II 

109TH CONGRESS 

1ST SESSION S. 1244 

To amend the Internal Revenue Code of 1986 to allow individuals a deduction 

for qualified long-term care insurance premiums, use of such insurance 

under cafeteria plans and flexible spending arrangements, and a credit 

for individuals with long-term care needs. 

IN THE SENATE OF THE UNITED STATES 

JUNE 14, 2005 

Mr. GRASSLEY (for himself and Mrs. LINCOLN) introduced the following bill; 

which was read twice and referred to the Committee on Finance 

A BILL

To amend the Internal Revenue Code of 1986 to allow individuals a deduction for qualified long-term care insurance 

premiums, use of such insurance under cafeteria plans 

and flexible spending arrangements, and a credit for 

individuals with long-term care needs.

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Long-Term Care and 

5 Retirement Security Act of 2005’’. 
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1 SEC. 2. TREATMENT OF PREMIUMS ON QUALIFIED LONG2 TERM CARE INSURANCE CONTRACTS. 

3 (a) IN GENERAL.—Part VII of subchapter B of chap4 ter 1 of the Internal Revenue Code of 1986 (relating to 

5 additional itemized deductions) is amended by redesig6 nating section 224 as section 225 and by inserting after 

7 section 223 the following new section: 

8 ‘‘SEC. 224. PREMIUMS ON QUALIFIED LONG-TERM CARE IN9 SURANCE CONTRACTS. 

10 ‘‘(a) IN GENERAL.—In the case of an individual, 

11 there shall be allowed as a deduction an amount equal to 

12 the applicable percentage of the amount of eligible long13 term care premiums (as defined in section 213(d)(10)) 

14 paid during the taxable year for coverage for the taxpayer 

15 and the taxpayer’s spouse and dependents under a quali16 fied long-term care insurance contract (as defined in sec17 tion 7702B(b)). 

18 ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of 

19 subsection (a), the applicable percentage shall be deter20 mined in accordance with the following table:

For taxable years beginning in calendar year—

The applicable 

percentage is—

2005, 2006, or 2007 ....................................................................... 25

2008 ................................................................................................ 35

2009 ................................................................................................ 65

2010 or thereafter .......................................................................... 100. 

21 ‘‘(c) COORDINATION WITH OTHER DEDUCTIONS.—

22 Any amount paid by a taxpayer for any qualified long-
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1 term care insurance contract to which subsection (a) ap2 plies shall not be taken into account in computing the 

3 amount allowable to the taxpayer as a deduction under 

4 section 162(l) or 213(a).’’. 

5 (b) LONG-TERM CARE INSURANCE PERMITTED TO

6 BE OFFERED UNDER CAFETERIA PLANS AND FLEXIBLE

7 SPENDING ARRANGEMENTS.— 

8 (1) CAFETERIA PLANS.—The last sentence of 

9 section 125(f) of such Code (defining qualified bene10 fits) is amended by inserting before the period at the 

11 end ‘‘; except that such term shall include the pay12 ment of premiums for any qualified long-term care 

13 insurance contract (as defined in section 7702B) to 

14 the extent the amount of such payment does not ex15 ceed the eligible long-term care premiums (as de16 fined in section 213(d)(10)) for such contract’’. 

17 (2) FLEXIBLE SPENDING ARRANGEMENTS.—

18 Section 106 of such Code (relating to contributions 

19 by an employer to accident and health plans) is 

20 amended by striking subsection (c) and redesig21 nating subsection (d) as subsection (c). 

22 (c) CONFORMING AMENDMENTS.— 

23 (1) Section 62(a) of such Code is amended by 

24 inserting before the last sentence at the end the fol25 lowing new paragraph: 
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1 ‘‘(21) PREMIUMS ON QUALIFIED LONG-TERM

2 CARE INSURANCE CONTRACTS.—The deduction al3 lowed by section 224.’’. 

4 (2) Sections 223(b)(4)(B), 223(d)(4)(C), 

5 223(f)(3)(B), 3231(e)(11), 3306(b)(18), 

6 3401(a)(22), 4973(g)(1), and 4973(g)(2)(B)(i) of 

7 such Code are each amended by striking ‘‘section 

8 106(d)’’ and inserting ‘‘section 106(c)’’. 

9 (3) Section 6041 of such Code is amended— 

10 (A) in subsection (f)(1) by striking ‘‘(as 

11 defined in section 106(c)(2))’’, and 

12 (B) by adding at the end the following new 

13 subsection: 

14 ‘‘(h) FLEXIBLE SPENDING ARRANGEMENT DE15 FINED.—For purposes of this section, a flexible spending 

16 arrangement is a benefit program which provides employ17 ees with coverage under which— 

18 ‘‘(1) specified incurred expenses may be reim19 bursed (subject to reimbursement maximums and 

20 other reasonable conditions), and 

21 ‘‘(2) the maximum amount of reimbursement 

22 which is reasonably available to a participant for 

23 such coverage is less than 500 percent of the value 

24 of such coverage. 
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1 In the case of an insured plan, the maximum amount rea2 sonably available shall be determined on the basis of the 

3 underlying coverage.’’. 

4 (4) The table of sections for part VII of sub5 chapter B of chapter 1 of such Code is amended by 

6 striking the last item and inserting the following 

7 new items:

‘‘Sec. 224. Premiums on qualified long-term care insurance contracts. 

‘‘Sec. 225. Cross reference.’’.

8 (d) EFFECTIVE DATES.— 

9 (1) IN GENERAL.—Except as provided in para10 graph (2), the amendments made by this section 

11 shall apply to taxable years beginning after Decem12 ber 31, 2004. 

13 (2) CAFETERIA PLANS AND FLEXIBLE SPEND14 ING ARRANGEMENTS.—The amendments made by 

15 subsection (b) shall apply to taxable years beginning 

16 after December 31, 2006. 

17 SEC. 3. CREDIT FOR TAXPAYERS WITH LONG-TERM CARE 

18 NEEDS. 

19 (a) IN GENERAL.—Subpart A of part IV of sub20 chapter A of chapter 1 of the Internal Revenue Code of 

21 1986 (relating to nonrefundable personal credits) is 

22 amended by inserting after section 25B the following new 

23 section: 
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1 ‘‘SEC. 25C. CREDIT FOR TAXPAYERS WITH LONG-TERM 

2 CARE NEEDS. 

3 ‘‘(a) ALLOWANCE OF CREDIT.— 

4 ‘‘(1) IN GENERAL.—There shall be allowed as a 

5 credit against the tax imposed by this chapter for 

6 the taxable year an amount equal to the applicable 

7 credit amount multiplied by the number of applica8 ble individuals with respect to whom the taxpayer is 

9 an eligible caregiver for the taxable year. 

10 ‘‘(2) APPLICABLE CREDIT AMOUNT.—For pur11 poses of paragraph (1), the applicable credit amount 

12 shall be determined in accordance with the following 

13 table:

For taxable years beginning in calendar year—

The applicable 

credit 

amount 

is—

2005 ....................................................................................... $1,000

2006 ....................................................................................... 1,500

2007 ....................................................................................... 2,000

2008 ....................................................................................... 2,500

2009 or thereafter ................................................................. 3,000. 

14 ‘‘(b) LIMITATION BASED ON ADJUSTED GROSS IN15 COME.— 

16 ‘‘(1) IN GENERAL.—The amount of the credit 

17 allowable under subsection (a) shall be reduced (but 

18 not below zero) by $100 for each $1,000 (or fraction 

19 thereof) by which the taxpayer’s modified adjusted 

20 gross income exceeds the threshold amount. For 

21 purposes of the preceding sentence, the term ‘modi-
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1 fied adjusted gross income’ means adjusted gross in2 come increased by any amount excluded from gross 

3 income under section 911, 931, or 933. 

4 ‘‘(2) THRESHOLD AMOUNT.—For purposes of 

5 paragraph (1), the term ‘threshold amount’ means— 

6 ‘‘(A) $150,000 in the case of a joint re7 turn, and 

8 ‘‘(B) $75,000 in any other case. 

9 ‘‘(3) INDEXING.—In the case of any taxable 

10 year beginning in a calendar year after 2005, each 

11 dollar amount contained in paragraph (2) shall be 

12 increased by an amount equal to the product of— 

13 ‘‘(A) such dollar amount, and 

14 ‘‘(B) the medical care cost adjustment de15 termined under section 213(d)(10)(B)(ii) for 

16 the calendar year in which the taxable year be17 gins, determined by substituting ‘August 2004’ 

18 for ‘August 1996’ in subclause (II) thereof. 

19 If any increase determined under the preceding sen20 tence is not a multiple of $50, such increase shall 

21 be rounded to the next lowest multiple of $50. 

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

23 ‘‘(1) APPLICABLE INDIVIDUAL.— 

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

25 individual’ means, with respect to any taxable 
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1 year, any individual who has been certified, be2 fore the due date for filing the return of tax for 

3 the taxable year (without extensions), by a phy4 sician (as defined in section 1861(r)(1) of the 

5 Social Security Act) as being an individual with 

6 long-term care needs described in subparagraph 

7 (B) for a period— 

8 ‘‘(i) which is at least 180 consecutive 

9 days, and 

10 ‘‘(ii) a portion of which occurs within 

11 the taxable year. 

12 Notwithstanding the preceding sentence, a cer13 tification shall not be treated as valid unless it 

is made within the 391 14 ⁄2 month period ending 

15 on such due date (or such other period as the 

16 Secretary prescribes). 

17 ‘‘(B) INDIVIDUALS WITH LONG-TERM CARE

18 NEEDS.—An individual is described in this sub19 paragraph if the individual meets any of the fol20 lowing requirements: 

21 ‘‘(i) The individual is at least 6 years 

22 of age and— 

23 ‘‘(I) is unable to perform (with24 out substantial assistance from an25 other individual) at least 3 activities 
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1 of daily living (as defined in section 

2 7702B(c)(2)(B)) due to a loss of 

3 functional capacity, or 

4 ‘‘(II) requires substantial super5 vision to protect such individual from 

6 threats to health and safety due to se7 vere cognitive impairment and is un8 able to perform, without reminding or 

9 cuing assistance, at least 1 activity of 

10 daily living (as so defined) or to the 

11 extent provided in regulations pre12 scribed by the Secretary (in consulta13 tion with the Secretary of Health and 

14 Human Services), is unable to engage 

15 in age appropriate activities. 

16 ‘‘(ii) The individual is at least 2 but 

17 not 6 years of age and is unable due to a 

18 loss of functional capacity to perform 

19 (without substantial assistance from an20 other individual) at least 2 of the following 

21 activities: eating, transferring, or mobility. 

22 ‘‘(iii) The individual is under 2 years 

23 of age and requires specific durable med24 ical equipment by reason of a severe health 

25 condition or requires a skilled practitioner 
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1 trained to address the individual’s condi2 tion to be available if the individual’s par3 ents or guardians are absent. 

4 ‘‘(2) ELIGIBLE CAREGIVER.— 

5 ‘‘(A) IN GENERAL.—A taxpayer shall be 

6 treated as an eligible caregiver for any taxable 

7 year with respect to the following individuals: 

8 ‘‘(i) The taxpayer. 

9 ‘‘(ii) The taxpayer’s spouse. 

10 ‘‘(iii) An individual with respect to 

11 whom the taxpayer is allowed a deduction 

12 under section 151(c) for the taxable year. 

13 ‘‘(iv) An individual who would be de14 scribed in clause (iii) for the taxable year 

15 if section 151(c) were applied by sub16 stituting for the exemption amount an 

17 amount equal to the sum of the exemption 

18 amount, the standard deduction under sec19 tion 63(c)(2)(C), and any additional stand20 ard deduction under section 63(c)(3) which 

21 would be applicable to the individual if 

22 clause (iii) applied. 

23 ‘‘(v) An individual who would be de24 scribed in clause (iii) for the taxable year 

25 if— 
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1 ‘‘(I) the requirements of clause 

2 (iv) are met with respect to the indi3 vidual, and 

4 ‘‘(II) the requirements of sub5 paragraph (B) are met with respect to 

6 the individual in lieu of the support 

7 test under subsection (c)(1)(D) or 

8 (d)(1)(C) of section 152. 

9 ‘‘(B) RESIDENCY TEST.—The require10 ments of this subparagraph are met if an indi11 vidual has as his principal place of abode the 

12 home of the taxpayer and— 

13 ‘‘(i) in the case of an individual who 

14 is an ancestor or descendant of the tax15 payer or the taxpayer’s spouse, is a mem16 ber of the taxpayer’s household for over 

17 half the taxable year, or 

18 ‘‘(ii) in the case of any other indi19 vidual, is a member of the taxpayer’s 

20 household for the entire taxable year. 

21 ‘‘(C) SPECIAL RULES WHERE MORE THAN

22 1 ELIGIBLE CAREGIVER.— 

23 ‘‘(i) IN GENERAL.—If more than 1 in24 dividual is an eligible caregiver with re25 spect to the same applicable individual for 
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1 taxable years ending with or within the 

2 same calendar year, a taxpayer shall be 

3 treated as the eligible caregiver if each 

4 such individual (other than the taxpayer) 

5 files a written declaration (in such form 

6 and manner as the Secretary may pre7 scribe) that such individual will not claim 

8 such applicable individual for the credit 

9 under this section. 

10 ‘‘(ii) NO AGREEMENT.—If each indi11 vidual required under clause (i) to file a 

12 written declaration under clause (i) does 

13 not do so, the individual with the highest 

14 adjusted gross income shall be treated as 

15 the eligible caregiver. 

16 ‘‘(iii) MARRIED INDIVIDUALS FILING

17 SEPARATELY.—In the case of married indi18 viduals filing separately, the determination 

19 under this subparagraph as to whether the 

20 husband or wife is the eligible caregiver 

21 shall be made under the rules of clause (ii) 

22 (whether or not one of them has filed a 

23 written declaration under clause (i)). 

24 ‘‘(d) IDENTIFICATION REQUIREMENT.—No credit 

25 shall be allowed under this section to a taxpayer with re-
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1 spect to any applicable individual unless the taxpayer in2 cludes the name and taxpayer identification number of 

3 such individual, and the identification number of the phy4 sician certifying such individual, on the return of tax for 

5 the taxable year. 

6 ‘‘(e) TAXABLE YEAR MUST BE FULL TAXABLE

7 YEAR.—Except in the case of a taxable year closed by rea8 son of the death of the taxpayer, no credit shall be allow9 able under this section in the case of a taxable year cov10 ering a period of less than 12 months.’’. 

11 (b) CONFORMING AMENDMENTS.— 

12 (1) Section 6213(g)(2) of such Code is amend13 ed by striking ‘‘and’’ at the end of subparagraph 

14 (L), by striking the period at the end of subpara15 graph (M) and inserting ‘‘, and’’, and by inserting 

16 after subparagraph (M) the following new subpara17 graph: 

18 ‘‘(N) an omission of a correct TIN or phy19 sician identification required under section 

20 25C(d) (relating to credit for taxpayers with 

21 long-term care needs) to be included on a re22 turn.’’. 

23 (2) The table of sections for subpart A of part 

24 IV of subchapter A of chapter 1 of such Code is 
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1 amended by inserting after the item relating to sec2 tion 25B the following new item:

‘‘Sec. 25C. Credit for taxpayers with long-term care needs.’’.

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

4 this section shall apply to taxable years beginning after 

5 December 31, 2004. 

6 SEC. 4. ADDITIONAL CONSUMER PROTECTIONS FOR LONG7 TERM CARE INSURANCE. 

8 (a) ADDITIONAL PROTECTIONS APPLICABLE TO

9 LONG-TERM CARE INSURANCE.—Subparagraphs (A) and 

10 (B) of section 7702B(g)(2) of the Internal Revenue Code 

11 of 1986 (relating to requirements of model regulation and 

12 Act) are amended to read as follows: 

13 ‘‘(A) IN GENERAL.—The requirements of 

14 this paragraph are met with respect to any con15 tract if such contract meets— 

16 ‘‘(i) MODEL REGULATION.—The fol17 lowing requirements of the model regula18 tion: 

19 ‘‘(I) Section 6A (relating to guar20 anteed renewal or noncancellability), 

21 other than paragraph (5) thereof, and 

22 the requirements of section 6B of the 

23 model Act relating to such section 6A. 

24 ‘‘(II) Section 6B (relating to pro25 hibitions on limitations and exclu-
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1 sions) other than paragraph (7) there2 of. 

3 ‘‘(III) Section 6C (relating to ex4 tension of benefits). 

5 ‘‘(IV) Section 6D (relating to 

6 continuation or conversion of cov7 erage). 

8 ‘‘(V) Section 6E (relating to dis9 continuance and replacement of poli10 cies). 

11 ‘‘(VI) Section 7 (relating to unin12 tentional lapse). 

13 ‘‘(VII) Section 8 (relating to dis14 closure), other than sections 8F, 8G, 

15 8H, and 8I thereof. 

16 ‘‘(VIII) Section 11 (relating to 

17 prohibitions against post-claims un18 derwriting). 

19 ‘‘(IX) Section 12 (relating to 

20 minimum standards). 

21 ‘‘(X) Section 13 (relating to re22 quirement to offer inflation protec23 tion). 

24 ‘‘(XI) Section 25 (relating to pro25 hibition against preexisting conditions 
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1 and probationary periods in replace2 ment policies or certificates). 

3 ‘‘(XII) The provisions of section 

4 26 relating to contingent nonforfeiture 

5 benefits, if the policyholder declines 

6 the offer of a nonforfeiture provision 

7 described in paragraph (4). 

8 ‘‘(ii) MODEL ACT.—The following re9 quirements of the model Act: 

10 ‘‘(I) Section 6C (relating to pre11 existing conditions). 

12 ‘‘(II) Section 6D (relating to 

13 prior hospitalization). 

14 ‘‘(III) The provisions of section 8 

15 relating to contingent nonforfeiture 

16 benefits, if the policyholder declines 

17 the offer of a nonforfeiture provision 

18 described in paragraph (4). 

19 ‘‘(B) DEFINITIONS.—For purposes of this 

20 paragraph— 

21 ‘‘(i) MODEL PROVISIONS.—The terms 

22 ‘model regulation’ and ‘model Act’ mean 

23 the long-term care insurance model regula24 tion, and the long-term care insurance 

25 model Act, respectively, promulgated by 
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1 the National Association of Insurance 

2 Commissioners (as adopted as of October 

3 2000). 

4 ‘‘(ii) COORDINATION.—Any provision 

5 of the model regulation or model Act listed 

6 under clause (i) or (ii) of subparagraph 

7 (A) shall be treated as including any other 

8 provision of such regulation or Act nec9 essary to implement the provision. 

10 ‘‘(iii) DETERMINATION.—For pur11 poses of this section and section 4980C, 

12 the determination of whether any require13 ment of a model regulation or the model 

14 Act has been met shall be made by the 

15 Secretary.’’. 

16 (b) EXCISE TAX.—Paragraph (1) of section 

17 4980C(c) of the Internal Revenue Code of 1986 (relating 

18 to requirements of model provisions) is amended to read 

19 as follows: 

20 ‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.— 

21 ‘‘(A) MODEL REGULATION.—The following 

22 requirements of the model regulation must be 

23 met: 

24 ‘‘(i) Section 9 (relating to required 

25 disclosure of rating practices to consumer). 
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1 ‘‘(ii) Section 14 (relating to applica2 tion forms and replacement coverage). 

3 ‘‘(iii) Section 15 (relating to reporting 

4 requirements). 

5 ‘‘(iv) Section 22 (relating to filing re6 quirements for marketing). 

7 ‘‘(v) Section 23 (relating to standards 

8 for marketing), including inaccurate com9 pletion of medical histories, other than 

10 paragraphs (1), (6), and (9) of section 

11 23C. 

12 ‘‘(vi) Section 24 (relating to suit13 ability). 

14 ‘‘(vii) Section 29 (relating to standard 

15 format outline of coverage). 

16 ‘‘(viii) Section 30 (relating to require17 ment to deliver shopper’s guide). 

18 The requirements referred to in clause (vi) shall 

19 not include those portions of the personal work20 sheet described in Appendix B relating to con21 sumer protection requirements not imposed by 

22 section 4980C or 7702B. 

23 ‘‘(B) MODEL ACT.—The following require24 ments of the model Act must be met: 
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1 ‘‘(i) Section 6F (relating to right to 

2 return). 

3 ‘‘(ii) Section 6G (relating to outline of 

4 coverage). 

5 ‘‘(iii) Section 6H (relating to require6 ments for certificates under group plans). 

7 ‘‘(iv) Section 6J (relating to policy 

8 summary). 

9 ‘‘(v) Section 6K (relating to monthly 

10 reports on accelerated death benefits). 

11 ‘‘(vi) Section 7 (relating to incontest12 ability period). 

13 ‘‘(C) DEFINITIONS.—For purposes of this 

14 paragraph, the terms ‘model regulation’ and 

15 ‘model Act’ have the meanings given such terms 

16 by section 7702B(g)(2)(B).’’. 

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

18 this section shall apply to policies issued more than 1 year 

19 after the date of the enactment of this Act. 

20 SEC. 5. TREATMENT OF EXCHANGES OF LONG-TERM CARE 

21 INSURANCE CONTRACTS. 

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

23 the Internal Revenue Code of 1986 (relating to exchanges 

24 of insurance policies) is amended by striking the period 
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1 at the end of paragraph (3) and inserting ‘‘; or’’ and by 

2 adding at the end the following new paragraph: 

3 ‘‘(4) a qualified long-term care insurance con4 tract for another qualified long-term care insurance 

5 contract.’’. 

6 (b) QUALIFIED LONG-TERM CARE INSURANCE CON7 TRACT.—Subsection (b) of section 1035 of such Code (re8 lating to definitions) is amended by adding at the end the 

9 following new paragraph: 

10 ‘‘(4) QUALIFIED LONG-TERM CARE INSURANCE

11 CONTRACT.—The term ‘qualified long-term care in12 surance contract’ means— 

13 ‘‘(A) any qualified long-term care insur14 ance contract (as defined in section 7702B), 

15 and 

16 ‘‘(B) any contract which is treated as such 

17 by section 321(f)(2) of the Health Insurance 

18 Portability and Accountability Act of 1996.’’. 

19 (c) EFFECTIVE DATE.— 

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

21 this section shall apply to exchanges after December 

22 31, 1997. 

23 (2) WAIVER OF LIMITATIONS.—If the credit or 

24 refund of any overpayment of tax with respect to a 

25 taxable year ending before the date of the enactment 
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1 of this Act resulting from the application of section 

2 1035(a)(4) of the Internal Revenue Code of 1986, as 

3 added by this section, is prevented at any time by 

4 the operation of any law or rule of law (including res 

5 judicata), such credit or refund may nevertheless be 

6 allowed or made if the claim therefor is filed before 

7 the close of the 1-year period beginning on the date 

8 of the enactment of this Act.

Æ