I

104TH CONGRESS

1ST SESSION H. R. 1457

To amend the Internal Revenue Code of 1986 and the Social Security Act

to provide tax benefits with respect to long-term care insurance contracts

that satisfy certain requirements.

IN THE HOUSE OF REPRESENTATIVES

APRIL 6, 1995

Mr. STARK (for himself and Mr. KLECZKA) introduced the following bill;

which was referred to the Committee on Ways and Means, and in addition to the Committee on Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions

as fall within the jurisdiction of the committee concerned

A BILL

To amend the Internal Revenue Code of 1986 and the Social

Security Act to provide tax benefits with respect to longterm care insurance contracts that satisfy certain requirements.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 TITLE I—TAX TREATMENT OF

2 LONG-TERM CARE INSUR3 ANCE AND SERVICES

4 SECTION 101. AMENDMENT OF 1986 CODE.

5 Except as otherwise expressly provided, whenever in

6 this title an amendment or repeal is expressed in terms

7 of an amendment to, or repeal of, a section or other provi8 sion, the reference shall be considered to be made to a

9 section or other provision of the Internal Revenue Code

10 of 1986.

11 SEC. 102. TREATMENT OF LONG-TERM CARE INSURANCE.

12 (a) GENERAL RULE.—Chapter 79 (relating to defini13 tions) is amended by inserting after section 7702A the fol14 lowing new section:

15 ‘‘SEC. 7702B. TREATMENT OF LONG-TERM CARE INSUR16 ANCE.

17 ‘‘(a) IN GENERAL.—For purposes of this title—

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

19 be treated as an accident and health insurance con20 tract,

21 ‘‘(2) amounts (other than policyholder divi22 dends, as defined in section 808, or premium re23 funds) received under a long-term care insurance

24 contract shall be treated as amounts received for

25 personal injuries and sickness and shall be treated
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1 as reimbursement for expenses actually incurred for

2 medical care (as defined in section 213(d)),

3 ‘‘(3) any plan of an employer providing cov4 erage under a long-term care insurance contract

5 shall be treated as an accident and health plan with

6 respect to such coverage,

7 ‘‘(4) except as provided in subsection (d)(3),

8 amounts paid for a long-term care insurance con9 tract providing the benefits described in subsection

10 (b)(2)(A) shall be treated as payments made for in11 surance for purposes of section 213(d)(1)(D), and

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

13 be treated as a guaranteed renewable contract sub14 ject to the rules of section 816(e).

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

16 For purposes of this title—

17 ‘‘(1) IN GENERAL.—The term ‘long-term care

18 insurance contract’ means any insurance contract

19 if—

20 ‘‘(A) the only insurance protection pro21 vided under such contract is coverage of quali22 fied long-term care services,

23 ‘‘(B) such contract does not pay or reim24 burse expenses incurred for services or items to

25 the extent that such expenses are reimbursable
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1 under title XVIII of the Social Security Act or

2 would be so reimbursable but for the applica3 tion of a deductible or coinsurance amount,

4 ‘‘(C) such contract is guaranteed renew5 able,

6 ‘‘(D) such contract does not provide for a

7 cash surrender value or other money that can

8 be—

9 ‘‘(i) paid, assigned, or pledged as col10 lateral for a loan, or

11 ‘‘(ii) borrowed,

12 other than as provided in subparagraph (E) or

13 paragraph (2)(C),

14 ‘‘(E) all refunds of premiums, and all pol15 icyholder dividends or similar amounts, under

16 such contract are to be applied as a reduction

17 in future premiums or to increase future bene18 fits, and

19 ‘‘(F) the State in which such contract is is20 sued has a regulatory program approved by the

21 Secretary of Health and Human Services under

22 title XXI of the Social Security Act and such

23 contract is certified under such program.

24 ‘‘(2) SPECIAL RULES.—
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1 ‘‘(A) PER DIEM, ETC. PAYMENTS PER2 MITTED.—A contract shall not fail to be de3 scribed in subparagraph (A) or (B) of para4 graph (1) by reason of payments being made on

5 a per diem or other periodic basis without re6 gard to the expenses incurred during the period

7 to which the payments relate.

8 ‘‘(B) SPECIAL RULES RELATING TO MEDI9 CARE.—

10 ‘‘(i) Paragraph (1)(B) shall not apply

11 to expenses which are reimbursable under

12 title XVIII of the Social Security Act only

13 as a secondary payor.

14 ‘‘(ii) No provision of law shall be con15 strued or applied so as to prohibit the of16 fering of a long-term care insurance con17 tract on the basis that the contract coordi18 nates its benefits with those provided

19 under such title.

20 ‘‘(C) REFUNDS OF PREMIUMS.—Paragraph

21 (1)(E) shall not apply to any refund on the

22 death of the insured, or on a complete surren23 der or cancellation of the contract, which can24 not exceed the aggregate premiums paid under

25 the contract. Any refund on a complete surren-
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1 der or cancellation of the contract shall be in2 cludible in gross income to the extent that any

3 deduction or exclusion was allowable with re4 spect to the premiums.

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

6 purposes of this section—

7 ‘‘(1) IN GENERAL.—The term ‘qualified long8 term care services’ means necessary diagnostic, pre9 ventive, therapeutic, curing, treating, mitigating, and

10 rehabilitative services, and maintenance or personal

11 care services, which—

12 ‘‘(A) are required by a chronically ill indi13 vidual, and

14 ‘‘(B) are provided pursuant to a plan of

15 care prescribed by a licensed health care practi16 tioner.

17 ‘‘(2) CHRONICALLY ILL INDIVIDUAL.—

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

19 ill individual’ means any individual who has

20 been certified by a licensed health care practi21 tioner as—

22 ‘‘(i) being unable to perform (without

23 substantial assistance from another indi24 vidual) at least 2 activities of daily living

25 for a period of at least 90 days due to a
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1 loss of functional capacity or to cognitive

2 impairment, or

3 ‘‘(ii) having a level of disability simi4 lar (as determined by the Secretary in con5 sultation with the Secretary of Health and

6 Human Services) to the level of disability

7 described in clause (i).

8 Such term shall not include any individual oth9 erwise meeting the requirements of the preced10 ing sentence unless within the preceding 12-

11 month period a licensed health care practitioner

12 has certified that such individual meets such re13 quirements.

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

15 purposes of subparagraph (A), each of the fol16 lowing is an activity of daily living:

17 ‘‘(i) Eating.

18 ‘‘(ii) Toileting.

19 ‘‘(iii) Transferring.

20 ‘‘(iv) Bathing.

21 ‘‘(v) Dressing.

22 ‘‘(vi) Continence.

23 Nothing in this section shall be construed to re24 quire a contract to take into account all of the

25 preceding activities of daily living.
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1 ‘‘(3) MAINTENANCE OR PERSONAL CARE SERV2 ICES.—The term ‘maintenance or personal care serv3 ices’ means any care the primary purpose of which

4 is the provision of needed assistance with any of the

5 disabilities as a result of which the individual is a

6 chronically ill individual (including the protection

7 from threats to health and safety due to severe cog8 nitive impairment).

9 ‘‘(4) LICENSED HEALTH CARE PRACTI10 TIONER.—The term ‘licensed health care practi11 tioner’ means any physician (as defined in section

12 1861(r)(1) of the Social Security Act) and any reg13 istered professional nurse, licensed social worker, or

14 other individual who meets such requirements as

15 may be prescribed by the Secretary.

16 ‘‘(d) TREATMENT OF COVERAGE PROVIDED AS PART

17 OF A LIFE INSURANCE CONTRACT.—Except as otherwise

18 provided in regulations prescribed by the Secretary, in the

19 case of any long-term care insurance coverage (whether

20 or not qualified) provided by a rider on a life insurance

21 contract—

22 ‘‘(1) IN GENERAL.—This section shall apply as

23 if the portion of the contract providing such cov24 erage is a separate contract.
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1 ‘‘(2) APPLICATION OF 7702.—Section

2 7702(c)(2) (relating to the guideline premium limi3 tation) shall be applied by increasing the guideline

4 premium limitation with respect to a life insurance

5 contract, as of any date—

6 ‘‘(A) by the sum of any charges (but not

7 premium payments) against the life insurance

8 contract’s cash surrender value (within the

9 meaning of section 7702(f)(2)(A)) for such cov10 erage made to that date under the contract, less

11 ‘‘(B) any such charges the imposition of

12 which reduces the premiums paid for the con13 tract (within the meaning of section

14 7702(f)(1)).

15 ‘‘(3) APPLICATION OF SECTION 213.—No deduc16 tion shall be allowed under section 213(a) for

17 charges against the life insurance contract’s cash

18 surrender value described in paragraph (2), unless

19 such charges are includible in income as a result of

20 the application of section 72(e)(10) and the rider is

21 a long-term care insurance contract under sub22 section (b).

23 ‘‘(4) PORTION DEFINED.—For purposes of this

24 subsection, the term ‘portion’ means only the terms

25 and benefits under a life insurance contract that are
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1 in addition to the terms and benefits under the con2 tract without regard to the coverage under a long3 term care insurance contract.’’

4 (b) RESERVE METHOD.—Clause (iii) of section

5 807(d)(3)(A) is amended by inserting ‘‘(other than a long6 term care insurance contract, as defined in section

7 7702B(b))’’ after ‘‘insurance contract’’.

8 (c) LONG-TERM CARE INSURANCE NOT PERMITTED

9 UNDER CAFETERIA PLANS OR FLEXIBLE SPENDING AR10 RANGEMENTS.—

11 (1) CAFETERIA PLANS.—Section 125(f) is

12 amended by adding at the end the following new

13 sentence: ‘‘Such term shall not include any long14 term care insurance contract (as defined in section

15 7702B(b)).’’

16 (2) FLEXIBLE SPENDING ARRANGEMENTS.—

17 The text of section 106 (relating to contributions by

18 employer to accident and health plans) is amended

19 to read as follows:

20 ‘‘(a) GENERAL RULE.—Except as provided in sub21 section (b), gross income of an employee does not include

22 employer-provided coverage under an accident or health

23 plan.
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1 ‘‘(b) INCLUSION OF LONG-TERM CARE BENEFITS

2 PROVIDED THROUGH FLEXIBLE SPENDING ARRANGE3 MENTS.—

4 ‘‘(1) IN GENERAL.—Effective on and after Jan5 uary 1, 1997, gross income of an employee shall in6 clude employer-provided coverage for qualified long7 term care services (as defined in section 7702B(c))

8 to the extent that such coverage is provided through

9 a flexible spending or similar arrangement.

10 ‘‘(2) FLEXIBLE SPENDING ARRANGEMENT.—

11 For purposes of this subsection, a flexible spending

12 arrangement is a benefit program which provides

13 employees with coverage under which—

14 ‘‘(A) specified incurred expenses may be

15 reimbursed (subject to reimbursement maxi16 mums and other reasonable conditions), and

17 ‘‘(B) the maximum amount of reimburse18 ment which is reasonably available to a partici19 pant for such coverage is less than 500 percent

20 of the value of such coverage.

21 In the case of an insured plan, the maximum

22 amount reasonably available shall be determined on

23 the basis of the underlying coverage.’’
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1 (d) CONTINUATION COVERAGE EXCISE TAX NOT TO

2 APPLY.—Subsection (f) of section 4980B is amended by

3 adding at the end the following new paragraph:

4 ‘‘(9) CONTINUATION OF LONG-TERM CARE COV5 ERAGE NOT REQUIRED.—A group health plan shall

6 not be treated as failing to meet the requirements of

7 this subsection solely by reason of failing to provide

8 coverage under any long-term care insurance con9 tract (as defined in section 7702B(b)).’’

10 (e) AMOUNTS PAID TO RELATIVES TREATED AS NOT

11 PAID FOR MEDICAL CARE.—Section 213(d) is amended

12 by adding at the end the following new paragraph:

13 ‘‘(10) CERTAIN PAYMENTS TO RELATIVES

14 TREATED AS NOT PAID FOR MEDICAL CARE.—An

15 amount paid for a qualified long-term care service

16 (as defined in section 7702B(c)) provided to an indi17 vidual shall be treated as not paid for medical care

18 if such service is provided—

19 ‘‘(A) by a relative (directly or through a

20 partnership, corporation, or other entity) unless

21 the relative is a licensed professional with re22 spect to such services, or

23 ‘‘(B) by a corporation or partnership which

24 is related (within the meaning of section 267(b)

25 or 707(b)) to the individual.
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1 For purposes of this paragraph, the term ‘relative’

2 means an individual bearing a relationship to the in3 dividual which is described in any of paragraphs (1)

4 through (8) of section 152(a). This paragraph shall

5 not apply for purposes of section 105(b) with respect

6 to reimbursements through insurance.’’

7 (f) CLERICAL AMENDMENT.—The table of sections

8 for chapter 79 is amended by inserting after the item re9 lating to section 7702A the following new item:

‘‘Sec. 7702B. Treatment of long-term care insurance.’’.

10 (g) EFFECTIVE DATE.—

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

12 this section shall apply to contracts issued after De13 cember 31, 1996.

14 (2) CONTINUATION OF EXISTING POLICIES.—In

15 the case of any contract issued before January 1,

16 1997, which met the long-term care insurance re17 quirements of the State in which the contract was

18 issued at the time the contract was issued—

19 (A) such contract shall be treated for pur20 poses of the Internal Revenue Code of 1986 as

21 a long-term care insurance contract (as defined

22 in section 7702B(b) of such Code), and

23 (B) services provided under, or reimbursed

24 by, such contract shall be treated for such pur-
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1 poses as qualified long-term care services (as

2 defined in section 7702B(c) of such Code).

3 (3) EXCHANGES OF EXISTING POLICIES.—If,

4 after the date of enactment of this Act and before

5 January 1, 1997, a contract providing for long-term

6 care insurance coverage is exchanged solely for a

7 long-term care insurance contract (as defined in sec8 tion 7702B(b) of such Code), no gain or loss shall

9 be recognized on the exchange. If, in addition to a

10 long-term care insurance contract, money or other

11 property is received in the exchange, then any gain

12 shall be recognized to the extent of the sum of the

13 money and the fair market value of the other prop14 erty received. For purposes of this paragraph, the

15 cancellation of a contract providing for long-term

16 care insurance coverage and reinvestment of the can17 cellation proceeds in a long-term care insurance con18 tract within 60 days thereafter shall be treated as

19 an exchange.

20 (4) ISSUANCE OF CERTAIN RIDERS PER21 MITTED.—For purposes of applying sections 101(f),

22 7702, and 7702A of the Internal Revenue Code of

23 1986 to any contract—
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1 (A) the issuance of a rider which is treated

2 as a long-term care insurance contract under

3 section 7702B, and

4 (B) the addition of any provision required

5 to conform any other long-term care rider to be

6 so treated,

7 shall not be treated as a modification or material

8 change of such contract.

9 SEC. 103. QUALIFIED LONG-TERM CARE SERVICES TREAT10 ED AS MEDICAL CARE.

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

12 213(d) (defining medical care) is amended by striking

13 ‘‘or’’ at the end of subparagraph (B), by redesignating

14 subparagraph (C) as subparagraph (D), and by inserting

15 after subparagraph (B) the following new subparagraph:

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

17 (as defined in section 7702B(c)), or’’.

18 (b) TECHNICAL AMENDMENTS.—

19 (1) Subparagraph (D) of section 213(d)(1) (as

20 redesignated by subsection (a)) is amended by strik21 ing ‘‘subparagraphs (A) and (B)’’ and inserting

22 ‘‘subparagraphs (A), (B), and (C)’’.

23 (2)(A) Paragraph (1) of section 213(d) is

24 amended by adding at the end the following new

25 flush sentence:
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1 ‘‘In the case of a long-term care insurance contract

2 (as defined in section 7702B(b)), only eligible long3 term care premiums (as defined in paragraph (11))

4 shall be taken into account under subparagraph

5 (D).’’

6 (B) Subsection (d) of section 213 is amended

7 by adding at the end the following new paragraph:

8 ‘‘(11) ELIGIBLE LONG-TERM CARE PRE9 MIUMS.—

10 ‘‘(A) IN GENERAL.—For purposes of this

11 section, the term ‘eligible long-term care pre12 miums’ means the amount paid during a tax13 able year for any long-term care insurance con14 tract (as defined in section 7702B(b)) covering

15 an individual, to the extent such amount does

16 not exceed the limitation determined under the

17 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 ......................... 2,000

More than 70 ............................................................. 2,500.

18 ‘‘(B) INDEXING.—

19 ‘‘(i) IN GENERAL.—In the case of any

20 taxable year beginning in a calendar year

21 after 1997, each dollar amount contained
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1 in subparagraph (A) shall be increased by

2 the medical care cost adjustment of such

3 amount for such calendar year. If any in4 crease determined under the preceding sen5 tence is not a multiple of $10, such in6 crease shall be rounded to the nearest mul7 tiple of $10.

8 ‘‘(ii) MEDICAL CARE COST ADJUST9 MENT.—For purposes of clause (i), the

10 medical care cost adjustment for any cal11 endar year is the percentage (if any) by

12 which—

13 ‘‘(I) the medical care component

14 of the Consumer Price Index (as de15 fined in section 1(f)(5)) for August of

16 the preceding calendar year, exceeds

17 ‘‘(II) such component for August

18 of 1996.

19 The Secretary shall, in consultation with

20 the Secretary of Health and Human Serv21 ices, prescribe an adjustment which the

22 Secretary determines is more appropriate

23 for purposes of this paragraph than the

24 adjustment described in the preceding sen25 tence, and the adjustment so prescribed
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1 shall apply in lieu of the adjustment de2 scribed in the preceding sentence.’’

3 (3) Paragraph (6) of section 213(d) is amend4 ed—

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) is amended

12 by striking ‘‘subparagraphs (A) and (B)’’ and insert13 ing ‘‘subparagraphs (A), (B), and (C)’’.

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

15 this section shall apply to taxable years beginning after

16 December 31, 1996.

17 SEC. 104. CERTAIN EXCHANGES OF LIFE INSURANCE CON18 TRACTS FOR LONG-TERM CARE INSURANCE

19 CONTRACTS NOT TAXABLE.

20 (a) IN GENERAL.—Subsection (a) of section 1035

21 (relating to certain exchanges of insurance contracts) is

22 amended by striking the period at the end of paragraph

23 (3) and inserting ‘‘; or’’, and by adding at the end the

24 following new paragraph:
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1 ‘‘(4) a contract of life insurance or an endow2 ment or annuity contract for a long-term care insur3 ance contract (as defined in section 7702B(b)).’’

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

5 this section shall apply to taxable years beginning after

6 December 31, 1996.

7 SEC. 105. EXCLUSION FROM GROSS INCOME FOR AMOUNTS

8 WITHDRAWN FROM CERTAIN RETIREMENT

9 PLANS FOR LONG-TERM CARE INSURANCE.

10 (a) IN GENERAL.—Part III of subchapter B of chap11 ter 1 (relating to items specifically excluded from gross

12 income) is amended by redesignating section 137 as sec13 tion 138 and by inserting after section 136 the following

14 new section:

15 ‘‘SEC. 137. DISTRIBUTIONS FROM CERTAIN RETIREMENT

16 PLANS FOR LONG-TERM CARE INSURANCE.

17 ‘‘(a) GENERAL RULE.—The amount which would

18 (but for this section) be includible in the gross income of

19 an individual for the taxable year by reason of eligible dis20 tributions during the taxable year shall be reduced (but

21 not below zero) by the aggregate premiums paid by such

22 individual during such taxable year for any long-term care

23 insurance contract (as defined in section 7702B(b)) for

24 coverage of such individual or the spouse of such individ25 ual.
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1 ‘‘(b) ELIGIBLE DISTRIBUTION.—For purposes of this

2 section, the term ‘eligible distribution’ means any distribu3 tion or payment to an individual from—

4 ‘‘(1) an individual retirement plan of such indi5 vidual,

6 ‘‘(2) amounts attributable to employer contribu7 tions made pursuant to elective deferrals described

8 in subparagraph (A) or (C) of section 402(g)(3) or

9 section 501(c)(18)(D)(iii), or

10 ‘‘(3) amounts deferred under section 457(a).’’

11 (b) CONFORMING AMENDMENTS.—

12 (1) Section 401(k)(2)(B)(i) is amended by

13 striking ‘‘or’’ at the end of subclause (III), by strik14 ing ‘‘and’’ at the end of subclause (IV) and inserting

15 ‘‘or’’, and by inserting after subclause (IV) the fol16 lowing new subclause:

17 ‘‘(V) the date distributions for

18 premiums for a long-term care insur19 ance contract (as defined in section

20 7702B(b)) for coverage of such indi21 vidual or the spouse of such individual

22 are made, and’’.

23 (2) Section 403(b)(11) is amended by striking

24 ‘‘or’’ at the end of subparagraph (A), by striking the

25 period at the end of subparagraph (B) and inserting
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1 ‘‘, or’’, and by inserting after subparagraph (B) the

2 following new subparagraph:

3 ‘‘(C) for the payment of premiums for a

4 long-term care insurance contract (as defined in

5 section 7702B(b)) for coverage of the employee

6 or the spouse of the employee.’’

7 (3) Subparagraph (A) of section 457(d)(1) is

8 amended by striking ‘‘or’’ at the end of clause (ii),

9 by striking ‘‘and’’ at the end of clause (iii) and in10 serting ‘‘or’’, and by inserting after clause (iii) the

11 following new clause:

12 ‘‘(iv) the date distributions for pre13 miums for a long-term care insurance con14 tract (as defined in section 7702B(b)) for

15 coverage of such individual or the spouse

16 of such individual are made, and’’.

17 (4) The table of sections for part III of sub18 chapter B of chapter 1 is amended by striking the

19 last item and inserting the following new items:

‘‘Sec. 137. Distributions from certain retirement plans for longterm care insurance.

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

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

21 this section shall apply to payments and distributions after

22 December 31, 1996.
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1 SEC. 106. INCLUSION IN INCOME OF EXCESS LONG-TERM

2 CARE BENEFITS.

3 (a) IN GENERAL.—Part II of subchapter B of chap4 ter 1 (relating to items specifically included in gross in5 come) is amended by adding at the end the following new

6 section:

7 ‘‘SEC. 91. EXCESS LONG-TERM CARE BENEFITS.

8 ‘‘(a) GENERAL RULE.—Notwithstanding any other

9 provision of this title, gross income shall include the

10 amount of excess long-term care benefits received by the

11 taxpayer during the taxable year.

12 ‘‘(b) EXCEPTION FOR TERMINALLY ILL INDIVID13 UALS.—Subsection (a) shall not apply to any long-term

14 care benefit paid by reason of an insured who is a termi15 nally ill individual (as defined in subsection (e)) as of the

16 date the benefit is received.

17 ‘‘(c) EXCESS LONG-TERM CARE BENEFITS.—For

18 purposes of this section—

19 ‘‘(1) IN GENERAL.—The term ‘excess long-term

20 care benefits’ means the excess (if any) of—

21 ‘‘(A) the value of the long-term care bene22 fits received by the taxpayer during the taxable

23 year, over

24 ‘‘(B) the exclusion amount applicable to

25 such benefits.
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1 ‘‘(2) LONG-TERM CARE BENEFITS.—The term

2 ‘long-term care benefits’ means payments and other

3 benefits under long-term care insurance contracts

4 (as defined in section 7702B(b)) to the extent ex5 cludable from gross income by reason of section

6 7702B(a)(2).

7 ‘‘(3) EXCLUSION AMOUNT.—

8 ‘‘(A) IN GENERAL.—In the case of long9 term care benefits received by the taxpayer dur10 ing the taxable year by reason of the taxpayer

11 being a chronically ill individual, the term ‘ex12 clusion amount’ means the aggregate of $200

13 for each day during such year on which the in14 dividual is a chronically ill individual. In the

15 case of individuals who are married to each

16 other and who are both chronically ill individ17 uals, the preceding sentence shall be applied

18 separately with respect to each spouse.

19 ‘‘(B) OTHER TAXPAYERS.—In the case of

20 long-term care benefits received during the tax21 able year by a taxpayer by reason of another in22 dividual being a chronically ill individual, the

23 term ‘exclusion amount’ means so much of such

24 other individual’s exclusion amount (for such

25 other individual’s taxable year which begins in
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1 the calendar year in which the taxpayer’s tax2 able year begins) as is allocated by such other

3 individual to the taxpayer. Such an allocation

4 shall be made at the time and in the manner

5 prescribed by the Secretary; and once made,

6 shall be irrevocable.

7 ‘‘(d) CHRONICALLY ILL INDIVIDUAL.—For purposes

8 of this section, the term ‘chronically ill individual’ has the

9 meaning given to such term by section 7702B(c)(2).

10 ‘‘(e) TERMINALLY ILL INDIVIDUAL.—For purposes

11 of this section:

12 ‘‘(1) TERMINALLY ILL INDIVIDUAL.—The term

13 ‘terminally ill individual’ means an individual who

14 has been certified by a physician as having an illness

15 or physical condition which can reasonably be ex16 pected to result in death in 24 months or less after

17 the date of the certification.

18 ‘‘(2) PHYSICIAN.—The term ‘physician’ has the

19 meaning given to such term by section 1861(r)(1) of

20 the Social Security Act (42 U.S.C. 1395x(r)(1)).

21 ‘‘(f) INFLATION ADJUSTMENT OF $200 BENEFIT

22 LIMIT.—In the case of a calendar year after 1996, the

23 $200 amount contained in subsection (c)(3)(A) shall be

24 increased at the same time and in the same manner as

25 amounts are increased pursuant to section 213(d)(11).’’
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1 (b) CLERICAL AMENDMENT.—The table of sections

2 for such part II is amended by adding at the end the fol3 lowing new item:

‘‘Sec. 91. Excess long-term care benefits.’’

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

5 this section shall apply to taxable years beginning after

6 December 31, 1996.

7 SEC. 107. REPORTING REQUIREMENTS.

8 (a) IN GENERAL.—Subpart B of part III of sub9 chapter A of chapter 61 is amended by adding at the end

10 the following new section:

11 ‘‘SEC. 6050Q. CERTAIN LONG-TERM CARE BENEFITS.

12 ‘‘(a) REQUIREMENT OF REPORTING.—Any person

13 who pays long-term care benefits shall make a return, ac14 cording to the forms or regulations prescribed by the Sec15 retary, setting forth—

16 ‘‘(1) the aggregate amount of such benefits

17 paid by such person to any individual during any

18 calendar year, and

19 ‘‘(2) the name, address, and TIN of such indi20 vidual.

21 ‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS

22 WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—

23 Every person required to make a return under subsection

24 (a) shall furnish to each individual whose name is required
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1 to be set forth in such return a written statement show2 ing—

3 ‘‘(1) the name of the person making the pay4 ments, and

5 ‘‘(2) the aggregate amount of long-term care

6 benefits paid to the individual which are required to

7 be shown on such return.

8 The written statement required under the preceding sen9 tence shall be furnished to the individual on or before Jan10 uary 31 of the year following the calendar year for which

11 the return under subsection (a) was required to be made.

12 ‘‘(c) LONG-TERM CARE BENEFITS.—For purposes of

13 this section, the term ‘long-term care benefit’ has the

14 meaning given such term by section 91(c).’’

15 (b) PENALTIES.—

16 (1) Subparagraph (B) of section 6724(d)(1) is

17 amended by redesignating clauses (ix) through (xiv)

18 as clauses (x) through (xv), respectively, and by in19 serting after clause (viii) the following new clause:

20 ‘‘(ix) section 6050Q (relating to cer21 tain long-term care benefits),’’.

22 (2) Paragraph (2) of section 6724(d) is amend23 ed by redesignating subparagraphs (Q) through (T)

24 as subparagraphs (R) through (U), respectively, and
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1 by inserting after subparagraph (P) the following

2 new subparagraph:

3 ‘‘(Q) section 6050Q(b) (relating to certain

4 long-term care benefits),’’.

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

6 for subpart B of part III of subchapter A of chapter 61

7 is amended by adding at the end the following new item:

‘‘Sec. 6050Q. Certain long-term care benefits.’’

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

9 this section shall apply to benefits paid after December

10 31, 1996.

11 TITLE II—FEDERAL STANDARDS

12 FOR PRIVATE LONG-TERM

13 CARE INSURANCE CON14 TRACTS

15 SEC. 201. FEDERAL STANDARDS FOR PRIVATE LONG-TERM

16 CARE INSURANCE CONTRACTS.

17 (a) IN GENERAL.—The Social Security Act is amend18 ed by adding at the end the following:

19 ‘‘TITLE XXI—FEDERAL STANDARDS FOR PRI20 VATE LONG-TERM CARE INSURANCE CON21 TRACTS

22 ‘‘SEC. 2101. REQUIREMENTS FOR STATE ENFORCEMENT

23 PROGRAMS.

24 ‘‘(a) IN GENERAL.—The Secretary shall review, ap25 prove, and periodically reapprove State programs that cer-
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1 tify long-term care insurance contracts as meeting the

2 Federal standards established under this title. The Sec3 retary may not approve or reapprove such a program un4 less it meets the requirements of this section.

5 ‘‘(b) GENERAL REQUIREMENT.—In order to be ap6 proved, a State program must include such laws and pro7 cedures as may be necessary to ensure the compliance of

8 long-term care insurance contracts certified by the State,

9 and insurers issuing such contracts and their agents, with

10 the Federal requirements established under this title.

11 ‘‘(c) SPECIFIC ACTIVITIES UNDER STATE PRO12 GRAM.—In order to be approved, a State program shall

13 provide for the following procedures and activities:

14 ‘‘(1) MONITORING OF INSURERS AND CON15 TRACTS.—Procedures for ongoing monitoring of the

16 compliance of insurers doing business in the State,

17 and of long-term care insurance contracts issued in

18 the State, with requirements under this title.

19 ‘‘(2) CONTRACT REVIEW AND CERTIFI20 CATION.—Procedures for review and certification

21 (and annual recertification) of each such contract

22 sold in the State.

23 ‘‘(3) CONSUMER COMPLAINTS AND DISPUTE

24 RESOLUTION.—Administrative procedures for the in25 vestigation and resolution of complaints by consum-
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1 ers, and disputes between consumers and insurers,

2 with respect to long-term care insurance, including

3 procedures for the filing, investigation, and adjudica4 tion of consumer complaints with respect to the com5 pliance of insurers and contracts with requirements

6 under this title, or other requirements under State

7 law.

8 ‘‘SEC. 2102. REQUIREMENTS TO FACILITATE UNDERSTAND9 ING AND COMPARISON OF BENEFITS.

10 ‘‘(a) IN GENERAL.—The Secretary, in consultation

11 with the National Association of Insurance Commissioners

12 (in this title referred to as the ‘NAIC’), shall promulgate

13 regulations designed to standardize formats and terminol14 ogy used in long-term care insurance contracts, to require

15 insurers to provide to customers and beneficiaries infor16 mation on the range of public and private long-term care

17 coverage available, and to establish such other require18 ments as may be appropriate to promote consumer under19 standing and facilitate comparison of benefits, which shall

20 include at a minimum the requirements specified in this

21 section.

22 ‘‘(b) UNIFORM TERMS, DEFINITIONS, AND FOR23 MATS.—Insurers shall be required to use, in long-term

24 care insurance contracts, uniform terminology, definitions
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1 of terms, and formats, in accordance with regulations pro2 mulgated by the Secretary.

3 ‘‘(c) STANDARD OUTLINE OF COVERAGE.—

4 ‘‘(1) IN GENERAL.—Insurers shall be required

5 to develop for each long-term care insurance con6 tract offered or sold, to include as a part of each

7 such contract, and to make available to each poten8 tial purchaser and furnish to each insured individual

9 and contractholder, an outline of coverage under

10 such contract that—

11 ‘‘(A) includes the elements specified in

12 paragraph (2),

13 ‘‘(B) is in a uniform format,

14 ‘‘(C) accurately and clearly reflects the

15 contents of the contract, and

16 ‘‘(D) is updated periodically on such time17 table as may be required by the Secretary (or

18 more frequently as necessary to reflect signifi19 cant changes in outlined information).

20 ‘‘(2) CONTENTS OF OUTLINE.—The outline of

21 coverage for each long-term care insurance contract

22 shall include at least the following:

23 ‘‘(A) BENEFITS.—A description of—

24 ‘‘(i) the principal benefits covered, in25 cluding the extent of—
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1 ‘‘(I) benefits for services fur2 nished in residential care facilities,

3 and

4 ‘‘(II) other benefits,

5 ‘‘(ii) the principal exclusions from and

6 limitations on coverage,

7 ‘‘(iii) the terms and conditions, if any,

8 upon which the insured individual may ob9 tain upgraded benefits, and

10 ‘‘(iv) the threshold conditions for enti11 tlement to receive benefits.

12 ‘‘(B) CANCELLATION.—A statement of the

13 circumstances in which a contract may be ter14 minated, and the refund or nonforfeitures bene15 fits (if any) applicable in each such cir16 cumstance, including—

17 ‘‘(i) death of the insured individual,

18 ‘‘(ii) nonpayment of premiums,

19 ‘‘(iii) election by the insured individ20 ual not to renew,

21 ‘‘(iv) any other circumstance.

22 ‘‘(C) PREMIUM.—A statement of—

23 ‘‘(i) the total annual premium, and

24 the portion of such premium attributable

25 to each covered benefit,
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1 ‘‘(ii) any reservation by the insurer of

2 a right to change premiums,

3 ‘‘(iii) any limit on annual premium in4 creases,

5 ‘‘(iv) any expected premium increases

6 associated with automatic or optional bene7 fit increases (including inflation protec8 tion), and

9 ‘‘(v) any circumstances under which

10 payment of premium is waived.

11 ‘‘(D) COST/VALUE COMPARISON.—

12 ‘‘(i) Information on average costs

13 (and variation in such costs) for nursing

14 facility care (and such other care as the

15 Secretary may specify) in the United

16 States, information on the value of benefits

17 relative to such costs, and a statement that

18 this national average varies by geographic

19 region.

20 ‘‘(ii) A comparison of benefits, over a

21 period of at least 20 years, for contracts

22 with and without inflation protection.

23 ‘‘(iii) A declaration as to whether the

24 amount of benefits will increase over time,

25 and, if so, a statement of the type and
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1 amount of, any limitations on, and any

2 premium increases for, such benefit in3 creases.

4 ‘‘SEC. 2103. LIMITING CONDITIONS ON BENEFITS.

5 ‘‘(a) IN GENERAL.—A long-term care insurance con6 tract may not—

7 ‘‘(1) condition eligibility for benefits for a type

8 of service on the need for or receipt of any other

9 type of service (such as prior hospitalization or insti10 tutionalization, or a higher level of care than the

11 care for which benefits are covered);

12 ‘‘(2) condition eligibility for any benefit (where

13 the need for such benefit has been established by an

14 independent assessment of impairment) on any par15 ticular medical diagnosis (including any acute condi16 tion) or on one of a group of diagnoses;

17 ‘‘(3) condition eligibility for benefits furnished

18 by licensed or certified providers on compliance by

19 such providers with conditions not required under

20 Federal or State law; or

21 ‘‘(4) condition coverage of any service on provi22 sion of such service by a provider, or in a setting,

23 providing a higher level of care than that required

24 by an insured individual.
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1 ‘‘(b) HOME CARE OR COMMUNITY-BASED SERV2 ICES.—A long-term care insurance contract that provides

3 benefits for any home care or community-based services

4 provided in a setting other than a residential care facil5 ity—

6 ‘‘(1) may not limit such benefits to services pro7 vided by registered nurses or licensed practical

8 nurses;

9 ‘‘(2) may not limit such benefits to services fur10 nished by persons or entities participating in pro11 grams under titles XVIII and XIX of this Act; and

12 ‘‘(3) must provide, at a minimum, benefits for

13 personal assistance with activities of daily living,

14 home health care, adult day care, and respite care.

15 ‘‘(c) NURSING FACILITY SERVICES.—A long-term

16 care insurance contract that provides benefits for any

17 nursing facility services—

18 ‘‘(1) must provide benefits for such services

19 provided by all types of nursing facilities licensed by

20 the State, and

21 ‘‘(2) may provide benefits for care in other resi22 dential facilities.

23 ‘‘(d) PROHIBITION ON DISCRIMINATION BY DIAG24 NOSIS.—A long-term care insurance contract may not pro25 vide for treatment of—
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1 ‘‘(1) Alzheimer’s disease or any other progres2 sive degenerative dementia of an organic origin,

3 ‘‘(2) any organic or inorganic mental illness,

4 ‘‘(3) mental retardation or any other cognitive

5 or mental impairment, or

6 ‘‘(4) HIV infection or AIDS,

7 different from the treatment of any other medical

8 condition for purposes of determining whether

9 threshold conditions for the receipt of benefits have

10 been met, or the amount of benefits under the con11 tract.

12 ‘‘SEC. 2104. INFLATION PROTECTION.

13 ‘‘(a) IN GENERAL.—The Secretary, after consulta14 tion with NAIC, shall promulgate regulations establishing

15 requirements with respect to inflation protection, which

16 shall include at a minimum the requirements specified in

17 this section.

18 ‘‘(b) REQUIREMENT TO OFFER.—An insurer offering

19 for sale any long-term care insurance contract shall be re20 quired to afford the purchaser the option to obtain cov21 erage under such contract (upon payment of increased

22 premiums) of annual increases in benefits at rates in ac23 cordance with subsection (c).

24 ‘‘(c) RATE INCREASE IN BENEFITS.—For purposes

25 of subsection (b), the benefits under a contract for each
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1 year shall be increased by a percentage of the full value

2 of benefits under the contract for the previous year, which

3 shall be not less than 5 percent of such value (or such

4 other rate of increase as may be determined by the Sec5 retary to be adequate to offset increases in the costs of

6 long-term care services for which coverage is provided

7 under the contract).

8 ‘‘(d) REQUIREMENT OF WRITTEN REJECTION.—In9 flation protection in accordance with subsection (b) may

10 be excluded from the coverage under a contract only if

11 the insured individual (or, if different, the person respon12 sible for payment of premiums) has rejected in writing the

13 option to obtain such coverage.

14 ‘‘SEC. 2105. NONFORFEITURE BENEFITS.

15 ‘‘(a) IN GENERAL.—The Secretary, after consulta16 tion with NAIC, shall promulgate regulations establishing

17 requirements with respect to nonforfeiture benefits, which

18 shall include at a minimum the requirements specified in

19 this section.

20 ‘‘(b) REQUIREMENT.—Each long-term care insurance

21 contract that lapses for any reason (including nonpayment

22 of premiums, cancellation, or failure to renew, but exclud23 ing lapses due to death) after remaining in effect beyond

24 a specified minimum period shall provide for appropriate

25 nonforfeiture benefits.
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1 ‘‘(c) NONFORFEITURE BENEFITS.—The standards

2 established under this section shall require that the

3 amount or percentage of nonforfeiture benefits shall in4 crease proportionally with the amount of premiums paid

5 by a contractholder.

6 ‘‘SEC. 2106. CONTINUATION, RENEWAL, REPLACEMENT,

7 CONVERSION, AND CANCELLATION OF CON8 TRACTS.

9 ‘‘(a) IN GENERAL.—The Secretary, in consultation

10 with NAIC, shall promulgate regulations establishing re11 quirements applicable to the renewal, replacement, conver12 sion, and cancellation of long-term care insurance con13 tracts, which shall include at a minimum the requirements

14 specified in this section.

15 ‘‘(b) INSURED’S RIGHT TO CANCEL DURING EXAM16 INATION PERIOD.—Each individual insured (or, if dif17 ferent, each individual liable for payment of premiums)

18 under a long-term care insurance contract shall have the

19 unconditional right to return the contract within 30 days

20 after the date of its issuance and delivery, and to obtain

21 a full refund of any premium paid.

22 ‘‘(c) CONTINUATION, RENEWAL, REPLACEMENT, AND

23 CONVERSION OF CONTRACTS.—

24 ‘‘(1) IN GENERAL.—Insurers shall not be per25 mitted to cancel, or refuse to renew (or replace with
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1 a substantial equivalent), any long-term care insur2 ance contract for any reason other than for fraud or

3 material misrepresentation or for nonpayment of

4 premium.

5 ‘‘(2) CONTINUATION AND CONVERSION RIGHTS

6 WITH RESPECT TO GROUP CONTRACTS.—

7 ‘‘(A) IN GENERAL.—Insurers shall be re8 quired to include in each group long-term care

9 insurance contract, a provision affording to

10 each insured individual, when such contract

11 would otherwise terminate, the opportunity (at

12 the insurer’s option, subject to approval of the

13 State insurance commissioner) either to con14 tinue or to convert coverage under such con15 tract in accordance with this paragraph.

16 ‘‘(B) RIGHTS OF RELATED INDIVIDUALS.—

17 In the case of any insured individual whose eli18 gibility for coverage under a group contract is

19 based on relationship to another individual, the

20 insurer shall be required to continue such cov21 erage upon termination of the relationship due

22 to divorce or death.

23 ‘‘(C) CONTINUATION OF COVERAGE.—A

24 group contract shall be considered to meet the

25 requirements of this paragraph with respect to
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1 rights of an insured individual to continuation

2 of coverage if coverage of the same (or substan3 tially equivalent) benefits for such individual

4 under such contract is maintained, subject only

5 to timely payment of premiums.

6 ‘‘(D) CONVERSION OF COVERAGE.—A

7 group contract shall be considered to meet the

8 requirements of this paragraph with respect to

9 conversion if it entitles each individual who has

10 been continuously covered under the contract

11 for at least 6 months before the date of the ter12 mination to issuance of a replacement contract

13 providing benefits identical to, substantially

14 equivalent to, or in excess of, the benefits under

15 such terminated group contract—

16 ‘‘(i) without requiring evidence of in17 surability with respect to benefits covered

18 under such previous contract, and

19 ‘‘(ii) at premium rates no higher than

20 would apply if the insured individual had

21 initially obtained coverage under such re22 placement contract on the date such in23 sured individual initially obtained coverage

24 under such group contract.
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1 ‘‘SEC. 2107. DEFINITIONS.

2 ‘‘For purposes of this title:

3 ‘‘(1) ACTIVITY OF DAILY LIVING.—The term

4 ‘activity of daily living’ means any of the following:

5 eating, toileting, dressing, bathing, and transferring.

6 ‘‘(2) ADULT DAY CARE.—The term ‘adult day

7 care’ means a program providing social and health8 related services during the day to six or more adults

9 with disabilities (or such smaller number as the Sec10 retary may specify in regulations) in a community

11 group setting outside the home.

12 ‘‘(3) CONTRACTHOLDER—The term ‘contract13 holder’ means the entity which is the holder of

14 record of a group long-term care insurance contract.

15 ‘‘(4) HOME HEALTH CARE.—The term ‘home

16 health care’ means medical and nonmedical services

17 including such services as homemaker services, as18 sistance with activities of daily living, and respite

19 care provided to individuals in their residences.

20 ‘‘(5) INSURED INDIVIDUAL.—The term ‘insured

21 individual’ means, with respect to a long-term care

22 insurance contract, any individual who has coverage

23 of benefits under such contract.

24 ‘‘(6) INSURER.—The term ‘insurer’ means any

25 person that offers or sells an individual or group

26 long-term care insurance contract under which such
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1 person is at risk for all or part of the cost of bene2 fits under the contract, and includes any agent of

3 such person.

4 ‘‘(7) LONG-TERM CARE INSURANCE CON5 TRACT.—The term ‘long-term care insurance con6 tract has the meaning given such term in section

7 7702B(b) of the Internal Revenue Code of 1986

8 (without regard to paragraph (1)(F) of such sec9 tion).

10 ‘‘(8) NURSING FACILITY.—The term ‘nursing

11 facility’ means a facility licensed by the State to pro12 vide to residents—

13 ‘‘(A) skilled nursing care and related serv14 ices for residents who require medical or nurs15 ing care;

16 ‘‘(B) rehabilitation services for the reha17 bilitation of injured, disabled, or sick individ18 uals, or

19 ‘‘(C) on a regular basis, health-related care

20 and services to individuals who because of their

21 mental or physical condition require care and

22 services (above the level of room and board)

23 which can be made available to them only

24 through institutional facilities.
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1 ‘‘(9) RESIDENTIAL CARE FACILITY.—The term

2 ‘residential care facility’ means a facility (including

3 a nursing facility) that—

4 ‘‘(A) provides to residents medical or per5 sonal care services (including at a minimum as6 sistance with activities of daily living) in a set7 ting other than an individual or single-family

8 home, and

9 ‘‘(B) does not provide services of a higher

10 level than can be provided by a nursing facility.

11 ‘‘(10) RESPITE CARE.—The term ‘respite care’

12 means the temporary provision of care (including as13 sistance with activities of daily living) to an individ14 ual, in the individual’s home or another setting in

15 the community, for the purpose of affording such in16 dividual’s unpaid caregiver a respite from the re17 sponsibilities of such care.

18 ‘‘(11) STATE INSURANCE COMMISSIONER.—The

19 term ‘State insurance commissioner’ means the

20 State official bearing such title, or, in the case of a

21 jurisdiction where such title is not used, the State

22 official with primary responsibility for the regulation

23 of insurance.’’.

24 (b) DEFINITION OF STATE.—Section 1101(a)(1) of

25 the Social Security Act (42 U.S.C. 1301(a)(1)) is amend-
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1 ed by adding at the end ‘‘Such term when used in title

2 XXI includes only the several States and the District of

3 Columbia.’’.

Æ

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