U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1

99–010

" ! SENATE 107TH CONGRESS

1st Session

REPORT

2002

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

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS

JOSEPH I. LIEBERMAN, Connecticut, Chairman

CARL LEVIN, Michigan

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

THOMAS R. CARPER, Delaware

JEAN CARNAHAN, Missouri

MARK DAYTON, Minnesota

FRED THOMPSON, Tennessee

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

GEORGE V. VOINOVICH, Ohio

PETE V. DOMENICI, New Mexico

THAD COCHRAN, Mississippi

ROBERT F. BENNETT, Utah

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

(III)

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

1st Session " ! SENATE 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

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1The 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.

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.

§§ 9001–9009).

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. ‘‘Longterm 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 longterm 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. § 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 of State and local premium taxes. 5 U.S.C.

§§ 8714(c), 8909(f). Under the LTCSA, as under these other insurance programs for federal employees, OPM assumes the consumerprotection 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.

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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 longterm 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.

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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

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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 take advantage 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.

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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

* * * * * * *

§9001. Definitions

For purposes of this chapter:

(1) * * *

ø(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

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(iii) would not (but for this subparagraph) otherwise

satisfy the requirements of this paragraph.

* * * * * * *

§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.

* * * * * * *

Æ