In the Senate of the United States,

April 23, 1996.

Resolved, That the bill from the House of Representatives (H.R. 3103) entitled ‘‘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’’, do pass with the following

AMENDMENT:

Strike out all after the enacting clause and insert:

1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

3 ‘‘Health Insurance Reform Act of 1996’’.

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

5 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Definitions.
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TITLE I—HEALTH CARE ACCESS, PORTABILITY, AND

RENEWABILITY

Subtitle A—Group Market Rules

Sec. 101. Guaranteed availability of health coverage.

Sec. 102. Guaranteed renewability of health coverage.

Sec. 103. Portability of health coverage and limitation on preexisting condition

exclusions.

Sec. 104. Special enrollment periods.

Sec. 105. Disclosure of information.

Subtitle B—Individual Market Rules

Sec. 110. Individual health plan portability.

Sec. 111. Guaranteed renewability of individual health coverage.

Sec. 112. State flexibility in individual market reforms.

Sec. 113. Definition.

Subtitle C—COBRA Clarifications

Sec. 121. COBRA clarifications.

Subtitle D—Private Health Plan Purchasing Cooperatives

Sec. 131. Private health plan purchasing cooperatives.

TITLE II—APPLICATION AND ENFORCEMENT OF STANDARDS

Sec. 201. Applicability.

Sec. 202. Enforcement of standards.

TITLE III—MISCELLANEOUS PROVISIONS

Sec. 301. HMOs allowed to offer plans with deductibles to individuals with medical savings accounts.

Sec. 302. Health coverage availability study.

Sec. 303. Reimbursement of telemedicine.

Sec. 304. Sense of the Committee concerning medicare.

Sec. 305. Parity for mental health services.

Sec. 306. Waiver of foreign country residence requirement with respect to international medical graduates.

Sec. 307. Organ and tissue donation information included with income tax refund payments.

Sec. 308. Sense of the Senate regarding adequate health care coverage for all children and pregnant women.

Sec. 309. Sense of the Senate regarding available treatments.

Sec. 310. Medical volunteers.

Sec. 311. Effective date.

Sec. 312. Severability.

TITLE IV—TAX-RELATED HEALTH PROVISIONS

Sec. 400. Short title; amendment of 1986 Code.
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Subtitle A—Increase in Deduction for Health Insurance Costs of Self-Employed

Individuals

Sec. 401. Increase in self-employed individuals’ deduction for health insurance

costs.

Subtitle B—Long-Term Care Provisions

CHAPTER 1—LONG-TERM CARE SERVICES AND CONTRACTS

SUBCHAPTER A—GENERAL PROVISIONS

Sec. 411. Treatment of long-term care insurance.

Sec. 412. Qualified long-term care services treated as medical care.

Sec. 413. Certain exchanges of life insurance contracts for qualified long-term

care insurance contracts not taxable.

Sec. 414. Exception from penalty tax for amounts withdrawn from certain retirement plans for qualified long-term care insurance.

Sec. 415. Reporting requirements.

SUBCHAPTER B—CONSUMER PROTECTION PROVISIONS

Sec. 421. Policy requirements.

Sec. 422. Requirements for issuers of long-term care insurance policies.

Sec. 423. Coordination with State requirements.

Sec. 424. Effective dates.

CHAPTER 2—TREATMENT OF ACCELERATED DEATH BENEFITS

Sec. 431. Treatment of accelerated death benefits by recipient.

Sec. 432. Tax treatment of companies issuing qualified accelerated death benefit

riders.

Subtitle C—High-Risk Pools

Sec. 451. Exemption from income tax for State-sponsored organizations providing

health coverage for high-risk individuals.

Subtitle D—Penalty-Free IRA Distributions

Sec. 461. Distributions from certain plans may be used without penalty to pay

financially devastating medical expenses.

Subtitle E—Revenue Offsets

CHAPTER 1—TREATMENT OF INDIVIDUALS WHO EXPATRIATE

Sec. 471. Revision of tax rules on expatriation.

Sec. 472. Information on individuals expatriating.

Sec. 473. Report on tax compliance by United States citizens and residents living

abroad.

CHAPTER 2—COMPANY-OWNED INSURANCE

Sec. 495. Denial of deduction for interest on loans with respect to company-owned

insurance.

TITLE V—HEALTH CARE FRAUD AND ABUSE PREVENTION

Sec. 500. Amendments.
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Subtitle A—Fraud and Abuse Control Program

Sec. 501. Fraud and abuse control program.

Sec. 502. Medicare integrity program.

Sec. 503. Beneficiary incentive programs.

Sec. 504. Application of certain health anti-fraud and abuse sanctions to fraud

and abuse against Federal health care programs.

Sec. 505. Guidance regarding application of health care fraud and abuse sanctions.

Subtitle B—Revisions to Current Sanctions for Fraud and Abuse

Sec. 511. Mandatory exclusion from participation in medicare and State health

care programs.

Sec. 512. Establishment of minimum period of exclusion for certain individuals

and entities subject to permissive exclusion from medicare and

State health care programs.

Sec. 513. Permissive exclusion of individuals with ownership or control interest

in sanctioned entities.

Sec. 514. Sanctions against practitioners and persons for failure to comply with

statutory obligations.

Sec. 515. Intermediate sanctions for medicare health maintenance organizations.

Sec. 516. Additional exceptions to anti-kickback penalties for risk-sharing arrangements.

Sec. 517. Effective date.

Subtitle C—Data Collection and Miscellaneous Provisions

Sec. 521. Establishment of the health care fraud and abuse data collection program.

Subtitle D—Civil Monetary Penalties

Sec. 531. Social Security Act civil monetary penalties.

Subtitle E—Amendments to Criminal Law

Sec. 541. Health care fraud.

Sec. 542. Forfeitures for Federal health care offenses.

Sec. 543. Injunctive relief relating to Federal health care offenses.

Sec. 544. False statements.

Sec. 545. Obstruction of criminal investigations of Federal health care offenses.

Sec. 546. Theft or embezzlement.

Sec. 547. Laundering of monetary instruments.

Sec. 548. Authorized investigative demand procedures.

TITLE VI—INTERNAL REVENUE CODE AND OTHER PROVISIONS

Sec. 600. References.

Subtitle A—Foreign Trust Tax Compliance

Sec. 601. Improved information reporting on foreign trusts.

Sec. 602. Modifications of rules relating to foreign trusts having one or more

United States beneficiaries.

Sec. 603. Foreign persons not to be treated as owners under grantor trust rules.

Sec. 604. Information reporting regarding foreign gifts.
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Sec. 605. Modification of rules relating to foreign trusts which are not grantor

trusts.

Sec. 606. Residence of estates and trusts, etc.

Subtitle B—Repeal of Bad Debt Reserve Method for Thrift Savings Associations

Sec. 611. Repeal of bad debt reserve method for Thrift Savings Associations.

Subtitle C—Other Provisions

Sec. 621. Extension of medicare secondary payor provisions.

Sec. 622. Annual adjustment factors for operating costs only; restraint on rent increases.

Sec. 623. Foreclosure avoidance and borrower assistance.

1 SEC. 2. DEFINITIONS.

2 As used in this Act:

3 (1) BENEFICIARY.—The term ‘‘beneficiary’’ has

4 the meaning given such term under section 3(8) of the

5 Employee Retirement Income Security Act of 1974

6 (29 U.S.C. 1002(8)).

7 (2) EMPLOYEE.—The term ‘‘employee’’ has the

8 meaning given such term under section 3(6) of the

9 Employee Retirement Income Security Act of 1974

10 (29 U.S.C. 1002(6)).

11 (3) EMPLOYER.—The term ‘‘employer’’ has the

12 meaning given such term under section 3(5) of the

13 Employee Retirement Income Security Act of 1974

14 (29 U.S.C. 1002(5)), except that such term shall in15 clude only employers of two or more employees.

16 (4) EMPLOYEE HEALTH BENEFIT PLAN.—

17 (A) IN GENERAL.—The term ‘‘employee

18 health benefit plan’’ means any employee welfare

19 benefit plan, governmental plan, or church plan
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1 (as defined under paragraphs (1), (32), and (33)

2 of section 3 of the Employee Retirement Income

3 Security Act of 1974 (29 U.S.C. 1002 (1), (32),

4 and (33))), or any health benefit plan under sec5 tion 5(e) of the Peace Corps Act (22 U.S.C.

6 2504(e)), that provides or pays for health bene7 fits (such as provider and hospital benefits) for

8 participants and beneficiaries whether—

9 (i) directly;

10 (ii) through a group health plan of11 fered by a health plan issuer as defined in

12 paragraph (8); or

13 (iii) otherwise.

14 (B) RULE OF CONSTRUCTION.—An em15 ployee health benefit plan shall not be construed

16 to be a group health plan, an individual health

17 plan, or a health plan issuer.

18 (C) ARRANGEMENTS NOT INCLUDED.—Such

19 term does not include the following, or any com20 bination thereof:

21 (i) Coverage only for accident, or dis22 ability income insurance, or any combina23 tion thereof.
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1 (ii) Medicare supplemental health in2 surance (as defined under section

3 1882(g)(1) of the Social Security Act).

4 (iii) Coverage issued as a supplement

5 to liability insurance.

6 (iv) Liability insurance, including

7 general liability insurance and automobile

8 liability insurance.

9 (v) Workers compensation or similar

10 insurance.

11 (vi) Automobile medical payment in12 surance.

13 (vii) Coverage for a specified disease or

14 illness.

15 (viii) Hospital or fixed indemnity in16 surance.

17 (ix) Short-term limited duration insur18 ance.

19 (x) Credit-only, dental-only, or vision20 only insurance.

21 (xi) A health insurance policy provid22 ing benefits only for long-term care, nursing

23 home care, home health care, community24 based care, or any combination thereof.

25 (5) FAMILY.—
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1 (A) IN GENERAL.—The term ‘‘family’’

2 means an individual, the individual’s spouse,

3 and the child of the individual (if any).

4 (B) CHILD.—For purposes of subparagraph

5 (A), the term ‘‘child’’ means any individual who

6 is a child within the meaning of section

7 151(c)(3) of the Internal Revenue Code of 1986.

8 (6) GROUP HEALTH PLAN.—

9 (A) IN GENERAL.—The term ‘‘group health

10 plan’’ means any contract, policy, certificate or

11 other arrangement offered by a health plan is12 suer to a group purchaser that provides or pays

13 for health benefits (such as provider and hospital

14 benefits) in connection with an employee health

15 benefit plan.

16 (B) ARRANGEMENTS NOT INCLUDED.—Such

17 term does not include the following, or any com18 bination thereof:

19 (i) Coverage only for accident, or dis20 ability income insurance, or any combina21 tion thereof.

22 (ii) Medicare supplemental health in23 surance (as defined under section

24 1882(g)(1) of the Social Security Act).
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1 (iii) Coverage issued as a supplement

2 to liability insurance.

3 (iv) Liability insurance, including

4 general liability insurance and automobile

5 liability insurance.

6 (v) Workers compensation or similar

7 insurance.

8 (vi) Automobile medical payment in9 surance.

10 (vii) Coverage for a specified disease or

11 illness.

12 (viii) Hospital or fixed indemnity in13 surance.

14 (ix) Short-term limited duration insur15 ance.

16 (x) Credit-only, dental-only, or vision17 only insurance.

18 (xi) A health insurance policy provid19 ing benefits only for long-term care, nursing

20 home care, home health care, community21 based care, or any combination thereof.

22 (7) GROUP PURCHASER.—The term ‘‘group pur23 chaser’’ means any person (as defined under para24 graph (9) of section 3 of the Employee Retirement In25 come Security Act of 1974 (29 U.S.C. 1002(9)) or en-
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1 tity that purchases or pays for health benefits (such

2 as provider or hospital benefits) on behalf of two or

3 more participants or beneficiaries in connection with

4 an employee health benefit plan. A health plan pur5 chasing cooperative established under section 131

6 shall not be considered to be a group purchaser.

7 (8) HEALTH PLAN ISSUER.—The term ‘‘health

8 plan issuer’’ means any entity that is licensed (prior

9 to or after the date of enactment of this Act) by a

10 State to offer a group health plan or an individual

11 health plan.

12 (9) PARTICIPANT.—The term ‘‘participant’’ has

13 the meaning given such term under section 3(7) of the

14 Employee Retirement Income Security Act of 1974

15 (29 U.S.C. 1002(7)).

16 (10) PLAN SPONSOR.—The term ‘‘plan sponsor’’

17 has the meaning given such term under section

18 3(16)(B) of the Employee Retirement Income Security

19 Act of 1974 (29 U.S.C. 1002(16)(B)).

20 (11) SECRETARY.—The term ‘‘Secretary’’, unless

21 specifically provided otherwise, means the Secretary

22 of Labor.

23 (12) STATE.—The term ‘‘State’’ means each of

24 the several States, the District of Columbia, Puerto

25 Rico, the United States Virgin Islands, Guam, Amer-
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1 ican Samoa, and the Commonwealth of the Northern

2 Mariana Islands.

3 TITLE I—HEALTH CARE ACCESS,

4 PORTABILITY, AND RENEW5 ABILITY

6 Subtitle A—Group Market Rules

7 SEC. 101. GUARANTEED AVAILABILITY OF HEALTH COV8 ERAGE.

9 (a) IN GENERAL.—

10 (1) NONDISCRIMINATION.—Except as provided in

11 subsection (b), section 102 and section 103—

12 (A) a health plan issuer offering a group

13 health plan may not decline to offer whole group

14 coverage to a group purchaser desiring to pur15 chase such coverage; and

16 (B) an employee health benefit plan or a

17 health plan issuer offering a group health plan

18 may establish, under the terms of such plan, eli19 gibility, enrollment, or premium contribution re20 quirements for individual participants or bene21 ficiaries, except that such requirements shall not

22 be based on health status, medical condition,

23 claims experience, receipt of health care, medical

24 history, evidence of insurability (including con-
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1 ditions arising out of acts of domestic violence),

2 genetic information, or disability.

3 (2) HEALTH PROMOTION AND DISEASE PREVEN4 TION.—Nothing in this subsection shall prevent an

5 employee health benefit plan or a health plan issuer

6 from establishing premium discounts or modifying

7 otherwise applicable copayments or deductibles in re8 turn for adherence to programs of health promotion

9 and disease prevention.

10 (b) APPLICATION OF CAPACITY LIMITS.—

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

12 health plan issuer offering a group health plan may

13 cease offering coverage to group purchasers under the

14 plan if—

15 (A) the health plan issuer ceases to offer

16 coverage to any additional group purchasers;

17 and

18 (B) the health plan issuer can demonstrate

19 to the applicable certifying authority (as defined

20 in section 202(d)), if required, that its financial

21 or provider capacity to serve previously covered

22 participants and beneficiaries (and additional

23 participants and beneficiaries who will be ex24 pected to enroll because of their affiliation with

25 a group purchaser or such previously covered
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1 participants or beneficiaries) will be impaired if

2 the health plan issuer is required to offer cov3 erage to additional group purchasers.

4 Such health plan issuer shall be prohibited from offer5 ing coverage after a cessation in offering coverage

6 under this paragraph for a 6-month period or until

7 the health plan issuer can demonstrate to the applica8 ble certifying authority (as defined in section 202(d))

9 that the health plan issuer has adequate capacity,

10 whichever is later.

11 (2) FIRST-COME-FIRST-SERVED.—A health plan

12 issuer offering a group health plan is only eligible to

13 exercise the limitations provided for in paragraph (1)

14 if the health plan issuer offers coverage to group pur15 chasers under such plan on a first-come-first-served

16 basis or other basis established by a State to ensure

17 a fair opportunity to enroll in the plan and avoid

18 risk selection.

19 (c) CONSTRUCTION.—

20 (1) MARKETING OF GROUP HEALTH PLANS.—

21 Nothing in this section shall be construed to prevent

22 a State from requiring health plan issuers offering

23 group health plans to actively market such plans.

24 (2) INVOLUNTARY OFFERING OF GROUP HEALTH

25 PLANS.—Nothing in this section shall be construed to
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1 require a health plan issuer to involuntarily offer

2 group health plans in a particular market or to re3 quire a health plan issuer to involuntarily issue a

4 group health plan to a group health plan purchaser

5 in a particular market if the group health plan was

6 specifically designed for a different market. For the

7 purposes of this paragraph, the term ‘‘market’’ means

8 either the large employer market or the small em9 ployer market (as defined under applicable State law,

10 or if not so defined, an employer with more than one

11 employee and not more than 50 employees).

12 SEC. 102. GUARANTEED RENEWABILITY OF HEALTH COV13 ERAGE.

14 (a) IN GENERAL.—

15 (1) GROUP PURCHASER.—Subject to subsections

16 (b) and (c), a group health plan shall be renewed or

17 continued in force by a health plan issuer at the op18 tion of the group purchaser, except that the require19 ment of this subparagraph shall not apply in the case

20 of—

21 (A) the nonpayment of premiums or con22 tributions by the group purchaser in accordance

23 with the terms of the group health plan or where

24 the health plan issuer has not received timely

25 premium payments;
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1 (B) fraud or misrepresentation of material

2 fact on the part of the group purchaser;

3 (C) the termination of the group health

4 plan in accordance with subsection (b); or

5 (D) the failure of the group purchaser to

6 meet contribution or participation requirements

7 in accordance with paragraph (3).

8 (2) PARTICIPANT.—Subject to subsections (b)

9 and (c), coverage under an employee health benefit

10 plan or group health plan shall be renewed or contin11 ued in force, if the group purchaser elects to continue

12 to provide coverage under such plan, at the option of

13 the participant (or beneficiary where such right exists

14 under the terms of the plan or under applicable law),

15 except that the requirement of this paragraph shall

16 not apply in the case of—

17 (A) the nonpayment of premiums or con18 tributions by the participant or beneficiary in

19 accordance with the terms of the employee health

20 benefit plan or group health plan or where such

21 plan has not received timely premium payments;

22 (B) fraud or misrepresentation of material

23 fact on the part of the participant or beneficiary

24 relating to an application for coverage or claim

25 for benefits;
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1 (C) the termination of the employee health

2 benefit plan or group health plan;

3 (D) loss of eligibility for continuation cov4 erage as described in part 6 of subtitle B of title

5 I of the Employee Retirement Income Security

6 Act of 1974 (29 U.S.C. 1161 et seq.); or

7 (E) failure of a participant or beneficiary

8 to meet requirements for eligibility for coverage

9 under an employee health benefit plan or group

10 health plan that are not prohibited by this Act.

11 (3) RULES OF CONSTRUCTION.—Nothing in this

12 subsection, nor in section 101(a), shall be construed

13 to—

14 (A) preclude a health plan issuer from es15 tablishing employer contribution rules or group

16 participation rules for group health plans as al17 lowed under applicable State law;

18 (B) preclude a plan defined in section 3(37)

19 of the Employee Retirement Income Security Act

20 of 1974 (29 U.S.C. 1102(37)) from establishing

21 employer contribution rules or group participa22 tion rules; or

23 (C) permit individuals to decline coverage

24 under an employee health benefit plan if such

25 right is not otherwise available under such plan.
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1 (b) TERMINATION OF GROUP HEALTH PLANS.—

2 (1) PARTICULAR TYPE OF GROUP HEALTH PLAN

3 NOT OFFERED.—In any case in which a health plan

4 issuer decides to discontinue offering a particular

5 type of group health plan, a group health plan of such

6 type may be discontinued by the health plan issuer

7 only if—

8 (A) the health plan issuer provides notice to

9 each group purchaser covered under a group

10 health plan of this type (and participants and

11 beneficiaries covered under such group health

12 plan) of such discontinuation at least 90 days

13 prior to the date of the discontinuation of such

14 plan;

15 (B) the health plan issuer offers to each

16 group purchaser covered under a group health

17 plan of this type, the option to purchase any

18 other group health plan currently being offered

19 by the health plan issuer; and

20 (C) in exercising the option to discontinue

21 a group health plan of this type and in offering

22 one or more replacement plans, the health plan

23 issuer acts uniformly without regard to the

24 health status or insurability of participants or

25 beneficiaries covered under the group health
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1 plan, or new participants or beneficiaries who

2 may become eligible for coverage under the group

3 health plan.

4 (2) DISCONTINUANCE OF ALL GROUP HEALTH

5 PLANS.—

6 (A) IN GENERAL.—In any case in which a

7 health plan issuer elects to discontinue offering

8 all group health plans in a State, a group health

9 plan may be discontinued by the health plan is10 suer only if—

11 (i) the health plan issuer provides no12 tice to the applicable certifying authority

13 (as defined in section 202(d)) and to each

14 group purchaser (and participants and

15 beneficiaries covered under such group

16 health plan) of such discontinuation at least

17 180 days prior to the date of the expiration

18 of such plan; and

19 (ii) all group health plans issued or de20 livered for issuance in the State are discon21 tinued and coverage under such plans is not

22 renewed.

23 (B) APPLICATION OF PROVISIONS.—The

24 provisions of this paragraph and paragraph (3)
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1 may be applied separately by a health plan is2 suer—

3 (i) to all group health plans offered to

4 small employers (as defined under applica5 ble State law, or if not so defined, an em6 ployer with not more than 50 employees); or

7 (ii) to all other group health plans of8 fered by the health plan issuer in the State.

9 (3) PROHIBITION ON MARKET REENTRY.—In the

10 case of a discontinuation under paragraph (2), the

11 health plan issuer may not provide for the issuance

12 of any group health plan in the market sector (as de13 scribed in paragraph (2)(B)) in which issuance of

14 such group health plan was discontinued in the State

15 involved during the 5-year period beginning on the

16 date of the discontinuation of the last group health

17 plan not so renewed.

18 (c) TREATMENT OF NETWORK PLANS.—

19 (1) GEOGRAPHIC LIMITATIONS.—A network plan

20 (as defined in paragraph (2)) may deny continued

21 participation under such plan to participants or

22 beneficiaries who neither live, reside, nor work in an

23 area in which such network plan is offered, but only

24 if such denial is applied uniformly, without regard to
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1 health status or the insurability of particular partici2 pants or beneficiaries.

3 (2) NETWORK PLAN.—As used in paragraph (1),

4 the term ‘‘network plan’’ means an employee health

5 benefit plan or a group health plan that arranges for

6 the financing and delivery of health care services to

7 participants or beneficiaries covered under such plan,

8 in whole or in part, through arrangements with pro9 viders.

10 (d) COBRA COVERAGE.—Nothing in subsection

11 (a)(2)(E) or subsection (c) shall be construed to affect any

12 right to COBRA continuation coverage as described in part

13 6 of subtitle B of title I of the Employee Retirement Income

14 Security Act of 1974 (29 U.S.C. 1161 et seq.).

15 SEC. 103. PORTABILITY OF HEALTH COVERAGE AND LIMITA16 TION ON PREEXISTING CONDITION EXCLU17 SIONS.

18 (a) IN GENERAL.—An employee health benefit plan or

19 a health plan issuer offering a group health plan may, with

20 respect to a participant or beneficiary, impose a limitation

21 or exclusion of benefits, otherwise available under the terms

22 of the plan only if—

23 (1) such limitation or exclusion is a limitation

24 or exclusion of benefits relating to the treatment of a

25 preexisting condition; and
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1 (2) such limitation or exclusion extends for a pe2 riod of not more than 12 months after the date of en3 rollment in the plan.

4 (b) CREDITING OF PREVIOUS QUALIFYING COV5 ERAGE.—

6 (1) IN GENERAL.—Subject to paragraph (4), an

7 employee health benefit plan or a health plan issuer

8 offering a group health plan shall provide that if a

9 participant or beneficiary is in a period of previous

10 qualifying coverage as of the date of enrollment under

11 such plan, any period of exclusion or limitation of

12 coverage with respect to a preexisting condition shall

13 be reduced by 1 month for each month in which the

14 participant or beneficiary was in the period of pre15 vious qualifying coverage. With respect to a partici16 pant or beneficiary described in subsection (e)(2)(A)

17 who maintains continuous coverage, no limitation or

18 exclusion of benefits relating to treatment of a pre19 existing condition may be applied to a child within

20 the child’s first 12 months of life or within 12 months

21 after the placement of a child for adoption.

22 (2) DISCHARGE OF DUTY.—An employee health

23 benefit plan shall provide documentation of coverage

24 to participants and beneficiaries whose coverage is

25 terminated under the plan. Pursuant to regulations
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1 promulgated by the Secretary, the duty of an em2 ployee health benefit plan to verify previous qualify3 ing coverage with respect to a participant or bene4 ficiary is effectively discharged when such employee

5 health benefit plan provides documentation to a par6 ticipant or beneficiary that includes the following in7 formation:

8 (A) the dates that the participant or bene9 ficiary was covered under the plan; and

10 (B) the benefits and cost-sharing arrange11 ment available to the participant or beneficiary

12 under such plan.

13 An employee health benefit plan shall retain the docu14 mentation provided to a participant or beneficiary

15 under subparagraphs (A) and (B) for at least the 12-

16 month period following the date on which the partici17 pant or beneficiary ceases to be covered under the

18 plan. Upon request, an employee health benefit plan

19 shall provide a second copy of such documentation to

20 such participant or beneficiary within the 12-month

21 period following the date of such ineligibility.

22 (3) DEFINITIONS.—As used in this section:

23 (A) PREVIOUS QUALIFYING COVERAGE.—

24 The term ‘‘previous qualifying coverage’’ means

25 the period beginning on the date—
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1 (i) a participant or beneficiary is en2 rolled under an employee health benefit

3 plan or a group health plan, and ending on

4 the date the participant or beneficiary is

5 not so enrolled; or

6 (ii) an individual is enrolled under an

7 individual health plan (as defined in sec8 tion 113) or under a public or private

9 health plan established under Federal or

10 State law, and ending on the date the indi11 vidual is not so enrolled;

12 for a continuous period of more than 30 days

13 (without regard to any waiting period).

14 (B) LIMITATION OR EXCLUSION OF BENE15 FITS RELATING TO TREATMENT OF A PREEXIST16 ING CONDITION.—The term ‘‘limitation or exclu17 sion of benefits relating to treatment of a pre18 existing condition’’ means a limitation or exclu19 sion of benefits imposed on an individual based

20 on a preexisting condition of such individual.

21 (4) EFFECT OF PREVIOUS COVERAGE.—An em22 ployee health benefit plan or a health plan issuer of23 fering a group health plan may impose a limitation

24 or exclusion of benefits relating to the treatment of a

25 preexisting condition, subject to the limits in sub-
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1 section (a), only to the extent that such service or ben2 efit was not previously covered under the group health

3 plan, employee health benefit plan, or individual

4 health plan in which the participant or beneficiary

5 was enrolled immediately prior to enrollment in the

6 plan involved.

7 (c) LATE ENROLLEES.—Except as provided in section

8 104, with respect to a participant or beneficiary enrolling

9 in an employee health benefit plan or a group health plan

10 during a time that is other than the first opportunity to

11 enroll during an enrollment period of at least 30 days, cov12 erage with respect to benefits or services relating to the

13 treatment of a preexisting condition in accordance with

14 subsections (a) and (b) may be excluded, except the period

15 of such exclusion may not exceed 18 months beginning on

16 the date of coverage under the plan.

17 (d) AFFILIATION PERIODS.—With respect to a partici18 pant or beneficiary who would otherwise be eligible to re19 ceive benefits under an employee health benefit plan or a

20 group health plan but for the operation of a preexisting con21 dition limitation or exclusion, if such plan does not utilize

22 a limitation or exclusion of benefits relating to the treat23 ment of a preexisting condition, such plan may impose an

24 affiliation period on such participant or beneficiary not to

25 exceed 60 days (or in the case of a late participant or bene-
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1 ficiary described in subsection (c), 90 days) from the date

2 on which the participant or beneficiary would otherwise be

3 eligible to receive benefits under the plan. An employee

4 health benefit plan or a health plan issuer offering a group

5 health plan may also use alternative methods to address ad6 verse selection as approved by the applicable certifying au7 thority (as defined in section 202(d)). During such an af8 filiation period, the plan may not be required to provide

9 health care services or benefits and no premium shall be

10 charged to the participant or beneficiary.

11 (e) PREEXISTING CONDITION.—

12 (1) IN GENERAL.—For purposes of this section,

13 the term ‘‘preexisting condition’’ means a condition,

14 regardless of the cause of the condition, for which

15 medical advice, diagnosis, care, or treatment was rec16 ommended or received within the 6-month period end17 ing on the day before the effective date of the coverage

18 (without regard to any waiting period).

19 (2) BIRTH, ADOPTION AND PREGNANCY EX20 CLUDED.—The term ‘‘preexisting condition’’ does not

21 apply to—

22 (A) an individual who, within 30 days of

23 the date of the birth or placement for adoption

24 of a child (as determined under section

25 609(c)(3)(B) of the Employee Retirement Income
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1 Security Act of 1974 (29 U.S.C. 1169(c)(3)(B)),

2 was covered under the plan; or

3 (B) pregnancy.

4 (f) STATE FLEXIBILITY.—Nothing in this section shall

5 be construed to preempt State laws that—

6 (1) require health plan issuers to impose a limi7 tation or exclusion of benefits relating to the treat8 ment of a preexisting condition for periods that are

9 shorter than those provided for under this section; or

10 (2) allow individuals, participants, and bene11 ficiaries to be considered to be in a period of previous

12 qualifying coverage if such individual, participant, or

13 beneficiary experiences a lapse in coverage that is

14 greater than the 30-day period provided for under

15 subsection (b)(3); or

16 (3) require health plan issuers to have a lookback

17 period that is shorter than the period described in

18 subsection (e)(1);

19 unless such laws are preempted by section 514 of the Em20 ployee Retirement Income Security Act of 1974 (29 U.S.C.

21 1144).

22 SEC. 104. SPECIAL ENROLLMENT PERIODS.

23 In the case of a participant, beneficiary or family

24 member who—
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1 (1) through marriage, separation, divorce, death,

2 birth or placement of a child for adoption, experiences

3 a change in family composition affecting eligibility

4 under a group health plan, individual health plan, or

5 employee health benefit plan;

6 (2) experiences a change in employment status,

7 as described in section 603(2) of the Employee Retire8 ment Income Security Act of 1974 (29 U.S.C.

9 1163(2)), that causes the loss of eligibility for cov10 erage, other than COBRA continuation coverage

11 under a group health plan, individual health plan, or

12 employee health benefit plan; or

13 (3) experiences a loss of eligibility under a group

14 health plan, individual health plan, or employee

15 health benefit plan because of a change in the employ16 ment status of a family member;

17 each employee health benefit plan and each group health

18 plan shall provide for a special enrollment period extending

19 for a reasonable time after such event that would permit

20 the participant to change the individual or family basis

21 of coverage or to enroll in the plan if coverage would have

22 been available to such individual, participant, or bene23 ficiary but for failure to enroll during a previous enroll24 ment period. Such a special enrollment period shall ensure

25 that a child born or placed for adoption shall be deemed
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1 to be covered under the plan as of the date of such birth

2 or placement for adoption if such child is enrolled within

3 30 days of the date of such birth or placement for adoption.

4 SEC. 105. DISCLOSURE OF INFORMATION.

5 (a) DISCLOSURE OF INFORMATION BY HEALTH PLAN

6 ISSUERS.—

7 (1) IN GENERAL.—In connection with the offer8 ing of any group health plan to a small employer (as

9 defined under applicable State law, or if not so de10 fined, an employer with not more than 50 employees),

11 a health plan issuer shall make a reasonable disclo12 sure to such employer, as part of its solicitation and

13 sales materials, of—

14 (A) the provisions of such group health plan

15 concerning the health plan issuer’s right to

16 change premium rates and the factors that may

17 affect changes in premium rates;

18 (B) the provisions of such group health plan

19 relating to renewability of coverage;

20 (C) the provisions of such group health plan

21 relating to any preexisting condition provision;

22 and

23 (D) descriptive information about the bene24 fits and premiums available under all group

25 health plans for which the employer is qualified.
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1 Information shall be provided to small employers

2 under this paragraph in a manner determined to be

3 understandable by the average small employer, and

4 shall be sufficiently accurate and comprehensive to

5 reasonably inform small employers, participants and

6 beneficiaries of their rights and obligations under the

7 group health plan.

8 (2) EXCEPTION.—With respect to the require9 ment of paragraph (1), any information that is pro10 prietary and trade secret information under applica11 ble law shall not be subject to the disclosure require12 ments of such paragraph.

13 (3) CONSTRUCTION.—Nothing in this subsection

14 shall be construed to preempt State reporting and dis15 closure requirements to the extent that such require16 ments are not preempted under section 514 of the

17 Employee Retirement Income Security Act of 1974

18 (29 U.S.C. 1144).

19 (b) DISCLOSURE OF INFORMATION TO PARTICIPANTS

20 AND BENEFICIARIES.—

21 (1) IN GENERAL.—Section 104(b)(1) of the Em22 ployee Retirement Income Security Act of 1974 (29

23 U.S.C. 1024(b)(1)) is amended in the matter follow24 ing subparagraph (B)—
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1 (A) by striking ‘‘102(a)(1),’’ and inserting

2 ‘‘102(a)(1) that is not a material reduction in

3 covered services or benefits provided,’’; and

4 (B) by adding at the end thereof the follow5 ing new sentences: ‘‘If there is a modification or

6 change described in section 102(a)(1) that is a

7 material reduction in covered services or benefits

8 provided, a summary description of such modi9 fication or change shall be furnished to partici10 pants not later than 60 days after the date of the

11 adoption of the modification or change. In the

12 alternative, the plan sponsors may provide such

13 description at regular intervals of not more than

14 90 days. The Secretary shall issue regulations

15 within 180 days after the date of enactment of

16 the Health Insurance Reform Act of 1996, pro17 viding alternative mechanisms to delivery by

18 mail through which employee health benefit

19 plans may notify participants of material reduc20 tions in covered services or benefits.’’.

21 (2) PLAN DESCRIPTION AND SUMMARY.—Section

22 102(b) of the Employee Retirement Income Security

23 Act of 1974 (29 U.S.C. 1022(b)) is amended—

24 (A) by inserting ‘‘including the office or

25 title of the individual who is responsible for ap-
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1 proving or denying claims for coverage of bene2 fits’’ after ‘‘type of administration of the plan’’;

3 (B) by inserting ‘‘including the name of the

4 organization responsible for financing claims’’

5 after ‘‘source of financing of the plan’’; and

6 (C) by inserting ‘‘including the office, con7 tact, or title of the individual at the Department

8 of Labor through which participants may seek

9 assistance or information regarding their rights

10 under this Act and the Health Insurance Reform

11 Act of 1996 with respect to health benefits that

12 are not offered through a group health plan.’’

13 after ‘‘benefits under the plan’’.

14 Subtitle B—Individual Market

15 Rules

16 SEC. 110. INDIVIDUAL HEALTH PLAN PORTABILITY.

17 (a) LIMITATION ON REQUIREMENTS.—

18 (1) IN GENERAL.—Except as provided in sub19 sections (c) and (d), a health plan issuer described in

20 paragraph (3) may not, with respect to an eligible in21 dividual (described in subsection (b)) desiring to en22 roll in an individual health plan—

23 (A) decline to offer coverage to, or deny en24 rollment of, such individual; or
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1 (B) impose a limitation or exclusion of ben2 efits, otherwise available under such plan, for

3 which coverage was available under the group

4 health plan or employee health benefit plan in

5 which the individual was previously enrolled.

6 (2) HEALTH PROMOTION AND DISEASE PREVEN7 TION.—Nothing in this subsection shall be construed

8 to prevent a health plan issuer offering an individual

9 health plan from establishing premium discounts or

10 modifying otherwise applicable copayments or

11 deductibles in return for adherence to programs of

12 health promotion or disease prevention.

13 (3) HEALTH PLAN ISSUER.—A health plan is14 suer described in this paragraph is a health plan is15 suer that issues or renews individual health plans.

16 (4) PREMIUMS.—Nothing in this subsection shall

17 be construed to affect the determination of a health

18 plan issuer as to the amount of the premium payable

19 under an individual health plan under applicable

20 State law.

21 (b) DEFINITION OF ELIGIBLE INDIVIDUAL.—As used

22 in subsection (a)(1), the term ‘‘eligible individual’’ means

23 an individual who—

24 (1) was a participant or beneficiary enrolled

25 under one or more group health plans or employee
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1 health benefit plans for not less than 18 months

2 (without a lapse of more than 30 days) immediately

3 prior to the date on which such individual applies for

4 enrollment in the individual health plan;

5 (2) is not eligible for coverage under a group

6 health plan or an employee health benefit plan;

7 (3) has not had coverage terminated under a

8 group health plan or employee health benefit plan for

9 failure to make required premium payments or con10 tributions, or for fraud or misrepresentation of mate11 rial fact; and

12 (4) has, if applicable, elected coverage and ex13 hausted the maximum period of coverage as described

14 in section 602(2)(A) of the Employee Retirement In15 come Security Act of 1974 (29 U.S.C. 1162(2)(A)) or

16 under a State program providing an extension of

17 such coverage.

18 (c) APPLICATION OF CAPACITY LIMITS.—

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

20 health plan issuer offering coverage to individuals

21 under an individual health plan may cease enrolling

22 individuals under the plan if—

23 (A) the health plan issuer ceases to enroll

24 any new individuals; and
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1 (B) the health plan issuer can demonstrate

2 to the applicable certifying authority (as defined

3 in section 202(d)), if required, that its financial

4 or provider capacity to serve previously covered

5 individuals will be impaired if the health plan

6 issuer is required to enroll additional individ7 uals.

8 Such a health plan issuer shall be prohibited from of9 fering coverage after a cessation in offering coverage

10 under this paragraph for a 6-month period or until

11 the health plan issuer can demonstrate to the applica12 ble certifying authority (as defined in section 202(d))

13 that the health plan issuer has adequate capacity,

14 whichever is later.

15 (2) FIRST-COME-FIRST-SERVED.—A health plan

16 issuer offering coverage to individuals under an indi17 vidual health plan is only eligible to exercise the limi18 tations provided for in paragraph (1) if the health

19 plan issuer provides for enrollment of individuals

20 under such plan on a first-come-first-served basis or

21 other basis established by a State to ensure a fair op22 portunity to enroll in the plan and avoid risk selec23 tion.

24 (d) MARKET REQUIREMENTS.—
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1 (1) IN GENERAL.—The provisions of subsection

2 (a) shall not be construed to require that a health

3 plan issuer offering group health plans to group pur4 chasers offer individual health plans to individuals.

5 (2) CONVERSION POLICIES.—A health plan is6 suer offering group health plans to group purchasers

7 under this Act shall not be deemed to be a health plan

8 issuer offering an individual health plan solely be9 cause such health plan issuer offers a conversion pol10 icy.

11 (3) MARKETING OF PLANS.—Nothing in this sec12 tion shall be construed to prevent a State from requir13 ing health plan issuers offering coverage to individ14 uals under an individual health plan to actively mar15 ket such plan.

16 (4) CONSTRUCTION.—Nothing in this Act shall

17 be construed to require that a State replace or dissolve

18 high risk pools or other similar State mechanisms

19 which are designed to provide individuals in such

20 State with access to health benefits.

21 SEC. 111. GUARANTEED RENEWABILITY OF INDIVIDUAL

22 HEALTH COVERAGE.

23 (a) IN GENERAL.—Subject to subsections (b) and (c),

24 coverage for individuals under an individual health plan

25 shall be renewed or continued in force by a health plan is-
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1 suer at the option of the individual, except that the require2 ment of this subsection shall not apply in the case of—

3 (1) the nonpayment of premiums or contribu4 tions by the individual in accordance with the terms

5 of the individual health plan or where the health plan

6 issuer has not received timely premium payments;

7 (2) fraud or misrepresentation of material fact

8 on the part of the individual; or

9 (3) the termination of the individual health plan

10 in accordance with subsection (b).

11 (b) TERMINATION OF INDIVIDUAL HEALTH PLANS.—

12 (1) PARTICULAR TYPE OF INDIVIDUAL HEALTH

13 PLAN NOT OFFERED.—In any case in which a health

14 plan issuer decides to discontinue offering a particu15 lar type of individual health plan to individuals, an

16 individual health plan may be discontinued by the

17 health plan issuer only if—

18 (A) the health plan issuer provides notice to

19 each individual covered under the plan of such

20 discontinuation at least 90 days prior to the

21 date of the expiration of the plan;

22 (B) the health plan issuer offers to each in23 dividual covered under the plan the option to

24 purchase any other individual health plan cur-
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1 rently being offered by the health plan issuer to

2 individuals; and

3 (C) in exercising the option to discontinue

4 the individual health plan and in offering one or

5 more replacement plans, the health plan issuer

6 acts uniformly without regard to the health sta7 tus or insurability of particular individuals.

8 (2) DISCONTINUANCE OF ALL INDIVIDUAL

9 HEALTH PLANS.—In any case in which a health plan

10 issuer elects to discontinue all individual health plans

11 in a State, an individual health plan may be discon12 tinued by the health plan issuer only if—

13 (A) the health plan issuer provides notice to

14 the applicable certifying authority (as defined in

15 section 202(d)) and to each individual covered

16 under the plan of such discontinuation at least

17 180 days prior to the date of the discontinuation

18 of the plan; and

19 (B) all individual health plans issued or de20 livered for issuance in the State are discontinued

21 and coverage under such plans is not renewed.

22 (3) PROHIBITION ON MARKET REENTRY.—In the

23 case of a discontinuation under paragraph (2), the

24 health plan issuer may not provide for the issuance

25 of any individual health plan in the State involved
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1 during the 5-year period beginning on the date of the

2 discontinuation of the last plan not so renewed.

3 (c) TREATMENT OF NETWORK PLANS.—

4 (1) GEOGRAPHIC LIMITATIONS.—A health plan

5 issuer which offers a network plan (as defined in

6 paragraph (2)) may deny continued participation

7 under the plan to individuals who neither live, reside,

8 nor work in an area in which the individual health

9 plan is offered, but only if such denial is applied uni10 formly, without regard to health status or the insur11 ability of particular individuals.

12 (2) NETWORK PLAN.—As used in paragraph (1),

13 the term ‘‘network plan’’ means an individual health

14 plan that arranges for the financing and delivery of

15 health care services to individuals covered under such

16 health plan, in whole or in part, through arrange17 ments with providers.

18 SEC. 112. STATE FLEXIBILITY IN INDIVIDUAL MARKET RE19 FORMS.

20 (a) ADOPTION OF ALTERNATIVE MECHANISMS.—

21 (1) IN GENERAL.—A State, in accordance with

22 this section, may adopt alternative mechanisms (pub23 lic or private) that are designed to provide access to

24 affordable health benefits for individuals meeting the

25 requirements of sections 110(b) and 111 (such as
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1 mechanisms providing for guaranteed issue, open en2 rollment by one or more health plan issuers, high-risk

3 pools, mandatory conversion policies, or any com4 bination thereof).

5 (2) PROCEDURE FOR STATE ELECTION.—If, not

6 later than 6 months after the date of enactment of this

7 Act, the Governor of a State notifies the Secretary of

8 Health and Human Services that—

9 (A) the State has adopted an alternative

10 mechanism that achieves the goals of sections 110

11 and 111; or

12 (B) the State intends to implement an al13 ternative mechanism that is designed to achieve

14 the goals of sections 110 and 111;

15 such State alternative mechanism shall, except as pro16 vided in paragraphs (3) and (4), apply in lieu of the

17 standards described in sections 110 and 111.

18 (3) NONAPPLICATION OF MECHANISM.—A State

19 alternative mechanism adopted under paragraph (1)

20 shall be presumed to achieve the goals of sections 110

21 and 111 and shall apply in lieu of such sections, un22 less the Secretary of Health and Human Services, in

23 consultation with the Governor and Insurance Com24 missioner or chief insurance regulatory official of the
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1 State, finds that the State alternative mechanism

2 fails to—

3 (A) offer coverage to those individuals who

4 meet the requirements of sections 110(b) and

5 111;

6 (B) prohibit a limitation or exclusion of

7 benefits relating to treatment of a preexisting

8 condition that was covered under the previous

9 group health plan or employee health benefit

10 plan of an individual who meets the require11 ments of sections 110(b) and 111;

12 (C) offer individuals who meet the require13 ments of sections 110(b) and 111 a choice of in14 dividual health plans, including at least one

15 plan comparable to comprehensive plans offered

16 in the individual market in such State or a plan

17 comparable to a standard option plan available

18 under the group or individual health insurance

19 laws of such State; or

20 (D) except as provided in paragraph (4),

21 implement a risk spreading mechanism, cross

22 subsidy mechanism, risk adjustment mechanism,

23 rating limitation or other mechanism (such as

24 mechanisms described in the NAIC Model Health

25 Plan for Uninsurable Individuals Act) designed
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1 to reduce the variation among the cost of such

2 plans and other individual health plans offered

3 by the carrier or available in such State.

4 (4) CHOICE OF PLANS.—The Secretary of Health

5 and Human Services shall waive the requirement in

6 subparagraph (D) of paragraph (3) with respect to a

7 State if individuals who meet the requirements of sec8 tions 110(b) and 111 in such State are provided with

9 a choice of all individual health plans otherwise

10 available in the individual market.

11 (5) FUTURE ADOPTION OF MECHANISMS.—With

12 respect to a State that implements an alternative

13 mechanism under paragraph (1) after the period re14 ferred to in paragraph (2)—

15 (A) the State shall provide notice to the Sec16 retary that such alternative mechanism achieves

17 the goals of sections 110 and 111;

18 (B) the State alternative mechanism shall

19 apply in lieu of sections 110 and 111;

20 (C) except as provided in subsections (d)

21 and (e), the Secretary may make a determina22 tion as provided for in paragraph (3); and

23 (D) the procedures described in subsection

24 (c) shall apply.
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1 (b) TIMEFRAME FOR SECRETARIAL DETERMINA2 TION.—

3 (1) IN GENERAL.—With respect to a State elec4 tion under subsection (a)(2)(B), the Secretary of

5 Health and Human Services shall not make a deter6 mination under subsection (a)(3) until the expiration

7 of the 12-month period beginning on the date on

8 which such notification is made, or until January 1,

9 1998, whichever is later.

10 (2) RULE APPLICABLE TO CERTAIN STATES.—

11 With respect to a State that makes an election under

12 subsection (a)(2)(B) and that has a legislature that

13 does not meet within the 12-month period beginning

14 on the date of enactment of this Act, the Secretary of

15 Health and Human Services shall not make a deter16 mination under subsection (a) prior to January 1,

17 1999.

18 (c) NOTICE TO STATE.—If the Secretary of Health and

19 Human Services determines that a State alternative mecha20 nism fails to meet the criteria described in subsection (a)(3),

21 or that such mechanism is no longer being implemented,

22 the Secretary of Health and Human Services shall notify

23 the Governor of such State of such preliminary determina24 tion and permit the State a reasonable opportunity in

25 which to modify the alternative mechanism or to adopt an-
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1 other mechanism that is designed to meet the goals of sec2 tions 110 and 111. If, after an opportunity to modify such

3 State alternative mechanism, the mechanism fails to meet

4 the criteria described in subsection (a)(3), the Secretary

5 shall notify the Governor of such State that sections 110

6 and 111 shall apply in the State.

7 (d) ADOPTION OF NAIC MODEL.—If, not later than

8 9 months after the date of enactment of this Act—

9 (1) the National Association of Insurance Com10 missioners (hereafter referred to as the ‘‘NAIC’’),

11 through a process which the Secretary of Health and

12 Human Services determines has included consultation

13 with representatives of the insurance industry and

14 consumer groups, has adopted a model act or acts in15 cluding provisions addressing portability from a

16 group health plan or employee health benefit plan

17 into the individual health insurance market; and

18 (2) the Secretary of Health and Human Services

19 determines, within 30 days of the adoption of such

20 NAIC model act or acts, that such act or acts comply

21 with the goals of sections 110 and 111;

22 a State that elects to adopt such model act or acts shall

23 be deemed to have met the requirements of sections 110 and

24 111 and shall not be subject to a determination under sub25 section (a)(3).
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1 (e) STATE HIGH RISK POOLS DEEMED IN COMPLI2 ANCE.—If the Governor of a State notifies the Secretary of

3 Health and Human Services in a timeframe consistent with

4 either subsection (a)(2) or (a)(5) that such State has a high

5 risk pool open to those individuals meeting the requirements

6 of sections 110(b) and 111, that limits preexisting condition

7 waiting periods consistent with section 110(a)(1)(B) and

8 that with respect to premium rates and covered benefits is

9 consistent with standards included in the NAIC Model

10 Health Plan for Uninsurable Individuals Act, such State

11 high risk pool shall be deemed to have met the requirements

12 of sections 110 and 111 and shall not be subject to a deter13 mination under subsection (a)(3).

14 SEC. 113. DEFINITION.

15 (a) IN GENERAL.—As used in this title, the term ‘‘in16 dividual health plan’’ means any contract, policy, certifi17 cate or other arrangement offered to individuals by a health

18 plan issuer that provides or pays for health benefits (such

19 as provider and hospital benefits) and that is not a group

20 health plan under section 2(6).

21 (b) ARRANGEMENTS NOT INCLUDED.—Such term does

22 not include the following, or any combination thereof:

23 (1) Coverage only for accident, or disability in24 come insurance, or any combination thereof.
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1 (2) Medicare supplemental health insurance (as

2 defined under section 1882(g)(1) of the Social Secu3 rity Act).

4 (3) Coverage issued as a supplement to liability

5 insurance.

6 (4) Liability insurance, including general liabil7 ity insurance and automobile liability insurance.

8 (5) Workers’ compensation or similar insurance.

9 (6) Automobile medical payment insurance.

10 (7) Coverage for a specified disease or illness.

11 (8) Hospital or fixed indemnity insurance.

12 (9) Short-term limited duration insurance.

13 (10) Credit-only, dental-only, or vision-only in14 surance.

15 (11) A health insurance policy providing benefits

16 only for long-term care, nursing home care, home

17 health care, community-based care, or any combina18 tion thereof.

19 Subtitle C—COBRA Clarifications

20 SEC. 121. COBRA CLARIFICATIONS.

21 (a) PUBLIC HEALTH SERVICE ACT.—

22 (1) PERIOD OF COVERAGE.—Section 2202(2) of

23 the Public Health Service Act (42 U.S.C. 300bb–2(2))

24 is amended—

25 (A) in subparagraph (A)—
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1 (i) by transferring the sentence imme2 diately preceding clause (iv) so as to appear

3 immediately following such clause (iv); and

4 (ii) in the last sentence (as so trans5 ferred)—

6 (I) by inserting ‘‘, or a bene7 ficiary-family member of the individ8 ual,’’ after ‘‘an individual’’; and

9 (II) by striking ‘‘at the time of a

10 qualifying event described in section

11 2203(2)’’ and inserting ‘‘at any time

12 during the initial 18-month period of

13 continuing coverage under this title’’;

14 (B) in subparagraph (D)(i), by inserting

15 before ‘‘, or’’ the following: ‘‘, except that the ex16 clusion or limitation contained in this clause

17 shall not be considered to apply to a plan under

18 which a preexisting condition or exclusion does

19 not apply to an individual otherwise eligible for

20 continuation coverage under this section because

21 of the provision of the Health Insurance Reform

22 Act of 1996’’; and

23 (C) in subparagraph (E), by striking ‘‘at

24 the time of a qualifying event described in sec25 tion 2203(2)’’ and inserting ‘‘at any time during
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1 the initial 18-month period of continuing cov2 erage under this title’’.

3 (2) NOTICES.—Section 2206(3) of the Public

4 Health Service Act (42 U.S.C. 300bb–6(3)) is amend5 ed by striking ‘‘at the time of a qualifying event de6 scribed in section 2203(2)’’ and inserting ‘‘at any

7 time during the initial 18-month period of continuing

8 coverage under this title’’.

9 (3) BIRTH OR ADOPTION OF A CHILD.—Section

10 2208(3)(A) of the Public Health Service Act (42

11 U.S.C. 300bb–8(3)(A)) is amended by adding at the

12 end thereof the following new flush sentence:

13 ‘‘Such term shall also include a child who is born to

14 or placed for adoption with the covered employee dur15 ing the period of continued coverage under this title.’’.

16 (b) EMPLOYEE RETIREMENT INCOME SECURITY ACT

17 OF 1974.—

18 (1) PERIOD OF COVERAGE.—Section 602(2) of

19 the Employee Retirement Income Security Act of

20 1974 (29 U.S.C. 1162(2)) is amended—

21 (A) in the last sentence of subparagraph

22 (A)—

23 (i) by inserting ‘‘, or a beneficiary24 family member of the individual,’’ after ‘‘an

25 individual’’; and
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1 (ii) by striking ‘‘at the time of a quali2 fying event described in section 603(2)’’ and

3 inserting ‘‘at any time during the initial

4 18-month period of continuing coverage

5 under this part’’;

6 (B) in subparagraph (D)(i), by inserting

7 before ‘‘, or’’ the following: ‘‘, except that the ex8 clusion or limitation contained in this clause

9 shall not be considered to apply to a plan under

10 which a preexisting condition or exclusion does

11 not apply to an individual otherwise eligible for

12 continuation coverage under this section because

13 of the provision of the Health Insurance Reform

14 Act of 1996’’; and

15 (C) in subparagraph (E), by striking ‘‘at

16 the time of a qualifying event described in sec17 tion 603(2)’’ and inserting ‘‘at any time during

18 the initial 18-month period of continuing cov19 erage under this part’’.

20 (2) NOTICES.—Section 606(3) of the Employee

21 Retirement Income Security Act of 1974 (29 U.S.C.

22 1166(3)) is amended by striking ‘‘at the time of a

23 qualifying event described in section 603(2)’’ and in24 serting ‘‘at any time during the initial 18-month pe25 riod of continuing coverage under this part’’.
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1 (3) BIRTH OR ADOPTION OF A CHILD.—Section

2 607(3)(A) of the Employee Retirement Income Secu3 rity Act of 1974 (29 U.S.C. 1167(3)) is amended by

4 adding at the end thereof the following new flush sen5 tence:

6 ‘‘Such term shall also include a child who is born to

7 or placed for adoption with the covered employee dur8 ing the period of continued coverage under this

9 part.’’.

10 (c) INTERNAL REVENUE CODE OF 1986.—

11 (1) PERIOD OF COVERAGE.—Section

12 4980B(f)(2)(B) of the Internal Revenue Code of 1986

13 is amended—

14 (A) in the last sentence of clause (i) by

15 striking ‘‘at the time of a qualifying event de16 scribed in paragraph (3)(B)’’ and inserting ‘‘at

17 any time during the initial 18-month period of

18 continuing coverage under this section’’;

19 (B) in clause (iv)(I), by inserting before ‘‘,

20 or’’ the following: ‘‘, except that the exclusion or

21 limitation contained in this subclause shall not

22 be considered to apply to a plan under which a

23 preexisting condition or exclusion does not apply

24 to an individual otherwise eligible for continu25 ation coverage under this subsection because of
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1 the provision of the Health Insurance Reform

2 Act of 1995’’; and

3 (C) in clause (v), by striking ‘‘at the time

4 of a qualifying event described in paragraph

5 (3)(B)’’ and inserting ‘‘at any time during the

6 initial 18-month period of continuing coverage

7 under this section’’.

8 (2) NOTICES.—Section 4980B(f)(6)(C) of the In9 ternal Revenue Code of 1986 is amended by striking

10 ‘‘at the time of a qualifying event described in para11 graph (3)(B)’’ and inserting ‘‘at any time during the

12 initial 18-month period of continuing coverage under

13 this section’’.

14 (3) BIRTH OR ADOPTION OF A CHILD.—Section

15 4980B(g)(1)(A) of the Internal Revenue Code of 1986

16 is amended by adding at the end thereof the following

17 new flush sentence:

18 ‘‘Such term shall also include a child who

19 is born to or placed for adoption with the

20 covered employee during the period of con21 tinued coverage under this section.’’.

22 (d) EFFECTIVE DATE.—The amendments made by this

23 section shall apply to qualifying events occurring on or

24 after the date of the enactment of this Act for plan years

25 beginning after December 31, 1997.
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1 (e) NOTIFICATION OF CHANGES.—Not later than 60

2 days prior to the date on which this section becomes effec3 tive, each group health plan (covered under title XXII of

4 the Public Health Service Act, part 6 of subtitle B of title

5 I of the Employee Retirement Income Security Act of 1974,

6 and section 4980B(f) of the Internal Revenue Code of 1986)

7 shall notify each qualified beneficiary who has elected con8 tinuation coverage under such title, part or section of the

9 amendments made by this section.

10 Subtitle D—Private Health Plan

11 Purchasing Cooperatives

12 SEC. 131. PRIVATE HEALTH PLAN PURCHASING COOPERA13 TIVES.

14 (a) DEFINITION.—As used in this Act, the term ‘‘health

15 plan purchasing cooperative’’ means a group of employees

16 or a group of individuals and employers that, on a vol17 untary basis and in accordance with this section, form a

18 cooperative for the purpose of purchasing individual health

19 plans or group health plans offered by health plan issuers.

20 (b) CERTIFICATION.—

21 (1) REQUIREMENT.—If a group described in sub22 section (a), desires to form a health plan purchasing

23 cooperative in accordance with this section and such

24 group appropriately notifies the State and the Sec25 retary of such desire, the State, upon a determination
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1 that such group meets the requirements of this section,

2 shall certify the group as a health plan purchasing

3 cooperative. The State shall make a determination of

4 whether such group meets the requirements of this sec5 tion in a timely fashion and shall oversee the oper6 ations of such cooperative in order to ensure contin7 ued compliance with the requirements of this section.

8 Each such cooperative shall also be registered with the

9 Secretary.

10 (2) STATE REFUSAL TO CERTIFY.—

11 (A) IN GENERAL.—If a State fails to imple12 ment a program for certifying health plan pur13 chasing cooperatives in accordance with the

14 standards under this Act, the Secretary shall cer15 tify and oversee the operations of such coopera16 tives in such State.

17 (B) EXCEPTION.—The Secretary shall not

18 certify a health plan purchasing cooperative de19 scribed in this section if, upon the submission of

20 an application by the State to the Secretary, the

21 Secretary determines that under a State law in

22 effect on the date of enactment of this Act, all

23 small employers have a means readily available

24 that ensures—
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1 (i) that individuals and employees

2 have a choice of multiple, unaffiliated

3 health plan issuers;

4 (ii) that health plan coverage is subject

5 to State premium rating requirements that

6 are not based on the factors described in

7 subsection (f)(3) and that contains a man8 datory minimum loss ratio; and

9 (iii) that comparative health plan ma10 terials are disseminated consistent with sub11 section (e)(1)(D);

12 and that otherwise meets the objectives of this

13 Act.

14 (3) INTERSTATE COOPERATIVES.—For purposes

15 of this section, a health plan purchasing cooperative

16 operating in more than one State shall be certified by

17 the State in which the cooperative is domiciled. States

18 may enter into cooperative agreements for the purpose

19 of overseeing the operation of such cooperatives. For

20 purposes of this subsection, a cooperative shall be con21 sidered to be domiciled in the State in which most of

22 the members of the cooperative reside.

23 (c) BOARD OF DIRECTORS.—

24 (1) IN GENERAL.—Each health plan purchasing

25 cooperative shall be governed by a Board of Directors
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1 that shall be responsible for ensuring the performance

2 of the duties of the cooperative under this section. The

3 Board shall be composed of a broad cross-section of

4 representatives of employers, employees, and individ5 uals participating in the cooperative.

6 (2) LIMITATION ON COMPENSATION.—A health

7 plan purchasing cooperative may not provide com8 pensation to members of the Board of Directors. The

9 cooperative may provide reimbursements to such

10 members for the reasonable and necessary expenses in11 curred by the members in the performance of their du12 ties as members of the Board.

13 (d) MEMBERSHIP AND MARKETING AREA.—

14 (1) MEMBERSHIP.—A health plan purchasing

15 cooperative may establish limits on the maximum size

16 of employers who may become members of the cooper17 ative, and may determine whether to permit individ18 uals to become members. Upon the establishment of

19 such membership requirements, the cooperative shall,

20 except as provided in subparagraph (B), accept all

21 employers (or individuals) residing within the area

22 served by the cooperative who meet such requirements

23 as members on a first come, first-served basis, or on

24 another basis established by the State to ensure equi25 table access to the cooperative.
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1 (2) MARKETING AREA.—A State may establish

2 rules regarding the geographic area that must be

3 served by health plan purchasing cooperatives to en4 sure that cooperatives do not discriminate on the

5 basis of the health status or insurability of the popu6 lations that reside in the area served. A State may

7 not use such rules to arbitrarily limit the number of

8 health plan purchasing cooperatives.

9 (e) DUTIES AND RESPONSIBILITIES.—

10 (1) IN GENERAL.—A health plan purchasing co11 operative shall—

12 (A) objectively evaluate potential health

13 plan issuers and enter into agreements with mul14 tiple, unaffiliated health plan issuers, except that

15 the requirement of this subparagraph shall not

16 apply in regions (such as remote or frontier

17 areas) in which compliance with such require18 ment is not possible;

19 (B) enter into agreements with employers

20 and individuals who become members of the co21 operative;

22 (C) participate in any program of risk-ad23 justment or reinsurance, or any similar pro24 gram, that is established by the State;
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1 (D) prepare and disseminate comparative

2 health plan materials (including information

3 about cost, quality, benefits, and other informa4 tion concerning group health plans and individ5 ual health plans offered through the cooperative);

6 (E) broadly solicit and actively market to

7 all eligible employers and individuals residing

8 within the service area; and

9 (F) act as an ombudsman for group health

10 plan or individual health plan enrollees.

11 (2) PERMISSIBLE ACTIVITIES.—A health plan

12 purchasing cooperative may perform such other func13 tions as necessary to further the purposes of this Act,

14 including—

15 (A) collecting and distributing premiums

16 and performing other administrative functions;

17 (B) collecting and analyzing surveys of en18 rollee satisfaction;

19 (C) charging membership fee to enrollees

20 (such fees may not be based on health status)

21 and charging participation fees to health plan

22 issuers;

23 (D) cooperating with (or accepting as mem24 bers) employers who provide health benefits di-
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1 rectly to participants and beneficiaries only for

2 the purpose of negotiating with providers; and

3 (E) negotiating with health care providers

4 and health plan issuers.

5 (f) LIMITATIONS ON COOPERATIVE ACTIVITIES.—A

6 health plan purchasing cooperative shall not—

7 (1) perform any activity relating to the licensing

8 of health plan issuers;

9 (2) assume financial risk directly or indirectly

10 on behalf of members of a health plan purchasing co11 operative relating to any group health plan or indi12 vidual health plan;

13 (3) establish eligibility, enrollment, or premium

14 contribution requirements for individual participants

15 or beneficiaries based on health status, medical condi16 tion, claims experience, receipt of health care, medical

17 history, evidence of insurability, genetic information,

18 or disability;

19 (4) operate on a for-profit or other basis where

20 the legal structure of the cooperative permits profits

21 to be made and not returned to the members of the

22 cooperative, except that a for-profit health plan pur23 chasing cooperative may be formed by a nonprofit or24 ganization or organizations—
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1 (A) in which membership in such organiza2 tion is not based on health status, medical condi3 tion, claims experience, receipt of health care,

4 medical history, evidence of insurability, genetic

5 information, or disability; and

6 (B) that accepts as members all employers

7 or individuals on a first-come, first-served basis,

8 subject to any established limit on the maximum

9 size of an employer that may become a member;

10 or

11 (5) perform any other activities that conflict or

12 are inconsistent with the performance of its duties

13 under this Act.

14 (g) CONFLICT OF INTEREST.—

15 (1) PROHIBITION.—No individual, partnership,

16 or corporation shall serve on the board of a health

17 plan purchasing cooperative, be employed by such a

18 cooperative, receive compensation from such a cooper19 ative, or initiate or finance such a cooperative if such

20 individual, partnership, or corporation—

21 (A) fails to discharge the duties and respon22 sibilities of such individual, partnership or cor23 poration in a manner that is solely in the inter24 est of the members of the cooperative; or
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1 (B) derives personal benefit (other than in

2 the form of ordinary compensation received)

3 from the sale of, or has a financial interest in,

4 health plans, services or products sold by or dis5 tributed through that cooperative.

6 (2) CONTRACTS WITH THIRD PARTIES.—Nothing

7 in paragraph (1) shall be construed to prohibit the

8 board of directors of a health plan purchasing cooper9 ative, or its officers, at the initiative and under this

10 direction of the board, from contracting with third

11 parties to provide administrative, marketing,

12 consultive, or other services to the cooperative.

13 (h) LIMITED PREEMPTION OF CERTAIN STATE

14 LAWS.—

15 (1) IN GENERAL.—With respect to a health plan

16 purchasing cooperative that meets the requirements of

17 this section, State fictitious group laws shall be pre18 empted.

19 (2) HEALTH PLAN ISSUERS.—

20 (A) RATING.—Except as provided in sub21 paragraph (B), a health plan issuer offering a

22 group health plan or individual health plan

23 through a health plan purchasing cooperative

24 that meets the requirements of this section shall

25 comply with all State rating requirements that
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1 would otherwise apply if the health plan were of2 fered outside of the cooperative.

3 (B) EXCEPTION.—A State shall permit a

4 health plan issuer to reduce premium rates nego5 tiated with a health plan purchasing cooperative

6 that meets the requirements of this section to re7 flect savings derived from administrative costs,

8 marketing costs, profit margins, economies of

9 scale, or other factors, except that any such re10 duction in premium rates may not be based on

11 the health status, demographic factors, industry

12 type, duration, or other indicators of health risk

13 of the members of the cooperative.

14 (C) BENEFITS.—Except as provided in sub15 paragraph (D), a health plan issuer offering a

16 group health plan or individual health plan

17 through a health plan purchasing cooperative

18 shall comply with all State mandated benefit

19 laws that require the offering of any services,

20 category of care, or services of any class or type

21 of provider.

22 (D) EXCEPTION.—In those States that have

23 enacted laws authorizing the issuance of alter24 native benefit plans to small employers, health

25 plan issuers may offer such alternative benefit
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1 plans through a health plan purchasing coopera2 tive that meets the requirements of this section.

3 (i) RULES OF CONSTRUCTION.—Nothing in this sec4 tion shall be construed to—

5 (1) require that a State organize, operate, or oth6 erwise create health plan purchasing cooperatives;

7 (2) otherwise require the establishment of health

8 plan purchasing cooperatives;

9 (3) require individuals, plan sponsors, or em10 ployers to purchase group health plans or individual

11 health plans through a health plan purchasing cooper12 ative;

13 (4) preempt a State from requiring licensure for

14 individuals who are involved in directly supplying

15 advice or selling health plans on behalf of a purchas16 ing cooperative;

17 (5) require that a health plan purchasing cooper18 ative be the only type of purchasing arrangement per19 mitted to operate in a State;

20 (6) confer authority upon a State that the State

21 would not otherwise have to regulate health plan issu22 ers or employee health benefits plans;

23 (7) confer authority upon a State (or the Federal

24 Government) that the State (or Federal Government)

25 would not otherwise have to regulate group purchas-
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1 ing arrangements, coalitions, association plans, or

2 other similar entities that do not desire to become a

3 health plan purchasing cooperative in accordance

4 with this section; or

5 (8) except as specifically provided otherwise in

6 this subsection, prevent the application of State laws

7 and regulations otherwise applicable to health plan

8 issuers offering group health plans or individual

9 health plans through a health plan purchasing cooper10 ative.

11 (j) APPLICATION OF ERISA.—For purposes of enforce12 ment only, the requirements of parts 4 and 5 of subtitle

13 B of title I of the Employee Retirement Income Security

14 Act of 1974 (29 U.S.C. 1101) shall apply to a health plan

15 purchasing cooperative as if such plan were an employee

16 welfare benefit plan.

17 TITLE II—APPLICATION AND

18 ENFORCEMENT OF STANDARDS

19 SEC. 201. APPLICABILITY.

20 (a) CONSTRUCTION.—

21 (1) ENFORCEMENT.—

22 (A) IN GENERAL.—A requirement or stand23 ard imposed under this Act on a group health

24 plan or individual health plan offered by a

25 health plan issuer shall be deemed to be a re-
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1 quirement or standard imposed on the health

2 plan issuer. Such requirements or standards

3 shall be enforced by the State insurance commis4 sioner for the State involved or the official or of5 ficials designated by the State to enforce the re6 quirements of this Act. In the case of a group

7 health plan offered by a health plan issuer in

8 connection with an employee health benefit plan,

9 the requirements or standards imposed under

10 this Act shall be enforced with respect to the

11 health plan issuer by the State insurance com12 missioner for the State involved or the official or

13 officials designated by the State to enforce the re14 quirements of this Act.

15 (B) LIMITATION.—Except as provided in

16 subsection (c), the Secretary shall not enforce the

17 requirements or standards of this Act as they re18 late to health plan issuers, group health plans, or

19 individual health plans. In no case shall a State

20 enforce the requirements or standards of this Act

21 as they relate to employee health benefit plans.

22 (2) PREEMPTION OF STATE LAW.—Nothing in

23 this Act shall be construed to prevent a State from es24 tablishing, implementing, or continuing in effect

25 standards and requirements—
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1 (A) not prescribed in this Act; or

2 (B) related to the issuance, renewal, or

3 portability of health insurance or the establish4 ment or operation of group purchasing arrange5 ments, that are consistent with, and are not in

6 direct conflict with, this Act and provide greater

7 protection or benefit to participants, bene8 ficiaries or individuals.

9 (b) RULE OF CONSTRUCTION.—Nothing in this Act

10 shall be construed to affect or modify the provisions of sec11 tion 514 of the Employee Retirement Income Security Act

12 of 1974 (29 U.S.C. 1144).

13 (c) CONTINUATION.—Nothing in this Act shall be con14 strued as requiring a group health plan or an employee

15 health benefit plan to provide benefits to a particular par16 ticipant or beneficiary, to all participants or beneficiaries,

17 or to any class or group of participants or beneficiaries,

18 in excess of or other than those provided under the terms

19 of such plan.

20 SEC. 202. ENFORCEMENT OF STANDARDS.

21 (a) HEALTH PLAN ISSUERS.—Each State shall require

22 that each group health plan and individual health plan is23 sued, sold, renewed, offered for sale or operated in such

24 State by a health plan issuer meet the standards established

25 under this Act pursuant to an enforcement plan filed by
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1 the State with the Secretary. A State shall submit such in2 formation as required by the Secretary demonstrating effec3 tive implementation of the State enforcement plan.

4 (b) EMPLOYEE HEALTH BENEFIT PLANS.—With re5 spect to employee health benefit plans, the Secretary shall

6 enforce the reform standards established under this Act in

7 the same manner as provided for under sections 502, 504,

8 506, and 510 of the Employee Retirement Income Security

9 Act of 1974 (29 U.S.C. 1132, 1134, 1136, and 1140). The

10 civil penalties contained in paragraphs (1) and (2) of sec11 tion 502(c) of such Act (29 U.S.C. 1132(c)(1) and (2)) shall

12 apply to any information required by the Secretary to be

13 disclosed and reported under this section.

14 (c) FAILURE TO IMPLEMENT PLAN.—In the case of the

15 failure of a State to substantially enforce the standards and

16 requirements set forth in this Act with respect to group

17 health plans and individual health plans as provided for

18 under the State enforcement plan filed under subsection (a),

19 the Secretary, in consultation with the Secretary of Health

20 and Human Services, shall implement an enforcement plan

21 meeting the standards of this Act in such State. In the case

22 of a State that fails to substantially enforce the standards

23 and requirements set forth in this Act, each health plan is24 suer operating in such State shall be subject to civil enforce25 ment as provided for under sections 502, 504, 506, and 510
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1 of the Employee Retirement Income Security Act of 1974

2 (29 U.S.C. 1132, 1134, 1136, and 1140). The civil penalties

3 contained in paragraphs (1) and (2) of section 502(c) of

4 such Act (29 U.S.C. 1132(c)(1) and (2)) shall apply to any

5 information required by the Secretary to be disclosed and

6 reported under this section.

7 (d) APPLICABLE CERTIFYING AUTHORITY.—As used in

8 this title, the term ‘‘applicable certifying authority’’ means,

9 with respect to—

10 (1) health plan issuers, the State insurance com11 missioner or official or officials designated by the

12 State to enforce the requirements of this Act for the

13 State involved; and

14 (2) an employee health benefit plan, the Sec15 retary.

16 (e) REGULATIONS.—The Secretary may promulgate

17 such regulations as may be necessary or appropriate to

18 carry out this Act.

19 (f) TECHNICAL AMENDMENT.—Section 508 of the Em20 ployee Retirement Income Security Act of 1974 (29 U.S.C.

21 1138) is amended by inserting ‘‘and under the Health In22 surance Reform Act of 1996’’ before the period.
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1 TITLE III—MISCELLANEOUS

2 PROVISIONS

3 SEC. 301. HMOS ALLOWED TO OFFER PLANS WITH

4 DEDUCTIBLES TO INDIVIDUALS WITH MEDI5 CAL SAVINGS ACCOUNTS.

6 (a) IN GENERAL.—Section 1301(b) of the Public

7 Health Service Act (42 U.S.C. 300e(b)) is amended by add8 ing at the end the following new paragraph:

9 ‘‘(6)(A) If a member certifies that a medical sav10 ings account has been established for the benefit of

11 such member, a health maintenance organization

12 may, at the request of such member reduce the basic

13 health services payment otherwise determined under

14 paragraph (1) by requiring the payment of a deduct15 ible by the member for basic health services.

16 ‘‘(B) For purposes of this paragraph, the term

17 ‘medical savings account’ means an account which,

18 by its terms, allows the deposit of funds and the use

19 of such funds and income derived from the investment

20 of such funds for the payment of the deductible de21 scribed in subparagraph (A).’’.

22 (b) MEDICAL SAVINGS ACCOUNTS.—It is the sense of

23 the Committee on Labor and Human Resources of the Sen24 ate that the establishment of medical savings accounts, in25 cluding those defined in section 1301(b)(6)(B) of the Public
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1 Health Service Act (42 U.S.C. 300e(b)(6)(B)), should be en2 couraged as part of any health insurance reform legislation

3 passed by the Senate through the use of tax incentives relat4 ing to contributions to, the income growth of, and the quali5 fied use of, such accounts.

6 (c) SENSE OF THE SENATE.—It is the sense of the Sen7 ate that the Congress should take measures to further the

8 purposes of this Act, including any necessary changes to

9 the Internal Revenue Code of 1986 to encourage groups and

10 individuals to obtain health coverage, and to promote ac11 cess, equity, portability, affordability, and security of health

12 benefits.

13 SEC. 302. HEALTH COVERAGE AVAILABILITY STUDY.

14 (a) IN GENERAL.—The Secretary of Health and

15 Human Services, in consultation with the Secretary, rep16 resentatives of State officials, consumers, and other rep17 resentatives of individuals and entities that have expertise

18 in health insurance and employee benefits, shall conduct a

19 three-part study, and prepare and submit reports, in ac20 cordance with this section.

21 (b) EVALUATION OF AVAILABILITY.—Not later than

22 January 1, 1998, the Secretary of Health and Human Serv23 ices shall prepare and submit to the appropriate committees

24 of Congress a report, concerning—
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1 (1) an evaluation, based on the experience of

2 States, expert opinions, and such additional data as

3 may be available, of the various mechanisms used to

4 ensure the availability of reasonably priced health

5 coverage to employers purchasing group coverage and

6 to individuals purchasing coverage on a non-group

7 basis; and

8 (2) whether standards that limit the variation in

9 premiums will further the purposes of this Act.

10 (c) EVALUATION OF EFFECTIVENESS.—Not later than

11 January 1, 1999, the Secretary of Health and Human Serv12 ices shall prepare and submit to the appropriate committees

13 of Congress a report, concerning the effectiveness of the pro14 visions of this Act and the various State laws, in ensuring

15 the availability of reasonably priced health coverage to em16 ployers purchasing group coverage and individuals pur17 chasing coverage on a non-group basis.

18 (d) EVALUATION OF ACCESS AND CHOICE.—Not later

19 than June 1, 1998, the Secretary of Health and Human

20 Services shall prepare and submit to the appropriate com21 mittees of Congress a report concerning—

22 (1) an evaluation of the extent to which patients

23 have direct access to, and choice of, health care pro24 vider, including specialty providers, within a network

25 of providers, as well as the opportunity to utilize pro-
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1 viders outside of the network, under the various types

2 of coverage offered under the provisions of this Act;

3 (2) an evaluation of the cost to the insurer of

4 providing out-of-network access to providers, and the

5 feasibility of providing out-of-network access in all

6 health plans offered under provisions of this Act; and

7 (3) an evaluation of the percent of premium dol8 lar utilized for medical care and administration of

9 the various types of coverage offered, including cov10 erage which permits out-of-network access and choice

11 of provider, under provisions of this Act.

12 SEC. 303. REIMBURSEMENT OF TELEMEDICINE.

13 The Health Care Financing Administration is directed

14 to complete their ongoing study of reimbursement of all tele15 medicine services and submit a report to Congress with a

16 proposal for reimbursement of fee-for-service medicine by

17 March 1, 1997. The report shall utilize data compiled from

18 the current demonstration projects already under review

19 and gather data from other ongoing telemedicine networks.

20 This report shall include an analysis of the cost of services

21 provided via telemedicine.
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1 SEC. 304. SENSE OF THE COMMITTEE CONCERNING MEDI2 CARE.

3 (a) FINDINGS.—The Committee on Labor and Human

4 Resources of the Senate finds that the Public Trustees of

5 Medicare concluded in their 1995 Annual Report that—

6 (1) the Medicare program is clearly

7 unsustainable in its present form;

8 (2) ‘‘the Hospital Insurance Trust Fund, which

9 pays inpatient hospital expenses, will be able to pay

10 benefits for only about 7 years and is severely out of

11 financial balance in the long range’’; and

12 (3) the Public Trustees ‘‘strongly recommend

13 that the crisis presented by the financial condition of

14 the Medicare trust fund be urgently addressed on a

15 comprehensive basis, including a review of the

16 programs’s financing methods, benefit provisions, and

17 delivery mechanisms’’.

18 (b) SENSE OF THE COMMITTEE.—It is the Sense of the

19 Committee on Labor and Human Resources of the Senate

20 that the Senate should take measures necessary to reform

21 the Medicare program, to provide increased choice for sen22 iors, and to respond to the findings of the Public Trustees

23 by protecting the short-term solvency and long-term sus24 tainability of the Medicare program.
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1 SEC. 305. PARITY FOR MENTAL HEALTH SERVICES.

2 (a) PROHIBITION.—An employee health benefit plan,

3 or a health plan issuer offering a group health plan or an

4 individual health plan, shall not impose treatment limita5 tions or financial requirements on the coverage of mental

6 health services if similar limitations or requirements are

7 not imposed on coverage for services for other conditions.

8 (b) RULE OF CONSTRUCTION.—Nothing in subsection

9 (a) shall be construed as prohibiting an employee health

10 benefit plan, or a health plan issuer offering a group health

11 plan or an individual health plan, from requiring

12 preadmission screening prior to the authorization of serv13 ices covered under the plan or from applying other limita14 tions that restrict coverage for mental health services to

15 those services that are medically necessary.

16 SEC. 306. WAIVER OF FOREIGN COUNTRY RESIDENCE RE17 QUIREMENT WITH RESPECT TO INTER18 NATIONAL MEDICAL GRADUATES.

19 (a) EXTENSION OF WAIVER PROGRAM.—Section

20 220(c) of the Immigration and Nationality Technical Cor21 rections Act of 1994 (8 U.S.C. 1182 note) is amended by

22 striking ‘‘June 1, 1996’’ and inserting ‘‘June 1, 2002’’.

23 (b) CONDITIONS ON FEDERALLY REQUESTED WAIV24 ERS.—Section 212(e) of the Immigration and Nationality

25 Act (8 U.S.C. 1184(e)) is amended by inserting after ‘‘ex26 cept that in the case of a waiver requested by a State De-
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1 partment of Public Health or its equivalent’’ the following:

2 ‘‘or in the case of a waiver requested by an interested Unit3 ed States Government agency on behalf of an alien described

4 in clause (iii)’’.

5 (c) RESTRICTIONS ON FEDERALLY REQUESTED WAIV6 ERS.—Section 214(k) (8 U.S.C. 1184(k)) is amended to

7 read as follows:

8 ‘‘(k)(1) In the case of a request by an interested State

9 agency or by an interested United States Government agen10 cy for a waiver of the two-year foreign residence require11 ment under section 212(e) with respect to an alien described

12 in clause (iii) of that section, the Attorney General shall

13 not grant such waiver unless—

14 ‘‘(A) in the case of an alien who is otherwise

15 contractually obligated to return to a foreign country,

16 the government of such country furnishes the Director

17 of the United States Information Agency with a state18 ment in writing that it has no objection to such waiv19 er; and

20 ‘‘(B)(i) in the case of a request by an interested

21 State agency—

22 ‘‘(I) the alien demonstrates a bona fide offer

23 of full-time employment, agrees to begin employ24 ment with the health facility or organization

25 named in the waiver application within 90 days
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1 of receiving such waiver, and agrees to work for

2 a total of not less than three years (unless the At3 torney General determines that extenuating cir4 cumstances exist, such as closure of the facility

5 or hardship to the alien would justify a lesser pe6 riod of time); and

7 ‘‘(II) the alien’s employment continues to

8 benefit the public interest; or

9 ‘‘(ii) in the case of a request by an interested

10 United States Government agency—

11 ‘‘(I) the alien demonstrates a bona fide offer

12 of full-time employment that has been found to

13 be in the public interest, agrees to begin employ14 ment with the health facility or organization

15 named in the waiver application within 90 days

16 of receiving such waiver, and agrees to work for

17 a total of not less than three years (unless the At18 torney General determines that extenuating cir19 cumstances exist, such as closure of the facility

20 or hardship to the alien would justify a lesser pe21 riod of time); and

22 ‘‘(II) the alien’s employment continues to

23 benefit the public interest;

24 ‘‘(C) in the case of a request by an interested

25 State agency, the alien agrees to practice medicine in
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1 accordance with paragraph (2) for a total of not less

2 than three years only in the geographic area or areas

3 which are designated by the Secretary of Health and

4 Human Services as having a shortage of health care

5 professionals; and

6 ‘‘(D) in the case of a request by an interested

7 State agency, the grant of such a waiver would not

8 cause the number of waivers allotted for that State for

9 that fiscal year to exceed 20.

10 ‘‘(2)(A) Notwithstanding section 248(2) the Attorney

11 General may change the status of an alien that qualifies

12 under this subsection and section 212(e) to that of an alien

13 described in section 101(a)(15)(H)(i)(b).

14 ‘‘(B) No person who has obtained a change of status

15 under subparagraph (A) and who has failed to fulfill the

16 terms of the contract with the health facility or organization

17 named in the waiver application shall be eligible to apply

18 for an immigrant visa, for permanent residence, or for any

19 other change of nonimmigrant status until it is established

20 that such person has resided and been physically present

21 in the country of his nationality or his last residence for

22 an aggregate of at least two years following departure from

23 the United States.

24 ‘‘(3) Notwithstanding any other provisions of this sub25 section, the two-year foreign residence requirement under
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1 section 212(e) shall apply with respect to an alien in clause

2 (iii) of that section who has not otherwise been accorded

3 status under section 101(a)(27)(H)—

4 ‘‘(A) in the case of a request by an interested

5 State agency, if at any time the alien practices medi6 cine in an area other than an area described in para7 graph (1)(C); and

8 ‘‘(B) in the case of a request by an interested

9 United States Government agency, if at any time the

10 alien engages in employment for a health facility or

11 organization not named in the waiver application.’’.

12 SEC. 307. ORGAN AND TISSUE DONATION INFORMATION IN13 CLUDED WITH INCOME TAX REFUND PAY14 MENTS.

15 (a) IN GENERAL.—The Secretary of the Treasury shall

16 include with any payment of a refund of individual income

17 tax made during the period beginning on February 1, 1997,

18 and ending on June 30, 1997, a copy of the document de19 scribed in subsection (b).

20 (b) TEXT OF DOCUMENT.—The Secretary of the Treas21 ury shall, after consultation with the Secretary of Health

22 and Human Services and organizations promoting organ

23 and tissue (including eye) donation, prepare a document

24 suitable for inclusion with individual income tax refund

25 payments which—
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1 (1) encourages organ and tissue donation;

2 (2) includes a detachable organ and tissue donor

3 card; and

4 (3) urges recipients to—

5 (A) sign the organ and tissue donor card;

6 (B) discuss organ and tissue donation with

7 family members and tell family members about

8 the recipient’s desire to be an organ and tissue

9 donor if the occasion arises; and

10 (C) encourage family members to request or

11 authorize organ and tissue donation if the occa12 sion arises.

13 SEC. 308. SENSE OF THE SENATE REGARDING ADEQUATE

14 HEALTH CARE COVERAGE FOR ALL CHILDREN

15 AND PREGNANT WOMEN.

16 (a) FINDINGS.—The Senate finds the following:

17 (1) The health care coverage of mothers and chil18 dren in the United States is unacceptable, with more

19 than 9,300,000 children and 500,000 expectant moth20 ers having no health insurance.

21 (2) Among industrial nations, the United States

22 ranks 1st in wealth but 18th in infant mortality, and

23 14th among such nations in maternal mortality.

24 (3) 22 percent of pregnant women do not have

25 prenatal care in the first trimester, and 22 percent of
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1 all poor children are uninsured, despite the medicaid

2 program under title XIX of the Social Security Act.

3 (4) Of the 1,100,000 net increase in uninsured

4 persons from 1992 to 1993, 84 percent or 922,500

5 were children.

6 (5) Since 1987, the number of children covered

7 by employment based health insurance has decreased,

8 and many children lack health insurance despite the

9 relative affordability of providing insurance for chil10 dren.

11 (6) Health care coverage for children is relatively

12 inexpensive and in 1993 the medicaid program spent

13 an average of $1,012 per child compared to $8,220

14 per elderly adult.

15 (7) Uninsured children are generally children of

16 lower income workers, who are less likely than higher

17 income workers to have health insurance for their

18 families because they are less likely to work for a firm

19 that offers insurance, and if such insurance is offered,

20 it is often too costly for lower income workers to pur21 chase.

22 (8) In 1993, 61 percent of uninsured children

23 were in families with at least one parent working full

24 time for the entire year the child was uninsured, and

25 about 57 percent of uninsured children had a family
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1 income at or below 150 percent of the Federal poverty

2 level.

3 (9) If Congress eliminates the Federal guarantee

4 of medicaid, an estimated 4,900,000 children may

5 lose their guarantee of health care coverage, and those

6 same children may be added to the currently projected

7 12,600,000 children who will be uninsured by the

8 year 2002.

9 (10) Studies have shown that uninsured children

10 are less likely than insured children to receive needed

11 health and preventive care, which can affect their

12 health status adversely throughout their lives, with

13 such children less likely to have routine doctor visits,

14 receive care for injuries, and have a regular source of

15 medical care.

16 (11) The families of uninsured children are more

17 likely to take the children to an emergency room than

18 to a private physician or health maintenance organi19 zation.

20 (12) Children without health insurance are less

21 likely to be appropriately immunized or receive other

22 preventive care for childhood illnesses.

23 (13) Ensuring the health of children clearly in24 creases their chances to become productive members of

25 society and averts more serious or more expensive
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1 health conditions later in life, and ensuring that all

2 pregnant women receive competent prenatal care also

3 saves social costs.

4 (14) Although the United States has made great

5 improvements in health care coverage through the

6 medicaid program, it is still the only developed na7 tion that does not ensure that all of its children and

8 pregnant women have health care coverage.

9 (15) The United States should not accept a sta10 tus quo in which children in many neighborhoods are

11 more likely to have access to drugs and guns than to

12 doctors, or accept a status quo in which health care

13 is ensured for all prisoners but not for all children.

14 (b) SENSE OF THE SENATE.—It is the sense of the Sen15 ate that the issue of adequate health care for our mothers

16 and children is important to the future of the United States,

17 and in consideration of the importance of such issue, the

18 Senate should pass health care legislation that will ensure

19 health care coverage for all of the United States’s pregnant

20 women and children.

21 SEC. 309. SENSE OF THE SENATE REGARDING AVAILABLE

22 TREATMENTS.

23 It is the sense of the Senate that the Senate finds that

24 patients deserve to know the full range of treatments avail25 able to them and Congress should thoughtfully examine
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1 these issues to ensure that all patients get the care they de2 serve.

3 SEC. 310. MEDICAL VOLUNTEERS.

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

5 ‘‘Medical Volunteer Act’’.

6 (b) TORT CLAIM IMMUNITY.—

7 (1) GENERAL RULE.—A health care professional

8 who provides a health care service to a medically un9 derserved person without receiving compensation for

10 such health care service, shall be regarded, for pur11 poses of any medical malpractice claim that may

12 arise in connection with the provision of such service,

13 as an employee of the Federal Government for pur14 poses of the Federal tort claims provisions in title 28,

15 United States Code.

16 (2) COMPENSATION.—For purposes of paragraph

17 (1), a health care professional shall be deemed to have

18 provided a health care service without compensation

19 only if, prior to furnishing a health care service, the

20 health care professional—

21 (A) agrees to furnish the health care service

22 without charge to any person, including any

23 health insurance plan or program under which

24 the recipient is covered; and
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1 (B) provides the recipient of the health care

2 service with adequate notice (as determined by

3 the Secretary) of the limited liability of the

4 health care professional with respect to the serv5 ice.

6 (c) PREEMPTION.—The provisions of this section shall

7 preempt any State law to the extent that such law is incon8 sistent with such provisions. The provisions of this section

9 shall not preempt any State law that provides greater in10 centives or protections to a health care professional render11 ing a health care service.

12 (d) DEFINITIONS.—For purposes of this section:

13 (1) HEALTH CARE PROFESSIONAL.—The term

14 ‘‘health care professional’’ means a person who, at the

15 time the person provides a health care service, is li16 censed or certified by the appropriate authorities for

17 practice in a State to furnish health care services.

18 (2) HEALTH CARE SERVICE.—The term ‘‘health

19 care service’’ means any medical assistance to the ex20 tent it is included in the plan submitted under title

21 XIX of the Social Security Act for the State in which

22 the service was provided.

23 (3) MEDICALLY UNDERSERVED PERSON.—The

24 term ‘‘medically underserved person’’ means a person

25 who resides in—
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1 (A) a medically underserved area as defined

2 for purposes of determining a medically under3 served population under section 330 of the Public

4 Health Service Act (42 U.S.C. 254c); or

5 (B) a health professional shortage area as

6 defined in section 332 of such Act (42 U.S.C.

7 254e);

8 and who receives care in a health care facility sub9 stantially comparable to any of those designated in

10 the Federally Supported Health Centers Assistance

11 Act (42 U.S.C. 233 et seq.), as shall be determined in

12 regulations promulgated by the Secretary.

13 (4) SECRETARY.—The term ‘‘Secretary’’ means

14 the Secretary of the Department of Health and

15 Human Services.

16 SEC. 311. EFFECTIVE DATE.

17 Except as otherwise provided for in this Act, the provi18 sions of this Act shall apply as follows:

19 (1) With respect to group health plans, such pro20 visions shall apply to plans offered, sold, issued, re21 newed, in effect, or operated on or after January 1,

22 1997.

23 (2) With respect to individual health plans, such

24 provisions shall apply to plans offered, sold, issued,

25 renewed, in effect, or operated on or after the date
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1 that is 6 months after the date of enactment of this

2 Act, or January 1, 1997, whichever is later.

3 (3) With respect to employee health benefit plans,

4 such provisions shall apply to such plans on the first

5 day of the first plan year beginning on or after Janu6 ary 1, 1997.

7 SEC. 312. SEVERABILITY.

8 If any provision of this Act or the application of such

9 provision to any person or circumstance is held to be uncon10 stitutional, the remainder of this Act and the application

11 of the provisions of such to any person or circumstance shall

12 not be affected thereby.

13 TITLE IV—TAX-RELATED HEALTH

14 PROVISIONS

15 SEC. 400. SHORT TITLE; AMENDMENT OF 1986 CODE.

16 (a) SHORT TITLE.—This title may be cited as the

17 ‘‘Health Insurance and Long-Term Care Affordability Act

18 of 1996’’.

19 (b) AMENDMENT OF 1986 CODE.—Except as otherwise

20 expressly provided, whenever in this title an amendment

21 or repeal is expressed in terms of an amendment to, or re22 peal of, a section or other provision, the reference shall be

23 considered to be made to a section or other provision of the

24 Internal Revenue Code of 1986.
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1 Subtitle A—Increase in Deduction

2 for Health Insurance Costs of

3 Self-Employed Individuals

4 SEC. 401. INCREASE IN SELF-EMPLOYED INDIVIDUALS’ DE5 DUCTION FOR HEALTH INSURANCE COSTS.

6 (a) IN GENERAL.—Section 162(l) (relating to special

7 rules for health insurance costs of self-employed individ8 uals) is amended—

9 (1) by striking ‘‘30 percent’’ in paragraph (1)

10 and inserting ‘‘the applicable percentage’’, and

11 (2) by adding at the end the following new para12 graph:

13 ‘‘(6) APPLICABLE PERCENTAGE.—For purposes

14 of this subsection, the term ‘applicable percentage’

15 means the percentage determined in accordance with

16 the following table:

‘‘In the case of taxable years The applicable

beginning in: percentage is:

1997 ................................................................................................ 35

1998 ................................................................................................ 40

1999 ................................................................................................ 45

2000 ................................................................................................ 50

2001 ................................................................................................ 55

2002 ................................................................................................ 60

2003 ................................................................................................ 65

2004 ................................................................................................ 70

2005 ................................................................................................ 75

2006 and thereafter ........................................................................ 80.’’.

17 (b) EFFECTIVE DATE.—The amendments made by this

18 section shall apply to taxable years beginning after Decem19 ber 31, 1996.
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1 Subtitle B—Long-Term Care

2 Provisions

3 CHAPTER 1—LONG-TERM CARE SERVICES

4 AND CONTRACTS

5 Subchapter A—General Provisions

6 SEC. 411. TREATMENT OF LONG-TERM CARE INSURANCE.

7 (a) GENERAL RULE.—Chapter 79 (relating to defini8 tions) is amended by inserting after section 7702A the fol9 lowing new section:

10 ‘‘SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE

11 INSURANCE.

12 ‘‘(a) IN GENERAL.—For purposes of this title—

13 ‘‘(1) a qualified long-term care insurance con14 tract shall be treated as an accident and health insur15 ance contract,

16 ‘‘(2) amounts (other than policyholder dividends,

17 as defined in section 808, or premium refunds) re18 ceived under a qualified long-term care insurance

19 contract shall be treated as amounts received for per20 sonal injuries and sickness and shall be treated as re21 imbursement for expenses actually incurred for medi22 cal care (as defined in section 213(d)),

23 ‘‘(3) any plan of an employer providing coverage

24 under a qualified long-term care insurance contract
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1 shall be treated as an accident and health plan with

2 respect to such coverage,

3 ‘‘(4) except as provided in subsection (e)(3),

4 amounts paid for a qualified long-term care insur5 ance contract providing the benefits described in sub6 section (b)(2)(A) shall be treated as payments made

7 for insurance for purposes of section 213(d)(1)(D),

8 and

9 ‘‘(5) a qualified long-term care insurance con10 tract shall be treated as a guaranteed renewable con11 tract subject to the rules of section 816(e).

12 ‘‘(b) QUALIFIED LONG-TERM CARE INSURANCE CON13 TRACT.—For purposes of this title—

14 ‘‘(1) IN GENERAL.—The term ‘qualified long15 term care insurance contract’ means any insurance

16 contract if—

17 ‘‘(A) the only insurance protection provided

18 under such contract is coverage of qualified long19 term care services,

20 ‘‘(B) such contract does not pay or reim21 burse expenses incurred for services or items to

22 the extent that such expenses are reimbursable

23 under title XVIII of the Social Security Act or

24 would be so reimbursable but for the application

25 of a deductible or coinsurance amount,
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1 ‘‘(C) such contract is guaranteed renewable,

2 ‘‘(D) such contract does not provide for a

3 cash surrender value or other money that can

4 be—

5 ‘‘(i) paid, assigned, or pledged as col6 lateral for a loan, or

7 ‘‘(ii) borrowed,

8 other than as provided in subparagraph (E) or

9 paragraph (2)(C), and

10 ‘‘(E) all refunds of premiums, and all pol11 icyholder dividends or similar amounts, under

12 such contract are to be applied as a reduction in

13 future premiums or to increase future benefits.

14 ‘‘(2) SPECIAL RULES.—

15 ‘‘(A) PER DIEM, ETC. PAYMENTS PER16 MITTED.—A contract shall not fail to be de17 scribed in subparagraph (A) or (B) of paragraph

18 (1) by reason of payments being made on a per

19 diem or other periodic basis without regard to

20 the expenses incurred during the period to which

21 the payments relate.

22 ‘‘(B) SPECIAL RULES RELATING TO MEDI23 CARE.—

24 ‘‘(i) Paragraph (1)(B) shall not apply

25 to expenses which are reimbursable under
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1 title XVIII of the Social Security Act only

2 as a secondary payor.

3 ‘‘(ii) No provision of law shall be con4 strued or applied so as to prohibit the offer5 ing of a qualified long-term care insurance

6 contract on the basis that the contract co7 ordinates its benefits with those provided

8 under such title.

9 ‘‘(C) REFUNDS OF PREMIUMS.—Paragraph

10 (1)(E) shall not apply to any refund on the

11 death of the insured, or on a complete surrender

12 or cancellation of the contract, which cannot ex13 ceed the aggregate premiums paid under the con14 tract. Any refund on a complete surrender or

15 cancellation of the contract shall be includible in

16 gross income to the extent that any deduction or

17 exclusion was allowable with respect to the pre18 miums.

19 ‘‘(c) QUALIFIED LONG-TERM CARE SERVICES.—For

20 purposes of this section—

21 ‘‘(1) IN GENERAL.—The term ‘qualified long22 term care services’ means necessary diagnostic, pre23 ventive, therapeutic, curing, treating, mitigating, and

24 rehabilitative services, and maintenance or personal

25 care services, which—
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1 ‘‘(A) are required by a chronically ill indi2 vidual, and

3 ‘‘(B) are provided pursuant to a plan of

4 care prescribed by a licensed health care practi5 tioner.

6 ‘‘(2) CHRONICALLY ILL INDIVIDUAL.—

7 ‘‘(A) IN GENERAL.—The term ‘chronically

8 ill individual’ means any individual who has

9 been certified by a licensed health care practi10 tioner as—

11 ‘‘(i) being unable to perform (without

12 substantial assistance from another individ13 ual) at least 2 activities of daily living for

14 a period of at least 90 days due to a loss

15 of functional capacity,

16 ‘‘(ii) having a level of disability simi17 lar (as determined by the Secretary in con18 sultation with the Secretary of Health and

19 Human Services) to the level of disability

20 described in clause (i), or

21 ‘‘(iii) requiring substantial supervision

22 to protect such individual from threats to

23 health and safety due to severe cognitive im24 pairment.
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1 Such term shall not include any individual oth2 erwise meeting the requirements of the preceding

3 sentence unless within the preceding 12-month

4 period a licensed health care practitioner has

5 certified that such individual meets such require6 ments.

7 ‘‘(B) ACTIVITIES OF DAILY LIVING.—For

8 purposes of subparagraph (A), each of the follow9 ing is an activity of daily living:

10 ‘‘(i) Eating.

11 ‘‘(ii) Toileting.

12 ‘‘(iii) Transferring.

13 ‘‘(iv) Bathing.

14 ‘‘(v) Dressing.

15 ‘‘(vi) Continence.

16 Nothing in this section shall be construed to re17 quire a contract to take into account all of the

18 preceding activities of daily living.

19 ‘‘(3) MAINTENANCE OR PERSONAL CARE SERV20 ICES.—The term ‘maintenance or personal care serv21 ices’ means any care the primary purpose of which

22 is the provision of needed assistance with any of the

23 disabilities as a result of which the individual is a

24 chronically ill individual (including the protection
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1 from threats to health and safety due to severe cog2 nitive impairment).

3 ‘‘(4) LICENSED HEALTH CARE PRACTITIONER.—

4 The term ‘licensed health care practitioner’ means

5 any physician (as defined in section 1861(r)(1) of the

6 Social Security Act (42 U.S.C. 1395x(r)(1)) and any

7 registered professional nurse, licensed social worker,

8 or other individual who meets such requirements as

9 may be prescribed by the Secretary.

10 ‘‘(d) AGGREGATE PAYMENTS IN EXCESS OF LIMITS.—

11 ‘‘(1) IN GENERAL.—If the aggregate amount of

12 periodic payments under all qualified long-term care

13 insurance contracts with respect to an insured for

14 any period exceeds the dollar amount in effect for

15 such period under paragraph (3), such excess pay16 ments shall be treated as made for qualified long-term

17 care services only to the extent of the costs incurred

18 by the payee (not otherwise compensated for by insur19 ance or otherwise) for qualified long-term care serv20 ices provided during such period for such insured.

21 ‘‘(2) PERIODIC PAYMENTS.—For purposes of

22 paragraph (1), the term ‘periodic payment’ means

23 any payment (whether on a periodic basis or other24 wise) made without regard to the extent of the costs
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1 incurred by the payee for qualified long-term care

2 services.

3 ‘‘(3) DOLLAR AMOUNT.—The dollar amount in

4 effect under this subsection shall be $175 per day (or

5 the equivalent amount in the case of payments on an6 other periodic basis).

7 ‘‘(4) INFLATION ADJUSTMENT.—In the case of a

8 calendar year after 1997, the dollar amount contained

9 in paragraph (3) shall be increased at the same time

10 and in the same manner as amounts are increased

11 pursuant to section 213(d)(11).

12 ‘‘(e) TREATMENT OF COVERAGE PROVIDED AS PART

13 OF A LIFE INSURANCE CONTRACT.—Except as otherwise

14 provided in regulations prescribed by the Secretary, in the

15 case of any long-term care insurance coverage (whether or

16 not qualified) provided by a rider on or as a part of a

17 life insurance contract—

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

19 if the portion of the contract providing such coverage

20 is a separate contract.

21 ‘‘(2) APPLICATION OF 7702.—Section 7702(c)(2)

22 (relating to the guideline premium limitation) shall

23 be applied by increasing the guideline premium limi24 tation with respect to a life insurance contract, as of

25 any date—
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1 ‘‘(A) by the sum of any charges (but not

2 premium payments) against the life insurance

3 contract’s cash surrender value (within the

4 meaning of section 7702(f)(2)(A)) for such cov5 erage made to that date under the contract, less

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

7 which reduces the premiums paid for the con8 tract (within the meaning of section 7702(f)(1)).

9 ‘‘(3) APPLICATION OF SECTION 213.—No deduc10 tion shall be allowed under section 213(a) for charges

11 against the life insurance contract’s cash surrender

12 value described in paragraph (2), unless such charges

13 are includible in income as a result of the application

14 of section 72(e)(10) and the rider is a qualified long15 term care insurance contract under subsection (b).

16 ‘‘(4) PORTION DEFINED.—For purposes of this

17 subsection, the term ‘portion’ means only the terms

18 and benefits under a life insurance contract that are

19 in addition to the terms and benefits under the con20 tract without regard to the coverage under a qualified

21 long-term care insurance contract.’’.

22 (b) RESERVE METHOD.—Clause (iii) of section

23 807(d)(3)(A) is amended by inserting ‘‘(other than a quali24 fied long-term care insurance contract, as defined in section

25 7702B(b))’’ after ‘‘insurance contract’’.
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1 (c) LONG-TERM CARE INSURANCE NOT PERMITTED

2 UNDER CAFETERIA PLANS OR FLEXIBLE SPENDING AR3 RANGEMENTS.—

4 (1) CAFETERIA PLANS.—Section 125(f) is

5 amended by adding at the end the following new sen6 tence: ‘‘Such term shall not include any long-term

7 care insurance contract (as defined in section

8 4980C).’’.

9 (2) FLEXIBLE SPENDING ARRANGEMENTS.—The

10 text of section 106 (relating to contributions by em11 ployer to accident and health plans) is amended to

12 read as follows:

13 ‘‘(a) GENERAL RULE.—Except as otherwise provided

14 in this section, gross income of an employee does not include

15 employer-provided coverage under an accident or health

16 plan.

17 ‘‘(b) INCLUSION OF LONG-TERM CARE BENEFITS PRO18 VIDED THROUGH FLEXIBLE SPENDING ARRANGEMENTS.—

19 ‘‘(1) IN GENERAL.—Effective on and after Janu20 ary 1, 1997, gross income of an employee shall in21 clude employer-provided coverage for qualified long22 term care services (as defined in section 7702B(c)) to

23 the extent that such coverage is provided through a

24 flexible spending or similar arrangement.
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1 ‘‘(2) FLEXIBLE SPENDING ARRANGEMENT.—For

2 purposes of this subsection, a flexible spending ar3 rangement is a benefit program which provides em4 ployees with coverage under which—

5 ‘‘(A) specified incurred expenses may be re6 imbursed (subject to reimbursement maximums

7 and other reasonable conditions), and

8 ‘‘(B) the maximum amount of reimburse9 ment which is reasonably available to a partici10 pant for such coverage is less than 500 percent

11 of the value of such coverage.

12 In the case of an insured plan, the maximum amount

13 reasonably available shall be determined on the basis

14 of the underlying coverage.’’.

15 (d) CONTINUATION COVERAGE EXCISE TAX NOT TO

16 APPLY.—Subsection (f) of section 4980B is amended by

17 adding at the end the following new paragraph:

18 ‘‘(9) CONTINUATION OF LONG-TERM CARE COV19 ERAGE NOT REQUIRED.—A group health plan shall

20 not be treated as failing to meet the requirements of

21 this subsection solely by reason of failing to provide

22 coverage under any qualified long-term care insur23 ance contract (as defined in section 7702B(b)).’’.
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1 (e) AMOUNTS PAID TO SPOUSE OR RELATIVES TREAT2 ED AS NOT PAID FOR MEDICAL CARE.—Section 213(d) is

3 amended by adding at the end the following new paragraph:

4 ‘‘(10) CERTAIN PAYMENTS TO SPOUSE OR REL5 ATIVES TREATED AS NOT PAID FOR MEDICAL CARE.—

6 An amount paid for a qualified long-term care service

7 (as defined in section 7702B(c)) provided to an indi8 vidual shall be treated as not paid for medical care

9 if such service is provided—

10 ‘‘(A) by the spouse of the individual or a

11 relative (directly or through a partnership, cor12 poration, or other entity) unless the spouse or

13 relative is a licensed professional with respect to

14 such services, or

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

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

17 or 707(b)) to the individual.

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

19 means an individual bearing a relationship to the in20 dividual which is described in any of paragraphs (1)

21 through (8) of section 152(a). This paragraph shall

22 not apply for purposes of section 105(b) with respect

23 to reimbursements through insurance.’’.
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1 (f) CLERICAL AMENDMENT.—The table of sections for

2 chapter 79 is amended by inserting after the item relating

3 to section 7702A the following new item:

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

4 (g) EFFECTIVE DATE.—

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

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

8 (2) CONTINUATION OF EXISTING POLICIES.—In

9 the case of any contract issued before January 1,

10 1997, which met the long-term care insurance require11 ments of the State in which the contract was issued

12 at the time the contract was issued—

13 (A) such contract shall be treated for pur14 poses of the Internal Revenue Code of 1986 as a

15 qualified long-term care insurance contract (as

16 defined in section 7702B(b) of such Code), and

17 (B) services provided under, or reimbursed

18 by, such contract shall be treated for such pur19 poses as qualified long-term care services (as de20 fined in section 7702B(c) of such Code).

21 (3) EXCHANGES OF EXISTING POLICIES.—If,

22 after the date of enactment of this Act and before Jan23 uary 1, 1998, a contract providing for long-term care

24 insurance coverage is exchanged solely for a qualified

25 long-term care insurance contract (as defined in sec-
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1 tion 7702B(b) of such Code), no gain or loss shall be

2 recognized on the exchange. If, in addition to a quali3 fied long-term care insurance contract, money or

4 other property is received in the exchange, then any

5 gain shall be recognized to the extent of the sum of

6 the money and the fair market value of the other

7 property received. For purposes of this paragraph, the

8 cancellation of a contract providing for long-term

9 care insurance coverage and reinvestment of the can10 cellation proceeds in a qualified long-term care insur11 ance contract within 60 days thereafter shall be treat12 ed as an exchange.

13 (4) ISSUANCE OF CERTAIN RIDERS PER14 MITTED.—For purposes of applying sections 101(f),

15 7702, and 7702A of the Internal Revenue Code of

16 1986 to any contract—

17 (A) the issuance of a rider which is treated

18 as a qualified long-term care insurance contract

19 under section 7702B, and

20 (B) the addition of any provision required

21 to conform any other long-term care rider to be

22 so treated,

23 shall not be treated as a modification or material

24 change of such contract.
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1 SEC. 412. QUALIFIED LONG-TERM CARE SERVICES TREATED

2 AS MEDICAL CARE.

3 (a) GENERAL RULE.—Paragraph (1) of section 213(d)

4 (defining medical care) is amended by striking ‘‘or’’ at the

5 end of subparagraph (B), by redesignating subparagraph

6 (C) as subparagraph (D), and by inserting after subpara7 graph (B) the following new subparagraph:

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

9 (as defined in section 7702B(c)), or’’.

10 (b) TECHNICAL AMENDMENTS.—

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

12 redesignated by subsection (a)) is amended by strik13 ing ‘‘subparagraphs (A) and (B)’’ and inserting ‘‘sub14 paragraphs (A), (B), and (C)’’.

15 (2)(A) Paragraph (1) of section 213(d) is

16 amended by adding at the end the following new flush

17 sentence:

18 ‘‘In the case of a qualified long-term care insurance

19 contract (as defined in section 7702B(b)), only eligi20 ble long-term care premiums (as defined in para21 graph (11)) shall be taken into account under sub22 paragraph (D).’’.

23 (B) Subsection (d) of section 213 is amended by

24 adding at the end the following new paragraph:

25 ‘‘(11) ELIGIBLE LONG-TERM CARE PREMIUMS.—
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1 ‘‘(A) IN GENERAL.—For purposes of this

2 section, the term ‘eligible long-term care pre3 miums’ means the amount paid during a taxable

4 year for any qualified long-term care insurance

5 contract (as defined in section 7702B(b)) cover6 ing an individual, to the extent such amount

7 does not exceed the limitation determined under

8 the following table:

‘‘In the case of an individual

with an attained age before the The limitation

close of the taxable year of: is:

40 or less ........................................................ $200

More than 40 but not more than 50 ............ 375

More than 50 but not more than 60 ............ 750

More than 60 but not more than 70 ............ 2,000

More than 70 ................................................. 2,500.

9 ‘‘(B) INDEXING.—

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

11 taxable year beginning in a calendar year

12 after 1997, each dollar amount contained in

13 subparagraph (A) shall be increased by the

14 medical care cost adjustment of such

15 amount for such calendar year. If any in16 crease determined under the preceding sen17 tence is not a multiple of $10, such increase

18 shall be rounded to the nearest multiple of

19 $10.

20 ‘‘(ii) MEDICAL CARE COST ADJUST21 MENT.—For purposes of clause (i), the med-
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1 ical care cost adjustment for any calendar

2 year is the percentage (if any) by which—

3 ‘‘(I) the medical care component

4 of the Consumer Price Index (as de5 fined in section 1(f)(5)) for August of

6 the preceding calendar year, exceeds

7 ‘‘(II) such component for August

8 of 1996.

9 The Secretary shall, in consultation with

10 the Secretary of Health and Human Serv11 ices, prescribe an adjustment which the Sec12 retary determines is more appropriate for

13 purposes of this paragraph than the adjust14 ment described in the preceding sentence,

15 and the adjustment so prescribed shall

16 apply in lieu of the adjustment described in

17 the preceding sentence.’’.

18 (3) Paragraph (6) of section 213(d) is amend19 ed—

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

21 (B)’’ and inserting ‘‘subparagraphs (A), (B),

22 and (C)’’, and

23 (B) by striking ‘‘paragraph (1)(C)’’ in sub24 paragraph (A) and inserting ‘‘paragraph

25 (1)(D)’’.
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1 (4) Paragraph (7) of section 213(d) is amended

2 by striking ‘‘subparagraphs (A) and (B)’’ and insert3 ing ‘‘subparagraphs (A), (B), and (C)’’.

4 (c) EFFECTIVE DATE.—The amendments made by this

5 section shall apply to taxable years beginning after Decem6 ber 31, 1996.

7 SEC. 413. CERTAIN EXCHANGES OF LIFE INSURANCE CON8 TRACTS FOR QUALIFIED LONG-TERM CARE

9 INSURANCE CONTRACTS NOT TAXABLE.

10 (a) IN GENERAL.—Subsection (a) of section 1035 (re11 lating to certain exchanges of insurance contracts) is

12 amended by striking the period at the end of paragraph

13 (3) and inserting ‘‘; or’’, and by adding at the end the fol14 lowing new paragraph:

15 ‘‘(4) a contract of life insurance or an endow16 ment or annuity contract for a qualified long-term

17 care insurance contract (as defined in section

18 7702B(b)).’’.

19 (b) EFFECTIVE DATE.—The amendment made by this

20 section shall apply to taxable years beginning after Decem21 ber 31, 1997.
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1 SEC. 414. EXCEPTION FROM PENALTY TAX FOR AMOUNTS

2 WITHDRAWN FROM CERTAIN RETIREMENT

3 PLANS FOR QUALIFIED LONG-TERM CARE IN4 SURANCE.

5 (a) IN GENERAL.—Paragraph (2) of section 72(t) is

6 amended by adding at the end the following new subpara7 graph:

8 ‘‘(D) PREMIUMS FOR QUALIFIED LONG9 TERM CARE INSURANCE CONTRACTS.—Distribu10 tions to an individual from an individual retire11 ment plan, or from amounts attributable to em12 ployer contributions made pursuant to elective

13 deferrals described in subparagraph (A) or (C) of

14 section 402(g)(3), to the extent such distributions

15 do not exceed the premiums for a qualified long16 term care insurance contract (as defined in sec17 tion 7702B(b)) for such individual or the spouse

18 of such individual. In applying subparagraph

19 (B), such premiums shall be treated as amounts

20 not paid for medical care.’’.

21 (b) DISTRIBUTIONS PERMITTED FROM CERTAIN

22 PLANS TO PAY LONG-TERM CARE PREMIUMS.—

23 (1) Section 401(k)(2)(B)(i) is amended by strik24 ing ‘‘or’’ at the end of subclause (III), by striking

25 ‘‘and’’ at the end of subclause (IV) and inserting
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1 ‘‘or’’, and by inserting after subclause (IV) the follow2 ing new subclause:

3 ‘‘(V) the date distributions for

4 premiums for a long-term care insur5 ance contract (as defined in section

6 7702B(b)) for coverage of such individ7 ual or the spouse of such individual

8 are made, and’’.

9 (2) Section 403(b)(11) is amended by striking

10 ‘‘or’’ at the end of subparagraph (A), by striking the

11 period at the end of subparagraph (B) and inserting

12 ‘‘, or’’, and by inserting after subparagraph (B) the

13 following new subparagraph:

14 ‘‘(C) for the payment of premiums for a

15 long-term care insurance contract (as defined in

16 section 7702B(b)) for coverage of the employee or

17 the spouse of the employee.’’.

18 (3) Subparagraph (A) of section 457(d)(1) is

19 amended by striking ‘‘or’’ at the end of clause (ii), by

20 striking ‘‘and’’ at the end of clause (iii) and inserting

21 ‘‘or’’, and by inserting after clause (iii) the following

22 new clause:

23 ‘‘(iv) the date distributions for pre24 miums for a long-term care insurance con25 tract (as defined in section 7702B(b)) for
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1 coverage of such individual or the spouse of

2 such individual are made, and’’.

3 (c) CONFORMING AMENDMENT.—Section 72t(2)(B) is

4 amended by striking ‘‘subparagraph (A) or (C))’’ and in5 serting ‘‘subparagraph (A), (C), or (D))’’.

6 (d) EFFECTIVE DATE.—The amendments made by this

7 section shall apply to payments and distributions after De8 cember 31, 1996.

9 SEC. 415. REPORTING REQUIREMENTS.

10 (a) IN GENERAL.—Subpart B of part III of subchapter

11 A of chapter 61 is amended by adding at the end the follow12 ing new section:

13 ‘‘SEC. 6050Q. CERTAIN LONG-TERM CARE BENEFITS.

14 ‘‘(a) REQUIREMENT OF REPORTING.—Any person who

15 pays long-term care benefits shall make a return, according

16 to the forms or regulations prescribed by the Secretary, set17 ting forth—

18 ‘‘(1) the aggregate amount of such benefits paid

19 by such person to any individual during any cal20 endar year, and

21 ‘‘(2) the name, address, and TIN of such individ22 ual.

23 ‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS

24 WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—

25 Every person required to make a return under subsection
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1 (a) shall furnish to each individual whose name is required

2 to be set forth in such return a written statement showing—

3 ‘‘(1) the name of the person making the pay4 ments, and

5 ‘‘(2) the aggregate amount of long-term care ben6 efits paid to the individual which are required to be

7 shown on such return.

8 The written statement required under the preceding sen9 tence shall be furnished to the individual on or before Janu10 ary 31 of the year following the calendar year for which

11 the return under subsection (a) was required to be made.

12 ‘‘(c) LONG-TERM CARE BENEFITS.—For purposes of

13 this section, the term ‘long-term care benefit’ means any

14 amount paid under a long-term care insurance policy

15 (within the meaning of section 4980C(e)).’’.

16 (b) PENALTIES.—

17 (1) Subparagraph (B) of section 6724(d)(1) is

18 amended by redesignating clauses (ix) through (xiv)

19 as clauses (x) through (xv), respectively, and by in20 serting after clause (viii) the following new clause:

21 ‘‘(ix) section 6050Q (relating to certain

22 long-term care benefits),’’.

23 (2) Paragraph (2) of section 6724(d) is amended

24 by redesignating subparagraphs (Q) through (T) as

25 subparagraphs (R) through (U), respectively, and by
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1 inserting after subparagraph (P) the following new

2 subparagraph:

3 ‘‘(Q) section 6050Q(b) (relating to certain

4 long-term care benefits),’’.

5 (c) CLERICAL AMENDMENT.—The table of sections for

6 subpart B of part III of subchapter A of chapter 61 is

7 amended by adding at the end the following new item:

‘‘Sec. 6050Q. Certain long-term care benefits.’’.

8 (d) EFFECTIVE DATE.—The amendments made by this

9 section shall apply to benefits paid after December 31, 1996.

10 Subchapter B—Consumer Protection

11 Provisions

12 SEC. 421. POLICY REQUIREMENTS.

13 Section 7702B (as added by section 411) is amended

14 by adding at the end the following new subsection:

15 ‘‘(f) CONSUMER PROTECTION PROVISIONS.—

16 ‘‘(1) IN GENERAL.—The requirements of this sub17 section are met with respect to any contract if any

18 long-term care insurance policy issued under the con19 tract meets—

20 ‘‘(A) the requirements of the model regula21 tion and model Act described in paragraph (2),

22 ‘‘(B) the disclosure requirement of para23 graph (3), and

24 ‘‘(C) the requirements relating to nonforfeit25 ability under paragraph (4).
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1 ‘‘(2) REQUIREMENTS OF MODEL REGULATION

2 AND ACT.—

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

4 this paragraph are met with respect to any pol5 icy if such policy meets—

6 ‘‘(i) MODEL REGULATION.—The follow7 ing requirements of the model regulation:

8 ‘‘(I) Section 7A (relating to guar9 anteed renewal or noncancellability),

10 and the requirements of section 6B of

11 the model Act relating to such section

12 7A.

13 ‘‘(II) Section 7B (relating to pro14 hibitions on limitations and exclu15 sions).

16 ‘‘(III) Section 7C (relating to ex17 tension of benefits).

18 ‘‘(IV) Section 7D (relating to con19 tinuation or conversion of coverage).

20 ‘‘(V) Section 7E (relating to dis21 continuance and replacement of poli22 cies).

23 ‘‘(VI) Section 8 (relating to unin24 tentional lapse).
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1 ‘‘(VII) Section 9 (relating to dis2 closure), other than section 9F thereof.

3 ‘‘(VIII) Section 10 (relating to

4 prohibitions against post-claims under5 writing).

6 ‘‘(IX) Section 11 (relating to min7 imum standards).

8 ‘‘(X) Section 12 (relating to re9 quirement to offer inflation protection),

10 except that any requirement for a sig11 nature on a rejection of inflation pro12 tection shall permit the signature to be

13 on an application or on a separate

14 form.

15 ‘‘(XI) Section 23 (relating to pro16 hibition against preexisting conditions

17 and probationary periods in replace18 ment policies or certificates).

19 ‘‘(ii) MODEL ACT.—The following re20 quirements of the model Act:

21 ‘‘(I) Section 6C (relating to pre22 existing conditions).

23 ‘‘(II) Section 6D (relating to

24 prior hospitalization).
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1 ‘‘(B) DEFINITIONS.—For purposes of this

2 paragraph—

3 ‘‘(i) MODEL PROVISIONS.—The terms

4 ‘model regulation’ and ‘model Act’ mean the

5 long-term care insurance model regulation,

6 and the long-term care insurance model Act,

7 respectively, promulgated by the National

8 Association of Insurance Commissioners (as

9 adopted as of January 1993).

10 ‘‘(ii) COORDINATION.—Any provision

11 of the model regulation or model Act listed

12 under clause (i) or (ii) of subparagraph (A)

13 shall be treated as including any other pro14 vision of such regulation or Act necessary to

15 implement the provision.

16 ‘‘(3) DISCLOSURE REQUIREMENT.—The require17 ment of this paragraph is met with respect to any

18 policy if such policy meets the requirements of section

19 4980C(d)(1).

20 ‘‘(4) NONFORFEITURE REQUIREMENTS.—

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

22 this paragraph are met with respect to any level

23 premium long-term care insurance policy, if the

24 issuer of such policy offers to the policyholder,

25 including any group policyholder, a nonforfeit-
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1 ure provision meeting the requirements of sub2 paragraph (B).

3 ‘‘(B) REQUIREMENTS OF PROVISION.—The

4 nonforfeiture provision required under subpara5 graph (A) shall meet the following requirements:

6 ‘‘(i) The nonforfeiture provision shall

7 be appropriately captioned.

8 ‘‘(ii) The nonforfeiture provision shall

9 provide for a benefit available in the event

10 of a default in the payment of any pre11 miums and the amount of the benefit may

12 be adjusted subsequent to being initially

13 granted only as necessary to reflect changes

14 in claims, persistency, and interest as re15 flected in changes in rates for premium

16 paying policies approved by the appro17 priate State regulatory authority for the

18 same policy form.

19 ‘‘(iii) The nonforfeiture provision shall

20 provide at least one of the following:

21 ‘‘(I) Reduced paid-up insurance.

22 ‘‘(II) Extended term insurance.

23 ‘‘(III) Shortened benefit period.

24 ‘‘(IV) Other similar offerings ap25 proved by the Secretary.
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1 ‘‘(5) LONG-TERM CARE INSURANCE POLICY DE2 FINED.—For purposes of this subsection, the term

3 ‘long-term care insurance policy’ has the meaning

4 given such term by section 4980C(e).’’.

5 SEC. 422. REQUIREMENTS FOR ISSUERS OF LONG-TERM

6 CARE INSURANCE POLICIES.

7 (a) IN GENERAL.—Chapter 43 is amended by adding

8 at the end the following new section:

9 ‘‘SEC. 4980C. REQUIREMENTS FOR ISSUERS OF LONG-TERM

10 CARE INSURANCE POLICIES.

11 ‘‘(a) GENERAL RULE.—There is hereby imposed on

12 any person failing to meet the requirements of subsection

13 (c) or (d) a tax in the amount determined under subsection

14 (b).

15 ‘‘(b) AMOUNT.—

16 ‘‘(1) IN GENERAL.—The amount of the tax im17 posed by subsection (a) shall be $100 per policy for

18 each day any requirements of subsection (c) or (d) are

19 not met with respect to each long-term care insurance

20 policy.

21 ‘‘(2) WAIVER.—In the case of a failure which is

22 due to reasonable cause and not to willful neglect, the

23 Secretary may waive part or all of the tax imposed

24 by subsection (a) to the extent that payment of the tax

25 would be excessive relative to the failure involved.
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1 ‘‘(c) RESPONSIBILITIES.—The requirements of this

2 subsection are as follows:

3 ‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.—

4 ‘‘(A) MODEL REGULATION.—The following

5 requirements of the model regulation must be

6 met:

7 ‘‘(i) Section 13 (relating to application

8 forms and replacement coverage).

9 ‘‘(ii) Section 14 (relating to reporting

10 requirements), except that the issuer shall

11 also report at least annually the number of

12 claims denied during the reporting period

13 for each class of business (expressed as a

14 percentage of claims denied), other than

15 claims denied for failure to meet the wait16 ing period or because of any applicable pre17 existing condition.

18 ‘‘(iii) Section 20 (relating to filing re19 quirements for marketing).

20 ‘‘(iv) Section 21 (relating to standards

21 for marketing), including inaccurate com22 pletion of medical histories, other than sec23 tions 21C(1) and 21C(6) thereof, except

24 that—
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1 ‘‘(I) in addition to such require2 ments, no person shall, in selling or of3 fering to sell a long-term care insur4 ance policy, misrepresent a material

5 fact; and

6 ‘‘(II) no such requirements shall

7 include a requirement to inquire or

8 identify whether a prospective appli9 cant or enrollee for long-term care in10 surance has accident and sickness in11 surance.

12 ‘‘(v) Section 22 (relating to appro13 priateness of recommended purchase).

14 ‘‘(vi) Section 24 (relating to standard

15 format outline of coverage).

16 ‘‘(vii) Section 25 (relating to require17 ment to deliver shopper’s guide).

18 ‘‘(B) MODEL ACT.—The following require19 ments of the model Act must be met:

20 ‘‘(i) Section 6F (relating to right to re21 turn), except that such section shall also

22 apply to denials of applications and any

23 refund shall be made within 30 days of the

24 return or denial.
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1 ‘‘(ii) Section 6G (relating to outline of

2 coverage).

3 ‘‘(iii) Section 6H (relating to require4 ments for certificates under group plans).

5 ‘‘(iv) Section 6I (relating to policy

6 summary).

7 ‘‘(v) Section 6J (relating to monthly

8 reports on accelerated death benefits).

9 ‘‘(vi) Section 7 (relating to incontest10 ability period).

11 ‘‘(C) DEFINITIONS.—For purposes of this

12 paragraph, the terms ‘model regulation’ and

13 ‘model Act’ have the meanings given such terms

14 by section 7702B(f)(2)(B).

15 ‘‘(2) DELIVERY OF POLICY.—If an application

16 for a long-term care insurance policy (or for a certifi17 cate under a group long-term care insurance policy)

18 is approved, the issuer shall deliver to the applicant

19 (or policyholder or certificateholder) the policy (or

20 certificate) of insurance not later than 30 days after

21 the date of the approval.

22 ‘‘(3) INFORMATION ON DENIALS OF CLAIMS.—If

23 a claim under a long-term care insurance policy is

24 denied, the issuer shall, within 60 days of the date of
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1 a written request by the policyholder or

2 certificateholder (or representative)—

3 ‘‘(A) provide a written explanation of the

4 reasons for the denial, and

5 ‘‘(B) make available all information di6 rectly relating to such denial.

7 ‘‘(d) DISCLOSURE.—The requirements of this sub8 section are met if the issuer of a long-term care insurance

9 policy discloses in such policy and in the outline of coverage

10 required under subsection (c)(1)(B)(ii) that the policy is in11 tended to be a qualified long-term care insurance contract

12 under section 7702B(b).

13 ‘‘(e) LONG-TERM CARE INSURANCE POLICY DE14 FINED.—For purposes of this section, the term ‘long-term

15 care insurance policy’ means any product which is adver16 tised, marketed, or offered as long-term care insurance.’’.

17 (b) CONFORMING AMENDMENT.—The table of sections

18 for chapter 43 is amended by adding at the end the follow19 ing new item:

‘‘Sec. 4980C. Requirements for issuers of long-term care insurance policies.’’.

20 SEC. 423. COORDINATION WITH STATE REQUIREMENTS.

21 Nothing in this subchapter shall prevent a State from

22 establishing, implementing, or continuing in effect stand23 ards related to the protection of policyholders of long-term

24 care insurance policies (as defined in section 4980C(e) of

25 the Internal Revenue Code of 1986), if such standards are
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1 not in conflict with or inconsistent with the standards es2 tablished under such Code.

3 SEC. 424. EFFECTIVE DATES.

4 (a) IN GENERAL.—The provisions of, and amendments

5 made by, this subchapter shall apply to contracts issued

6 after December 31, 1996. The provisions of section 411(g)

7 of this Act (relating to transition rule) shall apply to such

8 contracts.

9 (b) ISSUERS.—The amendments made by section 422

10 shall apply to actions taken after December 31, 1996.

11 CHAPTER 2—TREATMENT OF

12 ACCELERATED DEATH BENEFITS

13 SEC. 431. TREATMENT OF ACCELERATED DEATH BENEFITS

14 BY RECIPIENT.

15 (a) IN GENERAL.—Section 101 (relating to certain

16 death benefits) is amended by adding at the end the follow17 ing new subsection:

18 ‘‘(g) TREATMENT OF CERTAIN ACCELERATED DEATH

19 BENEFITS.—

20 ‘‘(1) IN GENERAL.—For purposes of this section,

21 the following amounts shall be treated as an amount

22 paid by reason of the death of an insured:

23 ‘‘(A) Any amount received under a life in24 surance contract on the life of an insured who is

25 a terminally ill individual.
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1 ‘‘(B) Any amount received under a life in2 surance contract on the life of an insured who is

3 a chronically ill individual (as defined in section

4 7702B(c)(2)) but only if such amount is received

5 under a rider or other provision of such contract

6 which is treated as a qualified long-term care in7 surance contract under section 7702B.

8 ‘‘(2) TREATMENT OF VIATICAL SETTLEMENTS.—

9 ‘‘(A) IN GENERAL.—In the case of a life in10 surance contract on the life of an insured de11 scribed in paragraph (1), if—

12 ‘‘(i) any portion of such contract is

13 sold to any viatical settlement provider, or

14 ‘‘(ii) any portion of the death benefit is

15 assigned to such a provider,

16 the amount paid for such sale or assignment

17 shall be treated as an amount paid under the life

18 insurance contract by reason of the death of such

19 insured.

20 ‘‘(B) VIATICAL SETTLEMENT PROVIDER.—

21 The term ‘viatical settlement provider’ means

22 any person regularly engaged in the trade or

23 business of purchasing, or taking assignments of,

24 life insurance contracts on the lives of insureds

25 described in paragraph (1) if—
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1 ‘‘(i) such person is licensed for such

2 purposes in the State in which the insured

3 resides, or

4 ‘‘(ii) in the case of an insured who re5 sides in a State not requiring the licensing

6 of such persons for such purposes—

7 ‘‘(I) such person meets the re8 quirements of sections 8 and 9 of the

9 Viatical Settlements Model Act of the

10 National Association of Insurance

11 Commissioners, and

12 ‘‘(II) meets the requirements of the

13 Model Regulations of the National As14 sociation of Insurance Commissioners

15 (relating to standards for evaluation of

16 reasonable payments) in determining

17 amounts paid by such person in con18 nection with such purchases or assign19 ments.

20 ‘‘(3) DEFINITIONS.—For purposes of this sub21 section—

22 ‘‘(A) TERMINALLY ILL INDIVIDUAL.—The

23 term ‘terminally ill individual’ means an indi24 vidual who has been certified by a physician as

25 having an illness or physical condition which
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1 can reasonably be expected to result in death in

2 24 months or less after the date of the certifi3 cation.

4 ‘‘(B) PHYSICIAN.—The term ‘physician’ has

5 the meaning given to such term by section

6 1861(r)(1) of the Social Security Act (42 U.S.C.

7 1395x(r)(1)).

8 ‘‘(4) EXCEPTION FOR BUSINESS-RELATED POLI9 CIES.—This subsection shall not apply in the case of

10 any amount paid to any taxpayer other than the in11 sured if such taxpayer has an insurable interest with

12 respect to the life of the insured by reason of the in13 sured being a director, officer, or employee of the tax14 payer or by reason of the insured being financially

15 interested in any trade or business carried on by the

16 taxpayer.’’.

17 (b) EFFECTIVE DATE.—The amendment made by sub18 section (a) shall apply to amounts received after December

19 31, 1996.

20 SEC. 432. TAX TREATMENT OF COMPANIES ISSUING QUALI21 FIED ACCELERATED DEATH BENEFIT RIDERS.

22 (a) QUALIFIED ACCELERATED DEATH BENEFIT RID23 ERS TREATED AS LIFE INSURANCE.—Section 818 (relating

24 to other definitions and special rules) is amended by adding

25 at the end the following new subsection:
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1 ‘‘(g) QUALIFIED ACCELERATED DEATH BENEFIT RID2 ERS TREATED AS LIFE INSURANCE.—For purposes of this

3 part—

4 ‘‘(1) IN GENERAL.—Any reference to a life insur5 ance contract shall be treated as including a reference

6 to a qualified accelerated death benefit rider on such

7 contract.

8 ‘‘(2) QUALIFIED ACCELERATED DEATH BENEFIT

9 RIDERS.—For purposes of this subsection, the term

10 ‘qualified accelerated death benefit rider’ means any

11 rider on a life insurance contract if the only pay12 ments under the rider are payments meeting the re13 quirements of section 101(g).

14 ‘‘(3) EXCEPTION FOR LONG-TERM CARE RID15 ERS.—Paragraph (1) shall not apply to any rider

16 which is treated as a long-term care insurance con17 tract under section 7702B.’’.

18 (b) EFFECTIVE DATE.—

19 (1) IN GENERAL.—The amendment made by this

20 section shall take effect on January 1, 1997.

21 (2) ISSUANCE OF RIDER NOT TREATED AS MATE22 RIAL CHANGE.—For purposes of applying sections

23 101(f), 7702, and 7702A of the Internal Revenue Code

24 of 1986 to any contract—
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1 (A) the issuance of a qualified accelerated

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

3 of such Code (as added by this Act)), and

4 (B) the addition of any provision required

5 to conform an accelerated death benefit rider to

6 the requirements of such section 818(g),

7 shall not be treated as a modification or material

8 change of such contract.

9 Subtitle C—High-Risk Pools

10 SEC. 451. EXEMPTION FROM INCOME TAX FOR STATE-SPON11 SORED ORGANIZATIONS PROVIDING HEALTH

12 COVERAGE FOR HIGH-RISK INDIVIDUALS.

13 (a) IN GENERAL.—Subsection (c) of section 501 (relat14 ing to list of exempt organizations) is amended by adding

15 at the end the following new paragraph:

16 ‘‘(26) Any membership organization if—

17 ‘‘(A) such organization is established by a

18 State exclusively to provide coverage for medical

19 care (as defined in section 213(d)) on a not-for20 profit basis to individuals described in subpara21 graph (B) through—

22 ‘‘(i) insurance issued by the organiza23 tion, or
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1 ‘‘(ii) a health maintenance organiza2 tion under an arrangement with the organi3 zation,

4 ‘‘(B) the only individuals receiving such

5 coverage through the organization are individ6 uals—

7 ‘‘(i) who are residents of such State,

8 and

9 ‘‘(ii) who, by reason of the existence or

10 history of a medical condition, are unable

11 to acquire medical care coverage for such

12 condition through insurance or from a

13 health maintenance organization or are able

14 to acquire such coverage only at a rate

15 which is substantially in excess of the rate

16 for such coverage through the membership

17 organization,

18 ‘‘(C) the composition of the membership in

19 such organization is specified by such State, and

20 ‘‘(D) no part of the net earnings of the or21 ganization inures to the benefit of any private

22 shareholder or individual.’’.

23 (b) EFFECTIVE DATE.—The amendment made by this

24 section shall apply to taxable years beginning after Decem25 ber 31, 1996.
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1 Subtitle D—Penalty-Free IRA

2 Distributions

3 SEC. 461. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE

4 USED WITHOUT PENALTY TO PAY FINAN5 CIALLY DEVASTATING MEDICAL EXPENSES.

6 (a) IN GENERAL.—Section 72(t)(3)(A) is amended by

7 striking ‘‘(B),’’.

8 (b) PENALTY-FREE DISTRIBUTIONS FOR PAYMENT OF

9 HEALTH INSURANCE PREMIUMS OF CERTAIN UNEMPLOYED

10 INDIVIDUALS.—Paragraph (2) of section 72(t), as amended

11 by section 414, is amended by adding at the end the follow12 ing new subparagraph:

13 ‘‘(E) DISTRIBUTIONS TO UNEMPLOYED INDI14 VIDUALS FOR HEALTH INSURANCE PREMIUMS.—

15 Distributions from an individual retirement

16 plan to an individual after separation from em17 ployment—

18 ‘‘(i) if such individual has received un19 employment compensation for 12 consecu20 tive weeks under any Federal or State un21 employment compensation law by reason of

22 such separation,

23 ‘‘(ii) if such distributions are made

24 during any taxable year during which such
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1 unemployment compensation is paid or the

2 succeeding taxable year, and

3 ‘‘(iii) to the extent such distributions

4 do not exceed the amount paid during the

5 taxable year for insurance described in sec6 tion 213(d)(1)(D) with respect to the indi7 vidual and the individual’s spouse and de8 pendents (as defined in section 152).

9 To the extent provided in regulations, a self-em10 ployed individual shall be treated as meeting the

11 requirements of clause (i) if, under Federal or

12 State law, the individual would have received

13 unemployment compensation but for the fact the

14 individual was self-employed.’’.

15 (c) CONFORMING AMENDMENT.—Subparagraph (B) of

16 section 72(t)(2), as amended by section 414, is amended by

17 striking ‘‘or (D)’’ and inserting ‘‘, (D), or (E)’’.

18 (d) EFFECTIVE DATE.—The amendments made by this

19 section shall apply to taxable years beginning after Decem20 ber 31, 1996.
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1 Subtitle E—Revenue Offsets

2 CHAPTER 1—TREATMENT OF

3 INDIVIDUALS WHO EXPATRIATE

4 SEC. 471. REVISION OF TAX RULES ON EXPATRIATION.

5 (a) IN GENERAL.—Subpart A of part II of subchapter

6 N of chapter 1 is amended by inserting after section 877

7 the following new section:

8 ‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

9 ‘‘(a) GENERAL RULES.—For purposes of this sub10 title—

11 ‘‘(1) MARK TO MARKET.—Except as provided in

12 subsection (f), all property of a covered expatriate to

13 which this section applies shall be treated as sold on

14 the expatriation date for its fair market value.

15 ‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the

16 case of any sale under paragraph (1)—

17 ‘‘(A) notwithstanding any other provision of

18 this title, any gain arising from such sale shall

19 be taken into account for the taxable year of the

20 sale unless such gain is excluded from gross in21 come under part III of subchapter B, and

22 ‘‘(B) any loss arising from such sale shall

23 be taken into account for the taxable year of the

24 sale to the extent otherwise provided by this title,
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1 except that section 1091 shall not apply (and

2 section 1092 shall apply) to any such loss.

3 ‘‘(3) EXCLUSION FOR CERTAIN GAIN.—The

4 amount which would (but for this paragraph) be in5 cludible in the gross income of any individual by rea6 son of this section shall be reduced (but not below

7 zero) by $600,000. For purposes of this paragraph, al8 locable expatriation gain taken into account under

9 subsection (f)(2) shall be treated in the same manner

10 as an amount required to be includible in gross in11 come.

12 ‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS

13 UNITED STATES CITIZEN.—

14 ‘‘(A) IN GENERAL.—If an expatriate elects

15 the application of this paragraph—

16 ‘‘(i) this section (other than this para17 graph) shall not apply to the expatriate, but

18 ‘‘(ii) the expatriate shall be subject to

19 tax under this title, with respect to property

20 to which this section would apply but for

21 such election, in the same manner as if the

22 individual were a United States citizen.

23 ‘‘(B) LIMITATION ON AMOUNT OF ESTATE,

24 GIFT, AND GENERATION-SKIPPING TRANSFER

25 TAXES.—The aggregate amount of taxes imposed
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1 under subtitle B with respect to any transfer of

2 property by reason of an election under subpara3 graph (A) shall not exceed the amount of income

4 tax which would be due if the property were sold

5 for its fair market value immediately before the

6 time of the transfer or death (taking into account

7 the rules of paragraph (2)).

8 ‘‘(C) REQUIREMENTS.—Subparagraph (A)

9 shall not apply to an individual unless the indi10 vidual—

11 ‘‘(i) provides security for payment of

12 tax in such form and manner, and in such

13 amount, as the Secretary may require,

14 ‘‘(ii) consents to the waiver of any

15 right of the individual under any treaty of

16 the United States which would preclude as17 sessment or collection of any tax which may

18 be imposed by reason of this paragraph,

19 and

20 ‘‘(iii) complies with such other require21 ments as the Secretary may prescribe.

22 ‘‘(D) ELECTION.—An election under sub23 paragraph (A) shall apply to all property to

24 which this section would apply but for the elec25 tion and, once made, shall be irrevocable. Such
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1 election shall also apply to property the basis of

2 which is determined in whole or in part by ref3 erence to the property with respect to which the

4 election was made.

5 ‘‘(b) ELECTION TO DEFER TAX.—

6 ‘‘(1) IN GENERAL.—If the taxpayer elects the ap7 plication of this subsection with respect to any prop8 erty—

9 ‘‘(A) no amount shall be required to be in10 cluded in gross income under subsection (a)(1)

11 with respect to the gain from such property for

12 the taxable year of the sale, but

13 ‘‘(B) the taxpayer’s tax for the taxable year

14 in which such property is disposed of shall be in15 creased by the deferred tax amount with respect

16 to the property.

17 Except to the extent provided in regulations, subpara18 graph (B) shall apply to a disposition whether or not

19 gain or loss is recognized in whole or in part on the

20 disposition.

21 ‘‘(2) DEFERRED TAX AMOUNT.—

22 ‘‘(A) IN GENERAL.—For purposes of para23 graph (1), the term ‘deferred tax amount’ means,

24 with respect to any property, an amount equal

25 to the sum of—
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1 ‘‘(i) the difference between the amount

2 of tax paid for the taxable year described in

3 paragraph (1)(A) and the amount which

4 would have been paid for such taxable year

5 if the election under paragraph (1) had not

6 applied to such property, plus

7 ‘‘(ii) an amount of interest on the

8 amount described in clause (i) determined

9 for the period—

10 ‘‘(I) beginning on the 91st day

11 after the expatriation date, and

12 ‘‘(II) ending on the due date for

13 the taxable year described in para14 graph (1)(B),

15 by using the rates and method applicable

16 under section 6621 for underpayments of

17 tax for such period.

18 For purposes of clause (ii), the due date is the

19 date prescribed by law (determined without re20 gard to extension) for filing the return of the tax

21 imposed by this chapter for the taxable year.

22 ‘‘(B) ALLOCATION OF LOSSES.—For pur23 poses of subparagraph (A), any losses described

24 in subsection (a)(2)(B) shall be allocated ratably
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1 among the gains described in subsection

2 (a)(2)(A).

3 ‘‘(3) SECURITY.—

4 ‘‘(A) IN GENERAL.—No election may be

5 made under paragraph (1) with respect to any

6 property unless adequate security is provided

7 with respect to such property.

8 ‘‘(B) ADEQUATE SECURITY.—For purposes

9 of subparagraph (A), security with respect to

10 any property shall be treated as adequate secu11 rity if—

12 ‘‘(i) it is a bond in an amount equal

13 to the deferred tax amount under paragraph

14 (2)(A) for the property, or

15 ‘‘(ii) the taxpayer otherwise establishes

16 to the satisfaction of the Secretary that the

17 security is adequate.

18 ‘‘(4) WAIVER OF CERTAIN RIGHTS.—No election

19 may be made under paragraph (1) unless the tax20 payer consents to the waiver of any right under any

21 treaty of the United States which would preclude as22 sessment or collection of any tax imposed by reason

23 of this section.

24 ‘‘(5) DISPOSITIONS.—For purposes of this sub25 section, a taxpayer making an election under this
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1 subsection with respect to any property shall be treat2 ed as having disposed of such property—

3 ‘‘(A) immediately before death if such prop4 erty is held at such time, and

5 ‘‘(B) at any time the security provided with

6 respect to the property fails to meet the require7 ments of paragraph (3) and the taxpayer does

8 not correct such failure within the time specified

9 by the Secretary.

10 ‘‘(6) ELECTIONS.—An election under paragraph

11 (1) shall only apply to property described in the elec12 tion and, once made, is irrevocable. An election may

13 be under paragraph (1) with respect to an interest in

14 a trust with respect to which gain is required to be

15 recognized under subsection (f)(1).

16 ‘‘(c) COVERED EXPATRIATE.—For purposes of this sec17 tion—

18 ‘‘(1) IN GENERAL.—The term ‘covered expatriate’

19 means an expatriate—

20 ‘‘(A) whose average annual net income tax

21 (as defined in section 38(c)(1)) for the period of

22 5 taxable years ending before the expatriation

23 date is greater than $100,000, or

24 ‘‘(B) whose net worth as of such date is

25 $500,000 or more.
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1 If the expatriation date is after 1996, such $100,000

2 and $500,000 amounts shall be increased by an

3 amount equal to such dollar amount multiplied by

4 the cost-of-living adjustment determined under section

5 1(f)(3) for such calendar year by substituting ‘1995’

6 for ‘1992’ in subparagraph (B) thereof. Any increase

7 under the preceding sentence shall be rounded to the

8 nearest multiple of $1,000.

9 ‘‘(2) EXCEPTIONS.—An individual shall not be

10 treated as a covered expatriate if—

11 ‘‘(A) the individual—

12 ‘‘(i) became at birth a citizen of the

13 United States and a citizen of another

14 country and, as of the expatriation date,

15 continues to be a citizen of, and is taxed as

16 a resident of, such other country, and

17 ‘‘(ii) has been a resident of the United

18 States (as defined in section

19 7701(b)(1)(A)(ii)) for not more than 8 tax20 able years during the 15-taxable year period

21 ending with the taxable year during which

22 the expatriation date occurs, or

23 ‘‘(B)(i) the individual’s relinquishment of

24 United States citizenship occurs before such individual attains age 181 25 ⁄2, and
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1 ‘‘(ii) the individual has been a resident of

2 the United States (as so defined) for not more

3 than 5 taxable years before the date of relin4 quishment.

5 ‘‘(d) PROPERTY TO WHICH SECTION APPLIES.—For

6 purposes of this section—

7 ‘‘(1) IN GENERAL.—Except as otherwise provided

8 by the Secretary, this section shall apply to—

9 ‘‘(A) any interest in property held by a cov10 ered expatriate on the expatriation date the gain

11 from which would be includible in the gross in12 come of the expatriate if such interest had been

13 sold for its fair market value on such date in a

14 transaction in which gain is recognized in whole

15 or in part, and

16 ‘‘(B) any other interest in a trust to which

17 subsection (f) applies.

18 ‘‘(2) EXCEPTIONS.—This section shall not apply

19 to the following property:

20 ‘‘(A) UNITED STATES REAL PROPERTY IN21 TERESTS.—Any United States real property in22 terest (as defined in section 897(c)(1)), other

23 than stock of a United States real property hold24 ing corporation which does not, on the expatria-
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1 tion date, meet the requirements of section

2 897(c)(2).

3 ‘‘(B) INTEREST IN CERTAIN RETIREMENT

4 PLANS.—

5 ‘‘(i) IN GENERAL.—Any interest in a

6 qualified retirement plan (as defined in sec7 tion 4974(c)), other than any interest at8 tributable to contributions which are in ex9 cess of any limitation or which violate any

10 condition for tax-favored treatment.

11 ‘‘(ii) FOREIGN PENSION PLANS.—

12 ‘‘(I) IN GENERAL.—Under regula13 tions prescribed by the Secretary, in14 terests in foreign pension plans or

15 similar retirement arrangements or

16 programs.

17 ‘‘(II) LIMITATION.—The value of

18 property which is treated as not sold

19 by reason of this subparagraph shall

20 not exceed $500,000.

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

22 ‘‘(1) EXPATRIATE.—The term ‘expatriate’

23 means—

24 ‘‘(A) any United States citizen who relin25 quishes his citizenship, or
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1 ‘‘(B) any long-term resident of the United

2 States who—

3 ‘‘(i) ceases to be a lawful permanent

4 resident of the United States (within the

5 meaning of section 7701(b)(6)), or

6 ‘‘(ii) commences to be treated as a resi7 dent of a foreign country under the provi8 sions of a tax treaty between the United

9 States and the foreign country and who

10 does not waive the benefits of such treaty

11 applicable to residents of the foreign coun12 try.

13 ‘‘(2) EXPATRIATION DATE.—The term ‘expatria14 tion date’ means—

15 ‘‘(A) the date an individual relinquishes

16 United States citizenship, or

17 ‘‘(B) in the case of a long-term resident of

18 the United States, the date of the event described

19 in clause (i) or (ii) of paragraph (1)(B).

20 ‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A citi21 zen shall be treated as relinquishing his United States

22 citizenship on the earliest of—

23 ‘‘(A) the date the individual renounces his

24 United States nationality before a diplomatic or

25 consular officer of the United States pursuant to
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1 paragraph (5) of section 349(a) of the Immigra2 tion and Nationality Act (8 U.S.C. 1481(a)(5)),

3 ‘‘(B) the date the individual furnishes to the

4 United States Department of State a signed

5 statement of voluntary relinquishment of United

6 States nationality confirming the performance of

7 an act of expatriation specified in paragraph

8 (1), (2), (3), or (4) of section 349(a) of the Im9 migration and Nationality Act (8 U.S.C.

10 1481(a)(1)–(4)),

11 ‘‘(C) the date the United States Department

12 of State issues to the individual a certificate of

13 loss of nationality, or

14 ‘‘(D) the date a court of the United States

15 cancels a naturalized citizen’s certificate of natu16 ralization.

17 Subparagraph (A) or (B) shall not apply to any in18 dividual unless the renunciation or voluntary relin19 quishment is subsequently approved by the issuance to

20 the individual of a certificate of loss of nationality by

21 the United States Department of State.

22 ‘‘(4) LONG-TERM RESIDENT.—

23 ‘‘(A) IN GENERAL.—The term ‘long-term

24 resident’ means any individual (other than a cit25 izen of the United States) who is a lawful per-
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1 manent resident of the United States in at least

2 8 taxable years during the period of 15 taxable

3 years ending with the taxable year during which

4 the expatriation date occurs. For purposes of the

5 preceding sentence, an individual shall not be

6 treated as a lawful permanent resident for any

7 taxable year if such individual is treated as a

8 resident of a foreign country for the taxable year

9 under the provisions of a tax treaty between the

10 United States and the foreign country and does

11 not waive the benefits of such treaty applicable

12 to residents of the foreign country.

13 ‘‘(B) SPECIAL RULE.—For purposes of sub14 paragraph (A), there shall not be taken into ac15 count—

16 ‘‘(i) any taxable year during which

17 any prior sale is treated under subsection

18 (a)(1) as occurring, or

19 ‘‘(ii) any taxable year prior to the tax20 able year referred to in clause (i).

21 ‘‘(f) SPECIAL RULES APPLICABLE TO BENEFICIARIES’

22 INTERESTS IN TRUST.—

23 ‘‘(1) IN GENERAL.—Except as provided in para24 graph (2), if an individual is determined under para25 graph (3) to hold an interest in a trust—
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1 ‘‘(A) the individual shall not be treated as

2 having sold such interest,

3 ‘‘(B) such interest shall be treated as a sep4 arate share in the trust, and

5 ‘‘(C)(i) such separate share shall be treated

6 as a separate trust consisting of the assets alloca7 ble to such share,

8 ‘‘(ii) the separate trust shall be treated as

9 having sold its assets immediately before the ex10 patriation date for their fair market value and

11 as having distributed all of its assets to the indi12 vidual as of such time, and

13 ‘‘(iii) the individual shall be treated as hav14 ing recontributed the assets to the separate trust.

15 Subsection (a)(2) shall apply to any income, gain, or

16 loss of the individual arising from a distribution de17 scribed in subparagraph (C)(ii).

18 ‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI19 FIED TRUSTS.—

20 ‘‘(A) IN GENERAL.—If the trust interest de21 scribed in paragraph (1) is an interest in a

22 qualified trust—

23 ‘‘(i) paragraph (1) and subsection (a)

24 shall not apply, and
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1 ‘‘(ii) in addition to any other tax im2 posed by this title, there is hereby imposed

3 on each distribution with respect to such in4 terest a tax in the amount determined

5 under subparagraph (B).

6 ‘‘(B) AMOUNT OF TAX.—The amount of tax

7 under subparagraph (A)(ii) shall be equal to the

8 lesser of—

9 ‘‘(i) the highest rate of tax imposed by

10 section 1(e) for the taxable year in which

11 the expatriation date occurs, multiplied by

12 the amount of the distribution, or

13 ‘‘(ii) the balance in the deferred tax ac14 count immediately before the distribution

15 determined without regard to any increases

16 under subparagraph (C)(ii) after the 30th

17 day preceding the distribution.

18 ‘‘(C) DEFERRED TAX ACCOUNT.—For pur19 poses of subparagraph (B)(ii)—

20 ‘‘(i) OPENING BALANCE.—The opening

21 balance in a deferred tax account with re22 spect to any trust interest is an amount

23 equal to the tax which would have been im24 posed on the allocable expatriation gain

25 with respect to the trust interest if such
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1 gain had been included in gross income

2 under subsection (a).

3 ‘‘(ii) INCREASE FOR INTEREST.—The

4 balance in the deferred tax account shall be

5 increased by the amount of interest deter6 mined (on the balance in the account at the

7 time the interest accrues), for periods after

8 the 90th day after the expatriation date, by

9 using the rates and method applicable

10 under section 6621 for underpayments of

11 tax for such periods.

12 ‘‘(iii) DECREASE FOR TAXES PRE13 VIOUSLY PAID.—The balance in the tax de14 ferred account shall be reduced—

15 ‘‘(I) by the amount of taxes im16 posed by subparagraph (A) on any dis17 tribution to the person holding the

18 trust interest, and

19 ‘‘(II) in the case of a person hold20 ing a nonvested interest, to the extent

21 provided in regulations, by the amount

22 of taxes imposed by subparagraph (A)

23 on distributions from the trust with re24 spect to nonvested interests not held by

25 such person.
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1 ‘‘(D) ALLOCABLE EXPATRIATION GAIN.—For

2 purposes of this paragraph, the allocable expa3 triation gain with respect to any beneficiary’s

4 interest in a trust is the amount of gain which

5 would be allocable to such beneficiary’s vested

6 and nonvested interests in the trust if the bene7 ficiary held directly all assets allocable to such

8 interests.

9 ‘‘(E) TAX DEDUCTED AND WITHHELD.—

10 ‘‘(i) IN GENERAL.—The tax imposed by

11 subparagraph (A)(ii) shall be deducted and

12 withheld by the trustees from the distribu13 tion to which it relates.

14 ‘‘(ii) EXCEPTION WHERE FAILURE TO

15 WAIVE TREATY RIGHTS.—If an amount may

16 not be deducted and withheld under clause

17 (i) by reason of the distributee failing to

18 waive any treaty right with respect to such

19 distribution—

20 ‘‘(I) the tax imposed by subpara21 graph (A)(ii) shall be imposed on the

22 trust and each trustee shall be person23 ally liable for the amount of such tax,

24 and
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1 ‘‘(II) any other beneficiary of the

2 trust shall be entitled to recover from

3 the distributee the amount of such tax

4 imposed on the other beneficiary.

5 ‘‘(F) DISPOSITION.—If a trust ceases to be

6 a qualified trust at any time, a covered expatri7 ate disposes of an interest in a qualified trust,

8 or a covered expatriate holding an interest in a

9 qualified trust dies, then, in lieu of the tax im10 posed by subparagraph (A)(ii), there is hereby

11 imposed a tax equal to the lesser of—

12 ‘‘(i) the tax determined under para13 graph (1) as if the expatriation date were

14 the date of such cessation, disposition, or

15 death, whichever is applicable, or

16 ‘‘(ii) the balance in the tax deferred ac17 count immediately before such date.

18 Such tax shall be imposed on the trust and each

19 trustee shall be personally liable for the amount

20 of such tax and any other beneficiary of the trust

21 shall be entitled to recover from the covered expa22 triate or the estate the amount of such tax im23 posed on the other beneficiary.

24 ‘‘(G) DEFINITIONS AND SPECIAL RULE.—

25 For purposes of this paragraph—
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1 ‘‘(i) QUALIFIED TRUST.—The term

2 ‘qualified trust’ means a trust—

3 ‘‘(I) which is organized under,

4 and governed by, the laws of the Unit5 ed States or a State, and

6 ‘‘(II) with respect to which the

7 trust instrument requires that at least

8 1 trustee of the trust be an individual

9 citizen of the United States or a do10 mestic corporation.

11 ‘‘(ii) VESTED INTEREST.—The term

12 ‘vested interest’ means any interest which,

13 as of the expatriation date, is vested in the

14 beneficiary.

15 ‘‘(iii) NONVESTED INTEREST.—The

16 term ‘nonvested interest’ means, with re17 spect to any beneficiary, any interest in a

18 trust which is not a vested interest. Such

19 interest shall be determined by assuming the

20 maximum exercise of discretion in favor of

21 the beneficiary and the occurrence of all

22 contingencies in favor of the beneficiary.

23 ‘‘(iv) ADJUSTMENTS.—The Secretary

24 may provide for such adjustments to the

25 bases of assets in a trust or a deferred tax
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1 account, and the timing of such adjust2 ments, in order to ensure that gain is taxed

3 only once.

4 ‘‘(3) DETERMINATION OF BENEFICIARIES’ INTER5 EST IN TRUST.—

6 ‘‘(A) DETERMINATIONS UNDER PARAGRAPH

7 (1).—For purposes of paragraph (1), a bene8 ficiary’s interest in a trust shall be based upon

9 all relevant facts and circumstances, including

10 the terms of the trust instrument and any letter

11 of wishes or similar document, historical pat12 terns of trust distributions, and the existence of

13 and functions performed by a trust protector or

14 any similar advisor.

15 ‘‘(B) OTHER DETERMINATIONS.—For pur16 poses of this section—

17 ‘‘(i) CONSTRUCTIVE OWNERSHIP.—If a

18 beneficiary of a trust is a corporation, part19 nership, trust, or estate, the shareholders,

20 partners, or beneficiaries shall be deemed to

21 be the trust beneficiaries for purposes of this

22 section.

23 ‘‘(ii) TAXPAYER RETURN POSITION.—A

24 taxpayer shall clearly indicate on its in25 come tax return—
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1 ‘‘(I) the methodology used to de2 termine that taxpayer’s trust interest

3 under this section, and

4 ‘‘(II) if the taxpayer knows (or

5 has reason to know) that any other

6 beneficiary of such trust is using a dif7 ferent methodology to determine such

8 beneficiary’s trust interest under this

9 section.

10 ‘‘(g) TERMINATION OF DEFERRALS, ETC.—On the date

11 any property held by an individual is treated as sold under

12 subsection (a), notwithstanding any other provision of this

13 title—

14 ‘‘(1) any period during which recognition of in15 come or gain is deferred shall terminate, and

16 ‘‘(2) any extension of time for payment of tax

17 shall cease to apply and the unpaid portion of such

18 tax shall be due and payable at the time and in the

19 manner prescribed by the Secretary.

20 ‘‘(h) IMPOSITION OF TENTATIVE TAX.—

21 ‘‘(1) IN GENERAL.—If an individual is required

22 to include any amount in gross income under sub23 section (a) for any taxable year, there is hereby im24 posed, immediately before the expatriation date, a tax

25 in an amount equal to the amount of tax which
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1 would be imposed if the taxable year were a short tax2 able year ending on the expatriation date.

3 ‘‘(2) DUE DATE.—The due date for any tax im4 posed by paragraph (1) shall be the 90th day after the

5 expatriation date.

6 ‘‘(3) TREATMENT OF TAX.—Any tax paid under

7 paragraph (1) shall be treated as a payment of the

8 tax imposed by this chapter for the taxable year to

9 which subsection (a) applies.

10 ‘‘(4) DEFERRAL OF TAX.—The provisions of sub11 section (b) shall apply to the tax imposed by this sub12 section to the extent attributable to gain includible in

13 gross income by reason of this section.

14 ‘‘(i) COORDINATION WITH ESTATE AND GIFT

15 TAXES.—If subsection (a) applies to property held by an

16 individual for any taxable year and—

17 ‘‘(1) such property is includible in the gross es18 tate of such individual solely by reason of section

19 2107, or

20 ‘‘(2) section 2501 applies to a transfer of such

21 property by such individual solely by reason of sec22 tion 2501(a)(3),

23 then there shall be allowed as a credit against the additional

24 tax imposed by section 2101 or 2501, whichever is applica25 ble, solely by reason of section 2107 or 2501(a)(3) an
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1 amount equal to the increase in the tax imposed by this

2 chapter for such taxable year by reason of this section.

3 ‘‘(j) REGULATIONS.—The Secretary shall prescribe

4 such regulations as may be necessary or appropriate to

5 carry out the purposes of this section, including regula6 tions—

7 ‘‘(1) to prevent double taxation by ensuring

8 that—

9 ‘‘(A) appropriate adjustments are made to

10 basis to reflect gain recognized by reason of sub11 section (a) and the exclusion provided by sub12 section (a)(3), and

13 ‘‘(B) any gain by reason of a deemed sale

14 under subsection (a) of an interest in a corpora15 tion, partnership, trust, or estate is reduced to

16 reflect that portion of such gain which is attrib17 utable to an interest in a trust which a share18 holder, partner, or beneficiary is treated as hold19 ing directly under subsection (f)(3)(B)(i), and

20 ‘‘(2) which provide for the proper allocation of

21 the exclusion under subsection (a)(3) to property to

22 which this section applies.
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1 ‘‘(k) CROSS REFERENCE.—

‘‘For income tax treatment of individuals who terminate United States citizenship, see section

7701(a)(47).’’.

2 (b) INCLUSION IN INCOME OF GIFTS AND INHERIT3 ANCES FROM COVERED EXPATRIATES.—Section 102 (relat4 ing to gifts, etc. not included in gross income) is amended

5 by adding at the end the following new subsection:

6 ‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX7 PATRIATES.—Subsection (a) shall not exclude from gross in8 come the value of any property acquired by gift, bequest,

9 devise, or inheritance from a covered expatriate after the

10 expatriation date. For purposes of this subsection, any term

11 used in this subsection which is also used in section 877A

12 shall have the same meaning as when used in section

13 877A.’’.

14 (c) DEFINITION OF TERMINATION OF UNITED STATES

15 CITIZENSHIP.—Section 7701(a) is amended by adding at

16 the end the following new paragraph:

17 ‘‘(47) TERMINATION OF UNITED STATES CITIZEN18 SHIP.—An individual shall not cease to be treated as

19 a United States citizen before the date on which the

20 individual’s citizenship is treated as relinquished

21 under section 877A(e)(3).’’.

22 (d) CONFORMING AMENDMENTS.—

23 (1) Section 877 is amended by adding at the end

24 the following new subsection:
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1 ‘‘(f) APPLICATION.—This section shall not apply to

2 any individual who relinquishes (within the meaning of

3 section 877A(e)(3)) United States citizenship on or after

4 February 6, 1995.’’.

5 (2) Section 2107(c) is amended by adding at the

6 end the following new paragraph:

7 ‘‘(3) CROSS REFERENCE.—For credit against the

8 tax imposed by subsection (a) for expatriation tax, see

9 section 877A(i).’’.

10 (3) Section 2501(a)(3) is amended by adding at

11 the end the following new flush sentence:

12 ‘‘For credit against the tax imposed under this section

13 by reason of this paragraph, see section 877A(i).’’.

14 (4) Paragraph (10) of section 7701(b) is amend15 ed by adding at the end the following new sentence:

16 ‘‘This paragraph shall not apply to any long-term

17 resident of the United States who is an expatriate (as

18 defined in section 877A(e)(1)).’’.

19 (e) CLERICAL AMENDMENT.—The table of sections for

20 subpart A of part II of subchapter N of chapter 1 is amend21 ed by inserting after the item relating to section 877 the

22 following new item:

‘‘Sec. 877A. Tax responsibilities of expatriation.’’.

23 (f) EFFECTIVE DATE.—

24 (1) IN GENERAL.—Except as provided in this

25 subsection, the amendments made by this section shall
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1 apply to expatriates (within the meaning of section

2 877A(e) of the Internal Revenue Code of 1986, as

3 added by this section) whose expatriation date (as so

4 defined) occurs on or after February 6, 1995.

5 (2) GIFTS AND BEQUESTS.—Section 102(d) of

6 the Internal Revenue Code of 1986 (as added by sub7 section (b)) shall apply to amounts received from ex8 patriates (as so defined) whose expatriation date (as

9 so defined) occurs on and after February 6, 1995.

10 (3) SPECIAL RULES RELATING TO CERTAIN ACTS

11 OCCURRING BEFORE FEBRUARY 6, 1995.—In the case

12 of an individual who took an act of expatriation spec13 ified in paragraph (1), (2), (3), or (4) of section

14 349(a) of the Immigration and Nationality Act (8

15 U.S.C. 1481(a) (1)–(4)) before February 6, 1995, but

16 whose expatriation date (as so defined) occurs after

17 February 6, 1995—

18 (A) the amendment made by subsection (c)

19 shall not apply,

20 (B) the amendment made by subsection

21 (d)(1) shall not apply for any period prior to the

22 expatriation date, and

23 (C) the other amendments made by this sec24 tion shall apply as of the expatriation date.
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1 (4) DUE DATE FOR TENTATIVE TAX.—The due

2 date under section 877A(h)(2) of such Code shall in

3 no event occur before the 90th day after the date of

4 the enactment of this Act.

5 SEC. 472. INFORMATION ON INDIVIDUALS EXPATRIATING.

6 (a) IN GENERAL.—Subpart A of part III of subchapter

7 A of chapter 61 is amended by inserting after section 6039E

8 the following new section:

9 ‘‘SEC. 6039F. INFORMATION ON INDIVIDUALS EXPATRIAT10 ING.

11 ‘‘(a) REQUIREMENT.—

12 ‘‘(1) IN GENERAL.—Notwithstanding any other

13 provision of law, any expatriate (within the meaning

14 of section 877A(e)(1)) shall provide a statement which

15 includes the information described in subsection (b).

16 ‘‘(2) TIMING.—

17 ‘‘(A) CITIZENS.—In the case of an expatri18 ate described in section 877(e)(1)(A), such state19 ment shall be—

20 ‘‘(i) provided not later than the expa21 triation date (within the meaning of section

22 877A(e)(2)), and

23 ‘‘(ii) provided to the person or court

24 referred to in section 877A(e)(3).
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1 ‘‘(B) NONCITIZENS.—In the case of an ex2 patriate described in section 877A(e)(1)(B), such

3 statement shall be provided to the Secretary with

4 the return of tax imposed by chapter 1 for the

5 taxable year during which the event described in

6 such section occurs.

7 ‘‘(b) INFORMATION TO BE PROVIDED.—Information

8 required under subsection (a) shall include—

9 ‘‘(1) the taxpayer’s TIN,

10 ‘‘(2) the mailing address of such individual’s

11 principal foreign residence,

12 ‘‘(3) the foreign country in which such individ13 ual is residing,

14 ‘‘(4) the foreign country of which such individual

15 is a citizen,

16 ‘‘(5) in the case of an individual having a net

17 worth of at least the dollar amount applicable under

18 section 877A(c)(1)(B), information detailing the as19 sets and liabilities of such individual, and

20 ‘‘(6) such other information as the Secretary

21 may prescribe.

22 ‘‘(c) PENALTY.—Any individual failing to provide a

23 statement required under subsection (a) shall be subject to

24 a penalty for each year during any portion of which such

25 failure continues in an amount equal to the greater of—
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1 ‘‘(1) 5 percent of the additional tax required to

2 be paid under section 877A for such year, or

3 ‘‘(2) $1,000,

4 unless it is shown that such failure is due to reasonable

5 cause and not to willful neglect.

6 ‘‘(d) INFORMATION TO BE PROVIDED TO SEC7 RETARY.—Notwithstanding any other provision of law—

8 ‘‘(1) any Federal agency or court which collects

9 (or is required to collect) the statement under sub10 section (a) shall provide to the Secretary—

11 ‘‘(A) a copy of any such statement, and

12 ‘‘(B) the name (and any other identifying

13 information) of any individual refusing to com14 ply with the provisions of subsection (a),

15 ‘‘(2) the Secretary of State shall provide to the

16 Secretary a copy of each certificate as to the loss of

17 American nationality under section 358 of the Immi18 gration and Nationality Act which is approved by the

19 Secretary of State, and

20 ‘‘(3) the Federal agency primarily responsible for

21 administering the immigration laws shall provide to

22 the Secretary the name of each lawful permanent resi23 dent of the United States (within the meaning of sec24 tion 7701(b)(6)) whose status as such has been re-
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1 voked or has been administratively or judicially de2 termined to have been abandoned.

3 Notwithstanding any other provision of law, not later than

4 30 days after the close of each calendar quarter, the Sec5 retary shall publish in the Federal Register the name of

6 each individual relinquishing United States citizenship

7 (within the meaning of section 877A(e)(3)) with respect to

8 whom the Secretary receives information under the preced9 ing sentence during such quarter.

10 ‘‘(e) EXEMPTION.—The Secretary may by regulations

11 exempt any class of individuals from the requirements of

12 this section if the Secretary determines that applying this

13 section to such individuals is not necessary to carry out

14 the purposes of this section.’’.

15 (b) CLERICAL AMENDMENT.—The table of sections for

16 such subpart A is amended by inserting after the item relat17 ing to section 6039E the following new item:

‘‘Sec. 6039F. Information on individuals expatriating.’’.

18 (c) EFFECTIVE DATE.—The amendments made by this

19 section shall apply to individuals to whom section 877A

20 of the Internal Revenue Code of 1986 applies and whose

21 expatriation date (as defined in section 877A(e)(2)) occurs

22 on or after February 6, 1995, except that no statement shall

23 be required by such amendments before the 90th day after

24 the date of the enactment of this Act.
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1 SEC. 473. REPORT ON TAX COMPLIANCE BY UNITED STATES

2 CITIZENS AND RESIDENTS LIVING ABROAD.

3 Not later than 90 days after the date of the enactment

4 of this Act, the Secretary of the Treasury shall prepare and

5 submit to the Committee on Ways and Means of the House

6 of Representatives and the Committee on Finance of the

7 Senate a report—

8 (1) describing the compliance with subtitle A of

9 the Internal Revenue Code of 1986 by citizens and

10 lawful permanent residents of the United States

11 (within the meaning of section 7701(b)(6) of such

12 Code) residing outside the United States, and

13 (2) recommending measures to improve such

14 compliance (including improved coordination between

15 executive branch agencies).

16 CHAPTER 2—COMPANY-OWNED

17 INSURANCE

18 SEC. 495. DENIAL OF DEDUCTION FOR INTEREST ON LOANS

19 WITH RESPECT TO COMPANY-OWNED INSUR20 ANCE.

21 (a) IN GENERAL.—Paragraph (4) of section 264(a) is

22 amended—

23 (1) by inserting ‘‘, or any endowment or annuity

24 contracts owned by the taxpayer covering any indi25 vidual,’’ after ‘‘the life of any individual’’, and
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1 (2) by striking all that follows ‘‘carried on by the

2 taxpayer’’ and inserting a period.

3 (b) EXCEPTION FOR CONTRACTS RELATING TO KEY

4 PERSONS; PERMISSIBLE INTEREST RATES.—Section 264 is

5 amended—

6 (1) by striking ‘‘Any’’ in subsection (a)(4) and

7 inserting ‘‘Except as provided in subsection (d), any’’,

8 and

9 (2) by adding at the end the following new sub10 section:

11 ‘‘(d) SPECIAL RULES FOR APPLICATION OF SUB12 SECTION (a)(4).—

13 ‘‘(1) EXCEPTION FOR KEY PERSONS.—Subsection

14 (a)(4) shall not apply to any interest paid or accrued

15 on any indebtedness with respect to policies or con16 tracts covering an individual who is a key person to

17 the extent that the aggregate amount of such indebted18 ness with respect to policies and contracts covering

19 such individual does not exceed $50,000.

20 ‘‘(2) INTEREST RATE CAP ON KEY PERSONS AND

21 PRE-1986 CONTRACTS.—

22 ‘‘(A) IN GENERAL.—No deduction shall be

23 allowed by reason of paragraph (1) or the last

24 sentence of subsection (a) with respect to interest

25 paid or accrued for any month to the extent the
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1 amount of such interest exceeds the amount

2 which would have been determined if the appli3 cable rate of interest were used for such month.

4 ‘‘(B) APPLICABLE RATE OF INTEREST.—For

5 purposes of subparagraph (A)—

6 ‘‘(i) IN GENERAL.—The applicable rate

7 of interest for any month is the rate of in8 terest described as Moody’s Corporate Bond

9 Yield Average-Monthly Average Corporates

10 as published by Moody’s Investors Service,

11 Inc., or any successor thereto, for such

12 month.

13 ‘‘(ii) PRE-1986 CONTRACT.—In the case

14 of indebtedness on a contract to which the

15 last sentence of subsection (a) applies—

16 ‘‘(I) which is a contract providing

17 a fixed rate of interest, the applicable

18 rate of interest for any month shall be

19 the Moody’s rate described in clause (i)

20 for the month in which the contract

21 was purchased, or

22 ‘‘(II) which is a contract provid23 ing a variable rate of interest, the ap24 plicable rate of interest for any month

25 in an applicable period shall be such
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1 Moody’s rate for the last month preced2 ing such period.

3 For purposes of subclause (II), the taxpayer

4 shall elect an applicable period for such

5 contract on its return of tax imposed by

6 this chapter for its first taxable year ending

7 on or after October 13, 1995. Such applica8 ble period shall be for any number of

9 months (not greater than 12) specified in

10 the election and may not be changed by the

11 taxpayer without the consent of the Sec12 retary.

13 ‘‘(3) KEY PERSON.—For purposes of paragraph

14 (1), the term ‘key person’ means an officer or 20-per15 cent owner, except that the number of individuals who

16 may be treated as key persons with respect to any

17 taxpayer shall not exceed the greater of—

18 ‘‘(A) 5 individuals, or

19 ‘‘(B) the lesser of 5 percent of the total offi20 cers and employees of the taxpayer or 10 indi21 viduals.

22 ‘‘(4) 20-PERCENT OWNER.—For purposes of this

23 subsection, the term ‘20-percent owner’ means—

24 ‘‘(A) if the taxpayer is a corporation, any

25 person who owns directly 20 percent or more of
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1 the outstanding stock of the corporation or stock

2 possessing 20 percent or more of the total com3 bined voting power of all stock of the corpora4 tion, or

5 ‘‘(B) if the taxpayer is not a corporation,

6 any person who owns 20 percent or more of the

7 capital or profits interest in the employer.

8 ‘‘(5) AGGREGATION RULES.—

9 ‘‘(A) IN GENERAL.—For purposes of para10 graph (4)(A) and applying the $50,000 limita11 tion in paragraph (1)—

12 ‘‘(i) all members of a controlled group

13 shall be treated as 1 taxpayer, and

14 ‘‘(ii) such limitation shall be allocated

15 among the members of such group in such

16 manner as the Secretary may prescribe.

17 ‘‘(B) CONTROLLED GROUP.—For purposes

18 of this paragraph, all persons treated as a single

19 employer under subsection (a) or (b) of section

20 52 or subsection (m) or (o) of section 414 shall

21 be treated as members of a controlled group.’’.

22 (c) EFFECTIVE DATES.—

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

24 this section shall apply to interest paid or accrued

25 after December 31, 1995.
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1 (2) TRANSITION RULE FOR EXISTING INDEBTED2 NESS.—

3 (A) IN GENERAL.—In the case of—

4 (i) indebtedness incurred before Janu5 ary 1, 1996, or

6 (ii) indebtedness incurred before Janu7 ary 1, 1997 with respect to any contract or

8 policy entered into in 1994 or 1995,

9 the amendments made by this section shall not

10 apply to qualified interest paid or accrued on

11 such indebtedness after October 13, 1995, and be12 fore January 1, 1999.

13 (B) QUALIFIED INTEREST.—For purposes of

14 subparagraph (A), the qualified interest with re15 spect to any indebtedness for any month is the

16 amount of interest which would be paid or ac17 crued for such month on such indebtedness if—

18 (i) in the case of any interest paid or

19 accrued after December 31, 1995, indebted20 ness with respect to no more than 20,000

21 insured individuals were taken into ac22 count, and

23 (ii) the lesser of the following rates of

24 interest were used for such month:
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1 (I) The rate of interest specified

2 under the terms of the indebtedness as

3 in effect on October 13, 1995 (and

4 without regard to modification of such

5 terms after such date).

6 (II) The applicable percentage

7 rate of interest described as Moody’s

8 Corporate Bond Yield Average-Monthly

9 Average Corporates as published by

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

11 successor thereto, for such month.

12 For purposes of clause (i), all persons treated as

13 a single employer under subsection (a) or (b) of

14 section 52 of the Internal Revenue Code of 1986

15 or subsection (m) or (o) of section 414 of such

16 Code shall be treated as one person.

17 (C) APPLICABLE PERCENTAGE.—For pur18 poses of subparagraph (B), the applicable per19 centage is as follows:

For calendar year: The percentage is:

1995 ................................................................................. 100 percent

1996 ................................................................................. 90 percent

1997 ................................................................................. 80 percent

1998 ................................................................................. 70 percent.

20 (3) SPECIAL RULE FOR GRANDFATHERED CON21 TRACTS.—This section shall not apply to any con22 tract purchased on or before June 20, 1986, except
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1 that section 264(d)(2) of the Internal Revenue Code of

2 1986 shall apply to interest paid or accrued after Oc3 tober 13, 1995.

4 (d) SPREAD OF INCOME INCLUSION ON SURRENDER,

5 ETC. OF CONTRACTS.—

6 (1) IN GENERAL.—If any amount is received

7 under any life insurance policy or endowment or an8 nuity contract described in paragraph (4) of section

9 264(a) of the Internal Revenue Code of 1986—

10 (A) on the complete surrender, redemption,

11 or maturity of such policy or contract during

12 calendar year 1996, 1997, or 1998, or

13 (B) in full discharge during any such cal14 endar year of the obligation under the policy or

15 contract which is in the nature of a refund of the

16 consideration paid for the policy or contract,

17 then (in lieu of any other inclusion in gross income)

18 such amount shall be includible in gross income rat19 ably over the 4-taxable year period beginning with the

20 taxable year such amount would (but for this para21 graph) be includible. The preceding sentence shall

22 only apply to the extent the amount is includible in

23 gross income for the taxable year in which the event

24 described in subparagraph (A) or (B) occurs.
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1 (2) SPECIAL RULES FOR APPLYING SECTION

2 264.—A contract shall not be treated as—

3 (A) failing to meet the requirement of sec4 tion 264(c)(1) of the Internal Revenue Code of

5 1986, or

6 (B) a single premium contract under sec7 tion 264(b)(1) of such Code,

8 solely by reason of an occurrence described in sub9 paragraph (A) or (B) of paragraph (1) of this sub10 section or solely by reason of no additional premiums

11 being received under the contract by reason of a lapse

12 occurring after October 13, 1995.

13 (3) SPECIAL RULE FOR DEFERRED ACQUISITION

14 COSTS.—In the case of the occurrence of any event de15 scribed in subparagraph (A) or (B) of paragraph (1)

16 of this subsection with respect to any policy or con17 tract—

18 (A) section 848 of the Internal Revenue

19 Code of 1986 shall not apply to the unamortized

20 balance (if any) of the specified policy acquisi21 tion expenses attributable to such policy or con22 tract immediately before the insurance compa23 ny’s taxable year in which such event occurs,

24 and
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1 (B) there shall be allowed as a deduction to

2 such company for such taxable year under chap3 ter 1 of such Code an amount equal to such

4 unamortized balance.

5 TITLE V—HEALTH CARE FRAUD

6 AND ABUSE PREVENTION

7 SEC. 500. AMENDMENTS.

8 Except as otherwise specifically provided, whenever in

9 this title an amendment is expressed in terms of an amend10 ment to or repeal of a section or other provision, the ref11 erence shall be considered to be made to that section or other

12 provision of the Social Security Act.

13 Subtitle A—Fraud and Abuse

14 Control Program

15 SEC. 501. FRAUD AND ABUSE CONTROL PROGRAM.

16 (a) ESTABLISHMENT OF PROGRAM.—Title XI (42

17 U.S.C. 1301 et seq.) is amended by inserting after section

18 1128B the following new section:

19 ‘‘FRAUD AND ABUSE CONTROL PROGRAM

20 ‘‘SEC. 1128C. (a) ESTABLISHMENT OF PROGRAM.—

21 ‘‘(1) IN GENERAL.—Not later than January 1,

22 1997, the Secretary, acting through the Office of the

23 Inspector General of the Department of Health and

24 Human Services, and the Attorney General shall es25 tablish a program—
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1 ‘‘(A) to coordinate Federal, State, and local

2 law enforcement programs to control fraud and

3 abuse with respect to health plans,

4 ‘‘(B) to conduct investigations, audits, eval5 uations, and inspections relating to the delivery

6 of and payment for health care in the United

7 States,

8 ‘‘(C) to facilitate the enforcement of the pro9 visions of sections 1128, 1128A, and 1128B and

10 other statutes applicable to health care fraud and

11 abuse,

12 ‘‘(D) to provide for the modification and es13 tablishment of safe harbors and to issue interpre14 tative rulings and special fraud alerts pursuant

15 to section 1128D, and

16 ‘‘(E) to provide for the reporting and disclo17 sure of certain final adverse actions against

18 health care providers, suppliers, or practitioners

19 pursuant to the data collection system established

20 under section 1128E.

21 ‘‘(2) COORDINATION WITH HEALTH PLANS.—In

22 carrying out the program established under para23 graph (1), the Secretary and the Attorney General

24 shall consult with, and arrange for the sharing of

25 data with representatives of health plans.
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1 ‘‘(3) GUIDELINES.—

2 ‘‘(A) IN GENERAL.—The Secretary and the

3 Attorney General shall issue guidelines to carry

4 out the program under paragraph (1). The pro5 visions of sections 553, 556, and 557 of title 5,

6 United States Code, shall not apply in the issu7 ance of such guidelines.

8 ‘‘(B) INFORMATION GUIDELINES.—

9 ‘‘(i) IN GENERAL.—Such guidelines

10 shall include guidelines relating to the fur11 nishing of information by health plans, pro12 viders, and others to enable the Secretary

13 and the Attorney General to carry out the

14 program (including coordination with

15 health plans under paragraph (2)).

16 ‘‘(ii) CONFIDENTIALITY.—Such guide17 lines shall include procedures to assure that

18 such information is provided and utilized

19 in a manner that appropriately protects the

20 confidentiality of the information and the

21 privacy of individuals receiving health care

22 services and items.

23 ‘‘(iii) QUALIFIED IMMUNITY FOR PRO24 VIDING INFORMATION.—The provisions of

25 section 1157(a) (relating to limitation on
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1 liability) shall apply to a person providing

2 information to the Secretary or the Attor3 ney General in conjunction with their per4 formance of duties under this section.

5 ‘‘(4) ENSURING ACCESS TO DOCUMENTATION.—

6 The Inspector General of the Department of Health

7 and Human Services is authorized to exercise such

8 authority described in paragraphs (3) through (9) of

9 section 6 of the Inspector General Act of 1978 (5

10 U.S.C. App.) as necessary with respect to the activi11 ties under the fraud and abuse control program estab12 lished under this subsection.

13 ‘‘(5) AUTHORITY OF INSPECTOR GENERAL.—

14 Nothing in this Act shall be construed to diminish the

15 authority of any Inspector General, including such

16 authority as provided in the Inspector General Act of

17 1978 (5 U.S.C. App.).

18 ‘‘(b) ADDITIONAL USE OF FUNDS BY INSPECTOR GEN19 ERAL.—

20 ‘‘(1) REIMBURSEMENTS FOR INVESTIGATIONS.—

21 The Inspector General of the Department of Health

22 and Human Services is authorized to receive and re23 tain for current use reimbursement for the costs of

24 conducting investigations and audits and for mon25 itoring compliance plans when such costs are ordered
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1 by a court, voluntarily agreed to by the payor, or oth2 erwise.

3 ‘‘(2) CREDITING.—Funds received by the Inspec4 tor General under paragraph (1) as reimbursement

5 for costs of conducting investigations shall be depos6 ited to the credit of the appropriation from which ini7 tially paid, or to appropriations for similar purposes

8 currently available at the time of deposit, and shall

9 remain available for obligation for 1 year from the

10 date of the deposit of such funds.

11 ‘‘(c) HEALTH PLAN DEFINED.—For purposes of this

12 section, the term ‘health plan’ means a plan or program

13 that provides health benefits, whether directly, through in14 surance, or otherwise, and includes—

15 ‘‘(1) a policy of health insurance;

16 ‘‘(2) a contract of a service benefit organization;

17 and

18 ‘‘(3) a membership agreement with a health

19 maintenance organization or other prepaid health

20 plan.’’.

21 (b) ESTABLISHMENT OF HEALTH CARE FRAUD AND

22 ABUSE CONTROL ACCOUNT IN FEDERAL HOSPITAL INSUR23 ANCE TRUST FUND.—Section 1817 (42 U.S.C. 1395i) is

24 amended by adding at the end the following new subsection:
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1 ‘‘(k) HEALTH CARE FRAUD AND ABUSE CONTROL AC2 COUNT.—

3 ‘‘(1) ESTABLISHMENT.—There is hereby estab4 lished in the Trust Fund an expenditure account to

5 be known as the ‘Health Care Fraud and Abuse Con6 trol Account’ (in this subsection referred to as the ‘Ac7 count’).

8 ‘‘(2) APPROPRIATED AMOUNTS TO TRUST

9 FUND.—

10 ‘‘(A) IN GENERAL.—There are hereby ap11 propriated to the Trust Fund—

12 ‘‘(i) such gifts and bequests as may be

13 made as provided in subparagraph (B);

14 ‘‘(ii) such amounts as may be depos15 ited in the Trust Fund as provided in sec16 tions 541(b) and 542(c) of the Health Insur17 ance Reform Act of 1996, and title XI; and

18 ‘‘(iii) such amounts as are transferred

19 to the Trust Fund under subparagraph (C).

20 ‘‘(B) AUTHORIZATION TO ACCEPT GIFTS.—

21 The Trust Fund is authorized to accept on behalf

22 of the United States money gifts and bequests

23 made unconditionally to the Trust Fund, for the

24 benefit of the Account or any activity financed

25 through the Account.
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1 ‘‘(C) TRANSFER OF AMOUNTS.—The Manag2 ing Trustee shall transfer to the Trust Fund,

3 under rules similar to the rules in section 9601

4 of the Internal Revenue Code of 1986, an amount

5 equal to the sum of the following:

6 ‘‘(i) Criminal fines recovered in cases

7 involving a Federal health care offense (as

8 defined in section 982(a)(6)(B) of title 18,

9 United States Code).

10 ‘‘(ii) Civil monetary penalties and as11 sessments imposed in health care cases, in12 cluding amounts recovered under titles XI,

13 XVIII, and XXI, and chapter 38 of title 31,

14 United States Code (except as otherwise

15 provided by law).

16 ‘‘(iii) Amounts resulting from the for17 feiture of property by reason of a Federal

18 health care offense.

19 ‘‘(iv) Penalties and damages obtained

20 and otherwise creditable to miscellaneous re21 ceipts of the general fund of the Treasury

22 obtained under sections 3729 through 3733

23 of title 31, United States Code (known as

24 the False Claims Act), in cases involving

25 claims related to the provision of health
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1 care items and services (other than funds

2 awarded to a relator, for restitution or oth3 erwise authorized by law).

4 ‘‘(3) APPROPRIATED AMOUNTS TO ACCOUNT FOR

5 FRAUD AND ABUSE CONTROL PROGRAM, ETC.—

6 ‘‘(A) DEPARTMENTS OF HEALTH AND

7 HUMAN SERVICES AND JUSTICE.—

8 ‘‘(i) IN GENERAL.—There are hereby

9 appropriated to the Account from the Trust

10 Fund such sums as the Secretary and the

11 Attorney General certify are necessary to

12 carry out the purposes described in sub13 paragraph (C), to be available without fur14 ther appropriation, in an amount not to ex15 ceed—

16 ‘‘(I) for fiscal year 1997,

17 $104,000,000, and

18 ‘‘(II) for each of the fiscal years

19 1998 through 2003, the limit for the

20 preceding fiscal year, increased by 15

21 percent; and

22 ‘‘(III) for each fiscal year after

23 fiscal year 2003, the limit for fiscal

24 year 2003.
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1 ‘‘(ii) MEDICARE AND MEDICAID ACTIVI2 TIES.—For each fiscal year, of the amount

3 appropriated in clause (i), the following

4 amounts shall be available only for the pur5 poses of the activities of the Office of the In6 spector General of the Department of Health

7 and Human Services with respect to the

8 medicare and medicaid programs—

9 ‘‘(I) for fiscal year 1997, not less

10 than $60,000,000 and not more than

11 $70,000,000;

12 ‘‘(II) for fiscal year 1998, not less

13 than $80,000,000 and not more than

14 $90,000,000;

15 ‘‘(III) for fiscal year 1999, not

16 less than $90,000,000 and not more

17 than $100,000,000;

18 ‘‘(IV) for fiscal year 2000, not less

19 than $110,000,000 and not more than

20 $120,000,000;

21 ‘‘(V) for fiscal year 2001, not less

22 than $120,000,000 and not more than

23 $130,000,000;
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1 ‘‘(VI) for fiscal year 2002, not less

2 than $140,000,000 and not more than

3 $150,000,000; and

4 ‘‘(VII) for each fiscal year after

5 fiscal year 2002, not less than

6 $150,000,000 and not more than

7 $160,000,000.

8 ‘‘(B) FEDERAL BUREAU OF INVESTIGA9 TION.—There are hereby appropriated from the

10 general fund of the United States Treasury and

11 hereby appropriated to the Account for transfer

12 to the Federal Bureau of Investigation to carry

13 out the purposes described in subparagraph

14 (C)(i), to be available without further appropria15 tion—

16 ‘‘(i) for fiscal year 1997, $47,000,000;

17 ‘‘(ii) for fiscal year 1998, $56,000,000;

18 ‘‘(iii) for fiscal year 1999, $66,000,000;

19 ‘‘(iv) for fiscal year 2000, $76,000,000;

20 ‘‘(v) for fiscal year 2001, $88,000,000;

21 ‘‘(vi) for fiscal year 2002,

22 $101,000,000; and

23 ‘‘(vii) for each fiscal year after fiscal

24 year 2002, $114,000,000.
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1 ‘‘(C) USE OF FUNDS.—The purposes de2 scribed in this subparagraph are to cover the

3 costs (including equipment, salaries and benefits,

4 and travel and training) of the administration

5 and operation of the health care fraud and abuse

6 control program established under section

7 1128C(a), including the costs of—

8 ‘‘(i) prosecuting health care matters

9 (through criminal, civil, and administrative

10 proceedings);

11 ‘‘(ii) investigations;

12 ‘‘(iii) financial and performance au13 dits of health care programs and operations;

14 ‘‘(iv) inspections and other evalua15 tions; and

16 ‘‘(v) provider and consumer education

17 regarding compliance with the provisions of

18 title XI.

19 ‘‘(4) APPROPRIATED AMOUNTS TO ACCOUNT FOR

20 MEDICARE INTEGRITY PROGRAM.—

21 ‘‘(A) IN GENERAL.—There are hereby ap22 propriated to the Account from the Trust Fund

23 for each fiscal year such amounts as are nec24 essary to carry out the Medicare Integrity Pro25 gram under section 1893, subject to subpara-
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1 graph (B) and to be available without further

2 appropriation.

3 ‘‘(B) AMOUNTS SPECIFIED.—The amount

4 appropriated under subparagraph (A) for a fis5 cal year is as follows:

6 ‘‘(i) For fiscal year 1997, such amount

7 shall be not less than $430,000,000 and not

8 more than $440,000,000.

9 ‘‘(ii) For fiscal year 1998, such

10 amount shall be not less than $490,000,000

11 and not more than $500,000,000.

12 ‘‘(iii) For fiscal year 1999, such

13 amount shall be not less than $550,000,000

14 and not more than $560,000,000.

15 ‘‘(iv) For fiscal year 2000, such

16 amount shall be not less than $620,000,000

17 and not more than $630,000,000.

18 ‘‘(v) For fiscal year 2001, such amount

19 shall be not less than $670,000,000 and not

20 more than $680,000,000.

21 ‘‘(vi) For fiscal year 2002, such

22 amount shall be not less than $690,000,000

23 and not more than $700,000,000.

24 ‘‘(vii) For each fiscal year after fiscal

25 year 2002, such amount shall be not less
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1 than $710,000,000 and not more than

2 $720,000,000.

3 ‘‘(5) ANNUAL REPORT.—The Secretary and the

4 Attorney General shall submit jointly an annual re5 port to Congress on the amount of revenue which is

6 generated and disbursed, and the justification for such

7 disbursements, by the Account in each fiscal year.’’.

8 SEC. 502. MEDICARE INTEGRITY PROGRAM.

9 (a) ESTABLISHMENT OF MEDICARE INTEGRITY PRO10 GRAM.—Title XVIII is amended by adding at the end the

11 following new section:

12 ‘‘MEDICARE INTEGRITY PROGRAM

13 ‘‘SEC. 1893. (a) ESTABLISHMENT OF PROGRAM.—

14 There is hereby established the Medicare Integrity Program

15 (in this section referred to as the ‘Program’) under which

16 the Secretary shall promote the integrity of the medicare

17 program by entering into contracts in accordance with this

18 section with eligible private entities to carry out the activi19 ties described in subsection (b).

20 ‘‘(b) ACTIVITIES DESCRIBED.—The activities described

21 in this subsection are as follows:

22 ‘‘(1) Review of activities of providers of services

23 or other individuals and entities furnishing items and

24 services for which payment may be made under this

25 title (including skilled nursing facilities and home

26 health agencies), including medical and utilization
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1 review and fraud review (employing similar stand2 ards, processes, and technologies used by private

3 health plans, including equipment and software tech4 nologies which surpass the capability of the equip5 ment and technologies used in the review of claims

6 under this title as of the date of the enactment of this

7 section).

8 ‘‘(2) Audit of cost reports.

9 ‘‘(3) Determinations as to whether payment

10 should not be, or should not have been, made under

11 this title by reason of section 1862(b), and recovery

12 of payments that should not have been made.

13 ‘‘(4) Education of providers of services, bene14 ficiaries, and other persons with respect to payment

15 integrity and benefit quality assurance issues.

16 ‘‘(5) Developing (and periodically updating) a

17 list of items of durable medical equipment in accord18 ance with section 1834(a)(15) which are subject to

19 prior authorization under such section.

20 ‘‘(c) ELIGIBILITY OF ENTITIES.—An entity is eligible

21 to enter into a contract under the Program to carry out

22 any of the activities described in subsection (b) if—

23 ‘‘(1) the entity has demonstrated capability to

24 carry out such activities;
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1 ‘‘(2) in carrying out such activities, the entity

2 agrees to cooperate with the Inspector General of the

3 Department of Health and Human Services, the At4 torney General of the United States, and other law

5 enforcement agencies, as appropriate, in the inves6 tigation and deterrence of fraud and abuse in relation

7 to this title and in other cases arising out of such ac8 tivities;

9 ‘‘(3) the entity complies with such conflict of in10 terest standards as are generally applicable to Federal

11 acquisition and procurement;

12 ‘‘(4) the entity meets such other requirements as

13 the Secretary may impose; and

14 ‘‘(5) in the case of any contract entered into for

15 years prior to 2000, the entity has entered into an

16 agreement under section 1816 or a contract under sec17 tion 1842.

18 In the case of the activity described in subsection (b)(5),

19 an entity shall be deemed to be eligible to enter into a con20 tract under the Program to carry out the activity if the

21 entity is a carrier with a contract in effect under section

22 1842.

23 ‘‘(d) PROCESS FOR ENTERING INTO CONTRACTS.—The

24 Secretary shall enter into contracts under the Program in

25 accordance with such procedures as the Secretary shall by
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1 regulation establish, except that such procedures shall in2 clude the following:

3 ‘‘(1) Procedures for identifying, evaluating, and

4 resolving organizational conflicts of interest that are

5 generally applicable to Federal acquisition and pro6 curement.

7 ‘‘(2) Competitive procedures must be used when

8 entering into new contracts under this section, or at

9 any other time considered appropriate by the Sec10 retary, except that the Secretary may contract with

11 entities that are carrying out the activities described

12 in this section pursuant to agreements under section

13 1816 or contracts under section 1842 in effect on the

14 date of the enactment of this section.

15 ‘‘(3) A contract under this section may be re16 newed without regard to any provision of law requir17 ing competition if the contractor has met or exceeded

18 the performance requirements established in the cur19 rent contract.

20 ‘‘(e) LIMITATION ON CONTRACTOR LIABILITY.—The

21 Secretary shall by regulation provide for the limitation of

22 a contractor’s liability for actions taken to carry out a con23 tract under the Program, and such regulation shall, to the

24 extent the Secretary finds appropriate, employ the same or
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1 comparable standards and other substantive and procedural

2 provisions as are contained in section 1157.’’.

3 (b) ELIMINATION OF FI AND CARRIER RESPONSIBIL4 ITY FOR CARRYING OUT ACTIVITIES SUBJECT TO PRO5 GRAM.—

6 (1) RESPONSIBILITIES OF FISCAL

7 INTERMEDIARIES UNDER PART A.—Section 1816 (42

8 U.S.C. 1395h) is amended by adding at the end the

9 following new subsection:

10 ‘‘(l) No payment may be made for carrying out any

11 activity pursuant to an agreement under this section to the

12 extent that the activity is carried out pursuant to a contract

13 under the Medicare Integrity Program under section

14 1893.’’.

15 (2) RESPONSIBILITIES OF CARRIERS UNDER

16 PART B.—Section 1842(c) (42 U.S.C. 1395u(c)) is

17 amended by adding at the end the following new

18 paragraph:

19 ‘‘(6) No payment may be made for carrying out any

20 activity pursuant to a contract under this subsection to the

21 extent that the activity is carried out pursuant to a contract

22 under the Medicare Integrity Program under section 1893.

23 The previous sentence shall not apply with respect to the

24 activity described in section 1893(b)(5) (relating to prior
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1 authorization of certain items of durable medical equipment

2 under section 1834(a)(15)).’’.

3 SEC. 503. BENEFICIARY INCENTIVE PROGRAMS.

4 (a) CLARIFICATION OF REQUIREMENT TO PROVIDE

5 EXPLANATION OF MEDICARE BENEFITS.—The Secretary of

6 Health and Human Services (in this section referred to as

7 the ‘‘Secretary’’) shall provide an explanation of benefits

8 under the medicare program under title XVIII of the Social

9 Security Act with respect to each item or service for which

10 payment may be made under the program which is fur11 nished to an individual, without regard to whether or not

12 a deductible or coinsurance may be imposed against the in13 dividual with respect to the item or service.

14 (b) PROGRAM TO COLLECT INFORMATION ON FRAUD

15 AND ABUSE.—

16 (1) ESTABLISHMENT OF PROGRAM.—Not later

17 than 3 months after the date of the enactment of this

18 Act, the Secretary shall establish a program under

19 which the Secretary shall encourage individuals to re20 port to the Secretary information on individuals and

21 entities who are engaging or who have engaged in

22 acts or omissions which constitute grounds for the im23 position of a sanction under section 1128, section

24 1128A, or section 1128B of the Social Security Act,

25 or who have otherwise engaged in fraud and abuse
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1 against the medicare program for which there is a

2 sanction provided under law. The program shall dis3 courage provision of, and not consider, information

4 which is frivolous or otherwise not relevant or mate5 rial to the imposition of such a sanction.

6 (2) PAYMENT OF PORTION OF AMOUNTS COL7 LECTED.—If an individual reports information to the

8 Secretary under the program established under para9 graph (1) which serves as the basis for the collection

10 by the Secretary or the Attorney General of any

11 amount of at least $100 (other than any amount paid

12 as a penalty under section 1128B of the Social Secu13 rity Act), the Secretary may pay a portion of the

14 amount collected to the individual (under procedures

15 similar to those applicable under section 7623 of the

16 Internal Revenue Code of 1986 to payments to indi17 viduals providing information on violations of such

18 Code).

19 (c) PROGRAM TO COLLECT INFORMATION ON PROGRAM

20 EFFICIENCY.—

21 (1) ESTABLISHMENT OF PROGRAM.—Not later

22 than 3 months after the date of the enactment of this

23 Act, the Secretary shall establish a program under

24 which the Secretary shall encourage individuals to
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1 submit to the Secretary suggestions on methods to im2 prove the efficiency of the medicare program.

3 (2) PAYMENT OF PORTION OF PROGRAM SAV4 INGS.—If an individual submits a suggestion to the

5 Secretary under the program established under para6 graph (1) which is adopted by the Secretary and

7 which results in savings to the program, the Secretary

8 may make a payment to the individual of such

9 amount as the Secretary considers appropriate.

10 SEC. 504. APPLICATION OF CERTAIN HEALTH ANTI-FRAUD

11 AND ABUSE SANCTIONS TO FRAUD AND

12 ABUSE AGAINST FEDERAL HEALTH CARE

13 PROGRAMS.

14 (a) IN GENERAL.—Section 1128B (42 U.S.C. 1320a–

15 7b) is amended as follows:

16 (1) In the heading, by striking ‘‘MEDICARE OR

17 STATE HEALTH CARE PROGRAMS’’ and inserting

18 ‘‘FEDERAL HEALTH CARE PROGRAMS’’.

19 (2) In subsection (a)(1), by striking ‘‘a program

20 under title XVIII or a State health care program (as

21 defined in section 1128(h))’’ and inserting ‘‘a Federal

22 health care program’’.

23 (3) In subsection (a)(5), by striking ‘‘a program

24 under title XVIII or a State health care program’’

25 and inserting ‘‘a Federal health care program’’.
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1 (4) In the second sentence of subsection (a)—

2 (A) by striking ‘‘a State plan approved

3 under title XIX’’ and inserting ‘‘a Federal health

4 care program’’, and

5 (B) by striking ‘‘the State may at its option

6 (notwithstanding any other provision of that

7 title or of such plan)’’ and inserting ‘‘the admin8 istrator of such program may at its option (not9 withstanding any other provision of such pro10 gram)’’.

11 (5) In subsection (b), by striking ‘‘title XVIII or

12 a State health care program’’ each place it appears

13 and inserting ‘‘a Federal health care program’’.

14 (6) In subsection (c), by inserting ‘‘(as defined

15 in section 1128(h))’’ after ‘‘a State health care pro16 gram’’.

17 (7) By adding at the end the following new sub18 section:

19 ‘‘(f) For purposes of this section, the term ‘Federal

20 health care program’ means—

21 ‘‘(1) any plan or program that provides health

22 benefits, whether directly, through insurance, or other23 wise, which is funded directly, in whole or in part,

24 by the United States Government (other than the
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1 health insurance program under chapter 89 of title 5,

2 United States Code); or

3 ‘‘(2) any State health care program, as defined

4 in section 1128(h).’’.

5 (b) EFFECTIVE DATE.—The amendments made by this

6 section shall take effect on January 1, 1997.

7 SEC. 505. GUIDANCE REGARDING APPLICATION OF HEALTH

8 CARE FRAUD AND ABUSE SANCTIONS.

9 Title XI (42 U.S.C. 1301 et seq.), as amended by sec10 tion 501, is amended by inserting after section 1128C the

11 following new section:

12 ‘‘GUIDANCE REGARDING APPLICATION OF HEALTH CARE

13 FRAUD AND ABUSE SANCTIONS

14 ‘‘SEC. 1128D. (a) SOLICITATION AND PUBLICATION OF

15 MODIFICATIONS TO EXISTING SAFE HARBORS AND NEW

16 SAFE HARBORS.—

17 ‘‘(1) IN GENERAL.—

18 ‘‘(A) SOLICITATION OF PROPOSALS FOR

19 SAFE HARBORS.—Not later than January 1,

20 1997, and not less than annually thereafter, the

21 Secretary shall publish a notice in the Federal

22 Register soliciting proposals, which will be ac23 cepted during a 60-day period, for—

24 ‘‘(i) modifications to existing safe har25 bors issued pursuant to section 14(a) of the

26 Medicare and Medicaid Patient and Pro-
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1 gram Protection Act of 1987 (42 U.S.C.

2 1320a–7b note);

3 ‘‘(ii) additional safe harbors specifying

4 payment practices that shall not be treated

5 as a criminal offense under section

6 1128B(b) and shall not serve as the basis

7 for an exclusion under section 1128(b)(7);

8 ‘‘(iii) interpretive rulings to be issued

9 pursuant to subsection (b); and

10 ‘‘(iv) special fraud alerts to be issued

11 pursuant to subsection (c).

12 ‘‘(B) PUBLICATION OF PROPOSED MODIFICA13 TIONS AND PROPOSED ADDITIONAL SAFE HAR14 BORS.—After considering the proposals described

15 in clauses (i) and (ii) of subparagraph (A), the

16 Secretary, in consultation with the Attorney

17 General, shall publish in the Federal Register

18 proposed modifications to existing safe harbors

19 and proposed additional safe harbors, if appro20 priate, with a 60-day comment period. After

21 considering any public comments received dur22 ing this period, the Secretary shall issue final

23 rules modifying the existing safe harbors and es24 tablishing new safe harbors, as appropriate.
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1 ‘‘(C) REPORT.—The Inspector General of

2 the Department of Health and Human Services

3 (in this section referred to as the ‘Inspector Gen4 eral’) shall, in an annual report to Congress or

5 as part of the year-end semiannual report re6 quired by section 5 of the Inspector General Act

7 of 1978 (5 U.S.C. App.), describe the proposals

8 received under clauses (i) and (ii) of subpara9 graph (A) and explain which proposals were in10 cluded in the publication described in subpara11 graph (B), which proposals were not included in

12 that publication, and the reasons for the rejection

13 of the proposals that were not included.

14 ‘‘(2) CRITERIA FOR MODIFYING AND ESTABLISH15 ING SAFE HARBORS.—In modifying and establishing

16 safe harbors under paragraph (1)(B), the Secretary

17 may consider the extent to which providing a safe

18 harbor for the specified payment practice may result

19 in any of the following:

20 ‘‘(A) An increase or decrease in access to

21 health care services.

22 ‘‘(B) An increase or decrease in the quality

23 of health care services.

24 ‘‘(C) An increase or decrease in patient free25 dom of choice among health care providers.
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1 ‘‘(D) An increase or decrease in competition

2 among health care providers.

3 ‘‘(E) An increase or decrease in the ability

4 of health care facilities to provide services in

5 medically underserved areas or to medically un6 derserved populations.

7 ‘‘(F) An increase or decrease in the cost to

8 Federal health care programs (as defined in sec9 tion 1128B(f)).

10 ‘‘(G) An increase or decrease in the poten11 tial overutilization of health care services.

12 ‘‘(H) The existence or nonexistence of any

13 potential financial benefit to a health care pro14 fessional or provider which may vary based on

15 their decisions of—

16 ‘‘(i) whether to order a health care

17 item or service; or

18 ‘‘(ii) whether to arrange for a referral

19 of health care items or services to a particu20 lar practitioner or provider.

21 ‘‘(I) Any other factors the Secretary deems

22 appropriate in the interest of preventing fraud

23 and abuse in Federal health care programs (as

24 so defined).

25 ‘‘(b) INTERPRETIVE RULINGS.—
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1 ‘‘(1) IN GENERAL.—

2 ‘‘(A) REQUEST FOR INTERPRETIVE RUL3 ING.—Any person may present, at any time, a

4 request to the Inspector General for a statement

5 of the Inspector General’s current interpretation

6 of the meaning of a specific aspect of the appli7 cation of sections 1128A and 1128B (in this sec8 tion referred to as an ‘interpretive ruling’).

9 ‘‘(B) ISSUANCE AND EFFECT OF INTERPRE10 TIVE RULING.—

11 ‘‘(i) IN GENERAL.—If appropriate, the

12 Inspector General shall in consultation with

13 the Attorney General, issue an interpretive

14 ruling not later than 90 days after receiv15 ing a request described in subparagraph

16 (A). Interpretive rulings shall not have the

17 force of law and shall be treated as an in18 terpretive rule within the meaning of sec19 tion 553(b) of title 5, United States Code.

20 All interpretive rulings issued pursuant to

21 this clause shall be published in the Federal

22 Register or otherwise made available for

23 public inspection.

24 ‘‘(ii) REASONS FOR DENIAL.—If the

25 Inspector General does not issue an inter-
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1 pretive ruling in response to a request de2 scribed in subparagraph (A), the Inspector

3 General shall notify the requesting party of

4 such decision not later than 60 days after

5 receiving such a request and shall identify

6 the reasons for such decision.

7 ‘‘(2) CRITERIA FOR INTERPRETIVE RULINGS.—

8 ‘‘(A) IN GENERAL.—In determining whether

9 to issue an interpretive ruling under paragraph

10 (1)(B), the Inspector General may consider—

11 ‘‘(i) whether and to what extent the re12 quest identifies an ambiguity within the

13 language of the statute, the existing safe

14 harbors, or previous interpretive rulings;

15 and

16 ‘‘(ii) whether the subject of the re17 quested interpretive ruling can be ade18 quately addressed by interpretation of the

19 language of the statute, the existing safe

20 harbor rules, or previous interpretive rul21 ings, or whether the request would require a

22 substantive ruling (as defined in section

23 552 of title 5, United States Code) not au24 thorized under this subsection.
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1 ‘‘(B) NO RULINGS ON FACTUAL ISSUES.—

2 The Inspector General shall not give an interpre3 tive ruling on any factual issue, including the

4 intent of the parties or the fair market value of

5 particular leased space or equipment.

6 ‘‘(c) SPECIAL FRAUD ALERTS.—

7 ‘‘(1) IN GENERAL.—

8 ‘‘(A) REQUEST FOR SPECIAL FRAUD

9 ALERTS.—Any person may present, at any time,

10 a request to the Inspector General for a notice

11 which informs the public of practices which the

12 Inspector General considers to be suspect or of

13 particular concern under the medicare program

14 or a State health care program, as defined in

15 section 1128(h) (in this subsection referred to as

16 a ‘special fraud alert’).

17 ‘‘(B) ISSUANCE AND PUBLICATION OF SPE18 CIAL FRAUD ALERTS.—Upon receipt of a request

19 described in subparagraph (A), the Inspector

20 General shall investigate the subject matter of the

21 request to determine whether a special fraud

22 alert should be issued. If appropriate, the Inspec23 tor General shall issue a special fraud alert in

24 response to the request. All special fraud alerts
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1 issued pursuant to this subparagraph shall be

2 published in the Federal Register.

3 ‘‘(2) CRITERIA FOR SPECIAL FRAUD ALERTS.—In

4 determining whether to issue a special fraud alert

5 upon a request described in paragraph (1), the In6 spector General may consider—

7 ‘‘(A) whether and to what extent the prac8 tices that would be identified in the special fraud

9 alert may result in any of the consequences de10 scribed in subsection (a)(2); and

11 ‘‘(B) the volume and frequency of the con12 duct that would be identified in the special fraud

13 alert.’’.

14 Subtitle B—Revisions to Current

15 Sanctions for Fraud and Abuse

16 SEC. 511. MANDATORY EXCLUSION FROM PARTICIPATION

17 IN MEDICARE AND STATE HEALTH CARE PRO18 GRAMS.

19 (a) INDIVIDUAL CONVICTED OF FELONY RELATING TO

20 HEALTH CARE FRAUD.—

21 (1) IN GENERAL.—Section 1128(a) (42 U.S.C.

22 1320a–7(a)) is amended by adding at the end the fol23 lowing new paragraph:

24 ‘‘(3) FELONY CONVICTION RELATING TO HEALTH

25 CARE FRAUD.—Any individual or entity that has
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1 been convicted after the date of the enactment of the

2 Health Insurance Reform Act of 1996, under Federal

3 or State law, in connection with the delivery of a

4 health care item or service or with respect to any act

5 or omission in a health care program (other than

6 those specifically described in paragraph (1)) oper7 ated by or financed in whole or in part by any Fed8 eral, State, or local government agency, of a criminal

9 offense consisting of a felony relating to fraud, theft,

10 embezzlement, breach of fiduciary responsibility, or

11 other financial misconduct.’’.

12 (2) CONFORMING AMENDMENT.—Paragraph (1)

13 of section 1128(b) (42 U.S.C. 1320a–7(b)) is amended

14 to read as follows:

15 ‘‘(1) CONVICTION RELATING TO FRAUD.—Any in16 dividual or entity that has been convicted after the

17 date of the enactment of the Health Insurance Reform

18 Act of 1996, under Federal or State law—

19 ‘‘(A) of a criminal offense consisting of a

20 misdemeanor relating to fraud, theft, embezzle21 ment, breach of fiduciary responsibility, or other

22 financial misconduct—

23 ‘‘(i) in connection with the delivery of

24 a health care item or service, or
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1 ‘‘(ii) with respect to any act or omis2 sion in a health care program (other than

3 those specifically described in subsection

4 (a)(1)) operated by or financed in whole or

5 in part by any Federal, State, or local gov6 ernment agency; or

7 ‘‘(B) of a criminal offense relating to fraud,

8 theft, embezzlement, breach of fiduciary respon9 sibility, or other financial misconduct with re10 spect to any act or omission in a program (other

11 than a health care program) operated by or fi12 nanced in whole or in part by any Federal,

13 State, or local government agency.’’.

14 (b) INDIVIDUAL CONVICTED OF FELONY RELATING TO

15 CONTROLLED SUBSTANCE.—

16 (1) IN GENERAL.—Section 1128(a) (42 U.S.C.

17 1320a–7(a)), as amended by subsection (a), is amend18 ed by adding at the end the following new paragraph:

19 ‘‘(4) FELONY CONVICTION RELATING TO CON20 TROLLED SUBSTANCE.—Any individual or entity that

21 has been convicted after the date of the enactment of

22 the Health Insurance Reform Act of 1996, under Fed23 eral or State law, of a criminal offense consisting of

24 a felony relating to the unlawful manufacture, dis-
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1 tribution, prescription, or dispensing of a controlled

2 substance.’’.

3 (2) CONFORMING AMENDMENT.—Section

4 1128(b)(3) (42 U.S.C. 1320a–7(b)(3)) is amended—

5 (A) in the heading, by striking ‘‘CONVIC6 TION’’ and inserting ‘‘MISDEMEANOR CONVIC7 TION’’; and

8 (B) by striking ‘‘criminal offense’’ and in9 serting ‘‘criminal offense consisting of a mis10 demeanor’’.

11 SEC. 512. ESTABLISHMENT OF MINIMUM PERIOD OF EXCLU12 SION FOR CERTAIN INDIVIDUALS AND ENTI13 TIES SUBJECT TO PERMISSIVE EXCLUSION

14 FROM MEDICARE AND STATE HEALTH CARE

15 PROGRAMS.

16 Section 1128(c)(3) (42 U.S.C. 1320a–7(c)(3)) is

17 amended by adding at the end the following new subpara18 graphs:

19 ‘‘(D) In the case of an exclusion of an individual or

20 entity under paragraph (1), (2), or (3) of subsection (b),

21 the period of the exclusion shall be 3 years, unless the Sec22 retary determines in accordance with published regulations

23 that a shorter period is appropriate because of mitigating

24 circumstances or that a longer period is appropriate be25 cause of aggravating circumstances.
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1 ‘‘(E) In the case of an exclusion of an individual or

2 entity under subsection (b)(4) or (b)(5), the period of the

3 exclusion shall not be less than the period during which the

4 individual’s or entity’s license to provide health care is re5 voked, suspended, or surrendered, or the individual or the

6 entity is excluded or suspended from a Federal or State

7 health care program.

8 ‘‘(F) In the case of an exclusion of an individual or

9 entity under subsection (b)(6)(B), the period of the exclu10 sion shall be not less than 1 year.’’.

11 SEC. 513. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH

12 OWNERSHIP OR CONTROL INTEREST IN

13 SANCTIONED ENTITIES.

14 Section 1128(b) (42 U.S.C. 1320a–7(b)) is amended by

15 adding at the end the following new paragraph:

16 ‘‘(15) INDIVIDUALS CONTROLLING A SANCTIONED

17 ENTITY.—(A) Any individual—

18 ‘‘(i) who has a direct or indirect ownership

19 or control interest in a sanctioned entity and

20 who knows or should know (as defined in section

21 1128A(i)(6)) of the action constituting the basis

22 for the conviction or exclusion described in sub23 paragraph (B); or
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1 ‘‘(ii) who is an officer or managing em2 ployee (as defined in section 1126(b)) of such an

3 entity.

4 ‘‘(B) For purposes of subparagraph (A), the term

5 ‘sanctioned entity’ means an entity—

6 ‘‘(i) that has been convicted of any offense

7 described in subsection (a) or in paragraph (1),

8 (2), or (3) of this subsection; or

9 ‘‘(ii) that has been excluded from participa10 tion under a program under title XVIII or under

11 a State health care program.’’.

12 SEC. 514. SANCTIONS AGAINST PRACTITIONERS AND PER13 SONS FOR FAILURE TO COMPLY WITH STATU14 TORY OBLIGATIONS.

15 (a) MINIMUM PERIOD OF EXCLUSION FOR PRACTI16 TIONERS AND PERSONS FAILING TO MEET STATUTORY OB17 LIGATIONS.—

18 (1) IN GENERAL.—The second sentence of section

19 1156(b)(1) (42 U.S.C. 1320c–5(b)(1)) is amended by

20 striking ‘‘may prescribe)’’ and inserting ‘‘may pre21 scribe, except that such period may not be less than

22 1 year)’’.

23 (2) CONFORMING AMENDMENT.—Section

24 1156(b)(2) (42 U.S.C. 1320c–5(b)(2)) is amended by

25 striking ‘‘shall remain’’ and inserting ‘‘shall (subject
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1 to the minimum period specified in the second sen2 tence of paragraph (1)) remain’’.

3 (b) REPEAL OF ‘‘UNWILLING OR UNABLE’’ CONDITION

4 FOR IMPOSITION OF SANCTION.—Section 1156(b)(1) (42

5 U.S.C. 1320c–5(b)(1)) is amended—

6 (1) in the second sentence, by striking ‘‘and de7 termines’’ and all that follows through ‘‘such obliga8 tions,’’; and

9 (2) by striking the third sentence.

10 SEC. 515. INTERMEDIATE SANCTIONS FOR MEDICARE

11 HEALTH MAINTENANCE ORGANIZATIONS.

12 (a) APPLICATION OF INTERMEDIATE SANCTIONS FOR

13 ANY PROGRAM VIOLATIONS.—

14 (1) IN GENERAL.—Section 1876(i)(1) (42 U.S.C.

15 1395mm(i)(1)) is amended by striking ‘‘the Secretary

16 may terminate’’ and all that follows and inserting

17 ‘‘in accordance with procedures established under

18 paragraph (9), the Secretary may at any time termi19 nate any such contract or may impose the intermedi20 ate sanctions described in paragraph (6)(B) or (6)(C)

21 (whichever is applicable) on the eligible organization

22 if the Secretary determines that the organization—

23 ‘‘(A) has failed substantially to carry out

24 the contract;
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1 ‘‘(B) is carrying out the contract in a man2 ner substantially inconsistent with the efficient

3 and effective administration of this section; or

4 ‘‘(C) no longer substantially meets the ap5 plicable conditions of subsections (b), (c), (e),

6 and (f).’’.

7 (2) OTHER INTERMEDIATE SANCTIONS FOR MIS8 CELLANEOUS PROGRAM VIOLATIONS.—Section

9 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is amended by

10 adding at the end the following new subparagraph:

11 ‘‘(C) In the case of an eligible organization for which

12 the Secretary makes a determination under paragraph (1)

13 the basis of which is not described in subparagraph (A),

14 the Secretary may apply the following intermediate sanc15 tions:

16 ‘‘(i) Civil money penalties of not more than

17 $25,000 for each determination under paragraph (1)

18 if the deficiency that is the basis of the determination

19 has directly adversely affected (or has the substantial

20 likelihood of adversely affecting) an individual cov21 ered under the organization’s contract.

22 ‘‘(ii) Civil money penalties of not more than

23 $10,000 for each week beginning after the initiation

24 of procedures by the Secretary under paragraph (9)
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1 during which the deficiency that is the basis of a de2 termination under paragraph (1) exists.

3 ‘‘(iii) Suspension of enrollment of individuals

4 under this section after the date the Secretary notifies

5 the organization of a determination under paragraph

6 (1) and until the Secretary is satisfied that the defi7 ciency that is the basis for the determination has been

8 corrected and is not likely to recur.’’.

9 (3) PROCEDURES FOR IMPOSING SANCTIONS.—

10 Section 1876(i) (42 U.S.C. 1395mm(i)) is amended

11 by adding at the end the following new paragraph:

12 ‘‘(9) The Secretary may terminate a contract with an

13 eligible organization under this section or may impose the

14 intermediate sanctions described in paragraph (6) on the

15 organization in accordance with formal investigation and

16 compliance procedures established by the Secretary under

17 which—

18 ‘‘(A) the Secretary first provides the organiza19 tion with the reasonable opportunity to develop and

20 implement a corrective action plan to correct the defi21 ciencies that were the basis of the Secretary’s deter22 mination under paragraph (1) and the organization

23 fails to develop or implement such a plan;

24 ‘‘(B) in deciding whether to impose sanctions,

25 the Secretary considers aggravating factors such as
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1 whether an organization has a history of deficiencies

2 or has not taken action to correct deficiencies the Sec3 retary has brought to the organization’s attention;

4 ‘‘(C) there are no unreasonable or unnecessary

5 delays between the finding of a deficiency and the im6 position of sanctions; and

7 ‘‘(D) the Secretary provides the organization

8 with reasonable notice and opportunity for hearing

9 (including the right to appeal an initial decision) be10 fore imposing any sanction or terminating the con11 tract.’’.

12 (4) CONFORMING AMENDMENTS.—Section

13 1876(i)(6)(B) (42 U.S.C. 1395mm(i)(6)(B)) is

14 amended by striking the second sentence.

15 (b) AGREEMENTS WITH PEER REVIEW ORGANIZA16 TIONS.—Section 1876(i)(7)(A) (42 U.S.C.

17 1395mm(i)(7)(A)) is amended by striking ‘‘an agreement’’

18 and inserting ‘‘a written agreement’’.

19 (c) EFFECTIVE DATE.—The amendments made by this

20 section shall apply with respect to contract years beginning

21 on or after January 1, 1997.
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1 SEC. 516. ADDITIONAL EXCEPTIONS TO ANTI-KICKBACK

2 PENALTIES FOR RISK-SHARING ARRANGE3 MENTS.

4 (a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C.

5 1320a–7b(b)(3)) is amended—

6 (1) by striking ‘‘and’’ at the end of subpara7 graph (D);

8 (2) by striking the period at the end of subpara9 graph (E) and inserting ‘‘; and’’; and

10 (3) by adding at the end the following new sub11 paragraph:

12 ‘‘(F) any remuneration between an organization

13 and an individual or entity providing items or serv14 ices pursuant to a written agreement between the or15 ganization and the individual or entity if the organi16 zation is an eligible organization under section 1876,

17 or if the written agreement places the individual or

18 entity at substantial financial risk for the cost or uti19 lization of the items or services, or a combination

20 thereof, which the individual or entity is obligated to

21 provide, whether through a withhold or capitation, or

22 other similar risk arrangements which places the in23 dividual or entity at substantial financial risk.’’.

24 (b) REGULATIONS.—Section 1128B(b) (42 U.S.C.

25 1320a–7b(b)) is amended by adding at the end the following

26 new paragraph:
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1 ‘‘(4) The Secretary, in consultation with the Attorney

2 General, not later than 1 year after the date of enactment

3 of Health Insurance Reform Act of 1996, and not less than

4 every 2 years thereafter, shall promulgate regulations to de5 fine substantial financial risk as necessary to protect

6 against program or patient abuse.’’.

7 SEC. 517. EFFECTIVE DATE.

8 Except as otherwise provided, the amendments made

9 by this subtitle shall take effect January 1, 1997.

10 Subtitle C—Data Collection and

11 Miscellaneous Provisions

12 SEC. 521. ESTABLISHMENT OF THE HEALTH CARE FRAUD

13 AND ABUSE DATA COLLECTION PROGRAM.

14 (a) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.),

15 as amended by sections 501 and 505, is amended by insert16 ing after section 1128D the following new section:

17 ‘‘HEALTH CARE FRAUD AND ABUSE DATA COLLECTION

18 PROGRAM

19 ‘‘SEC. 1128E. (a) GENERAL PURPOSE.—Not later than

20 January 1, 1997, the Secretary shall establish a national

21 health care fraud and abuse data collection program for the

22 reporting of final adverse actions (not including settlements

23 in which no findings of liability have been made) against

24 health care providers, suppliers, or practitioners as required

25 by subsection (b), with access as set forth in subsection (c).

26 ‘‘(b) REPORTING OF INFORMATION.—
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1 ‘‘(1) IN GENERAL.—Each Government agency

2 and health plan shall report any final adverse action

3 (not including settlements in which no findings of li4 ability have been made) taken against a health care

5 provider, supplier, or practitioner.

6 ‘‘(2) INFORMATION TO BE REPORTED.—The in7 formation to be reported under paragraph (1) in8 cludes:

9 ‘‘(A) The name and TIN (as defined in sec10 tion 7701(a)(41) of the Internal Revenue Code of

11 1986) of any health care provider, supplier, or

12 practitioner who is the subject of a final adverse

13 action.

14 ‘‘(B) The name (if known) of any health

15 care entity with which a health care provider,

16 supplier, or practitioner is affiliated or associ17 ated.

18 ‘‘(C) The nature of the final adverse action

19 and whether such action is on appeal.

20 ‘‘(D) A description of the acts or omissions

21 and injuries upon which the final adverse action

22 was based, and such other information as the

23 Secretary determines by regulation is required

24 for appropriate interpretation of information re25 ported under this section.
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1 ‘‘(3) CONFIDENTIALITY.—In determining what

2 information is required, the Secretary shall include

3 procedures to assure that the privacy of individuals

4 receiving health care services is appropriately pro5 tected.

6 ‘‘(4) TIMING AND FORM OF REPORTING.—The in7 formation required to be reported under this sub8 section shall be reported regularly (but not less often

9 than monthly) and in such form and manner as the

10 Secretary prescribes. Such information shall first be

11 required to be reported on a date specified by the Sec12 retary.

13 ‘‘(5) TO WHOM REPORTED.—The information re14 quired to be reported under this subsection shall be re15 ported to the Secretary.

16 ‘‘(c) DISCLOSURE AND CORRECTION OF INFORMA17 TION.—

18 ‘‘(1) DISCLOSURE.—With respect to the informa19 tion about final adverse actions (not including settle20 ments in which no findings of liability have been

21 made) reported to the Secretary under this section re22 specting a health care provider, supplier, or practi23 tioner, the Secretary shall, by regulation, provide

24 for—
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1 ‘‘(A) disclosure of the information, upon re2 quest, to the health care provider, supplier, or li3 censed practitioner, and

4 ‘‘(B) procedures in the case of disputed ac5 curacy of the information.

6 ‘‘(2) CORRECTIONS.—Each Government agency

7 and health plan shall report corrections of informa8 tion already reported about any final adverse action

9 taken against a health care provider, supplier, or

10 practitioner, in such form and manner that the Sec11 retary prescribes by regulation.

12 ‘‘(d) ACCESS TO REPORTED INFORMATION.—

13 ‘‘(1) AVAILABILITY.—The information in this

14 database shall be available to Federal and State gov15 ernment agencies and health plans pursuant to proce16 dures that the Secretary shall provide by regulation.

17 ‘‘(2) FEES FOR DISCLOSURE.—The Secretary

18 may establish or approve reasonable fees for the dis19 closure of information in this database (other than

20 with respect to requests by Federal agencies). The

21 amount of such a fee shall be sufficient to recover the

22 full costs of operating the database. Such fees shall be

23 available to the Secretary or, in the Secretary’s dis24 cretion to the agency designated under this section to

25 cover such costs.
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1 ‘‘(e) PROTECTION FROM LIABILITY FOR REPORTING.—

2 No person or entity, including the agency designated by the

3 Secretary in subsection (b)(5) shall be held liable in any

4 civil action with respect to any report made as required

5 by this section, without knowledge of the falsity of the infor6 mation contained in the report.

7 ‘‘(f) COORDINATION WITH NATIONAL PRACTITIONER

8 DATA BANK.—The Secretary shall implement this section

9 in such a manner as to avoid duplication with the report10 ing requirements established for the National Practitioner

11 Data Bank under the Health Care Quality Improvement

12 Act of 1986 (42 U.S.C. 11101 et seq.).

13 ‘‘(g) DEFINITIONS AND SPECIAL RULES.—For pur14 poses of this section:

15 ‘‘(1) FINAL ADVERSE ACTION.—

16 ‘‘(A) IN GENERAL.—The term ‘final adverse

17 action’ includes:

18 ‘‘(i) Civil judgments against a health

19 care provider, supplier, or practitioner in

20 Federal or State court related to the deliv21 ery of a health care item or service.

22 ‘‘(ii) Federal or State criminal convic23 tions related to the delivery of a health care

24 item or service.
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1 ‘‘(iii) Actions by Federal or State

2 agencies responsible for the licensing and

3 certification of health care providers, sup4 pliers, and licensed health care practition5 ers, including—

6 ‘‘(I) formal or official actions,

7 such as revocation or suspension of a

8 license (and the length of any such sus9 pension), reprimand, censure or proba10 tion,

11 ‘‘(II) any other loss of license or

12 the right to apply for, or renew, a li13 cense of the provider, supplier, or prac14 titioner, whether by operation of law,

15 voluntary surrender, non-renewability,

16 or otherwise, or

17 ‘‘(III) any other negative action

18 or finding by such Federal or State

19 agency that is publicly available infor20 mation.

21 ‘‘(iv) Exclusion from participation in

22 Federal or State health care programs due

23 to program violations.
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1 ‘‘(v) Any other adjudicated actions or

2 decisions that the Secretary shall establish

3 by regulation.

4 ‘‘(B) EXCEPTION.—The term does not in5 clude any action with respect to a malpractice

6 claim.

7 ‘‘(2) PRACTITIONER.—The terms ‘licensed health

8 care practitioner’, ‘licensed practitioner’, and ‘practi9 tioner’ mean, with respect to a State, an individual

10 who is licensed or otherwise authorized by the State

11 to provide health care services (or any individual

12 who, without authority holds himself or herself out to

13 be so licensed or authorized).

14 ‘‘(3) GOVERNMENT AGENCY.—The term ‘Govern15 ment agency’ shall include:

16 ‘‘(A) The Department of Justice.

17 ‘‘(B) The Department of Health and

18 Human Services.

19 ‘‘(C) Any other Federal agency that either

20 administers or provides payment for the delivery

21 of health care services, including, but not limited

22 to the Department of Defense and the Veterans’

23 Administration.

24 ‘‘(D) State law enforcement agencies.

25 ‘‘(E) State medicaid fraud control units.
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1 ‘‘(F) Federal or State agencies responsible

2 for the licensing and certification of health care

3 providers and licensed health care practitioners.

4 ‘‘(4) HEALTH PLAN.—The term ‘health plan’ has

5 the meaning given such term by section 1128C(c).

6 ‘‘(5) DETERMINATION OF CONVICTION.—For pur7 poses of paragraph (1), the existence of a conviction

8 shall be determined under paragraph (4) of section

9 1128(i).’’.

10 (b) IMPROVED PREVENTION IN ISSUANCE OF MEDI11 CARE PROVIDER NUMBERS.—Section 1842(r) (42 U.S.C.

12 1395u(r)) is amended by adding at the end the following

13 new sentence: ‘‘Under such system, the Secretary may im14 pose appropriate fees on such physicians to cover the costs

15 of investigation and recertification activities with respect

16 to the issuance of the identifiers.’’.

17 Subtitle D—Civil Monetary

18 Penalties

19 SEC. 531. SOCIAL SECURITY ACT CIVIL MONETARY PEN20 ALTIES.

21 (a) GENERAL CIVIL MONETARY PENALTIES.—Section

22 1128A (42 U.S.C. 1320a–7a) is amended as follows:

23 (1) In the third sentence of subsection (a), by

24 striking ‘‘programs under title XVIII’’ and inserting
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1 ‘‘Federal health care programs (as defined in section

2 1128B(f)(1))’’.

3 (2) In subsection (f)—

4 (A) by redesignating paragraph (3) as

5 paragraph (4); and

6 (B) by inserting after paragraph (2) the fol7 lowing new paragraph:

8 ‘‘(3) With respect to amounts recovered arising

9 out of a claim under a Federal health care program

10 (as defined in section 1128B(f)), the portion of such

11 amounts as is determined to have been paid by the

12 program shall be repaid to the program, and the por13 tion of such amounts attributable to the amounts re14 covered under this section by reason of the amend15 ments made by the Health Insurance Reform Act of

16 1996 (as estimated by the Secretary) shall be depos17 ited into the Federal Hospital Insurance Trust Fund

18 pursuant to section 1817(k)(2)(C).’’.

19 (3) In subsection (i)—

20 (A) in paragraph (2), by striking ‘‘title V,

21 XVIII, XIX, or XX of this Act’’ and inserting ‘‘a

22 Federal health care program (as defined in sec23 tion 1128B(f))’’,

24 (B) in paragraph (4), by striking ‘‘a health

25 insurance or medical services program under
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1 title XVIII or XIX of this Act’’ and inserting ‘‘a

2 Federal health care program (as so defined)’’,

3 and

4 (C) in paragraph (5), by striking ‘‘title V,

5 XVIII, XIX, or XX’’ and inserting ‘‘a Federal

6 health care program (as so defined)’’.

7 (4) By adding at the end the following new sub8 section:

9 ‘‘(m)(1) For purposes of this section, with respect to

10 a Federal health care program not contained in this Act,

11 references to the Secretary in this section shall be deemed

12 to be references to the Secretary or Administrator of the de13 partment or agency with jurisdiction over such program

14 and references to the Inspector General of the Department

15 of Health and Human Services in this section shall be

16 deemed to be references to the Inspector General of the appli17 cable department or agency.

18 ‘‘(2)(A) The Secretary and Administrator of the de19 partments and agencies referred to in paragraph (1) may

20 include in any action pursuant to this section, claims with21 in the jurisdiction of other Federal departments or agencies

22 as long as the following conditions are satisfied:

23 ‘‘(i) The case involves primarily claims submit24 ted to the Federal health care programs of the depart25 ment or agency initiating the action.
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1 ‘‘(ii) The Secretary or Administrator of the de2 partment or agency initiating the action gives notice

3 and an opportunity to participate in the investiga4 tion to the Inspector General of the department or

5 agency with primary jurisdiction over the Federal

6 health care programs to which the claims were sub7 mitted.

8 ‘‘(B) If the conditions specified in subparagraph (A)

9 are fulfilled, the Inspector General of the department or

10 agency initiating the action is authorized to exercise all

11 powers granted under the Inspector General Act of 1978

12 with respect to the claims submitted to the other depart13 ments or agencies to the same manner and extent as pro14 vided in that Act with respect to claims submitted to such

15 departments or agencies.’’.

16 (b) EXCLUDED INDIVIDUAL RETAINING OWNERSHIP

17 OR CONTROL INTEREST IN PARTICIPATING ENTITY.—Sec18 tion 1128A(a) (42 U.S.C. 1320a–7a(a)) is amended—

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

20 (1)(D);

21 (2) by striking ‘‘, or’’ at the end of paragraph

22 (2) and inserting a semicolon;

23 (3) by striking the semicolon at the end of para24 graph (3) and inserting ‘‘; or’’; and
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1 (4) by inserting after paragraph (3) the follow2 ing new paragraph:

3 ‘‘(4) in the case of a person who is not an orga4 nization, agency, or other entity, is excluded from

5 participating in a program under title XVIII or a

6 State health care program in accordance with this

7 subsection or under section 1128 and who, at the time

8 of a violation of this subsection—

9 ‘‘(i) retains a direct or indirect ownership

10 or control interest in an entity that is partici11 pating in a program under title XVIII or a

12 State health care program, and who knows or

13 should know of the action constituting the basis

14 for the exclusion; or

15 ‘‘(ii) is an officer or managing employee (as

16 defined in section 1126(b)) of such an entity;’’.

17 (c) MODIFICATIONS OF AMOUNTS OF PENALTIES AND

18 ASSESSMENTS.—Section 1128A(a) (42 U.S.C. 1320a–

19 7a(a)), as amended by subsection (b), is amended in the

20 matter following paragraph (4)—

21 (1) by striking ‘‘$2,000’’ and inserting

22 ‘‘$10,000’’;

23 (2) by inserting ‘‘; in cases under paragraph (4),

24 $10,000 for each day the prohibited relationship oc-
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1 curs’’ after ‘‘false or misleading information was

2 given’’; and

3 (3) by striking ‘‘twice the amount’’ and inserting

4 ‘‘3 times the amount’’.

5 (d) CLAIM FOR ITEM OR SERVICE BASED ON INCOR6 RECT CODING OR MEDICALLY UNNECESSARY SERVICES.—

7 Section 1128A(a)(1) (42 U.S.C. 1320a–7a(a)(1)), as

8 amended by subsection (b), is amended—

9 (1) in subparagraph (A) by striking ‘‘claimed,’’

10 and inserting ‘‘claimed, including any person who

11 engages in a pattern or practice of presenting or

12 causing to be presented a claim for an item or service

13 that is based on a code that the person knows or

14 should know will result in a greater payment to the

15 person than the code the person knows or should know

16 is applicable to the item or service actually pro17 vided,’’;

18 (2) in subparagraph (C), by striking ‘‘or’’ at the

19 end;

20 (3) in subparagraph (D), by striking the semi21 colon and inserting ‘‘, or’’; and

22 (4) by inserting after subparagraph (D) the fol23 lowing new subparagraph:
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1 ‘‘(E) is for a medical or other item or serv2 ice that a person knows or should know is not

3 medically necessary; or’’.

4 (e) SANCTIONS AGAINST PRACTITIONERS AND PER5 SONS FOR FAILURE TO COMPLY WITH STATUTORY OBLIGA6 TIONS.—Section 1156(b)(3) (42 U.S.C. 1320c–5(b)(3)) is

7 amended by striking ‘‘the actual or estimated cost’’ and in8 serting ‘‘up to $10,000 for each instance’’.

9 (f) PROCEDURAL PROVISIONS.—Section 1876(i)(6) (42

10 U.S.C. 1395mm(i)(6)), as amended by section 515(a)(2), is

11 amended by adding at the end the following new subpara12 graph:

13 ‘‘(D) The provisions of section 1128A (other than sub14 sections (a) and (b)) shall apply to a civil money penalty

15 under subparagraph (B)(i) or (C)(i) in the same manner

16 as such provisions apply to a civil money penalty or pro17 ceeding under section 1128A(a).’’.

18 (g) PROHIBITION AGAINST OFFERING INDUCEMENTS

19 TO INDIVIDUALS ENROLLED UNDER PROGRAMS OR

20 PLANS.—

21 (1) OFFER OF REMUNERATION.—Section

22 1128A(a) (42 U.S.C. 1320a–7a(a)), as amended by

23 subsection (b), is amended—

24 (A) by striking ‘‘or’’ at the end of para25 graph (1)(D);
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1 (B) by striking the semicolon at the end of

2 paragraph (4) and inserting ‘‘; or’’; and

3 (C) by inserting after paragraph (4) the fol4 lowing new paragraph:

5 ‘‘(5) offers to or transfers remuneration to any

6 individual eligible for benefits under title XVIII of

7 this Act, or under a State health care program (as de8 fined in section 1128(h)) that such person knows or

9 should know is likely to influence such individual to

10 order or receive from a particular provider, practi11 tioner, or supplier any item or service for which pay12 ment may be made, in whole or in part, under title

13 XVIII, or a State health care program (as so de14 fined);’’.

15 (2) REMUNERATION DEFINED.—Section 1128A(i)

16 (42 U.S.C. 1320a–7a(i)) is amended by adding the

17 following new paragraph:

18 ‘‘(6) The term ‘remuneration’ includes the waiv19 er of coinsurance and deductible amounts (or any

20 part thereof), and transfers of items or services for

21 free or for other than fair market value. The term ‘re22 muneration’ does not include—

23 ‘‘(A) the waiver of coinsurance and deduct24 ible amounts by a person, if—
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1 ‘‘(i) the waiver is not offered as part of

2 any advertisement or solicitation;

3 ‘‘(ii) the person does not routinely

4 waive coinsurance or deductible amounts;

5 and

6 ‘‘(iii) the person—

7 ‘‘(I) waives the coinsurance and

8 deductible amounts after determining

9 in good faith that the individual is in

10 financial need;

11 ‘‘(II) fails to collect coinsurance

12 or deductible amounts after making

13 reasonable collection efforts; or

14 ‘‘(III) provides for any permis15 sible waiver as specified in section

16 1128B(b)(3) or in regulations issued

17 by the Secretary;

18 ‘‘(B) differentials in coinsurance and de19 ductible amounts as part of a benefit plan design

20 as long as the differentials have been disclosed in

21 writing to all beneficiaries, third party payers,

22 and providers, to whom claims are presented and

23 as long as the differentials meet the standards as

24 defined in regulations promulgated by the Sec25 retary not later than 180 days after the date of
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1 the enactment of the Health Insurance Reform

2 Act of 1996; or

3 ‘‘(C) incentives given to individuals to pro4 mote the delivery of preventive care as deter5 mined by the Secretary in regulations so pro6 mulgated.’’.

7 (h) EFFECTIVE DATE.—The amendments made by this

8 section shall take effect January 1, 1997.

9 Subtitle E—Amendments to

10 Criminal Law

11 SEC. 541. HEALTH CARE FRAUD.

12 (a) IN GENERAL.—

13 (1) FINES AND IMPRISONMENT FOR HEALTH

14 CARE FRAUD VIOLATIONS.—Chapter 63 of title 18,

15 United States Code, is amended by adding at the end

16 the following new section:

17 ‘‘§ 1347. Health care fraud

18 ‘‘Whoever knowingly and willfully executes, or at19 tempts to execute, a scheme or artifice—

20 ‘‘(1) to defraud any health care program, in con21 nection with the delivery of or payment for health

22 care benefits, items, or services; or

23 ‘‘(2) to obtain, by means of false or fraudulent

24 pretenses, representations, or promises, any of the

25 money or property owned by, or under the custody or
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1 control of, any health care program in connection

2 with the delivery of or payment for health care bene3 fits, items, or services;

4 shall be fined under this title or imprisoned not more than

5 10 years, or both. If the violation results in serious bodily

6 injury (as defined in section 1365(g)(3) of this title), such

7 person may be imprisoned for any term of years.’’.

8 (2) CLERICAL AMENDMENT.—The table of sec9 tions at the beginning of chapter 63 of title 18, Unit10 ed States Code, is amended by adding at the end the

11 following:

‘‘1347. Health care fraud.’’.

12 (b) CRIMINAL FINES DEPOSITED IN FEDERAL HOS13 PITAL INSURANCE TRUST FUND.—The Secretary of the

14 Treasury shall deposit into the Federal Hospital Insurance

15 Trust Fund pursuant to section 1817(k)(2)(C) of the Social

16 Security Act, as added by section 501(b), an amount equal

17 to the criminal fines imposed under section 1347 of title

18 18, United States Code (relating to health care fraud).

19 SEC. 542. FORFEITURES FOR FEDERAL HEALTH CARE OF20 FENSES.

21 (a) IN GENERAL.—Section 982(a) of title 18, United

22 States Code, is amended by adding after paragraph (5) the

23 following new paragraph:

24 ‘‘(6)(A) The court, in imposing sentence on a person

25 convicted of a Federal health care offense, shall order the
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1 person to forfeit property, real or personal, that constitutes

2 or is derived, directly or indirectly, from gross proceeds

3 traceable to the commission of the offense.

4 ‘‘(B) For purposes of this paragraph, the term ‘Federal

5 health care offense’ means a violation of, or a criminal con6 spiracy to violate—

7 ‘‘(i) section 1347 of this title;

8 ‘‘(ii) section 1128B of the Social Security Act;

9 and

10 ‘‘(iii) sections 287, 371, 664, 666, 669, 1001,

11 1027, 1341, 1343, 1920, or 1954 of this title if the

12 violation or conspiracy relates to health care fraud.’’.

13 (b) CONFORMING AMENDMENT.—Section 982(b)(1)(A)

14 of title 18, United States Code, is amended by inserting

15 ‘‘or (a)(6)’’ after ‘‘(a)(1)’’.

16 (c) PROPERTY FORFEITED DEPOSITED IN FEDERAL

17 HOSPITAL INSURANCE TRUST FUND.—

18 (1) IN GENERAL.—After the payment of the costs

19 of asset forfeiture has been made, and notwithstand20 ing any other provision of law, the Secretary of the

21 Treasury shall deposit into the Federal Hospital In22 surance Trust Fund pursuant to section

23 1817(k)(2)(C) of the Social Security Act, as added by

24 section 501(b), an amount equal to the net amount re25 alized from the forfeiture of property by reason of a
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1 Federal health care offense pursuant to section

2 982(a)(6) of title 18, United States Code.

3 (2) COSTS OF ASSET FORFEITURE.—For pur4 poses of paragraph (1), the term ‘‘payment of the

5 costs of asset forfeiture’’ means—

6 (A) the payment, at the discretion of the At7 torney General, of any expenses necessary to

8 seize, detain, inventory, safeguard, maintain, ad9 vertise, sell, or dispose of property under seizure,

10 detention, or forfeited, or of any other necessary

11 expenses incident to the seizure, detention, for12 feiture, or disposal of such property, including

13 payment for—

14 (i) contract services,

15 (ii) the employment of outside contrac16 tors to operate and manage properties or

17 provide other specialized services necessary

18 to dispose of such properties in an effort to

19 maximize the return from such properties;

20 and

21 (iii) reimbursement of any Federal,

22 State, or local agency for any expenditures

23 made to perform the functions described in

24 this subparagraph;
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1 (B) at the discretion of the Attorney Gen2 eral, the payment of awards for information or

3 assistance leading to a civil or criminal forfeit4 ure involving any Federal agency participating

5 in the Health Care Fraud and Abuse Control Ac6 count;

7 (C) the compromise and payment of valid

8 liens and mortgages against property that has

9 been forfeited, subject to the discretion of the At10 torney General to determine the validity of any

11 such lien or mortgage and the amount of pay12 ment to be made, and the employment of attor13 neys and other personnel skilled in State real es14 tate law as necessary;

15 (D) payment authorized in connection with

16 remission or mitigation procedures relating to

17 property forfeited; and

18 (E) the payment of State and local property

19 taxes on forfeited real property that accrued be20 tween the date of the violation giving rise to the

21 forfeiture and the date of the forfeiture order.

22 SEC. 543. INJUNCTIVE RELIEF RELATING TO FEDERAL

23 HEALTH CARE OFFENSES.

24 (a) IN GENERAL.—Section 1345(a)(1) of title 18,

25 United States Code, is amended—
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1 (1) by striking ‘‘or’’ at the end of subparagraph

2 (A);

3 (2) by inserting ‘‘or’’ at the end of subparagraph

4 (B); and

5 (3) by adding at the end the following new sub6 paragraph:

7 ‘‘(C) committing or about to commit a Fed8 eral health care offense (as defined in section

9 982(a)(6)(B) of this title);’’.

10 (b) FREEZING OF ASSETS.—Section 1345(a)(2) of title

11 18, United States Code, is amended by inserting ‘‘or a Fed12 eral health care offense (as defined in section 982(a)(6)(B))’’

13 after ‘‘title)’’.

14 SEC. 544. FALSE STATEMENTS.

15 (a) IN GENERAL.—Chapter 47 of title 18, United

16 States Code, is amended by adding at the end the following

17 new section:

18 ‘‘§ 1033. False statements relating to health care mat19 ters

20 ‘‘Whoever, in any matter involving a health care pro21 gram, knowingly and willfully—

22 ‘‘(1) falsifies, conceals, or covers up by any trick,

23 scheme, or device a material fact, or

24 ‘‘(2) makes any materially false, fictitious, or

25 fraudulent statement or representation, or makes or
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1 uses any materially false writing or document know2 ing the same to contain any materially false, ficti3 tious, or fraudulent statement or entry,

4 shall be fined under this title or imprisoned not more than

5 5 years, or both.’’.

6 (b) CLERICAL AMENDMENT.—The table of sections at

7 the beginning of chapter 47 of title 18, United States Code,

8 is amended by adding at the end the following:

‘‘1033. False statements relating to health care matters.’’.

9 SEC. 545. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF

10 FEDERAL HEALTH CARE OFFENSES.

11 (a) IN GENERAL.—Chapter 73 of title 18, United

12 States Code, is amended by adding at the end the following

13 new section:

14 ‘‘§ 1518. Obstruction of criminal investigations of Fed15 eral health care offenses

16 ‘‘(a) Whoever willfully prevents, obstructs, misleads,

17 delays or attempts to prevent, obstruct, mislead, or delay

18 the communication of information or records relating to a

19 Federal health care offense to a criminal investigator shall

20 be fined under this title or imprisoned not more than 5

21 years, or both.

22 ‘‘(b) As used in this section the term ‘Federal health

23 care offense’ has the same meaning given such term in sec24 tion 982(a)(6)(B) of this title.
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1 ‘‘(c) As used in this section the term ‘criminal inves2 tigator’ means any individual duly authorized by a depart3 ment, agency, or armed force of the United States to con4 duct or engage in investigations for prosecutions for viola5 tions of health care offenses.’’.

6 (b) CLERICAL AMENDMENT.—The table of sections at

7 the beginning of chapter 73 of title 18, United States Code,

8 is amended by adding at the end the following:

‘‘1518. Obstruction of Criminal Investigations of Federal Health Care Offenses.’’.

9 SEC. 546. THEFT OR EMBEZZLEMENT.

10 (a) IN GENERAL.—Chapter 31 of title 18, United

11 States Code, is amended by adding at the end the following

12 new section:

13 ‘‘§ 669. Theft or embezzlement in connection with

14 health care

15 ‘‘Whoever willfully embezzles, steals, or otherwise will16 fully and unlawfully converts to the use of any person other

17 than the rightful owner, or intentionally misapplies any

18 of the moneys, funds, securities, premiums, credits, prop19 erty, or other assets of a health care program, shall be fined

20 under this title or imprisoned not more than 10 years, or

21 both.’’.

22 (b) CLERICAL AMENDMENT.—The table of sections at

23 the beginning of chapter 31 of title 18, United States Code,

24 is amended by adding at the end the following:

‘‘669. Theft or Embezzlement in Connection with Health Care.’’.
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1 SEC. 547. LAUNDERING OF MONETARY INSTRUMENTS.

2 Section 1956(c)(7) of title 18, United States Code, is

3 amended by adding at the end the following new subpara4 graph:

5 ‘‘(F) Any act or activity constituting an of6 fense involving a Federal health care offense as

7 that term is defined in section 982(a)(6)(B) of

8 this title.’’.

9 SEC. 548. AUTHORIZED INVESTIGATIVE DEMAND PROCE10 DURES.

11 (a) IN GENERAL.—Chapter 233 of title 18, United

12 States Code, is amended by adding after section 3485 the

13 following new section:

14 ‘‘§ 3486. Authorized investigative demand procedures

15 ‘‘(a)(1)(A) In any investigation relating to functions

16 set forth in paragraph (2), the Attorney General or designee

17 may issue in writing and cause to be served a subpoena

18 compelling production of any records (including any books,

19 papers, documents, electronic media, or other objects or tan20 gible things), which may be relevant to an authorized law

21 enforcement inquiry, that a person or legal entity may pos22 sess or have care, custody, or control.

23 ‘‘(B) A custodian of records may be required to give

24 testimony concerning the production and authentication of

25 such records.
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1 ‘‘(C) The production of records may be required from

2 any place in any State or in any territory or other place

3 subject to the jurisdiction of the United States at any des4 ignated place; except that such production shall not be re5 quired more than 500 miles distant from the place where

6 the subpoena is served.

7 ‘‘(D) Witnesses summoned under this section shall be

8 paid the same fees and mileage that are paid witnesses in

9 the courts of the United States.

10 ‘‘(E) A subpoena requiring the production of records

11 shall describe the objects required to be produced and pre12 scribe a return date within a reasonable period of time

13 within which the objects can be assembled and made avail14 able.

15 ‘‘(2) Investigative demands utilizing an administra16 tive subpoena are authorized for any investigation with re17 spect to any act or activity constituting or involving health

18 care fraud, including a scheme or artifice—

19 ‘‘(A) to defraud any health care program, in

20 connection with the delivery of or payment for health

21 care benefits, items, or services; or

22 ‘‘(B) to obtain, by means of false or fraudulent

23 pretenses, representations, or promises, any of the

24 money or property owned by, or under the custody or

25 control of, any health care program in connection
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1 with the delivery of or payment for health care bene2 fits, items, or services.

3 ‘‘(b)(1) A subpoena issued under this section may be

4 served by any person designated in the subpoena to serve

5 it.

6 ‘‘(2) Service upon a natural person may be made by

7 personal delivery of the subpoena to such person.

8 ‘‘(3) Service may be made upon a domestic or foreign

9 association which is subject to suit under a common name,

10 by delivering the subpoena to an officer, to a managing or

11 general agent, or to any other agent authorized by appoint12 ment or by law to receive service of process.

13 ‘‘(4) The affidavit of the person serving the subpoena

14 entered on a true copy thereof by the person serving it shall

15 be proof of service.

16 ‘‘(c)(1) In the case of contumacy by or refusal to obey

17 a subpoena issued to any person, the Attorney General may

18 invoke the aid of any court of the United States within the

19 jurisdiction of which the investigation is carried on or of

20 which the subpoenaed person is an inhabitant, or in which

21 such person carries on business or may be found, to compel

22 compliance with the subpoena.

23 ‘‘(2) The court may issue an order requiring the sub24 poenaed person to appear before the Attorney General to
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1 produce records, if so ordered, or to give testimony required

2 under subsection (a)(1)(B).

3 ‘‘(3) Any failure to obey the order of the court may

4 be punished by the court as a contempt thereof.

5 ‘‘(4) All process in any such case may be served in

6 any judicial district in which such person may be found.

7 ‘‘(d) Notwithstanding any Federal, State, or local law,

8 any person, including officers, agents, and employees, re9 ceiving a subpoena under this section, who complies in good

10 faith with the subpoena and thus produces the materials

11 sought, shall not be liable in any court of any State or the

12 United States to any customer or other person for such pro13 duction or for nondisclosure of that production to the cus14 tomer.

15 ‘‘(e)(1) Health information about an individual that

16 is disclosed under this section may not be used in, or dis17 closed to any person for use in, any administrative, civil,

18 or criminal action or investigation directed against the in19 dividual who is the subject of the information unless the

20 action or investigation arises out of and is directly related

21 to receipt of health care or payment for health care or action

22 involving a fraudulent claim related to health; or if author23 ized by an appropriate order of a court of competent juris24 diction, granted after application showing good cause there25 for.
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1 ‘‘(2) In assessing good cause, the court shall weigh the

2 public interest and the need for disclosure against the in3 jury to the patient, to the physician-patient relationship,

4 and to the treatment services.

5 ‘‘(3) Upon the granting of such order, the court, in

6 determining the extent to which any disclosure of all or any

7 part of any record is necessary, shall impose appropriate

8 safeguards against unauthorized disclosure.’’.

9 (b) CLERICAL AMENDMENT.—The table of sections for

10 chapter 223 of title 18, United States Code, is amended by

11 inserting after the item relating to section 3405 the follow12 ing new item:

‘‘3486. Authorized investigative demand procedures.’’.

13 (c) CONFORMING AMENDMENT.—Section

14 1510(b)(3)(B) of title 18, United States Code, is amended

15 by inserting ‘‘or a Department of Justice subpoena (issued

16 under section 3486),’’ after ‘‘subpoena’’.

17 TITLE VI—INTERNAL REVENUE

18 CODE AND OTHER PROVISIONS

19 SEC. 600. REFERENCES.

20 Except as otherwise expressly provided, whenever in

21 this title an amendment or repeal is expressed in terms of

22 an amendment to, or repeal of, a section or other provision,

23 the reference shall be considered to be made to a section or

24 other provision of the Internal Revenue Code of 1986.
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1 Subtitle A—Foreign Trust Tax

2 Compliance

3 SEC. 601. IMPROVED INFORMATION REPORTING ON FOR4 EIGN TRUSTS.

5 (a) IN GENERAL.—Section 6048 (relating to returns

6 as to certain foreign trusts) is amended to read as follows:

7 ‘‘SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOR8 EIGN TRUSTS.

9 ‘‘(a) NOTICE OF CERTAIN EVENTS.—

10 ‘‘(1) GENERAL RULE.—On or before the 90th day

11 (or such later day as the Secretary may prescribe)

12 after any reportable event, the responsible party shall

13 provide written notice of such event to the Secretary

14 in accordance with paragraph (2).

15 ‘‘(2) CONTENTS OF NOTICE.—The notice required

16 by paragraph (1) shall contain such information as

17 the Secretary may prescribe, including—

18 ‘‘(A) the amount of money or other property

19 (if any) transferred to the trust in connection

20 with the reportable event, and

21 ‘‘(B) the identity of the trust and of each

22 trustee and beneficiary (or class of beneficiaries)

23 of the trust.

24 ‘‘(3) REPORTABLE EVENT.—For purposes of this

25 subsection—
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1 ‘‘(A) IN GENERAL.—The term ‘reportable

2 event’ means—

3 ‘‘(i) the creation of any foreign trust

4 by a United States person,

5 ‘‘(ii) the transfer of any money or

6 property (directly or indirectly) to a foreign

7 trust by a United States person, including

8 a transfer by reason of death, and

9 ‘‘(iii) the death of a citizen or resident

10 of the United States if—

11 ‘‘(I) the decedent was treated as

12 the owner of any portion of a foreign

13 trust under the rules of subpart E of

14 part I of subchapter J of chapter 1, or

15 ‘‘(II) any portion of a foreign

16 trust was included in the gross estate

17 of the decedent.

18 ‘‘(B) EXCEPTIONS.—

19 ‘‘(i) FAIR MARKET VALUE SALES.—

20 Subparagraph (A)(ii) shall not apply to

21 any transfer of property to a trust in ex22 change for consideration of at least the fair

23 market value of the transferred property.

24 For purposes of the preceding sentence, con25 sideration other than cash shall be taken
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1 into account at its fair market value and

2 the rules of section 679(a)(3) shall apply.

3 ‘‘(ii) DEFERRED COMPENSATION AND

4 CHARITABLE TRUSTS.—Subparagraph (A)

5 shall not apply with respect to a trust

6 which is—

7 ‘‘(I) described in section 402(b),

8 404(a)(4), or 404A, or

9 ‘‘(II) determined by the Secretary

10 to be described in section 501(c)(3).

11 ‘‘(4) RESPONSIBLE PARTY.—For purposes of this

12 subsection, the term ‘responsible party’ means—

13 ‘‘(A) the grantor in the case of the creation

14 of an inter vivos trust,

15 ‘‘(B) the transferor in the case of a report16 able event described in paragraph (3)(A)(ii)

17 other than a transfer by reason of death, and

18 ‘‘(C) the executor of the decedent’s estate in

19 any other case.

20 ‘‘(b) UNITED STATES GRANTOR OF FOREIGN TRUST.—

21 ‘‘(1) IN GENERAL.—If, at any time during any

22 taxable year of a United States person, such person

23 is treated as the owner of any portion of a foreign

24 trust under the rules of subpart E of part I of sub-
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1 chapter J of chapter 1, such person shall be respon2 sible to ensure that—

3 ‘‘(A) such trust makes a return for such

4 year which sets forth a full and complete ac5 counting of all trust activities and operations for

6 the year, the name of the United States agent for

7 such trust, and such other information as the

8 Secretary may prescribe, and

9 ‘‘(B) such trust furnishes such information

10 as the Secretary may prescribe to each United

11 States person (i) who is treated as the owner of

12 any portion of such trust or (ii) who receives

13 (directly or indirectly) any distribution from the

14 trust.

15 ‘‘(2) TRUSTS NOT HAVING UNITED STATES

16 AGENT.—

17 ‘‘(A) IN GENERAL.—If the rules of this

18 paragraph apply to any foreign trust, the deter19 mination of amounts required to be taken into

20 account with respect to such trust by a United

21 States person under the rules of subpart E of

22 part I of subchapter J of chapter 1 shall be de23 termined by the Secretary.

24 ‘‘(B) UNITED STATES AGENT REQUIRED.—

25 The rules of this paragraph shall apply to any
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1 foreign trust to which paragraph (1) applies un2 less such trust agrees (in such manner, subject to

3 such conditions, and at such time as the Sec4 retary shall prescribe) to authorize a United

5 States person to act as such trust’s limited agent

6 solely for purposes of applying sections 7602,

7 7603, and 7604 with respect to—

8 ‘‘(i) any request by the Secretary to ex9 amine records or produce testimony related

10 to the proper treatment of amounts required

11 to be taken into account under the rules re12 ferred to in subparagraph (A), or

13 ‘‘(ii) any summons by the Secretary

14 for such records or testimony.

15 The appearance of persons or production of

16 records by reason of a United States person

17 being such an agent shall not subject such per18 sons or records to legal process for any purpose

19 other than determining the correct treatment

20 under this title of the amounts required to be

21 taken into account under the rules referred to in

22 subparagraph (A). A foreign trust which ap23 points an agent described in this subparagraph

24 shall not be considered to have an office or a per25 manent establishment in the United States, or to
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1 be engaged in a trade or business in the United

2 States, solely because of the activities of such

3 agent pursuant to this subsection.

4 ‘‘(C) OTHER RULES TO APPLY.—Rules simi5 lar to the rules of paragraphs (2) and (4) of sec6 tion 6038A(e) shall apply for purposes of this

7 paragraph.

8 ‘‘(c) REPORTING BY UNITED STATES BENEFICIARIES

9 OF FOREIGN TRUSTS.—

10 ‘‘(1) IN GENERAL.—If any United States person

11 receives (directly or indirectly) during any taxable

12 year of such person any distribution from a foreign

13 trust, such person shall make a return with respect to

14 such trust for such year which includes—

15 ‘‘(A) the name of such trust,

16 ‘‘(B) the aggregate amount of the distribu17 tions so received from such trust during such

18 taxable year, and

19 ‘‘(C) such other information as the Sec20 retary may prescribe.

21 ‘‘(2) INCLUSION IN INCOME IF RECORDS NOT

22 PROVIDED.—

23 ‘‘(A) IN GENERAL.—If adequate records are

24 not provided to the Secretary to determine the

25 proper treatment of any distribution from a for-
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1 eign trust, such distribution shall be treated as

2 an accumulation distribution includible in the

3 gross income of the distributee under chapter 1.

4 To the extent provided in regulations, the preced5 ing sentence shall not apply if the foreign trust

6 elects to be subject to rules similar to the rules

7 of subsection (b)(2)(B).

8 ‘‘(B) APPLICATION OF ACCUMULATION DIS9 TRIBUTION RULES.—For purposes of applying

10 section 668 in a case to which subparagraph (A)

11 applies, the applicable number of years for purposes of section 668(a) shall be 1 12 ⁄2 of the number

13 of years the trust has been in existence.

14 ‘‘(d) SPECIAL RULES.—

15 ‘‘(1) DETERMINATION OF WHETHER UNITED

16 STATES PERSON RECEIVES DISTRIBUTION.—For pur17 poses of this section, in determining whether a United

18 States person receives a distribution from a foreign

19 trust, the fact that a portion of such trust is treated

20 as owned by another person under the rules of sub21 part E of part I of subchapter J of chapter 1 shall

22 be disregarded.

23 ‘‘(2) DOMESTIC TRUSTS WITH FOREIGN ACTIVI24 TIES.—To the extent provided in regulations, a trust

25 which is a United States person shall be treated as
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1 a foreign trust for purposes of this section and section

2 6677 if such trust has substantial activities, or holds

3 substantial property, outside the United States.

4 ‘‘(3) TIME AND MANNER OF FILING INFORMA5 TION.—Any notice or return required under this sec6 tion shall be made at such time and in such manner

7 as the Secretary shall prescribe.

8 ‘‘(4) MODIFICATION OF RETURN REQUIRE9 MENTS.—The Secretary is authorized to suspend or

10 modify any requirement of this section if the Sec11 retary determines that the United States has no sig12 nificant tax interest in obtaining the required infor13 mation.’’.

14 (b) INCREASED PENALTIES.—Section 6677 (relating to

15 failure to file information returns with respect to certain

16 foreign trusts) is amended to read as follows:

17 ‘‘SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT

18 TO CERTAIN FOREIGN TRUSTS.

19 ‘‘(a) CIVIL PENALTY.—In addition to any criminal

20 penalty provided by law, if any notice or return required

21 to be filed by section 6048—

22 ‘‘(1) is not filed on or before the time provided

23 in such section, or
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1 ‘‘(2) does not include all the information re2 quired pursuant to such section or includes incorrect

3 information,

4 the person required to file such notice or return shall pay

5 a penalty equal to 35 percent of the gross reportable

6 amount. If any failure described in the preceding sentence

7 continues for more than 90 days after the day on which

8 the Secretary mails notice of such failure to the person re9 quired to pay such penalty, such person shall pay a penalty

10 (in addition to the amount determined under the preceding

11 sentence) of $10,000 for each 30-day period (or fraction

12 thereof) during which such failure continues after the expi13 ration of such 90-day period. In no event shall the penalty

14 under this subsection with respect to any failure exceed the

15 gross reportable amount.

16 ‘‘(b) SPECIAL RULES FOR RETURNS UNDER SECTION

17 6048(b).—In the case of a return required under section

18 6048(b)—

19 ‘‘(1) the United States person referred to in such

20 section shall be liable for the penalty imposed by sub21 section (a), and

22 ‘‘(2) subsection (a) shall be applied by substitut23 ing ‘5 percent’ for ‘35 percent’.

24 ‘‘(c) GROSS REPORTABLE AMOUNT.—For purposes of

25 subsection (a), the term ‘gross reportable amount’ means—
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1 ‘‘(1) the gross value of the property involved in

2 the event (determined as of the date of the event) in

3 the case of a failure relating to section 6048(a),

4 ‘‘(2) the gross value of the portion of the trust’s

5 assets at the close of the year treated as owned by the

6 United States person in the case of a failure relating

7 to section 6048(b)(1), and

8 ‘‘(3) the gross amount of the distributions in the

9 case of a failure relating to section 6048(c).

10 ‘‘(d) REASONABLE CAUSE EXCEPTION.—No penalty

11 shall be imposed by this section on any failure which is

12 shown to be due to reasonable cause and not due to willful

13 neglect. The fact that a foreign jurisdiction would impose

14 a civil or criminal penalty on the taxpayer (or any other

15 person) for disclosing the required information is not rea16 sonable cause.

17 ‘‘(e) DEFICIENCY PROCEDURES NOT TO APPLY.—Sub18 chapter B of chapter 63 (relating to deficiency procedures

19 for income, estate, gift, and certain excise taxes) shall not

20 apply in respect of the assessment or collection of any pen21 alty imposed by subsection (a).’’.

22 (c) CONFORMING AMENDMENTS.—

23 (1) Paragraph (2) of section 6724(d) is amended

24 by striking ‘‘or’’ at the end of subparagraph (S), by

25 striking the period at the end of subparagraph (T)
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1 and inserting ‘‘, or’’, and by inserting after subpara2 graph (T) the following new subparagraph:

3 ‘‘(U) section 6048(b)(1)(B) (relating to for4 eign trust reporting requirements).’’.

5 (2) The table of sections for subpart B of part

6 III of subchapter A of chapter 61 is amended by strik7 ing the item relating to section 6048 and inserting

8 the following new item:

‘‘Sec. 6048. Information with respect to certain foreign trusts.’’.

9 (3) The table of sections for part I of subchapter

10 B of chapter 68 is amended by striking the item relat11 ing to section 6677 and inserting the following new

12 item:

‘‘Sec. 6677. Failure to file information with respect to certain foreign trusts.’’.

13 (d) EFFECTIVE DATES.—

14 (1) REPORTABLE EVENTS.—To the extent related

15 to subsection (a) of section 6048 of the Internal Reve16 nue Code of 1986, as amended by this section, the

17 amendments made by this section shall apply to re18 portable events (as defined in such section 6048) oc19 curring after the date of the enactment of this Act.

20 (2) GRANTOR TRUST REPORTING.—To the extent

21 related to subsection (b) of such section 6048, the

22 amendments made by this section shall apply to tax23 able years of United States persons beginning after

24 the date of the enactment of this Act.
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1 (3) REPORTING BY UNITED STATES BENE2 FICIARIES.—To the extent related to subsection (c) of

3 such section 6048, the amendments made by this sec4 tion shall apply to distributions received after the

5 date of the enactment of this Act.

6 SEC. 602. MODIFICATIONS OF RULES RELATING TO FOR7 EIGN TRUSTS HAVING ONE OR MORE UNITED

8 STATES BENEFICIARIES.

9 (a) TREATMENT OF TRUST OBLIGATIONS, ETC.—

10 (1) Paragraph (2) of section 679(a) is amended

11 by striking subparagraph (B) and inserting the fol12 lowing:

13 ‘‘(B) TRANSFERS AT FAIR MARKET

14 VALUE.—To any transfer of property to a trust

15 in exchange for consideration of at least the fair

16 market value of the transferred property. For

17 purposes of the preceding sentence, consideration

18 other than cash shall be taken into account at its

19 fair market value.’’.

20 (2) Subsection (a) of section 679 (relating to for21 eign trusts having one or more United States bene22 ficiaries) is amended by adding at the end the follow23 ing new paragraph:

24 ‘‘(3) CERTAIN OBLIGATIONS NOT TAKEN INTO AC25 COUNT UNDER FAIR MARKET VALUE EXCEPTION.—
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1 ‘‘(A) IN GENERAL.—In determining whether

2 paragraph (2)(B) applies to any transfer by a

3 person described in clause (ii) or (iii) of sub4 paragraph (C), there shall not be taken into ac5 count—

6 ‘‘(i) except as provided in regulations,

7 any obligation of a person described in sub8 paragraph (C), and

9 ‘‘(ii) to the extent provided in regula10 tions, any obligation which is guaranteed

11 by a person described in subparagraph (C).

12 ‘‘(B) TREATMENT OF PRINCIPAL PAYMENTS

13 ON OBLIGATION.—Principal payments by the

14 trust on any obligation referred to in subpara15 graph (A) shall be taken into account on and

16 after the date of the payment in determining the

17 portion of the trust attributable to the property

18 transferred.

19 ‘‘(C) PERSONS DESCRIBED.—The persons

20 described in this subparagraph are—

21 ‘‘(i) the trust,

22 ‘‘(ii) any grantor or beneficiary of the

23 trust, and
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1 ‘‘(iii) any person who is related (with2 in the meaning of section 643(i)(2)(B)) to

3 any grantor or beneficiary of the trust.’’.

4 (b) EXEMPTION OF TRANSFERS TO CHARITABLE

5 TRUSTS.—Subsection (a) of section 679 is amended by

6 striking ‘‘section 404(a)(4) or 404A’’ and inserting ‘‘section

7 6048(a)(3)(B)(ii)’’.

8 (c) OTHER MODIFICATIONS.—Subsection (a) of section

9 679 is amended by adding at the end the following new

10 paragraphs:

11 ‘‘(4) SPECIAL RULES APPLICABLE TO FOREIGN

12 GRANTOR WHO LATER BECOMES A UNITED STATES

13 PERSON.—

14 ‘‘(A) IN GENERAL.—If a nonresident alien

15 individual has a residency starting date within

16 5 years after directly or indirectly transferring

17 property to a foreign trust, this section and sec18 tion 6048 shall be applied as if such individual

19 transferred to such trust on the residency start20 ing date an amount equal to the portion of such

21 trust attributable to the property transferred by

22 such individual to such trust in such transfer.

23 ‘‘(B) TREATMENT OF UNDISTRIBUTED IN24 COME.—For purposes of this section, undistrib25 uted net income for periods before such individ-
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1 ual’s residency starting date shall be taken into

2 account in determining the portion of the trust

3 which is attributable to property transferred by

4 such individual to such trust but shall not other5 wise be taken into account.

6 ‘‘(C) RESIDENCY STARTING DATE.—For

7 purposes of this paragraph, an individual’s resi8 dency starting date is the residency starting date

9 determined under section 7701(b)(2)(A).

10 ‘‘(5) OUTBOUND TRUST MIGRATIONS.—If—

11 ‘‘(A) an individual who is a citizen or resi12 dent of the United States transferred property to

13 a trust which was not a foreign trust, and

14 ‘‘(B) such trust becomes a foreign trust

15 while such individual is alive,

16 then this section and section 6048 shall be applied as

17 if such individual transferred to such trust on the

18 date such trust becomes a foreign trust an amount

19 equal to the portion of such trust attributable to the

20 property previously transferred by such individual to

21 such trust. A rule similar to the rule of paragraph

22 (4)(B) shall apply for purposes of this paragraph.’’.

23 (d) MODIFICATIONS RELATING TO WHETHER TRUST

24 HAS UNITED STATES BENEFICIARIES.—Subsection (c) of
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1 section 679 is amended by adding at the end the following

2 new paragraph:

3 ‘‘(3) CERTAIN UNITED STATES BENEFICIARIES

4 DISREGARDED.—A beneficiary shall not be treated as

5 a United States person in applying this section with

6 respect to any transfer of property to foreign trust if

7 such beneficiary first became a United States person

8 more than 5 years after the date of such transfer.’’.

9 (e) TECHNICAL AMENDMENT.—Subparagraph (A) of

10 section 679(c)(2) is amended to read as follows:

11 ‘‘(A) in the case of a foreign corporation,

12 such corporation is a controlled foreign corpora13 tion (as defined in section 957(a)),’’.

14 (f) REGULATIONS.—Section 679 is amended by adding

15 at the end the following new subsection:

16 ‘‘(d) REGULATIONS.—The Secretary shall prescribe

17 such regulations as may be necessary or appropriate to

18 carry out the purposes of this section.’’.

19 (g) EFFECTIVE DATE.—The amendments made by this

20 section shall apply to transfers of property after February

21 6, 1995.

22 SEC. 603. FOREIGN PERSONS NOT TO BE TREATED AS OWN23 ERS UNDER GRANTOR TRUST RULES.

24 (a) GENERAL RULE.—
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1 (1) Subsection (f) of section 672 (relating to spe2 cial rule where grantor is foreign person) is amended

3 to read as follows:

4 ‘‘(f) SUBPART NOT TO RESULT IN FOREIGN OWNER5 SHIP.—

6 ‘‘(1) IN GENERAL.—Notwithstanding any other

7 provision of this subpart, this subpart shall apply

8 only to the extent such application results in an

9 amount being currently taken into account (directly

10 or through 1 or more entities) under this chapter in

11 computing the income of a citizen or resident of the

12 United States or a domestic corporation.

13 ‘‘(2) EXCEPTIONS.—

14 ‘‘(A) CERTAIN REVOCABLE AND IRREV15 OCABLE TRUSTS.—Paragraph (1) shall not

16 apply to any trust if—

17 ‘‘(i) the power to revest absolutely in

18 the grantor title to the trust property is ex19 ercisable solely by the grantor without the

20 approval or consent of any other person or

21 with the consent of a related or subordinate

22 party who is subservient to the grantor, or

23 ‘‘(ii) the only amounts distributable

24 from such trust (whether income or corpus)

25 during the lifetime of the grantor are
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1 amounts distributable to the grantor or the

2 spouse of the grantor.

3 ‘‘(B) COMPENSATORY TRUSTS.—Except as

4 provided in regulations, paragraph (1) shall not

5 apply to any portion of a trust distributions

6 from which are taxable as compensation for serv7 ices rendered.

8 ‘‘(3) SPECIAL RULES.—Except as otherwise pro9 vided in regulations prescribed by the Secretary—

10 ‘‘(A) a controlled foreign corporation (as de11 fined in section 957) shall be treated as a domes12 tic corporation for purposes of paragraph (1),

13 and

14 ‘‘(B) paragraph (1) shall not apply for pur15 poses of applying section 1296.

16 ‘‘(4) RECHARACTERIZATION OF PURPORTED

17 GIFTS.—In the case of any transfer directly or indi18 rectly from a partnership or foreign corporation

19 which the transferee treats as a gift or bequest, the

20 Secretary may recharacterize such transfer in such

21 circumstances as the Secretary determines to be ap22 propriate to prevent the avoidance of the purposes of

23 this subsection.

24 ‘‘(5) SPECIAL RULE WHERE GRANTOR IS FOR25 EIGN PERSON.—If—
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1 ‘‘(A) but for this subsection, a foreign per2 son would be treated as the owner of any portion

3 of a trust, and

4 ‘‘(B) such trust has a beneficiary who is a

5 United States person,

6 such beneficiary shall be treated as the grantor of

7 such portion to the extent such beneficiary has made

8 transfers of property by gift (directly or indirectly) to

9 such foreign person. For purposes of the preceding

10 sentence, any gift shall not be taken into account to

11 the extent such gift would be excluded from taxable

12 gifts under section 2503(b).

13 ‘‘(6) REGULATIONS.—The Secretary shall pre14 scribe such regulations as may be necessary or appro15 priate to carry out the purposes of this subsection, in16 cluding regulations providing that paragraph (1)

17 shall not apply in appropriate cases.’’.

18 (2) The last sentence of subsection (c) of section

19 672 of such Code is amended by inserting ‘‘subsection

20 (f) and’’ before ‘‘sections 674’’.

21 (b) CREDIT FOR CERTAIN TAXES.—Paragraph (2) of

22 section 665(d) is amended by adding at the end the follow23 ing new sentence: ‘‘Under rules or regulations prescribed

24 by the Secretary, in the case of any foreign trust of which

25 the settlor or another person would be treated as owner of
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1 any portion of the trust under subpart E but for section

2 672(f), the term ‘taxes imposed on the trust’ includes the

3 allocable amount of any income, war profits, and excess

4 profits taxes imposed by any foreign country or possession

5 of the United States on the settlor or such other person in

6 respect of trust gross income.’’.

7 (c) DISTRIBUTIONS BY CERTAIN FOREIGN TRUSTS

8 THROUGH NOMINEES.—

9 (1) Section 643 is amended by adding at the end

10 the following new subsection:

11 ‘‘(h) DISTRIBUTIONS BY CERTAIN FOREIGN TRUSTS

12 THROUGH NOMINEES.—For purposes of this part, any

13 amount paid to a United States person which is derived

14 directly or indirectly from a foreign trust of which the

15 payor is not the grantor shall be deemed in the year of pay16 ment to have been directly paid by the foreign trust to such

17 United States person.’’.

18 (2) Section 665 is amended by striking sub19 section (c).

20 (d) EFFECTIVE DATE.—

21 (1) IN GENERAL.—Except as provided by para22 graph (2), the amendments made by this section shall

23 take effect on the date of the enactment of this Act.
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1 (2) EXCEPTION FOR CERTAIN TRUSTS.—The

2 amendments made by this section shall not apply to

3 any trust—

4 (A) which is treated as owned by the grant5 or or another person under section 676 or 677

6 (other than subsection (a)(3) thereof) of the In7 ternal Revenue Code of 1986, and

8 (B) which is in existence on September 19,

9 1995.

10 The preceding sentence shall not apply to the portion

11 of any such trust attributable to any transfer to such

12 trust after September 19, 1995.

13 (e) TRANSITIONAL RULE.—If—

14 (1) by reason of the amendments made by this

15 section, any person other than a United States person

16 ceases to be treated as the owner of a portion of a do17 mestic trust, and

18 (2) before January 1, 1997, such trust becomes

19 a foreign trust, or the assets of such trust are trans20 ferred to a foreign trust,

21 no tax shall be imposed by section 1491 of the Internal Rev22 enue Code of 1986 by reason of such trust becoming a for23 eign trust or the assets of such trust being transferred to

24 a foreign trust.
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1 SEC. 604. INFORMATION REPORTING REGARDING FOREIGN

2 GIFTS.

3 (a) IN GENERAL.—Subpart A of part III of subchapter

4 A of chapter 61 is amended by inserting after section 6039E

5 the following new section:

6 ‘‘SEC. 6039F. NOTICE OF GIFTS RECEIVED FROM FOREIGN

7 PERSONS.

8 ‘‘(a) IN GENERAL.—If the value of the aggregate for9 eign gifts received by a United States person (other than

10 an organization described in section 501(c) and exempt

11 from tax under section 501(a)) during any taxable year ex12 ceeds $10,000, such United States person shall furnish (at

13 such time and in such manner as the Secretary shall pre14 scribe) such information as the Secretary may prescribe re15 garding each foreign gift received during such year.

16 ‘‘(b) FOREIGN GIFT.—For purposes of this section, the

17 term ‘foreign gift’ means any amount received from a per18 son other than a United States person which the recipient

19 treats as a gift or bequest. Such term shall not include any

20 qualified transfer (within the meaning of section

21 2503(e)(2)).

22 ‘‘(c) PENALTY FOR FAILURE TO FILE INFORMATION.—

23 ‘‘(1) IN GENERAL.—If a United States person

24 fails to furnish the information required by subsection

25 (a) with respect to any foreign gift within the time

26 prescribed therefor (including extensions)—
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1 ‘‘(A) the tax consequences of the receipt of

2 such gift shall be determined by the Secretary in

3 the Secretary’s sole discretion from the Sec4 retary’s own knowledge or from such information

5 as the Secretary may obtain through testimony

6 or otherwise, and

7 ‘‘(B) such United States person shall pay

8 (upon notice and demand by the Secretary and

9 in the same manner as tax) an amount equal to

10 5 percent of the amount of such foreign gift for

11 each month for which the failure continues (not

12 to exceed 25 percent of such amount in the aggre13 gate).

14 ‘‘(2) REASONABLE CAUSE EXCEPTION.—Para15 graph (1) shall not apply to any failure to report a

16 foreign gift if the United States person shows that the

17 failure is due to reasonable cause and not due to will18 ful neglect.

19 ‘‘(d) COST-OF-LIVING ADJUSTMENT.—In the case of

20 any taxable year beginning after December 31, 1996, the

21 $10,000 amount under subsection (a) shall be increased by

22 an amount equal to the product of such amount and the

23 cost-of-living adjustment for such taxable year under section

24 1(f)(3), except that subparagraph (B) thereof shall be ap25 plied by substituting ‘1995’ for ‘1992’.
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1 ‘‘(e) REGULATIONS.—The Secretary shall prescribe

2 such regulations as may be necessary or appropriate to

3 carry out the purposes of this section.’’.

4 (b) CLERICAL AMENDMENT.—The table of sections for

5 such subpart is amended by inserting after the item relating

6 to section 6039E the following new item:

‘‘Sec. 6039F. Notice of large gifts received from foreign persons.’’.

7 (c) EFFECTIVE DATE.—The amendments made by this

8 section shall apply to amounts received after the date of

9 the enactment of this Act in taxable years ending after such

10 date.

11 SEC. 605. MODIFICATION OF RULES RELATING TO FOREIGN

12 TRUSTS WHICH ARE NOT GRANTOR TRUSTS.

13 (a) MODIFICATION OF INTEREST CHARGE ON ACCUMU14 LATION DISTRIBUTIONS.—Subsection (a) of section 668 (re15 lating to interest charge on accumulation distributions from

16 foreign trusts) is amended to read as follows:

17 ‘‘(a) GENERAL RULE.—For purposes of the tax deter18 mined under section 667(a)—

19 ‘‘(1) INTEREST DETERMINED USING UNDERPAY20 MENT RATES.—The interest charge determined under

21 this section with respect to any distribution is the

22 amount of interest which would be determined on the

23 partial tax computed under section 667(b) for the pe24 riod described in paragraph (2) using the rates and
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1 the method under section 6621 applicable to under2 payments of tax.

3 ‘‘(2) PERIOD.—For purposes of paragraph (1),

4 the period described in this paragraph is the period

5 which begins on the date which is the applicable num6 ber of years before the date of the distribution and

7 which ends on the date of the distribution.

8 ‘‘(3) APPLICABLE NUMBER OF YEARS.—For pur9 poses of paragraph (2)—

10 ‘‘(A) IN GENERAL.—The applicable number

11 of years with respect to a distribution is the

12 number determined by dividing—

13 ‘‘(i) the sum of the products described

14 in subparagraph (B) with respect to each

15 undistributed income year, by

16 ‘‘(ii) the aggregate undistributed net

17 income.

18 The quotient determined under the preceding

19 sentence shall be rounded under procedures pre20 scribed by the Secretary.

21 ‘‘(B) PRODUCT DESCRIBED.—For purposes

22 of subparagraph (A), the product described in

23 this subparagraph with respect to any undistrib24 uted income year is the product of—
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1 ‘‘(i) the undistributed net income for

2 such year, and

3 ‘‘(ii) the sum of the number of taxable

4 years between such year and the taxable

5 year of the distribution (counting in each

6 case the undistributed income year but not

7 counting the taxable year of the distribu8 tion).

9 ‘‘(4) UNDISTRIBUTED INCOME YEAR.—For pur10 poses of this subsection, the term ‘undistributed in11 come year’ means any prior taxable year of the trust

12 for which there is undistributed net income, other

13 than a taxable year during all of which the bene14 ficiary receiving the distribution was not a citizen or

15 resident of the United States.

16 ‘‘(5) DETERMINATION OF UNDISTRIBUTED NET

17 INCOME.—Notwithstanding section 666, for purposes

18 of this subsection, an accumulation distribution from

19 the trust shall be treated as reducing proportionately

20 the undistributed net income for undistributed income

21 years.

22 ‘‘(6) PERIODS BEFORE 1996.—Interest for the

23 portion of the period described in paragraph (2)

24 which occurs before January 1, 1996, shall be deter25 mined—
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1 ‘‘(A) by using an interest rate of 6 percent,

2 and

3 ‘‘(B) without compounding until January

4 1, 1996.’’.

5 (b) ABUSIVE TRANSACTIONS.—Section 643(a) is

6 amended by inserting after paragraph (6) the following new

7 paragraph:

8 ‘‘(7) ABUSIVE TRANSACTIONS.—The Secretary

9 shall prescribe such regulations as may be necessary

10 or appropriate to carry out the purposes of this part,

11 including regulations to prevent avoidance of such

12 purposes.’’.

13 (c) TREATMENT OF LOANS FROM TRUSTS.—

14 (1) IN GENERAL.—Section 643 (relating to defi15 nitions applicable to subparts A, B, C, and D) is

16 amended by adding at the end the following new sub17 section:

18 ‘‘(i) LOANS FROM FOREIGN TRUSTS.—For purposes of

19 subparts B, C, and D—

20 ‘‘(1) GENERAL RULE.—Except as provided in

21 regulations, if a foreign trust makes a loan of cash or

22 marketable securities directly or indirectly to—

23 ‘‘(A) any grantor or beneficiary of such

24 trust who is a United States person, or
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1 ‘‘(B) any United States person not de2 scribed in subparagraph (A) who is related to

3 such grantor or beneficiary,

4 the amount of such loan shall be treated as a distribu5 tion by such trust to such grantor or beneficiary (as

6 the case may be).

7 ‘‘(2) DEFINITIONS AND SPECIAL RULES.—For

8 purposes of this subsection—

9 ‘‘(A) CASH.—The term ‘cash’ includes for10 eign currencies and cash equivalents.

11 ‘‘(B) RELATED PERSON.—

12 ‘‘(i) IN GENERAL.—A person is related

13 to another person if the relationship between

14 such persons would result in a disallowance

15 of losses under section 267 or 707(b). In ap16 plying section 267 for purposes of the pre17 ceding sentence, section 267(c)(4) shall be

18 applied as if the family of an individual

19 includes the spouses of the members of the

20 family.

21 ‘‘(ii) ALLOCATION.—If any person de22 scribed in paragraph (1)(B) is related to

23 more than one person, the grantor or bene24 ficiary to whom the treatment under this
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1 subsection applies shall be determined under

2 regulations prescribed by the Secretary.

3 ‘‘(C) EXCLUSION OF TAX-EXEMPTS.—The

4 term ‘United States person’ does not include any

5 entity exempt from tax under this chapter.

6 ‘‘(D) TRUST NOT TREATED AS SIMPLE

7 TRUST.—Any trust which is treated under this

8 subsection as making a distribution shall be

9 treated as not described in section 651.

10 ‘‘(3) SUBSEQUENT TRANSACTIONS REGARDING

11 LOAN PRINCIPAL.—If any loan is taken into account

12 under paragraph (1), any subsequent transaction be13 tween the trust and the original borrower regarding

14 the principal of the loan (by way of complete or par15 tial repayment, satisfaction, cancellation, discharge,

16 or otherwise) shall be disregarded for purposes of this

17 title.’’.

18 (2) TECHNICAL AMENDMENT.—Paragraph (8) of

19 section 7872(f) is amended by inserting ‘‘, 643(i),’’ be20 fore ‘‘or 1274’’ each place it appears.

21 (d) EFFECTIVE DATES.—

22 (1) INTEREST CHARGE.—The amendment made

23 by subsection (a) shall apply to distributions after the

24 date of the enactment of this Act.
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1 (2) ABUSIVE TRANSACTIONS.—The amendment

2 made by subsection (b) shall take effect on the date of

3 the enactment of this Act.

4 (3) LOANS FROM TRUSTS.—The amendment

5 made by subsection (c) shall apply to loans of cash

6 or marketable securities after September 19, 1995.

7 SEC. 606. RESIDENCE OF ESTATES AND TRUSTS, ETC.

8 (a) TREATMENT AS UNITED STATES PERSON.—

9 (1) IN GENERAL.—Paragraph (30) of section

10 7701(a) is amended by striking subparagraph (D)

11 and by inserting after subparagraph (C) the follow12 ing:

13 ‘‘(D) any estate or trust if—

14 ‘‘(i) a court within the United States

15 is able to exercise primary supervision over

16 the administration of the estate or trust,

17 and

18 ‘‘(ii) in the case of a trust, one or more

19 United States fiduciaries have the authority

20 to control all substantial decisions of the

21 trust.’’.

22 (2) CONFORMING AMENDMENT.—Paragraph (31)

23 of section 7701(a) is amended to read as follows:

24 ‘‘(31) FOREIGN ESTATE OR TRUST.—The term

25 ‘foreign estate’ or ‘foreign trust’ means any estate or
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1 trust other than an estate or trust described in section

2 7701(a)(30)(D).’’.

3 (3) EFFECTIVE DATE.—The amendments made

4 by this subsection shall apply—

5 (A) to taxable years beginning after Decem6 ber 31, 1996, or

7 (B) at the election of the trustee of a trust,

8 to taxable years ending after the date of the en9 actment of this Act.

10 Such an election, once made, shall be irrevocable.

11 (b) DOMESTIC TRUSTS WHICH BECOME FOREIGN

12 TRUSTS.—

13 (1) IN GENERAL.—Section 1491 (relating to im14 position of tax on transfers to avoid income tax) is

15 amended by adding at the end the following new flush

16 sentence:

17 ‘‘If a trust which is not a foreign trust becomes a foreign

18 trust, such trust shall be treated for purposes of this section

19 as having transferred, immediately before becoming a for20 eign trust, all of its assets to a foreign trust.’’.

21 (2) PENALTY.—Section 1494 is amended by add22 ing at the end the following new subsection:

23 ‘‘(c) PENALTY.—In the case of any failure to file a re24 turn required by the Secretary with respect to any transfer

25 described in section 1491 with respect to a trust, the person
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1 required to file such return shall be liable for the penalties

2 provided in section 6677 in the same manner as if such

3 failure were a failure to file a return under section

4 6048(a).’’.

5 (3) EFFECTIVE DATE.—The amendments made

6 by this subsection shall take effect on the date of the

7 enactment of this Act.

8 Subtitle B—Repeal of Bad Debt Re9 serve Method for Thrift Savings

10 Associations

11 SEC. 611. REPEAL OF BAD DEBT RESERVE METHOD FOR

12 THRIFT SAVINGS ASSOCIATIONS.

13 (a) IN GENERAL.—Section 593 (relating to reserves for

14 losses on loans) is hereby repealed.

15 (b) CONFORMING AMENDMENTS.—

16 (1) Subsection (d) of section 50 is amended by

17 adding at the end the following new sentence:

18 ‘‘Paragraphs (1)(A), (2)(A), and (4) of section 46(e) re19 ferred to in paragraph (1) of this subsection shall not apply

20 to any taxable year beginning after December 31, 1995.’’.

21 (2) Subsection (e) of section 52 is amended by

22 striking paragraph (1) and by redesignating para23 graphs (2) and (3) as paragraphs (1) and (2), respec24 tively.
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1 (3) Subsection (a) of section 57 is amended by

2 striking paragraph (4).

3 (4) Section 246 is amended by striking sub4 section (f).

5 (5) Clause (i) of section 291(e)(1)(B) is amended

6 by striking ‘‘or to which section 593 applies’’.

7 (6) Subparagraph (A) of section 585(a)(2) is

8 amended by striking ‘‘other than an organization to

9 which section 593 applies’’.

10 (7) Sections 595 and 596 are hereby repealed.

11 (8) Subsection (a) of section 860E is amended—

12 (A) by striking ‘‘Except as provided in

13 paragraph (2), the’’ in paragraph (1) and in14 serting ‘‘The’’,

15 (B) by striking paragraphs (2) and (4) and

16 redesignating paragraphs (3) and (5) as para17 graphs (2) and (3), respectively, and

18 (C) by striking in paragraph (2) (as so re19 designated) all that follows ‘‘subsection’’ and in20 serting a period.

21 (9) Paragraph (3) of section 992(d) is amended

22 by striking ‘‘or 593’’.

23 (10) Section 1038 is amended by striking sub24 section (f).
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1 (11) Clause (ii) of section 1042(c)(4)(B) is

2 amended by striking ‘‘or 593’’.

3 (12) Subsection (c) of section 1277 is amended

4 by striking ‘‘or to which section 593 applies’’.

5 (13) Subparagraph (B) of section 1361(b)(2) is

6 amended by striking ‘‘or to which section 593 ap7 plies’’.

8 (14) The table of sections for part II of sub9 chapter H of chapter 1 is amended by striking the

10 items relating to sections 593, 595, and 596.

11 (c) EFFECTIVE DATE.—

12 (1) IN GENERAL.—Except as provided in para13 graph (2), the amendments made by this section shall

14 apply to taxable years beginning after December 31,

15 1995.

16 (2) REPEAL OF SECTION 595.—The repeal of sec17 tion 595 under subsection (b)(7) shall apply to prop18 erty acquired in taxable years beginning after Decem19 ber 31, 1995.

20 (d) 6-YEAR SPREAD OF ADJUSTMENTS.—

21 (1) IN GENERAL.—In the case of any taxpayer

22 who is required by reason of the amendments made

23 by this section to change its method of computing re24 serves for bad debts—
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1 (A) such change shall be treated as a change

2 in a method of accounting,

3 (B) such change shall be treated as initiated

4 by the taxpayer and as having been made with

5 the consent of the Secretary, and

6 (C) the net amount of the adjustments re7 quired to be taken into account by the taxpayer

8 under section 481(a)—

9 (i) shall be determined by taking into

10 account only applicable excess reserves, and

11 (ii) as so determined, shall be taken

12 into account ratably over the 6-taxable year

13 period beginning with the first taxable year

14 beginning after December 31, 1995.

15 (2) APPLICABLE EXCESS RESERVES.—

16 (A) IN GENERAL.—For purposes of para17 graph (1), the term ‘applicable excess reserves’

18 means the excess (if any) of—

19 (i) the balance of the reserves described

20 in section 593(c)(1) of such Code (as in ef21 fect on the day before the date of the enact22 ment of this Act) as of the close of the tax23 payer’s last taxable year beginning before

24 January 1, 1996, over

25 (ii) the lesser of—
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1 (I) the balance of such reserves as

2 of the close of the taxpayer’s last tax3 able year beginning before January 1,

4 1988, or

5 (II) the balance of the reserves de6 scribed in subclause (I), reduce by an

7 amount determined in the same man8 ner as under section 585(b)(2)(B)(ii)

9 on the basis of the taxable years de10 scribed in clause (i) and this clause.

11 (B) SPECIAL RULE FOR THRIFTS WHICH

12 BECOME SMALL BANKS.—In the case of a bank

13 (as defined in section 581 of such Code) which

14 is not a large bank (as defined in section

15 585(c)(2) of such Code) for its first taxable year

16 beginning after December 31, 1995—

17 (i) the balance taken into account

18 under subparagraph (A)(ii) shall not be less

19 than the amount which would be the bal20 ance of such reserve as of the close of its last

21 taxable year beginning before January 1,

22 1996, if the additions to such reserve for all

23 taxable years had been determined under

24 section 585(b)(2)(A), and
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1 (ii) the opening balance of the reserve

2 for bad debts as of the beginning of such

3 first taxable year shall be the balance taken

4 into account under subparagraph (A)(ii)

5 (determined after the application of clause

6 (i) of this subparagraph).

7 The preceding sentence shall not apply for pur8 poses of paragraphs (5), (6), and (7).

9 (3) RECAPTURE OF PRE-1988 RESERVES WHERE

10 TAXPAYER CEASES TO BE BANK.—If during any tax11 able year beginning after December 31, 1995, a tax12 payer to which paragraph (1) applied is not a bank

13 (as defined in section 581), paragraph (1) shall apply

14 to the reserves described in subparagraph (A)(ii) ex15 cept that such reserves shall be taken into account rat16 ably over the 6-taxable year period beginning with

17 such taxable year.

18 (4) SUSPENSION OF RECAPTURE IF RESIDENTIAL

19 LOAN REQUIREMENT MET.—

20 (A) IN GENERAL.—In the case of a bank

21 which meets the residential loan requirement of

22 subparagraph (B) for a taxable year beginning

23 after December 31, 1995, and before January 1,

24 1998—
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1 (i) no adjustment shall be taken into

2 account under paragraph (1) for such tax3 able year, and

4 (ii) such taxable year shall be dis5 regarded in determining—

6 (I) whether any other taxable year

7 is a taxable year for which an adjust8 ment is required to be taken into ac9 count under paragraph (1), and

10 (II) the amount of such adjust11 ment.

12 (B) RESIDENTIAL LOAN REQUIREMENT.—A

13 taxpayer meets the residential loan requirement

14 of this subparagraph for any taxable year if the

15 principal amount of the residential loans made

16 by the taxpayer during such year is not less than

17 the base amount for such year.

18 (C) RESIDENTIAL LOAN.—For purposes of

19 this paragraph, the term ‘‘residential loan’’

20 means any loan described in clause (v) of section

21 7701(a)(19)(C) of such Code but only if such

22 loan is incurred in acquiring, constructing, or

23 improving the property described in such clause.

24 (D) BASE AMOUNT.—For purposes of sub25 paragraph (B), the base amount is the average
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1 of the principal amounts of the residential loans

2 made by the taxpayer during the 6 most recent

3 taxable years beginning before January 1, 1996.

4 At the election of the taxpayer who made such

5 loans during each of such 6 taxable years, the

6 preceding sentence shall be applied without re7 gard to the taxable year in which such principal

8 amount was the highest and the taxable year in

9 such principal amount was the lowest. Such an

10 election may be made only for the first taxable

11 year beginning after December 31, 1995, and, if

12 made for such taxable year, shall apply to the

13 succeeding taxable year unless revoked with the

14 consent of the Secretary of the Treasury or the

15 Secretary’s delegate.

16 (E) CONTROLLED GROUPS.—In the case of

17 a taxpayer which is a member of any controlled

18 group of corporations described in section

19 1563(a)(1) of such Code, subparagraph (B) shall

20 be applied with respect to such group.

21 (5) CONTINUED APPLICATION OF FRESH START

22 UNDER SECTION 585 TRANSITIONAL RULES.—In the

23 case of a taxpayer to which paragraph (1) applied

24 and which was not a large bank (as defined in section
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1 585(c)(2) of such Code) for its first taxable year be2 ginning after December 31, 1995:

3 (A) IN GENERAL.—For purposes of deter4 mining the net amount of adjustments referred to

5 in section 585(c)(3)(A)(iii) of such Code, there

6 shall be taken into account only the excess of the

7 reserve for bad debts as of the close of the last

8 taxable year before the disqualification year over

9 the balance taken into account by such taxpayer

10 under paragraph (2)(A)(ii) of this subsection.

11 (B) TREATMENT UNDER ELECTIVE CUT-OFF

12 METHOD.—For purposes of applying section

13 585(c)(4) of such Code—

14 (i) the balance of the reserve taken into

15 account under subparagraph (B) thereof

16 shall be reduced by the balance taken into

17 account by such taxpayer under paragraph

18 (2)(A)(ii) of this subsection, and

19 (ii) no amount shall be includible in

20 gross income by reason of such reduction.

21 (6) CONTINUED APPLICATION OF SECTION

22 593(e).—Notwithstanding the amendments made by

23 this section, in the case of a taxpayer to which para24 graph (1) of this subsection applies, section 593(e) of

25 such Code (as in effect on the day before the date of
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1 the enactment of this Act) shall continue to apply to

2 such taxpayer as if such taxpayer were a domestic

3 building and loan association but the amount of the

4 reserves taken into account under subparagraphs (B)

5 and (C) of section 593(e)(1) (as so in effect) shall be

6 the balance taken into account by such taxpayer

7 under paragraph (2)(A)(ii) of this subsection.

8 (7) CERTAIN ITEMS INCLUDED AS SECTION 381(c)

9 ITEMS.—The balance of the applicable excess reserves,

10 and the balance taken into account by a taxpayer

11 under paragraph (2)(A)(ii) of this subsection, shall be

12 treated as items described in section 381(c) of such

13 Code.

14 (8) CONVERSIONS TO CREDIT UNIONS.—In the

15 case of a taxpayer to which paragraph (1) applied

16 which becomes a credit union described in section

17 501(c)(14)(A)—

18 (A) any amount required to be included in

19 the gross income of the credit union by reason of

20 this subsection shall be treated as derived from

21 an unrelated trade or business (as defined in sec22 tion 513), and

23 (B) for purposes of paragraph (3), the cred24 it union shall not be treated as if it were a bank.
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1 (9) REGULATIONS.—The Secretary of the Treas2 ury or the Secretary’s delegate shall prescribe such

3 regulations as may be necessary to carry out this sub4 section, including regulations providing for the appli5 cation of paragraphs (4) and (6) in the case of acqui6 sitions, mergers, spin-offs, and other reorganizations.

7 Subtitle C—Other Provisions

8 SEC. 621. EXTENSION OF MEDICARE SECONDARY PAYOR

9 PROVISIONS.

10 Section 1862(b) of the Social Security Act (42 U.S.C.

11 1395y(b)) is amended—

12 (1) in paragraph (1)—

13 (A) in subparagraph (B), by striking clause

14 (iii) and redesignating clause (iv) as clause (iii);

15 and

16 (B) in the matter following clause (ii) of

17 subparagraph (C), by striking ‘‘, and before Oc18 tober 1, 1998’’; and

19 (2) in paragraph (5)(C), by striking clause (iii).

20 SEC. 622. ANNUAL ADJUSTMENT FACTORS FOR OPERATING

21 COSTS ONLY; RESTRAINT ON RENT IN22 CREASES.

23 (a) ANNUAL ADJUSTMENT FACTORS FOR OPERATING

24 COSTS ONLY.—Section 8(c)(2)(A) of the United States
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1 Housing Act of 1937 (42 U.S.C. 1437f(c)(2)(A)) is amend2 ed—

3 (1) by striking ‘‘(2)(A)’’ and inserting

4 ‘‘(2)(A)(i)’’;

5 (2) by striking the second sentence and all that

6 follows through the end of the subparagraph; and

7 (3) by adding at the end the following new

8 clause:

9 ‘‘(ii) Each assistance contract under this section shall

10 provide that—

11 ‘‘(I) if the maximum monthly rent for a unit in

12 a new construction or substantial rehabilitation

13 project to be adjusted using an annual adjustment

14 factor exceeds 100 percent of the fair market rent for

15 an existing dwelling unit in the market area, the Sec16 retary shall adjust the rent using an operating costs

17 factor that increases the rent to reflect increases in

18 operating costs in the market area; and

19 ‘‘(II) if the owner of a unit in a project described

20 in subclause (I) demonstrates that the adjusted rent

21 determined under subclause (I) would not exceed the

22 rent for an unassisted unit of similar quality, type,

23 and age in the same market area, as determined by

24 the Secretary, the Secretary shall use the otherwise

25 applicable annual adjustment factor.’’.
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1 (b) RESTRAINT ON SECTION 8 RENT INCREASES.—

2 Section 8(c)(2)(A) of the United States Housing Act of 1937

3 (42 U.S.C. 1437f(c)(2)(A)), as amended by subsection (a)

4 of this section, is amended by adding at the end the follow5 ing new clause:

6 ‘‘(iii)(I) Subject to subclause (II), with respect to any

7 unit assisted under this section that is occupied by the same

8 family at the time of the most recent annual rental adjust9 ment, if the assistance contract provides for the adjustment

10 of the maximum monthly rent by applying an annual ad11 justment factor, and if the rent for the unit is otherwise

12 eligible for an adjustment based on the full amount of the

13 annual adjustment factor, 0.01 shall be subtracted from the

14 amount of the annual adjustment factor, except that the an15 nual adjustment factor shall not be reduced to less than 1.0.

16 ‘‘(II) With respect to any unit described in subclause

17 (I) that is assisted under the certificate program, the ad18 justed rent shall not exceed the rent for a comparable unas19 sisted unit of similar quality, type, and age in the market

20 area in which the unit is located.’’.

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

22 section shall be construed to have become effective on Octo23 ber 1, 1995.
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1 SEC. 623. FORECLOSURE AVOIDANCE AND BORROWER AS2 SISTANCE.

3 (a) EFFECTIVENESS AND APPLICABILITY.—Section

4 407 of The Balanced Budget Downpayment Act, I (Public

5 Law 104–99) is amended—

6 (1) in subsection (c)—

7 (A) by striking ‘‘Except as provided in sub8 section (e), the’’ and inserting ‘‘The’’; and

9 (B) by striking ‘‘only with respect to mort10 gages insured under the National Housing Act

11 that are originated before October 1, 1995’’ and

12 inserting ‘‘to all mortgages insured under the

13 National Housing Act’’; and

14 (2) by striking subsection (e).

15 (b) TECHNICAL AMENDMENT.—Section 230(d) of the

16 National Housing Act (12 U.S.C. 1715u(d)) is amended by

17 striking ‘‘the Departments’’ and all that follows through

18 ‘‘1996’’ and inserting ‘‘The Balanced Budget Downpayment

19 Act, I’’.

Attest:

Secretary.
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104TH CONGRESS

2D SESSION H. R. 3103

AMENDMENT