I

103D CONGRESS

1ST SESSION H. R. 3651

To amend the Internal Revenue Code of 1986 with respect to the treatment

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

IN THE HOUSE OF REPRESENTATIVES

NOVEMBER 22, 1993

Mrs. JOHNSON of Connecticut (for herself and Mr. THOMAS of California) introduced the following bill; which was referred jointly to the Committees

on Ways and Means and Energy and Commerce

A BILL

To amend the Internal Revenue Code of 1986 with respect

to the treatment of long-term care insurance policies,

and for other purposes.

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

4 (a) IN GENERAL.—This Act may be cited as the

5 ‘‘Long-Term Care Standards Act of 1993’’.

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

7 this Act is as follows:

Section 1. Short title; table of contents.

TITLE I—TAX TREATMENT OF LONG-TERM CARE INSURANCE

Sec. 101. Treatment of long-term care insurance or plans.
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Sec. 102. Exclusion for benefits provided under long-term care insurance; inclusion of employer-provided coverage.

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

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

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

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 Exclusion from gross income for amounts withdrawn from individual

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

Sec. 107. Tax treatment of accelerated death benefits under life insurance contracts.

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

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

in cafeteria plans.

Sec. 110. Effective date.

TITLE II—ESTABLISHMENT OF FEDERAL STANDARDS FOR LONGTERM CARE INSURANCE

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

1 TITLE I—TAX TREATMENT OF

2 LONG-TERM CARE INSURANCE

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

4 OR PLANS.

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

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

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

10 OR PLANS.

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

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

13 be treated as an accident or health insurance con14 tract,

15 ‘‘(2) amounts received under such a contract

16 with respect to qualified long-term care services shall
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1 be treated as amounts received for personal injuries

2 or sickness, and

3 ‘‘(3) any plan of an employer providing quali4 fied long-term care services shall be treated as an

5 accident or health plan.

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

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

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

9 any insurance contract issued if—

10 ‘‘(A) the only insurance protection pro11 vided under such contract is coverage of quali12 fied long-term care services and benefits inci13 dental to such coverage,

14 ‘‘(B) the maximum benefit under the pol15 icy (or certificate for a group long-term care in16 surance policy) for expenses incurred for any

17 day does not exceed $200.00,

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

19 incurred for services or items to the extent that

20 such expenses are reimbursable under title

21 XVIII of the Social Security Act or would be so

22 reimbursable but for the application of a de23 ductible or coinsurance amount,

24 ‘‘(D) such contract is guaranteed renew25 able,
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1 ‘‘(E) such contract does not have any cash

2 surrender value, and

3 ‘‘(F) all refunds of premiums, and all pol4 icyholder dividends or similar amounts, under

5 such contract are to be applied as a reduction

6 in future premiums or to increase future bene7 fits.

8 ‘‘(2) SPECIAL RULES.—

9 ‘‘(A) CONTRACT MAY COVER MEDICARE

10 REIMBURSABLE EXPENSES WHERE MEDICARE

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

12 not apply to expenses which are reimbursable

13 under title XVIII of the Social Security Act

14 only as a secondary payor.

15 ‘‘(B) REFUNDS OF PREMIUMS.—Para16 graph (1)(F) shall not apply to any refund of

17 premiums on surrender or cancellation of the

18 contract.

19 ‘‘(C) PER DIEM, ETC. PAYMENTS PER20 MITTED.—A contract shall not fail to be treated

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

22 payments being made on a per diem or other

23 periodic basis without regard to the expenses

24 incurred or services rendered during the period

25 to which the payments relate.
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1 ‘‘(c) QUALIFIED LONG-TERM CARE SERVICES.—For

2 purposes of this section—

3 ‘‘(1) IN GENERAL.—The term ‘qualified long4 term care services’ means:

5 ‘‘(A) necessary diagnostic, preventive,

6 therapeutic, and rehabilitative services, and

7 maintenance or personal care services, which—

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

9 individual in a qualified facility, and

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

11 of care prescribed by a licensed health care

12 practitioner; or

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

14 other periodic basis without regard to the ex15 penses incurred or services rendered during the

16 period to which the payments relate and which

17 are payable to a chronically ill individual in a

18 qualified facility who is receiving treatment pur19 suant to a plan of care prescribed by a licensed

20 health care practitioner.

21 ‘‘(2) CHRONICALLY ILL INDIVIDUAL.—

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

23 ill individual’ means any individual who has

24 been certified by a licensed health care practi25 tioner as—
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1 ‘‘(i)(I) being unable to perform (with2 out substantial assistance from another in3 dividual) at least 2 activities of daily living

4 (as defined in subparagraph (B)) for a pe5 riod of at least 90 days due to a loss of

6 functional capacity, or

7 ‘‘(II) having a level of disability simi8 lar (as determined by the Secretary in con9 sultation with the Secretary of Health and

10 Human Services) to the level of disability

11 described in subclause (I), or

12 ‘‘(ii) having a similar level of disabil13 ity due to cognitive impairment.

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

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

17 ‘‘(i) MOBILITY.—The process of walk18 ing or wheeling on a level surface which

19 may include the use of an assistive device

20 such as a cane, walker, wheelchair, or

21 brace.

22 ‘‘(ii) DRESSING.—The overall complex

23 behavior of getting clothes from closets

24 and drawers and then getting dressed.
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1 ‘‘(iii) TOILETING.—The act of going

2 to the toilet room for bowel and bladder

3 function, transferring on and off the toilet,

4 cleaning after elimination, and arranging

5 clothes or the ability to voluntarily control

6 bowel and bladder function, or in the event

7 of incontinence, the ability to maintain a

8 reasonable level of personal hygiene.

9 ‘‘(iv) TRANSFER.—The process of get10 ting in and out of bed or in and out of a

11 chair or wheelchair.

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

13 food from a plate or its equivalent into the

14 mouth.

15 ‘‘(3) QUALIFIED FACILITY.—The term ‘quali16 fied facility’ means—

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

18 adult day care facility (including a hospital, re19 tirement home, nursing home, skilled nursing

20 facility, intermediate care facility, or similar in21 stitution)—

22 ‘‘(i) which is licensed under State law,

23 or
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1 ‘‘(ii) which is a certified facility for

2 purposes of title XVIII or XIX of the So3 cial Security Act, or

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

5 health care practitioner certifies that without

6 home care the individual would have to be cared

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

8 ‘‘(4) MAINTENANCE OR PERSONAL CARE SERV9 ICES.—The term ‘maintenance or personal care serv10 ices’ means any care the primary purpose of which

11 is to provide needed assistance with any of the ac12 tivities of daily living described in paragraph (2)(B).

13 ‘‘(5) LICENSED HEALTH CARE PRACTI14 TIONER.—The term ‘licensed health care practi15 tioner’ means any physician (as defined in section

16 1861(r) of the Social Security Act) and any reg17 istered professional nurse, licensed social worker, or

18 other individual who meets such requirements as

19 may be prescribed by the Secretary.

20 ‘‘(d) CONTINUATION COVERAGE EXCISE TAX NOT

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

22 whether section 4980B (relating to failure to satisfy con23 tinuation coverage requirements of group health plans) ap24 plies.
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1 ‘‘(e) INFLATION ADJUSTMENT OF $200 BENEFIT

2 LIMIT.—

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

4 year after 1994, the $200 amount contained in sub5 section (b)(1)(B) shall be increased for such cal6 endar year by the medical care cost adjustment for

7 such calendar year or 5 percent per year, whichever

8 is greater. If any increase determined under the pre9 ceding sentence is not a multiple of $10, such in10 crease shall be rounded to the nearest multiple of

11 $10.

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

13 purposes of paragraph (1), the medical care cost ad14 justment for any calendar year is the percentage (if

15 any) by which—

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

17 Consumer Price Index (as defined in section

18 1(f)(5)) for August of the preceding calendar

19 year, exceeds

20 ‘‘(B) such component for August of 1993.’’

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

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

23 relating to section 818 the following new item:

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

2 LONG-TERM CARE INSURANCE; INCLUSION

3 OF EMPLOYER-PROVIDED COVERAGE.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

5 the applicable percentage of the eligible long-term care

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

8 ‘‘(b) APPLICABLE PERCENTAGE.—

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

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

13 the taxpayer’s adjusted gross income for the taxable

14 year exceeds the base amount.

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

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

18 paragraph, $25,000,

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

20 and

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

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

24 7703) but does not file a joint return for

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

2 her spouse at all times during the taxable

3 year.

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

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

7 means the amount paid during a taxable year for

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

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

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

‘‘In the case of an individual

with an attained age before the The limitation

close of the taxable year of: is:

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

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

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

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

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

12 ‘‘(2) INDEXING.—

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

14 taxable year beginning in a calendar year after

15 1993, each dollar amount contained in para16 graph (1) shall be increased by the medical care

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

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

20 such increase shall be rounded to the nearest

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

3 medical care cost adjustment for any calendar

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

5 ‘‘(i) the medical care component of

6 the Consumer Price Index (as defined in

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

9 ‘‘(ii) such component for August of

10 1993.

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

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

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

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

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

17 section 35 and inserting the following:

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

‘‘Sec. 36. Overpayments of tax.’’

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

19 MEDICAL CARE.

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

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

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

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

2 (B) the following new subparagraph:

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

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

5 (b) DEDUCTION FOR LONG-TERM CARE EXPENSES

6 FOR PARENT OR GRANDPARENT.—Section 213 of such

7 Code (relating to deduction for medical expenses) is

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

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

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

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

15 to the extent of such expenses.’’

16 (c) TECHNICAL AMENDMENTS.—

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

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

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

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

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

22 Code is amended by adding at the end thereof the

23 following new flush sentence:

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

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

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

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

4 Code is amended—

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

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

7 and (C)’’, and

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

10 (1)(D)’’.

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

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

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

14 and (C)’’.

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

16 INSURANCE CONTRACTS.

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

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

19 to tax reserve method) is amended—

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

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

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

23 ‘‘(iii), or (iv), and

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

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

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

3 care insurance contract, a one-year full

4 preliminary term method.’’

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

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

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

9 SEC. 106. EXCLUSION FROM GROSS INCOME FOR AMOUNTS

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

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

15 items specifically excluded from gross income) is amended

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

18 ‘‘SEC. 137. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT

19 ACCOUNTS AND SECTION 401(k) PLANS FOR

20 LONG-TERM CARE INSURANCE.

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

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

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

3 over

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

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

7 for the benefit of such individual or the spouse of

8 such individual.

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

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

11 distribution to an individual from an individual retirement

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

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

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

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

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

17 distribution).

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

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

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

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

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

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

2 defined in section 401(k)).

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

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

6 DEFERRED ARRANGEMENT.—This section shall not

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

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

10 the aggregate employer contributions made pursuant

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

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

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

16 qualified cash or deferred arrangement (as defined

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

18 or arrangement distributions are permitted which

19 are excludable from gross income by reason of this

20 section.’’

21 (b) CONFORMING AMENDMENTS.—

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

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

‘‘For provision permitting tax-free withdrawals

for payment of long-term care premiums, see section

137.’’

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

3 adding at the end the following new paragraph:

4 ‘‘(8) CROSS REFERENCE.—

‘‘For provision permitting tax-free withdrawals

from individual retirement accounts for payment of

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

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

6 amended by striking the last item and inserting the

7 following new items:

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

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

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

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

10 Section 101 of the Internal Revenue Code of 1986

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

12 at the end thereof the following new subsection:

13 ‘‘(g) TREATMENT OF CERTAIN ACCELERATED

14 DEATH BENEFITS.—

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

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

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

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

3 to a qualified facility (as defined in section

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

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

6 death of such insured.

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

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

12 death in 12 months or fewer.

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

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

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

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

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

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

2 RIDERS TREATED AS LIFE INSURANCE.—For purposes of

3 this part—

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

7 on such contract.

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

10 term ‘qualified accelerated death benefit rider’

11 means any rider or addendum on, or other provision

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

14 such insured—

15 ‘‘(A) becoming a terminally ill individual

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

17 ‘‘(B) becoming a chronically ill individual

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

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

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

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

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

3 following new clause:

4 ‘‘(v) any qualified accelerated death

5 benefit rider (as defined in section

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

7 contract rider which reduces the death

8 benefit, or’’.

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

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

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

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

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

19 modification or material change of such contract.

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

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

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

2 the end thereof the following new subparagraph:

3 ‘‘(D) EXCEPTION FOR LONG-TERM CARE

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

6 providing deferred compensation by reason of

7 providing any long-term care insurance contract

8 (as defined in section 818A(b)) if—

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

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

14 does not exceed the premium which would

15 have been payable for such year under a

16 level premium structure.’’

17 SEC. 110. EFFECTIVE DATE.

18 The amendments made by this title shall apply to tax19 able years beginning after December 31, 1993.
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1 TITLE II—ESTABLISHMENT OF

2 FEDERAL STANDARDS FOR

3 LONG-TERM CARE INSUR4 ANCE

5 SEC. 201. ESTABLISHMENT OF FEDERAL STANDARDS FOR

6 LONG-TERM CARE INSURANCE.

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

8 amended—

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

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

11 (2) by inserting after title XXVI the following

12 new title:

13 ‘‘TITLE XXVII—LONG-TERM CARE

14 INSURANCE STANDARDS

15 ‘‘PART A—PROMULGATION OF STANDARDS AND MODEL

16 BENEFITS

17 ‘‘SEC. 2701. STANDARDS.

18 ‘‘(a) APPLICATION OF STANDARDS.—

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

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

22 ‘NAIC’)—

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

2 standards,

3 by not later than 12 months after enactment of this

4 title. If the NAIC develops such model standards

5 that incorporate the requirements of this title within

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

8 standards shall be the standards applied under this

9 title.

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

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

14 deadline, a regulation that provides standards that

15 incorporate the requirements of this title and such

16 standards shall apply as provided for in this title.

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

18 this title shall be construed as preventing a State

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

21 policies than the standards promulgated under this

22 title, except that such State standards may not be

23 inconsistent or in conflict with any of the require24 ments of this title.
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•HR 3651 IH

1 ‘‘(b) DEADLINE FOR APPLICATION OF STAND2 ARDS.—

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

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

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

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

8 day of the first regular legislative session that

9 begins after the date such standards are first

10 established under subsection (a)(2);

11 whichever is earlier.

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

13 case of a State which the Secretary identifies, in

14 consultation with the NAIC, as—

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

16 legislation appropriating funds) in order for the

17 standards established under subsection (a) to be

18 applied; but

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

20 scheduled to meet within 1 year following the

21 beginning of the next regular legislative session

22 in which such legislation may be considered;

23 the date specified in this subsection is the first day

24 of the first calendar quarter beginning after the

25 close of the first legislative session of the State legis-
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•HR 3651 IH

1 lature that begins on or after January 1, 1994. For

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

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

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

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

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

9 care insurance consistent with the provisions of this

10 title;

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

12 consumers with long-term care insurance;

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

14 standards established under paragraph (1) in a

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

18 care benefit program; and

19 ‘‘(4) other activities determined appropriate by

20 Congress.

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

22 models of benefits under this section, the Secretary shall

23 provide for and consult with an advisory committee to be

24 chosen by the Secretary, and composed of—
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•HR 3651 IH

1 ‘‘(1) three individuals who are representatives

2 of carriers;

3 ‘‘(2) three individuals who are representatives

4 of consumer groups;

5 ‘‘(3) three representatives who are representa6 tives of providers of long-term care services;

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

9 care services and who have expertise in the delivery

10 and financing of such services; and

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

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

13 under subsection (d) shall—

14 ‘‘(1) recommend the appropriate inflationary

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

17 ‘‘(2) recommend the uniform needs assessment

18 mechanism to be used in determining the eligibility

19 of individuals for benefits under a policy;

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

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

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

25 provisions of section 1886(e)(6) of the Social Security Act
29

•HR 3651 IH

1 shall apply to the advisory committee chosen under sub2 section (d) in the same manner as such provisions apply

3 under such section:

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

5 administration).

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

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

9 information).

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

11 funds).

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

13 GAO audits).

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

15 appropriations).

16 ‘‘PART B—ESTABLISHMENT AND IMPLEMENTATION OF

17 LONG-TERM CARE INSURANCE POLICY STANDARDS

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

19 ‘‘(a) IN GENERAL.—

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

21 care policy (as defined in section (2721)) may be is22 sued, sold, or offered for sale as a long-term care in23 surance policy in a State on or after the date speci24 fied in section 2701(b) unless—
30

•HR 3651 IH

1 ‘‘(A) the Secretary determines that the

2 State has established a regulatory program

3 that—

4 ‘‘(i) provides for the application and

5 enforcement of the standards established

6 under section 2701(a); and

7 ‘‘(ii) complies with the requirements

8 of subsection (b);

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

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

12 such program; or

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

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

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

17 procedures as the Secretary may establish) as

18 meeting the standards established under section

19 2701(a) by the date specified in section

20 2701(b).

21 For purposes of this subsection, the advertising or

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

24 policy.
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•HR 3651 IH

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

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

7 the Secretary determines that a State regulatory

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

10 Secretary shall provide the State an opportunity to

11 adopt such a plan of correction as would permit the

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

15 such an opportunity, fails to meet such standards

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

18 certifying policies in the State and shall exercise full

19 authority under section 2701 for carriers, agents, or

20 associations or its subsidiary in the State plans in

21 the State.

22 ‘‘(b) ADDITIONAL REQUIREMENTS FOR APPROVAL

23 OF STATE REGULATORY PROGRAMS.—For purposes of

24 subsection (a)(1)(A)(ii), the requirements of this sub25 section for a State regulatory program are as follows:
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•HR 3651 IH

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

2 the program—

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

4 to secure compliance with the standards within

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

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

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

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

12 under each State regulatory program shall provide

13 for—

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

16 alleged violations of the standards;

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

18 complaints;

19 ‘‘(C) the investigation of—

20 ‘‘(i) those complaints which have a

21 reasonable probability of validity, and

22 ‘‘(ii) such other alleged violations of

23 the standards as the program finds appro24 priate; and
33

•HR 3651 IH

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

3 imposition of a civil money penalty as provided

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

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

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

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

10 program must provide for consumer access to

11 complaints filed with the State commissioner or

12 superintendent of insurance with respect to

13 long-term care insurance policies.

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

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

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

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

20 program shall—

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

•HR 3651 IH

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

2 consideration of public comments before

3 approving such a premium increase or de4 crease.

5 ‘‘(B) CONDITIONS FOR APPROVAL.—No

6 premium increase shall be approved (or deemed

7 approved) under subparagraph (A) unless the

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

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

12 ‘‘(ii) contains such information as

13 may be required under the Standards; and

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

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

16 subparagraph (D), this paragraph shall not

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

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

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

24 any premium change under such group policy.
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•HR 3651 IH

1 ‘‘(D) EXCEPTION.—Subparagraph (C)

2 shall not apply to—

3 ‘‘(i) group conversion policies;

4 ‘‘(ii) the group continuation feature of

5 a group policy if the insurer separately

6 rates employee and continuation coverages;

7 and

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

12 to the insurer.

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

14 paragraph shall be construed as preventing the

15 NAIC from promulgating standards, or a State

16 from enacting and enforcing laws, with respect

17 to premium rates or loss ratios for all, including

18 group, long-term care insurance policies.

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

21 submitted to the Secretary on the implementation

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

24 of 30 days.
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•HR 3651 IH

1 ‘‘(6) ACCESS TO OTHER INFORMATION.—The

2 State regulatory program must provide for consumer

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

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

6 a regulatory program approved under subsection (a),

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

9 ‘‘(c) SECRETARIAL ENFORCEMENT AUTHORITY.—

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

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

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

15 Secretary shall establish procedures—

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

17 written, signed complaints respecting alleged

18 violations of the requirements of this title;

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

20 such complaints; and

21 ‘‘(C) for the investigation of—

22 ‘‘(i) those complaints that have a rea23 sonable probability of validity; and
37

•HR 3651 IH

1 ‘‘(ii) such other alleged violations of

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

4 In conducting investigations under this subsection,

5 agents of the Secretary shall have reasonable access

6 necessary to enable such agents to examine evidence

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

8 being investigated.

9 ‘‘(3) HEARINGS.—

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

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

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

15 the carrier, agent, association or subsidiary

16 with notice and, upon request made within a

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

18 established by the Secretary by regulation) of

19 the date of the notice, a hearing respecting the

20 violation.

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

23 conducted before an administrative law judge.

24 If no hearing is so requested, the Secretary’s
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•HR 3651 IH

1 imposition of the order shall constitute a final

2 and unappealable order.

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

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

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

10 being investigated; and

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

12 if necessary, compel by subpoena the at13 tendance of witnesses and the production

14 of evidence at any designated place or

15 hearing.

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

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

20 may issue an order requiring compliance with

21 such subpoena and any failure to obey such

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

24 ‘‘(D) ISSUANCE OF ORDERS.—If an admin25 istrative law judge determines in a hearing
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•HR 3651 IH

1 under this paragraph, upon the preponderance

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

3 or association or its subsidiary named in the

4 complaint has violated the requirements of this

5 title, the administrative law judge shall state

6 the findings of fact and issue and cause to be

7 served on such carrier, agent, association, or

8 subsidiary an order described in paragraph (4).

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

10 MONEY PENALTY.—

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

13 order under this paragraph—

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

16 ‘‘(I) to cease and desist from

17 such violations; and

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

19 amount not to exceed $15,000 in the

20 case of each agent, and not to exceed

21 $25,000 for each association or its

22 subsidiary or a carrier for each such

23 violation; and

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

•HR 3651 IH

1 such other remedial action as is appro2 priate.

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

4 order shall be imposed under this paragraph by

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

6 association or its subsidiary establishes to the

7 satisfaction of the Secretary that—

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

10 not due to willful neglect; and

11 ‘‘(ii) such violation is corrected within

12 the 30-day period beginning on the earliest

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

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

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

20 Secretary may waive part or all of the civil

21 money penalty imposed under subparagraph

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

23 penalty would be grossly excessive relative to

24 the violation involved and to the need for deter25 rence of violations.
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•HR 3651 IH

1 ‘‘(D) ADMINISTRATIVE APPELLATE RE2 VIEW.—The decision and order of an adminis3 trative law judge under this paragraph shall be4 come the final agency decision and order of the

5 Secretary unless, within 30 days, the Secretary

6 modifies or vacates the decision and order, in

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

9 paragraph.

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

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

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

17 ‘‘(F) ENFORCEMENT OF ORDERS.—If a

18 carrier, agent, or association or its subsidiary

19 fails to comply with a final order issued under

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

24 the order in any appropriate district court of

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

•HR 3651 IH

1 and appropriateness of the final order shall not

2 be subject to review.

3 ‘‘(d) DEMONSTRATION GRANT PROGRAM.—

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

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

7 such States of long-term care insurance standards

8 applicable under this title.

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

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

11 and submit to the Secretary an application at such

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

15 to use the amounts provided under the grant.

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

17 amount of a grant awarded under this subsection

18 shall not be less than $100,000.

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

20 grant under this subsection shall comply with such

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

23 evaluations to conduct an overall evaluation of the

24 results of the demonstration programs established

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

2 There are authorized to be appropriated to carry out

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

4 years 1993 through 1997.

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

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

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

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

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

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

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

15 following practices:

16 ‘‘(A) TWISTING.—

17 ‘‘(i) IN GENERAL.—Knowingly making

18 any misleading representation (including

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

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

25 long-term care insurance policy.
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•HR 3651 IH

1 ‘‘(ii) POLICY REPLACEMENT FORM.—

2 With respect to any person who elects to

3 replace or effect a change in a long-term

4 care insurance policy, the individual that is

5 selling such policy shall ensure that such

6 person completes a policy replacement

7 form developed by the NAIC. A copy of

8 such form shall be provided to such person

9 and additional copies shall be delivered by

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

12 for inspection by the State regulatory

13 agency.

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

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

18 threat or undue pressure, whether explicit or

19 implicit.

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

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

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

•HR 3651 IH

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

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

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

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

10 care insurance policy.

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

15 assistance under title XIX of the Social Security Act.

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

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

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

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

•HR 3651 IH

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

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

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

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

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

9 long-term care insurance policy.

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

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

12 which provides for benefits based on the type and amount

13 of services furnished.

14 ‘‘(e) PROHIBITION BASED ON ELIGIBILITY FOR

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

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

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

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

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

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

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

•HR 3651 IH

1 plies with the standards established under section

2 2701(a).

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

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

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

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

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

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

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

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

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

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

19 ‘‘(1) specify requirements for training insurance

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

21 care insurance policies; and

22 ‘‘(2) specify procedures for certifying agents

23 who have completed such training and who are as

24 qualified to sell or offer for sale long-term care in25 surance policies.
48

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1 ‘‘SEC. 2713. ADDITIONAL RESPONSIBILITIES FOR CAR2 RIERS.

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

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

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

6 or an applicant returns a policy or certificate within 30

7 days of the date of its issuance pursuant to subsection

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

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

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

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

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

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

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

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

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

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

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

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

25 ‘‘(1) provide a written explanation of the rea26 sons for the denial; and
49

•HR 3651 IH

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

2 records directly relating to such denial.

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

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

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

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

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

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

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

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

12 Commissioner, superintendent or director of insurance of

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

14 available to the Secretary, upon request, information in

15 a form and manner determined by the NAIC concerning—

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

17 carrier that are in force;

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

19 and the premiums imposed for such policies since

20 their initial issuance;

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

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

24 that—
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•HR 3651 IH

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

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

4 long-term care insurance sales in the previous

5 year; and

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

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

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

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

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

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

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

16 period.

17 ‘‘(e) STANDARDS ON COMPENSATION FOR SALE OF

18 POLICIES.—

19 ‘‘(1) IN GENERAL.—A carrier that issues one or

20 more long-term care insurance policies may provide

21 a commission or other compensation to an agent or

22 other representative for the sale of such a policy only

23 if the first year commission or other first year com24 pensation to be paid does not exceed 200 percent of

25 the commission or other compensation paid for sell-
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•HR 3651 IH

1 ing or servicing the policy in the second year, or if

2 the first year commission or other compensation to

3 be paid does not exceed 50 percent of the premium

4 paid on the first year policy, until the NAIC promul5 gates mandatory standards concerning compensation

6 for the sale of such policies.

7 ‘‘(2) SUBSEQUENT YEARS.—The commission or

8 other compensation provided for the sale of long9 term care insurance policies in years subsequent to

10 the first year of the policy shall be the same as that

11 provided in the second subsequent year and shall be

12 provided for no fewer than 5 subsequent years.

13 ‘‘(3) LIMITATION.—No carrier shall provide

14 compensation to its agents for the sale of a long15 term care insurance policy and no agent shall receive

16 compensation greater than the renewal compensation

17 payable by the replacing carrier on renewal policies

18 if an existing policy is replaced.

19 ‘‘(4) COMPENSATION DEFINED.—As used in

20 this subsection, the term ‘compensation’ includes pe21 cuniary or nonpecuniary remuneration of any kind

22 relating to the sale or renewal of the policy, includ23 ing but not limited to deferred compensation, bo24 nuses, gifts, prizes, awards, and finders fees.
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1 ‘‘SEC. 2714. RENEWABILITY STANDARDS FOR ISSUANCE,

2 AND BASIS FOR CANCELLATION OF POLICIES.

3 ‘‘(a) IN GENERAL.—No long-term care insurance pol4 icy may be canceled or nonrenewed for any reason other

5 than nonpayment of premium, material misrepresentation

6 or fraud.

7 ‘‘(b) CONTINUATION AND CONVERSION RIGHTS FOR

8 GROUP POLICIES.—

9 ‘‘(1) IN GENERAL.—Each group long-term care

10 insurance policy shall provide covered individuals

11 with a basis for continuation or conversion in ac12 cordance with this subsection.

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

14 of paragraph (1), a policy provides a basis for con15 tinuation of coverage if the policy maintains cov16 erage under the existing group policy when such cov17 erage would otherwise terminate and which is sub18 ject only to the continued timely payment of pre19 mium when due. A group policy which restricts pro20 vision of benefits and services to or contains incen21 tives to use certain providers or facility, may provide

22 continuation benefits which are substantially equiva23 lent to the benefits of the existing group policy.

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

25 paragraph (1), a policy provides a basis for conver-
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•HR 3651 IH

1 sion of coverage if the policy entitles each individ2 ual—

3 ‘‘(A) whose coverage under the group pol4 icy would otherwise be terminated for any rea5 son; and

6 ‘‘(B) who has been continuously insured

7 under the policy (or group policy which was re8 placed) for at least 6 months before the date of

9 the termination;

10 to issuance of a policy providing benefits identical to,

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

12 the policy being terminated, without evidence of in13 surability.

14 ‘‘(4) TREATMENT OF SUBSTANTIAL EQUIVA15 LENCE.—In determining under this subsection

16 whether benefits are substantially equivalent, consid17 eration should be given to the difference between

18 managed care and non-managed care plans.

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

20 group long-term care insurance policy is replaced by

21 another long-term care insurance policy purchased

22 by the same policyholder, the succeeding issuer shall

23 offer coverage to all persons covered under the old

24 group policy on its date of termination. Coverage

25 under the new group policy shall not result in any
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1 exclusion for preexisting conditions that would have

2 been covered under the group policy being replaced.

3 ‘‘(c) STANDARDS FOR ISSUANCE.—

4 ‘‘(1) IN GENERAL.—

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

6 or carrier that sells or issues long-term care in7 surance policies shall guarantee that such poli8 cies shall be sold or issued to an individual, or

9 eligible individual in the case of a group plan,

10 if such individual meets the minimum medical

11 underwriting requirements of such policy.

12 ‘‘(B) PREMIUM FOR CONVERTED POL13 ICY.—If a group policy from which conversion

14 is made is a replacement for a previous group

15 policy, the premium for the converted policy

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

17 age at the inception of coverage under the

18 group policy from which conversion is made.

19 Where the group policy from which conversion

20 is made replaced previous group coverage, the

21 premium for the converted policy shall be cal22 culated on the basis of the insured’s age at in23 ception of coverage under the group policy re24 placed.
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•HR 3651 IH

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

2 NAIC shall establish standards, including those pro3 viding guidance on medical underwriting and age

4 rating, with respect to the access of individuals to

5 policies offering upgraded benefits.

6 ‘‘(d) EFFECT OF INCAPACITATION.—

7 ‘‘(1) IN GENERAL.—

8 ‘‘(A) PROHIBITION.—Except as provided

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

10 policy in effect as of the effective date of the

11 standards established under section 2701(a)

12 may not be canceled for nonpayment if the pol13 icy holder is determined by a long-term care

14 provider, physician or other health care pro15 vider, independent of the issuer of the policy, to

16 be cognitively or mentally incapacitated so as to

17 not make payments in a timely manner.

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

19 policy shall include a provision that provides for

20 the reinstatement of such coverage, in the event

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

22 cognitive or mental incapacitation. Such rein23 statement option shall remain available for a

24 period of not less than 5 months after termi-
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1 nation and shall allow for the collection of past

2 due premium.

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

4 care insurance policy may be canceled under para5 graph (1) for nonpayment if—

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

7 excess of 30 days; and

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

9 to the policyholder or designated representative

10 of the policy holder not less than 30 days prior

11 to such cancellation, except that notice may not

12 be provided until the expiration of 30 days after

13 a premium is due and unpaid.

14 Notice under this paragraph shall be deemed to have

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

16 ‘‘SEC. 2715. BENEFIT STANDARDS.

17 ‘‘(a) USE OF STANDARD DEFINITIONS AND TERMI18 NOLOGY, UNIFORM FORMAT, AND STANDARD BENE19 FITS.—Each long-term care insurance policy shall, with

20 respect to services, providers or facilities, pursuant to

21 standards established under section 2701(a)—

22 ‘‘(1) use uniform language and definitions, ex23 cept that such language and definitions may take

24 into account the differences between States with re-
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1 spect to definitions and terminology used for long2 term care services and providers;

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

4 outline of coverage under such a policy; and

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

6 benefits package (of those developed by the NAIC)

7 that shall include the limitations on the amount of

8 payments per day and the lengths of covered stays

9 for nursing facility and home health care services;

10 as prescribed under guidelines issued by the NAIC and

11 periodically updated.

12 ‘‘(b) DISCLOSURE.—

13 ‘‘(1) OUTLINE OF COVERAGE.—

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

15 sells or offers for sale a long-term care insur16 ance policy shall provide an outline of coverage

17 under such policy that meets the applicable

18 standards established pursuant to section

19 2701(a), complies with the requirements of sub20 paragraph (B), and is in a uniform format as

21 prescribed in guidelines issued by the NAIC

22 and periodically updated.

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

24 for each long-term care insurance policy shall

25 include at least the following:
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1 ‘‘(i) A description of the principal

2 benefits and coverage under the policy.

3 ‘‘(ii) A statement of the principal ex4 clusions, reductions, and limitations con5 tained in the policy.

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

7 which the policy (or certificate) may be

8 continued in force or discontinued, the

9 terms for continuation or conversion, and

10 any reservation in the policy of a right to

11 change premiums.

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

13 on the face of the document in language

14 that is understandable to an average indi15 vidual, that the outline of coverage is a

16 summary only, not a contract of insurance,

17 and that the policy (or master policy) con18 tains the contractual provisions that gov19 ern, except that such summary shall sub20 stantially and accurately reflect the con21 tents of the policy or the master policy.

22 ‘‘(v) A description of the terms, speci23 fied in section 2717, under which a policy

24 or certificate may be returned and pre25 mium refunded.
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1 ‘‘(vi) Information on national average

2 costs for nursing facility and home health

3 care and information (in graphic form) on

4 the relationship of the value of the benefits

5 provided under the policy to such national

6 average costs and State average costs,

7 where available.

8 ‘‘(vii) A statement of the percentage

9 limit on annual premium increases that is

10 provided under the policy pursuant to this

11 section.

12 ‘‘(2) CERTIFICATES.—A certificate issued pur13 suant to a group long-term care insurance policy

14 shall include—

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

16 and coverage provided in the policy;

17 ‘‘(B) a statement of the principal exclu18 sions, reductions, and limitations contained in

19 the policy; and

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

21 policy determines governing contractual provi22 sions.

23 ‘‘(3) LONG-TERM CARE AS PART OF LIFE IN24 SURANCE.—In the case of a long-term care insur25 ance policy issued as a part of, or a rider on, a life
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1 insurance policy, at the time of policy delivery there

2 shall be provided a policy summary that includes—

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

4 care benefits interact with other components of

5 the policy (including deductions from death

6 benefits);

7 ‘‘(B) an illustration of the amount of bene8 fits, the length of benefit, and the guaranteed

9 lifetime benefits (if any) for each covered per10 son; and

11 ‘‘(C) any exclusions, reductions, and limi12 tations on benefits of long-term care.

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

14 shall develop recommendations with respect to in15 forming consumers of the long-term economic viabil16 ity of carriers issuing long-term care insurance poli17 cies.

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

19 BENEFITS.—

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

21 policy may not condition or limit eligibility—

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

23 the need for or receipt of any other services;

24 ‘‘(B) for any benefit on the medical neces25 sity for such benefit;
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1 ‘‘(C) for benefits furnished by licensed or

2 certified providers in compliance with conditions

3 which are in addition to those required for li4 censure or certification under State law, except

5 that if no State licensure or certification laws

6 exists, in compliance with qualifications devel7 oped by the NAIC; or

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

9 the policy) only—

10 ‘‘(i) to care provided in facilities

11 which provide a higher level of care; or

12 ‘‘(ii) to care provided in facilities

13 which provide for 24-hour or other nursing

14 care not required in order to be licensed by

15 the State.

16 ‘‘(2) HOME HEALTH CARE OR COMMUNITY17 BASED SERVICES.—If a long-term care insurance

18 policy provides benefits for the payment of specified

19 home health care or community-based services, the

20 policy—

21 ‘‘(A) may not limit such benefits to serv22 ices provided by registered nurses or licensed

23 practical nurses;

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

25 services to be provided by a nurse or therapist
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1 that can be provided by a home health aide or

2 licensed or certified home care worker, except

3 that if no State licensure or certification laws

4 exists, in compliance with qualifications devel5 oped by the NAIC;

6 ‘‘(C) may not limit such benefits to serv7 ices provided by agencies or providers certified

8 under title XVIII of the Social Security Act;

9 and

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

11 for personal care services (including home

12 health aide and home care worker services as

13 defined by the NAIC) home health services,

14 adult day care, and respite care in an individ15 ual’s home or in another setting in the commu16 nity, or any of these benefits on a respite care

17 basis.

18 ‘‘(3) NURSING FACILITY SERVICES.—If a long19 term care insurance policy provides benefits for the

20 payment of specified nursing facility services, the

21 policy must provide such benefits with respect to all

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

23 the Social Security Act or until such time as subse24 quently provided for by the NAIC in establishing
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1 uniform language and definitions under section

2 2715(a)(1)) in the State.

3 ‘‘(4) PER DIEM POLICIES.—

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

5 title, the term ‘per diem long-term care insur6 ance policy’ means a long-term care insurance

7 policy (or certificate under a group long-term

8 care insurance policy) that provides for benefit

9 payments on a periodic basis due to cognitive

10 impairment or loss of functional capacity with11 out regard to the expenses incurred or services

12 rendered during the period to which the pay13 ments relate.

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

15 care insurance policy (or certificate) may condi16 tion or otherwise exclude benefit payments

17 based on the receipt of any type of nursing fa18 cility, home health care or community-based

19 services.

20 ‘‘(d) PROHIBITION OF DISCRIMINATION.—A long21 term care insurance policy may not treat benefits under

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

23 disease, with any related progressive degenerative demen24 tia of an organic origin, with any organic or inorganic

25 mental illness, or with mental retardation or any other
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1 cognitive or mental impairment differently from an indi2 vidual having another medical condition for which benefits

3 may be made available.

4 ‘‘(e) LIMITATION ON USE OF PREEXISTING CONDI5 TION LIMITS.—

6 ‘‘(1) INITIAL ISSUANCE.—

7 ‘‘(A) IN GENERAL.—Subject to subpara8 graph (B), a long-term care insurance policy

9 may not exclude or condition benefits based on

10 a medical condition for which the policyholder

11 received treatment or was otherwise diagnosed

12 before the issuance of the policy.

13 ‘‘(B) 6-MONTH LIMIT.—

14 ‘‘(i) IN GENERAL.—No long-term care

15 insurance policy or certificate issued under

16 this title shall utilize a definition of ‘pre17 existing condition’ that is more restrictive

18 than the following: The term ‘preexisting

19 condition’ means a condition for which

20 medical advice or treatment was rec21 ommended by, or received from a provider

22 of health care services, within 6 months

23 preceding the effective date of coverage of

24 an insured individual.
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1 ‘‘(ii) PROHIBITION ON EXCLUSION OF

2 COVERAGE.—No long-term care insurance

3 policy or certificate may exclude coverage

4 for a loss or confinement that is the result

5 of a preexisting condition unless such loss

6 or confinement begins within 6 months fol7 lowing the effective date of the coverage of

8 the insured individual.

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

10 care insurance policy replaces another long-term

11 care insurance policy, the issuer of the replacing pol12 icy shall waive any time periods applicable to pre13 existing conditions, waiting period, elimination peri14 ods and probationary periods in the new policy for

15 similar benefits to the extent such time was spent

16 under the original policy.

17 ‘‘(f) ELIGIBILITY FOR BENEFITS.—

18 ‘‘(1) LONG-TERM CARE POLICIES.—Each long19 term care insurance policy shall—

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

21 under the policy; and

22 ‘‘(B) specify in clear, understandable

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

24 or mental impairment required in order to re25 ceive benefits under the policy.
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1 ‘‘(2) FUNCTIONAL ASSESSMENT.—In order to

2 submit a claim under any long-term care insurance

3 policy, each claimant shall have a professional func4 tional assessment of his or her physical, cognitive,

5 and mental abilities. Such initial assessment shall be

6 conducted by an individual or entity, meeting the

7 qualifications established by the NAIC to assure the

8 professional competence and credibility of such indi9 vidual or entity and that such individual meets any

10 applicable State licensure and certification require11 ments. The individual or entity conducting such as12 sessment may not control, or be controlled by, the

13 issuer of the policy. For purposes of this paragraph

14 and paragraph (4), the term ‘control’ means the di15 rect or indirect possession of the power to direct the

16 management and policies of a person. Control is pre17 sumed to exist, if any person directly or indirectly,

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

19 holds proxies representing 10 percent of the voting

20 securities of another person.

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

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

23 shall be subject to final claims review by the carrier

24 pursuant to the terms of the long-term care insur25 ance policy.
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1 ‘‘(4) APPEALS PROCESS.—

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

3 insurance policy shall provide for a timely and

4 independent appeals process, meeting standards

5 established by the NAIC, for individuals who

6 dispute the results of the claims review, con7 ducted under paragraph (3), of the claimant’s

8 functional assessment, conducted under para9 graph (2).

10 ‘‘(B) INDEPENDENT ASSESSMENT.—An

11 appeals process under this paragraph shall in12 clude, at the request of the claimant, an inde13 pendent assessment of the claimant’s physical,

14 cognitive or mental abilities.

15 ‘‘(C) CONDUCT.—An independent assess16 ment under subparagraph (B) shall be con17 ducted by an individual or entity meeting the

18 qualifications established by the NAIC to as19 sure the professional competence and credibility

20 of such individual or entity and any applicable

21 State licensure and certification requirements

22 and may not be conducted—

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

24 or indirect significant or controlling inter-
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1 est in, or direct affiliation or relationship

2 with, the issuer of the policy;

3 ‘‘(ii) by an entity that provides serv4 ices to the policyholder or certificateholder

5 for which benefits are available under the

6 long-term care insurance policy; or

7 ‘‘(iii) by an individual or entity in con8 trol of, or controlled by, the issuer of the

9 policy.

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

11 2 years after the date of enactment of this title, the

12 advisory committee established under section

13 2701(d) shall recommend uniform needs assessment

14 mechanisms for the determination of eligibility for

15 benefits under such assessments.

16 ‘‘(g) INFLATION PROTECTION.—

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

18 not offer a long-term care insurance policy unless

19 the carrier also offers to the proposed policyholder,

20 including each group policyholder, the option to pur21 chase a policy that provides for increases in benefit

22 levels, with benefit maximums or reasonable dura23 tions that are meaningful, to account for reasonably

24 anticipated increases in the costs of long-term care

25 services covered by the policy. A carrier may not
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1 offer to a policyholder an inflation protection feature

2 that is less favorable to the policyholder than one of

3 the following:

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

5 for automatic periodic increases in benefits, the

6 policy provides for an annual increase in bene7 fits in a manner so that such increases are

8 computed annually at a rate of not less than 5

9 percent.

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

11 for periodic opportunities to elect an increase in

12 benefits, the policy guarantees that the insured

13 individual will have the right to periodically in14 crease the benefit levels under the policy with15 out providing evidence of insurability or health

16 status so long as the option for the previous pe17 riod was not declined. The amount of any such

18 additional benefit may not be less than the dif19 ference between—

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

21 ‘‘(ii) such existing benefit compounded

22 annually at a rate of at least 5 percent for

23 the period beginning on the date on which

24 the existing benefit is purchased and ex-
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1 tending until the year in which the offer of

2 increase is made.

3 ‘‘(C) With respect to service benefit poli4 cies, the policy covers a specified percentage of

5 the actual or reasonable charges and does not

6 include a maximum specified indemnity amount

7 or limit.

8 ‘‘(2) EXCEPTION.—The requirements of para9 graph (1) shall not apply to life insurance policies or

10 riders containing accelerated long-term care benefits.

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

12 include the following information in or together with

13 the outline of coverage provided under this title:

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

15 levels of a policy that increases benefits over the

16 policy period with a policy that does not in17 crease benefits. Such comparison shall show

18 benefit levels over not less than a 20-year pe19 riod.

20 ‘‘(B) Any expected premium increases or

21 additional premiums required to pay for any

22 automatic or optional benefit increases, whether

23 the individual who purchases the policy obtains

24 the inflation protection initially or whether such
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1 individual delays purchasing such protection

2 until a future time.

3 ‘‘(4) CONTINUATION OF PROTECTION.—Infla4 tion protection benefit increases under this sub5 section under a policy that contains such protection

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

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

8 the individual has been insured under the policy.

9 ‘‘(5) CONSTANT PREMIUM.—An offer of infla10 tion protection under this subsection that provides

11 for automatic benefit increases shall include an offer

12 of a premium that the carrier expects to remain con13 stant. Such offer shall disclose in a conspicuous

14 manner that the premium may change in the future

15 unless the premium is guaranteed to remain con16 stant.

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

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

19 insurance policy unless a carrier obtains a written

20 rejection of such protection signed by the policy21 holder.

22 ‘‘SEC. 2716. NONFORFEITURE.

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

24 policy (or certificate) shall provide that if the policy lapses

25 after the policy has been in effect for a minimum period
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1 (specified under the standards under section 2701(a)), the

2 policy will provide, without payment of any additional pre3 miums, nonforfeiture benefits as determined appropriate

4 by the NAIC.

5 ‘‘(b) ESTABLISHMENT OF STANDARDS.—The stand6 ards under section 2701(a) shall provide that the percent7 age or amount of benefits under subsection (a) must in8 crease based upon the policyholder’s equity in the policy.

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

10 RIGHT TO RETURN.

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

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

13 under the policy based on fraud or material misrepresenta14 tion relating to the issuance of the policy unless notice

15 of such fraud or material misrepresentation is provided

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

17 ‘‘(b) RIGHT TO RETURN.—Each applicant for a long18 term care insurance policy shall have the right to return

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

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

21 examination of the policy or certificate, the applicant is

22 not satisfied for any reason.
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1 ‘‘SEC. 2718. CIVIL MONEY PENALTY.

2 ‘‘(a) CARRIER.—Any carrier, association or its sub3 sidiary that sells or offers for sale a long-term care insur4 ance policy and that—

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

6 section 2713(a);

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

8 with section 2713(b);

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

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

11 of section 2713;

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

13 violation of section 2713(e);

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

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

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

17 information in violation of section 2715(f);

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

19 for each such violation.

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

21 a long-term care insurance policy and that—

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

23 section 2713(a);

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

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

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

3 of section 2713;

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

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

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

7 information in violation of section 2715(f);

8 is subject to a civil money penalty of not to exceed $15,000

9 for each such violation.

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

11 DEFINITION AND ENDORSEMENTS

12 ‘‘SEC. 2721. LONG-TERM CARE INSURANCE POLICY DE13 FINED.

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

15 ‘long-term care insurance policy’ means any insurance pol16 icy, rider or certificate advertised, marketed, offered or de17 signed to provide coverage for not less than 12 consecutive

18 months for each covered person on an expense incurred,

19 indemnity prepaid or other basis, for one or more nec20 essary diagnostic, preventive, therapeutic, rehabilitative,

21 maintenance or personal care services, provided in a set22 ting other than an acute care unit of a hospital. Such term

23 includes—

24 ‘‘(1) group and individual annuities and life in25 surance policies, riders or certificates that provide
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1 directly, or that supplement long-term care insur2 ance; and

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

4 for payment of benefits based on cognitive impair5 ment or the loss of functional capacity.

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

7 may be issued by—

8 ‘‘(1) carriers;

9 ‘‘(2) fraternal benefit societies;

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

11 service corporations;

12 ‘‘(4) prepaid health plans;

13 ‘‘(5) health maintenance organizations; or

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

15 are otherwise authorized to issue life or health insur16 ance.

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

18 care insurance policy’ shall not include any insurance pol19 icy, rider or certificate that is offered primarily to provide

20 basic Medicare supplement coverage, basic hospital ex21 pense coverage, basic medical-surgical expense coverage,

22 hospital confinement indemnity coverage, major medical

23 expense coverage, disability income or related asset-protec24 tion coverage, accident only coverage, specified disease or

25 specified accident coverage, or limited benefit health cov-
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1 erage. With respect to life insurance, such term shall not

2 include life insurance policies, riders or certificates that

3 accelerate the death benefit specifically for one or more

4 of the qualifying events of terminal illness, medical condi5 tions requiring extraordinary medical intervention, or per6 manent institutional confinement, and that provide the op7 tion of a lump-sum payment for those benefits and in

8 which neither the benefits nor the eligibility for the bene9 fits is conditioned upon the receipt of long-term care.

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

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

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

13 policy, rider or certificate.

14 ‘‘SEC. 2722. CODE OF CONDUCT WITH RESPECT TO EN15 DORSEMENTS.

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

17 of this title the NAIC shall issue guidelines that shall

18 apply to organizations and associations, other than em19 ployers and labor organizations that do not accept com20 pensation, and their subsidiaries that provide endorse21 ments of long-term care insurance policies, or that permit

22 such policies to be offered for sale through the organiza23 tion or association. Such guidelines shall include at mini24 mum the following:
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1 ‘‘(1) In endorsing or selling long-term care in2 surance policies, the primary responsibility of an or3 ganization or association shall be to educate their

4 members concerning such policies and assist such

5 members in making informed decisions. Such organi6 zations and associations may not function primarily

7 as sales agents for insurance companies.

8 ‘‘(2) Organizations and associations shall pro9 vide objective information regarding long-term care

10 insurance policies sold or endorsed by such organiza11 tions and associations to ensure that members of

12 such organizations and associations have a balanced

13 and complete understanding of both the strengths

14 and weaknesses of the policies that are being en15 dorsed or sold.

16 ‘‘(3) Organizations and associations selling or

17 endorsing long-term care insurance policies shall dis18 close in marketing literature provided to their mem19 bers concerning such policies the manner in which

20 such policies and the insurance company issuing

21 such policies were selected. If the organization or as22 sociation and the insurance company have interlock23 ing directorates, the organization or association shall

24 disclose such fact to their members.
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1 ‘‘(4) Organizations and associations selling or

2 endorsing long-term care insurance policies shall dis3 close in marketing literature provided to their mem4 bers concerning such policies the nature and amount

5 of the compensation arrangements (including all

6 fees, commissions, administrative fees and other

7 forms of financial support that the organization or

8 association receives) from the endorsement or sale of

9 the policy to its members.

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

11 and associations selling or endorsing long-term care

12 insurance policies, if such organizations and associa13 tions have a Board of Directors, shall review and ap14 prove such insurance policies, the compensation ar15 rangements and the marketing materials used to

16 promote sales of such policies.

17 ‘‘PART D—MISCELLANEOUS PROVISIONS

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

19 INFORMATION, COUNSELING, AND ASSIST20 ANCE.

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

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

23 and national organizations with demonstrated experience

24 in long-term care insurance, for the establishment of pro25 grams to provide information, counseling, and assistance
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1 relating to the procurement of adequate and appropriate

2 long-term care insurance.

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

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

5 shall prepare and submit to the Secretary an application

6 at such time, in such manner, and containing such infor7 mation as the Secretary may require, including a descrip8 tion of the program for which the State or organization

9 intends to use the amounts provided under the grant.

10 ‘‘(c) AUTHORIZATION OF APPROPRIATIONS.—

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

12 appropriate for grants to States under subsection

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

14 through 1996.

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

16 authorized to be appropriate for grants to national

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

18 each of the fiscal years 1994 through 1996.

19 ‘‘SEC. 2732. DEFINITIONS.

20 ‘‘As used in this title:

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

22 ‘‘(A) prior to 2 years after the date of en23 actment of this Act, an individual who sells or

24 offers for sale a long-term care insurance policy

25 subject to the requirements of this title and is
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1 licensed or required to be licensed under State

2 law for such purpose; and

3 ‘‘(B) after the date referred to in subpara4 graph (A), an individual who meets the training

5 and certification requirements established under

6 section 2712(f).

7 ‘‘(2) ASSOCIATION.—The term ‘association’ in8 cludes the association and its subsidiaries.

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

10 person that offers a health benefit plan, whether

11 through insurance or otherwise, including a licensed

12 insurance company, a prepaid hospital or medical

13 service plan, a health maintenance organization, a

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

15 multiple employer welfare arrangement (a combina16 tion of employers associated for the purpose of pro17 viding health benefit plan coverage for their employ18 ees).’’.

19 (b) CONFORMING AMENDMENTS.—

20 (1) Sections 2701 through 2714 of the Public

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

22 300cc–15) are redesignated as sections 2801

23 through 2814, respectively.

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

25 U.S.C. 286(f) and 289(f)) are amended by striking
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1 out ‘‘2701’’ each place that such appears and insert2 ing in lieu thereof ‘‘2801’’.

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