I

103D CONGRESS

2D SESSION H. R. 4769

To amend the Internal Revenue Code of 1986 to provide for the treatment

of long-term care insurance, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JULY 14, 1994

Ms. SNOWE introduced the following bill; which was referred jointly to the

Committees on Ways and Means and Energy and Commerce

A BILL

To amend the Internal Revenue Code of 1986 to provide

for the treatment of long-term care insurance, and for

other purposes.

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

3 SECTION 1. TABLE OF CONTENTS.

4 The table of contents of this Act is as follows:

Section 1. Short title; table of contents.

TITLE I—TAX TREATMENT OF LONG-TERM CARE INSURANCE

Sec. 101. Treatment of long-term care insurance or plans.

Sec. 102. Exclusion for benefits provided under long-term care insurance; inclusion of employer-provided coverage.

Sec. 103. Credit for qualified long-term care premiums.

Sec. 104. Qualified long-term services treated as medical care.

Sec. 105. Tax reserve treatment of long-term care insurance contracts.

Sec. 106. Exclusion from gross income for amounts withdrawn from individual

retirement plans or 401(k) plans for long-term care insurance.
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Sec. 107. Tax treatment of accelerated death benefits under life insurance contracts.

Sec. 108. Tax treatment of companies issuing qualified accelerated death benefit riders.

Sec. 109. Qualified long-term care insurance contracts permitted to be offered

in cafeteria plans.

Sec. 110. Effective date.

TITLE II—ESTABLISHMENT OF FEDERAL STANDARDS FOR LONGTERM CARE INSURANCE

Sec. 201. Establishment of Federal standards for long-term care insurance.

TITLE III—DEDUCTION FOR CERTAIN EXPENSES FOR DEPENDENTS WITH ALZHEIMER’S DISEASE OR RELATED ORGANIC

BRAIN DISORDERS

Sec. 301. Deduction allowance for home health care and adult day and respite

care expenses of individuals for dependents with alzheimer’s

disease or related organic brain disorders.

TITLE IV—DEPENDENT CARE CREDIT EXPANDED AND MADE

REFUNDABLE

Sec. 401. Dependent care tax credit expanded and made refundable.

1 TITLE I—TAX TREATMENT OF

2 LONG-TERM CARE INSURANCE

3 SEC. 101. TREATMENT OF LONG-TERM CARE INSURANCE

4 OR PLANS.

5 (a) GENERAL RULE.—Subpart E of part I of sub6 chapter L of chapter 1 of the Internal Revenue Code of

7 1986 is amended by inserting after section 818 the follow8 ing new section:

9 ‘‘SEC. 818A. TREATMENT OF LONG-TERM CARE INSURANCE

10 OR PLANS.

11 ‘‘(a) GENERAL RULE.—For purposes of this title—

12 ‘‘(1) a long-term care insurance contract shall

13 be treated as an accident or health insurance con14 tract,
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1 ‘‘(2) amounts received under such a contract

2 with respect to qualified long-term care services shall

3 be treated as amounts received for personal injuries

4 or sickness, and

5 ‘‘(3) any plan of an employer providing quali6 fied long-term care services shall be treated as an

7 accident or health plan.

8 ‘‘(b) LONG-TERM CARE INSURANCE CONTRACT.—

9 ‘‘(1) IN GENERAL.—For purposes of this part,

10 the term ‘long-term care insurance contract’ means

11 any insurance contract issued if—

12 ‘‘(A) the only insurance protection pro13 vided under such contract is coverage of quali14 fied long-term care services and benefits inci15 dental to such coverage,

16 ‘‘(B) the maximum benefit under the pol17 icy (or certificate for a group long-term care in18 surance policy) for expenses incurred for any

19 day does not exceed $200.00,

20 ‘‘(C) such contract does not cover expenses

21 incurred for services or items to the extent that

22 such expenses are reimbursable under title

23 XVIII of the Social Security Act or would be so

24 reimbursable but for the application of a de25 ductible or coinsurance amount,
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1 ‘‘(D) such contract is guaranteed renew2 able,

3 ‘‘(E) such contract does not have any cash

4 surrender value, and

5 ‘‘(F) all refunds of premiums, and all pol6 icyholder dividends or similar amounts, under

7 such contract are to be applied as a reduction

8 in future premiums or to increase future bene9 fits.

10 ‘‘(2) SPECIAL RULES.—

11 ‘‘(A) CONTRACT MAY COVER MEDICARE

12 REIMBURSABLE EXPENSES WHERE MEDICARE

13 IS SECONDARY PAYOR.—Paragraph (1)(C) shall

14 not apply to expenses which are reimbursable

15 under title XVIII of the Social Security Act

16 only as a secondary payor.

17 ‘‘(B) REFUNDS OF PREMIUMS.—Para18 graph (1)(F) shall not apply to any refund of

19 premiums on surrender or cancellation of the

20 contract.

21 ‘‘(C) PER DIEM, ETC. PAYMENTS PER22 MITTED.—A contract shall not fail to be treated

23 as described in paragraph (1)(A) by reason of

24 payments being made on a per diem or other

25 periodic basis without regard to the expenses
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1 incurred or services rendered during the period

2 to which the payments relate.

3 ‘‘(c) QUALIFIED LONG-TERM CARE SERVICES.—For

4 purposes of this section:

5 ‘‘(1) IN GENERAL.—The term ‘qualified long6 term care services’ means—

7 ‘‘(A) necessary diagnostic, preventive,

8 therapeutic, and rehabilitative services, and

9 maintenance or personal care services, which—

10 ‘‘(i) are required by a chronically ill

11 individual in a qualified facility, and

12 ‘‘(ii) are provided pursuant to a plan

13 of care prescribed by a licensed health care

14 practitioner; or

15 ‘‘(B) payments made on a per diem or

16 other periodic basis without regard to the ex17 penses incurred or services rendered during the

18 period to which the payments relate and which

19 are payable to a chronically ill individual in a

20 qualified facility who is receiving treatment pur21 suant to a plan of care prescribed by a licensed

22 health care practitioner.

23 ‘‘(2) CHRONICALLY ILL INDIVIDUAL.—

24 ‘‘(A) IN GENERAL.—The term ‘chronically

25 ill individual’ means any individual who has
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1 been certified by a licensed health care practi2 tioner as—

3 ‘‘(i)(I) being unable to perform (with4 out substantial assistance from another in5 dividual) at least 2 activities of daily living

6 (as defined in subparagraph (B)) for a pe7 riod of at least 90 days due to a loss of

8 functional capacity, or

9 ‘‘(II) having a level of disability simi10 lar (as determined by the Secretary in con11 sultation with the Secretary of Health and

12 Human Services) to the level of disability

13 described in subclause (I), or

14 ‘‘(ii) having a similar level of disabil15 ity due to cognitive impairment.

16 ‘‘(B) ACTIVITIES OF DAILY LIVING.—For

17 purposes of subparagraph (A), each of the fol18 lowing is an activity of daily living:

19 ‘‘(i) MOBILITY.—The process of walk20 ing or wheeling on a level surface which

21 may include the use of an assistive device

22 such as a cane, walker, wheelchair, or

23 brace.
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1 ‘‘(ii) DRESSING.—The overall complex

2 behavior of getting clothes from closets

3 and drawers and then getting dressed.

4 ‘‘(iii) TOILETING.—The act of going

5 to the toilet room for bowel and bladder

6 function, transferring on and off the toilet,

7 cleaning after elimination, and arranging

8 clothes or the ability to voluntarily control

9 bowel and bladder function, or in the event

10 of incontinence, the ability to maintain a

11 reasonable level of personal hygiene.

12 ‘‘(iv) TRANSFER.—The process of get13 ting in and out of bed or in and out of a

14 chair or wheelchair.

15 ‘‘(v) EATING.—The process of getting

16 food from a plate or its equivalent into the

17 mouth.

18 ‘‘(3) QUALIFIED FACILITY.—The term ‘quali19 fied facility’ means—

20 ‘‘(A) a nursing, rehabilitative, hospice, or

21 adult day care facility (including a hospital, re22 tirement home, nursing home, skilled nursing

23 facility, intermediate care facility, or similar in24 stitution)—
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1 ‘‘(i) which is licensed under State law,

2 or

3 ‘‘(ii) which is a certified facility for

4 purposes of title XVIII or XIX of the So5 cial Security Act, or

6 ‘‘(B) an individual’s home if a licensed

7 health care practitioner certifies that without

8 home care the individual would have to be cared

9 for in a facility described in subparagraph (A).

10 ‘‘(4) MAINTENANCE OR PERSONAL CARE SERV11 ICES.—The term ‘maintenance or personal care serv12 ices’ means any care the primary purpose of which

13 is to provide needed assistance with any of the ac14 tivities of daily living described in paragraph (2)(B).

15 ‘‘(5) LICENSED HEALTH CARE PRACTI16 TIONER.—The term ‘licensed health care practi17 tioner’ means any physician (as defined in section

18 1861(r) of the Social Security Act) and any reg19 istered professional nurse, licensed social worker, or

20 other individual who meets such requirements as

21 may be prescribed by the Secretary.

22 ‘‘(d) CONTINUATION COVERAGE EXCISE TAX NOT

23 TO APPLY.—This section shall not apply in determining

24 whether section 4980B (relating to failure to satisfy con-
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1 tinuation coverage requirements of group health plans) ap2 plies.

3 ‘‘(e) INFLATION ADJUSTMENT OF $200 BENEFIT

4 LIMIT.—

5 ‘‘(1) IN GENERAL.—In the case of a calendar

6 year after 1995, the $200 amount contained in sub7 section (b)(1)(B) shall be increased for such cal8 endar year by the medical care cost adjustment for

9 such calendar year or 5 percent per year, whichever

10 is greater. If any increase determined under the pre11 ceding sentence is not a multiple of $10, such in12 crease shall be rounded to the nearest multiple of

13 $10.

14 ‘‘(2) MEDICAL CARE COST ADJUSTMENT.—For

15 purposes of paragraph (1), the medical care cost ad16 justment for any calendar year is the percentage (if

17 any) by which—

18 ‘‘(A) the medical care component of the

19 Consumer Price Index (as defined in section

20 1(f)(5)) for August of the preceding calendar

21 year, exceeds

22 ‘‘(B) such component for August of 1994.’’

23 (b) CLERICAL AMENDMENT.—The table of sections

24 for such subpart E is amended by inserting after the item

25 relating to section 818 the following new item:

‘‘Sec. 818A. Treatment of long-term care insurance or plans.’’
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1 SEC. 102. EXCLUSION FOR BENEFITS PROVIDED UNDER

2 LONG-TERM CARE INSURANCE; INCLUSION

3 OF EMPLOYER-PROVIDED COVERAGE.

4 (a) IN GENERAL.—Subsection (a) of section 104 of

5 the Internal Revenue Code of 1986 (relating to compensa6 tion for injuries or sickness) is amended by striking ‘‘and’’

7 at the end of paragraph (4), by striking the period at the

8 end of paragraph (5) and inserting ‘‘, and’’, and by insert9 ing after paragraph (4) the following new paragraph:

10 ‘‘(6) benefits under a long-term care insurance

11 contract (as defined in section 818A(b)).’’

12 (b) INCLUSION OF EMPLOYER-PROVIDED COV13 ERAGE.—Section 106 of such Code (relating to contribu14 tions by employer to accident and health plans) is amend15 ed by adding at the end thereof the following sentence:

16 ‘‘The preceding sentence shall not apply to any plan pro17 viding coverage for qualified long-term care services.’’

18 SEC. 103. CREDIT FOR QUALIFIED LONG-TERM CARE PRE19 MIUMS.

20 (a) GENERAL RULE.—Subpart C of part IV of sub21 chapter A of chapter 1 of the Internal Revenue Code of

22 1986 (relating to refundable credits) is amended by redes23 ignating section 35 as section 36 and by inserting after

24 section 34 the following new section:
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1 ‘‘SEC. 35. LONG-TERM CARE INSURANCE CREDIT.

2 ‘‘(a) GENERAL RULE.—In the case of an individual,

3 there shall be allowed as a credit against the tax imposed

4 by this subtitle for the taxable year an amount equal to

5 the applicable percentage of the eligible long-term care

6 premiums paid during such taxable year for such individ7 ual or the spouse of such individual.

8 ‘‘(b) APPLICABLE PERCENTAGE.—

9 ‘‘(1) IN GENERAL.—For purposes of this sec10 tion, the term ‘applicable percentage’ means 31 per11 cent reduced (but not below zero) by 1 percentage

12 point for each $1,000 (or fraction thereof) by which

13 the taxpayer’s adjusted gross income for the taxable

14 year exceeds the base amount.

15 ‘‘(2) BASE AMOUNT.—For purposes of para16 graph (1), the term ‘base amount’ means—

17 ‘‘(A) except as otherwise provided in this

18 paragraph, $25,000,

19 ‘‘(B) $40,000 in the case of joint return,

20 and

21 ‘‘(C) zero in the case of a taxpayer who—

22 ‘‘(i) is married at the close of the tax23 able year (within the meaning of section

24 7703) but does not file a joint return for

25 such taxable year, and
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1 ‘‘(ii) does not live apart from his or

2 her spouse at all times during the taxable

3 year.

4 ‘‘(c) ELIGIBLE LONG-TERM CARE PREMIUMS.—

5 ‘‘(1) IN GENERAL.—For purposes of this sec6 tion, the term ‘eligible long-term care premiums’

7 means the amount paid during a taxable year for

8 any long-term care insurance contract (as defined in

9 section 818A) covering an individual, to the extent

10 such amount does not exceed the limitation deter11 mined under the following table:

‘‘In the case of an individual

with an attained age before the The limitation

close of the taxable year of: is:

40 or less ........................................................................... $200

More than 40 but not more than 50 ................................ 375

More than 50 but not more than 60 ................................ 750

More than 60 but not more than 70 ................................ 1,600

More than 70 .................................................................... 2,000.

12 ‘‘(2) INDEXING.—

13 ‘‘(A) IN GENERAL.—In the case of any

14 taxable year beginning in a calendar year after

15 1995, each dollar amount contained in para16 graph (1) shall be increased by the medical care

17 cost adjustment of such amount for such cal18 endar year. If any increase determined under

19 the preceding sentence is not a multiple of $10,

20 such increase shall be rounded to the nearest

21 multiple of $10.
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1 ‘‘(B) MEDICAL CARE COST ADJUST2 MENT.—For purposes of subparagraph (A), the

3 medical care cost adjustment for any calendar

4 year is the percentage (if any) by which—

5 ‘‘(i) the medical care component of

6 the Consumer Price Index (as defined in

7 section 1(f)(5)) for August of the preced8 ing calendar year, exceeds

9 ‘‘(ii) such component for August of

10 1994.

11 ‘‘(d) COORDINATION WITH MEDICAL EXPENSE DE12 DUCTION.—Any amount allowed as a credit under this

13 section shall not be taken into account under section 213.’’

14 (b) CLERICAL AMENDMENT.—The table of sections

15 for subpart C of part IV of subchapter A of chapter 1

16 of such Code is amended by striking the item relating to

17 section 35 and inserting the following:

‘‘Sec. 35. Long-term care insurance credit.

‘‘Sec. 36. Overpayments of tax.’’

18 SEC. 104. QUALIFIED LONG-TERM SERVICES TREATED AS

19 MEDICAL CARE.

20 (a) GENERAL RULE.—Paragraph (1) of section

21 213(d) of the Internal Revenue Code of 1986 (defining

22 medical care) is amended by striking ‘‘or’’ at the end of

23 subparagraph (B), by redesignating subparagraph (C) as
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1 subparagraph (D), and by inserting after subparagraph

2 (B) the following new subparagraph:

3 ‘‘(C) for qualified long-term care services

4 (as defined in section 818A(c)), or’’

5 (b) DEDUCTION FOR LONG-TERM CARE EXPENSES

6 FOR PARENT OR GRANDPARENT.—Section 213 of such

7 Code (relating to deduction for medical expenses) is

8 amended by adding at the end the following new sub9 section:

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

11 EXPENSES.—For purposes of subsection (a), the term ‘de12 pendent’ shall include any parent or grandparent of the

13 taxpayer for whom the taxpayer has expenses for long14 term care services described in section 818A(c), but only

15 to the extent of such expenses.’’

16 (c) TECHNICAL AMENDMENTS.—

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

18 such Code (as redesignated by subsection (a)) is

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

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

21 (2) Paragraph (1) of section 213(d) of such

22 Code is amended by adding at the end thereof the

23 following new flush sentence:

24 ‘‘In the case of a long-term care insurance contract

25 (as defined in section 818A), only eligible long-term
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1 care premiums (as defined in section 35(c)) shall be

2 taken into account under subparagraph (D).’’

3 (3) Paragraph (6) of section 213(d) of such

4 Code is amended—

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

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

7 and (C)’’, and

8 (B) by striking ‘‘paragraph (1)(C)’’ in sub9 paragraph (A) and inserting ‘‘paragraph

10 (1)(D)’’.

11 (4) Paragraph (7) of section 213(d) of such

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

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

14 and (C)’’.

15 SEC. 105. TAX RESERVE TREATMENT OF LONG-TERM CARE

16 INSURANCE CONTRACTS.

17 (a) IN GENERAL.—Subparagraph (A) of section

18 807(d)(3) of the Internal Revenue Code of 1986 (relating

19 to tax reserve method) is amended—

20 (1) by redesignating clause (iv) as clause (v),

21 (2) by striking ‘‘or (iii)’’ each place it appears

22 in clause (v) (as so redesignated) and inserting

23 ‘‘(iii), or (iv), and

24 (3) by inserting after clause (iii) the following

25 new clause:
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1 ‘‘(iv) LONG-TERM CARE INSURANCE

2 CONTRACTS.—In the case of any long-term

3 care insurance contract, a one-year full

4 preliminary term method.’’

5 (b) TECHNICAL AMENDMENT.—Clause (iii) of section

6 807(d)(3)(A) of such Code is amended by inserting ‘‘other

7 than a long-term care insurance contract,’’ after ‘‘con8 tract,’’.

9 SEC. 106. EXCLUSION FROM GROSS INCOME FOR AMOUNTS

10 WITHDRAWN FROM INDIVIDUAL RETIRE11 MENT PLANS OR 401(k) PLANS FOR LONG12 TERM CARE INSURANCE.

13 (a) IN GENERAL.—Part III of subchapter B of chap14 ter 1 of the Internal Revenue Code of 1986 (relating to

15 items specifically excluded from gross income) is amended

16 by redesignating section 137 as section 138 and by insert17 ing after section 136 the following new section:

18 ‘‘SEC. 137. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT

19 ACCOUNTS AND SECTION 401(k) PLANS FOR

20 LONG-TERM CARE INSURANCE.

21 ‘‘(a) GENERAL RULE.—The amount includible in the

22 gross income of an individual for the taxable year by rea23 son of qualified distributions during such taxable year

24 shall not exceed the excess of—
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1 ‘‘(1) the amount which would (but for this sec2 tion) be so includible by reason of such distributions,

3 over

4 ‘‘(2) the aggregate premiums paid by such indi5 vidual during such taxable year for any long-term

6 care insurance contract (as defined in section 818A)

7 for the benefit of such individual or the spouse of

8 such individual.

9 ‘‘(b) QUALIFIED DISTRIBUTION.—For purposes of

10 this section, the term ‘qualified distribution’ means any

11 distribution to an individual from an individual retirement

12 account or a section 401(k) plan if such individual has

attained age 591 13 ⁄2 on or before the date of the distribution

14 (and, in the case of a distribution used to pay premiums

15 for the benefit of the spouse of such individual, such

spouse has attained age 591 16 ⁄2 on or before the date of the

17 distribution).

18 ‘‘(c) DEFINITIONS.—For purposes of this section:

19 ‘‘(1) INDIVIDUAL RETIREMENT ACCOUNT.—The

20 term ‘individual retirement account’ has the mean21 ing given such term by section 408(a).

22 ‘‘(2) SECTION 401(k) PLAN.—The term ‘section

23 401(k) plan’ means any employer plan which meets

24 the requirements of section 401(a) and which in-
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1 cludes a qualified cash or deferred arrangement (as

2 defined in section 401(k)).

3 ‘‘(d) SPECIAL RULES FOR SECTION 401(k) PLANS.—

4 ‘‘(1) WITHDRAWALS CANNOT EXCEED ELEC5 TIVE CONTRIBUTIONS UNDER QUALIFIED CASH OR

6 DEFERRED ARRANGEMENT.—This section shall not

7 apply to any distribution from a section 401(k) plan

8 to the extent the aggregate amount of such distribu9 tions for the use described in subsection (a) exceeds

10 the aggregate employer contributions made pursuant

11 to the employee’s election under section 401(k)(2).

12 ‘‘(2) WITHDRAWALS NOT TO CAUSE DISQUALI13 FICATION.—A plan shall not be treated as failing to

14 satisfy the requirements of section 401, and an ar15 rangement shall not be treated as failing to be a

16 qualified cash or deferred arrangement (as defined

17 in section 401(k)(2)), merely because under the plan

18 or arrangement distributions are permitted which

19 are excludable from gross income by reason of this

20 section.’’

21 (b) CONFORMING AMENDMENTS.—

22 (1) Section 401(k) of such Code is amended by

23 adding at the end the following new paragraph:
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1 ‘‘(11) CROSS REFERENCE.—

‘‘For provision permitting tax-free withdrawals

for payment of long-term care premiums, see section

137.’’

2 (2) Section 408(d) of such Code is amended by

3 adding at the end the following new paragraph:

4 ‘‘(8) CROSS REFERENCE.—

‘‘For provision permitting tax-free withdrawals

from individual retirement accounts for payment of

long-term care premiums, see section 137.’’

5 (3) The table of sections for such part III is

6 amended by striking the last item and inserting the

7 following new items:

‘‘Sec. 137. Distributions from individual retirement accounts and

section 401(k) plans for long-term care insurance.

‘‘Sec. 138. Cross references to other Acts.’’

8 SEC. 107. TAX TREATMENT OF ACCELERATED DEATH BENE9 FITS UNDER LIFE INSURANCE CONTRACTS.

10 Section 101 of the Internal Revenue Code of 1986

11 (relating to certain death benefits) is amended by adding

12 at the end thereof the following new subsection:

13 ‘‘(g) TREATMENT OF CERTAIN ACCELERATED

14 DEATH BENEFITS.—

15 ‘‘(1) IN GENERAL.—For purposes of this sec16 tion, any amount paid or advanced to an individual

17 under a life insurance contract on the life of an in18 sured—

19 ‘‘(A) who is a terminally ill individual, or
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1 ‘‘(B) who is a chronically ill individual (as

2 defined in section 818A(c)(2)) who is confined

3 to a qualified facility (as defined in section

4 818A(c)(3)(A)),

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

6 death of such insured.

7 ‘‘(2) TERMINALLY ILL INDIVIDUAL.—For pur8 poses of this subsection, the term ‘terminally ill indi9 vidual’ means an individual who has been certified

10 by a physician as having an illness or physical condi11 tion which can reasonably be expected to result in

12 death in 12 months or fewer.

13 ‘‘(3) PHYSICIAN.—For purposes of this sub14 section, the term ‘physician’ has the meaning given

15 to such term by section 213(d)(4).’’

16 SEC. 108. TAX TREATMENT OF COMPANIES ISSUING QUALI17 FIED ACCELERATED DEATH BENEFIT RID18 ERS.

19 (a) QUALIFIED ACCELERATED DEATH BENEFIT RID20 ERS TREATED AS LIFE INSURANCE.—Section 818 of the

21 Internal Revenue Code of 1986 (relating to other defini22 tions and special rules) is amended by adding at the end

23 thereof the following new subsection:
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1 ‘‘(g) QUALIFIED ACCELERATED DEATH BENEFIT

2 RIDERS TREATED AS LIFE INSURANCE.—For purposes of

3 this part:

4 ‘‘(1) IN GENERAL.—Any reference to a life in5 surance contract shall be treated as including a ref6 erence to a qualified accelerated death benefit rider

7 on such contract.

8 ‘‘(2) QUALIFIED ACCELERATED DEATH BENE9 FIT RIDERS.—For purposes of this subsection, the

10 term ‘qualified accelerated death benefit rider’

11 means any rider or addendum on, or other provision

12 of a life insurance contract which provides for pay13 ments to an individual on the life of an insured upon

14 such insured—

15 ‘‘(A) becoming a terminally ill individual

16 (as defined in section 101(g)(2)), or

17 ‘‘(B) becoming a chronically ill individual

18 (as defined in section 818A(c)(2)) who is con19 fined to a qualified facility (as defined in sec20 tion 818A(c)(3)(A)).’’

21 (b) DEFINITIONS OF LIFE INSURANCE AND MODI22 FIED ENDOWMENT CONTRACTS.—

23 (1) RIDER TREATED AS QUALIFIED ADDI24 TIONAL BENEFIT.—Paragraph (5)(A) of section

25 7702(f) of such Code is amended by striking ‘‘or’’
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1 at the end of clause (iv), by redesignating clause (v)

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

3 following new clause:

4 ‘‘(v) any qualified accelerated death

5 benefit rider (as defined in section

6 818(g)(2)) or any long-term care insurance

7 contract rider which reduces the death

8 benefit, or’’.

9 (2) TRANSITIONAL RULE.—For purposes of ap10 plying section 7702 or 7702A of the Internal Reve11 nue Code of 1986 to any contract (or determining

12 whether either such section applies to such con13 tract), the issuance of a rider or addendum on, or

14 other provision of, a life insurance contract permit15 ting the acceleration of death benefits (as described

16 in section 101(g) of such Code) or payments for

17 qualified long-term care services (as defined in sec18 tion 818A of such Code) shall not be treated as a

19 modification or material change of such contract.

20 SEC. 109. QUALIFIED LONG-TERM CARE INSURANCE CON21 TRACTS PERMITTED TO BE OFFERED IN CAF22 ETERIA PLANS.

23 (a) IN GENERAL.—Paragraph (2) of section 125(d)

24 of the Internal Revenue Code of 1986 (relating to exclu-
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1 sion of deferred compensation) is amended by adding at

2 the end thereof the following new subparagraph:

3 ‘‘(D) EXCEPTION FOR LONG-TERM CARE

4 INSURANCE CONTRACTS.—For purposes of sub5 paragraph (A), a plan shall not be treated as

6 providing deferred compensation by reason of

7 providing any long-term care insurance contract

8 (as defined in section 818A(b)) if—

9 ‘‘(i) the employee may elect to con10 tinue the insurance upon cessation of par11 ticipation in the plan, and

12 ‘‘(ii) the amount paid or incurred dur13 ing any taxable year for such insurance

14 does not exceed the premium which would

15 have been payable for such year under a

16 level premium structure.’’

17 SEC. 110. EFFECTIVE DATE.

18 The amendments made by this title shall apply to tax19 able years beginning after December 31, 1994.
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1 TITLE II—ESTABLISHMENT OF

2 FEDERAL STANDARDS FOR

3 LONG-TERM CARE INSUR4 ANCE

5 SEC. 201. ESTABLISHMENT OF FEDERAL STANDARDS FOR

6 LONG-TERM CARE INSURANCE.

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

8 amended—

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

10 300cc et seq.) as title XXVIII; and

11 (2) by inserting after title XXVI the following

12 new title:

13 ‘‘TITLE XXVII—LONG-TERM CARE

14 INSURANCE STANDARDS

15 ‘‘PART A—PROMULGATION OF STANDARDS AND MODEL

16 BENEFITS

17 ‘‘SEC. 2701. STANDARDS.

18 ‘‘(a) APPLICATION OF STANDARDS.—

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

20 the National Association of Insurance Commis21 sioners (hereinafter in this title referred to as the

22 ‘NAIC’)—

23 ‘‘(A) develop specific standards that incor24 porate the requirements of this title; and
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1 ‘‘(B) report to the Secretary on such

2 standards,

3 by not later than 12 months after enactment of this

4 title. If the NAIC develops such model standards

5 that incorporate the requirements of this title within

6 such period and the Secretary finds that such stand7 ards implement the requirements of this title, such

8 standards shall be the standards applied under this

9 title.

10 ‘‘(2) DEFAULT.—If the NAIC does not promul11 gate the model standards under paragraph (1) by

12 the deadline established in that paragraph, the Sec13 retary shall promulgate, within 12 months after such

14 deadline, a regulation that provides standards that

15 incorporate the requirements of this title and such

16 standards shall apply as provided for in this title.

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

18 this title shall be construed as preventing a State

19 from applying standards that provide greater protec20 tion to policyholders of long-term care insurance

21 policies than the standards promulgated under this

22 title, except that such State standards may not be

23 inconsistent or in conflict with any of the require24 ments of this title.
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1 ‘‘(b) DEADLINE FOR APPLICATION OF STAND2 ARDS.—

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

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

5 ‘‘(A) the date the State adopts the stand6 ards established under subsection (a)(1); or

7 ‘‘(B) the date that is 1 year after the first

8 day of the first regular legislative session that

9 begins after the date such standards are first

10 established under subsection (a)(2);

11 whichever is earlier.

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

13 case of a State which the Secretary identifies, in

14 consultation with the NAIC, as—

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

16 legislation appropriating funds) in order for the

17 standards established under subsection (a) to be

18 applied; but

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

20 scheduled to meet within 1 year following the

21 beginning of the next regular legislative session

22 in which such legislation may be considered;

23 the date specified in this subsection is the first day

24 of the first calendar quarter beginning after the

25 close of the first legislative session of the State legis-
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1 lature that begins on or after January 1, 1994. For

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

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

4 of such session shall be deemed to be a separate reg5 ular session of the State legislature.

6 ‘‘(c) ITEMS INCLUDED IN STANDARDS.—The stand7 ards promulgated under subsection (a) shall include—

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

9 care insurance consistent with the provisions of this

10 title;

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

12 consumers with long-term care insurance;

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

14 standards established under paragraph (1) in a

15 manner consistent with future laws to expand exist16 ing Federal or State long-term care benefits or es17 tablish a comprehensive Federal or State long-term

18 care benefit program; and

19 ‘‘(4) other activities determined appropriate by

20 Congress.

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

22 models of benefits under this section, the Secretary shall

23 provide for and consult with an advisory committee to be

24 chosen by the Secretary, and composed of—
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•HR 4769 IH

1 ‘‘(1) three individuals who are representatives

2 of carriers;

3 ‘‘(2) three individuals who are representatives

4 of consumer groups;

5 ‘‘(3) three individuals who are representatives

6 of providers of long-term care services;

7 ‘‘(4) three other individuals who are not rep8 resentatives of carriers or of providers of long-term

9 care services and who have expertise in the delivery

10 and financing of such services; and

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

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

13 under subsection (d) shall—

14 ‘‘(1) recommend the appropriate inflationary

15 index to be used with respect to the inflation protec16 tion benefit portion of the standards;

17 ‘‘(2) recommend the uniform needs assessment

18 mechanism to be used in determining the eligibility

19 of individuals for benefits under a policy;

20 ‘‘(3) recommend appropriate standards for ben21 efits under section 2715(c); and

22 ‘‘(4) perform such other activities as deter23 mined appropriate by the Secretary.

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

25 provisions of section 1886(e)(6) of the Social Security Act
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1 shall apply to the advisory committee chosen under sub2 section (d) in the same manner as such provisions apply

3 under such section:

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

5 administration).

6 ‘‘(2) Subparagraph (D) (relating to compensa7 tion of members).

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

9 information).

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

11 funds).

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

13 GAO audits).

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

15 appropriations).

16 ‘‘PART B—ESTABLISHMENT AND IMPLEMENTATION OF

17 LONG-TERM CARE INSURANCE POLICY STANDARDS

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

19 ‘‘(a) IN GENERAL.—

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

21 care policy (as defined in section (2721)) may be is22 sued, sold, or offered for sale as a long-term care in23 surance policy in a State on or after the date speci24 fied in section 2701(b) unless—
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•HR 4769 IH

1 ‘‘(A) the Secretary determines that the

2 State has established a regulatory program

3 that—

4 ‘‘(i) provides for the application and

5 enforcement of the standards established

6 under section 2701(a); and

7 ‘‘(ii) complies with the requirements

8 of subsection (b);

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

10 the policy has been approved by the State com11 missioner or superintendent of insurance under

12 such program; or

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

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

15 has been decertified, the policy has been cer16 tified by the Secretary (in accordance with such

17 procedures as the Secretary may establish) as

18 meeting the standards established under section

19 2701(a) by the date specified in section

20 2701(b).

21 For purposes of this subsection, the advertising or

22 soliciting with respect to a policy, directly or indi23 rectly, shall be deemed the offering for sale of the

24 policy.
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1 ‘‘(2) REVIEW OF STATE REGULATORY PRO2 GRAMS.—The Secretary periodically shall review reg3 ulatory programs described in paragraph (1)(A) to

4 determine if they continue to provide for the applica5 tion and enforcement of the standards and proce6 dures established under section 2701 (a) and (b). If

7 the Secretary determines that a State regulatory

8 program no longer meets such standards and re9 quirements, before making a final determination, the

10 Secretary shall provide the State an opportunity to

11 adopt such a plan of correction as would permit the

12 program to continue to meet such standards and re13 quirements. If the Secretary makes a final deter14 mination that the State regulatory program, after

15 such an opportunity, fails to meet such standards

16 and requirements, the Secretary shall assume re17 sponsibility under paragraph (1)(B) with respect to

18 certifying policies in the State and shall exercise full

19 authority under section 2701 for carriers, agents, or

20 associations or its subsidiary in the State plans in

21 the State.

22 ‘‘(b) ADDITIONAL REQUIREMENTS FOR APPROVAL

23 OF STATE REGULATORY PROGRAMS.—For purposes of

24 subsection (a)(1)(A)(ii), the requirements of this sub25 section for a State regulatory program are as follows:
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•HR 4769 IH

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

2 the program—

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

4 to secure compliance with the standards within

5 30 days after the date of a finding of non6 compliance with such standards; and

7 ‘‘(B) shall provide for notice in the annual

8 report required under paragraph (5) to the Sec9 retary of cases where such compliance is not se10 cured within such 30-day period.

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

12 under each State regulatory program shall provide

13 for—

14 ‘‘(A) procedures for individuals and enti15 ties to file written, signed complaints respecting

16 alleged violations of the standards;

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

18 complaints;

19 ‘‘(C) the investigation of—

20 ‘‘(i) those complaints which have a

21 reasonable probability of validity, and

22 ‘‘(ii) such other alleged violations of

23 the standards as the program finds appro24 priate; and
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•HR 4769 IH

1 ‘‘(D) the imposition of appropriate sanc2 tions (which include, in appropriate cases, the

3 imposition of a civil money penalty as provided

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

5 agent, or association or its subsidiary deter6 mined to have violated the standards.

7 ‘‘(3) CONSUMER ACCESS TO COMPLIANCE IN8 FORMATION.—

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

10 program must provide for consumer access to

11 complaints filed with the State commissioner or

12 superintendent of insurance with respect to

13 long-term care insurance policies.

14 ‘‘(B) CONFIDENTIALITY.—The access pro15 vided under subparagraph (A) shall be limited

16 to the extent required to protect the confiden17 tiality of the identity of individual policyholders.

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

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

20 program shall—

21 ‘‘(i) provide for a process for approv22 ing or disapproving proposed premium in23 creases or decreases with respect to long24 term care insurance policies; and
34

•HR 4769 IH

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

2 consideration of public comments before

3 approving such a premium increase or de4 crease.

5 ‘‘(B) CONDITIONS FOR APPROVAL.—No

6 premium increase shall be approved (or deemed

7 approved) under subparagraph (A) unless the

8 proposed increase is accompanied by an actuar9 ial memorandum which—

10 ‘‘(i) includes a description of the as11 sumptions that justify the increase;

12 ‘‘(ii) contains such information as

13 may be required under the Standards; and

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

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

16 subparagraph (D), this paragraph shall not

17 apply to a group long-term care insurance pol18 icy issued to a group described in section

19 4(E)(1) of the NAIC Long Term Care Insur20 ance Model Act (effective January 1991), ex21 cept that such group policy shall, pursuant to

22 guidelines developed by the NAIC, provide no23 tice to policyholders and certificate holders of

24 any premium change under such group policy.
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1 ‘‘(D) EXCEPTION.—Subparagraph (C)

2 shall not apply to—

3 ‘‘(i) group conversion policies;

4 ‘‘(ii) the group continuation feature of

5 a group policy if the insurer separately

6 rates employee and continuation coverages;

7 and

8 ‘‘(iii) group policies where the func9 tion of the employer is limited solely to col10 lecting premiums (through payroll deduc11 tions or dues checkoff) and remitting them

12 to the insurer.

13 ‘‘(E) CONSTRUCTION.—Nothing in this

14 paragraph shall be construed as preventing the

15 NAIC from promulgating standards, or a State

16 from enacting and enforcing laws, with respect

17 to premium rates or loss ratios for all, including

18 group, long-term care insurance policies.

19 ‘‘(5) ANNUAL REPORTS.—Each State regu20 latory program shall provide for annual reports to be

21 submitted to the Secretary on the implementation

22 and enforcement of the standards in the State, in23 cluding information concerning violations in excess

24 of 30 days.
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1 ‘‘(6) ACCESS TO OTHER INFORMATION.—The

2 State regulatory program must provide for consumer

3 access to actuarial memoranda provided under para4 graph (4).

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

6 a regulatory program approved under subsection (a),

7 the Secretary shall provide for the enforcement ac8 tivities described in subsection (c).

9 ‘‘(c) SECRETARIAL ENFORCEMENT AUTHORITY.—

10 ‘‘(1) IN GENERAL.—The Secretary shall exer11 cise authority under this section in the case of a

12 State that does not have a regulatory program ap13 proved under this section.

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

15 Secretary shall establish procedures—

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

17 written, signed complaints respecting alleged

18 violations of the requirements of this title;

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

20 such complaints; and

21 ‘‘(C) for the investigation of—

22 ‘‘(i) those complaints that have a rea23 sonable probability of validity; and
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•HR 4769 IH

1 ‘‘(ii) such other alleged violations of

2 the requirements of this title as the Sec3 retary determines to be appropriate.

4 In conducting investigations under this subsection,

5 agents of the Secretary shall have reasonable access

6 necessary to enable such agents to examine evidence

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

8 being investigated.

9 ‘‘(3) HEARINGS.—

10 ‘‘(A) IN GENERAL.—Prior to imposing an

11 order described in paragraph (4) against a car12 rier, agent, or association or its subsidiary

13 under this section for a violation of the require14 ments of this title, the Secretary shall provide

15 the carrier, agent, association or subsidiary

16 with notice and, upon request made within a

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

18 established by the Secretary by regulation) of

19 the date of the notice, a hearing respecting the

20 violation.

21 ‘‘(B) CONDUCT OF HEARING.—Any hear22 ing requested under subparagraph (A) shall be

23 conducted before an administrative law judge.

24 If no hearing is so requested, the Secretary’s
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•HR 4769 IH

1 imposition of the order shall constitute a final

2 and unappealable order.

3 ‘‘(C) AUTHORITY IN HEARINGS.—In con4 ducting hearings under this paragraph—

5 ‘‘(i) agents of the Secretary and ad6 ministrative law judges shall have reason7 able access necessary to enable such agents

8 and judges to examine evidence of any car9 rier, agent, or association or its subsidiary

10 being investigated; and

11 ‘‘(ii) administrative law judges may, if

12 necessary, compel by subpoena the attend13 ance of witnesses and the production of

14 evidence at any designated place or hear15 ing.

16 In case of contumacy or refusal to obey a sub17 poena lawfully issued under this subparagraph

18 and upon application of the Secretary, an ap19 propriate district court of the United States

20 may issue an order requiring compliance with

21 such subpoena and any failure to obey such

22 order may be punished by such court as a con23 tempt thereof.

24 ‘‘(D) ISSUANCE OF ORDERS.—If an admin25 istrative law judge determines in a hearing
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•HR 4769 IH

1 under this paragraph, upon the preponderance

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

3 or association or its subsidiary named in the

4 complaint has violated the requirements of this

5 title, the administrative law judge shall state

6 the findings of fact and issue and cause to be

7 served on such carrier, agent, association, or

8 subsidiary an order described in paragraph (4).

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

10 MONEY PENALTY.—

11 ‘‘(A) IN GENERAL.—Subject to the provi12 sions of subparagraphs (B) through (F), an

13 order under this paragraph—

14 ‘‘(i) shall require the agent, associa15 tion or its subsidiary, or a carrier—

16 ‘‘(I) to cease and desist from

17 such violations; and

18 ‘‘(II) to pay a civil penalty in an

19 amount not to exceed $15,000 in the

20 case of each agent, and not to exceed

21 $25,000 for each association or its

22 subsidiary or a carrier for each such

23 violation; and

24 ‘‘(ii) may require the agent, associa25 tion or its subsidiary, or a carrier to take
40

•HR 4769 IH

1 such other remedial action as is appro2 priate.

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

4 order shall be imposed under this paragraph by

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

6 association or its subsidiary establishes to the

7 satisfaction of the Secretary that—

8 ‘‘(i) such violation was due to reason9 able cause and was not intentional and was

10 not due to willful neglect; and

11 ‘‘(ii) such violation is corrected within

12 the 30-day period beginning on the earliest

13 date the carrier, agent, association, or sub14 sidiary knew, or exercising reasonable dili15 gence could have known, that such a viola16 tion was occurring.

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

18 of a violation under this title that is due to rea19 sonable cause and not to willful neglect, the

20 Secretary may waive part or all of the civil

21 money penalty imposed under subparagraph

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

23 penalty would be grossly excessive relative to

24 the violation involved and to the need for deter25 rence of violations.
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1 ‘‘(D) ADMINISTRATIVE APPELLATE RE2 VIEW.—The decision and order of an adminis3 trative law judge under this paragraph shall be4 come the final agency decision and order of the

5 Secretary unless, within 30 days, the Secretary

6 modifies or vacates the decision and order, in

7 which case the decision and order of the Sec8 retary shall become a final order under this

9 paragraph.

10 ‘‘(E) JUDICIAL REVIEW.—A carrier, agent,

11 or association or its subsidiary or any other in12 dividual adversely affected by a final order is13 sued under this paragraph may, within 45 days

14 after the date the final order is issued, file a pe15 tition in the Court of Appeals for the appro16 priate circuit for review of the order.

17 ‘‘(F) ENFORCEMENT OF ORDERS.—If a

18 carrier, agent, or association or its subsidiary

19 fails to comply with a final order issued under

20 this paragraph against the carrier, agent, asso21 ciation or subsidiary after opportunity for judi22 cial review under subparagraph (E), the Sec23 retary shall file a suit to seek compliance with

24 the order in any appropriate district court of

25 the United States. In any such suit, the validity
42

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1 and appropriateness of the final order shall not

2 be subject to review.

3 ‘‘(d) DEMONSTRATION GRANT PROGRAM.—

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

5 grants to States for the establishment of demonstra6 tion programs to improve the enforcement within

7 such States of long-term care insurance standards

8 applicable under this title.

9 ‘‘(2) APPLICATION.—To be eligible to receive a

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

11 and submit to the Secretary an application at such

12 time, in such manner, and containing such informa13 tion as the Secretary may require, including a de14 scription of the program for which the State intends

15 to use the amounts provided under the grant.

16 ‘‘(3) MINIMUM AMOUNT OF GRANTS.—The

17 amount of a grant awarded under this subsection

18 shall not be less than $100,000.

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

20 grant under this subsection shall comply with such

21 evaluation procedures as the Secretary shall by regu22 lation establish. The Secretary shall utilize such

23 evaluations to conduct an overall evaluation of the

24 results of the demonstration programs established

25 under this section.
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1 ‘‘(5) AUTHORIZATION OF APPROPRIATIONS.—

2 There are authorized to be appropriated to carry out

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

4 years 1993 through 1997.

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

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

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

8 section 2733) or association that is selling or offer9 ing for sale a long-term care insurance policy has

10 the duty of good faith and fair dealing to the pur11 chaser or potential purchaser of such a policy.

12 ‘‘(2) PROHIBITED PRACTICES.—An agent or as13 sociation is considered to have violated paragraph

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

15 following practices:

16 ‘‘(A) TWISTING.—

17 ‘‘(i) IN GENERAL.—Knowingly making

18 any misleading representation (including

19 the inaccurate completion of medical his20 tories) or incomplete or fraudulent com21 parison of any long-term care insurance

22 policy or insurers for the purpose of induc23 ing, or tending to induce, any person to re24 tain or effect a change with respect to a

25 long-term care insurance policy.
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•HR 4769 IH

1 ‘‘(ii) POLICY REPLACEMENT FORM.—

2 With respect to any person who elects to

3 replace or effect a change in a long-term

4 care insurance policy, the individual that is

5 selling such policy shall ensure that such

6 person completes a policy replacement

7 form developed by the NAIC. A copy of

8 such form shall be provided to such person

9 and additional copies shall be delivered by

10 the selling individual to the old policy is11 suer and the new issuer and kept on file

12 for inspection by the State regulatory

13 agency.

14 ‘‘(B) HIGH PRESSURE TACTICS.—Employ15 ing any method of marketing having the effect

16 of, or intending to, induce the purchase of long17 term care insurance policy through force, fright,

18 threat or undue pressure, whether explicit or

19 implicit.

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

21 use directly or indirectly of any method of mar22 keting which fails to disclose in a conspicuous

23 manner that a purpose of the method of mar24 keting is solicitation of insurance and that con-
45

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1 tact will be made by an insurance agent or in2 surance company.

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

4 practices determined inappropriate under guide5 lines issued by the NAIC.

6 ‘‘(b) FINANCIAL STANDARDS.—The NAIC shall de7 velop recommended financial minimum standards (includ8 ing both income and asset criteria) for the purpose of ad9 vising individuals considering the purchase of a long-term

10 care insurance policy.

11 ‘‘(c) PROHIBITION OF SALE OR ISSUANCE TO MEDIC12 AID BENEFICIARIES.—An agent, an association, or a car13 rier may not knowingly sell or issue a long-term care in14 surance policy to an individual who is eligible for medical

15 assistance under title XIX of the Social Security Act.

16 ‘‘(d) PROHIBITION OF SALE OR ISSUANCE OF DUPLI17 CATE SERVICE BENEFIT POLICIES.—An agent, associa18 tion or its subsidiary, or a carrier may not sell or issue

19 a service-benefit long-term care insurance policy to an in20 dividual—

21 ‘‘(1) knowing that the policy provides for cov22 erage that duplicates coverage already provided in

23 another service-benefit long-term care insurance pol24 icy held by such individual (unless the policy is in25 tended to replace such other policy); or
46

•HR 4769 IH

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

2 individual (or a representative of the individual) pro3 vides a written statement to the effect that the cov4 erage—

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

6 effect under a service-benefit long-term care in7 surance policy; or

8 ‘‘(B) will replace another service-benefit

9 long-term care insurance policy.

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

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

12 which provides for benefits based on the type and amount

13 of services furnished.

14 ‘‘(e) PROHIBITION BASED ON ELIGIBILITY FOR

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

16 long-term care insurance policy that reduces, limits or co17 ordinates the benefits provided under the policy on the

18 basis that the policyholder has or is eligible for other long19 term care insurance coverage or benefits.

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

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

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

23 a certificate under a group long-term care insurance pol24 icy) without providing to the purchaser or potential pur25 chaser (or representative) an outline of coverage that com-
47

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1 plies with the standards established under section

2 2701(a).

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

4 sale, or issues a long-term care insurance policy in viola5 tion of this section may be imprisoned not more than 5

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

7 Code, and, in addition, is subject to a civil money penalty

8 of not to exceed $15,000 for each such violation. Any asso9 ciation or its subsidiary or carrier that sells, offers for

10 sale, or issues a long-term care insurance policy in viola11 tion of this section may be fined in accordance with title

12 18, United States Code, and in addition, is subject to a

13 civil money penalty of not to exceed $25,000 for each vio14 lation.

15 ‘‘(h) AGENT TRAINING AND CERTIFICATION RE16 QUIREMENTS.—The NAIC shall establish requirements

17 for long-term care insurance agent training and certifi18 cation that—

19 ‘‘(1) specify requirements for training insurance

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

21 care insurance policies; and

22 ‘‘(2) specify procedures for certifying agents

23 who have completed such training and who are as

24 qualified to sell or offer for sale long-term care in25 surance policies.
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1 ‘‘SEC. 2713. ADDITIONAL RESPONSIBILITIES FOR CAR2 RIERS.

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

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

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

6 or an applicant returns a policy or certificate within 30

7 days of the date of its issuance pursuant to subsection

8 2717, the carrier shall refund directly to the applicant,

9 or in the case of an employer to whomever remits the pre10 mium, and not by delivery by the agent, not later than

11 30 days after the date of the denial or return, any pre12 miums paid with respect to such a policy (or certificate).

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

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

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

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

17 group plan the employer, the policy (or certificate) of in18 surance not later than 30 days after the date of the ap19 proval.

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

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

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

23 request by the policyholder or certificate holder (or rep24 resentative)—

25 ‘‘(1) provide a written explanation of the rea26 sons for the denial; and
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•HR 4769 IH

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

2 records directly relating to such denial.

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

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

5 a failure to disclose a condition at the time of issuance

6 of the policy if the application for the policy failed to re7 quest information respecting the condition.

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

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

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

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

12 Commissioner, superintendent or director of insurance of

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

14 available to the Secretary, upon request, information in

15 a form and manner determined by the NAIC concerning—

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

17 carrier that are in force;

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

19 and the premiums imposed for such policies since

20 their initial issuance;

21 ‘‘(3) the lapse rate, replacement rate, and re22 scission rates by policy;

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

24 that—
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•HR 4769 IH

1 ‘‘(A) have the greatest lapse and replace2 ment rate; and

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

4 long-term care insurance sales in the previous

5 year; and

6 ‘‘(5) the claims denied (expressed as a number

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

8 Information required under this subsection shall be re9 ported in a format specified in the standards established

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

11 there shall be included (but reported separately) data con12 cerning lapses due to the death of the policyholder. For

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

14 a claim any claim that is denied solely because of the fail15 ure to meet a deductible, waiting period, or exclusionary

16 period.

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

18 AND BASIS FOR CANCELLATION OF POLICIES.

19 ‘‘(a) IN GENERAL.—No long-term care insurance pol20 icy may be canceled or nonrenewed for any reason other

21 than nonpayment of premium, material misrepresentation

22 or fraud.

23 ‘‘(b) CONTINUATION AND CONVERSION RIGHTS FOR

24 GROUP POLICIES.—
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1 ‘‘(1) IN GENERAL.—Each group long-term care

2 insurance policy shall provide covered individuals

3 with a basis for continuation or conversion in ac4 cordance with this subsection.

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

6 of paragraph (1), a policy provides a basis for con7 tinuation of coverage if the policy maintains cov8 erage under the existing group policy when such cov9 erage would otherwise terminate and which is sub10 ject only to the continued timely payment of pre11 mium when due. A group policy which restricts pro12 vision of benefits and services to or contains incen13 tives to use certain providers or facility, may provide

14 continuation benefits which are substantially equiva15 lent to the benefits of the existing group policy.

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

17 paragraph (1), a policy provides a basis for conver18 sion of coverage if the policy entitles each individ19 ual—

20 ‘‘(A) whose coverage under the group pol21 icy would otherwise be terminated for any rea22 son; and

23 ‘‘(B) who has been continuously insured

24 under the policy (or group policy which was re-
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•HR 4769 IH

1 placed) for at least 6 months before the date of

2 the termination;

3 to issuance of a policy providing benefits identical to,

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

5 the policy being terminated, without evidence of in6 surability.

7 ‘‘(4) TREATMENT OF SUBSTANTIAL EQUIVA8 LENCE.—In determining under this subsection

9 whether benefits are substantially equivalent, consid10 eration should be given to the difference between

11 managed care and non-managed care plans.

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

13 group long-term care insurance policy is replaced by

14 another long-term care insurance policy purchased

15 by the same policyholder, the succeeding issuer shall

16 offer coverage to all persons covered under the old

17 group policy on its date of termination. Coverage

18 under the new group policy shall not result in any

19 exclusion for preexisting conditions that would have

20 been covered under the group policy being replaced.

21 ‘‘(c) STANDARDS FOR ISSUANCE.—

22 ‘‘(1) IN GENERAL.—

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

24 or carrier that sells or issues long-term care in25 surance policies shall guarantee that such poli-
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•HR 4769 IH

1 cies shall be sold or issued to an individual, or

2 eligible individual in the case of a group plan,

3 if such individual meets the minimum medical

4 underwriting requirements of such policy.

5 ‘‘(B) PREMIUM FOR CONVERTED POL6 ICY.—If a group policy from which conversion

7 is made is a replacement for a previous group

8 policy, the premium for the converted policy

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

10 age at the inception of coverage under the

11 group policy from which conversion is made.

12 Where the group policy from which conversion

13 is made replaced previous group coverage, the

14 premium for the converted policy shall be cal15 culated on the basis of the insured’s age at in16 ception of coverage under the group policy re17 placed.

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

19 NAIC shall establish standards, including those pro20 viding guidance on medical underwriting and age

21 rating, with respect to the access of individuals to

22 policies offering upgraded benefits.

23 ‘‘(d) EFFECT OF INCAPACITATION.—

24 ‘‘(1) IN GENERAL.—
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1 ‘‘(A) PROHIBITION.—Except as provided

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

3 policy in effect as of the effective date of the

4 standards established under section 2701(a)

5 may not be canceled for nonpayment if the pol6 icy holder is determined by a long-term care

7 provider, physician or other health care pro8 vider, independent of the issuer of the policy, to

9 be cognitively or mentally incapacitated so as to

10 not make payments in a timely manner.

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

12 policy shall include a provision that provides for

13 the reinstatement of such coverage, in the event

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

15 cognitive or mental incapacitation. Such rein16 statement option shall remain available for a

17 period of not less than 5 months after termi18 nation and shall allow for the collection of past

19 due premium.

20 ‘‘(2) PERMITTED CANCELLATION.—A long-term

21 care insurance policy may be canceled under para22 graph (1) for nonpayment if—

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

24 excess of 30 days; and
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•HR 4769 IH

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

2 to the policyholder or designated representative

3 of the policy holder not less than 30 days prior

4 to such cancellation, except that notice may not

5 be provided until the expiration of 30 days after

6 a premium is due and unpaid.

7 Notice under this paragraph shall be deemed to have

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

9 ‘‘SEC. 2715. BENEFIT STANDARDS.

10 ‘‘(a) USE OF STANDARD DEFINITIONS AND TERMI11 NOLOGY, UNIFORM FORMAT, AND STANDARD BENE12 FITS.—Each long-term care insurance policy shall, with

13 respect to services, providers or facilities, pursuant to

14 standards established under section 2701(a)—

15 ‘‘(1) use uniform language and definitions, ex16 cept that such language and definitions may take

17 into account the differences between States with re18 spect to definitions and terminology used for long19 term care services and providers;

20 ‘‘(2) use a uniform format for presenting the

21 outline of coverage under such a policy; and

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

23 benefits package (of those developed by the NAIC)

24 that shall include the limitations on the amount of
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1 payments per day and the lengths of covered stays

2 for nursing facility and home health care services;

3 as prescribed under guidelines issued by the NAIC and

4 periodically updated.

5 ‘‘(b) DISCLOSURE.—

6 ‘‘(1) OUTLINE OF COVERAGE.—

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

8 sells or offers for sale a long-term care insur9 ance policy shall provide an outline of coverage

10 under such policy that meets the applicable

11 standards established pursuant to section

12 2701(a), complies with the requirements of sub13 paragraph (B), and is in a uniform format as

14 prescribed in guidelines issued by the NAIC

15 and periodically updated.

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

17 for each long-term care insurance policy shall

18 include at least the following:

19 ‘‘(i) A description of the principal

20 benefits and coverage under the policy.

21 ‘‘(ii) A statement of the principal ex22 clusions, reductions, and limitations con23 tained in the policy.

24 ‘‘(iii) A statement of the terms under

25 which the policy (or certificate) may be
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•HR 4769 IH

1 continued in force or discontinued, the

2 terms for continuation or conversion, and

3 any reservation in the policy of a right to

4 change premiums.

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

6 on the face of the document in language

7 that is understandable to an average indi8 vidual, that the outline of coverage is a

9 summary only, not a contract of insurance,

10 and that the policy (or master policy) con11 tains the contractual provisions that gov12 ern, except that such summary shall sub13 stantially and accurately reflect the con14 tents of the policy or the master policy.

15 ‘‘(v) A description of the terms, speci16 fied in section 2717, under which a policy

17 or certificate may be returned and pre18 mium refunded.

19 ‘‘(vi) Information on national average

20 costs for nursing facility and home health

21 care and information (in graphic form) on

22 the relationship of the value of the benefits

23 provided under the policy to such national

24 average costs and State average costs,

25 where available.
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1 ‘‘(vii) A statement of the percentage

2 limit on annual premium increases that is

3 provided under the policy pursuant to this

4 section.

5 ‘‘(2) CERTIFICATES.—A certificate issued pur6 suant to a group long-term care insurance policy

7 shall include—

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

9 and coverage provided in the policy;

10 ‘‘(B) a statement of the principal exclu11 sions, reductions, and limitations contained in

12 the policy; and

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

14 policy determines governing contractual provi15 sions.

16 ‘‘(3) LONG-TERM CARE AS PART OF LIFE IN17 SURANCE.—In the case of a long-term care insur18 ance policy issued as a part of, or a rider on, a life

19 insurance policy, at the time of policy delivery there

20 shall be provided a policy summary that includes—

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

22 care benefits interact with other components of

23 the policy (including deductions from death

24 benefits);
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1 ‘‘(B) an illustration of the amount of bene2 fits, the length of benefit, and the guaranteed

3 lifetime benefits (if any) for each covered per4 son; and

5 ‘‘(C) any exclusions, reductions, and limi6 tations on benefits of long-term care.

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

8 shall develop recommendations with respect to in9 forming consumers of the long-term economic viabil10 ity of carriers issuing long-term care insurance poli11 cies.

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

13 BENEFITS.—

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

15 policy may not condition or limit eligibility—

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

17 the need for or receipt of any other services;

18 ‘‘(B) for any benefit on the medical neces19 sity for such benefit;

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

21 certified providers in compliance with conditions

22 which are in addition to those required for li23 censure or certification under State law, except

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

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

4 the policy) only—

5 ‘‘(i) to care provided in facilities

6 which provide a higher level of care; or

7 ‘‘(ii) to care provided in facilities

8 which provide for 24-hour or other nursing

9 care not required in order to be licensed by

10 the State.

11 ‘‘(2) HOME HEALTH CARE OR COMMUNITY12 BASED SERVICES.—If a long-term care insurance

13 policy provides benefits for the payment of specified

14 home health care or community-based services, the

15 policy—

16 ‘‘(A) may not limit such benefits to serv17 ices provided by registered nurses or licensed

18 practical nurses;

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

20 services to be provided by a nurse or therapist

21 that can be provided by a home health aide or

22 licensed or certified home care worker, except

23 that if no State licensure or certification laws

24 exists, in compliance with qualifications devel25 oped by the NAIC;
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1 ‘‘(C) may not limit such benefits to serv2 ices provided by agencies or providers certified

3 under title XVIII of the Social Security Act;

4 and

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

6 for personal care services (including home

7 health aide and home care worker services as

8 defined by the NAIC) home health services,

9 adult day care, and respite care in an individ10 ual’s home or in another setting in the commu11 nity, or any of these benefits on a respite care

12 basis.

13 ‘‘(3) NURSING FACILITY SERVICES.—If a long14 term care insurance policy provides benefits for the

15 payment of specified nursing facility services, the

16 policy must provide such benefits with respect to all

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

18 the Social Security Act or until such time as subse19 quently provided for by the NAIC in establishing

20 uniform language and definitions under section

21 2715(a)(1)) in the State.

22 ‘‘(4) PER DIEM POLICIES.—

23 ‘‘(A) DEFINITION.—For purposes of this

24 title, the term ‘per diem long-term care insur25 ance policy’ means a long-term care insurance
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•HR 4769 IH

1 policy (or certificate under a group long-term

2 care insurance policy) that provides for benefit

3 payments on a periodic basis due to cognitive

4 impairment or loss of functional capacity with5 out regard to the expenses incurred or services

6 rendered during the period to which the pay7 ments relate.

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

9 care insurance policy (or certificate) may condi10 tion or otherwise exclude benefit payments

11 based on the receipt of any type of nursing fa12 cility, home health care or community-based

13 services.

14 ‘‘(d) PROHIBITION OF DISCRIMINATION.—A long15 term care insurance policy may not treat benefits under

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

17 disease, with any related progressive degenerative demen18 tia of an organic origin, with any organic or inorganic

19 mental illness, or with mental retardation or any other

20 cognitive or mental impairment differently from an indi21 vidual having another medical condition for which benefits

22 may be made available.

23 ‘‘(e) LIMITATION ON USE OF PREEXISTING CONDI24 TION LIMITS.—

25 ‘‘(1) INITIAL ISSUANCE.—
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1 ‘‘(A) IN GENERAL.—Subject to subpara2 graph (B), a long-term care insurance policy

3 may not exclude or condition benefits based on

4 a medical condition for which the policyholder

5 received treatment or was otherwise diagnosed

6 before the issuance of the policy.

7 ‘‘(B) 6-MONTH LIMIT.—

8 ‘‘(i) IN GENERAL.—No long-term care

9 insurance policy or certificate issued under

10 this title shall utilize a definition of ‘pre11 existing condition’ that is more restrictive

12 than the following: The term ‘preexisting

13 condition’ means a condition for which

14 medical advice or treatment was rec15 ommended by, or received from a provider

16 of health care services, within 6 months

17 preceding the effective date of coverage of

18 an insured individual.

19 ‘‘(ii) PROHIBITION ON EXCLUSION OF

20 COVERAGE.—No long-term care insurance

21 policy or certificate may exclude coverage

22 for a loss or confinement that is the result

23 of a preexisting condition unless such loss

24 or confinement begins within 6 months fol-
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1 lowing the effective date of the coverage of

2 the insured individual.

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

4 care insurance policy replaces another long-term

5 care insurance policy, the issuer of the replacing pol6 icy shall waive any time periods applicable to pre7 existing conditions, waiting period, elimination peri8 ods and probationary periods in the new policy for

9 similar benefits to the extent such time was spent

10 under the original policy.

11 ‘‘(f) ELIGIBILITY FOR BENEFITS.—

12 ‘‘(1) LONG-TERM CARE POLICIES.—Each long13 term care insurance policy shall—

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

15 under the policy; and

16 ‘‘(B) specify in clear, understandable

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

18 or mental impairment required in order to re19 ceive benefits under the policy.

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

21 submit a claim under any long-term care insurance

22 policy, each claimant shall have a professional func23 tional assessment of his or her physical, cognitive,

24 and mental abilities. Such initial assessment shall be

25 conducted by an individual or entity, meeting the
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1 qualifications established by the NAIC to assure the

2 professional competence and credibility of such indi3 vidual or entity and that such individual meets any

4 applicable State licensure and certification require5 ments. The individual or entity conducting such as6 sessment may not control, or be controlled by, the

7 issuer of the policy. For purposes of this paragraph

8 and paragraph (4), the term ‘control’ means the di9 rect or indirect possession of the power to direct the

10 management and policies of a person. Control is pre11 sumed to exist, if any person directly or indirectly,

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

13 holds proxies representing 10 percent of the voting

14 securities of another person.

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

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

17 shall be subject to final claims review by the carrier

18 pursuant to the terms of the long-term care insur19 ance policy.

20 ‘‘(4) APPEALS PROCESS.—

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

22 insurance policy shall provide for a timely and

23 independent appeals process, meeting standards

24 established by the NAIC, for individuals who

25 dispute the results of the claims review, con-
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1 ducted under paragraph (3), of the claimant’s

2 functional assessment, conducted under para3 graph (2).

4 ‘‘(B) INDEPENDENT ASSESSMENT.—An

5 appeals process under this paragraph shall in6 clude, at the request of the claimant, an inde7 pendent assessment of the claimant’s physical,

8 cognitive or mental abilities.

9 ‘‘(C) CONDUCT.—An independent assess10 ment under subparagraph (B) shall be con11 ducted by an individual or entity meeting the

12 qualifications established by the NAIC to as13 sure the professional competence and credibility

14 of such individual or entity and any applicable

15 State licensure and certification requirements

16 and may not be conducted—

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

18 or indirect significant or controlling inter19 est in, or direct affiliation or relationship

20 with, the issuer of the policy;

21 ‘‘(ii) by an entity that provides serv22 ices to the policyholder or certificateholder

23 for which benefits are available under the

24 long-term care insurance policy; or
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1 ‘‘(iii) by an individual or entity in con2 trol of, or controlled by, the issuer of the

3 policy.

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

5 2 years after the date of enactment of this title, the

6 advisory committee established under section

7 2701(d) shall recommend uniform needs assessment

8 mechanisms for the determination of eligibility for

9 benefits under such assessments.

10 ‘‘(g) INFLATION PROTECTION.—

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

12 not offer a long-term care insurance policy unless

13 the carrier also offers to the proposed policyholder,

14 including each group policyholder, the option to pur15 chase a policy that provides for increases in benefit

16 levels, with benefit maximums or reasonable dura17 tions that are meaningful, to account for reasonably

18 anticipated increases in the costs of long-term care

19 services covered by the policy. A carrier may not

20 offer to a policyholder an inflation protection feature

21 that is less favorable to the policyholder than one of

22 the following:

23 ‘‘(A) With respect to policies that provide

24 for automatic periodic increases in benefits, the

25 policy provides for an annual increase in bene-
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1 fits in a manner so that such increases are

2 computed annually at a rate of not less than 5

3 percent.

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

5 for periodic opportunities to elect an increase in

6 benefits, the policy guarantees that the insured

7 individual will have the right to periodically in8 crease the benefit levels under the policy with9 out providing evidence of insurability or health

10 status so long as the option for the previous pe11 riod was not declined. The amount of any such

12 additional benefit may not be less than the dif13 ference between—

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

15 ‘‘(ii) such existing benefit compounded

16 annually at a rate of at least 5 percent for

17 the period beginning on the date on which

18 the existing benefit is purchased and ex19 tending until the year in which the offer of

20 increase is made.

21 ‘‘(C) With respect to service benefit poli22 cies, the policy covers a specified percentage of

23 the actual or reasonable charges and does not

24 include a maximum specified indemnity amount

25 or limit.
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1 ‘‘(2) EXCEPTION.—The requirements of para2 graph (1) shall not apply to life insurance policies or

3 riders containing accelerated long-term care benefits.

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

5 include the following information in or together with

6 the outline of coverage provided under this title:

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

8 levels of a policy that increases benefits over the

9 policy period with a policy that does not in10 crease benefits. Such comparison shall show

11 benefit levels over not less than a 20-year pe12 riod.

13 ‘‘(B) Any expected premium increases or

14 additional premiums required to pay for any

15 automatic or optional benefit increases, whether

16 the individual who purchases the policy obtains

17 the inflation protection initially or whether such

18 individual delays purchasing such protection

19 until a future time.

20 ‘‘(4) CONTINUATION OF PROTECTION.—Infla21 tion protection benefit increases under this sub22 section under a policy that contains such protection

23 shall continue without regard to an insured’s age,

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

25 the individual has been insured under the policy.
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1 ‘‘(5) CONSTANT PREMIUM.—An offer of infla2 tion protection under this subsection that provides

3 for automatic benefit increases shall include an offer

4 of a premium that the carrier expects to remain con5 stant. Such offer shall disclose in a conspicuous

6 manner that the premium may change in the future

7 unless the premium is guaranteed to remain con8 stant.

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

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

11 insurance policy unless a carrier obtains a written

12 rejection of such protection signed by the policy13 holder.

14 ‘‘SEC. 2716. NONFORFEITURE.

15 ‘‘(a) IN GENERAL.—Each long-term care insurance

16 policy (or certificate) may provide that if the policy lapses

17 after the policy has been in effect for a minimum period

18 (specified under the standards under section 2701(a)), the

19 policy will provide, without payment of any additional pre20 miums, nonforfeiture benefits as determined appropriate

21 by the NAIC.

22 ‘‘(b) ESTABLISHMENT OF STANDARDS.—The stand23 ards under section 2701(a) shall provide that the percent24 age or amount of benefits under subsection (a) must in25 crease based upon the policyholder’s equity in the policy.
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1 Such standards shall apply only to policies which provide

2 nonforfeiture benefits.

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

4 RIGHT TO RETURN.

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

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

7 under the policy based on fraud or material misrepresenta8 tion relating to the issuance of the policy unless notice

9 of such fraud or material misrepresentation is provided

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

11 ‘‘(b) RIGHT TO RETURN.—Each applicant for a long12 term care insurance policy shall have the right to return

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

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

15 examination of the policy or certificate, the applicant is

16 not satisfied for any reason.

17 ‘‘SEC. 2718. CIVIL MONEY PENALTY.

18 ‘‘(a) CARRIER.—Any carrier, association or its sub19 sidiary that sells or offers for sale a long-term care insur20 ance policy and that—

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

22 section 2713(a);

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

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

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

3 of section 2713;

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

5 violation of section 2713(e);

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

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

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

9 information in violation of section 2715(f);

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

11 for each such violation.

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

13 a long-term care insurance policy and that—

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

15 section 2713(a);

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

17 with section 2713(b);

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

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

20 of section 2713;

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

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

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

24 information in violation of section 2715(f);
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1 is subject to a civil money penalty of not to exceed $15,000

2 for each such violation.

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

4 DEFINITION AND ENDORSEMENTS

5 ‘‘SEC. 2721. LONG-TERM CARE INSURANCE POLICY DE6 FINED.

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

8 ‘long-term care insurance policy’ means any insurance pol9 icy, rider or certificate advertised, marketed, offered or de10 signed to provide coverage for not less than 12 consecutive

11 months for each covered person on an expense incurred,

12 indemnity prepaid or other basis, for one or more nec13 essary diagnostic, preventive, therapeutic, rehabilitative,

14 maintenance or personal care services, provided in a set15 ting other than an acute care unit of a hospital. Such term

16 includes—

17 ‘‘(1) group and individual annuities and life in18 surance policies, riders or certificates that provide

19 directly, or that supplement long-term care insur20 ance; and

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

22 for payment of benefits based on cognitive impair23 ment or the loss of functional capacity.

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

25 may be issued by—
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1 ‘‘(1) carriers;

2 ‘‘(2) fraternal benefit societies;

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

4 service corporations;

5 ‘‘(4) prepaid health plans;

6 ‘‘(5) health maintenance organizations; or

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

8 are otherwise authorized to issue life or health insur9 ance.

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

11 care insurance policy’ shall not include any insurance pol12 icy, rider or certificate that is offered primarily to provide

13 basic Medicare supplement coverage, basic hospital ex14 pense coverage, basic medical-surgical expense coverage,

15 hospital confinement indemnity coverage, major medical

16 expense coverage, disability income or related asset-protec17 tion coverage, accident only coverage, specified disease or

18 specified accident coverage, or limited benefit health cov19 erage. With respect to life insurance, such term shall not

20 include life insurance policies, riders or certificates that

21 accelerate the death benefit specifically for one or more

22 of the qualifying events of terminal illness, medical condi23 tions requiring extraordinary medical intervention, or per24 manent institutional confinement, and that provide the op25 tion of a lump-sum payment for those benefits and in
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1 which neither the benefits nor the eligibility for the bene2 fits is conditioned upon the receipt of long-term care.

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

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

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

6 policy, rider or certificate.

7 ‘‘SEC. 2722. CODE OF CONDUCT WITH RESPECT TO EN8 DORSEMENTS.

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

10 of this title the NAIC shall issue guidelines that shall

11 apply to organizations and associations, other than em12 ployers and labor organizations that do not accept com13 pensation, and their subsidiaries that provide endorse14 ments of long-term care insurance policies, or that permit

15 such policies to be offered for sale through the organiza16 tion or association. Such guidelines shall include at mini17 mum the following:

18 ‘‘(1) In endorsing or selling long-term care in19 surance policies, the primary responsibility of an or20 ganization or association shall be to educate their

21 members concerning such policies and assist such

22 members in making informed decisions. Such organi23 zations and associations may not function primarily

24 as sales agents for insurance companies.
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1 ‘‘(2) Organizations and associations shall pro2 vide objective information regarding long-term care

3 insurance policies sold or endorsed by such organiza4 tions and associations to ensure that members of

5 such organizations and associations have a balanced

6 and complete understanding of both the strengths

7 and weaknesses of the policies that are being en8 dorsed or sold.

9 ‘‘(3) Organizations and associations selling or

10 endorsing long-term care insurance policies shall dis11 close in marketing literature provided to their mem12 bers concerning such policies the manner in which

13 such policies and the insurance company issuing

14 such policies were selected. If the organization or as15 sociation and the insurance company have interlock16 ing directorates, the organization or association shall

17 disclose such fact to their members.

18 ‘‘(4) Organizations and associations selling or

19 endorsing long-term care insurance policies shall dis20 close in marketing literature provided to their mem21 bers concerning such policies the nature and amount

22 of the compensation arrangements (including all

23 fees, commissions, administrative fees and other

24 forms of financial support that the organization or
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1 association receives) from the endorsement or sale of

2 the policy to its members.

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

4 and associations selling or endorsing long-term care

5 insurance policies, if such organizations and associa6 tions have a Board of Directors, shall review and ap7 prove such insurance policies, the compensation ar8 rangements and the marketing materials used to

9 promote sales of such policies.

10 ‘‘PART D—MISCELLANEOUS PROVISIONS

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

12 INFORMATION, COUNSELING, AND ASSIST13 ANCE.

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

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

16 and national organizations with demonstrated experience

17 in long-term care insurance, for the establishment of pro18 grams to provide information, counseling, and assistance

19 relating to the procurement of adequate and appropriate

20 long-term care insurance.

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

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

23 shall prepare and submit to the Secretary an application

24 at such time, in such manner, and containing such infor25 mation as the Secretary may require, including a descrip-
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1 tion of the program for which the State or organization

2 intends to use the amounts provided under the grant.

3 ‘‘(c) AUTHORIZATION OF APPROPRIATIONS.—

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

5 appropriate for grants to States under subsection

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

7 through 1996.

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

9 authorized to be appropriate for grants to national

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

11 each of the fiscal years 1994 through 1996.

12 ‘‘SEC. 2732. DEFINITIONS.

13 ‘‘As used in this title:

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

15 ‘‘(A) prior to 2 years after the date of en16 actment of this Act, an individual who sells or

17 offers for sale a long-term care insurance policy

18 subject to the requirements of this title and is

19 licensed or required to be licensed under State

20 law for such purpose; and

21 ‘‘(B) after the date referred to in subpara22 graph (A), an individual who meets the training

23 and certification requirements established under

24 section 2712(f).
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1 ‘‘(2) ASSOCIATION.—The term ‘association’ in2 cludes the association and its subsidiaries.

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

4 person that offers a health benefit plan, whether

5 through insurance or otherwise, including a licensed

6 insurance company, a prepaid hospital or medical

7 service plan, a health maintenance organization, a

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

9 multiple employer welfare arrangement (a combina10 tion of employers associated for the purpose of pro11 viding health benefit plan coverage for their employ12 ees).’’.

13 (b) CONFORMING AMENDMENTS.—

14 (1) Sections 2701 through 2714 of the Public

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

16 300cc–15) are redesignated as sections 2801

17 through 2814, respectively.

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

19 U.S.C. 286(f) and 289(f)) are amended by striking

20 out ‘‘2701’’ each place that such appears and insert21 ing in lieu thereof ‘‘2801’’.
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1 TITLE III—DEDUCTION FOR CER2 TAIN EXPENSES FOR DE3 PENDENTS WITH ALZ4 HEIMER’S DISEASE OR RE5 LATED ORGANIC BRAIN DIS6 ORDERS

7 SEC. 301. DEDUCTION ALLOWANCE FOR HOME HEALTH

8 CARE AND ADULT DAY AND RESPITE CARE

9 EXPENSES OF INDIVIDUALS FOR DEPEND10 ENTS WITH ALZHEIMER’S DISEASE OR RELAT11 ED ORGANIC BRAIN DISORDERS.

12 (a) IN GENERAL.—Part VII of subchapter B of chap13 ter 1 of the Internal Revenue Code of 1986 (relating to

14 additional itemized deductions for individuals) is amended

15 by redesignating section 220 as section 221 and by insert16 ing after section 219 the following new section:

17 ‘‘SEC. 220. HOME HEALTH CARE AND ADULT DAY AND RES18 PITE CARE EXPENSES FOR DEPENDENTS

19 WITH ALZHEIMER’S DISEASE OR RELATED

20 ORGANIC BRAIN DISORDERS.

21 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi22 vidual who maintains a household which includes a quali23 fied dependent of such individual, there shall be allowed

24 as a deduction the qualified home health care and adult
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1 day respite care expenses of such individual with respect

2 to such dependent.

3 ‘‘(b) DEFINITIONS.—For purposes of this section:

4 ‘‘(1) QUALIFIED DEPENDENT.—The term

5 ‘qualified dependent’ means any individual (includ6 ing the spouse of the taxpayer but not including the

7 taxpayer) who—

8 ‘‘(A) has as his principal place of abode

9 the principal residence of the taxpayer, and is

10 a member of the taxpayer’s household, for more

11 than 180 days of the calendar year during

12 which the taxable year of the taxpayer begins,

13 ‘‘(B) is a dependent of the taxpayer (with14 in the meaning given to such term by sub15 section (a) of section 152 other than paragraph

16 (9) of such subsection) for such calendar year,

17 and

18 ‘‘(C) at the close of such calendar year,

19 suffers from Alzheimer’s disease (or a related

20 organic brain disorder) and is physically or

21 mentally incapable of caring for himself, as de22 termined by a physician.

23 ‘‘(2) QUALIFIED HOME HEALTH CARE AND

24 ADULT DAY AND RESPITE CARE EXPENSES.—The
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1 term ‘qualified home health care and adult day and

2 respite care expenses’ means the excess of—

3 ‘‘(A) the reasonable and necessary ex4 penses paid or incurred by the taxpayer for—

5 ‘‘(i) household services for a qualified

6 dependent, and

7 ‘‘(ii) the care (including respite care)

8 of such dependent in the home or in an

9 adult day care center, over

10 ‘‘(B) the reasonable and necessary ex11 penses such taxpayer would have paid or in12 curred for household services for, and the care

13 of, such qualified dependent if such dependent

14 had been capable of caring for himself.

15 ‘‘(3) PHYSICIAN.—The term ‘physician’ has the

16 meaning given to such term by section 1861(r) of

17 the Social Security Act (42 U.S.C. 1395x(r)).

18 ‘‘(c) SPECIAL RULES.—For purposes of this

19 section:

20 ‘‘(1) MAINTAINING A HOUSEHOLD.—An individ21 ual shall be treated as maintaining a household for

22 any period only if over half the cost of maintaining

23 the household for such period is furnished by such

24 individual (or, if the individual is married, by the in25 dividual and his spouse).
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1 ‘‘(2) MARRIED COUPLE MUST FILE JOINT RE2 TURN.—If the taxpayer is married at the close of

3 the taxable year, the deduction shall be allowed

4 under subsection (a) only if the taxpayer and his

5 spouse file a joint return under section 6013 for the

6 taxable year.

7 ‘‘(d) CERTIFICATION OF DIAGNOSIS BY PHYSI8 CIAN.—Any determination by a physician that—

9 ‘‘(1) an individual suffers from Alzheimer’s dis10 ease or a related organic brain disorder, and

11 ‘‘(2) such individual is mentally or physically

12 incapable of caring for himself,

13 shall be certified by the physician to the Secretary at such

14 time and in such manner as the Secretary shall by regula15 tion prescribe.

16 ‘‘(e) COORDINATION WITH SECTIONS 36 AND 213.—

17 If any amount allowable as a deduction under this section

18 would (but for this subsection) also be taken into account

19 for purposes of determining the amount of any credit al20 lowable under section 21 (relating to expenses for house21 hold and dependent care services necessary for gainful em22 ployment) or any deduction allowable under section 213

23 (relating to medical, dental, etc. expenses), this section

24 shall apply only if the taxpayer elects its application. If

25 this section is elected with respect to any amount, such
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1 amount shall not be taken into account under section 36

2 or 213. Such election shall be made at such time and in

3 such manner as the Secretary shall by regulation pre4 scribe.’’

5 (b) DEDUCTION ALLOWED IN ARRIVING AT AD6 JUSTED GROSS INCOME.—Section 62(a) of such Code (de7 fining adjusted gross income) is amended by inserting

8 after paragraph (13) the following new paragraph:

9 ‘‘(14) QUALIFIED HOME HEALTH CARE AND

10 ADULT DAY AND RESPITE CARE EXPENSES.—The

11 deduction allowed by section 220.’’

12 (c) CLERICAL AMENDMENT.—The table of sections

13 for part VII of subchapter B of chapter 1 of such Code

14 is amended by striking the last item and inserting the fol15 lowing new items:

‘‘Sec. 220. Home health care and adult day and respite care expenses for dependents with Alzheimer’s disease or

related organic brain disorders.

‘‘Sec. 221. Cross reference.’’

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

17 this section shall apply to taxable years beginning after

18 December 31, 1994.
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1 TITLE IV—DEPENDENT CARE

2 CREDIT EXPANDED AND

3 MADE REFUNDABLE

4 SEC. 401. DEPENDENT CARE TAX CREDIT EXPANDED AND

5 MADE REFUNDABLE.

6 (a) DEPENDENT CARE SERVICES.—Subpart C of

7 part IV of subchapter A of chapter 1 of the Internal Reve8 nue Code of 1986 (relating to refundable credits) is

9 amended by redesignating section 36 as section 37 and

10 by inserting after section 35 the following new section:

11 ‘‘SEC. 36. DEPENDENT CARE SERVICES.

12 ‘‘(a) ALLOWANCE OF CREDIT.—

13 ‘‘(1) IN GENERAL.—In the case of an individual

14 who maintains a household which includes as a

15 member 1 or more qualifying individuals, there shall

16 be allowed as a credit against the tax imposed by

17 this subtitle for the taxable year an amount equal to

18 the applicable percentage of the sum of—

19 ‘‘(A) the employment-related expenses paid

20 by such individual during the taxable year, plus

21 ‘‘(B) the respite care expenses paid by

22 such individual during the taxable year.

23 ‘‘(2) APPLICABLE PERCENTAGE DEFINED.—

24 ‘‘(A) IN GENERAL.—For purposes of para25 graph (1), the term ‘applicable percentage’
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1 means 50 percent reduced (but not below 20

2 percent) by 1 percentage point for each full

3 $1,000 amount by which the taxpayer’s ad4 justed gross income for the taxable year exceeds

5 $15,000.

6 ‘‘(B) COST-OF-LIVING ADJUSTMENT.—

7 ‘‘(i) IN GENERAL.—In the case of a

8 taxable year beginning in a calendar year

9 after 1995, subparagraph (A) shall be ap10 plied by increasing the $15,000 amount

11 contained therein by the cost-of-living ad12 justment (as defined in section 1(f)(3)) for

13 such calendar year determined by sub14 stituting ‘‘1994’’ for ‘‘1992’’ in subpara15 graph (B) of section 1(f)(3).

16 ‘‘(ii) ROUNDING.—If any increase de17 termined under clause (i) is not a multiple

18 of $10, such increase shall be rounded to

19 the nearest multiple of $10 (or if such in20 crease is a multiple of $15, such increase

21 shall be increased to the next highest mul22 tiple of $10).

23 ‘‘(b) EMPLOYMENT-RELATED EXPENSES.—For pur24 poses of this section:
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1 ‘‘(1) DETERMINATION OF ELIGIBLE EX2 PENSES.—

3 ‘‘(A) IN GENERAL.—The term ‘employ4 ment-related expenses’ means amounts paid for

5 the following expenses, but only if such ex6 penses are incurred to enable the taxpayer to be

7 gainfully employed for any period for which

8 there are 1 or more qualifying individuals with

9 respect to the taxpayer:

10 ‘‘(i) expenses for household services,

11 and

12 ‘‘(ii) expenses for the care of a quali13 fying individual.

14 Such term shall not include any amount paid

15 for services outside the taxpayer’s household at

16 a camp where the qualifying individual stays

17 overnight and shall not include any respite care

18 expense taken into account under subsection

19 (a).

20 ‘‘(B) EXCEPTION.—Employment-related

21 expenses described in subparagraph (A) which

22 are incurred for services outside the taxpayer’s

23 household shall be taken into account only if in24 curred for the care of—
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1 ‘‘(i) a qualifying individual described

2 in subsection (d)(1), or

3 ‘‘(ii) a qualifying individual (not de4 scribed in subsection (d)(1)) who regularly

5 spends at least 8 hours each day in the

6 taxpayer’s household.

7 ‘‘(C) DEPENDENT CARE CENTERS.—Em8 ployment-related expenses described in subpara9 graph (A) which are incurred for services pro10 vided outside the taxpayer’s household by a de11 pendent care center (as defined in subpara12 graph (D)) shall be taken into account only if—

13 ‘‘(i) such center complies with all ap14 plicable laws and regulations of a State or

15 unit of local government, and

16 ‘‘(ii) the requirements of subpara17 graph (B) are met.

18 ‘‘(D) DEPENDENT CARE CENTER DE19 FINED.—For purposes of this paragraph, the

20 term ‘dependent care center’ means any facility

21 which—

22 ‘‘(i) provides care for more than 6 in23 dividuals (other than individuals who re24 side at the facility), and
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1 ‘‘(ii) receives a fee, payment, or grant

2 for providing services for any of the indi3 viduals (regardless of whether such facility

4 is operated for profit).

5 ‘‘(2) DOLLAR LIMIT ON AMOUNT CRED6 ITABLE.—

7 ‘‘(A) IN GENERAL.—The amount of the

8 employment-related expenses incurred during

9 any taxable year which may be taken into ac10 count under subsection (a) shall not exceed—

11 ‘‘(i) $2,400 if there is 1 qualifying in12 dividual with respect to the taxpayer for

13 such taxable year, or

14 ‘‘(ii) $4,800 if there are 2 or more

15 qualifying individuals with respect to the

16 taxpayer for such taxable year.

17 The amount determined under clause (i) or (ii)

18 (whichever is applicable) shall be reduced by the

19 aggregate amount excludable from gross income

20 under section 129 for the taxable year.

21 ‘‘(B) REDUCTION IN LIMIT FOR AMOUNT

22 OF RESPITE CARE EXPENSES.—The limitation

23 of subparagraph (A) shall be reduced by the

24 amount of the respite care expenses taken into
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1 account by the taxpayer under subsection (a)

2 for the taxable year.

3 ‘‘(3) EARNED INCOME LIMITATION.—

4 ‘‘(A) IN GENERAL.—Except as otherwise

5 provided in this paragraph, the amount of the

6 employment-related expenses incurred during

7 any taxable year which may be taken into ac8 count under subsection (a) shall not exceed—

9 ‘‘(i) in the case of an individual who

10 is not married at the close of such year,

11 such individual’s earned income for such

12 year, or

13 ‘‘(ii) in the case of an individual who

14 is married at the close of such year, the

15 lesser of such individual’s earned income or

16 the earned income of his spouse for such

17 year.

18 ‘‘(B) SPECIAL RULE FOR SPOUSE WHO IS

19 A STUDENT OR INCAPABLE OF CARING FOR

20 HIMSELF.—In the case of a spouse who is a

21 student or a qualified individual described in

22 subsection (d)(3), for purposes of subparagraph

23 (A), such spouse shall be deemed for each

24 month during which such spouse is a full-time

25 student at an educational institution, or is such
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1 a qualifying individual, to be gainfully employed

2 and to have earned income of not less than—

3 ‘‘(i) $200 if paragraph (2)(A)(i) ap4 plies for the taxable year, or

5 ‘‘(ii) $400 if paragraph (2)(A)(ii) ap6 plies for the taxable year.

7 In the case of any husband and wife, this sub8 paragraph shall apply with respect to only one

9 spouse for any one month.

10 ‘‘(c) RESPITE CARE EXPENSES.—For purposes of

11 this section:

12 ‘‘(1) IN GENERAL.—The term ‘respite care ex13 penses’ means expenses paid (whether or not to en14 able the taxpayer to be gainfully employed) for—

15 ‘‘(A) the care of a qualifying individual—

16 ‘‘(i) who has attained the age of 13,

17 or

18 ‘‘(ii) who is under the age of 13 but

19 has a physical or mental impairment which

20 results in the individual being incapable of

21 caring for himself,

22 during any period when such individual regu23 larly spends at least 8 hours each day in the

24 taxpayer’s household, or
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1 ‘‘(B) care (for not more than 14 days dur2 ing the calendar year) of a qualifying individual

3 described in subparagraph (A) during any pe4 riod during which the individual does not regu5 larly spend at least 8 hours each day in the tax6 payer’s household.

7 ‘‘(2) DOLLAR LIMIT.—The amount of the res8 pite care expenses incurred during any taxable year

9 which may be taken into account under subsection

10 (a) shall not exceed—

11 ‘‘(A) $1,200 if such expenses are incurred

12 with respect to only 1 qualifying individual for

13 the taxable year, or

14 ‘‘(B) $2,400 if such expenses are incurred

15 for 2 or more qualifying individuals for such

16 taxable year.

17 ‘‘(d) QUALIFYING INDIVIDUAL.—For purposes of this

18 section, the term ‘qualifying individual’ means—

19 ‘‘(1) a dependent of the taxpayer who is under

20 the age of 13 and with respect to whom the taxpayer

21 is entitled to a deduction under section 151(e),

22 ‘‘(2) a dependent of the taxpayer who is phys23 ically or mentally incapable of caring for himself, or

24 ‘‘(3) the spouse of the taxpayer, if he is phys25 ically or mentally incapable of caring for himself.
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1 ‘‘(e) SPECIAL RULES.—For purposes of this section:

2 ‘‘(1) MAINTAINING HOUSEHOLD.—An individ3 ual shall be treated as maintaining a household for

4 any period only if over half the cost of maintaining

5 the household for such period is furnished by such

6 individual (or, if such individual is married during

7 such period, is furnished by such individual and his

8 spouse).

9 ‘‘(2) MARRIED COUPLES MUST FILE JOINT RE10 TURN.—If the taxpayer is married at the close of

11 the taxable year, the credit shall be allowed under

12 subsection (a) only if the taxpayer and his spouse

13 file a joint return for the taxable year.

14 ‘‘(3) MARITAL STATUS.—An individual legally

15 separated from his spouse under a decree of divorce

16 or of separate maintenance shall not be considered

17 as married.

18 ‘‘(4) CERTAIN MARRIED INDIVIDUALS LIVING

19 APART.—If—

20 ‘‘(A) an individual who is married and who

21 files a separate return—

22 ‘‘(i) maintains as his home a house23 hold which constitutes for more than one24 half of the taxable year the principal place

25 of abode of a qualifying individual, and
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1 ‘‘(ii) furnishes over half the cost of

2 maintaining such household during the

3 taxable year, and

4 ‘‘(B) during the last 6 months of such tax5 able year such individual’s spouse is not a mem6 ber of such household,

7 such individual shall not be considered as married.

8 ‘‘(5) SPECIAL DEPENDENCY TEST IN CASE OF

9 DIVORCED PARENTS, ETC.—If—

10 ‘‘(A) paragraph (2) or (4) of section

11 152(e) applies to any child with respect to any

12 calendar year, and

13 ‘‘(B) such child is under the age of 13 or

14 is physically or mentally incapable of caring for

15 himself,

16 in the case of any taxable year beginning in such

17 calendar year, such child shall be treated as a quali18 fying individual with respect to the custodial parent

19 (within the meaning of section 152(e)(1)), and shall

20 not be treated as a qualifying individual with respect

21 to the noncustodial parent.

22 ‘‘(6) PAYMENTS TO RELATED INDIVIDUALS.—

23 No credit shall be allowed under subsection (a) for

24 any amount paid by the taxpayer to an individual—
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1 ‘‘(A) with respect to whom, for the taxable

2 year, a deduction under section 151(e) (relating

3 to deduction for personal exemptions for de4 pendents) is allowable either to the taxpayer or

5 his spouse, or

6 ‘‘(B) who is a child of the taxpayer (within

7 the meaning of section 151(e)(3)) who has not

8 attained the age of 19 at the close of the tax9 able year.

10 For purposes of this paragraph, the term ‘taxable

11 year’ means the taxable year of the taxpayer in

12 which the service is performed.

13 ‘‘(7) STUDENT.—The term ‘student’ means an

14 individual who during each of 5 calendar months

15 during the taxable year is a full-time student at an

16 educational organization.

17 ‘‘(8) EDUCATIONAL ORGANIZATION.—The term

18 ‘educational organization’ means an educational or19 ganization described in section 170(b)(1)(A)(ii).

20 ‘‘(9) IDENTIFYING INFORMATION REQUIRED

21 WITH RESPECT TO SERVICE PROVIDER.—No credit

22 shall be allowed under subsection (a) for any amount

23 paid to any person unless—
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1 ‘‘(A) the name, address, and taxpayer

2 identification number of such person are in3 cluded on the return claiming the credit, or

4 ‘‘(B) if such person is an organization de5 scribed in section 501(c)(3) and exempt from

6 tax under section 501(a), the name and address

7 of such person are included on the return

8 claiming the credit.

9 In the case of a failure to provide the information

10 required under the preceding sentence, the preceding

11 sentence shall not apply if it is shown that the tax12 payer exercised due diligence in attempting to pro13 vide the information so required.

14 ‘‘(f) REGULATIONS.—The Secretary shall prescribe

15 such regulations as may be necessary to carry out the pur16 poses of this section.’’

17 (b) CONFORMING AMENDMENTS.—

18 (1) Section 21 of such Code is hereby repealed.

19 (2) Paragraph (2) of section 129(b) of such

20 Code is amended by striking out ‘‘section 21(d)(2)’’

21 and inserting in lieu thereof ‘‘section 35(b)(3)(B)’’.

22 (3) Subsection (e) of section 213 of such Code

23 is amended by striking out ‘‘section 21’’ and insert24 ing in lieu thereof ‘‘section 35’’.

25 (c) TECHNICAL AMENDMENTS.—
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1 (1) The table of sections for subpart C of part

2 IV of subchapter A of chapter 1 of such Code is

3 amended by striking out the item relating to section

4 35 and inserting in lieu thereof the following:

‘‘Sec. 35. Dependent care services.

‘‘Sec. 36. Overpayments of tax.’’

5 (2) The table of sections for subpart A of such

6 part IV is amended by striking out the item relating

7 to section 21.

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

9 this section shall apply to taxable years beginning after

10 December 31, 1994.

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