I

104TH CONGRESS

2D SESSION H. R. 3381

To amend the Internal Revenue Code of 1986 and the Social Security Act

to provide tax incentives for the purchase of long-term care insurance

and to establish consumer protection standards for such insurance.

IN THE HOUSE OF REPRESENTATIVES

MAY 1, 1996

Mr. DURBIN introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Commerce,

for a period to be subsequently determined by the Speaker, in each case

for consideration of such provisions as fall within the jurisdiction of the

committee concerned

A BILL

To amend the Internal Revenue Code of 1986 and the Social

Security Act to provide tax incentives for the purchase

of long-term care insurance and to establish consumer

protection standards for such insurance.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Long-Term Care In5 surance Incentives and Consumer Protection Act of

6 1996’’.
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1 TITLE I—TAX-RELATED

2 PROVISIONS

3 SEC. 100. AMENDMENT OF 1986 CODE.

4 Except as otherwise expressly provided, whenever in

5 this title an amendment or repeal is expressed in terms

6 of an amendment to, or repeal of, a section or other provi7 sion, the reference shall be considered to be made to a

8 section or other provision of the Internal Revenue Code

9 of 1986.

10 SEC. 101. TREATMENT OF LONG-TERM CARE INSURANCE.

11 (a) GENERAL RULE.—Chapter 79 (relating to defini12 tions) is amended by inserting after section 7702A the fol13 lowing new section:

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

15 INSURANCE.

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

17 ‘‘(1) a qualified long-term care insurance con18 tract shall be treated as an accident and health in19 surance contract,

20 ‘‘(2) amounts (other than policyholder divi21 dends, as defined in section 808, or premium re22 funds) received under a qualified long-term care in23 surance contract shall be treated as amounts re24 ceived for personal injuries and sickness and shall be

25 treated as reimbursement for expenses actually in-
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1 curred for medical care (as defined in section

2 213(d)),

3 ‘‘(3) any plan of an employer providing cov4 erage under a qualified long-term care insurance

5 contract shall be treated as an accident and health

6 plan with respect to such coverage,

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

8 amounts paid for a qualified long-term care insur9 ance contract providing the benefits described in

10 subsection (b)(2)(A) shall be treated as payments

11 made for insurance for purposes of section

12 213(d)(1)(D), and

13 ‘‘(5) a qualified long-term care insurance con14 tract shall be treated as a guaranteed renewable con15 tract subject to the rules of section 816(e).

16 ‘‘(b) QUALIFIED LONG-TERM CARE INSURANCE

17 CONTRACT.—For purposes of this title—

18 ‘‘(1) IN GENERAL.—The term ‘qualified long19 term care insurance contract’ means any insurance

20 contract if—

21 ‘‘(A) the only insurance protection pro22 vided under such contract is coverage of quali23 fied long-term care services,

24 ‘‘(B) such contract does not pay or reim25 burse expenses incurred for services or items to
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1 the extent that such expenses are reimbursable

2 under title XVIII of the Social Security Act or

3 would be so reimbursable but for the applica4 tion of a deductible or coinsurance amount,

5 ‘‘(C) such contract is guaranteed renew6 able,

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

8 cash surrender value or other money that can

9 be—

10 ‘‘(i) paid, assigned, or pledged as col11 lateral for a loan, or

12 ‘‘(ii) borrowed,

13 other than as provided in subparagraph (E) or

14 paragraph (2)(C),

15 ‘‘(E) all refunds of premiums, and all pol16 icyholder dividends or similar amounts, under

17 such contract are to be applied as a reduction

18 in future premiums or to increase future bene19 fits, and

20 ‘‘(F) the State in which such contract is is21 sued has a regulatory program approved by the

22 Secretary of Health and Human Services under

23 title XXI of the Social Security Act and such

24 contract is certified under such program.

25 ‘‘(2) SPECIAL RULES.—
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1 ‘‘(A) PER DIEM, ETC. PAYMENTS PER2 MITTED.—A contract shall not fail to be de3 scribed in subparagraph (A) or (B) of para4 graph (1) by reason of payments being made on

5 a per diem or other periodic basis without re6 gard to the expenses incurred during the period

7 to which the payments relate.

8 ‘‘(B) SPECIAL RULES RELATING TO MEDI9 CARE.—

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

11 to expenses which are reimbursable under

12 title XVIII of the Social Security Act only

13 as a secondary payor.

14 ‘‘(ii) No provision of law shall be con15 strued or applied so as to prohibit the of16 fering of a qualified long-term care insur17 ance contract on the basis that the con18 tract coordinates its benefits with those

19 provided under such title.

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

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

22 death of the insured, or on a complete surren23 der or cancellation of the contract, which can24 not exceed the aggregate premiums paid under

25 the contract. Any refund on a complete surren-
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1 der or cancellation of the contract shall be in2 cludible in gross income to the extent that any

3 deduction or exclusion was allowable with re4 spect to the premiums.

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

6 purposes of this section—

7 ‘‘(1) IN GENERAL.—The term ‘qualified long8 term care services’ means necessary diagnostic, pre9 ventive, therapeutic, curing, treating, mitigating, and

10 rehabilitative services, and maintenance or personal

11 care services, which—

12 ‘‘(A) are required by a chronically ill indi13 vidual, and

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

15 care prescribed by a licensed health care practi16 tioner.

17 ‘‘(2) CHRONICALLY ILL INDIVIDUAL.—

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

19 ill individual’ means any individual who has

20 been certified by a licensed health care practi21 tioner as—

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

23 substantial assistance from another indi24 vidual) at least 2 activities of daily living
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1 for a period of at least 90 days due to a

2 loss of functional capacity,

3 ‘‘(ii) having a level of disability simi4 lar (as determined by the Secretary in con5 sultation with the Secretary of Health and

6 Human Services) to the level of disability

7 described in clause (i), or

8 ‘‘(iii) requiring substantial supervision

9 to protect such individual from threats to

10 health and safety due to severe cognitive

11 impairment.

12 Such term shall not include any individual oth13 erwise meeting the requirements of the preced14 ing sentence unless within the preceding 12-

15 month period a licensed health care practitioner

16 has certified that such individual meets such re17 quirements.

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

19 purposes of subparagraph (A), each of the fol20 lowing is an activity of daily living:

21 ‘‘(i) Eating.

22 ‘‘(ii) Toileting.

23 ‘‘(iii) Transferring.

24 ‘‘(iv) Bathing.

25 ‘‘(v) Dressing.
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1 ‘‘(vi) Continence.

2 Nothing in this section shall be construed to re3 quire a contract to take into account all of the

4 preceding activities of daily living.

5 ‘‘(3) MAINTENANCE OR PERSONAL CARE SERV6 ICES.—The term ‘maintenance or personal care serv7 ices’ means any care the primary purpose of which

8 is the provision of needed assistance with any of the

9 disabilities as a result of which the individual is a

10 chronically ill individual (including the protection

11 from threats to health and safety due to severe cog12 nitive impairment).

13 ‘‘(4) LICENSED HEALTH CARE PRACTI14 TIONER.—The term ‘licensed health care practi15 tioner’ means any physician (as defined in section

16 1861(r)(1) of the Social Security Act) and any reg17 istered professional nurse, licensed social worker, or

18 other individual who meets such requirements as

19 may be prescribed by the Secretary.

20 ‘‘(d) AGGREGATE PAYMENTS IN EXCESS OF LIM21 ITS.—

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

23 periodic payments under all qualified long-term care

24 insurance contracts with respect to an insured for

25 any period exceeds the dollar amount in effect for
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1 such period under paragraph (3), such excess pay2 ments shall be treated as made for qualified long3 term care services only to the extent of the costs in4 curred by the payee (not otherwise compensated for

5 by insurance or otherwise) for qualified long-term

6 care services provided during such period for such

7 insured.

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

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

10 any payment (whether on a periodic basis or other11 wise) made without regard to the extent of the costs

12 incurred by the payee for qualified long-term care

13 services.

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

15 effect under this subsection shall be $175 per day

16 (or the equivalent amount in the case of payments

17 on another periodic basis).

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

19 a calendar year after 1997, the dollar amount con20 tained in paragraph (3) shall be increased at the

21 same time and in the same manner as amounts are

22 increased pursuant to section 213(d)(10).

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

24 OF A LIFE INSURANCE CONTRACT.—Except as otherwise

25 provided in regulations prescribed by the Secretary, in the
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1 case of any long-term care insurance coverage (whether

2 or not qualified) provided by a rider on a life insurance

3 contract—

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

5 if the portion of the contract providing such cov6 erage is a separate contract.

7 ‘‘(2) APPLICATION OF SECTION 7702.—Section

8 7702(c)(2) (relating to the guideline premium limi9 tation) shall be applied by increasing the guideline

10 premium limitation with respect to a life insurance

11 contract, as of any date—

12 ‘‘(A) by the sum of any charges (but not

13 premium payments) against the life insurance

14 contract’s cash surrender value (within the

15 meaning of section 7702(f)(2)(A)) for such cov16 erage made to that date under the contract, less

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

18 which reduces the premiums paid for the con19 tract (within the meaning of section

20 7702(f)(1)).

21 ‘‘(3) APPLICATION OF SECTION 213.—No deduc22 tion shall be allowed under section 213(a) for

23 charges against the life insurance contract’s cash

24 surrender value described in paragraph (2), unless

25 such charges are includible in income as a result of
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1 the application of section 72(e)(10) and the rider is

2 a qualified long-term care insurance contract under

3 subsection (b).

4 ‘‘(4) PORTION DEFINED.—For purposes of this

5 subsection, the term ‘portion’ means only the terms

6 and benefits under a life insurance contract that are

7 in addition to the terms and benefits under the con8 tract without regard to the coverage under a quali9 fied long-term care insurance contract.’’

10 (b) LONG-TERM CARE INSURANCE NOT PERMITTED

11 UNDER CAFETERIA PLANS OR FLEXIBLE SPENDING AR12 RANGEMENTS.—

13 (1) CAFETERIA PLANS.—Section 125(f) is

14 amended by adding at the end the following new

15 sentence: ‘‘Such term shall not include any product

16 which is advertised, marketed, or offered as long17 term care insurance.’’

18 (2) FLEXIBLE SPENDING ARRANGEMENTS.—

19 The text of section 106 (relating to contributions by

20 employer to accident and health plans) is amended

21 to read as follows:

22 ‘‘(a) GENERAL RULE.—Except as provided in sub23 section (b), gross income of an employee does not include

24 employer-provided coverage under an accident or health

25 plan.
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1 ‘‘(b) INCLUSION OF LONG-TERM CARE BENEFITS

2 PROVIDED THROUGH FLEXIBLE SPENDING ARRANGE3 MENTS.—

4 ‘‘(1) IN GENERAL.—Effective on and after Jan5 uary 1, 1997, gross income of an employee shall in6 clude employer-provided coverage for qualified long7 term care services (as defined in section 7702B(c))

8 to the extent that such coverage is provided through

9 a flexible spending or similar arrangement.

10 ‘‘(2) FLEXIBLE SPENDING ARRANGEMENT.—

11 For purposes of this subsection, a flexible spending

12 arrangement is a benefit program which provides

13 employees with coverage under which—

14 ‘‘(A) specified incurred expenses may be

15 reimbursed (subject to reimbursement maxi16 mums and other reasonable conditions), and

17 ‘‘(B) the maximum amount of reimburse18 ment which is reasonably available to a partici19 pant for such coverage is less than 500 percent

20 of the value of such coverage.

21 In the case of an insured plan, the maximum

22 amount reasonably available shall be determined on

23 the basis of the underlying coverage.’’
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1 (c) CONTINUATION COVERAGE EXCISE TAX NOT TO

2 APPLY.—Subsection (f) of section 4980B is amended by

3 adding at the end the following new paragraph:

4 ‘‘(9) CONTINUATION OF LONG-TERM CARE COV5 ERAGE NOT REQUIRED.—A group health plan shall

6 not be treated as failing to meet the requirements of

7 this subsection solely by reason of failing to provide

8 coverage under any qualified long-term care insur9 ance contract (as defined in section 7702B(b)).’’

10 (d) CLERICAL AMENDMENT.—The table of sections

11 for chapter 79 is amended by inserting after the item re12 lating to section 7702A the following new item:

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

13 (e) EFFECTIVE DATE.—

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

15 this section shall apply to contracts issued after De16 cember 31, 1996.

17 (2) CONTINUATION OF EXISTING POLICIES.—In

18 the case of any contract issued before January 1,

19 1997, which met the long-term care insurance re20 quirements of the State in which the contract was

21 sitused at the time the contract was issued—

22 (A) such contract shall be treated for pur23 poses of the Internal Revenue Code of 1986 as

24 a qualified long-term care insurance contract
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1 (as defined in section 7702B(b) of such Code),

2 and

3 (B) services provided under, or reimbursed

4 by, such contract shall be treated for such pur5 poses as qualified long-term care services (as

6 defined in section 7702B(c) of such Code).

7 (3) EXCHANGES OF EXISTING POLICIES.—If,

8 after the date of enactment of this Act and before

9 January 1, 1998, a contract providing for long-term

10 care insurance coverage is exchanged solely for a

11 qualified long-term care insurance contract (as de12 fined in section 7702B(b) of such Code), no gain or

13 loss shall be recognized on the exchange. If, in addi14 tion to a qualified long-term care insurance contract,

15 money or other property is received in the exchange,

16 then any gain shall be recognized to the extent of

17 the sum of the money and the fair market value of

18 the other property received. For purposes of this

19 paragraph, the cancellation of a contract providing

20 for long-term care insurance coverage and reinvest21 ment of the cancellation proceeds in a qualified long22 term care insurance contract within 60 days there23 after shall be treated as an exchange.

24 (4) ISSUANCE OF CERTAIN RIDERS PER25 MITTED.—For purposes of applying sections 101(f),
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1 7702, and 7702A of the Internal Revenue Code of

2 1986 to any contract—

3 (A) the issuance of a rider which is treated

4 as a qualified long-term care insurance contract

5 under section 7702B, and

6 (B) the addition of any provision required

7 to conform any other long-term care rider to be

8 so treated,

9 shall not be treated as a modification or material

10 change of such contract.

11 SEC. 102. QUALIFIED LONG-TERM CARE SERVICES TREAT12 ED AS MEDICAL CARE.

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

14 213(d) (defining medical care) is amended by striking

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

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

17 after subparagraph (B) the following new subparagraph:

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

19 (as defined in section 7702B(c)), or’’.

20 (b) DEDUCTION FOR PREMIUMS ALLOWED WITHOUT

21 REGARD TO ADJUSTED GROSS INCOME THRESHOLD.—

22 Subsection (a) of section 213 is amended to read as fol23 lows:
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1 ‘‘(a) ALLOWANCE OF DEDUCTION.—There shall be

2 allowed as a deduction the following amounts not com3 pensated for by insurance or otherwise—

4 ‘‘(1) the amount by which the expenses paid

5 during the taxable year (reduced by the amount de6 ductible under paragraph (2)) for medical care of

7 the taxpayer, his spouse, and dependents (as defined

8 in section 152) exceeds 7.5 percent of adjusted gross

9 income, and

10 ‘‘(2) the amount of the eligible long-term care

11 premiums paid during the taxable year.’’

12 (c) TECHNICAL AMENDMENTS.—

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

14 redesignated by subsection (a)) is amended by in15 serting before the period ‘‘or for any qualified long16 term care insurance contract (as defined in section

17 7702B(b))’’.

18 (2)(A) Paragraph (1) of section 213(d) is

19 amended by adding at the end the following new

20 flush sentence:

21 ‘‘In the case of a qualified long-term care insurance

22 contract (as defined in section 7702B(b)), only eligi23 ble long-term care premiums (as defined in para24 graph (10)) shall be taken into account under sub25 paragraph (D).’’
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1 (B) Subsection (d) of section 213 is amended

2 by adding at the end the following new paragraphs:

3 ‘‘(10) ELIGIBLE LONG-TERM CARE PRE4 MIUMS.—

5 ‘‘(A) IN GENERAL.—For purposes of this

6 section, the term ‘eligible long-term care pre7 miums’ means the amount paid during a tax8 able year for any qualified long-term care insur9 ance contract (as defined in section 7702B(b))

10 covering an individual, to the extent such

11 amount does not exceed the limitation deter12 mined under the following table:

‘‘In the case of an individual

with an attained age before the The limitation

close of the taxable year of: is:

40 or less ................................................... $ 200

More than 40 but not more than 50 ......... 375

More than 50 but not more than 60 ......... 750

More than 60 but not more than 70 ......... 2,000

More than 70 ............................................. 2,500.

13 ‘‘(B) INDEXING.—

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

15 taxable year beginning in a calendar year

16 after 1997, each dollar amount contained

17 in subparagraph (A) shall be increased by

18 the medical care cost adjustment of such

19 amount for such calendar year. If any in20 crease determined under the preceding sen21 tence is not a multiple of $10, such in-
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1 crease shall be rounded to the nearest mul2 tiple of $10.

3 ‘‘(ii) MEDICAL CARE COST ADJUST4 MENT.—For purposes of clause (i), the

5 medical care cost adjustment for any cal6 endar year is the percentage (if any) by

7 which—

8 ‘‘(I) the medical care component

9 of the Consumer Price Index (as de10 fined in section 1(f)(5)) for August of

11 the preceding calendar year, exceeds

12 ‘‘(II) such component for August

13 of 1996.

14 The Secretary shall, in consultation with

15 the Secretary of Health and Human Serv16 ices, prescribe an adjustment which the

17 Secretary determines is more appropriate

18 for purposes of this paragraph than the

19 adjustment described in the preceding sen20 tence, and the adjustment so prescribed

21 shall apply in lieu of the adjustment de22 scribed in the preceding sentence.

23 ‘‘(11) CERTAIN PAYMENTS TO RELATIVES

24 TREATED AS NOT PAID FOR MEDICAL CARE.—An

25 amount paid for a qualified long-term care service
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1 (as defined in section 7702B(c)) provided to an indi2 vidual shall be treated as not paid for medical care

3 if such service is provided—

4 ‘‘(A) by the spouse of the individual or by

5 a relative (directly or through a partnership,

6 corporation, or other entity) unless the service

7 is provided by a licensed professional with re8 spect to such service, or

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

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

11 or 707(b)) to the individual.

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

13 means an individual bearing a relationship to the in14 dividual which is described in any of paragraphs (1)

15 through (8) of section 152(a). This paragraph shall

16 not apply for purposes of section 105(b) with respect

17 to reimbursements through insurance.’’

18 (3) Paragraph (6) of section 213(d) is

19 amended—

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 (d) EFFECTIVE DATE.—

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

6 this section shall apply to taxable years beginning

7 after December 31, 1996.

8 (2) DEDUCTION FOR LONG-TERM CARE SERV9 ICES.—Amounts paid for qualified long-term care

10 services (as defined in section 7702B(c) of the Inter11 nal Revenue Code of 1986, as added by this Act)

12 furnished in any taxable year beginning before Janu13 ary 1, 1997, shall not be taken into account under

14 section 213 of the Internal Revenue Code of 1986.

15 SEC. 103. CERTAIN EXCHANGES OF LIFE INSURANCE CON16 TRACTS FOR QUALIFIED LONG-TERM CARE

17 INSURANCE CONTRACTS NOT TAXABLE.

18 (a) IN GENERAL.—Subsection (a) of section 1035

19 (relating to certain exchanges of insurance contracts) is

20 amended by striking the period at the end of paragraph

21 (3) and inserting ‘‘; or’’, and by adding at the end the

22 following new paragraph:

23 ‘‘(4) a contract of life insurance or an endow24 ment or annuity contract for a qualified long-term
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1 care insurance contract (as defined in section

2 7702B(b)).’’

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

4 this section shall apply to taxable years beginning after

5 December 31, 1996.

6 SEC. 104. EXCEPTION FROM PENALTY TAX FOR AMOUNTS

7 WITHDRAWN FROM CERTAIN RETIREMENT

8 PLANS FOR QUALIFIED LONG-TERM CARE IN9 SURANCE.

10 (a) IN GENERAL.—Paragraph (2) of section 72(t) is

11 amended by adding at the end the following new subpara12 graph:

13 ‘‘(F) PREMIUMS FOR QUALIFIED LONG14 TERM CARE INSURANCE CONTRACTS.—Distribu15 tions to an individual from an individual retire16 ment plan, or from amounts attributable to em17 ployer contributions made pursuant to elective

18 deferrals described in subparagraph (A) or (C)

19 of section 402(g)(3), to the extent such dis20 tributions do not exceed the premiums for a

21 qualified long-term care insurance contract (as

22 defined in section 7702B(b)) for such individual

23 or the spouse of such individual. In applying

24 subparagraph (B), such premiums shall be

25 treated as amounts not paid for medical care.’’
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1 (b) DISTRIBUTIONS PERMITTED FROM CERTAIN

2 PLANS TO PAY LONG-TERM CARE PREMIUMS.—

3 (1) Section 401(k)(2)(B)(i) is amended by

4 striking ‘‘or’’ at the end of subclause (III), by strik5 ing ‘‘and’’ at the end of subclause (IV) and inserting

6 ‘‘or’’, and by inserting after subclause (IV) the fol7 lowing new subclause:

8 ‘‘(V) the date distributions for

9 premiums for a long-term care insur10 ance contract (as defined in section

11 7702B(b)) for coverage of such indi12 vidual or the spouse of such individual

13 are made, and’’.

14 (2) Section 403(b)(11) is amended by striking

15 ‘‘or’’ at the end of subparagraph (A), by striking the

16 period at the end of subparagraph (B) and inserting

17 ‘‘, or’’, and by inserting after subparagraph (B) the

18 following new subparagraph:

19 ‘‘(C) for the payment of premiums for a

20 long-term care insurance contract (as defined in

21 section 7702B(b)) for coverage of the employee

22 or the spouse of the employee.’’

23 (3) Subparagraph (A) of section 457(d)(1) is

24 amended by striking ‘‘or’’ at the end of clause (ii),

25 by striking ‘‘and’’ at the end of clause (iii) and in-
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1 serting ‘‘or’’, and by inserting after clause (iii) the

2 following new clause:

3 ‘‘(iv) the date distributions for pre4 miums for a long-term care insurance con5 tract (as defined in section 7702B(b)) for

6 coverage of such individual or the spouse

7 of such individual are made, and’’.

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

9 this section shall apply to payments and distributions after

10 December 31, 1996.

11 SEC. 105. REPORTING REQUIREMENTS.

12 (a) IN GENERAL.—Subpart B of part III of sub13 chapter A of chapter 61 is amended by adding at the end

14 the following new section:

15 ‘‘SEC. 6050Q. CERTAIN LONG-TERM CARE BENEFITS.

16 ‘‘(a) REQUIREMENT OF REPORTING.—Any person

17 who pays long-term care benefits shall make a return, ac18 cording to the forms or regulations prescribed by the Sec19 retary, setting forth—

20 ‘‘(1) the aggregate amount of such benefits

21 paid by such person to any individual during any

22 calendar year, and

23 ‘‘(2) the name, address, and TIN of such indi24 vidual.
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1 ‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS

2 WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—

3 Every person required to make a return under subsection

4 (a) shall furnish to each individual whose name is required

5 to be set forth in such return a written statement show6 ing—

7 ‘‘(1) the name of the person making the pay8 ments, and

9 ‘‘(2) the aggregate amount of long-term care

10 benefits paid to the individual which are required to

11 be shown on such return.

12 The written statement required under the preceding sen13 tence shall be furnished to the individual on or before Jan14 uary 31 of the year following the calendar year for which

15 the return under subsection (a) was required to be made.

16 ‘‘(c) LONG-TERM CARE BENEFITS.—For purposes of

17 this section, the term ‘long-term care benefit’ means—

18 ‘‘(1) any amount paid under any product which

19 is advertised, marketed, or offered as long-term care

20 insurance, and

21 ‘‘(2) payments which are excludable from gross

22 income by reason of section 101(g).’’.

23 (b) PENALTIES.—

24 (1) Subparagraph (B) of section 6724(d)(1) is

25 amended by redesignating clauses (ix) through (xiv)
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1 as clauses (x) through (xv), respectively, and by in2 serting after clause (viii) the following new clause:

3 ‘‘(ix) section 6050Q (relating to cer4 tain long-term care benefits),’’.

5 (2) Paragraph (2) of section 6724(d) is amend6 ed by redesignating subparagraphs (Q) through (T)

7 as subparagraphs (R) through (U), respectively, and

8 by inserting after subparagraph (P) the following

9 new subparagraph:

10 ‘‘(Q) section 6050Q(b) (relating to certain

11 long-term care benefits),’’.

12 (c) CLERICAL AMENDMENT.—The table of sections

13 for subpart B of part III of subchapter A of chapter 61

14 is amended by adding at the end the following new item:

‘‘Sec. 6050Q. Certain long-term care benefits.’’

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

16 this section shall apply to benefits paid after December

17 31, 1996.
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1 TITLE II—FEDERAL STANDARDS

2 FOR PRIVATE LONG-TERM

3 CARE INSURANCE CON4 TRACTS

5 SEC. 201. FEDERAL STANDARDS FOR PRIVATE LONG-TERM

6 CARE INSURANCE CONTRACTS.

7 (a) IN GENERAL.—The Social Security Act is amend8 ed by adding at the end the following:

9 ‘‘TITLE XXI—FEDERAL STANDARDS FOR PRI10 VATE LONG-TERM CARE INSURANCE CON11 TRACTS

12 ‘‘SEC. 2101. REQUIREMENTS FOR STATE ENFORCEMENT

13 PROGRAMS.

14 ‘‘(a) IN GENERAL.—The Secretary shall review, ap15 prove, and periodically reapprove State programs that cer16 tify long-term care insurance contracts as meeting the

17 Federal standards established under this title. The Sec18 retary may not approve or reapprove such a program un19 less it meets the requirements of this section.

20 ‘‘(b) GENERAL REQUIREMENT.—In order to be ap21 proved, a State program must include such laws and pro22 cedures as may be necessary to ensure the compliance of

23 long-term care insurance contracts certified by the State,

24 and insurers issuing such contracts and their agents, with

25 the Federal requirements established under this title.
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1 ‘‘(c) SPECIFIC ACTIVITIES UNDER STATE PRO2 GRAM.—In order to be approved, a State program shall

3 provide for the following procedures and activities:

4 ‘‘(1) MONITORING OF INSURERS AND CON5 TRACTS.—Procedures for ongoing monitoring of the

6 compliance of insurers doing business in the State,

7 and of long-term care insurance contracts issued in

8 the State, with requirements under this title.

9 ‘‘(2) CONTRACT REVIEW AND CERTIFI10 CATION.—Procedures for review and certification

11 (and annual recertification) of each such contract

12 sold in the State.

13 ‘‘(3) CONSUMER COMPLAINTS AND DISPUTE

14 RESOLUTION.—Administrative procedures for the in15 vestigation and resolution of complaints by consum16 ers, and disputes between consumers and insurers,

17 with respect to long-term care insurance, including

18 procedures for the filing, investigation, and adjudica19 tion of consumer complaints with respect to the com20 pliance of insurers and contracts with requirements

21 under this title, or other requirements under State

22 law.
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1 ‘‘SEC. 2102. REQUIREMENTS TO FACILITATE UNDERSTAND2 ING AND COMPARISON OF BENEFITS.

3 ‘‘(a) IN GENERAL.—The Secretary, in consultation

4 with the National Association of Insurance Commissioners

5 (in this title referred to as the ‘NAIC’), shall promulgate

6 regulations designed to standardize formats and terminol7 ogy used in long-term care insurance contracts, to require

8 insurers to provide to customers and beneficiaries infor9 mation on the range of public and private long-term care

10 coverage available, and to establish such other require11 ments as may be appropriate to promote consumer under12 standing and facilitate comparison of benefits, which shall

13 include at a minimum the requirements specified in this

14 section.

15 ‘‘(b) UNIFORM TERMS, DEFINITIONS, AND FOR16 MATS.—Insurers shall be required to use, in long-term

17 care insurance contracts, uniform terminology, definitions

18 of terms, and formats, in accordance with regulations pro19 mulgated by the Secretary.

20 ‘‘(c) STANDARD OUTLINE OF COVERAGE.—

21 ‘‘(1) IN GENERAL.—Insurers shall be required

22 to develop for each long-term care insurance con23 tract offered or sold, to include as a part of each

24 such contract, and to make available to each poten25 tial purchaser and furnish to each insured individual
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1 and contractholder, an outline of coverage under

2 such contract that—

3 ‘‘(A) includes the elements specified in

4 paragraph (2),

5 ‘‘(B) is in a uniform format,

6 ‘‘(C) accurately and clearly reflects the

7 contents of the contract, and

8 ‘‘(D) is updated periodically on such time9 table as may be required by the Secretary (or

10 more frequently as necessary to reflect signifi11 cant changes in outlined information).

12 ‘‘(2) CONTENTS OF OUTLINE.—The outline of

13 coverage for each long-term care insurance contract

14 shall include at least the following:

15 ‘‘(A) BENEFITS.—A description of—

16 ‘‘(i) the principal benefits covered, in17 cluding the extent of—

18 ‘‘(I) benefits for services fur19 nished in residential care facilities,

20 and

21 ‘‘(II) other benefits,

22 ‘‘(ii) the principal exclusions from and

23 limitations on coverage,
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1 ‘‘(iii) the terms and conditions, if any,

2 upon which the insured individual may ob3 tain upgraded benefits, and

4 ‘‘(iv) the threshold conditions for enti5 tlement to receive benefits.

6 ‘‘(B) CANCELLATION.—A statement of the

7 circumstances in which a contract may be ter8 minated, and the refund or nonforfeitures bene9 fits (if any) applicable in each such cir10 cumstance, including—

11 ‘‘(i) death of the insured individual,

12 ‘‘(ii) nonpayment of premiums,

13 ‘‘(iii) election by the insured individ14 ual not to renew,

15 ‘‘(iv) any other circumstance.

16 ‘‘(C) PREMIUM.—A statement of—

17 ‘‘(i) the total annual premium, and

18 the portion of such premium attributable

19 to each covered benefit,

20 ‘‘(ii) any reservation by the insurer of

21 a right to change premiums,

22 ‘‘(iii) any limit on annual premium in23 creases,

24 ‘‘(iv) any expected premium increases

25 associated with automatic or optional bene-
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1 fit increases (including inflation protec2 tion), and

3 ‘‘(v) any circumstances under which

4 payment of premium is waived.

5 ‘‘(D) COST/VALUE COMPARISON.—

6 ‘‘(i) Information on average costs

7 (and variation in such costs) for nursing

8 facility care (and such other care as the

9 Secretary may specify) in the United

10 States, information on the value of benefits

11 relative to such costs, and a statement that

12 this national average varies by geographic

13 region.

14 ‘‘(ii) A comparison of benefits, over a

15 period of at least 20 years, for contracts

16 with and without inflation protection.

17 ‘‘(iii) A declaration as to whether the

18 amount of benefits will increase over time,

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

20 amount of, any limitations on, and any

21 premium increases for, such benefit in22 creases.

23 ‘‘SEC. 2103. LIMITING CONDITIONS ON BENEFITS.

24 ‘‘(a) IN GENERAL.—A long-term care insurance con25 tract may not—
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1 ‘‘(1) condition eligibility for benefits for a type

2 of service on the need for or receipt of any other

3 type of service (such as prior hospitalization or insti4 tutionalization, or a higher level of care than the

5 care for which benefits are covered);

6 ‘‘(2) condition eligibility for any benefit (where

7 the need for such benefit has been established by an

8 independent assessment of impairment) on any par9 ticular medical diagnosis (including any acute condi10 tion) or on one of a group of diagnoses;

11 ‘‘(3) condition eligibility for benefits furnished

12 by licensed or certified providers on compliance by

13 such providers with conditions not required under

14 Federal or State law; or

15 ‘‘(4) condition coverage of any service on provi16 sion of such service by a provider, or in a setting,

17 providing a higher level of care than that required

18 by an insured individual.

19 ‘‘(b) HOME CARE OR COMMUNITY-BASED SERV20 ICES.—A long-term care insurance contract that provides

21 benefits for any home care or community-based services

22 provided in a setting other than a residential care facil23 ity—
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1 ‘‘(1) may not limit such benefits to services pro2 vided by registered nurses or licensed practical

3 nurses;

4 ‘‘(2) may not limit such benefits to services fur5 nished by persons or entities participating in pro6 grams under titles XVIII and XIX of this Act; and

7 ‘‘(3) must provide, at a minimum, benefits for

8 personal assistance with activities of daily living,

9 home health care, adult day care, and respite care.

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

11 care insurance contract that provides benefits for any

12 nursing facility services—

13 ‘‘(1) must provide benefits for such services

14 provided by all types of nursing facilities licensed by

15 the State, and

16 ‘‘(2) may provide benefits for care in other resi17 dential facilities.

18 ‘‘(d) PROHIBITION ON DISCRIMINATION BY DIAG19 NOSIS.—A long-term care insurance contract may not pro20 vide for treatment of—

21 ‘‘(1) Alzheimer’s disease or any other progres22 sive degenerative dementia of an organic origin,

23 ‘‘(2) any organic or inorganic mental illness,

24 ‘‘(3) mental retardation or any other cognitive

25 or mental impairment, or
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1 ‘‘(4) HIV infection or AIDS,

2 different from the treatment of any other medical

3 condition for purposes of determining whether

4 threshold conditions for the receipt of benefits have

5 been met, or the amount of benefits under the con6 tract.

7 ‘‘SEC. 2104. INFLATION PROTECTION.

8 ‘‘(a) IN GENERAL.—The Secretary, after consulta9 tion with NAIC, shall promulgate regulations establishing

10 requirements with respect to inflation protection, which

11 shall include at a minimum the requirements specified in

12 this section.

13 ‘‘(b) REQUIREMENT TO OFFER.—An insurer offering

14 for sale any long-term care insurance contract shall be re15 quired to afford the purchaser the option to obtain cov16 erage under such contract (upon payment of increased

17 premiums) of annual increases in benefits at rates in ac18 cordance with subsection (c).

19 ‘‘(c) RATE INCREASE IN BENEFITS.—For purposes

20 of subsection (b), the benefits under a contract for each

21 year shall be increased by a percentage of the full value

22 of benefits under the contract for the previous year, which

23 shall be not less than 5 percent of such value (or such

24 other rate of increase as may be determined by the Sec25 retary to be adequate to offset increases in the costs of
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1 long-term care services for which coverage is provided

2 under the contract).

3 ‘‘(d) REQUIREMENT OF WRITTEN REJECTION.—In4 flation protection in accordance with subsection (b) may

5 be excluded from the coverage under a contract only if

6 the insured individual (or, if different, the person respon7 sible for payment of premiums) has rejected in writing the

8 option to obtain such coverage.

9 ‘‘SEC. 2105. NONFORFEITURE BENEFITS.

10 ‘‘(a) IN GENERAL.—The Secretary, after consulta11 tion with NAIC, shall promulgate regulations establishing

12 requirements with respect to nonforfeiture benefits, which

13 shall include at a minimum the requirements specified in

14 this section.

15 ‘‘(b) REQUIREMENT.—Each long-term care insurance

16 contract that lapses for any reason (including nonpayment

17 of premiums, cancellation, or failure to renew, but exclud18 ing lapses due to death) after remaining in effect beyond

19 a specified minimum period shall provide for appropriate

20 nonforfeiture benefits.

21 ‘‘(c) NONFORFEITURE BENEFITS.—The standards

22 established under this section shall require that the

23 amount or percentage of nonforfeiture benefits shall in24 crease proportionally with the amount of premiums paid

25 by a contractholder.
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1 ‘‘SEC. 2106. CONTINUATION, RENEWAL, REPLACEMENT,

2 CONVERSION, AND CANCELLATION OF CON3 TRACTS.

4 ‘‘(a) IN GENERAL.—The Secretary, in consultation

5 with NAIC, shall promulgate regulations establishing re6 quirements applicable to the renewal, replacement, conver7 sion, and cancellation of long-term care insurance con8 tracts, which shall include at a minimum the requirements

9 specified in this section.

10 ‘‘(b) INSURED’S RIGHT TO CANCEL DURING EXAM11 INATION PERIOD.—Each individual insured (or, if dif12 ferent, each individual liable for payment of premiums)

13 under a long-term care insurance contract shall have the

14 unconditional right to return the contract within 30 days

15 after the date of its issuance and delivery, and to obtain

16 a full refund of any premium paid.

17 ‘‘(c) CONTINUATION, RENEWAL, REPLACEMENT, AND

18 CONVERSION OF CONTRACTS.—

19 ‘‘(1) IN GENERAL.—Insurers shall not be per20 mitted to cancel, or refuse to renew (or replace with

21 a substantial equivalent), any long-term care insur22 ance contract for any reason other than for fraud or

23 material misrepresentation or for nonpayment of

24 premium.

25 ‘‘(2) CONTINUATION AND CONVERSION RIGHTS

26 WITH RESPECT TO GROUP CONTRACTS.—
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1 ‘‘(A) IN GENERAL.—Insurers shall be re2 quired to include in each group long-term care

3 insurance contract, a provision affording to

4 each insured individual, when such contract

5 would otherwise terminate, the opportunity (at

6 the insurer’s option, subject to approval of the

7 State insurance commissioner) either to con8 tinue or to convert coverage under such con9 tract in accordance with this paragraph.

10 ‘‘(B) RIGHTS OF RELATED INDIVIDUALS.—

11 In the case of any insured individual whose eli12 gibility for coverage under a group contract is

13 based on relationship to another individual, the

14 insurer shall be required to continue such cov15 erage upon termination of the relationship due

16 to divorce or death.

17 ‘‘(C) CONTINUATION OF COVERAGE.—A

18 group contract shall be considered to meet the

19 requirements of this paragraph with respect to

20 rights of an insured individual to continuation

21 of coverage if coverage of the same (or substan22 tially equivalent) benefits for such individual

23 under such contract is maintained, subject only

24 to timely payment of premiums.
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1 ‘‘(D) CONVERSION OF COVERAGE.—A

2 group contract shall be considered to meet the

3 requirements of this paragraph with respect to

4 conversion if it entitles each individual who has

5 been continuously covered under the contract

6 for at least 6 months before the date of the ter7 mination to issuance of a replacement contract

8 providing benefits identical to, substantially

9 equivalent to, or in excess of, the benefits under

10 such terminated group contract—

11 ‘‘(i) without requiring evidence of in12 surability with respect to benefits covered

13 under such previous contract, and

14 ‘‘(ii) at premium rates no higher than

15 would apply if the insured individual had

16 initially obtained coverage under such re17 placement contract on the date such in18 sured individual initially obtained coverage

19 under such group contract.

20 ‘‘SEC. 2107. DEFINITIONS.

21 ‘‘For purposes of this title:

22 ‘‘(1) ACTIVITY OF DAILY LIVING.—The term

23 ‘activity of daily living’ means any of the following:

24 eating, toileting, dressing, bathing, transferring, and

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

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

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

6 group setting outside the home.

7 ‘‘(3) CONTRACTHOLDER.—The term ‘contract8 holder’ means the entity which is the holder of

9 record of a group long-term care insurance contract.

10 ‘‘(4) HOME HEALTH CARE.—The term ‘home

11 health care’ means medical and nonmedical services

12 including such services as homemaker services, as13 sistance with activities of daily living, and respite

14 care provided to individuals in their residences.

15 ‘‘(5) INSURED INDIVIDUAL.—The term ‘insured

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

17 insurance contract, any individual who has coverage

18 of benefits under such contract.

19 ‘‘(6) INSURER.—The term ‘insurer’ means any

20 person that offers or sells an individual or group

21 long-term care insurance contract under which such

22 person is at risk for all or part of the cost of bene23 fits under the contract, and includes any agent of

24 such person.
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1 ‘‘(7) LONG-TERM CARE INSURANCE CON2 TRACT.—The term ‘long-term care insurance con3 tract’ has the meaning given such term in section

4 7702B(b) of the Internal Revenue Code of 1986

5 (without regard to paragraph (1)(F) of such sec6 tion).

7 ‘‘(8) NURSING FACILITY.—The term ‘nursing

8 facility’ means a facility licensed by the State to pro9 vide to residents—

10 ‘‘(A) skilled nursing care and related serv11 ices for residents who require medical or nurs12 ing care;

13 ‘‘(B) rehabilitation services for the reha14 bilitation of injured, disabled, or sick individ15 uals, or

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

17 and services to individuals who because of their

18 mental or physical condition require care and

19 services (above the level of room and board)

20 which can be made available to them only

21 through institutional facilities.

22 ‘‘(9) RESIDENTIAL CARE FACILITY.—The term

23 ‘residential care facility’ means a facility (including

24 a nursing facility) that—
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1 ‘‘(A) provides to residents medical or per2 sonal care services (including at a minimum as3 sistance with activities of daily living) in a set4 ting other than an individual or single-family

5 home, and

6 ‘‘(B) does not provide services of a higher

7 level than can be provided by a nursing facility.

8 ‘‘(10) RESPITE CARE.—The term ‘respite care’

9 means the temporary provision of care (including as10 sistance with activities of daily living) to an individ11 ual, in the individual’s home or another setting in

12 the community, for the purpose of affording such in13 dividual’s unpaid caregiver a respite from the re14 sponsibilities of such care.

15 ‘‘(11) STATE INSURANCE COMMISSIONER.—The

16 term ‘State insurance commissioner’ means the

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

18 jurisdiction where such title is not used, the State

19 official with primary responsibility for the regulation

20 of insurance.’’.

21 (b) DEFINITION OF STATE.—Section 1101(a)(1) of

22 the Social Security Act (42 U.S.C. 1301(a)(1)) is amend23 ed by adding at the end ‘‘Such term when used in title
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1 XXI includes only the several States and the District of

2 Columbia.’’.

Æ