```

[House Report 106-610]
[From the U.S. Government Publishing Office]

106th Congress                                            Rept. 106-610
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1

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

 
                      LONG-TERM CARE SECURITY ACT

                                _______
                                

  May 8, 2000.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Burton of Indiana, from the Committee on Government Reform, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 4040]

  The Committee on Government Reform, to whom was referred the 
bill (H.R. 4040) to amend title 5, United States Code, to 
provide for the establishment of a program under which long-
term care insurance is made available to Federal employees, 
members of the uniformed services, and civilian and military 
retirees, and for other purposes, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. Summary of Legislation...........................................6
 II. Background and Need for the Legislation..........................6
III. Legislative Hearings and Committee Actions.......................9
 IV. Committee Hearings and Written Testimony.........................9
  V. Explanation of the Bill.........................................15
 VI. Compliance With Rule XI.........................................21
VII. Budget Analysis and Projections.................................21
VIII.Cost Estimate of the Congressional Budget Office................21

 IX. Specific Constitutional Authority for This Legislation..........24
  X. Committee Recommendation........................................24
 XI. Congressional Accountability Act; Public Law 104-1..............24
XII. Unfunded Mandates Reform Act; Public Law 104-4, Section 423.....24
XIII.Federal Advisory Committee Act (5 U.S.C. App.) Section 5(b).....24

XIV. Changes in Existing Law.........................................25

  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Long-Term Care Security Act''.

SEC. 2. LONG-TERM CARE INSURANCE.

  (a) In General.--Subpart G of part III of title 5, United States 
Code, is amended by adding at the end the following:

                 ``CHAPTER 90--LONG-TERM CARE INSURANCE

``Sec.
``9001. Definitions.
``9002. Availability of insurance.
``9003. Contracting authority.
``9004. Financing.
``9005. Preemption.
``9006. Studies, reports, and audits.
``9007. Jurisdiction of courts.
``9008. Administrative functions.
``9009. Cost accounting standards.

``Sec. 9001. Definitions

  For purposes of this chapter:
          ``(1) Employee.--The term `employee' means--
                  ``(A) an employee as defined by section 8901(1); and
                  ``(B) an individual described in section 2105(e);
        but does not include an individual employed by the government 
        of the District of Columbia.
          ``(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.
          ``(3) Member of the uniformed services.--The term `member of 
        the uniformed services' means a member of the uniformed 
        services, other than a retired member of the uniformed 
        services.
          ``(4) Retired member of the uniformed services.--The term 
        `retired member of the uniformed services' means a member or 
        former member of the uniformed services entitled to retired or 
        retainer pay.
          ``(5) Qualified relative.--The term `qualified relative' 
        means each of the following:
                  ``(A) The spouse of an individual described in 
                paragraph (1), (2), (3), or (4).
                  ``(B) A parent, stepparent, or parent-in-law of an 
                individual described in paragraph (1) or (3).
                  ``(C) A child (including an adopted child, a 
                stepchild, or, to the extent the Office of Personnel 
                Management by regulation provides, a foster child) of 
                an individual described in paragraph (1), (2), (3), or 
                (4), if such child is at least 18 years of age.
                  ``(D) An individual having such other relationship to 
                an individual described in paragraph (1), (2), (3), or 
                (4) as the Office may by regulation prescribe.
          ``(6) Eligible individual.--The term `eligible individual' 
        refers to an individual described in paragraph (1), (2), (3), 
        (4), or (5).
          ``(7) Qualified carrier.--The term `qualified carrier' means 
        an insurance company (or consortium of insurance companies) 
        that is licensed to issue long-term care insurance in all 
        States, taking any subsidiaries of such a company into account 
        (and, in the case of a consortium, considering the member 
        companies and any subsidiaries thereof, collectively).
          ``(8) State.--The term `State' includes the District of 
        Columbia.
          ``(9) Qualified long-term care insurance contract.--The term 
        `qualified long-term care insurance contract' has the meaning 
        given such term by section 7702B of the Internal Revenue Code 
        of 1986.
          ``(10) Appropriate secretary.--The term `appropriate 
        Secretary' means--
                  ``(A) except as otherwise provided in this paragraph, 
                the Secretary of Defense;
                  ``(B) with respect to the Coast Guard when it is not 
                operating as a service of the Navy, the Secretary of 
                Transportation;
                  ``(C) with respect to the commissioned corps of the 
                National Oceanic and Atmospheric Administration, the 
                Secretary of Commerce; and
                  ``(D) with respect to the commissioned corps of the 
                Public Health Service, the Secretary of Health and 
                Human Services.

``Sec. 9002. Availability of insurance

  ``(a) In General.--The Office of Personnel Management shall establish 
and, in consultation with the appropriate Secretaries, administer a 
program through which an individual described in paragraph (1), (2), 
(3), (4), or (5) of section 9001 may obtain long-term care insurance 
coverage under this chapter for such individual.
  ``(b) General Requirements.--Long-term care insurance may not be 
offered under this chapter unless--
          ``(1) the only coverage provided is under qualified long-term 
        care insurance contracts; and
          ``(2) each insurance contract under which any such coverage 
        is provided is issued by a qualified carrier.
  ``(c) Documentation Requirement.--As a condition for obtaining long-
term care insurance coverage under this chapter based on one's status 
as a qualifiedrelative, an applicant shall provide documentation to 
demonstrate the relationship, as prescribed by the Office.
  ``(d) Underwriting Standards.--
          ``(1) Disqualifying condition.--Nothing in this chapter shall 
        be considered to require that long-term care insurance coverage 
        be made available in the case of any individual who would be 
        eligible for benefits immediately.
          ``(2) Spousal parity.--For the purpose of underwriting 
        standards, a spouse of an individual described in paragraph 
        (1), (2), (3), or (4) of section 9001 shall, as nearly as 
        practicable, be treated like that individual.
          ``(3) Guaranteed issue.--Nothing in this chapter shall be 
        considered to require that long-term care insurance coverage be 
        guaranteed to an eligible individual.
          ``(4) Requirement that contract be fully insured.--In 
        addition to the requirements otherwise applicable under section 
        9001(9), in order to be considered a qualified long-term care 
        insurance contract for purposes of this chapter, a contract 
        must be fully insured, whether through reinsurance with other 
        companies or otherwise.
          ``(5) Higher standards allowable.--Nothing in this chapter 
        shall, in the case of an individual applying for long-term care 
        insurance coverage under this chapter after the expiration of 
        such individual's first opportunity to enroll, preclude the 
        application of underwriting standards more stringent than those 
        that would have applied if that opportunity had not yet 
        expired.
  ``(e) Guaranteed Renewability.--The benefits and coverage made 
available to eligible individuals under any insurance contract under 
this chapter shall be guaranteed renewable (as defined by section 7A(2) 
of the model regulations described in section 7702B(g)(2) of the 
Internal Revenue Code of 1986), including the right to have insurance 
remain in effect so long as premiums continue to be timely made. 
However, the authority to revise premiums under this chapter shall be 
available only on a class basis and only to the extent otherwise 
allowable under section 9003(b).

``Sec. 9003. Contracting authority

  ``(a) In General.--The Office of Personnel Management shall, without 
regard to section 5 of title 41 or any other statute requiring 
competitive bidding, contract with 1 or more qualified carriers for a 
policy or policies of long-term care insurance. The Office shall ensure 
that each resulting contract (hereinafter in this chapter referred to 
as a `master contract') is awarded on the basis of contractor 
qualifications, price, and reasonable competition.
  ``(b) Terms and Conditions.--
          ``(1) In general.--Each master contract under this chapter 
        shall contain--
                  ``(A) a detailed statement of the benefits offered 
                (including any maximums, limitations, exclusions, and 
                other definitions of benefits);
                  ``(B) the premiums charged (including any limitations 
                or other conditions on their subsequent adjustment);
                  ``(C) the terms of the enrollment period; and
                  ``(D) such other terms and conditions as may be 
                mutually agreed to by the Office and the carrier 
                involved, consistent with the requirements of this 
                chapter.
          ``(2) Premiums.--Premiums charged under each master contract 
        entered into under this section shall reasonably and equitably 
        reflect the cost of the benefits provided, as determined by the 
        Office. The premiums shall not be adjusted during the term of 
        the contract unless mutually agreed to by the Office and the 
        carrier.
          ``(3) Nonrenewability.--Master contracts under this chapter 
        may not be made automatically renewable.
  ``(c) Payment of Required Benefits; Dispute Resolution.--
          ``(1) In general.--Each master contract under this chapter 
        shall require the carrier to agree--
                  ``(A) to provide payments or benefits to an eligible 
                individual if such individual is entitled thereto under 
                the terms of the contract;
                  ``(B) to establish internal administrative procedures 
                designed to expeditiously resolve disputes regarding 
                claims for payments or benefits under the terms of the 
                contract; and
                  ``(C) for disputes not resolved under subparagraph 
                (B), to establish procedures for 1 or more alternative 
                means of dispute resolution involving independent 
                third-party review under appropriate circumstances 
                mutually acceptable to the Office and the carrier.
          ``(2) Eligibility.--A carrier's determination as to whether 
        or not a particular individual is eligible to obtain long-term 
        care insurance coverage under this chapter shall be subject to 
        review only to the extent and in the manner provided in the 
        applicable master contract.
          ``(3) Other claims.--Disputes arising under this chapter 
        between a carrier and the Office shall, after exhaustion of 
        administrative remedies, be subject to de novo judicial review 
        under section 9007.
          ``(4) Rule of construction.--Nothing in this chapter shall be 
        considered to grant authority for the Office or a third-party 
        reviewer to change the terms of any contract under this 
        chapter.
  ``(d) Duration.--
          ``(1) In general.--Each master contract under this chapter 
        shall be for a term of 7 years, unless terminated earlier by 
        the Office in accordance with the terms of such contract. 
        However, the rights and responsibilities of the enrolled 
        individual, the insurer, and the Office (or duly designated 
        third-party administrator) under such contract shall continue 
        with respect to such individual until the termination of 
        coverage of the enrolled individual or the effective date of a 
        successor contract thereto.
          ``(2) Exception.--
                  ``(A) Shorter duration.--In the case of a master 
                contract entered into before the end of the period 
                described in subparagraph (B), paragraph (1) shall be 
                applied by substituting `ending on the last day of the 
                7-year period described in paragraph (2)(B)' for `of 7 
                years'.
                  ``(B) Definition.--The period described in this 
                subparagraph is the 7-year period beginning on the 
                earliest date as of which any long-term care insurance 
                coverage under this chapter becomes effective.
          ``(3) Congressional notification.--No later than 180 days 
        after receiving the second report required under section 
        9006(c), the Office of Personnel Management shall submit to the 
        Committees on Government Reform and on Armed Services of the 
        House of Representatives and the Committees on Governmental 
        Affairs and on Armed Services of the Senate, a written 
        recommendation as to whether the program under this chapter 
        should be continued without modification, terminated, or 
        restructured. During the 180-day period following the date on 
        which it submits its recommendation under this paragraph, the 
        Office may not take any steps to rebid or otherwise contract 
        for any coverage to be available at any time following the 
        expiration of the 7-year period described in paragraph (2)(B).
          ``(4) Full portability.--Each master contract under this 
        chapter shall include such provisions as may be necessary to 
        ensure that, once an individual becomes duly enrolled, long-
        term care insurance coverage obtained by such individual 
        pursuant to that enrollment shall not be terminated due to any 
        change in status (such as separation from Government service or 
        the uniformed services) or ceasing to meet the requirements for 
        being considered a qualified relative (whether as a result of 
        dissolution of marriage or otherwise).

``Sec. 9004. Financing

  ``(a) In General.--Each eligible individual obtaining long-term care 
insurance coverage under this chapter shall be responsible for 100 
percent of the premiums for such coverage.
  ``(b) Withholdings.--
          ``(1) In general.--The amount necessary to pay the premiums 
        for enrollment may--
                  ``(A) in the case of an employee, be withheld from 
                the pay of such employee;
                  ``(B) in the case of an annuitant, be withheld from 
                the annuity of such annuitant;
                  ``(C) in the case of a member of the uniformed 
                services described in section 9001(3), be withheld from 
                the basic pay of such member; and
                  ``(D) in the case of a retired member of the 
                uniformed services described in section 9001(4), be 
                withheld from the retired pay or retainer pay payable 
                to such member.
          ``(2) Voluntary withholdings for qualified relatives.--
        Withholdings to pay the premiums for enrollment of a qualified 
        relative may, upon election of the appropriate eligible 
        individual (described in section 9001(1)-(4)), be withheld 
        under paragraph (1) to the same extent and in the same manner 
        as if enrollment were for such individual.
  ``(c) Direct Payments.--All amounts withheld under this section shall 
be paid directly to the carrier.
  ``(d) Other Forms of Payment.--Any enrollee who does not elect to 
have premiums withheld under subsection (b) or whose pay, annuity, or 
retired or retainer pay (as referred to in subsection (b)(1)) is 
insufficient to cover the withholding required for enrollment (or who 
is not receiving any regular amounts from the Government, as referred 
to in subsection (b)(1), from which any such withholdings may be made, 
and whose premiums are not otherwise being provided for under 
subsection (b)(2)) shall pay an amount equal to the full amount of 
those charges directly to the carrier.
  ``(e) Separate Accounting Requirement.--Each carrier participating 
under this chapter shall maintain records that permit it to account for 
all amounts received under this chapter (including investment earnings 
on those amounts) separate and apart from all other funds.
  ``(f) Reimbursements.--
          ``(1) The Office shall have access to the Employees' Life 
        Insurance Fund without fiscal year limitation for its 
        reasonable expenses in administering this chapter, including 
        reasonable initial implementation costs.
          ``(2) Each master contract under this chapter shall include 
        appropriate provisions under which the carrier involved shall 
        reimburse the Employees' Life Insurance Fund for funds accessed 
        under paragraph (1) (including lost investment income), on a 
        pro rata basis.

``Sec. 9005. Preemption

  ``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.

``Sec. 9006. Studies, reports, and audits

  ``(a) Provisions Relating to Carriers.--Each master contract under 
this chapter shall contain provisions requiring the carrier--
          ``(1) to furnish such reasonable reports as the Office of 
        Personnel Management determines to be necessary to enable it to 
        carry out its functions under this chapter; and
          ``(2) to permit the Office and representatives of the General 
        Accounting Office to examine such records of the carrier as may 
        be necessary to carry out the purposes of this chapter.
  ``(b) Provisions Relating to Federal Agencies.--Each Federal agency 
shall keep such records, make such certifications, and furnish the 
Office, the carrier, or both, with such information and reports as the 
Office may require.
  ``(c) Reports by the General Accounting Office.--The General 
Accounting Office shall prepare and submit to the Office of Personnel 
Management and each House of Congress, before the end of the third and 
fifth years during which the program under this chapter is in effect, a 
written report evaluating such program. Each such report shall include 
an analysis of the competitiveness of the program, as compared to both 
group and individual coverage generally available to individuals in the 
private insurance market. The Office shall cooperate with the General 
Accounting Office to provide periodic evaluations of the program.

``Sec. 9007. Jurisdiction of courts

  ``The district courts of the United States have original jurisdiction 
of a civil action or claim against the United States or a carrier 
founded on this chapter, after such administrative remedies as required 
under section 9003(c)(2) or (3) have been exhausted, but only to the 
extent judicial review is not precluded by any dispute resolution or 
other administrative remedy under this chapter. In cases against the 
United States, the jurisdiction of the district courts shall be 
concurrent with that of the United States Court of Federal Claims.

``Sec. 9008. Administrative functions

  ``(a) In General.--The Office of Personnel Management shall prescribe 
regulations necessary to carry out this chapter.
  ``(b) Enrollment Periods.--The Office shall provide for periodic 
coordinated enrollment, promotion, and education efforts in 
consultation with the carriers.
  ``(c) Consultation.--Any regulations necessary to effect the 
application and operation of this chapter with respect to an eligible 
individual described in paragraph (3) or (4) of section 9001, or a 
qualified relative thereof, shall be prescribed by the Office in 
consultation with the appropriate Secretary.
  ``(d) Informed Decisionmaking.--The Office shall ensure that each 
eligible individual applying for long-term care insurance under this 
chapter is furnished the information necessary to enable that 
individual to evaluate the advantages and disadvantages of obtaining 
long-term care insurance under this chapter, including:
          ``(1) The principal long-term care benefits and coverage 
        available under this chapter, and how those benefits and 
        coverage compare to the range of long-term care benefits and 
        coverage otherwise generally available.
          ``(2) Representative examples of the cost of long-term care, 
        and the sufficiency of the benefits available under this 
        chapter relative to those costs. The information under this 
        paragraph shall also include--
                  ``(A) the projected effect of inflation on the value 
                of those benefits; and
                  ``(B) a comparison of the inflation-adjusted value of 
                those benefits to the projected future costs of long-
                term care.
          ``(3) Any rights individuals under this chapter may have to 
        cancel coverage, and to receive a total or partial refund of 
        premiums. The information under this paragraph shall also 
        include--
                  ``(A) the projected number or percentage of 
                individuals likely to fail to maintain their coverage 
                (determined based on lapse rates experienced under 
                similar group long-term care insurance programs and, 
                when available, this chapter); and
                  ``(B)(i) a summary description of how and when 
                premiums for long-term care insurance under this 
                chapter may be raised;
                  ``(ii) the premium history during the last 10 years 
                for each qualified carrier offering long-term care 
                insurance under this chapter; and
                  ``(iii) if cost increases are anticipated, the 
                projected premiums for a typical insured individual at 
                various ages.
          ``(4) The advantages and disadvantages of long-term care 
        insurance generally, relative to other means of accumulating or 
        otherwise acquiring the assets that may be needed to meet the 
        costs of long-term care, such as through tax-qualified 
        retirement programs or other investment vehicles.

``Sec. 9009. Cost accounting standards

  ``The cost accounting standards issued pursuant to section 26(f) of 
the Office of Federal Procurement Policy Act (41 U.S.C. 422(f)) shall 
not apply with respect to a long-term care insurance contract under 
this chapter.''.
  (b) Conforming Amendment.--The analysis for part III of title 5, 
United States Code, is amended by adding at the end of subpart G the 
following:

``90. Long-Term Care Insurance.............................    9001.''.

 SEC. 3. EFFECTIVE DATE.

  The Office of Personnel Management shall take such measures as may be 
necessary to ensure that long-term care insurance coverage under title 
5, United States Code, as amended by this Act, may be obtained in time 
to take effect not later than the first day of the first applicable pay 
period of the first fiscal year which begins after the end of the 18-
month period beginning on the date of enactment of this Act.

                    I. Short Summary of Legislation

    H.R. 4040 establishes a program under which federal 
civilian employees, members of the uniformed services, as well 
as civilian and military retirees can purchase private group 
long-term care insurance for themselves and certain qualified 
relatives at a discount.

              II. Background and Need for the Legislation

    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. Functional dependency is generally defined as the 
inability to function independently, perform essential 
activities of daily living (ADLs) such as dressing, bathing, 
eating, toileting, transferring (e.g., from a bed to a chair), 
walking, and maintaining continence, or to perform instrumental 
activities of daily living (IADLs) such as shopping, preparing 
meals, taking medicine, and housekeeping. Assistance with these 
ADLs may require hands-on assistance or direction, instruction, 
or supervision from another individual. Long-term care services 
can be provided in a nursing home, an assisted living facility, 
the community or in the home.
    Longer life spans coupled with a steady increase in the 
elderly population as baby boomers (people born between 1946 
and 1964) age will lead to a dramatic rise in the numbers of 
Americans who will need long-term care. Continuing increases in 
the number of two worker families, more single workers, and the 
increased geographic spread of family members means that there 
will be fewer family members available to provide care on an 
informal basis. As a result of these trends, long-term care 
will increasingly be provided in institutional settings or by 
hired personnel.
    Long-term care is expensive. For example, a person with a 
severe disability living at home may pay over $36,000 per year 
for the help of a home care aide.\1\ Assisted living facilities 
charge $26,000 on average. A nursing home can cost $40,000 per 
year.\2\ These figures are averages and can vary depending on 
geographic location.
---------------------------------------------------------------------------
    \1\ This represents two visits per day by a home care aid costing 
$54 per visit in 1997. National Association for Home Care (1997). 
``Basic Statistics About Home Care in 1997. Washington, DC.''
    \2\ American Health Care Association (1998). ``Today's Nursing 
Facilities and the People They Serve''. Washington, DC.
---------------------------------------------------------------------------
    It is projected that the costs per nursing home resident 
will increase. Since 1990, the costs per stay have increased at 
an annual average rate of 3% above inflation. When today's 45-
year-olds reach age 85, one year of nursing home care will cost 
$244,000. The increase in the number of nursing home residents 
combined with a higher cost per stay is estimated to quadruple 
nursing home expenditures by the year 2030.\3\
---------------------------------------------------------------------------
    \3\ American Council of Life Insurance Policy Research Department.
---------------------------------------------------------------------------
    Long-term care insurance is an affordable way for a number 
of eligible individuals to protect against the risk of losing 
their savings to pay for long-term care services. The younger 
one is when purchasing long-term care insurance, the less 
expensive the premium. Once a policy is purchased, the premiums 
cannot be increased solely because one grows older. However, 
with OPM's approval, rates may be adjusted by class to reflect 
claims experience and underlying costs. By offering long-term 
care insurance to individuals in their working years, the 
federal government can provide federal employees the 
opportunity to purchase this product at younger ages, when 
premiums are lower.
    Most people believe that they are covered for long-term 
care by their health care plans, disability insurance, or by 
Medicare. Unfortunately, many learn the hard way--when they or 
a family member needs care--that they are not sufficiently 
covered and must pay for long-term care on their own. By 2030, 
the average cost of a nursing home stay will increase from 
$40,000 today to more than $97,000 (in 1996 dollars).\4\ As 
nursing home costs rise faster than overall inflation and 
incomes, many more middle income baby boomers could become 
impoverished by nursing home costs and thus become eligible for 
Medicaid. To the extent that individuals purchase long term 
care insurance, the burden of paying for long-term care will be 
shifted from Medicaid and other public programs to private 
resources, and individuals will be able to protect their life's 
savings and other assets.
---------------------------------------------------------------------------
    \4\ American Council of Life Insurance Policy Research Department.
---------------------------------------------------------------------------
    Medicare covers very little long-term care. In fact, the 
only type of long-term care that Medicare covers is skilled 
care. Only 12% of all long-term care provided is skilled care. 
Medicare also limits the amount of time it will pay for skilled 
care (up to 100 days in a nursing home, with a $95 copayment 
from day 21 to day 100). Further, Medicare only pays for 
skilled nursing home care under limited circumstances (e.g., if 
one is first in a hospital for the same condition and one is in 
a Medicare-certified nursing home). In short, one cannot rely 
on Medicare to pay for long-term care.
    Medicaid is a federal/state health insurance program for 
the poor. It provides a major portion of long-term care 
financing, paying for care when someone is at or below the 
federal poverty level known as welfare. Eligibility for 
Medicaid is based on income and assets. Individuals must 
deplete their assets to a certain percentage of the poverty 
level (spend-down requirements) before they are eligible for 
Medicaid benefits.
    Many people also believe that their health care insurance 
will pay for long-term care services. Most health care 
insurance plans pay for medical services resulting from illness 
or injury, but not for costs associated with long-term care. 
Generally, these plans follow the same rules and limitations as 
Medicare. Also, custodial/personal care services are never 
covered.
    Personal assets are often inadequate. As previously noted, 
long-term care services are expensive. The vast majority of 
families are unprepared to shoulder the costs of long-term 
care. Therefore, without long-term care insurance, they must 
deplete hard-earned assets, and eventually depend on Medicaid 
to pay the costs of long-term care.
    Employer-based plans represent the fastest growing market 
for long-term care insurance.These plans are generally 
available to the employer's employees, their spouses, parents, parents-
in-law, and retirees on a beneficiary-pay-all basis. As a major 
employer in America, the federal government can reach over 2.8 million 
workers and an additional 2.1 million annuitants and survivors. 
Depending on how such a benefit is administered, competition among 
carriers, group discounts, and volumes of sales should keep premiums 
affordable for federal employees.
    Federal employees have expressed a significant interest in 
being offered an option to purchase long-term care insurance. 
Specifically, in response to an Office of Personnel Management 
(OPM) random survey distributed to federal employees in 1997, 
approximately 86% of federal employees reported an interest in 
long-term care insurance.\5\
---------------------------------------------------------------------------
    \5\ Office of Personnel Management, 1997.
---------------------------------------------------------------------------

            III. Legislative Hearings and Committee Actions

    The Committee held no legislative hearings on H.R. 4040. 
Rep. Joe Scarborough introduced this measure on March 21, 2000. 
It was referred to the Committee on Government Reform, and in 
addition, to the Committee on the Armed Services. The Committee 
on Government Reform's Civil Service Subcommittee marked up the 
bill on March 22, 2000. By voice vote, the Subcommittee 
approved an amendment offered by Mr. Waxman to ensure that 
those eligible to purchase long-term care insurance under this 
program will be able to make informed decisions. The 
Subcommittee approved the bill as amended and forwarded it to 
the Committee on Government Reform by voice vote.
    On March 30, 2000, the Committee on Government Reform 
marked up the bill. Chairman Burton offered an amendment in the 
nature of a substitute. The Chairman's amendment revised the 
educational information to be made available to prospective 
purchasers, the mechanism for funding OPM's initial 
administrative expenses, and the dispute resolution procedures. 
It also broadened the class of qualified relatives eligible to 
buy insurance. The Committee agreed to the Burton amendment by 
voice vote. Also by voice votes, the Committee adopted H.R. 
4040, as amended, and ordered it favorably reported to the 
House of Representatives.

              IV. Committee Hearings and Written Testimony

    Three hearings were held to examine various aspects of the 
long term care insurance issue.

                         March 18, 1999 Hearing

    On March 18, 1999, Chairman Scarborough conducted a hearing 
entitled, ``Long-Term Care Insurance for Federal Employees'' to 
address H.R. 602 and H.R. 110, both of which establish a 
program under which federal employees and annuitants may 
purchase long-term care insurance.
    Chairman Scarborough stated that achieving maximum 
participation would require affordable premiums and an ability 
to satisfy the varying needs of a diverse population. The 
success of the program would be measured by the number of 
participants in the federal program. The Chairman also noted 
that as one of the nation's largest employers, the federal 
program would serve as a model for employers throughout the 
country.
    Three panels presented testimony to the subcommittee. The 
first panel consisted of Judy Kramer, a private individual with 
personal experience with the Medicaid spend-down process. The 
second panel provided the Administration's views on H.R. 602 
and H.R. 110 through the testimony of OPM Director Janice 
Lachance and William E. Flynn, III, Associate Director for 
Retirement and Insurance Services. The third panel consisted of 
representatives from the insurance industry, including the 
American Council of Life Insurance, the Health Insurance 
Association of America, and New York Life Insurance company.
    Ms. Kramer gave a compelling account of her struggles with 
the current system of government assistance as a custodian for 
her aging parents. After a difficult spend-down process, her 
parents had to rely on Medicaid to cover the costs of their 
nursing home care. She testified to her desire to purchase 
long-term care for herself and her husband, a retired federal 
employee, yet noted without a group discount it would be 
difficult to afford such protection.
    Director Lachance provided the Administration's views on 
H.R. 602 and H.R. 110. Director Lachance agreed that long-term 
care insurance for federal employees is an idea whose time has 
come. The Administration estimates that, initially, 300,000 
eligible participants would enroll in such a program. OPM hopes 
to seek competitive bids for long-term care insurance that 
meets specified quality and price criteria in order to select 
the best contractor or contractors possible. As program 
administrator, OPM envisions its role to negotiate an optimum 
price for a benefit package it predetermines and that 
subsequently information on available options is broadly 
disseminated.
    David Martin, on behalf of the American Council of Life 
Insurance, testified to the importance of a long-term care 
insurance program as an integral part of an employees' 
retirement security. Without this protection, retirement 
savings could be wiped out with just one long-term care 
episode.
    Mr. Martin's testimony spoke to the varying long-term care 
needs of individuals. Based on ACLI's experience in dealing 
with large employers, it would be appropriate for the federal 
government to offer a variety of options. More than one carrier 
would have to participate in order to underwrite the risk 
inherent in such a large population. The federal participant 
group, as defined by both H.R. 602 and H.R. 110, would be 
greater than any group underwritten by a single carrier today.
    David Brenerman, on behalf of the Health Insurance 
Association of America, focused on the development of the long-
term care insurance market. He noted the ability of companies 
to offer quality products at affordable premiums results from 
the abilities of companies to freely compete with each other in 
the marketplace, not because of the imposition of federal or 
state requirements that would regulate premiums, hinder product 
development, and stifle market competition. He drew a 
distinction between a quality, affordable product and the 
danger of promising a low-cost plan with ``rich'' benefits and 
minimum underwriting requirements that would be financially 
unsustainable in the long run.
    Kenneth Grubb, President, NY Life Administration 
Corporation, NY Life Insurance Company, provided the views of 
carriers who sell individual as opposed to group products. He 
raised concerns about the limitations in H.R. 602 and H.R. 110 
restricting participation to group carriers only. He pointed 
out that several companies currently offer discounts on 
individual contracts or have specific individual long-term care 
policies priced for offering on a group sponsored basis. Since 
the individual contracts are competitive with group coverage, 
Mr. Grubb stressed they ought not to be excluded from 
consideration in the federal program.
    Mr. Grubb also highlighted the benefits of broad 
eligibility under H.R. 602, resulting in a broader, younger 
risk pool that would result in lower overall costs. Letting the 
marketplace dictate costs and benefits was key to both wide 
acceptance of the product and long term commitments from 
strong, reliable carriers.

                         April 18, 1999 Hearing

    On April 18, 1999, Chairman Scarborough held the second 
hearing on Long-Term Care Insurance for Federal Employees at 
the Naval Air Station in Jacksonville, FL. The purposes of the 
hearing were twofold. The subcommittee examined the benefit of 
including active and retired members of the uniformed services 
in any long-term care insurance program offered to civilian 
employees and retirees. The subcommittee also continued its 
examination of the scope of OPM's role in administering a long-
term care program and whether participating carriers would be 
required to offer policies on a ``guaranteed issue'' basis. 
Guaranteed issue refers to the practice of allowing individuals 
to purchase long term care insurance without regard to their 
current health status and without answering any questions 
regarding their medical history. While of obvious benefit to 
at-risk individuals, the costs of issuing policies on a 
guaranteed basis increase premiums substantially for all 
enrollees.
    Chairman Scarborough reiterated his intent to include both 
active and retired members of the uniformed services in the 
long-term care insurance program at the appropriate time in the 
legislative process. He recognized the valuable service active 
duty service men and women have provided as employees of the 
federal government. The Chairman also emphasized the need to 
build on past successes in crafting legislation and the 
importance of offering competitive benefits at affordable 
prices.
    Two panels presented testimony to the subcommittee. The 
first panel consisted of representatives from the organizations 
representing active and retired members of the uniformed 
services including The Retired Officers Association (TROA), the 
National Military Families Association (NMFA), and The Retired 
Enlisted Association (TREA). The second panel consisted of 
witnesses on behalf of the American Health Care Association, 
the Health Insurance Association of America, and the Department 
of Defense.
    Speaking for NMFA, Marilyn Cobb Croach provided testimony 
on the importance of affordable premiums. Few military families 
have the disposable income after the basics of housing, health 
care and food to afford a policy with high premiums, no matter 
how wise an investment they felt it might be. She also stressed 
that service members and their families should not be left out 
of a program that includes civilian employees and annuitants.
    Of particular importance to the National Military Families 
Association was the inclusion of parents and parents-in-law as 
eligible to receive coverage. Since thousands of miles often 
separate military families from their parents, significant 
stress occurs when parents can no longer care for themselves. 
The high operations tempo facing the armed services often puts 
the burden of care for both sets of parents on the spouse, who 
is left with few alternatives. The safety net of an affordable 
long-term care insurance policy would relieve families of the 
stress involved in caring for an elderly parent.
    Larry Hyland testified on behalf of The Retired Enlisted 
Association. Mr. Hyland emphasized the equity of including the 
military in a program that will provide access to long-term 
care insurance at group rates for civilian employees. He 
highlighted the increasing anxiety among aging retirees who 
were ``promised free health care for life,'' by the Department 
of Defense. The ability to purchase long-term care insurance in 
the same program would ensure some financial security for 
retired members of the uniformed services and ensure quality 
health care is available.
    Colonel Klyne Nowlin presented testimony on behalf of The 
Retired Officers Association. Colonel Nowlin spoke to the need 
for the subcommittee to remember those who served in the Armed 
Forces and who need comprehensive long-term care coverage for 
their remaining years. His testimony also provided an estimate 
of participation. Based on the national participation rate of 6 
percent, TROA expects that participation for military members 
would be approximately 203,000 individuals. By broadening the 
participation base to include the military community, all 
participants could be the beneficiaries of reduced premiums or 
enhanced benefits packages. Without access to the government 
plan, it is feared that most service members would not be in a 
position to afford long-term care insurance.
    Pat Freeman, Associate Executive Director of the John Knox 
Village Medical Center, testified for the American Health Care 
Association. She examined the effect both affordable premiums 
and choice among a variety would have in encouraging the 
purchase of private long-term care insurance. The John Knox 
Village Medical Center has both nursing and assisted 
livingfacilities in Orange City, Florida.
    Ms. Freeman provided the subcommittee information on a 
recently released American Health Care Association survey on 
long term care. While female baby boomers expressed concerns 
about their retirement security, survey results indicated they 
were not saving adequately for long-term care costs that nearly 
three out of five of them will encounter. The overall 
conclusion drawn from the survey findings was the reality that 
an alarming gap exists in how baby boomers viewed their 
retirement needs. While 91 percent of baby boomers are covered 
by health insurance, many incorrectly believe either these 
policies or Medicare would pay for their long-term care needs. 
The study also highlighted that 41 percent of the women 
surveyed have either been forced to quit their jobs or take an 
extended leave of absence to provide long-term care to a family 
member or friend.
    Kenneth Grubb, testifying on behalf of the Health Insurance 
Association of America, provided information regarding the 
desirability and relative importance of both competition in 
price and variety of insurance products. Mr. Grubb discussed 
the importance of market competition in determining the 
availability, quality and affordability of long-term care 
plans. He also noted the need for the government to encourage 
personal responsibility for financing long-term care through 
the expansion of the private long-term care insurance market, 
including enhancement of the tax status of long-term care 
insurance. As a retired Air Force Reserve Colonel, Mr. Grubb 
felt the military should have the opportunity to obtain 
affordable coverage to protect themselves against the financial 
ravages of a long-term illness.
    William J. Carr, Deputy Director, Officer and Enlisted 
Personnel Management, provided testimony on the desire of the 
Department of Defense to have the military included in the list 
of eligible participants. Mr. Carr noted the willingness of the 
Department of Defense to study how the inclusion of uniformed 
service personnel in long-term care proposals might contribute 
to recruitment, retention and morale of military personnel. He 
also stated the Department of Defense was willing to work with 
the appropriate committees on the issue of long-term care 
insurance.

                         June 14, 1999 Hearing

    On June 14, 1999, Chairman Scarborough held a second field 
hearing, this time in Baltimore, to further discuss the various 
legislative proposals to establish a long-term care insurance 
benefit for federal employees. Three bills referred to the 
subcommittee were addressed: H.R. 602, H.R. 110, and H.R. 1111.
    Chairman Scarborough emphasized the importance of letting 
beneficiaries, not government officials, make their own long-
term care decisions. The Chairman also stressed the need for 
the legislation to allow for continued innovation of policies 
as the insurance industry continues to evolve and mature.
    Two panels presented testimony to the subcommittee. The 
first panel consisted of two witnesses from AT&T and the 
Maryland Department of Health and Mental Hygiene, as well as a 
witness with the responsibility for caring for his elderly 
relatives. The second panel consisted of representatives of the 
National Association of Retired Federal Employees (NARFE), the 
Health Insurance Association of America, and Wright & Company.
    Charles Yocum provided an account of his experiences with 
long-term care as custodian for his aging relatives. His 
depiction of his struggles with the current system of 
government assistance further emphasized the necessity of 
finding a workable solution to the financing of long-term care. 
He described himself as a member of the ``sandwich 
generation''. Although his children are not yet fully on their 
own, he now has the added responsibility of seeing to it that 
his parents and other elderly relatives are cared for. An 
attorney by profession, he noted the need to consult with an 
attorney specializing in ``elder law'' in order to understand 
the Medicaid spend-down process.
    Dr. Georges Benjamin, the Secretary of Maryland's 
Department of Health & Mental Hygiene, provided informative 
testimony regarding the State of Maryland's initiatives to 
control the growth of public long-term care spending through 
partnership with public and private stakeholders. Maryland is 
implementing the Outreach Empowerment Campaign for Individual 
Long-Term Care Planning. Under this initiative, various 
Medicaid waivers and programs have been proposed or are under 
development to manage public long-term care spending and 
provide home and community based services as alternatives to 
institutionalization.
    Dr. Benjamin provided statistics regarding expenses for 
Maryland's Medicaid program. During fiscal year 1997, the 
program spent close to $557 million on long-term care for 
recipients aged 21 or over, representing 22 percent of the 
total Medicaid budget. His testimony highlighted the need for 
private long term care insurance to shift the burden of paying 
for long term care from Medicaid and other public programs.
    David Carver testified about the long-term care insurance 
program offered by AT&T to its employees. In 1990, AT&T began 
work on the planning phase of its long-term care program. The 
market at that time was considerably less developed than it is 
today. AT&T looked for its plan to achieve two goals: (1) 
assure financial protection by making the breadth of benefits 
extensive, and (2) permit employees to meet specific needs by 
offering significant choice of plan designs. AT&T anticipated a 
5-7% enrollment rate for management, and a 2-3% enrollment rate 
for retired employees and occupational employees. AT&T has 
exceeded these targets, with 14% of management enrolled, 3% of 
retired employees enrolled, and 4% of occupational employees 
enrolled. Since inception of the program, AT&T feels awareness 
for this type of coverage has increased, and touted its 
continued good experience with lower than expected lapse rates.
    The program was not without challenges, and AT&T continues 
to be frustrated by the ineligibility of children, the 
mandating of certain provisions in specific states, the 
difficulty in protecting the integrity of the plan as employee 
expectations exceed what can be offered due tounderwriting 
requirements, and exclusion from Section 125 of the Internal Revenue 
Code.
    David Cavanaugh, of Wright & Company, provided information 
on products that offer the benefits of life insurance and long-
term care insurance in a single policy. This ``linked 
benefits'' approach provides various options during the 
completion of the aging process, including long-term care 
coverage, a cash accumulation fund, death benefits, and, if 
necessary, a recapture of the dollars paid in premium. A key 
advantage to this type of policy is that the ``gamble'' aspect 
of paying premiums for long-term care insurance coverage is 
eliminated. The entire life insurance benefit can be paid as a 
tax-free benefit to a beneficiary or can be used to provide 
long-term care services.
    Frank Atwater, President of the National Association of 
Retired Federal Employees, testified on the importance of long-
term care insurance to meet its goal of assuring financial 
stability in retirement for government employees. Protecting 
retirement assets through careful financial planning means 
considering long-term care insurance as an option. Mr. Atwater 
commended the efforts of all members of the subcommittee to 
provide a long-term care insurance program.
    While NARFE's goal is to ensure that annuitant underwriting 
standards are less burdensome than those offered in the private 
market today, Mr. Atwater did recognize that insurance carriers 
would be unlikely to participate in the proposed federal 
program if they were forced to sell policies to senior citizens 
that are probable candidates for long-term care.
    Kenneth Grubb, on behalf of the Health Insurance 
Association of America, emphasized the necessity of public 
education about the risks and costs of long-term care. Without 
understanding the problem, the public cannot be expected to 
understand the appropriate solutions. It is critically 
important for the public and private sectors to provide long-
term care insurance education. By making the investment now and 
designing a financing arrangement our elderly can live with 
today, our future retirees can protect their assets. Successful 
employer plans that have experienced high participation rates 
are those that have invested in multi-faceted education and 
marketing campaigns. The federal government's involvement, in 
partnership with carriers, is critical to the success of this 
program. Without substantial employer participation and 
commitment to educating employees about the importance of a 
long-term care insurance policy, the Health Insurance 
Association of America believes the federal program will not be 
successful.
    Mr. Grubb's testimony provided information regarding the 
costs of long-term care to employers. Long-term care related 
expenses cost employers $29 billion a year in lost time, lost 
employees, and lost productivity. A federal employee long-term 
care insurance program would be the clearest signal of 
government support for encouraging personal responsibility and 
planning for long-term care through avenues such as long-term 
care insurance. The sheer size of the federal government as an 
employer would assure an immediate and heightened awareness of 
long-term care financing among working adults.

       V. Explanation of the Bill as Reported: Section-by-Section

Section-by-section Summary of H.R. 4040 as Reported by the Committee on 
                  Government Reform on March 30, 2000

Section 1. Short title

    This section titles the bill the ``Long-Term Care Security 
Act.''

Section 2

    This section amends Subpart G of Part III of Title 5, 
United States Code, by adding a new Chapter 90--Long-Term Care 
Insurance, Sections 9001-9009 as follows:
    Section 9001. Definitions.--Under this section, individuals 
eligible to purchase long-term care insurance include most of 
those employees and annuitants who would be eligible to 
participate in the Federal Employees Health Benefits Program 
(FEHBP) with the exception of District of Columbia government 
employees. Eligibility also extends to active duty and retired 
members of the uniformed services, including the Commissioned 
Corps of the Public Health Service and National Oceanic and 
Atmospheric Administration. Relatives of active employees or 
members of the uniformed services qualified to purchase long-
term care insurance include the spouse, children at least 18 
years of age, parents, stepparents, or parents-in-law. For 
retirees, only spouses or children are qualified to 
participate. The Office of Personnel Management (OPM) may 
include other eligible relatives.
    This section defines a ``qualified carrier'' as an 
insurance company or consortium of insurance companies licensed 
to issue long-term care insurance in all 50 States and the 
District of Columbia, either directly or through their 
subsidiaries. Through reference to Section 7702B of the 
Internal Revenue Code (IRC) of 1986 (the amendments made by the 
Health Insurance Portability and Accountability Act of 1996, 
which establish favorable tax treatment for certain long-term 
care insurance contracts), this section defines a ``qualified 
long-term care insurance contract'' as one which covers only 
long-term care services; does not pay or reimburse expenses 
covered under Medicare; is guaranteed renewable; does not 
provide for a cash surrender value or other money that can be 
paid, assigned, or pledged as collateral for a loan, or 
borrowed; applies all refunds of premiums and policy holder 
dividends or similar amounts as a reduction in future premiums 
or to increase future benefits; and meets certain consumer 
protection standards.
    The reference in section 9001(7) to the possible use of 
consortia of insurance carriers has generated questions 
regarding the antitrust implications of such an arrangement. 
The Committee is not aware of any difficulties in using such 
forms of organization in other insurance contexts involving 
other employers. In the absence of an objection or expression 
of concern in the Statement of Administration Policy on H.R. 
4040, it can be assumed that the Administration has not found a 
problem in that regard.
    By reference to the definition of qualified long-term care 
insurance contracts and services contained in Section 7702B of 
the IRC, this section defines qualified long-term care services 
asnecessary diagnostic, preventive, therapeutic, curing, 
treating, mitigating, and rehabilitative services and maintenance or 
personal care services required by a chronically ill individual and 
provided according to a plan prescribed by a licensed health care 
practitioner. Under the IRC and this chapter, ``chronically ill 
individuals'' must have functional impairments which make them unable 
to perform, without substantial assistance from another individual, at 
least two of five, among a listing of six, specified activities of 
daily living (ADLs) for a period certified to last at least 90 days. 
Also includes any cognitively impaired person who requires substantial 
supervision to protect them from threats to health and safety.
    Section 9002. Availability of insurance.--This section 
authorizes the OPM to establish and, in consultation with the 
appropriate executive branch cabinet secretaries, administer a 
program through which eligible individuals may obtain long-term 
care insurance coverage. Individuals seeking coverage as 
relatives of eligible employees or annuitants are required to 
provide documentation of their relationship, as determined by 
OPM. (The eligible employee or annuitant need not purchase a 
policy for a qualified relative to purchase one.) Coverage must 
be provided through qualified long-term care insurance 
contracts (as defined by the Sec. 7702B of the IRC) that are 
fully insured or reinsured (that is, financially capable of 
paying all qualified claims) and issued by a qualified carrier.
    This section establishes underwriting standards under which 
provision of long-term care insurance is not guaranteed to any 
individual, and it is not required to be provided to 
individuals who would be immediately eligible for benefits. The 
intent of this section is to make clear that OPM is not 
required to offer long-term care policies to those who are 
immediately eligible. The provision should not be read, 
however, to preclude OPM from offering long-term care insurance 
to individuals who are immediately benefit eligible if OPM 
during the contract negotiation process determines it is 
appropriate to do so. Individuals who do not enroll during 
their first period of opportunity but who elect to enroll 
during a subsequent opportunity may be required to meet more 
stringent underwriting standards than would have been applied 
during the first enrollment period.
    For purposes of underwriting, this section specifies that 
spouses of eligible employees and spouses of eligible 
annuitants must be treated as nearly as practicable like the 
eligible individual. It further provides that benefits and 
coverage are guaranteed renewable as long as the premiums 
continue to be paid in a timely manner. Premiums may be revised 
on a class basis only.
    The Committee acknowledges that the need to screen 
enrollees, and the desire to qualify as many eligible 
individuals as possible, is a balancing act. For that reason, 
prescriptive statutory requirements regarding underwriting have 
not been included in this Act. Instead, this Act provides OPM 
with authority and flexibility to negotiate underwriting 
standards with carriers, just as it negotiates premiums, 
benefit design, and other terms and conditions. It is the 
Committee's intention that underwriting standards allow the 
greatest possible number of employees, active duty personnel, 
annuitants, and retirees to buy long-term care insurance at 
reasonable rates while still containing costs and making 
carrier participation feasible. The Committee expects OPM to 
use the buying power inherent in the large group of eligible 
individuals under this chapter to make the underwriting 
standards initially less burdensome to eligible individuals 
than commonly required by plans available in the private 
market. Representative Waxman wrote OPM to learn how OPM 
intends to address underwriting under H.R. 4040. OPM's letter 
in response outlines their goal of offering insurance on a 
modified issue basis, which in order ``to insure as many 
participants as possible.'' OPM's letter, which is included as 
an exhibit to this report, embodies the Committee's 
understanding of how OPM intends to address the underwriting 
issue.
    Section 9003. Contracting authority.--This section 
authorizes OPM to contract with one or more qualified carriers 
for a policy or policies of long-term care insurance on the 
basis of contractor qualifications, price, and reasonable 
competition. The Committee directs the Office of Personnel 
Management to ensure that the selection process of qualified 
carriers is as competitive as possible. The Committee expects 
competition among the carriers will result in affordable 
premiums and attractive benefit packages for the federal 
community. The Committee encourages the Office of Personnel 
Management to consider all insurance companies who meet program 
criteria and standards for participation in the program. In 
particular, the Committee believes that insurers in the 
individual market could make a significant contribution to the 
program, and should have the opportunity to compete. Each 
``master contract'' is required to include a detailed statement 
of benefits, premium charges, the terms of the enrollment 
period, and any limitations. Master contracts shall not be 
automatically renewable. Premiums must reasonably and equitably 
reflect the cost of benefits provided, as determined by OPM; 
premiums can be adjusted during a contract period only by 
mutual agreement between OPM and the carrier.
    Under the terms of the master contract, carriers must agree 
to provide payments or benefits to entitled individuals. Master 
contracts must also specify procedures to resolve expeditiously 
disputes regarding payment of claims or benefits, including 
internal administrative procedures and independent third-party 
review under circumstances approved by OPM. The choice of third 
party review entities must be mutually acceptable to OPM and 
the carrier. Master contracts shall also include procedures for 
review of an individual's eligibility for coverage. Disputes 
between a carrier and OPM shall be subject to de novo judicial 
review after exhaustion of administrative remedies.
    Neither OPM nor any third-party reviewer shall have the 
authority to change the terms of any master contract. Each 
master contract is for a term of 7 years, that term beginning 
on the earliest date as of which any long-term care insurance 
coverage under the Act becomes effective. Any master contract 
entered into later than the effective date for coverage shall 
end at the close of the same 7-year period. Master contracts 
may be terminated earlier by OPM according to the contract 
terms. If a master contract is terminated, the rights and 
responsibilities of the enrolled individuals, of the insurers, 
and OPM must continue until the termination of the enrolled 
individuals' coverage or the effective date of a successor 
contract.
    Within 180 days of submission of a report by the General 
Accounting Office (GAO) before the end of the fifth year of the 
program, OPM shall submit to the Committees on Government 
Reform and on Armed Services of the House of Representatives 
and the Committees on Governmental Affairs and on Armed 
Services of the Senate a written recommendation as to whether 
this program should be continued unmodified, terminated, or 
restructured. For 180 days after their recommendation, OPM is 
prevented from rebidding or otherwise contracting for any 
coverage which would follow the expiration of the 7-year 
period.
    This section requires each master contract to provide for 
portability of coverage, ensuring that the policies of duly 
enrolled individuals shall not be terminated because of a 
change in the individual's status, such as separating from 
covered employment or no longer being a qualified relative due 
to divorce or otherwise.
    Section 9004. Financing.--This section establishes that 100 
percent of the premiums for long-term care insurance coverage 
under this program must be paid by eligible individuals either 
through withholding from pay or retirement benefits or through 
direct payments to the carrier. Eligible employees or 
annuitants may pay for a qualified relative's premium through 
withholding from the employee's pay or annuitant's retirement 
benefit.
    This section requires each participating carrier to 
maintain records which permit it to account for all amounts 
received under this program, including investment earnings on 
these amounts, separately and apart from all other funds of the 
carrier. It grants OPM access to the Employees' Life Insurance 
Fund to finance reasonable expenses associated with initial 
implementation and administration of this chapter, without 
fiscal year limitation. Subsequently, the master contracts must 
require each carrier to reimburse the Employees' Life Insurance 
Fund on a pro rata basis for ongoing OPM administrative 
expenses, including lost investment income of the Life 
Insurance Fund.
    Section 9005. Preemption.--This section states that any 
state or local laws and regulations relating to long-term care 
insurance or contracts are superseded and preempted by the 
terms of any contract under this chapter.
    During this process, the Committee encourages OPM to give 
scrutiny to state practices with respect to consumer 
protection. The Committee urges the Office of Personnel 
Management, in negotiating contracts with carriers, to strive 
to maximize consumer protections. This will promote consumer 
confidence in the process and in the insurance products created 
by the Act.
    Concerns have been raised regarding the effect of the 
preemption provision in this section on the tax qualification 
of products under this program. The Committee has been assured 
that the provisions in question present no barrier to the 
products under this program being tax qualified under section 
7702B of the Internal Revenue Code. The Statement of 
Administration Policy on H.R. 4040 would express a similar 
concern if the Administration believed a problem existed.
    Section 9006. Studies, reports, and audits.--This section 
requires carriers with master contracts to furnish reasonable 
reports to OPM and permits OPM and GAO to examine the carrier's 
records as necessary to carry out this chapter. Additionally, 
federal agencies are required to keep records, make 
certifications, and furnish OPM with information and reports. 
GAO is required to compare the competitiveness of this program 
with group and individual coverage available in the private 
insurance market and submit written evaluations to OPM and each 
House of Congress before the end of the third and fifth years 
of this program. OPM is also required to cooperate with GAO in 
providing periodic evaluations of the program.
    Section 9007. Jurisdiction of courts.--This section 
provides that, after all required administrative remedies have 
been exhausted, individuals disputing a decision of a carrier 
or of OPM may file a civil action or claim against the carrier 
or against the United States in U.S. District Courts. In cases 
against the United States, the U.S. District Court jurisdiction 
shall be concurrent with that of the U.S. Court of Federal 
Claims.
    Section 9008. Administrative functions.--Under this 
section, OPM is required to prescribe the regulations necessary 
to carry out this chapter, including enrollment periods, 
promotion, and education efforts. In addition, OPM is required 
to consult with the appropriate Secretaries in prescribing 
regulations with respect to active and retired members of the 
uniformed services and their qualified relatives. OPM is also 
required to ensure that each applicant has the information 
necessary to make an informed decision about obtaining long-
term care insurance and to compare coverage and benefits to 
that otherwise generally available. OPM must provide 
information on the cost of long-term care and sufficiency of 
benefits to cover those costs, including the effects of 
inflation; an individual's right to cancel coverage and receive 
a premium refund; the number or percent of individuals likely 
to fail to maintain their coverage; how and when premiums for 
long-term care insurance under this chapter may be raised; a 10 
year premium history for each qualified long-term care insurer 
under this chapter and whether increases are anticipated; the 
projected premiums for a typical insured individual at various 
ages; and the general advantages and disadvantages of long-term 
care insurance relative to other means of meeting the costs of 
long-term care.
    The Committee strongly believes that eligible individuals 
will need access to a substantial amount of information in 
order to make an informed decision regarding the purchase of 
long-term care insurance coverage. Long-term care is a 
complicated product. For some, it is a good way for individuals 
to save for the future. But for others, it can have drawbacks. 
Given the size and diversity of the pool of eligibles, the 
Committee recognizes the need to strike the appropriate balance 
and to provide information that is adequate without being 
overwhelming. The Committee expects the Office of Personnel 
Management to involve the insurance industry, consumer 
advocates, state insurance commissioners, and other experts in 
the field in the development of appropriate educational 
materials, and to keep the Committee informed as to how it is 
meeting requirements specified in section 9008(d).
    Section 9009. Cost Accounting standards.--This section 
provides that long-term careinsurance contracts under this 
chapter are exempt from the cost accounting standards issued by the 
Office of Federal Procurement Policy.

Section 3. Effective date

    This section requires OPM to ensure that long-term care 
insurance coverage under this Act will be available so that it 
may take effect at the beginning of the first fiscal year 
following a period of 18 months after enactment.
    The Committee understands that some individuals eligible to 
participate in the long-term care insurance program made 
available by this Act have previously purchased such insurance 
in the private market. Some of these individuals have expressed 
an interest in converting their present long-term care 
insurance policies, purchased before this Act became law, into 
policies made available under the program authorized by this 
Act. The Committee directs the Office of Personnel Management 
to investigate and, to the extent practicable, facilitate such 
conversions with insurance carriers selected by the Office to 
sell long-term care insurance under the program authorized by 
this Act. The Committee acknowledges, however, that such 
conversions are to be contingent on whether they are allowed by 
policies purchased by eligible individuals before this Act 
became law. Further, the Committee directs the Office to 
examine whether facilitating such conversions would have an 
adverse impact on the program authorized by this Act. If the 
Office anticipates adverse impact from such conversions, it 
should take such findings into account before facilitating such 
conversions.

                      VI. Compliance With Rule XI

    Pursuant to rule XI, clause 2(1)(3)(A) of the Rules of the 
House of Representatives, under the authority of rule X, clause 
2(b)(1) and clause 3(f), the results and findings from 
Committee oversight activities are incorporated in the bill and 
this report.

                  VII. Budget Analysis and Projections

    The budget analysis and projections required by section 
308(a) of the Congressional Budget Act of 1974 are contained in 
the estimate of the Congressional Budget Office.

         VIII. Cost Estimate of the Congressional Budget Office

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, April 6, 2000.
Hon. Dan Burton,
Chairman, Committee on Government Reform,
Rayburn House Office Building, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4040, the Long-
Term Care Security Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Charles 
Betley.
            Sincerely,
                                           Steven Lieberman
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 4040--Long Term Care Security Act

    Summary: H.R. 4040 would require the Office of Personnel 
Management (OPM) to develop and administer a long-term care 
insurance program for federal employees, members of the 
uniformed services, retirees from federal or military service, 
and specified relatives of the primary eligible groups. Because 
the federal government would not contribute to the enrollees' 
premiums, and the insurer or insurers would be required to 
reimburse OPM for its expenses in setting up and administering 
the plan, net federal outlays would be zero over the long run.
    However, 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 Employee's Life Insurance Fund. CBO estimates that 
such outlays would increase direct spending by $3 million 
during fiscal year 2001 and $18 million during 2002, while 
receipts would exceed outlays by $2 million in 2003 and by $4 
million per year in 2004 and 2005. Because the bill would 
affect direct spending, pay-as-you-go procedures would apply.
    H.R. 4040 provides that the contracts for long-term care 
offered under the bill would supersede and preempt state and 
local laws governing long-term care insurance or contracts. 
This preemption would be an intergovernmental mandate as 
defined in the Unfunded Mandates Reform Act (UMRA). The bill 
does not contain any private-sector mandates.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 4040 is shown in the following table. 
The costs of this legislation fall within budget function 600 
(income security).

----------------------------------------------------------------------------------------------------------------
                                                                         By fiscal year, in millions of dollars

                                                                    --------------------------------------------
                                                                       2001     2002     2003     2004     2005
----------------------------------------------------------------------------------------------------------------
                                           Changes in Direct Spending

Estimated Budget Authority.........................................        0        0        0        0        0
Estimated Outlays..................................................        3       18       -2       -4       -4
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: H.R. 4040 specifies that eligible 
individuals who opt to purchase long-term care insurance would 
be responsible for 100 percent of the cost of the premiums, so 
that the federal government would not incur net costs over the 
long term. However, because OPM would expend funds for start-up 
and administrative expenses before enrolles' premiums are 
received, the agency would incur outlays in 2001 and 2002, 
which would be direct spending from the Employee's Life 
Insurance Fund.
    Upon enactment of H.R. 4040, OPM would be allowed 18 months 
to set up the long-term care insurance program. CBO assumes 
that, if the bill were enacted in fiscal year 2000, OPM would 
begin in 2001 to negotiate with one or more insurance carriers 
to establish the benefits to be provided under the plan and the 
premiums to be charged. Marketing the chosen plan or plans 
would begin in 2002. The program would take effect in 2003, and 
premiums would begin to be deducted from enrollees' salary or 
retirement payments. The federal government would not 
contribute to the enrollees' premiums, and the insurer or 
insurers would be required to reimburse OPM for the agency's 
expenses in setting up and administering the plan.
    The expenses that OPM would incur before being able to 
collect premiums from enrollees and reimbursement from the 
insurers would be paid from the Employees' Life Insurance Fund. 
The only limitation on these outlays are the bill's requirement 
that they be ``reasonable.'' Based on information from OPM and 
the costs of administering other benefit programs, CBO 
estimates that start-up costs over three fiscal years would be 
about $23 million. A significant portion of the costs would be 
for education and outreach--especially for printing and mailing 
brochures to inform potential participants of their eligibility 
and options under the plan. About 10 percent of the estimated 
costs represents expenses for drafting plan specifications, 
evaluating contract proposals, negotiating with contractors, 
and setting up systems for tracking enrollment and premium 
deductions.
    Expenditures for education and outreach would be 
significant because long-term care insurance is a new type of 
benefit, unlike pensions and health insurance, which are 
already established and familiar. Furthermore, OPM would have 
to contact active and retired military personnel, whose 
benefits are ordinarily administered by the Department of 
Defense. More intensive outreach efforts may attract a larger 
pool of participants, which would help to assure the plan's 
financial solvency by broadening the distribution of people who 
pay premiums and including more enrollees with lower risk of 
needing services.
    Expenses of $3 million in 2001 would be primarily for 
developing plans, while education and outreach expenses are 
projected to increase outlays to $18 million in 2002. Start-up 
expenses for administrative costs and processing enrollment in 
the first year of the plan's operation are estimated to amount 
to $2 million in 2003. Once the insurance program is 
established, CBO expects that, beginning in 2003, OPM would 
incur costs of about $1 million annually to administer it.
    Those ongoing expenses are expected to remain steady unless 
another open season is held. The bill directs OPM 
``periodically'' to conduct open enrollment seasons, during 
which administrative expenses would be expected to increase. 
However, frequent open seasons would create greater 
opportunities for risk selection, as low-risk individuals could 
defer joining the plan until they perceive that their risk of 
needing long-term care has changed. The bill would make it 
harder for people to elect coverage only when their risk 
changes by authorizing the insurance plans to apply 
underwriting standards for individuals who defer joining at 
their first opportunity. Nevertheless, CBO expects that OPM 
would allow open seasons infrequently. If open seasons occur at 
the same intervals as the length of the contract specified in 
the bill, or once every seven years, the next increase in 
outlays for a new open season would occur in 2010.
    CBO expects that reimbursement of the $23 million in start-
up costs, including interest paid at the current rate for 
Treasury bills, and for ongoing administrative expenses, would 
be spread over the duration of the seven-year contract 
specified in the legislation. Those payments from insurers 
would result in offsetting collections of $5 million a year to 
the Life Insurance Fund beginning in 2003. Since payments from 
the contracting insurers would lag outlays, net outlays over 
the 2001-2005 period would be about $11 million.
    H.R. 4040 specifies that the government collect premiums 
from most enrollees by withholding a portion of their pay and, 
in turn, transfer those amounts to the insurance companies. 
These transactions would also be direct spending but would have 
no significant net effect on the budget.
    Pay-as-you-go considerations: Section 252 of the Balanced 
Budget and Emergency Deficit Control Act sets up pay-as-you-go 
procedures for legislation affecting direct spending or 
receipts. The net changes in outlays and governmental receipts 
that are subject to pay-as-you-go procedures are shown in the 
following table. For the purposes of enforcing pay-as-you-go 
procedures, only the effects in the current year, the budget 
year, and the succeeding four years are counted.

----------------------------------------------------------------------------------------------------------------
                                                          By fiscal year, in millions of dollars--
                                           ---------------------------------------------------------------------
                                             2001   2002   2003   2004   2005   2006   2007   2008   2009   2010
----------------------------------------------------------------------------------------------------------------
Changes in outlays........................      3     18     -2     -4     -4     -4     -4     -4     -4      3
Change in receipts........................                             Not applicable
----------------------------------------------------------------------------------------------------------------

    Estimated impact on State, local, and tribal governments: 
H.R. 4040 provides that the contracts for long-term care 
offered under the bill would supersede and preempt state and 
local laws governing long-term care insurance or contracts. 
This preemption would be an intergovernmental mandate as 
defined in UMRA. By preempting those state and local laws, the 
bill would enable the federal government to enter into 
contracts for long-term care insurance without meeting the 
various state and local requirements and limitations on such 
coverage. CBO estimates that the limitation on regulatory and 
oversight authority would result in no costs to state, local, 
or tribal governments.
    Estimated impact on the private sector: The bill does not 
contain private-sector mandates as defined in UMRA.
    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.

       IX. Specific Constitutional Authority for this Legislation

    Clauses 1 and 18 of Article I, Sec. 8 of the Constitution 
grant Congress the power to enact this law.

                      X. Committee Recommendation

    On March 30, 2000, a quorum being present, the Committee 
ordered the bill, as amended, favorably reported.

        Committee on Government Reform--106th Congress Rollcall

    Date: March 30, 2000.
    Amendment offered by: Hon. Dan Burton.
    Adopted by voice vote.
    Final Passage of H.R. 4040, as amended.
    Offered by: Hon. Dan Burton.
    Adopted by voice vote.

    XI. Congressional Accountability Act; Public Law 104-1; Section 
                               102(B)(3)

    H.R. 4040 will allow employees in the legislative branch to 
purchase private long-term care insurance under the same terms 
as other federal employees.

    XII. Unfunded Mandates Reform Act; Public Law 104-4; Section 423

    H.R. 4040 does not impose any federal mandates on state, 
local, or tribal governments. However, in order to ensure that 
all federal employees are offered a uniform benefit nationwide, 
H.R. 4040 preempts state and local laws relating to long-term 
care insurance or plans.

   XIII. Federal Advisory Committee Act (5 U.S.C. App.) Section 5(b)

    The Committee finds that H.R. 4040 does not establish or 
authorize establishment of an advisory committee within the 
definition of 5 U.S.C. App., Section 5(b).

       XIV. Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                     TITLE 5, UNITED STATES CODE

           *       *       *       *       *       *       *

                         PART III--EMPLOYEES

           *       *       *       *       *       *       *

                   Subpart G--Insurance and Annuities

Chap.                                                               Sec.
      Compensation for Work Injuries................................8101
     * * * * * * *
9001.ong-Term Care Insurance..........................................

           *       *       *       *       *       *       *

                  Subpart G--Insurance and Annuities

           *       *       *       *       *       *       *

                  CHAPTER 90--LONG-TERM CARE INSURANCE

Sec.
9001. Definitions.
9002. Availability of insurance.
9003. Contracting authority.
9004. Financing.
9005. Preemption.
9006. Studies, reports, and audits.
9007. Jurisdiction of courts.
9008. Administrative functions.
9009. Cost accounting standards.

Sec. 9001. Definitions

  For purposes of this chapter:
          (1) Employee.--The term ``employee'' means--
                  (A) an employee as defined by section 
                8901(1); and
                  (B) an individual described in section 
                2105(e);
        but does not include an individual employed by the 
        government of the District of Columbia.
          (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.
          (3) Member of the uniformed services.--The term 
        ``member of the uniformed services'' means a member of 
        the uniformed services, other than a retired member of 
        the uniformed services.
          (4) Retired member of the uniformed services.--The 
        term ``retired member of the uniformed services'' means 
        a member or former member of the uniformed services 
        entitled to retired or retainer pay.
          (5) Qualified relative.--The term ``qualified 
        relative'' means each of the following:
                  (A) The spouse of an individual described in 
                paragraph (1), (2), (3), or (4).
                  (B) A parent, stepparent, or parent-in-law of 
                an individual described in paragraph (1) or 
                (3).
                  (C) A child (including an adopted child, a 
                stepchild, or, to the extent the Office of 
                Personnel Management by regulation provides, a 
                foster child) of an individual described in 
                paragraph (1), (2), (3), or (4), if such child 
                is at least 18 years of age.
                  (D) An individual having such other 
                relationship to an individual described in 
                paragraph (1), (2), (3), or (4) as the Office 
                may by regulation prescribe.
          (6) Eligible individual.--The term ``eligible 
        individual'' refers to an individual described in 
        paragraph (1), (2), (3), (4), or (5).
          (7) Qualified carrier.--The term ``qualified 
        carrier'' means an insurance company (or consortium of 
        insurance companies) that is licensed to issue long-
        term care insurance in all States, taking any 
        subsidiaries of such a company into account (and, in 
        the case of a consortium, considering the member 
        companies and any subsidiaries thereof, collectively).
          (8) State.--The term ``State'' includes the District 
        of Columbia.
          (9) Qualified long-term care insurance contract.--The 
        term ``qualified long-term care insurance contract'' 
        has the meaning given such term by section 7702B of the 
        Internal Revenue Code of 1986.
          (10) Appropriate secretary.--The term ``appropriate 
        Secretary'' means--
                  (A) except as otherwise provided in this 
                paragraph, the Secretary of Defense;
                  (B) with respect to the Coast Guard when it 
                is not operating as a service of the Navy, the 
                Secretary of Transportation;
                  (C) with respect to the commissioned corps of 
                the National Oceanic and Atmospheric 
                Administration, the Secretary of Commerce; and
                  (D) with respect to the commissioned corps of 
                the Public Health Service, the Secretary of 
                Health and Human Services.

Sec. 9002. Availability of insurance

  (a) In General.--The Office of Personnel Management shall 
establish and, in consultation with the appropriate 
Secretaries, administer a program through which an individual 
described in paragraph(1), (2), (3), (4), or (5) of section 
9001 may obtain long-term care insurance coverage under this chapter 
for such individual.
  (b) General Requirements.--Long-term care insurance may not 
be offered under this chapter unless--
          (1) the only coverage provided is under qualified 
        long-term care insurance contracts; and
          (2) each insurance contract under which any such 
        coverage is provided is issued by a qualified carrier.
  (c) Documentation Requirement.--As a condition for obtaining 
long-term care insurance coverage under this chapter based on 
one's status as a qualified relative, an applicant shall 
provide documentation to demonstrate the relationship, as 
prescribed by the Office.
  (d) Underwriting Standards.--
          (1) Disqualifying condition.--Nothing in this chapter 
        shall be considered to require that long-term care 
        insurance coverage be made available in the case of any 
        individual who would be eligible for benefits 
        immediately.
          (2) Spousal parity.--For the purpose of underwriting 
        standards, a spouse of an individual described in 
        paragraph (1), (2), (3), or (4) of section 9001 shall, 
        as nearly as practicable, be treated like that 
        individual.
          (3) Guaranteed issue.--Nothing in this chapter shall 
        be considered to require that long-term care insurance 
        coverage be guaranteed to an eligible individual.
          (4) Requirement that contract be fully insured.--In 
        addition to the requirements otherwise applicable under 
        section 9001(9), in order to be considered a qualified 
        long-term care insurance contract for purposes of this 
        chapter, a contract must be fully insured, whether 
        through reinsurance with other companies or otherwise.
          (5) Higher standards allowable.--Nothing in this 
        chapter shall, in the case of an individual applying 
        for long-term care insurance coverage under this 
        chapter after the expiration of such individual's first 
        opportunity to enroll, preclude the application of 
        underwriting standards more stringent than those that 
        would have applied if that opportunity had not yet 
        expired.
  (e) Guaranteed Renewability.--The benefits and coverage made 
available to eligible individuals under any insurance contract 
under this chapter shall be guaranteed renewable (as defined by 
section 7A(2) of the model regulations described in section 
7702B(g)(2) of the Internal Revenue Code of 1986), including 
the right to have insurance remain in effect so long as 
premiums continue to be timely made. However, the authority to 
revise premiums under this chapter shall be available only on a 
class basis and only to the extent otherwise allowable under 
section 9003(b).

Sec. 9003. Contracting authority

  (a) In General.--The Office of Personnel Management shall, 
without regard to section 5 of title 41 or any other statute 
requiring competitive bidding, contract with 1 or more 
qualified carriers for a policy or policies of long-term care 
insurance. The Office shall ensure that each resulting contract 
(hereinafter in this chapter referred to as a ``master 
contract'') is awarded on the basis of contractor 
qualifications, price, and reasonable competition.
  (b) Terms and Conditions.--
          (1) In general.--Each master contract under this 
        chapter shall contain--
                  (A) a detailed statement of the benefits 
                offered (including any maximums, limitations, 
                exclusions, and other definitions of benefits);
                  (B) the premiums charged (including any 
                limitations or other conditions on their 
                subsequent adjustment);
                  (C) the terms of the enrollment period; and
                  (D) such other terms and conditions as may be 
                mutually agreed to by the Office and the 
                carrier involved, consistent with the 
                requirements of this chapter.
          (2) Premiums.--Premiums charged under each master 
        contract entered into under this section shall 
        reasonably and equitably reflect the cost of the 
        benefits provided, as determined by the Office. The 
        premiums shall not be adjusted during the term of the 
        contract unless mutually agreed to by the Office and 
        the carrier.
          (3) Nonrenewability.--Master contracts under this 
        chapter may not be made automatically renewable.
  (c) Payment of Required Benefits; Dispute Resolution.--
          (1) In general.--Each master contract under this 
        chapter shall require the carrier to agree--
                  (A) to provide payments or benefits to an 
                eligible individual if such individual is 
                entitled thereto under the terms of the 
                contract;
                  (B) to establish internal administrative 
                procedures designed to expeditiously resolve 
                disputes regarding claims for payments or 
                benefits under the terms of the contract; and
                  (C) for disputes not resolved under 
                subparagraph (B), to establish procedures for 1 
                or more alternative means of dispute resolution 
                involving independent third-party review under 
                appropriate circumstances mutually acceptable 
                to the Office and the carrier.
          (2) Eligibility.--A carrier's determination as to 
        whether or not a particular individual is eligible to 
        obtain long-term care insurance coverage under this 
        chapter shall be subject to review only to the extent 
        and in the manner provided in the applicable master 
        contract.
          (3) Other claims.--Disputes arising under this 
        chapter between a carrier and the Office shall, after 
        exhaustion of administrative remedies, be subject to de 
        novo judicial review under section 9007.
          (4) Rule of construction.--Nothing in this chapter 
        shall be considered to grant authority for the Office 
        or a third-party reviewer to change the terms of any 
        contract under this chapter.
  (d) Duration.--
          (1) In general.--Each master contract under this 
        chapter shall be for a term of 7 years, unless 
        terminated earlier by the Office in accordance with the 
        terms of such contract. However, the rights and 
        responsibilities of the enrolled individual, 
        the insurer, and the Office (or duly designated third-party 
        administrator) under such contract shall continue with 
        respect to such individual until the termination of coverage 
        of the enrolled individual or the effective date of a 
        successor contract thereto.
          (2) Exception.--
                  (A) Shorter duration.--In the case of a 
                master contract entered into before the end of 
                the period described in subparagraph (B), 
                paragraph (1) shall be applied by substituting 
                ``ending on the last day of the 7-year period 
                described in paragraph (2)(B)'' for ``of 7 
                years''.
                  (B) Definition.--The period described in this 
                subparagraph is the 7-year period beginning on 
                the earliest date as of which any long-term 
                care insurance coverage under this chapter 
                becomes effective.
          (3) Congressional notification.--No later than 180 
        days after receiving the second report required under 
        section 9006(c), the Office of Personnel Management 
        shall submit to the Committees on Government Reform and 
        on Armed Services of the House of Representatives and 
        the Committees on Governmental Affairs and on Armed 
        Services of the Senate, a written recommendation as to 
        whether the program under this chapter should be 
        continued without modification, terminated, or 
        restructured. During the 180-day period following the 
        date on which it submits its recommendation under this 
        paragraph, the Office may not take any steps to rebid 
        or otherwise contract for any coverage to be available 
        at any time following the expiration of the 7-year 
        period described in paragraph (2)(B).
          (4) Full portability.--Each master contract under 
        this chapter shall include such provisions as may be 
        necessary to ensure that, once an individual becomes 
        duly enrolled, long-term care insurance coverage 
        obtained by such individual pursuant to that enrollment 
        shall not be terminated due to any change in status 
        (such as separation from Government service or the 
        uniformed services) or ceasing to meet the requirements 
        for being considered a qualified relative (whether as a 
        result of dissolution of marriage or otherwise).

Sec. 9004. Financing

  (a) In General.--Each eligible individual obtaining long-term 
care insurance coverage under this chapter shall be responsible 
for 100 percent of the premiums for such coverage.
  (b) Withholdings.--
          (1) In general.--The amount necessary to pay the 
        premiums for enrollment may--
                  (A) in the case of an employee, be withheld 
                from the pay of such employee;
                  (B) in the case of an annuitant, be withheld 
                from the annuity of such annuitant;
                  (C) in the case of a member of the uniformed 
                services described in section 9001(3), be 
                withheld from the basic pay of such member; and
                  (D) in the case of a retired member of the 
                uniformed services described in section 
                9001(4), be withheld from the retired pay or 
                retainer pay payable to such member.
          (2) Voluntary withholdings for qualified relatives.--
        Withholdings to pay the premiums for enrollment of a 
        qualified relative may, upon election of the 
        appropriate eligible individual (described in section 
        9001(1)-(4)), be withheld under paragraph (1) to the 
        same extent and in the same manner as if enrollment 
        were for such individual.
  (c) Direct Payments.--All amounts withheld under this section 
shall be paid directly to the carrier.
  (d) Other Forms of Payment.--Any enrollee who does not elect 
to have premiums withheld under subsection (b) or whose pay, 
annuity, or retired or retainer pay (as referred to in 
subsection (b)(1)) is insufficient to cover the withholding 
required for enrollment (or who is not receiving any regular 
amounts from the Government, as referred to in subsection 
(b)(1), from which any such withholdings may be made, and whose 
premiums are not otherwise being provided for under subsection 
(b)(2)) shall pay an amount equal to the full amount of those 
charges directly to the carrier.
  (e) Separate Accounting Requirement.--Each carrier 
participating under this chapter shall maintain records that 
permit it to account for all amounts received under this 
chapter (including investment earnings on those amounts) 
separate and apart from all other funds.
  (f) Reimbursements.--
          (1) The Office shall have access to the Employees' 
        Life Insurance Fund without fiscal year limitation for 
        its reasonable expenses in administering this chapter, 
        including reasonable initial implementation costs.
          (2) Each master contract under this chapter shall 
        include appropriate provisions under which the carrier 
        involved shall reimburse the Employees' Life Insurance 
        Fund for funds accessed under paragraph (1) (including 
        lost investment income), on a pro rata basis.

Sec. 9005. Preemption

  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.

Sec. 9006. Studies, reports, and audits

  (a) Provisions Relating to Carriers.--Each master contract 
under this chapter shall contain provisions requiring the 
carrier--
          (1) to furnish such reasonable reports as the Office 
        of Personnel Management determines to be necessary to 
        enable it to carry out its functions under this 
        chapter; and
          (2) to permit the Office and representatives of the 
        General Accounting Office to examine such records of 
        the carrier as may be necessary to carry out the 
        purposes of this chapter.
  (b) Provisions Relating to Federal Agencies.--Each Federal 
agency shall keep such records, make such certifications, and 
furnish the Office, the carrier, or both, with such information 
and reports as the Office may require.
  (c) Reports by the General Accounting Office.--The General 
Accounting Office shall prepare and submit to the Office of 
Personnel Management and each House of Congress, before the end 
of the third and fifth years during which the program under 
this chapter is in effect, a written report evaluating such 
program. Each such report shall include an analysis of the 
competitiveness of the program, as compared to both group and 
individual coverage generally available to individuals in the 
private insurance market. The Office shall cooperate with the 
General Accounting Office to provide periodic evaluations of 
the program.

Sec. 9007. Jurisdiction of courts

  The district courts of the United States have original 
jurisdiction of a civil action or claim against the United 
States or a carrier founded on this chapter, after such 
administrative remedies as required under section 9003(c)(2) or 
(3) have been exhausted, but only to the extent judicial review 
is not precluded by any dispute resolution or other 
administrative remedy under this chapter. In cases against the 
United States, the jurisdiction of the district courts shall be 
concurrent with that of the United States Court of Federal 
Claims.

Sec. 9008. Administrative functions

  (a) In General.--The Office of Personnel Management shall 
prescribe regulations necessary to carry out this chapter.
  (b) Enrollment Periods.--The Office shall provide for 
periodic coordinated enrollment, promotion, and education 
efforts in consultation with the carriers.
  (c) Consultation.--Any regulations necessary to effect the 
application and operation of this chapter with respect to an 
eligible individual described in paragraph (3) or (4) of 
section 9001, or a qualified relative thereof, shall be 
prescribed by the Office in consultation with the appropriate 
Secretary.
  (d) Informed Decisionmaking.--The Office shall ensure that 
each eligible individual applying for long-term care insurance 
under this chapter is furnished the information necessary to 
enable that individual to evaluate the advantages and 
disadvantages of obtaining long-term care insurance under this 
chapter, including:
          (1) The principal long-term care benefits and 
        coverage available under this chapter, and how those 
        benefits and coverage compare to the range of long-term 
        care benefits and coverage otherwise generally 
        available.
          (2) Representative examples of the cost of long-term 
        care, and the sufficiency of the benefits available 
        under this chapter relative to those costs. The 
        information under this paragraph shall also include--
                  (A) the projected effect of inflation on the 
                value of those benefits; and
                  (B) a comparison of the inflation-adjusted 
                value of those benefits to the projected future 
                costs of long-term care.
          (3) Any rights individuals under this chapter may 
        have to cancel coverage, and to receive a total or 
        partial refund of premiums. The information under this 
        paragraph shall also include--
                  (A) the projected number or percentage of 
                individuals likely to fail to maintain their 
                coverage (determined based on lapse rates 
                experienced under similar group long-term care 
                insurance programs and, when available, this 
                chapter); and
                  (B)(i) a summary description of how and when 
                premiums for long-term care insurance under 
                this chapter may be raised;
                  (ii) the premium history during the last 10 
                years for each qualified carrier offering long-
                term care insurance under this chapter; and
                  (iii) if cost increases are anticipated, the 
                projected premiums for a typical insured 
                individual at various ages.
          (4) The advantages and disadvantages of long-term 
        care insurance generally, relative to other means of 
        accumulating or otherwise acquiring the assets that may 
        be needed to meet the costs of long-term care, such as 
        through tax-qualified retirement programs or other 
        investment vehicles.

Sec. 9009. Cost accounting standards

  The cost accounting standards issued pursuant to section 
26(f) of the Office of Federal Procurement Policy Act (41 
U.S.C. 422(f)) shall not apply with respect to a long-term care 
insurance contract under this chapter.

                        Committee Correspondence

                          House of Representatives,
                            Committee on Government Reform,
                                    Washington, DC, March 21, 2000.
Hon. Janice R. Lachance,
Director, Office of Personnel Management,
Washington, DC.
    Dear Madam Director: The House Committee on Government 
Reform, Civil Service Subcommittee, is currently considering 
legislation that would authorize the Office of Personnel 
Management (OPM) to purchase group insurance policies from 
qualified private-sector contractors to make long-term care 
insurance available to federal employees, federal employees' 
spouses, federal retirees, and family members.
    In meetings with my staff, OPM representatives have stated 
that, for the purpose of underwriting, a ``modified guarantee 
issue'' application form would be used to determine the 
eligibility of at-work federal employees, and their spouses, 
for long-term care insurance. Please explain ``modified 
guarantee issue'' and how it would be applied to at-work 
federal employees and their spouses.
    A prompt response to this request would be appreciated. If 
you have any questions, please contact Tania Shand, of my 
staff.
            Sincerely,
                                           Henry A. Waxman,
                                           Ranking Minority Member.
                                ------                                

                            Office of Personnel Management,
                                    Washington, DC, March 22, 2000.
Hon. Henry Waxman,
Ranking Minority Member,
Committee on Government Reform,
House of Representatives,
Washington, DC.
    Dear Congressman Waxman: Thank you for your letter dated 
March 20, 2000, requesting additional information on how the 
Office of Personnel Management (OPM) would implement a long-
term care insurance program for Federal employees and their 
spouses, as it pertains to underwriting standards and modified 
guarantee issue.
    In keeping with our mission to provide Government-wide 
human resource management leadership, one of OPM's objectives 
is to achieve a modern, performance-oriented compensation 
system. As part of that, we intend to include a quality and 
affordable group long-term care benefit package for Federal 
employees and their family members.
    Although we cannot state definitively what the final 
underwriting standards will be, we can describe what our goals 
will be in approaching this important issue.

At-work Federal employees

    If OPM is authorized to establish a long-term care 
insurance program for Federal employees, we will work to 
negotiate a long-term care benefit package that is affordable 
for all eligible groups. We intend to make this long-term care 
insurance available to as many at-work Federal employees as 
possible.
    Our goal for at-work Federal employees will be to apply 
minimal underwriting standards, often referred to in the 
insurance industry as ``modified guaranteed issue,'' during 
their initial enrollment period. Our objective would be to make 
Federal long-term care insurance available to all at-work 
Federal employees except for those who would be eligible for 
benefits immediately. Thus, we anticipate asking questions 
aimed at determining if at-work employees require assistance 
with activities of daily living, such as eating or bathing. Our 
goal would be to avoid asking detailed questions about the 
health status of at-work employees.
    We expect that different underwriting standards would apply 
in the case of at-work employees who seek to enroll in the 
long-term care program after the initial enrollment period. To 
prevent adverse selection, additional underwriting questions 
are likely to be required for these employees.

Spouses of Federal employees

    Our goal will be to treat spouses of at-work Federal 
employees in much the same way we treat at-work Federal 
employees. This means that our goal would be to ask them the 
same questions that we ask at-work Federal employees.
    In the case of at-work Federal employees, we know something 
about their health status simply by virtue of the fact that 
they are actively at work. We do not have the same information 
about spouses of Federal employees. Although it is our 
intention to treat spouses like at-work Federal employees, it 
may be necessary to seek additional information from spouses 
during the underwriting process to compensate for the fact that 
we do not know they are actively at work. However, our goal 
will be to seek as little additional information as necessary.

Premium considerations

    A long-term care insurance program can provide a 
substantial benefit to Federal employees, their spouses, 
Federal retirees, and other eligible participants by providing 
access to quality long-term care insurance products on a group 
basis. To achieve a viable program, however, we believe that 
Federal long-term care insurance must be less expensive than 
the insurance that a Federal employee can obtain on the private 
long-term care market. The level of underwriting affects the 
insurer's ability to assess the risk of enrolling an applicant 
for coverage and what the cost of that coverage should be.
    For this reason, until we have engaged in contract 
negotiations with the long-term care carrier or carriers, we 
will not be in a position to be definitive about what specific 
underwriting standard will be applied to eligible groups. Our 
intent will be to achieve the goals described above and to 
insure as many participants as possible. We will also explore 
alternative forms of coverage for those who do not meet the 
underwriting standards applied to the workforce at large. Until 
we complete contract negotiations, we will not know for certain 
the details of the underwriting standards.
    We look forward to working with Congress, Federal employee 
groups, and the insurance industry to implement a successful 
long-term care insurance program for Federal employees.
            Sincerely,
                                      Janice R. Lachance, Director.

                                  

```