```

[Senate Report 107-128]
[From the U.S. Government Publishing Office]

107th Congress 
 1st Session                     SENATE                          Report
                                                                107-128
_______________________________________________________________________

                                     

 
   AMENDING CHAPTER 90 OF TITLE 5, UNITED STATES CODE, RELATING TO 
                   FEDERAL LONG-TERM CARE INSURANCE

                               __________

                              R E P O R T

                                 of the

                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                              to accompany

                               H.R. 2559

TO AMEND CHAPTER 90 OF TITLE 5, UNITED STATES CODE, RELATING TO FEDERAL 
                        LONG-TERM CARE INSURANCE

               December 18, 2001.--Ordered to be printed
                   COMMITTEE ON GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 FRED THOMPSON, Tennessee
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
RICHARD J. DURBIN, Illinois          SUSAN M. COLLINS, Maine
ROBERT G. TORRICELLI, New Jersey     GEORGE V. VOINOVICH, Ohio
MAX CLELAND, Georgia                 PETE V. DOMENICI, New Mexico
THOMAS R. CARPER, Delaware           THAD COCHRAN, Mississippi
JEAN CARNAHAN, Missouri              ROBERT F. BENNETT, Utah
MARK DAYTON, Minnesota               JIM BUNNING, Kentucky
           Joyce A. Rechtschaffen, Staff Director and Counsel
                       Lawrence B. Novey, Counsel
   Nanci E. Langley, Deputy Staff Director, International Security, 
            Proliferation and Federal Services Subcommittee
         Hannah S. Sistare, Minority Staff Director and Counsel
           Alison E. Bean, Minority Professional Staff Member
  Brooke L. Brewer, Minority Detailee, Office of Personel Management, 
International Security, Proliferation and Federal Services Subcommittee
                     Darla D. Cassell, Chief Clerk
                            C O N T E N T S

                                                                   Page
  I. Purpose and Summary..............................................1
 II. Background and Need for the Legislation..........................1
III. Section-by-Section Analysis......................................3
 IV.  Legislative History.............................................3
  V. Regulatory Impact Statement......................................4
 VI. Congressional Budget Office Cost Estimate........................4
VII. Changes in Existing Law..........................................6
107th Congress                                                   Report
                                 SENATE
 1st Session                                                    107-128

======================================================================

AMENDING CHAPTER 90 OF TITLE 5, UNITED STATES CODE, RELATING TO FEDERAL 
                        LONG-TERM CARE INSURANCE

                                _______
                                

               December 18, 2001.--Ordered to be printed

                                _______
                                

 Mr. Lieberman, from the Committee on Governmental Affairs, submitted 
                             the following

                              R E P O R T

                        [To accompany H.R. 2559]

    The Committee on Governmental Affairs, to which was 
referred the bill (H.R. 2559) to amend chapter 90 of title 5, 
United States Code, relating to Federal long-term care 
insurance, having considered the same, reports favorably 
thereon without amendment and recommends that the bill do pass.

                         I. Purpose and Summary

    The Long-Term Care Security Act (LTCSA) (Public Law 106-
265) establishes a program under which qualified Federal 
personnel (including postal and other civilian employees and 
military personnel), retirees receiving an annuity, and certain 
family members may purchase long-term care insurance from one 
or more private insurance carriers. While the legislation 
contained broad preemption language, it did not explicitly 
prohibit States and localities from taxing LTCSA insurance 
premiums. H.R. 2559 makes the LTCSA more consistent with 
analogous programs under which insurance is offered to federal 
employees, and makes enrollment in the LTCSA program more 
affordable to potential enrollees, by amending the LTCSA to 
exempt premiums under the program from State and local taxes. 
The bill also expands coverage to include retired government 
personnel who are not yet receiving annuity payments but are 
entitled to a deferred annuity under Federal retirement 
programs.

              II. Background and Need for the Legislation

                   A. The Long-Term Care Security Act

    Bills to provide a long-term care insurance benefit for 
federal employees were introduced in both Houses of Congress in 
the 106th Congress. In the Senate, the Governmental Affairs 
Committee ordered such legislation, S. 2420, reported on June 
14, 2000.\1\ The Senate incorporated the language of the 
Committee bill into the companion House bill, H.R. 4040, and 
passed the House bill, which, as amended by the Senate, then 
passed the House with further amendment and again passed the 
Senate. The LTCSA was signed into law on September 19, 2000, as 
title I of Public Law 106-265, adding a new chapter 90 to title 
5, United States Code (5 U.S.C. Sec. Sec. 9001-9009).
---------------------------------------------------------------------------
    \1\ The Committee included in the legislation the provisions of the 
Federal Retirement Coverage Corrections Act, which provides for the 
correction of certain retirement coverage errors affecting federal 
employees.
---------------------------------------------------------------------------
    The LTCSA requires the Office of Personnel Management (OPM) 
to establish and administer a program under which federal 
civilian (including postal) employees, military personnel and 
other members of the uniformed services, civilian and uniformed 
retirees receiving an annuity, and certain relatives will be 
able to purchase long-term care insurance at full cost to the 
policyholder. OPM will contract with one or more carriers to 
provide the insurance. ``Long-term care'' refers to a broad 
range of supportive, medical, personal, and social services 
designed for individuals who are limited in their ability to 
function independently on a daily basis. Long-term care needs 
may arise at any time due to an injury, chronic illness, or the 
effects of the natural aging process. Long-term care services 
can be provided in a nursing home, an assisted living facility, 
the community or in the home.
    Competition among carriers for the opportunity to offer 
long-term care insurance under this program, together with OPM 
oversight, should result in affordable premiums and attractive 
benefit packages. OPM estimates that the program will reduce 
the cost of long-term care insurance premiums for covered 
employees by up to 20 percent. According to OPM, about 20 
million people will be eligible for coverage under the LTCSA 
and from 300,000 to 600,000 civilian and military personnel and 
other eligible individuals will enroll in the program.

                              B. H.R. 2559

    The LTCSA contains broad Federal preemption language, under 
which the terms of any contract under the Act will supersede 
and preempt any State or local law or regulation. 5 U.S.C. 
Sec. 9005. This provision does not explicitly prohibit States 
and localities from taxing LTCSA insurance premiums. However, 
analogous programs under which insurance is offered to federal 
employees--the Federal Employees Health Benefits Program 
(FEHBP) and the Federal Employees Group Life Insurance Program 
(FEGLI)--do specifically prohibit the imposition ofState and 
local premium taxes. 5 U.S.C. Sec. Sec. 8714(c), 8909(f). Under the 
LTCSA, as under these other insurance programs for federal employees, 
OPM assumes the consumer-protection responsibility of regulating and 
overseeing the insurance product, which would ordinarily be the 
responsibility of State insurance regulators. H.R. 2559 remedies this 
inconsistency in the LTCSA by adding a provision, which tracks the 
provisions in FEHBP and FEGLI, to exempt premiums from State and local 
taxes.
    OPM estimates that, unless H.R. 2559 is enacted, State and 
local premium taxes would add up to three percent to the cost 
of enrollment in the LTCSA program. This added cost would arise 
from both the direct cost of taxes and the administrative cost 
of complying with tax laws that vary from jurisdiction to 
jurisdiction across the country.
    The LTCSA will not be fully implemented until late 2002. 
Final long-term care insurance proposals were submitted on 
October 15, 2001. Submitted proposals reflected the assumption 
that premiums would not be exempt from State and local taxes. 
OPM announced the selection of the winning proposal on December 
18, 2001. The open season for enrollment will be late summer or 
early fall of 2002. Prompt passage of H.R. 2559 will help 
ensure that LTCSA premiums will reflect the reduced 
administrative costs that exemption from State and local tax 
collection would place on the carriers that OPM selected.
    H.R. 2559 would also extend coverage to Federal employees 
who have left government service but are entitled to receive a 
deferred annuity under existing Federal retirement programs 
such as the Civil Service Retirement System (CSRS) or the 
Federal Employees Retirement System (FERS). The LTCSA now 
covers federal employees, members of the uniformed services, 
and former federal personnel receiving retirement benefits. 
However, deferred annuitants--individuals who leave federal 
service before they are entitled to an immediate annuity, but 
who have worked long enough to be entitled to an annuity at a 
later date--are not covered by the Act. H.R. 2559 would fill 
this gap in coverage by extending the Act to allow deferred 
annuitants to participate in the program.

                    III. Section-by-Section Analysis

    Section 1. This section amends 5 U.S.C. 9001(2) to allow 
all individuals over the age of 18 who are entitled to an 
annuity under the Civil Service Retirement System, the Federal 
Employees Retirement System, or any other retirement system for 
Federal employees to apply for group long-term care insurance 
through the program established in the LTCSA. The Act now only 
applies to retirees entitled to an immediate annuity, so the 
bill would make individuals entitled to a deferred annuity (or 
a survivor annuity based upon a deferred annuity) eligible to 
participate.
    Section 2. This section amends 5 U.S.C. 9005 to exempt 
long-term care insurance policies issued through this program 
from premium taxes imposed by States, local governments, or the 
Commonwealth of Puerto Rico.
    Section 3. This section makes these revisions effective 
retroactively as if included in the enactment of the LTCSA.

                        IV. Legislative History

    H.R. 2559 was introduced by Rep. Scarborough on July 18, 
2001. The bill was referred to the Committee on Government 
Reform, the Committee on the Judiciary, and the Committee on 
Resources. No hearings were held. The Committees on Government 
Reform and the Judiciary each ordered the bill reported by 
voice vote. Under a suspension of the rules, the House of 
Representatives passed H.R. 2559 on October 30, 2001 by a vote 
of 406 to 1.
    In the Senate, the bill was referred to the Committee on 
Governmental Affairs on October 31, 2001, and then to the 
Subcommittee on International Security, Proliferation, and 
Federal Services on the same day. No hearings were held. The 
Subcommittee voted by polling letter in favor of the bill and 
reported it back to the full Committee. On November 14, 2001, 
the Committee ordered the bill reported favorably by voice vote 
with no member present dissenting. Committee Members present 
were Senators Akaka, Durbin, Cleland, Carper, Carnahan, 
Thompson, Voinovich, Cochran, Bunning, and Lieberman.

                     V. Regulatory Impact Statement

    Paragraph 11(b)(1) of rule XXVI of the Standing Rules of 
the Senate requires that each report accompanying a bill 
evaluate the ``regulatory impact which would be incurred in 
carrying out this bill.'' The Committee has determined that the 
enactment of this legislation will not have significant 
regulatory impact. The cost estimate supplied by the 
Congressional Budget Office cost estimate, set forth below, 
describes that the preemption of State and local taxes under 
the bill is an intergovernmental mandate within the meaning of 
the Unfunded Mandates Reform Act.

             VI. Congressional Budget Office Cost Estimate

H.R. 2559--An act to amend chapter 90 of title 5, United States Code, 
        relating to federal long-term care insurance

    Summary: H.R. 2559 would expand eligibility for long-term 
care insurance authorized under the Long-Term Care Security Act 
(Public Law 106-265) to persons who had deferred their 
eligibility for a federal retirement annuity and who, under 
current law, would not be able to participate when the 
enrollment period opens in 2003. CBO estimates that enactment 
of H.R. 2559 would not have a significant effect on federal 
spending. Because the act would affect direct spending, pay-as-
you-go procedures would apply.
    H.R. 2559 would also prohibit state premium taxes on long-
term care insurance offered to federal employees, members of 
the uniformed services, civilian and military retirees, and a 
number of their relatives. This preemption would be an 
intergovernmental mandate as defined in the Unfunded Mandates 
Reform Act (UMRA). CBO estimates that states would lose 
revenues totaling about $8 million annually beginning in 2003; 
thus, the threshold established in UMRA ($56 million in 2001, 
adjusted annually for inflation) would not be exceeded. The act 
contains no private-sector mandates as defined in UMRA.
    Estimated Cost to the Federal Government: Under current 
law, federal retirees who are receiving an annuity will be able 
to participate in the long-term care insurance program for 
federal employees, but retirees deferring their annuity will 
not be eligible. H.R. 2559 would allow this group to 
participate. CBO estimates that about 2,000 annuitants would be 
newly eligible for the long-term care insurance program for 
federal employees because of H.R. 2559, but that only a portion 
would purchase coverage through the federal program. Because 
the federal government does not contribute to enrollees' 
premiums, and the insurer or insurers would be required to 
reimburse the Office of Personnel Management (OPM) for its 
expenses in setting up and administering the plan, net federal 
outlays would be zero over the long run.
    The expenses that OPM would incur before collecting 
premiums from enrollees and reimbursement from the insurers 
would be funded by outlays from the federal government's 
Employees' Life Insurance Fund. H.R. 2559 would not affect the 
administrative costs of designing the plan and negotiating 
contracts with insurers. However, the federal government would 
incur additional costs to inform the additional annuitants of 
their eligibility (which would primarily consist of postage and 
printing additional brochures about plan choices) and the costs 
incurred by OPM in registering those who choose to participate. 
CBO estimates that these additional costs would total less than 
$500,000 in fiscal year 2002. The costs of this legislation 
fall within budget function 600 (income security).
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. Although 
the additional outlays from the Employees' Life Insurance Fund 
would be direct spending, CBO estimates that they would total 
less than $500,000.
    Estimated impact on state, local, and tribal governments: 
The Long-Term Care Security Act authorized a program through 
the Office of Personnel Management to offer long-term care 
insurance to federal employees, members of the uniformed 
services, civilian and military retirees, and a number of their 
relatives. That law preempted state laws requiring certain 
levels of coverage or benefit requirements that would have 
applied to long-term care insurance offered under the program. 
This act would extend the preemption to cover insurance premium 
taxes, prohibiting states from collecting tax revenues that 
otherwise would apply to the policies. This preemption would be 
an intergovernmental mandate as defined in UMRA. CBO estimates 
that states would lose revenues totaling about $8 million 
annually beginning in 2003; thus, the threshold established in 
UMRA ($56 million in 2001, adjusted annually for inflation) 
would not be exceeded.
    Almost all states levy taxes on health care premiums, and 
in most cases those taxes also would apply to policies 
providing coverage for long-term care. Premium tax rates on 
health insurance generally range from less than 1 percent to 
about 2.75 percent, with a large number at about 2 percent. CBO 
estimates that about 220,000 employees and retirees would 
takeadvantage of the new long-term care insurance and that about half 
of those individuals would have at least one eligible relative who also 
would purchase the insurance. Assuming an average premium of about 
$1,300 annually for such insurance, CBO estimates that states would 
lose about $8 million annually in revenues from the preemption of their 
premium taxes.
    Estimated impact on the private sector: CBO estimates that 
the act would have no private-sector mandates as defined in 
UMRA.
    Previous CBO estimate: On October 9, 2001, CBO provided an 
identical estimate for the versions of this bill that were 
ordered reported by the House Committee on the Judiciary and 
the House Committee on Government Reform.
    Estimate prepared by: Federal costs: Charles L. Betley; 
Impact on state, local, and tribal governments: Leo Lex; impact 
on the private sector: Stuart Hagen.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis.

                      VII. Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
H.R. 2336, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in brackets, new matter is 
printed in italic, existing law in which no change is proposed 
is shown in roman):

                           UNITED STATES CODE

TITLE 5--GOVERNMENT ORGANIZATION AND EMPLOYEES

           *       *       *       *       *       *       *

PART III--EMPLOYEES

           *       *       *       *       *       *       *

Subpart G--Insurance and Annuities

           *       *       *       *       *       *       *

CHAPTER 90--LONG-TERM CARE INSURANCE

           *       *       *       *       *       *       *

Sec. 9001. Definitions

    For purposes of this chapter:
          (1) * * *
          [(2) Annuitant.--The term ``annuitant'' has the 
        meaning such term would have under paragraph (3) of 
        section 8901 if, for purposes of such paragraph, the 
        term ``employee'' were considered to have the meaning 
        given to it under paragraph (1) of this subsection.]
          (2) Annuitant.--The term ``annuitant'' means--
                  (A) any individual who would satisfy the 
                requirements of paragraph (3) of section 8901 
                if, for purposes of such paragraph, the term 
                ``employee'' were considered to have the 
                meaning given to it under paragraph (1) of this 
                subsection; and
                  (B) any individual who--
                          (i) satisfies all requirements for 
                        title to an annuity under subchapter 
                        III of chapter 83, chapter 84, or any 
                        other retirement system for employees 
                        of the Government (whether based on the 
                        service of such individual or 
                        otherwise), and files application 
                        therefor;
                          (ii) is at least 18 years of age; and
                          (iii) would not (but for this 
                        subparagraph) otherwise satisfy the 
                        requirements of this paragraph.

           *       *       *       *       *       *       *

Sec. 9005. Preemption

    (a) Contractual Provisions.--The terms of any contract 
under this chapter which relate to the nature, provision, or 
extent of coverage or benefits (including payments with respect 
to benefits) shall supersede and preempt any State or local 
law, or any regulation issued thereunder, which relates to 
long-term care insurance or contracts.
    (b) Premiums.--
          (1) In general.--No tax, fee, or other monetary 
        payment may be imposed or collected, directly or 
        indirectly, by any State, the District of Columbia, or 
        the Commonwealth of Puerto Rico, or by any political 
        subdivision or other governmental authority thereof, 
        on, or with respect to, any premium paid for an 
        insurance policy under this chapter.
          (2) Rule of construction.--Paragraph (1) shall not be 
        construed to exempt any company or other entity issuing 
        a policy of insurance under this chapter from the 
        imposition, payment, or collection of a tax, fee, or 
        other monetary payment on the net income or profit 
        accruing to or realized by such entity from business 
        conducted under this chapter, if that tax, fee, or 
        payment is applicable to a broad range of business 
        activity.

           *       *       *       *       *       *       *

                                

```