PUBLIC LAW 104–191—AUG. 21, 1996

HEALTH INSURANCE PORTABILITY AND

ACCOUNTABILITY ACT OF 1996
110 STAT. 1936 PUBLIC LAW 104–191—AUG. 21, 1996

Public Law 104–191

104th Congress

An Act

To amend the Internal Revenue Code of 1986 to improve portability and continuity

of health insurance coverage in the group and individual markets, to combat

waste, fraud, and abuse in health insurance and health care delivery, to promote

the use of medical savings accounts, to improve access to long-term care services

and coverage, to simplify the administration of health insurance, and for other

purposes.

Be it enacted by the Senate and House of Representatives of

the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Health Insurance Portability and Accountability Act of 1996’’.

(b) TABLE OF CONTENTS.—The table of contents of this Act

is as follows:

Sec. 1. Short title; table of contents.

TITLE I—HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY

Subtitle A—Group Market Rules

PART 1—PORTABILITY, ACCESS, AND RENEWABILITY REQUIREMENTS

Sec. 101. Through the Employee Retirement Income Security Act of 1974.

‘‘PART 7—GROUP HEALTH PLAN PORTABILITY, ACCESS, AND RENEWABILITY

REQUIREMENTS

‘‘Sec. 701. Increased portability through limitation on preexisting condition exclusions.

‘‘Sec. 702. Prohibiting discrimination against individual participants and beneficiaries based on health status.

‘‘Sec. 703. Guaranteed renewability in multiemployer plans and multiple employer welfare arrangements.

‘‘Sec. 704. Preemption; State flexibility; construction.

‘‘Sec. 705. Special rules relating to group health plans.

‘‘Sec. 706. Definitions.

‘‘Sec. 707. Regulations.’’.

Sec. 102. Through the Public Health Service Act.

‘‘TITLE XXVII—ASSURING PORTABILITY, AVAILABILITY, AND

RENEWABILITY OF HEALTH INSURANCE COVERAGE

‘‘PART A—GROUP MARKET REFORMS

‘‘Subpart 1—Portability, Access, and Renewability Requirements

‘‘Sec. 2701. Increased portability through limitation on preexisting condition

exclusions.

‘‘Sec. 2702. Prohibiting discrimination against individual participants and

beneficiaries based on health status.

‘‘Subpart 2—Provisions Applicable Only to Health Insurance Issuers

‘‘Sec. 2711. Guaranteed availability of coverage for employers in the group

market.

42 USC 201 note.

Health Insurance

Portability and

Accountability

Act of 1996.

Aug. 21, 1996

[H.R. 3103]
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1937

‘‘Sec. 2712. Guaranteed renewability of coverage for employers in the group

market.

‘‘Sec. 2713. Disclosure of information.

‘‘Subpart 3—Exclusion of Plans; Enforcement; Preemption

‘‘Sec. 2721. Exclusion of certain plans.

‘‘Sec. 2722. Enforcement.

‘‘Sec. 2723. Preemption; State flexibility; construction.

‘‘PART C—DEFINITIONS; MISCELLANEOUS PROVISIONS

‘‘Sec. 2791. Definitions.

‘‘Sec. 2792. Regulations.’’.

Sec. 103. Reference to implementation through the Internal Revenue Code of 1986.

Sec. 104. Assuring coordination.

Subtitle B—Individual Market Rules

Sec. 111. Amendment to Public Health Service Act.

‘‘PART B—INDIVIDUAL MARKET RULES

‘‘Sec. 2741. Guaranteed availability of individual health insurance coverage to

certain individuals with prior group coverage.

‘‘Sec. 2742. Guaranteed renewability of individual health insurance coverage.

‘‘Sec. 2743. Certification of coverage.

‘‘Sec. 2744. State flexibility in individual market reforms.

‘‘Sec. 2745. Enforcement.

‘‘Sec. 2746. Preemption.

‘‘Sec. 2747. General exceptions.’’.

Subtitle C—General and Miscellaneous Provisions

Sec. 191. Health coverage availability studies.

Sec. 192. Report on Medicare reimbursement of telemedicine.

Sec. 193. Allowing federally-qualified HMOs to offer high deductible plans.

Sec. 194. Volunteer services provided by health professionals at free clinics.

Sec. 195. Findings; severability.

TITLE II—PREVENTING HEALTH CARE FRAUD AND ABUSE;

ADMINISTRATIVE SIMPLIFICATION; MEDICAL LIABILITY REFORM

Sec. 200. References in title.

Subtitle A—Fraud and Abuse Control Program

Sec. 201. Fraud and abuse control program.

Sec. 202. Medicare integrity program.

Sec. 203. Beneficiary incentive programs.

Sec. 204. Application of certain health antifraud and abuse sanctions to fraud and

abuse against Federal health care programs.

Sec. 205. Guidance regarding application of health care fraud and abuse sanctions.

Subtitle B—Revisions to Current Sanctions for Fraud and Abuse

Sec. 211. Mandatory exclusion from participation in Medicare and State health

care programs.

Sec. 212. Establishment of minimum period of exclusion for certain individuals and

entities subject to permissive exclusion from Medicare and State health

care programs.

Sec. 213. Permissive exclusion of individuals with ownership or control interest in

sanctioned entities.

Sec. 214. Sanctions against practitioners and persons for failure to comply with

statutory obligations.

Sec. 215. Intermediate sanctions for Medicare health maintenance organizations.

Sec. 216. Additional exception to anti-kickback penalties for risk-sharing arrangements.

Sec. 217. Criminal penalty for fraudulent disposition of assets in order to obtain

medicaid benefits.

Sec. 218. Effective date.

Subtitle C—Data Collection

Sec. 221. Establishment of the health care fraud and abuse data collection

program.

Subtitle D—Civil Monetary Penalties

Sec. 231. Social Security Act civil monetary penalties.
110 STAT. 1938 PUBLIC LAW 104–191—AUG. 21, 1996

Sec. 232. Penalty for false certification for home health services.

Subtitle E—Revisions to Criminal Law

Sec. 241. Definitions relating to Federal health care offense.

Sec. 242. Health care fraud.

Sec. 243. Theft or embezzlement.

Sec. 244. False statements.

Sec. 245. Obstruction of criminal investigations of health care offenses.

Sec. 246. Laundering of monetary instruments.

Sec. 247. Injunctive relief relating to health care offenses.

Sec. 248. Authorized investigative demand procedures.

Sec. 249. Forfeitures for Federal health care offenses.

Sec. 250. Relation to ERISA authority.

Subtitle F—Administrative Simplification

Sec. 261. Purpose.

Sec. 262. Administrative simplification.

‘‘PART C—ADMINISTRATIVE SIMPLIFICATION

‘‘Sec. 1171. Definitions.

‘‘Sec. 1172. General requirements for adoption of standards.

‘‘Sec. 1173. Standards for information transactions and data elements.

‘‘Sec. 1174. Timetables for adoption of standards.

‘‘Sec. 1175. Requirements.

‘‘Sec. 1176. General penalty for failure to comply with requirements and standards.

‘‘Sec. 1177. Wrongful disclosure of individually identifiable health information.

‘‘Sec. 1178. Effect on State law.

‘‘Sec. 1179. Processing payment transactions.’’.

Sec. 263. Changes in membership and duties of National Committee on Vital and

Health Statistics.

Sec. 264. Recommendations with respect to privacy of certain health information.

Subtitle G—Duplication and Coordination of Medicare-Related Plans

Sec. 271. Duplication and coordination of Medicare-related plans.

TITLE III—TAX-RELATED HEALTH PROVISIONS

Sec. 300. Amendment of 1986 Code.

Subtitle A—Medical Savings Accounts

Sec. 301. Medical savings accounts.

Subtitle B—Increase in Deduction for Health Insurance Costs of Self-Employed

Individuals

Sec. 311. Increase in deduction for health insurance costs of self-employed individuals.

Subtitle C—Long-Term Care Services and Contracts

PART I—GENERAL PROVISIONS

Sec. 321. Treatment of long-term care insurance.

Sec. 322. Qualified long-term care services treated as medical care.

Sec. 323. Reporting requirements.

PART II—CONSUMER PROTECTION PROVISIONS

Sec. 325. Policy requirements.

Sec. 326. Requirements for issuers of qualified long-term care insurance contracts.

Sec. 327. Effective dates.

Subtitle D—Treatment of Accelerated Death Benefits

Sec. 331. Treatment of accelerated death benefits by recipient.

Sec. 332. Tax treatment of companies issuing qualified accelerated death benefit

riders.

Subtitle E—State Insurance Pools

Sec. 341. Exemption from income tax for State-sponsored organizations providing

health coverage for high-risk individuals.

Sec. 342. Exemption from income tax for State-sponsored workmen’s compensation

reinsurance organizations.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1939

Subtitle F—Organizations Subject to Section 833

Sec. 351. Organizations subject to section 833.

Subtitle G—IRA Distributions to the Unemployed

Sec. 361. Distributions from certain plans may be used without additional tax to

pay financially devastating medical expenses.

Subtitle H—Organ and Tissue Donation Information Included With Income Tax

Refund Payments

Sec. 371. Organ and tissue donation information included with income tax refund

payments.

TITLE IV—APPLICATION AND ENFORCEMENT OF GROUP HEALTH PLAN

REQUIREMENTS

Subtitle A—Application and Enforcement of Group Health Plan Requirements

Sec. 401. Group health plan portability, access, and renewability requirements.

Sec. 402. Penalty on failure to meet certain group health plan requirements.

Subtitle B—Clarification of Certain Continuation Coverage Requirements

Sec. 421. COBRA clarifications.

TITLE V—REVENUE OFFSETS

Sec. 500. Amendment of 1986 Code.

Subtitle A—Company-Owned Life Insurance

Sec. 501. Denial of deduction for interest on loans with respect to company-owned

life insurance.

Subtitle B—Treatment of Individuals Who Lose United States Citizenship

Sec. 511. Revision of income, estate, and gift taxes on individuals who lose United

States citizenship.

Sec. 512. Information on individuals losing United States citizenship.

Sec. 513. Report on tax compliance by United States citizens and residents living

abroad.

Subtitle C—Repeal of Financial Institution Transition Rule to Interest Allocation

Rules

Sec. 521. Repeal of financial institution transition rule to interest allocation rules.

TITLE I—HEALTH CARE ACCESS,

PORTABILITY, AND RENEWABILITY

Subtitle A—Group Market Rules

PART 1—PORTABILITY, ACCESS, AND RENEWABILITY REQUIREMENTS

SEC. 101. THROUGH THE EMPLOYEE RETIREMENT INCOME SECURITY

ACT OF 1974.

(a) IN GENERAL.—Subtitle B of title I of the Employee Retirement Income Security Act of 1974 is amended by adding at the

end the following new part:

‘‘PART 7—GROUP HEALTH PLAN PORTABILITY, ACCESS, AND

RENEWABILITY REQUIREMENTS

‘‘SEC. 701. INCREASED PORTABILITY THROUGH LIMITATION ON

PREEXISTING CONDITION EXCLUSIONS.

‘‘(a) LIMITATION ON PREEXISTING CONDITION EXCLUSION PERIOD;

CREDITING FOR PERIODS OF PREVIOUS COVERAGE.—Subject to subsection (d), a group health plan, and a health insurance issuer

29 USC 1181.
110 STAT. 1940 PUBLIC LAW 104–191—AUG. 21, 1996

offering group health insurance coverage, may, with respect to

a participant or beneficiary, impose a preexisting condition exclusion

only if—

‘‘(1) such exclusion relates to a condition (whether physical

or mental), regardless of the cause of the condition, for which

medical advice, diagnosis, care, or treatment was recommended

or received within the 6-month period ending on the enrollment

date;

‘‘(2) such exclusion extends for a period of not more than

12 months (or 18 months in the case of a late enrollee) after

the enrollment date; and

‘‘(3) the period of any such preexisting condition exclusion

is reduced by the aggregate of the periods of creditable coverage

(if any, as defined in subsection (c)(1)) applicable to the participant or beneficiary as of the enrollment date.

‘‘(b) DEFINITIONS.—For purposes of this part—

‘‘(1) PREEXISTING CONDITION EXCLUSION.—

‘‘(A) IN GENERAL.—The term ‘preexisting condition

exclusion’ means, with respect to coverage, a limitation

or exclusion of benefits relating to a condition based on

the fact that the condition was present before the date

of enrollment for such coverage, whether or not any medical

advice, diagnosis, care, or treatment was recommended

or received before such date.

‘‘(B) TREATMENT OF GENETIC INFORMATION.—Genetic

information shall not be treated as a condition described

in subsection (a)(1) in the absence of a diagnosis of the

condition related to such information.

‘‘(2) ENROLLMENT DATE.—The term ‘enrollment date’

means, with respect to an individual covered under a group

health plan or health insurance coverage, the date of enrollment

of the individual in the plan or coverage or, if earlier, the

first day of the waiting period for such enrollment.

‘‘(3) LATE ENROLLEE.—The term ‘late enrollee’ means, with

respect to coverage under a group health plan, a participant

or beneficiary who enrolls under the plan other than during—

‘‘(A) the first period in which the individual is eligible

to enroll under the plan, or

‘‘(B) a special enrollment period under subsection (f).

‘‘(4) WAITING PERIOD.—The term ‘waiting period’ means,

with respect to a group health plan and an individual who

is a potential participant or beneficiary in the plan, the period

that must pass with respect to the individual before the individual is eligible to be covered for benefits under the terms of

the plan.

‘‘(c) RULES RELATING TO CREDITING PREVIOUS COVERAGE.—

‘‘(1) CREDITABLE COVERAGE DEFINED.—For purposes of this

part, the term ‘creditable coverage’ means, with respect to

an individual, coverage of the individual under any of the

following:

‘‘(A) A group health plan.

‘‘(B) Health insurance coverage.

‘‘(C) Part A or part B of title XVIII of the Social

Security Act.

‘‘(D) Title XIX of the Social Security Act, other than

coverage consisting solely of benefits under section 1928.

‘‘(E) Chapter 55 of title 10, United States Code.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1941

‘‘(F) A medical care program of the Indian Health

Service or of a tribal organization.

‘‘(G) A State health benefits risk pool.

‘‘(H) A health plan offered under chapter 89 of title

5, United States Code.

‘‘(I) A public health plan (as defined in regulations).

‘‘(J) A health benefit plan under section 5(e) of the

Peace Corps Act (22 U.S.C. 2504(e)).

Such term does not include coverage consisting solely of coverage of excepted benefits (as defined in section 706(c)).

‘‘(2) NOT COUNTING PERIODS BEFORE SIGNIFICANT BREAKS

IN COVERAGE.—

‘‘(A) IN GENERAL.—A period of creditable coverage shall

not be counted, with respect to enrollment of an individual

under a group health plan, if, after such period and before

the enrollment date, there was a 63-day period during

all of which the individual was not covered under any

creditable coverage.

‘‘(B) WAITING PERIOD NOT TREATED AS A BREAK IN COVERAGE.—For purposes of subparagraph (A) and subsection

(d)(4), any period that an individual is in a waiting period

for any coverage under a group health plan (or for group

health insurance coverage) or is in an affiliation period

(as defined in subsection (g)(2)) shall not be taken into

account in determining the continuous period under

subparagraph (A).

‘‘(3) METHOD OF CREDITING COVERAGE.—

‘‘(A) STANDARD METHOD.—Except as otherwise provided

under subparagraph (B), for purposes of applying subsection (a)(3), a group health plan, and a health insurance

issuer offering group health insurance coverage, shall count

a period of creditable coverage without regard to the specific

benefits covered during the period.

‘‘(B) ELECTION OF ALTERNATIVE METHOD.—A group

health plan, or a health insurance issuer offering group

health insurance coverage, may elect to apply subsection

(a)(3) based on coverage of benefits within each of several

classes or categories of benefits specified in regulations

rather than as provided under subparagraph (A). Such

election shall be made on a uniform basis for all participants and beneficiaries. Under such election a group health

plan or issuer shall count a period of creditable coverage

with respect to any class or category of benefits if any

level of benefits is covered within such class or category.

‘‘(C) PLAN NOTICE.—In the case of an election with

respect to a group health plan under subparagraph (B)

(whether or not health insurance coverage is provided in

connection with such plan), the plan shall—

‘‘(i) prominently state in any disclosure statements

concerning the plan, and state to each enrollee at the

time of enrollment under the plan, that the plan has

made such election, and

‘‘(ii) include in such statements a description of

the effect of this election.

‘‘(4) ESTABLISHMENT OF PERIOD.—Periods of creditable coverage with respect to an individual shall be established through
110 STAT. 1942 PUBLIC LAW 104–191—AUG. 21, 1996

presentation of certifications described in subsection (e) or in

such other manner as may be specified in regulations.

‘‘(d) EXCEPTIONS.— ‘‘(1) EXCLUSION NOT APPLICABLE TO CERTAIN NEWBORNS.—

Subject to paragraph (4), a group health plan, and a health

insurance issuer offering group health insurance coverage, may

not impose any preexisting condition exclusion in the case

of an individual who, as of the last day of the 30-day period

beginning with the date of birth, is covered under creditable

coverage.

‘‘(2) EXCLUSION NOT APPLICABLE TO CERTAIN ADOPTED CHILDREN.—Subject to paragraph (4), a group health plan, and

a health insurance issuer offering group health insurance coverage, may not impose any preexisting condition exclusion in

the case of a child who is adopted or placed for adoption

before attaining 18 years of age and who, as of the last day

of the 30-day period beginning on the date of the adoption

or placement for adoption, is covered under creditable coverage.

The previous sentence shall not apply to coverage before the

date of such adoption or placement for adoption.

‘‘(3) EXCLUSION NOT APPLICABLE TO PREGNANCY.—A group

health plan, and health insurance issuer offering group health

insurance coverage, may not impose any preexisting condition

exclusion relating to pregnancy as a preexisting condition.

‘‘(4) LOSS IF BREAK IN COVERAGE.—Paragraphs (1) and (2)

shall no longer apply to an individual after the end of the

first 63-day period during all of which the individual was not

covered under any creditable coverage.

‘‘(e) CERTIFICATIONS AND DISCLOSURE OF COVERAGE.—

‘‘(1) REQUIREMENT FOR CERTIFICATION OF PERIOD OF CREDITABLE COVERAGE.—

‘‘(A) IN GENERAL.—A group health plan, and a health

insurance issuer offering group health insurance coverage,

shall provide the certification described in subparagraph

(B)—

‘‘(i) at the time an individual ceases to be covered

under the plan or otherwise becomes covered under

a COBRA continuation provision,

‘‘(ii) in the case of an individual becoming covered

under such a provision, at the time the individual

ceases to be covered under such provision, and

‘‘(iii) on the request on behalf of an individual

made not later than 24 months after the date of cessation of the coverage described in clause (i) or (ii),

whichever is later.

The certification under clause (i) may be provided, to the

extent practicable, at a time consistent with notices

required under any applicable COBRA continuation provision.

‘‘(B) CERTIFICATION.—The certification described in this

subparagraph is a written certification of—

‘‘(i) the period of creditable coverage of the individual under such plan and the coverage (if any) under

such COBRA continuation provision, and

‘‘(ii) the waiting period (if any) (and affiliation

period, if applicable) imposed with respect to the

individual for any coverage under such plan.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1943

‘‘(C) ISSUER COMPLIANCE.—To the extent that medical

care under a group health plan consists of group health

insurance coverage, the plan is deemed to have satisfied

the certification requirement under this paragraph if the

health insurance issuer offering the coverage provides for

such certification in accordance with this paragraph.

‘‘(2) DISCLOSURE OF INFORMATION ON PREVIOUS BENEFITS.—

In the case of an election described in subsection (c)(3)(B)

by a group health plan or health insurance issuer, if the plan

or issuer enrolls an individual for coverage under the plan

and the individual provides a certification of coverage of the

individual under paragraph (1)—

‘‘(A) upon request of such plan or issuer, the entity

which issued the certification provided by the individual

shall promptly disclose to such requesting plan or issuer

information on coverage of classes and categories of health

benefits available under such entity’s plan or coverage,

and

‘‘(B) such entity may charge the requesting plan or

issuer for the reasonable cost of disclosing such information.

‘‘(3) REGULATIONS.—The Secretary shall establish rules to

prevent an entity’s failure to provide information under paragraph (1) or (2) with respect to previous coverage of an individual from adversely affecting any subsequent coverage of the

individual under another group health plan or health insurance

coverage.

‘‘(f) SPECIAL ENROLLMENT PERIODS.—

‘‘(1) INDIVIDUALS LOSING OTHER COVERAGE.—A group health

plan, and a health insurance issuer offering group health insurance coverage in connection with a group health plan, shall

permit an employee who is eligible, but not enrolled, for coverage under the terms of the plan (or a dependent of such

an employee if the dependent is eligible, but not enrolled,

for coverage under such terms) to enroll for coverage under

the terms of the plan if each of the following conditions is

met:

‘‘(A) The employee or dependent was covered under

a group health plan or had health insurance coverage at

the time coverage was previously offered to the employee

or dependent.

‘‘(B) The employee stated in writing at such time that

coverage under a group health plan or health insurance

coverage was the reason for declining enrollment, but only

if the plan sponsor or issuer (if applicable) required such

a statement at such time and provided the employee with

notice of such requirement (and the consequences of such

requirement) at such time.

‘‘(C) The employee’s or dependent’s coverage described

in subparagraph (A)—

‘‘(i) was under a COBRA continuation provision

and the coverage under such provision was exhausted;

or

‘‘(ii) was not under such a provision and either

the coverage was terminated as a result of loss of

eligibility for the coverage (including as a result of

legal separation, divorce, death, termination of employment, or reduction in the number of hours of employ-
110 STAT. 1944 PUBLIC LAW 104–191—AUG. 21, 1996

ment) or employer contributions toward such coverage

were terminated.

‘‘(D) Under the terms of the plan, the employee

requests such enrollment not later than 30 days after the

date of exhaustion of coverage described in subparagraph

(C)(i) or termination of coverage or employer contribution

described in subparagraph (C)(ii).

‘‘(2) FOR DEPENDENT BENEFICIARIES.—

‘‘(A) IN GENERAL.—If—

‘‘(i) a group health plan makes coverage available

with respect to a dependent of an individual,

‘‘(ii) the individual is a participant under the plan

(or has met any waiting period applicable to becoming

a participant under the plan and is eligible to be

enrolled under the plan but for a failure to enroll

during a previous enrollment period), and

‘‘(iii) a person becomes such a dependent of the

individual through marriage, birth, or adoption or

placement for adoption,

the group health plan shall provide for a dependent special

enrollment period described in subparagraph (B) during

which the person (or, if not otherwise enrolled, the individual) may be enrolled under the plan as a dependent of

the individual, and in the case of the birth or adoption

of a child, the spouse of the individual may be enrolled

as a dependent of the individual if such spouse is otherwise

eligible for coverage.

‘‘(B) DEPENDENT SPECIAL ENROLLMENT PERIOD.—A

dependent special enrollment period under this subparagraph shall be a period of not less than 30 days and

shall begin on the later of—

‘‘(i) the date dependent coverage is made

available, or

‘‘(ii) the date of the marriage, birth, or adoption

or placement for adoption (as the case may be)

described in subparagraph (A)(iii).

‘‘(C) NO WAITING PERIOD.—If an individual seeks to

enroll a dependent during the first 30 days of such a

dependent special enrollment period, the coverage of the

dependent shall become effective—

‘‘(i) in the case of marriage, not later than the

first day of the first month beginning after the date

the completed request for enrollment is received;

‘‘(ii) in the case of a dependent’s birth, as of the

date of such birth; or

‘‘(iii) in the case of a dependent’s adoption or placement for adoption, the date of such adoption or placement for adoption.

‘‘(g) USE OF AFFILIATION PERIOD BY HMOS AS ALTERNATIVE

TO PREEXISTING CONDITION EXCLUSION.—

‘‘(1) IN GENERAL.—In the case of a group health plan that

offers medical care through health insurance coverage offered

by a health maintenance organization, the plan may provide

for an affiliation period with respect to coverage through the

organization only if—

‘‘(A) no preexisting condition exclusion is imposed with

respect to coverage through the organization,
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1945

‘‘(B) the period is applied uniformly without regard

to any health status-related factors, and

‘‘(C) such period does not exceed 2 months (or 3 months

in the case of a late enrollee).

‘‘(2) AFFILIATION PERIOD.—

‘‘(A) DEFINED.—For purposes of this part, the term

‘affiliation period’ means a period which, under the terms

of the health insurance coverage offered by the health

maintenance organization, must expire before the health

insurance coverage becomes effective. The organization is

not required to provide health care services or benefits

during such period and no premium shall be charged to

the participant or beneficiary for any coverage during the

period.

‘‘(B) BEGINNING.—Such period shall begin on the enrollment date.

‘‘(C) RUNS CONCURRENTLY WITH WAITING PERIODS.—

An affiliation period under a plan shall run concurrently

with any waiting period under the plan.

‘‘(3) ALTERNATIVE METHODS.—A health maintenance

organization described in paragraph (1) may use alternative

methods, from those described in such paragraph, to address

adverse selection as approved by the State insurance commissioner or official or officials designated by the State to enforce

the requirements of part A of title XXVII of the Public Health

Service Act for the State involved with respect to such issuer.

‘‘SEC. 702. PROHIBITING DISCRIMINATION AGAINST INDIVIDUAL

PARTICIPANTS AND BENEFICIARIES BASED ON HEALTH

STATUS.

‘‘(a) IN ELIGIBILITY TO ENROLL.—

‘‘(1) IN GENERAL.—Subject to paragraph (2), a group health

plan, and a health insurance issuer offering group health insurance coverage in connection with a group health plan, may

not establish rules for eligibility (including continued eligibility)

of any individual to enroll under the terms of the plan based

on any of the following health status-related factors in relation

to the individual or a dependent of the individual:

‘‘(A) Health status.

‘‘(B) Medical condition (including both physical and

mental illnesses).

‘‘(C) Claims experience.

‘‘(D) Receipt of health care.

‘‘(E) Medical history.

‘‘(F) Genetic information.

‘‘(G) Evidence of insurability (including conditions arising out of acts of domestic violence).

‘‘(H) Disability.

‘‘(2) NO APPLICATION TO BENEFITS OR EXCLUSIONS.—To the

extent consistent with section 701, paragraph (1) shall not

be construed—

‘‘(A) to require a group health plan, or group health

insurance coverage, to provide particular benefits other

than those provided under the terms of such plan or coverage, or

‘‘(B) to prevent such a plan or coverage from establishing limitations or restrictions on the amount, level, extent,

29 USC 1182.
110 STAT. 1946 PUBLIC LAW 104–191—AUG. 21, 1996

or nature of the benefits or coverage for similarly situated

individuals enrolled in the plan or coverage.

‘‘(3) CONSTRUCTION.—For purposes of paragraph (1), rules

for eligibility to enroll under a plan include rules defining

any applicable waiting periods for such enrollment.

‘‘(b) IN PREMIUM CONTRIBUTIONS.— ‘‘(1) IN GENERAL.—A group health plan, and a health insurance issuer offering health insurance coverage in connection

with a group health plan, may not require any individual

(as a condition of enrollment or continued enrollment under

the plan) to pay a premium or contribution which is greater

than such premium or contribution for a similarly situated

individual enrolled in the plan on the basis of any health

status-related factor in relation to the individual or to an

individual enrolled under the plan as a dependent of the

individual.

‘‘(2) CONSTRUCTION.—Nothing in paragraph (1) shall be

construed—

‘‘(A) to restrict the amount that an employer may be

charged for coverage under a group health plan; or

‘‘(B) to prevent a group health plan, and a health

insurance issuer offering group health insurance coverage,

from establishing premium discounts or rebates or modifying otherwise applicable copayments or deductibles in

return for adherence to programs of health promotion and

disease prevention.

‘‘SEC. 703. GUARANTEED RENEWABILITY IN MULTIEMPLOYER PLANS

AND MULTIPLE EMPLOYER WELFARE ARRANGEMENTS.

‘‘A group health plan which is a multiemployer plan or which

is a multiple employer welfare arrangement may not deny an

employer whose employees are covered under such a plan continued

access to the same or different coverage under the terms of such

a plan, other than—

‘‘(1) for nonpayment of contributions;

‘‘(2) for fraud or other intentional misrepresentation of

material fact by the employer;

‘‘(3) for noncompliance with material plan provisions;

‘‘(4) because the plan is ceasing to offer any coverage in

a geographic area;

‘‘(5) in the case of a plan that offers benefits through

a network plan, there is no longer any individual enrolled

through the employer who lives, resides, or works in the service

area of the network plan and the plan applies this paragraph

uniformly without regard to the claims experience of employers

or any health status-related factor in relation to such individuals or their dependents; and

‘‘(6) for failure to meet the terms of an applicable collective

bargaining agreement, to renew a collective bargaining or other

agreement requiring or authorizing contributions to the plan,

or to employ employees covered by such an agreement.

‘‘SEC. 704. PREEMPTION; STATE FLEXIBILITY; CONSTRUCTION.

‘‘(a) CONTINUED APPLICABILITY OF STATE LAW WITH RESPECT

TO HEALTH INSURANCE ISSUERS.— ‘‘(1) IN GENERAL.—Subject to paragraph (2) and except

as provided in subsection (b), this part shall not be construed

to supersede any provision of State law which establishes,

29 USC 1184.

29 USC 1183.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1947

implements, or continues in effect any standard or requirement

solely relating to health insurance issuers in connection with

group health insurance coverage except to the extent that such

standard or requirement prevents the application of a requirement of this part.

‘‘(2) CONTINUED PREEMPTION WITH RESPECT TO GROUP

HEALTH PLANS.—Nothing in this part shall be construed to

affect or modify the provisions of section 514 with respect

to group health plans.

‘‘(b) SPECIAL RULES IN CASE OF PORTABILITY REQUIREMENTS.—

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

of this part relating to health insurance coverage offered by

a health insurance issuer supersede any provision of State

law which establishes, implements, or continues in effect a

standard or requirement applicable to imposition of a preexisting condition exclusion specifically governed by section 701

which differs from the standards or requirements specified

in such section.

‘‘(2) EXCEPTIONS.—Only in relation to health insurance coverage offered by a health insurance issuer, the provisions of

this part do not supersede any provision of State law to the

extent that such provision—

‘‘(A) substitutes for the reference to ‘6-month period’

in section 701(a)(1) a reference to any shorter period of

time;

‘‘(B) substitutes for the reference to ‘12 months’ and

‘18 months’ in section 701(a)(2) a reference to any shorter

period of time;

‘‘(C) substitutes for the references to ‘63 days’ in sections 701 (c)(2)(A) and (d)(4)(A) a reference to any greater

number of days;

‘‘(D) substitutes for the reference to ‘30-day period’

in sections 701 (b)(2) and (d)(1) a reference to any greater

period;

‘‘(E) prohibits the imposition of any preexisting condition exclusion in cases not described in section 701(d) or

expands the exceptions described in such section;

‘‘(F) requires special enrollment periods in addition

to those required under section 701(f); or

‘‘(G) reduces the maximum period permitted in an

affiliation period under section 701(g)(1)(B).

‘‘(c) RULES OF CONSTRUCTION.—Nothing in this part shall be

construed as requiring a group health plan or health insurance

coverage to provide specific benefits under the terms of such plan

or coverage.

‘‘(d) DEFINITIONS.—For purposes of this section—

‘‘(1) STATE LAW.—The term ‘State law’ includes all laws,

decisions, rules, regulations, or other State action having the

effect of law, of any State. A law of the United States applicable

only to the District of Columbia shall be treated as a State

law rather than a law of the United States.

‘‘(2) STATE.—The term ‘State’ includes a State, the Northern

Mariana Islands, any political subdivisions of a State or such

Islands, or any agency or instrumentality of either.
110 STAT. 1948 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘SEC. 705. SPECIAL RULES RELATING TO GROUP HEALTH PLANS.

‘‘(a) GENERAL EXCEPTION FOR CERTAIN SMALL GROUP HEALTH

PLANS.—The requirements of this part shall not apply to any group

health plan (and group health insurance coverage offered in connection with a group health plan) for any plan year if, on the first

day of such plan year, such plan has less than 2 participants

who are current employees.

‘‘(b) EXCEPTION FOR CERTAIN BENEFITS.—The requirements of

this part shall not apply to any group health plan (and group

health insurance coverage) in relation to its provision of excepted

benefits described in section 706(c)(1).

‘‘(c) EXCEPTION FOR CERTAIN BENEFITS IF CERTAIN CONDITIONS

MET.— ‘‘(1) LIMITED, EXCEPTED BENEFITS.—The requirements of

this part shall not apply to any group health plan (and group

health insurance coverage offered in connection with a group

health plan) in relation to its provision of excepted benefits

described in section 706(c)(2) if the benefits—

‘‘(A) are provided under a separate policy, certificate,

or contract of insurance; or

‘‘(B) are otherwise not an integral part of the plan.

‘‘(2) NONCOORDINATED, EXCEPTED BENEFITS.—The requirements of this part shall not apply to any group health plan

(and group health insurance coverage offered in connection

with a group health plan) in relation to its provision of excepted

benefits described in section 706(c)(3) if all of the following

conditions are met:

‘‘(A) The benefits are provided under a separate policy,

certificate, or contract of insurance.

‘‘(B) There is no coordination between the provision

of such benefits and any exclusion of benefits under any

group health plan maintained by the same plan sponsor.

‘‘(C) Such benefits are paid with respect to an event

without regard to whether benefits are provided with

respect to such an event under any group health plan

maintained by the same plan sponsor.

‘‘(3) SUPPLEMENTAL EXCEPTED BENEFITS.—The requirements of this part shall not apply to any group health plan

(and group health insurance coverage) in relation to its provision of excepted benefits described in section 706(c)(4) if the

benefits are provided under a separate policy, certificate, or

contract of insurance.

‘‘(d) TREATMENT OF PARTNERSHIPS.—For purposes of this part—

‘‘(1) TREATMENT AS A GROUP HEALTH PLAN.—Any plan, fund,

or program which would not be (but for this subsection) an

employee welfare benefit plan and which is established or maintained by a partnership, to the extent that such plan, fund,

or program provides medical care (including items and services

paid for as medical care) to present or former partners in

the partnership or to their dependents (as defined under the

terms of the plan, fund, or program), directly or through insurance, reimbursement, or otherwise, shall be treated (subject

to paragraph (2)) as an employee welfare benefit plan which

is a group health plan.

‘‘(2) EMPLOYER.—In the case of a group health plan, the

term ‘employer’ also includes the partnership in relation to

any partner.

29 USC 1185.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1949

‘‘(3) PARTICIPANTS OF GROUP HEALTH PLANS.—In the case

of a group health plan, the term ‘participant’ also includes—

‘‘(A) in connection with a group health plan maintained

by a partnership, an individual who is a partner in relation

to the partnership, or

‘‘(B) in connection with a group health plan maintained

by a self-employed individual (under which one or more

employees are participants), the self-employed individual,

if such individual is, or may become, eligible to receive a benefit

under the plan or such individual’s beneficiaries may be eligible

to receive any such benefit.

‘‘SEC. 706. DEFINITIONS.

‘‘(a) GROUP HEALTH PLAN.—For purposes of this part—

‘‘(1) IN GENERAL.—The term ‘group health plan’ means

an employee welfare benefit plan to the extent that the plan

provides medical care (as defined in paragraph (2) and including

items and services paid for as medical care) to employees or

their dependents (as defined under the terms of the plan)

directly or through insurance, reimbursement, or otherwise.

‘‘(2) MEDICAL CARE.—The term ‘medical care’ means

amounts paid for—

‘‘(A) the diagnosis, cure, mitigation, treatment, or

prevention of disease, or amounts paid for the purpose

of affecting any structure or function of the body,

‘‘(B) amounts paid for transportation primarily for and

essential to medical care referred to in subparagraph (A),

and

‘‘(C) amounts paid for insurance covering medical care

referred to in subparagraphs (A) and (B).

‘‘(b) DEFINITIONS RELATING TO HEALTH INSURANCE.—For purposes of this part—

‘‘(1) HEALTH INSURANCE COVERAGE.—The term ‘health

insurance coverage’ means benefits consisting of medical care

(provided directly, through insurance or reimbursement, or

otherwise and including items and services paid for as medical

care) under any hospital or medical service policy or certificate,

hospital or medical service plan contract, or health maintenance

organization contract offered by a health insurance issuer.

‘‘(2) HEALTH INSURANCE ISSUER.—The term ‘health insurance issuer’ means an insurance company, insurance service,

or insurance organization (including a health maintenance

organization, as defined in paragraph (3)) which is licensed

to engage in the business of insurance in a State and which

is subject to State law which regulates insurance (within the

meaning of section 514(b)(2)). Such term does not include a

group health plan.

‘‘(3) HEALTH MAINTENANCE ORGANIZATION.—The term

‘health maintenance organization’ means—

‘‘(A) a federally qualified health maintenance organization (as defined in section 1301(a) of the Public Health

Service Act (42 U.S.C. 300e(a))),

‘‘(B) an organization recognized under State law as

a health maintenance organization, or

‘‘(C) a similar organization regulated under State law

for solvency in the same manner and to the same extent

as such a health maintenance organization.

29 USC 1186.
110 STAT. 1950 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(4) GROUP HEALTH INSURANCE COVERAGE.—The term

‘group health insurance coverage’ means, in connection with

a group health plan, health insurance coverage offered in

connection with such plan.

‘‘(c) EXCEPTED BENEFITS.—For purposes of this part, the term

‘excepted benefits’ means benefits under one or more (or any combination thereof) of the following:

‘‘(1) BENEFITS NOT SUBJECT TO REQUIREMENTS.—

‘‘(A) Coverage only for accident, or disability income

insurance, or any combination thereof.

‘‘(B) Coverage issued as a supplement to liability insurance.

‘‘(C) Liability insurance, including general liability

insurance and automobile liability insurance.

‘‘(D) Workers’ compensation or similar insurance.

‘‘(E) Automobile medical payment insurance.

‘‘(F) Credit-only insurance.

‘‘(G) Coverage for on-site medical clinics.

‘‘(H) Other similar insurance coverage, specified in

regulations, under which benefits for medical care are

secondary or incidental to other insurance benefits.

‘‘(2) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED

SEPARATELY.—

‘‘(A) Limited scope dental or vision benefits.

‘‘(B) Benefits for long-term care, nursing home care,

home health care, community-based care, or any combination thereof.

‘‘(C) Such other similar, limited benefits as are specified

in regulations.

‘‘(3) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED

AS INDEPENDENT, NONCOORDINATED BENEFITS.—

‘‘(A) Coverage only for a specified disease or illness.

‘‘(B) Hospital indemnity or other fixed indemnity insurance.

‘‘(4) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED

AS SEPARATE INSURANCE POLICY.—Medicare supplemental

health insurance (as defined under section 1882(g)(1) of the

Social Security Act), coverage supplemental to the coverage

provided under chapter 55 of title 10, United States Code,

and similar supplemental coverage provided to coverage under

a group health plan.

‘‘(d) OTHER DEFINITIONS.—For purposes of this part—

‘‘(1) COBRA CONTINUATION PROVISION.—The term ‘COBRA

continuation provision’ means any of the following:

‘‘(A) Part 6 of this subtitle.

‘‘(B) Section 4980B of the Internal Revenue Code of

1986, other than subsection (f)(1) of such section insofar

as it relates to pediatric vaccines.

‘‘(C) Title XXII of the Public Health Service Act.

‘‘(2) HEALTH STATUS-RELATED FACTOR.—The term ‘health

status-related factor’ means any of the factors described in

section 702(a)(1).

‘‘(3) NETWORK PLAN.—The term ‘network plan’ means

health insurance coverage offered by a health insurance issuer

under which the financing and delivery of medical care (including items and services paid for as medical care) are provided,
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1951

in whole or in part, through a defined set of providers under

contract with the issuer.

‘‘(4) PLACED FOR ADOPTION.—The term ‘placement’, or being

‘placed’, for adoption, has the meaning given such term in

section 609(c)(3)(B).

‘‘SEC. 707. REGULATIONS.

‘‘The Secretary, consistent with section 104 of the Health Care

Portability and Accountability Act of 1996, may promulgate such

regulations as may be necessary or appropriate to carry out the

provisions of this part. The Secretary may promulgate any interim

final rules as the Secretary determines are appropriate to carry

out this part.’’.

(b) ENFORCEMENT WITH RESPECT TO HEALTH INSURANCE ISSUERS.—Section 502(b) of such Act (29 U.S.C. 1132(b)) is amended

by adding at the end the following new paragraph:

‘‘(3) The Secretary is not authorized to enforce under this part

any requirement of part 7 against a health insurance issuer offering

health insurance coverage in connection with a group health plan

(as defined in section 706(a)(1)). Nothing in this paragraph shall

affect the authority of the Secretary to issue regulations to carry

out such part.’’.

(c) DISCLOSURE OF INFORMATION TO PARTICIPANTS AND BENEFICIARIES.—

(1) IN GENERAL.—Section 104(b)(1) of such Act (29 U.S.C.

1024(b)(1)) is amended in the matter following subparagraph (B)—

(A) by striking ‘‘102(a)(1),’’ and inserting ‘‘102(a)(1)

(other than a material reduction in covered services or

benefits provided in the case of a group health plan (as

defined in section 706(a)(1))),’’; and

(B) by adding at the end the following new sentences:

‘‘If there is a modification or change described in section

102(a)(1) that is a material reduction in covered services

or benefits provided under a group health plan (as defined

in section 706(a)(1)), a summary description of such modification or change shall be furnished to participants and

beneficiaries not later than 60 days after the date of the

adoption of the modification or change. In the alternative,

the plan sponsors may provide such description at regular

intervals of not more than 90 days. The Secretary shall

issue regulations within 180 days after the date of enactment of the Health Insurance Portability and Accountability Act of 1996, providing alternative mechanisms to

delivery by mail through which group health plans (as

so defined) may notify participants and beneficiaries of

material reductions in covered services or benefits.’’.

(2) PLAN DESCRIPTION AND SUMMARY.—Section 102(b) of

such Act (29 U.S.C. 1022(b)) is amended—

(A) by inserting ‘‘in the case of a group health plan

(as defined in section 706(a)(1)), whether a health insurance

issuer (as defined in section 706(b)(2)) is responsible for

the financing or administration (including payment of

claims) of the plan and (if so) the name and address of

such issuer;’’ after ‘‘type of administration of the plan;’’;

and

29 USC 1187.
110 STAT. 1952 PUBLIC LAW 104–191—AUG. 21, 1996

(B) by inserting ‘‘including the office at the Department

of Labor through which participants and beneficiaries may

seek assistance or information regarding their rights under

this Act and the Health Insurance Portability and Accountability Act of 1996 with respect to health benefits that

are offered through a group health plan (as defined in

section 706(a)(1))’’ after ‘‘benefits under the plan’’.

(d) TREATMENT OF HEALTH INSURANCE ISSUERS OFFERING

HEALTH INSURANCE COVERAGE TO NONCOVERED PLANS.—Section

4(b) of such Act (29 U.S.C. 1003(b)) is amended by adding at

the end (after and below paragraph (5)) the following:

‘‘The provisions of part 7 of subtitle B shall not apply to a health

insurance issuer (as defined in section 706(b)(2)) solely by reason

of health insurance coverage (as defined in section 706(b)(1)) provided by such issuer in connection with a group health plan (as

defined in section 706(a)(1)) if the provisions of this title do not

apply to such group health plan.’’.

(e) REPORTING AND ENFORCEMENT WITH RESPECT TO CERTAIN

ARRANGEMENTS.—

(1) IN GENERAL.—Section 101 of such Act (29 U.S.C. 1021)

is amended—

(A) by redesignating subsection (g) as subsection

(h), and

(B) by inserting after subsection (f) the following new

subsection:

‘‘(g) REPORTING BY CERTAIN ARRANGEMENTS.—The Secretary

may, by regulation, require multiple employer welfare arrangements

providing benefits consisting of medical care (within the meaning

of section 706(a)(2)) which are not group health plans to report,

not more frequently than annually, in such form and such manner

as the Secretary may require for the purpose of determining the

extent to which the requirements of part 7 are being carried out

in connection with such benefits.’’.

(2) ENFORCEMENT.—

(A) IN GENERAL.—Section 502 of such Act (29 U.S.C.

1132) is amended—

(i) in subsection (a)(6), by striking ‘‘under subsection (c)(2) or (i) or (l)’’ and inserting ‘‘under paragraph (2), (4), or (5) of subsection (c) or under

subsection (i) or (l)’’; and

(ii) in the last 2 sentences of subsection (c), by

striking ‘‘For purposes of this paragraph’’ and all that

follows through ‘‘The Secretary and’’ and inserting the

following:

‘‘(5) The Secretary may assess a civil penalty against any person

of up to $1,000 a day from the date of the person’s failure or

refusal to file the information required to be filed by such person

with the Secretary under regulations prescribed pursuant to section

101(g).

‘‘(6) The Secretary and’’.

(B) TECHNICAL AND CONFORMING AMENDMENT.—Section 502(c)(1) of such Act (29 U.S.C. 1132(c)(1)) is amended

by adding at the end the following sentence: ‘‘For purposes

of this paragraph, each violation described in subparagraph

(A) with respect to any single participant, and each violation described in subparagraph (B) with respect to any
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1953

single participant or beneficiary, shall be treated as a separate violation.’’.

(3) COORDINATION.—Section 506 of such Act (29 U.S.C.

1136) is amended by adding at the end the following new

subsection:

‘‘(c) COORDINATION OF ENFORCEMENT WITH STATES WITH

RESPECT TO CERTAIN ARRANGEMENTS.—A State may enter into

an agreement with the Secretary for delegation to the State of

some or all of the Secretary’s authority under sections 502 and

504 to enforce the requirements under part 7 in connection with

multiple employer welfare arrangements, providing medical care

(within the meaning of section 706(a)(2)), which are not group

health plans.’’.

(f) CONFORMING AMENDMENTS.—

(1) Section 514(b) of such Act (29 U.S.C. 1144(b)) is

amended by adding at the end the following new paragraph:

‘‘(9) For additional provisions relating to group health plans,

see section 704.’’.

(2)(A) Part 6 of subtitle B of title I of such Act (29 U.S.C.

1161 et seq.) is amended by striking the heading and inserting

the following:

‘‘PART 6—CONTINUATION COVERAGE AND ADDITIONAL STANDARDS

FOR GROUP HEALTH PLANS’’.

(B) The table of contents in section 1 of such Act is amended

by striking the item relating to the heading for part 6 of

subtitle B of title I and inserting the following:

‘‘PART 6—CONTINUATION COVERAGE AND ADDITIONAL STANDARDS FOR GROUP

HEALTH PLANS’’.

(3) The table of contents in section 1 of such Act (as

amended by the preceding provisions of this section) is amended

by inserting after the items relating to part 6 the following

new items:

‘‘PART 7—GROUP HEALTH PLAN PORTABILITY, ACCESS, AND RENEWABILITY

REQUIREMENTS

‘‘Sec. 701. Increased portability through limitation on preexisting condition exclusions.

‘‘Sec. 702. Prohibiting discrimination against individual participants and beneficiaries based on health status.

‘‘Sec. 703. Guaranteed renewability in multiemployer plans and multiple employer

welfare arrangements. ‘‘Sec. 704. Preemption; State flexibility; construction.

‘‘Sec. 705. Special rules relating to group health plans.

‘‘Sec. 706. Definitions.

‘‘Sec. 707. Regulations.’’.

(g) EFFECTIVE DATES.— (1) IN GENERAL.—Except as provided in this section, this

section (and the amendments made by this section) shall apply

with respect to group health plans for plan years beginning

after June 30, 1997.

(2) DETERMINATION OF CREDITABLE COVERAGE.— (A) PERIOD OF COVERAGE.— (i) IN GENERAL.—Subject to clause (ii), no period

before July 1, 1996, shall be taken into account under

part 7 of subtitle B of title I of the Employee Retirement Income Security Act of 1974 (as added by this

section) in determining creditable coverage.

29 USC 1181

note.
110 STAT. 1954 PUBLIC LAW 104–191—AUG. 21, 1996

(ii) SPECIAL RULE FOR CERTAIN PERIODS.—The Secretary of Labor, consistent with section 104, shall provide for a process whereby individuals who need to

establish creditable coverage for periods before July

1, 1996, and who would have such coverage credited

but for clause (i) may be given credit for creditable

coverage for such periods through the presentation

of documents or other means.

(B) CERTIFICATIONS, ETC.—

(i) IN GENERAL.—Subject to clauses (ii) and (iii),

subsection (e) of section 701 of the Employee Retirement Income Security Act of 1974 (as added by this

section) shall apply to events occurring after June 30,

1996.

(ii) NO CERTIFICATION REQUIRED TO BE PROVIDED

BEFORE JUNE 1, 1997.—In no case is a certification

required to be provided under such subsection before

June 1, 1997.

(iii) CERTIFICATION ONLY ON WRITTEN REQUEST FOR

EVENTS OCCURRING BEFORE OCTOBER 1, 1996.—In the

case of an event occurring after June 30, 1996, and

before October 1, 1996, a certification is not required

to be provided under such subsection unless an individual (with respect to whom the certification is otherwise

required to be made) requests such certification in

writing.

(C) TRANSITIONAL RULE.—In the case of an individual

who seeks to establish creditable coverage for any period

for which certification is not required because it relates

to an event occurring before June 30, 1996—

(i) the individual may present other credible evidence of such coverage in order to establish the period

of creditable coverage; and

(ii) a group health plan and a health insurance

issuer shall not be subject to any penalty or enforcement action with respect to the plan’s or issuer’s crediting (or not crediting) such coverage if the plan or

issuer has sought to comply in good faith with the

applicable requirements under the amendments made

by this section.

(3) SPECIAL RULE FOR COLLECTIVE BARGAINING AGREEMENTS.—Except as provided in paragraph (2), in the case of

a group health plan maintained pursuant to one or more collective bargaining agreements between employee representatives

and one or more employers ratified before the date of the

enactment of this Act, part 7 of subtitle B of title I of Employee

Retirement Income Security Act of 1974 (other than section

701(e) thereof) shall not apply to plan years beginning before

the later of—

(A) the date on which the last of the collective bargaining agreements relating to the plan terminates (determined

without regard to any extension thereof agreed to after

the date of the enactment of this Act), or

(B) July 1, 1997.

For purposes of subparagraph (A), any plan amendment made

pursuant to a collective bargaining agreement relating to the

plan which amends the plan solely to conform to any require-
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1955

ment of such part shall not be treated as a termination of

such collective bargaining agreement.

(4) TIMELY REGULATIONS.—The Secretary of Labor, consistent with section 104, shall first issue by not later than April

1, 1997, such regulations as may be necessary to carry out

the amendments made by this section.

(5) LIMITATION ON ACTIONS.—No enforcement action shall

be taken, pursuant to the amendments made by this section,

against a group health plan or health insurance issuer with

respect to a violation of a requirement imposed by such amendments before January 1, 1998, or, if later, the date of issuance

of regulations referred to in paragraph (4), if the plan or issuer

has sought to comply in good faith with such requirements.

SEC. 102. THROUGH THE PUBLIC HEALTH SERVICE ACT.

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

by adding at the end the following new title:

‘‘TITLE XXVII—ASSURING PORTABILITY,

AVAILABILITY, AND RENEWABILITY

OF HEALTH INSURANCE COVERAGE

‘‘PART A—GROUP MARKET REFORMS

‘‘Subpart 1—Portability, Access, and Renewability Requirements

‘‘SEC. 2701. INCREASED PORTABILITY THROUGH LIMITATION ON

PREEXISTING CONDITION EXCLUSIONS.

‘‘(a) LIMITATION ON PREEXISTING CONDITION EXCLUSION PERIOD;

CREDITING FOR PERIODS OF PREVIOUS COVERAGE.—Subject to subsection (d), a group health plan, and a health insurance issuer

offering group health insurance coverage, may, with respect to

a participant or beneficiary, impose a preexisting condition exclusion

only if—

‘‘(1) such exclusion relates to a condition (whether physical

or mental), regardless of the cause of the condition, for which

medical advice, diagnosis, care, or treatment was recommended

or received within the 6-month period ending on the enrollment

date;

‘‘(2) such exclusion extends for a period of not more than

12 months (or 18 months in the case of a late enrollee) after

the enrollment date; and

‘‘(3) the period of any such preexisting condition exclusion

is reduced by the aggregate of the periods of creditable coverage

(if any, as defined in subsection (c)(1)) applicable to the participant or beneficiary as of the enrollment date.

‘‘(b) DEFINITIONS.—For purposes of this part—

‘‘(1) PREEXISTING CONDITION EXCLUSION.—

‘‘(A) IN GENERAL.—The term ‘preexisting condition

exclusion’ means, with respect to coverage, a limitation

or exclusion of benefits relating to a condition based on

the fact that the condition was present before the date

of enrollment for such coverage, whether or not any medical

advice, diagnosis, care, or treatment was recommended

or received before such date.

42 USC 300gg.
110 STAT. 1956 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(B) TREATMENT OF GENETIC INFORMATION.—Genetic

information shall not be treated as a condition described

in subsection (a)(1) in the absence of a diagnosis of the

condition related to such information.

‘‘(2) ENROLLMENT DATE.—The term ‘enrollment date’

means, with respect to an individual covered under a group

health plan or health insurance coverage, the date of enrollment

of the individual in the plan or coverage or, if earlier, the

first day of the waiting period for such enrollment.

‘‘(3) LATE ENROLLEE.—The term ‘late enrollee’ means, with

respect to coverage under a group health plan, a participant

or beneficiary who enrolls under the plan other than during—

‘‘(A) the first period in which the individual is eligible

to enroll under the plan, or

‘‘(B) a special enrollment period under subsection (f).

‘‘(4) WAITING PERIOD.—The term ‘waiting period’ means,

with respect to a group health plan and an individual who

is a potential participant or beneficiary in the plan, the period

that must pass with respect to the individual before the individual is eligible to be covered for benefits under the terms of

the plan.

‘‘(c) RULES RELATING TO CREDITING PREVIOUS COVERAGE.—

‘‘(1) CREDITABLE COVERAGE DEFINED.—For purposes of this

title, the term ‘creditable coverage’ means, with respect to an

individual, coverage of the individual under any of the following:

‘‘(A) A group health plan.

‘‘(B) Health insurance coverage.

‘‘(C) Part A or part B of title XVIII of the Social

Security Act.

‘‘(D) Title XIX of the Social Security Act, other than

coverage consisting solely of benefits under section 1928.

‘‘(E) Chapter 55 of title 10, United States Code.

‘‘(F) A medical care program of the Indian Health

Service or of a tribal organization.

‘‘(G) A State health benefits risk pool.

‘‘(H) A health plan offered under chapter 89 of

title 5, United States Code.

‘‘(I) A public health plan (as defined in regulations).

‘‘(J) A health benefit plan under section 5(e) of the

Peace Corps Act (22 U.S.C. 2504(e)).

Such term does not include coverage consisting solely of coverage of excepted benefits (as defined in section 2791(c)).

‘‘(2) NOT COUNTING PERIODS BEFORE SIGNIFICANT BREAKS

IN COVERAGE.—

‘‘(A) IN GENERAL.—A period of creditable coverage shall

not be counted, with respect to enrollment of an individual

under a group health plan, if, after such period and before

the enrollment date, there was a 63-day period during

all of which the individual was not covered under any

creditable coverage.

‘‘(B) WAITING PERIOD NOT TREATED AS A BREAK IN COVERAGE.—For purposes of subparagraph (A) and subsection

(d)(4), any period that an individual is in a waiting period

for any coverage under a group health plan (or for group

health insurance coverage) or is in an affiliation period

(as defined in subsection (g)(2)) shall not be taken into
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1957

account in determining the continuous period under

subparagraph (A).

‘‘(3) METHOD OF CREDITING COVERAGE.— ‘‘(A) STANDARD METHOD.—Except as otherwise provided

under subparagraph (B), for purposes of applying subsection (a)(3), a group health plan, and a health insurance

issuer offering group health insurance coverage, shall count

a period of creditable coverage without regard to the specific

benefits covered during the period.

‘‘(B) ELECTION OF ALTERNATIVE METHOD.—A group

health plan, or a health insurance issuer offering group

health insurance, may elect to apply subsection (a)(3) based

on coverage of benefits within each of several classes or

categories of benefits specified in regulations rather than

as provided under subparagraph (A). Such election shall

be made on a uniform basis for all participants and beneficiaries. Under such election a group health plan or issuer

shall count a period of creditable coverage with respect

to any class or category of benefits if any level of benefits

is covered within such class or category.

‘‘(C) PLAN NOTICE.—In the case of an election with

respect to a group health plan under subparagraph (B)

(whether or not health insurance coverage is provided in

connection with such plan), the plan shall—

‘‘(i) prominently state in any disclosure statements

concerning the plan, and state to each enrollee at the

time of enrollment under the plan, that the plan has

made such election, and

‘‘(ii) include in such statements a description of

the effect of this election.

‘‘(D) ISSUER NOTICE.—In the case of an election under

subparagraph (B) with respect to health insurance coverage

offered by an issuer in the small or large group market,

the issuer—

‘‘(i) shall prominently state in any disclosure statements concerning the coverage, and to each employer

at the time of the offer or sale of the coverage, that

the issuer has made such election, and

‘‘(ii) shall include in such statements a description

of the effect of such election.

‘‘(4) ESTABLISHMENT OF PERIOD.—Periods of creditable coverage with respect to an individual shall be established through

presentation of certifications described in subsection (e) or in

such other manner as may be specified in regulations.

‘‘(d) EXCEPTIONS.—

‘‘(1) EXCLUSION NOT APPLICABLE TO CERTAIN NEWBORNS.—

Subject to paragraph (4), a group health plan, and a health

insurance issuer offering group health insurance coverage, may

not impose any preexisting condition exclusion in the case

of an individual who, as of the last day of the 30-day period

beginning with the date of birth, is covered under creditable

coverage.

‘‘(2) EXCLUSION NOT APPLICABLE TO CERTAIN ADOPTED CHILDREN.—Subject to paragraph (4), a group health plan, and

a health insurance issuer offering group health insurance coverage, may not impose any preexisting condition exclusion in

the case of a child who is adopted or placed for adoption
110 STAT. 1958 PUBLIC LAW 104–191—AUG. 21, 1996

before attaining 18 years of age and who, as of the last day

of the 30-day period beginning on the date of the adoption

or placement for adoption, is covered under creditable coverage.

The previous sentence shall not apply to coverage before the

date of such adoption or placement for adoption.

‘‘(3) EXCLUSION NOT APPLICABLE TO PREGNANCY.—A group

health plan, and health insurance issuer offering group health

insurance coverage, may not impose any preexisting condition

exclusion relating to pregnancy as a preexisting condition.

‘‘(4) LOSS IF BREAK IN COVERAGE.—Paragraphs (1) and (2)

shall no longer apply to an individual after the end of the

first 63-day period during all of which the individual was not

covered under any creditable coverage.

‘‘(e) CERTIFICATIONS AND DISCLOSURE OF COVERAGE.—

‘‘(1) REQUIREMENT FOR CERTIFICATION OF PERIOD OF CREDITABLE COVERAGE.—

‘‘(A) IN GENERAL.—A group health plan, and a health

insurance issuer offering group health insurance coverage,

shall provide the certification described in subparagraph

(B)—

‘‘(i) at the time an individual ceases to be covered

under the plan or otherwise becomes covered under

a COBRA continuation provision,

‘‘(ii) in the case of an individual becoming covered

under such a provision, at the time the individual

ceases to be covered under such provision, and

‘‘(iii) on the request on behalf of an individual

made not later than 24 months after the date of cessation of the coverage described in clause (i) or (ii),

whichever is later.

The certification under clause (i) may be provided, to the

extent practicable, at a time consistent with notices

required under any applicable COBRA continuation provision.

‘‘(B) CERTIFICATION.—The certification described in this

subparagraph is a written certification of—

‘‘(i) the period of creditable coverage of the individual under such plan and the coverage (if any) under

such COBRA continuation provision, and

‘‘(ii) the waiting period (if any) (and affiliation

period, if applicable) imposed with respect to the

individual for any coverage under such plan.

‘‘(C) ISSUER COMPLIANCE.—To the extent that medical

care under a group health plan consists of group health

insurance coverage, the plan is deemed to have satisfied

the certification requirement under this paragraph if the

health insurance issuer offering the coverage provides for

such certification in accordance with this paragraph.

‘‘(2) DISCLOSURE OF INFORMATION ON PREVIOUS BENEFITS.—

In the case of an election described in subsection (c)(3)(B)

by a group health plan or health insurance issuer, if the plan

or issuer enrolls an individual for coverage under the plan

and the individual provides a certification of coverage of the

individual under paragraph (1)—

‘‘(A) upon request of such plan or issuer, the entity

which issued the certification provided by the individual

shall promptly disclose to such requesting plan or issuer
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1959

information on coverage of classes and categories of health

benefits available under such entity’s plan or coverage,

and

‘‘(B) such entity may charge the requesting plan or

issuer for the reasonable cost of disclosing such information.

‘‘(3) REGULATIONS.—The Secretary shall establish rules to

prevent an entity’s failure to provide information under paragraph (1) or (2) with respect to previous coverage of an individual from adversely affecting any subsequent coverage of the

individual under another group health plan or health insurance

coverage.

‘‘(f) SPECIAL ENROLLMENT PERIODS.—

‘‘(1) INDIVIDUALS LOSING OTHER COVERAGE.—A group health

plan, and a health insurance issuer offering group health insurance coverage in connection with a group health plan, shall

permit an employee who is eligible, but not enrolled, for coverage under the terms of the plan (or a dependent of such

an employee if the dependent is eligible, but not enrolled,

for coverage under such terms) to enroll for coverage under

the terms of the plan if each of the following conditions is

met:

‘‘(A) The employee or dependent was covered under

a group health plan or had health insurance coverage at

the time coverage was previously offered to the employee

or dependent.

‘‘(B) The employee stated in writing at such time that

coverage under a group health plan or health insurance

coverage was the reason for declining enrollment, but only

if the plan sponsor or issuer (if applicable) required such

a statement at such time and provided the employee with

notice of such requirement (and the consequences of such

requirement) at such time.

‘‘(C) The employee’s or dependent’s coverage described

in subparagraph (A)—

‘‘(i) was under a COBRA continuation provision

and the coverage under such provision was

exhausted; or

‘‘(ii) was not under such a provision and either

the coverage was terminated as a result of loss of

eligibility for the coverage (including as a result of

legal separation, divorce, death, termination of employment, or reduction in the number of hours of employment) or employer contributions toward such coverage

were terminated.

‘‘(D) Under the terms of the plan, the employee

requests such enrollment not later than 30 days after the

date of exhaustion of coverage described in subparagraph

(C)(i) or termination of coverage or employer contribution

described in subparagraph (C)(ii).

‘‘(2) FOR DEPENDENT BENEFICIARIES.—

‘‘(A) IN GENERAL.—If—

‘‘(i) a group health plan makes coverage available

with respect to a dependent of an individual,

‘‘(ii) the individual is a participant under the plan

(or has met any waiting period applicable to becoming

a participant under the plan and is eligible to be
110 STAT. 1960 PUBLIC LAW 104–191—AUG. 21, 1996

enrolled under the plan but for a failure to enroll

during a previous enrollment period), and

‘‘(iii) a person becomes such a dependent of the

individual through marriage, birth, or adoption or

placement for adoption,

the group health plan shall provide for a dependent special

enrollment period described in subparagraph (B) during

which the person (or, if not otherwise enrolled, the individual) may be enrolled under the plan as a dependent of

the individual, and in the case of the birth or adoption

of a child, the spouse of the individual may be enrolled

as a dependent of the individual if such spouse is otherwise

eligible for coverage.

‘‘(B) DEPENDENT SPECIAL ENROLLMENT PERIOD.—A

dependent special enrollment period under this subparagraph shall be a period of not less than 30 days and

shall begin on the later of—

‘‘(i) the date dependent coverage is made

available, or

‘‘(ii) the date of the marriage, birth, or adoption

or placement for adoption (as the case may be)

described in subparagraph (A)(iii).

‘‘(C) NO WAITING PERIOD.—If an individual seeks to

enroll a dependent during the first 30 days of such a

dependent special enrollment period, the coverage of the

dependent shall become effective—

‘‘(i) in the case of marriage, not later than the

first day of the first month beginning after the date

the completed request for enrollment is received;

‘‘(ii) in the case of a dependent’s birth, as of the

date of such birth; or

‘‘(iii) in the case of a dependent’s adoption or placement for adoption, the date of such adoption or placement for adoption.

‘‘(g) USE OF AFFILIATION PERIOD BY HMOS AS ALTERNATIVE

TO PREEXISTING CONDITION EXCLUSION.—

‘‘(1) IN GENERAL.—A health maintenance organization

which offers health insurance coverage in connection with a

group health plan and which does not impose any preexisting

condition exclusion allowed under subsection (a) with respect

to any particular coverage option may impose an affiliation

period for such coverage option, but only if—

‘‘(A) such period is applied uniformly without regard

to any health status-related factors; and

‘‘(B) such period does not exceed 2 months (or 3 months

in the case of a late enrollee).

‘‘(2) AFFILIATION PERIOD.—

‘‘(A) DEFINED.—For purposes of this title, the term

‘affiliation period’ means a period which, under the terms

of the health insurance coverage offered by the health

maintenance organization, must expire before the health

insurance coverage becomes effective. The organization is

not required to provide health care services or benefits

during such period and no premium shall be charged to

the participant or beneficiary for any coverage during the

period.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1961

‘‘(B) BEGINNING.—Such period shall begin on the enrollment date.

‘‘(C) RUNS CONCURRENTLY WITH WAITING PERIODS.— An affiliation period under a plan shall run concurrently

with any waiting period under the plan.

‘‘(3) ALTERNATIVE METHODS.—A health maintenance

organization described in paragraph (1) may use alternative

methods, from those described in such paragraph, to address

adverse selection as approved by the State insurance commissioner or official or officials designated by the State to enforce

the requirements of this part for the State involved with respect

to such issuer.

‘‘SEC. 2702. PROHIBITING DISCRIMINATION AGAINST INDIVIDUAL

PARTICIPANTS AND BENEFICIARIES BASED ON HEALTH

STATUS.

‘‘(a) IN ELIGIBILITY TO ENROLL.—

‘‘(1) IN GENERAL.—Subject to paragraph (2), a group health

plan, and a health insurance issuer offering group health insurance coverage in connection with a group health plan, may

not establish rules for eligibility (including continued eligibility)

of any individual to enroll under the terms of the plan based

on any of the following health status-related factors in relation

to the individual or a dependent of the individual:

‘‘(A) Health status.

‘‘(B) Medical condition (including both physical and

mental illnesses).

‘‘(C) Claims experience.

‘‘(D) Receipt of health care.

‘‘(E) Medical history.

‘‘(F) Genetic information.

‘‘(G) Evidence of insurability (including conditions arising out of acts of domestic violence).

‘‘(H) Disability.

‘‘(2) NO APPLICATION TO BENEFITS OR EXCLUSIONS.—To the

extent consistent with section 701, paragraph (1) shall not

be construed—

‘‘(A) to require a group health plan, or group health

insurance coverage, to provide particular benefits other

than those provided under the terms of such plan or coverage, or

‘‘(B) to prevent such a plan or coverage from establishing limitations or restrictions on the amount, level, extent,

or nature of the benefits or coverage for similarly situated

individuals enrolled in the plan or coverage.

‘‘(3) CONSTRUCTION.—For purposes of paragraph (1), rules

for eligibility to enroll under a plan include rules defining

any applicable waiting periods for such enrollment.

‘‘(b) IN PREMIUM CONTRIBUTIONS.—

‘‘(1) IN GENERAL.—A group health plan, and a health insurance issuer offering health insurance coverage in connection

with a group health plan, may not require any individual

(as a condition of enrollment or continued enrollment under

the plan) to pay a premium or contribution which is greater

than such premium or contribution for a similarly situated

individual enrolled in the plan on the basis of any health

status-related factor in relation to the individual or to an

42 USC 300gg–1.
110 STAT. 1962 PUBLIC LAW 104–191—AUG. 21, 1996

individual enrolled under the plan as a dependent of the

individual.

‘‘(2) CONSTRUCTION.—Nothing in paragraph (1) shall be

construed—

‘‘(A) to restrict the amount that an employer may be

charged for coverage under a group health plan; or

‘‘(B) to prevent a group health plan, and a health

insurance issuer offering group health insurance coverage,

from establishing premium discounts or rebates or modifying otherwise applicable copayments or deductibles in

return for adherence to programs of health promotion and

disease prevention.

‘‘Subpart 2—Provisions Applicable Only to Health Insurance

Issuers

‘‘SEC. 2711. GUARANTEED AVAILABILITY OF COVERAGE FOR

EMPLOYERS IN THE GROUP MARKET.

‘‘(a) ISSUANCE OF COVERAGE IN THE SMALL GROUP MARKET.—

‘‘(1) IN GENERAL.—Subject to subsections (c) through (f),

each health insurance issuer that offers health insurance coverage in the small group market in a State—

‘‘(A) must accept every small employer (as defined in

section 2791(e)(4)) in the State that applies for such coverage; and

‘‘(B) must accept for enrollment under such coverage

every eligible individual (as defined in paragraph (2)) who

applies for enrollment during the period in which the

individual first becomes eligible to enroll under the terms

of the group health plan and may not place any restriction

which is inconsistent with section 2702 on an eligible

individual being a participant or beneficiary.

‘‘(2) ELIGIBLE INDIVIDUAL DEFINED.—For purposes of this

section, the term ‘eligible individual’ means, with respect to

a health insurance issuer that offers health insurance coverage

to a small employer in connection with a group health plan

in the small group market, such an individual in relation to

the employer as shall be determined—

‘‘(A) in accordance with the terms of such plan,

‘‘(B) as provided by the issuer under rules of the issuer

which are uniformly applicable in a State to small employers in the small group market, and

‘‘(C) in accordance with all applicable State laws

governing such issuer and such market.

‘‘(b) ASSURING ACCESS IN THE LARGE GROUP MARKET.—

‘‘(1) REPORTS TO HHS.—The Secretary shall request that

the chief executive officer of each State submit to the Secretary,

by not later December 31, 2000, and every 3 years thereafter

a report on—

‘‘(A) the access of large employers to health insurance

coverage in the State, and

‘‘(B) the circumstances for lack of access (if any) of

large employers (or one or more classes of such employers)

in the State to such coverage.

‘‘(2) TRIENNIAL REPORTS TO CONGRESS.—The Secretary,

based on the reports submitted under paragraph (1) and such

other information as the Secretary may use, shall prepare

42 USC 300gg–

11.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1963

and submit to Congress, every 3 years, a report describing

the extent to which large employers (and classes of such employers) that seek health insurance coverage in the different States

are able to obtain access to such coverage. Such report shall

include such recommendations as the Secretary determines to

be appropriate.

‘‘(3) GAO REPORT ON LARGE EMPLOYER ACCESS TO HEALTH

INSURANCE COVERAGE.—The Comptroller General shall provide

for a study of the extent to which classes of large employers

in the different States are able to obtain access to health

insurance coverage and the circumstances for lack of access

(if any) to such coverage. The Comptroller General shall submit

to Congress a report on such study not later than 18 months

after the date of the enactment of this title.

‘‘(c) SPECIAL RULES FOR NETWORK PLANS.—

‘‘(1) IN GENERAL.—In the case of a health insurance issuer

that offers health insurance coverage in the small group market

through a network plan, the issuer may—

‘‘(A) limit the employers that may apply for such coverage to those with eligible individuals who live, work,

or reside in the service area for such network plan; and

‘‘(B) within the service area of such plan, deny such

coverage to such employers if the issuer has demonstrated,

if required, to the applicable State authority that—

‘‘(i) it will not have the capacity to deliver services

adequately to enrollees of any additional groups

because of its obligations to existing group contract

holders and enrollees, and

‘‘(ii) it is applying this paragraph uniformly to

all employers without regard to the claims experience

of those employers and their employees (and their

dependents) or any health status-related factor relating

to such employees and dependents.

‘‘(2) 180-DAY SUSPENSION UPON DENIAL OF COVERAGE.—An

issuer, upon denying health insurance coverage in any service

area in accordance with paragraph (1)(B), may not offer coverage in the small group market within such service area

for a period of 180 days after the date such coverage is denied.

‘‘(d) APPLICATION OF FINANCIAL CAPACITY LIMITS.—

‘‘(1) IN GENERAL.—A health insurance issuer may deny

health insurance coverage in the small group market if the

issuer has demonstrated, if required, to the applicable State

authority that—

‘‘(A) it does not have the financial reserves necessary

to underwrite additional coverage; and

‘‘(B) it is applying this paragraph uniformly to all

employers in the small group market in the State consistent

with applicable State law and without regard to the claims

experience of those employers and their employees (and

their dependents) or any health status-related factor relating to such employees and dependents.

‘‘(2) 180-DAY SUSPENSION UPON DENIAL OF COVERAGE.—A

health insurance issuer upon denying health insurance coverage

in connection with group health plans in accordance with paragraph (1) in a State may not offer coverage in connection

with group health plans in the small group market in the

State for a period of 180 days after the date such coverage
110 STAT. 1964 PUBLIC LAW 104–191—AUG. 21, 1996

is denied or until the issuer has demonstrated to the applicable

State authority, if required under applicable State law, that

the issuer has sufficient financial reserves to underwrite additional coverage, whichever is later. An applicable State authority may provide for the application of this subsection on a

service-area-specific basis.

‘‘(e) EXCEPTION TO REQUIREMENT FOR FAILURE TO MEET CERTAIN MINIMUM PARTICIPATION OR CONTRIBUTION RULES.—

‘‘(1) IN GENERAL.—Subsection (a) shall not be construed

to preclude a health insurance issuer from establishing

employer contribution rules or group participation rules for

the offering of health insurance coverage in connection with

a group health plan in the small group market, as allowed

under applicable State law.

‘‘(2) RULES DEFINED.—For purposes of paragraph (1)—

‘‘(A) the term ‘employer contribution rule’ means a

requirement relating to the minimum level or amount of

employer contribution toward the premium for enrollment

of participants and beneficiaries; and

‘‘(B) the term ‘group participation rule’ means a

requirement relating to the minimum number of participants or beneficiaries that must be enrolled in relation

to a specified percentage or number of eligible individuals

or employees of an employer.

‘‘(f) EXCEPTION FOR COVERAGE OFFERED ONLY TO BONA FIDE

ASSOCIATION MEMBERS.—Subsection (a) shall not apply to health

insurance coverage offered by a health insurance issuer if such

coverage is made available in the small group market only through

one or more bona fide associations (as defined in section 2791(d)(3)).

‘‘SEC. 2712. GUARANTEED RENEWABILITY OF COVERAGE FOR

EMPLOYERS IN THE GROUP MARKET.

‘‘(a) IN GENERAL.—Except as provided in this section, if a health

insurance issuer offers health insurance coverage in the small or

large group market in connection with a group health plan, the

issuer must renew or continue in force such coverage at the option

of the plan sponsor of the plan.

‘‘(b) GENERAL EXCEPTIONS.—A health insurance issuer may

nonrenew or discontinue health insurance coverage offered in

connection with a group health plan in the small or large group

market based only on one or more of the following:

‘‘(1) NONPAYMENT OF PREMIUMS.—The plan sponsor has

failed to pay premiums or contributions in accordance with

the terms of the health insurance coverage or the issuer has

not received timely premium payments.

‘‘(2) FRAUD.—The plan sponsor has performed an act or

practice that constitutes fraud or made an intentional misrepresentation of material fact under the terms of the coverage.

‘‘(3) VIOLATION OF PARTICIPATION OR CONTRIBUTION

RULES.—The plan sponsor has failed to comply with a material

plan provision relating to employer contribution or group

participation rules, as permitted under section 2711(e) in the

case of the small group market or pursuant to applicable State

law in the case of the large group market.

‘‘(4) TERMINATION OF COVERAGE.—The issuer is ceasing to

offer coverage in such market in accordance with subsection

(c) and applicable State law.

42 USC 300gg–

12.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1965

‘‘(5) MOVEMENT OUTSIDE SERVICE AREA.—In the case of

a health insurance issuer that offers health insurance coverage

in the market through a network plan, there is no longer

any enrollee in connection with such plan who lives, resides,

or works in the service area of the issuer (or in the area

for which the issuer is authorized to do business) and, in

the case of the small group market, the issuer would deny

enrollment with respect to such plan under section

2711(c)(1)(A).

‘‘(6) ASSOCIATION MEMBERSHIP CEASES.—In the case of

health insurance coverage that is made available in the small

or large group market (as the case may be) only through one

or more bona fide associations, the membership of an employer

in the association (on the basis of which the coverage is provided) ceases but only if such coverage is terminated under

this paragraph uniformly without regard to any health statusrelated factor relating to any covered individual.

‘‘(c) REQUIREMENTS FOR UNIFORM TERMINATION OF COVERAGE.—

‘‘(1) PARTICULAR TYPE OF COVERAGE NOT OFFERED.—In any

case in which an issuer decides to discontinue offering a particular type of group health insurance coverage offered in the

small or large group market, coverage of such type may be

discontinued by the issuer in accordance with applicable State

law in such market only if—

‘‘(A) the issuer provides notice to each plan sponsor

provided coverage of this type in such market (and participants and beneficiaries covered under such coverage) of

such discontinuation at least 90 days prior to the date

of the discontinuation of such coverage;

‘‘(B) the issuer offers to each plan sponsor provided

coverage of this type in such market, the option to purchase

all (or, in the case of the large group market, any) other

health insurance coverage currently being offered by the

issuer to a group health plan in such market; and

‘‘(C) in exercising the option to discontinue coverage

of this type and in offering the option of coverage under

subparagraph (B), the issuer acts uniformly without regard

to the claims experience of those sponsors or any health

status-related factor relating to any participants or beneficiaries covered or new participants or beneficiaries who

may become eligible for such coverage.

‘‘(2) DISCONTINUANCE OF ALL COVERAGE.—

‘‘(A) IN GENERAL.—In any case in which a health insurance issuer elects to discontinue offering all health insurance coverage in the small group market or the large

group market, or both markets, in a State, health insurance

coverage may be discontinued by the issuer only in accordance with applicable State law and if—

‘‘(i) the issuer provides notice to the applicable

State authority and to each plan sponsor (and participants and beneficiaries covered under such coverage)

of such discontinuation at least 180 days prior to the

date of the discontinuation of such coverage; and

‘‘(ii) all health insurance issued or delivered for

issuance in the State in such market (or markets)

are discontinued and coverage under such health insur-
110 STAT. 1966 PUBLIC LAW 104–191—AUG. 21, 1996

ance coverage in such market (or markets) is not

renewed.

‘‘(B) PROHIBITION ON MARKET REENTRY.—In the case

of a discontinuation under subparagraph (A) in a market,

the issuer may not provide for the issuance of any health

insurance coverage in the market and State involved during

the 5-year period beginning on the date of the discontinuation of the last health insurance coverage not so renewed.

‘‘(d) EXCEPTION FOR UNIFORM MODIFICATION OF COVERAGE.—

At the time of coverage renewal, a health insurance issuer may

modify the health insurance coverage for a product offered to a

group health plan—

‘‘(1) in the large group market; or

‘‘(2) in the small group market if, for coverage that is

available in such market other than only through one or more

bona fide associations, such modification is consistent with

State law and effective on a uniform basis among group health

plans with that product.

‘‘(e) APPLICATION TO COVERAGE OFFERED ONLY THROUGH

ASSOCIATIONS.—In applying this section in the case of health insurance coverage that is made available by a health insurance issuer

in the small or large group market to employers only through

one or more associations, a reference to ‘plan sponsor’ is deemed,

with respect to coverage provided to an employer member of the

association, to include a reference to such employer.

‘‘SEC. 2713. DISCLOSURE OF INFORMATION.

‘‘(a) DISCLOSURE OF INFORMATION BY HEALTH PLAN ISSUERS.—

In connection with the offering of any health insurance coverage

to a small employer, a health insurance issuer—

‘‘(1) shall make a reasonable disclosure to such employer,

as part of its solicitation and sales materials, of the availability

of information described in subsection (b), and

‘‘(2) upon request of such a small employer, provide such

information.

‘‘(b) INFORMATION DESCRIBED.—

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

to a health insurance issuer offering health insurance coverage

to a small employer, information described in this subsection

is information concerning—

‘‘(A) the provisions of such coverage concerning issuer’s

right to change premium rates and the factors that may

affect changes in premium rates;

‘‘(B) the provisions of such coverage relating to renewability of coverage;

‘‘(C) the provisions of such coverage relating to any

preexisting condition exclusion; and

‘‘(D) the benefits and premiums available under all

health insurance coverage for which the employer is qualified.

‘‘(2) FORM OF INFORMATION.—Information under this subsection shall be provided to small employers in a manner determined to be understandable by the average small employer,

and shall be sufficient to reasonably inform small employers

of their rights and obligations under the health insurance coverage.

42 USC 300gg–

13.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1967

‘‘(3) EXCEPTION.—An issuer is not required under this section to disclose any information that is proprietary and trade

secret information under applicable law.

‘‘Subpart 3—Exclusion of Plans; Enforcement; Preemption

‘‘SEC. 2721. EXCLUSION OF CERTAIN PLANS.

‘‘(a) EXCEPTION FOR CERTAIN SMALL GROUP HEALTH PLANS.— The requirements of subparts 1 and 2 shall not apply to any

group health plan (and health insurance coverage offered in connection with a group health plan) for any plan year if, on the first

day of such plan year, such plan has less than 2 participants

who are current employees.

‘‘(b) LIMITATION ON APPLICATION OF PROVISIONS RELATING TO

GROUP HEALTH PLANS.—

‘‘(1) IN GENERAL.—The requirements of subparts 1 and

2 shall apply with respect to group health plans only—

‘‘(A) subject to paragraph (2), in the case of a plan

that is a nonfederal governmental plan, and

‘‘(B) with respect to health insurance coverage offered

in connection with a group health plan (including such

a plan that is a church plan or a governmental plan).

‘‘(2) TREATMENT OF NONFEDERAL GOVERNMENTAL PLANS.—

‘‘(A) ELECTION TO BE EXCLUDED.—If the plan sponsor

of a nonfederal governmental plan which is a group health

plan to which the provisions of subparts 1 and 2 otherwise

apply makes an election under this subparagraph (in such

form and manner as the Secretary may by regulations

prescribe), then the requirements of such subparts insofar

as they apply directly to group health plans (and not merely

to group health insurance coverage) shall not apply to

such governmental plans for such period except as provided

in this paragraph.

‘‘(B) PERIOD OF ELECTION.—An election under subparagraph (A) shall apply—

‘‘(i) for a single specified plan year, or

‘‘(ii) in the case of a plan provided pursuant to

a collective bargaining agreement, for the term of such

agreement.

An election under clause (i) may be extended through subsequent elections under this paragraph.

‘‘(C) NOTICE TO ENROLLEES.—Under such an election,

the plan shall provide for—

‘‘(i) notice to enrollees (on an annual basis and

at the time of enrollment under the plan) of the fact

and consequences of such election, and

‘‘(ii) certification and disclosure of creditable coverage under the plan with respect to enrollees in

accordance with section 2701(e).

‘‘(c) EXCEPTION FOR CERTAIN BENEFITS.—The requirements of

subparts 1 and 2 shall not apply to any group health plan (or

group health insurance coverage) in relation to its provision of

excepted benefits described in section 2791(c)(1).

‘‘(d) EXCEPTION FOR CERTAIN BENEFITS IF CERTAIN CONDITIONS

MET.—

‘‘(1) LIMITED, EXCEPTED BENEFITS.—The requirements of

subparts 1 and 2 shall not apply to any group health plan

42 USC 300gg–

21.
110 STAT. 1968 PUBLIC LAW 104–191—AUG. 21, 1996

(and group health insurance coverage offered in connection

with a group health plan) in relation to its provision of excepted

benefits described in section 2791(c)(2) if the benefits—

‘‘(A) are provided under a separate policy, certificate,

or contract of insurance; or

‘‘(B) are otherwise not an integral part of the plan.

‘‘(2) NONCOORDINATED, EXCEPTED BENEFITS.—The requirements of subparts 1 and 2 shall not apply to any group health

plan (and group health insurance coverage offered in connection

with a group health plan) in relation to its provision of excepted

benefits described in section 2791(c)(3) if all of the following

conditions are met:

‘‘(A) The benefits are provided under a separate policy,

certificate, or contract of insurance.

‘‘(B) There is no coordination between the provision

of such benefits and any exclusion of benefits under any

group health plan maintained by the same plan sponsor.

‘‘(C) Such benefits are paid with respect to an event

without regard to whether benefits are provided with

respect to such an event under any group health plan

maintained by the same plan sponsor.

‘‘(3) SUPPLEMENTAL EXCEPTED BENEFITS.—The requirements of this part shall not apply to any group health plan

(and group health insurance coverage) in relation to its provision of excepted benefits described in section 27971(c)(4) if

the benefits are provided under a separate policy, certificate,

or contract of insurance.

‘‘(e) TREATMENT OF PARTNERSHIPS.—For purposes of this part—

‘‘(1) TREATMENT AS A GROUP HEALTH PLAN.—Any plan, fund,

or program which would not be (but for this subsection) an

employee welfare benefit plan and which is established or maintained by a partnership, to the extent that such plan, fund,

or program provides medical care (including items and services

paid for as medical care) to present or former partners in

the partnership or to their dependents (as defined under the

terms of the plan, fund, or program), directly or through insurance, reimbursement, or otherwise, shall be treated (subject

to paragraph (2)) as an employee welfare benefit plan which

is a group health plan.

‘‘(2) EMPLOYER.—In the case of a group health plan, the

term ‘employer’ also includes the partnership in relation to

any partner.

‘‘(3) PARTICIPANTS OF GROUP HEALTH PLANS.—In the case

of a group health plan, the term ‘participant’ also includes—

‘‘(A) in connection with a group health plan maintained

by a partnership, an individual who is a partner in relation

to the partnership, or

‘‘(B) in connection with a group health plan maintained

by a self-employed individual (under which one or more

employees are participants), the self-employed individual,

if such individual is, or may become, eligible to receive a benefit

under the plan or such individual’s beneficiaries may be eligible

to receive any such benefit.

‘‘SEC. 2722. ENFORCEMENT.

‘‘(a) STATE ENFORCEMENT.—

42 USC 2722.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1969

‘‘(1) STATE AUTHORITY.—Subject to section 2723, each State

may require that health insurance issuers that issue, sell,

renew, or offer health insurance coverage in the State in the

small or large group markets meet the requirements of this

part with respect to such issuers.

‘‘(2) FAILURE TO IMPLEMENT PROVISIONS.—In the case of

a determination by the Secretary that a State has failed to

substantially enforce a provision (or provisions) in this part

with respect to health insurance issuers in the State, the Secretary shall enforce such provision (or provisions) under subsection (b) insofar as they relate to the issuance, sale, renewal,

and offering of health insurance coverage in connection with

group health plans in such State.

‘‘(b) SECRETARIAL ENFORCEMENT AUTHORITY.—

‘‘(1) LIMITATION.—The provisions of this subsection shall

apply to enforcement of a provision (or provisions) of this part

only—

‘‘(A) as provided under subsection (a)(2); and

‘‘(B) with respect to group health plans that are nonFederal governmental plans.

‘‘(2) IMPOSITION OF PENALTIES.—In the cases described in

paragraph (1)—

‘‘(A) IN GENERAL.—Subject to the succeeding provisions

of this subsection, any non-Federal governmental plan that

is a group health plan and any health insurance issuer

that fails to meet a provision of this part applicable to

such plan or issuer is subject to a civil money penalty

under this subsection.

‘‘(B) LIABILITY FOR PENALTY.—In the case of a

failure by—

‘‘(i) a health insurance issuer, the issuer is liable

for such penalty, or

‘‘(ii) a group health plan that is a non-Federal

governmental plan which is—

‘‘(I) sponsored by 2 or more employers, the

plan is liable for such penalty, or

‘‘(II) not so sponsored, the employer is liable

for such penalty.

‘‘(C) AMOUNT OF PENALTY.—

‘‘(i) IN GENERAL.—The maximum amount of penalty imposed under this paragraph is $100 for each

day for each individual with respect to which such

a failure occurs.

‘‘(ii) CONSIDERATIONS IN IMPOSITION.—In determining the amount of any penalty to be assessed under

this paragraph, the Secretary shall take into account

the previous record of compliance of the entity being

assessed with the applicable provisions of this part

and the gravity of the violation.

‘‘(iii) LIMITATIONS.—

‘‘(I) PENALTY NOT TO APPLY WHERE FAILURE

NOT DISCOVERED EXERCISING REASONABLE DILIGENCE.—No civil money penalty shall be imposed

under this paragraph on any failure during any

period for which it is established to the satisfaction

of the Secretary that none of the entities against

whom the penalty would be imposed knew, or
110 STAT. 1970 PUBLIC LAW 104–191—AUG. 21, 1996

exercising reasonable diligence would have known,

that such failure existed.

‘‘(II) PENALTY NOT TO APPLY TO FAILURES CORRECTED WITHIN 30 DAYS.—No civil money penalty

shall be imposed under this paragraph on any

failure if such failure was due to reasonable cause

and not to willful neglect, and such failure is corrected during the 30-day period beginning on the

first day any of the entities against whom the

penalty would be imposed knew, or exercising

reasonable diligence would have known, that such

failure existed.

‘‘(D) ADMINISTRATIVE REVIEW.—

‘‘(i) OPPORTUNITY FOR HEARING.—The entity

assessed shall be afforded an opportunity for hearing

by the Secretary upon request made within 30 days

after the date of the issuance of a notice of assessment.

In such hearing the decision shall be made on the

record pursuant to section 554 of title 5, United States

Code. If no hearing is requested, the assessment shall

constitute a final and unappealable order.

‘‘(ii) HEARING PROCEDURE.—If a hearing is

requested, the initial agency decision shall be made

by an administrative law judge, and such decision shall

become the final order unless the Secretary modifies

or vacates the decision. Notice of intent to modify

or vacate the decision of the administrative law judge

shall be issued to the parties within 30 days after

the date of the decision of the judge. A final order

which takes effect under this paragraph shall be

subject to review only as provided under subparagraph

(E).

‘‘(E) JUDICIAL REVIEW.—

‘‘(i) FILING OF ACTION FOR REVIEW.—Any entity

against whom an order imposing a civil money penalty

has been entered after an agency hearing under this

paragraph may obtain review by the United States

district court for any district in which such entity

is located or the United States District Court for the

District of Columbia by filing a notice of appeal in

such court within 30 days from the date of such order,

and simultaneously sending a copy of such notice by

registered mail to the Secretary.

‘‘(ii) CERTIFICATION OF ADMINISTRATIVE RECORD.—

The Secretary shall promptly certify and file in such

court the record upon which the penalty was imposed.

‘‘(iii) STANDARD FOR REVIEW.—The findings of the

Secretary shall be set aside only if found to be unsupported by substantial evidence as provided by section

706(2)(E) of title 5, United States Code.

‘‘(iv) APPEAL.—Any final decision, order, or judgment of the district court concerning such review shall

be subject to appeal as provided in chapter 83 of title

28 of such Code.

‘‘(F) FAILURE TO PAY ASSESSMENT; MAINTENANCE OF

ACTION.—
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1971

‘‘(i) FAILURE TO PAY ASSESSMENT.—If any entity

fails to pay an assessment after it has become a final

and unappealable order, or after the court has entered

final judgment in favor of the Secretary, the Secretary

shall refer the matter to the Attorney General who

shall recover the amount assessed by action in the

appropriate United States district court.

‘‘(ii) NONREVIEWABILITY.—In such action the validity and appropriateness of the final order imposing

the penalty shall not be subject to review.

‘‘(G) PAYMENT OF PENALTIES.—Except as otherwise provided, penalties collected under this paragraph shall be

paid to the Secretary (or other officer) imposing the penalty

and shall be available without appropriation and until

expended for the purpose of enforcing the provisions with

respect to which the penalty was imposed.

‘‘SEC. 2723. PREEMPTION; STATE FLEXIBILITY; CONSTRUCTION.

‘‘(a) CONTINUED APPLICABILITY OF STATE LAW WITH RESPECT

TO HEALTH INSURANCE ISSUERS.—

‘‘(1) IN GENERAL.—Subject to paragraph (2) and except

as provided in subsection (b), this part and part C insofar

as it relates to this part shall not be construed to supersede

any provision of State law which establishes, implements, or

continues in effect any standard or requirement solely relating

to health insurance issuers in connection with group health

insurance coverage except to the extent that such standard

or requirement prevents the application of a requirement of

this part.

‘‘(2) CONTINUED PREEMPTION WITH RESPECT TO GROUP

HEALTH PLANS.—Nothing in this part shall be construed to

affect or modify the provisions of section 514 of the Employee

Retirement Income Security Act of 1974 with respect to group

health plans.

‘‘(b) SPECIAL RULES IN CASE OF PORTABILITY REQUIREMENTS.—

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

of this part relating to health insurance coverage offered by

a health insurance issuer supersede any provision of State

law which establishes, implements, or continues in effect a

standard or requirement applicable to imposition of a preexisting condition exclusion specifically governed by section 701

which differs from the standards or requirements specified

in such section.

‘‘(2) EXCEPTIONS.—Only in relation to health insurance coverage offered by a health insurance issuer, the provisions of

this part do not supersede any provision of State law to the

extent that such provision—

‘‘(i) substitutes for the reference to ‘6-month period’

in section 2701(a)(1) a reference to any shorter period of

time;

‘‘(ii) substitutes for the reference to ‘12 months’ and

‘18 months’ in section 2701(a)(2) a reference to any shorter

period of time;

‘‘(iii) substitutes for the references to ‘63’ days in sections 2701(c)(2)(A) and 2701(d)(4)(A) a reference to any

greater number of days;

42 USC 300gg–

23.
110 STAT. 1972 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(iv) substitutes for the reference to ‘30-day period’

in sections 2701(b)(2) and 2701(d)(1) a reference to any

greater period;

‘‘(v) prohibits the imposition of any preexisting condition exclusion in cases not described in section 2701(d)

or expands the exceptions described in such section;

‘‘(vi) requires special enrollment periods in addition

to those required under section 2701(f); or

‘‘(vii) reduces the maximum period permitted in an

affiliation period under section 2701(g)(1)(B).

‘‘(c) RULES OF CONSTRUCTION.—Nothing in this part shall be

construed as requiring a group health plan or health insurance

coverage to provide specific benefits under the terms of such plan

or coverage.

‘‘(d) DEFINITIONS.—For purposes of this section—

‘‘(1) STATE LAW.—The term ‘State law’ includes all laws,

decisions, rules, regulations, or other State action having the

effect of law, of any State. A law of the United States applicable

only to the District of Columbia shall be treated as a State

law rather than a law of the United States.

‘‘(2) STATE.—The term ‘State’ includes a State (including

the Northern Mariana Islands), any political subdivisions of

a State or such Islands, or any agency or instrumentality

of either.

‘‘PART C—DEFINITIONS; MISCELLANEOUS PROVISIONS

‘‘SEC. 2791. DEFINITIONS.

‘‘(a) GROUP HEALTH PLAN.—

‘‘(1) DEFINITION.—The term ‘group health plan’ means an

employee welfare benefit plan (as defined in section 3(1) of

the Employee Retirement Income Security Act of 1974) to the

extent that the plan provides medical care (as defined in paragraph (2)) and including items and services paid for as medical

care) to employees or their dependents (as defined under the

terms of the plan) directly or through insurance, reimbursement, or otherwise.

‘‘(2) MEDICAL CARE.—The term ‘medical care’ means

amounts paid for—

‘‘(A) the diagnosis, cure, mitigation, treatment, or

prevention of disease, or amounts paid for the purpose

of affecting any structure or function of the body,

‘‘(B) amounts paid for transportation primarily for and

essential to medical care referred to in subparagraph (A),

and

‘‘(C) amounts paid for insurance covering medical care

referred to in subparagraphs (A) and (B).

‘‘(3) TREATMENT OF CERTAIN PLANS AS GROUP HEALTH PLAN

FOR NOTICE PROVISION.—A program under which creditable coverage described in subparagraph (C), (D), (E), or (F) of section

2701(c)(1) is provided shall be treated as a group health plan

for purposes of applying section 2701(e).

‘‘(b) DEFINITIONS RELATING TO HEALTH INSURANCE.—

‘‘(1) HEALTH INSURANCE COVERAGE.—The term ‘health

insurance coverage’ means benefits consisting of medical care

(provided directly, through insurance or reimbursement, or

otherwise and including items and services paid for as medical

42 USC 300gg–

91.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1973

care) under any hospital or medical service policy or certificate,

hospital or medical service plan contract, or health maintenance

organization contract offered by a health insurance issuer.

‘‘(2) HEALTH INSURANCE ISSUER.—The term ‘health insurance issuer’ means an insurance company, insurance service,

or insurance organization (including a health maintenance

organization, as defined in paragraph (3)) which is licensed

to engage in the business of insurance in a State and which

is subject to State law which regulates insurance (within the

meaning of section 514(b)(2) of the Employee Retirement

Income Security Act of 1974). Such term does not include

a group health plan.

‘‘(3) HEALTH MAINTENANCE ORGANIZATION.—The term

‘health maintenance organization’ means—

‘‘(A) a Federally qualified health maintenance organization (as defined in section 1301(a)),

‘‘(B) an organization recognized under State law as

a health maintenance organization, or

‘‘(C) a similar organization regulated under State law

for solvency in the same manner and to the same extent

as such a health maintenance organization.

‘‘(4) GROUP HEALTH INSURANCE COVERAGE.—The term

‘group health insurance coverage’ means, in connection with

a group health plan, health insurance coverage offered in

connection with such plan.

‘‘(5) INDIVIDUAL HEALTH INSURANCE COVERAGE.—The term

‘individual health insurance coverage’ means health insurance

coverage offered to individuals in the individual market, but

does not include short-term limited duration insurance.

‘‘(c) EXCEPTED BENEFITS.—For purposes of this title, the term

‘excepted benefits’ means benefits under one or more (or any combination thereof) of the following:

‘‘(1) BENEFITS NOT SUBJECT TO REQUIREMENTS.—

‘‘(A) Coverage only for accident, or disability income

insurance, or any combination thereof.

‘‘(B) Coverage issued as a supplement to liability

insurance.

‘‘(C) Liability insurance, including general liability

insurance and automobile liability insurance.

‘‘(D) Workers’ compensation or similar insurance.

‘‘(E) Automobile medical payment insurance.

‘‘(F) Credit-only insurance.

‘‘(G) Coverage for on-site medical clinics.

‘‘(H) Other similar insurance coverage, specified in

regulations, under which benefits for medical care are

secondary or incidental to other insurance benefits.

‘‘(2) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED

SEPARATELY.—

‘‘(A) Limited scope dental or vision benefits.

‘‘(B) Benefits for long-term care, nursing home care,

home health care, community-based care, or any combination thereof.

‘‘(C) Such other similar, limited benefits as are specified

in regulations.

‘‘(3) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED

AS INDEPENDENT, NONCOORDINATED BENEFITS.—

‘‘(A) Coverage only for a specified disease or illness.
110 STAT. 1974 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(B) Hospital indemnity or other fixed

indemnity insurance.

‘‘(4) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED

AS SEPARATE INSURANCE POLICY.—Medicare supplemental

health insurance (as defined under section 1882(g)(1) of the

Social Security Act), coverage supplemental to the coverage

provided under chapter 55 of title 10, United States Code,

and similar supplemental coverage provided to coverage under

a group health plan.

‘‘(d) OTHER DEFINITIONS.—

‘‘(1) APPLICABLE STATE AUTHORITY.—The term ‘applicable

State authority’ means, with respect to a health insurance

issuer in a State, the State insurance commissioner or official

or officials designated by the State to enforce the requirements

of this title for the State involved with respect to such issuer.

‘‘(2) BENEFICIARY.—The term ‘beneficiary’ has the meaning

given such term under section 3(8) of the Employee Retirement

Income Security Act of 1974.

‘‘(3) BONA FIDE ASSOCIATION.—The term ‘bona fide association’ means, with respect to health insurance coverage offered

in a State, an association which—

‘‘(A) has been actively in existence for at least 5 years;

‘‘(B) has been formed and maintained in good faith

for purposes other than obtaining insurance;

‘‘(C) does not condition membership in the association

on any health status-related factor relating to an individual

(including an employee of an employer or a dependent

of an employee);

‘‘(D) makes health insurance coverage offered through

the association available to all members regardless of any

health status-related factor relating to such members (or

individuals eligible for coverage through a member);

‘‘(E) does not make health insurance coverage offered

through the association available other than in connection

with a member of the association; and

‘‘(F) meets such additional requirements as may be

imposed under State law.

‘‘(4) COBRA CONTINUATION PROVISION.—The term ‘COBRA

continuation provision’ means any of the following:

‘‘(A) Section 4980B of the Internal Revenue Code of

1986, other than subsection (f)(1) of such section insofar

as it relates to pediatric vaccines.

‘‘(B) Part 6 of subtitle B of title I of the Employee

Retirement Income Security Act of 1974, other than section

609 of such Act.

‘‘(C) Title XXII of this Act.

‘‘(5) EMPLOYEE.—The term ‘employee’ has the meaning

given such term under section 3(6) of the Employee Retirement

Income Security Act of 1974.

‘‘(6) EMPLOYER.—The term ‘employer’ has the meaning

given such term under section 3(5) of the Employee Retirement

Income Security Act of 1974, except that such term shall include

only employers of two or more employees.

‘‘(7) CHURCH PLAN.—The term ‘church plan’ has the meaning given such term under section 3(33) of the Employee Retirement Income Security Act of 1974.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1975

‘‘(8) GOVERNMENTAL PLAN.—(A) The term ‘governmental

plan’ has the meaning given such term under section 3(32)

of the Employee Retirement Income Security Act of 1974 and

any Federal governmental plan.

‘‘(B) FEDERAL GOVERNMENTAL PLAN.—The term ‘Federal

governmental plan’ means a governmental plan established

or maintained for its employees by the Government of the

United States or by any agency or instrumentality of such

Government.

‘‘(C) NON-FEDERAL GOVERNMENTAL PLAN.—The term ‘nonFederal governmental plan’ means a governmental plan that

is not a Federal governmental plan.

‘‘(9) HEALTH STATUS-RELATED FACTOR.—The term ‘health

status-related factor’ means any of the factors described in

section 2702(a)(1).

‘‘(10) NETWORK PLAN.—The term ‘network plan’ means

health insurance coverage of a health insurance issuer under

which the financing and delivery of medical care (including

items and services paid for as medical care) are provided,

in whole or in part, through a defined set of providers under

contract with the issuer.

‘‘(11) PARTICIPANT.—The term ‘participant’ has the meaning

given such term under section 3(7) of the Employee Retirement

Income Security Act of 1974.

‘‘(12) PLACED FOR ADOPTION DEFINED.—The term ‘placement’, or being ‘placed’, for adoption, in connection with any

placement for adoption of a child with any person, means

the assumption and retention by such person of a legal obligation for total or partial support of such child in anticipation

of adoption of such child. The child’s placement with such

person terminates upon the termination of such legal obligation.

‘‘(13) PLAN SPONSOR.—The term ‘plan sponsor’ has the

meaning given such term under section 3(16)(B) of the

Employee Retirement Income Security Act of 1974.

‘‘(14) STATE.—The term ‘State’ means each of the several

States, the District of Columbia, Puerto Rico, the Virgin Islands,

Guam, American Samoa, and the Northern Mariana Islands.

‘‘(e) DEFINITIONS RELATING TO MARKETS AND SMALL EMPLOYERS.—For purposes of this title:

‘‘(1) INDIVIDUAL MARKET.—

‘‘(A) IN GENERAL.—The term ‘individual market’ means

the market for health insurance coverage offered to individuals other than in connection with a group health plan.

‘‘(B) TREATMENT OF VERY SMALL GROUPS.—

‘‘(i) IN GENERAL.—Subject to clause (ii), such terms

includes coverage offered in connection with a group

health plan that has fewer than two participants as

current employees on the first day of the plan year.

‘‘(ii) STATE EXCEPTION.—Clause (i) shall not apply

in the case of a State that elects to regulate the coverage described in such clause as coverage in the small

group market.

‘‘(2) LARGE EMPLOYER.—The term ‘large employer’ means,

in connection with a group health plan with respect to a calendar year and a plan year, an employer who employed an

average of at least 51 employees on business days during the
110 STAT. 1976 PUBLIC LAW 104–191—AUG. 21, 1996

preceding calendar year and who employs at least 2 employees

on the first day of the plan year.

‘‘(3) LARGE GROUP MARKET.—The term ‘large group market’

means the health insurance market under which individuals

obtain health insurance coverage (directly or through any

arrangement) on behalf of themselves (and their dependents)

through a group health plan maintained by a large employer.

‘‘(4) SMALL EMPLOYER.—The term ‘small employer’ means,

in connection with a group health plan with respect to a calendar year and a plan year, an employer who employed an

average of at least 2 but not more than 50 employees on

business days during the preceding calendar year and who

employs at least 2 employees on the first day of the plan

year.

‘‘(5) SMALL GROUP MARKET.—The term ‘small group market’

means the health insurance market under which individuals

obtain health insurance coverage (directly or through any

arrangement) on behalf of themselves (and their dependents)

through a group health plan maintained by a small employer.

‘‘(6) APPLICATION OF CERTAIN RULES IN DETERMINATION OF

EMPLOYER SIZE.—For purposes of this subsection—

‘‘(A) APPLICATION OF AGGREGATION RULE FOR EMPLOYERS.—all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 of the Internal

Revenue Code of 1986 shall be treated as 1 employer.

‘‘(B) EMPLOYERS NOT IN EXISTENCE IN PRECEDING

YEAR.—In the case of an employer which was not in existence throughout the preceding calendar year, the determination of whether such employer is a small or large

employer shall be based on the average number of employees that it is reasonably expected such employer will

employ on business days in the current calendar year.

‘‘(C) PREDECESSORS.—Any reference in this subsection

to an employer shall include a reference to any predecessor

of such employer.

‘‘SEC. 2792. REGULATIONS.

‘‘The Secretary, consistent with section 104 of the Health Care

Portability and Accountability Act of 1996, may promulgate such

regulations as may be necessary or appropriate to carry out the

provisions of this title. The Secretary may promulgate any interim

final rules as the Secretary determines are appropriate to carry

out this title.’’.

(b) APPLICATION OF RULES BY CERTAIN HEALTH MAINTENANCE

ORGANIZATIONS.—Section 1301 of such Act (42 U.S.C. 300e) is

amended by adding at the end the following new subsection:

‘‘(d) An organization that offers health benefits coverage shall

not be considered as failing to meet the requirements of this section

notwithstanding that it provides, with respect to coverage offered

in connection with a group health plan in the small or large group

market (as defined in section 2791(e)), an affiliation period consistent with the provisions of section 2701(g).’’.

(c) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in this subsection,

part A of title XXVII of the Public Health Service Act (as

added by subsection (a)) shall apply with respect to group

health plans, and health insurance coverage offered in connec42 USC 300gg

note.

42 USC 300gg–

92.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1977

tion with group health plans, for plan years beginning after

June 30, 1997.

(2) DETERMINATION OF CREDITABLE COVERAGE.—

(A) PERIOD OF COVERAGE.—

(i) IN GENERAL.—Subject to clause (ii), no period

before July 1, 1996, shall be taken into account under

part A of title XXVII of the Public Health Service

Act (as added by this section) in determining creditable

coverage.

(ii) SPECIAL RULE FOR CERTAIN PERIODS.—The Secretary of Health and Human Services, consistent with

section 104, shall provide for a process whereby individuals who need to establish creditable coverage for periods before July 1, 1996, and who would have such

coverage credited but for clause (i) may be given credit

for creditable coverage for such periods through the

presentation of documents or other means.

(B) CERTIFICATIONS, ETC.—

(i) IN GENERAL.—Subject to clauses (ii) and (iii),

subsection (e) of section 2701 of the Public Health

Service Act (as added by this section) shall apply to

events occurring after June 30, 1996.

(ii) NO CERTIFICATION REQUIRED TO BE PROVIDED

BEFORE JUNE 1, 1997.—In no case is a certification

required to be provided under such subsection before

June 1, 1997.

(iii) CERTIFICATION ONLY ON WRITTEN REQUEST FOR

EVENTS OCCURRING BEFORE OCTOBER 1, 1996.—In the

case of an event occurring after June 30, 1996, and

before October 1, 1996, a certification is not required

to be provided under such subsection unless an individual (with respect to whom the certification is otherwise

required to be made) requests such certification in

writing.

(C) TRANSITIONAL RULE.—In the case of an individual

who seeks to establish creditable coverage for any period

for which certification is not required because it relates

to an event occurring before June 30, 1996—

(i) the individual may present other credible evidence of such coverage in order to establish the period

of creditable coverage; and

(ii) a group health plan and a health insurance

issuer shall not be subject to any penalty or enforcement action with respect to the plan’s or issuer’s crediting (or not crediting) such coverage if the plan or

issuer has sought to comply in good faith with the

applicable requirements under the amendments made

by this section.

(3) SPECIAL RULE FOR COLLECTIVE BARGAINING AGREEMENTS.—Except as provided in paragraph (2)(B), in the case

of a group health plan maintained pursuant to 1 or more

collective bargaining agreements between employee representatives and one or more employers ratified before the date of

the enactment of this Act, part A of title XXVII of the Public

Health Service Act (other than section 2701(e) thereof) shall

not apply to plan years beginning before the later of—
110 STAT. 1978 PUBLIC LAW 104–191—AUG. 21, 1996

(A) the date on which the last of the collective bargaining agreements relating to the plan terminates (determined

without regard to any extension thereof agreed to after

the date of the enactment of this Act), or

(B) July 1, 1997.

For purposes of subparagraph (A), any plan amendment made

pursuant to a collective bargaining agreement relating to the

plan which amends the plan solely to conform to any requirement of such part shall not be treated as a termination of

such collective bargaining agreement.

(4) TIMELY REGULATIONS.—The Secretary of Health and

Human Services, consistent with section 104, shall first issue

by not later than April 1, 1997, such regulations as may be

necessary to carry out the amendments made by this section

and section 111.

(5) LIMITATION ON ACTIONS.—No enforcement action shall

be taken, pursuant to the amendments made by this section,

against a group health plan or health insurance issuer with

respect to a violation of a requirement imposed by such amendments before January 1, 1998, or, if later, the date of issuance

of regulations referred to in paragraph (4), if the plan or issuer

has sought to comply in good faith with such requirements.

(d) MISCELLANEOUS CORRECTION.—Section 2208(1) of the Public

Health Service Act (42 U.S.C. 300bb–8(1)) is amended by striking

‘‘section 162(i)(2)’’ and inserting ‘‘5000(b)’’.

SEC. 103. REFERENCE TO IMPLEMENTATION THROUGH THE

INTERNAL REVENUE CODE OF 1986.

For provisions amending the Internal Revenue Code of 1986

to provide for application and enforcement of rules for group health

plans similar to those provided under the amendments made by

section 101(a), see section 401.

SEC. 104. ASSURING COORDINATION.

The Secretary of the Treasury, the Secretary of Health and

Human Services, and the Secretary of Labor shall ensure, through

the execution of an interagency memorandum of understanding

among such Secretaries, that—

(1) regulations, rulings, and interpretations issued by such

Secretaries relating to the same matter over which two or

more such Secretaries have responsibility under this subtitle

(and the amendments made by this subtitle and section 401)

are administered so as to have the same effect at all times;

and

(2) coordination of policies relating to enforcing the same

requirements through such Secretaries in order to have a

coordinated enforcement strategy that avoids duplication of

enforcement efforts and assigns priorities in enforcement.

Subtitle B—Individual Market Rules

SEC. 111. AMENDMENT TO PUBLIC HEALTH SERVICE ACT.

(a) IN GENERAL.—Title XXVII of the Public Health Service

Act, as added by section 102(a) of this Act, is amended by inserting

after part A the following new part:

42 USC 300gg–

92 note.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1979

‘‘PART B—INDIVIDUAL MARKET RULES

‘‘SEC. 2741. GUARANTEED AVAILABILITY OF INDIVIDUAL HEALTH

INSURANCE COVERAGE TO CERTAIN INDIVIDUALS WITH

PRIOR GROUP COVERAGE.

‘‘(a) GUARANTEED AVAILABILITY.—

‘‘(1) IN GENERAL.—Subject to the succeeding subsections

of this section and section 2744, each health insurance issuer

that offers health insurance coverage (as defined in section

2791(b)(1)) in the individual market in a State may not, with

respect to an eligible individual (as defined in subsection (b))

desiring to enroll in individual health insurance coverage—

‘‘(A) decline to offer such coverage to, or deny enrollment of, such individual; or

‘‘(B) impose any preexisting condition exclusion (as

defined in section 2701(b)(1)(A)) with respect to such coverage.

‘‘(2) SUBSTITUTION BY STATE OF ACCEPTABLE ALTERNATIVE

MECHANISM.—The requirement of paragraph (1) shall not apply

to health insurance coverage offered in the individual market

in a State in which the State is implementing an acceptable

alternative mechanism under section 2744.

‘‘(b) ELIGIBLE INDIVIDUAL DEFINED.—In this part, the term

‘eligible individual’ means an individual—

‘‘(1)(A) for whom, as of the date on which the individual

seeks coverage under this section, the aggregate of the periods

of creditable coverage (as defined in section 2701(c)) is 18

or more months and (B) whose most recent prior creditable

coverage was under a group health plan, governmental plan,

or church plan (or health insurance coverage offered in connection with any such plan);

‘‘(2) who is not eligible for coverage under (A) a group

health plan, (B) part A or part B of title XVIII of the Social

Security Act, or (C) a State plan under title XIX of such Act

(or any successor program), and does not have other health

insurance coverage;

‘‘(3) with respect to whom the most recent coverage within

the coverage period described in paragraph (1)(A) was not

terminated based on a factor described in paragraph (1) or

(2) of section 2712(b) (relating to nonpayment of premiums

or fraud);

‘‘(4) if the individual had been offered the option of continuation coverage under a COBRA continuation provision or under

a similar State program, who elected such coverage; and

‘‘(5) who, if the individual elected such continuation coverage, has exhausted such continuation coverage under such

provision or program.

‘‘(c) ALTERNATIVE COVERAGE PERMITTED WHERE NO STATE

MECHANISM.—

‘‘(1) IN GENERAL.—In the case of health insurance coverage

offered in the individual market in a State in which the State

is not implementing an acceptable alternative mechanism under

section 2744, the health insurance issuer may elect to limit

the coverage offered under subsection (a) so long as it offers

at least two different policy forms of health insurance coverage

both of which—

42 USC 300gg–

41.
110 STAT. 1980 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(A) are designed for, made generally available to, and

actively marketed to, and enroll both eligible and other

individuals by the issuer; and

‘‘(B) meet the requirement of paragraph (2) or (3),

as elected by the issuer.

For purposes of this subsection, policy forms which have different cost-sharing arrangements or different riders shall be

considered to be different policy forms.

‘‘(2) CHOICE OF MOST POPULAR POLICY FORMS.—The requirement of this paragraph is met, for health insurance coverage

policy forms offered by an issuer in the individual market,

if the issuer offers the policy forms for individual health insurance coverage with the largest, and next to largest, premium

volume of all such policy forms offered by the issuer in the

State or applicable marketing or service area (as may be prescribed in regulation) by the issuer in the individual market

in the period involved.

‘‘(3) CHOICE OF 2 POLICY FORMS WITH REPRESENTATIVE

COVERAGE.—

‘‘(A) IN GENERAL.—The requirement of this paragraph

is met, for health insurance coverage policy forms offered

by an issuer in the individual market, if the issuer offers

a lower-level coverage policy form (as defined in subparagraph (B)) and a higher-level coverage policy form (as

defined in subparagraph (C)) each of which includes benefits substantially similar to other individual health insurance coverage offered by the issuer in that State and each

of which is covered under a method described in section

2744(c)(3)(A) (relating to risk adjustment, risk spreading,

or financial subsidization).

‘‘(B) LOWER-LEVEL OF COVERAGE DESCRIBED.—A policy

form is described in this subparagraph if the actuarial

value of the benefits under the coverage is at least 85

percent but not greater than 100 percent of a weighted

average (described in subparagraph (D)).

‘‘(C) HIGHER-LEVEL OF COVERAGE DESCRIBED.—A policy

form is described in this subparagraph if—

‘‘(i) the actuarial value of the benefits under the

coverage is at least 15 percent greater than the actuarial value of the coverage described in subparagraph

(B) offered by the issuer in the area involved; and

‘‘(ii) the actuarial value of the benefits under the

coverage is at least 100 percent but not greater than

120 percent of a weighted average (described in

subparagraph (D)).

‘‘(D) WEIGHTED AVERAGE.—For purposes of this

paragraph, the weighted average described in this subparagraph is the average actuarial value of the benefits provided by all the health insurance coverage issued (as elected

by the issuer) either by that issuer or by all issuers in

the State in the individual market during the previous

year (not including coverage issued under this section),

weighted by enrollment for the different coverage.

‘‘(4) ELECTION.—The issuer elections under this subsection

shall apply uniformly to all eligible individuals in the State

for that issuer. Such an election shall be effective for policies

offered during a period of not shorter than 2 years.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1981

‘‘(5) ASSUMPTIONS.—For purposes of paragraph (3), the

actuarial value of benefits provided under individual health

insurance coverage shall be calculated based on a standardized

population and a set of standardized utilization and cost factors.

‘‘(d) SPECIAL RULES FOR NETWORK PLANS.—

‘‘(1) IN GENERAL.—In the case of a health insurance issuer

that offers health insurance coverage in the individual market

through a network plan, the issuer may—

‘‘(A) limit the individuals who may be enrolled under

such coverage to those who live, reside, or work within

the service area for such network plan; and

‘‘(B) within the service area of such plan, deny such

coverage to such individuals if the issuer has demonstrated,

if required, to the applicable State authority that—

‘‘(i) it will not have the capacity to deliver services

adequately to additional individual enrollees because

of its obligations to existing group contract holders

and enrollees and individual enrollees, and

‘‘(ii) it is applying this paragraph uniformly to

individuals without regard to any health status-related

factor of such individuals and without regard to

whether the individuals are eligible individuals.

‘‘(2) 180-DAY SUSPENSION UPON DENIAL OF COVERAGE.—An

issuer, upon denying health insurance coverage in any service

area in accordance with paragraph (1)(B), may not offer coverage in the individual market within such service area for

a period of 180 days after such coverage is denied.

‘‘(e) APPLICATION OF FINANCIAL CAPACITY LIMITS.—

‘‘(1) IN GENERAL.—A health insurance issuer may deny

health insurance coverage in the individual market to an

eligible individual if the issuer has demonstrated, if required,

to the applicable State authority that—

‘‘(A) it does not have the financial reserves necessary

to underwrite additional coverage; and

‘‘(B) it is applying this paragraph uniformly to all

individuals in the individual market in the State consistent

with applicable State law and without regard to any health

status-related factor of such individuals and without regard

to whether the individuals are eligible individuals.

‘‘(2) 180-DAY SUSPENSION UPON DENIAL OF COVERAGE.—An

issuer upon denying individual health insurance coverage in

any service area in accordance with paragraph (1) may not

offer such coverage in the individual market within such service

area for a period of 180 days after the date such coverage

is denied or until the issuer has demonstrated, if required

under applicable State law, to the applicable State authority

that the issuer has sufficient financial reserves to underwrite

additional coverage, whichever is later. A State may provide

for the application of this paragraph on a service-area-specific

basis.

‘‘(e) MARKET REQUIREMENTS.—

‘‘(1) IN GENERAL.—The provisions of subsection (a) shall

not be construed to require that a health insurance issuer

offering health insurance coverage only in connection with

group health plans or through one or more bona fide associations, or both, offer such health insurance coverage in the

individual market.
110 STAT. 1982 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(2) CONVERSION POLICIES.—A health insurance issuer

offering health insurance coverage in connection with group

health plans under this title shall not be deemed to be a

health insurance issuer offering individual health insurance

coverage solely because such issuer offers a conversion policy.

‘‘(f) CONSTRUCTION.—Nothing in this section shall be

construed—

‘‘(1) to restrict the amount of the premium rates that an

issuer may charge an individual for health insurance coverage

provided in the individual market under applicable State law;

or

‘‘(2) to prevent a health insurance issuer offering health

insurance coverage in the individual market from establishing

premium discounts or rebates or modifying otherwise applicable

copayments or deductibles in return for adherence to programs

of health promotion and disease prevention.

‘‘SEC. 2742. GUARANTEED RENEWABILITY OF INDIVIDUAL HEALTH

INSURANCE COVERAGE.

‘‘(a) IN GENERAL.—Except as provided in this section, a health

insurance issuer that provides individual health insurance coverage

to an individual shall renew or continue in force such coverage

at the option of the individual.

‘‘(b) GENERAL EXCEPTIONS.—A health insurance issuer may

nonrenew or discontinue health insurance coverage of an individual

in the individual market based only on one or more of the following:

‘‘(1) NONPAYMENT OF PREMIUMS.—The individual has failed

to pay premiums or contributions in accordance with the terms

of the health insurance coverage or the issuer has not received

timely premium payments.

‘‘(2) FRAUD.—The individual has performed an act or practice that constitutes fraud or made an intentional misrepresentation of material fact under the terms of the coverage.

‘‘(3) TERMINATION OF PLAN.—The issuer is ceasing to offer

coverage in the individual market in accordance with subsection

(c) and applicable State law.

‘‘(4) MOVEMENT OUTSIDE SERVICE AREA.—In the case of

a health insurance issuer that offers health insurance coverage

in the market through a network plan, the individual no longer

resides, lives, or works in the service area (or in an area

for which the issuer is authorized to do business) but only

if such coverage is terminated under this paragraph uniformly

without regard to any health status-related factor of covered

individuals.

‘‘(5) ASSOCIATION MEMBERSHIP CEASES.—In the case of

health insurance coverage that is made available in the individual market only through one or more bona fide associations,

the membership of the individual in the association (on the

basis of which the coverage is provided) ceases but only if

such coverage is terminated under this paragraph uniformly

without regard to any health status-related factor of covered

individuals.

‘‘(c) REQUIREMENTS FOR UNIFORM TERMINATION OF COVERAGE.—

‘‘(1) PARTICULAR TYPE OF COVERAGE NOT OFFERED.—In any

case in which an issuer decides to discontinue offering a particular type of health insurance coverage offered in the individual

42 USC 300gg–

42.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1983

market, coverage of such type may be discontinued by the

issuer only if—

‘‘(A) the issuer provides notice to each covered individual provided coverage of this type in such market of such

discontinuation at least 90 days prior to the date of the

discontinuation of such coverage;

‘‘(B) the issuer offers to each individual in the individual market provided coverage of this type, the option to

purchase any other individual health insurance coverage

currently being offered by the issuer for individuals in

such market; and

‘‘(C) in exercising the option to discontinue coverage

of this type and in offering the option of coverage under

subparagraph (B), the issuer acts uniformly without regard

to any health status-related factor of enrolled individuals

or individuals who may become eligible for such coverage.

‘‘(2) DISCONTINUANCE OF ALL COVERAGE.—

‘‘(A) IN GENERAL.—Subject to subparagraph (C), in any

case in which a health insurance issuer elects to discontinue offering all health insurance coverage in the

individual market in a State, health insurance coverage

may be discontinued by the issuer only if—

‘‘(i) the issuer provides notice to the applicable

State authority and to each individual of such discontinuation at least 180 days prior to the date of

the expiration of such coverage, and

‘‘(ii) all health insurance issued or delivered for

issuance in the State in such market are discontinued

and coverage under such health insurance coverage

in such market is not renewed.

‘‘(B) PROHIBITION ON MARKET REENTRY.—In the case

of a discontinuation under subparagraph (A) in the individual market, the issuer may not provide for the issuance

of any health insurance coverage in the market and State

involved during the 5-year period beginning on the date

of the discontinuation of the last health insurance coverage

not so renewed.

‘‘(d) EXCEPTION FOR UNIFORM MODIFICATION OF COVERAGE.—

At the time of coverage renewal, a health insurance issuer may

modify the health insurance coverage for a policy form offered

to individuals in the individual market so long as such modification

is consistent with State law and effective on a uniform basis among

all individuals with that policy form.

‘‘(e) APPLICATION TO COVERAGE OFFERED ONLY THROUGH

ASSOCIATIONS.—In applying this section in the case of health insurance coverage that is made available by a health insurance issuer

in the individual market to individuals only through one or more

associations, a reference to an ‘individual’ is deemed to include

a reference to such an association (of which the individual is a

member).

‘‘SEC. 2743. CERTIFICATION OF COVERAGE.

‘‘The provisions of section 2701(e) shall apply to health insurance coverage offered by a health insurance issuer in the individual

market in the same manner as it applies to health insurance

coverage offered by a health insurance issuer in connection with

a group health plan in the small or large group market.

42 USC 300gg–

43.
110 STAT. 1984 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘SEC. 2744. STATE FLEXIBILITY IN INDIVIDUAL MARKET REFORMS.

‘‘(a) WAIVER OF REQUIREMENTS WHERE IMPLEMENTATION OF

ACCEPTABLE ALTERNATIVE MECHANISM.— ‘‘(1) IN GENERAL.—The requirements of section 2741 shall

not apply with respect to health insurance coverage offered

in the individual market in the State so long as a State is

found to be implementing, in accordance with this section and

consistent with section 2746(b), an alternative mechanism (in

this section referred to as an ‘acceptable alternative mechanism’)—

‘‘(A) under which all eligible individuals are provided

a choice of health insurance coverage;

‘‘(B) under which such coverage does not impose any

preexisting condition exclusion with respect to such coverage;

‘‘(C) under which such choice of coverage includes at

least one policy form of coverage that is comparable to

comprehensive health insurance coverage offered in the

individual market in such State or that is comparable

to a standard option of coverage available under the group

or individual health insurance laws of such State; and

‘‘(D) in a State which is implementing—

‘‘(i) a model act described in subsection (c)(1),

‘‘(ii) a qualified high risk pool described in subsection (c)(2), or

‘‘(iii) a mechanism described in subsection (c)(3).

‘‘(2) PERMISSIBLE FORMS OF MECHANISMS.—A private or

public individual health insurance mechanism (such as a health

insurance coverage pool or programs, mandatory group conversion policies, guaranteed issue of one or more plans of individual

health insurance coverage, or open enrollment by one or more

health insurance issuers), or combination of such mechanisms,

that is designed to provide access to health benefits for individuals in the individual market in the State in accordance with

this section may constitute an acceptable alternative mechanism.

‘‘(b) APPLICATION OF ACCEPTABLE ALTERNATIVE MECHANISMS.—

‘‘(1) PRESUMPTION.—

‘‘(A) IN GENERAL.—Subject to the succeeding provisions

of this subsection, a State is presumed to be implementing

an acceptable alternative mechanism in accordance with

this section as of July 1, 1997, if, by not later than April

1, 1997, the chief executive officer of a State—

‘‘(i) notifies the Secretary that the State has

enacted or intends to enact (by not later than January

1, 1998, or July 1, 1998, in the case of a State described

in subparagraph (B)(ii)) any necessary legislation to

provide for the implementation of a mechanism reasonably designed to be an acceptable alternative mechanism as of January 1, 1998, (or, in the case of a

State described in subparagraph (B)(ii), July 1, 1998);

and

‘‘(ii) provides the Secretary with such information

as the Secretary may require to review the mechanism

and its implementation (or proposed implementation)

under this subsection.

‘‘(B) DELAY PERMITTED FOR CERTAIN STATES.—

42 USC 300gg–

44.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1985

‘‘(i) EFFECT OF DELAY.—In the case of a State

described in clause (ii) that provides notice under

subparagraph (A)(i), for the presumption to continue

on and after July 1, 1998, the chief executive officer

of the State by April 1, 1998—

‘‘(I) must notify the Secretary that the State

has enacted any necessary legislation to provide

for the implementation of a mechanism reasonably

designed to be an acceptable alternative mechanism as of July 1, 1998; and

‘‘(II) must provide the Secretary with such

information as the Secretary may require to review

the mechanism and its implementation (or proposed implementation) under this subsection.

‘‘(ii) STATES DESCRIBED.—A State described in this

clause is a State that has a legislature that does not

meet within the 12-month period beginning on the

date of enactment of this Act.

‘‘(C) CONTINUED APPLICATION.—In order for a mechanism to continue to be presumed to be an acceptable alternative mechanism, the State shall provide the Secretary

every 3 years with information described in subparagraph

(A)(ii) or (B)(i)(II) (as the case may be).

‘‘(2) NOTICE.—If the Secretary finds, after review of

information provided under paragraph (1) and in consultation

with the chief executive officer of the State and the insurance

commissioner or chief insurance regulatory official of the State,

that such a mechanism is not an acceptable alternative mechanism or is not (or no longer) being implemented, the Secretary—

‘‘(A) shall notify the State of—

‘‘(i) such preliminary determination, and

‘‘(ii) the consequences under paragraph (3) of a

failure to implement such a mechanism; and

‘‘(B) shall permit the State a reasonable opportunity

in which to modify the mechanism (or to adopt another

mechanism) in a manner so that may be an acceptable

alternative mechanism or to provide for implementation

of such a mechanism.

‘‘(3) FINAL DETERMINATION.—If, after providing notice and

opportunity under paragraph (2), the Secretary finds that the

mechanism is not an acceptable alternative mechanism or the

State is not implementing such a mechanism, the Secretary

shall notify the State that the State is no longer considered

to be implementing an acceptable alternative mechanism and

that the requirements of section 2741 shall apply to health

insurance coverage offered in the individual market in the

State, effective as of a date specified in the notice.

‘‘(4) LIMITATION ON SECRETARIAL AUTHORITY.—The Secretary shall not make a determination under paragraph (2)

or (3) on any basis other than the basis that a mechanism

is not an acceptable alternative mechanism or is not being

implemented.

‘‘(5) FUTURE ADOPTION OF MECHANISMS.—If a State, after

January 1, 1997, submits the notice and information described

in paragraph (1), unless the Secretary makes a finding

described in paragraph (3) within the 90-day period beginning

on the date of submission of the notice and information, the
110 STAT. 1986 PUBLIC LAW 104–191—AUG. 21, 1996

mechanism shall be considered to be an acceptable alternative

mechanism for purposes of this section, effective 90 days after

the end of such period, subject to the second sentence of paragraph (1).

‘‘(c) PROVISION RELATED TO RISK.—

‘‘(1) ADOPTION OF NAIC MODELS.—The model act referred

to in subsection (a)(1)(D)(i) is the Small Employer and Individual Health Insurance Availability Model Act (adopted by the

National Association of Insurance Commissioners on June 3,

1996) insofar as it applies to individual health insurance coverage or the Individual Health Insurance Portability Model

Act (also adopted by such Association on such date).

‘‘(2) QUALIFIED HIGH RISK POOL.—For purposes of subsection

(a)(1)(D)(ii), a ‘qualified high risk pool’ described in this paragraph is a high risk pool that—

‘‘(A) provides to all eligible individuals health insurance

coverage (or comparable coverage) that does not impose

any preexisting condition exclusion with respect to such

coverage for all eligible individuals, and

‘‘(B) provides for premium rates and covered benefits

for such coverage consistent with standards included in

the NAIC Model Health Plan for Uninsurable Individuals

Act (as in effect as of the date of the enactment of this

title).

‘‘(3) OTHER MECHANISMS.—For purposes of subsection

(a)(1)(D)(iii), a mechanism described in this paragraph—

‘‘(A) provides for risk adjustment, risk spreading, or

a risk spreading mechanism (among issuers or policies

of an issuer) or otherwise provides for some financial subsidization for eligible individuals, including through assistance to participating issuers; or

‘‘(B) is a mechanism under which each eligible individual is provided a choice of all individual health insurance

coverage otherwise available.

‘‘SEC. 2745. ENFORCEMENT.

‘‘(a) STATE ENFORCEMENT.—

‘‘(1) STATE AUTHORITY.—Subject to section 2746, each State

may require that health insurance issuers that issue, sell,

renew, or offer health insurance coverage in the State in the

individual market meet the requirements established under

this part with respect to such issuers.

‘‘(2) FAILURE TO IMPLEMENT REQUIREMENTS.—In the case

of a State that fails to substantially enforce the requirements

set forth in this part with respect to health insurance issuers

in the State, the Secretary shall enforce the requirements of

this part under subsection (b) insofar as they relate to the

issuance, sale, renewal, and offering of health insurance coverage in the individual market in such State.

‘‘(b) SECRETARIAL ENFORCEMENT AUTHORITY.—The Secretary

shall have the same authority in relation to enforcement of the

provisions of this part with respect to issuers of health insurance

coverage in the individual market in a State as the Secretary

has under section 2722(b)(2) in relation to the enforcement of the

provisions of part A with respect to issuers of health insurance

coverage in the small group market in the State.

42 USC 300gg–

45.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1987

‘‘SEC. 2746. PREEMPTION.

‘‘(a) IN GENERAL.—Subject to subsection (b), nothing in this

part (or part C insofar as it applies to this part) shall be construed

to prevent a State from establishing, implementing, or continuing

in effect standards and requirements unless such standards and

requirements prevent the application of a requirement of this part.

‘‘(b) RULES OF CONSTRUCTION.—Nothing in this part (or part

C insofar as it applies to this part) shall be construed to affect

or modify the provisions of section 514 of the Employee Retirement

Income Security Act of 1974 (29 U.S.C. 1144).

‘‘SEC. 2747. GENERAL EXCEPTIONS.

‘‘(a) EXCEPTION FOR CERTAIN BENEFITS.—The requirements of

this part shall not apply to any health insurance coverage in relation

to its provision of excepted benefits described in section 2791(c)(1).

‘‘(b) EXCEPTION FOR CERTAIN BENEFITS IF CERTAIN CONDITIONS

MET.—The requirements of this part shall not apply to any health

insurance coverage in relation to its provision of excepted benefits

described in paragraph (2), (3), or (4) of section 2791(c) if the

benefits are provided under a separate policy, certificate, or contract

of insurance.’’.

(b) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in this subsection,

part B of title XXVII of the Public Health Service Act (as

inserted by subsection (a)) shall apply with respect to health

insurance coverage offered, sold, issued, renewed, in effect,

or operated in the individual market after June 30, 1997,

regardless of when a period of creditable coverage occurs.

(2) APPLICATION OF CERTIFICATION RULES.—The provisions

of section 102(d)(2) of this Act shall apply to section 2743

of the Public Health Service Act in the same manner as it

applies to section 2701(e) of such Act.

Subtitle C—General and Miscellaneous

Provisions

SEC. 191. HEALTH COVERAGE AVAILABILITY STUDIES.

(a) STUDIES.—

(1) STUDY ON EFFECTIVENESS OF REFORMS.—The Secretary

of Health and Human Services shall provide for a study on

the effectiveness of the provisions of this title and the various

State laws, in ensuring the availability of reasonably priced

health coverage to employers purchasing group coverage and

individuals purchasing coverage on a non-group basis.

(2) STUDY ON ACCESS AND CHOICE.—The Secretary also

shall provide for a study on—

(A) the extent to which patients have direct access

to, and choice of, health care providers, including specialty

providers, within a network plan, as well as the opportunity

to utilize providers outside of the network plan, under

the various types of coverage offered under the provisions

of this title; and

(B) the cost and cost-effectiveness to health insurance

issuers of providing access to out-of-network providers, and

the potential impact of providing such access on the cost

42 USC 300gg

note.

42 USC 300gg–

41 note.

42 USC 300gg–

47.

42 USC 300gg–

46.
110 STAT. 1988 PUBLIC LAW 104–191—AUG. 21, 1996

and quality of health insurance coverage offered under

provisions of this title.

(3) CONSULTATION.—The studies under this subsection shall

be conducted in consultation with the Secretary of Labor, representatives of State officials, consumers, and other representatives of individuals and entities that have expertise in health

insurance and employee benefits.

(b) REPORTS.—Not later than January 1, 2000, the Secretary

shall submit to the appropriate committees of Congress a report

on each of the studies under subsection (a).

SEC. 192. REPORT ON MEDICARE REIMBURSEMENT OF TELEMEDICINE.

The Health Care Financing Administration shall complete its

ongoing study of Medicare reimbursement of all telemedicine services and submit a report to Congress on Medicare reimbursement

of telemedicine services by not later than March 1, 1997. The

report shall—

(1) utilize data compiled from the current demonstration

projects already under review and gather data from other

ongoing telemedicine networks;

(2) include an analysis of the cost of services provided

via telemedicine; and

(3) include a proposal for Medicare reimbursement of such

services.

SEC. 193. ALLOWING FEDERALLY-QUALIFIED HMOS TO OFFER HIGH

DEDUCTIBLE PLANS.

Section 1301(b) of the Public Health Service Act (42 U.S.C.

300e(b)) is amended by adding at the end the following new paragraph:

‘‘(6) A health maintenance organization that otherwise

meets the requirements of this title may offer a high-deductible

health plan (as defined in section 220(c)(2) of the Internal

Revenue Code of 1986).’’.

SEC. 194. VOLUNTEER SERVICES PROVIDED BY HEALTH PROFESSIONALS AT FREE CLINICS.

Section 224 of the Public Health Service Act (42 U.S.C. 233)

is amended by adding at the end the following subsection:

‘‘(o)(1) For purposes of this section, a free clinic health professional shall in providing a qualifying health service to an individual

be deemed to be an employee of the Public Health Service for

a calendar year that begins during a fiscal year for which a transfer

was made under paragraph (6)(D). The preceding sentence is subject

to the provisions of this subsection.

‘‘(2) In providing a health service to an individual, a health

care practitioner shall for purposes of this subsection be considered

to be a free clinic health professional if the following conditions

are met:

‘‘(A) The service is provided to the individual at a free

clinic, or through offsite programs or events carried out by

the free clinic.

‘‘(B) The free clinic is sponsoring the health care practitioner pursuant to paragraph (5)(C).

‘‘(C) The service is a qualifying health service (as defined

in paragraph (4)).

‘‘(D) Neither the health care practitioner nor the free clinic

receives any compensation for the service from the individual
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1989

or from any third-party payor (including reimbursement under

any insurance policy or health plan, or under any Federal

or State health benefits program). With respect to compliance

with such condition:

‘‘(i) The health care practitioner may receive repayment

from the free clinic for reasonable expenses incurred by

the health care practitioner in the provision of the service

to the individual.

‘‘(ii) The free clinic may accept voluntary donations

for the provision of the service by the health care practitioner to the individual.

‘‘(E) Before the service is provided, the health care practitioner or the free clinic provides written notice to the individual

of the extent to which the legal liability of the health care

practitioner is limited pursuant to this subsection (or in the

case of an emergency, the written notice is provided to the

individual as soon after the emergency as is practicable). If

the individual is a minor or is otherwise legally incompetent,

the condition under this subparagraph is that the written notice

be provided to a legal guardian or other person with legal

responsibility for the care of the individual.

‘‘(F) At the time the service is provided, the health care

practitioner is licensed or certified in accordance with applicable

law regarding the provision of the service.

‘‘(3)(A) For purposes of this subsection, the term ‘free clinic’

means a health care facility operated by a nonprofit private entity

meeting the following requirements:

‘‘(i) The entity does not, in providing health services

through the facility, accept reimbursement from any thirdparty payor (including reimbursement under any insurance

policy or health plan, or under any Federal or State health

benefits program).

‘‘(ii) The entity, in providing health services through the

facility, either does not impose charges on the individuals to

whom the services are provided, or imposes a charge according

to the ability of the individual involved to pay the charge.

‘‘(iii) The entity is licensed or certified in accordance with

applicable law regarding the provision of health services.

‘‘(B) With respect to compliance with the conditions under

subparagraph (A), the entity involved may accept voluntary donations for the provision of services.

‘‘(4) For purposes of this subsection, the term ‘qualifying health

service’ means any medical assistance required or authorized to

be provided in the program under title XIX of the Social Security

Act, without regard to whether the medical assistance is included

in the plan submitted under such program by the State in which

the health care practitioner involved provides the medical assistance. References in the preceding sentence to such program shall

as applicable be considered to be references to any successor to

such program.

‘‘(5) Subsection (g) (other than paragraphs (3) through (5))

and subsections (h), (i), and (l) apply to a health care practitioner

for purposes of this subsection to the same extent and in the

same manner as such subsections apply to an officer, governing

board member, employee, or contractor of an entity described in

subsection (g)(4), subject to paragraph (6) and subject to the

following:
110 STAT. 1990 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(A) The first sentence of paragraph (1) applies in lieu

of the first sentence of subsection (g)(1)(A).

‘‘(B) This subsection may not be construed as deeming

any free clinic to be an employee of the Public Health Service

for purposes of this section.

‘‘(C) With respect to a free clinic, a health care practitioner

is not a free clinic health professional unless the free clinic

sponsors the health care practitioner. For purposes of this

subsection, the free clinic shall be considered to be sponsoring

the health care practitioner if—

‘‘(i) with respect to the health care practitioner, the

free clinic submits to the Secretary an application meeting

the requirements of subsection (g)(1)(D); and

‘‘(ii) the Secretary, pursuant to subsection (g)(1)(E),

determines that the health care practitioner is deemed

to be an employee of the Public Health Service.

‘‘(D) In the case of a health care practitioner who is determined by the Secretary pursuant to subsection (g)(1)(E) to

be a free clinic health professional, this subsection applies

to the health care practitioner (with respect to the free clinic

sponsoring the health care practitioner pursuant to subparagraph (C)) for any cause of action arising from an act or

omission of the health care practitioner occurring on or after

the date on which the Secretary makes such determination.

‘‘(E) Subsection (g)(1)(F) applies to a health care practitioner for purposes of this subsection only to the extent that,

in providing health services to an individual, each of the conditions specified in paragraph (2) is met.

‘‘(6)(A) For purposes of making payments for judgments against

the United States (together with related fees and expenses of witnesses) pursuant to this section arising from the acts or omissions

of free clinic health professionals, there is authorized to be appropriated $10,000,000 for each fiscal year.

‘‘(B) The Secretary shall establish a fund for purposes of this

subsection. Each fiscal year amounts appropriated under subparagraph (A) shall be deposited in such fund.

‘‘(C) Not later than May 1 of each fiscal year, the Attorney

General, in consultation with the Secretary, shall submit to the

Congress a report providing an estimate of the amount of claims

(together with related fees and expenses of witnesses) that, by

reason of the acts or omissions of free clinic health professionals,

will be paid pursuant to this section during the calendar year

that begins in the following fiscal year. Subsection (k)(1)(B) applies

to the estimate under the preceding sentence regarding free clinic

health professionals to the same extent and in the same manner

as such subsection applies to the estimate under such subsection

regarding officers, governing board members, employees, and contractors of entities described in subsection (g)(4).

‘‘(D) Not later than December 31 of each fiscal year, the Secretary shall transfer from the fund under subparagraph (B) to

the appropriate accounts in the Treasury an amount equal to the

estimate made under subparagraph (C) for the calendar year beginning in such fiscal year, subject to the extent of amounts in the

fund.

‘‘(7)(A) This subsection takes effect on the date of the enactment

of the first appropriations Act that makes an appropriation under

paragraph (6)(A), except as provided in subparagraph (B)(i).

Effective date.

Reports.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1991

‘‘(B)(i) Effective on the date of the enactment of the Health

Insurance Portability and Accountability Act of 1996—

‘‘(I) the Secretary may issue regulations for carrying out

this subsection, and the Secretary may accept and consider

applications submitted pursuant to paragraph (5)(C); and

‘‘(II) reports under paragraph (6)(C) may be submitted to

the Congress.

‘‘(ii) For the first fiscal year for which an appropriation is

made under subparagraph (A) of paragraph (6), if an estimate

under subparagraph (C) of such paragraph has not been made

for the calendar year beginning in such fiscal year, the transfer

under subparagraph (D) of such paragraph shall be made notwithstanding the lack of the estimate, and the transfer shall be made

in an amount equal to the amount of such appropriation.’’.

SEC. 195. FINDINGS; SEVERABILITY.

(a) FINDINGS RELATING TO EXERCISE OF COMMERCE CLAUSE

AUTHORITY.—Congress finds the following in relation to the provisions of this title:

(1) Provisions in group health plans and health insurance

coverage that impose certain preexisting condition exclusions

impact the ability of employees to seek employment in interstate commerce, thereby impeding such commerce.

(2) Health insurance coverage is commercial in nature and

is in and affects interstate commerce.

(3) It is a necessary and proper exercise of Congressional

authority to impose requirements under this title on group

health plans and health insurance coverage (including coverage

offered to individuals previously covered under group health

plans) in order to promote commerce among the States.

(4) Congress, however, intends to defer to States, to the

maximum extent practicable, in carrying out such requirements

with respect to insurers and health maintenance organizations

that are subject to State regulation, consistent with the provisions of the Employee Retirement Income Security Act of 1974.

(b) SEVERABILITY.—If any provision of this title or the application of such provision to any person or circumstance is held to

be unconstitutional, the remainder of this title and the application

of the provisions of such to any person or circumstance shall not

be affected thereby.

TITLE II—PREVENTING HEALTH CARE

FRAUD AND ABUSE; ADMINISTRATIVE

SIMPLIFICATION

SEC. 200. REFERENCES IN TITLE.

Except as otherwise specifically provided, whenever in this

title an amendment 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 that section or other provision of the

Social Security Act.

42 USC 300gg

note.
110 STAT. 1992 PUBLIC LAW 104–191—AUG. 21, 1996

Subtitle A—Fraud and Abuse Control

Program

SEC. 201. FRAUD AND ABUSE CONTROL PROGRAM.

(a) ESTABLISHMENT OF PROGRAM.—Title XI (42 U.S.C. 1301

et seq.) is amended by inserting after section 1128B the following

new section:

‘‘FRAUD AND ABUSE CONTROL PROGRAM

‘‘SEC. 1128C. (a) ESTABLISHMENT OF PROGRAM.—

‘‘(1) IN GENERAL.—Not later than January 1, 1997, the

Secretary, acting through the Office of the Inspector General

of the Department of Health and Human Services, and the

Attorney General shall establish a program—

‘‘(A) to coordinate Federal, State, and local law enforcement programs to control fraud and abuse with respect

to health plans,

‘‘(B) to conduct investigations, audits, evaluations, and

inspections relating to the delivery of and payment for

health care in the United States,

‘‘(C) to facilitate the enforcement of the provisions of

sections 1128, 1128A, and 1128B and other statutes

applicable to health care fraud and abuse,

‘‘(D) to provide for the modification and establishment

of safe harbors and to issue advisory opinions and special

fraud alerts pursuant to section 1128D, and

‘‘(E) to provide for the reporting and disclosure of certain final adverse actions against health care providers,

suppliers, or practitioners pursuant to the data collection

system established under section 1128E.

‘‘(2) COORDINATION WITH HEALTH PLANS.—In carrying out

the program established under paragraph (1), the Secretary

and the Attorney General shall consult with, and arrange for

the sharing of data with representatives of health plans.

‘‘(3) GUIDELINES.—

‘‘(A) IN GENERAL.—The Secretary and the Attorney

General shall issue guidelines to carry out the program

under paragraph (1). The provisions of sections 553, 556,

and 557 of title 5, United States Code, shall not apply

in the issuance of such guidelines.

‘‘(B) INFORMATION GUIDELINES.—

‘‘(i) IN GENERAL.—Such guidelines shall include

guidelines relating to the furnishing of information

by health plans, providers, and others to enable the

Secretary and the Attorney General to carry out the

program (including coordination with health plans

under paragraph (2)).

‘‘(ii) CONFIDENTIALITY.—Such guidelines shall

include procedures to assure that such information

is provided and utilized in a manner that appropriately

protects the confidentiality of the information and the

privacy of individuals receiving health care services

and items.

‘‘(iii) QUALIFIED IMMUNITY FOR PROVIDING

INFORMATION.—The provisions of section 1157(a) (relat42 USC 1320a–

7c.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1993

ing to limitation on liability) shall apply to a person

providing information to the Secretary or the Attorney

General in conjunction with their performance of duties

under this section.

‘‘(4) ENSURING ACCESS TO DOCUMENTATION.—The Inspector

General of the Department of Health and Human Services

is authorized to exercise such authority described in paragraphs

(3) through (9) of section 6 of the Inspector General Act of

1978 (5 U.S.C. App.) as necessary with respect to the activities

under the fraud and abuse control program established under

this subsection.

‘‘(5) AUTHORITY OF INSPECTOR GENERAL.—Nothing in this

Act shall be construed to diminish the authority of any Inspector General, including such authority as provided in the Inspector General Act of 1978 (5 U.S.C. App.).

‘‘(b) ADDITIONAL USE OF FUNDS BY INSPECTOR GENERAL.—

‘‘(1) REIMBURSEMENTS FOR INVESTIGATIONS.—The Inspector

General of the Department of Health and Human Services

is authorized to receive and retain for current use reimbursement for the costs of conducting investigations and audits and

for monitoring compliance plans when such costs are ordered

by a court, voluntarily agreed to by the payor, or otherwise.

‘‘(2) CREDITING.—Funds received by the Inspector General

under paragraph (1) as reimbursement for costs of conducting

investigations shall be deposited to the credit of the appropriation from which initially paid, or to appropriations for similar

purposes currently available at the time of deposit, and shall

remain available for obligation for 1 year from the date of

the deposit of such funds.

‘‘(c) HEALTH PLAN DEFINED.—For purposes of this section, the

term ‘health plan’ means a plan or program that provides health

benefits, whether directly, through insurance, or otherwise, and

includes—

‘‘(1) a policy of health insurance;

‘‘(2) a contract of a service benefit organization; and

‘‘(3) a membership agreement with a health maintenance

organization or other prepaid health plan.’’.

(b) ESTABLISHMENT OF HEALTH CARE FRAUD AND ABUSE CONTROL ACCOUNT IN FEDERAL HOSPITAL INSURANCE TRUST FUND.—

Section 1817 (42 U.S.C. 1395i) is amended by adding at the end

the following new subsection:

‘‘(k) HEALTH CARE FRAUD AND ABUSE CONTROL ACCOUNT.—

‘‘(1) ESTABLISHMENT.—There is hereby established in the

Trust Fund an expenditure account to be known as the ‘Health

Care Fraud and Abuse Control Account’ (in this subsection

referred to as the ‘Account’).

‘‘(2) APPROPRIATED AMOUNTS TO TRUST FUND.—

‘‘(A) IN GENERAL.—There are hereby appropriated to

the Trust Fund—

‘‘(i) such gifts and bequests as may be made as

provided in subparagraph (B);

‘‘(ii) such amounts as may be deposited in the

Trust Fund as provided in sections 242(b) and 249(c)

of the Health Insurance Portability and Accountability

Act of 1996, and title XI; and

‘‘(iii) such amounts as are transferred to the Trust

Fund under subparagraph (C).
110 STAT. 1994 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(B) AUTHORIZATION TO ACCEPT GIFTS.—The Trust

Fund is authorized to accept on behalf of the United States

money gifts and bequests made unconditionally to the Trust

Fund, for the benefit of the Account or any activity financed

through the Account.

‘‘(C) TRANSFER OF AMOUNTS.—The Managing Trustee

shall transfer to the Trust Fund, under rules similar to

the rules in section 9601 of the Internal Revenue Code

of 1986, an amount equal to the sum of the following:

‘‘(i) Criminal fines recovered in cases involving

a Federal health care offense (as defined in section

982(a)(6)(B) of title 18, United States Code).

‘‘(ii) Civil monetary penalties and assessments

imposed in health care cases, including amounts recovered under titles XI, XVIII, and XIX, and chapter

38 of title 31, United States Code (except as otherwise

provided by law).

‘‘(iii) Amounts resulting from the forfeiture of property by reason of a Federal health care offense.

‘‘(iv) Penalties and damages obtained and otherwise creditable to miscellaneous receipts of the general

fund of the Treasury obtained under sections 3729

through 3733 of title 31, United States Code (known

as the False Claims Act), in cases involving claims

related to the provision of health care items and services (other than funds awarded to a relator, for restitution or otherwise authorized by law).

‘‘(D) APPLICATION.—Nothing in subparagraph (C)(iii)

shall be construed to limit the availability of recoveries

and forfeitures obtained under title I of the Employee

Retirement Income Security Act of 1974 for the purpose

of providing equitable or remedial relief for employee welfare benefit plans, and for participants and beneficiaries

under such plans, as authorized under such title.

‘‘(3) APPROPRIATED AMOUNTS TO ACCOUNT FOR FRAUD AND

ABUSE CONTROL PROGRAM, ETC.—

‘‘(A) DEPARTMENTS OF HEALTH AND HUMAN SERVICES

AND JUSTICE.—

‘‘(i) IN GENERAL.—There are hereby appropriated

to the Account from the Trust Fund such sums as

the Secretary and the Attorney General certify are

necessary to carry out the purposes described in

subparagraph (C), to be available without further

appropriation, in an amount not to exceed—

‘‘(I) for fiscal year 1997, $104,000,000,

‘‘(II) for each of the fiscal years 1998 through

2003, the limit for the preceding fiscal year,

increased by 15 percent; and

‘‘(III) for each fiscal year after fiscal year 2003,

the limit for fiscal year 2003.

‘‘(ii) MEDICARE AND MEDICAID ACTIVITIES.—For

each fiscal year, of the amount appropriated in clause

(i), the following amounts shall be available only for

the purposes of the activities of the Office of the Inspector General of the Department of Health and Human

Services with respect to the Medicare and medicaid

programs—
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1995

‘‘(I) for fiscal year 1997, not less than

$60,000,000 and not more than $70,000,000;

‘‘(II) for fiscal year 1998, not less than

$80,000,000 and not more than $90,000,000;

‘‘(III) for fiscal year 1999, not less than

$90,000,000 and not more than $100,000,000;

‘‘(IV) for fiscal year 2000, not less than

$110,000,000 and not more than $120,000,000;

‘‘(V) for fiscal year 2001, not less than

$120,000,000 and not more than $130,000,000;

‘‘(VI) for fiscal year 2002, not less than

$140,000,000 and not more than $150,000,000; and

‘‘(VII) for each fiscal year after fiscal year

2002, not less than $150,000,000 and not more

than $160,000,000.

‘‘(B) FEDERAL BUREAU OF INVESTIGATION.—There are

hereby appropriated from the general fund of the United

States Treasury and hereby appropriated to the Account

for transfer to the Federal Bureau of Investigation to carry

out the purposes described in subparagraph (C), to be available without further appropriation—

‘‘(i) for fiscal year 1997, $47,000,000;

‘‘(ii) for fiscal year 1998, $56,000,000;

‘‘(iii) for fiscal year 1999, $66,000,000;

‘‘(iv) for fiscal year 2000, $76,000,000;

‘‘(v) for fiscal year 2001, $88,000,000;

‘‘(vi) for fiscal year 2002, $101,000,000; and

‘‘(vii) for each fiscal year after fiscal year 2002,

$114,000,000.

‘‘(C) USE OF FUNDS.—The purposes described in this

subparagraph are to cover the costs (including equipment,

salaries and benefits, and travel and training) of the

administration and operation of the health care fraud and

abuse control program established under section 1128C(a),

including the costs of—

‘‘(i) prosecuting health care matters (through criminal, civil, and administrative proceedings);

‘‘(ii) investigations;

‘‘(iii) financial and performance audits of health

care programs and operations;

‘‘(iv) inspections and other evaluations; and

‘‘(v) provider and consumer education regarding

compliance with the provisions of title XI.

‘‘(4) APPROPRIATED AMOUNTS TO ACCOUNT FOR MEDICARE

INTEGRITY PROGRAM.—

‘‘(A) IN GENERAL.—There are hereby appropriated to

the Account from the Trust Fund for each fiscal year such

amounts as are necessary to carry out the Medicare Integrity Program under section 1893, subject to subparagraph

(B) and to be available without further appropriation.

‘‘(B) AMOUNTS SPECIFIED.—The amount appropriated

under subparagraph (A) for a fiscal year is as follows:

‘‘(i) For fiscal year 1997, such amount shall be

not less than $430,000,000 and not more than

$440,000,000.
110 STAT. 1996 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(ii) For fiscal year 1998, such amount shall be not less than $490,000,000 and not more than

$500,000,000.

‘‘(iii) For fiscal year 1999, such amount shall be

not less than $550,000,000 and not more than

$560,000,000.

‘‘(iv) For fiscal year 2000, such amount shall be

not less than $620,000,000 and not more than

$630,000,000.

‘‘(v) For fiscal year 2001, such amount shall be

not less than $670,000,000 and not more than

$680,000,000.

‘‘(vi) For fiscal year 2002, such amount shall be

not less than $690,000,000 and not more than

$700,000,000.

‘‘(vii) For each fiscal year after fiscal year 2002,

such amount shall be not less than $710,000,000 and

not more than $720,000,000.

‘‘(5) ANNUAL REPORT.—Not later than January 1, the Secretary and the Attorney General shall submit jointly a report

to Congress which identifies—

‘‘(A) the amounts appropriated to the Trust Fund for

the previous fiscal year under paragraph (2)(A) and the

source of such amounts; and

‘‘(B) the amounts appropriated from the Trust Fund

for such year under paragraph (3) and the justification

for the expenditure of such amounts.

‘‘(6) GAO REPORT.—Not later than January 1 of 2000, 2002,

and 2004, the Comptroller General of the United States shall

submit a report to Congress which—

‘‘(A) identifies—

‘‘(i) the amounts appropriated to the Trust Fund

for the previous two fiscal years under paragraph (2)(A)

and the source of such amounts; and

‘‘(ii) the amounts appropriated from the Trust

Fund for such fiscal years under paragraph (3) and

the justification for the expenditure of such amounts;

‘‘(B) identifies any expenditures from the Trust Fund

with respect to activities not involving the Medicare program under title XVIII;

‘‘(C) identifies any savings to the Trust Fund, and

any other savings, resulting from expenditures from the

Trust Fund; and

‘‘(D) analyzes such other aspects of the operation of

the Trust Fund as the Comptroller General of the United

States considers appropriate.’’.

SEC. 202. MEDICARE INTEGRITY PROGRAM.

(a) ESTABLISHMENT OF MEDICARE INTEGRITY PROGRAM.—Title

XVIII is amended by adding at the end the following new section:

‘‘MEDICARE INTEGRITY PROGRAM

‘‘SEC. 1893. (a) ESTABLISHMENT OF PROGRAM.—There is hereby

established the Medicare Integrity Program (in this section referred

to as the ‘Program’) under which the Secretary shall promote the

integrity of the Medicare program by entering into contracts in

42 USC 1395ddd.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1997

accordance with this section with eligible entities to carry out

the activities described in subsection (b).

‘‘(b) ACTIVITIES DESCRIBED.—The activities described in this

subsection are as follows:

‘‘(1) Review of activities of providers of services or other

individuals and entities furnishing items and services for which

payment may be made under this title (including skilled nursing facilities and home health agencies), including medical and

utilization review and fraud review (employing similar standards, processes, and technologies used by private health plans,

including equipment and software technologies which surpass

the capability of the equipment and technologies used in the

review of claims under this title as of the date of the enactment

of this section).

‘‘(2) Audit of cost reports.

‘‘(3) Determinations as to whether payment should not

be, or should not have been, made under this title by reason

of section 1862(b), and recovery of payments that should not

have been made.

‘‘(4) Education of providers of services, beneficiaries, and

other persons with respect to payment integrity and benefit

quality assurance issues.

‘‘(5) Developing (and periodically updating) a list of items

of durable medical equipment in accordance with section

1834(a)(15) which are subject to prior authorization under such

section.

‘‘(c) ELIGIBILITY OF ENTITIES.—An entity is eligible to enter

into a contract under the Program to carry out any of the activities

described in subsection (b) if—

‘‘(1) the entity has demonstrated capability to carry out

such activities;

‘‘(2) in carrying out such activities, the entity agrees to

cooperate with the Inspector General of the Department of

Health and Human Services, the Attorney General, and other

law enforcement agencies, as appropriate, in the investigation

and deterrence of fraud and abuse in relation to this title

and in other cases arising out of such activities;

‘‘(3) the entity complies with such conflict of interest standards as are generally applicable to Federal acquisition and

procurement; and

‘‘(4) the entity meets such other requirements as the Secretary may impose.

In the case of the activity described in subsection (b)(5), an entity

shall be deemed to be eligible to enter into a contract under the

Program to carry out the activity if the entity is a carrier with

a contract in effect under section 1842.

‘‘(d) PROCESS FOR ENTERING INTO CONTRACTS.—The Secretary

shall enter into contracts under the Program in accordance with

such procedures as the Secretary shall by regulation establish,

except that such procedures shall include the following:

‘‘(1) Procedures for identifying, evaluating, and resolving

organizational conflicts of interest that are generally applicable

to Federal acquisition and procurement.

‘‘(2) Competitive procedures to be used—

‘‘(A) when entering into new contracts under this

section;

Regulations.
110 STAT. 1998 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(B) when entering into contracts that may result in

the elimination of responsibilities of an individual fiscal

intermediary or carrier under section 202(b) of the Health

Insurance Portability and Accountability Act of 1996; and

‘‘(C) at any other time considered appropriate by the

Secretary,

except that the Secretary may continue to contract with entities

that are carrying out the activities described in this section

pursuant to agreements under section 1816 or contracts under

section 1842 in effect on the date of the enactment of this

section.

‘‘(3) Procedures under which a contract under this section

may be renewed without regard to any provision of law requiring competition if the contractor has met or exceeded the

performance requirements established in the current contract.

The Secretary may enter into such contracts without regard to

final rules having been promulgated.

‘‘(e) LIMITATION ON CONTRACTOR LIABILITY.—The Secretary

shall by regulation provide for the limitation of a contractor’s liability for actions taken to carry out a contract under the Program,

and such regulation shall, to the extent the Secretary finds appropriate, employ the same or comparable standards and other substantive and procedural provisions as are contained in section

1157.’’.

(b) ELIMINATION OF FI AND CARRIER RESPONSIBILITY FOR

CARRYING OUT ACTIVITIES SUBJECT TO PROGRAM.—

(1) RESPONSIBILITIES OF FISCAL INTERMEDIARIES UNDER

PART A.—Section 1816 (42 U.S.C. 1395h) is amended by adding

at the end the following new subsection:

‘‘(l) No agency or organization may carry out (or receive payment for carrying out) any activity pursuant to an agreement under

this section to the extent that the activity is carried out pursuant

to a contract under the Medicare Integrity Program under

section 1893.’’.

(2) RESPONSIBILITIES OF CARRIERS UNDER PART B.—Section

1842(c) (42 U.S.C. 1395u(c)) is amended by adding at the end

the following new paragraph:

‘‘(6) No carrier may carry out (or receive payment for carrying

out) any activity pursuant to a contract under this subsection

to the extent that the activity is carried out pursuant to a contract

under the Medicare Integrity Program under section 1893. The

previous sentence shall not apply with respect to the activity

described in section 1893(b)(5) (relating to prior authorization of

certain items of durable medical equipment under section

1834(a)(15)).’’.

SEC. 203. BENEFICIARY INCENTIVE PROGRAMS.

(a) CLARIFICATION OF REQUIREMENT TO PROVIDE EXPLANATION

OF MEDICARE BENEFITS.—The Secretary of Health and Human Services (in this section referred to as the ‘‘Secretary’’) shall provide

an explanation of benefits under the Medicare program under title

XVIII of the Social Security Act with respect to each item or

service for which payment may be made under the program which

is furnished to an individual, without regard to whether or not

a deductible or coinsurance may be imposed against the individual

with respect to the item or service.

42 USC 1395b–5.

Regulations.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 1999

(b) PROGRAM TO COLLECT INFORMATION ON FRAUD AND

ABUSE.—

(1) ESTABLISHMENT OF PROGRAM.—Not later than 3 months

after the date of the enactment of this Act, the Secretary

shall establish a program under which the Secretary shall

encourage individuals to report to the Secretary information

on individuals and entities who are engaging in or who have

engaged in acts or omissions which constitute grounds for the

imposition of a sanction under section 1128, 1128A, or 1128B

of the Social Security Act, or who have otherwise engaged

in fraud and abuse against the Medicare program under title

XVIII of such act for which there is a sanction provided under

law. The program shall discourage provision of, and not consider, information which is frivolous or otherwise not relevant

or material to the imposition of such a sanction.

(2) PAYMENT OF PORTION OF AMOUNTS COLLECTED.—If an

individual reports information to the Secretary under the program established under paragraph (1) which serves as the

basis for the collection by the Secretary or the Attorney General

of any amount of at least $100 (other than any amount paid

as a penalty under section 1128B of the Social Security Act),

the Secretary may pay a portion of the amount collected to

the individual (under procedures similar to those applicable

under section 7623 of the Internal Revenue Code of 1986 to

payments to individuals providing information on violations

of such Code).

(c) PROGRAM TO COLLECT INFORMATION ON PROGRAM

EFFICIENCY.—

(1) ESTABLISHMENT OF PROGRAM.—Not later than 3 months

after the date of the enactment of this Act, the Secretary

shall establish a program under which the Secretary shall

encourage individuals to submit to the Secretary suggestions

on methods to improve the efficiency of the Medicare program.

(2) PAYMENT OF PORTION OF PROGRAM SAVINGS.—If an

individual submits a suggestion to the Secretary under the

program established under paragraph (1) which is adopted

by the Secretary and which results in savings to the program,

the Secretary may make a payment to the individual of such

amount as the Secretary considers appropriate.

SEC. 204. APPLICATION OF CERTAIN HEALTH ANTIFRAUD AND ABUSE

SANCTIONS TO FRAUD AND ABUSE AGAINST FEDERAL

HEALTH CARE PROGRAMS.

(a) IN GENERAL.—Section 1128B (42 U.S.C. 1320a–7b) is

amended as follows:

(1) In the heading, by striking ‘‘MEDICARE OR STATE HEALTH

CARE PROGRAMS’’ and inserting ‘‘FEDERAL HEALTH CARE PROGRAMS’’.

(2) In subsection (a)(1), by striking ‘‘a program under title

XVIII or a State health care program (as defined in section

1128(h))’’ and inserting ‘‘a Federal health care program (as

defined in subsection (f))’’.

(3) In subsection (a)(5), by striking ‘‘a program under title

XVIII or a State health care program’’ and inserting ‘‘a Federal

health care program’’.

(4) In the second sentence of subsection (a)—
110 STAT. 2000 PUBLIC LAW 104–191—AUG. 21, 1996

(A) by striking ‘‘a State plan approved under title

XIX’’ and inserting ‘‘a Federal health care program’’, and

(B) by striking ‘‘the State may at its option (notwithstanding any other provision of that title or of such plan)’’

and inserting ‘‘the administrator of such program may at

its option (notwithstanding any other provision of such

program)’’.

(5) In subsection (b), by striking ‘‘title XVIII or a State

health care program’’ each place it appears and inserting ‘‘a

Federal health care program’’.

(6) In subsection (c), by inserting ‘‘(as defined in section

1128(h))’’ after ‘‘a State health care program’’.

(7) By adding at the end the following new subsection:

‘‘(f) For purposes of this section, the term ‘Federal health care

program’ means—

‘‘(1) any plan or program that provides health benefits,

whether directly, through insurance, or otherwise, which is

funded directly, in whole or in part, by the United States

Government (other than the health insurance program under

chapter 89 of title 5, United States Code); or

‘‘(2) any State health care program, as defined in section

1128(h).’’.

(b) EFFECTIVE DATE.—The amendments made by this section

shall take effect on January 1, 1997.

SEC. 205. GUIDANCE REGARDING APPLICATION OF HEALTH CARE

FRAUD AND ABUSE SANCTIONS.

Title XI (42 U.S.C. 1301 et seq.), as amended by section 201,

is amended by inserting after section 1128C the following new

section:

‘‘GUIDANCE REGARDING APPLICATION OF HEALTH CARE FRAUD AND

ABUSE SANCTIONS

‘‘SEC. 1128D. (a) SOLICITATION AND PUBLICATION OF MODIFICATIONS TO EXISTING SAFE HARBORS AND NEW SAFE HARBORS.—

‘‘(1) IN GENERAL.—

‘‘(A) SOLICITATION OF PROPOSALS FOR SAFE HARBORS.—

Not later than January 1, 1997, and not less than annually

thereafter, the Secretary shall publish a notice in the Federal Register soliciting proposals, which will be accepted

during a 60-day period, for—

‘‘(i) modifications to existing safe harbors issued

pursuant to section 14(a) of the Medicare and Medicaid

Patient and Program Protection Act of 1987 (42 U.S.C.

1320a–7b note);

‘‘(ii) additional safe harbors specifying payment

practices that shall not be treated as a criminal offense

under section 1128B(b) and shall not serve as the

basis for an exclusion under section 1128(b)(7);

‘‘(iii) advisory opinions to be issued pursuant to

subsection (b); and

‘‘(iv) special fraud alerts to be issued pursuant

to subsection (c).

‘‘(B) PUBLICATION OF PROPOSED MODIFICATIONS AND

PROPOSED ADDITIONAL SAFE HARBORS.—After considering

the proposals described in clauses (i) and (ii) of subparagraph (A), the Secretary, in consultation with the Attorney

Federal Register,

publication.

Federal Register,

publication.

42 USC 1320a–

7d.

42 USC 1320a–

7b note.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2001

General, shall publish in the Federal Register proposed

modifications to existing safe harbors and proposed additional safe harbors, if appropriate, with a 60-day comment

period. After considering any public comments received

during this period, the Secretary shall issue final rules

modifying the existing safe harbors and establishing new

safe harbors, as appropriate.

‘‘(C) REPORT.—The Inspector General of the Department of Health and Human Services (in this section

referred to as the ‘Inspector General’) shall, in an annual

report to Congress or as part of the year-end semiannual

report required by section 5 of the Inspector General Act

of 1978 (5 U.S.C. App.), describe the proposals received

under clauses (i) and (ii) of subparagraph (A) and explain

which proposals were included in the publication described

in subparagraph (B), which proposals were not included

in that publication, and the reasons for the rejection of

the proposals that were not included.

‘‘(2) CRITERIA FOR MODIFYING AND ESTABLISHING SAFE HARBORS.—In modifying and establishing safe harbors under paragraph (1)(B), the Secretary may consider the extent to which

providing a safe harbor for the specified payment practice may

result in any of the following:

‘‘(A) An increase or decrease in access to health care

services.

‘‘(B) An increase or decrease in the quality of health

care services.

‘‘(C) An increase or decrease in patient freedom of

choice among health care providers.

‘‘(D) An increase or decrease in competition among

health care providers.

‘‘(E) An increase or decrease in the ability of health

care facilities to provide services in medically underserved

areas or to medically underserved populations.

‘‘(F) An increase or decrease in the cost to Federal

health care programs (as defined in section 1128B(f)).

‘‘(G) An increase or decrease in the potential overutilization of health care services.

‘‘(H) The existence or nonexistence of any potential

financial benefit to a health care professional or provider

which may vary based on their decisions of—

‘‘(i) whether to order a health care item or

service; or

‘‘(ii) whether to arrange for a referral of health

care items or services to a particular practitioner or

provider.

‘‘(I) Any other factors the Secretary deems appropriate

in the interest of preventing fraud and abuse in Federal

health care programs (as so defined).

‘‘(b) ADVISORY OPINIONS.—

‘‘(1) ISSUANCE OF ADVISORY OPINIONS.—The Secretary, in

consultation with the Attorney General, shall issue written

advisory opinions as provided in this subsection.

‘‘(2) MATTERS SUBJECT TO ADVISORY OPINIONS.—The Secretary shall issue advisory opinions as to the following matters:

‘‘(A) What constitutes prohibited remuneration within

the meaning of section 1128B(b).
110 STAT. 2002 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(B) Whether an arrangement or proposed arrangement

satisfies the criteria set forth in section 1128B(b)(3) for

activities which do not result in prohibited remuneration.

‘‘(C) Whether an arrangement or proposed arrangement

satisfies the criteria which the Secretary has established,

or shall establish by regulation for activities which do

not result in prohibited remuneration.

‘‘(D) What constitutes an inducement to reduce or limit

services to individuals entitled to benefits under title XVIII

or title XIX within the meaning of section 1128B(b).

‘‘(E) Whether any activity or proposed activity constitutes grounds for the imposition of a sanction under

section 1128, 1128A, or 1128B.

‘‘(3) MATTERS NOT SUBJECT TO ADVISORY OPINIONS.—Such

advisory opinions shall not address the following matters:

‘‘(A) Whether the fair market value shall be, or was

paid or received for any goods, services or property.

‘‘(B) Whether an individual is a bona fide employee

within the requirements of section 3121(d)(2) of the

Internal Revenue Code of 1986.

‘‘(4) EFFECT OF ADVISORY OPINIONS.—

‘‘(A) BINDING AS TO SECRETARY AND PARTIES

INVOLVED.—Each advisory opinion issued by the Secretary

shall be binding as to the Secretary and the party or

parties requesting the opinion.

‘‘(B) FAILURE TO SEEK OPINION.—The failure of a party

to seek an advisory opinion may not be introduced into

evidence to prove that the party intended to violate the

provisions of sections 1128, 1128A, or 1128B.

‘‘(5) REGULATIONS.—

‘‘(A) IN GENERAL.—Not later than 180 days after the

date of the enactment of this section, the Secretary shall

issue regulations to carry out this section. Such regulations

shall provide for—

‘‘(i) the procedure to be followed by a party applying for an advisory opinion;

‘‘(ii) the procedure to be followed by the Secretary

in responding to a request for an advisory opinion;

‘‘(iii) the interval in which the Secretary shall

respond;

‘‘(iv) the reasonable fee to be charged to the party

requesting an advisory opinion; and

‘‘(v) the manner in which advisory opinions will

be made available to the public.

‘‘(B) SPECIFIC CONTENTS.—Under the regulations

promulgated pursuant to subparagraph (A)—

‘‘(i) the Secretary shall be required to issue to

a party requesting an advisory opinion by not later

than 60 days after the request is received; and

‘‘(ii) the fee charged to the party requesting an

advisory opinion shall be equal to the costs incurred

by the Secretary in responding to the request.

‘‘(6) APPLICATION OF SUBSECTION.—This subsection shall

apply to requests for advisory opinions made on or after the

date which is 6 months after the date of enactment of this

section and before the date which is 4 years after such date

of enactment.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2003

‘‘(c) SPECIAL FRAUD ALERTS.— ‘‘(1) IN GENERAL.— ‘‘(A) REQUEST FOR SPECIAL FRAUD ALERTS.—Any person

may present, at any time, a request to the Inspector General for a notice which informs the public of practices

which the Inspector General considers to be suspect or

of particular concern under the Medicare program under

title XVIII or a State health care program, as defined

in section 1128(h) (in this subsection referred to as a ‘special fraud alert’).

‘‘(B) ISSUANCE AND PUBLICATION OF SPECIAL FRAUD

ALERTS.—Upon receipt of a request described in subparagraph (A), the Inspector General shall investigate the subject matter of the request to determine whether a special

fraud alert should be issued. If appropriate, the Inspector

General shall issue a special fraud alert in response to

the request. All special fraud alerts issued pursuant to

this subparagraph shall be published in the Federal Register.

‘‘(2) CRITERIA FOR SPECIAL FRAUD ALERTS.—In determining

whether to issue a special fraud alert upon a request described

in paragraph (1), the Inspector General may consider—

‘‘(A) whether and to what extent the practices that

would be identified in the special fraud alert may result

in any of the consequences described in subsection (a)(2);

and

‘‘(B) the volume and frequency of the conduct that

would be identified in the special fraud alert.’’.

Subtitle B—Revisions to Current Sanctions

for Fraud and Abuse

SEC. 211. MANDATORY EXCLUSION FROM PARTICIPATION IN MEDICARE AND STATE HEALTH CARE PROGRAMS.

(a) INDIVIDUAL CONVICTED OF FELONY RELATING TO HEALTH

CARE FRAUD.—

(1) IN GENERAL.—Section 1128(a) (42 U.S.C. 1320a–7(a))

is amended by adding at the end the following new paragraph:

‘‘(3) FELONY CONVICTION RELATING TO HEALTH CARE

FRAUD.—Any individual or entity that has been convicted for

an offense which occurred after the date of the enactment

of the Health Insurance Portability and Accountability Act of

1996, under Federal or State law, in connection with the delivery of a health care item or service or with respect to any

act or omission in a health care program (other than those

specifically described in paragraph (1)) operated by or financed

in whole or in part by any Federal, State, or local government

agency, of a criminal offense consisting of a felony relating

to fraud, theft, embezzlement, breach of fiduciary responsibility,

or other financial misconduct.’’.

(2) CONFORMING AMENDMENT.—Paragraph (1) of section

1128(b) (42 U.S.C. 1320a–7(b)) is amended to read as follows:

‘‘(1) CONVICTION RELATING TO FRAUD.—Any individual or

entity that has been convicted for an offense which occurred

after the date of the enactment of the Health Insurance Port-
110 STAT. 2004 PUBLIC LAW 104–191—AUG. 21, 1996

ability and Accountability Act of 1996, under Federal or State

law—

‘‘(A) of a criminal offense consisting of a misdemeanor

relating to fraud, theft, embezzlement, breach of fiduciary

responsibility, or other financial misconduct—

‘‘(i) in connection with the delivery of a health

care item or service, or

‘‘(ii) with respect to any act or omission in a health

care program (other than those specifically described

in subsection (a)(1)) operated by or financed in whole

or in part by any Federal, State, or local government

agency; or

‘‘(B) of a criminal offense relating to fraud, theft,

embezzlement, breach of fiduciary responsibility, or other

financial misconduct with respect to any act or omission

in a program (other than a health care program) operated

by or financed in whole or in part by any Federal, State,

or local government agency.’’.

(b) INDIVIDUAL CONVICTED OF FELONY RELATING TO CONTROLLED SUBSTANCE.—

(1) IN GENERAL.—Section 1128(a) (42 U.S.C. 1320a–7(a)),

as amended by subsection (a), is amended by adding at the

end the following new paragraph:

‘‘(4) FELONY CONVICTION RELATING TO CONTROLLED SUBSTANCE.—Any individual or entity that has been convicted for

an offense which occurred after the date of the enactment

of the Health Insurance Portability and Accountability Act of

1996, under Federal or State law, of a criminal offense consisting of a felony relating to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance.’’.

(2) CONFORMING AMENDMENT.—Section 1128(b)(3) (42

U.S.C. 1320a–7(b)(3)) is amended—

(A) in the heading, by striking ‘‘CONVICTION’’ and

inserting ‘‘MISDEMEANOR CONVICTION’’; and

(B) by striking ‘‘criminal offense’’ and inserting

‘‘criminal offense consisting of a misdemeanor’’.

SEC. 212. ESTABLISHMENT OF MINIMUM PERIOD OF EXCLUSION FOR

CERTAIN INDIVIDUALS AND ENTITIES SUBJECT TO

PERMISSIVE EXCLUSION FROM MEDICARE AND STATE

HEALTH CARE PROGRAMS.

Section 1128(c)(3) (42 U.S.C. 1320a–7(c)(3)) is amended by adding at the end the following new subparagraphs:

‘‘(D) In the case of an exclusion of an individual or entity

under paragraph (1), (2), or (3) of subsection (b), the period of

the exclusion shall be 3 years, unless the Secretary determines

in accordance with published regulations that a shorter period

is appropriate because of mitigating circumstances or that a longer

period is appropriate because of aggravating circumstances.

‘‘(E) In the case of an exclusion of an individual or entity

under subsection (b)(4) or (b)(5), the period of the exclusion shall

not be less than the period during which the individual’s or entity’s

license to provide health care is revoked, suspended, or surrendered,

or the individual or the entity is excluded or suspended from a

Federal or State health care program.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2005

‘‘(F) In the case of an exclusion of an individual or entity

under subsection (b)(6)(B), the period of the exclusion shall be

not less than 1 year.’’.

SEC. 213. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH OWNERSHIP

OR CONTROL INTEREST IN SANCTIONED ENTITIES.

Section 1128(b) (42 U.S.C. 1320a–7(b)) is amended by adding

at the end the following new paragraph:

‘‘(15) INDIVIDUALS CONTROLLING A SANCTIONED ENTITY.— (A) Any individual—

‘‘(i) who has a direct or indirect ownership or control

interest in a sanctioned entity and who knows or should

know (as defined in section 1128A(i)(6)) of the action constituting the basis for the conviction or exclusion described

in subparagraph (B); or

‘‘(ii) who is an officer or managing employee (as defined

in section 1126(b)) of such an entity.

‘‘(B) For purposes of subparagraph (A), the term ‘sanctioned

entity’ means an entity—

‘‘(i) that has been convicted of any offense described

in subsection (a) or in paragraph (1), (2), or (3) of this

subsection; or

‘‘(ii) that has been excluded from participation under

a program under title XVIII or under a State health care

program.’’.

SEC. 214. SANCTIONS AGAINST PRACTITIONERS AND PERSONS FOR

FAILURE TO COMPLY WITH STATUTORY OBLIGATIONS.

(a) MINIMUM PERIOD OF EXCLUSION FOR PRACTITIONERS AND

PERSONS FAILING TO MEET STATUTORY OBLIGATIONS.— (1) IN GENERAL.—The second sentence of section 1156(b)(1)

(42 U.S.C. 1320c–5(b)(1)) is amended by striking ‘‘may prescribe)’’ and inserting ‘‘may prescribe, except that such period

may not be less than 1 year)’’.

(2) CONFORMING AMENDMENT.—Section 1156(b)(2) (42

U.S.C. 1320c–5(b)(2)) is amended by striking ‘‘shall remain’’

and inserting ‘‘shall (subject to the minimum period specified

in the second sentence of paragraph (1)) remain’’.

(b) REPEAL OF ‘‘UNWILLING OR UNABLE’’ CONDITION FOR IMPOSI- TION OF SANCTION.—Section 1156(b)(1) (42 U.S.C. 1320c–5(b)(1))

is amended—

(1) in the second sentence, by striking ‘‘and determines’’

and all that follows through ‘‘such obligations,’’; and

(2) by striking the third sentence.

SEC. 215. INTERMEDIATE SANCTIONS FOR MEDICARE HEALTH

MAINTENANCE ORGANIZATIONS.

(a) APPLICATION OF INTERMEDIATE SANCTIONS FOR ANY PROGRAM VIOLATIONS.—

(1) IN GENERAL.—Section 1876(i)(1) (42 U.S.C.

1395mm(i)(1)) is amended by striking ‘‘the Secretary may terminate’’ and all that follows and inserting ‘‘in accordance with

procedures established under paragraph (9), the Secretary may

at any time terminate any such contract or may impose the

intermediate sanctions described in paragraph (6)(B) or (6)(C)

(whichever is applicable) on the eligible organization if the

Secretary determines that the organization—

‘‘(A) has failed substantially to carry out the contract;
110 STAT. 2006 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(B) is carrying out the contract in a manner substantially

inconsistent with the efficient and effective administration of

this section; or

‘‘(C) no longer substantially meets the applicable conditions

of subsections (b), (c), (e), and (f).’’.

(2) OTHER INTERMEDIATE SANCTIONS FOR MISCELLANEOUS

PROGRAM VIOLATIONS.—Section 1876(i)(6) (42 U.S.C.

1395mm(i)(6)) is amended by adding at the end the following

new subparagraph:

‘‘(C) In the case of an eligible organization for which the Secretary makes a determination under paragraph (1), the basis of

which is not described in subparagraph (A), the Secretary may

apply the following intermediate sanctions:

‘‘(i) Civil money penalties of not more than $25,000 for

each determination under paragraph (1) if the deficiency that

is the basis of the determination has directly adversely affected

(or has the substantial likelihood of adversely affecting) an

individual covered under the organization’s contract.

‘‘(ii) Civil money penalties of not more than $10,000 for

each week beginning after the initiation of procedures by the

Secretary under paragraph (9) during which the deficiency

that is the basis of a determination under paragraph (1) exists.

‘‘(iii) Suspension of enrollment of individuals under this

section after the date the Secretary notifies the organization

of a determination under paragraph (1) and until the Secretary

is satisfied that the deficiency that is the basis for the determination has been corrected and is not likely to recur.’’.

(3) PROCEDURES FOR IMPOSING SANCTIONS.—Section 1876(i)

(42 U.S.C. 1395mm(i)) is amended by adding at the end the

following new paragraph:

‘‘(9) The Secretary may terminate a contract with an eligible

organization under this section or may impose the intermediate

sanctions described in paragraph (6) on the organization in accordance with formal investigation and compliance procedures established by the Secretary under which—

‘‘(A) the Secretary first provides the organization with the

reasonable opportunity to develop and implement a corrective

action plan to correct the deficiencies that were the basis of

the Secretary’s determination under paragraph (1) and the

organization fails to develop or implement such a plan;

‘‘(B) in deciding whether to impose sanctions, the Secretary

considers aggravating factors such as whether an organization

has a history of deficiencies or has not taken action to correct

deficiencies the Secretary has brought to the organization’s

attention;

‘‘(C) there are no unreasonable or unnecessary delays

between the finding of a deficiency and the imposition of sanctions; and

‘‘(D) the Secretary provides the organization with reasonable notice and opportunity for hearing (including the right

to appeal an initial decision) before imposing any sanction

or terminating the contract.’’.

(4) CONFORMING AMENDMENTS.—Section 1876(i)(6)(B) (42

U.S.C. 1395mm(i)(6)(B)) is amended by striking the second

sentence.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2007

(b) AGREEMENTS WITH PEER REVIEW ORGANIZATIONS.—Section

1876(i)(7)(A) (42 U.S.C. 1395mm(i)(7)(A)) is amended by striking

‘‘an agreement’’ and inserting ‘‘a written agreement’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply with respect to contract years beginning on or after

January 1, 1997.

SEC. 216. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PENALTIES

FOR RISK-SHARING ARRANGEMENTS.

(a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C. 1320a–

7b(b)(3)) is amended—

(1) by striking ‘‘and’’ at the end of subparagraph (D);

(2) by striking the period at the end of subparagraph (E)

and inserting ‘‘; and’’; and

(3) by adding at the end the following new subparagraph:

‘‘(F) any remuneration between an organization and an

individual or entity providing items or services, or a combination thereof, pursuant to a written agreement between the

organization and the individual or entity if the organization

is an eligible organization under section 1876 or if the written

agreement, through a risk-sharing arrangement, places the

individual or entity at substantial financial risk for the cost

or utilization of the items or services, or a combination thereof,

which the individual or entity is obligated to provide.’’.

(b) NEGOTIATED RULEMAKING FOR RISK-SHARING EXCEPTION.—

(1) ESTABLISHMENT.—

(A) IN GENERAL.—The Secretary of Health and Human

Services (in this subsection referred to as the ‘‘Secretary’’)

shall establish, on an expedited basis and using a negotiated rulemaking process under subchapter 3 of chapter

5 of title 5, United States Code, standards relating to

the exception for risk-sharing arrangements to the antikickback penalties described in section 1128B(b)(3)(F) of

the Social Security Act, as added by subsection (a).

(B) FACTORS TO CONSIDER.—In establishing standards

relating to the exception for risk-sharing arrangements

to the anti-kickback penalties under subparagraph (A), the

Secretary—

(i) shall consult with the Attorney General and

representatives of the hospital, physician, other health

practitioner, and health plan communities, and other

interested parties; and

(ii) shall take into account—

(I) the level of risk appropriate to the size

and type of arrangement;

(II) the frequency of assessment and distribution of incentives;

(III) the level of capital contribution; and

(IV) the extent to which the risk-sharing

arrangement provides incentives to control the cost

and quality of health care services.

(2) PUBLICATION OF NOTICE.—In carrying out the rulemaking process under this subsection, the Secretary shall publish the notice provided for under section 564(a) of title 5,

United States Code, by not later than 45 days after the date

of the enactment of this Act.

42 USC 1320a–

7b note.

42 USC 1395mm

note.
110 STAT. 2008 PUBLIC LAW 104–191—AUG. 21, 1996

(3) TARGET DATE FOR PUBLICATION OF RULE.—As part of

the notice under paragraph (2), and for purposes of this subsection, the ‘‘target date for publication’’ (referred to in section

564(a)(5) of such title) shall be January 1, 1997.

(4) ABBREVIATED PERIOD FOR SUBMISSION OF COMMENTS.—

In applying section 564(c) of such title under this subsection,

‘‘15 days’’ shall be substituted for ‘‘30 days’’.

(5) APPOINTMENT OF NEGOTIATED RULEMAKING COMMITTEE

AND FACILITATOR.—The Secretary shall provide for—

(A) the appointment of a negotiated rulemaking

committee under section 565(a) of such title by not later

than 30 days after the end of the comment period provided

for under section 564(c) of such title (as shortened under

paragraph (4)), and

(B) the nomination of a facilitator under section 566(c)

of such title by not later than 10 days after the date

of appointment of the committee.

(6) PRELIMINARY COMMITTEE REPORT.—The negotiated rulemaking committee appointed under paragraph (5) shall report

to the Secretary, by not later than October 1, 1996, regarding

the committee’s progress on achieving a consensus with regard

to the rulemaking proceeding and whether such consensus is

likely to occur before one month before the target date for

publication of the rule. If the committee reports that the

committee has failed to make significant progress toward such

consensus or is unlikely to reach such consensus by the target

date, the Secretary may terminate such process and provide

for the publication of a rule under this subsection through

such other methods as the Secretary may provide.

(7) FINAL COMMITTEE REPORT.—If the committee is not

terminated under paragraph (6), the rulemaking committee

shall submit a report containing a proposed rule by not later

than one month before the target publication date.

(8) INTERIM, FINAL EFFECT.—The Secretary shall publish

a rule under this subsection in the Federal Register by not

later than the target publication date. Such rule shall be effective and final immediately on an interim basis, but is subject

to change and revision after public notice and opportunity

for a period (of not less than 60 days) for public comment.

In connection with such rule, the Secretary shall specify the

process for the timely review and approval of applications of

entities to be certified as provider-sponsored organizations

pursuant to such rules and consistent with this subsection.

(9) PUBLICATION OF RULE AFTER PUBLIC COMMENT.—The

Secretary shall provide for consideration of such comments

and republication of such rule by not later than 1 year after

the target publication date.

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

(a) shall apply to written agreements entered into on or after

January 1, 1997, without regard to whether regulations have been

issued to implement such amendments.

SEC. 217. CRIMINAL PENALTY FOR FRAUDULENT DISPOSITION OF

ASSETS IN ORDER TO OBTAIN MEDICAID BENEFITS.

Section 1128B(a) (42 U.S.C. 1320a–7b(a)) is amended—

(1) by striking ‘‘or’’ at the end of paragraph (4);

(2) by adding ‘‘or’’ at the end of paragraph (5); and

42 USC 1320a–

7b note.

Federal Register,

publication.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2009

(3) by inserting after paragraph (5) the following new paragraph:

‘‘(6) knowingly and willfully disposes of assets (including

by any transfer in trust) in order for an individual to become

eligible for medical assistance under a State plan under title

XIX, if disposing of the assets results in the imposition of

a period of ineligibility for such assistance under section

1917(c),’’.

SEC. 218. EFFECTIVE DATE.

Except as otherwise provided, the amendments made by this

subtitle shall take effect January 1, 1997.

Subtitle C—Data Collection

SEC. 221. ESTABLISHMENT OF THE HEALTH CARE FRAUD AND ABUSE

DATA COLLECTION PROGRAM.

(a) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.), as amended

by sections 201 and 205, is amended by inserting after section

1128D the following new section:

‘‘HEALTH CARE FRAUD AND ABUSE DATA COLLECTION PROGRAM

‘‘SEC. 1128E. (a) GENERAL PURPOSE.—Not later than January

1, 1997, the Secretary shall establish a national health care fraud

and abuse data collection program for the reporting of final adverse

actions (not including settlements in which no findings of liability

have been made) against health care providers, suppliers, or

practitioners as required by subsection (b), with access as set forth

in subsection (c), and shall maintain a database of the information

collected under this section.

‘‘(b) REPORTING OF INFORMATION.—

‘‘(1) IN GENERAL.—Each Government agency and health

plan shall report any final adverse action (not including settlements in which no findings of liability have been made) taken

against a health care provider, supplier, or practitioner.

‘‘(2) INFORMATION TO BE REPORTED.—The information to

be reported under paragraph (1) includes:

‘‘(A) The name and TIN (as defined in section

7701(a)(41) of the Internal Revenue Code of 1986) of any

health care provider, supplier, or practitioner who is the

subject of a final adverse action.

‘‘(B) The name (if known) of any health care entity

with which a health care provider, supplier, or practitioner,

who is the subject of a final adverse action, is affiliated

or associated.

‘‘(C) The nature of the final adverse action and whether

such action is on appeal.

‘‘(D) A description of the acts or omissions and injuries

upon which the final adverse action was based, and such

other information as the Secretary determines by regulation is required for appropriate interpretation of information reported under this section.

‘‘(3) CONFIDENTIALITY.—In determining what information

is required, the Secretary shall include procedures to assure

that the privacy of individuals receiving health care services

is appropriately protected.

42 USC 1320a–

7e.

42 USC 1320a–7

note.
110 STAT. 2010 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(4) TIMING AND FORM OF REPORTING.—The information

required to be reported under this subsection shall be reported

regularly (but not less often than monthly) and in such form

and manner as the Secretary prescribes. Such information shall

first be required to be reported on a date specified by the

Secretary.

‘‘(5) TO WHOM REPORTED.—The information required to be

reported under this subsection shall be reported to the Secretary.

‘‘(c) DISCLOSURE AND CORRECTION OF INFORMATION.—

‘‘(1) DISCLOSURE.—With respect to the information about

final adverse actions (not including settlements in which no

findings of liability have been made) reported to the Secretary

under this section with respect to a health care provider, supplier, or practitioner, the Secretary shall, by regulation, provide

for—

‘‘(A) disclosure of the information, upon request, to

the health care provider, supplier, or licensed practitioner,

and

‘‘(B) procedures in the case of disputed accuracy of

the information.

‘‘(2) CORRECTIONS.—Each Government agency and health

plan shall report corrections of information already reported

about any final adverse action taken against a health care

provider, supplier, or practitioner, in such form and manner

that the Secretary prescribes by regulation.

‘‘(d) ACCESS TO REPORTED INFORMATION.—

‘‘(1) AVAILABILITY.—The information in the database maintained under this section shall be available to Federal and

State government agencies and health plans pursuant to procedures that the Secretary shall provide by regulation.

‘‘(2) FEES FOR DISCLOSURE.—The Secretary may establish

or approve reasonable fees for the disclosure of information

in such database (other than with respect to requests by Federal

agencies). The amount of such a fee shall be sufficient to

recover the full costs of operating the database. Such fees

shall be available to the Secretary or, in the Secretary’s discretion to the agency designated under this section to cover such

costs.

‘‘(e) PROTECTION FROM LIABILITY FOR REPORTING.—No person

or entity, including the agency designated by the Secretary in

subsection (b)(5) shall be held liable in any civil action with respect

to any report made as required by this section, without knowledge

of the falsity of the information contained in the report.

‘‘(f) COORDINATION WITH NATIONAL PRACTITIONER DATA

BANK.—The Secretary shall implement this section in such a manner as to avoid duplication with the reporting requirements established for the National Practitioner Data Bank under the Health

Care Quality Improvement Act of 1986 (42 U.S.C. 11101 et seq.).

‘‘(g) DEFINITIONS AND SPECIAL RULES.—For purposes of this

section:

‘‘(1) FINAL ADVERSE ACTION.—

‘‘(A) IN GENERAL.—The term ‘final adverse action’

includes:

‘‘(i) Civil judgments against a health care provider,

supplier, or practitioner in Federal or State court

related to the delivery of a health care item or service.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2011

‘‘(ii) Federal or State criminal convictions related

to the delivery of a health care item or service.

‘‘(iii) Actions by Federal or State agencies responsible for the licensing and certification of health care

providers, suppliers, and licensed health care

practitioners, including—

‘‘(I) formal or official actions, such as revocation or suspension of a license (and the length

of any such suspension), reprimand, censure or

probation,

‘‘(II) any other loss of license or the right to

apply for, or renew, a license of the provider, supplier, or practitioner, whether by operation of law,

voluntary surrender, non-renewability, or otherwise, or

‘‘(III) any other negative action or finding by

such Federal or State agency that is publicly available information.

‘‘(iv) Exclusion from participation in Federal or

State health care programs (as defined in sections

1128B(f) and 1128(h), respectively).

‘‘(v) Any other adjudicated actions or decisions that

the Secretary shall establish by regulation.

‘‘(B) EXCEPTION.—The term does not include any action

with respect to a malpractice claim.

‘‘(2) PRACTITIONER.—The terms ‘licensed health care practitioner’, ‘licensed practitioner’, and ‘practitioner’ mean, with

respect to a State, an individual who is licensed or otherwise

authorized by the State to provide health care services (or

any individual who, without authority holds himself or herself

out to be so licensed or authorized).

‘‘(3) GOVERNMENT AGENCY.—The term ‘Government agency’

shall include:

‘‘(A) The Department of Justice.

‘‘(B) The Department of Health and Human Services.

‘‘(C) Any other Federal agency that either administers

or provides payment for the delivery of health care services,

including, but not limited to the Department of Defense

and the Veterans’ Administration.

‘‘(D) State law enforcement agencies.

‘‘(E) State medicaid fraud control units.

‘‘(F) Federal or State agencies responsible for the

licensing and certification of health care providers and

licensed health care practitioners.

‘‘(4) HEALTH PLAN.—The term ‘health plan’ has the meaning

given such term by section 1128C(c).

‘‘(5) DETERMINATION OF CONVICTION.—For purposes of paragraph (1), the existence of a conviction shall be determined

under paragraph (4) of section 1128(i).’’.

(b) IMPROVED PREVENTION IN ISSUANCE OF MEDICARE PROVIDER

NUMBERS.—Section 1842(r) (42 U.S.C. 1395u(r)) is amended by

adding at the end the following new sentence: ‘‘Under such system,

the Secretary may impose appropriate fees on such physicians to

cover the costs of investigation and recertification activities with

respect to the issuance of the identifiers.’’.
110 STAT. 2012 PUBLIC LAW 104–191—AUG. 21, 1996

Subtitle D—Civil Monetary Penalties

SEC. 231. SOCIAL SECURITY ACT CIVIL MONETARY PENALTIES.

(a) GENERAL CIVIL MONETARY PENALTIES.—Section 1128A (42

U.S.C. 1320a–7a) is amended as follows:

(1) In the third sentence of subsection (a), by striking

‘‘programs under title XVIII’’ and inserting ‘‘Federal health

care programs (as defined in section 1128B(f)(1))’’.

(2) In subsection (f)—

(A) by redesignating paragraph (3) as paragraph

(4); and

(B) by inserting after paragraph (2) the following new

paragraph:

‘‘(3) With respect to amounts recovered arising out of a

claim under a Federal health care program (as defined in

section 1128B(f)), the portion of such amounts as is determined

to have been paid by the program shall be repaid to the program, and the portion of such amounts attributable to the

amounts recovered under this section by reason of the amendments made by the Health Insurance Portability and Accountability Act of 1996 (as estimated by the Secretary) shall be

deposited into the Federal Hospital Insurance Trust Fund

pursuant to section 1817(k)(2)(C).’’.

(3) In subsection (i)—

(A) in paragraph (2), by striking ‘‘title V, XVIII, XIX,

or XX of this Act’’ and inserting ‘‘a Federal health care

program (as defined in section 1128B(f))’’,

(B) in paragraph (4), by striking ‘‘a health insurance

or medical services program under title XVIII or XIX of

this Act’’ and inserting ‘‘a Federal health care program

(as so defined)’’, and

(C) in paragraph (5), by striking ‘‘title V, XVIII, XIX,

or XX’’ and inserting ‘‘a Federal health care program (as

so defined)’’.

(4) By adding at the end the following new subsection:

‘‘(m)(1) For purposes of this section, with respect to a Federal

health care program not contained in this Act, references to the

Secretary in this section shall be deemed to be references to the

Secretary or Administrator of the department or agency with jurisdiction over such program and references to the Inspector General

of the Department of Health and Human Services in this section

shall be deemed to be references to the Inspector General of the

applicable department or agency.

‘‘(2)(A) The Secretary and Administrator of the departments

and agencies referred to in paragraph (1) may include in any

action pursuant to this section, claims within the jurisdiction of

other Federal departments or agencies as long as the following

conditions are satisfied:

‘‘(i) The case involves primarily claims submitted to the

Federal health care programs of the department or agency

initiating the action.

‘‘(ii) The Secretary or Administrator of the department

or agency initiating the action gives notice and an opportunity

to participate in the investigation to the Inspector General

of the department or agency with primary jurisdiction over
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2013

the Federal health care programs to which the claims were

submitted.

‘‘(B) If the conditions specified in subparagraph (A) are fulfilled,

the Inspector General of the department or agency initiating the

action is authorized to exercise all powers granted under the Inspector General Act of 1978 (5 U.S.C. App.) with respect to the claims

submitted to the other departments or agencies to the same manner

and extent as provided in that Act with respect to claims submitted

to such departments or agencies.’’.

(b) EXCLUDED INDIVIDUAL RETAINING OWNERSHIP OR CONTROL

INTEREST IN PARTICIPATING ENTITY.—Section 1128A(a) (42 U.S.C.

1320a–7a(a)) is amended—

(1) by striking ‘‘or’’ at the end of paragraph (1)(D);

(2) by striking ‘‘, or’’ at the end of paragraph (2) and

inserting a semicolon;

(3) by striking the semicolon at the end of paragraph (3)

and inserting ‘‘; or’’; and

(4) by inserting after paragraph (3) the following new paragraph:

‘‘(4) in the case of a person who is not an organization,

agency, or other entity, is excluded from participating in a

program under title XVIII or a State health care program

in accordance with this subsection or under section 1128 and

who, at the time of a violation of this subsection—

‘‘(A) retains a direct or indirect ownership or control

interest in an entity that is participating in a program

under title XVIII or a State health care program, and

who knows or should know of the action constituting the

basis for the exclusion; or

‘‘(B) is an officer or managing employee (as defined

in section 1126(b)) of such an entity;’’.

(c) MODIFICATIONS OF AMOUNTS OF PENALTIES AND ASSESSMENTS.—Section 1128A(a) (42 U.S.C. 1320a–7a(a)), as amended by

subsection (b), is amended in the matter following paragraph (4)—

(1) by striking ‘‘$2,000’’ and inserting ‘‘$10,000’’;

(2) by inserting ‘‘; in cases under paragraph (4), $10,000

for each day the prohibited relationship occurs’’ after ‘‘false

or misleading information was given’’; and

(3) by striking ‘‘twice the amount’’ and inserting ‘‘3 times

the amount’’.

(d) CLARIFICATION OF LEVEL OF KNOWLEDGE REQUIRED FOR

IMPOSITION OF CIVIL MONETARY PENALTIES.—

(1) IN GENERAL.—Section 1128A(a) (42 U.S.C. 1320a–7a(a))

is amended—

(A) in paragraphs (1) and (2), by inserting ‘‘knowingly’’

before ‘‘presents’’ each place it appears; and

(B) in paragraph (3), by striking ‘‘gives’’ and inserting

‘‘knowingly gives or causes to be given’’.

(2) DEFINITION OF STANDARD.—Section 1128A(i) (42 U.S.C.

1320a–7a(i)), as amended by subsection (h)(2), is amended by

adding at the end the following new paragraph:

‘‘(7) The term ‘should know’ means that a person, with

respect to information—

‘‘(A) acts in deliberate ignorance of the truth or falsity

of the information; or

‘‘(B) acts in reckless disregard of the truth or falsity

of the information,
110 STAT. 2014 PUBLIC LAW 104–191—AUG. 21, 1996

and no proof of specific intent to defraud is required.’’.

(e) CLAIM FOR ITEM OR SERVICE BASED ON INCORRECT CODING

OR MEDICALLY UNNECESSARY SERVICES.—Section 1128A(a)(1) (42

U.S.C. 1320a–7a(a)(1)), as amended by subsection (b), is amended—

(1) in subparagraph (A) by striking ‘‘claimed,’’ and inserting

‘‘claimed, including any person who engages in a pattern or

practice of presenting or causing to be presented a claim for

an item or service that is based on a code that the person

knows or should know will result in a greater payment to

the person than the code the person knows or should know

is applicable to the item or service actually provided,’’;

(2) in subparagraph (C), by striking ‘‘or’’ at the end;

(3) in subparagraph (D), by striking the semicolon and

inserting ‘‘, or’’; and

(4) by inserting after subparagraph (D) the following new

subparagraph:

‘‘(E) is for a pattern of medical or other items or services that a person knows or should know are not medically

necessary;’’.

(f) SANCTIONS AGAINST PRACTITIONERS AND PERSONS FOR FAILURE TO COMPLY WITH STATUTORY OBLIGATIONS.—Section 1156(b)(3)

(42 U.S.C. 1320c–5(b)(3)) is amended by striking ‘‘the actual or

estimated cost’’ and inserting ‘‘up to $10,000 for each instance’’.

(g) PROCEDURAL PROVISIONS.—Section 1876(i)(6) (42 U.S.C.

1395mm(i)(6)), as amended by section 215(a)(2), is amended by

adding at the end the following new subparagraph:

‘‘(D) The provisions of section 1128A (other than subsections

(a) and (b)) shall apply to a civil money penalty under subparagraph

(B)(i) or (C)(i) in the same manner as such provisions apply to

a civil money penalty or proceeding under section 1128A(a).’’.

(h) PROHIBITION AGAINST OFFERING INDUCEMENTS TO INDIVIDUALS ENROLLED UNDER PROGRAMS OR PLANS.—

(1) OFFER OF REMUNERATION.—Section 1128A(a) (42 U.S.C.

1320a–7a(a)), as amended by subsection (b), is amended—

(A) by striking ‘‘or’’ at the end of paragraph (3);

(B) by striking the semicolon at the end of paragraph

(4) and inserting ‘‘; or’’; and

(C) by inserting after paragraph (4) the following new

paragraph:

‘‘(5) offers to or transfers remuneration to any individual

eligible for benefits under title XVIII of this Act, or under

a State health care program (as defined in section 1128(h))

that such person knows or should know is likely to influence

such individual to order or receive from a particular provider,

practitioner, or supplier any item or service for which payment

may be made, in whole or in part, under title XVIII, or a

State health care program (as so defined);’’.

(2) REMUNERATION DEFINED.—Section 1128A(i) (42 U.S.C.

1320a–7a(i)) is amended by adding at the end the following

new paragraph:

‘‘(6) The term ‘remuneration’ includes the waiver of coinsurance and deductible amounts (or any part thereof), and transfers of items or services for free or for other than fair market

value. The term ‘remuneration’ does not include—

‘‘(A) the waiver of coinsurance and deductible amounts

by a person, if—
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2015

‘‘(i) the waiver is not offered as part of any

advertisement or solicitation;

‘‘(ii) the person does not routinely waive coinsurance or deductible amounts; and

‘‘(iii) the person—

‘‘(I) waives the coinsurance and deductible

amounts after determining in good faith that the

individual is in financial need;

‘‘(II) fails to collect coinsurance or deductible

amounts after making reasonable collection

efforts; or

‘‘(III) provides for any permissible waiver as

specified in section 1128B(b)(3) or in regulations

issued by the Secretary;

‘‘(B) differentials in coinsurance and deductible

amounts as part of a benefit plan design as long as the

differentials have been disclosed in writing to all

beneficiaries, third party payers, and providers, to whom

claims are presented and as long as the differentials meet

the standards as defined in regulations promulgated

by the Secretary not later than 180 days after the date

of the enactment of the Health Insurance Portability and

Accountability Act of 1996; or

‘‘(C) incentives given to individuals to promote the

delivery of preventive care as determined by the Secretary

in regulations so promulgated.’’.

(i) EFFECTIVE DATE.—The amendments made by this section

shall apply to acts or omissions occurring on or after January

1, 1997.

SEC. 232. PENALTY FOR FALSE CERTIFICATION FOR HOME HEALTH

SERVICES.

(a) IN GENERAL.—Section 1128A(b) (42 U.S.C. 1320a–7a(b)) is

amended by adding at the end the following new paragraph:

‘‘(3)(A) Any physician who executes a document described in

subparagraph (B) with respect to an individual knowing that all

of the requirements referred to in such subparagraph are not met

with respect to the individual shall be subject to a civil monetary

penalty of not more than the greater of—

‘‘(i) $5,000, or

‘‘(ii) three times the amount of the payments under title

XVIII for home health services which are made pursuant to

such certification.

‘‘(B) A document described in this subparagraph is any document that certifies, for purposes of title XVIII, that an individual

meets the requirements of section 1814(a)(2)(C) or 1835(a)(2)(A)

in the case of home health services furnished to the individual.’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

shall apply to certifications made on or after the date of the enactment of this Act.

42 USC 1320a–

7a note.

42 USC 1320a–

7a note.
110 STAT. 2016 PUBLIC LAW 104–191—AUG. 21, 1996

Subtitle E—Revisions to Criminal Law

SEC. 241. DEFINITIONS RELATING TO FEDERAL HEALTH CARE

OFFENSE.

(a) IN GENERAL.—Chapter 1 of title 18, United States Code,

is amended by adding at the end the following:

‘‘§ 24. Definitions relating to Federal health care offense

‘‘(a) As used in this title, the term ‘Federal health care offense’

means a violation of, or a criminal conspiracy to violate—

‘‘(1) section 669, 1035, 1347, or 1518 of this title;

‘‘(2) section 287, 371, 664, 666, 1001, 1027, 1341, 1343,

or 1954 of this title, if the violation or conspiracy relates to

a health care benefit program.

‘‘(b) As used in this title, the term ‘health care benefit program’

means any public or private plan or contract, affecting commerce,

under which any medical benefit, item, or service is provided to

any individual, and includes any individual or entity who is providing a medical benefit, item, or service for which payment may

be made under the plan or contract.’’.

(b) CLERICAL AMENDMENT.—The table of sections at the beginning of chapter 2 of title 18, United States Code, is amended

by inserting after the item relating to section 23 the following

new item:

‘‘24. Definitions relating to Federal health care offense.’’.

SEC. 242. HEALTH CARE FRAUD.

(a) OFFENSE.— (1) IN GENERAL.—Chapter 63 of title 18, United States

Code, is amended by adding at the end the following:

‘‘§ 1347. Health care fraud

‘‘Whoever knowingly and willfully executes, or attempts to execute, a scheme or artifice—

‘‘(1) to defraud any health care benefit program; or

‘‘(2) to obtain, by means of false or fraudulent pretenses,

representations, or promises, any of the money or property

owned by, or under the custody or control of, any health care

benefit program,

in connection with the delivery of or payment for health care benefits, items, or services, shall be fined under this title or imprisoned

not more than 10 years, or both. If the violation results in serious

bodily injury (as defined in section 1365 of this title), such person

shall be fined under this title or imprisoned not more than 20

years, or both; and if the violation results in death, such person

shall be fined under this title, or imprisoned for any term of years

or for life, or both.’’.

(2) CLERICAL AMENDMENT.—The table of sections at the

beginning of chapter 63 of title 18, United States Code, is

amended by adding at the end the following:

‘‘1347. Health care fraud.’’.

(b) CRIMINAL FINES DEPOSITED IN FEDERAL HOSPITAL INSURANCE TRUST FUND.—The Secretary of the Treasury shall deposit

into the Federal Hospital Insurance Trust Fund pursuant to section

1817(k)(2)(C) of the Social Security Act (42 U.S.C. 1395i) an amount

42 USC 1395i

note.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2017

equal to the criminal fines imposed under section 1347 of title

18, United States Code (relating to health care fraud).

SEC. 243. THEFT OR EMBEZZLEMENT.

(a) IN GENERAL.—Chapter 31 of title 18, United States Code,

is amended by adding at the end the following:

‘‘§ 669. Theft or embezzlement in connection with health care

‘‘(a) Whoever knowingly and willfully embezzles, steals, or

otherwise without authority converts to the use of any person

other than the rightful owner, or intentionally misapplies any of

the moneys, funds, securities, premiums, credits, property, or other

assets of a health care benefit program, shall be fined under this

title or imprisoned not more than 10 years, or both; but if the

value of such property does not exceed the sum of $100 the defendant shall be fined under this title or imprisoned not more than

one year, or both.

‘‘(b) As used in this section, the term ‘health care benefit

program’ has the meaning given such term in section 24(b) of

this title.’’.

(b) CLERICAL AMENDMENT.—The table of sections at the beginning of chapter 31 of title 18, United States Code, is amended

by adding at the end the following:

‘‘669. Theft or embezzlement in connection with health care.’’.

SEC. 244. FALSE STATEMENTS.

(a) IN GENERAL.—Chapter 47 of title 18, United States Code,

is amended by adding at the end the following:

‘‘§ 1035. False statements relating to health care matters

‘‘(a) Whoever, in any matter involving a health care benefit

program, knowingly and willfully—

‘‘(1) falsifies, conceals, or covers up by any trick, scheme,

or device a material fact; or

‘‘(2) makes any materially false, fictitious, or fraudulent

statements or representations, or makes or uses any materially

false writing or document knowing the same to contain any

materially false, fictitious, or fraudulent statement or entry,

in connection with the delivery of or payment for health care benefits, items, or services, shall be fined under this title or imprisoned

not more than 5 years, or both.

‘‘(b) As used in this section, the term ‘health care benefit

program’ has the meaning given such term in section 24(b) of

this title.’’.

(b) CLERICAL AMENDMENT.—The table of sections at the beginning of chapter 47 of title 18, United States Code, is amended

by adding at the end the following new item:

‘‘1035. False statements relating to health care matters.’’.

SEC. 245. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF HEALTH

CARE OFFENSES.

(a) IN GENERAL.—Chapter 73 of title 18, United States Code,

is amended by adding at the end the following:
110 STAT. 2018 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘§ 1518. Obstruction of criminal investigations of health care

offenses

‘‘(a) Whoever willfully prevents, obstructs, misleads, delays or

attempts to prevent, obstruct, mislead, or delay the communication

of information or records relating to a violation of a Federal health

care offense to a criminal investigator shall be fined under this

title or imprisoned not more than 5 years, or both.

‘‘(b) As used in this section the term ‘criminal investigator’

means any individual duly authorized by a department, agency,

or armed force of the United States to conduct or engage in investigations for prosecutions for violations of health care offenses.’’.

(b) CLERICAL AMENDMENT.—The table of sections at the beginning of chapter 73 of title 18, United States Code, is amended

by adding at the end the following new item:

‘‘1518. Obstruction of criminal investigations of health care offenses.’’.

SEC. 246. LAUNDERING OF MONETARY INSTRUMENTS.

Section 1956(c)(7) of title 18, United States Code, is amended

by adding at the end the following:

‘‘(F) Any act or activity constituting an offense involving a Federal health care offense.’’.

SEC. 247. INJUNCTIVE RELIEF RELATING TO HEALTH CARE OFFENSES.

(a) IN GENERAL.—Section 1345(a)(1) of title 18, United States

Code, is amended—

(1) by striking ‘‘or’’ at the end of subparagraph (A);

(2) by inserting ‘‘or’’ at the end of subparagraph (B); and

(3) by adding at the end the following:

‘‘(C) committing or about to commit a Federal health care

offense.’’.

(b) FREEZING OF ASSETS.—Section 1345(a)(2) of title 18, United

States Code, is amended by inserting ‘‘or a Federal health care

offense’’ after ‘‘title)’’.

SEC. 248. AUTHORIZED INVESTIGATIVE DEMAND PROCEDURES.

(a) IN GENERAL.—Chapter 223 of title 18, United States Code,

is amended by adding after section 3485 the following:

‘‘§ 3486. Authorized investigative demand procedures

‘‘(a) AUTHORIZATION.—(1) In any investigation relating to any

act or activity involving a Federal health care offense, the Attorney

General or the Attorney General’s designee may issue in writing

and cause to be served a subpoena—

‘‘(A) requiring the production of any records (including any

books, papers, documents, electronic media, or other objects

or tangible things), which may be relevant to an authorized

law enforcement inquiry, that a person or legal entity may

possess or have care, custody, or control; or

‘‘(B) requiring a custodian of records to give testimony

concerning the production and authentication of such records.

‘‘(2) A subpoena under this subsection shall describe the objects

required to be produced and prescribe a return date within a

reasonable period of time within which the objects can be assembled

and made available.

‘‘(3) The production of records shall not be required under

this section at any place more than 500 miles distant from the
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2019

place where the subpoena for the production of such records is

served.

‘‘(4) Witnesses summoned under this section shall be paid the

same fees and mileage that are paid witnesses in the courts of

the United States.

‘‘(b) SERVICE.—A subpoena issued under this section may be

served by any person who is at least 18 years of age and is

designated in the subpoena to serve it. Service upon a natural

person may be made by personal delivery of the subpoena to him.

Service may be made upon a domestic or foreign corporation or

upon a partnership or other unincorporated association which is

subject to suit under a common name, by delivering the subpoena

to an officer, to a managing or general agent, or to any other

agent authorized by appointment or by law to receive service of

process. The affidavit of the person serving the subpoena entered

on a true copy thereof by the person serving it shall be proof

of service.

‘‘(c) ENFORCEMENT.—In the case of contumacy by or refusal

to obey a subpoena issued to any person, the Attorney General

may invoke the aid of any court of the United States within the

jurisdiction of which the investigation is carried on or of which

the subpoenaed person is an inhabitant, or in which he carries

on business or may be found, to compel compliance with the subpoena. The court may issue an order requiring the subpoenaed

person to appear before the Attorney General to produce records,

if so ordered, or to give testimony concerning the production and

authentication of such records. Any failure to obey the order of

the court may be punished by the court as a contempt thereof.

All process in any such case may be served in any judicial district

in which such person may be found.

‘‘(d) IMMUNITY FROM CIVIL LIABILITY.—Notwithstanding any

Federal, State, or local law, any person, including officers, agents,

and employees, receiving a summons under this section, who complies in good faith with the summons and thus produces the materials sought, shall not be liable in any court of any State or the

United States to any customer or other person for such production

or for nondisclosure of that production to the customer.

‘‘(e) LIMITATION ON USE.—(1) Health information about an

individual that is disclosed under this section may not be used

in, or disclosed to any person for use in, any administrative, civil,

or criminal action or investigation directed against the individual

who is the subject of the information unless the action or investigation arises out of and is directly related to receipt of health care

or payment for health care or action involving a fraudulent claim

related to health; or if authorized by an appropriate order of a

court of competent jurisdiction, granted after application showing

good cause therefor.

‘‘(2) In assessing good cause, the court shall weigh the public

interest and the need for disclosure against the injury to the patient,

to the physician-patient relationship, and to the treatment services.

‘‘(3) Upon the granting of such order, the court, in determining

the extent to which any disclosure of all or any part of any record

is necessary, shall impose appropriate safeguards against unauthorized disclosure.’’.

(b) CLERICAL AMENDMENT.—The table of sections at the beginning of chapter 223 of title 18, United States Code, is amended
110 STAT. 2020 PUBLIC LAW 104–191—AUG. 21, 1996

by inserting after the item relating to section 3485 the following

new item:

‘‘3486. Authorized investigative demand procedures.’’.

(c) CONFORMING AMENDMENT.—Section 1510(b)(3)(B) of title

18, United States Code, is amended by inserting ‘‘or a Department

of Justice subpoena (issued under section 3486 of title 18),’’ after

‘‘subpoena’’.

SEC. 249. FORFEITURES FOR FEDERAL HEALTH CARE OFFENSES.

(a) IN GENERAL.—Section 982(a) of title 18, United States Code,

is amended by adding after paragraph (5) the following new paragraph:

‘‘(6) The court, in imposing sentence on a person convicted

of a Federal health care offense, shall order the person to forfeit

property, real or personal, that constitutes or is derived, directly

or indirectly, from gross proceeds traceable to the commission of

the offense.’’.

(b) CONFORMING AMENDMENT.—Section 982(b)(1)(A) of title 18,

United States Code, is amended by inserting ‘‘or (a)(6)’’ after ‘‘(a)(1)’’.

(c) PROPERTY FORFEITED DEPOSITED IN FEDERAL HOSPITAL

INSURANCE TRUST FUND.— (1) IN GENERAL.—After the payment of the costs of asset

forfeiture has been made and after all restoration payments

(if any) have been made, and notwithstanding any other provision of law, the Secretary of the Treasury shall deposit into

the Federal Hospital Insurance Trust Fund pursuant to section

1817(k)(2)(C) of the Social Security Act, as added by section

301(b), an amount equal to the net amount realized from the

forfeiture of property by reason of a Federal health care offense

pursuant to section 982(a)(6) of title 18, United States Code.

(2) COSTS OF ASSET FORFEITURE.—For purposes of paragraph (1), the term ‘‘payment of the costs of asset forfeiture’’

means—

(A) the payment, at the discretion of the Attorney

General, of any expenses necessary to seize, detain, inventory, safeguard, maintain, advertise, sell, or dispose of property under seizure, detention, or forfeited, or of any other

necessary expenses incident to the seizure, detention, forfeiture, or disposal of such property, including payment

for—

(i) contract services;

(ii) the employment of outside contractors to operate and manage properties or provide other specialized

services necessary to dispose of such properties in an

effort to maximize the return from such properties;

and

(iii) reimbursement of any Federal, State, or local

agency for any expenditures made to perform the functions described in this subparagraph;

(B) at the discretion of the Attorney General, the payment of awards for information or assistance leading to

a civil or criminal forfeiture involving any Federal agency

participating in the Health Care Fraud and Abuse Control

Account;

(C) the compromise and payment of valid liens and

mortgages against property that has been forfeited, subject

to the discretion of the Attorney General to determine

42 USC 1395i

note.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2021

the validity of any such lien or mortgage and the amount

of payment to be made, and the employment of attorneys

and other personnel skilled in State real estate law as

necessary;

(D) payment authorized in connection with remission

or mitigation procedures relating to property forfeited; and

(E) the payment of State and local property taxes on

forfeited real property that accrued between the date of

the violation giving rise to the forfeiture and the date

of the forfeiture order.

(3) RESTORATION PAYMENT.—Notwithstanding any other

provision of law, if the Federal health care offense referred

to in paragraph (1) resulted in a loss to an employee welfare

benefit plan within the meaning of section 3(1) of the Employee

Retirement Income Security Act of 1974, the Secretary of the

Treasury shall transfer to such employee welfare benefit plan,

from the amount realized from the forfeiture of property

referred to in paragraph (1), an amount equal to such loss.

For purposes of paragraph (1), the term ‘‘restoration payment’’

means the amount transferred to an employee welfare benefit

plan pursuant to this paragraph.

SEC. 250. RELATION TO ERISA AUTHORITY.

Nothing in this subtitle shall be construed as affecting the

authority of the Secretary of Labor under section 506(b)

of the Employee Retirement Income Security Act of 1974, including

the Secretary’s authority with respect to violations of title 18,

United States Code (as amended by this subtitle).

Subtitle F—Administrative Simplification

SEC. 261. PURPOSE.

It is the purpose of this subtitle to improve the Medicare

program under title XVIII of the Social Security Act, the medicaid

program under title XIX of such Act, and the efficiency and effectiveness of the health care system, by encouraging the development

of a health information system through the establishment of standards and requirements for the electronic transmission of certain

health information.

SEC. 262. ADMINISTRATIVE SIMPLIFICATION.

(a) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.) is amended

by adding at the end the following:

‘‘PART C—ADMINISTRATIVE SIMPLIFICATION

‘‘DEFINITIONS

‘‘SEC. 1171. For purposes of this part:

‘‘(1) CODE SET.—The term ‘code set’ means any set of codes

used for encoding data elements, such as tables of terms, medical concepts, medical diagnostic codes, or medical procedure

codes.

‘‘(2) HEALTH CARE CLEARINGHOUSE.—The term ‘health care

clearinghouse’ means a public or private entity that processes

or facilitates the processing of nonstandard data elements of

health information into standard data elements.

42 USC 1320d.

42 USC 1320d

note.

29 USC 1136

note.
110 STAT. 2022 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(3) HEALTH CARE PROVIDER.—The term ‘health care provider’ includes a provider of services (as defined in section

1861(u)), a provider of medical or other health services (as

defined in section 1861(s)), and any other person furnishing

health care services or supplies.

‘‘(4) HEALTH INFORMATION.—The term ‘health information’

means any information, whether oral or recorded in any form

or medium, that—

‘‘(A) is created or received by a health care provider,

health plan, public health authority, employer, life insurer,

school or university, or health care clearinghouse; and

‘‘(B) relates to the past, present, or future physical

or mental health or condition of an individual, the provision

of health care to an individual, or the past, present, or

future payment for the provision of health care to an

individual.

‘‘(5) HEALTH PLAN.—The term ‘health plan’ means an

individual or group plan that provides, or pays the cost of,

medical care (as such term is defined in section 2791 of the

Public Health Service Act). Such term includes the following,

and any combination thereof:

‘‘(A) A group health plan (as defined in section 2791(a)

of the Public Health Service Act), but only if the plan—

‘‘(i) has 50 or more participants (as defined in

section 3(7) of the Employee Retirement Income Security Act of 1974); or

‘‘(ii) is administered by an entity other than the

employer who established and maintains the plan.

‘‘(B) A health insurance issuer (as defined in section

2791(b) of the Public Health Service Act).

‘‘(C) A health maintenance organization (as defined

in section 2791(b) of the Public Health Service Act).

‘‘(D) Part A or part B of the Medicare program under

title XVIII.

‘‘(E) The medicaid program under title XIX.

‘‘(F) A Medicare supplemental policy (as defined in

section 1882(g)(1)).

‘‘(G) A long-term care policy, including a nursing home

fixed indemnity policy (unless the Secretary determines

that such a policy does not provide sufficiently comprehensive coverage of a benefit so that the policy should be

treated as a health plan).

‘‘(H) An employee welfare benefit plan or any other

arrangement which is established or maintained for the

purpose of offering or providing health benefits to the

employees of 2 or more employers.

‘‘(I) The health care program for active military personnel under title 10, United States Code.

‘‘(J) The veterans health care program under chapter

17 of title 38, United States Code.

‘‘(K) The Civilian Health and Medical Program of the

Uniformed Services (CHAMPUS), as defined in section

1072(4) of title 10, United States Code.

‘‘(L) The Indian health service program under the

Indian Health Care Improvement Act (25 U.S.C. 1601 et

seq.).
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2023

‘‘(M) The Federal Employees Health Benefit Plan under

chapter 89 of title 5, United States Code.

‘‘(6) INDIVIDUALLY IDENTIFIABLE HEALTH INFORMATION.—

The term ‘individually identifiable health information’ means

any information, including demographic information collected

from an individual, that—

‘‘(A) is created or received by a health care provider,

health plan, employer, or health care clearinghouse; and

‘‘(B) relates to the past, present, or future physical

or mental health or condition of an individual, the provision

of health care to an individual, or the past, present, or

future payment for the provision of health care to an

individual, and—

‘‘(i) identifies the individual; or

‘‘(ii) with respect to which there is a reasonable

basis to believe that the information can be used to

identify the individual.

‘‘(7) STANDARD.—The term ‘standard’, when used with reference to a data element of health information or a transaction

referred to in section 1173(a)(1), means any such data element

or transaction that meets each of the standards and

implementation specifications adopted or established by the

Secretary with respect to the data element or transaction under

sections 1172 through 1174.

‘‘(8) STANDARD SETTING ORGANIZATION.—The term ‘standard

setting organization’ means a standard setting organization

accredited by the American National Standards Institute,

including the National Council for Prescription Drug Programs,

that develops standards for information transactions, data elements, or any other standard that is necessary to, or will

facilitate, the implementation of this part.

‘‘GENERAL REQUIREMENTS FOR ADOPTION OF STANDARDS

‘‘SEC. 1172. (a) APPLICABILITY.—Any standard adopted under

this part shall apply, in whole or in part, to the following persons:

‘‘(1) A health plan.

‘‘(2) A health care clearinghouse.

‘‘(3) A health care provider who transmits any health

information in electronic form in connection with a transaction

referred to in section 1173(a)(1).

‘‘(b) REDUCTION OF COSTS.—Any standard adopted under this

part shall be consistent with the objective of reducing the administrative costs of providing and paying for health care.

‘‘(c) ROLE OF STANDARD SETTING ORGANIZATIONS.—

‘‘(1) IN GENERAL.—Except as provided in paragraph (2),

any standard adopted under this part shall be a standard

that has been developed, adopted, or modified by a standard

setting organization.

‘‘(2) SPECIAL RULES.—

‘‘(A) DIFFERENT STANDARDS.—The Secretary may adopt

a standard that is different from any standard developed,

adopted, or modified by a standard setting organization,

if—

‘‘(i) the different standard will substantially reduce

administrative costs to health care providers and

health plans compared to the alternatives; and

42 USC 1320d–1.
110 STAT. 2024 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(ii) the standard is promulgated in accordance

with the rulemaking procedures of subchapter III of

chapter 5 of title 5, United States Code.

‘‘(B) NO STANDARD BY STANDARD SETTING ORGANIZATION.—If no standard setting organization has developed,

adopted, or modified any standard relating to a standard

that the Secretary is authorized or required to adopt under

this part—

‘‘(i) paragraph (1) shall not apply; and

‘‘(ii) subsection (f) shall apply.

‘‘(3) CONSULTATION REQUIREMENT.— ‘‘(A) IN GENERAL.—A standard may not be adopted

under this part unless—

‘‘(i) in the case of a standard that has been developed, adopted, or modified by a standard setting

organization, the organization consulted with each of

the organizations described in subparagraph (B) in

the course of such development, adoption, or modification; and

‘‘(ii) in the case of any other standard, the Secretary, in complying with the requirements of subsection (f), consulted with each of the organizations

described in subparagraph (B) before adopting the

standard.

‘‘(B) ORGANIZATIONS DESCRIBED.—The organizations

referred to in subparagraph (A) are the following:

‘‘(i) The National Uniform Billing Committee.

‘‘(ii) The National Uniform Claim Committee.

‘‘(iii) The Workgroup for Electronic Data Interchange.

‘‘(iv) The American Dental Association.

‘‘(d) IMPLEMENTATION SPECIFICATIONS.—The Secretary shall

establish specifications for implementing each of the standards

adopted under this part.

‘‘(e) PROTECTION OF TRADE SECRETS.—Except as otherwise

required by law, a standard adopted under this part shall not

require disclosure of trade secrets or confidential commercial

information by a person required to comply with this part.

‘‘(f) ASSISTANCE TO THE SECRETARY.—In complying with the

requirements of this part, the Secretary shall rely on the recommendations of the National Committee on Vital and Health

Statistics established under section 306(k) of the Public Health

Service Act (42 U.S.C. 242k(k)), and shall consult with appropriate

Federal and State agencies and private organizations. The Secretary

shall publish in the Federal Register any recommendation of the

National Committee on Vital and Health Statistics regarding the

adoption of a standard under this part.

‘‘(g) APPLICATION TO MODIFICATIONS OF STANDARDS.—This section shall apply to a modification to a standard (including an

addition to a standard) adopted under section 1174(b) in the same

manner as it applies to an initial standard adopted under section

1174(a).

‘‘STANDARDS FOR INFORMATION TRANSACTIONS AND DATA ELEMENTS

‘‘SEC. 1173. (a) STANDARDS TO ENABLE ELECTRONIC

EXCHANGE.—

42 USC 1320d–2.

Federal Register,

publication.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2025

‘‘(1) IN GENERAL.—The Secretary shall adopt standards for

transactions, and data elements for such transactions, to enable

health information to be exchanged electronically, that are

appropriate for—

‘‘(A) the financial and administrative transactions

described in paragraph (2); and

‘‘(B) other financial and administrative transactions

determined appropriate by the Secretary, consistent with

the goals of improving the operation of the health care

system and reducing administrative costs.

‘‘(2) TRANSACTIONS.—The transactions referred to in paragraph (1)(A) are transactions with respect to the following:

‘‘(A) Health claims or equivalent encounter information.

‘‘(B) Health claims attachments.

‘‘(C) Enrollment and disenrollment in a health plan.

‘‘(D) Eligibility for a health plan.

‘‘(E) Health care payment and remittance advice.

‘‘(F) Health plan premium payments.

‘‘(G) First report of injury.

‘‘(H) Health claim status.

‘‘(I) Referral certification and authorization.

‘‘(3) ACCOMMODATION OF SPECIFIC PROVIDERS.—The

standards adopted by the Secretary under paragraph (1) shall

accommodate the needs of different types of health care providers.

‘‘(b) UNIQUE HEALTH IDENTIFIERS.—

‘‘(1) IN GENERAL.—The Secretary shall adopt standards

providing for a standard unique health identifier for each

individual, employer, health plan, and health care provider

for use in the health care system. In carrying out the preceding

sentence for each health plan and health care provider, the

Secretary shall take into account multiple uses for identifiers

and multiple locations and specialty classifications for health

care providers.

‘‘(2) USE OF IDENTIFIERS.—The standards adopted under

paragraph (1) shall specify the purposes for which a unique

health identifier may be used.

‘‘(c) CODE SETS.—

‘‘(1) IN GENERAL.—The Secretary shall adopt standards

that—

‘‘(A) select code sets for appropriate data elements

for the transactions referred to in subsection (a)(1) from

among the code sets that have been developed by private

and public entities; or

‘‘(B) establish code sets for such data elements if no

code sets for the data elements have been developed.

‘‘(2) DISTRIBUTION.—The Secretary shall establish efficient

and low-cost procedures for distribution (including electronic

distribution) of code sets and modifications made to such code

sets under section 1174(b).

‘‘(d) SECURITY STANDARDS FOR HEALTH INFORMATION.—

‘‘(1) SECURITY STANDARDS.—The Secretary shall adopt security standards that—

‘‘(A) take into account—

‘‘(i) the technical capabilities of record systems

used to maintain health information;
110 STAT. 2026 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(ii) the costs of security measures;

‘‘(iii) the need for training persons who have access

to health information;

‘‘(iv) the value of audit trails in computerized

record systems; and

‘‘(v) the needs and capabilities of small health care

providers and rural health care providers (as such

providers are defined by the Secretary); and

‘‘(B) ensure that a health care clearinghouse, if it is

part of a larger organization, has policies and security

procedures which isolate the activities of the health care

clearinghouse with respect to processing information in

a manner that prevents unauthorized access to such

information by such larger organization.

‘‘(2) SAFEGUARDS.—Each person described in section

1172(a) who maintains or transmits health information shall

maintain reasonable and appropriate administrative, technical,

and physical safeguards—

‘‘(A) to ensure the integrity and confidentiality of the

information;

‘‘(B) to protect against any reasonably anticipated—

‘‘(i) threats or hazards to the security or integrity

of the information; and

‘‘(ii) unauthorized uses or disclosures of the

information; and

‘‘(C) otherwise to ensure compliance with this part

by the officers and employees of such person.

‘‘(e) ELECTRONIC SIGNATURE.— ‘‘(1) STANDARDS.—The Secretary, in coordination with the

Secretary of Commerce, shall adopt standards specifying procedures for the electronic transmission and authentication of

signatures with respect to the transactions referred to in subsection (a)(1).

‘‘(2) EFFECT OF COMPLIANCE.—Compliance with the standards adopted under paragraph (1) shall be deemed to satisfy

Federal and State statutory requirements for written signatures

with respect to the transactions referred to in subsection (a)(1).

‘‘(f) TRANSFER OF INFORMATION AMONG HEALTH PLANS.—The

Secretary shall adopt standards for transferring among health plans

appropriate standard data elements needed for the coordination

of benefits, the sequential processing of claims, and other data

elements for individuals who have more than one health plan.

‘‘TIMETABLES FOR ADOPTION OF STANDARDS

‘‘SEC. 1174. (a) INITIAL STANDARDS.—The Secretary shall carry

out section 1173 not later than 18 months after the date of the

enactment of the Health Insurance Portability and Accountability

Act of 1996, except that standards relating to claims attachments

shall be adopted not later than 30 months after such date.

‘‘(b) ADDITIONS AND MODIFICATIONS TO STANDARDS.— ‘‘(1) IN GENERAL.—Except as provided in paragraph (2),

the Secretary shall review the standards adopted under section

1173, and shall adopt modifications to the standards (including

additions to the standards), as determined appropriate, but

not more frequently than once every 12 months. Any addition

or modification to a standard shall be completed in a manner

which minimizes the disruption and cost of compliance.

42 USC 1320d–3.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2027

‘‘(2) SPECIAL RULES.—

‘‘(A) FIRST 12-MONTH PERIOD.—Except with respect to

additions and modifications to code sets under subparagraph (B), the Secretary may not adopt any modification

to a standard adopted under this part during the 12-month

period beginning on the date the standard is initially

adopted, unless the Secretary determines that the modification is necessary in order to permit compliance with the

standard.

‘‘(B) ADDITIONS AND MODIFICATIONS TO CODE SETS.— ‘‘(i) IN GENERAL.—The Secretary shall ensure that

procedures exist for the routine maintenance, testing,

enhancement, and expansion of code sets.

‘‘(ii) ADDITIONAL RULES.—If a code set is modified

under this subsection, the modified code set shall

include instructions on how data elements of health

information that were encoded prior to the modification

may be converted or translated so as to preserve the

informational value of the data elements that existed

before the modification. Any modification to a code

set under this subsection shall be implemented in a

manner that minimizes the disruption and cost of

complying with such modification.

‘‘REQUIREMENTS

‘‘SEC. 1175. (a) CONDUCT OF TRANSACTIONS BY PLANS.—

‘‘(1) IN GENERAL.—If a person desires to conduct a transaction referred to in section 1173(a)(1) with a health plan

as a standard transaction—

‘‘(A) the health plan may not refuse to conduct such

transaction as a standard transaction;

‘‘(B) the insurance plan may not delay such transaction,

or otherwise adversely affect, or attempt to adversely affect,

the person or the transaction on the ground that the transaction is a standard transaction; and

‘‘(C) the information transmitted and received in

connection with the transaction shall be in the form of

standard data elements of health information.

‘‘(2) SATISFACTION OF REQUIREMENTS.—A health plan may

satisfy the requirements under paragraph (1) by—

‘‘(A) directly transmitting and receiving standard data

elements of health information; or

‘‘(B) submitting nonstandard data elements to a health

care clearinghouse for processing into standard data elements and transmission by the health care clearinghouse,

and receiving standard data elements through the health

care clearinghouse.

‘‘(3) TIMETABLE FOR COMPLIANCE.—Paragraph (1) shall not

be construed to require a health plan to comply with any

standard, implementation specification, or modification to a

standard or specification adopted or established by the Secretary under sections 1172 through 1174 at any time prior

to the date on which the plan is required to comply with

the standard or specification under subsection (b).

‘‘(b) COMPLIANCE WITH STANDARDS.—

‘‘(1) INITIAL COMPLIANCE.—

42 USC 1320d–4.
110 STAT. 2028 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(A) IN GENERAL.—Not later than 24 months after the

date on which an initial standard or implementation specification is adopted or established under sections 1172 and

1173, each person to whom the standard or implementation

specification applies shall comply with the standard or

specification.

‘‘(B) SPECIAL RULE FOR SMALL HEALTH PLANS.—In the

case of a small health plan, paragraph (1) shall be applied

by substituting ‘36 months’ for ‘24 months’. For purposes

of this subsection, the Secretary shall determine the plans

that qualify as small health plans.

‘‘(2) COMPLIANCE WITH MODIFIED STANDARDS.—If the Secretary adopts a modification to a standard or implementation

specification under this part, each person to whom the standard

or implementation specification applies shall comply with the

modified standard or implementation specification at such time

as the Secretary determines appropriate, taking into account

the time needed to comply due to the nature and extent of

the modification. The time determined appropriate under the

preceding sentence may not be earlier than the last day of

the 180-day period beginning on the date such modification

is adopted. The Secretary may extend the time for compliance

for small health plans, if the Secretary determines that such

extension is appropriate.

‘‘(3) CONSTRUCTION.—Nothing in this subsection shall be

construed to prohibit any person from complying with a standard or specification by—

‘‘(A) submitting nonstandard data elements to a health

care clearinghouse for processing into standard data elements and transmission by the health care clearinghouse; or

‘‘(B) receiving standard data elements through a health

care clearinghouse.

‘‘GENERAL PENALTY FOR FAILURE TO COMPLY WITH REQUIREMENTS

AND STANDARDS

‘‘SEC. 1176. (a) GENERAL PENALTY.—

‘‘(1) IN GENERAL.—Except as provided in subsection (b),

the Secretary shall impose on any person who violates a provision of this part a penalty of not more than $100 for each

such violation, except that the total amount imposed on the

person for all violations of an identical requirement or prohibition during a calendar year may not exceed $25,000.

‘‘(2) PROCEDURES.—The provisions of section 1128A (other

than subsections (a) and (b) and the second sentence of subsection (f)) shall apply to the imposition of a civil money penalty

under this subsection in the same manner as such provisions

apply to the imposition of a penalty under such section 1128A.

‘‘(b) LIMITATIONS.—

‘‘(1) OFFENSES OTHERWISE PUNISHABLE.—A penalty may

not be imposed under subsection (a) with respect to an act

if the act constitutes an offense punishable under section 1177.

‘‘(2) NONCOMPLIANCE NOT DISCOVERED.—A penalty may not

be imposed under subsection (a) with respect to a provision

of this part if it is established to the satisfaction of the Secretary

that the person liable for the penalty did not know, and by

42 USC 1320d–5.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2029

exercising reasonable diligence would not have known, that

such person violated the provision.

‘‘(3) FAILURES DUE TO REASONABLE CAUSE.—

‘‘(A) IN GENERAL.—Except as provided in subparagraph

(B), a penalty may not be imposed under subsection

(a) if—

‘‘(i) the failure to comply was due to reasonable

cause and not to willful neglect; and

‘‘(ii) the failure to comply is corrected during the

30-day period beginning on the first date the person

liable for the penalty knew, or by exercising reasonable

diligence would have known, that the failure to comply

occurred.

‘‘(B) EXTENSION OF PERIOD.— ‘‘(i) NO PENALTY.—The period referred to in

subparagraph (A)(ii) may be extended as determined

appropriate by the Secretary based on the nature and

extent of the failure to comply.

‘‘(ii) ASSISTANCE.—If the Secretary determines that

a person failed to comply because the person was

unable to comply, the Secretary may provide technical

assistance to the person during the period described

in subparagraph (A)(ii). Such assistance shall be provided in any manner determined appropriate by the

Secretary.

‘‘(4) REDUCTION.—In the case of a failure to comply which

is due to reasonable cause and not to willful neglect, any

penalty under subsection (a) that is not entirely waived under

paragraph (3) may be waived to the extent that the payment

of such penalty would be excessive relative to the compliance

failure involved.

‘‘WRONGFUL DISCLOSURE OF INDIVIDUALLY IDENTIFIABLE HEALTH

INFORMATION

‘‘SEC. 1177. (a) OFFENSE.—A person who knowingly and in

violation of this part—

‘‘(1) uses or causes to be used a unique health identifier;

‘‘(2) obtains individually identifiable health information

relating to an individual; or

‘‘(3) discloses individually identifiable health information

to another person,

shall be punished as provided in subsection (b).

‘‘(b) PENALTIES.—A person described in subsection (a) shall—

‘‘(1) be fined not more than $50,000, imprisoned not more

than 1 year, or both;

‘‘(2) if the offense is committed under false pretenses, be

fined not more than $100,000, imprisoned not more than 5

years, or both; and

‘‘(3) if the offense is committed with intent to sell, transfer,

or use individually identifiable health information for commercial advantage, personal gain, or malicious harm, be fined not

more than $250,000, imprisoned not more than 10 years, or

both.

‘‘EFFECT ON STATE LAW

‘‘SEC. 1178. (a) GENERAL EFFECT.— 42 USC 1320d–7.

42 USC 1320d–6.
110 STAT. 2030 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(1) GENERAL RULE.—Except as provided in paragraph (2),

a provision or requirement under this part, or a standard

or implementation specification adopted or established under

sections 1172 through 1174, shall supersede any contrary provision of State law, including a provision of State law that

requires medical or health plan records (including billing

information) to be maintained or transmitted in written rather

than electronic form.

‘‘(2) EXCEPTIONS.—A provision or requirement under this

part, or a standard or implementation specification adopted

or established under sections 1172 through 1174, shall not

supersede a contrary provision of State law, if the provision

of State law—

‘‘(A) is a provision the Secretary determines—

‘‘(i) is necessary—

‘‘(I) to prevent fraud and abuse;

‘‘(II) to ensure appropriate State regulation

of insurance and health plans;

‘‘(III) for State reporting on health care delivery or costs; or

‘‘(IV) for other purposes; or

‘‘(ii) addresses controlled substances; or

‘‘(B) subject to section 264(c)(2) of the Health Insurance

Portability and Accountability Act of 1996, relates to the

privacy of individually identifiable health information.

‘‘(b) PUBLIC HEALTH.—Nothing in this part shall be construed

to invalidate or limit the authority, power, or procedures established

under any law providing for the reporting of disease or injury,

child abuse, birth, or death, public health surveillance, or public

health investigation or intervention.

‘‘(c) STATE REGULATORY REPORTING.—Nothing in this part shall

limit the ability of a State to require a health plan to report,

or to provide access to, information for management audits, financial

audits, program monitoring and evaluation, facility licensure or

certification, or individual licensure or certification.

‘‘PROCESSING PAYMENT TRANSACTIONS BY FINANCIAL INSTITUTIONS

‘‘SEC. 1179. To the extent that an entity is engaged in activities

of a financial institution (as defined in section 1101 of the Right

to Financial Privacy Act of 1978), or is engaged in authorizing,

processing, clearing, settling, billing, transferring, reconciling, or

collecting payments, for a financial institution, this part, and any

standard adopted under this part, shall not apply to the entity

with respect to such activities, including the following:

‘‘(1) The use or disclosure of information by the entity

for authorizing, processing, clearing, settling, billing, transferring, reconciling or collecting, a payment for, or related to,

health plan premiums or health care, where such payment

is made by any means, including a credit, debit, or other

payment card, an account, check, or electronic funds transfer.

‘‘(2) The request for, or the use or disclosure of, information

by the entity with respect to a payment described in paragraph (1)—

‘‘(A) for transferring receivables;

‘‘(B) for auditing;

‘‘(C) in connection with—

‘‘(i) a customer dispute; or

42 USC 1320d–8.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2031

‘‘(ii) an inquiry from, or to, a customer;

‘‘(D) in a communication to a customer of the entity

regarding the customer’s transactions, payment card,

account, check, or electronic funds transfer;

‘‘(E) for reporting to consumer reporting agencies; or

‘‘(F) for complying with—

‘‘(i) a civil or criminal subpoena; or

‘‘(ii) a Federal or State law regulating the entity.’’.

(b) CONFORMING AMENDMENTS.—

(1) REQUIREMENT FOR MEDICARE PROVIDERS.—Section

1866(a)(1) (42 U.S.C. 1395cc(a)(1)) is amended—

(A) by striking ‘‘and’’ at the end of subparagraph (P);

(B) by striking the period at the end of subparagraph

(Q) and inserting ‘‘; and’’; and

(C) by inserting immediately after subparagraph (Q)

the following new subparagraph:

‘‘(R) to contract only with a health care clearinghouse (as

defined in section 1171) that meets each standard and

implementation specification adopted or established under part

C of title XI on or after the date on which the health care

clearinghouse is required to comply with the standard or specification.’’.

(2) TITLE HEADING.—Title XI (42 U.S.C. 1301 et seq.) is

amended by striking the title heading and inserting the

following:

‘‘TITLE XI—GENERAL PROVISIONS, PEER REVIEW, AND

ADMINISTRATIVE SIMPLIFICATION’’.

SEC. 263. CHANGES IN MEMBERSHIP AND DUTIES OF NATIONAL

COMMITTEE ON VITAL AND HEALTH STATISTICS.

Section 306(k) of the Public Health Service Act (42 U.S.C.

242k(k)) is amended—

(1) in paragraph (1), by striking ‘‘16’’ and inserting ‘‘18’’;

(2) by amending paragraph (2) to read as follows:

‘‘(2) The members of the Committee shall be appointed from

among persons who have distinguished themselves in the fields

of health statistics, electronic interchange of health care information, privacy and security of electronic information, populationbased public health, purchasing or financing health care services,

integrated computerized health information systems, health services

research, consumer interests in health information, health data

standards, epidemiology, and the provision of health services. Members of the Committee shall be appointed for terms of 4 years.’’;

(3) by redesignating paragraphs (3) through (5) as paragraphs (4) through (6), respectively, and inserting after paragraph (2) the following:

‘‘(3) Of the members of the Committee—

‘‘(A) 1 shall be appointed, not later than 60 days after

the date of the enactment of the Health Insurance Portability

and Accountability Act of 1996, by the Speaker of the House

of Representatives after consultation with the Minority Leader

of the House of Representatives;

‘‘(B) 1 shall be appointed, not later than 60 days after

the date of the enactment of the Health Insurance Portability

and Accountability Act of 1996, by the President pro tempore
110 STAT. 2032 PUBLIC LAW 104–191—AUG. 21, 1996

of the Senate after consultation with the Minority Leader of

the Senate; and

‘‘(C) 16 shall be appointed by the Secretary.’’;

(4) by amending paragraph (5) (as so redesignated) to read

as follows:

‘‘(5) The Committee—

‘‘(A) shall assist and advise the Secretary—

‘‘(i) to delineate statistical problems bearing on health

and health services which are of national or international

interest;

‘‘(ii) to stimulate studies of such problems by other

organizations and agencies whenever possible or to make

investigations of such problems through subcommittees;

‘‘(iii) to determine, approve, and revise the terms,

definitions, classifications, and guidelines for assessing

health status and health services, their distribution and

costs, for use (I) within the Department of Health and

Human Services, (II) by all programs administered or

funded by the Secretary, including the Federal-State-local

cooperative health statistics system referred to in subsection (e), and (III) to the extent possible as determined

by the head of the agency involved, by the Department

of Veterans Affairs, the Department of Defense, and other

Federal agencies concerned with health and health services;

‘‘(iv) with respect to the design of and approval of

health statistical and health information systems concerned

with the collection, processing, and tabulation of health

statistics within the Department of Health and Human

Services, with respect to the Cooperative Health Statistics

System established under subsection (e), and with respect

to the standardized means for the collection of health

information and statistics to be established by the Secretary under subsection (j)(1);

‘‘(v) to review and comment on findings and proposals

developed by other organizations and agencies and to make

recommendations for their adoption or implementation by

local, State, national, or international agencies;

‘‘(vi) to cooperate with national committees of other

countries and with the World Health Organization and

other national agencies in the studies of problems of mutual

interest;

‘‘(vii) to issue an annual report on the state of the

Nation’s health, its health services, their costs and distributions, and to make proposals for improvement of the

Nation’s health statistics and health information systems;

and

‘‘(viii) in complying with the requirements imposed on

the Secretary under part C of title XI of the Social Security

Act;

‘‘(B) shall study the issues related to the adoption of uniform data standards for patient medical record information

and the electronic exchange of such information;

‘‘(C) shall report to the Secretary not later than 4 years

after the date of the enactment of the Health Insurance Portability and Accountability Act of 1996 recommendations and

legislative proposals for such standards and electronic

exchange; and

Reports.

Reports.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2033

‘‘(D) shall be responsible generally for advising the Secretary and the Congress on the status of the implementation

of part C of title XI of the Social Security Act.’’; and

(5) by adding at the end the following:

‘‘(7) Not later than 1 year after the date of the enactment

of the Health Insurance Portability and Accountability Act of 1996,

and annually thereafter, the Committee shall submit to the Congress, and make public, a report regarding the implementation

of part C of title XI of the Social Security Act. Such report shall

address the following subjects, to the extent that the Committee

determines appropriate:

‘‘(A) The extent to which persons required to comply with

part C of title XI of the Social Security Act are cooperating

in implementing the standards adopted under such part.

‘‘(B) The extent to which such entities are meeting the

security standards adopted under such part and the types

of penalties assessed for noncompliance with such standards.

‘‘(C) Whether the Federal and State Governments are

receiving information of sufficient quality to meet their responsibilities under such part.

‘‘(D) Any problems that exist with respect to implementation of such part.

‘‘(E) The extent to which timetables under such part are

being met.’’.

SEC. 264. RECOMMENDATIONS WITH RESPECT TO PRIVACY OF CERTAIN HEALTH INFORMATION.

(a) IN GENERAL.—Not later than the date that is 12 months

after the date of the enactment of this Act, the Secretary of

Health and Human Services shall submit to the Committee on

Labor and Human Resources and the Committee on Finance of

the Senate and the Committee on Commerce and the Committee

on Ways and Means of the House of Representatives detailed

recommendations on standards with respect to the privacy of

individually identifiable health information.

(b) SUBJECTS FOR RECOMMENDATIONS.—The recommendations

under subsection (a) shall address at least the following:

(1) The rights that an individual who is a subject of individually identifiable health information should have.

(2) The procedures that should be established for the exercise of such rights.

(3) The uses and disclosures of such information that should

be authorized or required.

(c) REGULATIONS.—

(1) IN GENERAL.—If legislation governing standards with

respect to the privacy of individually identifiable health

information transmitted in connection with the transactions

described in section 1173(a) of the Social Security Act (as added

by section 262) is not enacted by the date that is 36 months

after the date of the enactment of this Act, the Secretary

of Health and Human Services shall promulgate final regulations containing such standards not later than the date that

is 42 months after the date of the enactment of this Act.

Such regulations shall address at least the subjects described

in subsection (b).

(2) PREEMPTION.—A regulation promulgated under paragraph (1) shall not supercede a contrary provision of State

Regulations.

42 USC 1320d–2

note.

Reports.
110 STAT. 2034 PUBLIC LAW 104–191—AUG. 21, 1996

law, if the provision of State law imposes requirements, standards, or implementation specifications that are more stringent

than the requirements, standards, or implementation specifications imposed under the regulation.

(d) CONSULTATION.—In carrying out this section, the Secretary

of Health and Human Services shall consult with—

(1) the National Committee on Vital and Health Statistics

established under section 306(k) of the Public Health Service

Act (42 U.S.C. 242k(k)); and

(2) the Attorney General.

Subtitle G—Duplication and Coordination

of Medicare-Related Plans

SEC. 271. DUPLICATION AND COORDINATION OF MEDICARE-RELATED

PLANS.

(a) TREATMENT OF CERTAIN HEALTH INSURANCE POLICIES AS

NONDUPLICATIVE.—Section 1882(d)(3)(A) (42 U.S.C. 1395ss(d)(3)(A))

is amended—

(1) in clause (iii), by striking ‘‘clause (i)’’ and inserting

‘‘clause (i)(II)’’; and

(2) by adding at the end the following:

‘‘(iv) For purposes of this subparagraph, a health insurance

policy (other than a Medicare supplemental policy) providing for

benefits which are payable to or on behalf of an individual without

regard to other health benefit coverage of such individual is not

considered to ‘duplicate’ any health benefits under this title, under

title XIX, or under a health insurance policy, and subclauses (I)

and (III) of clause (i) do not apply to such a policy.

‘‘(v) For purposes of this subparagraph, a health insurance

policy (or a rider to an insurance contract which is not a health

insurance policy) is not considered to ‘duplicate’ health benefits

under this title or under another health insurance policy if it—

‘‘(I) provides health care benefits only for long-term care,

nursing home care, home health care, or community-based care,

or any combination thereof,

‘‘(II) coordinates against or excludes items and services

available or paid for under this title or under another health

insurance policy, and

‘‘(III) for policies sold or issued on or after the end of

the 90-day period beginning on the date of enactment of the

Health Insurance Portability and Accountability Act of 1996

discloses such coordination or exclusion in the policy’s outline

of coverage.

For purposes of this clause, the terms ‘coordinates’ and ‘coordination’

mean, with respect to a policy in relation to health benefits under

this title or under another health insurance policy, that the policy

under its terms is secondary to, or excludes from payment, items

and services to the extent available or paid for under this title

or under another health insurance policy.

‘‘(vi)(I) An individual entitled to benefits under part A or

enrolled under part B of this title who is applying for a health

insurance policy (other than a policy described in subclause (III))

shall be furnished a disclosure statement described in clause (vii)

for the type of policy being applied for. Such statement shall be
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2035

furnished as a part of (or together with) the application for such

policy.

‘‘(II) Whoever issues or sells a health insurance policy (other

than a policy described in subclause (III)) to an individual described

in subclause (I) and fails to furnish the appropriate disclosure

statement as required under such subclause shall be fined under

title 18, United States Code, or imprisoned not more than 5 years,

or both, and, in addition to or in lieu of such a criminal penalty,

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

$15,000 in the case of a person other than the issuer of the policy)

for each such violation.

‘‘(III) A policy described in this subclause (to which subclauses

(I) and (II) do not apply) is a Medicare supplemental policy or

a health insurance policy identified under 60 Federal Register 30880

(June 12, 1995) as a policy not required to have a disclosure statement.

‘‘(IV) Any reference in this section to the revised NAIC model

regulation (referred to in subsection (m)(1)(A)) is deemed a reference

to such regulation as revised by section 171(m)(2) of the Social

Security Act Amendments of 1994 (Public Law 103–432) and as

modified by substituting, for the disclosure required under section

16D(2), disclosure under subclause (I) of an appropriate disclosure

statement under clause (vii).

‘‘(vii) The disclosure statement described in this clause for

a type of policy is the statement specified under subparagraph

(D) of this paragraph (as in effect before the date of the enactment

of the Health Insurance Portability and Accountability Act of 1996)

for that type of policy, as revised as follows:

‘‘(I) In each statement, amend the second line to read

as follows:

‘THIS IS NOT MEDICARE SUPPLEMENT INSURANCE’.

‘‘(II) In each statement, strike the third line and insert

the following: ‘Some health care services paid for by Medicare may also trigger the payment of benefits under

this policy.’.

‘‘(III) In each statement not described in subclause (V),

strike the boldface matter that begins ‘This insurance’ and

all that follows up to the next paragraph that begins ‘Medicare’.

‘‘(IV) In each statement not described in subclause (V),

insert before the boxed matter (that states ‘Before You Buy

This Insurance’) the following: ‘This policy must pay benefits without regard to other health benefit coverage to

which you may be entitled under Medicare or other

insurance.’.

‘‘(V) In a statement relating to policies providing both nursing home and non-institutional coverage, to policies providing

nursing home benefits only, or policies providing home care

benefits only, amend the sentence that begins ‘Federal law’

to read as follows: ‘Federal law requires us to inform you

that in certain situations this insurance may pay for some

care also covered by Medicare.’.

‘‘(viii)(I) Subject to subclause (II), nothing in this subparagraph

shall restrict or preclude a State’s ability to regulate health insur-
110 STAT. 2036 PUBLIC LAW 104–191—AUG. 21, 1996

ance policies, including any health insurance policy that is described

in clause (iv), (v), or (vi)(III).

‘‘(II) A State may not declare or specify, in statute, regulation,

or otherwise, that a health insurance policy (other than a Medicare

supplemental policy) or rider to an insurance contract which is

not a health insurance policy, that is described in clause (iv),

(v), or (vi)(III) and that is sold, issued, or renewed to an individual

entitled to benefits under part A or enrolled under part B ‘duplicates’ health benefits under this title or under a Medicare supplemental policy.’’.

(b) CONFORMING AMENDMENTS.—Section 1882(d)(3) (42 U.S.C.

1395ss(d)(3)) is amended—

(1) in subparagraph (C)—

(A) by striking ‘‘with respect to (i)’’ and inserting ‘‘with

respect to’’, and

(B) by striking ‘‘, (ii) the sale’’ and all that follows

up to the period at the end; and

(2) by striking subparagraph (D).

(c) TRANSITIONAL PROVISION.—

(1) NO PENALTIES.—Subject to paragraph (3), no criminal

or civil money penalty may be imposed under section

1882(d)(3)(A) of the Social Security Act for any act or omission

that occurred during the transition period (as defined in paragraph (4)) and that relates to any health insurance policy

that is described in clause (iv) or (v) of such section (as amended

by subsection (a)).

(2) LIMITATION ON LEGAL ACTION.—Subject to paragraph

(3), no legal action shall be brought or continued in any Federal

or State court insofar as such action—

(A) includes a cause of action which arose, or which

is based on or evidenced by any act or omission which

occurred, during the transition period; and

(B) relates to the application of section 1882(d)(3)(A)

of the Social Security Act to any act or omission with

respect to the sale, issuance, or renewal of any health

insurance policy that is described in clause (iv) or (v) of

such section (as amended by subsection (a)).

(3) DISCLOSURE CONDITION.—In the case of a policy

described in clause (iv) of section 1882(d)(3)(A) of the Social

Security Act that is sold or issued on or after the effective

date of statements under section 171(d)(3)(C) of the Social

Security Act Amendments of 1994 and before the end of the

30-day period beginning on the date of the enactment of this

Act, paragraphs (1) and (2) shall only apply if disclosure was

made in accordance with section 1882(d)(3)(C)(ii) of the Social

Security Act (as in effect before the date of the enactment

of this Act).

(4) TRANSITION PERIOD.—In this subsection, the term

‘‘transition period’’ means the period beginning on November

5, 1991, and ending on the date of the enactment of this

Act.

(d) EFFECTIVE DATE.—(1) Except as provided in this subsection,

the amendment made by subsection (a) shall be effective as if

included in the enactment of section 4354 of the Omnibus Budget

Reconciliation Act of 1990.

42 USC 1395ss

note.

42 USC 1395ss

note.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2037

(2)(A) Clause (vi) of section 1882(d)(3)(A) of the Social Security

Act, as added by subsection (a), shall only apply to individuals

applying for—

(i) a health insurance policy described in section

1882(d)(3)(A)(iv) of such Act (as added by subsection (a)), after

the date of the enactment of this Act, or

(ii) another health insurance policy after the end of the

30-day period beginning on the date of the enactment of this

Act.

(B) A seller or issuer of a health insurance policy may substitute, for the disclosure statement described in clause (vii) of

such section, the statement specified under section 1882(d)(3)(D)

of the Social Security Act (as in effect before the date of the

enactment of this Act), without the revision specified in such clause.

TITLE III—TAX-RELATED HEALTH

PROVISIONS

SEC. 300. 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.

Subtitle A—Medical Savings Accounts

SEC. 301. MEDICAL SAVINGS ACCOUNTS.

(a) IN GENERAL.—Part VII of subchapter B of chapter 1 (relating

to additional itemized deductions for individuals) is amended by

redesignating section 220 as section 221 and by inserting after

section 219 the following new section:

‘‘SEC. 220. MEDICAL SAVINGS ACCOUNTS.

‘‘(a) DEDUCTION ALLOWED.—In the case of an individual who

is an eligible individual for any month during the taxable year,

there shall be allowed as a deduction for the taxable year an

amount equal to the aggregate amount paid in cash during such

taxable year by such individual to a medical savings account of

such individual.

‘‘(b) LIMITATIONS.—

‘‘(1) IN GENERAL.—The amount allowable as a deduction

under subsection (a) to an individual for the taxable year shall

not exceed the sum of the monthly limitations for months

during such taxable year that the individual is an eligible

individual.

‘‘(2) MONTHLY LIMITATION.—The monthly limitation for any

month is the amount equal to 1⁄12 of—

‘‘(A) in the case of an individual who has self-only

coverage under the high deductible health plan as of the

first day of such month, 65 percent of the annual deductible

under such coverage, and

‘‘(B) in the case of an individual who has family coverage under the high deductible health plan as of the
110 STAT. 2038 PUBLIC LAW 104–191—AUG. 21, 1996

first day of such month, 75 percent of the annual deductible

under such coverage.

‘‘(3) SPECIAL RULE FOR MARRIED INDIVIDUALS.—In the case

of individuals who are married to each other, if either spouse

has family coverage—

‘‘(A) both spouses shall be treated as having only such

family coverage (and if such spouses each have family

coverage under different plans, as having the family coverage with the lowest annual deductible), and

‘‘(B) the limitation under paragraph (1) (after the

application of subparagraph (A) of this paragraph) shall

be divided equally between them unless they agree on

a different division.

‘‘(4) DEDUCTION NOT TO EXCEED COMPENSATION.—

‘‘(A) EMPLOYEES.—The deduction allowed under subsection (a) for contributions as an eligible individual

described in subclause (I) of subsection (c)(1)(A)(iii) shall

not exceed such individual’s wages, salaries, tips, and other

employee compensation which are attributable to such

individual’s employment by the employer referred to in

such subclause.

‘‘(B) SELF-EMPLOYED INDIVIDUALS.—The deduction

allowed under subsection (a) for contributions as an eligible

individual described in subclause (II) of subsection

(c)(1)(A)(iii) shall not exceed such individual’s earned

income (as defined in section 401(c)(1)) derived by the

taxpayer from the trade or business with respect to which

the high deductible health plan is established.

‘‘(C) COMMUNITY PROPERTY LAWS NOT TO APPLY.—The

limitations under this paragraph shall be determined without regard to community property laws.

‘‘(5) COORDINATION WITH EXCLUSION FOR EMPLOYER CONTRIBUTIONS.—No deduction shall be allowed under this section

for any amount paid for any taxable year to a medical savings

account of an individual if—

‘‘(A) any amount is contributed to any medical savings

account of such individual for such year which is excludable

from gross income under section 106(b), or

‘‘(B) if such individual’s spouse is covered under the

high deductible health plan covering such individual, any

amount is contributed for such year to any medical savings

account of such spouse which is so excludable.

‘‘(6) DENIAL OF DEDUCTION TO DEPENDENTS.—No deduction

shall be allowed under this section to any individual with

respect to whom a deduction under section 151 is allowable

to another taxpayer for a taxable year beginning in the calendar

year in which such individual’s taxable year begins.

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

‘‘(1) ELIGIBLE INDIVIDUAL.—

‘‘(A) IN GENERAL.—The term ‘eligible individual’ means,

with respect to any month, any individual if—

‘‘(i) such individual is covered under a high deductible health plan as of the 1st day of such month,

‘‘(ii) such individual is not, while covered under

a high deductible health plan, covered under any

health plan—
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2039

‘‘(I) which is not a high deductible health plan,

and

‘‘(II) which provides coverage for any benefit

which is covered under the high deductible health

plan, and

‘‘(iii)(I) the high deductible health plan covering

such individual is established and maintained by

the employer of such individual or of the spouse of

such individual and such employer is a small employer,

or

‘‘(II) such individual is an employee (within the

meaning of section 401(c)(1)) or the spouse of such

an employee and the high deductible health plan covering such individual is not established or maintained

by any employer of such individual or spouse.

‘‘(B) CERTAIN COVERAGE DISREGARDED.—Subparagraph

(A)(ii) shall be applied without regard to—

‘‘(i) coverage for any benefit provided by permitted

insurance, and

‘‘(ii) coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care,

or long-term care.

‘‘(C) CONTINUED ELIGIBILITY OF EMPLOYEE AND SPOUSE

ESTABLISHING MEDICAL SAVINGS ACCOUNTS.—If, while an

employer is a small employer—

‘‘(i) any amount is contributed to a medical savings

account of an individual who is an employee of such

employer or the spouse of such an employee, and

‘‘(ii) such amount is excludable from gross income

under section 106(b) or allowable as a deduction under

this section,

such individual shall not cease to meet the requirement

of subparagraph (A)(iii)(I) by reason of such employer ceasing to be a small employer so long as such employee continues to be an employee of such employer.

‘‘(D) LIMITATIONS ON ELIGIBILITY.—

‘‘For limitations on number of taxpayers who are eligible to have

medical savings accounts, see subsection (i).

‘‘(2) HIGH DEDUCTIBLE HEALTH PLAN.—

‘‘(A) IN GENERAL.—The term ‘high deductible health

plan’ means a health plan—

‘‘(i) in the case of self-only coverage, which has

an annual deductible which is not less than $1,500

and not more than $2,250,

‘‘(ii) in the case of family coverage, which has

an annual deductible which is not less than $3,000

and not more than $4,500, and

‘‘(iii) the annual out-of-pocket expenses required

to be paid under the plan (other than for premiums)

for covered benefits does not exceed—

‘‘(I) $3,000 for self-only coverage, and

‘‘(II) $5,500 for family coverage.

‘‘(B) SPECIAL RULES.—

‘‘(i) EXCLUSION OF CERTAIN PLANS.—Such term does

not include a health plan if substantially all of its

coverage is coverage described in paragraph (1)(B).
110 STAT. 2040 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(ii) SAFE HARBOR FOR ABSENCE OF PREVENTIVE

CARE DEDUCTIBLE.—A plan shall not fail to be treated

as a high deductible health plan by reason of failing

to have a deductible for preventive care if the absence

of a deductible for such care is required by State law.

‘‘(3) PERMITTED INSURANCE.—The term ‘permitted insurance’ means—

‘‘(A) Medicare supplemental insurance,

‘‘(B) insurance if substantially all of the coverage provided under such insurance relates to—

‘‘(i) liabilities incurred under workers’ compensation laws,

‘‘(ii) tort liabilities,

‘‘(iii) liabilities relating to ownership or use of property, or

‘‘(iv) such other similar liabilities as the Secretary

may specify by regulations,

‘‘(C) insurance for a specified disease or illness, and

‘‘(D) insurance paying a fixed amount per day (or other

period) of hospitalization.

‘‘(4) SMALL EMPLOYER.—

‘‘(A) IN GENERAL.—The term ‘small employer’ means,

with respect to any calendar year, any employer if such

employer employed an average of 50 or fewer employees

on business days during either of the 2 preceding calendar

years. For purposes of the preceding sentence, a preceding

calendar year may be taken into account only if the

employer was in existence throughout such year.

‘‘(B) EMPLOYERS NOT IN EXISTENCE IN PRECEDING

YEAR.—In the case of an employer which was not in existence throughout the 1st preceding calendar year, the determination under subparagraph (A) shall be based on the

average number of employees that it is reasonably expected

such employer will employ on business days in the current

calendar year.

‘‘(C) CERTAIN GROWING EMPLOYERS RETAIN TREATMENT

AS SMALL EMPLOYER.—The term ‘small employer’ includes,

with respect to any calendar year, any employer if—

‘‘(i) such employer met the requirement of subparagraph (A) (determined without regard to subparagraph

(B)) for any preceding calendar year after 1996,

‘‘(ii) any amount was contributed to the medical

savings account of any employee of such employer with

respect to coverage of such employee under a high

deductible health plan of such employer during such

preceding calendar year and such amount was excludable from gross income under section 106(b) or allowable as a deduction under this section, and

‘‘(iii) such employer employed an average of 200

or fewer employees on business days during each

preceding calendar year after 1996.

‘‘(D) SPECIAL RULES.—

‘‘(i) CONTROLLED GROUPS.—For purposes of this

paragraph, all persons treated as a single employer

under subsection (b), (c), (m), or (o) of section 414

shall be treated as 1 employer.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2041

‘‘(ii) PREDECESSORS.—Any reference in this paragraph to an employer shall include a reference to any

predecessor of such employer.

‘‘(5) FAMILY COVERAGE.—The term ‘family coverage’

means any coverage other than self-only coverage.

‘‘(d) MEDICAL SAVINGS ACCOUNT.—For purposes of this

section—

‘‘(1) MEDICAL SAVINGS ACCOUNT.—The term ‘medical savings account’ means a trust created or organized in the United

States exclusively for the purpose of paying the qualified medical expenses of the account holder, but only if the written

governing instrument creating the trust meets the following

requirements:

‘‘(A) Except in the case of a rollover contribution

described in subsection (f)(5), no contribution will be

accepted—

‘‘(i) unless it is in cash, or

‘‘(ii) to the extent such contribution, when added

to previous contributions to the trust for the calendar

year, exceeds 75 percent of the highest annual limit

deductible permitted under subsection (c)(2)(A)(ii) for

such calendar year.

‘‘(B) The trustee is a bank (as defined in section 408(n)),

an insurance company (as defined in section 816), or

another person who demonstrates to the satisfaction of

the Secretary that the manner in which such person will

administer the trust will be consistent with the requirements of this section.

‘‘(C) No part of the trust assets will be invested in

life insurance contracts.

‘‘(D) The assets of the trust will not be commingled

with other property except in a common trust fund or

common investment fund.

‘‘(E) The interest of an individual in the balance in

his account is nonforfeitable.

‘‘(2) QUALIFIED MEDICAL EXPENSES.—

‘‘(A) IN GENERAL.—The term ‘qualified medical

expenses’ means, with respect to an account holder,

amounts paid by such holder for medical care (as defined

in section 213(d)) for such individual, the spouse of such

individual, and any dependent (as defined in section 152)

of such individual, but only to the extent such amounts

are not compensated for by insurance or otherwise.

‘‘(B) HEALTH INSURANCE MAY NOT BE PURCHASED FROM

ACCOUNT.—

‘‘(i) IN GENERAL.—Subparagraph (A) shall not

apply to any payment for insurance.

‘‘(ii) EXCEPTIONS.—Clause (i) shall not apply to

any expense for coverage under—

‘‘(I) a health plan during any period of continuation coverage required under any Federal law,

‘‘(II) a qualified long-term care insurance contract (as defined in section 7702B(b)), or

‘‘(III) a health plan during a period in which

the individual is receiving unemployment compensation under any Federal or State law.
110 STAT. 2042 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(C) MEDICAL EXPENSES OF INDIVIDUALS WHO ARE NOT

ELIGIBLE INDIVIDUALS.—Subparagraph (A) shall apply to

an amount paid by an account holder for medical care

of an individual who is not an eligible individual for the

month in which the expense for such care is incurred

only if no amount is contributed (other than a rollover

contribution) to any medical savings account of such

account holder for the taxable year which includes such

month. This subparagraph shall not apply to any expense

for coverage described in subclause (I) or (III) of subparagraph (B)(ii).

‘‘(3) ACCOUNT HOLDER.—The term ‘account holder’ means

the individual on whose behalf the medical savings account

was established.

‘‘(4) CERTAIN RULES TO APPLY.—Rules similar to the following rules shall apply for purposes of this section:

‘‘(A) Section 219(d)(2) (relating to no deduction for rollovers).

‘‘(B) Section 219(f)(3) (relating to time when contributions deemed made).

‘‘(C) Except as provided in section 106(b), section

219(f)(5) (relating to employer payments).

‘‘(D) Section 408(g) (relating to community property

laws).

‘‘(E) Section 408(h) (relating to custodial accounts).

‘‘(e) TAX TREATMENT OF ACCOUNTS.—

‘‘(1) IN GENERAL.—A medical savings account is exempt

from taxation under this subtitle unless such account has

ceased to be a medical savings account. Notwithstanding the

preceding sentence, any such account is subject to the taxes

imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations).

‘‘(2) ACCOUNT TERMINATIONS.—Rules similar to the rules

of paragraphs (2) and (4) of section 408(e) shall apply to medical

savings accounts, and any amount treated as distributed under

such rules shall be treated as not used to pay qualified medical

expenses.

‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—

‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL EXPENSES.—

Any amount paid or distributed out of a medical savings account

which is used exclusively to pay qualified medical expenses

of any account holder shall not be includible in gross income.

‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR QUALIFIED MEDICAL EXPENSES.—Any amount paid or distributed out of a medical savings account which is not used exclusively to pay the

qualified medical expenses of the account holder shall be

included in the gross income of such holder.

‘‘(3) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE

OF RETURN.—

‘‘(A) IN GENERAL.—If any excess contribution is contributed for a taxable year to any medical savings account

of an individual, paragraph (2) shall not apply to distributions from the medical savings accounts of such individual

(to the extent such distributions do not exceed the aggregate excess contributions to all such accounts of such

individual for such year) if—
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2043

‘‘(i) such distribution is received by the individual

on or before the last day prescribed by law (including

extensions of time) for filing such individual’s return

for such taxable year, and

‘‘(ii) such distribution is accompanied by the

amount of net income attributable to such excess contribution.

Any net income described in clause (ii) shall be included

in the gross income of the individual for the taxable year

in which it is received.

‘‘(B) EXCESS CONTRIBUTION.—For purposes of subparagraph (A), the term ‘excess contribution’ means any contribution (other than a rollover contribution) which is neither excludable from gross income under section 106(b)

nor deductible under this section.

‘‘(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT USED FOR

QUALIFIED MEDICAL EXPENSES.—

‘‘(A) IN GENERAL.—The tax imposed by this chapter

on the account holder for any taxable year in which there

is a payment or distribution from a medical savings account

of such holder which is includible in gross income under

paragraph (2) shall be increased by 15 percent of the

amount which is so includible.

‘‘(B) EXCEPTION FOR DISABILITY OR DEATH.—Subparagraph (A) shall not apply if the payment or distribution

is made after the account holder becomes disabled within

the meaning of section 72(m)(7) or dies.

‘‘(C) EXCEPTION FOR DISTRIBUTIONS AFTER MEDICARE

ELIGIBILITY.—Subparagraph (A) shall not apply to any payment or distribution after the date on which the account

holder attains the age specified in section 1811 of the

Social Security Act.

‘‘(5) ROLLOVER CONTRIBUTION.—An amount is described in

this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B).

‘‘(A) IN GENERAL.—Paragraph (2) shall not apply to

any amount paid or distributed from a medical savings

account to the account holder to the extent the amount

received is paid into a medical savings account for the

benefit of such holder not later than the 60th day after

the day on which the holder receives the payment or distribution.

‘‘(B) LIMITATION.—This paragraph shall not apply to

any amount described in subparagraph (A) received by

an individual from a medical savings account if, at any

time during the 1-year period ending on the day of such

receipt, such individual received any other amount

described in subparagraph (A) from a medical savings

account which was not includible in the individual’s gross

income because of the application of this paragraph.

‘‘(6) COORDINATION WITH MEDICAL EXPENSE DEDUCTION.—

For purposes of determining the amount of the deduction under

section 213, any payment or distribution out of a medical savings account for qualified medical expenses shall not be treated

as an expense paid for medical care.

‘‘(7) TRANSFER OF ACCOUNT INCIDENT TO DIVORCE.—The

transfer of an individual’s interest in a medical savings account
110 STAT. 2044 PUBLIC LAW 104–191—AUG. 21, 1996

to an individual’s spouse or former spouse under a divorce

or separation instrument described in subparagraph (A) of section 71(b)(2) shall not be considered a taxable transfer made

by such individual notwithstanding any other provision of this

subtitle, and such interest shall, after such transfer, be treated

as a medical savings account with respect to which such spouse

is the account holder.

‘‘(8) TREATMENT AFTER DEATH OF ACCOUNT HOLDER.—

‘‘(A) TREATMENT IF DESIGNATED BENEFICIARY IS

SPOUSE.—If the account holder’s surviving spouse acquires

such holder’s interest in a medical savings account by

reason of being the designated beneficiary of such account

at the death of the account holder, such medical savings

account shall be treated as if the spouse were the account

holder.

‘‘(B) OTHER CASES.—

‘‘(i) IN GENERAL.—If, by reason of the death of

the account holder, any person acquires the account

holder’s interest in a medical savings account in a

case to which subparagraph (A) does not apply—

‘‘(I) such account shall cease to be a medical

savings account as of the date of death, and

‘‘(II) an amount equal to the fair market value

of the assets in such account on such date shall

be includible if such person is not the estate of

such holder, in such person’s gross income for the

taxable year which includes such date, or if such

person is the estate of such holder, in such holder’s

gross income for the last taxable year of such

holder.

‘‘(ii) SPECIAL RULES.—

‘‘(I) REDUCTION OF INCLUSION FOR PRE-DEATH

EXPENSES.—The amount includible in gross income

under clause (i) by any person (other than the

estate) shall be reduced by the amount of qualified

medical expenses which were incurred by the

decedent before the date of the decedent’s death

and paid by such person within 1 year after such

date.

‘‘(II) DEDUCTION FOR ESTATE TAXES.—An

appropriate deduction shall be allowed under section 691(c) to any person (other than the decedent

or the decedent’s spouse) with respect to amounts

included in gross income under clause (i) by such

person.

‘‘(g) COST-OF-LIVING ADJUSTMENT.—In the case of any taxable

year beginning in a calendar year after 1998, each dollar amount

in subsection (c)(2) shall be increased by an amount equal to—

‘‘(1) such dollar amount, multiplied by

‘‘(2) the cost-of-living adjustment determined under section

1(f)(3) for the calendar year in which such taxable year begins

by substituting ‘calendar year 1997’ for ‘calendar year 1992’

in subparagraph (B) thereof.

If any increase under the preceding sentence is not a multiple

of $50, such increase shall be rounded to the nearest multiple

of $50.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2045

‘‘(h) REPORTS.—The Secretary may require the trustee of a

medical savings account to make such reports regarding such

account to the Secretary and to the account holder with respect

to contributions, distributions, and such other matters as the Secretary determines appropriate. The reports required by this subsection shall be filed at such time and in such manner and furnished

to such individuals at such time and in such manner as may

be required by the Secretary.

‘‘(i) LIMITATION ON NUMBER OF TAXPAYERS HAVING MEDICAL

SAVINGS ACCOUNTS.—

‘‘(1) IN GENERAL.—Except as provided in paragraph (5),

no individual shall be treated as an eligible individual for

any taxable year beginning after the cut-off year unless—

‘‘(A) such individual was an active MSA participant

for any taxable year ending on or before the close of the

cut-off year, or

‘‘(B) such individual first became an active MSA participant for a taxable year ending after the cut-off year by

reason of coverage under a high deductible health plan

of an MSA–participating employer.

‘‘(2) CUT-OFF YEAR.—For purposes of paragraph (1), the

term ‘cut-off year’ means the earlier of—

‘‘(A) calendar year 2000, or

‘‘(B) the first calendar year before 2000 for which the

Secretary determines under subsection (j) that the numerical limitation for such year has been exceeded.

‘‘(3) ACTIVE MSA PARTICIPANT.—For purposes of this subsection—

‘‘(A) IN GENERAL.—The term ‘active MSA participant’

means, with respect to any taxable year, any individual

who is the account holder of any medical savings account

into which any contribution was made which was excludable from gross income under section 106(b), or allowable

as a deduction under this section, for such taxable year.

‘‘(B) SPECIAL RULE FOR CUT-OFF YEARS BEFORE 2000.—

In the case of a cut-off year before 2000—

‘‘(i) an individual shall not be treated as an eligible

individual for any month of such year or an active

MSA participant under paragraph (1)(A) unless such

individual is, on or before the cut-off date, covered

under a high deductible health plan, and

‘‘(ii) an employer shall not be treated as an MSAparticipating employer unless the employer, on or

before the cut-off date, offered coverage under a high

deductible health plan to any employee.

‘‘(C) CUT-OFF DATE.—For purposes of subparagraph (B)—

‘‘(i) IN GENERAL.—Except as otherwise provided

in this subparagraph, the cut-off date is October 1

of the cut-off year.

‘‘(ii) EMPLOYEES WITH ENROLLMENT PERIODS AFTER

OCTOBER 1.—In the case of an individual described

in subclause (I) of subsection (c)(1)(A)(iii), if the regularly scheduled enrollment period for health plans of

the individual’s employer occurs during the last 3

months of the cut-off year, the cut-off date is December

31 of the cut-off year.
110 STAT. 2046 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(iii) SELF-EMPLOYED INDIVIDUALS.—In the case of

an individual described in subclause (II) of subsection

(c)(1)(A)(iii), the cut-off date is November 1 of the cutoff year.

‘‘(iv) SPECIAL RULES FOR 1997.—If 1997 is a cutoff year by reason of subsection (j)(1)(A)—

‘‘(I) each of the cut-off dates under clauses

(i) and (iii) shall be 1 month earlier than the

date determined without regard to this clause, and

‘‘(II) clause (ii) shall be applied by substituting

‘4 months’ for ‘3 months’.

‘‘(4) MSA-PARTICIPATING EMPLOYER.—For purposes of this

subsection, the term ‘MSA-participating employer’ means any

small employer if—

‘‘(A) such employer made any contribution to the medical savings account of any employee during the cut-off

year or any preceding calendar year which was excludable

from gross income under section 106(b), or

‘‘(B) at least 20 percent of the employees of such

employer who are eligible individuals for any month of

the cut-off year by reason of coverage under a high deductible health plan of such employer each made a contribution

of at least $100 to their medical savings accounts for any

taxable year ending with or within the cut-off year which

was allowable as a deduction under this section.

‘‘(5) ADDITIONAL ELIGIBILITY AFTER CUT-OFF YEAR.—If the

Secretary determines under subsection (j)(2)(A) that the

numerical limit for the calendar year following a cut-off year

described in paragraph (2)(B) has not been exceeded—

‘‘(A) this subsection shall not apply to any otherwise

eligible individual who is covered under a high deductible

health plan during the first 6 months of the second calendar

year following the cut-off year (and such individual shall

be treated as an active MSA participant for purposes of

this subsection if a contribution is made to any medical

savings account with respect to such coverage), and

‘‘(B) any employer who offers coverage under a high

deductible health plan to any employee during such 6-

month period shall be treated as an MSA-participating

employer for purposes of this subsection if the requirements

of paragraph (4) are met with respect to such coverage.

For purposes of this paragraph, subsection (j)(2)(A) shall be

applied for 1998 by substituting ‘750,000’ for ‘600,000’.

‘‘(j) DETERMINATION OF WHETHER NUMERICAL LIMITS ARE

EXCEEDED.—

‘‘(1) DETERMINATION OF WHETHER LIMIT EXCEEDED FOR

1997.—The numerical limitation for 1997 is exceeded if, based

on the reports required under paragraph (4), the number of

medical savings accounts established as of—

‘‘(A) April 30, 1997, exceeds 375,000, or

‘‘(B) June 30, 1997, exceeds 525,000.

‘‘(2) DETERMINATION OF WHETHER LIMIT EXCEEDED FOR 1998

OR 1999.—

‘‘(A) IN GENERAL.—The numerical limitation for 1998

or 1999 is exceeded if the sum of—
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2047

‘‘(i) the number of MSA returns filed on or before

April 15 of such calendar year for taxable years ending

with or within the preceding calendar year, plus

‘‘(ii) the Secretary’s estimate (determined on the

basis of the returns described in clause (i)) of the

number of MSA returns for such taxable years which

will be filed after such date,

exceeds 600,000 (750,000 in the case of 1999). For purposes

of the preceding sentence, the term ‘MSA return’ means

any return on which any exclusion is claimed under section

106(b) or any deduction is claimed under this section.

‘‘(B) ALTERNATIVE COMPUTATION OF LIMITATION.—The

numerical limitation for 1998 or 1999 is also exceeded

if the sum of—

‘‘(i) 90 percent of the sum determined under

subparagraph (A) for such calendar year, plus

‘‘(ii) the product of 2.5 and the number of medical

savings accounts established during the portion of such

year preceding July 1 (based on the reports required

under paragraph (4)) for taxable years beginning in

such year,

exceeds 750,000.

‘‘(3) PREVIOUSLY UNINSURED INDIVIDUALS NOT INCLUDED

IN DETERMINATION.—

‘‘(A) IN GENERAL.—The determination of whether any

calendar year is a cut-off year shall be made by not counting the medical savings account of any previously uninsured individual.

‘‘(B) PREVIOUSLY UNINSURED INDIVIDUAL.—For purposes of this subsection, the term ‘previously uninsured

individual’ means, with respect to any medical savings

account, any individual who had no health plan coverage

(other than coverage referred to in subsection (c)(1)(B))

at any time during the 6-month period before the date

such individual’s coverage under the high deductible health

plan commences.

‘‘(4) REPORTING BY MSA TRUSTEES.—

‘‘(A) IN GENERAL.—Not later than August 1 of 1997,

1998, and 1999, each person who is the trustee of a medical

savings account established before July 1 of such calendar

year shall make a report to the Secretary (in such form

and manner as the Secretary shall specify) which specifies—

‘‘(i) the number of medical savings accounts established before such July 1 (for taxable years beginning

in such calendar year) of which such person is the

trustee,

‘‘(ii) the name and TIN of the account holder of

each such account, and

‘‘(iii) the number of such accounts which are

accounts of previously uninsured individuals.

‘‘(B) ADDITIONAL REPORT FOR 1997.—Not later than

June 1, 1997, each person who is the trustee of a medical

savings account established before May 1, 1997, shall make

an additional report described in subparagraph (A) but

only with respect to accounts established before May 1,

1997.
110 STAT. 2048 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(C) PENALTY FOR FAILURE TO FILE REPORT.—The penalty provided in section 6693(a) shall apply to any report

required by this paragraph, except that—

‘‘(i) such section shall be applied by substituting

‘$25’ for ‘$50’, and

‘‘(ii) the maximum penalty imposed on any trustee

shall not exceed $5,000.

‘‘(D) AGGREGATION OF ACCOUNTS.—To the extent practicable, in determining the number of medical savings

accounts on the basis of the reports under this paragraph,

all medical savings accounts of an individual shall be

treated as 1 account and all accounts of individuals who

are married to each other shall be treated as 1 account.

‘‘(5) DATE OF MAKING DETERMINATIONS.—Any determination

under this subsection that a calendar year is a cut-off year

shall be made by the Secretary and shall be published not

later than October 1 of such year.’’.

(b) DEDUCTION ALLOWED WHETHER OR NOT INDIVIDUAL

ITEMIZES OTHER DEDUCTIONS.—Subsection (a) of section 62 is

amended by inserting after paragraph (15) the following new paragraph:

‘‘(16) MEDICAL SAVINGS ACCOUNTS.—The deduction allowed

by section 220.’’.

(c) EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO MEDICAL

SAVINGS ACCOUNTS.—

(1) EXCLUSION FROM INCOME TAX.—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 otherwise provided in this section, gross income of an employee does not include employer-provided coverage under an accident or health plan.

‘‘(b) CONTRIBUTIONS TO MEDICAL SAVINGS ACCOUNTS.—

‘‘(1) IN GENERAL.—In the case of an employee who is an

eligible individual, amounts contributed by such employee’s

employer to any medical savings account of such employee

shall be treated as employer-provided coverage for medical

expenses under an accident or health plan to the extent such

amounts do not exceed the limitation under section 220(b)(1)

(determined without regard to this subsection) which is

applicable to such employee for such taxable year.

‘‘(2) NO CONSTRUCTIVE RECEIPT.—No amount shall be

included in the gross income of any employee solely because

the employee may choose between the contributions referred

to in paragraph (1) and employer contributions to another

health plan of the employer.

‘‘(3) SPECIAL RULE FOR DEDUCTION OF EMPLOYER CONTRIBUTIONS.—Any employer contribution to a medical savings

account, if otherwise allowable as a deduction under this chapter, shall be allowed only for the taxable year in which paid.

‘‘(4) EMPLOYER MSA CONTRIBUTIONS REQUIRED TO BE SHOWN

ON RETURN.—Every individual required to file a return under

section 6012 for the taxable year shall include on such return

the aggregate amount contributed by employers to the medical

savings accounts of such individual or such individual’s spouse

for such taxable year.

‘‘(5) MSA CONTRIBUTIONS NOT PART OF COBRA COVERAGE.—

Paragraph (1) shall not apply for purposes of section 4980B.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2049

‘‘(6) DEFINITIONS.—For purposes of this subsection, the

terms ‘eligible individual’ and ‘medical savings account’ have

the respective meanings given to such terms by section 220.

‘‘(7) CROSS REFERENCE.—

‘‘For penalty on failure by employer to make comparable contributions to the medical savings accounts of comparable employees, see section 4980E.’’.

(2) EXCLUSION FROM EMPLOYMENT TAXES.—

(A) RAILROAD RETIREMENT TAX.—Subsection (e) of section 3231 is amended by adding at the end the following

new paragraph:

‘‘(10) MEDICAL SAVINGS ACCOUNT CONTRIBUTIONS.—The

term ‘compensation’ shall not include any payment made to

or for the benefit of an employee if at the time of such payment

it is reasonable to believe that the employee will be able to

exclude such payment from income under section 106(b).’’.

(B) UNEMPLOYMENT TAX.—Subsection (b) of section

3306 is amended by striking ‘‘or’’ at the end of paragraph

(15), by striking the period at the end of paragraph (16)

and inserting ‘‘; or’’, and by inserting after paragraph (16)

the following new paragraph:

‘‘(17) any payment made to or for the benefit of an employee

if at the time of such payment it is reasonable to believe

that the employee will be able to exclude such payment from

income under section 106(b).’’.

(C) WITHHOLDING TAX.—Subsection (a) of section 3401

is amended by striking ‘‘or’’ at the end of paragraph (19),

by striking the period at the end of paragraph (20) and

inserting ‘‘; or’’, and by inserting after paragraph (20) the

following new paragraph:

‘‘(21) any payment made to or for the benefit of an employee

if at the time of such payment it is reasonable to believe

that the employee will be able to exclude such payment from

income under section 106(b).’’

(3) EMPLOYER CONTRIBUTIONS REQUIRED TO BE SHOWN ON

W–2.—Subsection (a) of section 6051 is amended by striking

‘‘and’’ at the end of paragraph (9), by striking the period at

the end of paragraph (10) and inserting ‘‘, and’’, and by inserting

after paragraph (10) the following new paragraph:

‘‘(11) the amount contributed to any medical savings

account (as defined in section 220(d)) of such employee or

such employee’s spouse.’’.

(4) PENALTY FOR FAILURE OF EMPLOYER TO MAKE COMPARABLE MSA CONTRIBUTIONS.—

(A) IN GENERAL.—Chapter 43 is amended by adding

after section 4980D the following new section:

‘‘SEC. 4980E. FAILURE OF EMPLOYER TO MAKE COMPARABLE

MEDICAL SAVINGS ACCOUNT CONTRIBUTIONS.

‘‘(a) GENERAL RULE.—In the case of an employer who makes

a contribution to the medical savings account of any employee

with respect to coverage under a high deductible health plan of

the employer during a calendar year, there is hereby imposed

a tax on the failure of such employer to meet the requirements

of subsection (d) for such calendar year.

‘‘(b) AMOUNT OF TAX.—The amount of the tax imposed by

subsection (a) on any failure for any calendar year is the amount
110 STAT. 2050 PUBLIC LAW 104–191—AUG. 21, 1996

equal to 35 percent of the aggregate amount contributed by the

employer to medical savings accounts of employees for taxable

years of such employees ending with or within such calendar year.

‘‘(c) WAIVER BY SECRETARY.—In the case of a failure which

is due to reasonable cause and not to willful neglect, the Secretary

may waive part or all of the tax imposed by subsection (a) to

the extent that the payment of such tax would be excessive relative

to the failure involved.

‘‘(d) EMPLOYER REQUIRED TO MAKE COMPARABLE MSA CONTRIBUTIONS FOR ALL PARTICIPATING EMPLOYEES.—

‘‘(1) IN GENERAL.—An employer meets the requirements

of this subsection for any calendar year if the employer makes

available comparable contributions to the medical savings

accounts of all comparable participating employees for each

coverage period during such calendar year.

‘‘(2) COMPARABLE CONTRIBUTIONS.—

‘‘(A) IN GENERAL.—For purposes of paragraph (1), the

term ‘comparable contributions’ means contributions—

‘‘(i) which are the same amount, or

‘‘(ii) which are the same percentage of the annual

deductible limit under the high deductible health plan

covering the employees.

‘‘(B) PART-YEAR EMPLOYEES.—In the case of an

employee who is employed by the employer for only a

portion of the calendar year, a contribution to the medical

savings account of such employee shall be treated as comparable if it is an amount which bears the same ratio

to the comparable amount (determined without regard to

this subparagraph) as such portion bears to the entire

calendar year.

‘‘(3) COMPARABLE PARTICIPATING EMPLOYEES.—For purposes

of paragraph (1), the term ‘comparable participating employees’

means all employees—

‘‘(A) who are eligible individuals covered under any

high deductible health plan of the employer, and

‘‘(B) who have the same category of coverage.

For purposes of subparagraph (B), the categories of coverage

are self-only and family coverage.

‘‘(4) PART-TIME EMPLOYEES.—

‘‘(A) IN GENERAL.—Paragraph (3) shall be applied separately with respect to part-time employees and other

employees.

‘‘(B) PART-TIME EMPLOYEE.—For purposes of subparagraph (A), the term ‘part-time employee’ means any

employee who is customarily employed for fewer than 30

hours per week.

‘‘(e) CONTROLLED GROUPS.—For purposes of this section, all

persons treated as a single employer under subsection (b), (c),

(m), or (o) of section 414 shall be treated as 1 employer.

‘‘(f) DEFINITIONS.—Terms used in this section which are also

used in section 220 have the respective meanings given such terms

in section 220.’’.

(B) CLERICAL AMENDMENT.—The table of sections for

chapter 43 is amended by adding after the item relating

to section 4980D the following new item:

‘‘Sec. 4980E. Failure of employer to make comparable medical savings account contributions.’’.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2051

(d) MEDICAL SAVINGS ACCOUNT CONTRIBUTIONS NOT AVAILABLE

UNDER CAFETERIA PLANS.—Subsection (f) of section 125 of such

Code is amended by inserting ‘‘106(b),’’ before ‘‘117’’.

(e) TAX ON EXCESS CONTRIBUTIONS.—Section 4973 (relating

to tax on excess contributions to individual retirement accounts,

certain section 403(b) contracts, and certain individual retirement

annuities) is amended—

(1) by inserting ‘‘MEDICAL SAVINGS ACCOUNTS,’’ after

‘‘ACCOUNTS,’’ in the heading of such section,

(2) by striking ‘‘or’’ at the end of paragraph (1) of subsection (a),

(3) by redesignating paragraph (2) of subsection (a) as

paragraph (3) and by inserting after paragraph (1) the following:

‘‘(2) a medical savings account (within the meaning of section 220(d)), or’’, and

(4) by adding at the end the following new subsection:

‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS ACCOUNTS.—

For purposes of this section, in the case of medical savings accounts

(within the meaning of section 220(d)), the term ‘excess contributions’ means the sum of—

‘‘(1) the aggregate amount contributed for the taxable year

to the accounts (other than rollover contributions described

in section 220(f)(5)) which is neither excludable from gross

income under section 106(b) nor allowable as a deduction under

section 220 for such year, and

‘‘(2) the amount determined under this subsection for the

preceding taxable year, reduced by the sum of—

‘‘(A) the distributions out of the accounts which were

included in gross income under section 220(f)(2), and

‘‘(B) the excess (if any) of—

‘‘(i) the maximum amount allowable as a deduction

under section 220(b)(1) (determined without regard to

section 106(b)) for the taxable year, over

‘‘(ii) the amount contributed to the accounts for

the taxable year.

For purposes of this subsection, any contribution which is distributed out of the medical savings account in a distribution to which

section 220(f)(3) applies shall be treated as an amount not contributed.’’.

(f) TAX ON PROHIBITED TRANSACTIONS.—

(1) Section 4975 (relating to tax on prohibited transactions)

is amended by adding at the end of subsection (c) the following

new paragraph:

‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS ACCOUNTS.—An

individual for whose benefit a medical savings account (within

the meaning of section 220(d)) is established shall be exempt

from the tax imposed by this section with respect to any transaction concerning such account (which would otherwise be taxable under this section) if, with respect to such transaction,

the account ceases to be a medical savings account by reason

of the application of section 220(e)(2) to such account.’’.

(2) Paragraph (1) of section 4975(e) is amended to read

as follows:

‘‘(1) PLAN.—For purposes of this section, the term ‘plan’

means—
110 STAT. 2052 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(A) a trust described in section 401(a) which forms

a part of a plan, or a plan described in section 403(a),

which trust or plan is exempt from tax under section 501(a),

‘‘(B) an individual retirement account described in section 408(a),

‘‘(C) an individual retirement annuity described in section 408(b),

‘‘(D) a medical savings account described in section

220(d), or

‘‘(E) a trust, plan, account, or annuity which, at any

time, has been determined by the Secretary to be described

in any preceding subparagraph of this paragraph.’’.

(g) FAILURE TO PROVIDE REPORTS ON MEDICAL SAVINGS

ACCOUNTS.—

(1) Subsection (a) of section 6693 (relating to failure to

provide reports on individual retirement accounts or annuities)

is amended to read as follows:

‘‘(a) REPORTS.—

‘‘(1) IN GENERAL.—If a person required to file a report

under a provision referred to in paragraph (2) fails to file

such report at the time and in the manner required by such

provision, such person shall pay a penalty of $50 for each

failure unless it is shown that such failure is due to reasonable

cause.

‘‘(2) PROVISIONS.—The provisions referred to in this paragraph are—

‘‘(A) subsections (i) and (l) of section 408 (relating

to individual retirement plans), and

‘‘(B) section 220(h) (relating to medical savings

accounts).’’.

(h) EXCEPTION FROM CAPITALIZATION OF POLICY ACQUISITION

EXPENSES.—Subparagraph (B) of section 848(e)(1) (defining specified insurance contract) is amended by striking ‘‘and’’ at the end

of clause (ii), by striking the period at the end of clause (iii)

and inserting ‘‘, and’’, and by adding at the end the following

new clause:

‘‘(iv) any contract which is a medical savings

account (as defined in section 220(d)).’’.

(i) CLERICAL AMENDMENT.—The table of sections for part VII

of subchapter B of chapter 1 is amended by striking the last

item and inserting the following:

‘‘Sec. 220. Medical savings accounts.

‘‘Sec. 221. Cross reference.’’.

(j) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 1996.

(k) MONITORING OF PARTICIPATION IN MEDICAL SAVINGS

ACCOUNTS.—The Secretary of the Treasury or his delegate shall—

(1) during 1997, 1998, 1999, and 2000, regularly evaluate

the number of individuals who are maintaining medical savings

accounts and the reduction in revenues to the United States

by reason of such accounts, and

(2) provide such reports of such evaluations to Congress

as such Secretary determines appropriate.

(l) STUDY OF EFFECTS OF MEDICAL SAVINGS ACCOUNTS ON

SMALL GROUP MARKET.—The Comptroller General of the United

States shall enter into a contract with an organization with expertise in health economics, health insurance markets, and actuarial

26 USC 220 note.

26 USC 220 note.

26 USC 62 note.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2053

science to conduct a comprehensive study regarding the effects

of medical savings accounts in the small group market on—

(1) selection, including adverse selection,

(2) health costs, including any impact on premiums of

individuals with comprehensive coverage,

(3) use of preventive care,

(4) consumer choice,

(5) the scope of coverage of high deductible plans purchased

in conjunction with such accounts, and

(6) other relevant items.

A report on the results of the study conducted under this subsection

shall be submitted to the Congress no later than January 1, 1999.

Subtitle B—Increase in Deduction for

Health Insurance Costs of Self-Employed

Individuals

SEC. 311. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS

OF SELF-EMPLOYED INDIVIDUALS.

(a) IN GENERAL.—Paragraph (1) of section 162(l) is amended

to read as follows:

‘‘(1) ALLOWANCE OF DEDUCTION.—

‘‘(A) IN GENERAL.—In the case of an individual who

is an employee within the meaning of section 401(c)(1),

there shall be allowed as a deduction under this section

an amount equal to the applicable percentage of the amount

paid during the taxable year for insurance which constitutes medical care for the taxpayer, his spouse, and

dependents.

‘‘(B) APPLICABLE PERCENTAGE.—For purposes of

subparagraph (A), the applicable percentage shall be determined under the following table:

‘‘For taxable years beginning 

in calendar year—

The applicable percentage is—

1997 ............................................................................ 40 percent

1998 through 2002 .................................................... 45 percent

2003 ............................................................................ 50 percent

2004 ............................................................................ 60 percent

2005 ............................................................................ 70 percent

2006 or thereafter ..................................................... 80 percent.’’.

(b) EXCLUSION FOR AMOUNTS RECEIVED UNDER CERTAIN SELFINSURED PLANS.—Paragraph (3) of section 104(a) is amended by

inserting ‘‘(or through an arrangement having the effect of accident

or health insurance)’’ after ‘‘health insurance’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 1996.

26 USC 104 note.

Reports.
110 STAT. 2054 PUBLIC LAW 104–191—AUG. 21, 1996

Subtitle C—Long-Term Care Services and

Contracts

PART I—GENERAL PROVISIONS

SEC. 321. 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 QUALIFIED LONG-TERM CARE INSURANCE.

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

‘‘(1) a qualified 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 qualified

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 qualified 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 (e)(3), amounts paid

for a qualified 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 qualified long-term care insurance contract shall

be treated as a guaranteed renewable contract subject to the

rules of section 816(e).

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

purposes of this title—

‘‘(1) IN GENERAL.—The term ‘qualified 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) such contract meets the requirements of subsection

(g).
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2055

‘‘(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 qualified

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,

‘‘(ii) having a level of disability similar (as determined under regulations prescribed by the Secretary

in consultation with the Secretary of Health and

Human Services) to the level of disability described

in clause (i), or

‘‘(iii) requiring substantial supervision to protect

such individual from threats to health and safety due

to severe cognitive impairment.

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:
110 STAT. 2056 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(i) Eating.

‘‘(ii) Toileting.

‘‘(iii) Transferring.

‘‘(iv) Bathing.

‘‘(v) Dressing.

‘‘(vi) Continence.

A contract shall not be treated as a qualified long-term

care insurance contract unless the determination of

whether an individual is a chronically ill individual takes

into account at least 5 of such activities.

‘‘(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) AGGREGATE PAYMENTS IN EXCESS OF LIMITS.—

‘‘(1) IN GENERAL.—If the aggregate of—

‘‘(A) the periodic payments received for any period

under all qualified long-term care insurance contracts

which are treated as made for qualified long-term care

services for an insured, and

‘‘(B) the periodic payments received for such period

which are treated under section 101(g) as paid by reason

of the death of such insured,

exceeds the per diem limitation for such period, such excess

shall be includible in gross income without regard to section

72. A payment shall not be taken into account under subparagraph (B) if the insured is a terminally ill individual (as defined

in section 101(g)) at the time the payment is received.

‘‘(2) PER DIEM LIMITATION.—For purposes of paragraph (1),

the per diem limitation for any period is an amount equal

to the excess (if any) of—

‘‘(A) the greater of—

‘‘(i) the dollar amount in effect for such period

under paragraph (4), or

‘‘(ii) the costs incurred for qualified long-term care

services provided for the insured for such period, over

‘‘(B) the aggregate payments received as reimbursements (through insurance or otherwise) for qualified longterm care services provided for the insured during such

period.

‘‘(3) AGGREGATION RULES.—For purposes of this subsection—

‘‘(A) all persons receiving periodic payments described

in paragraph (1) with respect to the same insured shall

be treated as 1 person, and

‘‘(B) the per diem limitation determined under paragraph (2) shall be allocated first to the insured and any

remaining limitation shall be allocated among the other
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2057

such persons in such manner as the Secretary shall prescribe.

‘‘(4) DOLLAR AMOUNT.—The dollar amount in effect under

this subsection shall be $175 per day (or the equivalent amount

in the case of payments on another periodic basis).

‘‘(5) INFLATION ADJUSTMENT.—In the case of a calendar

year after 1997, the dollar amount contained in paragraph

(4) shall be increased at the same time and in the same manner

as amounts are increased pursuant to section 213(d)(10).

‘‘(6) PERIODIC PAYMENTS.—For purposes of this subsection,

the term ‘periodic payment’ means any payment (whether on

a periodic basis or otherwise) made without regard to the

extent of the costs incurred by the payee for qualified longterm care services.

‘‘(e) 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 or as part of 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 qualified

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 long-term

care insurance coverage.

‘‘(f) TREATMENT OF CERTAIN STATE-MAINTAINED PLANS.—

‘‘(1) IN GENERAL.—If—

‘‘(A) an individual receives coverage for qualified longterm care services under a State long-term care plan, and

‘‘(B) the terms of such plan would satisfy the requirements of subsection (b) were such plan an insurance contract,

such plan shall be treated as a qualified long-term care insurance contract for purposes of this title.

‘‘(2) STATE LONG-TERM CARE PLAN.—For purposes of paragraph (1), the term ‘State long-term care plan’ means any

plan—

‘‘(A) which is established and maintained by a State

or an instrumentality of a State,
110 STAT. 2058 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(B) which provides coverage only for qualified longterm care services, and

‘‘(C) under which such coverage is provided only to—

‘‘(i) employees and former employees of a State

(or any political subdivision or instrumentality of a

State),

‘‘(ii) the spouses of such employees, and

‘‘(iii) individuals bearing a relationship to such

employees or spouses which is described in any of

paragraphs (1) through (8) of section 152(a).’’.

(b) RESERVE METHOD.—Clause (iii) of section 807(d)(3)(A) is

amended by inserting ‘‘(other than a qualified 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 product which is advertised, marketed, or offered

as long-term care insurance.’’.

(2) FLEXIBLE SPENDING ARRANGEMENTS.—Section 106

(relating to contributions by employer to accident and health

plans), as amended by section 301(c), is amended by adding

at the end the following new subsection:

‘‘(c) 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 RULES NOT TO APPLY.—

(1) Paragraph (2) of section 4980B(g) is amended by adding

at the end the following new sentence: ‘‘Such term shall not

include any plan substantially all of the coverage under which

is for qualified long-term care services (as defined in section

7702B(c)).’’

(2) Paragraph (1) of section 607 of the Employee Retirement

Income Security Act of 1974 is amended by adding at the

end the following new sentence: ‘‘Such term shall not include

any plan substantially all of the coverage under which is for

qualified long-term care services (as defined in section 7702B(c)

of such Code).’’

29 USC 1167.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2059

(3) Paragraph (1) of section 2208 of the Public Health

Service Act is amended by adding at the end the following

new sentence: ‘‘Such term shall not include any plan substantially all of the coverage under which is for qualified longterm care services (as defined in section 7702B(c) of such

Code).’’

(e) 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 qualified long-term care insurance.’’.

(f) EFFECTIVE DATES.—

(1) GENERAL EFFECTIVE DATE.—

(A) IN GENERAL.—Except as provided in subparagraph

(B), the amendments made by this section shall apply

to contracts issued after December 31, 1996.

(B) RESERVE METHOD.—The amendment made by subsection (b) shall apply to contracts issued after December

31, 1997.

(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 sitused at the time the contract was issued—

(A) such contract shall be treated for purposes of the

Internal Revenue Code of 1986 as a qualified 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).

In the case of an individual who is covered on December 31,

1996, under a State long-term care plan (as defined in section

7702B(f)(2) of such Code), the terms of such plan on such

date shall be treated for purposes of the preceding sentence

as a contract issued on such date which met the long-term

care insurance requirements of such State.

(3) EXCHANGES OF EXISTING POLICIES.—If, after the date

of enactment of this Act and before January 1, 1998, a contract

providing for long-term care insurance coverage is exchanged

solely for a qualified 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 qualified

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 qualified 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 qualified long-term care insurance contract under section 7702B,

and

26 USC 1702B

note.

42 USC 300bb–8.
110 STAT. 2060 PUBLIC LAW 104–191—AUG. 21, 1996

(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.

(5) APPLICATION OF PER DIEM LIMITATION TO EXISTING CONTRACTS.—The amount of per diem payments made under a

contract issued on or before July 31, 1996, with respect to

an insured which are excludable from gross income by reason

of section 7702B of the Internal Revenue Code of 1986 (as

added by this section) shall not be reduced under subsection

(d)(2)(B) thereof by reason of reimbursements received under

a contract issued on or before such date. The preceding sentence

shall cease to apply as of the date (after July 31, 1996) such

contract is exchanged or there is any contract modification

which results in an increase in the amount of such per diem

payments or the amount of such reimbursements.

(g) LONG-TERM CARE STUDY REQUEST.—The Chairman of the

Committee on Ways and Means of the House of Representatives

and the Chairman of the Committee on Finance of the Senate

shall jointly request the National Association of Insurance Commissioners, in consultation with representatives of the insurance industry and consumer organizations, to formulate, develop, and conduct

a study to determine the marketing and other effects of per diem

limits on certain types of long-term care policies. If the National

Association of Insurance Commissioners agrees to the study request,

the National Association of Insurance Commissioners shall report

the results of its study to such committees not later than 2 years

after accepting the request.

SEC. 322. 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 inserting before the period

‘‘or for any qualified long-term care insurance contract (as

defined in section 7702B(b))’’.

(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 qualified long-term care insurance contract

(as defined in section 7702B(b)), only eligible long-term care

premiums (as defined in paragraph (10)) shall be taken into

account under subparagraph (D).’’

(B) Paragraph (2) of section 162(l) is amended by adding

at the end the following new subparagraph:

‘‘(C) LONG-TERM CARE PREMIUMS.—In the case of a

qualified long-term care insurance contract (as defined in

section 7702B(b)), only eligible long-term care premiums

(as defined in section 213(d)(10)) shall be taken into account

under paragraph (1).’’

Reports.

26 USC 7702B

note.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2061

(C) Subsection (d) of section 213 is amended by adding

at the end the following new paragraphs:

‘‘(10) 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 qualified 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.

‘‘(11) CERTAIN PAYMENTS TO RELATIVES TREATED AS NOT

PAID FOR MEDICAL CARE.—An amount paid for a qualified longterm 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 the spouse of the individual or by a relative

(directly or through a partnership, corporation, or other

entity) unless the service is provided by a licensed professional with respect to such service, 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).
110 STAT. 2062 PUBLIC LAW 104–191—AUG. 21, 1996

This paragraph shall not apply for purposes of section 105(b)

with respect to reimbursements through insurance.’’.

(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. 323. 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 longterm 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,

‘‘(2) whether or not such benefits are paid in whole or

in part on a per diem or other periodic basis without regard

to the expenses incurred during the period to which the payments relate,

‘‘(3) the name, address, and TIN of such individual, and

‘‘(4) the name, address, and TIN of the chronically ill or

terminally ill individual on account of whose condition such

benefits are paid.

‘‘(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’ means—

‘‘(1) any payment under a product which is advertised,

marketed, or offered as long-term care insurance, and

‘‘(2) any payment which is excludable from gross income

by reason of section 101(g).’’.

(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),’’.

26 USC 162 note.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2063

(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.

PART II—CONSUMER PROTECTION

PROVISIONS

SEC. 325. POLICY REQUIREMENTS.

Section 7702B (as added by section 321) is amended by adding

at the end the following new subsection:

‘‘(g) CONSUMER PROTECTION PROVISIONS.—

‘‘(1) IN GENERAL.—The requirements of this subsection are

met with respect to any contract if the contract meets—

‘‘(A) the requirements of the model regulation and

model Act described in paragraph (2),

‘‘(B) the disclosure requirement of paragraph (3), and

‘‘(C) the requirements relating to nonforfeitability

under paragraph (4).

‘‘(2) REQUIREMENTS OF MODEL REGULATION AND ACT.—

‘‘(A) IN GENERAL.—The requirements of this paragraph

are met with respect to any contract if such contract

meets—

‘‘(i) MODEL REGULATION.—The following requirements of the model regulation:

‘‘(I) Section 7A (relating to guaranteed renewal

or noncancellability), and the requirements of

section 6B of the model Act relating to such section

7A.

‘‘(II) Section 7B (relating to prohibitions on

limitations and exclusions).

‘‘(III) Section 7C (relating to extension of benefits).

‘‘(IV) Section 7D (relating to continuation or

conversion of coverage).

‘‘(V) Section 7E (relating to discontinuance and

replacement of policies).

‘‘(VI) Section 8 (relating to unintentional

lapse).

‘‘(VII) Section 9 (relating to disclosure), other

than section 9F thereof.

‘‘(VIII) Section 10 (relating to prohibitions

against post-claims underwriting).

‘‘(IX) Section 11 (relating to minimum standards).

‘‘(X) Section 12 (relating to requirement to

offer inflation protection), except that any requirement for a signature on a rejection of inflation

26 USC 6050Q

note.
110 STAT. 2064 PUBLIC LAW 104–191—AUG. 21, 1996

protection shall permit the signature to be on an

application or on a separate form.

‘‘(XI) Section 23 (relating to prohibition against

preexisting conditions and probationary periods in

replacement policies or certificates).

‘‘(ii) MODEL ACT.—The following requirements of

the model Act:

‘‘(I) Section 6C (relating to preexisting conditions).

‘‘(II) Section 6D (relating to prior hospitalization).

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

‘‘(i) MODEL PROVISIONS.—The terms ‘model regulation’ and ‘model Act’ mean the long-term care insurance model regulation, and the long-term care insurance model Act, respectively, promulgated by the

National Association of Insurance Commissioners (as

adopted as of January 1993).

‘‘(ii) COORDINATION.—Any provision of the model

regulation or model Act listed under clause (i) or (ii)

of subparagraph (A) shall be treated as including any

other provision of such regulation or Act necessary

to implement the provision.

‘‘(iii) DETERMINATION.—For purposes of this section

and section 4980C, the determination of whether any

requirement of a model regulation or the model Act

has been met shall be made by the Secretary.

‘‘(3) DISCLOSURE REQUIREMENT.—The requirement of this

paragraph is met with respect to any contract if such contract

meets the requirements of section 4980C(d).

‘‘(4) NONFORFEITURE REQUIREMENTS.—

‘‘(A) IN GENERAL.—The requirements of this paragraph

are met with respect to any level premium contract,

if the issuer of such contract offers to the policyholder,

including any group policyholder, a nonforfeiture provision

meeting the requirements of subparagraph (B).

‘‘(B) REQUIREMENTS OF PROVISION.—The nonforfeiture

provision required under subparagraph (A) shall meet the

following requirements:

‘‘(i) The nonforfeiture provision shall be appropriately captioned.

‘‘(ii) The nonforfeiture provision shall provide for

a benefit available in the event of a default in the

payment of any premiums and the amount of the benefit may be adjusted subsequent to being initially

granted only as necessary to reflect changes in claims,

persistency, and interest as reflected in changes in

rates for premium paying contracts approved by the

Secretary for the same contract form.

‘‘(iii) The nonforfeiture provision shall provide at

least one of the following:

‘‘(I) Reduced paid-up insurance.

‘‘(II) Extended term insurance.

‘‘(III) Shortened benefit period.

‘‘(IV) Other similar offerings approved by the

Secretary.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2065

‘‘(5) CROSS REFERENCE.—

‘‘For coordination of the requirements of this subsection with

State requirements, see section 4980C(f).’’.

SEC. 326. REQUIREMENTS FOR ISSUERS OF QUALIFIED LONG-TERM

CARE INSURANCE CONTRACTS.

(a) IN GENERAL.—Chapter 43 is amended by adding at the

end the following new section:

‘‘SEC. 4980C. REQUIREMENTS FOR ISSUERS OF QUALIFIED LONG-TERM

CARE INSURANCE CONTRACTS.

‘‘(a) GENERAL RULE.—There is hereby imposed on any person

failing to meet the requirements of subsection (c) or (d) a tax

in the amount determined under subsection (b).

‘‘(b) AMOUNT.—

‘‘(1) IN GENERAL.—The amount of the tax imposed by subsection (a) shall be $100 per insured for each day any requirement of subsection (c) or (d) is not met with respect to each

qualified long-term care insurance contract.

‘‘(2) WAIVER.—In the case of a failure which is due to

reasonable cause and not to willful neglect, the Secretary may

waive part or all of the tax imposed by subsection (a) to the

extent that payment of the tax would be excessive relative

to the failure involved.

‘‘(c) RESPONSIBILITIES.—The requirements of this subsection are

as follows:

‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.—

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

of the model regulation must be met:

‘‘(i) Section 13 (relating to application forms and

replacement coverage).

‘‘(ii) Section 14 (relating to reporting requirements), except that the issuer shall also report at

least annually the number of claims denied during

the reporting period for each class of business

(expressed as a percentage of claims denied), other

than claims denied for failure to meet the waiting

period or because of any applicable preexisting condition.

‘‘(iii) Section 20 (relating to filing requirements

for marketing).

‘‘(iv) Section 21 (relating to standards for marketing), including inaccurate completion of medical histories, other than sections 21C(1) and 21C(6) thereof,

except that—

‘‘(I) in addition to such requirements, no person shall, in selling or offering to sell a qualified

long-term care insurance contract, misrepresent

a material fact; and

‘‘(II) no such requirements shall include a

requirement to inquire or identify whether a

prospective applicant or enrollee for long-term care

insurance has accident and sickness insurance.

‘‘(v) Section 22 (relating to appropriateness of

recommended purchase).

‘‘(vi) Section 24 (relating to standard format outline

of coverage).
110 STAT. 2066 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(vii) Section 25 (relating to requirement to deliver

shopper’s guide).

‘‘(B) MODEL ACT.—The following requirements of the

model Act must be met:

‘‘(i) Section 6F (relating to right to return), except

that such section shall also apply to denials of applications and any refund shall be made within 30 days

of the return or denial.

‘‘(ii) Section 6G (relating to outline of coverage).

‘‘(iii) Section 6H (relating to requirements for certificates under group plans).

‘‘(iv) Section 6I (relating to policy summary).

‘‘(v) Section 6J (relating to monthly reports on

accelerated death benefits).

‘‘(vi) Section 7 (relating to incontestability period).

‘‘(C) DEFINITIONS.—For purposes of this paragraph, the

terms ‘model regulation’ and ‘model Act’ have the meanings

given such terms by section 7702B(g)(2)(B).

‘‘(2) DELIVERY OF POLICY.—If an application for a qualified

long-term care insurance contract (or for a certificate under

such a contract for a group) is approved, the issuer shall deliver

to the applicant (or policyholder or certificateholder) the contract (or certificate) of insurance not later than 30 days after

the date of the approval.

‘‘(3) INFORMATION ON DENIALS OF CLAIMS.—If a claim under

a qualified long-term care insurance contract is denied, the

issuer shall, within 60 days of the date of a written request

by the policyholder or certificateholder (or representative)—

‘‘(A) provide a written explanation of the reasons for

the denial, and

‘‘(B) make available all information directly relating

to such denial.

‘‘(d) DISCLOSURE.—The requirements of this subsection are met

if the issuer of a long-term care insurance policy discloses in such

policy and in the outline of coverage required under subsection

(c)(1)(B)(ii) that the policy is intended to be a qualified long-term

care insurance contract under section 7702B(b).

‘‘(e) QUALIFIED LONG-TERM CARE INSURANCE CONTRACT

DEFINED.—For purposes of this section, the term ‘qualified longterm care insurance contract’ has the meaning given such term

by section 7702B.

‘‘(f) COORDINATION WITH STATE REQUIREMENTS.—If a State

imposes any requirement which is more stringent than the analogous requirement imposed by this section or section 7702B(g), the

requirement imposed by this section or section 7702B(g) shall be

treated as met if the more stringent State requirement is met.’’.

(b) CONFORMING AMENDMENT.—The table of sections for chapter

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

‘‘Sec. 4980C. Requirements for issuers of qualified long-term care insurance contracts.’’.

SEC. 327. EFFECTIVE DATES.

(a) IN GENERAL.—The provisions of, and amendments made

by, this part shall apply to contracts issued after December 31,

1996. The provisions of section 321(f) (relating to transition rule)

shall apply to such contracts.

26 USC 4980C

note.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2067

(b) ISSUERS.—The amendments made by section 326 shall apply

to actions taken after December 31, 1996.

Subtitle D—Treatment of Accelerated

Death Benefits

SEC. 331. TREATMENT OF ACCELERATED DEATH BENEFITS BY

RECIPIENT.

(a) IN GENERAL.—Section 101 (relating to certain death benefits) is amended by adding at the end the following new subsection:

‘‘(g) TREATMENT OF CERTAIN ACCELERATED DEATH BENEFITS.— ‘‘(1) IN GENERAL.—For purposes of this section, the following amounts shall be treated as an amount paid by reason

of the death of an insured:

‘‘(A) Any amount received under a life insurance contract on the life of an insured who is a terminally ill

individual.

‘‘(B) Any amount received under a life insurance contract on the life of an insured who is a chronically ill

individual.

‘‘(2) TREATMENT OF VIATICAL SETTLEMENTS.— ‘‘(A) IN GENERAL.—If any portion of the death benefit

under a life insurance contract on the life of an insured

described in paragraph (1) is sold or assigned to a viatical

settlement provider, the amount paid for the sale or assignment of such portion shall be treated as an amount paid

under the life insurance contract by reason of the death

of such insured.

‘‘(B) VIATICAL SETTLEMENT PROVIDER.— ‘‘(i) IN GENERAL.—The term ‘viatical settlement

provider’ means any person regularly engaged in the

trade or business of purchasing, or taking assignments

of, life insurance contracts on the lives of insureds

described in paragraph (1) if—

‘‘(I) such person is licensed for such purposes

(with respect to insureds described in the same

subparagraph of paragraph (1) as the insured) in

the State in which the insured resides, or

‘‘(II) in the case of an insured who resides

in a State not requiring the licensing of such persons for such purposes with respect to such

insured, such person meets the requirements of

clause (ii) or (iii), whichever applies to such

insured.

‘‘(ii) TERMINALLY ILL INSUREDS.—A person meets

the requirements of this clause with respect to an

insured who is a terminally ill individual if such

person—

‘‘(I) meets the requirements of sections 8 and

9 of the Viatical Settlements Model Act of the

National Association of Insurance Commissioners,

and

‘‘(II) meets the requirements of the Model

Regulations of the National Association of Insurance Commissioners (relating to standards for

evaluation of reasonable payments) in determining
110 STAT. 2068 PUBLIC LAW 104–191—AUG. 21, 1996

amounts paid by such person in connection with

such purchases or assignments.

‘‘(iii) CHRONICALLY ILL INSUREDS.—A person meets

the requirements of this clause with respect to an

insured who is a chronically ill individual if such

person—

‘‘(I) meets requirements similar to the requirements referred to in clause (ii)(I), and

‘‘(II) meets the standards (if any) of the

National Association of Insurance Commissioners

for evaluating the reasonableness of amounts paid

by such person in connection with such purchases

or assignments with respect to chronically ill

individuals.

‘‘(3) SPECIAL RULES FOR CHRONICALLY ILL INSUREDS.—In

the case of an insured who is a chronically ill individual—

‘‘(A) IN GENERAL.—Paragraphs (1) and (2) shall not

apply to any payment received for any period unless—

‘‘(i) such payment is for costs incurred by the payee

(not compensated for by insurance or otherwise) for

qualified long-term care services provided for the

insured for such period, and

‘‘(ii) the terms of the contract giving rise to such

payment satisfy—

‘‘(I) the requirements of section 7702B(b)(1)(B),

and

‘‘(II) the requirements (if any) applicable under

subparagraph (B).

For purposes of the preceding sentence, the rule of section

7702B(b)(2)(B) shall apply.

‘‘(B) OTHER REQUIREMENTS.—The requirements

applicable under this subparagraph are—

‘‘(i) those requirements of section 7702B(g) and

section 4980C which the Secretary specifies as applying

to such a purchase, assignment, or other arrangement,

‘‘(ii) standards adopted by the National Association

of Insurance Commissioners which specifically apply

to chronically ill individuals (and, if such standards

are adopted, the analogous requirements specified

under clause (i) shall cease to apply), and

‘‘(iii) standards adopted by the State in which the

policyholder resides (and if such standards are adopted,

the analogous requirements specified under clause (i)

and (subject to section 4980C(f)) standards under

clause (ii), shall cease to apply).

‘‘(C) PER DIEM PAYMENTS.—A payment shall not fail

to be described in subparagraph (A) by reason of being

made on a per diem or other periodic basis without regard

to the expenses incurred during the period to which the

payment relates.

‘‘(D) LIMITATION ON EXCLUSION FOR PERIODIC PAY- MENTS.—

‘‘For limitation on amount of periodic payments which are

treated as described in paragraph (1), see section 7702B(d).’’.

‘‘(4) DEFINITIONS.—For purposes of this subsection—

‘‘(A) TERMINALLY ILL INDIVIDUAL.—The term ‘terminally ill individual’ means an individual who has been
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2069

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.

‘‘(B) CHRONICALLY ILL INDIVIDUAL.—The term ‘chronically ill individual’ has the meaning given such term by

section 7702B(c)(2); except that such term shall not include

a terminally ill individual.

‘‘(C) QUALIFIED LONG-TERM CARE SERVICES.—The term

‘qualified long-term care services’ has the meaning given

such term by section 7702B(c).

‘‘(D) 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)).

‘‘(5) EXCEPTION FOR BUSINESS-RELATED POLICIES.—This subsection shall not apply in the case of any amount paid to

any taxpayer other than the insured if such taxpayer has

an insurable interest with respect to the life of the insured

by reason of the insured being a director, officer, or employee

of the taxpayer or by reason of the insured being financially

interested in any trade or business carried on by the taxpayer.’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

shall apply to amounts received after December 31, 1996.

SEC. 332. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED

ACCELERATED DEATH BENEFIT RIDERS.

(a) QUALIFIED ACCELERATED DEATH BENEFIT RIDERS TREATED

AS LIFE INSURANCE.—Section 818 (relating to other definitions and

special rules) is amended by adding at the end the following new

subsection:

‘‘(g) QUALIFIED ACCELERATED DEATH BENEFIT RIDERS TREATED

AS LIFE INSURANCE.—For purposes of this part—

‘‘(1) IN GENERAL.—Any reference to a life insurance contract

shall be treated as including a reference to a qualified accelerated death benefit rider on such contract.

‘‘(2) QUALIFIED ACCELERATED DEATH BENEFIT RIDERS.—For

purposes of this subsection, the term ‘qualified accelerated

death benefit rider’ means any rider on a life insurance contract

if the only payments under the rider are payments meeting

the requirements of section 101(g).

‘‘(3) EXCEPTION FOR LONG-TERM CARE RIDERS.—Paragraph

(1) shall not apply to any rider which is treated as a longterm care insurance contract under section 7702B.’’.

(b) EFFECTIVE DATE.—

(1) IN GENERAL.—The amendment made by this section

shall take effect on January 1, 1997.

(2) ISSUANCE OF RIDER NOT TREATED AS MATERIAL

CHANGE.—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 qualified accelerated death benefit

rider (as defined in section 818(g) of such Code (as added

by this Act)), and

(B) the addition of any provision required to conform

an accelerated death benefit rider to the requirements of

such section 818(g),

shall not be treated as a modification or material change of

such contract.

26 USC 818 note.

26 USC 101 note.
110 STAT. 2070 PUBLIC LAW 104–191—AUG. 21, 1996

Subtitle E—State Insurance Pools

SEC. 341. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED

ORGANIZATIONS PROVIDING HEALTH COVERAGE FOR

HIGH-RISK INDIVIDUALS.

(a) IN GENERAL.—Subsection (c) of section 501 (relating to

list of exempt organizations) is amended by adding at the end

the following new paragraph:

‘‘(26) Any membership organization if—

‘‘(A) such organization is established by a State exclusively to provide coverage for medical care (as defined

in section 213(d)) on a not-for-profit basis to individuals

described in subparagraph (B) through—

‘‘(i) insurance issued by the organization, or

‘‘(ii) a health maintenance organization under an

arrangement with the organization,

‘‘(B) the only individuals receiving such coverage

through the organization are individuals—

‘‘(i) who are residents of such State, and

‘‘(ii) who, by reason of the existence or history

of a medical condition—

‘‘(I) are unable to acquire medical care coverage for such condition through insurance or from

a health maintenance organization, or

‘‘(II) are able to acquire such coverage only

at a rate which is substantially in excess of the

rate for such coverage through the membership

organization,

‘‘(C) the composition of the membership in such

organization is specified by such State, and

‘‘(D) no part of the net earnings of the organization

inures to the benefit of any private shareholder or individual.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to taxable years beginning after December 31, 1996.

SEC. 342. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED

WORKMEN’S COMPENSATION REINSURANCE ORGANIZATIONS.

(a) IN GENERAL.—Subsection (c) of section 501 (relating to

list of exempt organizations), as amended by section 341, is amended

by adding at the end the following new paragraph:

‘‘(27) Any membership organization if—

‘‘(A) such organization is established before June 1,

1996, by a State exclusively to reimburse its members

for losses arising under workmen’s compensation acts,

‘‘(B) such State requires that the membership of such

organization consist of—

‘‘(i) all persons who issue insurance covering workmen’s compensation losses in such State, and

‘‘(ii) all persons and governmental entities who

self-insure against such losses, and

‘‘(C) such organization operates as a non-profit

organization by—

26 USC 501 note.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2071

‘‘(i) returning surplus income to its members or

workmen’s compensation policyholders on a periodic

basis, and

‘‘(ii) reducing initial premiums in anticipation of

investment income.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to taxable years ending after the date of the enactment

of this Act.

Subtitle F—Organizations Subject to

Section 833

SEC. 351. ORGANIZATIONS SUBJECT TO SECTION 833.

(a) IN GENERAL.—Section 833(c) (relating to organization to

which section applies) is amended by adding at the end the following

new paragraph:

‘‘(4) TREATMENT AS EXISTING BLUE CROSS OR BLUE SHIELD

ORGANIZATION.—

‘‘(A) IN GENERAL.—Paragraph (2) shall be applied to

an organization described in subparagraph (B) as if it were

a Blue Cross or Blue Shield organization.

‘‘(B) APPLICABLE ORGANIZATION.—An organization is

described in this subparagraph if it—

‘‘(i) is organized under, and governed by, State

laws which are specifically and exclusively applicable

to not-for-profit health insurance or health service type

organizations, and

‘‘(ii) is not a Blue Cross or Blue Shield organization

or health maintenance organization.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to taxable years ending after December 31, 1996.

Subtitle G—IRA Distributions to the

Unemployed

SEC. 361. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT ADDITIONAL TAX TO PAY FINANCIALLY DEVASTATING

MEDICAL EXPENSES.

(a) IN GENERAL.—Section 72(t)(3)(A) is amended by striking

‘‘(B),’’.

(b) DISTRIBUTIONS FOR PAYMENT OF HEALTH INSURANCE PREMIUMS OF CERTAIN UNEMPLOYED INDIVIDUALS.—Paragraph (2) of

section 72(t) is amended by adding at the end the following new

subparagraph:

‘‘(D) DISTRIBUTIONS TO UNEMPLOYED INDIVIDUALS FOR

HEALTH INSURANCE PREMIUMS.—

‘‘(i) IN GENERAL.—Distributions from an individual

retirement plan to an individual after separation from

employment—

‘‘(I) if such individual has received unemployment compensation for 12 consecutive weeks under

any Federal or State unemployment compensation

law by reason of such separation,

26 USC 833 note.

26 USC 501 note.
110 STAT. 2072 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(II) if such distributions are made during any

taxable year during which such unemployment

compensation is paid or the succeeding taxable

year, and

‘‘(III) to the extent such distributions do not

exceed the amount paid during the taxable year

for insurance described in section 213(d)(1)(D) with

respect to the individual and the individual’s

spouse and dependents (as defined in section 152).

‘‘(ii) DISTRIBUTIONS AFTER REEMPLOYMENT.—

Clause (i) shall not apply to any distribution made

after the individual has been employed for at least

60 days after the separation from employment to which

clause (i) applies.

‘‘(iii) SELF-EMPLOYED INDIVIDUALS.—To the extent

provided in regulations, a self-employed individual

shall be treated as meeting the requirements of clause

(i)(I) if, under Federal or State law, the individual

would have received unemployment compensation but

for the fact the individual was self-employed.’’.

(c) CONFORMING AMENDMENT.—Subparagraph (B) of section

72(t)(2) is amended by striking ‘‘or (C)’’ and inserting ‘‘, (C), or

(D)’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to distributions after December 31, 1996.

Subtitle H—Organ and Tissue Donation

Information Included With Income Tax

Refund Payments

SEC. 371. ORGAN AND TISSUE DONATION INFORMATION INCLUDED

WITH INCOME TAXREFUND PAYMENTS.

(a) IN GENERAL.—The Secretary of the Treasury shall, to the

extent practicable, include with the mailing of any payment of

a refund of individual income tax made during the period beginning

on February 1, 1997, and ending on June 30, 1997, a copy of

the document described in subsection (b).

(b) TEXT OF DOCUMENT.—The Secretary of the Treasury shall,

after consultation with the Secretary of Health and Human Services

and organizations promoting organ and tissue (including eye) donation, prepare a document suitable for inclusion with individual

income tax refund payments which—

(1) encourages organ and tissue donation;

(2) includes a detachable organ and tissue donor

card; and

(3) urges recipients to—

(A) sign the organ and tissue donor card;

(B) discuss organ and tissue donation with family members and tell family members about the recipient’s desire

to be an organ and tissue donor if the occasion arises;

and

(C) encourage family members to request or authorize

organ and tissue donation if the occasion arises.

26 USC 6042

note.

26 USC 72 note.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2073

TITLE IV—APPLICATION AND ENFORCEMENT OF GROUP HEALTH PLAN

REQUIREMENTS

Subtitle A—Application and Enforcement

of Group Health Plan Requirements

SEC. 401. GROUP HEALTH PLAN PORTABILITY, ACCESS, AND RENEWABILITY REQUIREMENTS.

(a) IN GENERAL.—The Internal Revenue Code of 1986 is

amended by adding at the end the following new subtitle:

‘‘Subtitle K—Group Health Plan Portability, Access, and Renewability

Requirements

‘‘Chapter 100. Group health plan portability, access, and renewability requirements.

‘‘CHAPTER 100—GROUP HEALTH PLAN PORTABILITY,

ACCESS, AND RENEWABILITY REQUIREMENTS

‘‘Sec. 9801. Increased portability through limitation on preexisting condition exclusions.

‘‘Sec. 9802. Prohibiting discrimination against individual participants and beneficiaries based on health status.

‘‘Sec. 9803. Guaranteed renewability in multiemployer plans and certain multiple

employer welfare arrangements.

‘‘Sec. 9804. General exceptions.

‘‘Sec. 9805. Definitions.

‘‘Sec. 9806. Regulations.

‘‘SEC. 9801. INCREASED PORTABILITY THROUGH LIMITATION ON

PREEXISTING CONDITION EXCLUSIONS.

‘‘(a) LIMITATION ON PREEXISTING CONDITION EXCLUSION PERIOD;

CREDITING FOR PERIODS OF PREVIOUS COVERAGE.—Subject to subsection (d), a group health plan may, with respect to a participant

or beneficiary, impose a preexisting condition exclusion only if—

‘‘(1) such exclusion relates to a condition (whether physical

or mental), regardless of the cause of the condition, for which

medical advice, diagnosis, care, or treatment was recommended

or received within the 6-month period ending on the enrollment

date;

‘‘(2) such exclusion extends for a period of not more than

12 months (or 18 months in the case of a late enrollee) after

the enrollment date; and

‘‘(3) the period of any such preexisting condition exclusion

is reduced by the length of the aggregate of the periods of

creditable coverage (if any) applicable to the participant or

beneficiary as of the enrollment date.

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

‘‘(1) PREEXISTING CONDITION EXCLUSION.—

‘‘(A) IN GENERAL.—The term ‘preexisting condition

exclusion’ means, with respect to coverage, a limitation

or exclusion of benefits relating to a condition based on
110 STAT. 2074 PUBLIC LAW 104–191—AUG. 21, 1996

the fact that the condition was present before the date

of enrollment for such coverage, whether or not any medical

advice, diagnosis, care, or treatment was recommended

or received before such date.

‘‘(B) TREATMENT OF GENETIC INFORMATION.—For purposes of this section, genetic information shall not be

treated as a condition described in subsection (a)(1) in

the absence of a diagnosis of the condition related to such

information.

‘‘(2) ENROLLMENT DATE.—The term ‘enrollment date’

means, with respect to an individual covered under a group

health plan, the date of enrollment of the individual in the

plan or, if earlier, the first day of the waiting period for such

enrollment.

‘‘(3) LATE ENROLLEE.—The term ‘late enrollee’ means, with

respect to coverage under a group health plan, a participant

or beneficiary who enrolls under the plan other than during—

‘‘(A) the first period in which the individual is eligible

to enroll under the plan, or

‘‘(B) a special enrollment period under subsection (f).

‘‘(4) WAITING PERIOD.—The term ‘waiting period’ means,

with respect to a group health plan and an individual who

is a potential participant or beneficiary in the plan, the period

that must pass with respect to the individual before the individual is eligible to be covered for benefits under the terms of

the plan.

‘‘(c) RULES RELATING TO CREDITING PREVIOUS COVERAGE.—

‘‘(1) CREDITABLE COVERAGE DEFINED.—For purposes of this

part, the term ‘creditable coverage’ means, with respect to

an individual, coverage of the individual under any of the

following:

‘‘(A) A group health plan.

‘‘(B) Health insurance coverage.

‘‘(C) Part A or part B of title XVIII of the Social

Security Act.

‘‘(D) Title XIX of the Social Security Act, other than

coverage consisting solely of benefits under section 1928.

‘‘(E) Chapter 55 of title 10, United States Code.

‘‘(F) A medical care program of the Indian Health

Service or of a tribal organization.

‘‘(G) A State health benefits risk pool.

‘‘(H) A health plan offered under chapter 89 of title

5, United States Code.

‘‘(I) A public health plan (as defined in regulations).

‘‘(J) A health benefit plan under section 5(e) of the

Peace Corps Act (22 U.S.C. 2504(e)).

Such term does not include coverage consisting solely of coverage of excepted benefits (as defined in section 9805(c)).

‘‘(2) NOT COUNTING PERIODS BEFORE SIGNIFICANT BREAKS

IN COVERAGE.—

‘‘(A) IN GENERAL.—A period of creditable coverage shall

not be counted, with respect to enrollment of an individual

under a group health plan, if, after such period and before

the enrollment date, there was a 63-day period during

all of which the individual was not covered under any

creditable coverage.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2075

‘‘(B) WAITING PERIOD NOT TREATED AS A BREAK IN

COVERAGE.—For purposes of subparagraph (A) and subsection (d)(4), any period that an individual is in a waiting

period for any coverage under a group health plan or is

in an affiliation period shall not be taken into account

in determining the continuous period under subparagraph (A).

‘‘(C) AFFILIATION PERIOD.—

‘‘(i) IN GENERAL.—For purposes of this section, the

term ‘affiliation period’ means a period which, under

the terms of the health insurance coverage offered

by the health maintenance organization, must expire

before the health insurance coverage becomes effective.

During such an affiliation period, the organization is

not required to provide health care services or benefits

and no premium shall be charged to the participant

or beneficiary.

‘‘(ii) BEGINNING.—Such period shall begin on the

enrollment date.

‘‘(iii) RUNS CONCURRENTLY WITH WAITING PERIODS.—Any such affiliation period shall run concurrently with any waiting period under the plan.

‘‘(3) METHOD OF CREDITING COVERAGE.—

‘‘(A) STANDARD METHOD.—Except as otherwise provided

under subparagraph (B), for purposes of applying subsection (a)(3), a group health plan shall count a period

of creditable coverage without regard to the specific benefits

for which coverage is offered during the period.

‘‘(B) ELECTION OF ALTERNATIVE METHOD.—A group

health plan may elect to apply subsection (a)(3) based

on coverage of any benefits within each of several classes

or categories of benefits specified in regulations rather

than as provided under subparagraph (A). Such election

shall be made on a uniform basis for all participants and

beneficiaries. Under such election a group health plan shall

count a period of creditable coverage with respect to any

class or category of benefits if any level of benefits is

covered within such class or category.

‘‘(C) PLAN NOTICE.—In the case of an election with

respect to a group health plan under subparagraph (B),

the plan shall—

‘‘(i) prominently state in any disclosure statements

concerning the plan, and state to each enrollee at the

time of enrollment under the plan, that the plan has

made such election, and

‘‘(ii) include in such statements a description of

the effect of this election.

‘‘(4) ESTABLISHMENT OF PERIOD.—Periods of creditable coverage with respect to an individual shall be established through

presentation of certifications described in subsection (e) or in

such other manner as may be specified in regulations.

‘‘(d) EXCEPTIONS.—

‘‘(1) EXCLUSION NOT APPLICABLE TO CERTAIN NEWBORNS.—

Subject to paragraph (4), a group health plan may not impose

any preexisting condition exclusion in the case of an individual

who, as of the last day of the 30-day period beginning with

the date of birth, is covered under creditable coverage.
110 STAT. 2076 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(2) EXCLUSION NOT APPLICABLE TO CERTAIN ADOPTED CHILDREN.—Subject to paragraph (4), a group health plan may

not impose any preexisting condition exclusion in the case

of a child who is adopted or placed for adoption before attaining

18 years of age and who, as of the last day of the 30-day

period beginning on the date of the adoption or placement

for adoption, is covered under creditable coverage. The previous

sentence shall not apply to coverage before the date of such

adoption or placement for adoption.

‘‘(3) EXCLUSION NOT APPLICABLE TO PREGNANCY.—For purposes of this section, a group health plan may not impose

any preexisting condition exclusion relating to pregnancy as

a preexisting condition.

‘‘(4) LOSS IF BREAK IN COVERAGE.—Paragraphs (1) and (2)

shall no longer apply to an individual after the end of the

first 63-day period during all of which the individual was not

covered under any creditable coverage.

‘‘(e) CERTIFICATIONS AND DISCLOSURE OF COVERAGE.—

‘‘(1) REQUIREMENT FOR CERTIFICATION OF PERIOD OF

CREDITABLE COVERAGE.—

‘‘(A) IN GENERAL.—A group health plan shall provide

the certification described in subparagraph (B)—

‘‘(i) at the time an individual ceases to be covered

under the plan or otherwise becomes covered under

a COBRA continuation provision,

‘‘(ii) in the case of an individual becoming covered

under such a provision, at the time the individual

ceases to be covered under such provision, and

‘‘(iii) on the request on behalf of an individual

made not later than 24 months after the date of cessation of the coverage described in clause (i) or (ii),

whichever is later.

The certification under clause (i) may be provided, to the

extent practicable, at a time consistent with notices

required under any applicable COBRA continuation

provision.

‘‘(B) CERTIFICATION.—The certification described in this

subparagraph is a written certification of—

‘‘(i) the period of creditable coverage of the individual under such plan and the coverage under such

COBRA continuation provision, and

‘‘(ii) the waiting period (if any) (and affiliation

period, if applicable) imposed with respect to the

individual for any coverage under such plan.

‘‘(C) ISSUER COMPLIANCE.—To the extent that medical

care under a group health plan consists of health insurance

coverage offered in connection with the plan, the plan

is deemed to have satisfied the certification requirement

under this paragraph if the issuer provides for such certification in accordance with this paragraph.

‘‘(2) DISCLOSURE OF INFORMATION ON PREVIOUS BENEFITS.—

‘‘(A) IN GENERAL.—In the case of an election described

in subsection (c)(3)(B) by a group health plan, if the plan

enrolls an individual for coverage under the plan and the

individual provides a certification of coverage of the individual under paragraph (1)—
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2077

‘‘(i) upon request of such plan, the entity which

issued the certification provided by the individual shall

promptly disclose to such requesting plan information

on coverage of classes and categories of health benefits

available under such entity’s plan, and

‘‘(ii) such entity may charge the requesting plan

or issuer for the reasonable cost of disclosing such

information.

‘‘(3) REGULATIONS.—The Secretary shall establish rules to

prevent an entity’s failure to provide information under paragraph (1) or (2) with respect to previous coverage of an individual from adversely affecting any subsequent coverage of the

individual under another group health plan or health insurance

coverage.

‘‘(f) SPECIAL ENROLLMENT PERIODS.—

‘‘(1) INDIVIDUALS LOSING OTHER COVERAGE.—A group health

plan shall permit an employee who is eligible, but not enrolled,

for coverage under the terms of the plan (or a dependent

of such an employee if the dependent is eligible, but not

enrolled, for coverage under such terms) to enroll for coverage

under the terms of the plan if each of the following conditions

is met:

‘‘(A) The employee or dependent was covered under

a group health plan or had health insurance coverage at

the time coverage was previously offered to the employee

or individual.

‘‘(B) The employee stated in writing at such time that

coverage under a group health plan or health insurance

coverage was the reason for declining enrollment, but only

if the plan sponsor (or the health insurance issuer offering

health insurance coverage in connection with the plan)

required such a statement at such time and provided the

employee with notice of such requirement (and the consequences of such requirement) at such time.

‘‘(C) The employee’s or dependent’s coverage described

in subparagraph (A)—

‘‘(i) was under a COBRA continuation provision and the coverage under such provision was

exhausted; or

‘‘(ii) was not under such a provision and either

the coverage was terminated as a result of loss of

eligibility for the coverage (including as a result of

legal separation, divorce, death, termination of employment, or reduction in the number of hours of employment) or employer contributions toward such coverage

were terminated.

‘‘(D) Under the terms of the plan, the employee

requests such enrollment not later than 30 days after the

date of exhaustion of coverage described in subparagraph

(C)(i) or termination of coverage or employer contribution

described in subparagraph (C)(ii).

‘‘(2) FOR DEPENDENT BENEFICIARIES.—

‘‘(A) IN GENERAL.—If—

‘‘(i) a group health plan makes coverage available

with respect to a dependent of an individual,

‘‘(ii) the individual is a participant under the plan

(or has met any waiting period applicable to becoming
110 STAT. 2078 PUBLIC LAW 104–191—AUG. 21, 1996

a participant under the plan and is eligible to be

enrolled under the plan but for a failure to enroll

during a previous enrollment period), and

‘‘(iii) a person becomes such a dependent of the

individual through marriage, birth, or adoption or

placement for adoption,

the group health plan shall provide for a dependent special

enrollment period described in subparagraph (B) during

which the person (or, if not otherwise enrolled, the individual) may be enrolled under the plan as a dependent of

the individual, and in the case of the birth or adoption

of a child, the spouse of the individual may be enrolled

as a dependent of the individual if such spouse is otherwise

eligible for coverage.

‘‘(B) DEPENDENT SPECIAL ENROLLMENT PERIOD.—The

dependent special enrollment period under this subparagraph shall be a period of not less than 30 days and

shall begin on the later of—

‘‘(i) the date dependent coverage is made available, or

‘‘(ii) the date of the marriage, birth, or adoption

or placement for adoption (as the case may be)

described in subparagraph (A)(iii).

‘‘(C) NO WAITING PERIOD.—If an individual seeks coverage of a dependent during the first 30 days of such

a dependent special enrollment period, the coverage of the

dependent shall become effective—

‘‘(i) in the case of marriage, not later than the

first day of the first month beginning after the date

the completed request for enrollment is received;

‘‘(ii) in the case of a dependent’s birth, as of the

date of such birth; or

‘‘(iii) in the case of a dependent’s adoption or placement for adoption, the date of such adoption or

placement for adoption.

‘‘SEC. 9802. PROHIBITING DISCRIMINATION AGAINST INDIVIDUAL

PARTICIPANTS AND BENEFICIARIES BASED ON HEALTH

STATUS.

‘‘(a) IN ELIGIBILITY TO ENROLL.—

‘‘(1) IN GENERAL.—Subject to paragraph (2), a group health

plan may not establish rules for eligibility (including continued

eligibility) of any individual to enroll under the terms of the

plan based on any of the following factors in relation to the

individual or a dependent of the individual:

‘‘(A) Health status.

‘‘(B) Medical condition (including both physical and

mental illnesses).

‘‘(C) Claims experience.

‘‘(D) Receipt of health care.

‘‘(E) Medical history.

‘‘(F) Genetic information.

‘‘(G) Evidence of insurability (including conditions arising out of acts of domestic violence).

‘‘(H) Disability.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2079

‘‘(2) NO APPLICATION TO BENEFITS OR EXCLUSIONS.—To the

extent consistent with section 9801, paragraph (1) shall not

be construed—

‘‘(A) to require a group health plan to provide particular

benefits (or benefits with respect to a specific procedure,

treatment, or service) other than those provided under

the terms of such plan; or

‘‘(B) to prevent such a plan from establishing limitations or restrictions on the amount, level, extent, or nature

of the benefits or coverage for similarly situated individuals

enrolled in the plan or coverage.

‘‘(3) CONSTRUCTION.—For purposes of paragraph (1), rules

for eligibility to enroll under a plan include rules defining

any applicable waiting periods for such enrollment.

‘‘(b) IN PREMIUM CONTRIBUTIONS.—

‘‘(1) IN GENERAL.—A group health plan may not require

any individual (as a condition of enrollment or continued enrollment under the plan) to pay a premium or contribution which

is greater than such premium or contribution for a similarly

situated individual enrolled in the plan on the basis of any

factor described in subsection (a)(1) in relation to the individual

or to an individual enrolled under the plan as a dependent

of the individual.

‘‘(2) CONSTRUCTION.—Nothing in paragraph (1) shall be

construed—

‘‘(A) to restrict the amount that an employer may be

charged for coverage under a group health plan; or

‘‘(B) to prevent a group health plan from establishing

premium discounts or rebates or modifying otherwise

applicable copayments or deductibles in return for adherence to programs of health promotion and disease prevention.

‘‘SEC. 9803. GUARANTEED RENEWABILITY IN MULTIEMPLOYER PLANS

AND CERTAIN MULTIPLE EMPLOYER WELFARE

ARRANGEMENTS.

‘‘(a) IN GENERAL.—A group health plan which is a multiemployer plan (as defined in section 414(f)) or which is a multiple

employer welfare arrangement may not deny an employer continued

access to the same or different coverage under such plan, other

than—

‘‘(1) for nonpayment of contributions;

‘‘(2) for fraud or other intentional misrepresentation of

material fact by the employer;

‘‘(3) for noncompliance with material plan provisions;

‘‘(4) because the plan is ceasing to offer any coverage in

a geographic area;

‘‘(5) in the case of a plan that offers benefits through

a network plan, because there is no longer any individual

enrolled through the employer who lives, resides, or works

in the service area of the network plan and the plan applies

this paragraph uniformly without regard to the claims experience of employers or a factor described in section 9802(a)(1)

in relation to such individuals or their dependents; or

‘‘(6) for failure to meet the terms of an applicable collective

bargaining agreement, to renew a collective bargaining or other
110 STAT. 2080 PUBLIC LAW 104–191—AUG. 21, 1996

agreement requiring or authorizing contributions to the plan,

or to employ employees covered by such an agreement.

‘‘(b) MULTIPLE EMPLOYER WELFARE ARRANGEMENT.—For purposes of subsection (a), the term ‘multiple employer welfare arrangement’ has the meaning given such term by section 3(40) of the

Employee Retirement Income Security Act of 1974, as in effect

on the date of the enactment of this section.

‘‘SEC. 9804. GENERAL EXCEPTIONS.

‘‘(a) EXCEPTION FOR CERTAIN PLANS.—The requirements of this

chapter shall not apply to—

‘‘(1) any governmental plan, and

‘‘(2) any group health plan for any plan year if, on the

first day of such plan year, such plan has less than 2 participants who are current employees.

‘‘(b) EXCEPTION FOR CERTAIN BENEFITS.—The requirements of

this chapter shall not apply to any group health plan in relation

to its provision of excepted benefits described in section 9805(c)(1).

‘‘(c) EXCEPTION FOR CERTAIN BENEFITS IF CERTAIN CONDITIONS

MET.— ‘‘(1) LIMITED, EXCEPTED BENEFITS.—The requirements of

this chapter shall not apply to any group health plan in relation

to its provision of excepted benefits described in section

9805(c)(2) if the benefits—

‘‘(A) are provided under a separate policy, certificate,

or contract of insurance; or

‘‘(B) are otherwise not an integral part of the plan.

‘‘(2) NONCOORDINATED, EXCEPTED BENEFITS.—The requirements of this chapter shall not apply to any group health

plan in relation to its provision of excepted benefits described

in section 9805(c)(3) if all of the following conditions are met:

‘‘(A) The benefits are provided under a separate policy,

certificate, or contract of insurance.

‘‘(B) There is no coordination between the provision

of such benefits and any exclusion of benefits under any

group health plan maintained by the same plan sponsor.

‘‘(C) Such benefits are paid with respect to an event

without regard to whether benefits are provided with

respect to such an event under any group health plan

maintained by the same plan sponsor.

‘‘(3) SUPPLEMENTAL EXCEPTED BENEFITS.—The requirements of this chapter shall not apply to any group health

plan in relation to its provision of excepted benefits described

in section 9805(c)(4) if the benefits are provided under a separate policy, certificate, or contract of insurance.

‘‘SEC. 9805. DEFINITIONS.

‘‘(a) GROUP HEALTH PLAN.—For purposes of this chapter, the

term ‘group health plan’ has the meaning given to such term

by section 5000(b)(1).

‘‘(b) DEFINITIONS RELATING TO HEALTH INSURANCE.—For purposes of this chapter—

‘‘(1) HEALTH INSURANCE COVERAGE.— ‘‘(A) IN GENERAL.—Except as provided in subparagraph

(B), the term ‘health insurance coverage’ means benefits

consisting of medical care (provided directly, through insurance or reimbursement, or otherwise) under any hospital

or medical service policy or certificate, hospital or medical
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2081

service plan contract, or health maintenance organization

contract offered by a health insurance issuer.

‘‘(B) NO APPLICATION TO CERTAIN EXCEPTED BENEFITS.—

In applying subparagraph (A), excepted benefits described

in subsection (c)(1) shall not be treated as benefits consisting of medical care.

‘‘(2) HEALTH INSURANCE ISSUER.—The term ‘health insurance issuer’ means an insurance company, insurance service,

or insurance organization (including a health maintenance

organization, as defined in paragraph (3)) which is licensed

to engage in the business of insurance in a State and which

is subject to State law which regulates insurance (within the

meaning of section 514(b)(2) of the Employee Retirement

Income Security Act of 1974, as in effect on the date of the

enactment of this section). Such term does not include a group

health plan.

‘‘(3) HEALTH MAINTENANCE ORGANIZATION.—The term

‘health maintenance organization’ means—

‘‘(A) a federally qualified health maintenance organization (as defined in section 1301(a) of the Public Health

Service Act (42 U.S.C. 300e(a))),

‘‘(B) an organization recognized under State law as

a health maintenance organization, or

‘‘(C) a similar organization regulated under State law

for solvency in the same manner and to the same extent

as such a health maintenance organization.

‘‘(c) EXCEPTED BENEFITS.—For purposes of this chapter, the

term ‘excepted benefits’ means benefits under one or more (or

any combination thereof) of the following:

‘‘(1) BENEFITS NOT SUBJECT TO REQUIREMENTS.—

‘‘(A) Coverage only for accident, or disability income

insurance, or any combination thereof.

‘‘(B) Coverage issued as a supplement to liability insurance.

‘‘(C) Liability insurance, including general liability

insurance and automobile liability insurance.

‘‘(D) Workers’ compensation or similar insurance.

‘‘(E) Automobile medical payment insurance.

‘‘(F) Credit-only insurance.

‘‘(G) Coverage for on-site medical clinics.

‘‘(H) Other similar insurance coverage, specified in

regulations, under which benefits for medical care are

secondary or incidental to other insurance benefits.

‘‘(2) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED

SEPARATELY.—

‘‘(A) Limited scope dental or vision benefits.

‘‘(B) Benefits for long-term care, nursing home care,

home health care, community-based care, or any combination thereof.

‘‘(C) Such other similar, limited benefits as are specified

in regulations.

‘‘(3) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED

AS INDEPENDENT, NONCOORDINATED BENEFITS.—

‘‘(A) Coverage only for a specified disease or illness.

‘‘(B) Hospital indemnity or other fixed indemnity insurance.
110 STAT. 2082 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(4) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED

AS SEPARATE INSURANCE POLICY.—Medicare supplemental

health insurance (as defined under section 1882(g)(1) of the

Social Security Act), coverage supplemental to the coverage

provided under chapter 55 of title 10, United States Code,

and similar supplemental coverage provided to coverage under

a group health plan.

‘‘(d) OTHER DEFINITIONS.—For purposes of this chapter—

‘‘(1) COBRA CONTINUATION PROVISION.—The term ‘COBRA

continuation provision’ means any of the following:

‘‘(A) Section 4980B, other than subsection (f)(1) thereof

insofar as it relates to pediatric vaccines.

‘‘(B) Part 6 of subtitle B of title I of the Employee

Retirement Income Security Act of 1974 (29 U.S.C. 1161

et seq.), other than section 609 of such Act.

‘‘(C) Title XXII of the Public Health Service Act.

‘‘(2) GOVERNMENTAL PLAN.—The term ‘governmental plan’

has the meaning given such term by section 414(d).

‘‘(3) MEDICAL CARE.—The term ‘medical care’ has the meaning given such term by section 213(d) determined without

regard to—

‘‘(A) paragraph (1)(C) thereof, and

‘‘(B) so much of paragraph (1)(D) thereof as relates

to qualified long-term care insurance.

‘‘(4) NETWORK PLAN.—The term ‘network plan’ means

health insurance coverage of a health insurance issuer under

which the financing and delivery of medical care are provided,

in whole or in part, through a defined set of providers under

contract with the issuer.

‘‘(5) PLACED FOR ADOPTION DEFINED.—The term ‘placement’,

or being ‘placed’, for adoption, in connection with any placement

for adoption of a child with any person, means the assumption

and retention by such person of a legal obligation for total

or partial support of such child in anticipation of adoption

of such child. The child’s placement with such person terminates upon the termination of such legal obligation.

‘‘SEC. 9806. REGULATIONS.

‘‘The Secretary, consistent with section 104 of the Health Care

Portability and Accountability Act of 1996, may promulgate such

regulations as may be necessary or appropriate to carry out the

provisions of this chapter. The Secretary may promulgate any

interim final rules as the Secretary determines are appropriate

to carry out this chapter.’’.

(b) CLERICAL AMENDMENT.—The table of subtitles of such Code

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

‘‘Subtitle K. Group health plan portability, access, and renewability requirements.’’.

(c) EFFECTIVE DATE.— (1) IN GENERAL.—The amendments made by this section

shall apply to plan years beginning after June 30, 1997.

(2) DETERMINATION OF CREDITABLE COVERAGE.— (A) PERIOD OF COVERAGE.— (i) IN GENERAL.—Subject to clause (ii), no period

before July 1, 1996, shall be taken into account under

chapter 100 of the Internal Revenue Code of 1986

(as added by this section) in determining creditable

coverage.

26 USC 9801

note.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2083

(ii) SPECIAL RULE FOR CERTAIN PERIODS.—The Secretary of the Treasury, consistent with section 104,

shall provide for a process whereby individuals who

need to establish creditable coverage for periods before

July 1, 1996, and who would have such coverage credited but for clause (i) may be given credit for creditable

coverage for such periods through the presentation

of documents or other means.

(B) CERTIFICATIONS, ETC.—

(i) IN GENERAL.—Subject to clauses (ii) and (iii),

subsection (e) of section 9801 of the Internal Revenue

Code of 1986 (as added by this section) shall apply

to events occurring after June 30, 1996.

(ii) NO CERTIFICATION REQUIRED TO BE PROVIDED

BEFORE JUNE 1, 1997.—In no case is a certification

required to be provided under such subsection before

June 1, 1997.

(iii) CERTIFICATION ONLY ON WRITTEN REQUEST FOR

EVENTS OCCURRING BEFORE OCTOBER 1, 1996.—In the

case of an event occurring after June 30, 1996, and

before October 1, 1996, a certification is not required

to be provided under such subsection unless an individual (with respect to whom the certification is otherwise

required to be made) requests such certification in

writing.

(C) TRANSITIONAL RULE.—In the case of an individual

who seeks to establish creditable coverage for any period

for which certification is not required because it relates

to an event occurring before June 30, 1996—

(i) the individual may present other credible evidence of such coverage in order to establish the period

of creditable coverage; and

(ii) a group health plan and a health insurance

issuer shall not be subject to any penalty or enforcement action with respect to the plan’s or issuer’s crediting (or not crediting) such coverage if the plan or

issuer has sought to comply in good faith with the

applicable requirements under the amendments made

by this section.

(3) SPECIAL RULE FOR COLLECTIVE BARGAINING AGREEMENTS.—Except as provided in paragraph (2), in the case of

a group health plan maintained pursuant to 1 or more collective

bargaining agreements between employee representatives and

one or more employers ratified before the date of the enactment

of this Act, the amendments made by this section shall not

apply to plan years beginning before the later of—

(A) the date on which the last of the collective bargaining agreements relating to the plan terminates (determined

without regard to any extension thereof agreed to after

the date of the enactment of this Act), or

(B) July 1, 1997.

For purposes of subparagraph (A), any plan amendment made

pursuant to a collective bargaining agreement relating to the

plan which amends the plan solely to conform to any requirement added by this section shall not be treated as a termination

of such collective bargaining agreement.
110 STAT. 2084 PUBLIC LAW 104–191—AUG. 21, 1996

(4) TIMELY REGULATIONS.—The Secretary of the Treasury,

consistent with section 104, shall first issue by not later than

April 1, 1997, such regulations as may be necessary to carry

out the amendments made by this section.

(5) LIMITATION ON ACTIONS.—No enforcement action shall

be taken, pursuant to the amendments made by this section,

against a group health plan or health insurance issuer with

respect to a violation of a requirement imposed by such amendments before January 1, 1998, or, if later, the date of issuance

of regulations referred to in paragraph (4), if the plan or issuer

has sought to comply in good faith with such requirements.

SEC. 402. PENALTY ON FAILURE TO MEET CERTAIN GROUP HEALTH

PLAN REQUIREMENTS.

(a) IN GENERAL.—Chapter 43 of the Internal Revenue Code

of 1986 (relating to qualified pension, etc., plans) is amended by

adding after section 4980C the following new section:

‘‘SEC. 4980D. FAILURE TO MEET CERTAIN GROUP HEALTH PLAN

REQUIREMENTS.

‘‘(a) GENERAL RULE.—There is hereby imposed a tax on any

failure of a group health plan to meet the requirements of chapter

100 (relating to group health plan portability, access, and renewability requirements).

‘‘(b) AMOUNT OF TAX.—

‘‘(1) IN GENERAL.—The amount of the tax imposed by subsection (a) on any failure shall be $100 for each day in the

noncompliance period with respect to each individual to whom

such failure relates.

‘‘(2) NONCOMPLIANCE PERIOD.—For purposes of this section,

the term ‘noncompliance period’ means, with respect to any

failure, the period—

‘‘(A) beginning on the date such failure first

occurs, and

‘‘(B) ending on the date such failure is corrected.

‘‘(3) MINIMUM TAX FOR NONCOMPLIANCE PERIOD WHERE

FAILURE DISCOVERED AFTER NOTICE OF EXAMINATION.—Notwithstanding paragraphs (1) and (2) of subsection (c)—

‘‘(A) IN GENERAL.—In the case of 1 or more failures

with respect to an individual—

‘‘(i) which are not corrected before the date a notice

of examination of income tax liability is sent to the

employer, and

‘‘(ii) which occurred or continued during the period

under examination,

the amount of tax imposed by subsection (a) by reason

of such failures with respect to such individual shall not

be less than the lesser of $2,500 or the amount of tax

which would be imposed by subsection (a) without regard

to such paragraphs.

‘‘(B) HIGHER MINIMUM TAX WHERE VIOLATIONS ARE

MORE THAN DE MINIMIS.—To the extent violations for which

any person is liable under subsection (e) for any year

are more than de minimis, subparagraph (A) shall be

applied by substituting ‘$15,000’ for ‘$2,500’ with respect

to such person.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2085

‘‘(C) EXCEPTION FOR CHURCH PLANS.—This paragraph

shall not apply to any failure under a church plan (as

defined in section 414(e)).

‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—

‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT DISCOVERED

EXERCISING REASONABLE DILIGENCE.—No tax shall be imposed

by subsection (a) on any failure during any period for which

it is established to the satisfaction of the Secretary that the

person otherwise liable for such tax did not know, and exercising reasonable diligence would not have known, that such failure existed.

‘‘(2) TAX NOT TO APPLY TO FAILURES CORRECTED WITHIN

CERTAIN PERIODS.—No tax shall be imposed by subsection (a)

on any failure if—

‘‘(A) such failure was due to reasonable cause and

not to willful neglect, and

‘‘(B)(i) in the case of a plan other than a church plan

(as defined in section 414(e)), such failure is corrected

during the 30-day period beginning on the first date the

person otherwise liable for such tax knew, or exercising

reasonable diligence would have known, that such failure

existed, and

‘‘(ii) in the case of a church plan (as so defined), such

failure is corrected before the close of the correction period

(determined under the rules of section 414(e)(4)(C)).

‘‘(3) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.—

In the case of failures which are due to reasonable cause

and not to willful neglect—

‘‘(A) SINGLE EMPLOYER PLANS.—

‘‘(i) IN GENERAL.—In the case of failures with

respect to plans other than specified multiple employer

health plans, the tax imposed by subsection (a) for

failures during the taxable year of the employer shall

not exceed the amount equal to the lesser of—

‘‘(I) 10 percent of the aggregate amount paid

or incurred by the employer (or predecessor

employer) during the preceding taxable year for

group health plans, or

‘‘(II) $500,000.

‘‘(ii) TAXABLE YEARS IN THE CASE OF CERTAIN CONTROLLED GROUPS.—For purposes of this subparagraph,

if not all persons who are treated as a single employer

for purposes of this section have the same taxable

year, the taxable years taken into account shall be

determined under principles similar to the principles

of section 1561.

‘‘(B) SPECIFIED MULTIPLE EMPLOYER HEALTH PLANS.—

‘‘(i) IN GENERAL.—In the case of failures with

respect to a specified multiple employer health plan,

the tax imposed by subsection (a) for failures during

the taxable year of the trust forming part of such

plan shall not exceed the amount equal to the

lesser of—

‘‘(I) 10 percent of the amount paid or incurred

by such trust during such taxable year to provide

medical care (as defined in section 9805(d)(3))
110 STAT. 2086 PUBLIC LAW 104–191—AUG. 21, 1996

directly or through insurance, reimbursement, or

otherwise, or

‘‘(II) $500,000.

For purposes of the preceding sentence, all plans of

which the same trust forms a part shall be treated

as one plan.

‘‘(ii) SPECIAL RULE FOR EMPLOYERS REQUIRED TO

PAY TAX.—If an employer is assessed a tax imposed

by subsection (a) by reason of a failure with respect

to a specified multiple employer health plan, the limit

shall be determined under subparagraph (A) (and not

under this subparagraph) and as if such plan were

not a specified multiple employer health plan.

‘‘(4) WAIVER BY SECRETARY.—In the case of a failure which

is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection

(a) to the extent that the payment of such tax would be excessive relative to the failure involved.

‘‘(d) TAX NOT TO APPLY TO CERTAIN INSURED SMALL EMPLOYER

PLANS.—

‘‘(1) IN GENERAL.—In the case of a group health plan of

a small employer which provides health insurance coverage

solely through a contract with a health insurance issuer, no

tax shall be imposed by this section on the employer on any

failure which is solely because of the health insurance coverage

offered by such issuer.

‘‘(2) SMALL EMPLOYER.—

‘‘(A) IN GENERAL.—For purposes of paragraph (1), the

term ‘small employer’ means, with respect to a calendar

year and a plan year, an employer who employed an average of at least 2 but not more than 50 employees on

business days during the preceding calendar year and who

employs at least 2 employees on the first day of the plan

year. For purposes of the preceding sentence, all persons

treated as a single employer under subsection (b), (c), (m),

or (o) of section 414 shall be treated as one employer.

‘‘(B) EMPLOYERS NOT IN EXISTENCE IN PRECEDING

YEAR.—In the case of an employer which was not in existence throughout the preceding calendar year, the determination of whether such employer is a small employer

shall be based on the average number of employees that

it is reasonably expected such employer will employ on

business days in the current calendar year.

‘‘(C) PREDECESSORS.—Any reference in this paragraph

to an employer shall include a reference to any predecessor

of such employer.

‘‘(3) HEALTH INSURANCE COVERAGE; HEALTH INSURANCE

ISSUER.—For purposes of paragraph (1), the terms ‘health insurance coverage’ and ‘health insurance issuer’ have the respective

meanings given such terms by section 9805.

‘‘(e) LIABILITY FOR TAX.—The following shall be liable for the

tax imposed by subsection (a) on a failure:

‘‘(1) Except as otherwise provided in this subsection, the

employer.

‘‘(2) In the case of a multiemployer plan, the plan.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2087

‘‘(3) In the case of a failure under section 9803 (relating

to guaranteed renewability) with respect to a plan described

in subsection (f)(2)(B), the plan.

‘‘(f) DEFINITIONS.—For purposes of this section—

‘‘(1) GROUP HEALTH PLAN.—The term ‘group health plan’

has the meaning given such term by section 9805(a).

‘‘(2) SPECIFIED MULTIPLE EMPLOYER HEALTH PLAN.—The

term ‘specified multiple employer health plan’ means a group

health plan which is—

‘‘(A) any multiemployer plan, or

‘‘(B) any multiple employer welfare arrangement (as

defined in section 3(40) of the Employee Retirement Income

Security Act of 1974, as in effect on the date of the enactment of this section).

‘‘(3) CORRECTION.—A failure of a group health plan shall

be treated as corrected if—

‘‘(A) such failure is retroactively undone to the extent

possible, and

‘‘(B) the person to whom the failure relates is placed

in a financial position which is as good as such person

would have been in had such failure not occurred.’’.

(b) CLERICAL AMENDMENT.—The table of sections for chapter

43 of such Code is amended by adding after the item relating

to section 4980C the following new item:

‘‘Sec. 4980D. Failure to meet certain group health plan requirements.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to failures under chapter 100 of the Internal Revenue

Code of 1986 (as added by section 401 of this Act).

Subtitle B—Clarification of Certain

Continuation Coverage Requirements

SEC. 421. COBRA CLARIFICATIONS.

(a) PUBLIC HEALTH SERVICE ACT.—

(1) PERIOD OF COVERAGE.—Section 2202(2) of the Public

Health Service Act (42 U.S.C. 300bb–2(2)) is amended—

(A) in subparagraph (A)—

(i) by transferring the sentence immediately

preceding clause (iv) so as to appear immediately following such clause (iv); and

(ii) in the last sentence (as so transferred)—

(I) by striking ‘‘an individual’’ and inserting

‘‘a qualified beneficiary’’;

(II) by striking ‘‘at the time of a qualifying

event described in section 2203(2)’’ and inserting

‘‘at any time during the first 60 days of continuation coverage under this title’’;

(III) by striking ‘‘with respect to such event,’’;

and

(IV) by inserting ‘‘(with respect to all qualified

beneficiaries)’’ after ‘‘29 months’’;

(B) in subparagraph (D)(i), by inserting before ‘‘, or’’

the following: ‘‘(other than such an exclusion or limitation

which does not apply to (or is satisfied by) such beneficiary

by reason of chapter 100 of the Internal Revenue Code

26 USC 4980D

note.
110 STAT. 2088 PUBLIC LAW 104–191—AUG. 21, 1996

of 1986, part 7 of subtitle B of title I of the Employee

Retirement Income Security Act of 1974, or title XXVII

of this Act)’’; and

(C) in subparagraph (E), by striking ‘‘at the time of

a qualifying event described in section 2203(2)’’ and inserting ‘‘at any time during the first 60 days of continuation

coverage under this title’’.

(2) NOTICES.—Section 2206(3) of the Public Health Service

Act (42 U.S.C. 300bb–6(3)) is amended by striking ‘‘at the

time of a qualifying event described in section 2203(2)’’ and

inserting ‘‘at any time during the first 60 days of continuation

coverage under this title’’.

(3) BIRTH OR ADOPTION OF A CHILD.—Section 2208(3)(A)

of the Public Health Service Act (42 U.S.C. 300bb–8(3)(A))

is amended by adding at the end thereof the following new

flush sentence:

‘‘Such term shall also include a child who is born to or placed

for adoption with the covered employee during the period of

continuation coverage under this title.’’.

(b) EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.—

(1) PERIOD OF COVERAGE.—Section 602(2) of the Employee

Retirement Income Security Act of 1974 (29 U.S.C. 1162(2))

is amended—

(A) in the last sentence of subparagraph (A)—

(i) by striking ‘‘an individual’’ and inserting ‘‘a

qualified beneficiary’’;

(ii) by striking ‘‘at the time of a qualifying event

described in section 603(2)’’ and inserting ‘‘at any time

during the first 60 days of continuation coverage under

this part’’;

(iii) by striking ‘‘with respect to such event’’; and

(iv) by inserting ‘‘(with respect to all qualified beneficiaries)’’ after ‘‘29 months’’;

(B) in subparagraph (D)(i), by inserting before ‘‘, or’’

the following: ‘‘(other than such an exclusion or limitation

which does not apply to (or is satisfied by) such beneficiary

by reason of chapter 100 of the Internal Revenue Code

of 1986, part 7 of this subtitle, or title XXVII of the Public

Health Service Act)’’; and

(C) in subparagraph (E), by striking ‘‘at the time of

a qualifying event described in section 603(2)’’ and inserting

‘‘at any time during the first 60 days of continuation coverage under this part’’.

(2) NOTICES.—Section 606(a)(3) of the Employee Retirement

Income Security Act of 1974 (29 U.S.C. 1166(a)(3)) is amended

by striking ‘‘at the time of a qualifying event described in

section 603(2)’’ and inserting ‘‘at any time during the first

60 days of continuation coverage under this part’’.

(3) BIRTH OR ADOPTION OF A CHILD.—Section 607(3)(A) of

the Employee Retirement Income Security Act of 1974 (29

U.S.C. 1167(3)) is amended by adding at the end thereof the

following new flush sentence:

‘‘Such term shall also include a child who is born to or placed

for adoption with the covered employee during the period of

continuation coverage under this part.’’.

(c) INTERNAL REVENUE CODE OF 1986.—
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2089

(1) PERIOD OF COVERAGE.—Section 4980B(f)(2)(B) of the

Internal Revenue Code of 1986 is amended—

(A) in the last sentence of clause (i)—

(i) by striking ‘‘at the time of a qualifying event

described in paragraph (3)(B)’’ and inserting ‘‘at any

time during the first 60 days of continuation coverage

under this section’’;

(ii) by striking ‘‘with respect to such event’’; and

(iii) by inserting ‘‘(with respect to all qualified

beneficiaries)’’ after ‘‘29 months’’;

(B) in clause (iv)(I), by inserting before ‘‘, or’’ the following: ‘‘(other than such an exclusion or limitation which

does not apply to (or is satisfied by) such beneficiary by

reason of chapter 100 of this title, part 7 of subtitle B

of title I of the Employee Retirement Income Security

Act of 1974, or title XXVII of the Public Health Service

Act)’’; and

(C) in clause (v), by striking ‘‘at the time of a qualifying

event described in paragraph (3)(B)’’ and inserting ‘‘at any

time during the first 60 days of continuation coverage

under this section’’.

(2) NOTICES.—Section 4980B(f)(6)(C) of the Internal

Revenue Code of 1986 is amended by striking ‘‘at the time

of a qualifying event described in paragraph (3)(B)’’ and inserting ‘‘at any time during the first 60 days of continuation coverage under this section’’.

(3) BIRTH OR ADOPTION OF A CHILD.—Section 4980B(g)(1)(A)

of the Internal Revenue Code of 1986 is amended by adding

at the end thereof the following new flush sentence:

‘‘Such term shall also include a child who is born

to or placed for adoption with the covered employee

during the period of continuation coverage under this

section.’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall become effective on January 1, 1997, regardless of whether

the qualifying event occurred before, on, or after such date.

(e) NOTIFICATION OF CHANGES.—Not later than November 1,

1996, each group health plan (covered under title XXII of the

Public Health Service Act, part 6 of subtitle B of title I of the

Employee Retirement Income Security Act of 1974, and section

4980B(f) of the Internal Revenue Code of 1986) shall notify each

qualified beneficiary who has elected continuation coverage under

such title, part or section of the amendments made by this section.

TITLE V—REVENUE OFFSETS

SEC. 500. 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.

26 USC 4980B

note.

26 USC 4980B

note.
110 STAT. 2090 PUBLIC LAW 104–191—AUG. 21, 1996

Subtitle A—Company-Owned Life

Insurance

SEC. 501. DENIAL OF DEDUCTION FOR INTEREST ON LOANS WITH

RESPECT TO COMPANY-OWNED LIFE INSURANCE.

(a) IN GENERAL.—Paragraph (4) of section 264(a) is amended—

(1) by inserting ‘‘, or any endowment or annuity contracts

owned by the taxpayer covering any individual,’’ after ‘‘the

life of any individual’’, and

(2) by striking all that follows ‘‘carried on by the taxpayer’’

and inserting a period.

(b) EXCEPTION FOR CONTRACTS RELATING TO KEY PERSONS;

PERMISSIBLE INTEREST RATES.—Section 264 is amended—

(1) by striking ‘‘Any’’ in subsection (a)(4) and inserting

‘‘Except as provided in subsection (d), any’’, and

(2) by adding at the end the following new subsection:

‘‘(d) SPECIAL RULES FOR APPLICATION OF SUBSECTION (a)(4).—

‘‘(1) EXCEPTION FOR KEY PERSONS.—Subsection (a)(4) shall

not apply to any interest paid or accrued on any indebtedness

with respect to policies or contracts covering an individual

who is a key person to the extent that the aggregate amount

of such indebtedness with respect to policies and contracts

covering such individual does not exceed $50,000.

‘‘(2) INTEREST RATE CAP ON KEY PERSONS AND PRE-1986

CONTRACTS.— ‘‘(A) IN GENERAL.—No deduction shall be allowed by

reason of paragraph (1) or the last sentence of subsection

(a) with respect to interest paid or accrued for any month

beginning after December 31, 1995, to the extent the

amount of such interest exceeds the amount which would

have been determined if the applicable rate of interest

were used for such month.

‘‘(B) APPLICABLE RATE OF INTEREST.—For purposes of

subparagraph (A)—

‘‘(i) IN GENERAL.—The applicable rate of interest

for any month is the rate of interest described as

Moody’s Corporate Bond Yield Average-Monthly Average Corporates as published by Moody’s Investors

Service, Inc., or any successor thereto, for such month.

‘‘(ii) PRE-1986 CONTRACTS.—In the case of indebtedness on a contract purchased on or before June 20,

1986—

‘‘(I) which is a contract providing a fixed rate

of interest, the applicable rate of interest for any

month shall be the Moody’s rate described in

clause (i) for the month in which the contract

was purchased, or

‘‘(II) which is a contract providing a variable

rate of interest, the applicable rate of interest for

any month in an applicable period shall be such

Moody’s rate for the third month preceding the

first month in such period.

For purposes of subclause (II), the taxpayer shall elect

an applicable period for such contract on its return

of tax imposed by this chapter for its first taxable

year ending on or after October 13, 1995. Such
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2091

applicable period shall be for any number of months

(not greater than 12) specified in the election and

may not be changed by the taxpayer without the consent of the Secretary.

‘‘(3) KEY PERSON.—For purposes of paragraph (1), the term

‘key person’ means an officer or 20-percent owner, except that

the number of individuals who may be treated as key persons

with respect to any taxpayer shall not exceed the greater of—

‘‘(A) 5 individuals, or

‘‘(B) the lesser of 5 percent of the total officers and

employees of the taxpayer or 20 individuals.

‘‘(4) 20-PERCENT OWNER.—For purposes of this subsection,

the term ‘20-percent owner’ means—

‘‘(A) if the taxpayer is a corporation, any person who

owns directly 20 percent or more of the outstanding stock

of the corporation or stock possessing 20 percent or more

of the total combined voting power of all stock of the

corporation, or

‘‘(B) if the taxpayer is not a corporation, any person

who owns 20 percent or more of the capital or profits

interest in the employer.

‘‘(5) AGGREGATION RULES.—

‘‘(A) IN GENERAL.—For purposes of paragraph (4)(A)

and applying the $50,000 limitation in paragraph (1)—

‘‘(i) all members of a controlled group shall be

treated as one taxpayer, and

‘‘(ii) such limitation shall be allocated among the

members of such group in such manner as the Secretary may prescribe.

‘‘(B) CONTROLLED GROUP.—For purposes of this paragraph, all persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o)

of section 414 shall be treated as members of a controlled

group.’’.

(c) EFFECTIVE DATES.—

(1) IN GENERAL.—The amendments made by this section

shall apply to interest paid or accrued after October 13, 1995.

(2) TRANSITION RULE FOR EXISTING INDEBTEDNESS.—

(A) IN GENERAL.—In the case of—

(i) indebtedness incurred before January 1,

1996, or

(ii) indebtedness incurred before January 1, 1997

with respect to any contract or policy entered into

in 1994 or 1995,

the amendments made by this section shall not apply to

qualified interest paid or accrued on such indebtedness

after October 13, 1995, and before January 1, 1999.

(B) QUALIFIED INTEREST.—For purposes of subparagraph (A), the qualified interest with respect to any indebtedness for any month is the amount of interest (otherwise

deductible) which would be paid or accrued for such month

on such indebtedness if—

(i) in the case of any interest paid or accrued

after December 31, 1995, indebtedness with respect

to no more than 20,000 insured individuals were taken

into account, and

26 USC 264 note.
110 STAT. 2092 PUBLIC LAW 104–191—AUG. 21, 1996

(ii) the lesser of the following rates of interest

were used for such month:

(I) The rate of interest specified under the

terms of the indebtedness as in effect on October

13, 1995 (and without regard to modification of

such terms after such date).

(II) The applicable percentage of the rate of

interest described as Moody’s Corporate Bond

Yield Average-Monthly Average Corporates as published by Moody’s Investors Service, Inc., or any

successor thereto, for such month.

For purposes of clause (i), all persons treated as a single

employer under subsection (a) or (b) of section 52 of the

Internal Revenue Code of 1986 or subsection (m) or (o)

of section 414 of such Code shall be treated as 1 person.

Subclause (II) of clause (ii) shall not apply to any month

before January 1, 1996.

(C) APPLICABLE PERCENTAGE.—For purposes of subparagraph (B), the applicable percentage is as follows:

For calendar year: The percentage is:

1996 .......................................................................................... 100 percent

1997 .......................................................................................... 90 percent

1998 .......................................................................................... 80 percent.

(3) SPECIAL RULE FOR GRANDFATHERED CONTRACTS.—This

section shall not apply to any contract purchased on or before

June 20, 1986, except that section 264(d)(2) of the Internal

Revenue Code of 1986 shall apply to interest paid or accrued

after October 13, 1995.

(d) SPREAD OF INCOME INCLUSION ON SURRENDER, ETC. OF

CONTRACTS.—

(1) IN GENERAL.—If any amount is received under any

life insurance policy or endowment or annuity contract

described in paragraph (4) of section 264(a) of the Internal

Revenue Code of 1986—

(A) on the complete surrender, redemption, or maturity

of such policy or contract during calendar year 1996, 1997,

or 1998, or

(B) in full discharge during any such calendar year

of the obligation under the policy or contract which is

in the nature of a refund of the consideration paid for

the policy or contract,

then (in lieu of any other inclusion in gross income) such

amount shall be includible in gross income ratably over the

4-taxable year period beginning with the taxable year such

amount would (but for this paragraph) be includible. The

preceding sentence shall only apply to the extent the amount

is includible in gross income for the taxable year in which

the event described in subparagraph (A) or (B) occurs.

(2) SPECIAL RULES FOR APPLYING SECTION 264.—A contract

shall not be treated as—

(A) failing to meet the requirement of section 264(c)(1)

of the Internal Revenue Code of 1986, or

(B) a single premium contract under section 264(b)(1)

of such Code,

solely by reason of an occurrence described in subparagraph

(A) or (B) of paragraph (1) of this subsection or solely by

26 USC 264 note.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2093

reason of no additional premiums being received under the

contract by reason of a lapse occurring after October 13, 1995.

(3) SPECIAL RULE FOR DEFERRED ACQUISITION COSTS.—In

the case of the occurrence of any event described in subparagraph (A) or (B) of paragraph (1) of this subsection with respect

to any policy or contract—

(A) section 848 of the Internal Revenue Code of 1986

shall not apply to the unamortized balance (if any) of

the specified policy acquisition expenses attributable to

such policy or contract immediately before the insurance

company’s taxable year in which such event occurs, and

(B) there shall be allowed as a deduction to such company for such taxable year under chapter 1 of such Code

an amount equal to such unamortized balance.

Subtitle B—Treatment of Individuals Who

Lose United States Citizenship

SEC. 511. REVISION OF INCOME, ESTATE, AND GIFT TAXES ON

INDIVIDUALS WHO LOSE UNITED STATES CITIZENSHIP.

(a) IN GENERAL.—Subsection (a) of section 877 is amended

to read as follows:

‘‘(a) TREATMENT OF EXPATRIATES.— ‘‘(1) IN GENERAL.—Every nonresident alien individual who,

within the 10-year period immediately preceding the close of

the taxable year, lost United States citizenship, unless such

loss did not have for one of its principal purposes the avoidance

of taxes under this subtitle or subtitle B, shall be taxable

for such taxable year in the manner provided in subsection

(b) if the tax imposed pursuant to such subsection exceeds

the tax which, without regard to this section, is imposed pursuant to section 871.

‘‘(2) CERTAIN INDIVIDUALS TREATED AS HAVING TAX AVOID- ANCE PURPOSE.—For purposes of paragraph (1), an individual

shall be treated as having a principal purpose to avoid such

taxes if—

‘‘(A) the average annual net income tax (as defined

in section 38(c)(1)) of such individual for the period of

5 taxable years ending before the date of the loss of United

States citizenship is greater than $100,000, or

‘‘(B) the net worth of the individual as of such date

is $500,000 or more.

In the case of the loss of United States citizenship in any

calendar year after 1996, such $100,000 and $500,000 amounts

shall be increased by an amount equal to such dollar amount

multiplied by the cost-of-living adjustment determined under

section 1(f)(3) for such calendar year by substituting ‘1994’

for ‘1992’ in subparagraph (B) thereof. Any increase under

the preceding sentence shall be rounded to the nearest multiple

of $1,000.’’.

(b) EXCEPTIONS.— (1) IN GENERAL.—Section 877 is amended by striking subsection (d), by redesignating subsection (c) as subsection (d),

and by inserting after subsection (b) the following new subsection:

‘‘(c) TAX AVOIDANCE NOT PRESUMED IN CERTAIN CASES.—
110 STAT. 2094 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(1) IN GENERAL.—Subsection (a)(2) shall not apply to an

individual if—

‘‘(A) such individual is described in a subparagraph

of paragraph (2) of this subsection, and

‘‘(B) within the 1-year period beginning on the date

of the loss of United States citizenship, such individual

submits a ruling request for the Secretary’s determination

as to whether such loss has for one of its principal purposes

the avoidance of taxes under this subtitle or subtitle B.

‘‘(2) INDIVIDUALS DESCRIBED.—

‘‘(A) DUAL CITIZENSHIP, ETC.—An individual is

described in this subparagraph if—

‘‘(i) the individual became at birth a citizen

of the United States and a citizen of another country

and continues to be a citizen of such other country,

or

‘‘(ii) the individual becomes (not later than the

close of a reasonable period after loss of United States

citizenship) a citizen of the country in which—

‘‘(I) such individual was born,

‘‘(II) if such individual is married, such individual’s spouse was born, or

‘‘(III) either of such individual’s parents were

born.

‘‘(B) LONG-TERM FOREIGN RESIDENTS.—An individual

is described in this subparagraph if, for each year in the

10-year period ending on the date of loss of United States

citizenship, the individual was present in the United States

for 30 days or less. The rule of section 7701(b)(3)(D)(ii)

shall apply for purposes of this subparagraph.

‘‘(C) RENUNCIATION UPON REACHING AGE OF MAJORITY.—An individual is described in this subparagraph if

the individual’s loss of United States citizenship occurs

before such individual attains age 181⁄2.

‘‘(D) INDIVIDUALS SPECIFIED IN REGULATIONS.—An

individual is described in this subparagraph if the individual is described in a category of individuals prescribed

by regulation by the Secretary.’’.

(2) TECHNICAL AMENDMENT.—Paragraph (1) of section

877(b) of such Code is amended by striking ‘‘subsection (c)’’

and inserting ‘‘subsection (d)’’.

(c) TREATMENT OF PROPERTY DISPOSED OF IN NONRECOGNITION

TRANSACTIONS; TREATMENT OF DISTRIBUTIONS FROM CERTAIN CONTROLLED FOREIGN CORPORATIONS.—Subsection (d) of section 877,

as redesignated by subsection (b), is amended to read as follows:

‘‘(d) SPECIAL RULES FOR SOURCE, ETC.—For purposes of subsection (b)—

‘‘(1) SOURCE RULES.—The following items of gross income

shall be treated as income from sources within the United

States:

‘‘(A) SALE OF PROPERTY.—Gains on the sale or exchange

of property (other than stock or debt obligations) located

in the United States.

‘‘(B) STOCK OR DEBT OBLIGATIONS.—Gains on the sale

or exchange of stock issued by a domestic corporation or

debt obligations of United States persons or of the United
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2095

States, a State or political subdivision thereof, or the District of Columbia.

‘‘(C) INCOME OR GAIN DERIVED FROM CONTROLLED

FOREIGN CORPORATION.—Any income or gain derived from

stock in a foreign corporation but only—

‘‘(i) if the individual losing United States citizenship owned (within the meaning of section 958(a)),

or is considered as owning (by applying the ownership

rules of section 958(b)), at any time during the 2-

year period ending on the date of the loss of United

States citizenship, more than 50 percent of—

‘‘(I) the total combined voting power of all

classes of stock entitled to vote of such corporation, or

‘‘(II) the total value of the stock of such corporation, and

‘‘(ii) to the extent such income or gain does not

exceed the earnings and profits attributable to such

stock which were earned or accumulated before the

loss of citizenship and during periods that the ownership requirements of clause (i) are met.

‘‘(2) GAIN RECOGNITION ON CERTAIN EXCHANGES.—

‘‘(A) IN GENERAL.—In the case of any exchange of property to which this paragraph applies, notwithstanding any

other provision of this title, such property shall be treated

as sold for its fair market value on the date of such

exchange, and any gain shall be recognized for the taxable

year which includes such date.

‘‘(B) EXCHANGES TO WHICH PARAGRAPH APPLIES.—This

paragraph shall apply to any exchange during the 10-

year period described in subsection (a) if—

‘‘(i) gain would not (but for this paragraph) be

recognized on such exchange in whole or in part for

purposes of this subtitle,

‘‘(ii) income derived from such property was from

sources within the United States (or, if no income

was so derived, would have been from such sources),

and

‘‘(iii) income derived from the property acquired

in the exchange would be from sources outside the

United States.

‘‘(C) EXCEPTION.—Subparagraph (A) shall not apply

if the individual enters into an agreement with the Secretary which specifies that any income or gain derived

from the property acquired in the exchange (or any other

property which has a basis determined in whole or part

by reference to such property) during such 10-year period

shall be treated as from sources within the United States.

If the property transferred in the exchange is disposed

of by the person acquiring such property, such agreement

shall terminate and any gain which was not recognized

by reason of such agreement shall be recognized as of

the date of such disposition.

‘‘(D) SECRETARY MAY EXTEND PERIOD.—To the extent

provided in regulations prescribed by the Secretary,

subparagraph (B) shall be applied by substituting the 15-
110 STAT. 2096 PUBLIC LAW 104–191—AUG. 21, 1996

year period beginning 5 years before the loss of United

States citizenship for the 10-year period referred to therein.

‘‘(E) SECRETARY MAY REQUIRE RECOGNITION OF GAIN

IN CERTAIN CASES.—To the extent provided in regulations

prescribed by the Secretary—

‘‘(i) the removal of appreciated tangible personal

property from the United States, and

‘‘(ii) any other occurrence which (without recognition of gain) results in a change in the source of the

income or gain from property from sources within the

United States to sources outside the United States,

shall be treated as an exchange to which this paragraph

applies.

‘‘(3) SUBSTANTIAL DIMINISHING OF RISKS OF OWNERSHIP.—

For purposes of determining whether this section applies to

any gain on the sale or exchange of any property, the running

of the 10-year period described in subsection (a) shall be

suspended for any period during which the individual’s risk

of loss with respect to the property is substantially diminished

by—

‘‘(A) the holding of a put with respect to such property

(or similar property),

‘‘(B) the holding by another person of a right to acquire

the property, or

‘‘(C) a short sale or any other transaction.

‘‘(4) TREATMENT OF PROPERTY CONTRIBUTED TO CONTROLLED

FOREIGN CORPORATIONS.—

‘‘(A) IN GENERAL.—If—

‘‘(i) an individual losing United States citizenship

contributes property to any corporation which, at the

time of the contribution, is described in subparagraph

(B), and

‘‘(ii) income derived from such property was from

sources within the United States (or, if no income

was so derived, would have been from such sources),

during the 10-year period referred to in subsection (a),

any income or gain on such property (or any other property

which has a basis determined in whole or part by reference

to such property) received or accrued by the corporation

shall be treated as received or accrued directly by such

individual and not by such corporation. The preceding sentence shall not apply to the extent the property has been

treated under subparagraph (C) as having been sold by

such corporation.

‘‘(B) CORPORATION DESCRIBED.—A corporation is

described in this subparagraph with respect to an individual if, were such individual a United States citizen—

‘‘(i) such corporation would be a controlled foreign

corporation (as defined in 957), and

‘‘(ii) such individual would be a United States

shareholder (as defined in section 951(b)) with respect

to such corporation.

‘‘(C) DISPOSITION OF STOCK IN CORPORATION.—If stock

in the corporation referred to in subparagraph (A) (or any

other stock which has a basis determined in whole or

part by reference to such stock) is disposed of during the

10-year period referred to in subsection (a) and while the
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2097

property referred to in subparagraph (A) is held by such

corporation, a pro rata share of such property (determined

on the basis of the value of such stock) shall be treated

as sold by the corporation immediately before such disposition.

‘‘(D) ANTI-ABUSE RULES.—The Secretary shall prescribe

such regulations as may be necessary to prevent the avoidance of the purposes of this paragraph, including where—

‘‘(i) the property is sold to the corporation, and

‘‘(ii) the property taken into account under

subparagraph (A) is sold by the corporation.

‘‘(E) INFORMATION REPORTING.—The Secretary shall

require such information reporting as is necessary to carry

out the purposes of this paragraph.’’.

(d) CREDIT FOR FOREIGN TAXES IMPOSED ON UNITED STATES

SOURCE INCOME.—

(1) Subsection (b) of section 877 is amended by adding

at the end the following new sentence: ‘‘The tax imposed solely

by reason of this section shall be reduced (but not below zero)

by the amount of any income, war profits, and excess profits

taxes (within the meaning of section 903) paid to any foreign

country or possession of the United States on any income

of the taxpayer on which tax is imposed solely by reason of

this section.’’

(2) Subsection (a) of section 877, as amended by subsection

(a), is amended by inserting ‘‘(after any reduction in such

tax under the last sentence of such subsection)’’ after ‘‘such

subsection’’.

(e) COMPARABLE ESTATE AND GIFT TAX TREATMENT.—

(1) ESTATE TAX.—

(A) IN GENERAL.—Subsection (a) of section 2107 is

amended to read as follows:

‘‘(a) TREATMENT OF EXPATRIATES.—

‘‘(1) RATE OF TAX.—A tax computed in accordance with

the table contained in section 2001 is hereby imposed on the

transfer of the taxable estate, determined as provided in section

2106, of every decedent nonresident not a citizen of the United

States if, within the 10-year period ending with the date of

death, such decedent lost United States citizenship, unless

such loss did not have for one of its principal purposes the

avoidance of taxes under this subtitle or subtitle A.

‘‘(2) CERTAIN INDIVIDUALS TREATED AS HAVING TAX

AVOIDANCE PURPOSE.—

‘‘(A) IN GENERAL.—For purposes of paragraph (1), an

individual shall be treated as having a principal purpose

to avoid such taxes if such individual is so treated under

section 877(a)(2).

‘‘(B) EXCEPTION.—Subparagraph (A) shall not apply

to a decedent meeting the requirements of section

877(c)(1).’’.

(B) CREDIT FOR FOREIGN DEATH TAXES.—Subsection (c)

of section 2107 is amended by redesignating paragraph

(2) as paragraph (3) and by inserting after paragraph (1)

the following new paragraph:

‘‘(2) CREDIT FOR FOREIGN DEATH TAXES.—

‘‘(A) IN GENERAL.—The tax imposed by subsection (a)

shall be credited with the amount of any estate, inherit-
110 STAT. 2098 PUBLIC LAW 104–191—AUG. 21, 1996

ance, legacy, or succession taxes actually paid to any foreign

country in respect of any property which is included in

the gross estate solely by reason of subsection (b).

‘‘(B) LIMITATION ON CREDIT.—The credit allowed by

subparagraph (A) for such taxes paid to a foreign country

shall not exceed the lesser of—

‘‘(i) the amount which bears the same ratio to

the amount of such taxes actually paid to such foreign

country in respect of property included in the gross

estate as the value of the property included in the

gross estate solely by reason of subsection (b) bears

to the value of all property subjected to such taxes

by such foreign country, or

‘‘(ii) such property’s proportionate share of the

excess of—

‘‘(I) the tax imposed by subsection (a), over

‘‘(II) the tax which would be imposed by section

2101 but for this section.

‘‘(C) PROPORTIONATE SHARE.—For purposes of subparagraph (B), a property’s proportionate share is the percentage of the value of the property which is included in the

gross estate solely by reason of subsection (b) bears to

the total value of the gross estate.’’.

(C) EXPANSION OF INCLUSION IN GROSS ESTATE OF

STOCK OF FOREIGN CORPORATIONS.—Paragraph (2) of section

2107(b) is amended by striking ‘‘more than 50 percent of’’ and all that follows and inserting ‘‘more than

50 percent of—

‘‘(A) the total combined voting power of all classes

of stock entitled to vote of such corporation, or

‘‘(B) the total value of the stock of such corporation,’’.

(2) GIFT TAX.—

(A) IN GENERAL.—Paragraph (3) of section 2501(a) is

amended to read as follows:

‘‘(3) EXCEPTION.—

‘‘(A) CERTAIN INDIVIDUALS.—Paragraph (2) shall not

apply in the case of a donor who, within the 10-year period

ending with the date of transfer, lost United States citizenship, unless such loss did not have for one of its principal

purposes the avoidance of taxes under this subtitle or subtitle A.

‘‘(B) CERTAIN INDIVIDUALS TREATED AS HAVING TAX

AVOIDANCE PURPOSE.—For purposes of subparagraph (A),

an individual shall be treated as having a principal purpose

to avoid such taxes if such individual is so treated under

section 877(a)(2).

‘‘(C) EXCEPTION FOR CERTAIN INDIVIDUALS.—Subparagraph (B) shall not apply to a decedent meeting the requirements of section 877(c)(1).

‘‘(D) CREDIT FOR FOREIGN GIFT TAXES.—The tax

imposed by this section solely by reason of this paragraph

shall be credited with the amount of any gift tax actually

paid to any foreign country in respect of any gift which

is taxable under this section solely by reason of this paragraph.’’.

(f) COMPARABLE TREATMENT OF LAWFUL PERMANENT RESIDENTS

WHO CEASE TO BE TAXED AS RESIDENTS.—
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2099

(1) IN GENERAL.—Section 877 is amended by redesignating

subsection (e) as subsection (f) and by inserting after subsection

(d) the following new subsection:

‘‘(e) COMPARABLE TREATMENT OF LAWFUL PERMANENT RESIDENTS WHO CEASE TO BE TAXED AS RESIDENTS.—

‘‘(1) IN GENERAL.—Any long-term resident of the United

States who—

‘‘(A) ceases to be a lawful permanent resident of

the United States (within the meaning of section

7701(b)(6)), or

‘‘(B) commences to be treated as a resident of a foreign

country under the provisions of a tax treaty between the

United States and the foreign country and who does not

waive the benefits of such treaty applicable to residents

of the foreign country,

shall be treated for purposes of this section and sections 2107,

2501, and 6039F in the same manner as if such resident were

a citizen of the United States who lost United States citizenship

on the date of such cessation or commencement.

‘‘(2) LONG-TERM RESIDENT.—For purposes of this subsection,

the term ‘long-term resident’ means any individual (other than

a citizen of the United States) who is a lawful permanent

resident of the United States in at least 8 taxable years during

the period of 15 taxable years ending with the taxable year

during which the event described in subparagraph (A) or (B)

of paragraph (1) occurs. For purposes of the preceding sentence,

an individual shall not be treated as a lawful permanent resident for any taxable year if such individual is treated as a

resident of a foreign country for the taxable year under the

provisions of a tax treaty between the United States and the

foreign country and does not waive the benefits of such treaty

applicable to residents of the foreign country.

‘‘(3) SPECIAL RULES.—

‘‘(A) EXCEPTIONS NOT TO APPLY.—Subsection (c) shall

not apply to an individual who is treated as provided

in paragraph (1).

‘‘(B) STEP-UP IN BASIS.—Solely for purposes of determining any tax imposed by reason of this subsection, property which was held by the long-term resident on the

date the individual first became a resident of the United

States shall be treated as having a basis on such date

of not less than the fair market value of such property

on such date. The preceding sentence shall not apply if

the individual elects not to have such sentence apply. Such

an election, once made, shall be irrevocable.

‘‘(4) AUTHORITY TO EXEMPT INDIVIDUALS.—This subsection

shall not apply to an individual who is described in a category

of individuals prescribed by regulation by the Secretary.

‘‘(5) REGULATIONS.—The Secretary shall prescribe such

regulations as may be appropriate to carry out this subsection,

including regulations providing for the application of this subsection in cases where an alien individual becomes a resident

of the United States during the 10-year period after being

treated as provided in paragraph (1).’’.

(2) CONFORMING AMENDMENTS.—

(A) Section 2107 is amended by striking subsection

(d), by redesignating subsection (e) as subsection (d), and
110 STAT. 2100 PUBLIC LAW 104–191—AUG. 21, 1996

by inserting after subsection (d) (as so redesignated) the

following new subsection:

‘‘(e) CROSS REFERENCE.—

‘‘For comparable treatment of long-term lawful permanent residents who

ceased to be taxed as residents, see section 877(e).’’.

(B) Paragraph (3) of section 2501(a) (as amended by

subsection (e)) is amended by adding at the end the following new subparagraph:

‘‘(E) CROSS REFERENCE.—

‘‘For comparable treatment of long-term lawful permanent residents who

ceased to be taxed as residents, see section 877(e).’’.

(g) EFFECTIVE DATE.—

(1) IN GENERAL.—The amendments made by this section

shall apply to—

(A) individuals losing United States citizenship (within

the meaning of section 877 of the Internal Revenue Code

of 1986) on or after February 6, 1995, and

(B) long-term residents of the United States with

respect to whom an event described in subparagraph (A)

or (B) of section 877(e)(1) of such Code occurs on or after

February 6, 1995.

(2) RULING REQUESTS.—In no event shall the 1-year period

referred to in section 877(c)(1)(B) of such Code, as amended

by this section, expire before the date which is 90 days after

the date of the enactment of this Act.

(3) SPECIAL RULE.—

(A) IN GENERAL.—In the case of an individual who

performed an act of expatriation specified in paragraph

(1), (2), (3), or (4) of section 349(a) of the Immigration

and Nationality Act (8 U.S.C. 1481(a)(1)–(4)) before February 6, 1995, but who did not, on or before such date,

furnish to the United States Department of State a signed

statement of voluntary relinquishment of United States

nationality confirming the performance of such act, the

amendments made by this section and section 512 shall

apply to such individual except that the 10-year period

described in section 877(a) of such Code shall not expire

before the end of the 10-year period beginning on the

date such statement is so furnished.

(B) EXCEPTION.—Subparagraph (A) shall not apply if

the individual establishes to the satisfaction of the Secretary of the Treasury that such loss of United States

citizenship occurred before February 6, 1994.

SEC. 512. INFORMATION ON INDIVIDUALS LOSING UNITED STATES

CITIZENSHIP.

(a) IN GENERAL.—Subpart A of part III of subchapter A of

chapter 61 is amended by inserting after section 6039E the following

new section:

‘‘SEC. 6039F. INFORMATION ON INDIVIDUALS LOSING UNITED STATES

CITIZENSHIP.

‘‘(a) IN GENERAL.—Notwithstanding any other provision of law,

any individual who loses United States citizenship (within

the meaning of section 877(a)) shall provide a statement which

26 USC 877 note.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2101

includes the information described in subsection (b). Such statement

shall be—

‘‘(1) provided not later than the earliest date of any act

referred to in subsection (c), and

‘‘(2) provided to the person or court referred to in subsection

(c) with respect to such act.

‘‘(b) INFORMATION TO BE PROVIDED.—Information required

under subsection (a) shall include—

‘‘(1) the taxpayer’s TIN,

‘‘(2) the mailing address of such individual’s principal foreign residence,

‘‘(3) the foreign country in which such individual is residing,

‘‘(4) the foreign country of which such individual is a citizen,

‘‘(5) in the case of an individual having a net worth of

at least the dollar amount applicable under section 877(a)(2)(B),

information detailing the assets and liabilities of such individual, and

‘‘(6) such other information as the Secretary may prescribe.

‘‘(c) ACTS DESCRIBED.—For purposes of this section, the acts

referred to in this subsection are—

‘‘(1) the individual’s renunciation of his United States

nationality before a diplomatic or consular officer of the United

States pursuant to paragraph (5) of section 349(a) of the

Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),

‘‘(2) the individual’s furnishing to the United States Department of State a signed statement of voluntary relinquishment

of United States nationality confirming the performance of

an act of expatriation specified in paragraph (1), (2), (3), or

(4) of section 349(a) of the Immigration and Nationality Act

(8 U.S.C. 1481(a)(1)–(4)),

‘‘(3) the issuance by the United States Department of State

of a certificate of loss of nationality to the individual, or

‘‘(4) the cancellation by a court of the United States of

a naturalized citizen’s certificate of naturalization.

‘‘(d) PENALTY.—Any individual failing to provide a statement

required under subsection (a) shall be subject to a penalty for

each year (of the 10-year period beginning on the date of loss

of United States citizenship) during any portion of which such

failure continues in an amount equal to the greater of—

‘‘(1) 5 percent of the tax required to be paid under section

877 for the taxable year ending during such year, or

‘‘(2) $1,000,

unless it is shown that such failure is due to reasonable cause

and not to willful neglect.

‘‘(e) INFORMATION TO BE PROVIDED TO SECRETARY.—Notwithstanding any other provision of law—

‘‘(1) any Federal agency or court which collects (or is

required to collect) the statement under subsection (a) shall

provide to the Secretary—

‘‘(A) a copy of any such statement, and

‘‘(B) the name (and any other identifying information)

of any individual refusing to comply with the provisions

of subsection (a),

‘‘(2) the Secretary of State shall provide to the Secretary

a copy of each certificate as to the loss of American nationality

under section 358 of the Immigration and Nationality Act which

is approved by the Secretary of State, and
110 STAT. 2102 PUBLIC LAW 104–191—AUG. 21, 1996

‘‘(3) the Federal agency primarily responsible for administering the immigration laws shall provide to the Secretary

the name of each lawful permanent resident of the United

States (within the meaning of section 7701(b)(6)) whose status

as such has been revoked or has been administratively or

judicially determined to have been abandoned.

Notwithstanding any other provision of law, not later than 30

days after the close of each calendar quarter, the Secretary shall

publish in the Federal Register the name of each individual losing

United States citizenship (within the meaning of section 877(a))

with respect to whom the Secretary receives information under

the preceding sentence during such quarter.

‘‘(f) REPORTING BY LONG-TERM LAWFUL PERMANENT RESIDENTS

WHO CEASE TO BE TAXED AS RESIDENTS.—In lieu of applying the

last sentence of subsection (a), any individual who is required

to provide a statement under this section by reason of section

877(e)(1) shall provide such statement with the return of tax

imposed by chapter 1 for the taxable year during which the event

described in such section occurs.

‘‘(g) EXEMPTION.—The Secretary may by regulations exempt

any class of individuals from the requirements of this section if

he determines that applying this section to such individuals is

not necessary to carry out the purposes of this section.’’.

(b) CLERICAL AMENDMENT.—The table of sections for such subpart A is amended by inserting after the item relating to section

6039E the following new item:

‘‘Sec. 6039F. Information on individuals losing United States citizenship.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to—

(1) individuals losing United States citizenship (within the

meaning of section 877 of the Internal Revenue Code of 1986)

on or after February 6, 1995, and

(2) long-term residents of the United States with respect

to whom an event described in subparagraph (A) or (B) of

section 877(e)(1) of such Code occurs on or after such date.

In no event shall any statement required by such amendments

be due before the 90th day after the date of the enactment of

this Act.

SEC. 513. REPORT ON TAX COMPLIANCE BY UNITED STATES CITIZENS

AND RESIDENTS LIVING ABROAD.

Not later than 90 days after the date of the enactment of

this Act, the Secretary of the Treasury shall prepare and submit

to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a report—

(1) describing the compliance with subtitle A of the Internal

Revenue Code of 1986 by citizens and lawful permanent residents of the United States (within the meaning of section

7701(b)(6) of such Code) residing outside the United States,

and

(2) recommending measures to improve such compliance

(including improved coordination between executive branch

agencies).

26 USC 6039F

note.
PUBLIC LAW 104–191—AUG. 21, 1996 110 STAT. 2103

LEGISLATIVE HISTORY—H.R. 3103 (S. 1028) (S. 1698):

HOUSE REPORTS: Nos. 104–496, Pt. 1 (Comm. on Ways and Means) and 104–736

(Comm. of Conference).

SENATE REPORTS: No. 104–156 accompanying S. 1028 (Comm. on Labor and

Human Resources).

CONGRESSIONAL RECORD, Vol. 142 (1996):

Mar. 28, considered and passed House.

Apr. 18, 23, considered and passed Senate, amended, in lieu of S. 1028.

Aug. 1, House agreed to conference report.

Aug. 2, Senate agreed to conference report.

WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 32 (1996):

Aug. 21, Presidential remarks and statement.

Æ

Subtitle C—Repeal of Financial Institution

Transition Rule to Interest Allocation

Rules

SEC. 521. REPEAL OF FINANCIAL INSTITUTION TRANSITION RULE TO

INTEREST ALLOCATION RULES.

(a) IN GENERAL.—Paragraph (5) of section 1215(c) of the Tax

Reform Act of 1986 (Public Law 99–514, 100 Stat. 2548) is hereby

repealed.

(b) EFFECTIVE DATE.—

(1) IN GENERAL.—The amendment made by this section

shall apply to taxable years beginning after December 31, 1995.

(2) SPECIAL RULE.—In the case of the first taxable year

beginning after December 31, 1995, the pre-effective date portion of the interest expense of the corporation referred to in

such paragraph (5) of such section 1215(c) for such taxable

year shall be allocated and apportioned without regard to such

amendment. For purposes of the preceding sentence, the preeffective date portion is the amount which bears the same

ratio to the interest expense for such taxable year as the

number of days during such taxable year before the date of

the enactment of this Act bears to 366.

Approved August 21, 1996.

26 USC 864 note.

26 USC 864 note.