--
                                    ``(I) such person meets the 
                                requirements of sections 8 and 9 of the 
                                Viatical Settlements Model Act of the 
                                National Association of Insurance 
                                Commissioners, and
                                    ``(II) meets the requirements of 
                                the Model Regulations of the National 
                                Association of Insurance Commissioners 
                                (relating to standards for evaluation 
                                of reasonable payments) in determining 
                                amounts paid by such person in 
                                connection with such purchases or 
                                assignments.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Terminally ill individual.--The term 
                `terminally ill individual' means an individual who has 
                been certified by a physician as having an illness or 
                physical condition which can reasonably be expected to 
                result in death in 24 months or less after the date of 
                the certification.
                    ``(B) Physician.--The term `physician' has the 
                meaning given to such term by section 1861(r)(1) of the 
                Social Security Act (42 U.S.C. 1395x(r)(1)).
            ``(4) Exception for business-related policies.--This 
        subsection shall not apply in the case of any amount paid to 
        any taxpayer other than the insured if such taxpayer has an 
        insurable interest with respect to the life of the insured by 
        reason of the insured being a director, officer, or employee of 
        the taxpayer or by reason of the insured being financially 
        interested in any trade or business carried on by the 
        taxpayer.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to amounts received after December 31, 1996.

SEC. 332. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED ACCELERATED 
              DEATH BENEFIT RIDERS.

    (a) Qualified Accelerated Death Benefit Riders Treated as Life 
Insurance.--Section 818 (relating to other definitions and special 
rules) is amended by adding at the end the following new subsection:
    ``(g) Qualified Accelerated Death Benefit Riders Treated as Life 
Insurance.--For purposes of this part--
            ``(1) In general.--Any reference to a life insurance 
        contract shall be treated as including a reference to a 
        qualified accelerated death benefit rider on such contract.
            ``(2) Qualified accelerated death benefit riders.--For 
        purposes of this subsection, the term `qualified accelerated 
        death benefit rider' means any rider on a life insurance 
        contract if the only payments under the rider are payments 
        meeting the requirements of section 101(g).
            ``(3) Exception for long-term care riders.--Paragraph (1) 
        shall not apply to any rider which is treated as a long-term 
        care insurance contract under section 7702B.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by this section shall 
        take effect on January 1, 1997.
            (2) Issuance of rider not treated as material change.--For 
        purposes of applying sections 101(f), 7702, and 7702A of the 
        Internal Revenue Code of 1986 to any contract--
                    (A) the issuance of a qualified accelerated death 
                benefit rider (as defined in section 818(g) of such 
                Code (as added by this Act)), and
                    (B) the addition of any provision required to 
                conform an accelerated death benefit rider to the 
                requirements of such section 818(g),
        shall not be treated as a modification or material change of 
        such contract.

                      Subtitle E--High-Risk Pools

SEC. 341. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED ORGANIZATIONS 
              PROVIDING HEALTH COVERAGE FOR HIGH-RISK INDIVIDUALS.

    (a) In General.--Subsection (c) of section 501 (relating to list of 
exempt organizations) is amended by adding at the end the following new 
paragraph:
            ``(26) Any membership organization if--
                    ``(A) such organization is established by a State 
                exclusively to provide coverage for medical care (as 
                defined in section 213(d)) on a not-for-profit basis to 
                individuals described in subparagraph (B) through--
                            ``(i) insurance issued by the organization, 
                        or
                            ``(ii) a health maintenance organization 
                        under an arrangement with the organization,
                    ``(B) the only individuals receiving such coverage 
                through the organization are individuals--
                            ``(i) who are residents of such State, and
                            ``(ii) who, by reason of the existence or 
                        history of a medical condition, are unable to 
                        acquire medical care coverage for such 
                        condition through insurance or from a health 
                        maintenance organization or are able to acquire 
                        such coverage only at a rate which is 
                        substantially in excess of the rate for such 
                        coverage through the membership organization,
                    ``(C) the composition of the membership in such 
                organization is specified by such State, and
                    ``(D) no part of the net earnings of the 
                organization inures to the benefit of any private 
                shareholder or individual.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1996.

            Subtitle F--Organizations Subject to Section 833

SEC. 351. ORGANIZATIONS SUBJECT TO SECTION 833.

    (a) In General.--Section 833(c) (relating to organization to which 
section applies) is amended by adding at the end the following new 
paragraph:
            ``(4) Treatment as existing blue cross or blue shield 
        organization.--
                    ``(A) In general.--Paragraph (2) shall be applied 
                to an organization described in subparagraph (B) as if 
                it were a Blue Cross or Blue Shield organization.
                    ``(B) Applicable organization.--An organization is 
                described in this subparagraph if it--
                            ``(i) is organized under, and governed by, 
                        State laws which are specifically and 
                        exclusively applicable to not-for-profit health 
                        insurance or health service type organizations, 
                        and
                            ``(ii) is not a Blue Cross or Blue Shield 
                        organization or health maintenance 
                        organization.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after December 31, 1996.

                       TITLE IV--REVENUE OFFSETS

SEC. 400. AMENDMENT OF 1986 CODE.

    Except as otherwise expressly provided, whenever in this title an 
amendment or repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be considered to 
be made to a section or other provision of the Internal Revenue Code of 
1986.

   Subtitle A--Repeal of Bad Debt Reserve Method for Thrift Savings 
                              Associations

SEC. 401. REPEAL OF BAD DEBT RESERVE METHOD FOR THRIFT SAVINGS 
              ASSOCIATIONS.

    (a) In General.--Section 593 (relating to reserves for losses on 
loans) is amended by adding at the end the following new subsections:
    ``(f) Termination of Reserve Method.--Subsections (a), (b), (c), 
and (d) shall not apply to any taxable year beginning after December 
31, 1995.
    ``(g) 6-Year Spread of Adjustments.--
            ``(1) In general.--In the case of any taxpayer who is 
        required by reason of subsection (f) to change its method of 
        computing reserves for bad debts--
                    ``(A) such change shall be treated as a change in a 
                method of accounting,
                    ``(B) such change shall be treated as initiated by 
                the taxpayer and as having been made with the consent 
                of the Secretary, and
                    ``(C) the net amount of the adjustments required to 
                be taken into account by the taxpayer under section 
                481(a)--
                            ``(i) shall be determined by taking into 
                        account only applicable excess reserves, and
                            ``(ii) as so determined, shall be taken 
                        into account ratably over the 6-taxable year 
                        period beginning with the first taxable year 
                        beginning after December 31, 1995.
            ``(2) Applicable excess reserves.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `applicable excess reserves' means the excess 
                (if any) of--
                            ``(i) the balance of the reserves described 
                        in subsection (c)(1) (other than the 
                        supplemental reserve) as of the close of the 
                        taxpayer's last taxable year beginning before 
                        December 31, 1995, over
                            ``(ii) the lesser of--
                                    ``(I) the balance of such reserves 
                                as of the close of the taxpayer's last 
                                taxable year beginning before January 
                                1, 1988, or
                                    ``(II) the balance of the reserves 
                                described in subclause (I), reduced in 
                                the same manner as under section 
                                585(b)(2)(B)(ii) on the basis of the 
                                taxable years described in clause (i) 
                                and this clause.
                    ``(B) Special rule for thrifts which become small 
                banks.--In the case of a bank (as defined in section 
                581) which was not a large bank (as defined in section 
                585(c)(2)) for its first taxable year beginning after 
                December 31, 1995--
                            ``(i) the balance taken into account under 
                        subparagraph (A)(ii) shall not be less than the 
                        amount which would be the balance of such 
                        reserves as of the close of its last taxable 
                        year beginning before such date if the 
                        additions to such reserves for all taxable 
                        years had been determined under section 
                        585(b)(2)(A), and
                            ``(ii) the opening balance of the reserve 
                        for bad debts as of the beginning of such first 
                        taxable year shall be the balance taken into 
                        account under subparagraph (A)(ii) (determined 
                        after the application of clause (i) of this 
                        subparagraph).
                The preceding sentence shall not apply for purposes of 
                paragraphs (5) and (6) or subsection (e)(1).
            ``(3) Recapture of pre-1988 reserves where taxpayer ceases 
        to be bank.--If, during any taxable year beginning after 
        December 31, 1995, a taxpayer to which paragraph (1) applied is 
        not a bank (as defined in section 581), paragraph (1) shall 
        apply to the reserves described in paragraph (2)(A)(ii) and the 
        supplemental reserve; except that such reserves shall be taken 
        into account ratably over the 6-taxable year period beginning 
        with such taxable year.
            ``(4) Suspension of recapture if residential loan 
        requirement met.--
                    ``(A) In general.--In the case of a bank which 
                meets the residential loan requirement of subparagraph 
                (B) for the first taxable year beginning after December 
                31, 1995, or for the following taxable year--
                            ``(i) no adjustment shall be taken into 
                        account under paragraph (1) for such taxable 
                        year, and
                            ``(ii) such taxable year shall be 
                        disregarded in determining--
                                    ``(I) whether any other taxable 
                                year is a taxable year for which an 
                                adjustment is required to be taken into 
                                account under paragraph (1), and
                                    ``(II) the amount of such 
                                adjustment.
                    ``(B) Residential loan requirement.--A taxpayer 
                meets the residential loan requirement of this 
                subparagraph for any taxable year if the principal 
                amount of the residential loans made by the taxpayer 
                during such year is not less than the base amount for 
                such year.
                    ``(C) Residential loan.--For purposes of this 
                paragraph, the term `residential loan' means any loan 
                described in clause (v) of section 7701(a)(19)(C) but 
                only if such loan is incurred in acquiring, 
                constructing, or improving the property described in 
                such clause.
                    ``(D) Base amount.--For purposes of subparagraph 
                (B), the base amount is the average of the principal 
                amounts of the residential loans made by the taxpayer 
                during the 6 most recent taxable years beginning on or 
                before December 31, 1995. At the election of the 
                taxpayer who made such loans during each of such 6 
                taxable years, the preceding sentence shall be applied 
                without regard to the taxable year in which such 
                principal amount was the highest and the taxable year 
                in such principal amount was the lowest. Such an 
                election may be made only for the first taxable year 
                beginning after such date, and, if made for such 
                taxable year, shall apply to the succeeding taxable 
                year unless revoked with the consent of the Secretary.
                    ``(E) Controlled groups.--In the case of a taxpayer 
                which is a member of any controlled group of 
                corporations described in section 1563(a)(1), 
                subparagraph (B) shall be applied with respect to such 
                group.
            ``(5) Continued application of fresh start under section 
        585 transitional rules.--In the case of a taxpayer to which 
        paragraph (1) applied and which was not a large bank (as 
        defined in section 585(c)(2)) for its first taxable year 
        beginning after December 31, 1995:
                    ``(A) In general.--For purposes of determining the 
                net amount of adjustments referred to in section 
                585(c)(3)(A)(iii), there shall be taken into account 
                only the excess (if any) of the reserve for bad debts 
                as of the close of the last taxable year before the 
                disqualification year over the balance taken into 
                account by such taxpayer under paragraph (2)(A)(ii) of 
                this subsection.
                    ``(B) Treatment under elective cut-off method.--For 
                purposes of applying section 585(c)(4)--
                            ``(i) the balance of the reserve taken into 
                        account under subparagraph (B) thereof shall be 
                        reduced by the balance taken into account by 
                        such taxpayer under paragraph (2)(A)(ii) of 
                        this subsection, and
                            ``(ii) no amount shall be includible in 
                        gross income by reason of such reduction.
            ``(6) Suspended reserve included as section 381(c) items.--
        The balance taken into account by a taxpayer under paragraph 
        (2)(A)(ii) of this subsection and the supplemental reserve 
        shall be treated as items described in section 381(c).
            ``(7) Conversions to credit unions.--In the case of a 
        taxpayer to which paragraph (1) applied which becomes a credit 
        union described in section 501(c) and exempt from taxation 
        under section 501(a)--
                    ``(A) any amount required to be included in the 
                gross income of the credit union by reason of this 
                subsection shall be treated as derived from an 
                unrelated trade or business (as defined in section 
                513), and
                    ``(B) for purposes of paragraph (3), the credit 
                union shall not be treated as if it were a bank.
            ``(8) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out this subsection 
        and subsection (e), including regulations providing for the 
        application of such subsections in the case of acquisitions, 
        mergers, spin-offs, and other reorganizations.''.
    (b) Conforming Amendments.--
            (1) Subsection (d) of section 50 is amended by adding at 
        the end the following new sentence:
``Paragraphs (1)(A), (2)(A), and (4) of the section 46(e) referred to 
in paragraph (1) of this subsection shall not apply to any taxable year 
beginning after December 31, 1995.''
            (2) Subsection (e) of section 52 is amended by striking 
        paragraph (1) and by redesignating paragraphs (2) and (3) as 
        paragraphs (1) and (2), respectively.
            (3) Subsection (a) of section 57 is amended by striking 
        paragraph (4).
            (4) Section 246 is amended by striking subsection (f).
            (5) Clause (i) of section 291(e)(1)(B) is amended by 
        striking ``or to which section 593 applies''.
            (6) Subparagraph (A) of section 585(a)(2) is amended by 
        striking ``other than an organization to which section 593 
        applies''.
            (7)(A) The material preceding subparagraph (A) of section 
        593(e)(1) is amended by striking ``by a domestic building and 
        loan association or an institution that is treated as a mutual 
        savings bank under section 591(b)'' and inserting ``by a 
        taxpayer having a balance described in subsection 
        (g)(2)(A)(ii)''.
            (B) Subparagraph (B) of section 593(e)(1) is amended to 
        read as follows:
                    ``(B) then out of the balance taken into account 
                under subsection (g)(2)(A)(ii) (properly adjusted for 
                amounts charged against such reserves for taxable years 
                beginning after December 31, 1987),''.
            (C) Paragraph (1) of section 593(e) is amended by adding at 
        the end the following new sentence: ``This paragraph shall not 
        apply to any distribution of all of the stock of a bank (as 
        defined in section 581) to another corporation if, immediately 
        after the distribution, such bank and such other corporation 
        are members of the same affiliated group (as defined in section 
        1504) and the provisions of section 5(e) of the Federal Deposit 
        Insurance Act (as in effect on December 31, 1995) or similar 
        provisions are in effect.''
            (8) Section 595 is hereby repealed.
            (9) Section 596 is hereby repealed.
            (10) Subsection (a) of section 860E is amended--
                    (A) by striking ``Except as provided in paragraph 
                (2), the'' in paragraph (1) and inserting ``The'',
                    (B) by striking paragraphs (2) and (4) and 
                redesignating paragraphs (3) and (5) as paragraphs (2) 
                and (3), respectively, and
                    (C) by striking in paragraph (2) (as so 
                redesignated) all that follows ``subsection'' and 
                inserting a period.
            (11) Paragraph (3) of section 992(d) is amended by striking 
        ``or 593''.
            (12) Section 1038 is amended by striking subsection (f).
            (13) Clause (ii) of section 1042(c)(4)(B) is amended by 
        striking ``or 593''.
            (14) Subsection (c) of section 1277 is amended by striking 
        ``or to which section 593 applies''.
            (15) Subparagraph (B) of section 1361(b)(2) is amended by 
        striking ``or to which section 593 applies''.
            (16) The table of sections for part II of subchapter H of 
        chapter 1 is amended by striking the items relating to sections 
        595 and 596.
    (c) Effective Dates.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        taxable years beginning after December 31, 1995.
            (2) Subsection (b)(7).--The amendments made by subsection 
        (b)(7) shall not apply to any distribution with respect to 
        preferred stock if--
                    (A) such stock is outstanding at all times after 
                October 31, 1995, and before the distribution, and
                    (B) such distribution is made before the date which 
                is 1 year after the date of the enactment of this Act 
                (or, in the case of stock which may be redeemed, if 
                later, the date which is 30 days after the earliest 
                date that such stock may be redeemed).
            (3) Subsection (b)(8).--The amendment made by subsection 
        (b)(8) shall apply to property acquired in taxable years 
        beginning after December 31, 1995.
            (4) Subsection (b)(10).--The amendments made by subsection 
        (b)(10) shall not apply to any residual interest held by a 
        taxpayer if such interest has been held by such taxpayer at all 
        times after October 31, 1995.

             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.

    (a) In General.--Section 32(c)(1) (relating to individuals eligible 
to claim the earned income credit) is amended by adding at the end the 
following new subparagraph:
                    ``(F) Identification number requirement.--The term 
                `eligible individual' does not include any individual 
                who does not include on the return of tax for the 
                taxable year--
                            ``(i) such individual's taxpayer 
                        identification number, and
                            ``(ii) if the individual is married (within 
                        the meaning of section 7703), the taxpayer 
                        identification number of such individual's 
                        spouse.''.
    (b) Special Identification Number.--Section 32 is amended by adding 
at the end the following new subsection:
    ``(l) Identification Numbers.--Solely for purposes of subsections 
(c)(1)(F) and (c)(3)(D), a taxpayer identification number means a 
social security number issued to an individual by the Social Security 
Administration (other than a social security number issued pursuant to 
clause (II) (or that portion of clause (III) that relates to clause 
(II)) of section 205(c)(2)(B)(i) of the Social Security Act).''.
    (c) Extension of Procedures Applicable to Mathematical or Clerical 
Errors.--Section 6213(g)(2) (relating to the definition of mathematical 
or clerical errors) is amended by striking ``and'' at the end of 
subparagraph (D), by striking the period at the end of subparagraph (E) 
and inserting a comma, and by inserting after subparagraph (E) the 
following new subparagraphs:
                    ``(F) an omission of a correct taxpayer 
                identification number required under section 32 
                (relating to the earned income credit) to be included 
                on a return, and
                    ``(G) an entry on a return claiming the credit 
                under section 32 with respect to net earnings from 
                self-employment described in section 32(c)(2)(A) to the 
                extent the tax imposed by section 1401 (relating to 
                self-employment tax) on such net earnings has not been 
                paid.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

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.

    (a) In General.--Subsection (a) of section 877 is amended to read 
as follows:
    ``(a) Treatment of Expatriates.--
            ``(1) In general.--Every nonresident alien individual who, 
        within the 10-year period immediately preceding the close of 
        the taxable year, lost United States citizenship, unless such 
        loss did not have for 1 of its principal purposes the avoidance 
        of taxes under this subtitle or subtitle B, shall be taxable 
        for such taxable year in the manner provided in subsection (b) 
        if the tax imposed pursuant to such subsection exceeds the tax 
        which, without regard to this section, is imposed pursuant to 
        section 871.
            ``(2) Certain individuals treated as having tax avoidance 
        purpose.--For purposes of paragraph (1), an individual shall be 
        treated as having a principal purpose to avoid such taxes if--
                    ``(A) the average annual net income tax (as defined 
                in section 38(c)(1)) of such individual for the period 
                of 5 taxable years ending before the date of the loss 
                of United States citizenship is greater than $100,000, 
                or
                    ``(B) the net worth of the individual as of such 
                date is $500,000 or more.
        In the case of the loss of United States citizenship in any 
        calendar year after 1996, such $100,000 and $500,000 amounts 
        shall be increased by an amount equal to such dollar amount 
        multiplied by the cost-of-living adjustment determined under 
        section 1(f)(3) for such calendar year by substituting `1994' 
        for `1992' in subparagraph (B) thereof. Any increase under the 
        preceding sentence shall be rounded to the nearest multiple of 
        $1,000.''.
    (b) Exceptions.--
            (1) In general.--Section 877 is amended by striking 
        subsection (d), by redesignating subsection (c) as subsection 
        (d), and by inserting after subsection (b) the following new 
        subsection:
    ``(c) Tax Avoidance Not Presumed in Certain Cases.--
            ``(1) In general.--Subsection (a)(2) shall not apply to an 
        individual if--
                    ``(A) such individual is described in a 
                subparagraph of paragraph (2) of this subsection, and
                    ``(B) within the 1-year period beginning on the 
                date of the loss of United States citizenship, such 
                individual submits a ruling request for the Secretary's 
                determination as to whether such loss has for 1 of its 
                principal purposes the avoidance of taxes under this 
                subtitle or subtitle B.
            ``(2) Individuals described.--
                    ``(A) Dual citizenship, etc.--An individual is 
                described in this subparagraph if--
                            ``(i) the individual became at birth a 
                        citizen of the United States and a citizen of 
                        another country and continues to be a citizen 
                        of such other country, or
                            ``(ii) the individual becomes (not later 
                        than the close of a reasonable period after 
                        loss of United States citizenship) a citizen of 
                        the country in which--
                                    ``(I) such individual was born,
                                    ``(II) if such individual is 
                                married, such individual's spouse was 
                                born, or
                                    ``(III) either of such individual's 
                                parents were born.
                    ``(B) Long-term foreign residents.--An individual 
                is described in this subparagraph if, for each year in 
                the 10-year period ending on the date of loss of United 
                States citizenship, the individual was present in the 
                United States for 30 days or less. The rule of section 
                7701(b)(3)(D)(ii) shall apply for purposes of this 
                subparagraph.
                    ``(C) Renunciation upon reaching age of majority.--
                An individual is described in this subparagraph if the 
                individual's loss of United States citizenship occurs 
                before such individual attains age 18\1/2\.
                    ``(D) Individuals specified in regulations.--An 
                individual is described in this subparagraph if the 
                individual is described in a category of individuals 
                prescribed by regulation by the Secretary.''
            (2) Technical amendment.--Paragraph (1) of section 877(b) 
        of such Code is amended by striking ``subsection (c)'' and 
        inserting ``subsection (d)''.
    (c) Treatment of Property Disposed of in Nonrecognition 
Transactions; Treatment of Distributions From Certain Controlled 
Foreign Corporations.--Subsection (d) of section 877, as redesignated 
by subsection (b), is amended to read as follows:
    ``(d) Special Rules for Source, Etc.--For purposes of subsection 
(b)--
            ``(1) Source rules.--The following items of gross income 
        shall be treated as income from sources within the United 
        States:
                    ``(A) Sale of property.--Gains on the sale or 
                exchange of property (other than stock or debt 
                obligations) located in the United States.
                    ``(B) Stock or debt obligations.--Gains on the sale 
                or exchange of stock issued by a domestic corporation 
                or debt obligations of United States persons or of the 
                United States, a State or political subdivision 
                thereof, or the District of Columbia.
                    ``(C) Income or gain derived from controlled 
                foreign corporation.--Any income or gain derived from 
                stock in a foreign corporation but only--
                            ``(i) if the individual losing United 
                        States citizenship owned (within the meaning of 
                        section 958(a)), or is considered as owning (by 
                        applying the ownership rules of section 
                        958(b)), at any time during the 2-year period 
                        ending on the date of the loss of United States 
                        citizenship, more than 50 percent of--
                                    ``(I) the total combined voting 
                                power of all classes of stock entitled 
                                to vote of such corporation, or
                                    ``(II) the total value of the stock 
                                of such corporation, and
                            ``(ii) to the extent such income or gain 
                        does not exceed the earnings and profits 
                        attributable to such stock which were earned or 
                        accumulated before the loss of citizenship and 
                        during periods that the ownership requirements 
                        of clause (i) are met.
            ``(2) Gain recognition on certain exchanges.--
                    ``(A) In general.--In the case of any exchange of 
                property to which this paragraph applies, 
                notwithstanding any other provision of this title, such 
                property shall be treated as sold for its fair market 
                value on the date of such exchange, and any gain shall 
                be recognized for the taxable year which includes such 
                date.
                    ``(B) Exchanges to which paragraph applies.--This 
                paragraph shall apply to any exchange during the 10-
                year period described in subsection (a) if--
                            ``(i) gain would not (but for this 
                        paragraph) be recognized on such exchange in 
                        whole or in part for purposes of this subtitle,
                            ``(ii) income derived from such property 
                        was from sources within the United States (or, 
                        if no income was so derived, would have been 
                        from such sources), and
                            ``(iii) income derived from the property 
                        acquired in the exchange would be from sources 
                        outside the United States.
                    ``(C) Exception.--Subparagraph (A) shall not apply 
                if the individual enters into an agreement with the 
                Secretary which specifies that any income or gain 
                derived from the property acquired in the exchange (or 
                any other property which has a basis determined in 
                whole or part by reference to such property) during 
                such 10-year period shall be treated as from sources 
                within the United States. If the property transferred 
                in the exchange is disposed of by the person acquiring 
                such property, such agreement shall terminate and any 
                gain which was not recognized by reason of such 
                agreement shall be recognized as of the date of such 
                disposition.
                    ``(D) Secretary may extend period.--To the extent 
                provided in regulations prescribed by the Secretary, 
                subparagraph (B) shall be applied by substituting the 
                15-year period beginning 5 years before the loss of 
                United States citizenship for the 10-year period 
                referred to therein.
                    ``(E) Secretary may require recognition of gain in 
                certain cases.--To the extent provided in regulations 
                prescribed by the Secretary--
                            ``(i) the removal of appreciated tangible 
                        personal property from the United States, and
                            ``(ii) any other occurrence which (without 
                        recognition of gain) results in a change in the 
                        source of the income or gain from property from 
                        sources within the United States to sources 
                        outside the United States,
                shall be treated as an exchange to which this paragraph 
                applies.
            ``(3) Substantial diminishing of risks of ownership.--For 
        purposes of determining whether this section applies to any 
        gain on the sale or exchange of any property, the running of 
        the 10-year period described in subsection (a) shall be 
        suspended for any period during which the individual's risk of 
        loss with respect to the property is substantially diminished 
        by--
                    ``(A) the holding of a put with respect to such 
                property (or similar property),
                    ``(B) the holding by another person of a right to 
                acquire the property, or
                    ``(C) a short sale or any other transaction.''.
    (d) Credit for Foreign Taxes Imposed on United States Source 
Income.--
            (1) Subsection (b) of section 877 is amended by adding at 
        the end the following new sentence: ``The tax imposed solely by 
        reason of this section shall be reduced (but not below zero) by 
        the amount of any income, war profits, and excess profits taxes 
        (within the meaning of section 903) paid to any foreign country 
        or possession of the United States on any income of the 
        taxpayer on which tax is imposed solely by reason of this 
        section.''
            (2) Subsection (a) of section 877, as amended by subsection 
        (a), is amended by inserting ``(after any reduction in such tax 
        under the last sentence of such subsection)'' after ``such 
        subsection''.
    (e) Comparable Estate and Gift Tax Treatment.--
            (1) Estate tax.--
                    (A) In general.--Subsection (a) of section 2107 is 
                amended to read as follows:
    ``(a) Treatment of Expatriates.--
            ``(1) Rate of tax.--A tax computed in accordance with the 
        table contained in section 2001 is hereby imposed on the 
transfer of the taxable estate, determined as provided in section 2106, 
of every decedent nonresident not a citizen of the United States if, 
within the 10-year period ending with the date of death, such decedent 
lost United States citizenship, unless such loss did not have for 1 of 
its principal purposes the avoidance of taxes under this subtitle or 
subtitle A.
            ``(2) Certain individuals treated as having tax avoidance 
        purpose.--
                    ``(A) In general.--For purposes of paragraph (1), 
                an individual shall be treated as having a principal 
                purpose to avoid such taxes if such individual is so 
                treated under section 877(a)(2).
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to a decedent meeting the requirements of section 
                877(c)(1).''.
                    (B) Credit for foreign death taxes.--Subsection (c) 
                of section 2107 is amended by redesignating paragraph 
                (2) as paragraph (3) and by inserting after paragraph 
                (1) the following new paragraph:
            ``(2) Credit for foreign death taxes.--
                    ``(A) In general.--The tax imposed by subsection 
                (a) shall be credited with the amount of any estate, 
                inheritance, legacy, or succession taxes actually paid 
                to any foreign country in respect of any property which 
                is included in the gross estate solely by reason of 
                subsection (b).
                    ``(B) Limitation on credit.--The credit allowed by 
                subparagraph (A) for such taxes paid to a foreign 
                country shall not exceed the lesser of--
                            ``(i) the amount which bears the same ratio 
                        to the amount of such taxes actually paid to 
                        such foreign country in respect of property 
                        included in the gross estate as the value of 
                        the property included in the gross estate 
                        solely by reason of subsection (b) bears to the 
                        value of all property subjected to such taxes 
                        by such foreign country, or
                            ``(ii) such property's proportionate share 
                        of the excess of--
                                    ``(I) the tax imposed by subsection 
                                (a), over
                                    ``(II) the tax which would be 
                                imposed by section 2101 but for this 
                                section.
                    ``(C) Proportionate share.--For purposes of 
                subparagraph (B), a property's proportionate share is 
                the percentage of the value of the property which is 
                included in the gross estate solely by reason of 
                subsection (b) bears to the total value of the gross 
                estate.''.
                    (C) Expansion of inclusion in gross estate of stock 
                of foreign corporations.--Paragraph (2) of section 
                2107(b) is amended by striking ``more than 50 percent 
                of'' and all that follows and inserting ``more than 50 
                percent of--
                    ``(A) the total combined voting power of all 
                classes of stock entitled to vote of such corporation, 
                or
                    ``(B) the total value of the stock of such 
                corporation,''.
            (2) Gift tax.--
                    (A) In general.--Paragraph (3) of section 2501(a) 
                is amended to read as follows:
            ``(3) Exception.--
                    ``(A) Certain individuals.--Paragraph (2) shall not 
                apply in the case of a donor who, within the 10-year 
                period ending with the date of transfer, lost United 
                States citizenship, unless such loss did not have for 1 
                of its principal purposes the avoidance of taxes under 
                this subtitle or subtitle A.
                    ``(B) Certain individuals treated as having tax 
                avoidance purpose.--For purposes of subparagraph (A), 
                an individual shall be treated as having a principal 
                purpose to avoid such taxes if such individual is so 
                treated under section 877(a)(2).
                    ``(C) Exception for certain individuals.--
                Subparagraph (B) shall not apply to a decedent meeting 
                the requirements of section 877(c)(1).
                    ``(D) Credit for foreign gift taxes.--The tax 
                imposed by this section solely by reason of this 
                paragraph shall be credited with the amount of any gift 
                tax actually paid to any foreign country in respect of 
                any gift which is taxable under this section solely by 
                reason of this paragraph.''.
    (f) Comparable Treatment of Lawful Permanent Residents Who Cease To 
Be Taxed as Residents.--
            (1) In general.--Section 877 is amended by redesignating 
        subsection (e) as subsection (f) and by inserting after 
        subsection (d) the following new subsection:
    ``(e) Comparable Treatment of Lawful Permanent Residents Who Cease 
To Be Taxed as Residents.--
            ``(1) In general.--Any long-term resident of the United 
        States who--
                    ``(A) ceases to be a lawful permanent resident of 
                the United States (within the meaning of section 
                7701(b)(6)), or
                    ``(B) commences to be treated as a resident of a 
                foreign country under the provisions of a tax treaty 
                between the United States and the foreign country and 
                who does not waive the benefits of such treaty 
                applicable to residents of the foreign country,
        shall be treated for purposes of this section and sections 
        2107, 2501, and 6039F in the same manner as if such resident 
        were a citizen of the United States who lost United States 
        citizenship on the date of such cessation or commencement.
            ``(2) Long-term resident.--For purposes of this subsection, 
        the term `long-term resident' means any individual (other than 
        a citizen of the United States) who is a lawful permanent 
        resident of the United States in at least 8 taxable years 
        during the period of 15 taxable years ending with the taxable 
        year during which the event described in subparagraph (A) or 
        (B) of paragraph (1) occurs. For purposes of the preceding 
        sentence, an individual shall not be treated as a lawful 
        permanent resident for any taxable year if such individual is 
        treated as a resident of a foreign country for the taxable year 
        under the provisions of a tax treaty between the United States 
        and the foreign country and does not waive the benefits of such 
        treaty applicable to residents of the foreign country.
            ``(3) Special rules.--
                    ``(A) Exceptions not to apply.--Subsection (c) 
                shall not apply to an individual who is treated as 
                provided in paragraph (1).
                    ``(B) Step-up in basis.--Solely for purposes of 
                determining any tax imposed by reason of this 
                subsection, property which was held by the long-term 
                resident on the date the individual first became a 
                resident of the United States shall be treated as 
                having a basis on such date of not less than the fair 
                market value of such property on such date. The 
                preceding sentence shall not apply if the individual 
                elects not to have such sentence apply. Such an 
                election, once made, shall be irrevocable.
            ``(4) Authority to exempt individuals.--This subsection 
        shall not apply to an individual who is described in a category 
        of individuals prescribed by regulation by the Secretary.
            ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be appropriate to carry out this subsection, 
        including regulations providing for the application of this 
        subsection in cases where an alien individual becomes a 
        resident of the United States during the 10-year period after 
        being treated as provided in paragraph (1).''.
            (2) Conforming amendments.--
                    (A) Section 2107 is amended by striking subsection 
                (d), by redesignating subsection (e) as subsection (d), 
                and by inserting after subsection (d) (as so 
                redesignated) the following new subsection:
    ``(e) Cross Reference.--

                                ``For comparable treatment of long-term 
lawful permanent residents who ceased to be taxed as residents, see 
section 877(e).''.
                    (B) Paragraph (3) of section 2501(a) (as amended by 
                subsection (e)) is amended by adding at the end the 
                following new subparagraph:
                    ``(E) Cross reference.--

                                ``For comparable treatment of long-term 
lawful permanent residents who ceased to be taxed as residents, see 
section 877(e).''.
    (g) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to--
                    (A) individuals losing United States citizenship 
                (within the meaning of section 877 of the Internal 
                Revenue Code of 1986) on or after February 6, 1995, and
                    (B) long-term residents of the United States with 
                respect to whom an event described in subparagraph (A) 
                or (B) of section 877(e)(1) of such Code occurs on or 
                after February 6, 1995.
            (2) Special rule.--
                    (A) In general.--In the case of an individual who 
                performed an act of expatriation specified in paragraph 
                (1), (2), (3), or (4) of section 349(a) of the 
                Immigration and Nationality Act (8 U.S.C. 1481(a)(1)-
                (4)) before February 6, 1995, but who did not, on or 
                before such date, furnish to the United States 
                Department of State a signed statement of voluntary 
                relinquishment of United States nationality confirming 
                the performance of such act, the amendments made by 
                this section and section 11349 shall apply to such 
                individual except that--
                            (i) the 10-year period described in section 
                        877(a) of such Code shall not expire before the 
                        end of the 10-year period beginning on the date 
                        such statement is so furnished, and
                            (ii) the 1-year period referred to in 
                        section 877(c) of such Code, as amended by this 
                        section, shall not expire before the date which 
                        is 1 year after the date of the enactment of 
                        this Act.
                    (B) Exception.--Subparagraph (A) shall not apply if 
                the individual establishes to the satisfaction of the 
                Secretary of the Treasury that such loss of United 
                States citizenship occurred before February 6, 1994.

SEC. 422. INFORMATION ON INDIVIDUALS LOSING UNITED STATES CITIZENSHIP.

    (a) In General.--Subpart A of part III of subchapter A of chapter 
61 is amended by inserting after section 6039E the following new 
section:

``SEC. 6039F. INFORMATION ON INDIVIDUALS LOSING UNITED STATES 
              CITIZENSHIP.

    ``(a) In General.--Notwithstanding any other provision of law, any 
individual who loses United States citizenship (within the meaning of 
section 877(a)) shall provide a statement which includes the 
information described in subsection (b). Such statement shall be--
            ``(1) provided not later than the earliest date of any act 
        referred to in subsection (c), and
            ``(2) provided to the person or court referred to in 
        subsection (c) with respect to such act.
    ``(b) Information To Be Provided.--Information required under 
subsection (a) shall include--
            ``(1) the taxpayer's TIN,
            ``(2) the mailing address of such individual's principal 
        foreign residence,
            ``(3) the foreign country in which such individual is 
        residing,
            ``(4) the foreign country of which such individual is a 
        citizen,
            ``(5) in the case of an individual having a net worth of at 
        least the dollar amount applicable under section 877(a)(2)(B), 
        information detailing the assets and liabilities of such 
        individual, and
            ``(6) such other information as the Secretary may 
        prescribe.
    ``(c) Acts Described.--For purposes of this section, the acts 
referred to in this subsection are--
            ``(1) the individual's renunciation of his United States 
        nationality before a diplomatic or consular officer of the 
        United States pursuant to paragraph (5) of section 349(a) of 
        the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
            ``(2) the individual's furnishing to the United States 
        Department of State a signed statement of voluntary 
        relinquishment of United States nationality confirming the 
        performance of an act of expatriation specified in paragraph 
        (1), (2), (3), or (4) of section 349(a) of the Immigration and 
        Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
            ``(3) the issuance by the United States Department of State 
        of a certificate of loss of nationality to the individual, or
            ``(4) the cancellation by a court of the United States of a 
        naturalized citizen's certificate of naturalization.
    ``(d) Penalty.--Any individual failing to provide a statement 
required under subsection (a) shall be subject to a penalty for each 
year (of the 10-year period beginning on the date of loss of United 
States citizenship) during any portion of which such failure continues 
in an amount equal to the greater of--
            ``(1) 5 percent of the tax required to be paid under 
        section 877 for the taxable year ending during such year, or
            ``(2) $1,000,
unless it is shown that such failure is due to reasonable cause and not 
to willful neglect.
    ``(e) Information To Be Provided to Secretary.--Notwithstanding any 
other provision of law--
            ``(1) any Federal agency or court which collects (or is 
        required to collect) the statement under subsection (a) shall 
        provide to the Secretary--
                    ``(A) a copy of any such statement, and
                    ``(B) the name (and any other identifying 
                information) of any individual refusing to comply with 
                the provisions of subsection (a),
            ``(2) the Secretary of State shall provide to the Secretary 
        a copy of each certificate as to the loss of American 
        nationality under section 358 of the Immigration and 
        Nationality Act which is approved by the Secretary of State, 
        and
            ``(3) the Federal agency primarily responsible for 
        administering the immigration laws shall provide to the 
        Secretary the name of each lawful permanent resident of the 
        United States (within the meaning of section 7701(b)(6)) whose 
        status as such has been revoked or has been administratively or 
        judicially determined to have been abandoned.
Notwithstanding any other provision of law, not later than 30 days 
after the close of each calendar quarter, the Secretary shall publish 
in the Federal Register the name of each individual losing United 
States citizenship (within the meaning of section 877(a)) with respect 
to whom the Secretary receives information under the preceding sentence 
during such quarter.
    ``(f) Reporting by Long-Term Lawful Permanent Residents Who Cease 
To Be Taxed as Residents.--In lieu of applying the last sentence of 
subsection (a), any individual who is required to provide a statement 
under this section by reason of section 877(e)(1) shall provide such 
statement with the return of tax imposed by chapter 1 for the taxable 
year during which the event described in such section occurs.
    ``(g) Exemption.--The Secretary may by regulations exempt any class 
of individuals from the requirements of this section if he determines 
that applying this section to such individuals is not necessary to 
carry out the purposes of this section.''.
    (b) Clerical Amendment.--The table of sections for such subpart A 
is amended by inserting after the item relating to section 6039E the 
following new item:

``Sec. 6039F. Information on individuals losing United States 
                            citizenship.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to--
            (1) individuals losing United States citizenship (within 
        the meaning of section 877 of the Internal Revenue Code of 
        1986) on or after February 6, 1995, and
            (2) long-term residents of the United States with respect 
        to whom an event described in subparagraph (A) or (B) of 
        section 877(e)(1) of such Code occurs on or after such date.
In no event shall any statement required by such amendments be due 
before the 90th day after the date of the enactment of this Act.

SEC. 423. REPORT ON TAX COMPLIANCE BY UNITED STATES CITIZENS AND 
              RESIDENTS LIVING ABROAD.

    Not later than 90 days after the date of the enactment of this Act, 
the Secretary of the Treasury shall prepare and submit to the Committee 
on Ways and Means of the House of Representatives and the Committee on 
Finance of the Senate a report--
            (1) describing the compliance with subtitle A of the 
        Internal Revenue Code of 1986 by citizens and lawful permanent 
        residents of the United States (within the meaning of section 
        7701(b)(6) of such Code) residing outside the United States, 
        and
            (2) recommending measures to improve such compliance 
        (including improved coordination between executive branch 
        agencies).

            Passed the House of Representatives March 28, 1996.

            Attest:

                                                                 Clerk.
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