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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1457 Introduced in House (IH)]

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 long-term care insurance 
              contracts that satisfy certain requirements.

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

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

SECTION 101. AMENDMENT OF 1986 CODE.

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

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

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

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

    ``(a) In General.--For purposes of this title--
            ``(1) a long-term care insurance contract shall be treated 
        as an accident and health insurance contract,
            ``(2) amounts (other than policyholder dividends, as 
        defined in section 808, or premium refunds) received under a 
        long-term care insurance contract shall be treated as amounts 
        received for personal injuries and sickness and shall be 
        treated as reimbursement for expenses actually incurred for 
        medical care (as defined in section 213(d)),
            ``(3) any plan of an employer providing coverage under a 
        long-term care insurance contract shall be treated as an 
        accident and health plan with respect to such coverage,
            ``(4) except as provided in subsection (d)(3), amounts paid 
        for a long-term care insurance contract providing the benefits 
        described in subsection (b)(2)(A) shall be treated as payments 
        made for insurance for purposes of section 213(d)(1)(D), and
            ``(5) a long-term care insurance contract shall be treated 
        as a guaranteed renewable contract subject to the rules of 
        section 816(e).
    ``(b) Long-Term Care Insurance Contract.--For purposes of this 
title--
            ``(1) In general.--The term `long-term care insurance 
        contract' means any insurance contract if--
                    ``(A) the only insurance protection provided under 
                such contract is coverage of qualified long-term care 
                services,
                    ``(B) such contract does not pay or reimburse 
                expenses incurred for services or items to the extent 
                that such expenses are reimbursable under title XVIII 
                of the Social Security Act or would be so reimbursable 
                but for the application of a deductible or coinsurance 
                amount,
                    ``(C) such contract is guaranteed renewable,
                    ``(D) such contract does not provide for a cash 
                surrender value or other money that can be--
                            ``(i) paid, assigned, or pledged as 
                        collateral for a loan, or
                            ``(ii) borrowed,
                other than as provided in subparagraph (E) or paragraph 
                (2)(C),
                    ``(E) all refunds of premiums, and all policyholder 
                dividends or similar amounts, under such contract are 
                to be applied as a reduction in future premiums or to 
                increase future benefits, and
                    ``(F) the State in which such contract is issued 
                has a regulatory program approved by the Secretary of 
                Health and Human Services under title XXI of the Social 
                Security Act and such contract is certified under such 
                program.
            ``(2) Special rules.--
                    ``(A) Per diem, etc. payments permitted.--A 
                contract shall not fail to be described in subparagraph 
                (A) or (B) of paragraph (1) by reason of payments being 
                made on a per diem or other periodic basis without 
                regard to the expenses incurred during the period to 
                which the payments relate.
                    ``(B) Special rules relating to medicare.--
                            ``(i) Paragraph (1)(B) shall not apply to 
                        expenses which are reimbursable under title 
                        XVIII of the Social Security Act only as a 
                        secondary payor.
                            ``(ii) No provision of law shall be 
                        construed or applied so as to prohibit the 
                        offering of a long-term care insurance contract 
                        on the basis that the contract coordinates its 
                        benefits with those provided under such title.
                    ``(C) Refunds of premiums.--Paragraph (1)(E) shall 
                not apply to any refund on the death of the insured, or 
                on a complete surrender or cancellation of the 
                contract, which cannot exceed the aggregate premiums 
                paid under the contract. Any refund on a complete 
                surrender or cancellation of the contract shall be 
                includible in gross income to the extent that any 
                deduction or exclusion was allowable with respect to 
                the premiums.
    ``(c) Qualified Long-Term Care Services.--For purposes of this 
section--
            ``(1) In general.--The term `qualified long-term care 
        services' means necessary diagnostic, preventive, therapeutic, 
        curing, treating, mitigating, and rehabilitative services, and 
        maintenance or personal care services, which--
                    ``(A) are required by a chronically ill individual, 
                and
                    ``(B) are provided pursuant to a plan of care 
                prescribed by a licensed health care practitioner.
            ``(2) Chronically ill individual.--
                    ``(A) In general.--The term `chronically ill 
                individual' means any individual who has been certified 
                by a licensed health care practitioner as--
                            ``(i) being unable to perform (without 
                        substantial assistance from another individual) 
                        at least 2 activities of daily living for a 
                        period of at least 90 days due to a loss of 
                        functional capacity or to cognitive impairment, 
                        or
                            ``(ii) having a level of disability similar 
                        (as determined by the Secretary in consultation 
                        with the Secretary of Health and Human 
                        Services) to the level of disability described 
                        in clause (i).
                Such term shall not include any individual otherwise 
                meeting the requirements of the preceding sentence 
                unless within the preceding 12-month period a licensed 
                health care practitioner has certified that such 
                individual meets such requirements.
                    ``(B) Activities of daily living.--For purposes of 
                subparagraph (A), each of the following is an activity 
                of daily living:
                            ``(i) Eating.
                            ``(ii) Toileting.
                            ``(iii) Transferring.
                            ``(iv) Bathing.
                            ``(v) Dressing.
                            ``(vi) Continence.
                Nothing in this section shall be construed to require a 
                contract to take into account all of the preceding 
                activities of daily living.
            ``(3) Maintenance or personal care services.--The term 
        `maintenance or personal care services' means any care the 
        primary purpose of which is the provision of needed assistance 
        with any of the disabilities as a result of which the 
        individual is a chronically ill individual (including the 
        protection from threats to health and safety due to severe 
        cognitive impairment).
            ``(4) Licensed health care practitioner.--The term 
        `licensed health care practitioner' means any physician (as 
        defined in section 1861(r)(1) of the Social Security Act) and 
        any registered professional nurse, licensed social worker, or 
        other individual who meets such requirements as may be 
        prescribed by the Secretary.
    ``(d) Treatment of Coverage Provided as Part of a Life Insurance 
Contract.--Except as otherwise provided in regulations prescribed by 
the Secretary, in the case of any long-term care insurance coverage 
(whether or not qualified) provided by a rider on a life insurance 
contract--
            ``(1) In general.--This section shall apply as if the 
        portion of the contract providing such coverage is a separate 
        contract.
            ``(2) Application of 7702.--Section 7702(c)(2) (relating to 
        the guideline premium limitation) shall be applied by 
        increasing the guideline premium limitation with respect to a 
        life insurance contract, as of any date--
                    ``(A) by the sum of any charges (but not premium 
                payments) against the life insurance contract's cash 
                surrender value (within the meaning of section 
                7702(f)(2)(A)) for such coverage made to that date 
                under the contract, less
                    ``(B) any such charges the imposition of which 
                reduces the premiums paid for the contract (within the 
                meaning of section 7702(f)(1)).
            ``(3) Application of section 213.--No deduction shall be 
        allowed under section 213(a) for charges against the life 
        insurance contract's cash surrender value described in 
        paragraph (2), unless such charges are includible in income as 
        a result of the application of section 72(e)(10) and the rider 
        is a long-term care insurance contract under subsection (b).
            ``(4) Portion defined.--For purposes of this subsection, 
        the term `portion' means only the terms and benefits under a 
        life insurance contract that are in addition to the terms and 
        benefits under the contract without regard to the coverage 
        under a long-term care insurance contract.''
    (b) Reserve Method.--Clause (iii) of section 807(d)(3)(A) is 
amended by inserting ``(other than a long-term care insurance contract, 
as defined in section 7702B(b))'' after ``insurance contract''.
    (c) Long-Term Care Insurance Not Permitted Under Cafeteria Plans or 
Flexible Spending Arrangements.--
            (1) Cafeteria plans.--Section 125(f) is amended by adding 
        at the end the following new sentence: ``Such term shall not 
        include any long-term care insurance contract (as defined in 
        section 7702B(b)).''
            (2) Flexible spending arrangements.--The text of section 
        106 (relating to contributions by employer to accident and 
        health plans) is amended to read as follows:
    ``(a) General Rule.--Except as provided in subsection (b), gross 
income of an employee does not include employer-provided coverage under 
an accident or health plan.
    ``(b) Inclusion of Long-Term Care Benefits Provided Through 
Flexible Spending Arrangements.--
            ``(1) In general.--Effective on and after January 1, 1997, 
        gross income of an employee shall include employer-provided 
        coverage for qualified long-term care services (as defined in 
        section 7702B(c)) to the extent that such coverage is provided 
through a flexible spending or similar arrangement.
            ``(2) Flexible spending arrangement.--For purposes of this 
        subsection, a flexible spending arrangement is a benefit 
        program which provides employees with coverage under which--
                    ``(A) specified incurred expenses may be reimbursed 
                (subject to reimbursement maximums and other reasonable 
                conditions), and
                    ``(B) the maximum amount of reimbursement which is 
                reasonably available to a participant for such coverage 
                is less than 500 percent of the value of such coverage.
        In the case of an insured plan, the maximum amount reasonably 
        available shall be determined on the basis of the underlying 
        coverage.''
    (d) Continuation Coverage Excise Tax Not To Apply.--Subsection (f) 
of section 4980B is amended by adding at the end the following new 
paragraph:
            ``(9) Continuation of long-term care coverage not 
        required.--A group health plan shall not be treated as failing 
        to meet the requirements of this subsection solely by reason of 
        failing to provide coverage under any long-term care insurance 
        contract (as defined in section 7702B(b)).''
    (e) Amounts Paid to Relatives Treated as Not Paid for Medical 
Care.--Section 213(d) is amended by adding at the end the following new 
paragraph:
            ``(10) Certain payments to relatives treated as not paid 
        for medical care.--An amount paid for a qualified long-term 
        care service (as defined in section 7702B(c)) provided to an 
        individual shall be treated as not paid for medical care if 
        such service is provided--
                    ``(A) by a relative (directly or through a 
                partnership, corporation, or other entity) unless the 
                relative is a licensed professional with respect to 
                such services, or
                    ``(B) by a corporation or partnership which is 
                related (within the meaning of section 267(b) or 
                707(b)) to the individual.
        For purposes of this paragraph, the term `relative' means an 
        individual bearing a relationship to the individual which is 
        described in any of paragraphs (1) through (8) of section 
        152(a). This paragraph shall not apply for purposes of section 
        105(b) with respect to reimbursements through insurance.''
    (f) Clerical Amendment.--The table of sections for chapter 79 is 
amended by inserting after the item relating to section 7702A the 
following new item:

                              ``Sec. 7702B. Treatment of long-term care 
                                        insurance.''.
    (g) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to contracts issued after December 31, 1996.
            (2) Continuation of existing policies.--In the case of any 
        contract issued before January 1, 1997, which met the long-term 
        care insurance requirements of the State in which the contract 
        was issued at the time the contract was issued--
                    (A) such contract shall be treated for purposes of 
                the Internal Revenue Code of 1986 as a long-term care 
                insurance contract (as defined in section 7702B(b) of 
                such Code), and
                    (B) services provided under, or reimbursed by, such 
                contract shall be treated for such purposes as 
                qualified long-term care services (as defined in 
                section 7702B(c) of such Code).
            (3) Exchanges of existing policies.--If, after the date of 
        enactment of this Act and before January 1, 1997, a contract 
        providing for long-term care insurance coverage is exchanged 
        solely for a long-term care insurance contract (as defined in 
        section 7702B(b) of such Code), no gain or loss shall be 
        recognized on the exchange. If, in addition to a long-term care 
        insurance contract, money or other property is received in the 
        exchange, then any gain shall be recognized to the extent of 
        the sum of the money and the fair market value of the other 
        property received. For purposes of this paragraph, the 
        cancellation of a contract providing for long-term care 
        insurance coverage and reinvestment of the cancellation 
        proceeds in a long-term care insurance contract within 60 days 
        thereafter shall be treated as an exchange.
            (4) Issuance of certain riders permitted.--For purposes of 
        applying sections 101(f), 7702, and 7702A of the Internal 
        Revenue Code of 1986 to any contract--
                    (A) the issuance of a rider which is treated as a 
                long-term care insurance contract under section 7702B, 
                and
                    (B) the addition of any provision required to 
                conform any other long-term care rider to be so 
                treated,
        shall not be treated as a modification or material change of 
        such contract.

SEC. 103. QUALIFIED LONG-TERM CARE SERVICES TREATED AS MEDICAL CARE.

    (a) General Rule.--Paragraph (1) of section 213(d) (defining 
medical care) is amended by striking ``or'' at the end of subparagraph 
(B), by redesignating subparagraph (C) as subparagraph (D), and by 
inserting after subparagraph (B) the following new subparagraph:
                    ``(C) for qualified long-term care services (as 
                defined in section 7702B(c)), or''.
    (b) Technical Amendments.--
            (1) Subparagraph (D) of section 213(d)(1) (as redesignated 
        by subsection (a)) is amended by striking ``subparagraphs (A) 
        and (B)'' and inserting ``subparagraphs (A), (B), and (C)''.
            (2)(A) Paragraph (1) of section 213(d) is amended by adding 
        at the end the following new flush sentence:
        ``In the case of a long-term care insurance contract (as 
        defined in section 7702B(b)), only eligible long-term care 
        premiums (as defined in paragraph (11)) shall be taken into 
        account under subparagraph (D).''
            (B) Subsection (d) of section 213 is amended by adding at 
        the end the following new paragraph:
            ``(11) Eligible long-term care premiums.--
                    ``(A) In general.--For purposes of this section, 
                the term `eligible long-term care premiums' means the 
                amount paid during a taxable year for any long-term 
                care insurance contract (as defined in section 
                7702B(b)) covering an individual, to the extent such 
                amount does not exceed the limitation determined 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....         2,000    
                More than 70.........................        2,500.    
                    ``(B) Indexing.--
                            ``(i) In general.--In the case of any 
                        taxable year beginning in a calendar year after 
                        1997, each dollar amount contained in 
                        subparagraph (A) shall be increased by the 
                        medical care cost adjustment of such amount for 
                        such calendar year. If any increase determined 
                        under the preceding sentence is not a multiple 
                        of $10, such increase shall be rounded to the 
                        nearest multiple of $10.
                            ``(ii) Medical care cost adjustment.--For 
                        purposes of clause (i), the medical care cost 
                        adjustment for any calendar year is the 
                        percentage (if any) by which--
                                    ``(I) the medical care component of 
                                the Consumer Price Index (as defined in 
                                section 1(f)(5)) for August of the 
                                preceding calendar year, exceeds
                                    ``(II) such component for August of 
                                1996.
                        The Secretary shall, in consultation with the 
                        Secretary of Health and Human Services, 
                        prescribe an adjustment which the Secretary 
                        determines is more appropriate for purposes of 
                        this paragraph than the adjustment described in 
                        the preceding sentence, and the adjustment so 
                        prescribed shall apply in lieu of the 
                        adjustment described in the preceding 
                        sentence.''
            (3) Paragraph (6) of section 213(d) is amended--
                    (A) by striking ``subparagraphs (A) and (B)'' and 
                inserting ``subparagraphs (A), (B), and (C)'', and
                    (B) by striking ``paragraph (1)(C)'' in 
                subparagraph (A) and inserting ``paragraph (1)(D)''.
            (4) Paragraph (7) of section 213(d) is amended by striking 
        ``subparagraphs (A) and (B)'' and inserting ``subparagraphs 
        (A), (B), and (C)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 104. CERTAIN EXCHANGES OF LIFE INSURANCE CONTRACTS FOR LONG-TERM 
              CARE INSURANCE CONTRACTS NOT TAXABLE.

    (a) In General.--Subsection (a) of section 1035 (relating to 
certain exchanges of insurance contracts) is amended by striking the 
period at the end of paragraph (3) and inserting ``; or'', and by 
adding at the end the following new paragraph:
            ``(4) a contract of life insurance or an endowment or 
        annuity contract for a long-term care insurance contract (as 
        defined in section 7702B(b)).''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1996.

SEC. 105. EXCLUSION FROM GROSS INCOME FOR AMOUNTS WITHDRAWN FROM 
              CERTAIN RETIREMENT PLANS FOR LONG-TERM CARE INSURANCE.

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

``SEC. 137. DISTRIBUTIONS FROM CERTAIN RETIREMENT PLANS FOR LONG-TERM 
              CARE INSURANCE.

    ``(a) General Rule.--The amount which would (but for this section) 
be includible in the gross income of an individual for the taxable year 
by reason of eligible distributions during the taxable year shall be 
reduced (but not below zero) by the aggregate premiums paid by such 
individual during such taxable year for any long-term care insurance 
contract (as defined in section 7702B(b)) for coverage of such 
individual or the spouse of such individual.
    ``(b) Eligible Distribution.--For purposes of this section, the 
term `eligible distribution' means any distribution or payment to an 
individual from--
            ``(1) an individual retirement plan of such individual,
            ``(2) amounts attributable to employer contributions made 
        pursuant to elective deferrals described in subparagraph (A) or 
        (C) of section 402(g)(3) or section 501(c)(18)(D)(iii), or
            ``(3) amounts deferred under section 457(a).''
    (b) Conforming Amendments.--
            (1) Section 401(k)(2)(B)(i) is amended by striking ``or'' 
        at the end of subclause (III), by striking ``and'' at the end 
        of subclause (IV) and inserting ``or'', and by inserting after 
        subclause (IV) the following new subclause:
                                    ``(V) the date distributions for 
                                premiums for a long-term care insurance 
                                contract (as defined in section 
                                7702B(b)) for coverage of such 
                                individual or the spouse of such 
                                individual are made, and''.
            (2) Section 403(b)(11) is amended by striking ``or'' at the 
        end of subparagraph (A), by striking the period at the end of 
        subparagraph (B) and inserting ``, or'', and by inserting after 
        subparagraph (B) the following new subparagraph:
                    ``(C) for the payment of premiums for a long-term 
                care insurance contract (as defined in section 
                7702B(b)) for coverage of the employee or the spouse of 
                the employee.''
            (3) Subparagraph (A) of section 457(d)(1) is amended by 
        striking ``or'' at the end of clause (ii), by striking ``and'' 
        at the end of clause (iii) and inserting ``or'', and by 
        inserting after clause (iii) the following new clause:
                            ``(iv) the date distributions for premiums 
                        for a long-term care insurance contract (as 
                        defined in section 7702B(b)) for coverage of 
                        such individual or the spouse of such 
                        individual are made, and''.
            (4) The table of sections for part III of subchapter B of 
        chapter 1 is amended by striking the last item and inserting 
        the following new items:

                              ``Sec. 137. Distributions from certain 
                                        retirement plans for long-term 
                                        care insurance.
                              ``Sec. 138. Cross references to other 
                                        Acts.''
    (c) Effective Date.--The amendments made by this section shall 
apply to payments and distributions after December 31, 1996.

SEC. 106. INCLUSION IN INCOME OF EXCESS LONG-TERM CARE BENEFITS.

    (a) In General.--Part II of subchapter B of chapter 1 (relating to 
items specifically included in gross income) is amended by adding at 
the end the following new section:

``SEC. 91. EXCESS LONG-TERM CARE BENEFITS.

    ``(a) General Rule.--Notwithstanding any other provision of this 
title, gross income shall include the amount of excess long-term care 
benefits received by the taxpayer during the taxable year.
    ``(b) Exception for Terminally Ill Individuals.--Subsection (a) 
shall not apply to any long-term care benefit paid by reason of an 
insured who is a terminally ill individual (as defined in subsection 
(e)) as of the date the benefit is received.
    ``(c) Excess Long-Term Care Benefits.--For purposes of this 
section--
            ``(1) In general.--The term `excess long-term care 
        benefits' means the excess (if any) of--
                    ``(A) the value of the long-term care benefits 
                received by the taxpayer during the taxable year, over
                    ``(B) the exclusion amount applicable to such 
                benefits.
            ``(2) Long-term care benefits.--The term `long-term care 
        benefits' means payments and other benefits under long-term 
        care insurance contracts (as defined in section 7702B(b)) to 
        the extent excludable from gross income by reason of section 
        7702B(a)(2).
            ``(3) Exclusion amount.--
                    ``(A) In general.--In the case of long-term care 
                benefits received by the taxpayer during the taxable 
                year by reason of the taxpayer being a chronically ill 
                individual, the term `exclusion amount' means the 
                aggregate of $200 for each day during such year on 
                which the individual is a chronically ill individual. 
                In the case of individuals who are married to each 
                other and who are both chronically ill individuals, the 
                preceding sentence shall be applied separately with 
                respect to each spouse.
                    ``(B) Other taxpayers.--In the case of long-term 
                care benefits received during the taxable year by a 
                taxpayer by reason of another individual being a 
                chronically ill individual, the term `exclusion amount' 
                means so much of such other individual's exclusion 
                amount (for such other individual's taxable year which 
                begins in the calendar year in which the taxpayer's 
                taxable year begins) as is allocated by such other 
                individual to the taxpayer. Such an allocation shall be 
                made at the time and in the manner prescribed by the 
                Secretary; and once made, shall be irrevocable.
    ``(d) Chronically Ill Individual.--For purposes of this section, 
the term `chronically ill individual' has the meaning given to such 
term by section 7702B(c)(2).
    ``(e) Terminally Ill Individual.--For purposes of this section:
            ``(1) Terminally ill individual.--The term `terminally ill 
        individual' means an individual who has been certified by a 
        physician as having an illness or physical condition which can 
        reasonably be expected to result in death in 24 months or less 
        after the date of the certification.
            ``(2) Physician.--The term `physician' has the meaning 
        given to such term by section 1861(r)(1) of the Social Security 
        Act (42 U.S.C. 1395x(r)(1)).
    ``(f) Inflation Adjustment of $200 Benefit Limit.--In the case of a 
calendar year after 1996, the $200 amount contained in subsection 
(c)(3)(A) shall be increased at the same time and in the same manner as 
amounts are increased pursuant to section 213(d)(11).''
    (b) Clerical Amendment.--The table of sections for such part II is 
amended by adding at the end the following new item:

                              ``Sec. 91. Excess long-term care 
                                        benefits.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 107. REPORTING REQUIREMENTS.

    (a) In General.--Subpart B of part III of subchapter A of chapter 
61 is amended by adding at the end the following new section:

``SEC. 6050Q. CERTAIN LONG-TERM CARE BENEFITS.

    ``(a) Requirement of Reporting.--Any person who pays long-term care 
benefits shall make a return, according to the forms or regulations 
prescribed by the Secretary, setting forth--
            ``(1) the aggregate amount of such benefits paid by such 
        person to any individual during any calendar year, and
            ``(2) the name, address, and TIN of such individual.
    ``(b) Statements To Be Furnished to Persons With Respect to Whom 
Information Is Required.--Every person required to make a return under 
subsection (a) shall furnish to each individual whose name is required 
to be set forth in such return a written statement showing--
            ``(1) the name of the person making the payments, and
            ``(2) the aggregate amount of long-term care benefits paid 
        to the individual which are required to be shown on such 
        return.
The written statement required under the preceding sentence shall be 
furnished to the individual on or before January 31 of the year 
following the calendar year for which the return under subsection (a) 
was required to be made.
    ``(c) Long-Term Care Benefits.--For purposes of this section, the 
term `long-term care benefit' has the meaning given such term by 
section 91(c).''
    (b) Penalties.--
            (1) Subparagraph (B) of section 6724(d)(1) is amended by 
        redesignating clauses (ix) through (xiv) as clauses (x) through 
        (xv), respectively, and by inserting after clause (viii) the 
        following new clause:
                            ``(ix) section 6050Q (relating to certain 
                        long-term care benefits),''.
            (2) Paragraph (2) of section 6724(d) is amended by 
        redesignating subparagraphs (Q) through (T) as subparagraphs 
        (R) through (U), respectively, and by inserting after 
        subparagraph (P) the following new subparagraph:
                    ``(Q) section 6050Q(b) (relating to certain long-
                term care benefits),''.
    (c) Clerical Amendment.--The table of sections for subpart B of 
part III of subchapter A of chapter 61 is amended by adding at the end 
the following new item:

                              ``Sec. 6050Q. Certain long-term care 
                                        benefits.''
    (d) Effective Date.--The amendments made by this section shall 
apply to benefits paid after December 31, 1996.

   TITLE II--FEDERAL STANDARDS FOR PRIVATE LONG-TERM CARE INSURANCE 
                               CONTRACTS

SEC. 201. FEDERAL STANDARDS FOR PRIVATE LONG-TERM CARE INSURANCE 
              CONTRACTS.

    (a) In General.--The Social Security Act is amended by adding at 
the end the following:

  ``TITLE XXI--FEDERAL STANDARDS FOR PRIVATE LONG-TERM CARE INSURANCE 
                               CONTRACTS

``SEC. 2101. REQUIREMENTS FOR STATE ENFORCEMENT PROGRAMS.

    ``(a) In General.--The Secretary shall review, approve, and 
periodically reapprove State programs that certify long-term care 
insurance contracts as meeting the Federal standards established under 
this title. The Secretary may not approve or reapprove such a program 
unless it meets the requirements of this section.
    ``(b) General Requirement.--In order to be approved, a State 
program must include such laws and procedures as may be necessary to 
ensure the compliance of long-term care insurance contracts certified 
by the State, and insurers issuing such contracts and their agents, 
with the Federal requirements established under this title.
    ``(c) Specific Activities Under State Program.--In order to be 
approved, a State program shall provide for the following procedures 
and activities:
            ``(1) Monitoring of insurers and contracts.--Procedures for 
        ongoing monitoring of the compliance of insurers doing business 
        in the State, and of long-term care insurance contracts issued 
        in the State, with requirements under this title.
            ``(2) Contract review and certification.--Procedures for 
        review and certification (and annual recertification) of each 
        such contract sold in the State.
            ``(3) Consumer complaints and dispute resolution.--
        Administrative procedures for the investigation and resolution 
        of complaints by consumers, and disputes between consumers and 
        insurers, with respect to long-term care insurance, including 
        procedures for the filing, investigation, and adjudication of 
        consumer complaints with respect to the compliance of insurers 
        and contracts with requirements under this title, or other 
        requirements under State law.

``SEC. 2102. REQUIREMENTS TO FACILITATE UNDERSTANDING AND COMPARISON OF 
              BENEFITS.

    ``(a) In General.--The Secretary, in consultation with the National 
Association of Insurance Commissioners (in this title referred to as 
the `NAIC'), shall promulgate regulations designed to standardize 
formats and terminology used in long-term care insurance contracts, to 
require insurers to provide to customers and beneficiaries information 
on the range of public and private long-term care coverage available, 
and to establish such other requirements as may be appropriate to 
promote consumer understanding and facilitate comparison of benefits, 
which shall include at a minimum the requirements specified in this 
section.
    ``(b) Uniform Terms, Definitions, and Formats.--Insurers shall be 
required to use, in long-term care insurance contracts, uniform 
terminology, definitions of terms, and formats, in accordance with 
regulations promulgated by the Secretary.
    ``(c) Standard Outline of Coverage.--
            ``(1) In general.--Insurers shall be required to develop 
        for each long-term care insurance contract offered or sold, to 
        include as a part of each such contract, and to make available 
        to each potential purchaser and furnish to each insured 
        individual and contractholder, an outline of coverage under 
        such contract that--
                    ``(A) includes the elements specified in paragraph 
                (2),
                    ``(B) is in a uniform format,
                    ``(C) accurately and clearly reflects the contents 
                of the contract, and
                    ``(D) is updated periodically on such timetable as 
                may be required by the Secretary (or more frequently as 
                necessary to reflect significant changes in outlined 
                information).
            ``(2) Contents of outline.--The outline of coverage for 
        each long-term care insurance contract shall include at least 
        the following:
                    ``(A) Benefits.--A description of--
                            ``(i) the principal benefits covered, 
                        including the extent of--
                                    ``(I) benefits for services 
                                furnished in residential care 
                                facilities, and
                                    ``(II) other benefits,
                            ``(ii) the principal exclusions from and 
                        limitations on coverage,
                            ``(iii) the terms and conditions, if any, 
                        upon which the insured individual may obtain 
                        upgraded benefits, and
                            ``(iv) the threshold conditions for 
                        entitlement to receive benefits.
                    ``(B) Cancellation.--A statement of the 
                circumstances in which a contract may be terminated, 
                and the refund or nonforfeitures benefits (if any) 
                applicable in each such circumstance, including--
                            ``(i) death of the insured individual,
                            ``(ii) nonpayment of premiums,
                            ``(iii) election by the insured individual 
                        not to renew,
                            ``(iv) any other circumstance.
                    ``(C) Premium.--A statement of--
                            ``(i) the total annual premium, and the 
                        portion of such premium attributable to each 
                        covered benefit,
                            ``(ii) any reservation by the insurer of a 
                        right to change premiums,
                            ``(iii) any limit on annual premium 
                        increases,
                            ``(iv) any expected premium increases 
                        associated with automatic or optional benefit 
                        increases (including inflation protection), and
                            ``(v) any circumstances under which payment 
                        of premium is waived.
                    ``(D) Cost/value comparison.--
                            ``(i) Information on average costs (and 
                        variation in such costs) for nursing facility 
                        care (and such other care as the Secretary may 
                        specify) in the United States, information on 
                        the value of benefits relative to such costs, 
                        and a statement that this national average 
                        varies by geographic region.
                            ``(ii) A comparison of benefits, over a 
                        period of at least 20 years, for contracts with 
                        and without inflation protection.
                            ``(iii) A declaration as to whether the 
                        amount of benefits will increase over time, 
                        and, if so, a statement of the type and amount 
                        of, any limitations on, and any premium 
                        increases for, such benefit increases.

``SEC. 2103. LIMITING CONDITIONS ON BENEFITS.

    ``(a) In General.--A long-term care insurance contract may not--
            ``(1) condition eligibility for benefits for a type of 
        service on the need for or receipt of any other type of service 
        (such as prior hospitalization or institutionalization, or a 
        higher level of care than the care for which benefits are 
        covered);
            ``(2) condition eligibility for any benefit (where the need 
        for such benefit has been established by an independent 
        assessment of impairment) on any particular medical diagnosis 
        (including any acute condition) or on one of a group of 
        diagnoses;
            ``(3) condition eligibility for benefits furnished by 
        licensed or certified providers on compliance by such providers 
        with conditions not required under Federal or State law; or
            ``(4) condition coverage of any service on provision of 
        such service by a provider, or in a setting, providing a higher 
        level of care than that required by an insured individual.
    ``(b) Home Care or Community-Based Services.--A long-term care 
insurance contract that provides benefits for any home care or 
community-based services provided in a setting other than a residential 
care facility--
            ``(1) may not limit such benefits to services provided by 
        registered nurses or licensed practical nurses;
            ``(2) may not limit such benefits to services furnished by 
        persons or entities participating in programs under titles 
        XVIII and XIX of this Act; and
            ``(3) must provide, at a minimum, benefits for personal 
        assistance with activities of daily living, home health care, 
        adult day care, and respite care.
    ``(c) Nursing Facility Services.--A long-term care insurance 
contract that provides benefits for any nursing facility services--
            ``(1) must provide benefits for such services provided by 
        all types of nursing facilities licensed by the State, and
            ``(2) may provide benefits for care in other residential 
        facilities.
    ``(d) Prohibition on Discrimination by Diagnosis.--A long-term care 
insurance contract may not provide for treatment of--
            ``(1) Alzheimer's disease or any other progressive 
        degenerative dementia of an organic origin,
            ``(2) any organic or inorganic mental illness,
            ``(3) mental retardation or any other cognitive or mental 
        impairment, or
            ``(4) HIV infection or AIDS,
        different from the treatment of any other medical condition for 
        purposes of determining whether threshold conditions for the 
        receipt of benefits have been met, or the amount of benefits 
        under the contract.

``SEC. 2104. INFLATION PROTECTION.

    ``(a) In General.--The Secretary, after consultation with NAIC, 
shall promulgate regulations establishing requirements with respect to 
inflation protection, which shall include at a minimum the requirements 
specified in this section.
    ``(b) Requirement to Offer.--An insurer offering for sale any long-
term care insurance contract shall be required to afford the purchaser 
the option to obtain coverage under such contract (upon payment of 
increased premiums) of annual increases in benefits at rates in 
accordance with subsection (c).
    ``(c) Rate Increase in Benefits.--For purposes of subsection (b), 
the benefits under a contract for each year shall be increased by a 
percentage of the full value of benefits under the contract for the 
previous year, which shall be not less than 5 percent of such value (or 
such other rate of increase as may be determined by the Secretary to be 
adequate to offset increases in the costs of long-term care services 
for which coverage is provided under the contract).
    ``(d) Requirement of Written Rejection.--Inflation protection in 
accordance with subsection (b) may be excluded from the coverage under 
a contract only if the insured individual (or, if different, the person 
responsible for payment of premiums) has rejected in writing the option 
to obtain such coverage.

``SEC. 2105. NONFORFEITURE BENEFITS.

    ``(a) In General.--The Secretary, after consultation with NAIC, 
shall promulgate regulations establishing requirements with respect to 
nonforfeiture benefits, which shall include at a minimum the 
requirements specified in this section.
    ``(b) Requirement.--Each long-term care insurance contract that 
lapses for any reason (including nonpayment of premiums, cancellation, 
or failure to renew, but excluding lapses due to death) after remaining 
in effect beyond a specified minimum period shall provide for 
appropriate nonforfeiture benefits.
    ``(c) Nonforfeiture Benefits.--The standards established under this 
section shall require that the amount or percentage of nonforfeiture 
benefits shall increase proportionally with the amount of premiums paid 
by a contractholder.

``SEC. 2106. CONTINUATION, RENEWAL, REPLACEMENT, CONVERSION, AND 
              CANCELLATION OF CONTRACTS.

    ``(a) In General.--The Secretary, in consultation with NAIC, shall 
promulgate regulations establishing requirements applicable to the 
renewal, replacement, conversion, and cancellation of long-term care 
insurance contracts, which shall include at a minimum the requirements 
specified in this section.
    ``(b) Insured's Right to Cancel During Examination Period.--Each 
individual insured (or, if different, each individual liable for 
payment of premiums) under a long-term care insurance contract shall 
have the unconditional right to return the contract within 30 days 
after the date of its issuance and delivery, and to obtain a full 
refund of any premium paid.
    ``(c) Continuation, Renewal, Replacement, and Conversion of 
Contracts.--
            ``(1) In general.--Insurers shall not be permitted to 
        cancel, or refuse to renew (or replace with a substantial 
        equivalent), any long-term care insurance contract for any 
        reason other than for fraud or material misrepresentation or 
        for nonpayment of premium.
            ``(2) Continuation and conversion rights with respect to 
        group contracts.--
                    ``(A) In general.--Insurers shall be required to 
                include in each group long-term care insurance 
                contract, a provision affording to each insured 
                individual, when such contract would otherwise 
                terminate, the opportunity (at the insurer's option, 
                subject to approval of the State insurance 
                commissioner) either to continue or to convert coverage 
                under such contract in accordance with this paragraph.
                    ``(B) Rights of related individuals.--In the case 
                of any insured individual whose eligibility for 
                coverage under a group contract is based on 
                relationship to another individual, the insurer shall 
                be required to continue such coverage upon termination 
                of the relationship due to divorce or death.
                    ``(C) Continuation of coverage.--A group contract 
                shall be considered to meet the requirements of this 
                paragraph with respect to rights of an insured 
                individual to continuation of coverage if coverage of 
                the same (or substantially equivalent) benefits for 
                such individual under such contract is maintained, 
                subject only to timely payment of premiums.
                    ``(D) Conversion of coverage.--A group contract 
                shall be considered to meet the requirements of this 
                paragraph with respect to conversion if it entitles 
                each individual who has been continuously covered under 
                the contract for at least 6 months before the date of 
                the termination to issuance of a replacement contract 
                providing benefits identical to, substantially 
                equivalent to, or in excess of, the benefits under such 
                terminated group contract--
                            ``(i) without requiring evidence of 
                        insurability with respect to benefits covered 
                        under such previous contract, and
                            ``(ii) at premium rates no higher than 
                        would apply if the insured individual had 
                        initially obtained coverage under such 
                        replacement contract on the date such insured 
                        individual initially obtained coverage under 
                        such group contract.

``SEC. 2107. DEFINITIONS.

    ``For purposes of this title:
            ``(1) Activity of daily living.--The term `activity of 
        daily living' means any of the following: eating, toileting, 
        dressing, bathing, and transferring.
            ``(2) Adult day care.--The term `adult day care' means a 
        program providing social and health-related services during the 
        day to six or more adults with disabilities (or such smaller 
        number as the Secretary may specify in regulations) in a 
        community group setting outside the home.
            ``(3) Contractholder--The term `contractholder' means the 
        entity which is the holder of record of a group long-term care 
        insurance contract.
            ``(4) Home health care.--The term `home health care' means 
        medical and nonmedical services including such services as 
        homemaker services, assistance with activities of daily living, 
        and respite care provided to individuals in their residences.
            ``(5) Insured individual.--The term `insured individual' 
        means, with respect to a long-term care insurance contract, any 
        individual who has coverage of benefits under such contract.
            ``(6) Insurer.--The term `insurer' means any person that 
        offers or sells an individual or group long-term care insurance 
        contract under which such person is at risk for all or part of 
        the cost of benefits under the contract, and includes any agent 
        of such person.
            ``(7) Long-term care insurance contract.--The term `long-
        term care insurance contract has the meaning given such term in 
        section 7702B(b) of the Internal Revenue Code of 1986 (without 
        regard to paragraph (1)(F) of such section).
            ``(8) Nursing facility.--The term `nursing facility' means 
        a facility licensed by the State to provide to residents--
                    ``(A) skilled nursing care and related services for 
                residents who require medical or nursing care;
                    ``(B) rehabilitation services for the 
                rehabilitation of injured, disabled, or sick 
                individuals, or
                    ``(C) on a regular basis, health-related care and 
                services to individuals who because of their mental or 
                physical condition require care and services (above the 
                level of room and board) which can be made available to 
                them only through institutional facilities.
            ``(9) Residential care facility.--The term `residential 
        care facility' means a facility (including a nursing facility) 
        that--
                    ``(A) provides to residents medical or personal 
                care services (including at a minimum assistance with 
                activities of daily living) in a setting other than an 
                individual or single-family home, and
                    ``(B) does not provide services of a higher level 
                than can be provided by a nursing facility.
            ``(10) Respite care.--The term `respite care' means the 
        temporary provision of care (including assistance with 
        activities of daily living) to an individual, in the 
        individual's home or another setting in the community, for the 
        purpose of affording such individual's unpaid caregiver a 
        respite from the responsibilities of such care.
            ``(11) State insurance commissioner.--The term `State 
        insurance commissioner' means the State official bearing such 
        title, or, in the case of a jurisdiction where such title is 
        not used, the State official with primary responsibility for 
        the regulation of insurance.''.
    (b) Definition of State.--Section 1101(a)(1) of the Social Security 
Act (42 U.S.C. 1301(a)(1)) is amended by adding at the end ``Such term 
when used in title XXI includes only the several States and the 
District of Columbia.''.
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