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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 1698 Placed on Calendar Senate (PCS)]

                                                       Calendar No. 379

104th CONGRESS

  2d Session

                                S. 1698

_______________________________________________________________________

                                 A BILL

         Entitled the ``Health Insurance Reform Act of 1996''.

_______________________________________________________________________

                             April 25, 1996

            Read the second time and placed on the calendar
                                                       Calendar No. 379
104th CONGRESS
  2d Session
                                S. 1698

         Entitled the ``Health Insurance Reform Act of 1996''.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             April 24, 1996

  Mr. Daschle introduced the following bill; which was read the first 
                                  time

                             April 25, 1996

            Read the second time and placed on the calendar

_______________________________________________________________________

                                 A BILL

 
         Entitled the ``Health Insurance Reform Act of 1996''.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Health Insurance 
Reform Act of 1996''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
       TITLE I--HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY

                     Subtitle A--Group Market Rules

Sec. 101. Guaranteed availability of health coverage.
Sec. 102. Guaranteed renewability of health coverage.
Sec. 103. Portability of health coverage and limitation on preexisting 
                            condition exclusions.
Sec. 104. Special enrollment periods.
Sec. 105. Disclosure of information.
                  Subtitle B--Individual Market Rules

Sec. 110. Individual health plan portability.
Sec. 111. Guaranteed renewability of individual health coverage.
Sec. 112. State flexibility in individual market reforms.
Sec. 113. Definition.
                    Subtitle C--COBRA Clarifications

Sec. 121. COBRA clarifications.
        Subtitle D--Private Health Plan Purchasing Cooperatives

Sec. 131. Private health plan purchasing cooperatives.
           TITLE II--APPLICATION AND ENFORCEMENT OF STANDARDS

Sec. 201. Applicability.
Sec. 202. Enforcement of standards.
                  TITLE III--MISCELLANEOUS PROVISIONS

Sec. 301. HMOs allowed to offer plans with deductibles to individuals 
                            with medical savings accounts.
Sec. 302. Health coverage availability study.
Sec. 303. Reimbursement of telemedicine.
Sec. 304. Sense of the Committee concerning medicare.
Sec. 305. Parity for mental health services.
Sec. 306. Waiver of foreign country residence requirement with respect 
                            to international medical graduates.
Sec. 307. Organ and tissue donation information included with income 
                            tax refund payments.
Sec. 308. Sense of the Senate regarding adequate health care coverage 
                            for all children and pregnant women.
Sec. 309. Sense of the Senate regarding available treatments.
Sec. 310. Medical volunteers.
Sec. 311. Effective date.
Sec. 312. Severability.
                TITLE IV--TAX-RELATED HEALTH PROVISIONS

Sec. 400. Short title; amendment of 1986 Code.
 Subtitle A--Increase in Deduction for Health Insurance Costs of Self-
                          Employed Individuals

Sec. 401. Increase in self-employed individuals' deduction for health 
                            insurance costs.
                 Subtitle B--Long-Term Care Provisions

            Chapter subchapter a--general provisionsontracts
Sec. 411. Treatment of long-term care insurance.
Sec. 412. Qualified long-term care services treated as medical care.
Sec. 413. Certain exchanges of life insurance contracts for qualified 
                            long-term care insurance contracts not 
                            taxable.
Sec. 414. Exception from penalty tax for amounts withdrawn from certain 
                            retirement plans for qualified long-term 
                            care insurance.
Sec. 415. Reposubchapter b--consumer protection provisions
Sec. 421. Policy requirements.
Sec. 422. Requirements for issuers of long-term care insurance 
                            policies.
Sec. 423. Coordination with State requirements.
Sec. 424. Effective dates.
           Chapter 2--Treatment Of Accelerated Death Benefits

Sec. 431. Treatment of accelerated death benefits by recipient.
Sec. 432. Tax treatment of companies issuing qualified accelerated 
                            death benefit riders.
                      Subtitle C--High-Risk Pools

Sec. 451. Exemption from income tax for State-sponsored organizations 
                            providing health coverage for high-risk 
                            individuals.
               Subtitle D--Penalty-Free IRA Distributions

Sec. 461. Distributions from certain plans may be used without penalty 
                            to pay financially devastating medical 
                            expenses.
                      Subtitle E--Revenue Offsets

           Chapter 1--Treatment Of Individuals Who Expatriate

Sec. 471. Revision of tax rules on expatriation.
Sec. 472. Information on individuals expatriating.
Sec. 473. Report on tax compliance by United States citizens and 
                            residents living abroad.
                   Chapter 2--Company-Owned Insurance

Sec. 495. Denial of deduction for interest on loans with respect to 
                            company-owned insurance.
            TITLE V--HEALTH CARE FRAUD AND ABUSE PREVENTION

Sec. 500. Amendments.
              Subtitle A--Fraud and Abuse Control Program

Sec. 501. Fraud and abuse control program.
Sec. 502. Medicare integrity program.
Sec. 503. Beneficiary incentive programs.
Sec. 504. Application of certain health anti-fraud and abuse sanctions 
                            to fraud and abuse against Federal health 
                            care programs.
Sec. 505. Guidance regarding application of health care fraud and abuse 
                            sanctions.
     Subtitle B--Revisions to Current Sanctions for Fraud and Abuse

Sec. 511. Mandatory exclusion from participation in medicare and State 
                            health care programs.
Sec. 512. Establishment of minimum period of exclusion for certain 
                            individuals and entities subject to 
                            permissive exclusion from medicare and 
                            State health care programs.
Sec. 513. Permissive exclusion of individuals with ownership or control 
                            interest in sanctioned entities.
Sec. 514. Sanctions against practitioners and persons for failure to 
                            comply with statutory obligations.
Sec. 515. Intermediate sanctions for medicare health maintenance 
                            organizations.
Sec. 516. Additional exceptions to anti-kickback penalties for risk-
                            sharing arrangements.
Sec. 517. Effective date.
        Subtitle C--Data Collection and Miscellaneous Provisions

Sec. 521. Establishment of the health care fraud and abuse data 
                            collection program.
                  Subtitle D--Civil Monetary Penalties

Sec. 531. Social Security Act civil monetary penalties.
                 Subtitle E--Amendments to Criminal Law

Sec. 541. Health care fraud.
Sec. 542. Forfeitures for Federal health care offenses.
Sec. 543. Injunctive relief relating to Federal health care offenses.
Sec. 544. False statements.
Sec. 545. Obstruction of criminal investigations of Federal health care 
                            offenses.
Sec. 546. Theft or embezzlement.
Sec. 547. Laundering of monetary instruments.
Sec. 548. Authorized investigative demand procedures.
          TITLE VI--INTERNAL REVENUE CODE AND OTHER PROVISIONS

Sec. 600. References.
                Subtitle A--Foreign Trust Tax Compliance

Sec. 601. Improved information reporting on foreign trusts.
Sec. 602. Modifications of rules relating to foreign trusts having one 
                            or more United States beneficiaries.
Sec. 603. Foreign persons not to be treated as owners under grantor 
                            trust rules.
Sec. 604. Information reporting regarding foreign gifts.
Sec. 605. Modification of rules relating to foreign trusts which are 
                            not grantor trusts.
Sec. 606. Residence of estates and trusts, etc.
   Subtitle B--Repeal of Bad Debt Reserve Method for Thrift Savings 
                              Associations

Sec. 611. Repeal of bad debt reserve method for Thrift Savings 
                            Associations.
                      Subtitle C--Other Provisions

Sec. 621. Extension of medicare secondary payor provisions.
Sec. 622. Annual adjustment factors for operating costs only; restraint 
                            on rent increases.
Sec. 623. Foreclosure avoidance and borrower assistance.

SEC. 2. DEFINITIONS.

    As used in this Act:
            (1) Beneficiary.--The term ``beneficiary'' has the meaning 
        given such term under section 3(8) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1002(8)).
            (2) Employee.--The term ``employee'' has the meaning given 
        such term under section 3(6) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1002(6)).
            (3) Employer.--The term ``employer'' has the meaning given 
        such term under section 3(5) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1002(5)), except that such term 
        shall include only employers of two or more employees.
            (4) Employee health benefit plan.--
                    (A) In general.--The term ``employee health benefit 
                plan'' means any employee welfare benefit plan, 
                governmental plan, or church plan (as defined under 
                paragraphs (1), (32), and (33) of section 3 of the 
                Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1002 (1), (32), and (33))), or any health 
                benefit plan under section 5(e) of the Peace Corps Act 
                (22 U.S.C. 2504(e)), that provides or pays for health 
                benefits (such as provider and hospital benefits) for 
                participants and beneficiaries whether--
                            (i) directly;
                            (ii) through a group health plan offered by 
                        a health plan issuer as defined in paragraph 
                        (8); or
                            (iii) otherwise.
                    (B) Rule of construction.--An employee health 
                benefit plan shall not be construed to be a group 
                health plan, an individual health plan, or a health 
                plan issuer.
                    (C) Arrangements not included.--Such term does not 
                include the following, or any combination thereof:
                            (i) Coverage only for accident, or 
                        disability income insurance, or any combination 
                        thereof.
                            (ii) Medicare supplemental health insurance 
                        (as defined under section 1882(g)(1) of the 
                        Social Security Act).
                            (iii) Coverage issued as a supplement to 
                        liability insurance.
                            (iv) Liability insurance, including general 
                        liability insurance and automobile liability 
                        insurance.
                            (v) Workers compensation or similar 
                        insurance.
                            (vi) Automobile medical payment insurance.
                            (vii) Coverage for a specified disease or 
                        illness.
                            (viii) Hospital or fixed indemnity 
                        insurance.
                            (ix) Short-term limited duration insurance.
                            (x) Credit-only, dental-only, or vision-
                        only insurance.
                            (xi) A health insurance policy providing 
                        benefits only for long-term care, nursing home 
                        care, home health care, community-based care, 
                        or any combination thereof.
            (5) Family.--
                    (A) In general.--The term ``family'' means an 
                individual, the individual's spouse, and the child of 
                the individual (if any).
                    (B) Child.--For purposes of subparagraph (A), the 
                term ``child'' means any individual who is a child 
                within the meaning of section 151(c)(3) of the Internal 
                Revenue Code of 1986.
            (6) Group health plan.--
                    (A) In general.--The term ``group health plan'' 
                means any contract, policy, certificate or other 
                arrangement offered by a health plan issuer to a group 
                purchaser that provides or pays for health benefits 
                (such as provider and hospital benefits) in connection 
                with an employee health benefit plan.
                    (B) Arrangements not included.--Such term does not 
                include the following, or any combination thereof:
                            (i) Coverage only for accident, or 
                        disability income insurance, or any combination 
                        thereof.
                            (ii) Medicare supplemental health insurance 
                        (as defined under section 1882(g)(1) of the 
                        Social Security Act).
                            (iii) Coverage issued as a supplement to 
                        liability insurance.
                            (iv) Liability insurance, including general 
                        liability insurance and automobile liability 
                        insurance.
                            (v) Workers compensation or similar 
                        insurance.
                            (vi) Automobile medical payment insurance.
                            (vii) Coverage for a specified disease or 
                        illness.
                            (viii) Hospital or fixed indemnity 
                        insurance.
                            (ix) Short-term limited duration insurance.
                            (x) Credit-only, dental-only, or vision-
                        only insurance.
                            (xi) A health insurance policy providing 
                        benefits only for long-term care, nursing home 
                        care, home health care, community-based care, 
                        or any combination thereof.
            (7) Group purchaser.--The term ``group purchaser'' means 
        any person (as defined under paragraph (9) of section 3 of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1002(9)) or entity that purchases or pays for health benefits 
        (such as provider or hospital benefits) on behalf of two or 
        more participants or beneficiaries in connection with an 
        employee health benefit plan. A health plan purchasing 
        cooperative established under section 131 shall not be 
        considered to be a group purchaser.
            (8) Health plan issuer.--The term ``health plan issuer'' 
        means any entity that is licensed (prior to or after the date 
        of enactment of this Act) by a State to offer a group health 
        plan or an individual health plan.
            (9) Participant.--The term ``participant'' has the meaning 
        given such term under section 3(7) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1002(7)).
            (10) Plan sponsor.--The term ``plan sponsor'' has the 
        meaning given such term under section 3(16)(B) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1002(16)(B)).
            (11) Secretary.--The term ``Secretary'', unless 
        specifically provided otherwise, means the Secretary of Labor.
            (12) State.--The term ``State'' means each of the several 
        States, the District of Columbia, Puerto Rico, the United 
        States Virgin Islands, Guam, American Samoa, and the 
        Commonwealth of the Northern Mariana Islands.

       TITLE I--HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY

                     Subtitle A--Group Market Rules

SEC. 101. GUARANTEED AVAILABILITY OF HEALTH COVERAGE.

    (a) In General.--
            (1) Nondiscrimination.--Except as provided in subsection 
        (b), section 102 and section 103--
                    (A) a health plan issuer offering a group health 
                plan may not decline to offer whole group coverage to a 
                group purchaser desiring to purchase such coverage; and
                    (B) an employee health benefit plan or a health 
                plan issuer offering a group health plan may establish, 
                under the terms of such plan, eligibility, enrollment, 
                or premium contribution requirements for individual 
                participants or beneficiaries, except that such 
                requirements shall not be based on health status, 
                medical condition, claims experience, receipt of health 
                care, medical history, evidence of insurability 
                (including conditions arising out of acts of domestic 
                violence), genetic information, or disability.
            (2) Health promotion and disease prevention.--Nothing in 
        this subsection shall prevent an employee health benefit plan 
        or a health plan issuer from establishing premium discounts or 
        modifying otherwise applicable copayments or deductibles in 
        return for adherence to programs of health promotion and 
        disease prevention.
    (b) Application of Capacity Limits.--
            (1) In general.--Subject to paragraph (2), a health plan 
        issuer offering a group health plan may cease offering coverage 
        to group purchasers under the plan if--
                    (A) the health plan issuer ceases to offer coverage 
                to any additional group purchasers; and
                    (B) the health plan issuer can demonstrate to the 
                applicable certifying authority (as defined in section 
                202(d)), if required, that its financial or provider 
                capacity to serve previously covered participants and 
                beneficiaries (and additional participants and 
                beneficiaries who will be expected to enroll because of 
                their affiliation with a group purchaser or such 
                previously covered participants or beneficiaries) will 
                be impaired if the health plan issuer is required to 
                offer coverage to additional group purchasers.
        Such health plan issuer shall be prohibited from offering 
        coverage after a cessation in offering coverage under this 
        paragraph for a 6-month period or until the health plan issuer 
        can demonstrate to the applicable certifying authority (as 
        defined in section 202(d)) that the health plan issuer has 
        adequate capacity, whichever is later.
            (2) First-come-first-served.--A health plan issuer offering 
        a group health plan is only eligible to exercise the 
        limitations provided for in paragraph (1) if the health plan 
        issuer offers coverage to group purchasers under such plan on a 
        first-come-first-served basis or other basis established by a 
        State to ensure a fair opportunity to enroll in the plan and 
        avoid risk selection.
    (c) Construction.--
            (1) Marketing of group health plans.--Nothing in this 
        section shall be construed to prevent a State from requiring 
        health plan issuers offering group health plans to actively 
        market such plans.
            (2) Involuntary offering of group health plans.--Nothing in 
        this section shall be construed to require a health plan issuer 
        to involuntarily offer group health plans in a particular 
        market or to require a health plan issuer to involuntarily 
        issue a group health plan to a group health plan purchaser in a 
        particular market if the group health plan was specifically 
        designed for a different market. For the purposes of this 
        paragraph, the term ``market'' means either the large employer 
        market or the small employer market (as defined under 
        applicable State law, or if not so defined, an employer with 
        more than one employee and not more than 50 employees).

SEC. 102. GUARANTEED RENEWABILITY OF HEALTH COVERAGE.

    (a) In General.--
            (1) Group purchaser.--Subject to subsections (b) and (c), a 
        group health plan shall be renewed or continued in force by a 
        health plan issuer at the option of the group purchaser, except 
        that the requirement of this subparagraph shall not apply in 
        the case of--
                    (A) the nonpayment of premiums or contributions by 
                the group purchaser in accordance with the terms of the 
                group health plan or where the health plan issuer has 
                not received timely premium payments;
                    (B) fraud or misrepresentation of material fact on 
                the part of the group purchaser;
                    (C) the termination of the group health plan in 
                accordance with subsection (b); or
                    (D) the failure of the group purchaser to meet 
                contribution or participation requirements in 
                accordance with paragraph (3).
            (2) Participant.--Subject to subsections (b) and (c), 
        coverage under an employee health benefit plan or group health 
        plan shall be renewed or continued in force, if the group 
        purchaser elects to continue to provide coverage under such 
        plan, at the option of the participant (or beneficiary where 
        such right exists under the terms of the plan or under 
        applicable law), except that the requirement of this paragraph 
        shall not apply in the case of--
                    (A) the nonpayment of premiums or contributions by 
                the participant or beneficiary in accordance with the 
                terms of the employee health benefit plan or group 
                health plan or where such plan has not received timely 
                premium payments;
                    (B) fraud or misrepresentation of material fact on 
                the part of the participant or beneficiary relating to 
                an application for coverage or claim for benefits;
                    (C) the termination of the employee health benefit 
                plan or group health plan;
                    (D) loss of eligibility for continuation coverage 
                as described in part 6 of subtitle B of title I of the 
                Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1161 et seq.); or
                    (E) failure of a participant or beneficiary to meet 
                requirements for eligibility for coverage under an 
                employee health benefit plan or group health plan that 
                are not prohibited by this Act.
            (3) Rules of Construction.--Nothing in this subsection, nor 
        in section 101(a), shall be construed to--
                    (A) preclude a health plan issuer from establishing 
                employer contribution rules or group participation 
                rules for group health plans as allowed under 
                applicable State law;
                    (B) preclude a plan defined in section 3(37) of the 
                Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1102(37)) from establishing employer 
                contribution rules or group participation rules; or
                    (C) permit individuals to decline coverage under an 
                employee health benefit plan if such right is not 
                otherwise available under such plan.
    (b) Termination of Group Health Plans.--
            (1) Particular type of group health plan not offered.--In 
        any case in which a health plan issuer decides to discontinue 
        offering a particular type of group health plan, a group health 
        plan of such type may be discontinued by the health plan issuer 
        only if--
                    (A) the health plan issuer provides notice to each 
                group purchaser covered under a group health plan of 
                this type (and participants and beneficiaries covered 
                under such group health plan) of such discontinuation 
                at least 90 days prior to the date of the 
                discontinuation of such plan;
                    (B) the health plan issuer offers to each group 
                purchaser covered under a group health plan of this 
                type, the option to purchase any other group health 
                plan currently being offered by the health plan issuer; 
                and
                    (C) in exercising the option to discontinue a group 
                health plan of this type and in offering one or more 
                replacement plans, the health plan issuer acts 
                uniformly without regard to the health status or 
                insurability of participants or beneficiaries covered 
                under the group health plan, or new participants or 
                beneficiaries who may become eligible for coverage 
                under the group health plan.
            (2) Discontinuance of all group health plans.--
                    (A) In general.--In any case in which a health plan 
                issuer elects to discontinue offering all group health 
                plans in a State, a group health plan may be 
                discontinued by the health plan issuer only if--
                            (i) the health plan issuer provides notice 
                        to the applicable certifying authority (as 
                        defined in section 202(d)) and to each group 
                        purchaser (and participants and beneficiaries 
                        covered under such group health plan) of such 
                        discontinuation at least 180 days prior to the 
                        date of the expiration of such plan; and
                            (ii) all group health plans issued or 
                        delivered for issuance in the State are 
                        discontinued and coverage under such plans is 
                        not renewed.
                    (B) Application of provisions.--The provisions of 
                this paragraph and paragraph (3) may be applied 
                separately by a health plan issuer--
                            (i) to all group health plans offered to 
                        small employers (as defined under applicable 
                        State law, or if not so defined, an employer 
                        with not more than 50 employees); or
                            (ii) to all other group health plans 
                        offered by the health plan issuer in the State.
            (3) Prohibition on market reentry.--In the case of a 
        discontinuation under paragraph (2), the health plan issuer may 
        not provide for the issuance of any group health plan in the 
        market sector (as described in paragraph (2)(B)) in which 
        issuance of such group health plan was discontinued in the 
        State involved during the 5-year period beginning on the date 
        of the discontinuation of the last group health plan not so 
        renewed.
    (c) Treatment of Network Plans.--
            (1) Geographic limitations.--A network plan (as defined in 
        paragraph (2)) may deny continued participation under such plan 
        to participants or beneficiaries who neither live, reside, nor 
        work in an area in which such network plan is offered, but only 
        if such denial is applied uniformly, without regard to health 
        status or the insurability of particular participants or 
        beneficiaries.
            (2) Network plan.--As used in paragraph (1), the term 
        ``network plan'' means an employee health benefit plan or a 
        group health plan that arranges for the financing and delivery 
        of health care services to participants or beneficiaries 
        covered under such plan, in whole or in part, through 
        arrangements with providers.
    (d) COBRA Coverage.--Nothing in subsection (a)(2)(E) or subsection 
(c) shall be construed to affect any right to COBRA continuation 
coverage as described in part 6 of subtitle B of title I of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1161 et 
seq.).

SEC. 103. PORTABILITY OF HEALTH COVERAGE AND LIMITATION ON PREEXISTING 
              CONDITION EXCLUSIONS.

    (a) In General.--An employee health benefit plan or a health plan 
issuer offering a group health plan may, with respect to a participant 
or beneficiary, impose a limitation or exclusion of benefits, otherwise 
available under the terms of the plan only if--
            (1) such limitation or exclusion is a limitation or 
        exclusion of benefits relating to the treatment of a 
        preexisting condition; and
            (2) such limitation or exclusion extends for a period of 
        not more than 12 months after the date of enrollment in the 
        plan.
    (b) Crediting of Previous Qualifying Coverage.--
            (1) In general.--Subject to paragraph (4), an employee 
        health benefit plan or a health plan issuer offering a group 
        health plan shall provide that if a participant or beneficiary 
        is in a period of previous qualifying coverage as of the date 
        of enrollment under such plan, any period of exclusion or 
        limitation of coverage with respect to a preexisting condition 
        shall be reduced by 1 month for each month in which the 
        participant or beneficiary was in the period of previous 
        qualifying coverage. With respect to a participant or 
        beneficiary described in subsection (e)(2)(A) who maintains 
        continuous coverage, no limitation or exclusion of benefits 
        relating to treatment of a preexisting condition may be applied 
        to a child within the child's first 12 months of life or within 
        12 months after the placement of a child for adoption.
            (2) Discharge of duty.--An employee health benefit plan 
        shall provide documentation of coverage to participants and 
        beneficiaries whose coverage is terminated under the plan. 
        Pursuant to regulations promulgated by the Secretary, the duty 
        of an employee health benefit plan to verify previous 
        qualifying coverage with respect to a participant or 
        beneficiary is effectively discharged when such employee health 
        benefit plan provides documentation to a participant or 
        beneficiary that includes the following information:
                    (A) the dates that the participant or beneficiary 
                was covered under the plan; and
                    (B) the benefits and cost-sharing arrangement 
                available to the participant or beneficiary under such 
                plan.
        An employee health benefit plan shall retain the documentation 
        provided to a participant or beneficiary under subparagraphs 
        (A) and (B) for at least the 12-month period following the date 
        on which the participant or beneficiary ceases to be covered 
        under the plan. Upon request, an employee health benefit plan 
        shall provide a second copy of such documentation to such 
        participant or beneficiary within the 12-month period following 
        the date of such ineligibility.
            (3) Definitions.--As used in this section:
                    (A) Previous qualifying coverage.--The term 
                ``previous qualifying coverage'' means the period 
                beginning on the date--
                            (i) a participant or beneficiary is 
                        enrolled under an employee health benefit plan 
                        or a group health plan, and ending on the date 
                        the participant or beneficiary is not so 
                        enrolled; or
                            (ii) an individual is enrolled under an 
                        individual health plan (as defined in section 
                        113) or under a public or private health plan 
                        established under Federal or State law, and 
                        ending on the date the individual is not so 
                        enrolled;
                for a continuous period of more than 30 days (without 
                regard to any waiting period).
                    (B) Limitation or exclusion of benefits relating to 
                treatment of a preexisting condition.--The term 
                ``limitation or exclusion of benefits relating to 
                treatment of a preexisting condition'' means a 
                limitation or exclusion of benefits imposed on an 
                individual based on a preexisting condition of such 
                individual.
            (4) Effect of previous coverage.--An employee health 
        benefit plan or a health plan issuer offering a group health 
        plan may impose a limitation or exclusion of benefits relating 
        to the treatment of a preexisting condition, subject to the 
        limits in subsection (a), only to the extent that such service 
        or benefit was not previously covered under the group health 
        plan, employee health benefit plan, or individual health plan 
        in which the participant or beneficiary was enrolled 
        immediately prior to enrollment in the plan involved.
    (c) Late Enrollees.--Except as provided in section 104, with 
respect to a participant or beneficiary enrolling in an employee health 
benefit plan or a group health plan during a time that is other than 
the first opportunity to enroll during an enrollment period of at least 
30 days, coverage with respect to benefits or services relating to the 
treatment of a preexisting condition in accordance with subsections (a) 
and (b) may be excluded, except the period of such exclusion may not 
exceed 18 months beginning on the date of coverage under the plan.
    (d) Affiliation Periods.--With respect to a participant or 
beneficiary who would otherwise be eligible to receive benefits under 
an employee health benefit plan or a group health plan but for the 
operation of a preexisting condition limitation or exclusion, if such 
plan does not utilize a limitation or exclusion of benefits relating to 
the treatment of a preexisting condition, such plan may impose an 
affiliation period on such participant or beneficiary not to exceed 60 
days (or in the case of a late participant or beneficiary described in 
subsection (c), 90 days) from the date on which the participant or 
beneficiary would otherwise be eligible to receive benefits under the 
plan. An employee health benefit plan or a health plan issuer offering 
a group health plan may also use alternative methods to address adverse 
selection as approved by the applicable certifying authority (as 
defined in section 202(d)). During such an affiliation period, the plan 
may not be required to provide health care services or benefits and no 
premium shall be charged to the participant or beneficiary.
    (e)  Preexisting Condition.--
            (1) In general.--For purposes of this section, the term 
        ``preexisting condition'' means a condition, regardless of the 
        cause of the condition, for which medical advice, diagnosis, 
        care, or treatment was recommended or received within the 6-
        month period ending on the day before the effective date of the 
        coverage (without regard to any waiting period).
            (2) Birth, adoption and pregnancy excluded.--The term 
        ``preexisting condition'' does not apply to--
                    (A) an individual who, within 30 days of the date 
                of the birth or placement for adoption of a child (as 
                determined under section 609(c)(3)(B) of the Employee 
                Retirement Income Security Act of 1974 (29 U.S.C. 
                1169(c)(3)(B)), was covered under the plan; or
                    (B) pregnancy.
    (f) State Flexibility.--Nothing in this section shall be construed 
to preempt State laws that--
            (1) require health plan issuers to impose a limitation or 
        exclusion of benefits relating to the treatment of a 
        preexisting condition for periods that are shorter than those 
        provided for under this section; or
            (2) allow individuals, participants, and beneficiaries to 
        be considered to be in a period of previous qualifying coverage 
        if such individual, participant, or beneficiary experiences a 
        lapse in coverage that is greater than the 30-day period 
        provided for under subsection (b)(3); or
            (3) require health plan issuers to have a lookback period 
        that is shorter than the period described in subsection (e)(1);
unless such laws are preempted by section 514 of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1144).

SEC. 104. SPECIAL ENROLLMENT PERIODS.

    In the case of a participant, beneficiary or family member who--
            (1) through marriage, separation, divorce, death, birth or 
        placement of a child for adoption, experiences a change in 
        family composition affecting eligibility under a group health 
        plan, individual health plan, or employee health benefit plan;
            (2) experiences a change in employment status, as described 
        in section 603(2) of the Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1163(2)), that causes the loss of 
        eligibility for coverage, other than COBRA continuation 
        coverage under a group health plan, individual health plan, or 
        employee health benefit plan; or
            (3) experiences a loss of eligibility under a group health 
        plan, individual health plan, or employee health benefit plan 
        because of a change in the employment status of a family 
        member;
each employee health benefit plan and each group health plan shall 
provide for a special enrollment period extending for a reasonable time 
after such event that would permit the participant to change the 
individual or family basis of coverage or to enroll in the plan if 
coverage would have been available to such individual, participant, or 
beneficiary but for failure to enroll during a previous enrollment 
period. Such a special enrollment period shall ensure that a child born 
or placed for adoption shall be deemed to be covered under the plan as 
of the date of such birth or placement for adoption if such child is 
enrolled within 30 days of the date of such birth or placement for 
adoption.

SEC. 105. DISCLOSURE OF INFORMATION.

    (a) Disclosure of Information by Health Plan Issuers.--
            (1) In general.--In connection with the offering of any 
        group health plan to a small employer (as defined under 
        applicable State law, or if not so defined, an employer with 
        not more than 50 employees), a health plan issuer shall make a 
        reasonable disclosure to such employer, as part of its 
        solicitation and sales materials, of--
                    (A) the provisions of such group health plan 
                concerning the health plan issuer's right to change 
                premium rates and the factors that may affect changes 
                in premium rates;
                    (B) the provisions of such group health plan 
                relating to renewability of coverage;
                    (C) the provisions of such group health plan 
                relating to any preexisting condition provision; and
                    (D) descriptive information about the benefits and 
                premiums available under all group health plans for 
                which the employer is qualified.
        Information shall be provided to small employers under this 
        paragraph in a manner determined to be understandable by the 
        average small employer, and shall be sufficiently accurate and 
        comprehensive to reasonably inform small employers, 
        participants and beneficiaries of their rights and obligations 
        under the group health plan.
            (2) Exception.--With respect to the requirement of 
        paragraph (1), any information that is proprietary and trade 
        secret information under applicable law shall not be subject to 
        the disclosure requirements of such paragraph.
            (3) Construction.--Nothing in this subsection shall be 
        construed to preempt State reporting and disclosure 
        requirements to the extent that such requirements are not 
        preempted under section 514 of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1144).
    (b) Disclosure of Information to Participants and Beneficiaries.--
            (1) In general.--Section 104(b)(1) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1024(b)(1)) 
        is amended in the matter following subparagraph (B)--
                    (A) by striking ``102(a)(1),'' and inserting 
                ``102(a)(1) that is not a material reduction in covered 
                services or benefits provided,''; and
                    (B) by adding at the end thereof the following new 
                sentences: ``If there is a modification or change 
                described in section 102(a)(1) that is a material 
                reduction in covered services or benefits provided, a 
                summary description of such modification or change 
                shall be furnished to participants not later than 60 
                days after the date of the adoption of the modification 
                or change. In the alternative, the plan sponsors may 
                provide such description at regular intervals of not 
                more than 90 days. The Secretary shall issue 
                regulations within 180 days after the date of enactment 
                of the Health Insurance Reform Act of 1996, providing 
                alternative mechanisms to delivery by mail through 
                which employee health benefit plans may notify 
                participants of material reductions in covered services 
                or benefits.''.
            (2) Plan description and summary.--Section 102(b) of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1022(b)) is amended--
                    (A) by inserting ``including the office or title of 
                the individual who is responsible for approving or 
                denying claims for coverage of benefits'' after ``type 
                of administration of the plan'';
                    (B) by inserting ``including the name of the 
                organization responsible for financing claims'' after 
                ``source of financing of the plan''; and
                    (C) by inserting ``including the office, contact, 
                or title of the individual at the Department of Labor 
                through which participants may seek assistance or 
                information regarding their rights under this Act and 
                the Health Insurance Reform Act of 1996 with respect to 
                health benefits that are not offered through a group 
                health plan.'' after ``benefits under the plan''.

                  Subtitle B--Individual Market Rules

SEC. 110. INDIVIDUAL HEALTH PLAN PORTABILITY.

    (a) Limitation on Requirements.--
            (1) In general.--Except as provided in subsections (c) and 
        (d), a health plan issuer described in paragraph (3) may not, 
        with respect to an eligible individual (described in subsection 
        (b)) desiring to enroll in an individual health plan--
                    (A) decline to offer coverage to, or deny 
                enrollment of, such individual; or
                    (B) impose a limitation or exclusion of benefits, 
                otherwise available under such plan, for which coverage 
                was available under the group health plan or employee 
                health benefit plan in which the individual was 
                previously enrolled.
            (2) Health promotion and disease prevention.--Nothing in 
        this subsection shall be construed to prevent a health plan 
        issuer offering an individual health plan from establishing 
        premium discounts or modifying otherwise applicable copayments 
        or deductibles in return for adherence to programs of health 
        promotion or disease prevention.
            (3) Health plan issuer.--A health plan issuer described in 
        this paragraph is a health plan issuer that issues or renews 
        individual health plans.
            (4) Premiums.--Nothing in this subsection shall be 
        construed to affect the determination of a health plan issuer 
        as to the amount of the premium payable under an individual 
        health plan under applicable State law.
    (b) Definition of Eligible Individual.--As used in subsection 
(a)(1), the term ``eligible individual'' means an individual who--
            (1) was a participant or beneficiary enrolled under one or 
        more group health plans or employee health benefit plans for 
        not less than 18 months (without a lapse of more than 30 days) 
        immediately prior to the date on which such individual applies 
        for enrollment in the individual health plan;
            (2) is not eligible for coverage under a group health plan 
        or an employee health benefit plan;
            (3) has not had coverage terminated under a group health 
        plan or employee health benefit plan for failure to make 
        required premium payments or contributions, or for fraud or 
        misrepresentation of material fact; and
            (4) has, if applicable, elected coverage and exhausted the 
        maximum period of coverage as described in section 602(2)(A) of 
        the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1162(2)(A)) or under a State program providing an extension of 
        such coverage.
    (c) Application of Capacity Limits.--
            (1) In general.--Subject to paragraph (2), a health plan 
        issuer offering coverage to individuals under an individual 
        health plan may cease enrolling individuals under the plan if--
                    (A) the health plan issuer ceases to enroll any new 
                individuals; and
                    (B) the health plan issuer can demonstrate to the 
                applicable certifying authority (as defined in section 
                202(d)), if required, that its financial or provider 
                capacity to serve previously covered individuals will 
                be impaired if the health plan issuer is required to 
                enroll additional individuals.
        Such a health plan issuer shall be prohibited from offering 
        coverage after a cessation in offering coverage under this 
        paragraph for a 6-month period or until the health plan issuer 
        can demonstrate to the applicable certifying authority (as 
        defined in section 202(d)) that the health plan issuer has 
        adequate capacity, whichever is later.
            (2) First-come-first-served.--A health plan issuer offering 
        coverage to individuals under an individual health plan is only 
        eligible to exercise the limitations provided for in paragraph 
        (1) if the health plan issuer provides for enrollment of 
        individuals under such plan on a first-come-first-served basis 
        or other basis established by a State to ensure a fair 
        opportunity to enroll in the plan and avoid risk selection.
    (d) Market Requirements.--
            (1) In general.--The provisions of subsection (a) shall not 
        be construed to require that a health plan issuer offering 
        group health plans to group purchasers offer individual health 
        plans to individuals.
            (2) Conversion policies.--A health plan issuer offering 
        group health plans to group purchasers under this Act shall not 
        be deemed to be a health plan issuer offering an individual 
        health plan solely because such health plan issuer offers a 
        conversion policy.
            (3) Marketing of plans.--Nothing in this section shall be 
        construed to prevent a State from requiring health plan issuers 
        offering coverage to individuals under an individual health 
        plan to actively market such plan.
            (4) Construction.--Nothing in this Act shall be construed 
        to require that a State replace or dissolve high risk pools or 
        other similar State mechanisms which are designed to provide 
        individuals in such State with access to health benefits.

SEC. 111. GUARANTEED RENEWABILITY OF INDIVIDUAL HEALTH COVERAGE.

    (a) In General.--Subject to subsections (b) and (c), coverage for 
individuals under an individual health plan shall be renewed or 
continued in force by a health plan issuer at the option of the 
individual, except that the requirement of this subsection shall not 
apply in the case of--
            (1) the nonpayment of premiums or contributions by the 
        individual in accordance with the terms of the individual 
        health plan or where the health plan issuer has not received 
        timely premium payments;
            (2) fraud or misrepresentation of material fact on the part 
        of the individual; or
            (3) the termination of the individual health plan in 
        accordance with subsection (b).
    (b) Termination of Individual Health Plans.--
            (1) Particular type of individual health plan not 
        offered.--In any case in which a health plan issuer decides to 
        discontinue offering a particular type of individual health 
        plan to individuals, an individual health plan may be 
        discontinued by the health plan issuer only if--
                    (A) the health plan issuer provides notice to each 
                individual covered under the plan of such 
                discontinuation at least 90 days prior to the date of 
                the expiration of the plan;
                    (B) the health plan issuer offers to each 
                individual covered under the plan the option to 
                purchase any other individual health plan currently 
                being offered by the health plan issuer to individuals; 
                and
                    (C) in exercising the option to discontinue the 
                individual health plan and in offering one or more 
                replacement plans, the health plan issuer acts 
                uniformly without regard to the health status or 
                insurability of particular individuals.
            (2) Discontinuance of all individual health plans.--In any 
        case in which a health plan issuer elects to discontinue all 
        individual health plans in a State, an individual health plan 
        may be discontinued by the health plan issuer only if--
                    (A) the health plan issuer provides notice to the 
                applicable certifying authority (as defined in section 
                202(d)) and to each individual covered under the plan 
                of such discontinuation at least 180 days prior to the 
                date of the discontinuation of the plan; and
                    (B) all individual health plans issued or delivered 
                for issuance in the State are discontinued and coverage 
                under such plans is not renewed.
            (3) Prohibition on market reentry.--In the case of a 
        discontinuation under paragraph (2), the health plan issuer may 
        not provide for the issuance of any individual health plan in 
        the State involved during the 5-year period beginning on the 
        date of the discontinuation of the last plan not so renewed.
    (c) Treatment of Network Plans.--
            (1) Geographic limitations.--A health plan issuer which 
        offers a network plan (as defined in paragraph (2)) may deny 
        continued participation under the plan to individuals who 
        neither live, reside, nor work in an area in which the 
        individual health plan is offered, but only if such denial is 
        applied uniformly, without regard to health status or the 
        insurability of particular individuals.
            (2) Network plan.--As used in paragraph (1), the term 
        ``network plan'' means an individual health plan that arranges 
        for the financing and delivery of health care services to 
        individuals covered under such health plan, in whole or in 
        part, through arrangements with providers.

SEC. 112. STATE FLEXIBILITY IN INDIVIDUAL MARKET REFORMS.

    (a) Adoption of Alternative Mechanisms.--
            (1) In general.--A State, in accordance with this section, 
        may adopt alternative mechanisms (public or private) that are 
        designed to provide access to affordable health benefits for 
        individuals meeting the requirements of sections 110(b) and 111 
        (such as mechanisms providing for guaranteed issue, open 
        enrollment by one or more health plan issuers, high-risk pools, 
        mandatory conversion policies, or any combination thereof).
            (2) Procedure for state election.--If, not later than 6 
        months after the date of enactment of this Act, the Governor of 
        a State notifies the Secretary of Health and Human Services 
        that--
                    (A) the State has adopted an alternative mechanism 
                that achieves the goals of sections 110 and 111; or
                    (B) the State intends to implement an alternative 
                mechanism that is designed to achieve the goals of 
                sections 110 and 111;
        such State alternative mechanism shall, except as provided in 
        paragraphs (3) and (4), apply in lieu of the standards 
        described in sections 110 and 111.
            (3) Nonapplication of mechanism.--A State alternative 
        mechanism adopted under paragraph (1) shall be presumed to 
        achieve the goals of sections 110 and 111 and shall apply in 
        lieu of such sections, unless the Secretary of Health and Human 
        Services, in consultation with the Governor and Insurance 
        Commissioner or chief insurance regulatory official of the 
        State, finds that the State alternative mechanism fails to--
                    (A) offer coverage to those individuals who meet 
                the requirements of sections 110(b) and 111;
                    (B) prohibit a limitation or exclusion of benefits 
                relating to treatment of a preexisting condition that 
                was covered under the previous group health plan or 
                employee health benefit plan of an individual who meets 
                the requirements of sections 110(b) and 111;
                    (C) offer individuals who meet the requirements of 
                sections 110(b) and 111 a choice of individual health 
                plans, including at least one plan comparable to 
                comprehensive plans offered in the individual market in 
                such State or a plan comparable to a standard option 
                plan available under the group or individual health 
                insurance laws of such State; or
                    (D) except as provided in paragraph (4), implement 
                a risk spreading mechanism, cross subsidy mechanism, 
                risk adjustment mechanism, rating limitation or other 
                mechanism (such as mechanisms described in the NAIC 
                Model Health Plan for Uninsurable Individuals Act) 
                designed to reduce the variation among the cost of such 
                plans and other individual health plans offered by the 
                carrier or available in such State.
            (4) Choice of plans.--The Secretary of Health and Human 
        Services shall waive the requirement in subparagraph (D) of 
        paragraph (3) with respect to a State if individuals who meet 
        the requirements of sections 110(b) and 111 in such State are 
        provided with a choice of all individual health plans otherwise 
        available in the individual market.
            (5) Future adoption of mechanisms.--With respect to a State 
        that implements an alternative mechanism under paragraph (1) 
        after the period referred to in paragraph (2)--
                    (A) the State shall provide notice to the Secretary 
                that such alternative mechanism achieves the goals of 
                sections 110 and 111;
                    (B) the State alternative mechanism shall apply in 
                lieu of sections 110 and 111;
                    (C) except as provided in subsections (d) and (e), 
                the Secretary may make a determination as provided for 
                in paragraph (3); and
                    (D) the procedures described in subsection (c) 
                shall apply.
    (b) Timeframe for Secretarial Determination.--
            (1) In general.--With respect to a State election under 
        subsection (a)(2)(B), the Secretary of Health and Human 
        Services shall not make a determination under subsection (a)(3) 
        until the expiration of the 12-month period beginning on the 
        date on which such notification is made, or until January 1, 
        1998, whichever is later.
            (2) Rule applicable to certain states.--With respect to a 
        State that makes an election under subsection (a)(2)(B) and 
        that has a legislature that does not meet within the 12-month 
        period beginning on the date of enactment of this Act, the 
        Secretary of Health and Human Services shall not make a 
        determination under subsection (a) prior to January 1, 1999.
    (c) Notice to State.--If the Secretary of Health and Human Services 
determines that a State alternative mechanism fails to meet the 
criteria described in subsection (a)(3), or that such mechanism is no 
longer being implemented, the Secretary of Health and Human Services 
shall notify the Governor of such State of such preliminary 
determination and permit the State a reasonable opportunity in which to 
modify the alternative mechanism or to adopt another mechanism that is 
designed to meet the goals of sections 110 and 111. If, after an 
opportunity to modify such State alternative mechanism, the mechanism 
fails to meet the criteria described in subsection (a)(3), the 
Secretary shall notify the Governor of such State that sections 110 and 
111 shall apply in the State.
    (d) Adoption of NAIC Model.--If, not later than 9 months after the 
date of enactment of this Act--
            (1) the National Association of Insurance Commissioners 
        (hereafter referred to as the ``NAIC''), through a process 
        which the Secretary of Health and Human Services determines has 
        included consultation with representatives of the insurance 
        industry and consumer groups, has adopted a model act or acts 
        including provisions addressing portability from a group health 
        plan or employee health benefit plan into the individual health 
        insurance market; and
            (2) the Secretary of Health and Human Services determines, 
        within 30 days of the adoption of such NAIC model act or acts, 
        that such act or acts comply with the goals of sections 110 and 
        111;
a State that elects to adopt such model act or acts shall be deemed to 
have met the requirements of sections 110 and 111 and shall not be 
subject to a determination under subsection (a)(3).
    (e) State High Risk Pools Deemed in Compliance.--If the Governor of 
a State notifies the Secretary of Health and Human Services in a 
timeframe consistent with either subsection (a)(2) or (a)(5) that such 
State has a high risk pool open to those individuals meeting the 
requirements of sections 110(b) and 111, that limits preexisting 
condition waiting periods consistent with section 110(a)(1)(B) and that 
with respect to premium rates and covered benefits is consistent with 
standards included in the NAIC Model Health Plan for Uninsurable 
Individuals Act, such State high risk pool shall be deemed to have met 
the requirements of sections 110 and 111 and shall not be subject to a 
determination under subsection (a)(3).

SEC. 113. DEFINITION.

    (a) In General.--As used in this title, the term ``individual 
health plan'' means any contract, policy, certificate or other 
arrangement offered to individuals by a health plan issuer that 
provides or pays for health benefits (such as provider and hospital 
benefits) and that is not a group health plan under section 2(6).
    (b) Arrangements Not Included.--Such term does not include the 
following, or any combination thereof:
            (1) Coverage only for accident, or disability income 
        insurance, or any combination thereof.
            (2) Medicare supplemental health insurance (as defined 
        under section 1882(g)(1) of the Social Security Act).
            (3) Coverage issued as a supplement to liability insurance.
            (4) Liability insurance, including general liability 
        insurance and automobile liability insurance.
            (5) Workers' compensation or similar insurance.
            (6) Automobile medical payment insurance.
            (7) Coverage for a specified disease or illness.
            (8) Hospital or fixed indemnity insurance.
            (9) Short-term limited duration insurance.
            (10) Credit-only, dental-only, or vision-only insurance.
            (11) A health insurance policy providing benefits only for 
        long-term care, nursing home care, home health care, community-
        based care, or any combination thereof.

                    Subtitle C--COBRA Clarifications

SEC. 121. COBRA CLARIFICATIONS.

    (a) Public Health Service Act.--
            (1) Period of coverage.--Section 2202(2) of the Public 
        Health Service Act (42 U.S.C. 300bb-2(2)) is amended--
                    (A) in subparagraph (A)--
                            (i) by transferring the sentence 
                        immediately preceding clause (iv) so as to 
                        appear immediately following such clause (iv); 
                        and
                            (ii) in the last sentence (as so 
                        transferred)--
                                    (I) by inserting ``, or a 
                                beneficiary-family member of the 
                                individual,'' after ``an individual''; 
                                and
                                    (II) by striking ``at the time of a 
                                qualifying event described in section 
                                2203(2)'' and inserting ``at any time 
                                during the initial 18-month period of 
                                continuing coverage under this title'';
                    (B) in subparagraph (D)(i), by inserting before ``, 
                or'' the following: ``, except that the exclusion or 
                limitation contained in this clause shall not be 
                considered to apply to a plan under which a preexisting 
                condition or exclusion does not apply to an individual 
                otherwise eligible for continuation coverage under this 
                section because of the provision of the Health 
                Insurance Reform Act of 1996''; and
                    (C) in subparagraph (E), by striking ``at the time 
                of a qualifying event described in section 2203(2)'' 
                and inserting ``at any time during the initial 18-month 
                period of continuing coverage under this title''.
            (2) Notices.--Section 2206(3) of the Public Health Service 
        Act (42 U.S.C. 300bb-6(3)) is amended by striking ``at the time 
        of a qualifying event described in section 2203(2)'' and 
        inserting ``at any time during the initial 18-month period of 
        continuing coverage under this title''.
            (3) Birth or adoption of a child.--Section 2208(3)(A) of 
        the Public Health Service Act (42 U.S.C. 300bb-8(3)(A)) is 
        amended by adding at the end thereof the following new flush 
        sentence:
        ``Such term shall also include a child who is born to or placed 
        for adoption with the covered employee during the period of 
        continued coverage under this title.''.
    (b) Employee Retirement Income Security Act of 1974.--
            (1) Period of coverage.--Section 602(2) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1162(2)) is 
        amended--
                    (A) in the last sentence of subparagraph (A)--
                            (i) by inserting ``, or a beneficiary-
                        family member of the individual,'' after ``an 
                        individual''; and
                            (ii) by striking ``at the time of a 
                        qualifying event described in section 603(2)'' 
                        and inserting ``at any time during the initial 
                        18-month period of continuing coverage under 
                        this part'';
                    (B) in subparagraph (D)(i), by inserting before ``, 
                or'' the following: ``, except that the exclusion or 
                limitation contained in this clause shall not be 
                considered to apply to a plan under which a preexisting 
                condition or exclusion does not apply to an individual 
                otherwise eligible for continuation coverage under this 
                section because of the provision of the Health 
                Insurance Reform Act of 1996''; and
                    (C) in subparagraph (E), by striking ``at the time 
                of a qualifying event described in section 603(2)'' and 
                inserting ``at any time during the initial 18-month 
                period of continuing coverage under this part''.
            (2) Notices.--Section 606(3) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1166(3)) is amended by 
        striking ``at the time of a qualifying event described in 
        section 603(2)'' and inserting ``at any time during the initial 
        18-month period of continuing coverage under this part''.
            (3) Birth or adoption of a child.--Section 607(3)(A) of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1167(3)) is amended by adding at the end thereof the following 
        new flush sentence:
        ``Such term shall also include a child who is born to or placed 
        for adoption with the covered employee during the period of 
        continued coverage under this part.''.
    (c) Internal Revenue Code of 1986.--
            (1) Period of coverage.--Section 4980B(f)(2)(B) of the 
        Internal Revenue Code of 1986 is amended--
                    (A) in the last sentence of clause (i) by striking 
                ``at the time of a qualifying event described in 
                paragraph (3)(B)'' and inserting ``at any time during 
                the initial 18-month period of continuing coverage 
                under this section'';
                    (B) in clause (iv)(I), by inserting before ``, or'' 
                the following: ``, except that the exclusion or 
                limitation contained in this subclause shall not be 
                considered to apply to a plan under which a preexisting 
                condition or exclusion does not apply to an individual 
                otherwise eligible for continuation coverage under this 
                subsection because of the provision of the Health 
                Insurance Reform Act of 1995''; and
                    (C) in clause (v), by striking ``at the time of a 
                qualifying event described in paragraph (3)(B)'' and 
                inserting ``at any time during the initial 18-month 
                period of continuing coverage under this section''.
            (2) Notices.--Section 4980B(f)(6)(C) of the Internal 
        Revenue Code of 1986 is amended by striking ``at the time of a 
        qualifying event described in paragraph (3)(B)'' and inserting 
        ``at any time during the initial 18-month period of continuing 
        coverage under this section''.
            (3) Birth or adoption of a child.--Section 4980B(g)(1)(A) 
        of the Internal Revenue Code of 1986 is amended by adding at 
        the end thereof the following new flush sentence:
                        ``Such term shall also include a child who is 
                        born to or placed for adoption with the covered 
                        employee during the period of continued 
                        coverage under this section.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to qualifying events occurring on or after the date of the 
enactment of this Act for plan years beginning after December 31, 1997.
    (e) Notification of Changes.--Not later than 60 days prior to the 
date on which this section becomes effective, each group health plan 
(covered under title XXII of the Public Health Service Act, part 6 of 
subtitle B of title I of the Employee Retirement Income Security Act of 
1974, and section 4980B(f) of the Internal Revenue Code of 1986) shall 
notify each qualified beneficiary who has elected continuation coverage 
under such title, part or section of the amendments made by this 
section.

        Subtitle D--Private Health Plan Purchasing Cooperatives

SEC. 131. PRIVATE HEALTH PLAN PURCHASING COOPERATIVES.

    (a) Definition.--As used in this Act, the term ``health plan 
purchasing cooperative'' means a group of employees or a group of 
individuals and employers that, on a voluntary basis and in accordance 
with this section, form a cooperative for the purpose of purchasing 
individual health plans or group health plans offered by health plan 
issuers.
    (b) Certification.--
            (1) Requirement.--If a group described in subsection (a), 
        desires to form a health plan purchasing cooperative in 
        accordance with this section and such group appropriately 
        notifies the State and the Secretary of such desire, the State, 
        upon a determination that such group meets the requirements of 
        this section, shall certify the group as a health plan 
        purchasing cooperative. The State shall make a determination of 
        whether such group meets the requirements of this section in a 
        timely fashion and shall oversee the operations of such 
        cooperative in order to ensure continued compliance with the 
        requirements of this section. Each such cooperative shall also 
        be registered with the Secretary.
            (2) State refusal to certify.--
                    (A) In general.--If a State fails to implement a 
                program for certifying health plan purchasing 
                cooperatives in accordance with the standards under 
                this Act, the Secretary shall certify and oversee the 
                operations of such cooperatives in such State.
                    (B) Exception.--The Secretary shall not certify a 
                health plan purchasing cooperative described in this 
                section if, upon the submission of an application by 
                the State to the Secretary, the Secretary determines 
                that under a State law in effect on the date of 
                enactment of this Act, all small employers have a means 
                readily available that ensures--
                            (i) that individuals and employees have a 
                        choice of multiple, unaffiliated health plan 
                        issuers;
                            (ii) that health plan coverage is subject 
                        to State premium rating requirements that are 
                        not based on the factors described in 
                        subsection (f)(3) and that contains a mandatory 
                        minimum loss ratio; and
                            (iii) that comparative health plan 
                        materials are disseminated consistent with 
                        subsection (e)(1)(D);
                and that otherwise meets the objectives of this Act.
            (3) Interstate cooperatives.--For purposes of this section, 
        a health plan purchasing cooperative operating in more than one 
        State shall be certified by the State in which the cooperative 
        is domiciled. States may enter into cooperative agreements for 
        the purpose of overseeing the operation of such cooperatives. 
        For purposes of this subsection, a cooperative shall be 
        considered to be domiciled in the State in which most of the 
        members of the cooperative reside.
    (c) Board of Directors.--
            (1) In general.--Each health plan purchasing cooperative 
        shall be governed by a Board of Directors that shall be 
        responsible for ensuring the performance of the duties of the 
        cooperative under this section. The Board shall be composed of 
        a broad cross-section of representatives of employers, 
        employees, and individuals participating in the cooperative.
            (2) Limitation on compensation.--A health plan purchasing 
        cooperative may not provide compensation to members of the 
        Board of Directors. The cooperative may provide reimbursements 
        to such members for the reasonable and necessary expenses 
        incurred by the members in the performance of their duties as 
        members of the Board.
    (d) Membership and Marketing Area.--
            (1) Membership.--A health plan purchasing cooperative may 
        establish limits on the maximum size of employers who may 
        become members of the cooperative, and may determine whether to 
        permit individuals to become members. Upon the establishment of 
        such membership requirements, the cooperative shall, except as 
        provided in subparagraph (B), accept all employers (or 
        individuals) residing within the area served by the cooperative 
        who meet such requirements as members on a first come, first-
        served basis, or on another basis established by the State to 
        ensure equitable access to the cooperative.
            (2) Marketing area.--A State may establish rules regarding 
        the geographic area that must be served by health plan 
        purchasing cooperatives to ensure that cooperatives do not 
        discriminate on the basis of the health status or insurability 
        of the populations that reside in the area served. A State may 
        not use such rules to arbitrarily limit the number of health 
        plan purchasing cooperatives.
    (e) Duties and Responsibilities.--
            (1) In general.--A health plan purchasing cooperative 
        shall--
                    (A) objectively evaluate potential health plan 
                issuers and enter into agreements with multiple, 
                unaffiliated health plan issuers, except that the 
                requirement of this subparagraph shall not apply in 
                regions (such as remote or frontier areas) in which 
                compliance with such requirement is not possible;
                    (B) enter into agreements with employers and 
                individuals who become members of the cooperative;
                    (C) participate in any program of risk-adjustment 
                or reinsurance, or any similar program, that is 
                established by the State;
                    (D) prepare and disseminate comparative health plan 
                materials (including information about cost, quality, 
                benefits, and other information concerning group health 
                plans and individual health plans offered through the 
                cooperative);
                    (E) broadly solicit and actively market to all 
                eligible employers and individuals residing within the 
                service area; and
                    (F) act as an ombudsman for group health plan or 
                individual health plan enrollees.
            (2) Permissible activities.--A health plan purchasing 
        cooperative may perform such other functions as necessary to 
        further the purposes of this Act, including--
                    (A) collecting and distributing premiums and 
                performing other administrative functions;
                    (B) collecting and analyzing surveys of enrollee 
                satisfaction;
                    (C) charging membership fee to enrollees (such fees 
                may not be based on health status) and charging 
                participation fees to health plan issuers;
                    (D) cooperating with (or accepting as members) 
                employers who provide health benefits directly to 
                participants and beneficiaries only for the purpose of 
                negotiating with providers; and
                    (E) negotiating with health care providers and 
                health plan issuers.
    (f) Limitations on Cooperative Activities.--A health plan 
purchasing cooperative shall not--
            (1) perform any activity relating to the licensing of 
        health plan issuers;
            (2) assume financial risk directly or indirectly on behalf 
        of members of a health plan purchasing cooperative relating to 
        any group health plan or individual health plan;
            (3) establish eligibility, enrollment, or premium 
        contribution requirements for individual participants or 
        beneficiaries based on health status, medical condition, claims 
        experience, receipt of health care, medical history, evidence 
        of insurability, genetic information, or disability;
            (4) operate on a for-profit or other basis where the legal 
        structure of the cooperative permits profits to be made and not 
        returned to the members of the cooperative, except that a for-
        profit health plan purchasing cooperative may be formed by a 
        nonprofit organization or organizations--
                    (A) in which membership in such organization is not 
                based on health status, medical condition, claims 
                experience, receipt of health care, medical history, 
                evidence of insurability, genetic information, or 
                disability; and
                    (B) that accepts as members all employers or 
                individuals on a first-come, first-served basis, 
                subject to any established limit on the maximum size of 
                an employer that may become a member; or
            (5) perform any other activities that conflict or are 
        inconsistent with the performance of its duties under this Act.
    (g) Conflict of Interest.--
            (1) Prohibition.--No individual, partnership, or 
        corporation shall serve on the board of a health plan 
        purchasing cooperative, be employed by such a cooperative, 
        receive compensation from such a cooperative, or initiate or 
        finance such a cooperative if such individual, partnership, or 
        corporation--
                    (A) fails to discharge the duties and 
                responsibilities of such individual, partnership or 
                corporation in a manner that is solely in the interest 
                of the members of the cooperative; or
                    (B) derives personal benefit (other than in the 
                form of ordinary compensation received) from the sale 
                of, or has a financial interest in, health plans, 
                services or products sold by or distributed through 
                that cooperative.
            (2) Contracts with third parties.--Nothing in paragraph (1) 
        shall be construed to prohibit the board of directors of a 
        health plan purchasing cooperative, or its officers, at the 
        initiative and under this direction of the board, from 
        contracting with third parties to provide administrative, 
        marketing, consultive, or other services to the cooperative.
    (h) Limited Preemption of Certain State Laws.--
            (1) In general.--With respect to a health plan purchasing 
        cooperative that meets the requirements of this section, State 
        fictitious group laws shall be preempted.
            (2) Health plan issuers.--
                    (A) Rating.--Except as provided in subparagraph 
                (B), a health plan issuer offering a group health plan 
                or individual health plan through a health plan 
                purchasing cooperative that meets the requirements of 
                this section shall comply with all State rating 
                requirements that would otherwise apply if the health 
                plan were offered outside of the cooperative.
                    (B) Exception.--A State shall permit a health plan 
                issuer to reduce premium rates negotiated with a health 
                plan purchasing cooperative that meets the requirements 
                of this section to reflect savings derived from 
                administrative costs, marketing costs, profit margins, 
                economies of scale, or other factors, except that any 
                such reduction in premium rates may not be based on the 
                health status, demographic factors, industry type, 
                duration, or other indicators of health risk of the 
                members of the cooperative.
                    (C) Benefits.--Except as provided in subparagraph 
                (D), a health plan issuer offering a group health plan 
                or individual health plan through a health plan 
                purchasing cooperative shall comply with all State 
                mandated benefit laws that require the offering of any 
                services, category of care, or services of any class or 
                type of provider.
                    (D) Exception.--In those States that have enacted 
                laws authorizing the issuance of alternative benefit 
                plans to small employers, health plan issuers may offer 
                such alternative benefit plans through a health plan 
                purchasing cooperative that meets the requirements of 
                this section.
    (i) Rules of Construction.--Nothing in this section shall be 
construed to--
            (1) require that a State organize, operate, or otherwise 
        create health plan purchasing cooperatives;
            (2) otherwise require the establishment of health plan 
        purchasing cooperatives;
            (3) require individuals, plan sponsors, or employers to 
        purchase group health plans or individual health plans through 
        a health plan purchasing cooperative;
            (4) preempt a State from requiring licensure for 
        individuals who are involved in directly supplying advice or 
        selling health plans on behalf of a purchasing cooperative;
            (5) require that a health plan purchasing cooperative be 
        the only type of purchasing arrangement permitted to operate in 
        a State;
            (6) confer authority upon a State that the State would not 
        otherwise have to regulate health plan issuers or employee 
        health benefits plans;
            (7) confer authority upon a State (or the Federal 
        Government) that the State (or Federal Government) would not 
        otherwise have to regulate group purchasing arrangements, 
        coalitions, association plans, or other similar entities that 
        do not desire to become a health plan purchasing cooperative in 
        accordance with this section; or
            (8) except as specifically provided otherwise in this 
        subsection, prevent the application of State laws and 
        regulations otherwise applicable to health plan issuers 
        offering group health plans or individual health plans through 
        a health plan purchasing cooperative.
    (j) Application of ERISA.--For purposes of enforcement only, the 
requirements of parts 4 and 5 of subtitle B of title I of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1101) shall apply to 
a health plan purchasing cooperative as if such plan were an employee 
welfare benefit plan.

           TITLE II--APPLICATION AND ENFORCEMENT OF STANDARDS

SEC. 201. APPLICABILITY.

    (a) Construction.--
            (1) Enforcement.--
                    (A) In general.--A requirement or standard imposed 
                under this Act on a group health plan or individual 
                health plan offered by a health plan issuer shall be 
                deemed to be a requirement or standard imposed on the 
                health plan issuer. Such requirements or standards 
                shall be enforced by the State insurance commissioner 
                for the State involved or the official or officials 
                designated by the State to enforce the requirements of 
                this Act. In the case of a group health plan offered by 
                a health plan issuer in connection with an employee 
                health benefit plan, the requirements or standards 
                imposed under this Act shall be enforced with respect 
                to the health plan issuer by the State insurance 
                commissioner for the State involved or the official or 
                officials designated by the State to enforce the 
                requirements of this Act.
                    (B) Limitation.--Except as provided in subsection 
                (c), the Secretary shall not enforce the requirements 
                or standards of this Act as they relate to health plan 
                issuers, group health plans, or individual health 
                plans. In no case shall a State enforce the 
                requirements or standards of this Act as they relate to 
                employee health benefit plans.
            (2) Preemption of state law.--Nothing in this Act shall be 
        construed to prevent a State from establishing, implementing, 
        or continuing in effect standards and requirements--
                    (A) not prescribed in this Act; or
                    (B) related to the issuance, renewal, or 
                portability of health insurance or the establishment or 
                operation of group purchasing arrangements, that are 
                consistent with, and are not in direct conflict with, 
                this Act and provide greater protection or benefit to 
                participants, beneficiaries or individuals.
    (b) Rule of Construction.--Nothing in this Act shall be construed 
to affect or modify the provisions of section 514 of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1144).
    (c) Continuation.--Nothing in this Act shall be construed as 
requiring a group health plan or an employee health benefit plan to 
provide benefits to a particular participant or beneficiary, to all 
participants or beneficiaries, or to any class or group of participants 
or beneficiaries, in excess of or other than those provided under the 
terms of such plan.

SEC. 202. ENFORCEMENT OF STANDARDS.

    (a) Health Plan Issuers.--Each State shall require that each group 
health plan and individual health plan issued, sold, renewed, offered 
for sale or operated in such State by a health plan issuer meet the 
standards established under this Act pursuant to an enforcement plan 
filed by the State with the Secretary. A State shall submit such 
information as required by the Secretary demonstrating effective 
implementation of the State enforcement plan.
    (b) Employee Health Benefit Plans.--With respect to employee health 
benefit plans, the Secretary shall enforce the reform standards 
established under this Act in the same manner as provided for under 
sections 502, 504, 506, and 510 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1132, 1134, 1136, and 1140). The civil 
penalties contained in paragraphs (1) and (2) of section 502(c) of such 
Act (29 U.S.C. 1132(c)(1) and (2)) shall apply to any information 
required by the Secretary to be disclosed and reported under this 
section.
    (c) Failure to Implement Plan.--In the case of the failure of a 
State to substantially enforce the standards and requirements set forth 
in this Act with respect to group health plans and individual health 
plans as provided for under the State enforcement plan filed under 
subsection (a), the Secretary, in consultation with the Secretary of 
Health and Human Services, shall implement an enforcement plan meeting 
the standards of this Act in such State. In the case of a State that 
fails to substantially enforce the standards and requirements set forth 
in this Act, each health plan issuer operating in such State shall be 
subject to civil enforcement as provided for under sections 502, 504, 
506, and 510 of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1132, 1134, 1136, and 1140). The civil penalties contained in 
paragraphs (1) and (2) of section 502(c) of such Act (29 U.S.C. 
1132(c)(1) and (2)) shall apply to any information required by the 
Secretary to be disclosed and reported under this section.
    (d) Applicable Certifying Authority.--As used in this title, the 
term ``applicable certifying authority'' means, with respect to--
            (1) health plan issuers, the State insurance commissioner 
        or official or officials designated by the State to enforce the 
        requirements of this Act for the State involved; and
            (2) an employee health benefit plan, the Secretary.
    (e) Regulations.--The Secretary may promulgate such regulations as 
may be necessary or appropriate to carry out this Act.
    (f) Technical Amendment.--Section 508 of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1138) is amended by inserting 
``and under the Health Insurance Reform Act of 1996'' before the 
period.

                  TITLE III--MISCELLANEOUS PROVISIONS

SEC. 301. HMOS ALLOWED TO OFFER PLANS WITH DEDUCTIBLES TO INDIVIDUALS 
              WITH MEDICAL SAVINGS ACCOUNTS.

    (a) In General.--Section 1301(b) of the Public Health Service Act 
(42 U.S.C. 300e(b)) is amended by adding at the end the following new 
paragraph:
            ``(6)(A) If a member certifies that a medical savings 
        account has been established for the benefit of such member, a 
        health maintenance organization may, at the request of such 
        member reduce the basic health services payment otherwise 
        determined under paragraph (1) by requiring the payment of a 
        deductible by the member for basic health services.
            ``(B) For purposes of this paragraph, the term `medical 
        savings account' means an account which, by its terms, allows 
        the deposit of funds and the use of such funds and income 
        derived from the investment of such funds for the payment of 
        the deductible described in subparagraph (A).''.
    (b) Medical Savings Accounts.--It is the sense of the Committee on 
Labor and Human Resources of the Senate that the establishment of 
medical savings accounts, including those defined in section 
1301(b)(6)(B) of the Public Health Service Act (42 U.S.C. 
300e(b)(6)(B)), should be encouraged as part of any health insurance 
reform legislation passed by the Senate through the use of tax 
incentives relating to contributions to, the income growth of, and the 
qualified use of, such accounts.
    (c) Sense of the Senate.--It is the sense of the Senate that the 
Congress should take measures to further the purposes of this Act, 
including any necessary changes to the Internal Revenue Code of 1986 to 
encourage groups and individuals to obtain health coverage, and to 
promote access, equity, portability, affordability, and security of 
health benefits.

SEC. 302. HEALTH COVERAGE AVAILABILITY STUDY.

    (a) In General.--The Secretary of Health and Human Services, in 
consultation with the Secretary, representatives of State officials, 
consumers, and other representatives of individuals and entities that 
have expertise in health insurance and employee benefits, shall conduct 
a three-part study, and prepare and submit reports, in accordance with 
this section.
    (b) Evaluation of Availability.--Not later than January 1, 1998, 
the Secretary of Health and Human Services shall prepare and submit to 
the appropriate committees of Congress a report, concerning--
            (1) an evaluation, based on the experience of States, 
        expert opinions, and such additional data as may be available, 
        of the various mechanisms used to ensure the availability of 
        reasonably priced health coverage to employers purchasing group 
        coverage and to individuals purchasing coverage on a non-group 
        basis; and
            (2) whether standards that limit the variation in premiums 
        will further the purposes of this Act.
    (c) Evaluation of Effectiveness.--Not later than January 1, 1999, 
the Secretary of Health and Human Services shall prepare and submit to 
the appropriate committees of Congress a report, concerning the 
effectiveness of the provisions of this Act and the various State laws, 
in ensuring the availability of reasonably priced health coverage to 
employers purchasing group coverage and individuals purchasing coverage 
on a non-group basis.
    (d) Evaluation of Access and Choice.--Not later than June 1, 1998, 
the Secretary of Health and Human Services shall prepare and submit to 
the appropriate committees of Congress a report concerning--
            (1) an evaluation of the extent to which patients have 
        direct access to, and choice of, health care provider, 
        including specialty providers, within a network of providers, 
        as well as the opportunity to utilize providers outside of the 
        network, under the various types of coverage offered under the 
        provisions of this Act;
            (2) an evaluation of the cost to the insurer of providing 
        out-of-network access to providers, and the feasibility of 
        providing out-of-network access in all health plans offered 
        under provisions of this Act; and
            (3) an evaluation of the percent of premium dollar utilized 
        for medical care and administration of the various types of 
        coverage offered, including coverage which permits out-of-
        network access and choice of provider, under provisions of this 
        Act.

SEC. 303. REIMBURSEMENT OF TELEMEDICINE.

    The Health Care Financing Administration is directed to complete 
their ongoing study of reimbursement of all telemedicine services and 
submit a report to Congress with a proposal for reimbursement of fee-
for-service medicine by March 1, 1997. The report shall utilize data 
compiled from the current demonstration projects already under review 
and gather data from other ongoing telemedicine networks. This report 
shall include an analysis of the cost of services provided via 
telemedicine.

SEC. 304. SENSE OF THE COMMITTEE CONCERNING MEDICARE.

    (a) Findings.--The Committee on Labor and Human Resources of the 
Senate finds that the Public Trustees of Medicare concluded in their 
1995 Annual Report that--
            (1) the Medicare program is clearly unsustainable in its 
        present form;
            (2) ``the Hospital Insurance Trust Fund, which pays 
        inpatient hospital expenses, will be able to pay benefits for 
        only about 7 years and is severely out of financial balance in 
        the long range''; and
            (3) the Public Trustees ``strongly recommend that the 
        crisis presented by the financial condition of the Medicare 
        trust fund be urgently addressed on a comprehensive basis, 
        including a review of the programs's financing methods, benefit 
        provisions, and delivery mechanisms''.
    (b) Sense of the Committee.--It is the Sense of the Committee on 
Labor and Human Resources of the Senate that the Senate should take 
measures necessary to reform the Medicare program, to provide increased 
choice for seniors, and to respond to the findings of the Public 
Trustees by protecting the short-term solvency and long-term 
sustainability of the Medicare program.

SEC. 305. PARITY FOR MENTAL HEALTH SERVICES.

    (a) Prohibition.--An employee health benefit plan, or a health plan 
issuer offering a group health plan or an individual health plan, shall 
not impose treatment limitations or financial requirements on the 
coverage of mental health services if similar limitations or 
requirements are not imposed on coverage for services for other 
conditions.
    (b) Rule of Construction.--Nothing in subsection (a) shall be 
construed as prohibiting an employee health benefit plan, or a health 
plan issuer offering a group health plan or an individual health plan, 
from requiring preadmission screening prior to the authorization of 
services covered under the plan or from applying other limitations that 
restrict coverage for mental health services to those services that are 
medically necessary.

SEC. 306. WAIVER OF FOREIGN COUNTRY RESIDENCE REQUIREMENT WITH RESPECT 
              TO INTERNATIONAL MEDICAL GRADUATES.

    (a) Extension of Waiver Program.--Section 220(c) of the Immigration 
and Nationality Technical Corrections Act of 1994 (8 U.S.C. 1182 note) 
is amended by striking ``June 1, 1996'' and inserting ``June 1, 2002''.
    (b) Conditions on Federally Requested Waivers.--Section 212(e) of 
the Immigration and Nationality Act (8 U.S.C. 1184(e)) is amended by 
inserting after ``except that in the case of a waiver requested by a 
State Department of Public Health or its equivalent'' the following: 
``or in the case of a waiver requested by an interested United States 
Government agency on behalf of an alien described in clause (iii)''.
    (c) Restrictions on Federally Requested Waivers.--Section 214(k) (8 
U.S.C. 1184(k)) is amended to read as follows:
    ``(k)(1) In the case of a request by an interested State agency or 
by an interested United States Government agency for a waiver of the 
two-year foreign residence requirement under section 212(e) with 
respect to an alien described in clause (iii) of that section, the 
Attorney General shall not grant such waiver unless--
            ``(A) in the case of an alien who is otherwise 
        contractually obligated to return to a foreign country, the 
        government of such country furnishes the Director of the United 
        States Information Agency with a statement in writing that it 
        has no objection to such waiver; and
            ``(B)(i) in the case of a request by an interested State 
        agency--
                    ``(I) the alien demonstrates a bona fide offer of 
                full-time employment, agrees to begin employment with 
                the health facility or organization named in the waiver 
                application within 90 days of receiving such waiver, 
                and agrees to work for a total of not less than three 
                years (unless the Attorney General determines that 
                extenuating circumstances exist, such as closure of the 
                facility or hardship to the alien would justify a 
                lesser period of time); and
                    ``(II) the alien's employment continues to benefit 
                the public interest; or
            ``(ii) in the case of a request by an interested United 
        States Government agency--
                    ``(I) the alien demonstrates a bona fide offer of 
                full-time employment that has been found to be in the 
                public interest, agrees to begin employment with the 
                health facility or organization named in the waiver 
                application within 90 days of receiving such waiver, 
                and agrees to work for a total of not less than three 
                years (unless the Attorney General determines that 
                extenuating circumstances exist, such as closure of the 
                facility or hardship to the alien would justify a 
                lesser period of time); and
                    ``(II) the alien's employment continues to benefit 
                the public interest;
            ``(C) in the case of a request by an interested State 
        agency, the alien agrees to practice medicine in accordance 
        with paragraph (2) for a total of not less than three years 
        only in the geographic area or areas which are designated by 
        the Secretary of Health and Human Services as having a shortage 
        of health care professionals; and
            ``(D) in the case of a request by an interested State 
        agency, the grant of such a waiver would not cause the number 
        of waivers allotted for that State for that fiscal year to 
        exceed 20.
    ``(2)(A) Notwithstanding section 248(2) the Attorney General may 
change the status of an alien that qualifies under this subsection and 
section 212(e) to that of an alien described in section 
101(a)(15)(H)(i)(b).
    ``(B) No person who has obtained a change of status under 
subparagraph (A) and who has failed to fulfill the terms of the 
contract with the health facility or organization named in the waiver 
application shall be eligible to apply for an immigrant visa, for 
permanent residence, or for any other change of nonimmigrant status 
until it is established that such person has resided and been 
physically present in the country of his nationality or his last 
residence for an aggregate of at least two years following departure 
from the United States.
    ``(3) Notwithstanding any other provisions of this subsection, the 
two-year foreign residence requirement under section 212(e) shall apply 
with respect to an alien in clause (iii) of that section who has not 
otherwise been accorded status under section 101(a)(27)(H)--
            ``(A) in the case of a request by an interested State 
        agency, if at any time the alien practices medicine in an area 
        other than an area described in paragraph (1)(C); and
            ``(B) in the case of a request by an interested United 
        States Government agency, if at any time the alien engages in 
        employment for a health facility or organization not named in 
        the waiver application.''.

SEC. 307. ORGAN AND TISSUE DONATION INFORMATION INCLUDED WITH INCOME 
              TAX REFUND PAYMENTS.

    (a) In General.--The Secretary of the Treasury shall include with 
any payment of a refund of individual income tax made during the period 
beginning on February 1, 1997, and ending on June 30, 1997, a copy of 
the document described in subsection (b).
    (b) Text of Document.--The Secretary of the Treasury shall, after 
consultation with the Secretary of Health and Human Services and 
organizations promoting organ and tissue (including eye) donation, 
prepare a document suitable for inclusion with individual income tax 
refund payments which--
            (1) encourages organ and tissue donation;
            (2) includes a detachable organ and tissue donor card; and
            (3) urges recipients to--
                    (A) sign the organ and tissue donor card;
                    (B) discuss organ and tissue donation with family 
                members and tell family members about the recipient's 
                desire to be an organ and tissue donor if the occasion 
                arises; and
                    (C) encourage family members to request or 
                authorize organ and tissue donation if the occasion 
                arises.

SEC. 308. SENSE OF THE SENATE REGARDING ADEQUATE HEALTH CARE COVERAGE 
              FOR ALL CHILDREN AND PREGNANT WOMEN.

    (a) Findings.--The Senate finds the following:
            (1) The health care coverage of mothers and children in the 
        United States is unacceptable, with more than 9,300,000 
        children and 500,000 expectant mothers having no health 
        insurance.
            (2) Among industrial nations, the United States ranks 1st 
        in wealth but 18th in infant mortality, and 14th among such 
        nations in maternal mortality.
            (3) 22 percent of pregnant women do not have prenatal care 
        in the first trimester, and 22 percent of all poor children are 
        uninsured, despite the medicaid program under title XIX of the 
        Social Security Act.
            (4) Of the 1,100,000 net increase in uninsured persons from 
        1992 to 1993, 84 percent or 922,500 were children.
            (5) Since 1987, the number of children covered by 
        employment based health insurance has decreased, and many 
        children lack health insurance despite the relative 
        affordability of providing insurance for children.
            (6) Health care coverage for children is relatively 
        inexpensive and in 1993 the medicaid program spent an average 
        of $1,012 per child compared to $8,220 per elderly adult.
            (7) Uninsured children are generally children of lower 
        income workers, who are less likely than higher income workers 
        to have health insurance for their families because they are 
        less likely to work for a firm that offers insurance, and if 
        such insurance is offered, it is often too costly for lower 
        income workers to purchase.
            (8) In 1993, 61 percent of uninsured children were in 
        families with at least one parent working full time for the 
        entire year the child was uninsured, and about 57 percent of 
        uninsured children had a family income at or below 150 percent 
        of the Federal poverty level.
            (9) If Congress eliminates the Federal guarantee of 
        medicaid, an estimated 4,900,000 children may lose their 
        guarantee of health care coverage, and those same children may 
        be added to the currently projected 12,600,000 children who 
        will be uninsured by the year 2002.
            (10) Studies have shown that uninsured children are less 
        likely than insured children to receive needed health and 
        preventive care, which can affect their health status adversely 
        throughout their lives, with such children less likely to have 
        routine doctor visits, receive care for injuries, and have a 
        regular source of medical care.
            (11) The families of uninsured children are more likely to 
        take the children to an emergency room than to a private 
        physician or health maintenance organization.
            (12) Children without health insurance are less likely to 
        be appropriately immunized or receive other preventive care for 
        childhood illnesses.
            (13) Ensuring the health of children clearly increases 
        their chances to become productive members of society and 
        averts more serious or more expensive health conditions later 
        in life, and ensuring that all pregnant women receive competent 
        prenatal care also saves social costs.
            (14) Although the United States has made great improvements 
        in health care coverage through the medicaid program, it is 
        still the only developed nation that does not ensure that all 
        of its children and pregnant women have health care coverage.
            (15) The United States should not accept a status quo in 
        which children in many neighborhoods are more likely to have 
        access to drugs and guns than to doctors, or accept a status 
        quo in which health care is ensured for all prisoners but not 
        for all children.
    (b) Sense of the Senate.--It is the sense of the Senate that the 
issue of adequate health care for our mothers and children is important 
to the future of the United States, and in consideration of the 
importance of such issue, the Senate should pass health care 
legislation that will ensure health care coverage for all of the United 
States's pregnant women and children.

SEC. 309. SENSE OF THE SENATE REGARDING AVAILABLE TREATMENTS.

    It is the sense of the Senate that the Senate finds that patients 
deserve to know the full range of treatments available to them and 
Congress should thoughtfully examine these issues to ensure that all 
patients get the care they deserve.

SEC. 310. MEDICAL VOLUNTEERS.

    (a) Short Title.--This title may be cited as the ``Medical 
Volunteer Act''.
    (b) Tort Claim Immunity.--
            (1) General rule.--A health care professional who provides 
        a health care service to a medically underserved person without 
        receiving compensation for such health care service, shall be 
        regarded, for purposes of any medical malpractice claim that 
        may arise in connection with the provision of such service, as 
        an employee of the Federal Government for purposes of the 
        Federal tort claims provisions in title 28, United States Code.
            (2) Compensation.--For purposes of paragraph (1), a health 
        care professional shall be deemed to have provided a health 
        care service without compensation only if, prior to furnishing 
        a health care service, the health care professional--
                    (A) agrees to furnish the health care service 
                without charge to any person, including any health 
                insurance plan or program under which the recipient is 
                covered; and
                    (B) provides the recipient of the health care 
                service with adequate notice (as determined by the 
                Secretary) of the limited liability of the health care 
                professional with respect to the service.
    (c) Preemption.--The provisions of this section shall preempt any 
State law to the extent that such law is inconsistent with such 
provisions. The provisions of this section shall not preempt any State 
law that provides greater incentives or protections to a health care 
professional rendering a health care service.
    (d) Definitions.--For purposes of this section:
            (1) Health care professional.--The term ``health care 
        professional'' means a person who, at the time the person 
        provides a health care service, is licensed or certified by the 
        appropriate authorities for practice in a State to furnish 
        health care services.
            (2) Health care service.--The term ``health care service'' 
        means any medical assistance to the extent it is included in 
        the plan submitted under title XIX of the Social Security Act 
        for the State in which the service was provided.
            (3) Medically underserved person.--The term ``medically 
        underserved person'' means a person who resides in--
                    (A) a medically underserved area as defined for 
                purposes of determining a medically underserved 
                population under section 330 of the Public Health 
                Service Act (42 U.S.C. 254c); or
                    (B) a health professional shortage area as defined 
                in section 332 of such Act (42 U.S.C. 254e);
        and who receives care in a health care facility substantially 
        comparable to any of those designated in the Federally 
        Supported Health Centers Assistance Act (42 U.S.C. 233 et 
        seq.), as shall be determined in regulations promulgated by the 
        Secretary.
            (4) Secretary.--The term ``Secretary'' means the Secretary 
        of the Department of Health and Human Services.

SEC. 311. EFFECTIVE DATE.

    Except as otherwise provided for in this Act, the provisions of 
this Act shall apply as follows:
            (1) With respect to group health plans, such provisions 
        shall apply to plans offered, sold, issued, renewed, in effect, 
        or operated on or after January 1, 1997.
            (2) With respect to individual health plans, such 
        provisions shall apply to plans offered, sold, issued, renewed, 
        in effect, or operated on or after the date that is 6 months 
        after the date of enactment of this Act, or January 1, 1997, 
        whichever is later.
            (3) With respect to employee health benefit plans, such 
        provisions shall apply to such plans on the first day of the 
        first plan year beginning on or after January 1, 1997.

SEC. 312. SEVERABILITY.

    If any provision of this Act or the application of such provision 
to any person or circumstance is held to be unconstitutional, the 
remainder of this Act and the application of the provisions of such to 
any person or circumstance shall not be affected thereby.

                TITLE IV--TAX-RELATED HEALTH PROVISIONS

SEC. 400. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This title may be cited as the ``Health Insurance 
and Long-Term Care Affordability Act of 1996''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this title an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

 Subtitle A--Increase in Deduction for Health Insurance Costs of Self-
                          Employed Individuals

SEC. 401. INCREASE IN SELF-EMPLOYED INDIVIDUALS' DEDUCTION FOR HEALTH 
              INSURANCE COSTS.

    (a) In General.--Section 162(l) (relating to special rules for 
health insurance costs of self-employed individuals) is amended--
            (1) by striking ``30 percent'' in paragraph (1) and 
        inserting ``the applicable percentage'', and
            (2) by adding at the end the following new paragraph:
            ``(6) Applicable percentage.--For purposes of this 
        subsection, the term `applicable percentage' means the 
        percentage determined in accordance with the following table:

``In the case of taxable years                           The applicable
 beginning in:                                           percentage is:
    1997..........................................                  35 
    1998..........................................                  40 
    1999..........................................                  45 
    2000..........................................                  50 
    2001..........................................                  55 
    2002..........................................                  60 
    2003..........................................                  65 
    2004..........................................                  70 
    2005..........................................                  75 
    2006 and thereafter...........................               80.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

                 Subtitle B--Long-Term Care Provisions

            CHAPTER 1--LONG-TERM CARE SERVICES AND CONTRACTS

                    Subchapter A--General Provisions

SEC. 411. TREATMENT OF LONG-TERM CARE INSURANCE.

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

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

    ``(a) In General.--For purposes of this title--
            ``(1) a qualified long-term care insurance contract shall 
        be treated as an accident and health insurance contract,
            ``(2) amounts (other than policyholder dividends, as 
        defined in section 808, or premium refunds) received under a 
        qualified long-term care insurance contract shall be treated as 
        amounts received for personal injuries and sickness and shall 
        be treated as reimbursement for expenses actually incurred for 
        medical care (as defined in section 213(d)),
            ``(3) any plan of an employer providing coverage under a 
        qualified long-term care insurance contract shall be treated as 
        an accident and health plan with respect to such coverage,
            ``(4) except as provided in subsection (e)(3), amounts paid 
        for a qualified long-term care insurance contract providing the 
        benefits described in subsection (b)(2)(A) shall be treated as 
        payments made for insurance for purposes of section 
        213(d)(1)(D), and
            ``(5) a qualified long-term care insurance contract shall 
        be treated as a guaranteed renewable contract subject to the 
        rules of section 816(e).
    ``(b) Qualified Long-Term Care Insurance Contract.--For purposes of 
this title--
            ``(1) In general.--The term `qualified long-term care 
        insurance contract' means any insurance contract if--
                    ``(A) the only insurance protection provided under 
                such contract is coverage of qualified long-term care 
                services,
                    ``(B) such contract does not pay or reimburse 
                expenses incurred for services or items to the extent 
                that such expenses are reimbursable under title XVIII 
                of the Social Security Act or would be so reimbursable 
                but for the application of a deductible or coinsurance 
                amount,
                    ``(C) such contract is guaranteed renewable,
                    ``(D) such contract does not provide for a cash 
                surrender value or other money that can be--
                            ``(i) paid, assigned, or pledged as 
                        collateral for a loan, or
                            ``(ii) borrowed,
                other than as provided in subparagraph (E) or paragraph 
                (2)(C), and
                    ``(E) all refunds of premiums, and all policyholder 
                dividends or similar amounts, under such contract are 
                to be applied as a reduction in future premiums or to 
                increase future benefits.
            ``(2) Special rules.--
                    ``(A) Per diem, etc. payments permitted.--A 
                contract shall not fail to be described in subparagraph 
                (A) or (B) of paragraph (1) by reason of payments being 
                made on a per diem or other periodic basis without 
                regard to the expenses incurred during the period to 
                which the payments relate.
                    ``(B) Special rules relating to medicare.--
                            ``(i) Paragraph (1)(B) shall not apply to 
                        expenses which are reimbursable under title 
                        XVIII of the Social Security Act only as a 
                        secondary payor.
                            ``(ii) No provision of law shall be 
                        construed or applied so as to prohibit the 
                        offering of a qualified long-term care 
                        insurance contract on the basis that the 
                        contract coordinates its benefits with those 
                        provided under such title.
                    ``(C) Refunds of premiums.--Paragraph (1)(E) shall 
                not apply to any refund on the death of the insured, or 
                on a complete surrender or cancellation of the 
                contract, which cannot exceed the aggregate premiums 
                paid under the contract. Any refund on a complete 
                surrender or cancellation of the contract shall be 
                includible in gross income to the extent that any 
                deduction or exclusion was allowable with respect to 
                the premiums.
    ``(c) Qualified Long-Term Care Services.--For purposes of this 
section--
            ``(1) In general.--The term `qualified long-term care 
        services' means necessary diagnostic, preventive, therapeutic, 
        curing, treating, mitigating, and rehabilitative services, and 
        maintenance or personal care services, which--
                    ``(A) are required by a chronically ill individual, 
                and
                    ``(B) are provided pursuant to a plan of care 
                prescribed by a licensed health care practitioner.
            ``(2) Chronically ill individual.--
                    ``(A) In general.--The term `chronically ill 
                individual' means any individual who has been certified 
                by a licensed health care practitioner as--
                            ``(i) being unable to perform (without 
                        substantial assistance from another individual) 
                        at least 2 activities of daily living for a 
                        period of at least 90 days due to a loss of 
                        functional capacity,
                            ``(ii) having a level of disability similar 
                        (as determined by the Secretary in consultation 
                        with the Secretary of Health and Human 
                        Services) to the level of disability described 
                        in clause (i), or
                            ``(iii) requiring substantial supervision 
                        to protect such individual from threats to 
                        health and safety due to severe cognitive 
                        impairment.
                Such term shall not include any individual otherwise 
                meeting the requirements of the preceding sentence 
                unless within the preceding 12-month period a licensed 
                health care practitioner has certified that such 
                individual meets such requirements.
                    ``(B) Activities of daily living.--For purposes of 
                subparagraph (A), each of the following is an activity 
                of daily living:
                            ``(i) Eating.
                            ``(ii) Toileting.
                            ``(iii) Transferring.
                            ``(iv) Bathing.
                            ``(v) Dressing.
                            ``(vi) Continence.
                Nothing in this section shall be construed to require a 
                contract to take into account all of the preceding 
                activities of daily living.
            ``(3) Maintenance or personal care services.--The term 
        `maintenance or personal care services' means any care the 
        primary purpose of which is the provision of needed assistance 
        with any of the disabilities as a result of which the 
        individual is a chronically ill individual (including the 
        protection from threats to health and safety due to severe 
        cognitive impairment).
            ``(4) Licensed health care practitioner.--The term 
        `licensed health care practitioner' means any physician (as 
        defined in section 1861(r)(1) of the Social Security Act (42 
        U.S.C. 1395x(r)(1)) and any registered professional nurse, 
        licensed social worker, or other individual who meets such 
        requirements as may be prescribed by the Secretary.
    ``(d) Aggregate Payments in Excess of Limits.--
            ``(1) In general.--If the aggregate amount of periodic 
        payments under all qualified long-term care insurance contracts 
        with respect to an insured for any period exceeds the dollar 
        amount in effect for such period under paragraph (3), such 
        excess payments shall be treated as made for qualified long-
        term care services only to the extent of the costs incurred by 
        the payee (not otherwise compensated for by insurance or 
        otherwise) for qualified long-term care services provided 
        during such period for such insured.
            ``(2) Periodic payments.--For purposes of paragraph (1), 
        the term `periodic payment' means any payment (whether on a 
        periodic basis or otherwise) made without regard to the extent 
        of the costs incurred by the payee for qualified long-term care 
        services.
            ``(3) Dollar amount.--The dollar amount in effect under 
        this subsection shall be $175 per day (or the equivalent amount 
        in the case of payments on another periodic basis).
            ``(4) Inflation adjustment.--In the case of a calendar year 
        after 1997, the dollar amount contained in paragraph (3) shall 
        be increased at the same time and in the same manner as amounts 
        are increased pursuant to section 213(d)(11).
    ``(e) Treatment of Coverage Provided as Part of a Life Insurance 
Contract.--Except as otherwise provided in regulations prescribed by 
the Secretary, in the case of any long-term care insurance coverage 
(whether or not qualified) provided by a rider on or as a part of a 
life insurance contract--
            ``(1) In general.--This section shall apply as if the 
        portion of the contract providing such coverage is a separate 
        contract.
            ``(2) Application of 7702.--Section 7702(c)(2) (relating to 
        the guideline premium limitation) shall be applied by 
        increasing the guideline premium limitation with respect to a 
        life insurance contract, as of any date--
                    ``(A) by the sum of any charges (but not premium 
                payments) against the life insurance contract's cash 
                surrender value (within the meaning of section 
                7702(f)(2)(A)) for such coverage made to that date 
                under the contract, less
                    ``(B) any such charges the imposition of which 
                reduces the premiums paid for the contract (within the 
                meaning of section 7702(f)(1)).
            ``(3) Application of section 213.--No deduction shall be 
        allowed under section 213(a) for charges against the life 
        insurance contract's cash surrender value described in 
        paragraph (2), unless such charges are includible in income as 
        a result of the application of section 72(e)(10) and the rider 
        is a qualified long-term care insurance contract under 
        subsection (b).
            ``(4) Portion defined.--For purposes of this subsection, 
        the term `portion' means only the terms and benefits under a 
        life insurance contract that are in addition to the terms and 
        benefits under the contract without regard to the coverage 
        under a qualified long-term care insurance contract.''.
    (b) Reserve Method.--Clause (iii) of section 807(d)(3)(A) is 
amended by inserting ``(other than a qualified long-term care insurance 
contract, as defined in section 7702B(b))'' after ``insurance 
contract''.
    (c) Long-Term Care Insurance Not Permitted Under Cafeteria Plans or 
Flexible Spending Arrangements.--
            (1) Cafeteria plans.--Section 125(f) is amended by adding 
        at the end the following new sentence: ``Such term shall not 
        include any long-term care insurance contract (as defined in 
        section 4980C).''.
            (2) Flexible spending arrangements.--The text of section 
        106 (relating to contributions by employer to accident and 
        health plans) is amended to read as follows:
    ``(a) General Rule.--Except as otherwise provided in this section, 
gross income of an employee does not include employer-provided coverage 
under an accident or health plan.
    ``(b) Inclusion of Long-Term Care Benefits Provided Through 
Flexible Spending Arrangements.--
            ``(1) In general.--Effective on and after January 1, 1997, 
        gross income of an employee shall include employer-provided 
        coverage for qualified long-term care services (as defined in 
        section 7702B(c)) to the extent that such coverage is provided 
        through a flexible spending or similar arrangement.
            ``(2) Flexible spending arrangement.--For purposes of this 
        subsection, a flexible spending arrangement is a benefit 
        program which provides employees with coverage under which--
                    ``(A) specified incurred expenses may be reimbursed 
                (subject to reimbursement maximums and other reasonable 
                conditions), and
                    ``(B) the maximum amount of reimbursement which is 
                reasonably available to a participant for such coverage 
                is less than 500 percent of the value of such coverage.
        In the case of an insured plan, the maximum amount reasonably 
        available shall be determined on the basis of the underlying 
        coverage.''.
    (d) Continuation Coverage Excise Tax Not To Apply.--Subsection (f) 
of section 4980B is amended by adding at the end the following new 
paragraph:
            ``(9) Continuation of long-term care coverage not 
        required.--A group health plan shall not be treated as failing 
        to meet the requirements of this subsection solely by reason of 
        failing to provide coverage under any qualified long-term care 
        insurance contract (as defined in section 7702B(b)).''.
    (e) Amounts Paid to Spouse or Relatives Treated as Not Paid for 
Medical Care.--Section 213(d) is amended by adding at the end the 
following new paragraph:
            ``(10) Certain payments to spouse or relatives treated as 
        not paid for medical care.--An amount paid for a qualified 
        long-term care service (as defined in section 7702B(c)) 
        provided to an individual shall be treated as not paid for 
        medical care if such service is provided--
                    ``(A) by the spouse of the individual or a relative 
                (directly or through a partnership, corporation, or 
                other entity) unless the spouse or relative is a 
                licensed professional with respect to such services, or
                    ``(B) by a corporation or partnership which is 
                related (within the meaning of section 267(b) or 
                707(b)) to the individual.
        For purposes of this paragraph, the term `relative' means an 
        individual bearing a relationship to the individual which is 
        described in any of paragraphs (1) through (8) of section 
        152(a). This paragraph shall not apply for purposes of section 
        105(b) with respect to reimbursements through insurance.''.
    (f) Clerical Amendment.--The table of sections for chapter 79 is 
amended by inserting after the item relating to section 7702A the 
following new item:

``Sec. 7702B. Treatment of qualified long-term care insurance.''.
    (g) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to contracts issued after December 31, 1996.
            (2) Continuation of existing policies.--In the case of any 
        contract issued before January 1, 1997, which met the long-term 
        care insurance requirements of the State in which the contract 
        was issued at the time the contract was issued--
                    (A) such contract shall be treated for purposes of 
                the Internal Revenue Code of 1986 as a qualified long-
                term care insurance contract (as defined in section 
                7702B(b) of such Code), and
                    (B) services provided under, or reimbursed by, such 
                contract shall be treated for such purposes as 
                qualified long-term care services (as defined in 
                section 7702B(c) of such Code).
            (3) Exchanges of existing policies.--If, after the date of 
        enactment of this Act and before January 1, 1998, a contract 
        providing for long-term care insurance coverage is exchanged 
        solely for a qualified long-term care insurance contract (as 
        defined in section 7702B(b) of such Code), no gain or loss 
        shall be recognized on the exchange. If, in addition to a 
        qualified long-term care insurance contract, money or other 
        property is received in the exchange, then any gain shall be 
        recognized to the extent of the sum of the money and the fair 
        market value of the other property received. For purposes of 
        this paragraph, the cancellation of a contract providing for 
        long-term care insurance coverage and reinvestment of the 
        cancellation proceeds in a qualified long-term care insurance 
        contract within 60 days thereafter shall be treated as an 
        exchange.
            (4) Issuance of certain riders permitted.--For purposes of 
        applying sections 101(f), 7702, and 7702A of the Internal 
        Revenue Code of 1986 to any contract--
                    (A) the issuance of a rider which is treated as a 
                qualified long-term care insurance contract under 
                section 7702B, and
                    (B) the addition of any provision required to 
                conform any other long-term care rider to be so 
                treated,
        shall not be treated as a modification or material change of 
        such contract.

SEC. 412. QUALIFIED LONG-TERM CARE SERVICES TREATED AS MEDICAL CARE.

    (a) General Rule.--Paragraph (1) of section 213(d) (defining 
medical care) is amended by striking ``or'' at the end of subparagraph 
(B), by redesignating subparagraph (C) as subparagraph (D), and by 
inserting after subparagraph (B) the following new subparagraph:
                    ``(C) for qualified long-term care services (as 
                defined in section 7702B(c)), or''.
    (b) Technical Amendments.--
            (1) Subparagraph (D) of section 213(d)(1) (as redesignated 
        by subsection (a)) is amended by striking ``subparagraphs (A) 
        and (B)'' and inserting ``subparagraphs (A), (B), and (C)''.
            (2)(A) Paragraph (1) of section 213(d) is amended by adding 
        at the end the following new flush sentence:
        ``In the case of a qualified long-term care insurance contract 
        (as defined in section 7702B(b)), only eligible long-term care 
        premiums (as defined in paragraph (11)) shall be taken into 
        account under subparagraph (D).''.
            (B) Subsection (d) of section 213 is amended by adding at 
        the end the following new paragraph:
            ``(11) Eligible long-term care premiums.--
                    ``(A) In general.--For purposes of this section, 
                the term `eligible long-term care premiums' means the 
                amount paid during a taxable year for any qualified 
                long-term care insurance contract (as defined in 
                section 7702B(b)) covering an individual, to the extent 
                such amount does not exceed the limitation determined 
                under the following table:

                    ``In the case of an individual
                                                                       
                      with an attained age before the
                                                         The limitation
                      close of the taxable year of:
                                                              is:      
                            40 or less...............           $200   
                            More than 40 but not more            375   
                            than 50.
                            More than 50 but not more            750   
                            than 60.
                            More than 60 but not more          2,000   
                            than 70.
                            More than 70.............          2,500.  
                    ``(B) Indexing.--
                            ``(i) In general.--In the case of any 
                        taxable year beginning in a calendar year after 
                        1997, each dollar amount contained in 
                        subparagraph (A) shall be increased by the 
                        medical care cost adjustment of such amount for 
                        such calendar year. If any increase determined 
                        under the preceding sentence is not a multiple 
                        of $10, such increase shall be rounded to the 
                        nearest multiple of $10.
                            ``(ii) Medical care cost adjustment.--For 
                        purposes of clause (i), the medical care cost 
                        adjustment for any calendar year is the 
                        percentage (if any) by which--
                                    ``(I) the medical care component of 
                                the Consumer Price Index (as defined in 
                                section 1(f)(5)) for August of the 
                                preceding calendar year, exceeds
                                    ``(II) such component for August of 
                                1996.
                        The Secretary shall, in consultation with the 
                        Secretary of Health and Human Services, 
                        prescribe an adjustment which the Secretary 
                        determines is more appropriate for purposes of 
                        this paragraph than the adjustment described in 
                        the preceding sentence, and the adjustment so 
                        prescribed shall apply in lieu of the 
                        adjustment described in the preceding 
                        sentence.''.
            (3) Paragraph (6) of section 213(d) is amended--
                    (A) by striking ``subparagraphs (A) and (B)'' and 
                inserting ``subparagraphs (A), (B), and (C)'', and
                    (B) by striking ``paragraph (1)(C)'' in 
                subparagraph (A) and inserting ``paragraph (1)(D)''.
            (4) Paragraph (7) of section 213(d) is amended by striking 
        ``subparagraphs (A) and (B)'' and inserting ``subparagraphs 
        (A), (B), and (C)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 413. CERTAIN EXCHANGES OF LIFE INSURANCE CONTRACTS FOR QUALIFIED 
              LONG-TERM CARE INSURANCE CONTRACTS NOT TAXABLE.

    (a) In General.--Subsection (a) of section 1035 (relating to 
certain exchanges of insurance contracts) is amended by striking the 
period at the end of paragraph (3) and inserting ``; or'', and by 
adding at the end the following new paragraph:
            ``(4) a contract of life insurance or an endowment or 
        annuity contract for a qualified long-term care insurance 
        contract (as defined in section 7702B(b)).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1997.

SEC. 414. EXCEPTION FROM PENALTY TAX FOR AMOUNTS WITHDRAWN FROM CERTAIN 
              RETIREMENT PLANS FOR QUALIFIED LONG-TERM CARE INSURANCE.

    (a) In General.--Paragraph (2) of section 72(t) is amended by 
adding at the end the following new subparagraph:
                    ``(D) Premiums for qualified long-term care 
                insurance contracts.--Distributions to an individual 
                from an individual retirement plan, or from amounts 
                attributable to employer contributions made pursuant to 
                elective deferrals described in subparagraph (A) or (C) 
                of section 402(g)(3), to the extent such distributions 
                do not exceed the premiums for a qualified long-term 
                care insurance contract (as defined in section 
                7702B(b)) for such individual or the spouse of such 
                individual. In applying subparagraph (B), such premiums 
                shall be treated as amounts not paid for medical 
                care.''.
    (b) Distributions Permitted From Certain Plans To Pay Long-term 
Care Premiums.--
            (1) Section 401(k)(2)(B)(i) is amended by striking ``or'' 
        at the end of subclause (III), by striking ``and'' at the end 
        of subclause (IV) and inserting ``or'', and by inserting after 
        subclause (IV) the following new subclause:
                                    ``(V) the date distributions for 
                                premiums for a long-term care insurance 
                                contract (as defined in section 
                                7702B(b)) for coverage of such 
                                individual or the spouse of such 
                                individual are made, and''.
            (2) Section 403(b)(11) is amended by striking ``or'' at the 
        end of subparagraph (A), by striking the period at the end of 
        subparagraph (B) and inserting ``, or'', and by inserting after 
        subparagraph (B) the following new subparagraph:
                    ``(C) for the payment of premiums for a long-term 
                care insurance contract (as defined in section 
                7702B(b)) for coverage of the employee or the spouse of 
                the employee.''.
            (3) Subparagraph (A) of section 457(d)(1) is amended by 
        striking ``or'' at the end of clause (ii), by striking ``and'' 
        at the end of clause (iii) and inserting ``or'', and by 
        inserting after clause (iii) the following new clause:
                            ``(iv) the date distributions for premiums 
                        for a long-term care insurance contract (as 
                        defined in section 7702B(b)) for coverage of 
                        such individual or the spouse of such 
                        individual are made, and''.
    (c) Conforming Amendment.--Section 72t(2)(B) is amended by striking 
``subparagraph (A) or (C))'' and inserting ``subparagraph (A), (C), or 
(D))''.
    (d) Effective Date.--The amendments made by this section shall 
apply to payments and distributions after December 31, 1996.

SEC. 415. REPORTING REQUIREMENTS.

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

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

    ``(a) Requirement of Reporting.--Any person who pays long-term care 
benefits shall make a return, according to the forms or regulations 
prescribed by the Secretary, setting forth--
            ``(1) the aggregate amount of such benefits paid by such 
        person to any individual during any calendar year, and
            ``(2) the name, address, and TIN of such individual.
    ``(b) Statements To Be Furnished to Persons With Respect to Whom 
Information Is Required.--Every person required to make a return under 
subsection (a) shall furnish to each individual whose name is required 
to be set forth in such return a written statement showing--
            ``(1) the name of the person making the payments, and
            ``(2) the aggregate amount of long-term care benefits paid 
        to the individual which are required to be shown on such 
        return.
The written statement required under the preceding sentence shall be 
furnished to the individual on or before January 31 of the year 
following the calendar year for which the return under subsection (a) 
was required to be made.
    ``(c) Long-Term Care Benefits.--For purposes of this section, the 
term `long-term care benefit' means any amount paid under a long-term 
care insurance policy (within the meaning of section 4980C(e)).''.
    (b) Penalties.--
            (1) Subparagraph (B) of section 6724(d)(1) is amended by 
        redesignating clauses (ix) through (xiv) as clauses (x) through 
        (xv), respectively, and by inserting after clause (viii) the 
        following new clause:
                            ``(ix) section 6050Q (relating to certain 
                        long-term care benefits),''.
            (2) Paragraph (2) of section 6724(d) is amended by 
        redesignating subparagraphs (Q) through (T) as subparagraphs 
        (R) through (U), respectively, and by inserting after 
        subparagraph (P) the following new subparagraph:
                    ``(Q) section 6050Q(b) (relating to certain long-
                term care benefits),''.
    (c) Clerical Amendment.--The table of sections for subpart B of 
part III of subchapter A of chapter 61 is amended by adding at the end 
the following new item:

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

              Subchapter B--Consumer Protection Provisions

SEC. 421. POLICY REQUIREMENTS.

    Section 7702B (as added by section 411) is amended by adding at the 
end the following new subsection:
    ``(f) Consumer Protection Provisions.--
            ``(1) In general.--The requirements of this subsection are 
        met with respect to any contract if any long-term care 
        insurance policy issued under the contract meets--
                    ``(A) the requirements of the model regulation and 
                model Act described in paragraph (2),
                    ``(B) the disclosure requirement of paragraph (3), 
                and
                    ``(C) the requirements relating to 
                nonforfeitability under paragraph (4).
            ``(2) Requirements of model regulation and act.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any policy if such 
                policy meets--
                            ``(i) Model regulation.--The following 
                        requirements of the model regulation:
                                    ``(I) Section 7A (relating to 
                                guaranteed renewal or 
                                noncancellability), and the 
                                requirements of section 6B of the model 
                                Act relating to such section 7A.
                                    ``(II) Section 7B (relating to 
                                prohibitions on limitations and 
                                exclusions).
                                    ``(III) Section 7C (relating to 
                                extension of benefits).
                                    ``(IV) Section 7D (relating to 
                                continuation or conversion of 
                                coverage).
                                    ``(V) Section 7E (relating to 
                                discontinuance and replacement of 
                                policies).
                                    ``(VI) Section 8 (relating to 
                                unintentional lapse).
                                    ``(VII) Section 9 (relating to 
                                disclosure), other than section 9F 
                                thereof.
                                    ``(VIII) Section 10 (relating to 
                                prohibitions against post-claims 
                                underwriting).
                                    ``(IX) Section 11 (relating to 
                                minimum standards).
                                    ``(X) Section 12 (relating to 
                                requirement to offer inflation 
                                protection), except that any 
                                requirement for a signature on a 
                                rejection of inflation protection shall 
                                permit the signature to be on an 
                                application or on a separate form.
                                    ``(XI) Section 23 (relating to 
                                prohibition against preexisting 
                                conditions and probationary periods in 
                                replacement policies or certificates).
                            ``(ii) Model act.--The following 
                        requirements of the model Act:
                                    ``(I) Section 6C (relating to 
                                preexisting conditions).
                                    ``(II) Section 6D (relating to 
                                prior hospitalization).
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Model provisions.--The terms `model 
                        regulation' and `model Act' mean the long-term 
                        care insurance model regulation, and the long-
                        term care insurance model Act, respectively, 
                        promulgated by the National Association of 
                        Insurance Commissioners (as adopted as of 
                        January 1993).
                            ``(ii) Coordination.--Any provision of the 
                        model regulation or model Act listed under 
                        clause (i) or (ii) of subparagraph (A) shall be 
                        treated as including any other provision of 
                        such regulation or Act necessary to implement 
                        the provision.
            ``(3) Disclosure requirement.--The requirement of this 
        paragraph is met with respect to any policy if such policy 
        meets the requirements of section 4980C(d)(1).
            ``(4) Nonforfeiture requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any level premium 
                long-term care insurance policy, if the issuer of such 
                policy offers to the policyholder, including any group 
                policyholder, a nonforfeiture provision meeting the 
                requirements of subparagraph (B).
                    ``(B) Requirements of provision.--The nonforfeiture 
                provision required under subparagraph (A) shall meet 
                the following requirements:
                            ``(i) The nonforfeiture provision shall be 
                        appropriately captioned.
                            ``(ii) The nonforfeiture provision shall 
                        provide for a benefit available in the event of 
                        a default in the payment of any premiums and 
                        the amount of the benefit may be adjusted 
                        subsequent to being initially granted only as 
                        necessary to reflect changes in claims, 
                        persistency, and interest as reflected in 
                        changes in rates for premium paying policies 
                        approved by the appropriate State regulatory 
                        authority for the same policy form.
                            ``(iii) The nonforfeiture provision shall 
                        provide at least one of the following:
                                    ``(I) Reduced paid-up insurance.
                                    ``(II) Extended term insurance.
                                    ``(III) Shortened benefit period.
                                    ``(IV) Other similar offerings 
                                approved by the Secretary.
            ``(5) Long-term care insurance policy defined.--For 
        purposes of this subsection, the term `long-term care insurance 
        policy' has the meaning given such term by section 4980C(e).''.

SEC. 422. REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE INSURANCE 
              POLICIES.

    (a) In General.--Chapter 43 is amended by adding at the end the 
following new section:

``SEC. 4980C. REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE INSURANCE 
              POLICIES.

    ``(a) General Rule.--There is hereby imposed on any person failing 
to meet the requirements of subsection (c) or (d) a tax in the amount 
determined under subsection (b).
    ``(b) Amount.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) shall be $100 per policy for each day any 
        requirements of subsection (c) or (d) are not met with respect 
        to each long-term care insurance policy.
            ``(2) Waiver.--In the case of a failure which is due to 
        reasonable cause and not to willful neglect, the Secretary may 
        waive part or all of the tax imposed by subsection (a) to the 
        extent that payment of the tax would be excessive relative to 
        the failure involved.
    ``(c) Responsibilities.--The requirements of this subsection are as 
follows:
            ``(1) Requirements of model provisions.--
                    ``(A) Model regulation.--The following requirements 
                of the model regulation must be met:
                            ``(i) Section 13 (relating to application 
                        forms and replacement coverage).
                            ``(ii) Section 14 (relating to reporting 
                        requirements), except that the issuer shall 
                        also report at least annually the number of 
                        claims denied during the reporting period for 
                        each class of business (expressed as a 
                        percentage of claims denied), other than claims 
                        denied for failure to meet the waiting period 
                        or because of any applicable preexisting 
                        condition.
                            ``(iii) Section 20 (relating to filing 
                        requirements for marketing).
                            ``(iv) Section 21 (relating to standards 
                        for marketing), including inaccurate completion 
                        of medical histories, other than sections 
                        21C(1) and 21C(6) thereof, except that--
                                    ``(I) in addition to such 
                                requirements, no person shall, in 
                                selling or offering to sell a long-term 
                                care insurance policy, misrepresent a 
                                material fact; and
                                    ``(II) no such requirements shall 
                                include a requirement to inquire or 
                                identify whether a prospective 
                                applicant or enrollee for long-term 
                                care insurance has accident and 
                                sickness insurance.
                            ``(v) Section 22 (relating to 
                        appropriateness of recommended purchase).
                            ``(vi) Section 24 (relating to standard 
                        format outline of coverage).
                            ``(vii) Section 25 (relating to requirement 
                        to deliver shopper's guide).
                    ``(B) Model act.--The following requirements of the 
                model Act must be met:
                            ``(i) Section 6F (relating to right to 
                        return), except that such section shall also 
                        apply to denials of applications and any refund 
                        shall be made within 30 days of the return or 
                        denial.
                            ``(ii) Section 6G (relating to outline of 
                        coverage).
                            ``(iii) Section 6H (relating to 
                        requirements for certificates under group 
                        plans).
                            ``(iv) Section 6I (relating to policy 
                        summary).
                            ``(v) Section 6J (relating to monthly 
                        reports on accelerated death benefits).
                            ``(vi) Section 7 (relating to 
                        incontestability period).
                    ``(C) Definitions.--For purposes of this paragraph, 
                the terms `model regulation' and `model Act' have the 
                meanings given such terms by section 7702B(f)(2)(B).
            ``(2) Delivery of policy.--If an application for a long-
        term care insurance policy (or for a certificate under a group 
        long-term care insurance policy) is approved, the issuer shall 
        deliver to the applicant (or policyholder or certificateholder) 
        the policy (or certificate) of insurance not later than 30 days 
        after the date of the approval.
            ``(3) Information on denials of claims.--If a claim under a 
        long-term care insurance policy is denied, the issuer shall, 
        within 60 days of the date of a written request by the 
        policyholder or certificateholder (or representative)--
                    ``(A) provide a written explanation of the reasons 
                for the denial, and
                    ``(B) make available all information directly 
                relating to such denial.
    ``(d) Disclosure.--The requirements of this subsection are met if 
the issuer of a long-term care insurance policy discloses in such 
policy and in the outline of coverage required under subsection 
(c)(1)(B)(ii) that the policy is intended to be a qualified long-term 
care insurance contract under section 7702B(b).
    ``(e) Long-Term Care Insurance Policy Defined.--For purposes of 
this section, the term `long-term care insurance policy' means any 
product which is advertised, marketed, or offered as long-term care 
insurance.''.
    (b) Conforming Amendment.--The table of sections for chapter 43 is 
amended by adding at the end the following new item:

``Sec. 4980C. Requirements for issuers of long-term care insurance 
                            policies.''.

SEC. 423. COORDINATION WITH STATE REQUIREMENTS.

    Nothing in this subchapter shall prevent a State from establishing, 
implementing, or continuing in effect standards related to the 
protection of policyholders of long-term care insurance policies (as 
defined in section 4980C(e) of the Internal Revenue Code of 1986), if 
such standards are not in conflict with or inconsistent with the 
standards established under such Code.

SEC. 424. EFFECTIVE DATES.

    (a) In General.--The provisions of, and amendments made by, this 
subchapter shall apply to contracts issued after December 31, 1996. The 
provisions of section 411(g) of this Act (relating to transition rule) 
shall apply to such contracts.
    (b) Issuers.--The amendments made by section 422 shall apply to 
actions taken after December 31, 1996.

           CHAPTER 2--TREATMENT OF ACCELERATED DEATH BENEFITS

SEC. 431. TREATMENT OF ACCELERATED DEATH BENEFITS BY RECIPIENT.

    (a) In General.--Section 101 (relating to certain death benefits) 
is amended by adding at the end the following new subsection:
    ``(g) Treatment of Certain Accelerated Death Benefits.--
            ``(1) In general.--For purposes of this section, the 
        following amounts shall be treated as an amount paid by reason 
        of the death of an insured:
                    ``(A) Any amount received under a life insurance 
                contract on the life of an insured who is a terminally 
                ill individual.
                    ``(B) Any amount received under a life insurance 
                contract on the life of an insured who is a chronically 
                ill individual (as defined in section 7702B(c)(2)) but 
                only if such amount is received under a rider or other 
                provision of such contract which is treated as a 
                qualified long-term care insurance contract under 
                section 7702B.
            ``(2) Treatment of viatical settlements.--
                    ``(A) In general.--In the case of a life insurance 
                contract on the life of an insured described in 
                paragraph (1), if--
                            ``(i) any portion of such contract is sold 
                        to any viatical settlement provider, or
                            ``(ii) any portion of the death benefit is 
                        assigned to such a provider,
                the amount paid for such sale or assignment shall be 
                treated as an amount paid under the life insurance 
                contract by reason of the death of such insured.
                    ``(B) Viatical settlement provider.--The term 
                `viatical settlement provider' means any person 
                regularly engaged in the trade or business of 
                purchasing, or taking assignments of, life insurance 
                contracts on the lives of insureds described in 
                paragraph (1) if--
                            ``(i) such person is licensed for such 
                        purposes in the State in which the insured 
                        resides, or
                            ``(ii) in the case of an insured who 
                        resides in a State not requiring the licensing 
                        of such persons for such purposes--
                                    ``(I) such person meets the 
                                requirements of sections 8 and 9 of the 
                                Viatical Settlements Model Act of the 
                                National Association of Insurance 
                                Commissioners, and
                                    ``(II) meets the requirements of 
                                the Model Regulations of the National 
                                Association of Insurance Commissioners 
                                (relating to standards for evaluation 
                                of reasonable payments) in determining 
                                amounts paid by such person in 
                                connection with such purchases or 
                                assignments.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Terminally ill individual.--The term 
                `terminally ill individual' means an individual who has 
                been certified by a physician as having an illness or 
                physical condition which can reasonably be expected to 
                result in death in 24 months or less after the date of 
                the certification.
                    ``(B) Physician.--The term `physician' has the 
                meaning given to such term by section 1861(r)(1) of the 
                Social Security Act (42 U.S.C. 1395x(r)(1)).
            ``(4) Exception for business-related policies.--This 
        subsection shall not apply in the case of any amount paid to 
        any taxpayer other than the insured if such taxpayer has an 
        insurable interest with respect to the life of the insured by 
        reason of the insured being a director, officer, or employee of 
        the taxpayer or by reason of the insured being financially 
        interested in any trade or business carried on by the 
        taxpayer.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to amounts received after December 31, 1996.

SEC. 432. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED ACCELERATED 
              DEATH BENEFIT RIDERS.

    (a) Qualified Accelerated Death Benefit Riders Treated as Life 
Insurance.--Section 818 (relating to other definitions and special 
rules) is amended by adding at the end the following new subsection:
    ``(g) Qualified Accelerated Death Benefit Riders Treated as Life 
Insurance.--For purposes of this part--
            ``(1) In general.--Any reference to a life insurance 
        contract shall be treated as including a reference to a 
        qualified accelerated death benefit rider on such contract.
            ``(2) Qualified accelerated death benefit riders.--For 
        purposes of this subsection, the term `qualified accelerated 
        death benefit rider' means any rider on a life insurance 
        contract if the only payments under the rider are payments 
        meeting the requirements of section 101(g).
            ``(3) Exception for long-term care riders.--Paragraph (1) 
        shall not apply to any rider which is treated as a long-term 
        care insurance contract under section 7702B.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by this section shall 
        take effect on January 1, 1997.
            (2) Issuance of rider not treated as material change.--For 
        purposes of applying sections 101(f), 7702, and 7702A of the 
        Internal Revenue Code of 1986 to any contract--
                    (A) the issuance of a qualified accelerated death 
                benefit rider (as defined in section 818(g) of such 
                Code (as added by this Act)), and
                    (B) the addition of any provision required to 
                conform an accelerated death benefit rider to the 
                requirements of such section 818(g),
        shall not be treated as a modification or material change of 
        such contract.

                      Subtitle C--High-Risk Pools

SEC. 451. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED ORGANIZATIONS 
              PROVIDING HEALTH COVERAGE FOR HIGH-RISK INDIVIDUALS.

    (a) In General.--Subsection (c) of section 501 (relating to list of 
exempt organizations) is amended by adding at the end the following new 
paragraph:
            ``(26) Any membership organization if--
                    ``(A) such organization is established by a State 
                exclusively to provide coverage for medical care (as 
                defined in section 213(d)) on a not-for-profit basis to 
                individuals described in subparagraph (B) through--
                            ``(i) insurance issued by the organization, 
                        or
                            ``(ii) a health maintenance organization 
                        under an arrangement with the organization,
                    ``(B) the only individuals receiving such coverage 
                through the organization are individuals--
                            ``(i) who are residents of such State, and
                            ``(ii) who, by reason of the existence or 
                        history of a medical condition, are unable to 
                        acquire medical care coverage for such 
                        condition through insurance or from a health 
                        maintenance organization or are able to acquire 
                        such coverage only at a rate which is 
                        substantially in excess of the rate for such 
                        coverage through the membership organization,
                    ``(C) the composition of the membership in such 
                organization is specified by such State, and
                    ``(D) no part of the net earnings of the 
                organization inures to the benefit of any private 
                shareholder or individual.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1996.

               Subtitle D--Penalty-Free IRA Distributions

SEC. 461. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT PENALTY 
              TO PAY FINANCIALLY DEVASTATING MEDICAL EXPENSES.

    (a) In General.--Section 72(t)(3)(A) is amended by striking 
``(B),''.
    (b) Penalty-Free Distributions for Payment of Health Insurance 
Premiums of Certain Unemployed Individuals.--Paragraph (2) of section 
72(t), as amended by section 414, is amended by adding at the end the 
following new subparagraph:
                    ``(E) Distributions to unemployed individuals for 
                health insurance premiums.--Distributions from an 
                individual retirement plan to an individual after 
                separation from employment--
                            ``(i) if such individual has received 
                        unemployment compensation for 12 consecutive 
                        weeks under any Federal or State unemployment 
                        compensation law by reason of such separation,
                            ``(ii) if such distributions are made 
                        during any taxable year during which such 
                        unemployment compensation is paid or the 
                        succeeding taxable year, and
                            ``(iii) to the extent such distributions do 
                        not exceed the amount paid during the taxable 
                        year for insurance described in section 
                        213(d)(1)(D) with respect to the individual and 
                        the individual's spouse and dependents (as 
                        defined in section 152).
                To the extent provided in regulations, a self-employed 
                individual shall be treated as meeting the requirements 
                of clause (i) if, under Federal or State law, the 
                individual would have received unemployment 
                compensation but for the fact the individual was self-
                employed.''.
    (c) Conforming Amendment.--Subparagraph (B) of section 72(t)(2), as 
amended by section 414, is amended by striking ``or (D)'' and inserting 
``, (D), or (E)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

                      Subtitle E--Revenue Offsets

           CHAPTER 1--TREATMENT OF INDIVIDUALS WHO EXPATRIATE

SEC. 471. REVISION OF TAX RULES ON EXPATRIATION.

    (a) In General.--Subpart A of part II of subchapter N of chapter 1 
is amended by inserting after section 877 the following new section:

``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

    ``(a) General Rules.--For purposes of this subtitle--
            ``(1) Mark to market.--Except as provided in subsection 
        (f), all property of a covered expatriate to which this section 
        applies shall be treated as sold on the expatriation date for 
        its fair market value.
            ``(2) Recognition of gain or loss.--In the case of any sale 
        under paragraph (1)--
                    ``(A) notwithstanding any other provision of this 
                title, any gain arising from such sale shall be taken 
                into account for the taxable year of the sale unless 
                such gain is excluded from gross income under part III 
                of subchapter B, and
                    ``(B) any loss arising from such sale shall be 
                taken into account for the taxable year of the sale to 
                the extent otherwise provided by this title, except 
                that section 1091 shall not apply (and section 1092 
                shall apply) to any such loss.
            ``(3) Exclusion for certain gain.--The amount which would 
        (but for this paragraph) be includible in the gross income of 
        any individual by reason of this section shall be reduced (but 
        not below zero) by $600,000. For purposes of this paragraph, 
        allocable expatriation gain taken into account under subsection 
        (f)(2) shall be treated in the same manner as an amount 
        required to be includible in gross income.
            ``(4) Election to continue to be taxed as united states 
        citizen.--
                    ``(A) In general.--If an expatriate elects the 
                application of this paragraph--
                            ``(i) this section (other than this 
                        paragraph) shall not apply to the expatriate, 
                        but
                            ``(ii) the expatriate shall be subject to 
                        tax under this title, with respect to property 
                        to which this section would apply but for such 
                        election, in the same manner as if the 
                        individual were a United States citizen.
                    ``(B) Limitation on amount of estate, gift, and 
                generation-skipping transfer taxes.--The aggregate 
                amount of taxes imposed under subtitle B with respect 
                to any transfer of property by reason of an election 
                under subparagraph (A) shall not exceed the amount of 
                income tax which would be due if the property were sold 
                for its fair market value immediately before the time 
                of the transfer or death (taking into account the rules 
                of paragraph (2)).
                    ``(C) Requirements.--Subparagraph (A) shall not 
                apply to an individual unless the individual--
                            ``(i) provides security for payment of tax 
                        in such form and manner, and in such amount, as 
                        the Secretary may require,
                            ``(ii) consents to the waiver of any right 
                        of the individual under any treaty of the 
                        United States which would preclude assessment 
                        or collection of any tax which may be imposed 
                        by reason of this paragraph, and
                            ``(iii) complies with such other 
                        requirements as the Secretary may prescribe.
                    ``(D) Election.--An election under subparagraph (A) 
                shall apply to all property to which this section would 
                apply but for the election and, once made, shall be 
                irrevocable. Such election shall also apply to property 
                the basis of which is determined in whole or in part by 
                reference to the property with respect to which the 
                election was made.
    ``(b) Election To Defer Tax.--
            ``(1) In general.--If the taxpayer elects the application 
        of this subsection with respect to any property--
                    ``(A) no amount shall be required to be included in 
                gross income under subsection (a)(1) with respect to 
                the gain from such property for the taxable year of the 
                sale, but
                    ``(B) the taxpayer's tax for the taxable year in 
                which such property is disposed of shall be increased 
                by the deferred tax amount with respect to the 
                property.
        Except to the extent provided in regulations, subparagraph (B) 
        shall apply to a disposition whether or not gain or loss is 
        recognized in whole or in part on the disposition.
            ``(2) Deferred tax amount.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `deferred tax amount' means, with respect to 
                any property, an amount equal to the sum of--
                            ``(i) the difference between the amount of 
                        tax paid for the taxable year described in 
                        paragraph (1)(A) and the amount which would 
                        have been paid for such taxable year if the 
                        election under paragraph (1) had not applied to 
                        such property, plus
                            ``(ii) an amount of interest on the amount 
                        described in clause (i) determined for the 
                        period--
                                    ``(I) beginning on the 91st day 
                                after the expatriation date, and
                                    ``(II) ending on the due date for 
                                the taxable year described in paragraph 
                                (1)(B),
                        by using the rates and method applicable under 
                        section 6621 for underpayments of tax for such 
                        period.
                For purposes of clause (ii), the due date is the date 
                prescribed by law (determined without regard to 
                extension) for filing the return of the tax imposed by 
                this chapter for the taxable year.
                    ``(B) Allocation of losses.--For purposes of 
                subparagraph (A), any losses described in subsection 
                (a)(2)(B) shall be allocated ratably among the gains 
                described in subsection (a)(2)(A).
            ``(3) Security.--
                    ``(A) In general.--No election may be made under 
                paragraph (1) with respect to any property unless 
                adequate security is provided with respect to such 
                property.
                    ``(B) Adequate security.--For purposes of 
                subparagraph (A), security with respect to any property 
                shall be treated as adequate security if--
                            ``(i) it is a bond in an amount equal to 
                        the deferred tax amount under paragraph (2)(A) 
                        for the property, or
                            ``(ii) the taxpayer otherwise establishes 
                        to the satisfaction of the Secretary that the 
                        security is adequate.
            ``(4) Waiver of certain rights.--No election may be made 
        under paragraph (1) unless the taxpayer consents to the waiver 
        of any right under any treaty of the United States which would 
        preclude assessment or collection of any tax imposed by reason 
        of this section.
            ``(5) Dispositions.--For purposes of this subsection, a 
        taxpayer making an election under this subsection with respect 
        to any property shall be treated as having disposed of such 
        property--
                    ``(A) immediately before death if such property is 
                held at such time, and
                    ``(B) at any time the security provided with 
                respect to the property fails to meet the requirements 
                of paragraph (3) and the taxpayer does not correct such 
                failure within the time specified by the Secretary.
            ``(6) Elections.--An election under paragraph (1) shall 
        only apply to property described in the election and, once 
        made, is irrevocable. An election may be under paragraph (1) 
        with respect to an interest in a trust with respect to which 
        gain is required to be recognized under subsection (f)(1).
    ``(c) Covered Expatriate.--For purposes of this section--
            ``(1) In general.--The term `covered expatriate' means an 
        expatriate--
                    ``(A) whose average annual net income tax (as 
                defined in section 38(c)(1)) for the period of 5 
                taxable years ending before the expatriation date is 
                greater than $100,000, or
                    ``(B) whose net worth as of such date is $500,000 
                or more.
        If the expatriation date is after 1996, such $100,000 and 
        $500,000 amounts shall be increased by an amount equal to such 
        dollar amount multiplied by the cost-of-living adjustment 
        determined under section 1(f)(3) for such calendar year by 
        substituting `1995' for `1992' in subparagraph (B) thereof. Any 
        increase under the preceding sentence shall be rounded to the 
        nearest multiple of $1,000.
            ``(2) Exceptions.--An individual shall not be treated as a 
        covered expatriate if--
                    ``(A) the individual--
                            ``(i) became at birth a citizen of the 
                        United States and a citizen of another country 
                        and, as of the expatriation date, continues to 
                        be a citizen of, and is taxed as a resident of, 
                        such other country, and
                            ``(ii) has been a resident of the United 
                        States (as defined in section 
                        7701(b)(1)(A)(ii)) for not more than 8 taxable 
                        years during the 15-taxable year period ending 
                        with the taxable year during which the 
                        expatriation date occurs, or
                    ``(B)(i) the individual's relinquishment of United 
                States citizenship occurs before such individual 
                attains age 18\1/2\, and
                    ``(ii) the individual has been a resident of the 
                United States (as so defined) for not more than 5 
                taxable years before the date of relinquishment.
    ``(d) Property to Which Section Applies.--For purposes of this 
section--
            ``(1) In general.--Except as otherwise provided by the 
        Secretary, this section shall apply to--
                    ``(A) any interest in property held by a covered 
                expatriate on the expatriation date the gain from which 
                would be includible in the gross income of the 
                expatriate if such interest had been sold for its fair 
                market value on such date in a transaction in which 
                gain is recognized in whole or in part, and
                    ``(B) any other interest in a trust to which 
                subsection (f) applies.
            ``(2) Exceptions.--This section shall not apply to the 
        following property:
                    ``(A) United states real property interests.--Any 
                United States real property interest (as defined in 
                section 897(c)(1)), other than stock of a United States 
                real property holding corporation which does not, on 
                the expatriation date, meet the requirements of section 
                897(c)(2).
                    ``(B) Interest in certain retirement plans.--
                            ``(i) In general.--Any interest in a 
                        qualified retirement plan (as defined in 
                        section 4974(c)), other than any interest 
                        attributable to contributions which are in 
                        excess of any limitation or which violate any 
                        condition for tax-favored treatment.
                            ``(ii) Foreign pension plans.--
                                    ``(I) In general.--Under 
                                regulations prescribed by the 
                                Secretary, interests in foreign pension 
                                plans or similar retirement 
                                arrangements or programs.
                                    ``(II) Limitation.--The value of 
                                property which is treated as not sold 
                                by reason of this subparagraph shall 
                                not exceed $500,000.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Expatriate.--The term `expatriate' means--
                    ``(A) any United States citizen who relinquishes 
                his citizenship, or
                    ``(B) any long-term resident of the United States 
                who--
                            ``(i) ceases to be a lawful permanent 
                        resident of the United States (within the 
                        meaning of section 7701(b)(6)), or
                            ``(ii) commences to be treated as a 
                        resident of a foreign country under the 
                        provisions of a tax treaty between the United 
                        States and the foreign country and who does not 
                        waive the benefits of such treaty applicable to 
                        residents of the foreign country.
            ``(2) Expatriation date.--The term `expatriation date' 
        means--
                    ``(A) the date an individual relinquishes United 
                States citizenship, or
                    ``(B) in the case of a long-term resident of the 
                United States, the date of the event described in 
                clause (i) or (ii) of paragraph (1)(B).
            ``(3) Relinquishment of citizenship.--A citizen shall be 
        treated as relinquishing his United States citizenship on the 
        earliest of--
                    ``(A) the date the individual renounces his United 
                States nationality before a diplomatic or consular 
                officer of the United States pursuant to paragraph (5) 
                of section 349(a) of the Immigration and Nationality 
                Act (8 U.S.C. 1481(a)(5)),
                    ``(B) the date the individual furnishes to the 
                United States Department of State a signed statement of 
                voluntary relinquishment of United States nationality 
                confirming the performance of an act of expatriation 
                specified in paragraph (1), (2), (3), or (4) of section 
                349(a) of the Immigration and Nationality Act (8 U.S.C. 
                1481(a)(1)-(4)),
                    ``(C) the date the United States Department of 
                State issues to the individual a certificate of loss of 
                nationality, or
                    ``(D) the date a court of the United States cancels 
                a naturalized citizen's certificate of naturalization.
        Subparagraph (A) or (B) shall not apply to any individual 
        unless the renunciation or voluntary relinquishment is 
        subsequently approved by the issuance to the individual of a 
        certificate of loss of nationality by the United States 
        Department of State.
            ``(4) Long-term resident.--
                    ``(A) In general.--The term `long-term resident' 
                means any individual (other than a citizen of the 
                United States) who is a lawful permanent resident of 
                the United States in at least 8 taxable years during 
                the period of 15 taxable years ending with the taxable 
                year during which the expatriation date occurs. For 
                purposes of the preceding sentence, an individual shall 
                not be treated as a lawful permanent resident for any 
                taxable year if such individual is treated as a 
                resident of a foreign country for the taxable year 
                under the provisions of a tax treaty between the United 
                States and the foreign country and does not waive the 
                benefits of such treaty applicable to residents of the 
                foreign country.
                    ``(B) Special rule.--For purposes of subparagraph 
                (A), there shall not be taken into account--
                            ``(i) any taxable year during which any 
                        prior sale is treated under subsection (a)(1) 
                        as occurring, or
                            ``(ii) any taxable year prior to the 
                        taxable year referred to in clause (i).
    ``(f) Special Rules Applicable to Beneficiaries' Interests in 
Trust.--
            ``(1) In general.--Except as provided in paragraph (2), if 
        an individual is determined under paragraph (3) to hold an 
        interest in a trust--
                    ``(A) the individual shall not be treated as having 
                sold such interest,
                    ``(B) such interest shall be treated as a separate 
                share in the trust, and
                    ``(C)(i) such separate share shall be treated as a 
                separate trust consisting of the assets allocable to 
                such share,
                    ``(ii) the separate trust shall be treated as 
                having sold its assets immediately before the 
                expatriation date for their fair market value and as 
                having distributed all of its assets to the individual 
                as of such time, and
                    ``(iii) the individual shall be treated as having 
                recontributed the assets to the separate trust.
        Subsection (a)(2) shall apply to any income, gain, or loss of 
        the individual arising from a distribution described in 
        subparagraph (C)(ii).
            ``(2) Special rules for interests in qualified trusts.--
                    ``(A) In general.--If the trust interest described 
                in paragraph (1) is an interest in a qualified trust--
                            ``(i) paragraph (1) and subsection (a) 
                        shall not apply, and
                            ``(ii) in addition to any other tax imposed 
                        by this title, there is hereby imposed on each 
                        distribution with respect to such interest a 
                        tax in the amount determined under subparagraph 
                        (B).
                    ``(B) Amount of tax.--The amount of tax under 
                subparagraph (A)(ii) shall be equal to the lesser of--
                            ``(i) the highest rate of tax imposed by 
                        section 1(e) for the taxable year in which the 
                        expatriation date occurs, multiplied by the 
                        amount of the distribution, or
                            ``(ii) the balance in the deferred tax 
                        account immediately before the distribution 
                        determined without regard to any increases 
                        under subparagraph (C)(ii) after the 30th day 
                        preceding the distribution.
                    ``(C) Deferred tax account.--For purposes of 
                subparagraph (B)(ii)--
                            ``(i) Opening balance.--The opening balance 
                        in a deferred tax account with respect to any 
                        trust interest is an amount equal to the tax 
                        which would have been imposed on the allocable 
                        expatriation gain with respect to the trust 
                        interest if such gain had been included in 
                        gross income under subsection (a).
                            ``(ii) Increase for interest.--The balance 
                        in the deferred tax account shall be increased 
                        by the amount of interest determined (on the 
                        balance in the account at the time the interest 
                        accrues), for periods after the 90th day after 
                        the expatriation date, by using the rates and 
                        method applicable under section 6621 for 
                        underpayments of tax for such periods.
                            ``(iii) Decrease for taxes previously 
                        paid.--The balance in the tax deferred account 
                        shall be reduced--
                                    ``(I) by the amount of taxes 
                                imposed by subparagraph (A) on any 
                                distribution to the person holding the 
                                trust interest, and
                                    ``(II) in the case of a person 
                                holding a nonvested interest, to the 
                                extent provided in regulations, by the 
                                amount of taxes imposed by subparagraph 
                                (A) on distributions from the trust 
                                with respect to nonvested interests not 
                                held by such person.
                    ``(D) Allocable expatriation gain.--For purposes of 
                this paragraph, the allocable expatriation gain with 
                respect to any beneficiary's interest in a trust is the 
                amount of gain which would be allocable to such 
                beneficiary's vested and nonvested interests in the 
                trust if the beneficiary held directly all assets 
                allocable to such interests.
                    ``(E) Tax deducted and withheld.--
                            ``(i) In general.--The tax imposed by 
                        subparagraph (A)(ii) shall be deducted and 
                        withheld by the trustees from the distribution 
                        to which it relates.
                            ``(ii) Exception where failure to waive 
                        treaty rights.--If an amount may not be 
                        deducted and withheld under clause (i) by 
                        reason of the distributee failing to waive any 
                        treaty right with respect to such 
                        distribution--
                                    ``(I) the tax imposed by 
                                subparagraph (A)(ii) shall be imposed 
                                on the trust and each trustee shall be 
                                personally liable for the amount of 
                                such tax, and
                                    ``(II) any other beneficiary of the 
                                trust shall be entitled to recover from 
                                the distributee the amount of such tax 
                                imposed on the other beneficiary.
                    ``(F) Disposition.--If a trust ceases to be a 
                qualified trust at any time, a covered expatriate 
                disposes of an interest in a qualified trust, or a 
                covered expatriate holding an interest in a qualified 
                trust dies, then, in lieu of the tax imposed by 
                subparagraph (A)(ii), there is hereby imposed a tax 
                equal to the lesser of--
                            ``(i) the tax determined under paragraph 
                        (1) as if the expatriation date were the date 
                        of such cessation, disposition, or death, 
                        whichever is applicable, or
                            ``(ii) the balance in the tax deferred 
                        account immediately before such date.
                Such tax shall be imposed on the trust and each trustee 
                shall be personally liable for the amount of such tax 
                and any other beneficiary of the trust shall be 
                entitled to recover from the covered expatriate or the 
                estate the amount of such tax imposed on the other 
                beneficiary.
                    ``(G) Definitions and special rule.--For purposes 
                of this paragraph--
                            ``(i) Qualified trust.--The term `qualified 
                        trust' means a trust--
                                    ``(I) which is organized under, and 
                                governed by, the laws of the United 
                                States or a State, and
                                    ``(II) with respect to which the 
                                trust instrument requires that at least 
                                1 trustee of the trust be an individual 
                                citizen of the United States or a 
                                domestic corporation.
                            ``(ii) Vested interest.--The term `vested 
                        interest' means any interest which, as of the 
                        expatriation date, is vested in the 
                        beneficiary.
                            ``(iii) Nonvested interest.--The term 
                        `nonvested interest' means, with respect to any 
                        beneficiary, any interest in a trust which is 
                        not a vested interest. Such interest shall be 
                        determined by assuming the maximum exercise of 
                        discretion in favor of the beneficiary and the 
                        occurrence of all contingencies in favor of the 
                        beneficiary.
                            ``(iv) Adjustments.--The Secretary may 
                        provide for such adjustments to the bases of 
                        assets in a trust or a deferred tax account, 
                        and the timing of such adjustments, in order to 
                        ensure that gain is taxed only once.
            ``(3) Determination of beneficiaries' interest in trust.--
                    ``(A) Determinations under paragraph (1).--For 
                purposes of paragraph (1), a beneficiary's interest in 
                a trust shall be based upon all relevant facts and 
                circumstances, including the terms of the trust 
                instrument and any letter of wishes or similar 
                document, historical patterns of trust distributions, 
                and the existence of and functions performed by a trust 
                protector or any similar advisor.
                    ``(B) Other determinations.--For purposes of this 
                section--
                            ``(i) Constructive ownership.--If a 
                        beneficiary of a trust is a corporation, 
                        partnership, trust, or estate, the 
                        shareholders, partners, or beneficiaries shall 
                        be deemed to be the trust beneficiaries for 
                        purposes of this section.
                            ``(ii) Taxpayer return position.--A 
                        taxpayer shall clearly indicate on its income 
                        tax return--
                                    ``(I) the methodology used to 
                                determine that taxpayer's trust 
                                interest under this section, and
                                    ``(II) if the taxpayer knows (or 
                                has reason to know) that any other 
                                beneficiary of such trust is using a 
                                different methodology to determine such 
                                beneficiary's trust interest under this 
                                section.
    ``(g) Termination of Deferrals, Etc.--On the date any property held 
by an individual is treated as sold under subsection (a), 
notwithstanding any other provision of this title--
            ``(1) any period during which recognition of income or gain 
        is deferred shall terminate, and
            ``(2) any extension of time for payment of tax shall cease 
        to apply and the unpaid portion of such tax shall be due and 
        payable at the time and in the manner prescribed by the 
        Secretary.
    ``(h) Imposition of Tentative Tax.--
            ``(1) In general.--If an individual is required to include 
        any amount in gross income under subsection (a) for any taxable 
        year, there is hereby imposed, immediately before the 
        expatriation date, a tax in an amount equal to the amount of 
        tax which would be imposed if the taxable year were a short 
        taxable year ending on the expatriation date.
            ``(2) Due date.--The due date for any tax imposed by 
        paragraph (1) shall be the 90th day after the expatriation 
        date.
            ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
        shall be treated as a payment of the tax imposed by this 
        chapter for the taxable year to which subsection (a) applies.
            ``(4) Deferral of tax.--The provisions of subsection (b) 
        shall apply to the tax imposed by this subsection to the extent 
        attributable to gain includible in gross income by reason of 
        this section.
    ``(i) Coordination With Estate and Gift Taxes.--If subsection (a) 
applies to property held by an individual for any taxable year and--
            ``(1) such property is includible in the gross estate of 
        such individual solely by reason of section 2107, or
            ``(2) section 2501 applies to a transfer of such property 
        by such individual solely by reason of section 2501(a)(3),
then there shall be allowed as a credit against the additional tax 
imposed by section 2101 or 2501, whichever is applicable, solely by 
reason of section 2107 or 2501(a)(3) an amount equal to the increase in 
the tax imposed by this chapter for such taxable year by reason of this 
section.
    ``(j) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including regulations--
            ``(1) to prevent double taxation by ensuring that--
                    ``(A) appropriate adjustments are made to basis to 
                reflect gain recognized by reason of subsection (a) and 
                the exclusion provided by subsection (a)(3), and
                    ``(B) any gain by reason of a deemed sale under 
                subsection (a) of an interest in a corporation, 
                partnership, trust, or estate is reduced to reflect 
                that portion of such gain which is attributable to an 
                interest in a trust which a shareholder, partner, or 
                beneficiary is treated as holding directly under 
                subsection (f)(3)(B)(i), and
            ``(2) which provide for the proper allocation of the 
        exclusion under subsection (a)(3) to property to which this 
        section applies.
    ``(k) Cross Reference.--

                                ``For income tax treatment of 
individuals who terminate United States citizenship, see section 
7701(a)(47).''.
    (b) Inclusion in Income of Gifts and Inheritances From Covered 
Expatriates.--Section 102 (relating to gifts, etc. not included in 
gross income) is amended by adding at the end the following new 
subsection:
    ``(d) Gifts and Inheritances From Covered Expatriates.--Subsection 
(a) shall not exclude from gross income the value of any property 
acquired by gift, bequest, devise, or inheritance from a covered 
expatriate after the expatriation date. For purposes of this 
subsection, any term used in this subsection which is also used in 
section 877A shall have the same meaning as when used in section 
877A.''.
    (c) Definition of Termination of United States Citizenship.--
Section 7701(a) is amended by adding at the end the following new 
paragraph:
            ``(47) Termination of united states citizenship.--An 
        individual shall not cease to be treated as a United States 
        citizen before the date on which the individual's citizenship 
        is treated as relinquished under section 877A(e)(3).''.
    (d) Conforming Amendments.--
            (1) Section 877 is amended by adding at the end the 
        following new subsection:
    ``(f) Application.--This section shall not apply to any individual 
who relinquishes (within the meaning of section 877A(e)(3)) United 
States citizenship on or after February 6, 1995.''.
            (2) Section 2107(c) is amended by adding at the end the 
        following new paragraph:
            ``(3) Cross reference.--For credit against the tax imposed 
        by subsection (a) for expatriation tax, see section 877A(i).''.
            (3) Section 2501(a)(3) is amended by adding at the end the 
        following new flush sentence:
        ``For credit against the tax imposed under this section by 
        reason of this paragraph, see section 877A(i).''.
            (4) Paragraph (10) of section 7701(b) is amended by adding 
        at the end the following new sentence: ``This paragraph shall 
        not apply to any long-term resident of the United States who is 
        an expatriate (as defined in section 877A(e)(1)).''.
    (e) Clerical Amendment.--The table of sections for subpart A of 
part II of subchapter N of chapter 1 is amended by inserting after the 
item relating to section 877 the following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.
    (f) Effective Date.--
            (1) In general.--Except as provided in this subsection, the 
        amendments made by this section shall apply to expatriates 
        (within the meaning of section 877A(e) of the Internal Revenue 
        Code of 1986, as added by this section) whose expatriation date 
        (as so defined) occurs on or after February 6, 1995.
            (2) Gifts and bequests.--Section 102(d) of the Internal 
        Revenue Code of 1986 (as added by subsection (b)) shall apply 
        to amounts received from expatriates (as so defined) whose 
        expatriation date (as so defined) occurs on and after February 
        6, 1995.
            (3) Special rules relating to certain acts occurring before 
        february 6, 1995.--In the case of an individual who took an act 
        of expatriation specified in paragraph (1), (2), (3), or (4) of 
        section 349(a) of the Immigration and Nationality Act (8 U.S.C. 
        1481(a) (1)-(4)) before February 6, 1995, but whose 
        expatriation date (as so defined) occurs after February 6, 
        1995--
                    (A) the amendment made by subsection (c) shall not 
                apply,
                    (B) the amendment made by subsection (d)(1) shall 
                not apply for any period prior to the expatriation 
                date, and
                    (C) the other amendments made by this section shall 
                apply as of the expatriation date.
            (4) Due date for tentative tax.--The due date under section 
        877A(h)(2) of such Code shall in no event occur before the 90th 
        day after the date of the enactment of this Act.

SEC. 472. INFORMATION ON INDIVIDUALS EXPATRIATING.

    (a) In General.--Subpart A of part III of subchapter A of chapter 
61 is amended by inserting after section 6039E the following new 
section:

``SEC. 6039F. INFORMATION ON INDIVIDUALS EXPATRIATING.

    ``(a) Requirement.--
            ``(1) In general.--Notwithstanding any other provision of 
        law, any expatriate (within the meaning of section 877A(e)(1)) 
        shall provide a statement which includes the information 
        described in subsection (b).
            ``(2) Timing.--
                    ``(A) Citizens.--In the case of an expatriate 
                described in section 877(e)(1)(A), such statement shall 
                be--
                            ``(i) provided not later than the 
                        expatriation date (within the meaning of 
                        section 877A(e)(2)), and
                            ``(ii) provided to the person or court 
                        referred to in section 877A(e)(3).
                    ``(B) Noncitizens.--In the case of an expatriate 
                described in section 877A(e)(1)(B), such statement 
                shall be provided to the Secretary with the return of 
                tax imposed by chapter 1 for the taxable year during 
                which the event described in such section occurs.
    ``(b) Information To Be Provided.--Information required under 
subsection (a) shall include--
            ``(1) the taxpayer's TIN,
            ``(2) the mailing address of such individual's principal 
        foreign residence,
            ``(3) the foreign country in which such individual is 
        residing,
            ``(4) the foreign country of which such individual is a 
        citizen,
            ``(5) in the case of an individual having a net worth of at 
        least the dollar amount applicable under section 877A(c)(1)(B), 
        information detailing the assets and liabilities of such 
        individual, and
            ``(6) such other information as the Secretary may 
        prescribe.
    ``(c) Penalty.--Any individual failing to provide a statement 
required under subsection (a) shall be subject to a penalty for each 
year during any portion of which such failure continues in an amount 
equal to the greater of--
            ``(1) 5 percent of the additional tax required to be paid 
        under section 877A for such year, or
            ``(2) $1,000,
unless it is shown that such failure is due to reasonable cause and not 
to willful neglect.
    ``(d) Information To Be Provided to Secretary.--Notwithstanding any 
other provision of law--
            ``(1) any Federal agency or court which collects (or is 
        required to collect) the statement under subsection (a) shall 
        provide to the Secretary--
                    ``(A) a copy of any such statement, and
                    ``(B) the name (and any other identifying 
                information) of any individual refusing to comply with 
                the provisions of subsection (a),
            ``(2) the Secretary of State shall provide to the Secretary 
        a copy of each certificate as to the loss of American 
        nationality under section 358 of the Immigration and 
        Nationality Act which is approved by the Secretary of State, 
        and
            ``(3) the Federal agency primarily responsible for 
        administering the immigration laws shall provide to the 
        Secretary the name of each lawful permanent resident of the 
        United States (within the meaning of section 7701(b)(6)) whose 
        status as such has been revoked or has been administratively or 
        judicially determined to have been abandoned.
Notwithstanding any other provision of law, not later than 30 days 
after the close of each calendar quarter, the Secretary shall publish 
in the Federal Register the name of each individual relinquishing 
United States citizenship (within the meaning of section 877A(e)(3)) 
with respect to whom the Secretary receives information under the 
preceding sentence during such quarter.
    ``(e) Exemption.--The Secretary may by regulations exempt any class 
of individuals from the requirements of this section if the Secretary 
determines that applying this section to such individuals is not 
necessary to carry out the purposes of this section.''.
    (b) Clerical Amendment.--The table of sections for such subpart A 
is amended by inserting after the item relating to section 6039E the 
following new item:

``Sec. 6039F. Information on individuals expatriating.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to individuals to whom section 877A of the Internal Revenue Code 
of 1986 applies and whose expatriation date (as defined in section 
877A(e)(2)) occurs on or after February 6, 1995, except that no 
statement shall be required by such amendments before the 90th day 
after the date of the enactment of this Act.

SEC. 473. REPORT ON TAX COMPLIANCE BY UNITED STATES CITIZENS AND 
              RESIDENTS LIVING ABROAD.

    Not later than 90 days after the date of the enactment of this Act, 
the Secretary of the Treasury shall prepare and submit to the Committee 
on Ways and Means of the House of Representatives and the Committee on 
Finance of the Senate a report--
            (1) describing the compliance with subtitle A of the 
        Internal Revenue Code of 1986 by citizens and lawful permanent 
        residents of the United States (within the meaning of section 
        7701(b)(6) of such Code) residing outside the United States, 
        and
            (2) recommending measures to improve such compliance 
        (including improved coordination between executive branch 
        agencies).

                   CHAPTER 2--COMPANY-OWNED INSURANCE

SEC. 495. DENIAL OF DEDUCTION FOR INTEREST ON LOANS WITH RESPECT TO 
              COMPANY-OWNED INSURANCE.

    (a) In General.--Paragraph (4) of section 264(a) is amended--
            (1) by inserting ``, or any endowment or annuity contracts 
        owned by the taxpayer covering any individual,'' after ``the 
        life of any individual'', and
            (2) by striking all that follows ``carried on by the 
        taxpayer'' and inserting a period.
    (b) Exception for Contracts Relating to Key Persons; Permissible 
Interest Rates.--Section 264 is amended--
            (1) by striking ``Any'' in subsection (a)(4) and inserting 
        ``Except as provided in subsection (d), any'', and
            (2) by adding at the end the following new subsection:
    ``(d) Special Rules For Application of Subsection (a)(4).--
            ``(1) Exception for key persons.--Subsection (a)(4) shall 
        not apply to any interest paid or accrued on any indebtedness 
        with respect to policies or contracts covering an individual 
        who is a key person to the extent that the aggregate amount of 
        such indebtedness with respect to policies and contracts 
        covering such individual does not exceed $50,000.
            ``(2) Interest rate cap on key persons and pre-1986 
        contracts.--
                    ``(A) In general.--No deduction shall be allowed by 
                reason of paragraph (1) or the last sentence of 
                subsection (a) with respect to interest paid or accrued 
                for any month to the extent the amount of such interest 
                exceeds the amount which would have been determined if 
                the applicable rate of interest were used for such 
                month.
                    ``(B) Applicable rate of interest.--For purposes of 
                subparagraph (A)--
                            ``(i) In general.--The applicable rate of 
                        interest for any month is the rate of interest 
                        described as Moody's Corporate Bond Yield 
                        Average-Monthly Average Corporates as published 
                        by Moody's Investors Service, Inc., or any 
                        successor thereto, for such month.
                            ``(ii) Pre-1986 contract.--In the case of 
                        indebtedness on a contract to which the last 
                        sentence of subsection (a) applies--
                                    ``(I) which is a contract providing 
                                a fixed rate of interest, the 
                                applicable rate of interest for any 
                                month shall be the Moody's rate 
                                described in clause (i) for the month 
                                in which the contract was purchased, or
                                    ``(II) which is a contract 
                                providing a variable rate of interest, 
                                the applicable rate of interest for any 
                                month in an applicable period shall be 
                                such Moody's rate for the last month 
                                preceding such period.
                        For purposes of subclause (II), the taxpayer 
                        shall elect an applicable period for such 
                        contract on its return of tax imposed by this 
                        chapter for its first taxable year ending on or 
                        after October 13, 1995. Such applicable period 
                        shall be for any number of months (not greater 
                        than 12) specified in the election and may not 
                        be changed by the taxpayer without the consent 
                        of the Secretary.
            ``(3) Key person.--For purposes of paragraph (1), the term 
        `key person' means an officer or 20-percent owner, except that 
        the number of individuals who may be treated as key persons 
        with respect to any taxpayer shall not exceed the greater of--
                    ``(A) 5 individuals, or
                    ``(B) the lesser of 5 percent of the total officers 
                and employees of the taxpayer or 10 individuals.
            ``(4) 20-percent owner.--For purposes of this subsection, 
        the term `20-percent owner' means--
                    ``(A) if the taxpayer is a corporation, any person 
                who owns directly 20 percent or more of the outstanding 
                stock of the corporation or stock possessing 20 percent 
                or more of the total combined voting power of all stock 
                of the corporation, or
                    ``(B) if the taxpayer is not a corporation, any 
                person who owns 20 percent or more of the capital or 
                profits interest in the employer.
            ``(5) Aggregation rules.--
                    ``(A) In general.--For purposes of paragraph (4)(A) 
                and applying the $50,000 limitation in paragraph (1)--
                            ``(i) all members of a controlled group 
                        shall be treated as 1 taxpayer, and
                            ``(ii) such limitation shall be allocated 
                        among the members of such group in such manner 
                        as the Secretary may prescribe.
                    ``(B) Controlled group.--For purposes of this 
                paragraph, all persons treated as a single employer 
                under subsection (a) or (b) of section 52 or subsection 
                (m) or (o) of section 414 shall be treated as members 
                of a controlled group.''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to interest paid or accrued after December 31, 1995.
            (2) Transition rule for existing indebtedness.--
                    (A) In general.--In the case of--
                            (i) indebtedness incurred before January 1, 
                        1996, or
                            (ii) indebtedness incurred before January 
                        1, 1997 with respect to any contract or policy 
                        entered into in 1994 or 1995,
                the amendments made by this section shall not apply to 
                qualified interest paid or accrued on such indebtedness 
                after October 13, 1995, and before January 1, 1999.
                    (B) Qualified interest.--For purposes of 
                subparagraph (A), the qualified interest with respect 
                to any indebtedness for any month is the amount of 
                interest which would be paid or accrued for such month 
                on such indebtedness if--
                            (i) in the case of any interest paid or 
                        accrued after December 31, 1995, indebtedness 
                        with respect to no more than 20,000 insured 
                        individuals were taken into account, and
                            (ii) the lesser of the following rates of 
                        interest were used for such month:
                                    (I) The rate of interest specified 
                                under the terms of the indebtedness as 
                                in effect on October 13, 1995 (and 
                                without regard to modification of such 
                                terms after such date).
                                    (II) The applicable percentage rate 
                                of interest described as Moody's 
                                Corporate Bond Yield Average-Monthly 
                                Average Corporates as published by 
                                Moody's Investors Service, Inc., or any 
                                successor thereto, for such month.
                For purposes of clause (i), all persons treated as a 
                single employer under subsection (a) or (b) of section 
                52 of the Internal Revenue Code of 1986 or subsection 
                (m) or (o) of section 414 of such Code shall be treated 
                as one person.
                    (C) Applicable percentage.--For purposes of 
                subparagraph (B), the applicable percentage is as 
                follows:

        For calendar year:
                                                     The percentage is:
                1995.................................      100 percent 
                1996.................................       90 percent 
                1997.................................       80 percent 
                1998.................................       70 percent.

            (3) Special rule for grandfathered contracts.--This section 
        shall not apply to any contract purchased on or before June 20, 
        1986, except that section 264(d)(2) of the Internal Revenue 
        Code of 1986 shall apply to interest paid or accrued after 
        October 13, 1995.
    (d) Spread of Income Inclusion on Surrender, Etc. of Contracts.--
            (1) In general.--If any amount is received under any life 
        insurance policy or endowment or annuity contract described in 
        paragraph (4) of section 264(a) of the Internal Revenue Code of 
        1986--
                    (A) on the complete surrender, redemption, or 
                maturity of such policy or contract during calendar 
                year 1996, 1997, or 1998, or
                    (B) in full discharge during any such calendar year 
                of the obligation under the policy or contract which is 
                in the nature of a refund of the consideration paid for 
                the policy or contract,
        then (in lieu of any other inclusion in gross income) such 
        amount shall be includible in gross income ratably over the 4-
        taxable year period beginning with the taxable year such amount 
        would (but for this paragraph) be includible. The preceding 
        sentence shall only apply to the extent the amount is 
        includible in gross income for the taxable year in which the 
        event described in subparagraph (A) or (B) occurs.
            (2) Special rules for applying section 264.--A contract 
        shall not be treated as--
                    (A) failing to meet the requirement of section 
                264(c)(1) of the Internal Revenue Code of 1986, or
                    (B) a single premium contract under section 
                264(b)(1) of such Code,
        solely by reason of an occurrence described in subparagraph (A) 
        or (B) of paragraph (1) of this subsection or solely by reason 
        of no additional premiums being received under the contract by 
        reason of a lapse occurring after October 13, 1995.
            (3) Special rule for deferred acquisition costs.--In the 
        case of the occurrence of any event described in subparagraph 
        (A) or (B) of paragraph (1) of this subsection with respect to 
        any policy or contract--
                    (A) section 848 of the Internal Revenue Code of 
                1986 shall not apply to the unamortized balance (if 
                any) of the specified policy acquisition expenses 
                attributable to such policy or contract immediately 
                before the insurance company's taxable year in which 
                such event occurs, and
                    (B) there shall be allowed as a deduction to such 
                company for such taxable year under chapter 1 of such 
                Code an amount equal to such unamortized balance.

            TITLE V--HEALTH CARE FRAUD AND ABUSE PREVENTION

SEC. 500. AMENDMENTS.

    Except as otherwise specifically provided, whenever in this title 
an amendment is expressed in terms of an amendment to or repeal of a 
section or other provision, the reference shall be considered to be 
made to that section or other provision of the Social Security Act.

              Subtitle A--Fraud and Abuse Control Program

SEC. 501. FRAUD AND ABUSE CONTROL PROGRAM.

    (a) Establishment of Program.--Title XI (42 U.S.C. 1301 et seq.) is 
amended by inserting after section 1128B the following new section:

                   ``fraud and abuse control program

``Sec. 1128C. (a) Establishment of Program.--
            ``(1) In general.--Not later than January 1, 1997, the 
        Secretary, acting through the Office of the Inspector General 
        of the Department of Health and Human Services, and the 
        Attorney General shall establish a program--
                    ``(A) to coordinate Federal, State, and local law 
                enforcement programs to control fraud and abuse with 
                respect to health plans,
                    ``(B) to conduct investigations, audits, 
                evaluations, and inspections relating to the delivery 
                of and payment for health care in the United States,
                    ``(C) to facilitate the enforcement of the 
                provisions of sections 1128, 1128A, and 1128B and other 
                statutes applicable to health care fraud and abuse,
                    ``(D) to provide for the modification and 
                establishment of safe harbors and to issue 
                interpretative rulings and special fraud alerts 
                pursuant to section 1128D, and
                    ``(E) to provide for the reporting and disclosure 
                of certain final adverse actions against health care 
                providers, suppliers, or practitioners pursuant to the 
                data collection system established under section 1128E.
            ``(2) Coordination with health plans.--In carrying out the 
        program established under paragraph (1), the Secretary and the 
        Attorney General shall consult with, and arrange for the 
        sharing of data with representatives of health plans.
            ``(3) Guidelines.--
                    ``(A) In general.--The Secretary and the Attorney 
                General shall issue guidelines to carry out the program 
                under paragraph (1). The provisions of sections 553, 
                556, and 557 of title 5, United States Code, shall not 
                apply in the issuance of such guidelines.
                    ``(B) Information guidelines.--
                            ``(i) In general.--Such guidelines shall 
                        include guidelines relating to the furnishing 
                        of information by health plans, providers, and 
                        others to enable the Secretary and the Attorney 
                        General to carry out the program (including 
                        coordination with health plans under paragraph 
                        (2)).
                            ``(ii) Confidentiality.--Such guidelines 
                        shall include procedures to assure that such 
                        information is provided and utilized in a 
                        manner that appropriately protects the 
                        confidentiality of the information and the 
                        privacy of individuals receiving health care 
                        services and items.
                            ``(iii) Qualified immunity for providing 
                        information.--The provisions of section 1157(a) 
                        (relating to limitation on liability) shall 
                        apply to a person providing information to the 
                        Secretary or the Attorney General in 
                        conjunction with their performance of duties 
                        under this section.
            ``(4) Ensuring access to documentation.--The Inspector 
        General of the Department of Health and Human Services is 
        authorized to exercise such authority described in paragraphs 
        (3) through (9) of section 6 of the Inspector General Act of 
        1978 (5 U.S.C. App.) as necessary with respect to the 
        activities under the fraud and abuse control program 
        established under this subsection.
            ``(5) Authority of inspector general.--Nothing in this Act 
        shall be construed to diminish the authority of any Inspector 
        General, including such authority as provided in the Inspector 
        General Act of 1978 (5 U.S.C. App.).
    ``(b) Additional Use of Funds by Inspector General.--
            ``(1) Reimbursements for investigations.--The Inspector 
        General of the Department of Health and Human Services is 
        authorized to receive and retain for current use reimbursement 
        for the costs of conducting investigations and audits and for 
        monitoring compliance plans when such costs are ordered by a 
        court, voluntarily agreed to by the payor, or otherwise.
            ``(2) Crediting.--Funds received by the Inspector General 
        under paragraph (1) as reimbursement for costs of conducting 
        investigations shall be deposited to the credit of the 
        appropriation from which initially paid, or to appropriations 
        for similar purposes currently available at the time of 
        deposit, and shall remain available for obligation for 1 year 
        from the date of the deposit of such funds.
    ``(c) Health Plan Defined.--For purposes of this section, the term 
`health plan' means a plan or program that provides health benefits, 
whether directly, through insurance, or otherwise, and includes--
            ``(1) a policy of health insurance;
            ``(2) a contract of a service benefit organization; and
            ``(3) a membership agreement with a health maintenance 
        organization or other prepaid health plan.''.
    (b) Establishment of Health Care Fraud and Abuse Control Account in 
Federal Hospital Insurance Trust Fund.--Section 1817 (42 U.S.C. 1395i) 
is amended by adding at the end the following new subsection:
    ``(k) Health Care Fraud and Abuse Control Account.--
            ``(1) Establishment.--There is hereby established in the 
        Trust Fund an expenditure account to be known as the `Health 
        Care Fraud and Abuse Control Account' (in this subsection 
        referred to as the `Account').
            ``(2) Appropriated amounts to trust fund.--
                    ``(A) In general.--There are hereby appropriated to 
                the Trust Fund--
                            ``(i) such gifts and bequests as may be 
                        made as provided in subparagraph (B);
                            ``(ii) such amounts as may be deposited in 
                        the Trust Fund as provided in sections 541(b) 
                        and 542(c) of the Health Insurance Reform Act 
                        of 1996, and title XI; and
                            ``(iii) such amounts as are transferred to 
                        the Trust Fund under subparagraph (C).
                    ``(B) Authorization to accept gifts.--The Trust 
                Fund is authorized to accept on behalf of the United 
                States money gifts and bequests made unconditionally to 
                the Trust Fund, for the benefit of the Account or any 
                activity financed through the Account.
                    ``(C) Transfer of amounts.--The Managing Trustee 
                shall transfer to the Trust Fund, under rules similar 
                to the rules in section 9601 of the Internal Revenue 
                Code of 1986, an amount equal to the sum of the 
                following:
                            ``(i) Criminal fines recovered in cases 
                        involving a Federal health care offense (as 
                        defined in section 982(a)(6)(B) of title 18, 
                        United States Code).
                            ``(ii) Civil monetary penalties and 
                        assessments imposed in health care cases, 
                        including amounts recovered under titles XI, 
                        XVIII, and XXI, and chapter 38 of title 31, 
                        United States Code (except as otherwise 
                        provided by law).
                            ``(iii) Amounts resulting from the 
                        forfeiture of property by reason of a Federal 
                        health care offense.
                            ``(iv) Penalties and damages obtained and 
                        otherwise creditable to miscellaneous receipts 
                        of the general fund of the Treasury obtained 
                        under sections 3729 through 3733 of title 31, 
                        United States Code (known as the False Claims 
                        Act), in cases involving claims related to the 
                        provision of health care items and services 
                        (other than funds awarded to a relator, for 
                        restitution or otherwise authorized by law).
            ``(3) Appropriated amounts to account for fraud and abuse 
        control program, etc.--
                    ``(A) Departments of health and human services and 
                justice.--
                            ``(i) In general.--There are hereby 
                        appropriated to the Account from the Trust Fund 
                        such sums as the Secretary and the Attorney 
                        General certify are necessary to carry out the 
                        purposes described in subparagraph (C), to be 
                        available without further appropriation, in an 
                        amount not to exceed--
                                    ``(I) for fiscal year 1997, 
                                $104,000,000, and
                                    ``(II) for each of the fiscal years 
                                1998 through 2003, the limit for the 
                                preceding fiscal year, increased by 15 
                                percent; and
                                    ``(III) for each fiscal year after 
                                fiscal year 2003, the limit for fiscal 
                                year 2003.
                            ``(ii) Medicare and medicaid activities.--
                        For each fiscal year, of the amount 
                        appropriated in clause (i), the following 
                        amounts shall be available only for the 
                        purposes of the activities of the Office of the 
                        Inspector General of the Department of Health 
                        and Human Services with respect to the medicare 
                        and medicaid programs--
                                    ``(I) for fiscal year 1997, not 
                                less than $60,000,000 and not more than 
                                $70,000,000;
                                    ``(II) for fiscal year 1998, not 
                                less than $80,000,000 and not more than 
                                $90,000,000;
                                    ``(III) for fiscal year 1999, not 
                                less than $90,000,000 and not more than 
                                $100,000,000;
                                    ``(IV) for fiscal year 2000, not 
                                less than $110,000,000 and not more 
                                than $120,000,000;
                                    ``(V) for fiscal year 2001, not 
                                less than $120,000,000 and not more 
                                than $130,000,000;
                                    ``(VI) for fiscal year 2002, not 
                                less than $140,000,000 and not more 
                                than $150,000,000; and
                                    ``(VII) for each fiscal year after 
                                fiscal year 2002, not less than 
                                $150,000,000 and not more than 
                                $160,000,000.
                    ``(B) Federal bureau of investigation.--There are 
                hereby appropriated from the general fund of the United 
                States Treasury and hereby appropriated to the Account 
                for transfer to the Federal Bureau of Investigation to 
                carry out the purposes described in subparagraph 
                (C)(i), to be available without further appropriation--
                            ``(i) for fiscal year 1997, $47,000,000;
                            ``(ii) for fiscal year 1998, $56,000,000;
                            ``(iii) for fiscal year 1999, $66,000,000;
                            ``(iv) for fiscal year 2000, $76,000,000;
                            ``(v) for fiscal year 2001, $88,000,000;
                            ``(vi) for fiscal year 2002, $101,000,000; 
                        and
                            ``(vii) for each fiscal year after fiscal 
                        year 2002, $114,000,000.
                    ``(C) Use of funds.--The purposes described in this 
                subparagraph are to cover the costs (including 
                equipment, salaries and benefits, and travel and 
                training) of the administration and operation of the 
                health care fraud and abuse control program established 
                under section 1128C(a), including the costs of--
                            ``(i) prosecuting health care matters 
                        (through criminal, civil, and administrative 
                        proceedings);
                            ``(ii) investigations;
                            ``(iii) financial and performance audits of 
                        health care programs and operations;
                            ``(iv) inspections and other evaluations; 
                        and
                            ``(v) provider and consumer education 
                        regarding compliance with the provisions of 
                        title XI.
            ``(4) Appropriated amounts to account for medicare 
        integrity program.--
                    ``(A) In general.--There are hereby appropriated to 
                the Account from the Trust Fund for each fiscal year 
                such amounts as are necessary to carry out the Medicare 
                Integrity Program under section 1893, subject to 
                subparagraph (B) and to be available without further 
                appropriation.
                    ``(B) Amounts specified.--The amount appropriated 
                under subparagraph (A) for a fiscal year is as follows:
                            ``(i) For fiscal year 1997, such amount 
                        shall be not less than $430,000,000 and not 
                        more than $440,000,000.
                            ``(ii) For fiscal year 1998, such amount 
                        shall be not less than $490,000,000 and not 
                        more than $500,000,000.
                            ``(iii) For fiscal year 1999, such amount 
                        shall be not less than $550,000,000 and not 
                        more than $560,000,000.
                            ``(iv) For fiscal year 2000, such amount 
                        shall be not less than $620,000,000 and not 
                        more than $630,000,000.
                            ``(v) For fiscal year 2001, such amount 
                        shall be not less than $670,000,000 and not 
                        more than $680,000,000.
                            ``(vi) For fiscal year 2002, such amount 
                        shall be not less than $690,000,000 and not 
                        more than $700,000,000.
                            ``(vii) For each fiscal year after fiscal 
                        year 2002, such amount shall be not less than 
                        $710,000,000 and not more than $720,000,000.
            ``(5) Annual report.--The Secretary and the Attorney 
        General shall submit jointly an annual report to Congress on 
        the amount of revenue which is generated and disbursed, and the 
        justification for such disbursements, by the Account in each 
        fiscal year.''.

SEC. 502. MEDICARE INTEGRITY PROGRAM.

    (a) Establishment of Medicare Integrity Program.--Title XVIII is 
amended by adding at the end the following new section:

                      ``medicare integrity program

    ``Sec. 1893. (a) Establishment of Program.--There is hereby 
established the Medicare Integrity Program (in this section referred to 
as the `Program') under which the Secretary shall promote the integrity 
of the medicare program by entering into contracts in accordance with 
this section with eligible private entities to carry out the activities 
described in subsection (b).
    ``(b) Activities Described.--The activities described in this 
subsection are as follows:
            ``(1) Review of activities of providers of services or 
        other individuals and entities furnishing items and services 
        for which payment may be made under this title (including 
        skilled nursing facilities and home health agencies), including 
        medical and utilization review and fraud review (employing 
        similar standards, processes, and technologies used by private 
        health plans, including equipment and software technologies 
        which surpass the capability of the equipment and technologies 
        used in the review of claims under this title as of the date of 
        the enactment of this section).
            ``(2) Audit of cost reports.
            ``(3) Determinations as to whether payment should not be, 
        or should not have been, made under this title by reason of 
        section 1862(b), and recovery of payments that should not have 
        been made.
            ``(4) Education of providers of services, beneficiaries, 
        and other persons with respect to payment integrity and benefit 
        quality assurance issues.
            ``(5) Developing (and periodically updating) a list of 
        items of durable medical equipment in accordance with section 
        1834(a)(15) which are subject to prior authorization under such 
        section.
    ``(c) Eligibility of Entities.--An entity is eligible to enter into 
a contract under the Program to carry out any of the activities 
described in subsection (b) if--
            ``(1) the entity has demonstrated capability to carry out 
        such activities;
            ``(2) in carrying out such activities, the entity agrees to 
        cooperate with the Inspector General of the Department of 
        Health and Human Services, the Attorney General of the United 
        States, and other law enforcement agencies, as appropriate, in 
        the investigation and deterrence of fraud and abuse in relation 
        to this title and in other cases arising out of such 
        activities;
            ``(3) the entity complies with such conflict of interest 
        standards as are generally applicable to Federal acquisition 
        and procurement;
            ``(4) the entity meets such other requirements as the 
        Secretary may impose; and
            ``(5) in the case of any contract entered into for years 
        prior to 2000, the entity has entered into an agreement under 
        section 1816 or a contract under section 1842.
In the case of the activity described in subsection (b)(5), an entity 
shall be deemed to be eligible to enter into a contract under the 
Program to carry out the activity if the entity is a carrier with a 
contract in effect under section 1842.
    ``(d) Process for Entering Into Contracts.--The Secretary shall 
enter into contracts under the Program in accordance with such 
procedures as the Secretary shall by regulation establish, except that 
such procedures shall include the following:
            ``(1) Procedures for identifying, evaluating, and resolving 
        organizational conflicts of interest that are generally 
        applicable to Federal acquisition and procurement.
            ``(2) Competitive procedures must be used when entering 
        into new contracts under this section, or at any other time 
        considered appropriate by the Secretary, except that the 
        Secretary may contract with entities that are carrying out the 
        activities described in this section pursuant to agreements 
        under section 1816 or contracts under section 1842 in effect on 
        the date of the enactment of this section.
            ``(3) A contract under this section may be renewed without 
        regard to any provision of law requiring competition if the 
        contractor has met or exceeded the performance requirements 
        established in the current contract.
    ``(e) Limitation on Contractor Liability.--The Secretary shall by 
regulation provide for the limitation of a contractor's liability for 
actions taken to carry out a contract under the Program, and such 
regulation shall, to the extent the Secretary finds appropriate, employ 
the same or comparable standards and other substantive and procedural 
provisions as are contained in section 1157.''.
    (b) Elimination of FI and Carrier Responsibility for Carrying Out 
Activities Subject to Program.--
            (1) Responsibilities of fiscal intermediaries under part 
        a.--Section 1816 (42 U.S.C. 1395h) is amended by adding at the 
        end the following new subsection:
    ``(l) No payment may be made for carrying out any activity pursuant 
to an agreement under this section to the extent that the activity is 
carried out pursuant to a contract under the Medicare Integrity Program 
under section 1893.''.
            (2) Responsibilities of carriers under part b.--Section 
        1842(c) (42 U.S.C. 1395u(c)) is amended by adding at the end 
        the following new paragraph:
    ``(6) No payment may be made for carrying out any activity pursuant 
to a contract under this subsection to the extent that the activity is 
carried out pursuant to a contract under the Medicare Integrity Program 
under section 1893. The previous sentence shall not apply with respect 
to the activity described in section 1893(b)(5) (relating to prior 
authorization of certain items of durable medical equipment under 
section 1834(a)(15)).''.

SEC. 503. BENEFICIARY INCENTIVE PROGRAMS.

    (a) Clarification of Requirement to Provide Explanation of Medicare 
Benefits.--The Secretary of Health and Human Services (in this section 
referred to as the ``Secretary'') shall provide an explanation of 
benefits under the medicare program under title XVIII of the Social 
Security Act with respect to each item or service for which payment may 
be made under the program which is furnished to an individual, without 
regard to whether or not a deductible or coinsurance may be imposed 
against the individual with respect to the item or service.
    (b) Program to Collect Information on Fraud and Abuse.--
            (1) Establishment of program.--Not later than 3 months 
        after the date of the enactment of this Act, the Secretary 
        shall establish a program under which the Secretary shall 
        encourage individuals to report to the Secretary information on 
        individuals and entities who are engaging or who have engaged 
        in acts or omissions which constitute grounds for the 
        imposition of a sanction under section 1128, section 1128A, or 
        section 1128B of the Social Security Act, or who have otherwise 
        engaged in fraud and abuse against the medicare program for 
        which there is a sanction provided under law. The program shall 
        discourage provision of, and not consider, information which is 
        frivolous or otherwise not relevant or material to the 
        imposition of such a sanction.
            (2) Payment of portion of amounts collected.--If an 
        individual reports information to the Secretary under the 
        program established under paragraph (1) which serves as the 
        basis for the collection by the Secretary or the Attorney 
        General of any amount of at least $100 (other than any amount 
        paid as a penalty under section 1128B of the Social Security 
        Act), the Secretary may pay a portion of the amount collected 
        to the individual (under procedures similar to those applicable 
        under section 7623 of the Internal Revenue Code of 1986 to 
        payments to individuals providing information on violations of 
        such Code).
    (c) Program to Collect Information on Program Efficiency.--
            (1) Establishment of program.--Not later than 3 months 
        after the date of the enactment of this Act, the Secretary 
        shall establish a program under which the Secretary shall 
        encourage individuals to submit to the Secretary suggestions on 
        methods to improve the efficiency of the medicare program.
            (2) Payment of portion of program savings.--If an 
        individual submits a suggestion to the Secretary under the 
        program established under paragraph (1) which is adopted by the 
        Secretary and which results in savings to the program, the 
        Secretary may make a payment to the individual of such amount 
        as the Secretary considers appropriate.

SEC. 504. APPLICATION OF CERTAIN HEALTH ANTI-FRAUD AND ABUSE SANCTIONS 
              TO FRAUD AND ABUSE AGAINST FEDERAL HEALTH CARE PROGRAMS.

    (a) In General.--Section 1128B (42 U.S.C. 1320a-7b) is amended as 
follows:
            (1) In the heading, by striking ``medicare or state health 
        care programs'' and inserting ``federal health care programs''.
            (2) In subsection (a)(1), by striking ``a program under 
        title XVIII or a State health care program (as defined in 
        section 1128(h))'' and inserting ``a Federal health care 
        program''.
            (3) In subsection (a)(5), by striking ``a program under 
        title XVIII or a State health care program'' and inserting ``a 
        Federal health care program''.
            (4) In the second sentence of subsection (a)--
                    (A) by striking ``a State plan approved under title 
                XIX'' and inserting ``a Federal health care program'', 
                and
                    (B) by striking ``the State may at its option 
                (notwithstanding any other provision of that title or 
                of such plan)'' and inserting ``the administrator of 
                such program may at its option (notwithstanding any 
                other provision of such program)''.
            (5) In subsection (b), by striking ``title XVIII or a State 
        health care program'' each place it appears and inserting ``a 
        Federal health care program''.
            (6) In subsection (c), by inserting ``(as defined in 
        section 1128(h))'' after ``a State health care program''.
            (7) By adding at the end the following new subsection:
    ``(f) For purposes of this section, the term `Federal health care 
program' means--
            ``(1) any plan or program that provides health benefits, 
        whether directly, through insurance, or otherwise, which is 
        funded directly, in whole or in part, by the United States 
        Government (other than the health insurance program under 
        chapter 89 of title 5, United States Code); or
            ``(2) any State health care program, as defined in section 
        1128(h).''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1997.

SEC. 505. GUIDANCE REGARDING APPLICATION OF HEALTH CARE FRAUD AND ABUSE 
              SANCTIONS.

    Title XI (42 U.S.C. 1301 et seq.), as amended by section 501, is 
amended by inserting after section 1128C the following new section:

    ``guidance regarding application of health care fraud and abuse 
                               sanctions

    ``Sec. 1128D. (a) Solicitation and Publication of Modifications to 
Existing Safe Harbors and New Safe Harbors.--
            ``(1) In general.--
                    ``(A) Solicitation of proposals for safe harbors.--
                Not later than January 1, 1997, and not less than 
                annually thereafter, the Secretary shall publish a 
                notice in the Federal Register soliciting proposals, 
                which will be accepted during a 60-day period, for--
                            ``(i) modifications to existing safe 
                        harbors issued pursuant to section 14(a) of the 
                        Medicare and Medicaid Patient and Program 
                        Protection Act of 1987 (42 U.S.C. 1320a-7b 
                        note);
                            ``(ii) additional safe harbors specifying 
                        payment practices that shall not be treated as 
                        a criminal offense under section 1128B(b) and 
                        shall not serve as the basis for an exclusion 
                        under section 1128(b)(7);
                            ``(iii) interpretive rulings to be issued 
                        pursuant to subsection (b); and
                            ``(iv) special fraud alerts to be issued 
                        pursuant to subsection (c).
                    ``(B) Publication of proposed modifications and 
                proposed additional safe harbors.--After considering 
                the proposals described in clauses (i) and (ii) of 
                subparagraph (A), the Secretary, in consultation with 
                the Attorney General, shall publish in the Federal 
                Register proposed modifications to existing safe 
                harbors and proposed additional safe harbors, if 
                appropriate, with a 60-day comment period. After 
                considering any public comments received during this 
                period, the Secretary shall issue final rules modifying 
                the existing safe harbors and establishing new safe 
                harbors, as appropriate.
                    ``(C) Report.--The Inspector General of the 
                Department of Health and Human Services (in this 
                section referred to as the `Inspector General') shall, 
                in an annual report to Congress or as part of the year-
                end semiannual report required by section 5 of the 
                Inspector General Act of 1978 (5 U.S.C. App.), describe 
                the proposals received under clauses (i) and (ii) of 
                subparagraph (A) and explain which proposals were 
                included in the publication described in subparagraph 
                (B), which proposals were not included in that 
                publication, and the reasons for the rejection of the 
                proposals that were not included.
            ``(2) Criteria for modifying and establishing safe 
        harbors.--In modifying and establishing safe harbors under 
        paragraph (1)(B), the Secretary may consider the extent to 
        which providing a safe harbor for the specified payment 
        practice may result in any of the following:
                    ``(A) An increase or decrease in access to health 
                care services.
                    ``(B) An increase or decrease in the quality of 
                health care services.
                    ``(C) An increase or decrease in patient freedom of 
                choice among health care providers.
                    ``(D) An increase or decrease in competition among 
                health care providers.
                    ``(E) An increase or decrease in the ability of 
                health care facilities to provide services in medically 
                underserved areas or to medically underserved 
                populations.
                    ``(F) An increase or decrease in the cost to 
                Federal health care programs (as defined in section 
                1128B(f)).
                    ``(G) An increase or decrease in the potential 
                overutilization of health care services.
                    ``(H) The existence or nonexistence of any 
                potential financial benefit to a health care 
                professional or provider which may vary based on their 
                decisions of--
                            ``(i) whether to order a health care item 
                        or service; or
                            ``(ii) whether to arrange for a referral of 
                        health care items or services to a particular 
                        practitioner or provider.
                    ``(I) Any other factors the Secretary deems 
                appropriate in the interest of preventing fraud and 
                abuse in Federal health care programs (as so defined).
    ``(b) Interpretive Rulings.--
            ``(1) In general.--
                    ``(A) Request for interpretive ruling.--Any person 
                may present, at any time, a request to the Inspector 
                General for a statement of the Inspector General's 
                current interpretation of the meaning of a specific 
                aspect of the application of sections 1128A and 1128B 
                (in this section referred to as an `interpretive 
                ruling').
                    ``(B) Issuance and effect of interpretive ruling.--
                            ``(i) In general.--If appropriate, the 
                        Inspector General shall in consultation with 
                        the Attorney General, issue an interpretive 
                        ruling not later than 90 days after receiving a 
                        request described in subparagraph (A). 
                        Interpretive rulings shall not have the force 
                        of law and shall be treated as an interpretive 
                        rule within the meaning of section 553(b) of 
                        title 5, United States Code. All interpretive 
                        rulings issued pursuant to this clause shall be 
                        published in the Federal Register or otherwise 
                        made available for public inspection.
                            ``(ii) Reasons for denial.--If the 
                        Inspector General does not issue an 
                        interpretive ruling in response to a request 
                        described in subparagraph (A), the Inspector 
                        General shall notify the requesting party of 
                        such decision not later than 60 days after 
                        receiving such a request and shall identify the 
                        reasons for such decision.
            ``(2) Criteria for interpretive rulings.--
                    ``(A) In general.--In determining whether to issue 
                an interpretive ruling under paragraph (1)(B), the 
                Inspector General may consider--
                            ``(i) whether and to what extent the 
                        request identifies an ambiguity within the 
                        language of the statute, the existing safe 
                        harbors, or previous interpretive rulings; and
                            ``(ii) whether the subject of the requested 
                        interpretive ruling can be adequately addressed 
                        by interpretation of the language of the 
                        statute, the existing safe harbor rules, or 
                        previous interpretive rulings, or whether the 
                        request would require a substantive ruling (as 
                        defined in section 552 of title 5, United 
                        States Code) not authorized under this 
                        subsection.
                    ``(B) No rulings on factual issues.--The Inspector 
                General shall not give an interpretive ruling on any 
                factual issue, including the intent of the parties or 
                the fair market value of particular leased space or 
                equipment.
    ``(c) Special Fraud Alerts.--
            ``(1) In general.--
                    ``(A) Request for special fraud alerts.--Any person 
                may present, at any time, a request to the Inspector 
                General for a notice which informs the public of 
                practices which the Inspector General considers to be 
                suspect or of particular concern under the medicare 
                program or a State health care program, as defined in 
                section 1128(h) (in this subsection referred to as a 
                `special fraud alert').
                    ``(B) Issuance and publication of special fraud 
                alerts.--Upon receipt of a request described in 
                subparagraph (A), the Inspector General shall 
                investigate the subject matter of the request to 
                determine whether a special fraud alert should be 
                issued. If appropriate, the Inspector General shall 
                issue a special fraud alert in response to the request. 
                All special fraud alerts issued pursuant to this 
                subparagraph shall be published in the Federal 
                Register.
            ``(2) Criteria for special fraud alerts.--In determining 
        whether to issue a special fraud alert upon a request described 
        in paragraph (1), the Inspector General may consider--
                    ``(A) whether and to what extent the practices that 
                would be identified in the special fraud alert may 
                result in any of the consequences described in 
                subsection (a)(2); and
                    ``(B) the volume and frequency of the conduct that 
                would be identified in the special fraud alert.''.

     Subtitle B--Revisions to Current Sanctions for Fraud and Abuse

SEC. 511. MANDATORY EXCLUSION FROM PARTICIPATION IN MEDICARE AND STATE 
              HEALTH CARE PROGRAMS.

    (a) Individual Convicted of Felony Relating to Health Care Fraud.--
            (1) In general.--Section 1128(a) (42 U.S.C. 1320a-7(a)) is 
        amended by adding at the end the following new paragraph:
            ``(3) Felony conviction relating to health care fraud.--Any 
        individual or entity that has been convicted after the date of 
        the enactment of the Health Insurance Reform Act of 1996, under 
        Federal or State law, in connection with the delivery of a 
        health care item or service or with respect to any act or 
        omission in a health care program (other than those 
        specifically described in paragraph (1)) operated by or 
        financed in whole or in part by any Federal, State, or local 
        government agency, of a criminal offense consisting of a felony 
        relating to fraud, theft, embezzlement, breach of fiduciary 
        responsibility, or other financial misconduct.''.
            (2) Conforming amendment.--Paragraph (1) of section 1128(b) 
        (42 U.S.C. 1320a-7(b)) is amended to read as follows:
            ``(1) Conviction relating to fraud.--Any individual or 
        entity that has been convicted after the date of the enactment 
        of the Health Insurance Reform Act of 1996, under Federal or 
        State law--
                    ``(A) of a criminal offense consisting of a 
                misdemeanor relating to fraud, theft, embezzlement, 
                breach of fiduciary responsibility, or other financial 
                misconduct--
                            ``(i) in connection with the delivery of a 
                        health care item or service, or
                            ``(ii) with respect to any act or omission 
                        in a health care program (other than those 
                        specifically described in subsection (a)(1)) 
                        operated by or financed in whole or in part by 
                        any Federal, State, or local government agency; 
                        or
                    ``(B) of a criminal offense relating to fraud, 
                theft, embezzlement, breach of fiduciary 
                responsibility, or other financial misconduct with 
                respect to any act or omission in a program (other than 
                a health care program) operated by or financed in whole 
                or in part by any Federal, State, or local government 
                agency.''.
    (b) Individual Convicted of Felony Relating to Controlled 
Substance.--
            (1) In general.--Section 1128(a) (42 U.S.C. 1320a-7(a)), as 
        amended by subsection (a), is amended by adding at the end the 
        following new paragraph:
            ``(4) Felony conviction relating to controlled substance.--
        Any individual or entity that has been convicted after the date 
        of the enactment of the Health Insurance Reform Act of 1996, 
        under Federal or State law, of a criminal offense consisting of 
        a felony relating to the unlawful manufacture, distribution, 
        prescription, or dispensing of a controlled substance.''.
            (2) Conforming amendment.--Section 1128(b)(3) (42 U.S.C. 
        1320a-7(b)(3)) is amended--
                    (A) in the heading, by striking ``Conviction'' and 
                inserting ``Misdemeanor conviction''; and
                    (B) by striking ``criminal offense'' and inserting 
                ``criminal offense consisting of a misdemeanor''.

SEC. 512. ESTABLISHMENT OF MINIMUM PERIOD OF EXCLUSION FOR CERTAIN 
              INDIVIDUALS AND ENTITIES SUBJECT TO PERMISSIVE EXCLUSION 
              FROM MEDICARE AND STATE HEALTH CARE PROGRAMS.

    Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended by adding 
at the end the following new subparagraphs:
    ``(D) In the case of an exclusion of an individual or entity under 
paragraph (1), (2), or (3) of subsection (b), the period of the 
exclusion shall be 3 years, unless the Secretary determines in 
accordance with published regulations that a shorter period is 
appropriate because of mitigating circumstances or that a longer period 
is appropriate because of aggravating circumstances.
    ``(E) In the case of an exclusion of an individual or entity under 
subsection (b)(4) or (b)(5), the period of the exclusion shall not be 
less than the period during which the individual's or entity's license 
to provide health care is revoked, suspended, or surrendered, or the 
individual or the entity is excluded or suspended from a Federal or 
State health care program.
    ``(F) In the case of an exclusion of an individual or entity under 
subsection (b)(6)(B), the period of the exclusion shall be not less 
than 1 year.''.

SEC. 513. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH OWNERSHIP OR CONTROL 
              INTEREST IN SANCTIONED ENTITIES.

    Section 1128(b) (42 U.S.C. 1320a-7(b)) is amended by adding at the 
end the following new paragraph:
            ``(15) Individuals controlling a sanctioned entity.--(A) 
        Any individual--
                    ``(i) who has a direct or indirect ownership or 
                control interest in a sanctioned entity and who knows 
                or should know (as defined in section 1128A(i)(6)) of 
                the action constituting the basis for the conviction or 
                exclusion described in subparagraph (B); or
                    ``(ii) who is an officer or managing employee (as 
                defined in section 1126(b)) of such an entity.
            ``(B) For purposes of subparagraph (A), the term 
        `sanctioned entity' means an entity--
                    ``(i) that has been convicted of any offense 
                described in subsection (a) or in paragraph (1), (2), 
                or (3) of this subsection; or
                    ``(ii) that has been excluded from participation 
                under a program under title XVIII or under a State 
                health care program.''.

SEC. 514. SANCTIONS AGAINST PRACTITIONERS AND PERSONS FOR FAILURE TO 
              COMPLY WITH STATUTORY OBLIGATIONS.

    (a) Minimum Period of Exclusion for Practitioners and Persons 
Failing To Meet Statutory Obligations.--
            (1) In general.--The second sentence of section 1156(b)(1) 
        (42 U.S.C. 1320c-5(b)(1)) is amended by striking ``may 
        prescribe)'' and inserting ``may prescribe, except that such 
        period may not be less than 1 year)''.
            (2) Conforming amendment.--Section 1156(b)(2) (42 U.S.C. 
        1320c-5(b)(2)) is amended by striking ``shall remain'' and 
        inserting ``shall (subject to the minimum period specified in 
        the second sentence of paragraph (1)) remain''.
    (b) Repeal of ``Unwilling or Unable'' Condition for Imposition of 
Sanction.--Section 1156(b)(1) (42 U.S.C. 1320c-5(b)(1)) is amended--
            (1) in the second sentence, by striking ``and determines'' 
        and all that follows through ``such obligations,''; and
            (2) by striking the third sentence.

SEC. 515. INTERMEDIATE SANCTIONS FOR MEDICARE HEALTH MAINTENANCE 
              ORGANIZATIONS.

    (a) Application of Intermediate Sanctions for any Program 
Violations.--
            (1) In general.--Section 1876(i)(1) (42 U.S.C. 
        1395mm(i)(1)) is amended by striking ``the Secretary may 
        terminate'' and all that follows and inserting ``in accordance 
        with procedures established under paragraph (9), the Secretary 
        may at any time terminate any such contract or may impose the 
        intermediate sanctions described in paragraph (6)(B) or (6)(C) 
        (whichever is applicable) on the eligible organization if the 
        Secretary determines that the organization--
                    ``(A) has failed substantially to carry out the 
                contract;
                    ``(B) is carrying out the contract in a manner 
                substantially inconsistent with the efficient and 
                effective administration of this section; or
                    ``(C) no longer substantially meets the applicable 
                conditions of subsections (b), (c), (e), and (f).''.
            (2) Other intermediate sanctions for miscellaneous program 
        violations.--Section 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is 
        amended by adding at the end the following new subparagraph:
    ``(C) In the case of an eligible organization for which the 
Secretary makes a determination under paragraph (1) the basis of which 
is not described in subparagraph (A), the Secretary may apply the 
following intermediate sanctions:
            ``(i) Civil money penalties of not more than $25,000 for 
        each determination under paragraph (1) if the deficiency that 
        is the basis of the determination has directly adversely 
        affected (or has the substantial likelihood of adversely 
        affecting) an individual covered under the organization's 
        contract.
            ``(ii) Civil money penalties of not more than $10,000 for 
        each week beginning after the initiation of procedures by the 
        Secretary under paragraph (9) during which the deficiency that 
        is the basis of a determination under paragraph (1) exists.
            ``(iii) Suspension of enrollment of individuals under this 
        section after the date the Secretary notifies the organization 
        of a determination under paragraph (1) and until the Secretary 
        is satisfied that the deficiency that is the basis for the 
        determination has been corrected and is not likely to recur.''.
            (3) Procedures for imposing sanctions.--Section 1876(i) (42 
        U.S.C. 1395mm(i)) is amended by adding at the end the following 
        new paragraph:
    ``(9) The Secretary may terminate a contract with an eligible 
organization under this section or may impose the intermediate 
sanctions described in paragraph (6) on the organization in accordance 
with formal investigation and compliance procedures established by the 
Secretary under which--
            ``(A) the Secretary first provides the organization with 
        the reasonable opportunity to develop and implement a 
        corrective action plan to correct the deficiencies that were 
        the basis of the Secretary's determination under paragraph (1) 
        and the organization fails to develop or implement such a plan;
            ``(B) in deciding whether to impose sanctions, the 
        Secretary considers aggravating factors such as whether an 
        organization has a history of deficiencies or has not taken 
        action to correct deficiencies the Secretary has brought to the 
        organization's attention;
            ``(C) there are no unreasonable or unnecessary delays 
        between the finding of a deficiency and the imposition of 
        sanctions; and
            ``(D) the Secretary provides the organization with 
        reasonable notice and opportunity for hearing (including the 
        right to appeal an initial decision) before imposing any 
        sanction or terminating the contract.''.
            (4) Conforming amendments.--Section 1876(i)(6)(B) (42 
        U.S.C. 1395mm(i)(6)(B)) is amended by striking the second 
        sentence.
    (b) Agreements With Peer Review Organizations.--Section 
1876(i)(7)(A) (42 U.S.C. 1395mm(i)(7)(A)) is amended by striking ``an 
agreement'' and inserting ``a written agreement''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to contract years beginning on or after January 1, 
1997.

SEC. 516. ADDITIONAL EXCEPTIONS TO ANTI-KICKBACK PENALTIES FOR RISK-
              SHARING ARRANGEMENTS.

    (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is 
amended--
            (1) by striking ``and'' at the end of subparagraph (D);
            (2) by striking the period at the end of subparagraph (E) 
        and inserting ``; and''; and
            (3) by adding at the end the following new subparagraph:
            ``(F) any remuneration between an organization and an 
        individual or entity providing items or services pursuant to a 
        written agreement between the organization and the individual 
        or entity if the organization is an eligible organization under 
        section 1876, or if the written agreement places the individual 
        or entity at substantial financial risk for the cost or 
        utilization of the items or services, or a combination thereof, 
        which the individual or entity is obligated to provide, whether 
        through a withhold or capitation, or other similar risk 
        arrangements which places the individual or entity at 
        substantial financial risk.''.
    (b) Regulations.--Section 1128B(b) (42 U.S.C. 1320a-7b(b)) is 
amended by adding at the end the following new paragraph:
    ``(4) The Secretary, in consultation with the Attorney General, not 
later than 1 year after the date of enactment of Health Insurance 
Reform Act of 1996, and not less than every 2 years thereafter, shall 
promulgate regulations to define substantial financial risk as 
necessary to protect against program or patient abuse.''.

SEC. 517. EFFECTIVE DATE.

    Except as otherwise provided, the amendments made by this subtitle 
shall take effect January 1, 1997.

        Subtitle C--Data Collection and Miscellaneous Provisions

SEC. 521. ESTABLISHMENT OF THE HEALTH CARE FRAUD AND ABUSE DATA 
              COLLECTION PROGRAM.

    (a) In General.--Title XI (42 U.S.C. 1301 et seq.), as amended by 
sections 501 and 505, is amended by inserting after section 1128D the 
following new section:

         ``health care fraud and abuse data collection program

    ``Sec. 1128E. (a) General Purpose.--Not later than January 1, 1997, 
the Secretary shall establish a national health care fraud and abuse 
data collection program for the reporting of final adverse actions (not 
including settlements in which no findings of liability have been made) 
against health care providers, suppliers, or practitioners as required 
by subsection (b), with access as set forth in subsection (c).
    ``(b) Reporting of Information.--
            ``(1) In general.--Each Government agency and health plan 
        shall report any final adverse action (not including 
        settlements in which no findings of liability have been made) 
        taken against a health care provider, supplier, or 
        practitioner.
            ``(2) Information to be reported.--The information to be 
        reported under paragraph (1) includes:
                    ``(A) The name and TIN (as defined in section 
                7701(a)(41) of the Internal Revenue Code of 1986) of 
                any health care provider, supplier, or practitioner who 
                is the subject of a final adverse action.
                    ``(B) The name (if known) of any health care entity 
                with which a health care provider, supplier, or 
                practitioner is affiliated or associated.
                    ``(C) The nature of the final adverse action and 
                whether such action is on appeal.
                    ``(D) A description of the acts or omissions and 
                injuries upon which the final adverse action was based, 
                and such other information as the Secretary determines 
                by regulation is required for appropriate 
                interpretation of information reported under this 
                section.
            ``(3) Confidentiality.--In determining what information is 
        required, the Secretary shall include procedures to assure that 
        the privacy of individuals receiving health care services is 
        appropriately protected.
            ``(4) Timing and form of reporting.--The information 
        required to be reported under this subsection shall be reported 
        regularly (but not less often than monthly) and in such form 
        and manner as the Secretary prescribes. Such information shall 
        first be required to be reported on a date specified by the 
        Secretary.
            ``(5) To whom reported.--The information required to be 
        reported under this subsection shall be reported to the 
        Secretary.
    ``(c) Disclosure and Correction of Information.--
            ``(1) Disclosure.--With respect to the information about 
        final adverse actions (not including settlements in which no 
        findings of liability have been made) reported to the Secretary 
        under this section respecting a health care provider, supplier, 
        or practitioner, the Secretary shall, by regulation, provide 
        for--
                    ``(A) disclosure of the information, upon request, 
                to the health care provider, supplier, or licensed 
                practitioner, and
                    ``(B) procedures in the case of disputed accuracy 
                of the information.
            ``(2) Corrections.--Each Government agency and health plan 
        shall report corrections of information already reported about 
        any final adverse action taken against a health care provider, 
        supplier, or practitioner, in such form and manner that the 
        Secretary prescribes by regulation.
    ``(d) Access to Reported Information.--
            ``(1) Availability.--The information in this database shall 
        be available to Federal and State government agencies and 
        health plans pursuant to procedures that the Secretary shall 
        provide by regulation.
            ``(2) Fees for disclosure.--The Secretary may establish or 
        approve reasonable fees for the disclosure of information in 
        this database (other than with respect to requests by Federal 
        agencies). The amount of such a fee shall be sufficient to 
        recover the full costs of operating the database. Such fees 
        shall be available to the Secretary or, in the Secretary's 
        discretion to the agency designated under this section to cover 
        such costs.
    ``(e) Protection From Liability for Reporting.--No person or 
entity, including the agency designated by the Secretary in subsection 
(b)(5) shall be held liable in any civil action with respect to any 
report made as required by this section, without knowledge of the 
falsity of the information contained in the report.
    ``(f) Coordination With National Practitioner Data Bank.--The 
Secretary shall implement this section in such a manner as to avoid 
duplication with the reporting requirements established for the 
National Practitioner Data Bank under the Health Care Quality 
Improvement Act of 1986 (42 U.S.C. 11101 et seq.).
    ``(g) Definitions and Special Rules.--For purposes of this section:
            ``(1) Final adverse action.--
                    ``(A) In general.--The term `final adverse action' 
                includes:
                            ``(i) Civil judgments against a health care 
                        provider, supplier, or practitioner in Federal 
                        or State court related to the delivery of a 
                        health care item or service.
                            ``(ii) Federal or State criminal 
                        convictions related to the delivery of a health 
                        care item or service.
                            ``(iii) Actions by Federal or State 
                        agencies responsible for the licensing and 
                        certification of health care providers, 
                        suppliers, and licensed health care 
                        practitioners, including--
                                    ``(I) formal or official actions, 
                                such as revocation or suspension of a 
                                license (and the length of any such 
                                suspension), reprimand, censure or 
                                probation,
                                    ``(II) any other loss of license or 
                                the right to apply for, or renew, a 
                                license of the provider, supplier, or 
                                practitioner, whether by operation of 
                                law, voluntary surrender, non-
                                renewability, or otherwise, or
                                    ``(III) any other negative action 
                                or finding by such Federal or State 
                                agency that is publicly available 
                                information.
                            ``(iv) Exclusion from participation in 
                        Federal or State health care programs due to 
                        program violations.
                            ``(v) Any other adjudicated actions or 
                        decisions that the Secretary shall establish by 
                        regulation.
                    ``(B) Exception.--The term does not include any 
                action with respect to a malpractice claim.
            ``(2) Practitioner.--The terms `licensed health care 
        practitioner', `licensed practitioner', and `practitioner' 
        mean, with respect to a State, an individual who is licensed or 
        otherwise authorized by the State to provide health care 
        services (or any individual who, without authority holds 
        himself or herself out to be so licensed or authorized).
            ``(3) Government agency.--The term `Government agency' 
        shall include:
                    ``(A) The Department of Justice.
                    ``(B) The Department of Health and Human Services.
                    ``(C) Any other Federal agency that either 
                administers or provides payment for the delivery of 
                health care services, including, but not limited to the 
                Department of Defense and the Veterans' Administration.
                    ``(D) State law enforcement agencies.
                    ``(E) State medicaid fraud control units.
                    ``(F) Federal or State agencies responsible for the 
                licensing and certification of health care providers 
                and licensed health care practitioners.
            ``(4) Health plan.--The term `health plan' has the meaning 
        given such term by section 1128C(c).
            ``(5) Determination of conviction.--For purposes of 
        paragraph (1), the existence of a conviction shall be 
        determined under paragraph (4) of section 1128(i).''.
    (b) Improved Prevention in Issuance of Medicare Provider Numbers.--
Section 1842(r) (42 U.S.C. 1395u(r)) is amended by adding at the end 
the following new sentence: ``Under such system, the Secretary may 
impose appropriate fees on such physicians to cover the costs of 
investigation and recertification activities with respect to the 
issuance of the identifiers.''.

                  Subtitle D--Civil Monetary Penalties

SEC. 531. SOCIAL SECURITY ACT CIVIL MONETARY PENALTIES.

    (a) General Civil Monetary Penalties.--Section 1128A (42 U.S.C. 
1320a-7a) is amended as follows:
            (1) In the third sentence of subsection (a), by striking 
        ``programs under title XVIII'' and inserting ``Federal health 
        care programs (as defined in section 1128B(f)(1))''.
            (2) In subsection (f)--
                    (A) by redesignating paragraph (3) as paragraph 
                (4); and
                    (B) by inserting after paragraph (2) the following 
                new paragraph:
            ``(3) With respect to amounts recovered arising out of a 
        claim under a Federal health care program (as defined in 
        section 1128B(f)), the portion of such amounts as is determined 
        to have been paid by the program shall be repaid to the 
        program, and the portion of such amounts attributable to the 
        amounts recovered under this section by reason of the 
        amendments made by the Health Insurance Reform Act of 1996 (as 
        estimated by the Secretary) shall be deposited into the Federal 
        Hospital Insurance Trust Fund pursuant to section 
        1817(k)(2)(C).''.
            (3) In subsection (i)--
                    (A) in paragraph (2), by striking ``title V, XVIII, 
                XIX, or XX of this Act'' and inserting ``a Federal 
                health care program (as defined in section 1128B(f))'',
                    (B) in paragraph (4), by striking ``a health 
                insurance or medical services program under title XVIII 
                or XIX of this Act'' and inserting ``a Federal health 
                care program (as so defined)'', and
                    (C) in paragraph (5), by striking ``title V, XVIII, 
                XIX, or XX'' and inserting ``a Federal health care 
                program (as so defined)''.
            (4) By adding at the end the following new subsection:
    ``(m)(1) For purposes of this section, with respect to a Federal 
health care program not contained in this Act, references to the 
Secretary in this section shall be deemed to be references to the 
Secretary or Administrator of the department or agency with 
jurisdiction over such program and references to the Inspector General 
of the Department of Health and Human Services in this section shall be 
deemed to be references to the Inspector General of the applicable 
department or agency.
    ``(2)(A) The Secretary and Administrator of the departments and 
agencies referred to in paragraph (1) may include in any action 
pursuant to this section, claims within the jurisdiction of other 
Federal departments or agencies as long as the following conditions are 
satisfied:
            ``(i) The case involves primarily claims submitted to the 
        Federal health care programs of the department or agency 
        initiating the action.
            ``(ii) The Secretary or Administrator of the department or 
        agency initiating the action gives notice and an opportunity to 
        participate in the investigation to the Inspector General of 
        the department or agency with primary jurisdiction over the 
        Federal health care programs to which the claims were 
        submitted.
    ``(B) If the conditions specified in subparagraph (A) are 
fulfilled, the Inspector General of the department or agency initiating 
the action is authorized to exercise all powers granted under the 
Inspector General Act of 1978 with respect to the claims submitted to 
the other departments or agencies to the same manner and extent as 
provided in that Act with respect to claims submitted to such 
departments or agencies.''.
    (b) Excluded Individual Retaining Ownership or Control Interest in 
Participating Entity.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is 
amended--
            (1) by striking ``or'' at the end of paragraph (1)(D);
            (2) by striking ``, or'' at the end of paragraph (2) and 
        inserting a semicolon;
            (3) by striking the semicolon at the end of paragraph (3) 
        and inserting ``; or''; and
            (4) by inserting after paragraph (3) the following new 
        paragraph:
            ``(4) in the case of a person who is not an organization, 
        agency, or other entity, is excluded from participating in a 
        program under title XVIII or a State health care program in 
        accordance with this subsection or under section 1128 and who, 
        at the time of a violation of this subsection--
                    ``(i) retains a direct or indirect ownership or 
                control interest in an entity that is participating in 
                a program under title XVIII or a State health care 
                program, and who knows or should know of the action 
                constituting the basis for the exclusion; or
                    ``(ii) is an officer or managing employee (as 
                defined in section 1126(b)) of such an entity;''.
    (c) Modifications of Amounts of Penalties and Assessments.--Section 
1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by subsection (b), is 
amended in the matter following paragraph (4)--
            (1) by striking ``$2,000'' and inserting ``$10,000'';
            (2) by inserting ``; in cases under paragraph (4), $10,000 
        for each day the prohibited relationship occurs'' after ``false 
        or misleading information was given''; and
            (3) by striking ``twice the amount'' and inserting ``3 
        times the amount''.
    (d) Claim for Item or Service Based on Incorrect Coding or 
Medically Unnecessary Services.--Section 1128A(a)(1) (42 U.S.C. 1320a-
7a(a)(1)), as amended by subsection (b), is amended--
            (1) in subparagraph (A) by striking ``claimed,'' and 
        inserting ``claimed, including any person who engages in a 
        pattern or practice of presenting or causing to be presented a 
        claim for an item or service that is based on a code that the 
        person knows or should know will result in a greater payment to 
        the person than the code the person knows or should know is 
        applicable to the item or service actually provided,'';
            (2) in subparagraph (C), by striking ``or'' at the end;
            (3) in subparagraph (D), by striking the semicolon and 
        inserting ``, or''; and
            (4) by inserting after subparagraph (D) the following new 
        subparagraph:
                    ``(E) is for a medical or other item or service 
                that a person knows or should know is not medically 
                necessary; or''.
    (e) Sanctions Against Practitioners and Persons for Failure To 
Comply With Statutory Obligations.--Section 1156(b)(3) (42 U.S.C. 
1320c-5(b)(3)) is amended by striking ``the actual or estimated cost'' 
and inserting ``up to $10,000 for each instance''.
    (f) Procedural Provisions.--Section 1876(i)(6) (42 U.S.C. 
1395mm(i)(6)), as amended by section 515(a)(2), is amended by adding at 
the end the following new subparagraph:
    ``(D) The provisions of section 1128A (other than subsections (a) 
and (b)) shall apply to a civil money penalty under subparagraph (B)(i) 
or (C)(i) in the same manner as such provisions apply to a civil money 
penalty or proceeding under section 1128A(a).''.
    (g) Prohibition Against Offering Inducements to Individuals 
Enrolled Under Programs or Plans.--
            (1) Offer of remuneration.--Section 1128A(a) (42 U.S.C. 
        1320a-7a(a)), as amended by subsection (b), is amended--
                    (A) by striking ``or'' at the end of paragraph 
                (1)(D);
                    (B) by striking the semicolon at the end of 
                paragraph (4) and inserting ``; or''; and
                    (C) by inserting after paragraph (4) the following 
                new paragraph:
            ``(5) offers to or transfers remuneration to any individual 
        eligible for benefits under title XVIII of this Act, or under a 
        State health care program (as defined in section 1128(h)) that 
        such person knows or should know is likely to influence such 
        individual to order or receive from a particular provider, 
        practitioner, or supplier any item or service for which payment 
        may be made, in whole or in part, under title XVIII, or a State 
        health care program (as so defined);''.
            (2) Remuneration defined.--Section 1128A(i) (42 U.S.C. 
        1320a-7a(i)) is amended by adding the following new paragraph:
            ``(6) The term `remuneration' includes the waiver of 
        coinsurance and deductible amounts (or any part thereof), and 
        transfers of items or services for free or for other than fair 
        market value. The term `remuneration' does not include--
                    ``(A) the waiver of coinsurance and deductible 
                amounts by a person, if--
                            ``(i) the waiver is not offered as part of 
                        any advertisement or solicitation;
                            ``(ii) the person does not routinely waive 
                        coinsurance or deductible amounts; and
                            ``(iii) the person--
                                    ``(I) waives the coinsurance and 
                                deductible amounts after determining in 
                                good faith that the individual is in 
                                financial need;
                                    ``(II) fails to collect coinsurance 
                                or deductible amounts after making 
                                reasonable collection efforts; or
                                    ``(III) provides for any 
                                permissible waiver as specified in 
                                section 1128B(b)(3) or in regulations 
                                issued by the Secretary;
                    ``(B) differentials in coinsurance and deductible 
                amounts as part of a benefit plan design as long as the 
                differentials have been disclosed in writing to all 
                beneficiaries, third party payers, and providers, to 
                whom claims are presented and as long as the 
                differentials meet the standards as defined in 
                regulations promulgated by the Secretary not later than 
                180 days after the date of the enactment of the Health 
                Insurance Reform Act of 1996; or
                    ``(C) incentives given to individuals to promote 
                the delivery of preventive care as determined by the 
                Secretary in regulations so promulgated.''.
    (h) Effective Date.--The amendments made by this section shall take 
effect January 1, 1997.

                 Subtitle E--Amendments to Criminal Law

SEC. 541. HEALTH CARE FRAUD.

    (a) In General.--
            (1)  Fines and imprisonment for health care fraud 
        violations.--Chapter 63 of title 18, United States Code, is 
        amended by adding at the end the following new section:
``Sec. 1347. Health care fraud
    ``Whoever knowingly and willfully executes, or attempts to execute, 
a scheme or artifice--
            ``(1) to defraud any health care program, in connection 
        with the delivery of or payment for health care benefits, 
        items, or services; or
            ``(2) to obtain, by means of false or fraudulent pretenses, 
        representations, or promises, any of the money or property 
        owned by, or under the custody or control of, any health care 
        program in connection with the delivery of or payment for 
        health care benefits, items, or services;
shall be fined under this title or imprisoned not more than 10 years, 
or both. If the violation results in serious bodily injury (as defined 
in section 1365(g)(3) of this title), such person may be imprisoned for 
any term of years.''.
            (2) Clerical amendment.--The table of sections at the 
        beginning of chapter 63 of title 18, United States Code, is 
        amended by adding at the end the following:

``1347. Health care fraud.''.
    (b) Criminal Fines Deposited in Federal Hospital Insurance Trust 
Fund.--The Secretary of the Treasury shall deposit into the Federal 
Hospital Insurance Trust Fund pursuant to section 1817(k)(2)(C) of the 
Social Security Act, as added by section 501(b), an amount equal to the 
criminal fines imposed under section 1347 of title 18, United States 
Code (relating to health care fraud).

SEC. 542. FORFEITURES FOR FEDERAL HEALTH CARE OFFENSES.

    (a) In General.--Section 982(a) of title 18, United States Code, is 
amended by adding after paragraph (5) the following new paragraph:
    ``(6)(A) The court, in imposing sentence on a person convicted of a 
Federal health care offense, shall order the person to forfeit 
property, real or personal, that constitutes or is derived, directly or 
indirectly, from gross proceeds traceable to the commission of the 
offense.
    ``(B) For purposes of this paragraph, the term `Federal health care 
offense' means a violation of, or a criminal conspiracy to violate--
            ``(i) section 1347 of this title;
            ``(ii) section 1128B of the Social Security Act; and
            ``(iii) sections 287, 371, 664, 666, 669, 1001, 1027, 1341, 
        1343, 1920, or 1954 of this title if the violation or 
        conspiracy relates to health care fraud.''.
    (b) Conforming Amendment.--Section 982(b)(1)(A) of title 18, United 
States Code, is amended by inserting ``or (a)(6)'' after ``(a)(1)''.
    (c) Property Forfeited Deposited in Federal Hospital Insurance 
Trust Fund.--
            (1) In general.--After the payment of the costs of asset 
        forfeiture has been made, and notwithstanding any other 
        provision of law, the Secretary of the Treasury shall deposit 
        into the Federal Hospital Insurance Trust Fund pursuant to 
        section 1817(k)(2)(C) of the Social Security Act, as added by 
        section 501(b), an amount equal to the net amount realized from 
        the forfeiture of property by reason of a Federal health care 
        offense pursuant to section 982(a)(6) of title 18, United 
        States Code.
            (2) Costs of asset forfeiture.--For purposes of paragraph 
        (1), the term ``payment of the costs of asset forfeiture'' 
        means--
                    (A) the payment, at the discretion of the Attorney 
                General, of any expenses necessary to seize, detain, 
                inventory, safeguard, maintain, advertise, sell, or 
                dispose of property under seizure, detention, or 
                forfeited, or of any other necessary expenses incident 
                to the seizure, detention, forfeiture, or disposal of 
                such property, including payment for--
                            (i) contract services,
                            (ii) the employment of outside contractors 
                        to operate and manage properties or provide 
                        other specialized services necessary to dispose 
                        of such properties in an effort to maximize the 
                        return from such properties; and
                            (iii) reimbursement of any Federal, State, 
                        or local agency for any expenditures made to 
                        perform the functions described in this 
                        subparagraph;
                    (B) at the discretion of the Attorney General, the 
                payment of awards for information or assistance leading 
                to a civil or criminal forfeiture involving any Federal 
                agency participating in the Health Care Fraud and Abuse 
                Control Account;
                    (C) the compromise and payment of valid liens and 
                mortgages against property that has been forfeited, 
                subject to the discretion of the Attorney General to 
                determine the validity of any such lien or mortgage and 
                the amount of payment to be made, and the employment of 
                attorneys and other personnel skilled in State real 
                estate law as necessary;
                    (D) payment authorized in connection with remission 
                or mitigation procedures relating to property 
                forfeited; and
                    (E) the payment of State and local property taxes 
                on forfeited real property that accrued between the 
                date of the violation giving rise to the forfeiture and 
                the date of the forfeiture order.

SEC. 543. INJUNCTIVE RELIEF RELATING TO FEDERAL HEALTH CARE OFFENSES.

    (a) In General.--Section 1345(a)(1) of title 18, United States 
Code, is amended--
            (1) by striking ``or'' at the end of subparagraph (A);
            (2) by inserting ``or'' at the end of subparagraph (B); and
            (3) by adding at the end the following new subparagraph:
                    ``(C) committing or about to commit a Federal 
                health care offense (as defined in section 982(a)(6)(B) 
                of this title);''.
    (b) Freezing of Assets.--Section 1345(a)(2) of title 18, United 
States Code, is amended by inserting ``or a Federal health care offense 
(as defined in section 982(a)(6)(B))'' after ``title)''.

SEC. 544. FALSE STATEMENTS.

    (a) In General.--Chapter 47 of title 18, United States Code, is 
amended by adding at the end the following new section:
``Sec. 1033. False statements relating to health care matters
    ``Whoever, in any matter involving a health care program, knowingly 
and willfully--
            ``(1) falsifies, conceals, or covers up by any trick, 
        scheme, or device a material fact, or
            ``(2) makes any materially false, fictitious, or fraudulent 
        statement or representation, or makes or uses any materially 
        false writing or document knowing the same to contain any 
        materially false, fictitious, or fraudulent statement or entry,
shall be fined under this title or imprisoned not more than 5 years, or 
both.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 47 of title 18, United States Code, is amended by adding at the 
end the following:

``1033. False statements relating to health care matters.''.

SEC. 545. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF FEDERAL HEALTH CARE 
              OFFENSES.

    (a) In General.--Chapter 73 of title 18, United States Code, is 
amended by adding at the end the following new section:
``Sec. 1518. Obstruction of criminal investigations of Federal health 
              care offenses
    ``(a) Whoever willfully prevents, obstructs, misleads, delays or 
attempts to prevent, obstruct, mislead, or delay the communication of 
information or records relating to a Federal health care offense to a 
criminal investigator shall be fined under this title or imprisoned not 
more than 5 years, or both.
    ``(b) As used in this section the term `Federal health care 
offense' has the same meaning given such term in section 982(a)(6)(B) 
of this title.
    ``(c) As used in this section the term `criminal investigator' 
means any individual duly authorized by a department, agency, or armed 
force of the United States to conduct or engage in investigations for 
prosecutions for violations of health care offenses.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 73 of title 18, United States Code, is amended by adding at the 
end the following:

``1518. Obstruction of Criminal Investigations of Federal Health Care 
                            Offenses.''.

SEC. 546. THEFT OR EMBEZZLEMENT.

    (a) In General.--Chapter 31 of title 18, United States Code, is 
amended by adding at the end the following new section:
``Sec. 669. Theft or embezzlement in connection with health care
    ``Whoever willfully embezzles, steals, or otherwise willfully and 
unlawfully converts to the use of any person other than the rightful 
owner, or intentionally misapplies any of the moneys, funds, 
securities, premiums, credits, property, or other assets of a health 
care program, shall be fined under this title or imprisoned not more 
than 10 years, or both.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 31 of title 18, United States Code, is amended by adding at the 
end the following:

``669. Theft or Embezzlement in Connection with Health Care.''.

SEC. 547. LAUNDERING OF MONETARY INSTRUMENTS.

    Section 1956(c)(7) of title 18, United States Code, is amended by 
adding at the end the following new subparagraph:
                    ``(F) Any act or activity constituting an offense 
                involving a Federal health care offense as that term is 
                defined in section 982(a)(6)(B) of this title.''.

SEC. 548. AUTHORIZED INVESTIGATIVE DEMAND PROCEDURES.

    (a) In General.--Chapter 233 of title 18, United States Code, is 
amended by adding after section 3485 the following new section:
``Sec. 3486. Authorized investigative demand procedures
    ``(a)(1)(A) In any investigation relating to functions set forth in 
paragraph (2), the Attorney General or designee may issue in writing 
and cause to be served a subpoena compelling production of any records 
(including any books, papers, documents, electronic media, or other 
objects or tangible things), which may be relevant to an authorized law 
enforcement inquiry, that a person or legal entity may possess or have 
care, custody, or control.
    ``(B) A custodian of records may be required to give testimony 
concerning the production and authentication of such records.
    ``(C) The production of records may be required from any place in 
any State or in any territory or other place subject to the 
jurisdiction of the United States at any designated place; except that 
such production shall not be required more than 500 miles distant from 
the place where the subpoena is served.
    ``(D) Witnesses summoned under this section shall be paid the same 
fees and mileage that are paid witnesses in the courts of the United 
States.
    ``(E) A subpoena requiring the production of records shall describe 
the objects required to be produced and prescribe a return date within 
a reasonable period of time within which the objects can be assembled 
and made available.
    ``(2) Investigative demands utilizing an administrative subpoena 
are authorized for any investigation with respect to any act or 
activity constituting or involving health care fraud, including a 
scheme or artifice--
            ``(A) to defraud any health care program, in connection 
        with the delivery of or payment for health care benefits, 
        items, or services; or
            ``(B) to obtain, by means of false or fraudulent pretenses, 
        representations, or promises, any of the money or property 
        owned by, or under the custody or control of, any health care 
        program in connection with the delivery of or payment for 
        health care benefits, items, or services.
    ``(b)(1) A subpoena issued under this section may be served by any 
person designated in the subpoena to serve it.
    ``(2) Service upon a natural person may be made by personal 
delivery of the subpoena to such person.
    ``(3) Service may be made upon a domestic or foreign association 
which is subject to suit under a common name, by delivering the 
subpoena to an officer, to a managing or general agent, or to any other 
agent authorized by appointment or by law to receive service of 
process.
    ``(4) The affidavit of the person serving the subpoena entered on a 
true copy thereof by the person serving it shall be proof of service.
    ``(c)(1) In the case of contumacy by or refusal to obey a subpoena 
issued to any person, the Attorney General may invoke the aid of any 
court of the United States within the jurisdiction of which the 
investigation is carried on or of which the subpoenaed person is an 
inhabitant, or in which such person carries on business or may be 
found, to compel compliance with the subpoena.
    ``(2) The court may issue an order requiring the subpoenaed person 
to appear before the Attorney General to produce records, if so 
ordered, or to give testimony required under subsection (a)(1)(B).
    ``(3) Any failure to obey the order of the court may be punished by 
the court as a contempt thereof.
    ``(4) All process in any such case may be served in any judicial 
district in which such person may be found.
    ``(d) Notwithstanding any Federal, State, or local law, any person, 
including officers, agents, and employees, receiving a subpoena under 
this section, who complies in good faith with the subpoena and thus 
produces the materials sought, shall not be liable in any court of any 
State or the United States to any customer or other person for such 
production or for nondisclosure of that production to the customer.
    ``(e)(1) Health information about an individual that is disclosed 
under this section may not be used in, or disclosed to any person for 
use in, any administrative, civil, or criminal action or investigation 
directed against the individual who is the subject of the information 
unless the action or investigation arises out of and is directly 
related to receipt of health care or payment for health care or action 
involving a fraudulent claim related to health; or if authorized by an 
appropriate order of a court of competent jurisdiction, granted after 
application showing good cause therefor.
    ``(2) In assessing good cause, the court shall weigh the public 
interest and the need for disclosure against the injury to the patient, 
to the physician-patient relationship, and to the treatment services.
    ``(3) Upon the granting of such order, the court, in determining 
the extent to which any disclosure of all or any part of any record is 
necessary, shall impose appropriate safeguards against unauthorized 
disclosure.''.
    (b) Clerical Amendment.--The table of sections for chapter 223 of 
title 18, United States Code, is amended by inserting after the item 
relating to section 3405 the following new item:

``3486. Authorized investigative demand procedures.''.
    (c) Conforming Amendment.--Section 1510(b)(3)(B) of title 18, 
United States Code, is amended by inserting ``or a Department of 
Justice subpoena (issued under section 3486),'' after ``subpoena''.

          TITLE VI--INTERNAL REVENUE CODE AND OTHER PROVISIONS

SEC. 600. REFERENCES.

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

                Subtitle A--Foreign Trust Tax Compliance

SEC. 601. IMPROVED INFORMATION REPORTING ON FOREIGN TRUSTS.

    (a) In General.--Section 6048 (relating to returns as to certain 
foreign trusts) is amended to read as follows:

``SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOREIGN TRUSTS.

    ``(a) Notice of Certain Events.--
            ``(1) General rule.--On or before the 90th day (or such 
        later day as the Secretary may prescribe) after any reportable 
        event, the responsible party shall provide written notice of 
        such event to the Secretary in accordance with paragraph (2).
            ``(2) Contents of notice.--The notice required by paragraph 
        (1) shall contain such information as the Secretary may 
        prescribe, including--
                    ``(A) the amount of money or other property (if 
                any) transferred to the trust in connection with the 
                reportable event, and
                    ``(B) the identity of the trust and of each trustee 
                and beneficiary (or class of beneficiaries) of the 
                trust.
            ``(3) Reportable event.--For purposes of this subsection--
                    ``(A) In general.--The term `reportable event' 
                means--
                            ``(i) the creation of any foreign trust by 
                        a United States person,
                            ``(ii) the transfer of any money or 
                        property (directly or indirectly) to a foreign 
                        trust by a United States person, including a 
                        transfer by reason of death, and
                            ``(iii) the death of a citizen or resident 
                        of the United States if--
                                    ``(I) the decedent was treated as 
                                the owner of any portion of a foreign 
                                trust under the rules of subpart E of 
                                part I of subchapter J of chapter 1, or
                                    ``(II) any portion of a foreign 
                                trust was included in the gross estate 
                                of the decedent.
                    ``(B) Exceptions.--
                            ``(i) Fair market value sales.--
                        Subparagraph (A)(ii) shall not apply to any 
                        transfer of property to a trust in exchange for 
                        consideration of at least the fair market value 
                        of the transferred property. For purposes of 
                        the preceding sentence, consideration other 
                        than cash shall be taken into account at its 
                        fair market value and the rules of section 
                        679(a)(3) shall apply.
                            ``(ii) Deferred compensation and charitable 
                        trusts.--Subparagraph (A) shall not apply with 
                        respect to a trust which is--
                                    ``(I) described in section 402(b), 
                                404(a)(4), or 404A, or
                                    ``(II) determined by the Secretary 
                                to be described in section 501(c)(3).
            ``(4) Responsible party.--For purposes of this subsection, 
        the term `responsible party' means--
                    ``(A) the grantor in the case of the creation of an 
                inter vivos trust,
                    ``(B) the transferor in the case of a reportable 
                event described in paragraph (3)(A)(ii) other than a 
                transfer by reason of death, and
                    ``(C) the executor of the decedent's estate in any 
                other case.
    ``(b) United States Grantor of Foreign Trust.--
            ``(1) In general.--If, at any time during any taxable year 
        of a United States person, such person is treated as the owner 
        of any portion of a foreign trust under the rules of subpart E 
        of part I of subchapter J of chapter 1, such person shall be 
        responsible to ensure that--
                    ``(A) such trust makes a return for such year which 
                sets forth a full and complete accounting of all trust 
                activities and operations for the year, the name of the 
                United States agent for such trust, and such other 
                information as the Secretary may prescribe, and
                    ``(B) such trust furnishes such information as the 
                Secretary may prescribe to each United States person 
                (i) who is treated as the owner of any portion of such 
                trust or (ii) who receives (directly or indirectly) any 
                distribution from the trust.
            ``(2) Trusts not having united states agent.--
                    ``(A) In general.--If the rules of this paragraph 
                apply to any foreign trust, the determination of 
                amounts required to be taken into account with respect 
                to such trust by a United States person under the rules 
                of subpart E of part I of subchapter J of chapter 1 
                shall be determined by the Secretary.
                    ``(B) United states agent required.--The rules of 
                this paragraph shall apply to any foreign trust to 
                which paragraph (1) applies unless such trust agrees 
                (in such manner, subject to such conditions, and at 
                such time as the Secretary shall prescribe) to 
                authorize a United States person to act as such trust's 
                limited agent solely for purposes of applying sections 
                7602, 7603, and 7604 with respect to--
                            ``(i) any request by the Secretary to 
                        examine records or produce testimony related to 
                        the proper treatment of amounts required to be 
                        taken into account under the rules referred to 
                        in subparagraph (A), or
                            ``(ii) any summons by the Secretary for 
                        such records or testimony.
                The appearance of persons or production of records by 
                reason of a United States person being such an agent 
                shall not subject such persons or records to legal 
                process for any purpose other than determining the 
                correct treatment under this title of the amounts 
                required to be taken into account under the rules 
                referred to in subparagraph (A). A foreign trust which 
                appoints an agent described in this subparagraph shall 
                not be considered to have an office or a permanent 
                establishment in the United States, or to be engaged in 
                a trade or business in the United States, solely 
                because of the activities of such agent pursuant to 
                this subsection.
                    ``(C) Other rules to apply.--Rules similar to the 
                rules of paragraphs (2) and (4) of section 6038A(e) 
                shall apply for purposes of this paragraph.
    ``(c) Reporting by United States Beneficiaries of Foreign Trusts.--
            ``(1) In general.--If any United States person receives 
        (directly or indirectly) during any taxable year of such person 
        any distribution from a foreign trust, such person shall make a 
        return with respect to such trust for such year which 
        includes--
                    ``(A) the name of such trust,
                    ``(B) the aggregate amount of the distributions so 
                received from such trust during such taxable year, and
                    ``(C) such other information as the Secretary may 
                prescribe.
            ``(2) Inclusion in income if records not provided.--
                    ``(A) In general.--If adequate records are not 
                provided to the Secretary to determine the proper 
                treatment of any distribution from a foreign trust, 
                such distribution shall be treated as an accumulation 
                distribution includible in the gross income of the 
                distributee under chapter 1. To the extent provided in 
                regulations, the preceding sentence shall not apply if 
                the foreign trust elects to be subject to rules similar 
                to the rules of subsection (b)(2)(B).
                    ``(B) Application of accumulation distribution 
                rules.--For purposes of applying section 668 in a case 
                to which subparagraph (A) applies, the applicable 
                number of years for purposes of section 668(a) shall be 
                \1/2\ of the number of years the trust has been in 
                existence.
    ``(d) Special Rules.--
            ``(1) Determination of whether united states person 
        receives distribution.--For purposes of this section, in 
        determining whether a United States person receives a 
        distribution from a foreign trust, the fact that a portion of 
        such trust is treated as owned by another person under the 
        rules of subpart E of part I of subchapter J of chapter 1 shall 
        be disregarded.
            ``(2) Domestic trusts with foreign activities.--To the 
        extent provided in regulations, a trust which is a United 
        States person shall be treated as a foreign trust for purposes 
        of this section and section 6677 if such trust has substantial 
        activities, or holds substantial property, outside the United 
        States.
            ``(3) Time and manner of filing information.--Any notice or 
        return required under this section shall be made at such time 
        and in such manner as the Secretary shall prescribe.
            ``(4) Modification of return requirements.--The Secretary 
        is authorized to suspend or modify any requirement of this 
        section if the Secretary determines that the United States has 
        no significant tax interest in obtaining the required 
        information.''.
    (b) Increased Penalties.--Section 6677 (relating to failure to file 
information returns with respect to certain foreign trusts) is amended 
to read as follows:

``SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT TO CERTAIN 
              FOREIGN TRUSTS.

    ``(a) Civil Penalty.--In addition to any criminal penalty provided 
by law, if any notice or return required to be filed by section 6048--
            ``(1) is not filed on or before the time provided in such 
        section, or
            ``(2) does not include all the information required 
        pursuant to such section or includes incorrect information,
the person required to file such notice or return shall pay a penalty 
equal to 35 percent of the gross reportable amount. If any failure 
described in the preceding sentence continues for more than 90 days 
after the day on which the Secretary mails notice of such failure to 
the person required to pay such penalty, such person shall pay a 
penalty (in addition to the amount determined under the preceding 
sentence) of $10,000 for each 30-day period (or fraction thereof) 
during which such failure continues after the expiration of such 90-day 
period. In no event shall the penalty under this subsection with 
respect to any failure exceed the gross reportable amount.
    ``(b) Special Rules for Returns Under Section 6048(b).--In the case 
of a return required under section 6048(b)--
            ``(1) the United States person referred to in such section 
        shall be liable for the penalty imposed by subsection (a), and
            ``(2) subsection (a) shall be applied by substituting `5 
        percent' for `35 percent'.
    ``(c) Gross Reportable Amount.--For purposes of subsection (a), the 
term `gross reportable amount' means--
            ``(1) the gross value of the property involved in the event 
        (determined as of the date of the event) in the case of a 
        failure relating to section 6048(a),
            ``(2) the gross value of the portion of the trust's assets 
        at the close of the year treated as owned by the United States 
        person in the case of a failure relating to section 6048(b)(1), 
        and
            ``(3) the gross amount of the distributions in the case of 
        a failure relating to section 6048(c).
    ``(d) Reasonable Cause Exception.--No penalty shall be imposed by 
this section on any failure which is shown to be due to reasonable 
cause and not due to willful neglect. The fact that a foreign 
jurisdiction would impose a civil or criminal penalty on the taxpayer 
(or any other person) for disclosing the required information is not 
reasonable cause.
    ``(e) Deficiency Procedures Not To Apply.--Subchapter B of chapter 
63 (relating to deficiency procedures for income, estate, gift, and 
certain excise taxes) shall not apply in respect of the assessment or 
collection of any penalty imposed by subsection (a).''.
    (c) Conforming Amendments.--
            (1) Paragraph (2) of section 6724(d) is amended by striking 
        ``or'' at the end of subparagraph (S), by striking the period 
        at the end of subparagraph (T) and inserting ``, or'', and by 
        inserting after subparagraph (T) the following new 
        subparagraph:
                    ``(U) section 6048(b)(1)(B) (relating to foreign 
                trust reporting requirements).''.
            (2) The table of sections for subpart B of part III of 
        subchapter A of chapter 61 is amended by striking the item 
        relating to section 6048 and inserting the following new item:

``Sec. 6048. Information with respect to certain foreign trusts.''.
            (3) The table of sections for part I of subchapter B of 
        chapter 68 is amended by striking the item relating to section 
        6677 and inserting the following new item:

``Sec. 6677. Failure to file information with respect to certain 
                            foreign trusts.''.
    (d) Effective Dates.--
            (1) Reportable events.--To the extent related to subsection 
        (a) of section 6048 of the Internal Revenue Code of 1986, as 
        amended by this section, the amendments made by this section 
        shall apply to reportable events (as defined in such section 
        6048) occurring after the date of the enactment of this Act.
            (2) Grantor trust reporting.--To the extent related to 
        subsection (b) of such section 6048, the amendments made by 
        this section shall apply to taxable years of United States 
        persons beginning after the date of the enactment of this Act.
            (3) Reporting by united states beneficiaries.--To the 
        extent related to subsection (c) of such section 6048, the 
        amendments made by this section shall apply to distributions 
        received after the date of the enactment of this Act.

SEC. 602. MODIFICATIONS OF RULES RELATING TO FOREIGN TRUSTS HAVING ONE 
              OR MORE UNITED STATES BENEFICIARIES.

    (a) Treatment of Trust Obligations, Etc.--
            (1) Paragraph (2) of section 679(a) is amended by striking 
        subparagraph (B) and inserting the following:
                    ``(B) Transfers at fair market value.--To any 
                transfer of property to a trust in exchange for 
                consideration of at least the fair market value of the 
                transferred property. For purposes of the preceding 
                sentence, consideration other than cash shall be taken 
                into account at its fair market value.''.
            (2) Subsection (a) of section 679 (relating to foreign 
        trusts having one or more United States beneficiaries) is 
        amended by adding at the end the following new paragraph:
            ``(3) Certain obligations not taken into account under fair 
        market value exception.--
                    ``(A) In general.--In determining whether paragraph 
                (2)(B) applies to any transfer by a person described in 
                clause (ii) or (iii) of subparagraph (C), there shall 
                not be taken into account--
                            ``(i) except as provided in regulations, 
                        any obligation of a person described in 
                        subparagraph (C), and
                            ``(ii) to the extent provided in 
                        regulations, any obligation which is guaranteed 
                        by a person described in subparagraph (C).
                    ``(B) Treatment of principal payments on 
                obligation.--Principal payments by the trust on any 
                obligation referred to in subparagraph (A) shall be 
                taken into account on and after the date of the payment 
                in determining the portion of the trust attributable to 
                the property transferred.
                    ``(C) Persons described.--The persons described in 
                this subparagraph are--
                            ``(i) the trust,
                            ``(ii) any grantor or beneficiary of the 
                        trust, and
                            ``(iii) any person who is related (within 
                        the meaning of section 643(i)(2)(B)) to any 
                        grantor or beneficiary of the trust.''.
    (b) Exemption of Transfers to Charitable Trusts.--Subsection (a) of 
section 679 is amended by striking ``section 404(a)(4) or 404A'' and 
inserting ``section 6048(a)(3)(B)(ii)''.
    (c) Other Modifications.--Subsection (a) of section 679 is amended 
by adding at the end the following new paragraphs:
            ``(4) Special rules applicable to foreign grantor who later 
        becomes a united states person.--
                    ``(A) In general.--If a nonresident alien 
                individual has a residency starting date within 5 years 
                after directly or indirectly transferring property to a 
                foreign trust, this section and section 6048 shall be 
                applied as if such individual transferred to such trust 
                on the residency starting date an amount equal to the 
                portion of such trust attributable to the property 
                transferred by such individual to such trust in such 
                transfer.
                    ``(B) Treatment of undistributed income.--For 
                purposes of this section, undistributed net income for 
                periods before such individual's residency starting 
                date shall be taken into account in determining the 
                portion of the trust which is attributable to property 
                transferred by such individual to such trust but shall 
                not otherwise be taken into account.
                    ``(C) Residency starting date.--For purposes of 
                this paragraph, an individual's residency starting date 
                is the residency starting date determined under section 
                7701(b)(2)(A).
            ``(5) Outbound trust migrations.--If--
                    ``(A) an individual who is a citizen or resident of 
                the United States transferred property to a trust which 
                was not a foreign trust, and
                    ``(B) such trust becomes a foreign trust while such 
                individual is alive,
        then this section and section 6048 shall be applied as if such 
        individual transferred to such trust on the date such trust 
        becomes a foreign trust an amount equal to the portion of such 
        trust attributable to the property previously transferred by 
        such individual to such trust. A rule similar to the rule of 
        paragraph (4)(B) shall apply for purposes of this paragraph.''.
    (d) Modifications Relating to Whether Trust Has United States 
Beneficiaries.--Subsection (c) of section 679 is amended by adding at 
the end the following new paragraph:
            ``(3) Certain united states beneficiaries disregarded.--A 
        beneficiary shall not be treated as a United States person in 
        applying this section with respect to any transfer of property 
        to foreign trust if such beneficiary first became a United 
        States person more than 5 years after the date of such 
        transfer.''.
    (e) Technical Amendment.--Subparagraph (A) of section 679(c)(2) is 
amended to read as follows:
                    ``(A) in the case of a foreign corporation, such 
                corporation is a controlled foreign corporation (as 
                defined in section 957(a)),''.
    (f) Regulations.--Section 679 is amended by adding at the end the 
following new subsection:
    ``(d) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to transfers of property after February 6, 1995.

SEC. 603. FOREIGN PERSONS NOT TO BE TREATED AS OWNERS UNDER GRANTOR 
              TRUST RULES.

    (a) General Rule.--
            (1) Subsection (f) of section 672 (relating to special rule 
        where grantor is foreign person) is amended to read as follows:
    ``(f) Subpart Not To Result in Foreign Ownership.--
            ``(1) In general.--Notwithstanding any other provision of 
        this subpart, this subpart shall apply only to the extent such 
        application results in an amount being currently taken into 
        account (directly or through 1 or more entities) under this 
        chapter in computing the income of a citizen or resident of the 
        United States or a domestic corporation.
            ``(2) Exceptions.--
                    ``(A) Certain revocable and irrevocable trusts.--
                Paragraph (1) shall not apply to any trust if--
                            ``(i) the power to revest absolutely in the 
                        grantor title to the trust property is 
                        exercisable solely by the grantor without the 
                        approval or consent of any other person or with 
                        the consent of a related or subordinate party 
                        who is subservient to the grantor, or
                            ``(ii) the only amounts distributable from 
                        such trust (whether income or corpus) during 
                        the lifetime of the grantor are amounts 
                        distributable to the grantor or the spouse of 
                        the grantor.
                    ``(B) Compensatory trusts.--Except as provided in 
                regulations, paragraph (1) shall not apply to any 
                portion of a trust distributions from which are taxable 
                as compensation for services rendered.
            ``(3) Special rules.--Except as otherwise provided in 
        regulations prescribed by the Secretary--
                    ``(A) a controlled foreign corporation (as defined 
                in section 957) shall be treated as a domestic 
                corporation for purposes of paragraph (1), and
                    ``(B) paragraph (1) shall not apply for purposes of 
                applying section 1296.
            ``(4) Recharacterization of purported gifts.--In the case 
        of any transfer directly or indirectly from a partnership or 
        foreign corporation which the transferee treats as a gift or 
        bequest, the Secretary may recharacterize such transfer in such 
        circumstances as the Secretary determines to be appropriate to 
        prevent the avoidance of the purposes of this subsection.
            ``(5) Special rule where grantor is foreign person.--If--
                    ``(A) but for this subsection, a foreign person 
                would be treated as the owner of any portion of a 
                trust, and
                    ``(B) such trust has a beneficiary who is a United 
                States person,
        such beneficiary shall be treated as the grantor of such 
        portion to the extent such beneficiary has made transfers of 
        property by gift (directly or indirectly) to such foreign 
        person. For purposes of the preceding sentence, any gift shall 
        not be taken into account to the extent such gift would be 
        excluded from taxable gifts under section 2503(b).
            ``(6) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this subsection, including regulations providing 
        that paragraph (1) shall not apply in appropriate cases.''.
            (2) The last sentence of subsection (c) of section 672 of 
        such Code is amended by inserting ``subsection (f) and'' before 
        ``sections 674''.
    (b) Credit for Certain Taxes.--Paragraph (2) of section 665(d) is 
amended by adding at the end the following new sentence: ``Under rules 
or regulations prescribed by the Secretary, in the case of any foreign 
trust of which the settlor or another person would be treated as owner 
of any portion of the trust under subpart E but for section 672(f), the 
term `taxes imposed on the trust' includes the allocable amount of any 
income, war profits, and excess profits taxes imposed by any foreign 
country or possession of the United States on the settlor or such other 
person in respect of trust gross income.''.
    (c) Distributions by Certain Foreign Trusts Through Nominees.--
            (1) Section 643 is amended by adding at the end the 
        following new subsection:
    ``(h) Distributions by Certain Foreign Trusts Through Nominees.--
For purposes of this part, any amount paid to a United States person 
which is derived directly or indirectly from a foreign trust of which 
the payor is not the grantor shall be deemed in the year of payment to 
have been directly paid by the foreign trust to such United States 
person.''.
            (2) Section 665 is amended by striking subsection (c).
    (d) Effective Date.--
            (1) In general.--Except as provided by paragraph (2), the 
        amendments made by this section shall take effect on the date 
        of the enactment of this Act.
            (2) Exception for certain trusts.--The amendments made by 
        this section shall not apply to any trust--
                    (A) which is treated as owned by the grantor or 
                another person under section 676 or 677 (other than 
                subsection (a)(3) thereof) of the Internal Revenue Code 
                of 1986, and
                    (B) which is in existence on September 19, 1995.
        The preceding sentence shall not apply to the portion of any 
        such trust attributable to any transfer to such trust after 
        September 19, 1995.
    (e) Transitional Rule.--If--
            (1) by reason of the amendments made by this section, any 
        person other than a United States person ceases to be treated 
        as the owner of a portion of a domestic trust, and
            (2) before January 1, 1997, such trust becomes a foreign 
        trust, or the assets of such trust are transferred to a foreign 
        trust,
no tax shall be imposed by section 1491 of the Internal Revenue Code of 
1986 by reason of such trust becoming a foreign trust or the assets of 
such trust being transferred to a foreign trust.

SEC. 604. INFORMATION REPORTING REGARDING FOREIGN GIFTS.

    (a) In General.--Subpart A of part III of subchapter A of chapter 
61 is amended by inserting after section 6039E the following new 
section:

``SEC. 6039F. NOTICE OF GIFTS RECEIVED FROM FOREIGN PERSONS.

    ``(a) In General.--If the value of the aggregate foreign gifts 
received by a United States person (other than an organization 
described in section 501(c) and exempt from tax under section 501(a)) 
during any taxable year exceeds $10,000, such United States person 
shall furnish (at such time and in such manner as the Secretary shall 
prescribe) such information as the Secretary may prescribe regarding 
each foreign gift received during such year.
    ``(b) Foreign Gift.--For purposes of this section, the term 
`foreign gift' means any amount received from a person other than a 
United States person which the recipient treats as a gift or bequest. 
Such term shall not include any qualified transfer (within the meaning 
of section 2503(e)(2)).
    ``(c) Penalty for Failure To File Information.--
            ``(1) In general.--If a United States person fails to 
        furnish the information required by subsection (a) with respect 
        to any foreign gift within the time prescribed therefor 
        (including extensions)--
                    ``(A) the tax consequences of the receipt of such 
                gift shall be determined by the Secretary in the 
                Secretary's sole discretion from the Secretary's own 
                knowledge or from such information as the Secretary may 
                obtain through testimony or otherwise, and
                    ``(B) such United States person shall pay (upon 
                notice and demand by the Secretary and in the same 
                manner as tax) an amount equal to 5 percent of the 
                amount of such foreign gift for each month for which 
                the failure continues (not to exceed 25 percent of such 
                amount in the aggregate).
            ``(2) Reasonable cause exception.--Paragraph (1) shall not 
        apply to any failure to report a foreign gift if the United 
        States person shows that the failure is due to reasonable cause 
        and not due to willful neglect.
    ``(d) Cost-of-Living Adjustment.--In the case of any taxable year 
beginning after December 31, 1996, the $10,000 amount under subsection 
(a) shall be increased by an amount equal to the product of such amount 
and the cost-of-living adjustment for such taxable year under section 
1(f)(3), except that subparagraph (B) thereof shall be applied by 
substituting `1995' for `1992'.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (b) Clerical Amendment.--The table of sections for such subpart is 
amended by inserting after the item relating to section 6039E the 
following new item:

``Sec. 6039F. Notice of large gifts received from foreign persons.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts received after the date of the enactment of this Act 
in taxable years ending after such date.

SEC. 605. MODIFICATION OF RULES RELATING TO FOREIGN TRUSTS WHICH ARE 
              NOT GRANTOR TRUSTS.

    (a) Modification of Interest Charge on Accumulation 
Distributions.--Subsection (a) of section 668 (relating to interest 
charge on accumulation distributions from foreign trusts) is amended to 
read as follows:
    ``(a) General Rule.--For purposes of the tax determined under 
section 667(a)--
            ``(1) Interest determined using underpayment rates.--The 
        interest charge determined under this section with respect to 
        any distribution is the amount of interest which would be 
        determined on the partial tax computed under section 667(b) for 
        the period described in paragraph (2) using the rates and the 
        method under section 6621 applicable to underpayments of tax.
            ``(2) Period.--For purposes of paragraph (1), the period 
        described in this paragraph is the period which begins on the 
        date which is the applicable number of years before the date of 
        the distribution and which ends on the date of the 
        distribution.
            ``(3) Applicable number of years.--For purposes of 
        paragraph (2)--
                    ``(A) In general.--The applicable number of years 
                with respect to a distribution is the number determined 
                by dividing--
                            ``(i) the sum of the products described in 
                        subparagraph (B) with respect to each 
                        undistributed income year, by
                            ``(ii) the aggregate undistributed net 
                        income.
                The quotient determined under the preceding sentence 
                shall be rounded under procedures prescribed by the 
                Secretary.
                    ``(B) Product described.--For purposes of 
                subparagraph (A), the product described in this 
                subparagraph with respect to any undistributed income 
                year is the product of--
                            ``(i) the undistributed net income for such 
                        year, and
                            ``(ii) the sum of the number of taxable 
                        years between such year and the taxable year of 
                        the distribution (counting in each case the 
                        undistributed income year but not counting the 
                        taxable year of the distribution).
            ``(4) Undistributed income year.--For purposes of this 
        subsection, the term `undistributed income year' means any 
        prior taxable year of the trust for which there is 
        undistributed net income, other than a taxable year during all 
        of which the beneficiary receiving the distribution was not a 
        citizen or resident of the United States.
            ``(5) Determination of undistributed net income.--
        Notwithstanding section 666, for purposes of this subsection, 
        an accumulation distribution from the trust shall be treated as 
        reducing proportionately the undistributed net income for 
        undistributed income years.
            ``(6) Periods before 1996.--Interest for the portion of the 
        period described in paragraph (2) which occurs before January 
        1, 1996, shall be determined--
                    ``(A) by using an interest rate of 6 percent, and
                    ``(B) without compounding until January 1, 1996.''.
    (b) Abusive Transactions.--Section 643(a) is amended by inserting 
after paragraph (6) the following new paragraph:
            ``(7) Abusive transactions.--The Secretary shall prescribe 
        such regulations as may be necessary or appropriate to carry 
        out the purposes of this part, including regulations to prevent 
        avoidance of such purposes.''.
    (c) Treatment of Loans From Trusts.--
            (1) In general.--Section 643 (relating to definitions 
        applicable to subparts A, B, C, and D) is amended by adding at 
        the end the following new subsection:
    ``(i) Loans From Foreign Trusts.--For purposes of subparts B, C, 
and D--
            ``(1) General rule.--Except as provided in regulations, if 
        a foreign trust makes a loan of cash or marketable securities 
        directly or indirectly to--
                    ``(A) any grantor or beneficiary of such trust who 
                is a United States person, or
                    ``(B) any United States person not described in 
                subparagraph (A) who is related to such grantor or 
                beneficiary,
        the amount of such loan shall be treated as a distribution by 
        such trust to such grantor or beneficiary (as the case may be).
            ``(2) Definitions and special rules.--For purposes of this 
        subsection--
                    ``(A) Cash.--The term `cash' includes foreign 
                currencies and cash equivalents.
                    ``(B) Related person.--
                            ``(i) In general.--A person is related to 
                        another person if the relationship between such 
                        persons would result in a disallowance of 
                        losses under section 267 or 707(b). In applying 
                        section 267 for purposes of the preceding 
                        sentence, section 267(c)(4) shall be applied as 
                        if the family of an individual includes the 
                        spouses of the members of the family.
                            ``(ii) Allocation.--If any person described 
                        in paragraph (1)(B) is related to more than one 
                        person, the grantor or beneficiary to whom the 
                        treatment under this subsection applies shall 
                        be determined under regulations prescribed by 
                        the Secretary.
                    ``(C) Exclusion of tax-exempts.--The term `United 
                States person' does not include any entity exempt from 
                tax under this chapter.
                    ``(D) Trust not treated as simple trust.--Any trust 
                which is treated under this subsection as making a 
                distribution shall be treated as not described in 
                section 651.
            ``(3) Subsequent transactions regarding loan principal.--If 
        any loan is taken into account under paragraph (1), any 
        subsequent transaction between the trust and the original 
        borrower regarding the principal of the loan (by way of 
        complete or partial repayment, satisfaction, cancellation, 
        discharge, or otherwise) shall be disregarded for purposes of 
        this title.''.
            (2) Technical amendment.--Paragraph (8) of section 7872(f) 
        is amended by inserting ``, 643(i),'' before ``or 1274'' each 
        place it appears.
    (d) Effective Dates.--
            (1) Interest charge.--The amendment made by subsection (a) 
        shall apply to distributions after the date of the enactment of 
        this Act.
            (2) Abusive transactions.--The amendment made by subsection 
        (b) shall take effect on the date of the enactment of this Act.
            (3) Loans from trusts.--The amendment made by subsection 
        (c) shall apply to loans of cash or marketable securities after 
        September 19, 1995.

SEC. 606. RESIDENCE OF ESTATES AND TRUSTS, ETC.

    (a) Treatment as United States Person.--
            (1) In general.--Paragraph (30) of section 7701(a) is 
        amended by striking subparagraph (D) and by inserting after 
        subparagraph (C) the following:
                    ``(D) any estate or trust if--
                            ``(i) a court within the United States is 
                        able to exercise primary supervision over the 
                        administration of the estate or trust, and
                            ``(ii) in the case of a trust, one or more 
                        United States fiduciaries have the authority to 
                        control all substantial decisions of the 
                        trust.''.
            (2) Conforming amendment.--Paragraph (31) of section 
        7701(a) is amended to read as follows:
            ``(31) Foreign estate or trust.--The term `foreign estate' 
        or `foreign trust' means any estate or trust other than an 
        estate or trust described in section 7701(a)(30)(D).''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply--
                    (A) to taxable years beginning after December 31, 
                1996, or
                    (B) at the election of the trustee of a trust, to 
                taxable years ending after the date of the enactment of 
                this Act.
        Such an election, once made, shall be irrevocable.
    (b) Domestic Trusts Which Become Foreign Trusts.--
            (1) In general.--Section 1491 (relating to imposition of 
        tax on transfers to avoid income tax) is amended by adding at 
        the end the following new flush sentence:
``If a trust which is not a foreign trust becomes a foreign trust, such 
trust shall be treated for purposes of this section as having 
transferred, immediately before becoming a foreign trust, all of its 
assets to a foreign trust.''.
            (2) Penalty.--Section 1494 is amended by adding at the end 
        the following new subsection:
    ``(c) Penalty.--In the case of any failure to file a return 
required by the Secretary with respect to any transfer described in 
section 1491 with respect to a trust, the person required to file such 
return shall be liable for the penalties provided in section 6677 in 
the same manner as if such failure were a failure to file a return 
under section 6048(a).''.
            (3) Effective date.--The amendments made by this subsection 
        shall take effect on the date of the enactment of this Act.

   Subtitle B--Repeal of Bad Debt Reserve Method for Thrift Savings 
                              Associations

SEC. 611. REPEAL OF BAD DEBT RESERVE METHOD FOR THRIFT SAVINGS 
              ASSOCIATIONS.

    (a) In General.--Section 593 (relating to reserves for losses on 
loans) is hereby repealed.
    (b) Conforming Amendments.--
            (1) Subsection (d) of section 50 is amended by adding at 
        the end the following new sentence:
``Paragraphs (1)(A), (2)(A), and (4) of section 46(e) referred to in 
paragraph (1) of this subsection shall not apply to any taxable year 
beginning after December 31, 1995.''.
            (2) Subsection (e) of section 52 is amended by striking 
        paragraph (1) and by redesignating paragraphs (2) and (3) as 
        paragraphs (1) and (2), respectively.
            (3) Subsection (a) of section 57 is amended by striking 
        paragraph (4).
            (4) Section 246 is amended by striking subsection (f).
            (5) Clause (i) of section 291(e)(1)(B) is amended by 
        striking ``or to which section 593 applies''.
            (6) Subparagraph (A) of section 585(a)(2) is amended by 
        striking ``other than an organization to which section 593 
        applies''.
            (7) Sections 595 and 596 are hereby repealed.
            (8) Subsection (a) of section 860E is amended--
                    (A) by striking ``Except as provided in paragraph 
                (2), the'' in paragraph (1) and inserting ``The'',
                    (B) by striking paragraphs (2) and (4) and 
                redesignating paragraphs (3) and (5) as paragraphs (2) 
                and (3), respectively, and
                    (C) by striking in paragraph (2) (as so 
                redesignated) all that follows ``subsection'' and 
                inserting a period.
            (9) Paragraph (3) of section 992(d) is amended by striking 
        ``or 593''.
            (10) Section 1038 is amended by striking subsection (f).
            (11) Clause (ii) of section 1042(c)(4)(B) is amended by 
        striking ``or 593''.
            (12) Subsection (c) of section 1277 is amended by striking 
        ``or to which section 593 applies''.
            (13) Subparagraph (B) of section 1361(b)(2) is amended by 
        striking ``or to which section 593 applies''.
            (14) The table of sections for part II of subchapter H of 
        chapter 1 is amended by striking the items relating to sections 
        593, 595, and 596.
    (c) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 1995.
            (2) Repeal of section 595.--The repeal of section 595 under 
        subsection (b)(7) shall apply to property acquired in taxable 
        years beginning after December 31, 1995.
    (d) 6-Year Spread of Adjustments.--
            (1) In general.--In the case of any taxpayer who is 
        required by reason of the amendments made by this section to 
        change its method of computing reserves for bad debts--
                    (A) such change shall be treated as a change in a 
                method of accounting,
                    (B) such change shall be treated as initiated by 
                the taxpayer and as having been made with the consent 
                of the Secretary, and
                    (C) the net amount of the adjustments required to 
                be taken into account by the taxpayer under section 
                481(a)--
                            (i) shall be determined by taking into 
                        account only applicable excess reserves, and
                            (ii) as so determined, shall be taken into 
                        account ratably over the 6-taxable year period 
                        beginning with the first taxable year beginning 
                        after December 31, 1995.
            (2) Applicable excess reserves.--
                    (A) In general.--For purposes of paragraph (1), the 
                term `applicable excess reserves' means the excess (if 
                any) of--
                            (i) the balance of the reserves described 
                        in section 593(c)(1) of such Code (as in effect 
                        on the day before the date of the enactment of 
                        this Act) as of the close of the taxpayer's 
                        last taxable year beginning before January 1, 
                        1996, over
                            (ii) the lesser of--
                                    (I) the balance of such reserves as 
                                of the close of the taxpayer's last 
                                taxable year beginning before January 
                                1, 1988, or
                                    (II) the balance of the reserves 
                                described in subclause (I), reduce by 
                                an amount determined in the same manner 
                                as under section 585(b)(2)(B)(ii) on 
                                the basis of the taxable years 
                                described in clause (i) and this 
                                clause.
                    (B) Special rule for thrifts which become small 
                banks.--In the case of a bank (as defined in section 
                581 of such Code) which is not a large bank (as defined 
                in section 585(c)(2) of such Code) for its first 
                taxable year beginning after December 31, 1995--
                            (i) the balance taken into account under 
                        subparagraph (A)(ii) shall not be less than the 
                        amount which would be the balance of such 
                        reserve as of the close of its last taxable 
                        year beginning before January 1, 1996, if the 
                        additions to such reserve for all taxable years 
                        had been determined under section 585(b)(2)(A), 
                        and
                            (ii) the opening balance of the reserve for 
                        bad debts as of the beginning of such first 
                        taxable year shall be the balance taken into 
                        account under subparagraph (A)(ii) (determined 
                        after the application of clause (i) of this 
                        subparagraph).
                The preceding sentence shall not apply for purposes of 
                paragraphs (5), (6), and (7).
            (3) Recapture of pre-1988 reserves where taxpayer ceases to 
        be bank.--If during any taxable year beginning after December 
        31, 1995, a taxpayer to which paragraph (1) applied is not a 
        bank (as defined in section 581), paragraph (1) shall apply to 
        the reserves described in subparagraph (A)(ii) except that such 
        reserves shall be taken into account ratably over the 6-taxable 
        year period beginning with such taxable year.
            (4) Suspension of recapture if residential loan requirement 
        met.--
                    (A) In general.--In the case of a bank which meets 
                the residential loan requirement of subparagraph (B) 
                for a taxable year beginning after December 31, 1995, 
                and before January 1, 1998--
                            (i) no adjustment shall be taken into 
                        account under paragraph (1) for such taxable 
                        year, and
                            (ii) such taxable year shall be disregarded 
                        in determining--
                                    (I) whether any other taxable year 
                                is a taxable year for which an 
                                adjustment is required to be taken into 
                                account under paragraph (1), and
                                    (II) the amount of such adjustment.
                    (B) Residential loan requirement.--A taxpayer meets 
                the residential loan requirement of this subparagraph 
                for any taxable year if the principal amount of the 
                residential loans made by the taxpayer during such year 
                is not less than the base amount for such year.
                    (C) Residential loan.--For purposes of this 
                paragraph, the term ``residential loan'' means any loan 
                described in clause (v) of section 7701(a)(19)(C) of 
                such Code but only if such loan is incurred in 
                acquiring, constructing, or improving the property 
                described in such clause.
                    (D) Base amount.--For purposes of subparagraph (B), 
                the base amount is the average of the principal amounts 
                of the residential loans made by the taxpayer during 
                the 6 most recent taxable years beginning before 
                January 1, 1996. At the election of the taxpayer who 
                made such loans during each of such 6 taxable years, 
                the preceding sentence shall be applied without regard 
                to the taxable year in which such principal amount was 
                the highest and the taxable year in such principal 
                amount was the lowest. Such an election may be made 
                only for the first taxable year beginning after 
                December 31, 1995, and, if made for such taxable year, 
                shall apply to the succeeding taxable year unless 
                revoked with the consent of the Secretary of the 
                Treasury or the Secretary's delegate.
                    (E) Controlled groups.--In the case of a taxpayer 
                which is a member of any controlled group of 
                corporations described in section 1563(a)(1) of such 
                Code, subparagraph (B) shall be applied with respect to 
                such group.
            (5) Continued application of fresh start under section 585 
        transitional rules.--In the case of a taxpayer to which 
        paragraph (1) applied and which was not a large bank (as 
        defined in section 585(c)(2) of such Code) for its first 
        taxable year beginning after December 31, 1995:
                    (A) In general.--For purposes of determining the 
                net amount of adjustments referred to in section 
                585(c)(3)(A)(iii) of such Code, there shall be taken 
                into account only the excess of the reserve for bad 
                debts as of the close of the last taxable year before 
                the disqualification year over the balance taken into 
                account by such taxpayer under paragraph (2)(A)(ii) of 
                this subsection.
                    (B) Treatment under elective cut-off method.--For 
                purposes of applying section 585(c)(4) of such Code--
                            (i) the balance of the reserve taken into 
                        account under subparagraph (B) thereof shall be 
                        reduced by the balance taken into account by 
                        such taxpayer under paragraph (2)(A)(ii) of 
                        this subsection, and
                            (ii) no amount shall be includible in gross 
                        income by reason of such reduction.
            (6) Continued application of section 593(e).--
        Notwithstanding the amendments made by this section, in the 
        case of a taxpayer to which paragraph (1) of this subsection 
        applies, section 593(e) of such Code (as in effect on the day 
        before the date of the enactment of this Act) shall continue to 
        apply to such taxpayer as if such taxpayer were a domestic 
        building and loan association but the amount of the reserves 
        taken into account under subparagraphs (B) and (C) of section 
        593(e)(1) (as so in effect) shall be the balance taken into 
        account by such taxpayer under paragraph (2)(A)(ii) of this 
        subsection.
            (7) Certain items included as section 381(c) items.--The 
        balance of the applicable excess reserves, and the balance 
        taken into account by a taxpayer under paragraph (2)(A)(ii) of 
        this subsection, shall be treated as items described in section 
        381(c) of such Code.
            (8) Conversions to credit unions.--In the case of a 
        taxpayer to which paragraph (1) applied which becomes a credit 
        union described in section 501(c)(14)(A)--
                    (A) any amount required to be included in the gross 
                income of the credit union by reason of this subsection 
                shall be treated as derived from an unrelated trade or 
                business (as defined in section 513), and
                    (B) for purposes of paragraph (3), the credit union 
                shall not be treated as if it were a bank.
            (9) Regulations.--The Secretary of the Treasury or the 
        Secretary's delegate shall prescribe such regulations as may be 
        necessary to carry out this subsection, including regulations 
        providing for the application of paragraphs (4) and (6) in the 
        case of acquisitions, mergers, spin-offs, and other 
        reorganizations.

                      Subtitle C--Other Provisions

SEC. 621. EXTENSION OF MEDICARE SECONDARY PAYOR PROVISIONS.

    Section 1862(b) of the Social Security Act (42 U.S.C. 1395y(b)) is 
amended--
            (1) in paragraph (1)--
                    (A) in subparagraph (B), by striking clause (iii) 
                and redesignating clause (iv) as clause (iii); and
                    (B) in the matter following clause (ii) of 
                subparagraph (C), by striking ``, and before October 1, 
                1998''; and
            (2) in paragraph (5)(C), by striking clause (iii).

SEC. 622. ANNUAL ADJUSTMENT FACTORS FOR OPERATING COSTS ONLY; RESTRAINT 
              ON RENT INCREASES.

    (a) Annual Adjustment Factors for Operating Costs Only.--Section 
8(c)(2)(A) of the United States Housing Act of 1937 (42 U.S.C. 
1437f(c)(2)(A)) is amended--
            (1) by striking ``(2)(A)'' and inserting ``(2)(A)(i)'';
            (2) by striking the second sentence and all that follows 
        through the end of the subparagraph; and
            (3) by adding at the end the following new clause:
    ``(ii) Each assistance contract under this section shall provide 
that--
            ``(I) if the maximum monthly rent for a unit in a new 
        construction or substantial rehabilitation project to be 
        adjusted using an annual adjustment factor exceeds 100 percent 
        of the fair market rent for an existing dwelling unit in the 
        market area, the Secretary shall adjust the rent using an 
        operating costs factor that increases the rent to reflect 
        increases in operating costs in the market area; and
            ``(II) if the owner of a unit in a project described in 
        subclause (I) demonstrates that the adjusted rent determined 
        under subclause (I) would not exceed the rent for an unassisted 
        unit of similar quality, type, and age in the same market area, 
        as determined by the Secretary, the Secretary shall use the 
        otherwise applicable annual adjustment factor.''.
    (b) Restraint on Section 8 Rent Increases.--Section 8(c)(2)(A) of 
the United States Housing Act of 1937 (42 U.S.C. 1437f(c)(2)(A)), as 
amended by subsection (a) of this section, is amended by adding at the 
end the following new clause:
    ``(iii)(I) Subject to subclause (II), with respect to any unit 
assisted under this section that is occupied by the same family at the 
time of the most recent annual rental adjustment, if the assistance 
contract provides for the adjustment of the maximum monthly rent by 
applying an annual adjustment factor, and if the rent for the unit is 
otherwise eligible for an adjustment based on the full amount of the 
annual adjustment factor, 0.01 shall be subtracted from the amount of 
the annual adjustment factor, except that the annual adjustment factor 
shall not be reduced to less than 1.0.
    ``(II) With respect to any unit described in subclause (I) that is 
assisted under the certificate program, the adjusted rent shall not 
exceed the rent for a comparable unassisted unit of similar quality, 
type, and age in the market area in which the unit is located.''.
    (c) Effective Date.--The amendments made by this section shall be 
construed to have become effective on October 1, 1995.

SEC. 623. FORECLOSURE AVOIDANCE AND BORROWER ASSISTANCE.

    (a) Effectiveness and Applicability.--Section 407 of The Balanced 
Budget Downpayment Act, I (Public Law 104-99) is amended--
            (1) in subsection (c)--
                    (A) by striking ``Except as provided in subsection 
                (e), the'' and inserting ``The''; and
                    (B) by striking ``only with respect to mortgages 
                insured under the National Housing Act that are 
                originated before October 1, 1995'' and inserting ``to 
                all mortgages insured under the National Housing Act''; 
                and
            (2) by striking subsection (e).
    (b) Technical Amendment.--Section 230(d) of the National Housing 
Act (12 U.S.C. 1715u(d)) is amended by striking ``the Departments'' and 
all that follows through ``1996'' and inserting ``The Balanced Budget 
Downpayment Act, I''.
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