I

103D CONGRESS

2D SESSION H. R. 4516

To amend the Internal Revenue Code of 1986 and other laws to improve

and promote the provision of long-term care in the United States.

IN THE HOUSE OF REPRESENTATIVES

MAY 26, 1994

Mrs. KENNELLY (for herself and Mrs. JOHNSON of Connecticut) introduced

the following bill; which was referred jointly to the Committees on Energy

and Commerce and Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 and other

laws to improve and promote the provision of long-term

care in the United States.

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

5 ‘‘Long-Term Care Act of 1994’’.

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

7 this Act is as follows:

Sec. 1. Short title; table of contents.

TITLE I—ESTABLISHMENT OF FEDERAL STANDARDS FOR LONGTERM CARE INSURANCE
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Sec. 101. Establishment of Federal standards for long-term care insurance.

‘‘TITLE XXVII—LONG-TERM CARE INSURANCE STANDARDS

‘‘PART A—PROMULGATION OF STANDARDS AND MODEL BENEFITS

‘‘Sec. 2701. Standards.

‘‘PART B—ESTABLISHMENT AND IMPLEMENTATION OF LONG-TERM CARE

INSURANCE POLICY STANDARDS

‘‘Sec. 2711. Implementation of policy standards.

‘‘Sec. 2712. Regulation of sales practices.

‘‘Sec. 2713. Additional responsibilities for carriers.

‘‘Sec. 2714. Renewability standards for issuance, and basis for cancellation

of policies.

‘‘Sec. 2715. Benefit standards.

‘‘Sec. 2716. Option to purchase nonforfeiture benefits.

‘‘Sec. 2717. Limit of period of contestability and right to return.

‘‘Sec. 2718. Civil money penalty.

‘‘PART C—LONG-TERM CARE INSURANCE POLICIES, DEFINITION AND

ENDORSEMENTS

‘‘Sec. 2721. Long-term care insurance policy defined.

‘‘Sec. 2722. Code of conduct with respect to endorsements.

‘‘PART D—MISCELLANEOUS PROVISIONS

‘‘Sec. 2731. Funding for long-term care insurance information, counseling,

and assistance.

‘‘Sec. 2732. Definitions.’’

TITLE II—TAX TREATMENT

Subtitle A—Long-Term Care Insurance

Sec. 201. Qualified long-term care insurance defined and treated as accident or

health insurance.

Sec. 202. Qualified long-term care insurance treated as accident and health insurance for purposes of exclusion for benefits received under

such insurance and for employer contributions for such insurance.

Sec. 203. Early distribution penalty tax not to apply to amounts withdrawn

from qualified plans, individual retirement plans, etc. for qualified long-term insurance.

Sec. 204. Deduction of expenses relating to qualified long-term care.

Sec. 205. Treatment of prefunded long-term care benefits.

Sec. 206. Qualified long-term care insurance permitted to be offered in cafeteria plans.

Subtitle B—Payments under Life Insurance Contracts to Terminally Ill

Individuals

Sec. 211. Tax treatment of payments to terminally ill individuals under life insurance contracts.

Sec. 212. Tax treatment of companies issuing qualified terminal illness riders.
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TITLE III—ELIMINATION OF MEDICAID RESTRICTION ON STATE

ASSET PROTECTION PROGRAMS

Sec. 301. Elimination of medicaid restriction on State asset protection programs.

Sec. 302. Protection of assets through use of qualified long-term care insurance.

TITLE IV—STATE PROGRAMS FOR HOME AND COMMUNITY-BASED

SERVICES FOR INDIVIDUALS WITH DISABILITIES

Sec. 401. State programs for home and community-based services for individuals with disabilities.

Sec. 402. State plans.

Sec. 403. Individuals with disabilities defined.

Sec. 404. Home and community-based services covered under State plan.

Sec. 405. Cost sharing.

Sec. 406. Quality assurance and safeguards.

Sec. 407. Advisory groups.

Sec. 408. Payments to States.

Sec. 409. Total Federal budget; allotments to States.

TITLE V—REBASING MEDICARE PAYMENT RATES

Subtitle A—Rehabilitation Hospitals

Sec. 501. Definition of rehabilitation hospitals.

Sec. 502. Payment rules.

Sec. 503. Payment for operating costs of rehabilitation hospitals.

Subtitle B—Long-Term Hospitals

Sec. 511. Payment rules.

1 TITLE I—ESTABLISHMENT OF

2 FEDERAL STANDARDS FOR

3 LONG-TERM CARE INSUR4 ANCE

5 SEC. 101. ESTABLISHMENT OF FEDERAL STANDARDS FOR

6 LONG-TERM CARE INSURANCE.

7 (a) IN GENERAL.—The Public Health Service Act is

8 amended—

9 (1) by redesignating title XXVII (42 U.S.C.

10 300cc et seq.) as title XXVIII; and
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1 (2) by inserting after title XXVI the following

2 new title:

3 ‘‘TITLE XXVII—LONG-TERM CARE

4 INSURANCE STANDARDS

5 ‘‘PART A—PROMULGATION OF STANDARDS AND MODEL

6 BENEFITS

7 ‘‘SEC. 2701. STANDARDS.

8 ‘‘(a) APPLICATION OF STANDARDS.—

9 ‘‘(1) NAIC.—The Secretary shall request that

10 the National Association of Insurance Commis11 sioners (hereinafter in this title referred to as the

12 ‘NAIC’)—

13 ‘‘(A) develop specific standards that incor14 porate the requirements of this title; and

15 ‘‘(B) report to the Secretary on such

16 standards,

17 by not later than 12 months after enactment of this

18 title. If the NAIC develops such model standards

19 that incorporate the requirements of this title within

20 such period and the Secretary finds that such stand21 ards implement the requirements of this title, such

22 standards shall be the standards applied under this

23 title.

24 ‘‘(2) DEFAULT.—If the NAIC does not promul25 gate the model standards under paragraph (1) by
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1 the deadline established in that paragraph, the Sec2 retary shall promulgate, within 12 months after such

3 deadline, a regulation that provides standards that

4 incorporate the requirements of this title and such

5 standards shall apply as provided for in this title.

6 ‘‘(3) RELATION TO STATE LAW.—Nothing in

7 this title shall be construed as preventing a State

8 from applying standards if—

9 ‘‘(A) the standards provide greater protec10 tion to policyholders of long-term care insur11 ance policies than the standards promulgated

12 under this title, except that such State stand13 ards may not be inconsistent or in conflict with

14 any of the requirements of this title; or

15 ‘‘(B) the Secretary finds that the stand16 ards do not unduly burden interstate commerce,

17 or adversely impact the quality and availability

18 of affordable long-term care insurance.

19 ‘‘(b) DEADLINE FOR APPLICATION OF STAND20 ARDS.—

21 ‘‘(1) IN GENERAL.—Subject to paragraph (2),

22 the date specified in this subsection for a State is—

23 ‘‘(A) the date the State adopts the stand24 ards established under subsection (a)(1); or
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1 ‘‘(B) the date that is 1 year after the first

2 day of the first regular legislative session that

3 begins after the date such standards are first

4 established under subsection (a)(2);

5 whichever is earlier.

6 ‘‘(2) STATE REQUIRING LEGISLATION.—In the

7 case of a State which the Secretary identifies, in

8 consultation with the NAIC, as—

9 ‘‘(A) requiring State legislation (other than

10 legislation appropriating funds) in order for the

11 standards established under subsection (a) to be

12 applied; but

13 ‘‘(B) having a legislature which is not

14 scheduled to meet within 1 year following the

15 beginning of the next regular legislative session

16 in which such legislation may be considered;

17 the date specified in this subsection is the first day

18 of the first calendar quarter beginning after the

19 close of the first legislative session of the State legis20 lature that begins on or after January 1, 1994. For

21 purposes of the previous sentence, in the case of a

22 State that has a 2-year legislative session, each year

23 of such session shall be deemed to be a separate reg24 ular session of the State legislature.
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1 ‘‘(c) ITEMS INCLUDED IN STANDARDS.—The stand2 ards promulgated under subsection (a) shall include—

3 ‘‘(1) minimum Federal standards for long-term

4 care insurance consistent with the provisions of this

5 title;

6 ‘‘(2) standards for the enhanced protection of

7 consumers with long-term care insurance;

8 ‘‘(3) procedures for the modification of the

9 standards established under paragraph (1) in a

10 manner consistent with future laws to expand exist11 ing Federal or State long-term care benefits or es12 tablish a comprehensive Federal or State long-term

13 care benefit program; and

14 ‘‘(4) other activities determined appropriate by

15 Congress.

16 ‘‘(d) CONSULTATION.—In establishing standards and

17 models of benefits under this section, the Secretary shall

18 provide for and consult with an advisory committee to be

19 chosen by the Secretary, and composed of—

20 ‘‘(1) three individuals who are representatives

21 of carriers;

22 ‘‘(2) three individuals who are representatives

23 of consumer groups;

24 ‘‘(3) three representatives who are representa25 tives of providers of long-term care services;
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1 ‘‘(4) three other individuals who are not rep2 resentatives of carriers or of providers of long-term

3 care services and who have expertise in the delivery

4 and financing of such services; and

5 ‘‘(5) the Secretary of Veterans Affairs.

6 ‘‘(e) DUTIES.—The advisory committee established

7 under subsection (d) shall—

8 ‘‘(1) recommend the appropriate inflationary

9 index to be used with respect to the inflation protec10 tion benefit portion of the standards;

11 ‘‘(2) recommend the uniform needs assessment

12 mechanism to be used in determining the eligibility

13 of individuals for benefits under a policy;

14 ‘‘(3) recommend appropriate standards for ben15 efits under section 2715(c); and

16 ‘‘(4) perform such other activities as deter17 mined appropriate by the Secretary.

18 ‘‘(f) ADMINISTRATIVE PROVISIONS.—The following

19 provisions of section 1886(e)(6) of the Social Security Act

20 shall apply to the advisory committee chosen under sub21 section (d) in the same manner as such provisions apply

22 under such section:

23 ‘‘(1) Subparagraph (C) (relating to staffing and

24 administration).
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1 ‘‘(2) Subparagraph (D) (relating to compensa2 tion of members).

3 ‘‘(3) Subparagraph (F) (relating to access to

4 information).

5 ‘‘(4) Subparagraph (G) (relating to use of

6 funds).

7 ‘‘(5) Subparagraph (H) (relating to periodic

8 GAO audits).

9 ‘‘(6) Subparagraph (J) (relating to requests for

10 appropriations).

11 ‘‘PART B—ESTABLISHMENT AND IMPLEMENTATION OF

12 LONG-TERM CARE INSURANCE POLICY STANDARDS

13 ‘‘SEC. 2711. IMPLEMENTATION OF POLICY STANDARDS.

14 ‘‘(a) IN GENERAL.—

15 ‘‘(1) REGULATORY PROGRAM.—No long-term

16 care policy (as defined in section (2721)) may be is17 sued, sold, or offered for sale as a long-term care in18 surance policy in a State on or after the date speci19 fied in section 2701(b) unless—

20 ‘‘(A) the Secretary determines that the

21 State has established a regulatory program

22 that—

23 ‘‘(i) provides for the application and

24 enforcement of the standards established

25 under section 2701(a); and
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1 ‘‘(ii) complies with the requirements

2 of subsection (b);

3 by the date specified in section 2701(b), and

4 the policy has been approved by the State com5 missioner or superintendent of insurance under

6 such program; or

7 ‘‘(B) if the State has not established such

8 a program, or if the State’s regulatory program

9 has been decertified, the policy has been cer10 tified by the Secretary (in accordance with such

11 procedures as the Secretary may establish) as

12 meeting the standards established under section

13 2701(a) by the date specified in section

14 2701(b).

15 For purposes of this subsection, the advertising or

16 soliciting with respect to a policy, directly or indi17 rectly, shall be deemed the offering for sale of the

18 policy.

19 ‘‘(2) REVIEW OF STATE REGULATORY PRO20 GRAMS.—The Secretary periodically shall review reg21 ulatory programs described in paragraph (1)(A) to

22 determine if they continue to provide for the applica23 tion and enforcement of the standards and proce24 dures established under section 2701(a) and (b). If

25 the Secretary determines that a State regulatory
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1 program no longer meets such standards and re2 quirements, before making a final determination, the

3 Secretary shall provide the State an opportunity to

4 adopt such a plan of correction as would permit the

5 program to continue to meet such standards and re6 quirements. If the Secretary makes a final deter7 mination that the State regulatory program, after

8 such an opportunity, fails to meet such standards

9 and requirements, the Secretary shall assume re10 sponsibility under paragraph (1)(B) with respect to

11 certifying policies in the State and shall exercise full

12 authority under section 2701 for carriers, agents, or

13 associations or its subsidiary in the State plans in

14 the State.

15 ‘‘(b) ADDITIONAL REQUIREMENTS FOR APPROVAL

16 OF STATE REGULATORY PROGRAMS.—For purposes of

17 subsection (a)(1)(A)(ii), the requirements of this sub18 section for a State regulatory program are as follows:

19 ‘‘(1) ENFORCEMENT.—The enforcement under

20 the program—

21 ‘‘(A) shall be designed in a manner so as

22 to secure compliance with the standards within

23 30 days after the date of a finding of non24 compliance with such standards; and
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1 ‘‘(B) shall provide for notice in the annual

2 report required under paragraph (5) to the Sec3 retary of cases where such compliance is not se4 cured within such 30-day period.

5 ‘‘(2) PROCESS.—The enforcement process

6 under each State regulatory program shall provide

7 for—

8 ‘‘(A) procedures for individuals and enti9 ties to file written, signed complaints respecting

10 alleged violations of the standards;

11 ‘‘(B) responding on a timely basis to such

12 complaints;

13 ‘‘(C) the investigation of—

14 ‘‘(i) those complaints which have a

15 reasonable probability of validity, and

16 ‘‘(ii) such other alleged violations of

17 the standards as the program finds appro18 priate; and

19 ‘‘(D) the imposition of appropriate sanc20 tions (which include, in appropriate cases, the

21 imposition of a civil money penalty as provided

22 for in section 2718) in the case of a carrier,

23 agent, or association or its subsidiary deter24 mined to have violated the standards.
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1 ‘‘(3) CONSUMER ACCESS TO COMPLIANCE IN2 FORMATION.—

3 ‘‘(A) IN GENERAL.—A State regulatory

4 program must provide for consumer access to

5 complaints filed with the State commissioner or

6 superintendent of insurance with respect to

7 long-term care insurance policies.

8 ‘‘(B) CONFIDENTIALITY.—The access pro9 vided under subparagraph (A) shall be limited

10 to the extent required to protect the confiden11 tiality of the identity of individual policyholders

12 and certificate holders.

13 ‘‘(4) PROCESS FOR APPROVAL OF PREMIUMS.—

14 ‘‘(A) IN GENERAL.—Each State regulatory

15 program shall—

16 ‘‘(i) provide for a process for approv17 ing or disapproving proposed premium in18 creases or decreases with respect to long19 term care insurance policies; and

20 ‘‘(ii) establish a policy for receipt and

21 consideration of public comments before

22 approving such a premium increase or de23 crease.

24 ‘‘(B) CONDITIONS FOR APPROVAL.—No

25 premium increase shall be approved (or deemed
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1 approved) under subparagraph (A) unless the

2 proposed increase is accompanied by an actuar3 ial memorandum which—

4 ‘‘(i) includes a description of the as5 sumptions that justify the increase;

6 ‘‘(ii) contains such information as

7 may be required under the Standards; and

8 ‘‘(iii) is made available to the public.

9 ‘‘(C) APPLICATION.—Except as provided in

10 subparagraph (D), this paragraph shall not

11 apply to a group long-term care insurance pol12 icy issued to a group described in section

13 4(E)(1) of the NAIC Long Term Care Insur14 ance Model Act (effective January 1991), ex15 cept that such group policy shall, pursuant to

16 guidelines developed by the NAIC, provide no17 tice to policyholders and certificate holders of

18 any premium change under such group policy.

19 ‘‘(D) EXCEPTION.—Subparagraph (C)

20 shall not apply to—

21 ‘‘(i) group conversion policies;

22 ‘‘(ii) the group continuation feature of

23 a group policy if the insurer separately

24 rates employee and continuation coverages;

25 and
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1 ‘‘(iii) group policies where the func2 tion of the employer is limited solely to col3 lecting premiums (through payroll deduc4 tions or dues checkoff) and remitting them

5 to the insurer.

6 ‘‘(E) CONSTRUCTION.—Nothing in this

7 paragraph shall be construed as preventing the

8 NAIC from promulgating standards, or a State

9 from enacting and enforcing laws, with respect

10 to premium rates or loss ratios for all, including

11 group, long-term care insurance policies.

12 ‘‘(5) ANNUAL REPORTS.—Each State regu13 latory program shall provide for annual reports to be

14 submitted to the Secretary on the implementation

15 and enforcement of the standards in the State, in16 cluding information concerning violations in excess

17 of 30 days.

18 ‘‘(6) ACCESS TO OTHER INFORMATION.—The

19 State regulatory program must provide for consumer

20 access to actuarial memoranda provided under para21 graph (4).

22 ‘‘(7) DEFAULT.—In the case of a State without

23 a regulatory program approved under subsection (a),

24 the Secretary shall provide for the enforcement ac25 tivities described in subsection (c).
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1 ‘‘(c) SECRETARIAL ENFORCEMENT AUTHORITY.—

2 ‘‘(1) IN GENERAL.—The Secretary shall exer3 cise authority under this section in the case of a

4 State that does not have a regulatory program ap5 proved under this section.

6 ‘‘(2) COMPLAINTS AND INVESTIGATIONS.—The

7 Secretary shall establish procedures—

8 ‘‘(A) for individuals and entities to file

9 written, signed complaints respecting alleged

10 violations of the requirements of this title;

11 ‘‘(B) for responding on a timely basis to

12 such complaints; and

13 ‘‘(C) for the investigation of—

14 ‘‘(i) those complaints that have a rea15 sonable probability of validity; and

16 ‘‘(ii) such other alleged violations of

17 the requirements of this title as the Sec18 retary determines to be appropriate.

19 In conducting investigations under this subsection,

20 agents of the Secretary shall have reasonable access

21 necessary to enable such agents to examine evidence

22 of any carrier, agent, or association or its subsidiary

23 being investigated.

24 ‘‘(3) HEARINGS.—
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1 ‘‘(A) IN GENERAL.—Prior to imposing an

2 order described in paragraph (4) against a car3 rier, agent, or association or its subsidiary

4 under this section for a violation of the require5 ments of this title, the Secretary shall provide

6 the carrier, agent, association or subsidiary

7 with notice and, upon request made within a

8 reasonable time (of not less than 30 days, as

9 established by the Secretary by regulation) of

10 the date of the notice, a hearing respecting the

11 violation.

12 ‘‘(B) CONDUCT OF HEARING.—Any hear13 ing requested under subparagraph (A) shall be

14 conducted before an administrative law judge.

15 If no hearing is so requested, the Secretary’s

16 imposition of the order shall constitute a final

17 and unappealable order.

18 ‘‘(C) AUTHORITY IN HEARINGS.—In con19 ducting hearings under this paragraph—

20 ‘‘(i) agents of the Secretary and ad21 ministrative law judges shall have reason22 able access necessary to enable such agents

23 and judges to examine evidence of any car24 rier, agent, or association or its subsidiary

25 being investigated; and
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1 ‘‘(ii) administrative law judges, may,

2 if necessary, compel by subpoena the at3 tendance of witnesses and the production

4 of evidence at any designated place or

5 hearing.

6 In case of contumacy or refusal to obey a sub7 poena lawfully issued under this subparagraph

8 and upon application of the Secretary, an ap9 propriate district court of the United States

10 may issue an order requiring compliance with

11 such subpoena and any failure to obey such

12 order may be punished by such court as a con13 tempt thereof.

14 ‘‘(D) ISSUANCE OF ORDERS.—If an admin15 istrative law judge determines in a hearing

16 under this paragraph, upon the preponderance

17 of the evidence received, that a carrier, agent,

18 or association or its subsidiary named in the

19 complaint has violated the requirements of this

20 title, the administrative law judge shall state

21 the findings of fact and issue and cause to be

22 served on such carrier, agent, association, or

23 subsidiary an order described in paragraph (4).

24 ‘‘(4) CEASE AND DESIST ORDER WITH CIVIL

25 MONEY PENALTY.—
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1 ‘‘(A) IN GENERAL.—Subject to the provi2 sions of subparagraphs (B) through (F), an

3 order under this paragraph—

4 ‘‘(i) shall require the agent, associa5 tion or its subsidiary, or a carrier—

6 ‘‘(I) to cease and desist from

7 such violations; and

8 ‘‘(II) to pay a civil penalty in an

9 amount not to exceed $15,000 in the

10 case of each agent, and not to exceed

11 $25,000 for each association or its

12 subsidiary or a carrier for each such

13 violation; and

14 ‘‘(ii) may require the agent, associa15 tion or its subsidiary, or a carrier to take

16 such other remedial action as is appro17 priate.

18 ‘‘(B) CORRECTIONS WITHIN 30 DAYS.—No

19 order shall be imposed under this paragraph by

20 reason of any violation if the carrier, agent, or

21 association or its subsidiary establishes to the

22 satisfaction of the Secretary that—

23 ‘‘(i) such violation was due to reason24 able cause and was not intentional and was

25 not due to willful neglect; and
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1 ‘‘(ii) such violation is corrected within

2 the 30-day period beginning on the earliest

3 date the carrier, agent, association, or sub4 sidiary knew, or exercising reasonable dili5 gence could have known, that such a viola6 tion was occurring.

7 ‘‘(C) WAIVER BY SECRETARY.—In the case

8 of a violation under this title that is due to rea9 sonable cause and not to willful neglect, the

10 Secretary may waive part or all of the civil

11 money penalty imposed under subparagraph

12 (A)(i)(II) to the extent that payment of such

13 penalty would be grossly excessive relative to

14 the violation involved and to the need for deter15 rence of violations.

16 ‘‘(D) ADMINISTRATIVE APPELLATE RE17 VIEW.—The decision and order of an adminis18 trative law judge under this paragraph shall be19 come the final agency decision and order of the

20 Secretary unless, within 30 days, the Secretary

21 modifies or vacates the decision and order, in

22 which case the decision and order of the Sec23 retary shall become a final order under this

24 paragraph.
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1 ‘‘(E) JUDICIAL REVIEW.—A carrier, agent,

2 or association or its subsidiary or any other in3 dividual adversely affected by a final order is4 sued under this paragraph may, within 45 days

5 after the date the final order is issued, file a pe6 tition in the Court of Appeals for the appro7 priate circuit for review of the order.

8 ‘‘(F) ENFORCEMENT OF ORDERS.—If a

9 carrier, agent, or association or its subsidiary

10 fails to comply with a final order issued under

11 this paragraph against the carrier, agent, asso12 ciation or subsidiary after opportunity for judi13 cial review under subparagraph (E), the Sec14 retary shall file a suit to seek compliance with

15 the order in any appropriate district court of

16 the United States. In any such suit, the validity

17 and appropriateness of the final order shall not

18 be subject to review.

19 ‘‘(d) DEMONSTRATION GRANT PROGRAM.—

20 ‘‘(1) IN GENERAL.—The Secretary may award

21 grants to States for the establishment of demonstra22 tion programs to improve the enforcement within

23 such States of long-term care insurance standards

24 applicable under this title.
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1 ‘‘(2) APPLICATION.—To be eligible to receive a

2 grant under paragraph (1), a State shall prepare

3 and submit to the Secretary an application at such

4 time, in such manner, and containing such informa5 tion as the Secretary may require, including a de6 scription of the program for which the State intends

7 to use the amounts provided under the grant.

8 ‘‘(3) MINIMUM AMOUNT OF GRANTS.—The

9 amount of a grant awarded under this subsection

10 shall not be less than $100,000.

11 ‘‘(4) EVALUATION.—A State that receives a

12 grant under this subsection shall comply with such

13 evaluation procedures as the Secretary shall by regu14 lation establish. The Secretary shall utilize such

15 evaluations to conduct an overall evaluation of the

16 results of the demonstration programs established

17 under this section.

18 ‘‘(5) AUTHORIZATION OF APPROPRIATIONS.—

19 There are authorized to be appropriated to carry out

20 this subsection, $5,000,000 for each of the fiscal

21 years 1993 through 1997.

22 ‘‘SEC. 2712. REGULATION OF SALES PRACTICES.

23 ‘‘(a) DUTY OF GOOD FAITH AND FAIR DEALING.—

24 ‘‘(1) IN GENERAL.—Each agent (as defined in

25 section 2733) or association that is selling or offer-
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1 ing for sale a long-term care insurance policy has

2 the duty of good faith and fair dealing to the pur3 chaser or potential purchaser of such a policy.

4 ‘‘(2) PROHIBITED PRACTICES.—An agent or as5 sociation is considered to have violated paragraph

6 (1) if the agent or association engages in any of the

7 following practices:

8 ‘‘(A) TWISTING.—

9 ‘‘(i) IN GENERAL.—Knowingly making

10 any misleading representation (including

11 the inaccurate completion of medical his12 tories) or incomplete or fraudulent com13 parison of any long-term care insurance

14 policy or insurers for the purpose of induc15 ing, or tending to induce, any person to re16 tain or effect a change with respect to a

17 long-term care insurance policy.

18 ‘‘(ii) POLICY REPLACEMENT FORM.—

19 With respect to any person who elects to

20 replace or effect a change in a long-term

21 care insurance policy, the individual that is

22 selling such policy shall ensure that such

23 person completes a policy replacement

24 form developed by the NAIC. A copy of

25 such form shall be provided to such person
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1 and additional copies shall be delivered by

2 the selling individual to the old policy is3 suer and the new issuer and kept on file

4 for inspection by the State regulatory

5 agency.

6 ‘‘(B) HIGH PRESSURE TACTICS.—Employ7 ing any method of marketing having the effect

8 of, or intending to, induce the purchase of a

9 long-term care insurance policy through force,

10 fright, threat or undue pressure, whether ex11 plicit or implicit.

12 ‘‘(C) COLD LEAD ADVERTISING.—Making

13 use directly or indirectly of any method of mar14 keting which fails to disclose in a conspicuous

15 manner that a purpose of the method of mar16 keting is solicitation of insurance and that con17 tact will be made by an insurance agent or in18 surance company.

19 ‘‘(D) OTHERS.—Engaging in such other

20 practices determined inappropriate under guide21 lines issued by the NAIC.

22 ‘‘(b) FINANCIAL STANDARDS.—The NAIC shall de23 velop recommended minimum financial standards (includ24 ing both income and asset criteria) for the purpose of ad-
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1 vising individuals considering the purchase of a long-term

2 care insurance policy.

3 ‘‘(c) PROHIBITION OF SALE OR ISSUANCE TO MEDIC4 AID BENEFICIARIES.—An agent, an association, or a car5 rier may not knowingly sell or issue a long-term care in6 surance policy to an individual who is eligible for medical

7 assistance under title XIX of the Social Security Act.

8 ‘‘(d) PROHIBITION OF SALE OR ISSUANCE OF DUPLI9 CATE SERVICE BENEFIT POLICIES.—An agent, associa10 tion or its subsidiary, or a carrier may not sell or issue

11 a service-benefit long-term care insurance policy to an in12 dividual—

13 ‘‘(1) knowing that the policy provides for cov14 erage that duplicates coverage already provided in

15 another service-benefit long-term care insurance pol16 icy held by such individual (unless the policy is in17 tended to replace such other policy); or

18 ‘‘(2) for the benefit of an individual unless the

19 individual (or a representative of the individual) pro20 vides a written statement to the effect that the cov21 erage—

22 ‘‘(A) does not duplicate other coverage in

23 effect under a service-benefit long-term care in24 surance policy; or
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1 ‘‘(B) will replace another service-benefit

2 long-term care insurance policy.

3 In this subsection, the term ‘service-benefit long-term care

4 insurance policy’ means a long-term care insurance policy

5 which provides for benefits based on the type and amount

6 of services furnished.

7 ‘‘(e) PROHIBITION BASED ON ELIGIBILITY FOR

8 OTHER BENEFITS.—A carrier may not sell or issue a

9 long-term care insurance policy that reduces, limits or co10 ordinates the benefits provided under the policy on the

11 basis that the policyholder has or is eligible for other long12 term care insurance coverage or benefits.

13 ‘‘(f) PROVISION OF OUTLINE OF COVERAGE.—No

14 agent, association or its subsidiary, or carrier may sell or

15 offer for a sale a long-term care insurance policy (or for

16 a certificate under a group long-term care insurance pol17 icy) without providing to the purchaser or potential pur18 chaser (or representative) an outline of coverage that com19 plies with the standards established under section

20 2701(a).

21 ‘‘(g) PENALTIES.—Any agent who sells, offers for

22 sale, or issues a long-term care insurance policy in viola23 tion of this section may be imprisoned not more than 5

24 years, or fined in accordance with title 18, United States

25 Code, and, in addition, is subject to a civil money penalty
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1 of not to exceed $15,000 for each such violation. Any asso2 ciation or its subsidiary or carrier that sells, offers for

3 sale, or issues a long-term care insurance policy in viola4 tion of this section may be fined in accordance with title

5 18, United States Code, and in addition, is subject to a

6 civil money penalty of not to exceed $25,000 for each vio7 lation.

8 ‘‘(h) AGENT TRAINING AND CERTIFICATION RE9 QUIREMENTS.—The NAIC shall establish requirements

10 for long-term care insurance agent training and certifi11 cation that—

12 ‘‘(1) specify requirements for training insurance

13 agents who desire to sell or offer for sale long-term

14 care insurance policies; and

15 ‘‘(2) specify procedures for certifying agents

16 who have completed such training and who are as

17 qualified to sell or offer for sale long-term care in18 surance policies.

19 ‘‘SEC. 2713. ADDITIONAL RESPONSIBILITIES FOR CAR20 RIERS.

21 ‘‘(a) REFUND OF PREMIUMS.—If an application for

22 a long-term care insurance policy (or for a certificate

23 under a group long-term care insurance policy) is denied

24 or an applicant returns a policy or certificate within 30

25 days of the date of its issuance pursuant to subsection
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1 2717, the carrier shall refund directly to the applicant,

2 or in the case of an employer to whomever remits the pre3 mium, and not by delivery by the agent, not later than

4 30 days after the date of the denial or return, any pre5 miums paid with respect to such a policy (or certificate).

6 ‘‘(b) MAILING OF POLICY.—If an application for a

7 long-term care insurance policy (or for a certificate under

8 a group long-term care insurance policy) is approved, the

9 carrier shall provide the applicant, or in the case of a

10 group plan the employer, the policy (or certificate) of in11 surance not later than 30 days after the date of the ap12 proval.

13 ‘‘(c) INFORMATION ON DENIALS OF CLAIMS.—If a

14 claim under a long-term care insurance policy is denied,

15 the carrier shall, within 30 days of the date of a written

16 request by the policyholder or certificate holder (or rep17 resentative)—

18 ‘‘(1) provide a written explanation of the rea19 sons for the denial; and

20 ‘‘(2) make available all medical and patient

21 records directly relating to such denial.

22 Except as provided in subsection (e) of section 2715, no

23 claim under such a policy may be denied on the basis of

24 a failure to disclose a condition at the time of issuance
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1 of the policy if the application for the policy failed to re2 quest information respecting the condition.

3 ‘‘(d) REPORTING OF INFORMATION.—A carrier that

4 issues one or more long-term care insurance policies shall

5 periodically (not less often than annually) report, in a

6 form and in a manner determined by the NAIC, to the

7 Commissioner, superintendent or director of insurance of

8 each State in which the policy is delivered, and shall make

9 available to the Secretary, upon request, information in

10 a form and manner determined by the NAIC concerning—

11 ‘‘(1) the long-term care insurance policies of the

12 carrier that are in force;

13 ‘‘(2) the most recent premiums for such policies

14 and the premiums imposed for such policies since

15 their initial issuance;

16 ‘‘(3) the lapse rate, replacement rate, and re17 scission rates by policy;

18 ‘‘(4) the names of that 10 percent of its agents

19 that—

20 ‘‘(A) have the greatest lapse and replace21 ment rate; and

22 ‘‘(B) have produced at least $50,000 of

23 long-term care insurance sales in the previous

24 year; and
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1 ‘‘(5) the claims denied (expressed as a number

2 and as a percentage of claims submitted) by policy.

3 Information required under this subsection shall be re4 ported in a format specified in the standards established

5 under section 2701(a). For purposes of paragraph (3),

6 there shall be included (but reported separately) data con7 cerning lapses due to the death of the policyholder. For

8 purposes of paragraph (4), there shall not be included as

9 a claim any claim that is denied solely because of the fail10 ure to meet a deductible, waiting period, or exclusionary

11 period.

12 ‘‘(e) STANDARDS ON COMPENSATION FOR SALE OF

13 POLICIES.—

14 ‘‘(1) IN GENERAL.—A carrier that issues one or

15 more long-term care insurance policies may provide

16 a commission or other compensation to an agent or

17 other representative for the sale of such a policy only

18 if the first year commission or other first year com19 pensation to be paid does not exceed 200 percent of

20 the commission or other compensation paid for sell21 ing or servicing the policy in the second year, or if

22 the first year commission or other compensation to

23 be paid does not exceed 50 percent of the premium

24 paid on the first year policy, until the NAIC promul-
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1 gates mandatory standards concerning compensation

2 for the sale of such policies.

3 ‘‘(2) SUBSEQUENT YEARS.—The commission or

4 other compensation provided for the sale of long5 term care insurance policies in years subsequent to

6 the first year of the policy shall be the same as that

7 provided in the second subsequent year and shall be

8 provided for no fewer than 5 subsequent years.

9 ‘‘(3) LIMITATION.—No carrier shall provide

10 compensation to its agents for the sale of a long11 term care insurance policy and no agent shall receive

12 compensation greater than the renewal compensation

13 payable by the replacing carrier on renewal policies

14 if an existing policy is replaced.

15 ‘‘(4) COMPENSATION DEFINED.—As used in

16 this subsection, the term ‘compensation’ includes pe17 cuniary or nonpecuniary remuneration of any kind

18 relating to the sale or renewal of the policy, includ19 ing but not limited to deferred compensation, bo20 nuses, gifts, prizes, awards, and finders fees.

21 ‘‘SEC. 2714. RENEWABILITY STANDARDS FOR ISSUANCE,

22 AND BASIS FOR CANCELLATION OF POLICIES.

23 ‘‘(a) IN GENERAL.—No long-term care insurance pol24 icy may be canceled or nonrenewed for any reason other
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1 than nonpayment of premium, material misrepresentation

2 or fraud.

3 ‘‘(b) CONTINUATION AND CONVERSION RIGHTS FOR

4 GROUP POLICIES.—

5 ‘‘(1) IN GENERAL.—Each group long-term care

6 insurance policy shall provide covered individuals

7 with a basis for continuation or conversion in ac8 cordance with this subsection.

9 ‘‘(2) BASIS FOR CONTINUATION.—For purposes

10 of paragraph (1), a policy provides a basis for con11 tinuation of coverage if the policy maintains cov12 erage under the existing group policy when such cov13 erage would otherwise terminate and which is sub14 ject only to the continued timely payment of pre15 mium when due. A group policy which restricts pro16 vision of benefits and services to or contains incen17 tives to use certain providers or facility, may provide

18 continuation benefits which are substantially equiva19 lent to the benefits of the existing group policy.

20 ‘‘(3) BASIS FOR CONVERSION.—For purposes of

21 paragraph (1), a policy provides a basis for conver22 sion of coverage if the policy entitles each individ23 ual—
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1 ‘‘(A) whose coverage under the group pol2 icy would otherwise be terminated for any rea3 son; and

4 ‘‘(B) who has been continuously insured

5 under the policy (or group policy which was re6 placed) for at least 6 months before the date of

7 the termination;

8 to issuance of a policy providing benefits identical to,

9 substantially equivalent to, or in excess of, those of

10 the policy being terminated, without evidence of in11 surability.

12 ‘‘(4) TREATMENT OF SUBSTANTIAL EQUIVA13 LENCE.—In determining under this subsection

14 whether benefits are substantially equivalent, consid15 eration should be given to the difference between

16 managed care and non-managed care plans.

17 ‘‘(5) GROUP REPLACEMENT OF POLICIES.—If a

18 group long-term care insurance policy is replaced by

19 another long-term care insurance policy purchased

20 by the same policyholder, the succeeding issuer shall

21 offer coverage to all persons covered under the old

22 group policy on its date of termination. Coverage

23 under the new group policy shall not result in any

24 exclusion for preexisting conditions that would have

25 been covered under the group policy being replaced.
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1 ‘‘(c) STANDARDS FOR ISSUANCE.—

2 ‘‘(1) IN GENERAL.—

3 ‘‘(A) GUARANTEE.—An agent, association

4 or carrier that sells or issues long-term care in5 surance policies shall guarantee that such poli6 cies shall be sold or issued to an individual, or

7 eligible individual in the case of a group plan,

8 if such individual meets the minimum medical

9 underwriting requirements of such policy.

10 ‘‘(B) PREMIUM FOR CONVERTED POL11 ICY.—If a group policy from which conversion

12 is made is a replacement for a previous group

13 policy, the premium for the converted policy

14 shall be calculated on the basis of the insured’s

15 age at the inception of coverage under the

16 group policy from which conversion is made.

17 Where the group policy from which conversion

18 is made replaced previous group coverage, the

19 premium for the converted policy shall be cal20 culated on the basis of the insured’s age at in21 ception of coverage under the group policy re22 placed.

23 ‘‘(2) UPGRADE FOR CURRENT POLICIES.—The

24 NAIC shall establish standards, including those pro25 viding guidance on medical underwriting and age
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1 rating, with respect to the access of individuals to

2 policies offering upgraded benefits.

3 ‘‘(d) EFFECT OF INCAPACITATION.—

4 ‘‘(1) IN GENERAL.—

5 ‘‘(A) PROHIBITION.—Except as provided

6 in paragraph (2), a long-term care insurance

7 policy in effect as of the effective date of the

8 standards established under section 2701(a)

9 may not be canceled for nonpayment if the pol10 icy holder is determined by a long-term care

11 provider, physician or other health care pro12 vider, independent of the issuer of the policy, to

13 be cognitively or mentally incapacitated so as to

14 not make payments in a timely manner.

15 ‘‘(B) REINSTATEMENT.—A long-term care

16 policy shall include a provision that provides for

17 the reinstatement of such coverage, in the event

18 of lapse, if the insurer is provided with proof of

19 cognitive or mental incapacitation. Such rein20 statement option shall remain available for a

21 period of not less than 5 months after termi22 nation and shall allow for the collection of past

23 due premium.
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1 ‘‘(2) PERMITTED CANCELLATION.—A long-term

2 care insurance policy may be canceled under para3 graph (1) for nonpayment if—

4 ‘‘(A) the period of such nonpayment is in

5 excess of 30 days; and

6 ‘‘(B) notice of intent to cancel is provided

7 to the policyholder or designated representative

8 of the policy holder not less than 30 days prior

9 to such cancellation, except that notice may not

10 be provided until the expiration of 30 days after

11 a premium is due and unpaid.

12 Notice under this paragraph shall be deemed to have

13 been given as of 5 days after the mailing date.

14 ‘‘SEC. 2715. BENEFIT STANDARDS.

15 ‘‘(a) USE OF STANDARD DEFINITIONS AND TERMI16 NOLOGY, UNIFORM FORMAT, AND STANDARD BENE17 FITS.—Each long-term care insurance policy shall, with

18 respect to services, providers or facilities, pursuant to

19 standards established under section 2701(a)—

20 ‘‘(1) use uniform language and definitions, ex21 cept that such language and definitions may take

22 into account the differences between States with re23 spect to definitions and terminology used for long24 term care services and providers;
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1 ‘‘(2) use a uniform format for presenting the

2 outline of coverage under such a policy; and

3 ‘‘(3) provide coverage for at least one standard

4 benefits package (of those developed by the NAIC);

5 as prescribed under guidelines issued by the NAIC and

6 periodically updated.

7 ‘‘(b) DISCLOSURE.—

8 ‘‘(1) OUTLINE OF COVERAGE.—

9 ‘‘(A) REQUIREMENT.—Each carrier that

10 sells or offers for sale a long-term care insur11 ance policy shall provide an outline of coverage

12 under such policy that meets the applicable

13 standards established pursuant to section

14 2701(a), complies with the requirements of sub15 paragraph (B), and is in a uniform format as

16 prescribed in guidelines issued by the NAIC

17 and periodically updated.

18 ‘‘(B) CONTENTS.—The outline of coverage

19 for each long-term care insurance policy shall

20 include at least the following:

21 ‘‘(i) A description of the principal

22 benefits and coverage under the policy.

23 ‘‘(ii) A statement of the principal ex24 clusions, reductions, and limitations con25 tained in the policy.
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1 ‘‘(iii) A statement of the terms under

2 which the policy (or certificate) may be

3 continued in force or discontinued, the

4 terms for continuation or conversion, and

5 any reservation in the policy of a right to

6 change premiums.

7 ‘‘(iv) A statement, in bold face type

8 on the face of the document in language

9 that is understandable to an average indi10 vidual, that the outline of coverage is a

11 summary only, not a contract of insurance,

12 and that the policy (or master policy) con13 tains the contractual provisions that gov14 ern, except that such summary shall sub15 stantially and accurately reflect the con16 tents of the policy or the master policy.

17 ‘‘(v) A description of the terms, speci18 fied in section 2717, under which a policy

19 or certificate may be returned and pre20 mium refunded.

21 ‘‘(vi) Information on national average

22 costs for nursing facility and home health

23 care and information (in graphic form) on

24 the relationship of the value of the benefits

25 provided under the policy to such national
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1 average costs and State average costs,

2 where available.

3 ‘‘(vii) A statement of the percentage

4 limit on annual premium increases that is

5 provided under the policy pursuant to this

6 section.

7 ‘‘(2) CERTIFICATES.—A certificate issued pur8 suant to a group long-term care insurance policy

9 shall include—

10 ‘‘(A) a description of the principal benefits

11 and coverage provided in the policy;

12 ‘‘(B) a statement of the principal exclu13 sions, reductions, and limitations contained in

14 the policy; and

15 ‘‘(C) a statement that the group master

16 policy determines governing contractual provi17 sions.

18 ‘‘(3) LONG-TERM CARE AS PART OF LIFE IN19 SURANCE.—In the case of a long-term care insur20 ance policy issued as a part of, or a rider on, a life

21 insurance policy, at the time of policy delivery there

22 shall be provided a policy summary that includes—

23 ‘‘(A) an explanation of how the long-term

24 care benefits interact with other components of
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•HR 4516 IH

1 the policy (including deductions from death

2 benefits);

3 ‘‘(B) an illustration of the amount of bene4 fits, the length of benefit, and the guaranteed

5 lifetime benefits (if any) for each covered per6 son; and

7 ‘‘(C) any exclusions, reductions, and limi8 tations on benefits of long-term care.

9 ‘‘(4) ADDITIONAL INFORMATION.—The NAIC

10 shall develop recommendations with respect to in11 forming consumers of the long-term economic viabil12 ity of carriers issuing long-term care insurance poli13 cies.

14 ‘‘(c) LIMITING CONDITIONS ON BENEFITS; MINIMUM

15 BENEFITS.—

16 ‘‘(1) IN GENERAL.—A long-term care insurance

17 policy may not condition or limit eligibility—

18 ‘‘(A) for benefits for a type of services to

19 the need for or receipt of any other services;

20 ‘‘(B) for any benefit on the medical neces21 sity for such benefit;

22 ‘‘(C) for benefits furnished by licensed or

23 certified providers in compliance with conditions

24 which are in addition to those required for li25 censure or certification under State law, except
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1 that if no State licensure or certification laws

2 exists, in compliance with qualifications devel3 oped by the NAIC; or

4 ‘‘(D) for residential care (if covered under

5 the policy) only—

6 ‘‘(i) to care provided in facilities

7 which provide a higher level of care; or

8 ‘‘(ii) to care provided in facilities

9 which provide for 24-hour or other nursing

10 care not required in order to be licensed by

11 the State.

12 ‘‘(2) HOME HEALTH CARE OR COMMUNITY13 BASED SERVICES.—If a long-term care insurance

14 policy provides benefits for the payment of specified

15 home health care or community-based services, the

16 policy—

17 ‘‘(A) may not limit such benefits to serv18 ices provided by registered nurses or licensed

19 practical nurses;

20 ‘‘(B) may not require benefits for such

21 services to be provided by a nurse or therapist

22 that can be provided by a home health aide or

23 licensed or certified home care worker, except

24 that if no State licensure or certification laws
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1 exists, in compliance with qualifications devel2 oped by the NAIC;

3 ‘‘(C) may not limit such benefits to serv4 ices provided by agencies or providers certified

5 under title XVIII of the Social Security Act;

6 and

7 ‘‘(D) must provide, at a minimum, benefits

8 for personal care services (including home

9 health aide and home care worker services as

10 defined by the NAIC) home health services,

11 adult day care, and respite care in an individ12 ual’s home or in another setting in the commu13 nity, or any of these benefits on a respite care

14 basis.

15 ‘‘(3) NURSING FACILITY SERVICES.—If a long16 term care insurance policy provides benefits for the

17 payment of specified nursing facility services, the

18 policy must provide such benefits with respect to all

19 nursing facilities (as defined in section 1919(a) of

20 the Social Security Act or until such time as subse21 quently provided for by the NAIC in establishing

22 uniform language and definitions under section

23 2715(a)(1)) in the State.

24 ‘‘(4) PER DIEM POLICIES.—
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1 ‘‘(A) DEFINITION.—For purposes of this

2 title, the term ‘per diem long-term care insur3 ance policy’ means a long-term care insurance

4 policy (or certificate under a group long-term

5 care insurance policy) that provides for benefit

6 payments on a periodic basis due to cognitive

7 impairment or loss of functional capacity with8 out regard to the expenses incurred or services

9 rendered during the period to which the pay10 ments relate.

11 ‘‘(B) LIMITATION.—No per diem long-term

12 care insurance policy (or certificate) may condi13 tion or otherwise exclude benefit payments

14 based on the receipt of any type of nursing fa15 cility, home health care or community-based

16 services.

17 ‘‘(d) PROHIBITION OF DISCRIMINATION.—A long18 term care insurance policy may not treat benefits under

19 the policy in the case of an individual with Alzheimer’s

20 disease, with any related progressive degenerative demen21 tia of an organic origin, with any organic or inorganic

22 mental illness, or with mental retardation or any other

23 cognitive or mental impairment differently from an indi24 vidual having another medical condition for which benefits

25 may be made available.
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1 ‘‘(e) LIMITATION ON USE OF PREEXISTING CONDI2 TION LIMITS.—

3 ‘‘(1) INITIAL ISSUANCE.—

4 ‘‘(A) IN GENERAL.—Subject to subpara5 graph (B), a long-term care insurance policy

6 may not exclude or condition benefits based on

7 a medical condition for which the policyholder

8 received treatment or was otherwise diagnosed

9 before the issuance of the policy.

10 ‘‘(B) 6-MONTH LIMIT.—

11 ‘‘(i) IN GENERAL.—No long-term care

12 insurance policy or certificate issued under

13 this title shall utilize a definition of ‘pre14 existing condition’ that is more restrictive

15 than the following: The term ‘preexisting

16 condition’ means a condition for which

17 medical advice or treatment was rec18 ommended by, or received from a provider

19 of health care services, within 6 months

20 preceding the effective date of coverage of

21 an insured individual.

22 ‘‘(ii) PROHIBITION ON EXCLUSION OF

23 COVERAGE.—No long-term care insurance

24 policy or certificate may exclude coverage

25 for a loss or confinement that is the result
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1 of a preexisting condition unless such loss

2 or confinement begins within 6 months fol3 lowing the effective date of the coverage of

4 the insured individual.

5 ‘‘(2) REPLACEMENT POLICIES.—If a long-term

6 care insurance policy replaces another long-term

7 care insurance policy, the issuer of the replacing pol8 icy shall waive any time periods applicable to pre9 existing conditions, waiting period, elimination peri10 ods and probationary periods in the new policy for

11 similar benefits to the extent such time was spent

12 under the original policy.

13 ‘‘(f) ELIGIBILITY FOR BENEFITS.—

14 ‘‘(1) LONG-TERM CARE POLICIES.—Each long15 term care insurance policy shall—

16 ‘‘(A) describe the level of benefits available

17 under the policy; and

18 ‘‘(B) specify in clear, understandable

19 terms, the level (or levels) of physical, cognitive,

20 or mental impairment required in order to re21 ceive benefits under the policy.

22 ‘‘(2) FUNCTIONAL ASSESSMENT.—In order to

23 submit a claim under any long-term care insurance

24 policy, each claimant shall have a professional func25 tional assessment of his or her physical, cognitive,
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1 and mental abilities. Such initial assessment shall be

2 conducted by an individual or entity, meeting the

3 qualifications established by the NAIC to assure the

4 professional competence and credibility of such indi5 vidual or entity and that such individual meets any

6 applicable State licensure and certification require7 ments. The individual or entity conducting such as8 sessment may not control, or be controlled by, the

9 issuer of the policy. For purposes of this paragraph

10 and paragraph (4), the term ‘control’ means the di11 rect or indirect possession of the power to direct the

12 management and policies of a person. Control is pre13 sumed to exist, if any person directly or indirectly,

14 owns, controls, holds with the power to vote, or

15 holds proxies representing 10 percent of the voting

16 securities of another person.

17 ‘‘(3) CLAIMS REVIEW.—Except as provided in

18 paragraph (4), each long-term care insurance policy

19 shall be subject to final claims review by the carrier

20 pursuant to the terms of the long-term care insur21 ance policy.

22 ‘‘(4) APPEALS PROCESS.—

23 ‘‘(A) IN GENERAL.—Each long-term care

24 insurance policy shall provide for a timely and

25 independent appeals process, meeting standards
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1 established by the NAIC, for individuals who

2 dispute the results of the claims review, con3 ducted under paragraph (3), of the claimant’s

4 functional assessment, conducted under para5 graph (2).

6 ‘‘(B) INDEPENDENT ASSESSMENT.—An

7 appeals process under this paragraph shall in8 clude, at the request of the claimant, an inde9 pendent assessment of the claimant’s physical,

10 cognitive or mental abilities.

11 ‘‘(C) CONDUCT.—An independent assess12 ment under subparagraph (B) shall be con13 ducted by an individual or entity meeting the

14 qualifications established by the NAIC to as15 sure the professional competence and credibility

16 of such individual or entity and any applicable

17 State licensure and certification requirements

18 and may not be conducted—

19 ‘‘(i) by an individual who has a direct

20 or indirect significant or controlling inter21 est in, or direct affiliation or relationship

22 with, the issuer of the policy;

23 ‘‘(ii) by an entity that provides serv24 ices to the policyholder or certificateholder
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1 for which benefits are available under the

2 long-term care insurance policy; or

3 ‘‘(iii) by an individual or entity in con4 trol of, or controlled by, the issuer of the

5 policy.

6 ‘‘(5) STANDARD ASSESSMENTS.—Not later than

7 2 years after the date of enactment of this title, the

8 advisory committee established under section

9 2701(d) shall recommend uniform needs assessment

10 mechanisms for the determination of eligibility for

11 benefits under such assessments.

12 ‘‘(g) INFLATION PROTECTION.—

13 ‘‘(1) OPTION TO PURCHASE.—A carrier may

14 not offer a long-term care insurance policy unless

15 the carrier also offers to the proposed policyholder,

16 including each group policyholder, the option to pur17 chase a policy that provides for increases in benefit

18 levels, with benefit maximums or reasonable dura19 tions that are meaningful, to account for reasonably

20 anticipated increases in the costs of long-term care

21 services covered by the policy. A carrier may not

22 offer to a policyholder an inflation protection feature

23 that is less favorable to the policyholder than one of

24 the following:
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1 ‘‘(A) With respect to policies that provide

2 for automatic periodic increases in benefits, the

3 policy provides for an annual increase in bene4 fits in a manner so that such increases are

5 computed annually at a rate of not less than 5

6 percent.

7 ‘‘(B) With respect to policies that provide

8 for periodic opportunities to elect an increase in

9 benefits, the policy guarantees that the insured

10 individual will have the right to periodically in11 crease the benefit levels under the policy with12 out providing evidence of insurability or health

13 status so long as the option for the previous pe14 riod was not declined. The amount of any such

15 additional benefit may not be less than the dif16 ference between—

17 ‘‘(i) the existing policy benefit; and

18 ‘‘(ii) such existing benefit compounded

19 annually at a rate of at least 5 percent for

20 the period beginning on the date on which

21 the existing benefit is purchased and ex22 tending until the year in which the offer of

23 increase is made.

24 ‘‘(C) With respect to service benefit poli25 cies, the policy covers a specified percentage of
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1 the actual or reasonable charges and does not

2 include a maximum specified indemnity amount

3 or limit.

4 ‘‘(2) EXCEPTION.—The requirements of para5 graph (1) shall not apply to life insurance policies or

6 riders containing accelerated long-term care benefits.

7 ‘‘(3) REQUIRED INFORMATION.—Carriers shall

8 include the following information in or together with

9 the outline of coverage provided under this title:

10 ‘‘(A) A graphic comparison of the benefit

11 levels of a policy that increases benefits over the

12 policy period with a policy that does not in13 crease benefits. Such comparison shall show

14 benefit levels over not less than a 20-year pe15 riod.

16 ‘‘(B) Any expected premium increases or

17 additional premiums required to pay for any

18 automatic or optional benefit increases, whether

19 the individual who purchases the policy obtains

20 the inflation protection initially or whether such

21 individual delays purchasing such protection

22 until a future time.

23 ‘‘(4) CONTINUATION OF PROTECTION.—Infla24 tion protection benefit increases under this sub25 section under a policy that contains such protection
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1 shall continue without regard to an insured’s age,

2 claim status or claim history, or the length of time

3 the individual has been insured under the policy.

4 ‘‘(5) CONSTANT PREMIUM.—An offer of infla5 tion protection under this subsection that provides

6 for automatic benefit increases shall include an offer

7 of a premium that the carrier expects to remain con8 stant. Such offer shall disclose in a conspicuous

9 manner that the premium may change in the future

10 unless the premium is guaranteed to remain con11 stant.

12 ‘‘(6) REJECTION.—Inflation protection under

13 this subsection shall be included in a long-term care

14 insurance policy unless a carrier obtains a written

15 rejection of such protection signed by the policy16 holder.

17 ‘‘SEC. 2716. OPTION TO PURCHASE NONFORFEITURE BENE18 FITS.

19 ‘‘A carrier may not offer a long-term care insurance

20 policy unless the carrier also offers to the proposed policy21 holder, including each group policyholder, the option to

22 purchase a policy that provides that if the policy lapses

23 after the policy has been in effect for a specified minimum

24 period, the policy will provide, without payment of any ad25 ditional premiums, nonforfeiture benefits which—
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1 ‘‘(1) are not less favorable to the policyholder

2 than the benefits specified under the standards

3 under section 2701(a), and

4 ‘‘(2) provide that the percentage or amount of

5 benefits increase based upon the policyholder’s eq6 uity in the policy.

7 ‘‘(b) ESTABLISHMENT OF STANDARDS.—The stand8 ards under section 2701(a) shall provide that the percent9 age or amount of benefits under subsection (a) must in10 crease based upon the policyholder’s equity in the policy.

11 ‘‘SEC. 2717. LIMIT OF PERIOD OF CONTESTABILITY AND

12 RIGHT TO RETURN.

13 ‘‘(a) CONTESTABILITY.—A carrier may not cancel or

14 renew a long-term care insurance policy or deny a claim

15 under the policy based on fraud or material misrepresenta16 tion relating to the issuance of the policy unless notice

17 of such fraud or material misrepresentation is provided

18 within a time period to be determined by the NAIC.

19 ‘‘(b) RIGHT TO RETURN.—Each applicant for a long20 term care insurance policy shall have the right to return

21 the policy (or certificates) within 30 days of the date of

22 its delivery (and to have the premium refunded) if, after

23 examination of the policy or certificate, the applicant is

24 not satisfied for any reason.
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1 ‘‘SEC. 2718. CIVIL MONEY PENALTY.

2 ‘‘(a) CARRIER.—Any carrier, association or its sub3 sidiary that sells or offers for sale a long-term care insur4 ance policy and that—

5 ‘‘(1) fails to make a refund in accordance with

6 section 2713(a);

7 ‘‘(2) fails to transmit a policy in accordance

8 with section 2713(b);

9 ‘‘(3) fails to provide, make available, or report

10 information in accordance with subsections (c) or (d)

11 of section 2713;

12 ‘‘(4) provides a commission or compensation in

13 violation of section 2713(e);

14 ‘‘(5) fails to provide an outline of coverage in

15 violation of section 2715(b)(1); or

16 ‘‘(6) issues a policy without obtaining certain

17 information in violation of section 2715(f);

18 is subject to a civil money penalty of not to exceed $25,000

19 for each such violation.

20 ‘‘(b) AGENTS.—Any agent that sells or offers for sale

21 a long-term care insurance policy and that—

22 ‘‘(1) fails to make a refund in accordance with

23 section 2713(a);

24 ‘‘(2) fails to transmit a policy in accordance

25 with section 2713(b);
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1 ‘‘(3) fails to provide, make available, or report

2 information in accordance with subsections (c) or (d)

3 of section 2713;

4 ‘‘(4) fails to provide an outline of coverage in

5 violation of section 2715(b)(1); or

6 ‘‘(5) issues a policy without obtaining certain

7 information in violation of section 2715(f);

8 is subject to a civil money penalty of not to exceed $15,000

9 for each such violation.

10 ‘‘PART C—LONG-TERM CARE INSURANCE POLICIES,

11 DEFINITION AND ENDORSEMENTS

12 ‘‘SEC. 2721. LONG-TERM CARE INSURANCE POLICY DE13 FINED.

14 ‘‘(a) IN GENERAL.—As used in this section, the term

15 ‘long-term care insurance policy’ means any insurance pol16 icy, rider or certificate advertised, marketed, offered or de17 signed to provide coverage for not less than 12 consecutive

18 months for each covered person on an expense incurred,

19 indemnity prepaid or other basis, for one or more nec20 essary diagnostic, preventive, therapeutic, rehabilitative,

21 maintenance or personal care services, provided in a set22 ting other than an acute care unit of a hospital. Such term

23 includes—

24 ‘‘(1) group and individual annuities and life in25 surance policies, riders or certificates that provide
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1 directly, or that supplement long-term care insur2 ance; and

3 ‘‘(2) a policy, rider or certificates that provides

4 for payment of benefits based on cognitive impair5 ment or the loss of functional capacity.

6 ‘‘(b) ISSUANCE.—Long-term care insurance policies

7 may be issued by—

8 ‘‘(1) carriers;

9 ‘‘(2) fraternal benefit societies;

10 ‘‘(3) nonprofit health, hospital, and medical

11 service corporations;

12 ‘‘(4) prepaid health plans;

13 ‘‘(5) health maintenance organizations; or

14 ‘‘(6) any similar organization to the extent they

15 are otherwise authorized to issue life or health insur16 ance.

17 ‘‘(c) POLICIES EXCLUDED.—The term ‘long-term

18 care insurance policy’ shall not include any insurance pol19 icy, rider or certificate that is offered primarily to provide

20 basic Medicare supplement coverage, basic hospital ex21 pense coverage, basic medical-surgical expense coverage,

22 hospital confinement indemnity coverage, major medical

23 expense coverage, disability income or related asset-protec24 tion coverage, accident only coverage, specified disease or

25 specified accident coverage, or limited benefit health cov-
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1 erage. With respect to life insurance, such term shall not

2 include life insurance policies, riders or certificates that

3 accelerate the death benefit specifically for one or more

4 of the qualifying events of terminal illness, medical condi5 tions requiring extraordinary medical intervention, or per6 manent institutional confinement, and that provide the op7 tion of a lump-sum payment for those benefits and in

8 which neither the benefits nor the eligibility for the bene9 fits is conditioned upon the receipt of long-term care.

10 ‘‘(d) APPLICATIONS.—Notwithstanding any other

11 provision of this title, this title shall apply to any product

12 advertised, marketed or offered as a long-term insurance

13 policy, rider or certificate.

14 ‘‘SEC. 2722. CODE OF CONDUCT WITH RESPECT TO EN15 DORSEMENTS.

16 ‘‘Not later than 1 year after the date of enactment

17 of this title the NAIC shall issue guidelines that shall

18 apply to organizations and associations, other than em19 ployers and labor organizations that do not accept com20 pensation, and their subsidiaries that provide endorse21 ments of long-term care insurance policies, or that permit

22 such policies to be offered for sale through the organiza23 tion or association. Such guidelines shall include at mini24 mum the following:
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1 ‘‘(1) In endorsing or selling long-term care in2 surance policies, the primary responsibility of an or3 ganization or association shall be to educate their

4 members concerning such policies and assist such

5 members in making informed decisions. Such organi6 zations and associations may not function primarily

7 as sales agents for insurance companies.

8 ‘‘(2) Organizations and associations shall pro9 vide objective information regarding long-term care

10 insurance policies sold or endorsed by such organiza11 tions and associations to ensure that members of

12 such organizations and associations have a balanced

13 and complete understanding of both the strengths

14 and weaknesses of the policies that are being en15 dorsed or sold.

16 ‘‘(3) Organizations and associations selling or

17 endorsing long-term care insurance policies shall dis18 close in marketing literature provided to their mem19 bers concerning such policies the manner in which

20 such policies and the insurance company issuing

21 such policies were selected. If the organization or as22 sociation and the insurance company have interlock23 ing directorates, the organization or association shall

24 disclose such fact to their members.
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1 ‘‘(4) Organizations and associations selling or

2 endorsing long-term care insurance policies shall dis3 close in marketing literature provided to their mem4 bers concerning such policies the nature and amount

5 of the compensation arrangements (including all

6 fees, commissions, administrative fees and other

7 forms of financial support that the organization or

8 association receives) from the endorsement or sale of

9 the policy to its members.

10 ‘‘(5) The Boards of Directors of organizations

11 and associations selling or endorsing long-term care

12 insurance policies, if such organizations and associa13 tions have a Board of Directors, shall review and ap14 prove such insurance policies, the compensation ar15 rangements and the marketing materials used to

16 promote sales of such policies.

17 ‘‘PART D—MISCELLANEOUS PROVISIONS

18 ‘‘SEC. 2731. FUNDING FOR LONG-TERM CARE INSURANCE

19 INFORMATION, COUNSELING, AND ASSIST20 ANCE.

21 ‘‘(a) IN GENERAL.—The Secretary, acting through

22 the Public Health Service, may award grants to States,

23 and national organizations with demonstrated experience

24 in long-term care insurance, for the establishment of pro25 grams to provide information, counseling, and assistance
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1 relating to the procurement of adequate and appropriate

2 long-term care insurance.

3 ‘‘(b) APPLICATION.—To be eligible to receive a grant

4 under subsection (a), a State or national organization

5 shall prepare and submit to the Secretary an application

6 at such time, in such manner, and containing such infor7 mation as the Secretary may require, including a descrip8 tion of the program for which the State or organization

9 intends to use the amounts provided under the grant.

10 ‘‘(c) AUTHORIZATION OF APPROPRIATIONS.—

11 ‘‘(1) IN GENERAL.—There are authorized to be

12 appropriate for grants to States under subsection

13 (a), $10,000,000 for each of the fiscal years 1994

14 through 1996.

15 ‘‘(2) NATIONAL ORGANIZATIONS.—There are

16 authorized to be appropriate for grants to national

17 organizations under subsection (a), $1,000,000 for

18 each of the fiscal years 1994 through 1996.

19 ‘‘SEC. 2732. DEFINITIONS.

20 ‘‘As used in this title:

21 ‘‘(1) AGENT.—The term ‘agent’ means—

22 ‘‘(A) prior to 2 years after the date of en23 actment of this Act, an individual who sells or

24 offers for sale a long-term care insurance policy

25 subject to the requirements of this title and is
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1 licensed or required to be licensed under State

2 law for such purpose; and

3 ‘‘(B) after the date referred to in subpara4 graph (A), an individual who meets the training

5 and certification requirements established under

6 section 2712(f).

7 ‘‘(2) ASSOCIATION.—The term ‘association’ in8 cludes the association and its subsidiaries.

9 ‘‘(3) CARRIER.—The term ‘carrier’ means any

10 person that offers a health benefit plan, whether

11 through insurance or otherwise, including a licensed

12 insurance company, a prepaid hospital or medical

13 service plan, a health maintenance organization, a

14 self-insured carrier, a reinsurance carrier, and a

15 multiple employer welfare arrangement (a combina16 tion of employers associated for the purpose of pro17 viding health benefit plan coverage for their employ18 ees).’’.

19 (b) CONFORMING AMENDMENTS.—

20 (1) Sections 2701 through 2714 of the Public

21 Health Service Act (42 U.S.C. 300cc through

22 300cc–15) are redesignated as sections 2801

23 through 2814, respectively.

24 (2) Sections 465(f) and 497 of such Act (42

25 U.S.C. 286(f) and 289(f)) are amended by striking
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1 out ‘‘2701’’ each place that such appears and insert2 ing in lieu thereof ‘‘2801’’.

3 TITLE II—TAX TREATMENT

4 Subtitle A—Long-Term Care

5 Insurance

6 SEC. 201. QUALIFIED LONG-TERM CARE INSURANCE DE7 FINED AND TREATED AS ACCIDENT OR

8 HEALTH INSURANCE.

9 (a) IN GENERAL.—Section 818 of the Internal Reve10 nue Code of 1986 (relating to definitions) is amended by

11 adding at the end thereof the following new subsection:

12 ‘‘(g) QUALIFIED LONG-TERM CARE INSURANCE

13 TREATED AS ACCIDENT OR HEALTH INSURANCE.—For

14 purposes of this subchapter:

15 ‘‘(1) IN GENERAL.—Any reference to

16 noncancellable accident or health insurance contracts

17 shall be treated as including a reference to qualified

18 long-term care insurance.

19 ‘‘(2) QUALIFIED LONG-TERM CARE INSUR20 ANCE.—For purposes of this subsection:

21 ‘‘(A) IN GENERAL.—Subject to subpara22 graphs (B) and (C), the term ‘qualified long23 term care insurance’ means insurance under a

24 policy or rider, issued by a qualified issuer, to
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1 be advertised, marketed, offered, or designed to

2 provide coverage—

3 ‘‘(i) for not less than 12 consecutive

4 months for each covered person,

5 ‘‘(ii) on an expense incurred, indem6 nity, prepaid or other basis,

7 ‘‘(iii) for 1 or more necessary or medi8 cally necessary diagnostic services, preven9 tive services, therapeutic services, rehabili10 tation services, maintenance services, or

11 personal care services,

12 ‘‘(iv) for the loss of functional capac13 ity, and

14 ‘‘(v) provided in a setting other than

15 an acute care unit of a hospital.

16 ‘‘(B) QUALIFIED ISSUER.—For purposes

17 of subparagraph (A), the term ‘qualified issuer’

18 means any of the following provided they are

19 subject to the jurisdiction and regulation of at

20 least one State insurance department:

21 ‘‘(i) Private insurance company.

22 ‘‘(ii) Fraternal benefit society.

23 ‘‘(iii) Nonprofit health corporation.

24 ‘‘(iv) Nonprofit hospital corporation.
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1 ‘‘(v) Nonprofit medical service cor2 poration.

3 ‘‘(vi) Prepaid health plan.’’

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

5 subsection (a) shall apply to taxable years beginning after

6 December 31, 1994.

7 SEC. 202. QUALIFIED LONG-TERM CARE INSURANCE TREAT8 ED AS ACCIDENT AND HEALTH INSURANCE

9 FOR PURPOSES OF EXCLUSION FOR BENE10 FITS RECEIVED UNDER SUCH INSURANCE

11 AND FOR EMPLOYER CONTRIBUTIONS FOR

12 SUCH INSURANCE.

13 (a) IN GENERAL.—Section 105 of the Internal Reve14 nue Code of 1986 (relating to amounts received under ac15 cident and health plans) is amended by adding at the end

16 thereof the following new subsection:

17 ‘‘(j) SPECIAL RULES RELATING TO QUALIFIED

18 LONG-TERM CARE INSURANCE.—For purposes of section

19 104, this section, and section 106:

20 ‘‘(1) BENEFITS TREATED AS PAYABLE FOR

21 SICKNESS, ETC.—Any benefit received through quali22 fied long-term care insurance (as defined in section

23 818(g)) shall be treated as amounts received

24 through accident or health insurance for personal in25 juries or sickness.
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1 ‘‘(2) EXPENSES FOR WHICH REIMBURSEMENT

2 PROVIDED UNDER QUALIFIED LONG-TERM CARE IN3 SURANCE TREATED AS INCURRED FOR MEDICAL

4 CARE OR FUNCTIONAL LOSS.—Expenses incurred by

5 an individual to the extent of benefits paid under

6 qualified long-term care insurance (as defined in sec7 tion 818(g)) shall be treated for purposes of sub8 section (b) as incurred for medical care (as defined

9 in section 213(d)) and for purposes of subsection (c)

10 as payment for the permanent loss or loss of use of

11 a member or function of the body or the permanent

12 disfigurement of the taxpayer, his spouse, any de13 pendent of the taxpayer, or any parent of the tax14 payer of his spouse.

15 ‘‘(3) REFERENCES TO ACCIDENT AND HEALTH

16 PLANS.—Any reference to an accident or health plan

17 shall be treated as including a reference to a plan

18 providing qualified long-term care insurance (as de19 fined in section 818(g)).’’

20 (b) CURRENT DEDUCTION FOR EMPLOYER PRE21 MIUMS FOR LONG-TERM CARE POLICIES.—Subparagraph

22 (B) of section 404(b)(2) of such Code (relating to plans

23 providing certain deferred benefits) is amended by striking

24 ‘‘or’’ at the end of clause (i), by striking the period at
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1 the end of clause (ii) and inserting ‘‘, or’’, and by adding

2 at the end thereof the following new clause:

3 ‘‘(iii) any benefit provided under a

4 policy of qualified long-term care insurance

5 (as defined in section 818(g)) through the

6 payment (in whole or in part) of premiums

7 by an employer pursuant to a plan for its

8 active or retired employees, but only if any

9 refund of premiums is applied to reduce

10 the future costs of the plan or increase

11 benefits under the plan.’’

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

13 this section shall apply to taxable years beginning after

14 December 31, 1994.

15 SEC. 203. EARLY DISTRIBUTION PENALTY TAX NOT TO

16 APPLY TO AMOUNTS WITHDRAWN FROM

17 QUALIFIED PLANS, INDIVIDUAL RETIREMENT

18 PLANS, ETC. FOR QUALIFIED LONG-TERM IN19 SURANCE.

20 (a) IN GENERAL.—Paragraph (1) of section 72(t) of

21 the Internal Revenue Code of 1986 (relating to 10-percent

22 additional tax on early distributions from qualified retire23 ment plans) is amended by adding at the end thereof the

24 following new subparagraph:
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1 ‘‘(D) DISTRIBUTIONS FOR QUALIFIED

2 LONG-TERM CARE INSURANCE PREMIUMS.—Any

3 distribution to the extent used during the tax4 able year to pay premiums for any policy of

5 qualified long-term care insurance (as defined

6 in section 818(g)) or to pay for services de7 scribed in section 818(g)(2)(A)(iii) (relating to

8 services provided under long-term care insur9 ance) for the benefit of the payee or distributee,

10 the spouse of the payee or distributee, any de11 pendent of the payee or distributee, or any par12 ent of the payee or distributee or such spouse.’’

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

14 subsection (a) shall apply to taxable years beginning after

15 December 31, 1994.

16 SEC. 204. DEDUCTION OF EXPENSES RELATING TO QUALI17 FIED LONG-TERM CARE.

18 (a) IN GENERAL.—Paragraph (1) of section 213(d)

19 of the Internal Revenue Code of 1986 (relating to the defi20 nition of medical care) is amended—

21 (1) by striking ‘‘or’’ at the end of subparagraph

22 (B), and

23 (2) by redesignating subparagraph (C) as sub24 paragraph (D) and by inserting after subparagraph

25 (B) the following new subparagraph:
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1 ‘‘(C) for those services described in section

2 818(g)(2)(A)(iii) (relating to services provided

3 under qualified long-term care insurance), or’’.

4 (b) DEDUCTION FOR LONG-TERM CARE EXPENSES

5 FOR PARENT OR GRANDPARENT.—Section 213 of such

6 Code (relating to deduction for medical expenses) is

7 amended by adding at the end the following new sub8 section:

9 ‘‘(g) SPECIAL RULE FOR CERTAIN LONG-TERM CARE

10 EXPENSES.—For purposes of subsection (a), the term ‘de11 pendent’ shall include any parent or grandparent of the

12 taxpayer for whom the taxpayer has expenses for long13 term care services described in section 818(g)(2)(A)(iii),

14 but only to the extent of such expenses.’’

15 (c) TECHNICAL AMENDMENTS.—

16 (1) Subparagraph (D) of section 213(d)(1) of

17 such Code, as redesignated by subsection (a), is

18 amended by striking ‘‘subparagraphs (A) and (B)’’

19 and inserting ‘‘subparagraphs (A), (B), and (C)’’.

20 (2) Paragraph (6) of section 213(d) of such

21 Code is amended—

22 (A) by striking ‘‘subparagraphs (A) and

23 (B)’’ and inserting ‘‘subparagraphs (A), (B),

24 and (C)’’, and
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1 (B) by striking ‘‘paragraph (1)(C)’’ and in2 serting ‘‘paragraph (1)(D)’’.

3 (3) Paragraph (7) of section 213(d) of such

4 Code is amended by striking ‘‘subparagraphs (A)

5 and (B)’’ and inserting ‘‘subparagraphs (A), (B),

6 and (C)’’.

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

8 this section shall apply to taxable years beginning after

9 December 31, 1994.

10 SEC. 205. TREATMENT OF PREFUNDED LONG-TERM CARE

11 BENEFITS.

12 (a) IN GENERAL.—

13 (1) Paragraph (2) of section 419A(c) of the In14 ternal Revenue Code of 1986 (relating to additional

15 reserve for post-retirement medical and life insur16 ance benefits) is amended by striking ‘‘or’’ at the

17 end of subparagraph (A), by striking the period at

18 the end of subparagraph (B) and inserting ‘‘, or’’,

19 and by adding at the end thereof the following new

20 subparagraph:

21 ‘‘(C) post-retirement long-term care bene22 fits (as defined in section 818(g)) to be pro23 vided to covered employees.’’
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1 (2) The paragraph heading for such paragraph

2 (2) is amended by inserting ‘‘, LONG-TERM CARE,’’

3 after ‘‘MEDICAL’’.

4 (b) RESERVE FOR LONG-TERM CARE BENEFITS

5 MUST BE NONDISCRIMINATORY.—

6 (1) Paragraph (1) of section 419A(e) of such

7 Code (relating to special limitations on reserves for

8 medical benefits or life insurance benefits provided

9 to retired employees) is amended by inserting ‘‘,

10 long-term care benefits,’’ after ‘‘medical benefits’’

11 each place it appears.

12 (2) The subsection heading for section 419A(e)

13 of such Code is amended by inserting ‘‘, LONG-TERM

14 CARE BENEFITS,’’ after ‘‘MEDICAL BENEFITS’’.

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

16 this section shall apply to taxable years beginning after

17 December 31, 1994.

18 SEC. 206. QUALIFIED LONG-TERM CARE INSURANCE PER19 MITTED TO BE OFFERED IN CAFETERIA

20 PLANS.

21 (a) IN GENERAL.—Paragraph (2) of section 125(c)

22 of the Internal Revenue Code of 1986 (relating to the ex23 clusion of deferred compensation) is amended by adding

24 at the end thereof the following new subparagraph:
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1 ‘‘(D) EXCEPTION FOR LONG-TERM CARE

2 INSURANCE.—For purposes of subparagraph

3 (A), a plan shall not be treated as providing de4 ferred compensation by reason of providing

5 qualified long-term care insurance (as defined

6 in section 818(g)) if—

7 ‘‘(i) the employee may not surrender

8 such insurance for cash, and

9 ‘‘(ii) the terms of the plan permits,

10 the employee may elect to continue the in11 surance upon cessation of participation in

12 the plan.’’

13 (b) LONG-TERM CARE INSURANCE INCLUDED AS

14 QUALIFIED BENEFIT.—Paragraph (2) of section 125(e)

15 of such Code (defining qualified benefits) is amended by

16 striking ‘‘and’’ at the end of subparagraph (A), by striking

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

18 ‘‘, and’’, and by adding at the end thereof the following

19 new subparagraph:

20 ‘‘(C) qualified long-term care insurance (as

21 defined in section 818(g)).’’

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

23 this section shall apply to taxable years beginning after

24 December 31, 1994.
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1 Subtitle B—Payments under Life

2 Insurance Contracts to Termi3 nally Ill Individuals

4 SEC. 211. TAX TREATMENT OF PAYMENTS TO TERMINALLY

5 ILL INDIVIDUALS UNDER LIFE INSURANCE

6 CONTRACTS.

7 (a) GENERAL RULE.—Section 101 of the Internal

8 Revenue Code of 1986 (relating to certain death benefits)

9 is amended by adding at the end thereof the following

10 new subsection:

11 ‘‘(g) TREATMENT OF AMOUNTS PAID TO TERMI12 NALLY ILL INDIVIDUALS.—

13 ‘‘(1) IN GENERAL.—For purposes of this sec14 tion, any amount paid under a life insurance con15 tract to an insured who is a terminally ill individual

16 shall be treated as an amount paid by reason of the

17 death of such insured.

18 ‘‘(2) TERMINALLY ILL INDIVIDUAL.—For pur19 poses of this subsection, the term ‘terminally ill indi20 vidual’ means an individual who has been certified

21 by a physician, licensed under State law, as having

22 an illness or physical condition which can reasonably

23 be expected to result in death in 12 months or less.’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall apply to taxable years beginning after

3 December 31, 1994.

4 SEC. 212. TAX TREATMENT OF COMPANIES ISSUING QUALI5 FIED TERMINAL ILLNESS RIDERS.

6 (a) QUALIFIED TERMINAL ILLNESS RIDER TREATED

7 AS LIFE INSURANCE.—Section 818 of the Internal Reve8 nue Code of 1986 (relating to other definitions and special

9 rules), as amended by section 201(a), is further amended

10 by adding at the end thereof the following new subsection:

11 ‘‘(h) QUALIFIED TERMINAL ILLNESS RIDER TREAT12 ED AS LIFE INSURANCE.—For purposes of this part:

13 ‘‘(1) IN GENERAL.—Any reference to life insur14 ance shall be treated as including a reference to a

15 qualified terminal illness rider.

16 ‘‘(2) QUALIFIED TERMINAL ILLNESS RIDER.—

17 For purposes of this subsection, the term ‘qualified

18 terminal illness rider’ means any rider on a life in19 surance contract which provides for payments to an

20 insured upon such insured becoming a terminally ill

21 individual (as defined in section 101(g)(2)).’’

22 (b) DEFINITIONS OF LIFE INSURANCE AND MODI23 FIED ENDOWMENT CONTRACTS.—

24 (1) RIDER TREATED AS QUALIFIED ADDI25 TIONAL BENEFIT.—Paragraph (5)(A) of section
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1 7702(f) of such Code is amended by striking ‘‘or’’

2 at the end of clause (iv), by redesignating clause (v)

3 as clause (vi), and by inserting after clause (iv) the

4 following new clause:

5 ‘‘(v) any qualified terminal illness

6 rider (as defined in section 818(h)(2)),

7 or’’.

8 (2) TRANSITIONAL RULE.—For purposes of ap9 plying section 7702 or 7702A of the Internal Reve10 nue Code of 1986 to any contract (or determining

11 whether either such section applies to such con12 tract), the issuance of a qualified terminal illness

13 rider (as defined in section 818(h)(2) of such Code)

14 with respect to any contract shall not be treated as

15 a modification or material change of such contract.

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

17 this section shall apply to taxable years beginning after

18 December 31, 1994.
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1 TITLE III—ELIMINATION OF

2 MEDICAID RESTRICTION ON

3 STATE ASSET PROTECTION

4 PROGRAMS

5 SEC. 301. ELIMINATION OF MEDICAID RESTRICTION ON

6 STATE ASSET PROTECTION PROGRAMS.

7 (a) IN GENERAL.—Section 1917(b) of the Social Se8 curity Act (42 U.S.C. 1396p(b)), as amended by section

9 13612 of the Omnibus Budget Reconciliation Act of 1993,

10 is amended—

11 (1) in paragraph (1), by striking subparagraph

12 (C),

13 (2) in paragraph (3), by striking ‘‘(other than

14 paragraph (1)(C))’’, and

15 (3) in paragraph (4), by striking all that follows

16 ‘‘deceased individual’’ and inserting ‘‘shall include

17 all real and personal property and other assets in18 cluded within the individual’s estate, as defined for

19 purposes of State probate law’’.

20 (b) EFFECTIVE DATE.—The amendments made by

21 subsection (a) shall apply to calendar quarters beginning

22 on or after October 1, 1993.
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1 SEC. 302. PROTECTION OF ASSETS THROUGH USE OF

2 QUALIFIED LONG-TERM CARE INSURANCE.

3 (a) IN GENERAL.—Title XIX of the Social Security

4 Act is amended by adding at the end the following new

5 section:

6 ‘‘SPECIAL RULES FOR ASSET DISREGARD IN THE CASE OF

7 QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS

8 ‘‘SEC. 1931. (a) IN GENERAL.—Each State plan

9 under this title, as a condition for the receipt of payment

10 under section 1903(a) with respect to long-term care serv11 ices (as defined in subsection (c)(1)), shall provide that

12 in determining the eligibility of an individual for medical

13 assistance under the plan with respect to such services

14 there shall be disregarded some or all of the individual’s

15 assets which are attributable (as determined under sub16 section (c)(2)) to coverage under a qualified long-term

17 care insurance contract (as defined in subsection (b)).

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

19 CONTRACT DEFINED.—In this section, the term ‘qualified

20 long-term care insurance contract’ means, with respect to

21 a State, a long-term care insurance contract (as defined

22 in section 818A(b) of the Internal Revenue Code of 1986)

23 which—

24 ‘‘(1) provides such protection against the costs

25 of receiving long-term care services as the State may

26 require by law;
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1 ‘‘(2) provides that benefits under the contract

2 shall be paid without regard to eligibility for medical

3 assistance under this title; and

4 ‘‘(3) meets such other requirements (such as re5 quirements relating to premiums, disclosure, mini6 mum benefits, rights of conversion, and standards

7 for claims processing) as the State may determine to

8 be appropriate.

9 ‘‘(c) OTHER DEFINITIONS.—In this section:

10 ‘‘(1) LONG-TERM CARE SERVICES.—The term

11 ‘long-term care services’ means nursing facility serv12 ices, home health care services, and home and com13 munity-based services, and includes such other simi14 lar items and services described in section 1905(a)

15 as a State may specify.

16 ‘‘(2) ATTRIBUTION RULES.—An individual’s as17 sets are considered to be ‘attributable’ to a qualified

18 long-term care insurance contract to the extent spec19 ified under the State plan. Such a plan shall provide

20 for at least one of the following:

21 ‘‘(A) All assets are considered attributable

22 if the insurance contract provides coverage for

23 at least a period of coverage (of not less than

24 1 year and of not more than 6 years) for long25 term care services specified in the contract.
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1 ‘‘(B) An amount of assets, up to the dollar

2 limitation on benefits for long-term care serv3 ices under the contract, is considered attrib4 utable to the contract.’’.

5 (b) CONFORMING AMENDMENT.—Section

6 1902(a)(17)(A) of such Act (42 U.S.C. 1396a(a)(17)(A))

7 is amended by inserting ‘‘and section 1931’’ after ‘‘objec8 tives of this title’’.

9 (c) EFFECTIVE DATE.—

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

11 this section shall apply (except as provided under

12 paragraph (2)) to payments to States under title

13 XIX of the Social Security Act for calendar quarters

14 beginning on or after one year after the date of the

15 enactment of this Act, without regard to whether

16 regulations to implement such amendment are pro17 mulgated by such date.

18 (2) DELAY PERMITTED IF STATE LEGISLATION

19 REQUIRED.—In the case of a State plan for medical

20 assistance under title XIX of the Social Security Act

21 which the Secretary of Health and Human Services

22 determines requires State legislation (other than leg23 islation authorizing or appropriating funds) in order

24 for the plan to meet the additional requirements im25 posed by the amendments made by this section, the
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1 State plan shall not be regarded as failing to comply

2 with the requirements of such title solely on the

3 basis of its failure to meet these additional require4 ments before the first day of the first calendar quar5 ter beginning after the close of the first regular ses6 sion of the State legislature that begins after the

7 date of the enactment of this Act. For purposes of

8 the previous sentence, in the case of a State that has

9 a 2-year legislative session, each year of such session

10 shall be deemed to be a separate regular session of

11 the State legislature.

12 TITLE IV—STATE PROGRAMS

13 FOR HOME AND COMMUNITY14 BASED SERVICES FOR INDI15 VIDUALS WITH DISABILITIES

16 SEC. 401. STATE PROGRAMS FOR HOME AND COMMUNITY17 BASED SERVICES FOR INDIVIDUALS WITH

18 DISABILITIES.

19 (a) IN GENERAL.—Each State that has a plan for

20 the home and community-based services to individuals

21 with disabilities submitted to and approved by the Sec22 retary under section 402(b) is entitled to payment in ac23 cordance with section 408.

24 (b) NO INDIVIDUAL ENTITLEMENT ESTABLISHED.—

25 Nothing in this title shall be construed to create an entitle-
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1 ment for individuals or a requirement that a State with

2 such an approved plan expend the entire amount of funds

3 to which it is entitled in any year.

4 SEC. 402. STATE PLANS.

5 (a) PLAN REQUIREMENTS.—In order to be approved

6 under subsection (b), a State plan for home and commu7 nity-based services for individuals with disabilities must

8 meet the following requirements:

9 (1) ELIGIBILITY.—

10 (A) IN GENERAL.—Within the amounts

11 provided by the State (and under section 408)

12 for such plan, the plan shall provide that serv13 ices under the plan will be available to individ14 uals with disabilities (as defined in section

15 403(a)) in the State who meet the income

16 standard described in subparagraph (E).

17 (B) INITIAL SCREENING.—The plan shall

18 provide a process for the initial screening of in19 dividuals who appear to have some reasonable

20 likelihood of being an individual with disabil21 ities.

22 (C) RESTRICTIONS.—The plan may not

23 limit the eligibility of individuals with disabil24 ities based on—
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1 (i) income (except as provided in sub2 paragraph (E)),

3 (ii) age,

4 (iii) geography,

5 (iv) nature, severity, or category of

6 disability,

7 (v) residential setting (other than an

8 institutional setting), or

9 (vi) other grounds specified by the

10 Secretary.

11 (D) MAINTENANCE OF EFFORT.—The plan

12 must provide assurances that, in the case of an

13 individual receiving medical assistance for home

14 and community-based services under the State

15 medicaid plan as of the date of the enactment

16 of this Act, the State will continue to make

17 available (either under this plan, under the

18 State medicaid plan, or otherwise) to such indi19 vidual an appropriate level of assistance for

20 home and community-based services, taking

21 into account the level of assistance provided as

22 of such date and the individual’s need for home

23 and community-based services.

24 (E) INCOME LIMITATION.—No individual

25 shall be provided services under the plan unless
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1 the individual is determined to have income

2 below 250 percent of the official poverty line

3 (as defined by the Office of Management and

4 Budget, and revised annually in accordance

5 with section 673(2) of the Omnibus Budget

6 Reconciliation Act of 1981) applicable to a fam7 ily of the size involved.

8 (2) SERVICES.—

9 (A) SPECIFICATION.—Consistent with sec10 tion 404, the plan shall specify—

11 (i) the services made available under

12 the plan,

13 (ii) the extent and manner in which

14 such services are allocated and made avail15 able to individuals with disabilities, and

16 (iii) the manner in which services

17 under the plan are coordinated with each

18 other and with health and long-term care

19 services available outside the plan for indi20 viduals with disabilities.

21 (B) ALLOCATION.—The State plan—

22 (i) shall specify how it will allocate

23 services under the plan, during and after

24 the 7-fiscal-year phase-in period beginning
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1 with fiscal year 1996, among covered indi2 viduals with disabilities, and

3 (ii) may not allocate such services

4 based on the income or other financial re5 sources of such individuals.

6 (C) LIMITATION ON LICENSURE OR CER7 TIFICATION.—The State may not subject

8 consumer-directed providers of personal assist9 ance services to licensure, certification, or other

10 requirements which the Secretary finds not to

11 be necessary for the health and safety of indi12 viduals with disabilities.

13 (D) CONSUMER CHOICE.—To the extent

14 possible, the choice of an individual with dis15 abilities (and that individual’s family) regarding

16 which covered services to receive and the pro17 viders who will provide such services shall be

18 followed.

19 (E) REQUIREMENT TO SERVE LOW-INCOME

20 INDIVIDUALS.—The plan shall assure that—

21 (i) the proportion of the population of

22 low-income individuals with disabilities in

23 the State that represents individuals with

24 disabilities who are provided home and

25 community-based services either under the
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1 plan, under the State medicaid plan, or

2 under both, is not less than

3 (ii) the proportion of the population of

4 the State that represents individuals who

5 are low-income individuals.

6 (3) COST SHARING.—The plan shall impose cost

7 sharing with respect to covered services only in ac8 cordance with section 405.

9 (4) TYPES OF PROVIDERS AND REQUIREMENTS

10 FOR PARTICIPATION.—The plan shall specify—

11 (A) the types of service providers eligible

12 to participate in the program under the plan,

13 which shall include consumer-directed providers,

14 and

15 (B) any requirements for participation ap16 plicable to each type of service provider.

17 (5) BUDGET.—The plan shall specify how the

18 State will manage Federal and State funds available

19 under the plan for each fiscal year during the period

20 beginning with fiscal year 1996 and ending with fis21 cal year 2003 and for each 5-fiscal-year periods

22 thereafter to serve all categories of individuals with

23 disabilities and meet the requirements of this sub24 section.

25 (6) PROVIDER REIMBURSEMENT.—
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1 (A) PAYMENT METHODS.—The plan shall

2 specify the payment methods to be used to re3 imburse providers for services furnished under

4 the plan. Such methods may include retrospec5 tive reimbursement on a fee-for-service basis,

6 prepayment on a capitation basis, payment by

7 cash or vouchers to individuals with disabilities,

8 or any combination of these methods. In the

9 case of the use of cash or vouchers, the plan

10 shall specify how the plan will assure compli11 ance with applicable employment tax provisions.

12 (B) PAYMENT RATES.—The plan shall

13 specify the methods and criteria to be used to

14 set payment rates for services furnished under

15 the plan (including rates for cash payments or

16 vouchers to individuals with disabilities).

17 (C) PLAN PAYMENT AS PAYMENT IN

18 FULL.—The plan shall restrict payment under

19 the plan for covered services to those providers

20 that agree to accept the payment under the

21 plan (at the rates established pursuant to sub22 paragraph (B)) and any cost sharing permitted

23 or provided for under section 405 as payment

24 in full for services furnished under the plan.
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1 (7) QUALITY ASSURANCE AND SAFEGUARDS.—

2 The State plan shall provide for quality assurance

3 and safeguards for applicants and beneficiaries in

4 accordance with section 406.

5 (8) ADVISORY GROUP.—The State plan shall—

6 (A) assure the establishment and mainte7 nance of an advisory group under section

8 407(b), and

9 (B) include the documentation prepared by

10 the group under section 407(b)(4).

11 (9) ADMINISTRATION.—

12 (A) STATE AGENCY.—The plan shall des13 ignate a State agency or agencies to administer

14 (or to supervise the administration of) the plan.

15 (B) ADMINISTRATIVE EXPENDITURES.—

16 Effective beginning with fiscal year 2003, the

17 plan shall contain assurances that not more

18 than 10 percent of expenditures under the plan

19 for all quarters in any fiscal year shall be for

20 administrative costs.

21 (C) COORDINATION.—The plan shall speci22 fy how the plan—

23 (i) will be integrated with the State

24 medicaid plan, titles V and XX of the So25 cial Security Act, programs under the
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1 Older Americans Act of 1965, programs

2 under the Developmental Disabilities As3 sistance and Bill of Rights Act, the Indi4 viduals with Disabilities Education Act,

5 and any other Federal or State programs

6 that provide services or assistance targeted

7 to individuals with disabilities, and

8 (ii) will be coordinated with health

9 plans.

10 (10) REPORTS AND INFORMATION TO SEC11 RETARY; AUDITS.—The plan shall provide that the

12 State will furnish to the Secretary—

13 (A) such reports, and will cooperate with

14 such audits, as the Secretary determines are

15 needed concerning the State’s administration of

16 its plan under this title, including the process17 ing of claims under the plan, and

18 (B) such data and information as the Sec19 retary may require in order to carry out the

20 Secretary’s responsibilities.

21 (11) USE OF STATE FUNDS FOR MATCHING.—

22 The plan shall provide assurances that Federal

23 funds will not be used to provide for the State share

24 of expenditures under this title.
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1 (b) APPROVAL OF PLANS.—The Secretary shall ap2 prove a plan submitted by a State if the Secretary deter3 mines that the plan—

4 (1) was developed by the State after consulta5 tion with individuals with disabilities and representa6 tives of groups of such individuals, and

7 (2) meets the requirements of subsection (a).

8 The approval of such a plan shall take effect as of the

9 first day of the first fiscal year beginning after the date

10 of such approval (except that any approval made before

11 January 1, 1996, shall be effective as of January 1, 1996).

12 In order to budget funds allotted under this title, the Sec13 retary may establish a deadline for the submission of such

14 a plan before the beginning of a fiscal year as a condition

15 of its approval effective with that fiscal year.

16 (c) MONITORING.—The Secretary shall monitor the

17 compliance of State plans with the eligibility requirements

18 of section 403 and may monitor the compliance of such

19 plans with other requirements of this title.

20 (d) REGULATIONS.—The Secretary shall issue such

21 regulations as may be appropriate to carry out this title

22 on a timely basis.
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1 SEC. 403. INDIVIDUALS WITH DISABILITIES DEFINED.

2 (a) IN GENERAL.—In this title, the term ‘‘individual

3 with disabilities’’ means any individual within one or more

4 of the following 4 categories of individuals:

5 (1) INDIVIDUALS REQUIRING HELP WITH AC6 TIVITIES OF DAILY LIVING.—An individual of any

7 age who—

8 (A) requires hands-on or standby assist9 ance, supervision, or cueing (as defined in regu10 lations) to perform three or more activities of

11 daily living (as defined in subsection (c)), and

12 (B) is expected to require such assistance,

13 supervision, or cueing over a period of at least

14 100 days.

15 (2) INDIVIDUALS WITH SEVERE COGNITIVE OR

16 MENTAL IMPAIRMENT.—An individual of any age—

17 (A) whose score, on a standard mental sta18 tus protocol (or protocols) appropriate for

19 measuring the individual’s particular condition

20 specified by the Secretary, indicates either se21 vere cognitive impairment or severe mental im22 pairment, or both;

23 (B) who—

24 (i) requires hands-on or standby as25 sistance, supervision, or cueing with one or

26 more activities of daily living,
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1 (ii) requires hands-on or standby as2 sistance, supervision, or cueing with at

3 least such instrumental activity (or activi4 ties) of daily living related to cognitive or

5 mental impairment as the Secretary speci6 fies, or

7 (iii) displays symptoms of one or more

8 serious behavioral problems (that is on a

9 list of such problems specified by the Sec10 retary) which create a need for supervision

11 to prevent harm to self or others; and

12 (C) whose is expected to meet the require13 ments of subparagraphs (A) and (B) over a pe14 riod of at least 100 days.

15 (3) INDIVIDUALS WITH SEVERE OR PROFOUND

16 MENTAL RETARDATION.—An individual of any age

17 who has severe or profound mental retardation (as

18 determined according to a protocol specified by the

19 Secretary).

20 (4) SEVERELY DISABLED CHILDREN.—An indi21 vidual under 6 years of age who—

22 (A) has a severe disability or chronic medi23 cal condition,

24 (B) but for receiving personal assistance

25 services or any of the services described in sec-
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1 tion 404(d)(1), would require institutionaliza2 tion in a hospital, nursing facility, or intermedi3 ate care facility for the mentally retarded, and

4 (C) is expected to have such disability or

5 condition and require such services over a pe6 riod of at least 100 days.

7 (b) DETERMINATION.—

8 (1) IN GENERAL.—The determination of wheth9 er an individual is an individual with disabilities

10 shall be made, by persons or entities specified under

11 the State plan, using a uniform protocol consisting

12 of an initial screening and assessment specified by

13 the Secretary. A State may collect additional infor14 mation, at the time of obtaining information to

15 make such determination, in order to provide for the

16 assessment and plan described in section 404(b) or

17 for other purposes. The State shall establish a fair

18 hearing process for appeals of such determinations.

19 (2) PERIODIC REASSESSMENT.—The determina20 tion that an individual is an individual with disabil21 ities shall be considered to be effective under the

22 State plan for a period of not more than 12 months

23 (or for such longer period in such cases as a signifi24 cant change in an individual’s condition that may af25 fect such determination is unlikely). A reassessment
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1 shall be made if there is a significant change in an

2 individual’s condition that may affect such deter3 mination.

4 (c) ACTIVITY OF DAILY LIVING DEFINED.—In this

5 title, the term ‘‘activity of daily living’’ means any of the

6 following: eating, toileting, dressing, bathing, and trans7 ferring.

8 SEC. 404. HOME AND COMMUNITY-BASED SERVICES COV9 ERED UNDER STATE PLAN.

10 (a) SPECIFICATION.—

11 (1) IN GENERAL.—Subject to the succeeding

12 provisions of this section, the State plan under this

13 title shall specify—

14 (A) the home and community-based serv15 ices available under the plan to individuals with

16 disabilities (or to such categories of such indi17 viduals), and

18 (B) any limits with respect to such serv19 ices.

20 (2) FLEXIBILITY IN MEETING INDIVIDUAL

21 NEEDS.—The services shall be specified in a manner

22 that permits sufficient flexibility for providers to

23 meet the needs of individuals with disabilities in a

24 cost effective manner. Subject to subsection

25 (e)(1)(B), such services may be delivered in an indi-
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1 vidual’s home, a range of community residential ar2 rangements, or outside the home.

3 (b) REQUIREMENT FOR NEEDS ASSESSMENT AND

4 PLAN OF CARE.—

5 (1) IN GENERAL.—The State plan shall provide

6 for home and community-based services to an indi7 vidual with disabilities only if—

8 (A) a comprehensive assessment of the in9 dividual’s need for home and community-based

10 services (regardless of whether all needed serv11 ices are available under the plan) has been

12 made,

13 (B) an individualized plan of care based on

14 such assessment is developed, and

15 (C) such services are provided consistent

16 with such plan of care.

17 (2) INVOLVEMENT OF INDIVIDUALS.—The indi18 vidualized plan of care under paragraph (1)(B) for

19 an individual with disabilities shall—

20 (A) be developed by qualified individuals

21 (specified under the State plan),

22 (B) be developed and implemented in close

23 consultation with the individual and the individ24 ual’s family,
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1 (C) be approved by the individual (or the

2 individual’s representative), and

3 (D) be reviewed and updated not less often

4 than every 6 months.

5 (3) PLAN OF CARE.—The plan of care under

6 paragraph (1)(B) shall—

7 (A) specify which services specified under

8 the individual plan will be provided under the

9 State plan under this title,

10 (B) identify (to the extent possible) how

11 the individual will be provided any services

12 specified under the plan of care and not pro13 vided under the State plan, and

14 (C) specify how the provision of services to

15 the individual under the plan will be coordi16 nated with the provision of other health care

17 services to the individual.

18 The State shall make reasonable efforts to identify

19 and arrange for services described in subparagraph

20 (B). Nothing in this subsection shall be construed as

21 requiring a State (under the State plan or other22 wise) to provide all the services specified in such a

23 plan.

24 (c) MANDATORY COVERAGE OF PERSONAL ASSIST25 ANCE SERVICES.—The State plan shall include, in the
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1 array of services made available to each category of indi2 viduals with disabilities, both agency-administered and

3 consumer-directed personal assistance services (as defined

4 in subsection (g)).

5 (d) ADDITIONAL SERVICES.—

6 (1) TYPES OF SERVICES.—Subject to subsection

7 (e), services available under a State plan under this

8 title shall include any (or all) of the following:

9 (A) Case management.

10 (B) Homemaker and chore assistance.

11 (C) Home modifications.

12 (D) Respite services.

13 (E) Assistive devices.

14 (F) Adult day services.

15 (G) Habilitation and rehabilitation.

16 (H) Supported employment.

17 (I) Home health services.

18 (J) Any other care or assistive services

19 (approved by the Secretary) that the State de20 termines will help individuals with disabilities to

21 remain in their homes and communities.

22 (2) CRITERIA FOR SELECTION OF SERVICES.—

23 The State plan shall specify—

24 (A) the methods and standards used to se25 lect the types, and the amount, duration, and
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1 scope, of services to be covered under the plan

2 and to be available to each category of individ3 uals with disabilities, and

4 (B) how the types, and the amount, dura5 tion, and scope, of services specified meet the

6 needs of individuals within each of the 4 cat7 egories of individuals with disabilities.

8 (e) EXCLUSIONS AND LIMITATIONS.—

9 (1) IN GENERAL.—A State plan may not pro10 vide for coverage of—

11 (A) room and board,

12 (B) services furnished in a hospital, nurs13 ing facility, intermediate care facility for the

14 mentally retarded, or other institutional setting

15 specified by the Secretary, or

16 (C) items and services to the extent cov17 erage is provided for the individual under a

18 health plan or the medicare program.

19 (2) TAKING INTO ACCOUNT INFORMAL CARE.—

20 A State plan may take into account, in determining

21 the amount and array of services made available to

22 covered individuals with disability, the availability of

23 informal care.

24 (f) PAYMENT FOR SERVICES.—A State plan may pro25 vide for the use of—
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1 (1) vouchers,

2 (2) cash payments directly to individuals with

3 disabilities,

4 (3) capitation payments to health plans, and

5 (4) payment to providers,

6 to pay for covered services.

7 (g) PERSONAL ASSISTANCE SERVICES.—

8 (1) IN GENERAL.—In this section, the term

9 ‘‘personal assistance services’’ means those services

10 specified under the State plan as personal assistance

11 services and shall include at least hands-on and

12 standby assistance, supervision, and cueing with ac13 tivities of daily living, whether agency-administered

14 or consumer-directed (as defined in paragraph (2)).

15 (2) CONSUMER-DIRECTED; AGENCY-ADMINIS16 TERED.—In this title:

17 (A) The term ‘‘consumer-directed’’ means,

18 with reference to personal assistance services or

19 the provider of such services, services that are

20 provided by an individual who is selected and

21 managed (and, at the individual’s option,

22 trained) by the individual receiving the services.

23 (B) The term ‘‘agency-administered’’

24 means, with respect to such services, services

25 that are not consumer-directed.
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1 SEC. 405. COST SHARING.

2 (a) NO OR NOMINAL COST SHARING FOR POOR3 EST.—The State plan may not impose any cost sharing

4 (other than nominal cost sharing) for individuals with in5 come (as determined under subsection (c)) less than 150

6 percent of the official poverty line (referred to in section

7 402(a)(1)(E)) applicable to a family of the size involved.

8 (b) SLIDING SCALE FOR REMAINDER.—The State

9 plan shall impose cost sharing in the form of coinsurance

10 (based on the amount paid under the State plan for a serv11 ice)—

12 (1) at a rate of 10 percent for individuals with

13 disabilities with income not less than 150 percent,

14 and less than 200 percent, of such official poverty

15 line (as so applied); and

16 (2) at a rate of 20 percent for such individuals

17 with income not less than 200 percent, and less than

18 250 percent, of such official poverty line (as so ap19 plied).

20 (c) DETERMINATION OF INCOME FOR PURPOSES OF

21 COST SHARING.—The State plan shall specify the process

22 to be used to determine the income of an individual with

23 disabilities for purposes of this section. Such process shall

24 be consistent with standards specified by the Secretary.
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1 SEC. 406. QUALITY ASSURANCE AND SAFEGUARDS.

2 (a) QUALITY ASSURANCE.—The State plan shall

3 specify how the State will ensure and monitor the quality

4 of services, including—

5 (1) safeguarding the health and safety of indi6 viduals with disabilities,

7 (2) the minimum standards for agency provid8 ers and how such standards will be enforced,

9 (3) the minimum competency requirements for

10 agency provider employees who provide direct serv11 ices under this title and how the competency of such

12 employees will be enforced,

13 (4) obtaining meaningful consumer input, in14 cluding consumer surveys that measure the extent to

15 which participants receive the services described in

16 the plan of care and participant satisfaction with

17 such services,

18 (5) participation in quality assurance activities,

19 and

20 (6) specifying the role of the long-term care om21 budsman (under the Older Americans Act of 1965)

22 and the Protection and Advocacy Agency (under the

23 Developmental Disabilities Assistance and Bill of

24 Rights Act) in assuring quality of services and pro25 tecting the rights of individuals with disabilities.

26 (b) SAFEGUARDS.—
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1 (1) CONFIDENTIALITY.—The State plan shall

2 provide safeguards which restrict the use or disclo3 sure of information concerning applicants and bene4 ficiaries to purposes directly connected with the ad5 ministration of the plan.

6 (2) SAFEGUARDS AGAINST ABUSE.—The State

7 plans shall provide safeguards against physical, emo8 tional, or financial abuse or exploitation (specifically

9 including appropriate safeguards in cases where pay10 ment for program benefits is made by cash pay11 ments or vouchers given directly to individuals with

12 disabilities).

13 SEC. 407. ADVISORY GROUPS.

14 (a) FEDERAL ADVISORY GROUP.—

15 (1) ESTABLISHMENT.—The Secretary shall es16 tablish an advisory group, to advise the Secretary

17 and States on all aspects of the program under this

18 title.

19 (2) COMPOSITION.—The group shall be com20 posed of individuals with disabilities and their rep21 resentatives, providers, Federal and State officials,

22 and local community implementing agencies. A ma23 jority of its members shall be individuals with dis24 abilities and their representatives.

25 (b) STATE ADVISORY GROUPS.—
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1 (1) IN GENERAL.—Each State plan shall pro2 vide for the establishment and maintenance of an

3 advisory group to advise the State on all aspects of

4 the State plan under this title.

5 (2) COMPOSITION.—Members of each advisory

6 group shall be appointed by the Governor (or other

7 chief executive officer of the State) and shall include

8 individuals with disabilities and their representa9 tives, providers, State officials, and local community

10 implementing agencies. A majority of its members

11 shall be individuals with disabilities and their rep12 resentatives.

13 (3) SELECTION OF MEMBERS.—Each State

14 shall establish a process whereby all residents of the

15 State, including individuals with disabilities and

16 their representatives, shall be given the opportunity

17 to nominate members to the advisory group.

18 (4) PARTICULAR CONCERNS.—Each advisory

19 group shall—

20 (A) before the State plan is developed, ad21 vise the State on guiding principles and values,

22 policy directions, and specific components of the

23 plan,

24 (B) meet regularly with State officials in25 volved in developing the plan, during the devel-
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1 opment phase, to review and comment on all as2 pects of the plan,

3 (C) participate in the public hearings to

4 help assure that public comments are addressed

5 to the extent practicable,

6 (D) document any differences between the

7 group’s recommendations and the plan,

8 (E) document specifically the degree to

9 which the plan is consumer-directed, and

10 (F) meet regularly with officials of the des11 ignated State agency (or agencies) to provide

12 advice on all aspects of implementation and

13 evaluation of the plan.

14 SEC. 408. PAYMENTS TO STATES.

15 (a) IN GENERAL.—Subject to section 402(a)(9)(B)

16 (relating to limitation on payment for administrative

17 costs), the Secretary, in accordance with the Cash Man18 agement Improvement Act, shall authorize payment to

19 each State with a plan approved under this title, for each

20 quarter (beginning on or after January 1, 1996), from its

21 allotment under section 409(b), an amount equal to—

22 (1) the Federal matching percentage (as de23 fined in subsection (b)) of amount demonstrated by

24 State claims to have been expended during the quar-
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1 ter for home and community-based services under

2 the plan for individuals with disabilities; plus

3 (2) an amount equal to 90 percent of amount

4 expended during the quarter under the plan for ac5 tivities (including preliminary screening) relating to

6 determination of eligibility and performance of needs

7 assessment; plus

8 (3) an amount equal to 90 percent (or, begin9 ning with quarters in fiscal year 2003, 75 percent)

10 of the amount expended during the quarter for the

11 design, development, and installation of mechanical

12 claims processing systems and for information re13 trieval; plus

14 (4) an amount equal to 50 percent of the re15 mainder of the amounts expended during the quar16 ter as found necessary by the Secretary for the prop17 er and efficient administration of the State plan.

18 (b) FEDERAL MATCHING PERCENTAGE.—

19 (1) IN GENERAL.—In subsection (a), the term

20 ‘‘Federal matching percentage’’ means, with respect

21 to a State, the reference percentage specified in

22 paragraph (2) increased by 20 percentage points, ex23 cept that the Federal matching percentage shall in

24 no case be less than 70 percent or more than 88

25 percent.
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1 (2) REFERENCE PERCENTAGE.—

2 (A) IN GENERAL.—The reference percent3 age specified in this paragraph is 100 percent

4 less the State percentage specified in subpara5 graph (B), except that—

6 (i) the percentage under this para7 graph shall in no case be less than 50 per8 cent or more than 83 percent, and

9 (ii) the percentage for Puerto Rico,

10 the Virgin Islands, Guam, the Northern

11 Mariana Islands, and American Samoa

12 shall be 50 percent.

13 (B) STATE PERCENTAGE.—The State per14 centage specified in this subparagraph is that

15 percentage which bears the same ratio to 45

16 percent as the square of the per capita income

17 of such State bears to the square of the per

18 capita income of the continental United States

19 (including Alaska) and Hawaii.

20 (c) PAYMENTS ON ESTIMATES WITH RETROSPEC21 TIVE ADJUSTMENTS.—The method of computing and

22 making payments under this section shall be as follows:

23 (1) The Secretary shall, prior to the beginning

24 of each quarter, estimate the amount to be paid to

25 the State under subsection (a) for such quarter,
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1 based on a report filed by the State containing its

2 estimate of the total sum to be expended in such

3 quarter, and such other information as the Secretary

4 may find necessary.

5 (2) From the allotment available therefore, the

6 Secretary shall provide for payment of the amount

7 so estimated, reduced or increased, as the case may

8 be, by any sum (not previously adjusted under this

9 section) by which the Secretary finds that the esti10 mate of the amount to be paid the State for any

11 prior period under this section was greater or less

12 than the amount which should have been paid.

13 (d) APPLICATION OF RULES REGARDING LIMITA14 TIONS ON PROVIDER-RELATED DONATIONS AND HEALTH

15 CARE-RELATED TAXES.—The provisions of section

16 1903(w) of the Social Security Act shall apply to pay17 ments to States under this section in the same manner

18 as they apply to payments to States under section 1903(a)

19 of such Act .

20 SEC. 409. TOTAL FEDERAL BUDGET; ALLOTMENTS TO

21 STATES.

22 (a) TOTAL FEDERAL BUDGET.—

23 (1) FISCAL YEAR 1996.—For purposes of this

24 title, the total Federal budget for State plans under

25 this title for fiscal year 1996 is $11.0 billion.
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1 (2) SUBSEQUENT YEARS.—For purposes of this

2 title, the total Federal budget for State plans under

3 this title for each fiscal year after fiscal year 1996

4 is the total Federal budget under this subsection for

5 the preceding fiscal year increased by the percentage

6 increase (as estimated by the Secretary) in Federal

7 expenditures under title XVIII of the Social Security

8 Act from the previous fiscal year to the fiscal year

9 involved.

10 (3) CONSTRUCTIONS.—

11 (A) NO DUPLICATE PAYMENT.—No pay12 ment may be made to a State under this section

13 for any services to the extent that the State re14 ceived payment for such services under section

15 1903(a) of the Social Security Act.

16 (B) CONSTRUCTION.—Nothing in this sub17 section shall be construed as requiring States to

18 determine eligibility for medical assistance

19 under the State medicaid plan on behalf of indi20 viduals receiving assistance under this title.

21 (b) ALLOTMENTS TO STATES.—

22 (1) IN GENERAL.—The Secretary shall allot to

23 each State for each fiscal year an amount that bears

24 the same ratio to the total Federal budget for the

25 fiscal year (specified under paragraph (1) or (2) of
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1 subsection (a)) as the State allotment factor (under

2 paragraph (2) for the State for the fiscal year) bears

3 to the sum of such factors for all States for that fis4 cal year.

5 (2) STATE ALLOTMENT FACTOR.—

6 (A) IN GENERAL.—For each State for each

7 fiscal year, the Secretary shall compute a State

8 allotment factor equal to the sum of—

9 (i) the base allotment factor (specified

10 in subparagraph (B)), and

11 (ii) the low income allotment factor

12 (specified in subparagraph (C)),

13 for the State for the fiscal year.

14 (B) BASE ALLOTMENT FACTOR.—The base

15 allotment factor, specified in this subparagraph,

16 for a State for a fiscal year is equal to the

17 product of the following:

18 (i) NUMBER OF INDIVIDUALS WITH

19 DISABILITIES.—The number of individuals

20 with disabilities in the State (determined

21 under paragraph (3)) for the fiscal year.

22 (ii) 80 PERCENT OF THE NATIONAL

23 PER CAPITA BUDGET.—80 percent of the

24 national average per capita budget amount
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1 (determined under paragraph (4)) for the

2 fiscal year.

3 (iii) WAGE ADJUSTMENT FACTOR.—

4 The wage adjustment factor (determined

5 under paragraph (5)) for the State for the

6 fiscal year.

7 (iv) FEDERAL MATCHING RATE.—The

8 Federal matching rate (determined under

9 section 408(b)) for the fiscal year.

10 (C) LOW INCOME ALLOTMENT FACTOR.—

11 The low income allotment factor, specified in

12 this subparagraph, for a State for a fiscal year

13 is equal to the product of the following:

14 (i) NUMBER OF INDIVIDUALS WITH

15 DISABILITIES.—The number of individuals

16 with disabilities in the State (determined

17 under paragraph (3)) for the fiscal year.

18 (ii) 10 PERCENT OF THE NATIONAL

19 PER CAPITA BUDGET.—10 percent of the

20 national average per capita budget amount

21 (determined under paragraph (4)) for the

22 fiscal year.

23 (iii) WAGE ADJUSTMENT FACTOR.—

24 The wage adjustment factor (determined
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1 under paragraph (5)) for the State for the

2 fiscal year.

3 (iv) FEDERAL MATCHING RATE.—The

4 Federal matching rate (determined under

5 section 408(b)) for the fiscal year.

6 (v) LOW INCOME INDEX.—The low in7 come index (determined under paragraph

8 (6)) for the State for the preceding fiscal

9 year.

10 (3) NUMBER OF INDIVIDUALS WITH DISABIL11 ITIES.—The number of individuals with disabilities

12 in a State for a fiscal year shall be determined as

13 follows:

14 (A) BASE.—The Secretary shall determine

15 the number of individuals in the State by age,

16 sex, and income category, based on the 1990

17 decennial census, adjusted (as appropriate) by

18 the March 1994 current population survey.

19 (B) DISABILITY PREVALENCE LEVEL BY

20 POPULATION CATEGORY.—The Secretary shall

21 determine, for each such age, sex, and income

22 category, the national average proportion of the

23 population of such category that represents in24 dividuals with disabilities. The Secretary may
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1 conduct periodic surveys in order to determine

2 such proportions.

3 (C) BASE DISABLED POPULATION IN A

4 STATE.—The number of individuals with dis5 abilities in a State in 1994 is equal to the sum

6 of the products, for such age, sex, and income

7 category, of—

8 (i) the population of individuals in the

9 State in the category (determined under

10 subparagraph (A)), and

11 (ii) the national average proportion

12 for such category (determined under sub13 paragraph (B)).

14 (D) UPDATE.—The Secretary shall deter15 mine the number of individuals with disabilities

16 in a State in a fiscal year equal to the number

17 determined under subparagraph (C) for the

18 State increased (or decreased) by the percent19 age increase (or decrease) in the disabled popu20 lation of the State as determined under the cur21 rent population survey from 1994 to the year

22 before the fiscal year involved.

23 (4) NATIONAL PER CAPITA BUDGET AMOUNT.—

24 The national average per capita budget amount, for

25 a fiscal year, is—
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1 (A) the total Federal budget specified

2 under subsection (a) for the fiscal year; divided

3 by

4 (B) the sum, for the fiscal year, of the

5 numbers of individuals with disabilities (deter6 mined under paragraph (3)) for all the States

7 for the fiscal year.

8 (5) WAGE ADJUSTMENT FACTOR.—The wage

9 adjustment factor, for a State for a fiscal year, is

10 equal to the ratio of—

11 (A) the average hourly wages for service

12 workers (other than household or protective

13 services) in the State, to

14 (B) the national average hourly wages for

15 service workers (other than household or protec16 tive services).

17 The hourly wages shall be determined under this

18 paragraph based on data from the most recent de19 cennial census for which such data are available.

20 (6) LOW INCOME INDEX.—The low income

21 index for each State for a fiscal year is the ratio, de22 termined for the preceding fiscal year, of—

23 (A) the percentage of the State’s popu24 lation that has income below 150 percent of the

25 poverty level, to
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1 (B) the percentage of the population of the

2 United States that has income below 150 per3 cent of the poverty level.

4 Such percentages shall be based on data from the

5 most recent decennial census for which such data

6 are available, adjusted by data from the most recent

7 current population survey as determined appropriate

8 by the Secretary.

9 (c) STATE ENTITLEMENT.—This title constitutes

10 budget authority in advance of appropriations Acts, and

11 represents the obligation of the Federal Government to

12 provide for the payment to States of amounts described

13 in subsection (a).

14 TITLE V—REBASING MEDICARE

15 PAYMENT RATES

16 Subtitle A—Rehabilitation

17 Hospitals

18 SEC. 501. DEFINITION OF REHABILITATION HOSPITALS.

19 (a) IN GENERAL.—Clause (ii) of section

20 1886(d)(1)(B) of the Social Security Act (42 U.S.C.

21 1395ww(d)(1)(B)) is amended to read as follows:

22 ‘‘(ii) a rehabilitation hospital (as de23 fined by the Secretary) and including a

24 hospital that provides rehabilitation serv25 ices to patients at least 75 percent of
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1 whom in any cost reporting period are de2 termined to require rehabilitation as a re3 sult of any of the following: stroke, spinal

4 cord injury, congenital deformity, amputa5 tion, major multiple trauma, fracture of

6 femur, brain injury, polyarthritis (includ7 ing rheumatoid arthritis), neurological dis8 orders, burns, chronic pain, cardiac condi9 tions, pulmonary conditions, or oncology,’’.

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

11 subsection (a) shall take effect October 1, 1994.

12 SEC. 502. PAYMENT RULES.

13 (a) IN GENERAL.—Section 1886(b)(3) of the Social

14 Security Act (42 U.S.C. 1395ww(b)(3)) is amended—

15 (1) in subparagraphs (A) and (B)(ii), by strik16 ing ‘‘and (E)’’ and inserting ‘‘(E), and (F)’’, and

17 (2) by adding at the end the following new sub18 paragraph:

19 ‘‘(F) Notwithstanding any other provision of this

20 title, for cost reporting periods beginning on and after Oc21 tober 1, 1994, in the case of a hospital described in clause

22 (ii) or (iv) of subsection (d)(1)(B) and not described in

23 subparagraph (G)(ii), and a rehabilitation unit as de24 scribed in such subsection, the term ‘target amount’

25 means—
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1 ‘‘(i) in the case of a hospital or distinct part

2 unit that is subject to a target amount in the first

3 such period, the allowable operating costs of inpa4 tient hospital services (as defined in subsection

5 (a)(4) for its cost reporting period ending on or be6 fore December 31, 1991 (in this subparagraph re7 ferred to as ‘the new base year’), increased by the

8 applicable percentage increases prescribed by sub9 section (b)(3)(B), except that (I) in no case shall

10 such target amount for any hospital or distinct part

11 unit be less than 70 percent of the national averages

12 for all such hospitals and distinct part units (as de13 termined by the Secretary) and (II) in no case shall

14 payment per discharge to a hospital in a cost report15 ing period beginning on or after October 1, 1994, be

16 less than the amount paid per discharge in the new

17 base year (including any payments pursuant to para18 graph (1)(A)) multiplied by the applicable percent19 age increase prescribed by subparagraph (B); and

20 ‘‘(ii) in the case of a hospital or distinct part

21 unit that is not subject to a target amount in the

22 first such period, the allowable operating costs of in23 patient hospital services (as defined in subsection

24 (a)(4)) in the 12-month cost reporting period imme25 diately preceding the first period subject to a target
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1 amount shall be increased by the applicable percent2 age increase prescribed by subparagraph (B), except

3 that in no case shall such target amount for any

4 hospital or unit be not less than 70 percent of the

5 national average for all such hospitals or distinct

6 part units (as determined by the Secretary) of the

7 type of hospital or distinct part unit for which it was

8 granted approval to participate under this title (as

9 determined by the Secretary).’’.

10 (b) EFFECTIVE DATE.—The amendments made by

11 subsection (a) shall apply to cost reporting periods begin12 ning on or after October 1, 1994.

13 SEC. 503. PAYMENT FOR OPERATING COSTS OF REHABILI14 TATION HOSPITALS.

15 (a) IN GENERAL.—Section 1886(d) of the Social Se16 curity Act (42 U.S.C. 1395ww(d)) is amended by adding

17 at the end the following new paragraph:

18 ‘‘(11)(A) Notwithstanding section 1814(b), but sub19 ject to the provision of section 1813, the amount of the

20 payment with respect to the operating costs of inpatient

21 hospital services of a rehabilitation hospital or a distinct

22 part rehabilitation unit (in this paragraph referred to as

23 a ‘rehabilitation center’), as defined in subparagraph (B),

24 in cost reporting periods beginning on and after October
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1 1, 1996, shall be determined in accordance with this para2 graph.

3 ‘‘(B)(i) The Secretary—

4 ‘‘(I) shall establish a classification of inpatient

5 hospital discharges of rehabilitation centers by func6 tional-related groups (in this paragraph referred to

7 as ‘FRGs’) to include impairment, age and func8 tional capability and such other factors as the Sec9 retary deems appropriate; and

10 ‘‘(II) shall establish a methodology for

11 classifying specific discharges from a rehabilitation

12 center within these groups.

13 ‘‘(ii) For each such functional-related group the Sec14 retary shall assign an appropriate weighting factor which

15 reflects the relative hospital resources used with respect

16 to discharges classified within that group compared to dis17 charges classified within other groups.

18 ‘‘(iii) The Secretary shall, from time to time, adjust

19 the classifications and weighting factors established under

20 this clause as appropriate to reflect changes in treatment

21 patterns, technology and other factors which may change

22 the relative use of resources, except that any such adjust23 ments shall be made in a manner that assures that the

24 aggregate payments under this paragraph for discharges

25 in the fiscal year are not greater or less than those that
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1 would have been made for discharges in the year without

2 such adjustment.

3 ‘‘(C) The Secretary shall determine an FRG payment

4 rate for each rehabilitation center discharge for which

5 such rehabilitation center is entitled to receive payment

6 under this title. Such payment rate for cost reporting peri7 ods beginning on and after October 1, 1996, shall be the

8 average payment per discharge under this title for inpa9 tient operating costs of rehabilitation centers in the fiscal

10 year ending September 30, 1996, as estimated by the Sec11 retary, adjusted by—

12 ‘‘(i) updating such per-discharge amount by the

13 applicable percentage increase provided by sub14 section (b)(3)(B)(iv)(IV),

15 ‘‘(ii) variations among hospitals by area in the

16 average hospital wage index (as described in sub17 paragraph (H)),

18 ‘‘(iii) the FRG weighting factor (as defined in

19 subparagraph (B)), and

20 ‘‘(iv) for any hospital or distinct part unit that

21 serves a disproportionate number of low-income pa22 tients (as defined in paragraph (5)(F)(v), a factor

23 determined in accordance with subparagraph (F).

24 ‘‘(D) The Secretary shall provide for an additional

25 payment to a rehabilitation center for any discharges in
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1 a functional-related group, the length of stay of which ex2 ceeded the mean length of stay for discharges within that

3 group by a fixed number of days or exceeds such mean

4 length of stay by some fixed number of deviations, which5 ever is the fewer number of days.

6 ‘‘(E) For cases which are not included in subpara7 graph (D), a rehabilitation center may request additional

8 payments in any case where charges, adjusted to cost, ex9 ceed a fixed multiple of the applicable FRG prospective

10 payment rate, or exceed such other fixed dollar amount,

11 whichever is greater, or exceed the FRG prospective pay12 ment rate plus a fixed dollar amount determined by the

13 Secretary.

14 ‘‘(F) The Secretary may provide for such adjust15 ments to the payment amounts under this paragraph as

16 the Secretary deems appropriate to take into account the

17 unique circumstances of rehabilitation facilities located in

18 Alaska and Hawaii.

19 ‘‘(G) The Secretary shall provide for publication in

20 the Federal Register, on or before September 1 before

21 each fiscal year (beginning with fiscal year 1996), of the

22 FRG weighting factors for such fiscal year and a descrip23 tion of the methodology and data used in computing the

24 adjusted FRG prospective payment rates under this para25 graph.
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1 ‘‘(H) The Secretary shall adjust the proportion (as

2 estimated by the Secretary from time-to-time) of rehabili3 tation centers’ costs which are attributable to wages and

4 wage-related costs, of the FRG prospective payment rates

5 computed under subparagraph (C) for area differences in

6 hospital wage levels by a factor (established by the Sec7 retary) reflecting the relative hospital wage level in the

8 geographic area of the rehabilitation center compared to

9 the national average hospital wage level. Not later than

10 October 1, 1997 (and at least every 12 months thereafter),

11 the Secretary shall update the factor under the preceding

12 sentence on the basis of a survey conducted by the Sec13 retary (and updated as appropriate) of the wages and

14 wage-related costs incurred in furnishing hospital services.

15 Any adjustments or updates made under this subpara16 graph for a fiscal year shall be made in a manner that

17 assures that the aggregated payments under this para18 graph in the fiscal year are not greater or less than those

19 that would have been made in the year without such ad20 justment.

21 ‘‘(I) The determinations required by this paragraph

22 shall be made in a manner that assures that the aggre23 gated payments under this paragraph in the fiscal year

24 beginning October 1, 1996, and subsequent fiscal years

25 are not greater or less than those that would have been
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1 made in any such year had this paragraph not been en2 acted.

3 ‘‘(J) The Secretary also shall provide for an addi4 tional payment amount for rehabilitation centers with in5 direct costs of medical education in an amount computed

6 in the same manner as is such additional payment com7 puted for subsection (d) hospitals under paragraph

8 (5)(B).’’.

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

10 subsection (a) shall apply to cost reporting periods begin11 ning on or after October 1, 1996.

12 Subtitle B—Long-Term Hospitals

13 SEC. 511. PAYMENT RULES.

14 (a) ASSIGNMENT OF NEW BASE YEAR FOR CER15 TIFIED LONG-STAY HOSPITALS SERVING A SIGNIFICANT

16 PROPORTION OF LOW-INCOME PATIENTS.—Section

17 1886(b)(3) of the Social Security Act (42 U.S.C.

18 1395ww(b)(3)), as amended by section 502(a), is amend19 ed—

20 (1) in subparagraphs (A) and (B)(ii), by strik21 ing ‘‘and (F)’’ and inserting ‘‘(F), and (G)’’, and

22 (2) by adding at the end the following new sub23 paragraph:

24 ‘‘(G)(i) In the case of a hospital described in clause

25 (ii), the term ‘target amount’ means—
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1 ‘‘(I) with respect to the first 12-month cost re2 porting period in which this subparagraph is applied

3 to the hospital, the allowable operating costs of inpa4 tient hospital services (as defined in subsection

5 (a)(4)) recognized under this title for the hospital’s

6 fiscal year 1991 cost reporting period increased (in

7 a compound manner) by the sum of the applicable

8 percentage increases applied to such hospital under

9 this paragraph for cost reporting periods after the

10 hospital’s fiscal year 1991 cost reporting period and

11 up to and including such first 12-month cost report12 ing period; or

13 ‘‘(II) with respect to a later cost reporting pe14 riod, subject to clause (iii), the target amount for

15 the preceding 12-month cost reporting period, in16 creased by the applicable percentage increase under

17 subparagraph (B)(ii) for the cost reporting period.

18 ‘‘(ii) A hospital described in this clause is a hos19 pital—

20 ‘‘(I) which is described in clause (iv) of sub21 section (d)(1)(B);

22 ‘‘(II) which has not received the additional pay23 ment amount described in paragraph (1)(A) for at

24 least 2 consecutive years; and
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1 ‘‘(III) for which the sum of the amounts de2 scribed in subclauses (I) and (II) of subsection

3 (d)(5)(F)(vi) in the period described in clause (i) ex4 ceeds 25 percent.

5 ‘‘(iii) Notwithstanding clause (i)(II), if, after July 1,

6 1995, a hospital is still described in clause (ii), there shall

7 be substituted for the base cost reporting period described

8 in clause (i)(I) a subsequent reporting period chosen by

9 the Secretary which shall be one of the fiscal years de10 scribed in clause (ii)(II) of the hospital, but only if such

11 substitution results in an increase in the target amount

12 for the hospital.

13 ‘‘(iv) In making available to the hospital the pay14 ments described in section 1815(e)(2), the Secretary shall

15 take into account the enactment of this subparagraph,

16 and, effective as of the date of the enactment of this sub17 paragraph, shall increase such payments as if the target

18 amount of the hospital had been established pursuant to

19 this subparagraph as of such date.’’.

20 (b) EFFECTIVE DATE.—

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

22 subsection (a) shall be effective with respect to cost

23 reporting periods beginning on or after July 1,

24 1993.
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1 (2) SPECIAL RULE FOR HOSPITALS WITH EX2 CEPTION OR ADJUSTMENT REQUESTS PENDING.—In

3 the case of a hospital described in clause (iv) or (v)

4 of section 1886(d)(1)(B) of the Social Security Act

5 and that has filed a request for an exception or ad6 justment pursuant to section 1886(b)(4) of such Act

7 on or after October 1, 1990, and before June 1,

8 1993, the provisions of this section shall, at the op9 tion of the hospital, apply to the hospital for cost re10 porting periods during which and after such request

11 was filed.

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