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[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4632 Introduced in House (IH)]

103d CONGRESS
  2d Session
                                H. R. 4632

  To establish a program to provide Federal payment to States for the 
operation of programs for long-term care services for needy individuals 
with disabilities, to amend the Internal Revenue Code of 1986 to revise 
    the tax treatment of expenses for long-term care insurance and 
services, to reform standards for the long-term care insurance market, 
                        and for other purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             June 22, 1994

   Mr. Peterson of Florida introduced the following bill; which was 
referred jointly to the Committees on Energy and Commerce and Ways and 
                                 Means

_______________________________________________________________________

                                 A BILL

 
  To establish a program to provide Federal payment to States for the 
operation of programs for long-term care services for needy individuals 
with disabilities, to amend the Internal Revenue Code of 1986 to revise 
    the tax treatment of expenses for long-term care insurance and 
services, to reform standards for the long-term care insurance market, 
                        and for other purposes.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Comprehensive 
Long-Term Care Reform Act of 1994''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
     TITLE I--STATE PROGRAMS FOR LONG-TERM CARE SERVICES FOR NEEDY 
                     INDIVIDUALS WITH DISABILITIES

               Subtitle A--State Long-Term Care Programs

Sec. 101. State programs for long-term care services for needy 
                            individuals with disabilities.
Sec. 102. State plans.
Sec. 103. Individuals with disabilities and needy individual defined.
Sec. 104. Long-term care services covered under State plan.
Sec. 105. Cost sharing.
Sec. 106. Quality assurance and safeguards.
Sec. 107. Advisory groups.
Sec. 108. Payments to States.
Sec. 109. Total Federal budget; allotments to States.
          Subtitle B--Increase in SSI Personal Needs Allowance

Sec. 111. Increase in SSI personal needs allowance.
Subtitle C--Repeal of Coverage Under the Medicaid Program of Long-Term 
                             Care Services

Sec. 121. Repeal of coverage under the medicaid program of long-term 
                            care services covered under State plan.
    TITLE II--TAX TREATMENT OF LONG-TERM CARE INSURANCE AND SERVICES

Sec. 201. Amendment of 1986 code.
Sec. 202. Qualified long-term care services treated as medical care.
Sec. 203. Treatment of long-term care insurance.
Sec. 204. Tax treatment of accelerated death benefits under life 
                            insurance contracts.
Sec. 205. Tax treatment of companies issuing qualified accelerated 
                            death benefit riders.
Sec. 206. Exclusion from gross income for amounts withdrawn from 
                            certain plans to pay qualified long-term 
                            care insurance premiums.
Sec. 207. Nonrecognition of gain on sale of principal residence to 
                            extent proceeds used for entrance into 
                            continuing care retirement community.
               TITLE III--LONG-TERM CARE INSURANCE REFORM

                     Subtitle A--General Provisions

Sec. 301. Federal regulations; prior application or certain 
                            requirements.
Sec. 302. Definitions.
             Subtitle B--Federal Standards and Requirements

Sec. 321. Requirements to facilitate understanding and comparison of 
                            benefits.
Sec. 322. Requirements relating to coverage.
Sec. 323. Requirements relating to premiums.
Sec. 324. Requirements relating to sales practices.
Sec. 325. Continuation, renewal, replacement, conversion, and 
                            cancellation of policies.
Sec. 326. Requirements relating to payment of benefits.
                        Subtitle C--Enforcement

Sec. 341. State programs for enforcement of standards.
Sec. 342. Authorization of appropriations for State programs.
Sec. 343. Allotments to States.
Sec. 344. Payments to States.
Sec. 345. Federal oversight of State enforcement.
       Subtitle D--Recommendations for Consumer Education Program

Sec. 361. Recommendations for consumer education program.
                          TITLE IV--FINANCING

Sec. 401. Phase in of 24-cent/pack increase in excise taxes on 
                            cigarettes.

     TITLE I--STATE PROGRAMS FOR LONG-TERM CARE SERVICES FOR NEEDY 
                     INDIVIDUALS WITH DISABILITIES

               Subtitle A--State Long-Term Care Programs

SEC. 101. STATE PROGRAMS FOR LONG-TERM CARE SERVICES FOR NEEDY 
              INDIVIDUALS WITH DISABILITIES.

    (a) In General.--Each State that has a plan for the long-term care 
services to needy individuals with disabilities submitted to and 
approved by the Secretary under section 102(b) is entitled to payment 
in accordance with section 108.
    (b) No Individual Entitlement Established.--Nothing in this 
subtitle shall be construed to create an entitlement for individuals or 
a requirement that a State with such an approved plan expend the entire 
amount of funds to which it is entitled in any year.
    (c) State Defined.--In this Act, the term ``State'' includes the 
District of Columbia, Puerto Rico, the Virgin Islands, Guam, American 
Samoa, and the Northern Mariana Islands.

SEC. 102. STATE PLANS.

    (a) Plan Requirements.--In order to be approved under subsection 
(b), a State plan for long-term care services for needy individuals 
with disabilities must meet the following requirements:
            (1) Eligibility.--
                    (A) In general.--Within the amounts provided by the 
                State (and under section 108) for such plan, the plan 
                shall provide that services under the plan will be 
                available to needy individuals with disabilities (as 
                defined in section 103(a)) in the State.
                    (B) Initial screening.--The plan shall provide a 
                process for the initial screening of individuals who 
                appear to have some reasonable likelihood of being an 
                individual with disabilities.
                    (C) Restrictions.--The plan may not limit the 
                eligibility of needy individuals with disabilities 
                based on--
                            (i) age,
                            (ii) geography,
                            (iii) nature, severity, or category of 
                        disability,
                            (iv) residential setting (other than an 
                        institutional setting), or
                            (v) other grounds specified by the 
                        Secretary.
                    (D) Maintenance of effort.--The plan must provide 
                assurances that, in the case of an individual receiving 
                medical assistance for home and community-based 
                services under the State medicaid plan as of the date 
                of the enactment of this Act, the State will continue 
                to make available (either under this plan or otherwise) 
                to such individual an appropriate level of assistance 
                for home and community-based services, taking into 
                account the level of assistance provided as of such 
                date and the individual's need for home and community-
                based services.
            (2) Services.--
                    (A) Specification.--Consistent with section 104, 
                the plan shall specify--
                            (i) the services made available under the 
                        plan,
                            (ii) the extent and manner in which such 
                        services are allocated and made available to 
                        individuals with disabilities, and
                            (iii) the manner in which services under 
                        the plan are coordinated with each other and 
                        with health and long-term care services 
                        available outside the plan for individuals with 
                        disabilities.
                    (B) Allocation.--The State plan--
                            (i) shall specify how it will allocate 
                        services under the plan, during and after the 
                        4-fiscal-year phase-in period beginning with 
                        fiscal year 1996, among covered individuals 
                        with disabilities, and
                            (ii) may not allocate such services based 
                        on the income or other financial resources of 
                        such individuals.
                    (C) Limitation on licensure or certification.--The 
                State may not subject consumer-directed providers of 
                personal assistance services to licensure, 
                certification, or other requirements which the 
                Secretary finds not to be necessary for the health and 
                safety of individuals with disabilities.
                    (D) Consumer choice.--To the extent possible, the 
                choice of an individual with disabilities (and that 
                individual's family) regarding which covered services 
                to receive and the providers who will provide such 
                services shall be followed.
            (3) Cost sharing.--The plan shall impose cost sharing with 
        respect to covered services only in accordance with section 
        105.
            (4) Types of providers and requirements for 
        participation.--The plan shall specify--
                    (A) the types of service providers eligible to 
                participate in the program under the plan, which shall 
                include consumer-directed providers for home and 
                community-based services, and
                    (B) any requirements for participation applicable 
                to each type of service provider.
            (5) Budget.--The plan shall specify how the State will 
        manage Federal and State funds available under the plan for 
        each fiscal year during the period beginning with fiscal year 
        1996 and ending with fiscal year 2000 and for each 5-fiscal-
        year periods thereafter to serve all categories of individuals 
        with disabilities and meet the requirements of this subsection. 
        If the Secretary makes an adjustment under section 109(a)(5)(C) 
        for a year, each State shall update the specifications under 
        this paragraph to reflect the impact of such an adjustment.
            (6) Provider reimbursement.--
                    (A) Payment methods.--The plan shall specify the 
                payment methods to be used to reimburse providers for 
                services furnished under the plan. Such methods may 
                include retrospective reimbursement on a fee-for-
                service basis, prepayment on a capitation basis, 
                payment by cash or vouchers to individuals with 
                disabilities, or any combination of these methods. In 
                the case of the use of cash or vouchers, the plan shall 
                specify how the plan will assure compliance with 
                applicable employment tax provisions.
                    (B) Payment rates.--The plan shall specify the 
                methods and criteria to be used to set payment rates 
                for services furnished under the plan (including rates 
                for cash payments or vouchers to individuals with 
                disabilities).
                    (C) Plan payment as payment in full.--The plan 
                shall restrict payment under the plan for covered 
                services to those providers that agree to accept the 
                payment under the plan (at the rates established 
                pursuant to subparagraph (B)) and any cost sharing 
                permitted or provided for under section 105 as payment 
                in full for services furnished under the plan.
            (7) Quality assurance and safeguards.--The State plan shall 
        provide for quality assurance and safeguards for applicants and 
        beneficiaries in accordance with section 106.
            (8) Advisory group.--The State plan shall--
                    (A) assure the establishment and maintenance of an 
                advisory group under section 107(b), and
                    (B) include the documentation prepared by the group 
                under section 107(b)(4).
            (9) Administration.--
                    (A) State agency.--The plan shall designate a State 
                agency or agencies to administer (or to supervise the 
                administration of) the plan.
                    (B) Administrative expenditures.--Effective 
                beginning with fiscal year 2003, the plan shall contain 
                assurances that not more than 10 percent of 
                expenditures under the plan for all quarters in any 
                fiscal year shall be for administrative costs.
                    (C) Coordination.--The plan shall specify how the 
                plan--
                            (i) will be integrated with the State 
                        medicaid plan, titles V and XX of the Social 
                        Security Act, programs under the Older 
                        Americans Act of 1965, programs under the 
                        Developmental Disabilities Assistance and Bill 
                        of Rights Act, the Individuals with 
                        Disabilities Education Act, the Rehabilitation 
                        Act of 1973, and any other Federal or State 
                        programs that provide services or assistance 
                        targeted to individuals with disabilities, and
                            (ii) will be coordinated with health plans.
            (10) Reports and information to secretary; audits.--The 
        plan shall provide that the State will furnish to the 
        Secretary--
                    (A) such reports, and will cooperate with such 
                audits, as the Secretary determines are needed 
                concerning the State's administration of its plan under 
                this subtitle, including the processing of claims under 
                the plan, and
                    (B) such data and information as the Secretary may 
                require in order to carry out the Secretary's 
                responsibilities.
            (11) Use of state funds for matching.--The plan shall 
        provide assurances that Federal funds will not be used to 
        provide for the State share of expenditures under this 
        subtitle.
    (b) Approval of Plans.--The Secretary shall approve a plan 
submitted by a State if the Secretary determines that the plan--
            (1) was developed by the State after consultation with 
        individuals with disabilities and representatives of groups of 
        such individuals, and
            (2) meets the requirements of subsection (a).
The approval of such a plan shall take effect as of the first day of 
the first fiscal year beginning after the date of such approval (except 
that any approval made before January 1, 1996, shall be effective as of 
January 1, 1996). In order to budget funds allotted under this 
subtitle, the Secretary may establish a deadline for the submission of 
such a plan before the beginning of a fiscal year as a condition of its 
approval effective with that fiscal year.
    (c) Monitoring.--The Secretary shall monitor the compliance of 
State plans with the eligibility requirements of section 103 and may 
monitor the compliance of such plans with other requirements of this 
subtitle.
    (d) Regulations.--The Secretary shall issue such regulations as may 
be appropriate to carry out this subtitle on a timely basis.

SEC. 103. INDIVIDUALS WITH DISABILITIES AND NEEDY INDIVIDUAL DEFINED.

    (a) In General.--In this subtitle, for purposes of both home and 
community-based services and institutional services, the term 
``individual with disabilities'' means any individual within one or 
more of the following 4 categories of individuals:
            (1) Individuals requiring help with activities of daily 
        living.--An individual of any age who--
                    (A) requires hands-on or standby assistance, 
                supervision, or cueing (as defined in regulations) to 
                perform--
                            (i) with respect to home and community-
                        based services, two or more activities of daily 
                        living (as defined in subsection (c)), or
                            (ii) with respect to institutional 
                        services, three or more activities of daily 
                        living; and
                    (B) is expected to require such assistance, 
                supervision, or cueing over a period of at least 120 
                days.
            (2) Individuals with severe cognitive or mental 
        impairment.--An individual of any age--
                    (A) whose score, on a standard mental status 
                protocol (or protocols) appropriate for measuring the 
                individual's particular condition specified by the 
                Secretary, indicates either severe cognitive impairment 
                or severe mental impairment, or both;
                    (B) who--
                            (i) requires hands-on or standby 
                        assistance, supervision, or cueing with one or 
                        more activities of daily living,
                            (ii) requires hands-on or standby 
                        assistance, supervision, or cueing with at 
                        least such instrumental activity (or 
                        activities) of daily living related to 
                        cognitive or mental impairment as the Secretary 
                        specifies, or
                            (iii) displays symptoms of one or more 
                        serious behavioral problems (that is on a list 
                        of such problems specified by the Secretary) 
                        which create a need for supervision to prevent 
                        harm to self or others; and
                    (C) is expected to meet the requirements of 
                subparagraphs (A) and (B) over a period of at least 100 
                days.
            (3) Individuals with severe or profound mental 
        retardation.--An individual of any age who has severe or 
        profound mental retardation (as determined according to a 
        protocol specified by the Secretary).
            (4) Severely disabled children.--An individual under 6 
        years of age who--
                    (A) has a severe disability or chronic medical 
                condition,
                    (B) but for receiving personal assistance services 
                or any of the services described in section 104(d)(1), 
                would require institutionalization in a hospital, 
                nursing facility, or intermediate care facility for the 
                mentally retarded, and
                    (C) is expected to have such disability or 
                condition and require such services over a period of at 
                least 100 days.
    (b) Determination of Disability.--
            (1) In general.--The determination of whether an individual 
        is an individual with disabilities shall be made, by persons or 
        entities specified under the State plan, using a uniform 
        protocol consisting of an initial screening and assessment 
        specified by the Secretary. A State may collect additional 
        information, at the time of obtaining information to make such 
        determination, in order to provide for the assessment and plan 
        described in section 104(b) or for other purposes. The State 
        shall establish a fair hearing process for appeals of such 
        determinations.
            (2) Periodic reassessment.--The determination that an 
        individual is an individual with disabilities shall be 
        considered to be effective under the State plan for a period of 
        not more than 12 months (or for such longer period in such 
        cases as a significant change in an individual's condition that 
        may affect such determination is unlikely). A reassessment 
        shall be made if there is a significant change in an 
        individual's condition that may affect such determination.
    (c) Activity of Daily Living Defined.--In this subtitle, the term 
``activity of daily living'' means any of the following: eating, 
toileting, dressing, bathing, and transferring.
    (d) Needy Individual Defined; Determination of Income and 
Resources.--
            (1) Needy individual defined.--In this title, the term 
        ``needy individual'' means an individual--
                    (A) whose income (as determined under paragraph 
                (2)) is less than 200 percent of the official poverty 
                line (as defined by the Office of Management and 
                Budget, and revised annually in accordance with section 
                673(2) of the Omnibus Budget Reconciliation Act of 
                1981) applicable to a family of the size involved, and
                    (B) whose resources (as determined under paragraph 
                (3)(A)) are less than the amount specified by the State 
                consistent with paragraph (3)(B).
            (2) Determination of income.--
                    (A) In general.--The State plan shall specify the 
                methodology to be used to determine the income of an 
                individual with disabilities for purposes of paragraph 
                (1) and section 105 (relating to cost sharing).
                    (B) Standards.--Such methodology shall be 
                consistent with standards specified by the Secretary. 
                Such standards shall be consistent with the methodology 
                generally used by States as of the date of the 
                enactment of this Act and shall--
                            (i) provide for taking into account 
                        expenses incurred for medical care or other 
                        types of remedial care recognized under State 
                        law, and
                            (ii) be consistent with the provisions of 
                        section 105(a) and the rules provided under 
                        section 1924 of the Social Security Act (with 
                        respect to institutionalized spouses).
            (3) Determination of resources.--
                    (A) Methodlogy.--
                            (i) In general.--The State plan shall 
                        specify the methodology to be used to determine 
                        the resources of an individual with 
                        disabilities for purposes of paragraph (1) and 
                        section 105 (relating to cost sharing).
                            (ii) Standards.--Such methodology shall be 
                        consistent with standards and methodology 
                        specified by the Secretary. Such standards and 
                        methodology shall--
                                    (I) be based on the methodology 
                                used under the supplemental security 
                                income program, and
                                    (II) take into account the 
                                provisions of section 105(a) and the 
                                rules provided under section 1924 of 
                                the Social Security Act (with respect 
                                to institutionalized spouses).
                    (B) Resource level.--
                            (i) In general.--The resource level 
                        specified in this subparagraph is--
                                    (I) $5,000 for an individual who 
                                has no spouse with whom the individual 
                                is living, and
                                    (II) $7,500 for an individual who 
                                has a spouse with whom the individual 
                                is living.
                            (ii) Adjustment.--A State may increase 
                        either or both of the levels specified under 
                        clause (i) to up to $12,000.
            (4) Special rule for current medicaid beneficiaries.--In 
        the case of an individual who as of January 1, 1996, was 
        receiving medical assistance for long-term care services under 
        a State plan under title XIX of the Social Security Act, the 
        individual shall be deemed to be a needy individual so long as 
        the individual would have been eligible to receive such 
        assistance under such plan (as in effect on such date), but for 
        section 1931 of such Act (as added by section 121(a)).
            (5) Application of transfer of asset rules.--Except as 
        specifically provided, the State shall apply rules similar to 
        the rules described in section 1917(c) of the Social Security 
        Act with respect to the disposal of assets for less than fair 
        market value.

SEC. 104. LONG-TERM CARE SERVICES COVERED UNDER STATE PLAN.

    (a) Specification.--
            (1) In general.--Subject to the succeeding provisions of 
        this section, the State plan under this subtitle shall 
        specify--
                    (A) the long-term care services available under the 
                plan to individuals with disabilities (or to such 
                categories of such individuals), and
                    (B) any limits with respect to such services.
            (2) Flexibility in meeting individual needs.--The services 
        shall be specified in a manner that permits sufficient 
        flexibility for providers to meet the needs of individuals with 
        disabilities in a cost effective manner consistent with the 
        individualized plan of care. Subject to subsection (e)(1)(B), 
        such services may be delivered in an individual's home, a range 
        of community residential arrangements, or outside the home.
    (b) Requirement for Needs Assessment and Plan of Care.--
            (1) In general.--The State plan shall provide for long-term 
        care services to an individual with disabilities only if--
                    (A) a comprehensive assessment of the individual's 
                need for long-term care services (regardless of whether 
                all needed services are available under the plan) has 
                been made by a care manager (who meets qualifications 
                specified in the State plan),
                    (B) an individualized plan of care based on such 
                assessment is developed by such manager, and
                    (C) such services are provided consistent with such 
                plan of care.
            (2) Involvement of individuals.--The individualized plan of 
        care under paragraph (1)(B) for an individual with disabilities 
        shall--
                    (A) be developed by the care manager who performed 
                the comprehensive assessment,
                    (B) be developed and implemented in close 
                consultation with the individual and the individual's 
                family,
                    (C) be approved by the individual (or the 
                individual's representative), and
                    (D) be reviewed and updated not less often than 
                every 6 months.
            (3) Plan of care.--The plan of care under paragraph (1)(B) 
        shall--
                    (A) specify which services specified under the 
                individual plan will be provided under the State plan 
                under this subtitle,
                    (B) identify (to the extent possible) how the 
                individual will be provided any services specified 
                under the plan of care and not provided under the State 
                plan, and
                    (C) specify how the provision of services to the 
                individual under the plan will be coordinated with the 
                provision of other health care services to the 
                individual.
        The State shall make reasonable efforts to identify and arrange 
        for services described in subparagraph (B). Nothing in this 
        subsection shall be construed as requiring a State (under the 
        State plan or otherwise) to provide all the services specified 
        in such a plan.
    (c) Long-Term Care Services Defined.--
            (1) In general.--In this title, the term ``long-term care 
        services'' means--
                    (A) home and community-based services (as defined 
                in subsection (d)), and
                    (B) institutional services (as defined in section 
                (e)).
            (2) Secondary payer to medicare and other health plans.--A 
        State plan may not provide for coverage of any items and 
        services to the extent coverage is provided for the individual 
        under a health plan or the medicare program.
    (d) Home and Community-Based Services.--
            (1) In general.--In this subtitle, the term ``home and 
        community-based services''--
                    (A) includes, for all categories of individuals 
                with disabilities, both agency-administered and 
                consumer-directed personal assistance services (as 
                defined in paragraph (3)); and
                    (B) subject to paragraph (4), includes any (or all) 
                of the following:
                            (i) Case management.
                            (ii) Homemaker and chore assistance.
                            (iii) Home modifications.
                            (iv) Respite services.
                            (v) Assistive devices.
                            (vi) Adult day services.
                            (vii) Habilitation and rehabilitation.
                            (viii) Supported employment.
                            (ix) Home health services.
                            (x) Hospice services.
                            (xi) Care or assisted services provided in 
                        an assisted living facility, continuing care 
                        retirement community or other residential care 
                        facility, excluding room and board.
                            (xii) Any other care or assistive services 
                        (approved by the Secretary) that the State 
                        determines will help individuals with 
                        disabilities to remain in their homes and 
                        communities.
            (2) Criteria for selection of services.--The State plan 
        shall specify--
                    (A) the methods and standards used to select the 
                types, and the amount, duration, and scope, of home and 
                community-based services described in paragraph (1)(B) 
                to be covered under the plan and to be available to 
                each category of individuals with disabilities, and
                    (B) how the types, and the amount, duration, and 
                scope, of such services specified meet the needs of 
                individuals within each of the 4 categories of 
                individuals with disabilities.
            (3) Personal assistance services.--
                    (A) In general.--In this section, the term 
                ``personal assistance services'' means those services 
                specified under the State plan as personal assistance 
                services and shall include at least hands-on and 
                standby assistance, supervision, and cueing with 
                activities of daily living, whether agency-administered 
                or consumer-directed (as defined in subparagraph (B)).
                    (B) Consumer-directed; agency-administered.--In 
                this subtitle:
                            (i) The term ``consumer-directed'' means, 
                        with reference to personal assistance services 
                        or the provider of such services, services that 
                        are provided by an individual who is selected 
                        and managed (and, at the individual's option, 
                        trained) by the individual receiving the 
                        services.
                            (ii) The term ``agency-administered'' 
                        means, with respect to such services, services 
                        that are not consumer-directed.
            (4) Exclusions and limitations.--
                    (A) In general.--A State plan may not provide for 
                coverage as home and community-based services of--
                            (i) room and board, or
                            (ii) services furnished in a hospital, 
                        nursing facility, intermediate care facility 
                        for the mentally retarded, or other 
                        institutional setting specified by the 
                        Secretary.
                    (B) Taking into account informal care.--A State 
                plan may take into account, in determining the amount 
                and array of home and community-based services made 
                available to covered individuals with disabilities, the 
                availability of informal care.
    (e) Institutional Services Defined.--In this subtitle, the term 
``institutional services'' means services furnished in a nursing 
facility, intermediate care facility for the mentally retarded, or any 
other institutional facility (at the approval of the Secretary) that 
the State determines will assist individuals with disabilities.
    (f) Payment for Services.--A State plan may provide for the use 
of--
            (1) vouchers,
            (2) capitation payments to health plans, and
            (3) payment to providers,
to pay for covered services.

SEC. 105. COST SHARING.

    (a) Home and Community-Based Services.--With respect to home and 
community-based services provided under the State plan--
            (1) No or nominal cost sharing for poorest.--The State plan 
        may not impose any cost sharing (other than nominal cost 
        sharing) for individuals with income (as determined under 
        section 103(d)(2)) less than 100 percent of the official 
        poverty line (referred to in section 103(d)(1)(A)) applicable 
        to a family of the size involved.
            (2) Sliding scale for remainder.--The State plan shall 
        impose cost sharing in the form of coinsurance (based on the 
        amount paid under the State plan for a service)--
                    (A) at a rate of 5 percent for individuals with 
                disabilities with income not less than 100 percent, and 
                less than 150 percent, of such official poverty line 
                (as so applied); and
                    (B) at a rate of 10 percent for such individuals 
                with income not less than 150 percent, and less than 
                200 percent, of such official poverty line (as so 
                applied).
    (b) Institutional Services.--
            (1) In general.--With respect to institutional services 
        provided under the State plan, the cost sharing shall be the 
        amount of income, other than the allowances provided under 
        paragraph (2).
            (2) Allowances.--The allowances under this paragraph are as 
        follows:
                    (A) Personal needs allowance.--A personal needs 
                allowance of $66 per month for an institutionalized 
                individual and $132 per month for an institutionalized 
                couple (if both are aged, blind, or disabled, and their 
                incomes are considered available to each other in 
                determining eligibility).
                    (B) Community spouse allowance.--In the case of an 
                individual with a community spouse (as defined in 
                section 1924 of the Social Security Act), an amount of 
                income equivalent to the amount of income that would be 
                protected under section 1924 of the Social Security Act 
                (determined without regard to subsection (d)(1)(A) 
                thereof).
            (3) Rules for determination of income of institutionalized 
        spouses.--In determining income of an institutionalized spouse 
        for purposes of this subsection, the State shall apply rules 
        similar to the rules described in section 1924 of the Social 
        Security Act consistent with paragraph (2).
            (4) Institutionalized and community spouse defined.--In 
        this subsection, the terms ``institutionalized spouse'' and 
        ``community spouse'' have the meanings given such terms in 
        section 1924(h) of the Social Security Act.

SEC. 106. QUALITY ASSURANCE AND SAFEGUARDS.

    (a) Quality Assurance.--The State plan shall specify how the State 
will ensure and monitor the quality of services (including both home 
and community-based services and institutional services), including--
            (1) safeguarding the health and safety of individuals with 
        disabilities,
            (2) the minimum standards for agency providers and how such 
        standards will be enforced,
            (3) the minimum competency requirements for agency provider 
        employees who provide direct services under this subtitle and 
        how the competency of such employees will be enforced,
            (4) obtaining meaningful consumer input, including consumer 
        surveys that measure the extent to which participants receive 
        the services described in the plan of care and participant 
        satisfaction with such services,
            (5) participation in quality assurance activities, and
            (6) specifying the role of the long-term care ombudsman 
        (under the Older Americans Act of 1965), the Protection and 
        Advocacy Agency (under the Developmental Disabilities 
        Assistance and Bill of Rights Act), and the State advocacy 
        agency for the mentally ill (under the Protection and Advocacy 
        for Mentally Ill Individuals Act of 1986) in assuring quality 
        of services and protecting the rights of individuals with 
        disabilities.
    (b) Safeguards.--
            (1) Confidentiality.--The State plan shall provide 
        safeguards which restrict the use or disclosure of information 
        concerning applicants and beneficiaries to purposes directly 
        connected with the administration of the plan (including 
        performance reviews under section 2602).
            (2) Safeguards against abuse.--The State plans shall 
        provide safeguards against physical, emotional, or financial 
        abuse or exploitation (specifically including appropriate 
        safeguards in cases where payment for program benefits is made 
        by cash payments or vouchers given directly to individuals with 
        disabilities).

SEC. 107. ADVISORY GROUPS.

    (a) Federal Advisory Group.--
            (1) Establishment.--The Secretary shall establish an 
        advisory group, to advise the Secretary and States on all 
        aspects of the program under this subtitle.
            (2) Composition.--The group shall be composed of 
        individuals with disabilities and their representatives, 
        providers, Federal and State officials, and local community 
        implementing agencies. A majority of its members shall be 
        individuals with disabilities and their representatives.
    (b) State Advisory Groups.--
            (1) In general.--Each State plan shall provide for the 
        establishment and maintenance of an advisory group to advise 
        the State on all aspects of the State plan under this subtitle.
            (2) Composition.--Members of each advisory group shall be 
        appointed by the Governor (or other chief executive officer of 
        the State) and shall include individuals with disabilities and 
        their representatives, providers, State officials, and local 
        community implementing agencies. A majority of its members 
        shall be individuals with disabilities and their 
        representatives.
            (3) Selection of members.--Each State shall establish a 
        process whereby all residents of the State, including 
        individuals with disabilities and their representatives, shall 
        be given the opportunity to nominate members to the advisory 
        group.
            (4) Particular concerns.--Each advisory group shall--
                    (A) before the State plan is developed, advise the 
                State on guiding principles and values, policy 
                directions, and specific components of the plan,
                    (B) meet regularly with State officials involved in 
                developing the plan, during the development phase, to 
                review and comment on all aspects of the plan,
                    (C) participate in the public hearings to help 
                assure that public comments are addressed to the extent 
                practicable,
                    (D) document any differences between the group's 
                recommendations and the plan,
                    (E) document specifically the degree to which the 
                plan is consumer-directed, and
                    (F) meet regularly with officials of the designated 
                State agency (or agencies) to provide advice on all 
                aspects of implementation and evaluation of the plan.

SEC. 108. PAYMENTS TO STATES.

    (a) In General.--Subject to section 102(a)(9)(B) (relating to 
limitation on payment for administrative costs), the Secretary, in 
accordance with the Cash Management Improvement Act, shall authorize 
payment to each State with a plan approved under this subtitle, for 
each quarter (beginning on or after January 1, 1996), from its 
allotment under section 109(b), an amount equal to--
            (1) the Federal matching percentage (as defined in 
        subsection (b)) of the amount demonstrated by State claims to 
        have been expended during the quarter for long-term care 
        services under the plan for individuals with disabilities; plus
            (2) an amount equal to 90 percent of the amount expended 
        during the quarter under the plan for activities (including 
        preliminary screening) relating to determination of eligibility 
        and performance of needs assessment; plus
            (3) an amount equal to 90 percent (or, beginning with 
        quarters in fiscal year 2003, 75 percent) of the amount 
        expended during the quarter for the design, development, and 
        installation of mechanical claims processing systems and for 
        information retrieval; plus
            (4) an amount equal to 50 percent of the remainder of the 
        amounts expended during the quarter as found necessary by the 
        Secretary for the proper and efficient administration of the 
        State plan.
    (b) Federal Matching Percentage.--
            (1) States and the district of columbia.--
                    (A) In general.--In subsection (a), except as 
                provided in paragraph (3), the term ``Federal matching 
                percentage'' means, for each of the 50 States and the 
                District of Columbia, 100 percent reduced by the 
                product of the budget neutrality percentage (as defined 
                in subparagraph (B)) and the ratio of--
                            (i)(I) for each of the 50 States, the total 
                        taxable resources ratio (as defined in 
                        subparagraph (C)) of the State, or
                            (II) for the District of Columbia, the per 
                        capita income ratio (as defined in subparagraph 
                        (D)), to--
                            (ii) the disabled population in poverty 
                        ratio (as defined in subparagraph (E)) of the 
                        State or District.
                    (B) Budget neutrality percentage defined.--For 
                purposes of this subsection, the term ``budget 
                neutrality percentage'' means a percentage estimated by 
                the Secretary with the advice of the General Accounting 
                Office that, when applied under subparagraph (A), would 
                result (taking into account paragraph (2)) in an amount 
                of aggregate payments under this title for the fiscal 
                year involved equal to the total Federal budget amount 
                under section 109(a).
                    (C) Total taxable resources ratio defined.--For 
                purposes of this subsection, the term ``total taxable 
                resources ratio'' means--
                            (i) an amount equal to the most recent 3-
                        year average of the total taxable resources of 
                        the State, as determined by the Secretary of 
                        the Treasury, divided by
                            (ii) an amount equal to the sum of the 3-
                        year averages determined under clause (i) for 
                        each of the 50 States.
                    (D) Per capita income ratio defined.--For purposes 
                of this subsection, the term ``per capita income 
                ratio'' means--
                            (i) an amount equal to the most recent 3-
                        year average of the total personal income of 
                        the District of Columbia, as determined in 
                        accordance with the provisions of section 
                        1101(a)(8)(B) of the Social Security Act, 
                        divided by
                            (ii) an amount equal to the total personal 
                        income of the continental United States 
                        (including Alaska) and Hawaii, as determined 
                        under section 1101(a)(8)(B) of such Act.
                    (E) Disabled population in poverty ratio defined.--
                For purposes of this subsection, the term ``disabled 
                population in poverty ratio'' means--
                            (i) an amount equal to the 3-year-average 
                        of the number of individuals with disabilities 
                        in the State (or the District of Columbia) 
                        whose family income is below 200 percent of the 
                        income official poverty line (as defined by the 
                        Office of Management and Budget and revised 
                        annually in accordance with section 673(2) of 
                        the Omnibus Budget Reconciliation Act of 1981), 
                        divided by
                            (ii) an amount equal to the sum of the 
                        averages determined under clause (i) for the 50 
                        States.
            (2) Territories.--The Federal matching percentage for 
        Puerto Rico, the Virgin Islands, Guam, the Northern Mariana 
        Islands, and American Samoa shall be 40 percent.
            (3) Permissible range.--The Federal matching percentage 
        shall in no case be less than 40 percent or more than 75 
        percent.
    (c) Payments on Estimates With Retrospective Adjustments.--The 
method of computing and making payments under this section shall be as 
follows:
            (1) The Secretary shall, prior to the beginning of each 
        quarter, estimate the amount to be paid to the State under 
        subsection (a) for such quarter, based on a report filed by the 
        State containing its estimate of the total sum to be expended 
        in such quarter, and such other information as the Secretary 
        may find necessary.
            (2) From the allotment available therefore, the Secretary 
        shall provide for payment of the amount so estimated, reduced 
        or increased, as the case may be, by any sum (not previously 
        adjusted under this section) by which the Secretary finds that 
        the estimate of the amount to be paid the State for any prior 
        period under this section was greater or less than the amount 
        which should have been paid.
    (d) Application of Rules Regarding Limitations on Provider-Related 
Donations and Health Care Related Taxes.--The provisions of section 
1903(w) of the Social Security Act shall apply to payments to States 
under this section in the same manner as they apply to payments to 
States under section 1903(a) of such Act .

SEC. 109. TOTAL FEDERAL BUDGET; ALLOTMENTS TO STATES.

    (a) Total Federal Budget.--
            (1) Fiscal year 1996--Subject to paragraph (5)(C), for 
        purposes of this subtitle, the total Federal budget for State 
        plans under this subtitle for fiscal year 1996 is $46.74 
        billion.
            (2) Subsequent fiscal years.--For purposes of this 
        subtitle, the total Federal budget for State plans under this 
        subtitle for each fiscal year after fiscal year 1996 is the 
        total Federal budget under this subsection for the preceding 
        fiscal year multiplied by--
                    (A) a factor (described in paragraph (3)) 
                reflecting the change in the CPI for the fiscal year, 
                and
                    (B) a factor (described in paragraph (4)) 
                reflecting the change in the number of individuals with 
                disabilities for the fiscal year.
            (3) CPI increase factor.--For purposes of paragraph (2)(A), 
        the factor described in this paragraph for a fiscal year is the 
        ratio of--
                    (A) the annual average index of the consumer price 
                index for the preceding fiscal year, to--
                    (B) such index, as so measured, for the second 
                preceding fiscal year.
            (4) Disabled population factor.--For purposes of paragraph 
        (2)(B), the factor described in this paragraph for a fiscal 
        year is 100 percent plus (or minus) the percentage increase (or 
        decrease) change in the disabled population of the United 
        States (as determined for purposes of the most recent update 
        under subsection (b)(3)(D)).
            (5) Additional funds due to medicaid offsets.--
                    (A) In general.--Each participating State must 
                provide the Secretary with information concerning 
                offsets and reductions in the medicaid program 
                resulting from long-term care services provided 
                individuals with disabilities under this subtitle, that 
                would have been paid for such individuals under the 
                State medicaid plan but for the provision of similar 
                services under the program under this subtitle. At the 
                time a State first submits its plan under this title 
                and before each subsequent fiscal year (through fiscal 
                year 2003), the State also must provide the Secretary 
                with such budgetary information (for each fiscal year 
                through fiscal year 2003), as the Secretary determines 
                to be necessary to carry out this paragraph.
                    (B) Reports.--Each State with a program under this 
                subtitle shall submit such reports to the Secretary as 
                the Secretary may require in order to monitor 
                compliance with subparagraph (A).
                    (C) Adjustments to federal budget.--
                            (i) In general.--For each fiscal year 
                        (beginning with fiscal year 1996 and ending 
                        with fiscal year 2003) and based on a review of 
                        information submitted under subparagraph (A), 
                        the Secretary shall determine the amount by 
                        which the total Federal budget under subsection 
                        (a) will increase. The amount of such increase 
                        for a fiscal year shall be limited to the 
                        reduction in Federal expenditures of medical 
                        assistance (as determined by Secretary) that 
                        would have been made under title XIX of the 
                        Social Security Act for home and community 
                        based services for disabled individuals but for 
                        the provision of similar services under the 
                        program under this subtitle.
                            (ii) Annual publication.--The Secretary 
                        shall publish before the beginning of such 
                        fiscal year, the revised total Federal budget 
                        under this subsection for such fiscal year (and 
                        succeeding fiscal years before fiscal year 
                        2003).
                    (D) No duplicate payment.--No payment may be made 
                to a State under this section for any services to the 
                extent that the State received payment for such 
                services under section 1903(a) of the Social Security 
                Act.
                    (E) Construction.--Nothing in this subsection shall 
                be construed as requiring States to determine 
                eligibility for medical assistance under the State 
                medicaid plan on behalf of individuals receiving 
                assistance under this subtitle.
    (b) Allotments to States.--
            (1) In general.--The Secretary shall allot to each State 
        for each fiscal year an amount that bears the same ratio to the 
        total Federal budget for the fiscal year (specified under 
        paragraph (1) or (2) of subsection (a)) as the State allotment 
        factor (under paragraph (2) for the State for the fiscal year) 
        bears to the sum of such factors for all States for that fiscal 
        year.
            (2) State allotment factor.--
                    (A) In general.--For each State for each fiscal 
                year, the Secretary shall compute a State allotment 
                factor equal to the sum of--
                            (i) the base allotment factor (specified in 
                        subparagraph (B)), and
                            (ii) the low income allotment factor 
                        (specified in subparagraph (C)),
                for the State for the fiscal year.
                    (B) Base allotment factor.--The base allotment 
                factor, specified in this subparagraph, for a State for 
                a fiscal year is equal to the product of the following:
                            (i) Number of individuals with 
                        disabilities.--The number of individuals with 
                        disabilities in the State (determined under 
                        paragraph (3)) for the fiscal year.
                            (ii) 80 percent of the national per capita 
                        budget.--80 percent of the national average per 
                        capita budget amount (determined under 
                        paragraph (4)) for the fiscal year.
                            (iii) Wage adjustment factor.--The wage 
                        adjustment factor (determined under paragraph 
                        (5)) for the State for the fiscal year.
                            (iv) Federal matching rate.--The Federal 
                        matching rate (determined under section 108(b)) 
                        for the fiscal year.
                    (C) Low income allotment factor.--The low income 
                allotment factor, specified in this subparagraph, for a 
                State for a fiscal year is equal to the product of the 
                following:
                            (i) Number of individuals with 
                        disabilities.--The number of individuals with 
                        disabilities in the State (determined under 
                        paragraph (3)) for the fiscal year.
                            (ii) 10 percent of the national per capita 
                        budget.--10 percent of the national average per 
                        capita budget amount (determined under 
                        paragraph (4)) for the fiscal year.
                            (iii) Wage adjustment factor.--The wage 
                        adjustment factor (determined under paragraph 
                        (5)) for the State for the fiscal year.
                            (iv) Federal matching rate.--The Federal 
                        matching rate (determined under section 108(b)) 
                        for the fiscal year.
                            (v) Low income index.--The low income index 
                        (determined under paragraph (6)) for the State 
                        for the preceding fiscal year.
            (3) Number of individuals with disabilities.--The number of 
        individuals with disabilities in a State for a fiscal year 
        shall be determined as follows:
                    (A) Base.--The Secretary shall determine the number 
                of individuals in the State by age, sex, and income 
                category, based on the 1990 decennial census, adjusted 
                (as appropriate) by the March 1994 current population 
                survey.
                    (B) Disability prevalence level by population 
                category.--The Secretary shall determine, for each such 
                age, sex, and income category, the national average 
                proportion of the population of such category that 
                represents individuals with disabilities. The Secretary 
                may conduct periodic surveys in order to determine such 
                proportions.
                    (C) Base disabled population in a state.--The 
                number of individuals with disabilities in a State in 
                1994 is equal to the sum of the products, for such each 
                age, sex, and income category, of--
                            (i) the population of individuals in the 
                        State in the category (determined under 
                        subparagraph (A)), and
                            (ii) the national average proportion for 
                        such category (determined under subparagraph 
                        (B)).
                    (D) Update.--The Secretary shall determine the 
                number of individuals with disabilities in a State in a 
                fiscal year equal to the number determined under 
                subparagraph (C) for the State increased (or decreased) 
                by the percentage increase (or decrease) in the 
                disabled population of the State as determined under 
                the current population survey from 1994 to the year 
                before the fiscal year involved.
            (4) National per capita budget amount.--The national 
        average per capita budget amount, for a fiscal year, is--
                    (A) the total Federal budget specified under 
                subsection (a) for the fiscal year; divided by
                    (B) the sum, for the fiscal year, of the numbers of 
                individuals with disabilities (determined under 
                paragraph (3)) for all the States for the fiscal year.
            (5) Wage adjustment factor.--The wage adjustment factor, 
        for a State for a fiscal year, is equal to the ratio of--
                    (A) the average hourly wages for service workers 
                (other than household or protective services) in the 
                State, to
                    (B) the national average hourly wages for service 
                workers (other than household or protective services).
        The hourly wages shall be determined under this paragraph based 
        on data from the most recent decennial census for which such 
        data are available.
            (6) Low income index.--The low income index for each State 
        for a fiscal year is the ratio, determined for the preceding 
        fiscal year, of--
                    (A) the percentage of the State's population that 
                has income below 200 percent of the poverty level, to
                    (B) the percentage of the population of the United 
                States that has income below 200 percent of the poverty 
                level.
        Such percentages shall be based on data from the most recent 
        decennial census for which such data are available, adjusted by 
        data from the most recent current population survey as 
        determined appropriate by the Secretary.
    (c) State Entitlement.--This subtitle constitutes budget authority 
in advance of appropriations Acts, and represents the obligation of the 
Federal Government to provide for the payment to States of amounts 
described in subsection (a).

          Subtitle B--Increase in SSI Personal Needs Allowance

SEC. 111. INCREASE IN SSI PERSONAL NEEDS ALLOWANCE.

    (a) In General.--Section 1611(e)(1)(B) of the Social Security Act 
(42 U.S.C. 1382(e)(1)(B)) is amended--
            (1) in clauses (i) and (ii)(I), by striking ``$360'' and 
        inserting ``$800''; and
            (2) in clause (iii), by striking ``$720'' and inserting 
        ``$1,600''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply with respect to months beginning with January 1996.

Subtitle C--Repeal of Coverage Under the Medicaid Program of Long-Term 
                             Care Services

SEC. 121. REPEAL OF COVERAGE UNDER THE MEDICAID PROGRAM OF LONG-TERM 
              CARE SERVICES COVERED UNDER STATE PLAN.

    (a) In General.--Title XIX of the Social Security Act is amended by 
redesignating section 1931 as section 1932 and by inserting after 
section 1930 the following new section:

``treatment of long-term care services covered under state programs for 
                  needy individuals with disabilities

    ``Sec. 1931. (a) No Coverage of Services Required.--Notwithstanding 
any other provision of this title, the State plan under this title is 
not required to provide medical assistance consisting of payment for 
any long-term care services for needy individuals with disabilities for 
which coverage is provided under a State plan under subtitle A of title 
I of the Comprehensive Long-Term Care Act of 1994.
    ``(b) Definitions.--In this section--
            ``(1) the term `needy individual with a disability' means 
        an individual with a disability (as defined in section 103(a) 
        of the Comprehensive Long-Term Care Act of 1994) who is a needy 
        individual (as defined in section 103(d) of such Act); and
            ``(2) the term `long-term care services' has the meaning 
        given such term in section 104(c) of the Comprehensive Long-
        Term Care Act of 1994.''.
    (b) No Federal Financial Participation.--Section 1903(i) of the 
Social Security Act (42 U.S.C. 1396b(i)) is amended--
            (1) by striking ``or'' at the end of paragraph (14),
            (2) by striking the period at the end of paragraph (15) and 
        inserting ``; or'', and
            (3) by inserting after paragraph (15) the following new 
        paragraph:
            ``(16) with respect to long-term care services (as defined 
        in section 1931(b)(2)) for needy individuals with disabilities 
        (as defined in section 1931(b)(1)) for which coverage is 
        provided under a State plan under subtitle A of title I of the 
        Comprehensive Long-Term Care Act of 1994.''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to services furnished in a State on or after January 
1, 1996.

    TITLE II--TAX TREATMENT OF LONG-TERM CARE INSURANCE AND SERVICES

SEC. 201. AMENDMENT OF 1986 CODE.

    Except as otherwise expressly provided, whenever in this title an 
amendment or repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be considered to 
be made to a section or other provision of the Internal Revenue Code of 
1986.

SEC. 202. QUALIFIED LONG-TERM CARE SERVICES TREATED AS MEDICAL CARE.

    (a) General Rule.--Paragraph (1) of section 213(d) (defining 
medical care) is amended by striking ``or'' at the end of subparagraph 
(B), by redesignating subparagraph (C) as subparagraph (D), and by 
inserting after subparagraph (B) the following new subparagraph:
                    ``(C) for qualified long-term care services (as 
                defined in subsection (g)), or''.
    (b) Adjusted Gross Income Threshold Not To Apply To Amounts Paid 
for Long-Term Care.--Subsection (a) of section 213 (relating to 
medical, dental, etc., expenses) is amended to read as follows:
    ``(a) Allowance of Deduction.--There shall be allowed as a 
deduction the following amounts, not compensated for by insurance or 
otherwise--
            ``(1) the amount by which the amount of the expenses paid 
        during the taxable year (reduced by any amount deductible under 
        paragraph (2)) for medical care of the taxpayer, his spouse, or 
        a dependent exceeds 7.5 percent of adjusted gross income, and
            ``(2) the amounts paid during the taxable year for--
                    ``(A) a qualified long-term care insurance policy 
                which constitutes medical care for the taxpayer, his 
                spouse, or a dependent, and
                    ``(B) for qualified long-term care services for the 
                taxpayer, his spouse, or a dependent.
For purposes of this subsection, the term `dependent' has the meaning 
given such term by section 152.''
    (c) Qualified Long-Term Care Services Defined.--Section 213 
(relating to the deduction for medical, dental, etc., expenses) is 
amended by adding at the end thereof the following new subsection:
    ``(g) Qualified Long-Term Care Services.--For purposes of this 
section--
            ``(1) In general.--The term `qualified long-term care 
        services' means necessary diagnostic, curing, mitigating, 
        treating, preventive, therapeutic, and rehabilitative services, 
        and maintenance and personal care services (whether performed 
        in a residential or nonresidential setting) which--
                    ``(A) are required by an individual during any 
                period the individual is an incapacitated individual 
                (as defined in paragraph (2)),
                    ``(B) have as their primary purpose--
                            ``(i) the provision of needed assistance 
                        with 1 or more activities of daily living (as 
                        defined in paragraph (3)), or
                            ``(ii) protection from threats to health 
                        and safety due to severe cognitive impairment, 
                        and
                    ``(C) are provided pursuant to a continuing plan of 
                care prescribed by a licensed professional (as defined 
                in paragraph (4)).
            ``(2) Incapacitated individual.--The term `incapacitated 
        individual' means any individual who--
                    ``(A) is unable to perform, without substantial 
                assistance from another individual (including 
                assistance involving cueing or substantial 
                supervision), at least 2 activities of daily living 
                selected under paragraph (3)(B), or
                    ``(B) has severe cognitive impairment as defined by 
                the Secretary in consultation with the Secretary of 
                Health and Human Services.
        Such term shall not include any individual otherwise meeting 
        the requirements of the preceding sentence unless a licensed 
        professional within the preceding 12-month period has certified 
        that such individual meets such requirements.
            ``(3) Activities of daily living.--
                    ``(A) In general.--Subject to subparagraph (B), 
                each of the following is an activity of daily living:
                            ``(i) Eating.
                            ``(ii) Toileting.
                            ``(iii) Transferring.
                            ``(iv) Bathing.
                            ``(v) Dressing.
                            ``(vi) Continence.
                    ``(B) Selection of 5 activities of daily living.--
                The insurance company issuing a long-term care 
                insurance policy shall select 5 of the 6 activities of 
                daily living which shall be included within the policy.
            ``(4) Licensed professional.--The term `licensed 
        professional' means--
                    ``(A) a physician or registered professional nurse, 
                or
                    ``(B) any other individual who meets such 
                requirements as may be prescribed by the Secretary 
                after consultation with the Secretary of Health and 
                Human Services.
            ``(5) Certain services not included.--The term `qualified 
        long-term care services' shall not include any services 
        provided to an individual--
                    ``(A) by a relative (directly or through a 
                partnership, corporation, or other entity) unless the 
                relative is a licensed professional with respect to 
                such services, or
                    ``(B) by a corporation or partnership which is 
                related (within the meaning of section 267(b) or 
                707(b)) to the individual.
        For purposes of this paragraph, the term `relative' means an 
        individual bearing a relationship to the individual which is 
        described in paragraphs (1) through (8) of section 152(a).''
    (d) Technical Amendments.--
            (1) Subparagraph (D) of section 213(d)(1) (as redesignated 
        by subsection (a)) is amended to read as follows:
                    ``(D) for insurance (including amounts paid as 
                premiums under part B of title XVIII of the Social 
                Security Act, relating to supplementary medical 
                insurance for the aged) covering medical care referred 
                to in--
                            ``(i) subparagraphs (A) and (B), or
                            ``(ii) subparagraph (C), but only if such 
                        insurance is provided under a qualified long-
                        term care insurance policy (as defined in 
                        section 7702B(b)) and the amount paid for such 
                        insurance is not disallowed under section 
                        7702B(d)(4).''
            (2) Paragraph (6) of section 213(d) is amended--
                    (A) by striking ``subparagraphs (A) and (B)'' and 
                inserting ``subparagraph (A), (B), and (C)'', and
                    (B) by striking ``paragraph (1)(C)'' in 
                subparagraph (A) and inserting ``paragraph (1)(D)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 203. TREATMENT OF LONG-TERM CARE INSURANCE.

    (a) General Rule.--Chapter 79 (relating to definitions) is amended 
by inserting after section 7702A the following new section:

``SEC. 7702B. TREATMENT OF LONG-TERM CARE INSURANCE.

    ``(a) In General.--For purposes of this title--
            ``(1) a qualified long-term care insurance policy (as 
        defined in subsection (b)) shall be treated as an accident and 
        health insurance contract,
            ``(2) amounts (other than policyholder dividends (as 
        defined in section 808) or premium refunds) received under a 
        qualified long-term care insurance policy shall be treated as 
        amounts received for personal injuries and sickness and shall 
        be treated as reimbursement for expenses actually incurred for 
        medical care (as defined in section 213(d)),
            ``(3) any plan of an employer providing coverage under a 
        qualified long-term care insurance policy shall be treated as 
        an accident and health plan with respect to such coverage,
            ``(4) amounts paid for a qualified long-term care insurance 
        policy providing the benefits described in subsection (b)(6)(B) 
        shall be treated as payments made for insurance for purposes of 
        section 213(d)(1)(D), and
            ``(5) a qualified long-term care insurance policy shall be 
        treated as a guaranteed renewable contract subject to the rules 
        of section 816(e).
    ``(b) Qualified Long-Term Care Insurance Policy.--For purposes of 
this title--
            ``(1) In general.--The term `qualified long-term care 
        insurance policy' means any long-term care insurance policy (as 
        defined in section 302(9) of the Comprehensive Long-Term Care 
        Reform Act of 1994) that--
                    ``(A) satisfies the requirements of title III of 
                such Act,
                    ``(B) limits benefits under such policy to 
                individuals who are certified by a licensed 
                professional (as defined in section 213(g)(4)) within 
                the preceding 12-month period as being unable to 
                perform, without substantial assistance from another 
                individual (including assistance involving cueing or 
                substantial supervision), 2 or more activities of daily 
                living (of those selected under section 213(g)(3)(B)), 
                or who have a severe cognitive impairment (as defined 
                in section 213(g)(2)(B)), and
                    ``(C) satisfies the requirements of paragraphs (2), 
                (3), (4), (5), and (6).
            ``(2) Premium requirements.--The requirements of this 
        paragraph are met with respect to a policy if such policy 
        provides that premium payments may not be made earlier than the 
        date such payments would have been made if the contract 
        provided for level annual payments over the life expectancy of 
        the insured. A policy shall not be treated as failing to meet 
        the requirements of the preceding sentence solely by reason of 
        a provision in the policy providing for a waiver of premiums if 
        the insured becomes an individual certified in accordance with 
        paragraph (1)(B).
            ``(3) Prohibition of cash value.--The requirements of this 
        paragraph are met if the policy does not provide for a cash 
        value or other money that can be paid, assigned, pledged as 
        collateral for a loan, or borrowed, other than as provided in 
        paragraph (4).
            ``(4) Refunds of premiums and dividends.--The requirements 
        of this paragraph are met with respect to a policy if such 
        policy provides that--
                    ``(A) policyholder dividends are required to be 
                applied as a reduction in future premiums or, to the 
                extent permitted under paragraph (6), to increase 
                benefits described in subsection (a)(2), and
                    ``(B) refunds of premiums upon a partial surrender 
                or a partial cancellation are required to be applied as 
                a reduction in future premiums, and
                    ``(C) any refund on the death of the insured, or on 
                a complete surrender or cancellation of the policy, 
                cannot exceed the aggregate premiums paid under the 
                contract.
        Any refund on a complete surrender or cancellation of the 
        policy shall be includible in gross income to the extent that 
        any deduction or exclusion was allowable with respect to the 
        premiums.
            ``(5) Coordination with other entitlements.--The 
        requirements of this paragraph are met with respect to a policy 
        if such policy does not cover expenses incurred to the extent 
        that such expenses are covered under the health coverage 
        described in section 322 of the Comprehensive Long-Term Care 
        Reform Act of 1994.
            ``(6) Maximum benefit.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if the benefits payable under the 
                policy for any period (whether on a periodic basis or 
                otherwise) shall not exceed the dollar amount in effect 
                for such period.
                    ``(B) Nonreimbursement payments permitted.--
                Benefits shall include all payments described in 
                subsection (a)(2) to or on behalf of an insured 
                individual without regard to the expenses incurred 
                during the period to which the payments relate. For 
                purposes of section 213(a), such payments shall be 
                treated as compensation for expenses paid for medical 
                care.
                    ``(C) Dollar amount.--The dollar amount in effect 
                under this paragraph shall be $150 per day (or the 
                equivalent amount within the calendar year in the case 
                of payments on other than a per diem basis).
                    ``(D) Adjustments for increased costs.--
                            ``(i) In general.--In the case of any 
                        calendar year after 1996, the dollar amount in 
                        effect under subparagraph (C) for any period or 
                        portion thereof occurring during such calendar 
                        year shall be equal to the sum of--
                                    ``(I) the amount in effect under 
                                subparagraph (C) for the preceding 
                                calendar year (after application of 
                                this subparagraph), plus
                                    ``(II) the product of the amount 
                                referred to in subclause (I) multiplied 
                                by the cost-of-living adjustment for 
                                the calendar year of the amount under 
                                subclause (I).
                            ``(ii) Cost-of-living adjustment.--For 
                        purposes of clause (i), the cost-of-living 
                        adjustment for any calendar year is the 
                        percentage (if any) by which the cost index 
                        under clause (iii) for the preceding calendar 
                        year exceeds such index for the second 
                        preceding calendar year.
                            ``(iii) Cost index.--The Secretary, in 
                        consultation with the Secretary of Health and 
                        Human Services, shall before January 1, 1997, 
                        establish a cost index to measure increases in 
                        costs of nursing home and similar facilities. 
                        The Secretary may from time to time revise such 
                        index to the extent necessary to accurately 
                        measure increases or decreases in such costs.
                            ``(iv) Special rule for calendar year 
                        1997.--Notwithstanding clause (ii), for 
                        purposes of clause (i), the cost-of-living 
                        adjustment for calendar year 1997 is the sum of 
                        1\1/2\ percent plus the percentage by which the 
                        CPI for calendar year 1996 (as defined in 
                        section 1(f)(4)) exceeds the CPI for calendar 
                        year 1995 (as so defined).
                    ``(E) Period.--For purposes of this paragraph, a 
                period begins on the date that an individual has a 
                condition which would qualify for certification under 
                subsection (b)(1)(B) and ends on the earlier of the 
                date upon which--
                            ``(i) such individual has not been so 
                        certified within the preceding 12-months, or
                            ``(ii) the individual's condition ceases to 
                        be such as to qualify for certification under 
                        subsection (b)(1)(B).
                    ``(F) Aggregation rule.--For purposes of this 
                paragraph, all policies issued with respect to the same 
                insured shall be treated as one policy.
    ``(c) Treatment of Long-Term Care Insurance Policies.--For purposes 
of this title, any amount received or coverage provided under a long-
term care insurance policy that is not a qualified long-term care 
insurance policy shall not be treated as an amount received for 
personal injuries or sickness or provided under an accident and health 
plan and shall not be treated as excludible from gross income under any 
provision of this title.
    ``(d) Treatment of Coverage Provided as Part of a Life Insurance 
Contract.--Except as otherwise provided in regulations prescribed by 
the Secretary, in the case of any long-term care insurance coverage 
(whether or not qualified) provided by rider on a life insurance 
contract--
            ``(1) In general.--This section shall apply as if the 
        portion of the contract providing such coverage is a separate 
        contract or policy.
            ``(2) Premiums and charges for long-term care coverage.--
        Premium payments for coverage under a long-term care insurance 
        policy and charges against the life insurance contract's cash 
        surrender value (within the meaning of section 7702(f)(2)(A)) 
        for such coverage shall be treated as premiums for purposes of 
        subsection (b)(2).
            ``(3) Application of 7702.--Section 7702(c)(2) (relating to 
        the guideline premium limitation) shall be applied by 
        increasing the guideline premium limitation with respect to a 
        life insurance contract, as of any date--
                    ``(A) by the sum of any charges (but not premium 
                payments) described in paragraph (2) made to that date 
                under the contract, less
                    ``(B) any such charges the imposition of which 
                reduces the premiums paid for the contract (within the 
                meaning of section 7702(f)(1)).
            ``(4) Application of section 213.--No deduction shall be 
        allowed under section 213(a) for charges against the life 
        insurance contract's cash surrender value described in 
        paragraph (2), unless such charges are includible in income as 
        a result of the application of section 72(e)(10) and the 
        coverage provided by the rider is a qualified long-term care 
        insurance policy under subsection (b).
For purposes of this subsection, the term `portion' means only the 
terms and benefits under a life insurance contract that are in addition 
to the terms and benefits under the contract without regard to the 
coverage under a long-term care insurance policy.
    ``(e) Prohibition of Discrimination.--
            ``(1) In general.--Notwithstanding subsection (a)(3), any 
        plan of an employer providing coverage under a qualified long-
        term care insurance policy shall qualify as an accident and 
        health plan with respect to such coverage only if--
                    ``(A) the plan allows all employees, except as 
                provided in paragraph (2), to participate, and
                    ``(B) the benefits provided under the plan are 
                identical for all employees that choose to participate.
            ``(2) Exclusion of certain employees.--For purposes of 
        paragraph (1), there may be excluded from consideration--
                    ``(A) employees who have not completed 3 years of 
                service;
                    ``(B) employees who have not attained age 25;
                    ``(C) part-time or seasonal employees; and
                    ``(D) employees who are nonresident aliens and who 
                receive no earned income (within the meaning of section 
                911(d)(2)) from the employer which constitutes income 
                from sources within the United States (within the 
                meaning of section 861(a)(3)).
    ``(f) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the requirements of this section, 
including regulations to prevent the avoidance of this section by 
providing long-term care insurance coverage under a life insurance 
contract and to provide for the proper allocation of amounts between 
the long-term care and life insurance portions of a contract.''.
    (b) Clerical Amendment.--The table of sections for chapter 79 is 
amended by inserting after the item relating to section 7702A the 
following new item:

                              ``Sec. 7702B. Treatment of long-term care 
                                        insurance.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to policies issued after December 31, 1995. Solely for 
        purposes of the preceding sentence, a policy issued prior to 
        January 1, 1996, that satisfies the requirements of a qualified 
        long-term care insurance policy as set forth in section 
        7702B(b) or the requirements of model laws and regulations of 
        the National Association of Insurance Commissioners (relating 
        to long-term care insurance policies) as of the date the policy 
        was issued, shall, on and after January 1, 1996, be treated as 
        being issued after December 31, 1995.
            (2) Transition rule.--If, after the date of enactment of 
        this Act and before January 1, 1996, a policy providing for 
        long-term care insurance coverage is exchanged solely for a 
        qualified long-term care insurance policy (as defined in 
        section 7702B(b)), no gain or loss shall be recognized on the 
        exchange. If, in addition to a qualified long-term care 
        insurance policy, money or other property is received in the 
        exchange, then any gain shall be recognized to the extent of 
        the sum of the money and the fair market value of the other 
        property received. For purposes of this paragraph, the 
        cancellation of a policy providing for long-term care insurance 
        coverage and reinvestment of the cancellation proceeds in a 
        qualified long-term care insurance policy within 60 days 
        thereafter shall be treated as an exchange.
            (3) Issuance of certain riders permitted.--For purposes of 
        determining whether section 7702 or 7702A of the Internal 
        Revenue Code of 1986 applies to any contract, the issuance, 
        whether before, on, or after December 31, 1995, of a rider on a 
        life insurance contract providing long-term care insurance 
        coverage shall not be treated as a modification or material 
        change of such contract.

SEC. 204. TAX TREATMENT OF ACCELERATED DEATH BENEFITS UNDER LIFE 
              INSURANCE CONTRACTS.

    (a) General Rule.--Section 101 (relating to certain death benefits) 
is amended by adding at the end thereof the following new subsection:
    ``(g) Treatment of Certain Accelerated Death Benefits.--
            ``(1) In general.--For purposes of this section, any amount 
        distributed to an individual under a life insurance contract on 
        the life of an insured who is a terminally ill individual (as 
        defined in paragraph (3)) shall be treated as an amount paid by 
        reason of the death of such insured.
            ``(2) Necessary conditions.--
                    ``(A) Paragraph (1) shall not apply to any 
                distribution unless--
                            ``(i) the distribution is not less than the 
                        present value (determined under subparagraph 
                        (B)) of the reduction in the death benefit 
                        otherwise payable in the event of the death of 
                        the insured, and
                            ``(ii) the percentage derived from dividing 
                        the cash surrender value of the contract, if 
                        any, immediately after the distribution by the 
                        cash surrender value of the contract 
                        immediately before the distribution is equal to 
                        or greater than the percentage derived by 
                        dividing the death benefit immediately after 
                        the distribution by the death benefit 
                        immediately before the distribution.
                    ``(B) The present value of the reduction in the 
                death benefit occurring on the distribution must be 
                determined by--
                            ``(i) using as the discount rate a rate not 
                        to exceed the highest rate set forth in 
                        subparagraph (C), and
                            ``(ii) assuming that the death benefit (or 
                        the portion thereof) would have been paid at 
                        the end of a period that is no more than the 
                        insured's life expectancy from the date of the 
                        distribution or 12 months, whichever is 
                        shorter.
                    ``(C) Rates.--The rates set forth in this 
                subparagraph are the following:
                            ``(i) the 90-day Treasury bill yield,
                            ``(ii) the rate described as Moody's 
                        Corporate Bond Yield Average-Monthly Average 
                        Corporates as published by Moody's Investors 
                        Service, Inc., or any successor thereto for the 
                        calendar month ending 2 months before the date 
                        on which the rate is determined,
                            ``(iii) the rate used to compute the cash 
                        surrender values under the contract during the 
                        applicable period plus 1 percent per annum, and
                            ``(iv) the maximum permissible interest 
                        rate applicable to policy loans under the 
                        contract.
            ``(3) Terminally ill individual.--For purposes of this 
        subsection, the term `terminally ill individual' means an 
        individual who the insurer has determined, after receipt of an 
        acceptable certification by a licensed physician, has an 
        illness or physical condition which can reasonably be expected 
        to result in death within 12 months of the date of 
        certification.
            ``(4) Application of section 72(e)(10).--For purposes of 
        section 72(e)(10) (relating to the treatment of modified 
        endowment contracts), section 72(e)(4)(A)(i) shall not apply to 
        distributions described in paragraph (1).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1994.

SEC. 205. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED ACCELERATED 
              DEATH BENEFIT RIDERS.

    (a) Qualified Accelerated Death Benefit Riders Treated as Life 
Insurance.--Section 818 (relating to other definitions and special 
rules) is amended by adding at the end thereof the following new 
subsection:
    ``(g) Qualified Accelerated Death Benefit Riders Treated as Life 
Insurance.--For purposes of this part--
            ``(1) In general.--Any reference to a life insurance 
        contract shall be treated as including a reference to a 
        qualified accelerated death benefit rider on such contract.
            ``(2) Qualified accelerated death benefit riders.--For 
        purposes of this subsection, the term `qualified accelerated 
        death benefit rider' means any rider on a life insurance 
        contract which provides for a distribution to an individual 
        upon the insured becoming a terminally ill individual (as 
        defined in section 101(g)(3)).''
    (b) Definitions of Life Insurance and Modified Endowment 
Contracts.--Paragraph (5)(A) of section 7702(f) is amended by striking 
``or'' at the end of clause (iv), by redesignating clause (v) as clause 
(vi), and by inserting after clause (iv) the following new clause:
                            ``(v) any qualified accelerated death 
                        benefit rider (as defined in section 818(g)), 
                        or''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to contracts issued after December 31, 1994.
            (2) Transitional rule.--For purposes of determining whether 
        section 7702 or 7702A of the Internal Revenue Code of 1986 
        applies to any contract, the issuance, whether before, on, or 
        after December 31, 1994, of a rider on a life insurance 
        contract permitting the acceleration of death benefits (as 
        described in section 101(g) of such Code) shall not be treated 
        as a modification or material change of such contract.

SEC. 206. EXCLUSION FROM GROSS INCOME FOR AMOUNTS WITHDRAWN FROM 
              CERTAIN PLANS TO PAY QUALIFIED LONG-TERM CARE INSURANCE 
              PREMIUMS.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically excluded 
from gross income) is amended by redesignating section 137 as section 
138 and by inserting after section 136 the following new section:

``SEC. 137. AMOUNTS WITHDRAWN FROM CERTAIN PLANS TO PAY QUALIFIED LONG-
              TERM CARE INSURANCE PREMIUMS.

    ``The gross income of an individual shall not include any 
distribution from an individual retirement plan, or from amounts 
attributable to employer contributions made pursuant to elective 
deferrals described in subparagraph (A) or (C) of section 402(g)(3) or 
section 501(c)(18)(D)(iii), if--
            ``(1) such individual has attained age 59\1/2\ before the 
        date of such distribution, and
            ``(2) such distribution is used by such individual (before 
        the close of the 60th day after the day on which such 
        distribution is received) to pay premiums on any qualified 
        long-term care insurance policy (as defined in section 7702B) 
        covering such individual or the spouse of such individual.''
    (b) Clerical Amendment.--The table of sections for such part III is 
amended by striking the last item and inserting the following new 
items:

                              ``Sec. 137. Amounts withdrawn from 
                                        certain plans to pay qualified 
                                        long-term care insurance 
                                        premiums.
                              ``Sec. 138. Cross references to other 
                                        Acts.''
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 1994, in taxable years ending 
after such date.

SEC. 207. NONRECOGNITION OF GAIN ON SALE OF PRINCIPAL RESIDENCE TO 
              EXTENT PROCEEDS USED FOR ENTRANCE INTO CONTINUING CARE 
              RETIREMENT COMMUNITY.

    (a) In General.--Section 1034 of the Internal Revenue Code of 1986 
(relating to rollover of gain of sale of principal residence) is 
amended by redesignating subsection (l) as subsection (m) and by 
inserting after subsection (k) the following new subsection:
    ``(l) Nonrecognition of Gain If New Residence Is Qualified 
Continuing Care Retirement Community.--
            ``(1) In general.--Gross income shall not include gain from 
        the sale of the principal residence of the taxpayer if--
                    ``(A) the taxpayer attained age 55 before the date 
                of such sale, and
                    ``(B) within the 2-year period beginning on such 
                date, the taxpayer has as his principal residence a 
                qualified continuing care retirement community.
            ``(2) Limitation.--The amount excluded from gross income 
        under paragraph (1) shall not exceed the amount paid by the 
        taxpayer during such 2-year period to such retirement community 
        as an entrance fee in order for the taxpayer or his spouse (or 
        both) to reside in such community.
            ``(3) Recapture in certain cases.--If the taxpayer ceases 
        to have as his principal residence (other than by reason of 
        death) a qualified continuing care retirement community at any 
        time during the 2-year period beginning on the date such 
        community began being the taxpayer's principal residence, the 
        amount excluded from gross income under paragraph (1) shall be 
        included in the taxpayer's gross income (as long-term capital 
        gain) for the taxable year in which such cessation occurs.
            ``(4) Special rules for married individuals.--In the case 
        of a husband and wife who file a joint return for the taxable 
        year which includes the date of the sale of the old residence--
                    ``(A) the age requirement of paragraph (1)(A) shall 
                be treated as met if either spouse meets such 
                requirement, and
                    ``(B) paragraph (3) shall be applied by taking into 
                account one-half of the gain with respect to each 
                spouse if such spouses do not file a joint return for 
                the taxable year in which the cessation referred to in 
                paragraph (3) occurs.
            ``(5) Qualified continuing care retirement community.--For 
        purposes of this subsection, the term `qualified continuing 
        care retirement community' has the meaning given such term by 
        section 7872(g).''
    (b) Effective Date.--The amendments made by this section shall 
apply to old residences sold after December 31, 1994.

               TITLE III--LONG-TERM CARE INSURANCE REFORM

                     Subtitle A--General Provisions

SEC. 301. FEDERAL REGULATIONS; PRIOR APPLICATION OR CERTAIN 
              REQUIREMENTS.

    (a) In General.--The Secretary, with the advice and assistance of 
the National Association of Insurance Commissioners, as appropriate, 
shall promulgate regulations as necessary to implement the provisions 
of this title, in accordance with the timetable specified in subsection 
(b).
    (b) Timetable for Publication of Regulations.--
            (1) Federal register notice.--Within 120 days after the 
        date of the enactment of this Act, the Secretary shall publish 
        in the Federal Register a notice setting forth the projected 
        timetable for promulgation of regulations required under this 
        title. Such timetable shall indicate which regulations are 
        proposed to be published by the end of the first, second, and 
        third years after the date of the enactment of this Act.
            (2) Final deadline.--All regulations required under this 
        title shall be published by the end of the third year after the 
        date of the enactment of this Act.
            (3) Revision of regulations.--The Secretary may 
        periodically revise and update the regulations published under 
        this title. However, any such revisions shall not become 
        effective until States have been provided an adequate period of 
        time in which to implement such revisions.
            (4) Congressional disapproval.--A regulation, or revision 
        or update of a regulation, under this section shall take effect 
        unless--
                    (A) the regulation, revision, or update is 
                submitted to Congress, and
                    (B) a joint resolution or Act disapproving such 
                regulation, revision, or update is enacted before the 
                end of the 60-day period beginning on the date on which 
                such regulation, revision, or update is submitted.
    (c) Provisions Effective Without Regard to Promulgation of 
Regulations.--
            (1) In general.--Notwithstanding any other provision of 
        this title, insurers shall be required, not later than 6 months 
        after the enactment of this Act, regardless of whether final 
        implementing regulations have been promulgated by the 
        Secretary, to comply with the following provisions of this 
        title:
                    (A) Section 321(c) (standard outline of coverage);
                    (B) Section 321(d) (reporting to State insurance 
                commissioners);
                    (C) Section 322(b) (preexisting condition 
                exclusions);
                    (D) Section 322(c) (limiting conditions on 
                benefits);
                    (E) Section 322(d) (inflation protection);
                    (F) Section 324 (sales practices);
                    (G) Section 325 (continuation, renewal, 
                replacement, conversion, and cancellation of policies); 
                and
                    (H) Section 326 (payment of benefits).
            (2) Interim requirements.--Before the effective date of 
        applicable regulations promulgated by the Secretary 
        implementing requirements of this title as specified below, 
        such requirements will be considered to be met--
                    (A) in the case of section 321(c) (requiring a 
                standard outline of coverage), if the long-term care 
                insurance policy meets the requirements of section 
                6.G.(2) of the NAIC Model Act and of section 24 of the 
                NAIC Model Regulation;
                    (B) in the case of section 321(d) (requiring 
                reporting to the State insurance commissioner), if the 
                insurer meets the requirements of section 14 of the 
                NAIC Model Regulation;
                    (C) in the case of section 322(c)(1) (general 
                requirements concerning limiting conditions on 
                benefits), if such policy meets the requirements of 
                section 6.D. of the NAIC Model Act;
                    (D) in the case of section 322(c)(2) (limiting 
                conditions on home health care or community-based 
                services) if such policy meets the requirements of 
                section 11 of the NAIC Model Regulations;
                    (E) in the case of section 322(d) (concerning 
                inflation protection), if the insurer meets the 
                requirements of section 12 of the NAIC Model 
                Regulation;
                    (F) in the case of section 324(b) (concerning 
                applications for the purchase of insurance), if the 
                insurer meets the requirements of section 10 of the 
                NAIC Model Regulation;
                    (G) in the case of section 324(g) (concerning sales 
                through employers or membership organizations), if the 
                insurer and the membership organization meet the 
                requirements of section 21.C. of the NAIC Model 
                Regulation;
                    (H) in the case of section 324(h) (concerning 
                interstate sales of group policies), if the insurer and 
                the policy meet the requirements of section 5 of the 
                NAIC Model Act; and
                    (I) in the case of section 325(f) (concerning 
                continuation, renewal, replacement, and conversion of 
                policies), if the insurer and the policy meet the 
                requirements of section 7 of the NAIC Model Regulation.

SEC. 302. DEFINITIONS.

    For purposes of this title:
            (1) Activity of daily living.--The term ``activity of daily 
        living'' means any of the following: eating, toileting, 
        dressing, bathing, transferring, and continence.
            (2) Adult day care.--The term ``adult day care'' means a 
        program providing social and health-related services during the 
        day to six or more adults with disabilities (or such smaller 
        number as the Secretary may specify in regulations) in a 
        community group setting outside the home.
            (3) Certificate.--The term ``certificate'' means a document 
        issued to an individual as evidence of such individual's 
        coverage under a group insurance policy.
            (4) Continuing care retirement community.--The term 
        ``continuing care retirement community'' means a residential 
        community operated by a private entity that enters into 
        contractual agreements with residents under which such entity 
        guarantees, in consideration for residents' purchase of or 
        periodic payment for membership in the community, to provide 
        for such residents' future long-term care needs.
            (5) Designated representative.--The term ``designated 
        representative'' means the person (if any) designated by an 
        insured individual (or, if such individual is incapacitated, 
        pursuant to an appropriate administrative or judicial 
        procedure) to communicate with the insurer on behalf of such 
        individual in the event of such individual's incapacitation.
            (6) Home health care.--The term ``home health care'' means 
        medical and nonmedical services including such services as 
        homemaker services, assistance with activities of daily living, 
        and respite care provided to individuals in their residences.
            (7) Insured individual.--The term ``insured individual'' 
        means, with respect to a long-term care insurance policy, any 
        individual who has coverage of benefits under such policy.
            (8) Insurer.--The term ``insurer'' means any person that 
        offers or sells an individual or group long-term care insurance 
        policy under which such person is at risk for all or part of 
        the cost of benefits under the policy, and includes any agent 
        of such person.
            (9) Long-term care insurance policy.--The term ``long-term 
        care insurance policy'' has the meaning given that term in 
        section 4 of the NAIC Model Act, except that the last sentence 
        of such section shall not apply.
            (10) NAIC.--The term ``NAIC'' means the National 
        Association of Insurance Commissioners.
            (11) NAIC model act.--The term ``NAIC Model Act'' means the 
        Long-Term Care Insurance Model Act published by the NAIC, as 
        amended through January 1993.
            (12) NAIC model regulation.--The term ``NAIC Model 
        Regulation'' means the Long-Term Care Insurance Model 
        Regulation published by the NAIC, as amended through January 
        1993.
            (13) Nursing facility.--The term ``nursing facility'' means 
        a facility licensed by the State to provide to residents--
                    (A) skilled nursing care and related services for 
                residents who require medical or nursing care;
                    (B) rehabilitation services for the rehabilitation 
                of injured, disabled, or sick individuals, or
                    (C) on a regular basis, health-related care and 
                services to individuals who because of their mental or 
                physical condition require care and services (above the 
                level of room and board) which can be made available to 
                them only through institutional facilities.
            (14) Policyholder.--The term ``policyholder'' means the 
        entity which is the holder of record of a group long-term care 
        insurance policy.
            (15) Residential care facility.--The term ``residential 
        care facility'' means a facility (including a nursing facility) 
        that--
                    (A) provides to residents medical or personal care 
                services (including at a minimum assistance with 
                activities of daily living) in a setting other than an 
                individual or single-family home, and
                    (B) does not provide services of a higher level 
                than can be provided by a nursing facility.
            (16) Respite care.--The term ``respite care'' means the 
        temporary provision of care (including assistance with 
        activities of daily living) to an individual, in the 
        individual's home or another setting in the community, for the 
        purpose of affording such individual's unpaid caregiver a 
        respite from the responsibilities of such care.
            (17) State insurance commissioner.--The term ``State 
        insurance commissioner'' means the State official bearing such 
        title, or, in the case of a jurisdiction where such title is 
        not used, the State official with primary responsibility for 
        the regulation of insurance.

             Subtitle B--Federal Standards and Requirements

SEC. 321. REQUIREMENTS TO FACILITATE UNDERSTANDING AND COMPARISON OF 
              BENEFITS.

    (a) In General.--The Secretary, after considering (where 
appropriate) recommendations of the NAIC, shall promulgate regulations 
designed to standardize formats and terminology used in long-term care 
insurance policies, to require insurers to provide to customers and 
beneficiaries information on the range of public and private long-term 
care coverage available, and to establish such other requirements as 
may be appropriate to promote consumer understanding and facilitate 
comparison of benefits, which shall include at a minimum the 
requirements specified in this section.
    (b) Uniform Terms, Definitions, and Formats.--Insurers shall be 
required to use, in long-term care insurance policies, uniform 
terminology, definitions of terms, and formats, in accordance with 
regulations promulgated by the Secretary, after considering 
recommendations of the NAIC.
    (c) Standard Outline of Coverage.--
            (1) In general.--Insurers shall be required to develop for 
        each long-term care insurance policy offered or sold, to 
        include as a part of each such policy, and to make available to 
        each potential purchaser and furnish to each insured individual 
        and policyholder, an outline of coverage under such policy 
        that--
                    (A) includes the elements specified in paragraph 
                (2),
                    (B) is in a uniform format (as prescribed by the 
                Secretary on the basis of recommendations by the NAIC),
                    (C) accurately and clearly reflects the contents of 
                the policy, and
                    (D) is updated periodically on such timetable as 
                may be required by the Secretary (or more frequently as 
                necessary to reflect significant changes in outlined 
                information).
            (2) Contents of outline.--The outline of coverage for each 
        long-term care insurance policy shall include at least the 
        following:
                    (A) Benefits.--A description of--
                            (i) the principal benefits covered, 
                        including the extent of--
                                    (I) benefits for services furnished 
                                in residential care facilities, and
                                    (II) other benefits,
                            (ii) the principal exclusions from and 
                        limitations on coverage,
                            (iii) the terms and conditions, if any, 
                        upon which the insured individual may obtain 
                        upgraded benefits, and
                            (iv) the threshold conditions for 
                        entitlement to receive benefits.
                    (B) Continuation, renewal, and conversion.--A 
                statement of the terms under which a policy may be--
                            (i) returned (and premium refunded) during 
                        an initial examination period,
                            (ii) continued in force or renewed,
                            (iii) converted to an individual policy (in 
                        the case of coverage under a group policy),
                    (C) Cancellation.--A statement of the circumstances 
                in which a policy may be terminated, and the refund or 
                nonforfeitures benefits (if any) applicable in each 
                such circumstance, including--
                            (i) death of the insured individual,
                            (ii) nonpayment of premiums,
                            (iii) election by the insured individual 
                        not to renew,
                            (iv) any other circumstance.
                    (D) Premium.--A statement of--
                            (i) the total annual premium,
                            (ii) any reservation by the insurer of a 
                        right to change premiums,
                            (iii) any expected premium increases 
                        associated with automatic or optional benefit 
                        increases (including inflation protection), and
                            (iv) any circumstances under which payment 
                        of premium is waived.
                    (E) Declaration concerning summary.--A statement, 
                in bold face type on the face of the document in 
                language understandable to the average individual, that 
                the outline of coverage is a summary only, not a 
                contract of insurance, and that the policy contains the 
                contractual provisions that govern.
                    (F) Cost/value comparison.--
                            (i) A comparison of benefits, over a period 
                        of at least 20 years, for policies with and 
                        without inflation protection.
                            (ii) A declaration as to whether the amount 
                        of benefits will increase over time, and, if 
                        so, a statement of the type and amount of, any 
                        limitations on, and any premium increases for, 
                        such benefit increases.
                    (G) Tax treatment.--A statement of the Federal 
                income tax treatment of premiums and benefits under the 
                policy, as determined by the Secretary of the Treasury.
                    (H) Other.--Such other information as the Secretary 
                may require.
    (d) Reporting to State Insurance Commissioner.--Each insurer shall 
be required to report at least annually, to the State insurance 
commissioner of each State in which any long-term care insurance policy 
of the insurer is sold, such information, in such format, as the 
Secretary may specify with respect to each such policy, including--
            (1) the standard outline of coverage required pursuant to 
        subsection (c);
            (2) lapse rates and replacement rates for such policies 
        (including, by percentage, the reasons for the lapse);
            (3) the ratio of premiums collected to benefits paid;
            (4) reserves;
            (5) written materials used in sale or promotion of such 
        policy; and
            (6) any other information the Secretary may require.

SEC. 322. REQUIREMENTS RELATING TO COVERAGE.

    (a) In General.--The Secretary, after considering (where 
appropriate) recommendations of the NAIC, shall promulgate regulations 
establishing requirements with respect to the terms of and benefits 
under long-term care insurance policies, which shall include at a 
minimum the requirements specified in this section.
    (b) Limitations on Preexisting Condition Exclusions.--
            (1) Initial policies.--A long-term care insurance policy 
        may not exclude or limit coverage for any service or benefit, 
        the need for which is the result of a medical condition or 
        disability because an insured individual received medical 
        treatment for, or was diagnosed as having, such condition 
        before the issuance of the policy, unless--
                    (A) the insurer, prior to issuance of the policy, 
                determines and documents (with evidence including 
                written evidence that such condition has been treated 
                or diagnosed by a qualified health care professional) 
                that the insured individual had such condition during 
                the 6-month period (or such longer period as the 
                Secretary may specify) ending on the effective date of 
                the policy; and
                    (B) the need or such service or benefit begins 
                within 6 months (or such longer period as the Secretary 
                may specify) following the effective date of the 
                policy.
            (2) Replacement policies.--Solely for purposes of the 
        requirements of paragraph (1), with respect to an insured 
        individual, the effective date of a long-term care insurance 
        policy issued to replace a previous policy, with respect to 
        benefits which are the same as or substantially equivalent to 
        benefits under such previous policy, shall be considered to be 
        the effective date of such previous policy with respect to such 
        individual.
    (c) Limiting Conditions on Benefits.--
            (1) In general.--A long-term care insurance policy may 
        not--
                    (A) condition eligibility for benefits for a type 
                of service on the need for or receipt of any other type 
                of service (such as prior hospitalization or 
                institutionalization, or a higher level of care than 
                the care for which benefits are covered);
                    (B) condition eligibility for any benefit (where 
                the need for such benefit has been established by an 
                independent assessment of impairment) on any particular 
                medical diagnosis (including any acute condition) or on 
                one of a group of diagnoses;
                    (C) condition eligibility for benefits furnished by 
                licensed or certified providers on compliance by such 
                providers with conditions not required under Federal or 
                State law; or
                    (D) condition coverage of any service on provision 
                of such service by a provider, or in a setting, 
                providing a higher level of care than that required by 
                an insured individual.
            (2) Home care or community-based services.--A long-term 
        care insurance policy that provides benefits for any home care 
        or community-based services--
                    (A) may not limit such benefits to services 
                provided by registered nurses or licensed practical 
                nurses;
                    (B) may not limit such benefits to services 
                furnished by persons or entities participating in 
                programs under titles XVIII and XIX of the Social 
                Security Act and in part 1 of this title; and
                    (C) must provide, at a minimum, benefits for 
                personal assistance with activities of daily living, 
                home health care, adult day care, and respite care.
            (3) Nursing facility services.--A long-term care insurance 
        policy that provides benefits for any nursing facility 
        services--
                    (A) must provide benefits for such services 
                provided by all types of nursing facilities licensed by 
                the State, and
                    (B) may provide benefits for care in other 
                residential facilities.
            (4) Prohibition of discrimination by diagnosis.--A long-
        term care insurance policy may not provide for treatment of any 
        of the following medical conditions different from the 
        treatment of any other medical condition for purposes of 
        determining whether threshold conditions for the receipt of 
        benefits have been met, or the amount of benefits under the 
        policy:
                    (A) Alzheimer's disease or any other progressive 
                degenerative dementia of an organic origin.
                    (B) Any organic or inorganic mental illness.
                    (C) Mental retardation or any other cognitive or 
                mental impairment.
                    (D) HIV infection or AIDS.
    (d) Inflation Protection.--
            (1) Requirement to offer.--An insurer offering for sale any 
        long-term care insurance policy shall be required to afford the 
        purchaser the option to obtain coverage under such policy (upon 
        payment of increased premiums) of annual increases in benefits 
        at rates in accordance with paragraph (2).
            (2) Rate increase in benefits.--For purposes of paragraph 
        (1), the benefits under a policy for each year shall be 
        increased by a percentage of the full value of benefits under 
        the policy for the previous year, which shall be not less than 
        5 percent of such value.
            (3) Requirement of written rejection.--Inflation protection 
        in accordance with paragraph (1) may be excluded from the 
        coverage under a policy only if the insured individual (or, if 
        different, the person responsible for payment of premiums) has 
        rejected in writing the option to obtain such coverage.

SEC. 323. REQUIREMENTS RELATING TO PREMIUMS.

    (a) In General.--The Secretary, after considering (where 
appropriate) recommendations of the NAIC, shall promulgate regulations 
establishing requirements applicable to premiums for long-term care 
insurance policies, which shall include at a minimum the requirements 
specified in this section.
    (b) Limitations on Rates and Increases.--The Secretary, after 
considering recommendations of the NAIC, may establish by regulation 
such standards and requirements as may be determined appropriate with 
respect to--
            (1) mandatory or optional State procedures for review and 
        approval of premium rates and rate increases or decreases; and
            (2) the factors to be taken into consideration by an 
        insurer in proposing, and by a State in approving or 
        disapproving, premium rates and increases.

SEC. 324. REQUIREMENTS RELATING TO SALES PRACTICES.

    (a) In General.--The Secretary, after considering (where 
appropriate) recommendations of the NAIC, shall promulgate regulations 
establishing requirements applicable to the sale or offering for sale 
of long-term care insurance policies, which shall include at a minimum 
the requirements specified in this section.
    (b) Applications.--Any insurer that offers any long-term care 
insurance policy (including any group policy) shall be required to meet 
such requirements with respect to the content, format, and use of 
application forms for long-term care insurance as the Secretary may 
require by regulation.
    (c) Agent Training and Certification.--An insurer may not sell or 
offer for sale a long-term care insurance policy through an agent who 
does not comply with minimum standards with respect to training and 
certification established by the Secretary after consideration of 
recommendations by the NAIC.
    (d) Prohibited Sales Practices.--The following practices by 
insurers shall be prohibited with respect to the sale or offer for sale 
of long-term care insurance policies:
            (1) False and misleading representations.--Making any 
        statement or representation--
                    (A) which the insurer knows or should know is false 
                or misleading (including the inaccurate, incomplete, or 
                misleading comparison of long-term care insurance 
                policies or insurers), and
                    (B) which is intended, or would be likely, to 
                induce any person to purchase, retain, terminate, 
                forfeit, permit to lapse, pledge, assign, borrow 
                against, convert, or effect a change with respect to, 
                any long-term care insurance policy.
            (2) Inaccurate completion of medical history.--Making or 
        causing to be made (by any means including failure to inquire 
        about or to record information relating to preexisting 
        conditions) statements or omissions, in records detailing the 
        medical history of an applicant for insurance, which the 
        insurer knows or should know render such records false, 
        incomplete, or misleading in any way material to such 
        applicant's eligibility for or coverage under a long-term care 
        insurance policy.
            (3) Undue pressure.--Employing force, fright, threat, or 
        other undue pressure, whether explicit or implicit, which is 
        intended, or would be likely, to induce the purchase of a long-
        term care insurance policy.
            (4) Cold lead advertising.--Using, directly or indirectly, 
        any method of contacting consumers (including any method 
        designed to induce consumers to contact the insurer or agent) 
        for the purpose of inducing the purchase of long-term care 
        insurance (regardless of whether such purpose is the sole or 
        primary purpose of the contact) without conspicuously 
        disclosing such purpose.
    (e) Prohibition on Sale of Duplicate Benefits.--An insurer or agent 
may not sell or issue to an individual a long-term care insurance 
policy that the insurer or agent knows or should know provides for 
coverage that duplicates coverage already provided in another long-term 
care insurance policy held by such individual (unless the policy is 
intended to replace such other policy.
    (f) Sales Through Employers or Membership Organizations.--
            (1) Requirements concerning such arrangements.--In any case 
        where an employer, organization, association, or other entity 
        (referred to as a ``membership entity'') endorses a long-term 
        care insurance policy to, or such policy is marketed or sold 
        through such membership entity to, employees, members, or other 
        individuals affiliated with such membership entity, the insurer 
        offering such policy shall not permit its marketing or sale 
        through such entity unless the requirements of this subsection 
        are met.
            (2) Disclosure and information requirements.--A membership 
        entity that endorses a long-term care insurance policy, or 
        through which such policy is sold, to individuals affiliated 
        with such entity, shall--
                    (A) disclose prominently, in a form and manner 
                designed to ensure that each such individual who 
                receives information concerning any such policy through 
                such entity is aware of and understands such 
                disclosure--
                            (i) the manner in which the insurer and 
                        policy were selected;
                            (ii) the extent (if any) to which a person 
                        independent of the insurer with expertise in 
                        long-term care insurance analyzed the 
                        advantages and disadvantages of such policy 
                        from the standpoint of such individuals 
                        (including such matters as the merits of the 
                        policy compared to other available benefit 
                        packages, and the financial stability of the 
                        insurer), and the results of any such analysis;
                            (iii) any organizational or financial ties 
                        between the entity (or a related entity) and 
                        the insurer (or a related entity);
                            (iv) the nature of compensation 
                        arrangements (if any) and the amount of 
                        compensation (including all fees, commissions, 
                        and other forms of financial support) for the 
                        endorsement or sale of such policy (which 
                        amount may be stated as a percental of the 
                        total annual premiums earned); and
                    (B) make available to such individuals, either 
                directly or through referrals, appropriate counseling 
                to assist such individuals to make educated and 
                informed decisions concerning the purchase of such 
                policies.

SEC. 325. CONTINUATION, RENEWAL, REPLACEMENT, CONVERSION, AND 
              CANCELLATION OF POLICIES.

    (a) In General.--The Secretary, after considering (where 
appropriate) recommendations of the NAIC, shall promulgate regulations 
establishing requirements applicable to the renewal, replacement, 
conversion, and cancellation of long-term care insurance policies, 
which shall include at a minimum the requirements specified in this 
section.
    (b) Insured's Right To Cancel During Examination Period.--Each 
individual insured (or, if different, each individual liable for 
payment of premiums) under a long-term care insurance policy shall have 
the unconditional right to return the policy within 30 days after the 
date of its issuance and delivery, and to obtain a full refund of any 
premium paid.
    (c) Insurer's Right To Cancel (or Deny Benefits) Based on Fraud or 
Nondisclosure.--An insurer shall have the right to cancel a long-term 
care insurance policy, or to refuse to pay a claim for benefits, based 
on evidence that the insured falsely represented or failed to disclose 
information material to the determination of eligibility to purchase 
such insurance, but only if--
            (1) the insurer presents written documentation, developed 
        at the time the insured applied for such insurance, of the 
        insurer's request for the information thus withheld or 
        misrepresented, and the insured individual's response to such 
        request;
            (2) the insurer presents medical records or other evidence 
        showing that the insured individual knew or should have known 
        that such response was false, incomplete, or misleading;
            (3) notice of cancellation is furnished to the insured 
        individual before the date 3 years after the effective date of 
        the policy (or such earlier date as the Secretary may specify 
        in regulations); and
            (4) the insured individual is afforded the opportunity to 
        review and refute the evidence presented by the insurer 
        pursuant to paragraphs (1) and (2).
    (d) Insurer's Right To Cancel for Nonpayment of Premiums.--
            (1) In general.--Insurers shall have the right to cancel 
        long-term care insurance policies for nonpayment of premiums, 
        subject to the provisions of this subsection and subsection (e) 
        (relating to nonforfeiture).
            (2) Notice and acknowledgement.--
                    (A) In general.--The insurer may not cancel 
                coverage of an insured individual until--
                            (i) the insurer, not earlier than the date 
                        when such payment is 30 days past due, has 
                        given written notice to the insured individual 
                        (by registered letter or the equivalent) of 
                        such intent, and
                            (ii) 30 days have elapsed since the insurer 
                        obtained written acknowledgment of receipt of 
                        such notice from the insured individual (or the 
                        designated representative, at the insured 
                        individual's option or in the case of an 
                        insured individual determined to be 
                        incapacitated in accordance with paragraph 
                        (4)).
                    (B) Additional requirement for group policies.--In 
                the case of a group long-term care insurance policy, 
                the notice and acknowledgement requirements of 
                subparagraph (A) apply with respect to the policyholder 
                and to each insured individual.
            (3) Reinstatement of coverage of incapacitated 
        individuals.--In any case where the coverage of an individual 
        under a long-term care insurance policy has been canceled 
        pursuant to paragraph (2), the insurer shall be required to 
        reinstate full coverage of such individual under such policy, 
        retroactive to the effective date of cancellation, if the 
        insurer receives from such individual (or the designated 
        representative of such individual), within 5 months after such 
        date--
                    (A) evidence of a determination of such 
                individual's incapacitation in accordance with 
                paragraph (4) (whether made before or after such date), 
                and
                    (B) payment of all premiums due and past due, and 
                all charges for late payment.
            (4) Determination of incapacitation.--For purposes of this 
        subsection, the term ``determination of incapacitation'' means 
        a determination by a qualified health professional (in 
        accordance with such requirements as the Secretary may 
        specify), that an insured individual has suffered a cognitive 
        impairment which could reasonably be expected to render the 
        individual permanently unable to deal with business or 
        financial matters. The standard used to make such determination 
        shall not be more stringent than the threshold conditions for 
        the receipt of covered benefits.
            (5) Designation of representative.--The insurer shall be 
        required to notify the insured individual, at the time of sale 
        or issuance of a long-term care insurance policy, of the 
        individual's right to designate a representative for purposes 
        of communication with the insurer concerning premium payments 
        in the event the insured individual cannot be located or is 
        incapacitated.
    (e) Nonforfeiture.--
            (1) In general.--The Secretary, after consideration of 
        recommendations by the NAIC, shall by regulation require 
        appropriate nonforfeiture benefits to be offered with respect 
        to each long-term care insurance policy that lapses for any 
        reason (including nonpayment of premiums, cancellation, or 
        failure to renew, but excluding lapses due to death) after 
        remaining in effect beyond a specified minimum period.
            (2) Nonforfeiture benefits.--The standards established 
        under this subsection shall require that the amount or 
        percentage of any such nonforfeiture benefits shall increase 
        proportionally with the amount of premiums paid by a 
        policyholder, but shall not be required to exceed the asset 
        share remaining in the policy.
    (f) Continuation, Renewal, Replacement, and Conversion of 
Policies.--
            (1) In general.--Insurers shall not be permitted to cancel, 
        or refuse to renew (or replace with a substantial equivalent), 
        any long-term care insurance policy for any reason other than 
        for fraud or material misrepresentation (as provided in 
        subsection (c)) or for nonpayment of premium (as provided in 
        subsection (d)).
            (2) Duration and renewal of policies.--Each long-term care 
        insurance policy shall contain a provision that clearly 
        states--
                    (A) the duration of the policy,
                    (B) the right of the insured individual (or 
                policyholder) to renewal (or to replacement with a 
                substantial equivalent),
                    (C) the date by which, and the manner in which, the 
                option to renew must be exercised, and
                    (D) any applicable restrictions or limitations 
                (which may not be inconsistent with the requirements of 
                this title).
            (3) Replacement of policies.--
                    (A) In general.--Except as provided in subparagraph 
                (B), an insurer shall not be permitted to sell any 
                long-term care insurance policy as a replacement for 
                another such policy unless coverage under such 
                replacement policy is available to an individual 
                insured for benefits covered under the previous policy 
                to the same extent as under such previous policy 
                (including every individual insured under a group 
                policy) on the date of termination of such previous 
                policy, without exclusions or limitations that did not 
                apply under such previous policy.
                    (B) Insured's option to reduce coverage.--In any 
                case where an insured individual covered under a long-
                term care insurance policy knowingly and voluntarily 
                elects to substitute for such policy a policy that 
                provides less coverage, substitute policy shall be 
                considered a replacement policy for purposes of this 
                title.
            (3) Continuation and conversion rights with respect to 
        group policies.--
                    (A) In general.--Insurers shall be required to 
                include in each group long-term care insurance policy, 
                a provision affording to each insured individual, when 
                such policy would otherwise terminate, the opportunity 
                (at the insurer's option, subject to approval of the 
                State insurance commissioner) either to continue or to 
                convert coverage under such policy in accordance with 
                this paragraph.
                    (B) Rights of related individuals.--In the case of 
                any insured individual whose eligibility for coverage 
                under a group policy is based on relationship to 
                another individual, the insurer shall be required to 
                continue such coverage upon termination of the 
                relationship due to divorce or death.
                    (C) Continuation of coverage.--A group policy shall 
                be considered to meet the requirements of this 
                paragraph with respect to rights of an insured 
                individual to continuation of coverage if coverage of 
                the same (or substantially equivalent) benefits for 
                such individual under such policy is maintained, 
                subject only to timely payment of premiums.
                    (D) Conversion of coverage.--A group policy shall 
                be considered to meet the requirements of this 
                paragraph with respect to conversion if it entitles 
                each individual who has been continuously covered under 
                the policy for at least 6 months before the date of the 
                termination to issuance of a replacement policy 
                providing benefits identical to, substantially 
                equivalent to, or in excess of, the benefits under such 
                terminated group policy--
                            (i) without requiring evidence of 
                        insurability with respect to benefits covered 
                        under such previous policy, and
                            (ii) at premium rates no higher than would 
                        apply if the insured individual had initially 
                        obtained coverage under such replacement policy 
                        on the date such insured individual initially 
                        obtained coverage under such group policy.
            (4) Treatment of substantial equivalence.--
                    (A) Under secretary's guidelines.--The Secretary, 
                after considering recommendations by the NAIC, shall 
                develop guidelines for comparing long-term care 
                insurance policies for the purpose of determining 
                whether benefits under such policies are substantially 
                equivalent.
                    (B) Before effective date of secretary's 
                guidelines.--During the period prior to the effective 
                date of guidelines published by the Secretary under 
                this paragraph, insurers shall comply with standards 
                for determinations of substantial equivalence 
                established by State insurance commissioners.
            (5) Additional requirements.--Insurers shall comply with 
        such other requirements relating to continuation, renewal, 
        replacement, and conversion of long-term care insurance 
        policies as the Secretary may establish.

SEC. 326. REQUIREMENTS RELATING TO PAYMENT OF BENEFITS.

    (a) In General.--The Secretary, after considering (where 
appropriate) recommendations of the NAIC, shall promulgate regulations 
establishing requirements with respect to claims for and payment of 
benefits under long-term care insurance policies, which shall include 
at a minimum the requirements specified in this section.
    (b) Standards Relating to Threshold Conditions for Receipt of 
Covered Benefits.--Each long-term care insurance policy shall meet the 
following requirements with respect to identification of, and 
determination of whether an insured individual meets, the threshold 
conditions for receipt of benefits covered under such policy:
            (1) Declaration of threshold conditions.--
                    (A) In general.--The policy shall specify the level 
                (or levels) of functional or cognitive mental 
                impairment (or combination of impairments) required as 
                a threshold condition of entitlement to receive 
                benefits under the policy (which threshold condition or 
                conditions shall be consistent with any regulations 
                promulgated by the Secretary pursuant to subsection 
                (B)).
                    (B) Secretarial responsibility.--The Secretary 
                (after considering the views of the NAIC on current 
                practices of insurers concerning, and the 
                appropriateness of standardizing, threshold conditions) 
                may promulgate such regulations as the Secretary finds 
                appropriate establishing standardized thresholds to be 
                used under such policies as preconditions for varying 
                levels of benefits.
            (2) Independent professional assessment.--The policy shall 
        provide for a procedure for determining whether the threshold 
        conditions specified under paragraph (1) have been met with 
        respect to an insured individual which--
                    (A) applies such uniform assessment standards, 
                procedures, and formats as the Secretary may specify, 
                after consideration of recommendations by the NAIC;
                    (B) permits an initial evaluation (or, if the 
                initial evaluation was performed by a qualified 
                independent assessor selected by the insurer, a 
                reevaluation) to be made by a qualified independent 
                assessor selected by the insured individual (or 
                designated representative) as to whether the threshold 
                conditions for receipt of benefits have been met;
                    (C) permits the insurer the option to obtain a 
                reevaluation by a qualified independent assessor 
                selected and reimbursed by the insurer;
                    (D) provides that the insurer will consider that 
                the threshold conditions have been met in any case 
                where--
                            (i) the assessment under subparagraph (B) 
                        concluded that such conditions had been met, 
                        and the insurer declined the option under 
                        subparagraph (C), or
                            (ii) assessments under both subparagraphs 
                        (B) and (C) concluded that such conditions had 
                        been met; and
                    (E) provides for final resolution of the question 
                by a State agency or other impartial third party in any 
                case where assessments under subparagraphs (B) and (C) 
                reach inconsistent conclusions.
            (3) Qualified independent assessor.--For purposes of 
        paragraph (2), the term ``qualified independent assessor'' 
        means a licensed or certified professional, as appropriate, 
        who--
                    (A) meets such standards with respect to 
                professional qualifications as may be established by 
                the Secretary, after consulting with the Secretary of 
                the Treasury, and
                    (B) has no significant or controlling financial 
                interest in, is not an employee of, and does not derive 
                more than 5 percent of gross income from, the insurer 
                (or any provider of services for which benefits are 
                available under the policy and in which the insurer has 
                a significant or controlling financial interest).
    (c) Requirements Relating to Claims for Benefits.--Insurers shall 
be required--
            (1) to promptly pay or deny claims for benefits submitted 
        by (or on behalf of) insured individuals who have been 
        determined pursuant to subsection (b) to meet the threshold 
        conditions for payment of benefits;
            (2) to provide an explanation in writing of the reasons for 
        payment, partial payment, or denial of each such claim; and
            (3) to provide an administrative procedure under which an 
        insured individual may appeal the denial of any claim.

                        Subtitle C--Enforcement

SEC. 341. STATE PROGRAMS FOR ENFORCEMENT OF STANDARDS.

    (a) Requirement for State Programs Implementing Federal 
Standards.--In order for a State to be eligible for grants under this 
subtitle, the State must have in effect a program (including such laws 
and procedures as may be necessary) for the regulation of long-term 
care insurance which the Secretary has determined--
            (1) includes the elements required under this title, and
            (2) is designed to ensure the compliance of long-term care 
        insurance policies sold in the State, and insurers offering 
        such policies and their agents, with the requirements 
        established pursuant to subtitle B.
    (b) Activities Under State Program.--A State program approved under 
this subtitle shall provide for the following procedures and 
activities:
            (1) Monitoring of insurers and policies.--Procedures for 
        ongoing monitoring of the compliance of insurers doing business 
        in the State, and of long-term care insurance policies sold in 
        the State, with requirements under this subtitle, including at 
        least the following:
                    (A) Policy review and certification.--A program for 
                review and certification (and annual recertification) 
                of each such policy sold in the State.
                    (B) Reporting by insurers.--Requirements of annual 
                reporting by insurers selling or servicing long-term 
                care insurance policies in the State, in such form and 
                containing such information as the State may require to 
                determine whether the insurer (and policies) are in 
                compliance with requirements under this subtitle.
                    (C) Data collection.--Procedures for collection, 
                from insurers, service providers, insured individuals, 
                and others, of information required by the State for 
                purposes of carrying out its responsibilities under 
                this subtitle (including authority to compel compliance 
                of insurers with requests for such information).
                    (D) Marketing oversight.--Procedures for monitoring 
                (through sampling or other appropriate procedures) the 
                sales practices of insurers and agents, including 
                review of marketing literature.
                    (E) Oversight of administration of benefits.--
                Procedures for monitoring (through sampling or other 
                appropriate procedures) insurers' administration of 
                benefits, including monitoring of--
                            (i) determinations of insured individuals' 
                        eligibility to receive benefits, and
                            (ii) disposition of claims for payment.
            (2) Consumer complaints and dispute resolution.--
        Administrative procedures for the investigation and resolution 
        of complaints by consumers, and disputes between consumers and 
        insurers, with respect to long-term care insurance, including--
                    (A) procedures for the filing, investigation, and 
                adjudication of consumer complaints with respect to the 
                compliance of insurers and policies with requirements 
                under this subtitle, or other requirements under State 
                law; and
                    (B) procedures for resolution of disputes between 
                insured individuals and insurers concerning eligibility 
                for, or the amount of, benefits payable under such 
                policies, and other issues with respect to the rights 
                and responsibilities of insurers and insured 
                individuals under such policies.
            (3) Technical assistance to insurers.--Provision of 
        technical assistance to insurers to help them to understand and 
        comply with the requirements of this subtitle, and other State 
        laws, concerning long-term care insurance policies and business 
        practices.
    (c) State Enforcement Authorities.--A State program meeting the 
requirements of this subtitle shall ensure that the State insurance 
commissioner (or other appropriate official or agency) has the 
following authority with respect to long-term care insurers and 
policies:
            (1) Prohibition of sale.--Authority to prohibit the sale, 
        or offering for sale, of any long-term care insurance policy 
        that fails to comply with all applicable requirements under 
        this subtitle.
            (2) Plans of correction.--Authority, in cases where the 
        business practices of an insurer are determined not to comply 
        with requirements under this subtitle, to require the insurer 
        to develop, submit for State approval, and implement a plan of 
        correction which must be fulfilled within the shortest period 
        possible (not to exceed a year) as a condition of continuing to 
        do business in the State.
            (3) Corrective action orders.--Authority, in cases where an 
        insurer is determined to have failed to comply with 
        requirements of this subtitle, or with the terms of a policy, 
        with respect to a consumer or insured individual, to direct the 
        insurer (subject to appropriate due process) to eliminate such 
        noncompliance within 30 days.
            (4) Civil money penalties.--Authority to assess civil money 
        penalties, in amounts for each violative act up to the greater 
        of $10,000 or three times the amount of any commission 
        involved--
                    (A) for violations of subsections (d) (concerning 
                prohibited sales practices) and (e) (prohibition on 
                sale of duplicate benefits) of section 324,
                    (B) for such other violative acts as the Secretary 
                may specify in regulations, and
                    (C) in such other cases as the State finds 
                appropriate.
            (5) Other authorities.--Such other authorities as the State 
        finds necessary or appropriate to enforce requirements under 
        this subtitle.
    (d) Records, Reports, and Audits.--As a condition of approval of 
its program under this subtitle, a State must agree to maintain such 
records, make such reports (including expenditure reports), and 
cooperate with such audits, as the Secretary finds necessary to 
determine the compliance of such State program (and insurers and 
policies regulated under such program) with the requirements of this 
subtitle.
    (e) Secretarial Responsibility for Approval of State Programs.--The 
Secretary shall approve a State program meeting the requirements of 
this subtitle.

SEC. 342. AUTHORIZATION OF APPROPRIATIONS FOR STATE PROGRAMS.

    There are authorized to be appropriated $10,000,000 for fiscal year 
1996, $10,000,000 for fiscal year 1997, $7,500,000 for fiscal year 
1998, and $5,000,000 for fiscal year 1999 and each succeeding fiscal 
year, for grants to States with programs meeting the requirements of 
this subtitle, to remain available until expended.

SEC. 343. ALLOTMENTS TO STATES.

    The allotment for any fiscal year to a State with a program 
approved under this subtitle shall be an amount determined by the 
Secretary, taking into account the numbers of long-term care insurance 
policies sold, and of elderly individuals residing, in the State, and 
such other factors as the Secretary finds appropriate.

SEC. 344. PAYMENTS TO STATES.

    (a) In General.--Each State with a program approved under this 
subtitle shall be entitled to payment under this subtitle for each 
fiscal year in an amount equal to its allotment for such fiscal year, 
for expenditure by such State for up to 50 percent of the cost of 
activities under such program.
    (b) State Share of Program Expenditures.--No Federal funds from any 
source may be used as any part of the non-Federal share of expenditures 
under the State program under this subtitle.
    (c) Transfer and Deposit Requirements.--The Secretary shall make 
payments under this section in accordance with section 6503 of title 
31, United States Code.

SEC. 345. FEDERAL OVERSIGHT OF STATE ENFORCEMENT.

    (a) In General.--The Secretary shall periodically review State 
regulatory programs approved under section 341 to determine whether 
they continue to comply with the requirements of this subtitle.
    (b) Notice of Determination of Noncompliance.--The Secretary shall 
promptly notify the State of a determination that a State program fails 
to comply with this subtitle, specifying the requirement or 
requirements not met and the elements of the State program requiring 
correction.
    (c) Opportunity for Correction.--
            (1) In general.--The Secretary shall afford a State 
        notified of noncompliance pursuant to subsection (b) a 
        reasonable opportunity to eliminate such noncompliance.
            (2) Correction plans.--In a case where substantial 
        corrections are needed to eliminate noncompliance of a State 
        program, the Secretary may--
                    (A) permit the State a reasonable time after the 
                date of the notice pursuant to subsection (b) to 
                develop and obtain the Secretary's approval of a 
                correction plan, and
                    (B) permit the State a reasonable time after the 
                date of approval of such plan to eliminate the 
                noncompliance.
    (d) Withdrawal of Program Approval.--In the case of a State that 
fails to eliminate noncompliance with requirements under this subtitle 
by the date specified by the Secretary pursuant to subsection (c), the 
Secretary shall withdraw the approval of the State program pursuant to 
section 341(e).

       Subtitle D--Recommendations for Consumer Education Program

SEC. 361. RECOMMENDATIONS FOR CONSUMER EDUCATION PROGRAM.

    (a) Design.--
            (1) In general.--The Secretary shall design programs for 
        educating consumers concerning long-term care and long-term 
        care insurance.
            (2) Goals.--The programs shall be designed to achieve the 
        goals of increasing consumers' understanding and awareness of 
        options available to them with respect to long-term care 
        insurance (and alternatives, such as public long-term care 
        programs), including--
                    (A) the risk of needing long-term care;
                    (B) the costs associated with long-term care 
                services;
                    (C) the lack of long-term care coverage under the 
                Medicare program, Medicare supplemental (Medigap) 
                policies, and standard private health insurance;
                    (D) the limitations on (and conditions of 
                eligibility for) long-term care coverage under State 
                programs;
                    (E) the availability, and variations in coverage 
                and cost, of private long-term care insurance;
                    (F) features common to many private long-term care 
                insurance policies; and
                    (G) pitfalls to avoid when purchasing a long-term 
                care insurance policy.
            (3) Activities.--The program may include--
                    (A) improving coordination of the activities of 
                State agencies and private entities;
                    (B) collecting, analyzing, publishing, and 
                disseminating information,
                    (C) conducting or sponsoring of consumer education, 
                outreach, and information programs, and
                    (D) providing (directly or through referral) 
                counseling and consultation services to consumers to 
                assist them in choosing long-term care insurance 
                coverage appropriate to their circumstances.
    (b) Report to Congress.--The Secretary shall submit to Congress a 
specific legislative proposal to provide for the authorization of 
appropriations of Federal funds to support the program design completed 
under subsection (a).

                          TITLE IV--FINANCING

SEC. 401. PHASE IN OF 24-CENT/PACK INCREASE IN EXCISE TAXES ON 
              CIGARETTES.

    (a) Cigarettes.--Subsection (b) of section 5701 of the Internal 
Revenue Code of 1986 is amended--
            (1) by striking ``$12 per thousand ($10 per thousand on 
        cigarettes removed during 1991 or 1992)'' in paragraph (1) and 
        inserting ``$24 per thousand ($20 per thousand on cigarettes 
        removed during 1997, $16 per thousand on cigarettes removed 
        during 1996)'', and
            (2) by striking ``$25.20 per thousand ($21 per thousand on 
        cigarettes removed during 1991 or 1992)'' in paragraph (2) and 
        inserting ``$50.40 per thousand ($42 per thousand on cigarettes 
        removed during 1997, $33.60 per thousand on cigarettes removed 
        during 1996)''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to cigarettes removed after December 31, 1995.
    (c) Floor Stocks Taxes.--
            (1) Imposition of tax.--On cigarettes manufactured in or 
        imported into the United States which are removed before any 
        tax-increase date and held on such date for sale by any person, 
        there shall be imposed the following taxes:
                    (A) Small cigarettes.--On cigarettes, weighing not 
                more than 3 pounds per thousand, $4 per thousand.
                    (B) Large cigarettes.--On cigarettes weighing more 
                than 3 pounds per thousand, $8.40 per thousand; except 
                that, if more than 6\1/2\ inches in length, they shall 
                be taxable at the rate prescribed for cigarettes 
                weighing not more than 3 pounds per thousand, counting 
                each 2\3/4\ inches, or fraction thereof, of the length 
                of each as one cigarette.
            (2) Exception for certain amounts of cigarettes.--
                    (A) In general.--No tax shall be imposed by 
                paragraph (1) on cigarettes held on any tax-increase 
                date by any person if--
                            (i) the aggregate number of cigarettes held 
                        by such person on such date does not exceed 
                        30,000, and
                            (ii) such person submits to the Secretary 
                        (at the time and in the manner required by the 
                        Secretary) such information as the Secretary 
                        shall require for purposes of this 
                        subparagraph.
                For purposes of this subparagraph, in the case of 
                cigarettes measuring more than 6\1/2\ inches in length, 
                each 2\3/4\ inches (or fraction thereof) of the length 
                of each shall be counted as one cigarette.
                    (B) Authority to exempt cigarettes held in vending 
                machines.--To the extent provided in regulations 
                prescribed by the Secretary, no tax shall be imposed by 
                paragraph (1) on cigarettes held for retail sale on any 
                tax-increase date by any person in any vending machine. 
                If the Secretary provides such a benefit with respect 
                to any person, the Secretary may reduce the 30,000 
                amount in subparagraph (A) and the $60 amount in 
                paragraph (3) with respect to such person.
            (3) Credit against tax.--Each person shall be allowed as a 
        credit against the taxes imposed by paragraph (1) an amount 
        equal to $60. Such credit shall not exceed the amount of taxes 
        imposed by paragraph (1) for which such person is liable.
            (4) Liability for tax and method of payment.--
                    (A) Liability for tax.--A person holding cigarettes 
                on any tax-increase date to which any tax imposed by 
                paragraph (1) applies shall be liable for such tax.
                    (B) Method of payment.--The tax imposed by 
                paragraph (1) shall be paid in such manner as the 
                Secretary shall prescribe by regulations.
                    (C) Time for payment.--The tax imposed by paragraph 
                (1) shall be paid on or before the 1st June 30 
                following the tax-increase date.
            (5) Definitions.--For purposes of this subsection--
                    (A) Tax-increase date.--The term ``tax-increase 
                date'' means January 1, 1996, January 1, 1997, and 
                January 1, 1998.
                    (B) Other definitions.--Terms used in this 
                subsection which are also used in section 5702 of the 
                Internal Revenue Code of 1986 shall have the respective 
                meanings such terms have in such section.
                    (C) Secretary.--The term ``Secretary'' means the 
                Secretary of the Treasury or his delegate.
            (6) Controlled groups.--Rules similar to the rules of 
        section 5061(e)(3) of such Code shall apply for purposes of 
        this subsection.
            (7) Articles in foreign trade zones.--Notwithstanding the 
        Act of June 18, 1934 (48 Stat. 998, 19 U.S.C. 81a) and any 
        other provision of law, any article which is located in a 
        foreign trade zone on a tax-increase date shall be subject to 
        the tax imposed by paragraph (1) if--
                    (A) internal revenue taxes have been determined, or 
                customs duties liquidated, with respect to such article 
                before such date pursuant to a request made under the 
                1st proviso of section 3(a) of such Act, or
                    (B) such article is held on such date under the 
                supervision of a customs officer pursuant to the 2d 
                proviso of such section 3(a).
            (8) Other laws applicable.--All provisions of law, 
        including penalties, applicable with respect to the taxes 
        imposed by section 5701 of such Code shall, insofar as 
        applicable and not inconsistent with the provisions of this 
        subsection, apply to the floor stocks taxes imposed by 
        paragraph (1), to the same extent as if such taxes were imposed 
        by such section 5701.

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