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
II

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’’.

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Health Insurance Reform Act of 1996’’.

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

7 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Definitions.

TITLE I—HEALTH CARE ACCESS, PORTABILITY, AND

RENEWABILITY
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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 SelfEmployed Individuals

Sec. 401. Increase in self-employed individuals’ deduction for health insurance

costs.

Subtitle B—Long-Term Care Provisions
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CHAPTER 1—LONG-TERM CARE SERVICES AND CONTRACTS

SUBCHAPTER A—GENERAL PROVISIONS

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. Reporting requirements.

SUBCHAPTER 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 companyowned 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.
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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
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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.

1 SEC. 2. DEFINITIONS.

2 As used in this Act:

3 (1) BENEFICIARY.—The term ‘‘beneficiary’’ has

4 the meaning given such term under section 3(8) of

5 the Employee Retirement Income Security Act of

6 1974 (29 U.S.C. 1002(8)).

7 (2) EMPLOYEE.—The term ‘‘employee’’ has the

8 meaning given such term under section 3(6) of the

9 Employee Retirement Income Security Act of 1974

10 (29 U.S.C. 1002(6)).

11 (3) EMPLOYER.—The term ‘‘employer’’ has the

12 meaning given such term under section 3(5) of the

13 Employee Retirement Income Security Act of 1974

14 (29 U.S.C. 1002(5)), except that such term shall in15 clude only employers of two or more employees.

16 (4) EMPLOYEE HEALTH BENEFIT PLAN.—

17 (A) IN GENERAL.—The term ‘‘employee

18 health benefit plan’’ means any employee wel19 fare benefit plan, governmental plan, or church

20 plan (as defined under paragraphs (1), (32),

21 and (33) of section 3 of the Employee Retire22 ment Income Security Act of 1974 (29 U.S.C.
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1 1002 (1), (32), and (33))), or any health bene2 fit plan under section 5(e) of the Peace Corps

3 Act (22 U.S.C. 2504(e)), that provides or pays

4 for health benefits (such as provider and hos5 pital benefits) for participants and beneficiaries

6 whether—

7 (i) directly;

8 (ii) through a group health plan of9 fered by a health plan issuer as defined in

10 paragraph (8); or

11 (iii) otherwise.

12 (B) RULE OF CONSTRUCTION.—An em13 ployee health benefit plan shall not be con14 strued to be a group health plan, an individual

15 health plan, or a health plan issuer.

16 (C) ARRANGEMENTS NOT INCLUDED.—

17 Such term does not include the following, or

18 any combination thereof:

19 (i) Coverage only for accident, or dis20 ability income insurance, or any combina21 tion thereof.

22 (ii) Medicare supplemental health in23 surance (as defined under section

24 1882(g)(1) of the Social Security Act).
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1 (iii) Coverage issued as a supplement

2 to liability insurance.

3 (iv) Liability insurance, including gen4 eral liability insurance and automobile li5 ability insurance.

6 (v) Workers compensation or similar

7 insurance.

8 (vi) Automobile medical payment in9 surance.

10 (vii) Coverage for a specified disease

11 or illness.

12 (viii) Hospital or fixed indemnity in13 surance.

14 (ix) Short-term limited duration in15 surance.

16 (x) Credit-only, dental-only, or vision17 only insurance.

18 (xi) A health insurance policy provid19 ing benefits only for long-term care, nurs20 ing home care, home health care, commu21 nity-based care, or any combination there22 of.

23 (5) FAMILY.—
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1 (A) IN GENERAL.—The term ‘‘family’’

2 means an individual, the individual’s spouse,

3 and the child of the individual (if any).

4 (B) CHILD.—For purposes of subpara5 graph (A), the term ‘‘child’’ means any individ6 ual who is a child within the meaning of section

7 151(c)(3) of the Internal Revenue Code of

8 1986.

9 (6) GROUP HEALTH PLAN.—

10 (A) IN GENERAL.—The term ‘‘group

11 health plan’’ means any contract, policy, certifi12 cate or other arrangement offered by a health

13 plan issuer to a group purchaser that provides

14 or pays for health benefits (such as provider

15 and hospital benefits) in connection with an em16 ployee health benefit plan.

17 (B) ARRANGEMENTS NOT INCLUDED.—

18 Such term does not include the following, or

19 any combination thereof:

20 (i) Coverage only for accident, or dis21 ability income insurance, or any combina22 tion thereof.

23 (ii) Medicare supplemental health in24 surance (as defined under section

25 1882(g)(1) of the Social Security Act).
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1 (iii) Coverage issued as a supplement

2 to liability insurance.

3 (iv) Liability insurance, including gen4 eral liability insurance and automobile li5 ability insurance.

6 (v) Workers compensation or similar

7 insurance.

8 (vi) Automobile medical payment in9 surance.

10 (vii) Coverage for a specified disease

11 or illness.

12 (viii) Hospital or fixed indemnity in13 surance.

14 (ix) Short-term limited duration in15 surance.

16 (x) Credit-only, dental-only, or vision17 only insurance.

18 (xi) A health insurance policy provid19 ing benefits only for long-term care, nurs20 ing home care, home health care, commu21 nity-based care, or any combination there22 of.

23 (7) GROUP PURCHASER.—The term ‘‘group

24 purchaser’’ means any person (as defined under

25 paragraph (9) of section 3 of the Employee Retire-
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1 ment Income Security Act of 1974 (29 U.S.C.

2 1002(9)) or entity that purchases or pays for health

3 benefits (such as provider or hospital benefits) on

4 behalf of two or more participants or beneficiaries in

5 connection with an employee health benefit plan. A

6 health plan purchasing cooperative established under

7 section 131 shall not be considered to be a group

8 purchaser.

9 (8) HEALTH PLAN ISSUER.—The term ‘‘health

10 plan issuer’’ means any entity that is licensed (prior

11 to or after the date of enactment of this Act) by a

12 State to offer a group health plan or an individual

13 health plan.

14 (9) PARTICIPANT.—The term ‘‘participant’’ has

15 the meaning given such term under section 3(7) of

16 the Employee Retirement Income Security Act of

17 1974 (29 U.S.C. 1002(7)).

18 (10) PLAN SPONSOR.—The term ‘‘plan spon19 sor’’ has the meaning given such term under section

20 3(16)(B) of the Employee Retirement Income Secu21 rity Act of 1974 (29 U.S.C. 1002(16)(B)).

22 (11) SECRETARY.—The term ‘‘Secretary’’, un23 less specifically provided otherwise, means the Sec24 retary of Labor.
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1 (12) STATE.—The term ‘‘State’’ means each of

2 the several States, the District of Columbia, Puerto

3 Rico, the United States Virgin Islands, Guam,

4 American Samoa, and the Commonwealth of the

5 Northern Mariana Islands.

6 TITLE I—HEALTH CARE ACCESS,

7 PORTABILITY, AND RENEW8 ABILITY

9 Subtitle A—Group Market Rules

10 SEC. 101. GUARANTEED AVAILABILITY OF HEALTH COV11 ERAGE.

12 (a) IN GENERAL.—

13 (1) NONDISCRIMINATION.—Except as provided

14 in subsection (b), section 102 and section 103—

15 (A) a health plan issuer offering a group

16 health plan may not decline to offer whole

17 group coverage to a group purchaser desiring to

18 purchase such coverage; and

19 (B) an employee health benefit plan or a

20 health plan issuer offering a group health plan

21 may establish, under the terms of such plan,

22 eligibility, enrollment, or premium contribution

23 requirements for individual participants or

24 beneficiaries, except that such requirements

25 shall not be based on health status, medical
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1 condition, claims experience, receipt of health

2 care, medical history, evidence of insurability

3 (including conditions arising out of acts of do4 mestic violence), genetic information, or disabil5 ity.

6 (2) HEALTH PROMOTION AND DISEASE PRE7 VENTION.—Nothing in this subsection shall prevent

8 an employee health benefit plan or a health plan is9 suer from establishing premium discounts or modify10 ing otherwise applicable copayments or deductibles

11 in return for adherence to programs of health pro12 motion and disease prevention.

13 (b) APPLICATION OF CAPACITY LIMITS.—

14 (1) IN GENERAL.—Subject to paragraph (2), a

15 health plan issuer offering a group health plan may

16 cease offering coverage to group purchasers under

17 the plan if—

18 (A) the health plan issuer ceases to offer

19 coverage to any additional group purchasers;

20 and

21 (B) the health plan issuer can demonstrate

22 to the applicable certifying authority (as defined

23 in section 202(d)), if required, that its financial

24 or provider capacity to serve previously covered

25 participants and beneficiaries (and additional
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1 participants and beneficiaries who will be ex2 pected to enroll because of their affiliation with

3 a group purchaser or such previously covered

4 participants or beneficiaries) will be impaired if

5 the health plan issuer is required to offer cov6 erage to additional group purchasers.

7 Such health plan issuer shall be prohibited from of8 fering coverage after a cessation in offering coverage

9 under this paragraph for a 6-month period or until

10 the health plan issuer can demonstrate to the appli11 cable certifying authority (as defined in section

12 202(d)) that the health plan issuer has adequate ca13 pacity, whichever is later.

14 (2) FIRST-COME-FIRST-SERVED.—A health plan

15 issuer offering a group health plan is only eligible to

16 exercise the limitations provided for in paragraph

17 (1) if the health plan issuer offers coverage to group

18 purchasers under such plan on a first-come-first19 served basis or other basis established by a State to

20 ensure a fair opportunity to enroll in the plan and

21 avoid risk selection.

22 (c) CONSTRUCTION.—

23 (1) MARKETING OF GROUP HEALTH PLANS.—

24 Nothing in this section shall be construed to prevent
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1 a State from requiring health plan issuers offering

2 group health plans to actively market such plans.

3 (2) INVOLUNTARY OFFERING OF GROUP

4 HEALTH PLANS.—Nothing in this section shall be

5 construed to require a health plan issuer to involun6 tarily offer group health plans in a particular mar7 ket or to require a health plan issuer to involuntarily

8 issue a group health plan to a group health plan

9 purchaser in a particular market if the group health

10 plan was specifically designed for a different market.

11 For the purposes of this paragraph, the term ‘‘mar12 ket’’ means either the large employer market or the

13 small employer market (as defined under applicable

14 State law, or if not so defined, an employer with

15 more than one employee and not more than 50 em16 ployees).

17 SEC. 102. GUARANTEED RENEWABILITY OF HEALTH COV18 ERAGE.

19 (a) IN GENERAL.—

20 (1) GROUP PURCHASER.—Subject to sub21 sections (b) and (c), a group health plan shall be re22 newed or continued in force by a health plan issuer

23 at the option of the group purchaser, except that the

24 requirement of this subparagraph shall not apply in

25 the case of—
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1 (A) the nonpayment of premiums or con2 tributions by the group purchaser in accordance

3 with the terms of the group health plan or

4 where the health plan issuer has not received

5 timely premium payments;

6 (B) fraud or misrepresentation of material

7 fact on the part of the group purchaser;

8 (C) the termination of the group health

9 plan in accordance with subsection (b); or

10 (D) the failure of the group purchaser to

11 meet contribution or participation requirements

12 in accordance with paragraph (3).

13 (2) PARTICIPANT.—Subject to subsections (b)

14 and (c), coverage under an employee health benefit

15 plan or group health plan shall be renewed or con16 tinued in force, if the group purchaser elects to con17 tinue to provide coverage under such plan, at the op18 tion of the participant (or beneficiary where such

19 right exists under the terms of the plan or under ap20 plicable law), except that the requirement of this

21 paragraph shall not apply in the case of—

22 (A) the nonpayment of premiums or con23 tributions by the participant or beneficiary in

24 accordance with the terms of the employee

25 health benefit plan or group health plan or
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1 where such plan has not received timely pre2 mium payments;

3 (B) fraud or misrepresentation of material

4 fact on the part of the participant or bene5 ficiary relating to an application for coverage or

6 claim for benefits;

7 (C) the termination of the employee health

8 benefit plan or group health plan;

9 (D) loss of eligibility for continuation cov10 erage as described in part 6 of subtitle B of

11 title I of the Employee Retirement Income Se12 curity Act of 1974 (29 U.S.C. 1161 et seq.); or

13 (E) failure of a participant or beneficiary

14 to meet requirements for eligibility for coverage

15 under an employee health benefit plan or group

16 health plan that are not prohibited by this Act.

17 (3) RULES OF CONSTRUCTION.—Nothing in

18 this subsection, nor in section 101(a), shall be con19 strued to—

20 (A) preclude a health plan issuer from es21 tablishing employer contribution rules or group

22 participation rules for group health plans as al23 lowed under applicable State law;

24 (B) preclude a plan defined in section

25 3(37) of the Employee Retirement Income Se-
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1 curity Act of 1974 (29 U.S.C. 1102(37)) from

2 establishing employer contribution rules or

3 group participation rules; or

4 (C) permit individuals to decline coverage

5 under an employee health benefit plan if such

6 right is not otherwise available under such plan.

7 (b) TERMINATION OF GROUP HEALTH PLANS.—

8 (1) PARTICULAR TYPE OF GROUP HEALTH

9 PLAN NOT OFFERED.—In any case in which a health

10 plan issuer decides to discontinue offering a particu11 lar type of group health plan, a group health plan

12 of such type may be discontinued by the health plan

13 issuer only if—

14 (A) the health plan issuer provides notice

15 to each group purchaser covered under a group

16 health plan of this type (and participants and

17 beneficiaries covered under such group health

18 plan) of such discontinuation at least 90 days

19 prior to the date of the discontinuation of such

20 plan;

21 (B) the health plan issuer offers to each

22 group purchaser covered under a group health

23 plan of this type, the option to purchase any

24 other group health plan currently being offered

25 by the health plan issuer; and
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1 (C) in exercising the option to discontinue

2 a group health plan of this type and in offering

3 one or more replacement plans, the health plan

4 issuer acts uniformly without regard to the

5 health status or insurability of participants or

6 beneficiaries covered under the group health

7 plan, or new participants or beneficiaries who

8 may become eligible for coverage under the

9 group health plan.

10 (2) DISCONTINUANCE OF ALL GROUP HEALTH

11 PLANS.—

12 (A) IN GENERAL.—In any case in which a

13 health plan issuer elects to discontinue offering

14 all group health plans in a State, a group

15 health plan may be discontinued by the health

16 plan issuer only if—

17 (i) the health plan issuer provides no18 tice to the applicable certifying authority

19 (as defined in section 202(d)) and to each

20 group purchaser (and participants and

21 beneficiaries covered under such group

22 health plan) of such discontinuation at

23 least 180 days prior to the date of the ex24 piration of such plan; and
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1 (ii) all group health plans issued or

2 delivered for issuance in the State are dis3 continued and coverage under such plans is

4 not renewed.

5 (B) APPLICATION OF PROVISIONS.—The

6 provisions of this paragraph and paragraph (3)

7 may be applied separately by a health plan is8 suer—

9 (i) to all group health plans offered to

10 small employers (as defined under applica11 ble State law, or if not so defined, an em12 ployer with not more than 50 employees);

13 or

14 (ii) to all other group health plans of15 fered by the health plan issuer in the

16 State.

17 (3) PROHIBITION ON MARKET REENTRY.—In

18 the case of a discontinuation under paragraph (2),

19 the health plan issuer may not provide for the issu20 ance of any group health plan in the market sector

21 (as described in paragraph (2)(B)) in which issuance

22 of such group health plan was discontinued in the

23 State involved during the 5-year period beginning on

24 the date of the discontinuation of the last group

25 health plan not so renewed.
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1 (c) TREATMENT OF NETWORK PLANS.—

2 (1) GEOGRAPHIC LIMITATIONS.—A network

3 plan (as defined in paragraph (2)) may deny contin4 ued participation under such plan to participants or

5 beneficiaries who neither live, reside, nor work in an

6 area in which such network plan is offered, but only

7 if such denial is applied uniformly, without regard to

8 health status or the insurability of particular partici9 pants or beneficiaries.

10 (2) NETWORK PLAN.—As used in paragraph

11 (1), the term ‘‘network plan’’ means an employee

12 health benefit plan or a group health plan that ar13 ranges for the financing and delivery of health care

14 services to participants or beneficiaries covered

15 under such plan, in whole or in part, through ar16 rangements with providers.

17 (d) COBRA COVERAGE.—Nothing in subsection

18 (a)(2)(E) or subsection (c) shall be construed to affect any

19 right to COBRA continuation coverage as described in

20 part 6 of subtitle B of title I of the Employee Retirement

21 Income Security Act of 1974 (29 U.S.C. 1161 et seq.).
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1 SEC. 103. PORTABILITY OF HEALTH COVERAGE AND LIMI2 TATION ON PREEXISTING CONDITION EXCLU3 SIONS.

4 (a) IN GENERAL.—An employee health benefit plan

5 or a health plan issuer offering a group health plan may,

6 with respect to a participant or beneficiary, impose a limi7 tation or exclusion of benefits, otherwise available under

8 the terms of the plan only if—

9 (1) such limitation or exclusion is a limitation

10 or exclusion of benefits relating to the treatment of

11 a preexisting condition; and

12 (2) such limitation or exclusion extends for a

13 period of not more than 12 months after the date

14 of enrollment in the plan.

15 (b) CREDITING OF PREVIOUS QUALIFYING COV16 ERAGE.—

17 (1) IN GENERAL.—Subject to paragraph (4), an

18 employee health benefit plan or a health plan issuer

19 offering a group health plan shall provide that if a

20 participant or beneficiary is in a period of previous

21 qualifying coverage as of the date of enrollment

22 under such plan, any period of exclusion or limita23 tion of coverage with respect to a preexisting condi24 tion shall be reduced by 1 month for each month in

25 which the participant or beneficiary was in the pe26 riod of previous qualifying coverage. With respect to
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1 a participant or beneficiary described in subsection

2 (e)(2)(A) who maintains continuous coverage, no

3 limitation or exclusion of benefits relating to treat4 ment of a preexisting condition may be applied to a

5 child within the child’s first 12 months of life or

6 within 12 months after the placement of a child for

7 adoption.

8 (2) DISCHARGE OF DUTY.—An employee health

9 benefit plan shall provide documentation of coverage

10 to participants and beneficiaries whose coverage is

11 terminated under the plan. Pursuant to regulations

12 promulgated by the Secretary, the duty of an em13 ployee health benefit plan to verify previous qualify14 ing coverage with respect to a participant or bene15 ficiary is effectively discharged when such employee

16 health benefit plan provides documentation to a par17 ticipant or beneficiary that includes the following in18 formation:

19 (A) the dates that the participant or bene20 ficiary was covered under the plan; and

21 (B) the benefits and cost-sharing arrange22 ment available to the participant or beneficiary

23 under such plan.

24 An employee health benefit plan shall retain the doc25 umentation provided to a participant or beneficiary
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1 under subparagraphs (A) and (B) for at least the

2 12-month period following the date on which the

3 participant or beneficiary ceases to be covered under

4 the plan. Upon request, an employee health benefit

5 plan shall provide a second copy of such documenta6 tion to such participant or beneficiary within the 12-

7 month period following the date of such ineligibility.

8 (3) DEFINITIONS.—As used in this section:

9 (A) PREVIOUS QUALIFYING COVERAGE.—

10 The term ‘‘previous qualifying coverage’’ means

11 the period beginning on the date—

12 (i) a participant or beneficiary is en13 rolled under an employee health benefit

14 plan or a group health plan, and ending on

15 the date the participant or beneficiary is

16 not so enrolled; or

17 (ii) an individual is enrolled under an

18 individual health plan (as defined in sec19 tion 113) or under a public or private

20 health plan established under Federal or

21 State law, and ending on the date the indi22 vidual is not so enrolled;

23 for a continuous period of more than 30 days

24 (without regard to any waiting period).
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1 (B) LIMITATION OR EXCLUSION OF BENE2 FITS RELATING TO TREATMENT OF A PRE3 EXISTING CONDITION.—The term ‘‘limitation or

4 exclusion of benefits relating to treatment of a

5 preexisting condition’’ means a limitation or ex6 clusion of benefits imposed on an individual

7 based on a preexisting condition of such individ8 ual.

9 (4) EFFECT OF PREVIOUS COVERAGE.—An em10 ployee health benefit plan or a health plan issuer of11 fering a group health plan may impose a limitation

12 or exclusion of benefits relating to the treatment of

13 a preexisting condition, subject to the limits in sub14 section (a), only to the extent that such service or

15 benefit was not previously covered under the group

16 health plan, employee health benefit plan, or individ17 ual health plan in which the participant or bene18 ficiary was enrolled immediately prior to enrollment

19 in the plan involved.

20 (c) LATE ENROLLEES.—Except as provided in sec21 tion 104, with respect to a participant or beneficiary en22 rolling in an employee health benefit plan or a group

23 health plan during a time that is other than the first op24 portunity to enroll during an enrollment period of at least

25 30 days, coverage with respect to benefits or services relat-
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1 ing to the treatment of a preexisting condition in accord2 ance with subsections (a) and (b) may be excluded, except

3 the period of such exclusion may not exceed 18 months

4 beginning on the date of coverage under the plan.

5 (d) AFFILIATION PERIODS.—With respect to a par6 ticipant or beneficiary who would otherwise be eligible to

7 receive benefits under an employee health benefit plan or

8 a group health plan but for the operation of a preexisting

9 condition limitation or exclusion, if such plan does not uti10 lize a limitation or exclusion of benefits relating to the

11 treatment of a preexisting condition, such plan may im12 pose an affiliation period on such participant or bene13 ficiary not to exceed 60 days (or in the case of a late par14 ticipant or beneficiary described in subsection (c), 90

15 days) from the date on which the participant or bene16 ficiary would otherwise be eligible to receive benefits under

17 the plan. An employee health benefit plan or a health plan

18 issuer offering a group health plan may also use alter19 native methods to address adverse selection as approved

20 by the applicable certifying authority (as defined in section

21 202(d)). During such an affiliation period, the plan may

22 not be required to provide health care services or benefits

23 and no premium shall be charged to the participant or

24 beneficiary.

25 (e) PREEXISTING CONDITION.—
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1 (1) IN GENERAL.—For purposes of this section,

2 the term ‘‘preexisting condition’’ means a condition,

3 regardless of the cause of the condition, for which

4 medical advice, diagnosis, care, or treatment was

5 recommended or received within the 6-month period

6 ending on the day before the effective date of the

7 coverage (without regard to any waiting period).

8 (2) BIRTH, ADOPTION AND PREGNANCY EX9 CLUDED.—The term ‘‘preexisting condition’’ does

10 not apply to—

11 (A) an individual who, within 30 days of

12 the date of the birth or placement for adoption

13 of a child (as determined under section

14 609(c)(3)(B) of the Employee Retirement In15 come Security Act of 1974 (29 U.S.C.

16 1169(c)(3)(B)), was covered under the plan; or

17 (B) pregnancy.

18 (f) STATE FLEXIBILITY.—Nothing in this section

19 shall be construed to preempt State laws that—

20 (1) require health plan issuers to impose a limi21 tation or exclusion of benefits relating to the treat22 ment of a preexisting condition for periods that are

23 shorter than those provided for under this section;

24 or
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1 (2) allow individuals, participants, and bene2 ficiaries to be considered to be in a period of pre3 vious qualifying coverage if such individual, partici4 pant, or beneficiary experiences a lapse in coverage

5 that is greater than the 30-day period provided for

6 under subsection (b)(3); or

7 (3) require health plan issuers to have a

8 lookback period that is shorter than the period de9 scribed in subsection (e)(1);

10 unless such laws are preempted by section 514 of the Em11 ployee Retirement Income Security Act of 1974 (29

12 U.S.C. 1144).

13 SEC. 104. SPECIAL ENROLLMENT PERIODS.

14 In the case of a participant, beneficiary or family

15 member who—

16 (1) through marriage, separation, divorce,

17 death, birth or placement of a child for adoption, ex18 periences a change in family composition affecting

19 eligibility under a group health plan, individual

20 health plan, or employee health benefit plan;

21 (2) experiences a change in employment status,

22 as described in section 603(2) of the Employee Re23 tirement Income Security Act of 1974 (29 U.S.C.

24 1163(2)), that causes the loss of eligibility for cov25 erage, other than COBRA continuation coverage
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1 under a group health plan, individual health plan, or

2 employee health benefit plan; or

3 (3) experiences a loss of eligibility under a

4 group health plan, individual health plan, or em5 ployee health benefit plan because of a change in the

6 employment status of a family member;

7 each employee health benefit plan and each group health

8 plan shall provide for a special enrollment period extend9 ing for a reasonable time after such event that would per10 mit the participant to change the individual or family basis

11 of coverage or to enroll in the plan if coverage would have

12 been available to such individual, participant, or bene13 ficiary but for failure to enroll during a previous enroll14 ment period. Such a special enrollment period shall ensure

15 that a child born or placed for adoption shall be deemed

16 to be covered under the plan as of the date of such birth

17 or placement for adoption if such child is enrolled within

18 30 days of the date of such birth or placement for adop19 tion.

20 SEC. 105. DISCLOSURE OF INFORMATION.

21 (a) DISCLOSURE OF INFORMATION BY HEALTH PLAN

22 ISSUERS.—

23 (1) IN GENERAL.—In connection with the offer24 ing of any group health plan to a small employer (as

25 defined under applicable State law, or if not so de-
29

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1 fined, an employer with not more than 50 employ2 ees), a health plan issuer shall make a reasonable

3 disclosure to such employer, as part of its solicita4 tion and sales materials, of—

5 (A) the provisions of such group health

6 plan concerning the health plan issuer’s right to

7 change premium rates and the factors that may

8 affect changes in premium rates;

9 (B) the provisions of such group health

10 plan relating to renewability of coverage;

11 (C) the provisions of such group health

12 plan relating to any preexisting condition provi13 sion; and

14 (D) descriptive information about the ben15 efits and premiums available under all group

16 health plans for which the employer is qualified.

17 Information shall be provided to small employers

18 under this paragraph in a manner determined to be

19 understandable by the average small employer, and

20 shall be sufficiently accurate and comprehensive to

21 reasonably inform small employers, participants and

22 beneficiaries of their rights and obligations under

23 the group health plan.

24 (2) EXCEPTION.—With respect to the require25 ment of paragraph (1), any information that is pro-
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1 prietary and trade secret information under applica2 ble law shall not be subject to the disclosure require3 ments of such paragraph.

4 (3) CONSTRUCTION.—Nothing in this sub5 section shall be construed to preempt State report6 ing and disclosure requirements to the extent that

7 such requirements are not preempted under section

8 514 of the Employee Retirement Income Security

9 Act of 1974 (29 U.S.C. 1144).

10 (b) DISCLOSURE OF INFORMATION TO PARTICIPANTS

11 AND BENEFICIARIES.—

12 (1) IN GENERAL.—Section 104(b)(1) of the

13 Employee Retirement Income Security Act of 1974

14 (29 U.S.C. 1024(b)(1)) is amended in the matter

15 following subparagraph (B)—

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

17 ‘‘102(a)(1) that is not a material reduction in

18 covered services or benefits provided,’’; and

19 (B) by adding at the end thereof the fol20 lowing new sentences: ‘‘If there is a modifica21 tion or change described in section 102(a)(1)

22 that is a material reduction in covered services

23 or benefits provided, a summary description of

24 such modification or change shall be furnished

25 to participants not later than 60 days after the
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1 date of the adoption of the modification or

2 change. In the alternative, the plan sponsors

3 may provide such description at regular inter4 vals of not more than 90 days. The Secretary

5 shall issue regulations within 180 days after the

6 date of enactment of the Health Insurance Re7 form Act of 1996, providing alternative mecha8 nisms to delivery by mail through which em9 ployee health benefit plans may notify partici10 pants of material reductions in covered services

11 or benefits.’’.

12 (2) PLAN DESCRIPTION AND SUMMARY.—Sec13 tion 102(b) of the Employee Retirement Income Se14 curity Act of 1974 (29 U.S.C. 1022(b)) is amend15 ed—

16 (A) by inserting ‘‘including the office or

17 title of the individual who is responsible for ap18 proving or denying claims for coverage of bene19 fits’’ after ‘‘type of administration of the plan’’;

20 (B) by inserting ‘‘including the name of

21 the organization responsible for financing

22 claims’’ after ‘‘source of financing of the plan’’;

23 and

24 (C) by inserting ‘‘including the office, con25 tact, or title of the individual at the Depart-
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1 ment of Labor through which participants may

2 seek assistance or information regarding their

3 rights under this Act and the Health Insurance

4 Reform Act of 1996 with respect to health ben5 efits that are not offered through a group

6 health plan.’’ after ‘‘benefits under the plan’’.

7 Subtitle B—Individual Market

8 Rules

9 SEC. 110. INDIVIDUAL HEALTH PLAN PORTABILITY.

10 (a) LIMITATION ON REQUIREMENTS.—

11 (1) IN GENERAL.—Except as provided in sub12 sections (c) and (d), a health plan issuer described

13 in paragraph (3) may not, with respect to an eligible

14 individual (described in subsection (b)) desiring to

15 enroll in an individual health plan—

16 (A) decline to offer coverage to, or deny

17 enrollment of, such individual; or

18 (B) impose a limitation or exclusion of

19 benefits, otherwise available under such plan,

20 for which coverage was available under the

21 group health plan or employee health benefit

22 plan in which the individual was previously en23 rolled.

24 (2) HEALTH PROMOTION AND DISEASE PRE25 VENTION.—Nothing in this subsection shall be con-
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1 strued to prevent a health plan issuer offering an in2 dividual health plan from establishing premium dis3 counts or modifying otherwise applicable copayments

4 or deductibles in return for adherence to programs

5 of health promotion or disease prevention.

6 (3) HEALTH PLAN ISSUER.—A health plan is7 suer described in this paragraph is a health plan is8 suer that issues or renews individual health plans.

9 (4) PREMIUMS.—Nothing in this subsection

10 shall be construed to affect the determination of a

11 health plan issuer as to the amount of the premium

12 payable under an individual health plan under appli13 cable State law.

14 (b) DEFINITION OF ELIGIBLE INDIVIDUAL.—As used

15 in subsection (a)(1), the term ‘‘eligible individual’’ means

16 an individual who—

17 (1) was a participant or beneficiary enrolled

18 under one or more group health plans or employee

19 health benefit plans for not less than 18 months

20 (without a lapse of more than 30 days) immediately

21 prior to the date on which such individual applies for

22 enrollment in the individual health plan;

23 (2) is not eligible for coverage under a group

24 health plan or an employee health benefit plan;
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1 (3) has not had coverage terminated under a

2 group health plan or employee health benefit plan

3 for failure to make required premium payments or

4 contributions, or for fraud or misrepresentation of

5 material fact; and

6 (4) has, if applicable, elected coverage and ex7 hausted the maximum period of coverage as de8 scribed in section 602(2)(A) of the Employee Retire9 ment Income Security Act of 1974 (29 U.S.C.

10 1162(2)(A)) or under a State program providing an

11 extension of such coverage.

12 (c) APPLICATION OF CAPACITY LIMITS.—

13 (1) IN GENERAL.—Subject to paragraph (2), a

14 health plan issuer offering coverage to individuals

15 under an individual health plan may cease enrolling

16 individuals under the plan if—

17 (A) the health plan issuer ceases to enroll

18 any new individuals; and

19 (B) the health plan issuer can demonstrate

20 to the applicable certifying authority (as defined

21 in section 202(d)), if required, that its financial

22 or provider capacity to serve previously covered

23 individuals will be impaired if the health plan

24 issuer is required to enroll additional individ25 uals.
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1 Such a health plan issuer shall be prohibited from

2 offering coverage after a cessation in offering cov3 erage under this paragraph for a 6-month period or

4 until the health plan issuer can demonstrate to the

5 applicable certifying authority (as defined in section

6 202(d)) that the health plan issuer has adequate ca7 pacity, whichever is later.

8 (2) FIRST-COME-FIRST-SERVED.—A health plan

9 issuer offering coverage to individuals under an indi10 vidual health plan is only eligible to exercise the lim11 itations provided for in paragraph (1) if the health

12 plan issuer provides for enrollment of individuals

13 under such plan on a first-come-first-served basis or

14 other basis established by a State to ensure a fair

15 opportunity to enroll in the plan and avoid risk se16 lection.

17 (d) MARKET REQUIREMENTS.—

18 (1) IN GENERAL.—The provisions of subsection

19 (a) shall not be construed to require that a health

20 plan issuer offering group health plans to group pur21 chasers offer individual health plans to individuals.

22 (2) CONVERSION POLICIES.—A health plan is23 suer offering group health plans to group purchasers

24 under this Act shall not be deemed to be a health

25 plan issuer offering an individual health plan solely
36

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1 because such health plan issuer offers a conversion

2 policy.

3 (3) MARKETING OF PLANS.—Nothing in this

4 section shall be construed to prevent a State from

5 requiring health plan issuers offering coverage to in6 dividuals under an individual health plan to actively

7 market such plan.

8 (4) CONSTRUCTION.—Nothing in this Act shall

9 be construed to require that a State replace or dis10 solve high risk pools or other similar State mecha11 nisms which are designed to provide individuals in

12 such State with access to health benefits.

13 SEC. 111. GUARANTEED RENEWABILITY OF INDIVIDUAL

14 HEALTH COVERAGE.

15 (a) IN GENERAL.—Subject to subsections (b) and (c),

16 coverage for individuals under an individual health plan

17 shall be renewed or continued in force by a health plan

18 issuer at the option of the individual, except that the re19 quirement of this subsection shall not apply in the case

20 of—

21 (1) the nonpayment of premiums or contribu22 tions by the individual in accordance with the terms

23 of the individual health plan or where the health

24 plan issuer has not received timely premium pay25 ments;
37

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1 (2) fraud or misrepresentation of material fact

2 on the part of the individual; or

3 (3) the termination of the individual health plan

4 in accordance with subsection (b).

5 (b) TERMINATION OF INDIVIDUAL HEALTH

6 PLANS.—

7 (1) PARTICULAR TYPE OF INDIVIDUAL HEALTH

8 PLAN NOT OFFERED.—In any case in which a health

9 plan issuer decides to discontinue offering a particu10 lar type of individual health plan to individuals, an

11 individual health plan may be discontinued by the

12 health plan issuer only if—

13 (A) the health plan issuer provides notice

14 to each individual covered under the plan of

15 such discontinuation at least 90 days prior to

16 the date of the expiration of the plan;

17 (B) the health plan issuer offers to each

18 individual covered under the plan the option to

19 purchase any other individual health plan cur20 rently being offered by the health plan issuer to

21 individuals; and

22 (C) in exercising the option to discontinue

23 the individual health plan and in offering one or

24 more replacement plans, the health plan issuer
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1 acts uniformly without regard to the health sta2 tus or insurability of particular individuals.

3 (2) DISCONTINUANCE OF ALL INDIVIDUAL

4 HEALTH PLANS.—In any case in which a health plan

5 issuer elects to discontinue all individual health

6 plans in a State, an individual health plan may be

7 discontinued by the health plan issuer only if—

8 (A) the health plan issuer provides notice

9 to the applicable certifying authority (as defined

10 in section 202(d)) and to each individual cov11 ered under the plan of such discontinuation at

12 least 180 days prior to the date of the dis13 continuation of the plan; and

14 (B) all individual health plans issued or

15 delivered for issuance in the State are discon16 tinued and coverage under such plans is not re17 newed.

18 (3) PROHIBITION ON MARKET REENTRY.—In

19 the case of a discontinuation under paragraph (2),

20 the health plan issuer may not provide for the issu21 ance of any individual health plan in the State in22 volved during the 5-year period beginning on the

23 date of the discontinuation of the last plan not so

24 renewed.

25 (c) TREATMENT OF NETWORK PLANS.—
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1 (1) GEOGRAPHIC LIMITATIONS.—A health plan

2 issuer which offers a network plan (as defined in

3 paragraph (2)) may deny continued participation

4 under the plan to individuals who neither live, re5 side, nor work in an area in which the individual

6 health plan is offered, but only if such denial is ap7 plied uniformly, without regard to health status or

8 the insurability of particular individuals.

9 (2) NETWORK PLAN.—As used in paragraph

10 (1), the term ‘‘network plan’’ means an individual

11 health plan that arranges for the financing and de12 livery of health care services to individuals covered

13 under such health plan, in whole or in part, through

14 arrangements with providers.

15 SEC. 112. STATE FLEXIBILITY IN INDIVIDUAL MARKET RE16 FORMS.

17 (a) ADOPTION OF ALTERNATIVE MECHANISMS.—

18 (1) IN GENERAL.—A State, in accordance with

19 this section, may adopt alternative mechanisms

20 (public or private) that are designed to provide ac21 cess to affordable health benefits for individuals

22 meeting the requirements of sections 110(b) and

23 111 (such as mechanisms providing for guaranteed

24 issue, open enrollment by one or more health plan
40

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1 issuers, high-risk pools, mandatory conversion poli2 cies, or any combination thereof).

3 (2) PROCEDURE FOR STATE ELECTION.—If, not

4 later than 6 months after the date of enactment of

5 this Act, the Governor of a State notifies the Sec6 retary of Health and Human Services that—

7 (A) the State has adopted an alternative

8 mechanism that achieves the goals of sections

9 110 and 111; or

10 (B) the State intends to implement an al11 ternative mechanism that is designed to achieve

12 the goals of sections 110 and 111;

13 such State alternative mechanism shall, except as

14 provided in paragraphs (3) and (4), apply in lieu of

15 the standards described in sections 110 and 111.

16 (3) NONAPPLICATION OF MECHANISM.—A State

17 alternative mechanism adopted under paragraph (1)

18 shall be presumed to achieve the goals of sections

19 110 and 111 and shall apply in lieu of such sections,

20 unless the Secretary of Health and Human Services,

21 in consultation with the Governor and Insurance

22 Commissioner or chief insurance regulatory official

23 of the State, finds that the State alternative mecha24 nism fails to—
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1 (A) offer coverage to those individuals who

2 meet the requirements of sections 110(b) and

3 111;

4 (B) prohibit a limitation or exclusion of

5 benefits relating to treatment of a preexisting

6 condition that was covered under the previous

7 group health plan or employee health benefit

8 plan of an individual who meets the require9 ments of sections 110(b) and 111;

10 (C) offer individuals who meet the require11 ments of sections 110(b) and 111 a choice of

12 individual health plans, including at least one

13 plan comparable to comprehensive plans offered

14 in the individual market in such State or a plan

15 comparable to a standard option plan available

16 under the group or individual health insurance

17 laws of such State; or

18 (D) except as provided in paragraph (4),

19 implement a risk spreading mechanism, cross

20 subsidy mechanism, risk adjustment mecha21 nism, rating limitation or other mechanism

22 (such as mechanisms described in the NAIC

23 Model Health Plan for Uninsurable Individuals

24 Act) designed to reduce the variation among the

25 cost of such plans and other individual health
42

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1 plans offered by the carrier or available in such

2 State.

3 (4) CHOICE OF PLANS.—The Secretary of

4 Health and Human Services shall waive the require5 ment in subparagraph (D) of paragraph (3) with re6 spect to a State if individuals who meet the require7 ments of sections 110(b) and 111 in such State are

8 provided with a choice of all individual health plans

9 otherwise available in the individual market.

10 (5) FUTURE ADOPTION OF MECHANISMS.—

11 With respect to a State that implements an alter12 native mechanism under paragraph (1) after the pe13 riod referred to in paragraph (2)—

14 (A) the State shall provide notice to the

15 Secretary that such alternative mechanism

16 achieves the goals of sections 110 and 111;

17 (B) the State alternative mechanism shall

18 apply in lieu of sections 110 and 111;

19 (C) except as provided in subsections (d)

20 and (e), the Secretary may make a determina21 tion as provided for in paragraph (3); and

22 (D) the procedures described in subsection

23 (c) shall apply.

24 (b) TIMEFRAME FOR SECRETARIAL DETERMINA25 TION.—
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1 (1) IN GENERAL.—With respect to a State elec2 tion under subsection (a)(2)(B), the Secretary of

3 Health and Human Services shall not make a deter4 mination under subsection (a)(3) until the expiration

5 of the 12-month period beginning on the date on

6 which such notification is made, or until January 1,

7 1998, whichever is later.

8 (2) RULE APPLICABLE TO CERTAIN STATES.—

9 With respect to a State that makes an election

10 under subsection (a)(2)(B) and that has a legisla11 ture that does not meet within the 12-month period

12 beginning on the date of enactment of this Act, the

13 Secretary of Health and Human Services shall not

14 make a determination under subsection (a) prior to

15 January 1, 1999.

16 (c) NOTICE TO STATE.—If the Secretary of Health

17 and Human Services determines that a State alternative

18 mechanism fails to meet the criteria described in sub19 section (a)(3), or that such mechanism is no longer being

20 implemented, the Secretary of Health and Human Serv21 ices shall notify the Governor of such State of such pre22 liminary determination and permit the State a reasonable

23 opportunity in which to modify the alternative mechanism

24 or to adopt another mechanism that is designed to meet

25 the goals of sections 110 and 111. If, after an opportunity
44

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1 to modify such State alternative mechanism, the mecha2 nism fails to meet the criteria described in subsection

3 (a)(3), the Secretary shall notify the Governor of such

4 State that sections 110 and 111 shall apply in the State.

5 (d) ADOPTION OF NAIC MODEL.—If, not later than

6 9 months after the date of enactment of this Act—

7 (1) the National Association of Insurance Com8 missioners (hereafter referred to as the ‘‘NAIC’’),

9 through a process which the Secretary of Health and

10 Human Services determines has included consulta11 tion with representatives of the insurance industry

12 and consumer groups, has adopted a model act or

13 acts including provisions addressing portability from

14 a group health plan or employee health benefit plan

15 into the individual health insurance market; and

16 (2) the Secretary of Health and Human Serv17 ices determines, within 30 days of the adoption of

18 such NAIC model act or acts, that such act or acts

19 comply with the goals of sections 110 and 111;

20 a State that elects to adopt such model act or acts shall

21 be deemed to have met the requirements of sections 110

22 and 111 and shall not be subject to a determination under

23 subsection (a)(3).

24 (e) STATE HIGH RISK POOLS DEEMED IN COMPLI25 ANCE.—If the Governor of a State notifies the Secretary
45

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1 of Health and Human Services in a timeframe consistent

2 with either subsection (a)(2) or (a)(5) that such State has

3 a high risk pool open to those individuals meeting the re4 quirements of sections 110(b) and 111, that limits pre5 existing condition waiting periods consistent with section

6 110(a)(1)(B) and that with respect to premium rates and

7 covered benefits is consistent with standards included in

8 the NAIC Model Health Plan for Uninsurable Individuals

9 Act, such State high risk pool shall be deemed to have

10 met the requirements of sections 110 and 111 and shall

11 not be subject to a determination under subsection (a)(3).

12 SEC. 113. DEFINITION.

13 (a) IN GENERAL.—As used in this title, the term ‘‘in14 dividual health plan’’ means any contract, policy, certifi15 cate or other arrangement offered to individuals by a

16 health plan issuer that provides or pays for health benefits

17 (such as provider and hospital benefits) and that is not

18 a group health plan under section 2(6).

19 (b) ARRANGEMENTS NOT INCLUDED.—Such term

20 does not include the following, or any combination thereof:

21 (1) Coverage only for accident, or disability in22 come insurance, or any combination thereof.

23 (2) Medicare supplemental health insurance (as

24 defined under section 1882(g)(1) of the Social Secu25 rity Act).
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1 (3) Coverage issued as a supplement to liability

2 insurance.

3 (4) Liability insurance, including general liabil4 ity insurance and automobile liability insurance.

5 (5) Workers’ compensation or similar insurance.

6 (6) Automobile medical payment insurance.

7 (7) Coverage for a specified disease or illness.

8 (8) Hospital or fixed indemnity insurance.

9 (9) Short-term limited duration insurance.

10 (10) Credit-only, dental-only, or vision-only in11 surance.

12 (11) A health insurance policy providing bene13 fits only for long-term care, nursing home care,

14 home health care, community-based care, or any

15 combination thereof.

16 Subtitle C—COBRA Clarifications

17 SEC. 121. COBRA CLARIFICATIONS.

18 (a) PUBLIC HEALTH SERVICE ACT.—

19 (1) PERIOD OF COVERAGE.—Section 2202(2) of

20 the Public Health Service Act (42 U.S.C. 300bb–

21 2(2)) is amended—

22 (A) in subparagraph (A)—

23 (i) by transferring the sentence imme24 diately preceding clause (iv) so as to ap-
47

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1 pear immediately following such clause

2 (iv); and

3 (ii) in the last sentence (as so trans4 ferred)—

5 (I) by inserting ‘‘, or a bene6 ficiary-family member of the individ7 ual,’’ after ‘‘an individual’’; and

8 (II) by striking ‘‘at the time of a

9 qualifying event described in section

10 2203(2)’’ and inserting ‘‘at any time

11 during the initial 18-month period of

12 continuing coverage under this title’’;

13 (B) in subparagraph (D)(i), by inserting

14 before ‘‘, or’’ the following: ‘‘, except that the

15 exclusion or limitation contained in this clause

16 shall not be considered to apply to a plan under

17 which a preexisting condition or exclusion does

18 not apply to an individual otherwise eligible for

19 continuation coverage under this section be20 cause of the provision of the Health Insurance

21 Reform Act of 1996’’; and

22 (C) in subparagraph (E), by striking ‘‘at

23 the time of a qualifying event described in sec24 tion 2203(2)’’ and inserting ‘‘at any time dur-
48

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1 ing the initial 18-month period of continuing

2 coverage under this title’’.

3 (2) NOTICES.—Section 2206(3) of the Public

4 Health Service Act (42 U.S.C. 300bb–6(3)) is

5 amended by striking ‘‘at the time of a qualifying

6 event described in section 2203(2)’’ and inserting

7 ‘‘at any time during the initial 18-month period of

8 continuing coverage under this title’’.

9 (3) BIRTH OR ADOPTION OF A CHILD.—Section

10 2208(3)(A) of the Public Health Service Act (42

11 U.S.C. 300bb–8(3)(A)) is amended by adding at the

12 end thereof the following new flush sentence:

13 ‘‘Such term shall also include a child who is born to

14 or placed for adoption with the covered employee

15 during the period of continued coverage under this

16 title.’’.

17 (b) EMPLOYEE RETIREMENT INCOME SECURITY ACT

18 OF 1974.—

19 (1) PERIOD OF COVERAGE.—Section 602(2) of

20 the Employee Retirement Income Security Act of

21 1974 (29 U.S.C. 1162(2)) is amended—

22 (A) in the last sentence of subparagraph

23 (A)—
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1 (i) by inserting ‘‘, or a beneficiary2 family member of the individual,’’ after

3 ‘‘an individual’’; and

4 (ii) by striking ‘‘at the time of a

5 qualifying event described in section

6 603(2)’’ and inserting ‘‘at any time during

7 the initial 18-month period of continuing

8 coverage under this part’’;

9 (B) in subparagraph (D)(i), by inserting

10 before ‘‘, or’’ the following: ‘‘, except that the

11 exclusion or limitation contained in this clause

12 shall not be considered to apply to a plan under

13 which a preexisting condition or exclusion does

14 not apply to an individual otherwise eligible for

15 continuation coverage under this section be16 cause of the provision of the Health Insurance

17 Reform Act of 1996’’; and

18 (C) in subparagraph (E), by striking ‘‘at

19 the time of a qualifying event described in sec20 tion 603(2)’’ and inserting ‘‘at any time during

21 the initial 18-month period of continuing cov22 erage under this part’’.

23 (2) NOTICES.—Section 606(3) of the Employee

24 Retirement Income Security Act of 1974 (29 U.S.C.

25 1166(3)) is amended by striking ‘‘at the time of a
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1 qualifying event described in section 603(2)’’ and in2 serting ‘‘at any time during the initial 18-month pe3 riod of continuing coverage under this part’’.

4 (3) BIRTH OR ADOPTION OF A CHILD.—Section

5 607(3)(A) of the Employee Retirement Income Secu6 rity Act of 1974 (29 U.S.C. 1167(3)) is amended by

7 adding at the end thereof the following new flush

8 sentence:

9 ‘‘Such term shall also include a child who is born to

10 or placed for adoption with the covered employee

11 during the period of continued coverage under this

12 part.’’.

13 (c) INTERNAL REVENUE CODE OF 1986.—

14 (1) PERIOD OF COVERAGE.—Section

15 4980B(f)(2)(B) of the Internal Revenue Code of

16 1986 is amended—

17 (A) in the last sentence of clause (i) by

18 striking ‘‘at the time of a qualifying event de19 scribed in paragraph (3)(B)’’ and inserting ‘‘at

20 any time during the initial 18-month period of

21 continuing coverage under this section’’;

22 (B) in clause (iv)(I), by inserting before ‘‘,

23 or’’ the following: ‘‘, except that the exclusion

24 or limitation contained in this subclause shall

25 not be considered to apply to a plan under
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1 which a preexisting condition or exclusion does

2 not apply to an individual otherwise eligible for

3 continuation coverage under this subsection be4 cause of the provision of the Health Insurance

5 Reform Act of 1995’’; and

6 (C) in clause (v), by striking ‘‘at the time

7 of a qualifying event described in paragraph

8 (3)(B)’’ and inserting ‘‘at any time during the

9 initial 18-month period of continuing coverage

10 under this section’’.

11 (2) NOTICES.—Section 4980B(f)(6)(C) of the

12 Internal Revenue Code of 1986 is amended by strik13 ing ‘‘at the time of a qualifying event described in

14 paragraph (3)(B)’’ and inserting ‘‘at any time dur15 ing the initial 18-month period of continuing cov16 erage under this section’’.

17 (3) BIRTH OR ADOPTION OF A CHILD.—Section

18 4980B(g)(1)(A) of the Internal Revenue Code of

19 1986 is amended by adding at the end thereof the

20 following new flush sentence:

21 ‘‘Such term shall also include a child who

22 is born to or placed for adoption with the

23 covered employee during the period of con24 tinued coverage under this section.’’.
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to qualifying events occurring on

3 or after the date of the enactment of this Act for plan

4 years beginning after December 31, 1997.

5 (e) NOTIFICATION OF CHANGES.—Not later than 60

6 days prior to the date on which this section becomes effec7 tive, each group health plan (covered under title XXII of

8 the Public Health Service Act, part 6 of subtitle B of title

9 I of the Employee Retirement Income Security Act of

10 1974, and section 4980B(f) of the Internal Revenue Code

11 of 1986) shall notify each qualified beneficiary who has

12 elected continuation coverage under such title, part or sec13 tion of the amendments made by this section.

14 Subtitle D—Private Health Plan

15 Purchasing Cooperatives

16 SEC. 131. PRIVATE HEALTH PLAN PURCHASING COOPERA17 TIVES.

18 (a) DEFINITION.—As used in this Act, the term

19 ‘‘health plan purchasing cooperative’’ means a group of

20 employees or a group of individuals and employers that,

21 on a voluntary basis and in accordance with this section,

22 form a cooperative for the purpose of purchasing individ23 ual health plans or group health plans offered by health

24 plan issuers.

25 (b) CERTIFICATION.—
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1 (1) REQUIREMENT.—If a group described in

2 subsection (a), desires to form a health plan pur3 chasing cooperative in accordance with this section

4 and such group appropriately notifies the State and

5 the Secretary of such desire, the State, upon a de6 termination that such group meets the requirements

7 of this section, shall certify the group as a health

8 plan purchasing cooperative. The State shall make a

9 determination of whether such group meets the re10 quirements of this section in a timely fashion and

11 shall oversee the operations of such cooperative in

12 order to ensure continued compliance with the re13 quirements of this section. Each such cooperative

14 shall also be registered with the Secretary.

15 (2) STATE REFUSAL TO CERTIFY.—

16 (A) IN GENERAL.—If a State fails to im17 plement a program for certifying health plan

18 purchasing cooperatives in accordance with the

19 standards under this Act, the Secretary shall

20 certify and oversee the operations of such co21 operatives in such State.

22 (B) EXCEPTION.—The Secretary shall not

23 certify a health plan purchasing cooperative de24 scribed in this section if, upon the submission

25 of an application by the State to the Secretary,
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1 the Secretary determines that under a State

2 law in effect on the date of enactment of this

3 Act, all small employers have a means readily

4 available that ensures—

5 (i) that individuals and employees

6 have a choice of multiple, unaffiliated

7 health plan issuers;

8 (ii) that health plan coverage is sub9 ject to State premium rating requirements

10 that are not based on the factors described

11 in subsection (f)(3) and that contains a

12 mandatory minimum loss ratio; and

13 (iii) that comparative health plan ma14 terials are disseminated consistent with

15 subsection (e)(1)(D);

16 and that otherwise meets the objectives of this

17 Act.

18 (3) INTERSTATE COOPERATIVES.—For purposes

19 of this section, a health plan purchasing cooperative

20 operating in more than one State shall be certified

21 by the State in which the cooperative is domiciled.

22 States may enter into cooperative agreements for the

23 purpose of overseeing the operation of such coopera24 tives. For purposes of this subsection, a cooperative
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1 shall be considered to be domiciled in the State in

2 which most of the members of the cooperative reside.

3 (c) BOARD OF DIRECTORS.—

4 (1) IN GENERAL.—Each health plan purchasing

5 cooperative shall be governed by a Board of Direc6 tors that shall be responsible for ensuring the per7 formance of the duties of the cooperative under this

8 section. The Board shall be composed of a broad

9 cross-section of representatives of employers, em10 ployees, and individuals participating in the coopera11 tive.

12 (2) LIMITATION ON COMPENSATION.—A health

13 plan purchasing cooperative may not provide com14 pensation to members of the Board of Directors.

15 The cooperative may provide reimbursements to

16 such members for the reasonable and necessary ex17 penses incurred by the members in the performance

18 of their duties as members of the Board.

19 (d) MEMBERSHIP AND MARKETING AREA.—

20 (1) MEMBERSHIP.—A health plan purchasing

21 cooperative may establish limits on the maximum

22 size of employers who may become members of the

23 cooperative, and may determine whether to permit

24 individuals to become members. Upon the establish25 ment of such membership requirements, the coopera-
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1 tive shall, except as provided in subparagraph (B),

2 accept all employers (or individuals) residing within

3 the area served by the cooperative who meet such re4 quirements as members on a first come, first-served

5 basis, or on another basis established by the State

6 to ensure equitable access to the cooperative.

7 (2) MARKETING AREA.—A State may establish

8 rules regarding the geographic area that must be

9 served by health plan purchasing cooperatives to en10 sure that cooperatives do not discriminate on the

11 basis of the health status or insurability of the popu12 lations that reside in the area served. A State may

13 not use such rules to arbitrarily limit the number of

14 health plan purchasing cooperatives.

15 (e) DUTIES AND RESPONSIBILITIES.—

16 (1) IN GENERAL.—A health plan purchasing co17 operative shall—

18 (A) objectively evaluate potential health

19 plan issuers and enter into agreements with

20 multiple, unaffiliated health plan issuers, except

21 that the requirement of this subparagraph shall

22 not apply in regions (such as remote or frontier

23 areas) in which compliance with such require24 ment is not possible;
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1 (B) enter into agreements with employers

2 and individuals who become members of the co3 operative;

4 (C) participate in any program of risk-ad5 justment or reinsurance, or any similar pro6 gram, that is established by the State;

7 (D) prepare and disseminate comparative

8 health plan materials (including information

9 about cost, quality, benefits, and other informa10 tion concerning group health plans and individ11 ual health plans offered through the coopera12 tive);

13 (E) broadly solicit and actively market to

14 all eligible employers and individuals residing

15 within the service area; and

16 (F) act as an ombudsman for group health

17 plan or individual health plan enrollees.

18 (2) PERMISSIBLE ACTIVITIES.—A health plan

19 purchasing cooperative may perform such other

20 functions as necessary to further the purposes of

21 this Act, including—

22 (A) collecting and distributing premiums

23 and performing other administrative functions;

24 (B) collecting and analyzing surveys of en25 rollee satisfaction;
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1 (C) charging membership fee to enrollees

2 (such fees may not be based on health status)

3 and charging participation fees to health plan

4 issuers;

5 (D) cooperating with (or accepting as

6 members) employers who provide health bene7 fits directly to participants and beneficiaries

8 only for the purpose of negotiating with provid9 ers; and

10 (E) negotiating with health care providers

11 and health plan issuers.

12 (f) LIMITATIONS ON COOPERATIVE ACTIVITIES.—A

13 health plan purchasing cooperative shall not—

14 (1) perform any activity relating to the licens15 ing of health plan issuers;

16 (2) assume financial risk directly or indirectly

17 on behalf of members of a health plan purchasing

18 cooperative relating to any group health plan or in19 dividual health plan;

20 (3) establish eligibility, enrollment, or premium

21 contribution requirements for individual participants

22 or beneficiaries based on health status, medical con23 dition, claims experience, receipt of health care,

24 medical history, evidence of insurability, genetic in25 formation, or disability;
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1 (4) operate on a for-profit or other basis where

2 the legal structure of the cooperative permits profits

3 to be made and not returned to the members of the

4 cooperative, except that a for-profit health plan pur5 chasing cooperative may be formed by a nonprofit

6 organization or organizations—

7 (A) in which membership in such organiza8 tion is not based on health status, medical con9 dition, claims experience, receipt of health care,

10 medical history, evidence of insurability, genetic

11 information, or disability; and

12 (B) that accepts as members all employers

13 or individuals on a first-come, first-served basis,

14 subject to any established limit on the maxi15 mum size of an employer that may become a

16 member; or

17 (5) perform any other activities that conflict or

18 are inconsistent with the performance of its duties

19 under this Act.

20 (g) CONFLICT OF INTEREST.—

21 (1) PROHIBITION.—No individual, partnership,

22 or corporation shall serve on the board of a health

23 plan purchasing cooperative, be employed by such a

24 cooperative, receive compensation from such a coop-
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1 erative, or initiate or finance such a cooperative if

2 such individual, partnership, or corporation—

3 (A) fails to discharge the duties and re4 sponsibilities of such individual, partnership or

5 corporation in a manner that is solely in the in6 terest of the members of the cooperative; or

7 (B) derives personal benefit (other than in

8 the form of ordinary compensation received)

9 from the sale of, or has a financial interest in,

10 health plans, services or products sold by or dis11 tributed through that cooperative.

12 (2) CONTRACTS WITH THIRD PARTIES.—Noth13 ing in paragraph (1) shall be construed to prohibit

14 the board of directors of a health plan purchasing

15 cooperative, or its officers, at the initiative and

16 under this direction of the board, from contracting

17 with third parties to provide administrative, market18 ing, consultive, or other services to the cooperative.

19 (h) LIMITED PREEMPTION OF CERTAIN STATE

20 LAWS.—

21 (1) IN GENERAL.—With respect to a health

22 plan purchasing cooperative that meets the require23 ments of this section, State fictitious group laws

24 shall be preempted.

25 (2) HEALTH PLAN ISSUERS.—
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1 (A) RATING.—Except as provided in sub2 paragraph (B), a health plan issuer offering a

3 group health plan or individual health plan

4 through a health plan purchasing cooperative

5 that meets the requirements of this section

6 shall comply with all State rating requirements

7 that would otherwise apply if the health plan

8 were offered outside of the cooperative.

9 (B) EXCEPTION.—A State shall permit a

10 health plan issuer to reduce premium rates ne11 gotiated with a health plan purchasing coopera12 tive that meets the requirements of this section

13 to reflect savings derived from administrative

14 costs, marketing costs, profit margins, econo15 mies of scale, or other factors, except that any

16 such reduction in premium rates may not be

17 based on the health status, demographic fac18 tors, industry type, duration, or other indicators

19 of health risk of the members of the coopera20 tive.

21 (C) BENEFITS.—Except as provided in

22 subparagraph (D), a health plan issuer offering

23 a group health plan or individual health plan

24 through a health plan purchasing cooperative

25 shall comply with all State mandated benefit
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1 laws that require the offering of any services,

2 category of care, or services of any class or type

3 of provider.

4 (D) EXCEPTION.—In those States that

5 have enacted laws authorizing the issuance of

6 alternative benefit plans to small employers,

7 health plan issuers may offer such alternative

8 benefit plans through a health plan purchasing

9 cooperative that meets the requirements of this

10 section.

11 (i) RULES OF CONSTRUCTION.—Nothing in this sec12 tion shall be construed to—

13 (1) require that a State organize, operate, or

14 otherwise create health plan purchasing cooperatives;

15 (2) otherwise require the establishment of

16 health plan purchasing cooperatives;

17 (3) require individuals, plan sponsors, or em18 ployers to purchase group health plans or individual

19 health plans through a health plan purchasing coop20 erative;

21 (4) preempt a State from requiring licensure

22 for individuals who are involved in directly supplying

23 advice or selling health plans on behalf of a purchas24 ing cooperative;
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1 (5) require that a health plan purchasing coop2 erative be the only type of purchasing arrangement

3 permitted to operate in a State;

4 (6) confer authority upon a State that the State

5 would not otherwise have to regulate health plan is6 suers or employee health benefits plans;

7 (7) confer authority upon a State (or the Fed8 eral Government) that the State (or Federal Govern9 ment) would not otherwise have to regulate group

10 purchasing arrangements, coalitions, association

11 plans, or other similar entities that do not desire to

12 become a health plan purchasing cooperative in ac13 cordance with this section; or

14 (8) except as specifically provided otherwise in

15 this subsection, prevent the application of State laws

16 and regulations otherwise applicable to health plan

17 issuers offering group health plans or individual

18 health plans through a health plan purchasing coop19 erative.

20 (j) APPLICATION OF ERISA.—For purposes of en21 forcement only, the requirements of parts 4 and 5 of sub22 title B of title I of the Employee Retirement Income Secu23 rity Act of 1974 (29 U.S.C. 1101) shall apply to a health

24 plan purchasing cooperative as if such plan were an em25 ployee welfare benefit plan.
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1 TITLE II—APPLICATION AND

2 ENFORCEMENT OF STANDARDS

3 SEC. 201. APPLICABILITY.

4 (a) CONSTRUCTION.—

5 (1) ENFORCEMENT.—

6 (A) IN GENERAL.—A requirement or

7 standard imposed under this Act on a group

8 health plan or individual health plan offered by

9 a health plan issuer shall be deemed to be a re10 quirement or standard imposed on the health

11 plan issuer. Such requirements or standards

12 shall be enforced by the State insurance com13 missioner for the State involved or the official

14 or officials designated by the State to enforce

15 the requirements of this Act. In the case of a

16 group health plan offered by a health plan is17 suer in connection with an employee health ben18 efit plan, the requirements or standards im19 posed under this Act shall be enforced with re20 spect to the health plan issuer by the State in21 surance commissioner for the State involved or

22 the official or officials designated by the State

23 to enforce the requirements of this Act.

24 (B) LIMITATION.—Except as provided in

25 subsection (c), the Secretary shall not enforce
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1 the requirements or standards of this Act as

2 they relate to health plan issuers, group health

3 plans, or individual health plans. In no case

4 shall a State enforce the requirements or stand5 ards of this Act as they relate to employee

6 health benefit plans.

7 (2) PREEMPTION OF STATE LAW.—Nothing in

8 this Act shall be construed to prevent a State from

9 establishing, implementing, or continuing in effect

10 standards and requirements—

11 (A) not prescribed in this Act; or

12 (B) related to the issuance, renewal, or

13 portability of health insurance or the establish14 ment or operation of group purchasing arrange15 ments, that are consistent with, and are not in

16 direct conflict with, this Act and provide greater

17 protection or benefit to participants, bene18 ficiaries or individuals.

19 (b) RULE OF CONSTRUCTION.—Nothing in this Act

20 shall be construed to affect or modify the provisions of

21 section 514 of the Employee Retirement Income Security

22 Act of 1974 (29 U.S.C. 1144).

23 (c) CONTINUATION.—Nothing in this Act shall be

24 construed as requiring a group health plan or an employee

25 health benefit plan to provide benefits to a particular par-
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1 ticipant or beneficiary, to all participants or beneficiaries,

2 or to any class or group of participants or beneficiaries,

3 in excess of or other than those provided under the terms

4 of such plan.

5 SEC. 202. ENFORCEMENT OF STANDARDS.

6 (a) HEALTH PLAN ISSUERS.—Each State shall re7 quire that each group health plan and individual health

8 plan issued, sold, renewed, offered for sale or operated in

9 such State by a health plan issuer meet the standards es10 tablished under this Act pursuant to an enforcement plan

11 filed by the State with the Secretary. A State shall submit

12 such information as required by the Secretary demonstrat13 ing effective implementation of the State enforcement

14 plan.

15 (b) EMPLOYEE HEALTH BENEFIT PLANS.—With re16 spect to employee health benefit plans, the Secretary shall

17 enforce the reform standards established under this Act

18 in the same manner as provided for under sections 502,

19 504, 506, and 510 of the Employee Retirement Income

20 Security Act of 1974 (29 U.S.C. 1132, 1134, 1136, and

21 1140). The civil penalties contained in paragraphs (1) and

22 (2) of section 502(c) of such Act (29 U.S.C. 1132(c)(1)

23 and (2)) shall apply to any information required by the

24 Secretary to be disclosed and reported under this section.
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1 (c) FAILURE TO IMPLEMENT PLAN.—In the case of

2 the failure of a State to substantially enforce the stand3 ards and requirements set forth in this Act with respect

4 to group health plans and individual health plans as pro5 vided for under the State enforcement plan filed under

6 subsection (a), the Secretary, in consultation with the Sec7 retary of Health and Human Services, shall implement an

8 enforcement plan meeting the standards of this Act in

9 such State. In the case of a State that fails to substan10 tially enforce the standards and requirements set forth in

11 this Act, each health plan issuer operating in such State

12 shall be subject to civil enforcement as provided for under

13 sections 502, 504, 506, and 510 of the Employee Retire14 ment Income Security Act of 1974 (29 U.S.C. 1132, 1134,

15 1136, and 1140). The civil penalties contained in para16 graphs (1) and (2) of section 502(c) of such Act (29

17 U.S.C. 1132(c)(1) and (2)) shall apply to any information

18 required by the Secretary to be disclosed and reported

19 under this section.

20 (d) APPLICABLE CERTIFYING AUTHORITY.—As used

21 in this title, the term ‘‘applicable certifying authority’’

22 means, with respect to—

23 (1) health plan issuers, the State insurance

24 commissioner or official or officials designated by
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1 the State to enforce the requirements of this Act for

2 the State involved; and

3 (2) an employee health benefit plan, the Sec4 retary.

5 (e) REGULATIONS.—The Secretary may promulgate

6 such regulations as may be necessary or appropriate to

7 carry out this Act.

8 (f) TECHNICAL AMENDMENT.—Section 508 of the

9 Employee Retirement Income Security Act of 1974 (29

10 U.S.C. 1138) is amended by inserting ‘‘and under the

11 Health Insurance Reform Act of 1996’’ before the period.

12 TITLE III—MISCELLANEOUS

13 PROVISIONS

14 SEC. 301. HMOS ALLOWED TO OFFER PLANS WITH

15 DEDUCTIBLES TO INDIVIDUALS WITH MEDI16 CAL SAVINGS ACCOUNTS.

17 (a) IN GENERAL.—Section 1301(b) of the Public

18 Health Service Act (42 U.S.C. 300e(b)) is amended by

19 adding at the end the following new paragraph:

20 ‘‘(6)(A) If a member certifies that a medical

21 savings account has been established for the benefit

22 of such member, a health maintenance organization

23 may, at the request of such member reduce the basic

24 health services payment otherwise determined under
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1 paragraph (1) by requiring the payment of a deduct2 ible by the member for basic health services.

3 ‘‘(B) For purposes of this paragraph, the term

4 ‘medical savings account’ means an account which,

5 by its terms, allows the deposit of funds and the use

6 of such funds and income derived from the invest7 ment of such funds for the payment of the deduct8 ible described in subparagraph (A).’’.

9 (b) MEDICAL SAVINGS ACCOUNTS.—It is the sense

10 of the Committee on Labor and Human Resources of the

11 Senate that the establishment of medical savings accounts,

12 including those defined in section 1301(b)(6)(B) of the

13 Public Health Service Act (42 U.S.C. 300e(b)(6)(B)),

14 should be encouraged as part of any health insurance re15 form legislation passed by the Senate through the use of

16 tax incentives relating to contributions to, the income

17 growth of, and the qualified use of, such accounts.

18 (c) SENSE OF THE SENATE.—It is the sense of the

19 Senate that the Congress should take measures to further

20 the purposes of this Act, including any necessary changes

21 to the Internal Revenue Code of 1986 to encourage groups

22 and individuals to obtain health coverage, and to promote

23 access, equity, portability, affordability, and security of

24 health benefits.
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1 SEC. 302. HEALTH COVERAGE AVAILABILITY STUDY.

2 (a) IN GENERAL.—The Secretary of Health and

3 Human Services, in consultation with the Secretary, rep4 resentatives of State officials, consumers, and other rep5 resentatives of individuals and entities that have expertise

6 in health insurance and employee benefits, shall conduct

7 a three-part study, and prepare and submit reports, in ac8 cordance with this section.

9 (b) EVALUATION OF AVAILABILITY.—Not later than

10 January 1, 1998, the Secretary of Health and Human

11 Services shall prepare and submit to the appropriate com12 mittees of Congress a report, concerning—

13 (1) an evaluation, based on the experience of

14 States, expert opinions, and such additional data as

15 may be available, of the various mechanisms used to

16 ensure the availability of reasonably priced health

17 coverage to employers purchasing group coverage

18 and to individuals purchasing coverage on a non19 group basis; and

20 (2) whether standards that limit the variation

21 in premiums will further the purposes of this Act.

22 (c) EVALUATION OF EFFECTIVENESS.—Not later

23 than January 1, 1999, the Secretary of Health and

24 Human Services shall prepare and submit to the appro25 priate committees of Congress a report, concerning the ef26 fectiveness of the provisions of this Act and the various
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1 State laws, in ensuring the availability of reasonably

2 priced health coverage to employers purchasing group cov3 erage and individuals purchasing coverage on a non-group

4 basis.

5 (d) EVALUATION OF ACCESS AND CHOICE.—Not

6 later than June 1, 1998, the Secretary of Health and

7 Human Services shall prepare and submit to the appro8 priate committees of Congress a report concerning—

9 (1) an evaluation of the extent to which pa10 tients have direct access to, and choice of, health

11 care provider, including specialty providers, within a

12 network of providers, as well as the opportunity to

13 utilize providers outside of the network, under the

14 various types of coverage offered under the provi15 sions of this Act;

16 (2) an evaluation of the cost to the insurer of

17 providing out-of-network access to providers, and the

18 feasibility of providing out-of-network access in all

19 health plans offered under provisions of this Act;

20 and

21 (3) an evaluation of the percent of premium

22 dollar utilized for medical care and administration of

23 the various types of coverage offered, including cov24 erage which permits out-of-network access and

25 choice of provider, under provisions of this Act.
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1 SEC. 303. REIMBURSEMENT OF TELEMEDICINE.

2 The Health Care Financing Administration is di3 rected to complete their ongoing study of reimbursement

4 of all telemedicine services and submit a report to Con5 gress with a proposal for reimbursement of fee-for-service

6 medicine by March 1, 1997. The report shall utilize data

7 compiled from the current demonstration projects already

8 under review and gather data from other ongoing tele9 medicine networks. This report shall include an analysis

10 of the cost of services provided via telemedicine.

11 SEC. 304. SENSE OF THE COMMITTEE CONCERNING MEDI12 CARE.

13 (a) FINDINGS.—The Committee on Labor and

14 Human Resources of the Senate finds that the Public

15 Trustees of Medicare concluded in their 1995 Annual Re16 port that—

17 (1) the Medicare program is clearly

18 unsustainable in its present form;

19 (2) ‘‘the Hospital Insurance Trust Fund, which

20 pays inpatient hospital expenses, will be able to pay

21 benefits for only about 7 years and is severely out

22 of financial balance in the long range’’; and

23 (3) the Public Trustees ‘‘strongly recommend

24 that the crisis presented by the financial condition of

25 the Medicare trust fund be urgently addressed on a

26 comprehensive basis, including a review of the
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1 programs’s financing methods, benefit provisions,

2 and delivery mechanisms’’.

3 (b) SENSE OF THE COMMITTEE.—It is the Sense of

4 the Committee on Labor and Human Resources of the

5 Senate that the Senate should take measures necessary

6 to reform the Medicare program, to provide increased

7 choice for seniors, and to respond to the findings of the

8 Public Trustees by protecting the short-term solvency and

9 long-term sustainability of the Medicare program.

10 SEC. 305. PARITY FOR MENTAL HEALTH SERVICES.

11 (a) PROHIBITION.—An employee health benefit plan,

12 or a health plan issuer offering a group health plan or

13 an individual health plan, shall not impose treatment limi14 tations or financial requirements on the coverage of men15 tal health services if similar limitations or requirements

16 are not imposed on coverage for services for other condi17 tions.

18 (b) RULE OF CONSTRUCTION.—Nothing in sub19 section (a) shall be construed as prohibiting an employee

20 health benefit plan, or a health plan issuer offering a

21 group health plan or an individual health plan, from re22 quiring preadmission screening prior to the authorization

23 of services covered under the plan or from applying other

24 limitations that restrict coverage for mental health serv25 ices to those services that are medically necessary.
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1 SEC. 306. WAIVER OF FOREIGN COUNTRY RESIDENCE RE2 QUIREMENT WITH RESPECT TO INTER3 NATIONAL MEDICAL GRADUATES.

4 (a) EXTENSION OF WAIVER PROGRAM.—Section

5 220(c) of the Immigration and Nationality Technical Cor6 rections Act of 1994 (8 U.S.C. 1182 note) is amended

7 by striking ‘‘June 1, 1996’’ and inserting ‘‘June 1, 2002’’.

8 (b) CONDITIONS ON FEDERALLY REQUESTED WAIV9 ERS.—Section 212(e) of the Immigration and Nationality

10 Act (8 U.S.C. 1184(e)) is amended by inserting after ‘‘ex11 cept that in the case of a waiver requested by a State De12 partment of Public Health or its equivalent’’ the following:

13 ‘‘or in the case of a waiver requested by an interested

14 United States Government agency on behalf of an alien

15 described in clause (iii)’’.

16 (c) RESTRICTIONS ON FEDERALLY REQUESTED

17 WAIVERS.—Section 214(k) (8 U.S.C. 1184(k)) is amend18 ed to read as follows:

19 ‘‘(k)(1) In the case of a request by an interested

20 State agency or by an interested United States Govern21 ment agency for a waiver of the two-year foreign residence

22 requirement under section 212(e) with respect to an alien

23 described in clause (iii) of that section, the Attorney Gen24 eral shall not grant such waiver unless—

25 ‘‘(A) in the case of an alien who is otherwise

26 contractually obligated to return to a foreign coun-
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1 try, the government of such country furnishes the

2 Director of the United States Information Agency

3 with a statement in writing that it has no objection

4 to such waiver; and

5 ‘‘(B)(i) in the case of a request by an interested

6 State agency—

7 ‘‘(I) the alien demonstrates a bona fide

8 offer of full-time employment, agrees to begin

9 employment with the health facility or organiza10 tion named in the waiver application within 90

11 days of receiving such waiver, and agrees to

12 work for a total of not less than three years

13 (unless the Attorney General determines that

14 extenuating circumstances exist, such as closure

15 of the facility or hardship to the alien would

16 justify a lesser period of time); and

17 ‘‘(II) the alien’s employment continues to

18 benefit the public interest; or

19 ‘‘(ii) in the case of a request by an interested

20 United States Government agency—

21 ‘‘(I) the alien demonstrates a bona fide

22 offer of full-time employment that has been

23 found to be in the public interest, agrees to

24 begin employment with the health facility or or25 ganization named in the waiver application
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1 within 90 days of receiving such waiver, and

2 agrees to work for a total of not less than three

3 years (unless the Attorney General determines

4 that extenuating circumstances exist, such as

5 closure of the facility or hardship to the alien

6 would justify a lesser period of time); and

7 ‘‘(II) the alien’s employment continues to

8 benefit the public interest;

9 ‘‘(C) in the case of a request by an interested

10 State agency, the alien agrees to practice medicine

11 in accordance with paragraph (2) for a total of not

12 less than three years only in the geographic area or

13 areas which are designated by the Secretary of

14 Health and Human Services as having a shortage of

15 health care professionals; and

16 ‘‘(D) in the case of a request by an interested

17 State agency, the grant of such a waiver would not

18 cause the number of waivers allotted for that State

19 for that fiscal year to exceed 20.

20 ‘‘(2)(A) Notwithstanding section 248(2) the Attorney

21 General may change the status of an alien that qualifies

22 under this subsection and section 212(e) to that of an

23 alien described in section 101(a)(15)(H)(i)(b).

24 ‘‘(B) No person who has obtained a change of status

25 under subparagraph (A) and who has failed to fulfill the
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1 terms of the contract with the health facility or organiza2 tion named in the waiver application shall be eligible to

3 apply for an immigrant visa, for permanent residence, or

4 for any other change of nonimmigrant status until it is

5 established that such person has resided and been phys6 ically present in the country of his nationality or his last

7 residence for an aggregate of at least two years following

8 departure from the United States.

9 ‘‘(3) Notwithstanding any other provisions of this

10 subsection, the two-year foreign residence requirement

11 under section 212(e) shall apply with respect to an alien

12 in clause (iii) of that section who has not otherwise been

13 accorded status under section 101(a)(27)(H)—

14 ‘‘(A) in the case of a request by an interested

15 State agency, if at any time the alien practices medi16 cine in an area other than an area described in para17 graph (1)(C); and

18 ‘‘(B) in the case of a request by an interested

19 United States Government agency, if at any time the

20 alien engages in employment for a health facility or

21 organization not named in the waiver application.’’.
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1 SEC. 307. ORGAN AND TISSUE DONATION INFORMATION IN2 CLUDED WITH INCOME TAX REFUND PAY3 MENTS.

4 (a) IN GENERAL.—The Secretary of the Treasury

5 shall include with any payment of a refund of individual

6 income tax made during the period beginning on February

7 1, 1997, and ending on June 30, 1997, a copy of the docu8 ment described in subsection (b).

9 (b) TEXT OF DOCUMENT.—The Secretary of the

10 Treasury shall, after consultation with the Secretary of

11 Health and Human Services and organizations promoting

12 organ and tissue (including eye) donation, prepare a docu13 ment suitable for inclusion with individual income tax re14 fund payments which—

15 (1) encourages organ and tissue donation;

16 (2) includes a detachable organ and tissue

17 donor card; and

18 (3) urges recipients to—

19 (A) sign the organ and tissue donor card;

20 (B) discuss organ and tissue donation with

21 family members and tell family members about

22 the recipient’s desire to be an organ and tissue

23 donor if the occasion arises; and

24 (C) encourage family members to request

25 or authorize organ and tissue donation if the

26 occasion arises.
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1 SEC. 308. SENSE OF THE SENATE REGARDING ADEQUATE

2 HEALTH CARE COVERAGE FOR ALL CHIL3 DREN AND PREGNANT WOMEN.

4 (a) FINDINGS.—The Senate finds the following:

5 (1) The health care coverage of mothers and

6 children in the United States is unacceptable, with

7 more than 9,300,000 children and 500,000 expect8 ant mothers having no health insurance.

9 (2) Among industrial nations, the United States

10 ranks 1st in wealth but 18th in infant mortality, and

11 14th among such nations in maternal mortality.

12 (3) 22 percent of pregnant women do not have

13 prenatal care in the first trimester, and 22 percent

14 of all poor children are uninsured, despite the medic15 aid program under title XIX of the Social Security

16 Act.

17 (4) Of the 1,100,000 net increase in uninsured

18 persons from 1992 to 1993, 84 percent or 922,500

19 were children.

20 (5) Since 1987, the number of children covered

21 by employment based health insurance has de22 creased, and many children lack health insurance de23 spite the relative affordability of providing insurance

24 for children.

25 (6) Health care coverage for children is rel26 atively inexpensive and in 1993 the medicaid pro-
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1 gram spent an average of $1,012 per child compared

2 to $8,220 per elderly adult.

3 (7) Uninsured children are generally children of

4 lower income workers, who are less likely than high5 er income workers to have health insurance for their

6 families because they are less likely to work for a

7 firm that offers insurance, and if such insurance is

8 offered, it is often too costly for lower income work9 ers to purchase.

10 (8) In 1993, 61 percent of uninsured children

11 were in families with at least one parent working full

12 time for the entire year the child was uninsured, and

13 about 57 percent of uninsured children had a family

14 income at or below 150 percent of the Federal pov15 erty level.

16 (9) If Congress eliminates the Federal guaran17 tee of medicaid, an estimated 4,900,000 children

18 may lose their guarantee of health care coverage,

19 and those same children may be added to the cur20 rently projected 12,600,000 children who will be un21 insured by the year 2002.

22 (10) Studies have shown that uninsured chil23 dren are less likely than insured children to receive

24 needed health and preventive care, which can affect

25 their health status adversely throughout their lives,
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1 with such children less likely to have routine doctor

2 visits, receive care for injuries, and have a regular

3 source of medical care.

4 (11) The families of uninsured children are

5 more likely to take the children to an emergency

6 room than to a private physician or health mainte7 nance organization.

8 (12) Children without health insurance are less

9 likely to be appropriately immunized or receive other

10 preventive care for childhood illnesses.

11 (13) Ensuring the health of children clearly in12 creases their chances to become productive members

13 of society and averts more serious or more expensive

14 health conditions later in life, and ensuring that all

15 pregnant women receive competent prenatal care

16 also saves social costs.

17 (14) Although the United States has made

18 great improvements in health care coverage through

19 the medicaid program, it is still the only developed

20 nation that does not ensure that all of its children

21 and pregnant women have health care coverage.

22 (15) The United States should not accept a sta23 tus quo in which children in many neighborhoods are

24 more likely to have access to drugs and guns than

25 to doctors, or accept a status quo in which health
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1 care is ensured for all prisoners but not for all chil2 dren.

3 (b) SENSE OF THE SENATE.—It is the sense of the

4 Senate that the issue of adequate health care for our

5 mothers and children is important to the future of the

6 United States, and in consideration of the importance of

7 such issue, the Senate should pass health care legislation

8 that will ensure health care coverage for all of the United

9 States’s pregnant women and children.

10 SEC. 309. SENSE OF THE SENATE REGARDING AVAILABLE

11 TREATMENTS.

12 It is the sense of the Senate that the Senate finds

13 that patients deserve to know the full range of treatments

14 available to them and Congress should thoughtfully exam15 ine these issues to ensure that all patients get the care

16 they deserve.

17 SEC. 310. MEDICAL VOLUNTEERS.

18 (a) SHORT TITLE.—This title may be cited as the

19 ‘‘Medical Volunteer Act’’.

20 (b) TORT CLAIM IMMUNITY.—

21 (1) GENERAL RULE.—A health care profes22 sional who provides a health care service to a medi23 cally underserved person without receiving com24 pensation for such health care service, shall be re25 garded, for purposes of any medical malpractice
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1 claim that may arise in connection with the provi2 sion of such service, as an employee of the Federal

3 Government for purposes of the Federal tort claims

4 provisions in title 28, United States Code.

5 (2) COMPENSATION.—For purposes of para6 graph (1), a health care professional shall be deemed

7 to have provided a health care service without com8 pensation only if, prior to furnishing a health care

9 service, the health care professional—

10 (A) agrees to furnish the health care serv11 ice without charge to any person, including any

12 health insurance plan or program under which

13 the recipient is covered; and

14 (B) provides the recipient of the health

15 care service with adequate notice (as deter16 mined by the Secretary) of the limited liability

17 of the health care professional with respect to

18 the service.

19 (c) PREEMPTION.—The provisions of this section

20 shall preempt any State law to the extent that such law

21 is inconsistent with such provisions. The provisions of this

22 section shall not preempt any State law that provides

23 greater incentives or protections to a health care profes24 sional rendering a health care service.

25 (d) DEFINITIONS.—For purposes of this section:
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1 (1) HEALTH CARE PROFESSIONAL.—The term

2 ‘‘health care professional’’ means a person who, at

3 the time the person provides a health care service,

4 is licensed or certified by the appropriate authorities

5 for practice in a State to furnish health care serv6 ices.

7 (2) HEALTH CARE SERVICE.—The term ‘‘health

8 care service’’ means any medical assistance to the

9 extent it is included in the plan submitted under

10 title XIX of the Social Security Act for the State in

11 which the service was provided.

12 (3) MEDICALLY UNDERSERVED PERSON.—The

13 term ‘‘medically underserved person’’ means a per14 son who resides in—

15 (A) a medically underserved area as de16 fined for purposes of determining a medically

17 underserved population under section 330 of

18 the Public Health Service Act (42 U.S.C.

19 254c); or

20 (B) a health professional shortage area as

21 defined in section 332 of such Act (42 U.S.C.

22 254e);

23 and who receives care in a health care facility sub24 stantially comparable to any of those designated in

25 the Federally Supported Health Centers Assistance
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1 Act (42 U.S.C. 233 et seq.), as shall be determined

2 in regulations promulgated by the Secretary.

3 (4) SECRETARY.—The term ‘‘Secretary’’ means

4 the Secretary of the Department of Health and

5 Human Services.

6 SEC. 311. EFFECTIVE DATE.

7 Except as otherwise provided for in this Act, the pro8 visions of this Act shall apply as follows:

9 (1) With respect to group health plans, such

10 provisions shall apply to plans offered, sold, issued,

11 renewed, in effect, or operated on or after January

12 1, 1997.

13 (2) With respect to individual health plans,

14 such provisions shall apply to plans offered, sold, is15 sued, renewed, in effect, or operated on or after the

16 date that is 6 months after the date of enactment

17 of this Act, or January 1, 1997, whichever is later.

18 (3) With respect to employee health benefit

19 plans, such provisions shall apply to such plans on

20 the first day of the first plan year beginning on or

21 after January 1, 1997.

22 SEC. 312. SEVERABILITY.

23 If any provision of this Act or the application of such

24 provision to any person or circumstance is held to be un25 constitutional, the remainder of this Act and the applica-
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1 tion of the provisions of such to any person or cir2 cumstance shall not be affected thereby.

3 TITLE IV—TAX-RELATED

4 HEALTH PROVISIONS

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

6 (a) SHORT TITLE.—This title may be cited as the

7 ‘‘Health Insurance and Long-Term Care Affordability Act

8 of 1996’’.

9 (b) AMENDMENT OF 1986 CODE.—Except as other10 wise expressly provided, whenever in this title an amend11 ment or repeal is expressed in terms of an amendment

12 to, or repeal of, a section or other provision, the reference

13 shall be considered to be made to a section or other provi14 sion of the Internal Revenue Code of 1986.

15 Subtitle A—Increase in Deduction

16 for Health Insurance Costs of

17 Self-Employed Individuals

18 SEC. 401. INCREASE IN SELF-EMPLOYED INDIVIDUALS’ DE19 DUCTION FOR HEALTH INSURANCE COSTS.

20 (a) IN GENERAL.—Section 162(l) (relating to special

21 rules for health insurance costs of self-employed individ22 uals) is amended—

23 (1) by striking ‘‘30 percent’’ in paragraph (1)

24 and inserting ‘‘the applicable percentage’’, and
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1 (2) by adding at the end the following new

2 paragraph:

3 ‘‘(6) APPLICABLE PERCENTAGE.—For purposes

4 of this subsection, the term ‘applicable percentage’

5 means the percentage determined in accordance with

6 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.’’.

7 (b) EFFECTIVE DATE.—The amendments made by

8 this section shall apply to taxable years beginning after

9 December 31, 1996.

10 Subtitle B—Long-Term Care

11 Provisions

12 CHAPTER 1—LONG-TERM CARE SERVICES

13 AND CONTRACTS

14 Subchapter A—General Provisions

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

16 (a) GENERAL RULE.—Chapter 79 (relating to defini17 tions) is amended by inserting after section 7702A the fol18 lowing new section:
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1 ‘‘SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE

2 INSURANCE.

3 ‘‘(a) IN GENERAL.—For purposes of this title—

4 ‘‘(1) a qualified long-term care insurance con5 tract shall be treated as an accident and health in6 surance contract,

7 ‘‘(2) amounts (other than policyholder divi8 dends, as defined in section 808, or premium re9 funds) received under a qualified long-term care in10 surance contract shall be treated as amounts re11 ceived for personal injuries and sickness and shall be

12 treated as reimbursement for expenses actually in13 curred for medical care (as defined in section

14 213(d)),

15 ‘‘(3) any plan of an employer providing cov16 erage under a qualified long-term care insurance

17 contract shall be treated as an accident and health

18 plan with respect to such coverage,

19 ‘‘(4) except as provided in subsection (e)(3),

20 amounts paid for a qualified long-term care insur21 ance contract providing the benefits described in

22 subsection (b)(2)(A) shall be treated as payments

23 made for insurance for purposes of section

24 213(d)(1)(D), and
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1 ‘‘(5) a qualified long-term care insurance con2 tract shall be treated as a guaranteed renewable con3 tract subject to the rules of section 816(e).

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

5 CONTRACT.—For purposes of this title—

6 ‘‘(1) IN GENERAL.—The term ‘qualified long7 term care insurance contract’ means any insurance

8 contract if—

9 ‘‘(A) the only insurance protection pro10 vided under such contract is coverage of quali11 fied long-term care services,

12 ‘‘(B) such contract does not pay or reim13 burse expenses incurred for services or items to

14 the extent that such expenses are reimbursable

15 under title XVIII of the Social Security Act or

16 would be so reimbursable but for the applica17 tion of a deductible or coinsurance amount,

18 ‘‘(C) such contract is guaranteed renew19 able,

20 ‘‘(D) such contract does not provide for a

21 cash surrender value or other money that can

22 be—

23 ‘‘(i) paid, assigned, or pledged as col24 lateral for a loan, or

25 ‘‘(ii) borrowed,
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1 other than as provided in subparagraph (E) or

2 paragraph (2)(C), and

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

5 such contract are to be applied as a reduction

6 in future premiums or to increase future bene7 fits.

8 ‘‘(2) SPECIAL RULES.—

9 ‘‘(A) PER DIEM, ETC. PAYMENTS PER10 MITTED.—A contract shall not fail to be de11 scribed in subparagraph (A) or (B) of para12 graph (1) by reason of payments being made on

13 a per diem or other periodic basis without re14 gard to the expenses incurred during the period

15 to which the payments relate.

16 ‘‘(B) SPECIAL RULES RELATING TO MEDI17 CARE.—

18 ‘‘(i) Paragraph (1)(B) shall not apply

19 to expenses which are reimbursable under

20 title XVIII of the Social Security Act only

21 as a secondary payor.

22 ‘‘(ii) No provision of law shall be con23 strued or applied so as to prohibit the of24 fering of a qualified long-term care insur25 ance contract on the basis that the con-
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1 tract coordinates its benefits with those

2 provided under such title.

3 ‘‘(C) REFUNDS OF PREMIUMS.—Paragraph

4 (1)(E) shall not apply to any refund on the

5 death of the insured, or on a complete surren6 der or cancellation of the contract, which can7 not exceed the aggregate premiums paid under

8 the contract. Any refund on a complete surren9 der or cancellation of the contract shall be in10 cludible in gross income to the extent that any

11 deduction or exclusion was allowable with re12 spect to the premiums.

13 ‘‘(c) QUALIFIED LONG-TERM CARE SERVICES.—For

14 purposes of this section—

15 ‘‘(1) IN GENERAL.—The term ‘qualified long16 term care services’ means necessary diagnostic, pre17 ventive, therapeutic, curing, treating, mitigating, and

18 rehabilitative services, and maintenance or personal

19 care services, which—

20 ‘‘(A) are required by a chronically ill indi21 vidual, and

22 ‘‘(B) are provided pursuant to a plan of

23 care prescribed by a licensed health care practi24 tioner.

25 ‘‘(2) CHRONICALLY ILL INDIVIDUAL.—
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1 ‘‘(A) IN GENERAL.—The term ‘chronically

2 ill individual’ means any individual who has

3 been certified by a licensed health care practi4 tioner as—

5 ‘‘(i) being unable to perform (without

6 substantial assistance from another indi7 vidual) at least 2 activities of daily living

8 for a period of at least 90 days due to a

9 loss of functional capacity,

10 ‘‘(ii) having a level of disability simi11 lar (as determined by the Secretary in con12 sultation with the Secretary of Health and

13 Human Services) to the level of disability

14 described in clause (i), or

15 ‘‘(iii) requiring substantial supervision

16 to protect such individual from threats to

17 health and safety due to severe cognitive

18 impairment.

19 Such term shall not include any individual oth20 erwise meeting the requirements of the preced21 ing sentence unless within the preceding 12-

22 month period a licensed health care practitioner

23 has certified that such individual meets such re24 quirements.
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1 ‘‘(B) ACTIVITIES OF DAILY LIVING.—For

2 purposes of subparagraph (A), each of the fol3 lowing is an activity of daily living:

4 ‘‘(i) Eating.

5 ‘‘(ii) Toileting.

6 ‘‘(iii) Transferring.

7 ‘‘(iv) Bathing.

8 ‘‘(v) Dressing.

9 ‘‘(vi) Continence.

10 Nothing in this section shall be construed to re11 quire a contract to take into account all of the

12 preceding activities of daily living.

13 ‘‘(3) MAINTENANCE OR PERSONAL CARE SERV14 ICES.—The term ‘maintenance or personal care serv15 ices’ means any care the primary purpose of which

16 is the provision of needed assistance with any of the

17 disabilities as a result of which the individual is a

18 chronically ill individual (including the protection

19 from threats to health and safety due to severe cog20 nitive impairment).

21 ‘‘(4) LICENSED HEALTH CARE PRACTI22 TIONER.—The term ‘licensed health care practi23 tioner’ means any physician (as defined in section

24 1861(r)(1) of the Social Security Act (42 U.S.C.

25 1395x(r)(1)) and any registered professional nurse,
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1 licensed social worker, or other individual who meets

2 such requirements as may be prescribed by the Sec3 retary.

4 ‘‘(d) AGGREGATE PAYMENTS IN EXCESS OF LIM5 ITS.—

6 ‘‘(1) IN GENERAL.—If the aggregate amount of

7 periodic payments under all qualified long-term care

8 insurance contracts with respect to an insured for

9 any period exceeds the dollar amount in effect for

10 such period under paragraph (3), such excess pay11 ments shall be treated as made for qualified long12 term care services only to the extent of the costs in13 curred by the payee (not otherwise compensated for

14 by insurance or otherwise) for qualified long-term

15 care services provided during such period for such

16 insured.

17 ‘‘(2) PERIODIC PAYMENTS.—For purposes of

18 paragraph (1), the term ‘periodic payment’ means

19 any payment (whether on a periodic basis or other20 wise) made without regard to the extent of the costs

21 incurred by the payee for qualified long-term care

22 services.

23 ‘‘(3) DOLLAR AMOUNT.—The dollar amount in

24 effect under this subsection shall be $175 per day
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1 (or the equivalent amount in the case of payments

2 on another periodic basis).

3 ‘‘(4) INFLATION ADJUSTMENT.—In the case of

4 a calendar year after 1997, the dollar amount con5 tained in paragraph (3) shall be increased at the

6 same time and in the same manner as amounts are

7 increased pursuant to section 213(d)(11).

8 ‘‘(e) TREATMENT OF COVERAGE PROVIDED AS PART

9 OF A LIFE INSURANCE CONTRACT.—Except as otherwise

10 provided in regulations prescribed by the Secretary, in the

11 case of any long-term care insurance coverage (whether

12 or not qualified) provided by a rider on or as a part of

13 a life insurance contract—

14 ‘‘(1) IN GENERAL.—This section shall apply as

15 if the portion of the contract providing such cov16 erage is a separate contract.

17 ‘‘(2) APPLICATION OF 7702.—Section

18 7702(c)(2) (relating to the guideline premium limi19 tation) shall be applied by increasing the guideline

20 premium limitation with respect to a life insurance

21 contract, as of any date—

22 ‘‘(A) by the sum of any charges (but not

23 premium payments) against the life insurance

24 contract’s cash surrender value (within the
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1 meaning of section 7702(f)(2)(A)) for such cov2 erage made to that date under the contract, less

3 ‘‘(B) any such charges the imposition of

4 which reduces the premiums paid for the con5 tract (within the meaning of section

6 7702(f)(1)).

7 ‘‘(3) APPLICATION OF SECTION 213.—No deduc8 tion shall be allowed under section 213(a) for

9 charges against the life insurance contract’s cash

10 surrender value described in paragraph (2), unless

11 such charges are includible in income as a result of

12 the application of section 72(e)(10) and the rider is

13 a qualified long-term care insurance contract under

14 subsection (b).

15 ‘‘(4) PORTION DEFINED.—For purposes of this

16 subsection, the term ‘portion’ means only the terms

17 and benefits under a life insurance contract that are

18 in addition to the terms and benefits under the con19 tract without regard to the coverage under a quali20 fied long-term care insurance contract.’’.

21 (b) RESERVE METHOD.—Clause (iii) of section

22 807(d)(3)(A) is amended by inserting ‘‘(other than a

23 qualified long-term care insurance contract, as defined in

24 section 7702B(b))’’ after ‘‘insurance contract’’.
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1 (c) LONG-TERM CARE INSURANCE NOT PERMITTED

2 UNDER CAFETERIA PLANS OR FLEXIBLE SPENDING AR3 RANGEMENTS.—

4 (1) CAFETERIA PLANS.—Section 125(f) is

5 amended by adding at the end the following new

6 sentence: ‘‘Such term shall not include any long7 term care insurance contract (as defined in section

8 4980C).’’.

9 (2) FLEXIBLE SPENDING ARRANGEMENTS.—

10 The text of section 106 (relating to contributions by

11 employer to accident and health plans) is amended

12 to read as follows:

13 ‘‘(a) GENERAL RULE.—Except as otherwise provided

14 in this section, gross income of an employee does not in15 clude employer-provided coverage under an accident or

16 health plan.

17 ‘‘(b) INCLUSION OF LONG-TERM CARE BENEFITS

18 PROVIDED THROUGH FLEXIBLE SPENDING ARRANGE19 MENTS.—

20 ‘‘(1) IN GENERAL.—Effective on and after Jan21 uary 1, 1997, gross income of an employee shall in22 clude employer-provided coverage for qualified long23 term care services (as defined in section 7702B(c))

24 to the extent that such coverage is provided through

25 a flexible spending or similar arrangement.
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1 ‘‘(2) FLEXIBLE SPENDING ARRANGEMENT.—

2 For purposes of this subsection, a flexible spending

3 arrangement is a benefit program which provides

4 employees with coverage under which—

5 ‘‘(A) specified incurred expenses may be

6 reimbursed (subject to reimbursement maxi7 mums and other reasonable conditions), and

8 ‘‘(B) the maximum amount of reimburse9 ment which is reasonably available to a partici10 pant for such coverage is less than 500 percent

11 of the value of such coverage.

12 In the case of an insured plan, the maximum

13 amount reasonably available shall be determined on

14 the basis of the underlying coverage.’’.

15 (d) CONTINUATION COVERAGE EXCISE TAX NOT TO

16 APPLY.—Subsection (f) of section 4980B is amended by

17 adding at the end the following new paragraph:

18 ‘‘(9) CONTINUATION OF LONG-TERM CARE COV19 ERAGE NOT REQUIRED.—A group health plan shall

20 not be treated as failing to meet the requirements of

21 this subsection solely by reason of failing to provide

22 coverage under any qualified long-term care insur23 ance contract (as defined in section 7702B(b)).’’.

24 (e) AMOUNTS PAID TO SPOUSE OR RELATIVES

25 TREATED AS NOT PAID FOR MEDICAL CARE.—Section
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1 213(d) is amended by adding at the end the following new

2 paragraph:

3 ‘‘(10) CERTAIN PAYMENTS TO SPOUSE OR REL4 ATIVES TREATED AS NOT PAID FOR MEDICAL

5 CARE.—An amount paid for a qualified long-term

6 care service (as defined in section 7702B(c)) pro7 vided to an individual shall be treated as not paid

8 for medical care if such service is provided—

9 ‘‘(A) by the spouse of the individual or a

10 relative (directly or through a partnership, cor11 poration, or other entity) unless the spouse or

12 relative is a licensed professional with respect to

13 such services, or

14 ‘‘(B) by a corporation or partnership which

15 is related (within the meaning of section 267(b)

16 or 707(b)) to the individual.

17 For purposes of this paragraph, the term ‘relative’

18 means an individual bearing a relationship to the in19 dividual which is described in any of paragraphs (1)

20 through (8) of section 152(a). This paragraph shall

21 not apply for purposes of section 105(b) with respect

22 to reimbursements through insurance.’’.

23 (f) CLERICAL AMENDMENT.—The table of sections

24 for chapter 79 is amended by inserting after the item re25 lating to section 7702A the following new item:

‘‘Sec. 7702B. Treatment of qualified long-term care insurance.’’.
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1 (g) EFFECTIVE DATE.—

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

3 this section shall apply to contracts issued after De4 cember 31, 1996.

5 (2) CONTINUATION OF EXISTING POLICIES.—In

6 the case of any contract issued before January 1,

7 1997, which met the long-term care insurance re8 quirements of the State in which the contract was

9 issued at the time the contract was issued—

10 (A) such contract shall be treated for pur11 poses of the Internal Revenue Code of 1986 as

12 a qualified long-term care insurance contract

13 (as defined in section 7702B(b) of such Code),

14 and

15 (B) services provided under, or reimbursed

16 by, such contract shall be treated for such pur17 poses as qualified long-term care services (as

18 defined in section 7702B(c) of such Code).

19 (3) EXCHANGES OF EXISTING POLICIES.—If,

20 after the date of enactment of this Act and before

21 January 1, 1998, a contract providing for long-term

22 care insurance coverage is exchanged solely for a

23 qualified long-term care insurance contract (as de24 fined in section 7702B(b) of such Code), no gain or

25 loss shall be recognized on the exchange. If, in addi-
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1 tion to a qualified long-term care insurance contract,

2 money or other property is received in the exchange,

3 then any gain shall be recognized to the extent of

4 the sum of the money and the fair market value of

5 the other property received. For purposes of this

6 paragraph, the cancellation of a contract providing

7 for long-term care insurance coverage and reinvest8 ment of the cancellation proceeds in a qualified long9 term care insurance contract within 60 days there10 after shall be treated as an exchange.

11 (4) ISSUANCE OF CERTAIN RIDERS PER12 MITTED.—For purposes of applying sections 101(f),

13 7702, and 7702A of the Internal Revenue Code of

14 1986 to any contract—

15 (A) the issuance of a rider which is treated

16 as a qualified long-term care insurance contract

17 under section 7702B, and

18 (B) the addition of any provision required

19 to conform any other long-term care rider to be

20 so treated,

21 shall not be treated as a modification or material

22 change of such contract.
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1 SEC. 412. QUALIFIED LONG-TERM CARE SERVICES TREAT2 ED AS MEDICAL CARE.

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

4 213(d) (defining medical care) is amended by striking

5 ‘‘or’’ at the end of subparagraph (B), by redesignating

6 subparagraph (C) as subparagraph (D), and by inserting

7 after subparagraph (B) the following new subparagraph:

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

9 (as defined in section 7702B(c)), or’’.

10 (b) TECHNICAL AMENDMENTS.—

11 (1) Subparagraph (D) of section 213(d)(1) (as

12 redesignated by subsection (a)) is amended by strik13 ing ‘‘subparagraphs (A) and (B)’’ and inserting

14 ‘‘subparagraphs (A), (B), and (C)’’.

15 (2)(A) Paragraph (1) of section 213(d) is

16 amended by adding at the end the following new

17 flush sentence:

18 ‘‘In the case of a qualified long-term care insurance

19 contract (as defined in section 7702B(b)), only eligi20 ble long-term care premiums (as defined in para21 graph (11)) shall be taken into account under sub22 paragraph (D).’’.

23 (B) Subsection (d) of section 213 is amended

24 by adding at the end the following new paragraph:

25 ‘‘(11) ELIGIBLE LONG-TERM CARE PRE26 MIUMS.—
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1 ‘‘(A) IN GENERAL.—For purposes of this

2 section, the term ‘eligible long-term care pre3 miums’ means the amount paid during a tax4 able year for any qualified long-term care insur5 ance contract (as defined in section 7702B(b))

6 covering an individual, to the extent such

7 amount does not exceed the limitation deter8 mined under the following table:

‘‘In the case of an individual

with an attained age before the The limitation

close of the taxable year of: is:

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

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

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

More than 60 but not more than 70 ......... 2,000

More than 70 ............................................. 2,500.

9 ‘‘(B) INDEXING.—

10 ‘‘(i) IN GENERAL.—In the case of any

11 taxable year beginning in a calendar year

12 after 1997, each dollar amount contained

13 in subparagraph (A) shall be increased by

14 the medical care cost adjustment of such

15 amount for such calendar year. If any in16 crease determined under the preceding sen17 tence is not a multiple of $10, such in18 crease shall be rounded to the nearest mul19 tiple of $10.

20 ‘‘(ii) MEDICAL CARE COST ADJUST21 MENT.—For purposes of clause (i), the
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1 medical care cost adjustment for any cal2 endar year is the percentage (if any) by

3 which—

4 ‘‘(I) the medical care component

5 of the Consumer Price Index (as de6 fined in section 1(f)(5)) for August of

7 the preceding calendar year, exceeds

8 ‘‘(II) such component for August

9 of 1996.

10 The Secretary shall, in consultation with

11 the Secretary of Health and Human Serv12 ices, prescribe an adjustment which the

13 Secretary determines is more appropriate

14 for purposes of this paragraph than the

15 adjustment described in the preceding sen16 tence, and the adjustment so prescribed

17 shall apply in lieu of the adjustment de18 scribed in the preceding sentence.’’.

19 (3) Paragraph (6) of section 213(d) is amend20 ed—

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

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

23 and (C)’’, and
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1 (B) by striking ‘‘paragraph (1)(C)’’ in sub2 paragraph (A) and inserting ‘‘paragraph

3 (1)(D)’’.

4 (4) Paragraph (7) of section 213(d) is amended

5 by striking ‘‘subparagraphs (A) and (B)’’ and insert6 ing ‘‘subparagraphs (A), (B), and (C)’’.

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

8 this section shall apply to taxable years beginning after

9 December 31, 1996.

10 SEC. 413. CERTAIN EXCHANGES OF LIFE INSURANCE CON11 TRACTS FOR QUALIFIED LONG-TERM CARE

12 INSURANCE CONTRACTS NOT TAXABLE.

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

14 (relating to certain exchanges of insurance contracts) is

15 amended by striking the period at the end of paragraph

16 (3) and inserting ‘‘; or’’, and by adding at the end the

17 following new paragraph:

18 ‘‘(4) a contract of life insurance or an endow19 ment or annuity contract for a qualified long-term

20 care insurance contract (as defined in section

21 7702B(b)).’’.

22 (b) EFFECTIVE DATE.—The amendment made by

23 this section shall apply to taxable years beginning after

24 December 31, 1997.
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1 SEC. 414. EXCEPTION FROM PENALTY TAX FOR AMOUNTS

2 WITHDRAWN FROM CERTAIN RETIREMENT

3 PLANS FOR QUALIFIED LONG-TERM CARE IN4 SURANCE.

5 (a) IN GENERAL.—Paragraph (2) of section 72(t) is

6 amended by adding at the end the following new subpara7 graph:

8 ‘‘(D) PREMIUMS FOR QUALIFIED LONG9 TERM CARE INSURANCE CONTRACTS.—Distribu10 tions to an individual from an individual retire11 ment plan, or from amounts attributable to em12 ployer contributions made pursuant to elective

13 deferrals described in subparagraph (A) or (C)

14 of section 402(g)(3), to the extent such dis15 tributions do not exceed the premiums for a

16 qualified long-term care insurance contract (as

17 defined in section 7702B(b)) for such individual

18 or the spouse of such individual. In applying

19 subparagraph (B), such premiums shall be

20 treated as amounts not paid for medical care.’’.

21 (b) DISTRIBUTIONS PERMITTED FROM CERTAIN

22 PLANS TO PAY LONG-TERM CARE PREMIUMS.—

23 (1) Section 401(k)(2)(B)(i) is amended by

24 striking ‘‘or’’ at the end of subclause (III), by strik25 ing ‘‘and’’ at the end of subclause (IV) and inserting
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1 ‘‘or’’, and by inserting after subclause (IV) the fol2 lowing new subclause:

3 ‘‘(V) the date distributions for

4 premiums for a long-term care insur5 ance contract (as defined in section

6 7702B(b)) for coverage of such indi7 vidual or the spouse of such individual

8 are made, and’’.

9 (2) Section 403(b)(11) is amended by striking

10 ‘‘or’’ at the end of subparagraph (A), by striking the

11 period at the end of subparagraph (B) and inserting

12 ‘‘, or’’, and by inserting after subparagraph (B) the

13 following new subparagraph:

14 ‘‘(C) for the payment of premiums for a

15 long-term care insurance contract (as defined in

16 section 7702B(b)) for coverage of the employee

17 or the spouse of the employee.’’.

18 (3) Subparagraph (A) of section 457(d)(1) is

19 amended by striking ‘‘or’’ at the end of clause (ii),

20 by striking ‘‘and’’ at the end of clause (iii) and in21 serting ‘‘or’’, and by inserting after clause (iii) the

22 following new clause:

23 ‘‘(iv) the date distributions for pre24 miums for a long-term care insurance con25 tract (as defined in section 7702B(b)) for
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1 coverage of such individual or the spouse

2 of such individual are made, and’’.

3 (c) CONFORMING AMENDMENT.—Section 72t(2)(B)

4 is amended by striking ‘‘subparagraph (A) or (C))’’ and

5 inserting ‘‘subparagraph (A), (C), or (D))’’.

6 (d) EFFECTIVE DATE.—The amendments made by

7 this section shall apply to payments and distributions after

8 December 31, 1996.

9 SEC. 415. REPORTING REQUIREMENTS.

10 (a) IN GENERAL.—Subpart B of part III of sub11 chapter A of chapter 61 is amended by adding at the end

12 the following new section:

13 ‘‘SEC. 6050Q. CERTAIN LONG-TERM CARE BENEFITS.

14 ‘‘(a) REQUIREMENT OF REPORTING.—Any person

15 who pays long-term care benefits shall make a return, ac16 cording to the forms or regulations prescribed by the Sec17 retary, setting forth—

18 ‘‘(1) the aggregate amount of such benefits

19 paid by such person to any individual during any

20 calendar year, and

21 ‘‘(2) the name, address, and TIN of such indi22 vidual.

23 ‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS

24 WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—

25 Every person required to make a return under subsection
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1 (a) shall furnish to each individual whose name is required

2 to be set forth in such return a written statement show3 ing—

4 ‘‘(1) the name of the person making the pay5 ments, and

6 ‘‘(2) the aggregate amount of long-term care

7 benefits paid to the individual which are required to

8 be shown on such return.

9 The written statement required under the preceding sen10 tence shall be furnished to the individual on or before Jan11 uary 31 of the year following the calendar year for which

12 the return under subsection (a) was required to be made.

13 ‘‘(c) LONG-TERM CARE BENEFITS.—For purposes of

14 this section, the term ‘long-term care benefit’ means any

15 amount paid under a long-term care insurance policy

16 (within the meaning of section 4980C(e)).’’.

17 (b) PENALTIES.—

18 (1) Subparagraph (B) of section 6724(d)(1) is

19 amended by redesignating clauses (ix) through (xiv)

20 as clauses (x) through (xv), respectively, and by in21 serting after clause (viii) the following new clause:

22 ‘‘(ix) section 6050Q (relating to cer23 tain long-term care benefits),’’.

24 (2) Paragraph (2) of section 6724(d) is amend25 ed by redesignating subparagraphs (Q) through (T)
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1 as subparagraphs (R) through (U), respectively, and

2 by inserting after subparagraph (P) the following

3 new subparagraph:

4 ‘‘(Q) section 6050Q(b) (relating to certain

5 long-term care benefits),’’.

6 (c) CLERICAL AMENDMENT.—The table of sections

7 for subpart B of part III of subchapter A of chapter 61

8 is amended by adding at the end the following new item:

‘‘Sec. 6050Q. Certain long-term care benefits.’’.

9 (d) EFFECTIVE DATE.—The amendments made by

10 this section shall apply to benefits paid after December

11 31, 1996.

12 Subchapter B—Consumer Protection

13 Provisions

14 SEC. 421. POLICY REQUIREMENTS.

15 Section 7702B (as added by section 411) is amended

16 by adding at the end the following new subsection:

17 ‘‘(f) CONSUMER PROTECTION PROVISIONS.—

18 ‘‘(1) IN GENERAL.—The requirements of this

19 subsection are met with respect to any contract if

20 any long-term care insurance policy issued under the

21 contract meets—

22 ‘‘(A) the requirements of the model regula23 tion and model Act described in paragraph (2),

24 ‘‘(B) the disclosure requirement of para25 graph (3), and
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1 ‘‘(C) the requirements relating to non2 forfeitability under paragraph (4).

3 ‘‘(2) REQUIREMENTS OF MODEL REGULATION

4 AND ACT.—

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

6 this paragraph are met with respect to any pol7 icy if such policy meets—

8 ‘‘(i) MODEL REGULATION.—The fol9 lowing requirements of the model regula10 tion:

11 ‘‘(I) Section 7A (relating to guar12 anteed renewal or noncancellability),

13 and the requirements of section 6B of

14 the model Act relating to such section

15 7A.

16 ‘‘(II) Section 7B (relating to pro17 hibitions on limitations and exclu18 sions).

19 ‘‘(III) Section 7C (relating to ex20 tension of benefits).

21 ‘‘(IV) Section 7D (relating to

22 continuation or conversion of cov23 erage).
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1 ‘‘(V) Section 7E (relating to dis2 continuance and replacement of poli3 cies).

4 ‘‘(VI) Section 8 (relating to unin5 tentional lapse).

6 ‘‘(VII) Section 9 (relating to dis7 closure), other than section 9F there8 of.

9 ‘‘(VIII) Section 10 (relating to

10 prohibitions against post-claims un11 derwriting).

12 ‘‘(IX) Section 11 (relating to

13 minimum standards).

14 ‘‘(X) Section 12 (relating to re15 quirement to offer inflation protec16 tion), except that any requirement for

17 a signature on a rejection of inflation

18 protection shall permit the signature

19 to be on an application or on a sepa20 rate form.

21 ‘‘(XI) Section 23 (relating to pro22 hibition against preexisting conditions

23 and probationary periods in replace24 ment policies or certificates).
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1 ‘‘(ii) MODEL ACT.—The following re2 quirements of the model Act:

3 ‘‘(I) Section 6C (relating to pre4 existing conditions).

5 ‘‘(II) Section 6D (relating to

6 prior hospitalization).

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

8 paragraph—

9 ‘‘(i) MODEL PROVISIONS.—The terms

10 ‘model regulation’ and ‘model Act’ mean

11 the long-term care insurance model regula12 tion, and the long-term care insurance

13 model Act, respectively, promulgated by

14 the National Association of Insurance

15 Commissioners (as adopted as of January

16 1993).

17 ‘‘(ii) COORDINATION.—Any provision

18 of the model regulation or model Act listed

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

20 (A) shall be treated as including any other

21 provision of such regulation or Act nec22 essary to implement the provision.

23 ‘‘(3) DISCLOSURE REQUIREMENT.—The re24 quirement of this paragraph is met with respect to
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1 any policy if such policy meets the requirements of

2 section 4980C(d)(1).

3 ‘‘(4) NONFORFEITURE REQUIREMENTS.—

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

5 this paragraph are met with respect to any level

6 premium long-term care insurance policy, if the

7 issuer of such policy offers to the policyholder,

8 including any group policyholder, a nonforfeit9 ure provision meeting the requirements of sub10 paragraph (B).

11 ‘‘(B) REQUIREMENTS OF PROVISION.—The

12 nonforfeiture provision required under subpara13 graph (A) shall meet the following require14 ments:

15 ‘‘(i) The nonforfeiture provision shall

16 be appropriately captioned.

17 ‘‘(ii) The nonforfeiture provision shall

18 provide for a benefit available in the event

19 of a default in the payment of any pre20 miums and the amount of the benefit may

21 be adjusted subsequent to being initially

22 granted only as necessary to reflect

23 changes in claims, persistency, and interest

24 as reflected in changes in rates for pre25 mium paying policies approved by the ap-
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1 propriate State regulatory authority for

2 the same policy form.

3 ‘‘(iii) The nonforfeiture provision shall

4 provide at least one of the following:

5 ‘‘(I) Reduced paid-up insurance.

6 ‘‘(II) Extended term insurance.

7 ‘‘(III) Shortened benefit period.

8 ‘‘(IV) Other similar offerings ap9 proved by the Secretary.

10 ‘‘(5) LONG-TERM CARE INSURANCE POLICY DE11 FINED.—For purposes of this subsection, the term

12 ‘long-term care insurance policy’ has the meaning

13 given such term by section 4980C(e).’’.

14 SEC. 422. REQUIREMENTS FOR ISSUERS OF LONG-TERM

15 CARE INSURANCE POLICIES.

16 (a) IN GENERAL.—Chapter 43 is amended by adding

17 at the end the following new section:

18 ‘‘SEC. 4980C. REQUIREMENTS FOR ISSUERS OF LONG-TERM

19 CARE INSURANCE POLICIES.

20 ‘‘(a) GENERAL RULE.—There is hereby imposed on

21 any person failing to meet the requirements of subsection

22 (c) or (d) a tax in the amount determined under sub23 section (b).

24 ‘‘(b) AMOUNT.—
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1 ‘‘(1) IN GENERAL.—The amount of the tax im2 posed by subsection (a) shall be $100 per policy for

3 each day any requirements of subsection (c) or (d)

4 are not met with respect to each long-term care in5 surance policy.

6 ‘‘(2) WAIVER.—In the case of a failure which is

7 due to reasonable cause and not to willful neglect,

8 the Secretary may waive part or all of the tax im9 posed by subsection (a) to the extent that payment

10 of the tax would be excessive relative to the failure

11 involved.

12 ‘‘(c) RESPONSIBILITIES.—The requirements of this

13 subsection are as follows:

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

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

16 requirements of the model regulation must be

17 met:

18 ‘‘(i) Section 13 (relating to application

19 forms and replacement coverage).

20 ‘‘(ii) Section 14 (relating to reporting

21 requirements), except that the issuer shall

22 also report at least annually the number of

23 claims denied during the reporting period

24 for each class of business (expressed as a

25 percentage of claims denied), other than
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1 claims denied for failure to meet the wait2 ing period or because of any applicable

3 preexisting condition.

4 ‘‘(iii) Section 20 (relating to filing re5 quirements for marketing).

6 ‘‘(iv) Section 21 (relating to standards

7 for marketing), including inaccurate com8 pletion of medical histories, other than sec9 tions 21C(1) and 21C(6) thereof, except

10 that—

11 ‘‘(I) in addition to such require12 ments, no person shall, in selling or

13 offering to sell a long-term care insur14 ance policy, misrepresent a material

15 fact; and

16 ‘‘(II) no such requirements shall

17 include a requirement to inquire or

18 identify whether a prospective appli19 cant or enrollee for long-term care in20 surance has accident and sickness in21 surance.

22 ‘‘(v) Section 22 (relating to appro23 priateness of recommended purchase).

24 ‘‘(vi) Section 24 (relating to standard

25 format outline of coverage).
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1 ‘‘(vii) Section 25 (relating to require2 ment to deliver shopper’s guide).

3 ‘‘(B) MODEL ACT.—The following require4 ments of the model Act must be met:

5 ‘‘(i) Section 6F (relating to right to

6 return), except that such section shall also

7 apply to denials of applications and any re8 fund shall be made within 30 days of the

9 return or denial.

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

11 coverage).

12 ‘‘(iii) Section 6H (relating to require13 ments for certificates under group plans).

14 ‘‘(iv) Section 6I (relating to policy

15 summary).

16 ‘‘(v) Section 6J (relating to monthly

17 reports on accelerated death benefits).

18 ‘‘(vi) Section 7 (relating to incontest19 ability period).

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

21 paragraph, the terms ‘model regulation’ and

22 ‘model Act’ have the meanings given such terms

23 by section 7702B(f)(2)(B).

24 ‘‘(2) DELIVERY OF POLICY.—If an application

25 for a long-term care insurance policy (or for a cer-
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1 tificate under a group long-term care insurance pol2 icy) is approved, the issuer shall deliver to the appli3 cant (or policyholder or certificateholder) the policy

4 (or certificate) of insurance not later than 30 days

5 after the date of the approval.

6 ‘‘(3) INFORMATION ON DENIALS OF CLAIMS.—

7 If a claim under a long-term care insurance policy

8 is denied, the issuer shall, within 60 days of the date

9 of a written request by the policyholder or

10 certificateholder (or representative)—

11 ‘‘(A) provide a written explanation of the

12 reasons for the denial, and

13 ‘‘(B) make available all information di14 rectly relating to such denial.

15 ‘‘(d) DISCLOSURE.—The requirements of this sub16 section are met if the issuer of a long-term care insurance

17 policy discloses in such policy and in the outline of cov18 erage required under subsection (c)(1)(B)(ii) that the pol19 icy is intended to be a qualified long-term care insurance

20 contract under section 7702B(b).

21 ‘‘(e) LONG-TERM CARE INSURANCE POLICY DE22 FINED.—For purposes of this section, the term ‘long-term

23 care insurance policy’ means any product which is adver24 tised, marketed, or offered as long-term care insurance.’’.
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1 (b) CONFORMING AMENDMENT.—The table of sec2 tions for chapter 43 is amended by adding at the end the

3 following new item:

‘‘Sec. 4980C. Requirements for issuers of long-term care insurance policies.’’.

4 SEC. 423. COORDINATION WITH STATE REQUIREMENTS.

5 Nothing in this subchapter shall prevent a State from

6 establishing, implementing, or continuing in effect stand7 ards related to the protection of policyholders of long-term

8 care insurance policies (as defined in section 4980C(e) of

9 the Internal Revenue Code of 1986), if such standards are

10 not in conflict with or inconsistent with the standards es11 tablished under such Code.

12 SEC. 424. EFFECTIVE DATES.

13 (a) IN GENERAL.—The provisions of, and amend14 ments made by, this subchapter shall apply to contracts

15 issued after December 31, 1996. The provisions of section

16 411(g) of this Act (relating to transition rule) shall apply

17 to such contracts.

18 (b) ISSUERS.—The amendments made by section 422

19 shall apply to actions taken after December 31, 1996.
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1 CHAPTER 2—TREATMENT OF

2 ACCELERATED DEATH BENEFITS

3 SEC. 431. TREATMENT OF ACCELERATED DEATH BENEFITS

4 BY RECIPIENT.

5 (a) IN GENERAL.—Section 101 (relating to certain

6 death benefits) is amended by adding at the end the fol7 lowing new subsection:

8 ‘‘(g) TREATMENT OF CERTAIN ACCELERATED

9 DEATH BENEFITS.—

10 ‘‘(1) IN GENERAL.—For purposes of this sec11 tion, the following amounts shall be treated as an

12 amount paid by reason of the death of an insured:

13 ‘‘(A) Any amount received under a life in14 surance contract on the life of an insured who

15 is a terminally ill individual.

16 ‘‘(B) Any amount received under a life in17 surance contract on the life of an insured who

18 is a chronically ill individual (as defined in sec19 tion 7702B(c)(2)) but only if such amount is

20 received under a rider or other provision of

21 such contract which is treated as a qualified

22 long-term care insurance contract under section

23 7702B.

24 ‘‘(2) TREATMENT OF VIATICAL SETTLE25 MENTS.—
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1 ‘‘(A) IN GENERAL.—In the case of a life

2 insurance contract on the life of an insured de3 scribed in paragraph (1), if—

4 ‘‘(i) any portion of such contract is

5 sold to any viatical settlement provider, or

6 ‘‘(ii) any portion of the death benefit

7 is assigned to such a provider,

8 the amount paid for such sale or assignment

9 shall be treated as an amount paid under the

10 life insurance contract by reason of the death of

11 such insured.

12 ‘‘(B) VIATICAL SETTLEMENT PROVIDER.—

13 The term ‘viatical settlement provider’ means

14 any person regularly engaged in the trade or

15 business of purchasing, or taking assignments

16 of, life insurance contracts on the lives of

17 insureds described in paragraph (1) if—

18 ‘‘(i) such person is licensed for such

19 purposes in the State in which the insured

20 resides, or

21 ‘‘(ii) in the case of an insured who re22 sides in a State not requiring the licensing

23 of such persons for such purposes—

24 ‘‘(I) such person meets the re25 quirements of sections 8 and 9 of the
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1 Viatical Settlements Model Act of the

2 National Association of Insurance

3 Commissioners, and

4 ‘‘(II) meets the requirements of

5 the Model Regulations of the National

6 Association of Insurance Commis7 sioners (relating to standards for eval8 uation of reasonable payments) in de9 termining amounts paid by such per10 son in connection with such purchases

11 or assignments.

12 ‘‘(3) DEFINITIONS.—For purposes of this sub13 section—

14 ‘‘(A) TERMINALLY ILL INDIVIDUAL.—The

15 term ‘terminally ill individual’ means an indi16 vidual who has been certified by a physician as

17 having an illness or physical condition which

18 can reasonably be expected to result in death in

19 24 months or less after the date of the certifi20 cation.

21 ‘‘(B) PHYSICIAN.—The term ‘physician’

22 has the meaning given to such term by section

23 1861(r)(1) of the Social Security Act (42

24 U.S.C. 1395x(r)(1)).
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1 ‘‘(4) EXCEPTION FOR BUSINESS-RELATED POLI2 CIES.—This subsection shall not apply in the case of

3 any amount paid to any taxpayer other than the in4 sured if such taxpayer has an insurable interest with

5 respect to the life of the insured by reason of the in6 sured being a director, officer, or employee of the

7 taxpayer or by reason of the insured being finan8 cially interested in any trade or business carried on

9 by the taxpayer.’’.

10 (b) EFFECTIVE DATE.—The amendment made by

11 subsection (a) shall apply to amounts received after De12 cember 31, 1996.

13 SEC. 432. TAX TREATMENT OF COMPANIES ISSUING QUALI14 FIED ACCELERATED DEATH BENEFIT RID15 ERS.

16 (a) QUALIFIED ACCELERATED DEATH BENEFIT RID17 ERS TREATED AS LIFE INSURANCE.—Section 818 (relat18 ing to other definitions and special rules) is amended by

19 adding at the end the following new subsection:

20 ‘‘(g) QUALIFIED ACCELERATED DEATH BENEFIT

21 RIDERS TREATED AS LIFE INSURANCE.—For purposes of

22 this part—

23 ‘‘(1) IN GENERAL.—Any reference to a life in24 surance contract shall be treated as including a ref-
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1 erence to a qualified accelerated death benefit rider

2 on such contract.

3 ‘‘(2) QUALIFIED ACCELERATED DEATH BENE4 FIT RIDERS.—For purposes of this subsection, the

5 term ‘qualified accelerated death benefit rider’

6 means any rider on a life insurance contract if the

7 only payments under the rider are payments meeting

8 the requirements of section 101(g).

9 ‘‘(3) EXCEPTION FOR LONG-TERM CARE RID10 ERS.—Paragraph (1) shall not apply to any rider

11 which is treated as a long-term care insurance con12 tract under section 7702B.’’.

13 (b) EFFECTIVE DATE.—

14 (1) IN GENERAL.—The amendment made by

15 this section shall take effect on January 1, 1997.

16 (2) ISSUANCE OF RIDER NOT TREATED AS MA17 TERIAL CHANGE.—For purposes of applying sections

18 101(f), 7702, and 7702A of the Internal Revenue

19 Code of 1986 to any contract—

20 (A) the issuance of a qualified accelerated

21 death benefit rider (as defined in section 818(g)

22 of such Code (as added by this Act)), and

23 (B) the addition of any provision required

24 to conform an accelerated death benefit rider to

25 the requirements of such section 818(g),
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1 shall not be treated as a modification or material

2 change of such contract.

3 Subtitle C—High-Risk Pools

4 SEC. 451. EXEMPTION FROM INCOME TAX FOR STATE-SPON5 SORED ORGANIZATIONS PROVIDING HEALTH

6 COVERAGE FOR HIGH-RISK INDIVIDUALS.

7 (a) IN GENERAL.—Subsection (c) of section 501 (re8 lating to list of exempt organizations) is amended by add9 ing at the end the following new paragraph:

10 ‘‘(26) Any membership organization if—

11 ‘‘(A) such organization is established by a

12 State exclusively to provide coverage for medical

13 care (as defined in section 213(d)) on a not-for14 profit basis to individuals described in subpara15 graph (B) through—

16 ‘‘(i) insurance issued by the organiza17 tion, or

18 ‘‘(ii) a health maintenance organiza19 tion under an arrangement with the orga20 nization,

21 ‘‘(B) the only individuals receiving such

22 coverage through the organization are individ23 uals—

24 ‘‘(i) who are residents of such State,

25 and
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1 ‘‘(ii) who, by reason of the existence

2 or history of a medical condition, are un3 able to acquire medical care coverage for

4 such condition through insurance or from

5 a health maintenance organization or are

6 able to acquire such coverage only at a

7 rate which is substantially in excess of the

8 rate for such coverage through the mem9 bership organization,

10 ‘‘(C) the composition of the membership in

11 such organization is specified by such State,

12 and

13 ‘‘(D) no part of the net earnings of the or14 ganization inures to the benefit of any private

15 shareholder or individual.’’.

16 (b) EFFECTIVE DATE.—The amendment made by

17 this section shall apply to taxable years beginning after

18 December 31, 1996.

19 Subtitle D—Penalty-Free IRA

20 Distributions

21 SEC. 461. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE

22 USED WITHOUT PENALTY TO PAY FINAN23 CIALLY DEVASTATING MEDICAL EXPENSES.

24 (a) IN GENERAL.—Section 72(t)(3)(A) is amended

25 by striking ‘‘(B),’’.
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1 (b) PENALTY-FREE DISTRIBUTIONS FOR PAYMENT

2 OF HEALTH INSURANCE PREMIUMS OF CERTAIN UNEM3 PLOYED INDIVIDUALS.—Paragraph (2) of section 72(t),

4 as amended by section 414, is amended by adding at the

5 end the following new subparagraph:

6 ‘‘(E) DISTRIBUTIONS TO UNEMPLOYED IN7 DIVIDUALS FOR HEALTH INSURANCE PRE8 MIUMS.—Distributions from an individual re9 tirement plan to an individual after separation

10 from employment—

11 ‘‘(i) if such individual has received un12 employment compensation for 12 consecu13 tive weeks under any Federal or State un14 employment compensation law by reason of

15 such separation,

16 ‘‘(ii) if such distributions are made

17 during any taxable year during which such

18 unemployment compensation is paid or the

19 succeeding taxable year, and

20 ‘‘(iii) to the extent such distributions

21 do not exceed the amount paid during the

22 taxable year for insurance described in sec23 tion 213(d)(1)(D) with respect to the indi24 vidual and the individual’s spouse and de25 pendents (as defined in section 152).
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1 To the extent provided in regulations, a self-em2 ployed individual shall be treated as meeting

3 the requirements of clause (i) if, under Federal

4 or State law, the individual would have received

5 unemployment compensation but for the fact

6 the individual was self-employed.’’.

7 (c) CONFORMING AMENDMENT.—Subparagraph (B)

8 of section 72(t)(2), as amended by section 414, is amend9 ed by striking ‘‘or (D)’’ and inserting ‘‘, (D), or (E)’’.

10 (d) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to taxable years beginning after

12 December 31, 1996.

13 Subtitle E—Revenue Offsets

14 CHAPTER 1—TREATMENT OF

15 INDIVIDUALS WHO EXPATRIATE

16 SEC. 471. REVISION OF TAX RULES ON EXPATRIATION.

17 (a) IN GENERAL.—Subpart A of part II of sub18 chapter N of chapter 1 is amended by inserting after sec19 tion 877 the following new section:

20 ‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

21 ‘‘(a) GENERAL RULES.—For purposes of this sub22 title—

23 ‘‘(1) MARK TO MARKET.—Except as provided in

24 subsection (f), all property of a covered expatriate to
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1 which this section applies shall be treated as sold on

2 the expatriation date for its fair market value.

3 ‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the

4 case of any sale under paragraph (1)—

5 ‘‘(A) notwithstanding any other provision

6 of this title, any gain arising from such sale

7 shall be taken into account for the taxable year

8 of the sale unless such gain is excluded from

9 gross income under part III of subchapter B,

10 and

11 ‘‘(B) any loss arising from such sale shall

12 be taken into account for the taxable year of

13 the sale to the extent otherwise provided by this

14 title, except that section 1091 shall not apply

15 (and section 1092 shall apply) to any such loss.

16 ‘‘(3) EXCLUSION FOR CERTAIN GAIN.—The

17 amount which would (but for this paragraph) be in18 cludible in the gross income of any individual by rea19 son of this section shall be reduced (but not below

20 zero) by $600,000. For purposes of this paragraph,

21 allocable expatriation gain taken into account under

22 subsection (f)(2) shall be treated in the same man23 ner as an amount required to be includible in gross

24 income.
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1 ‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS

2 UNITED STATES CITIZEN.—

3 ‘‘(A) IN GENERAL.—If an expatriate elects

4 the application of this paragraph—

5 ‘‘(i) this section (other than this para6 graph) shall not apply to the expatriate,

7 but

8 ‘‘(ii) the expatriate shall be subject to

9 tax under this title, with respect to prop10 erty to which this section would apply but

11 for such election, in the same manner as if

12 the individual were a United States citizen.

13 ‘‘(B) LIMITATION ON AMOUNT OF ESTATE,

14 GIFT, AND GENERATION-SKIPPING TRANSFER

15 TAXES.—The aggregate amount of taxes im16 posed under subtitle B with respect to any

17 transfer of property by reason of an election

18 under subparagraph (A) shall not exceed the

19 amount of income tax which would be due if the

20 property were sold for its fair market value im21 mediately before the time of the transfer or

22 death (taking into account the rules of para23 graph (2)).
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1 ‘‘(C) REQUIREMENTS.—Subparagraph (A)

2 shall not apply to an individual unless the indi3 vidual—

4 ‘‘(i) provides security for payment of

5 tax in such form and manner, and in such

6 amount, as the Secretary may require,

7 ‘‘(ii) consents to the waiver of any

8 right of the individual under any treaty of

9 the United States which would preclude as10 sessment or collection of any tax which

11 may be imposed by reason of this para12 graph, and

13 ‘‘(iii) complies with such other re14 quirements as the Secretary may prescribe.

15 ‘‘(D) ELECTION.—An election under sub16 paragraph (A) shall apply to all property to

17 which this section would apply but for the elec18 tion and, once made, shall be irrevocable. Such

19 election shall also apply to property the basis of

20 which is determined in whole or in part by ref21 erence to the property with respect to which the

22 election was made.

23 ‘‘(b) ELECTION TO DEFER TAX.—
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1 ‘‘(1) IN GENERAL.—If the taxpayer elects the

2 application of this subsection with respect to any

3 property—

4 ‘‘(A) no amount shall be required to be in5 cluded in gross income under subsection (a)(1)

6 with respect to the gain from such property for

7 the taxable year of the sale, but

8 ‘‘(B) the taxpayer’s tax for the taxable

9 year in which such property is disposed of shall

10 be increased by the deferred tax amount with

11 respect to the property.

12 Except to the extent provided in regulations, sub13 paragraph (B) shall apply to a disposition whether

14 or not gain or loss is recognized in whole or in part

15 on the disposition.

16 ‘‘(2) DEFERRED TAX AMOUNT.—

17 ‘‘(A) IN GENERAL.—For purposes of para18 graph (1), the term ‘deferred tax amount’

19 means, with respect to any property, an amount

20 equal to the sum of—

21 ‘‘(i) the difference between the

22 amount of tax paid for the taxable year de23 scribed in paragraph (1)(A) and the

24 amount which would have been paid for

25 such taxable year if the election under
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1 paragraph (1) had not applied to such

2 property, plus

3 ‘‘(ii) an amount of interest on the

4 amount described in clause (i) determined

5 for the period—

6 ‘‘(I) beginning on the 91st day

7 after the expatriation date, and

8 ‘‘(II) ending on the due date for

9 the taxable year described in para10 graph (1)(B),

11 by using the rates and method applicable

12 under section 6621 for underpayments of

13 tax for such period.

14 For purposes of clause (ii), the due date is the

15 date prescribed by law (determined without re16 gard to extension) for filing the return of the

17 tax imposed by this chapter for the taxable

18 year.

19 ‘‘(B) ALLOCATION OF LOSSES.—For pur20 poses of subparagraph (A), any losses described

21 in subsection (a)(2)(B) shall be allocated rat22 ably among the gains described in subsection

23 (a)(2)(A).

24 ‘‘(3) SECURITY.—
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1 ‘‘(A) IN GENERAL.—No election may be

2 made under paragraph (1) with respect to any

3 property unless adequate security is provided

4 with respect to such property.

5 ‘‘(B) ADEQUATE SECURITY.—For purposes

6 of subparagraph (A), security with respect to

7 any property shall be treated as adequate secu8 rity if—

9 ‘‘(i) it is a bond in an amount equal

10 to the deferred tax amount under para11 graph (2)(A) for the property, or

12 ‘‘(ii) the taxpayer otherwise estab13 lishes to the satisfaction of the Secretary

14 that the security is adequate.

15 ‘‘(4) WAIVER OF CERTAIN RIGHTS.—No elec16 tion may be made under paragraph (1) unless the

17 taxpayer consents to the waiver of any right under

18 any treaty of the United States which would pre19 clude assessment or collection of any tax imposed by

20 reason of this section.

21 ‘‘(5) DISPOSITIONS.—For purposes of this sub22 section, a taxpayer making an election under this

23 subsection with respect to any property shall be

24 treated as having disposed of such property—
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1 ‘‘(A) immediately before death if such

2 property is held at such time, and

3 ‘‘(B) at any time the security provided

4 with respect to the property fails to meet the

5 requirements of paragraph (3) and the taxpayer

6 does not correct such failure within the time

7 specified by the Secretary.

8 ‘‘(6) ELECTIONS.—An election under paragraph

9 (1) shall only apply to property described in the elec10 tion and, once made, is irrevocable. An election may

11 be under paragraph (1) with respect to an interest

12 in a trust with respect to which gain is required to

13 be recognized under subsection (f)(1).

14 ‘‘(c) COVERED EXPATRIATE.—For purposes of this

15 section—

16 ‘‘(1) IN GENERAL.—The term ‘covered expatri17 ate’ means an expatriate—

18 ‘‘(A) whose average annual net income tax

19 (as defined in section 38(c)(1)) for the period

20 of 5 taxable years ending before the expatria21 tion date is greater than $100,000, or

22 ‘‘(B) whose net worth as of such date is

23 $500,000 or more.

24 If the expatriation date is after 1996, such

25 $100,000 and $500,000 amounts shall be increased
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1 by an amount equal to such dollar amount multi2 plied by the cost-of-living adjustment determined

3 under section 1(f)(3) for such calendar year by sub4 stituting ‘1995’ for ‘1992’ in subparagraph (B)

5 thereof. Any increase under the preceding sentence

6 shall be rounded to the nearest multiple of $1,000.

7 ‘‘(2) EXCEPTIONS.—An individual shall not be

8 treated as a covered expatriate if—

9 ‘‘(A) the individual—

10 ‘‘(i) became at birth a citizen of the

11 United States and a citizen of another

12 country and, as of the expatriation date,

13 continues to be a citizen of, and is taxed

14 as a resident of, such other country, and

15 ‘‘(ii) has been a resident of the United

16 States (as defined in section

17 7701(b)(1)(A)(ii)) for not more than 8 tax18 able years during the 15-taxable year pe19 riod ending with the taxable year during

20 which the expatriation date occurs, or

21 ‘‘(B)(i) the individual’s relinquishment of

22 United States citizenship occurs before such individual attains age 181 23 ⁄2, and

24 ‘‘(ii) the individual has been a resident of

25 the United States (as so defined) for not more
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1 than 5 taxable years before the date of relin2 quishment.

3 ‘‘(d) PROPERTY TO WHICH SECTION APPLIES.—For

4 purposes of this section—

5 ‘‘(1) IN GENERAL.—Except as otherwise pro6 vided by the Secretary, this section shall apply to—

7 ‘‘(A) any interest in property held by a

8 covered expatriate on the expatriation date the

9 gain from which would be includible in the

10 gross income of the expatriate if such interest

11 had been sold for its fair market value on such

12 date in a transaction in which gain is recog13 nized in whole or in part, and

14 ‘‘(B) any other interest in a trust to which

15 subsection (f) applies.

16 ‘‘(2) EXCEPTIONS.—This section shall not

17 apply to the following property:

18 ‘‘(A) UNITED STATES REAL PROPERTY IN19 TERESTS.—Any United States real property in20 terest (as defined in section 897(c)(1)), other

21 than stock of a United States real property

22 holding corporation which does not, on the ex23 patriation date, meet the requirements of sec24 tion 897(c)(2).
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1 ‘‘(B) INTEREST IN CERTAIN RETIREMENT

2 PLANS.—

3 ‘‘(i) IN GENERAL.—Any interest in a

4 qualified retirement plan (as defined in

5 section 4974(c)), other than any interest

6 attributable to contributions which are in

7 excess of any limitation or which violate

8 any condition for tax-favored treatment.

9 ‘‘(ii) FOREIGN PENSION PLANS.—

10 ‘‘(I) IN GENERAL.—Under regu11 lations prescribed by the Secretary,

12 interests in foreign pension plans or

13 similar retirement arrangements or

14 programs.

15 ‘‘(II) LIMITATION.—The value of

16 property which is treated as not sold

17 by reason of this subparagraph shall

18 not exceed $500,000.

19 ‘‘(e) DEFINITIONS.—For purposes of this section—

20 ‘‘(1) EXPATRIATE.—The term ‘expatriate’

21 means—

22 ‘‘(A) any United States citizen who relin23 quishes his citizenship, or

24 ‘‘(B) any long-term resident of the United

25 States who—
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1 ‘‘(i) ceases to be a lawful permanent

2 resident of the United States (within the

3 meaning of section 7701(b)(6)), or

4 ‘‘(ii) commences to be treated as a

5 resident of a foreign country under the

6 provisions of a tax treaty between the

7 United States and the foreign country and

8 who does not waive the benefits of such

9 treaty applicable to residents of the foreign

10 country.

11 ‘‘(2) EXPATRIATION DATE.—The term ‘expa12 triation date’ means—

13 ‘‘(A) the date an individual relinquishes

14 United States citizenship, or

15 ‘‘(B) in the case of a long-term resident of

16 the United States, the date of the event de17 scribed in clause (i) or (ii) of paragraph (1)(B).

18 ‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A

19 citizen shall be treated as relinquishing his United

20 States citizenship on the earliest of—

21 ‘‘(A) the date the individual renounces his

22 United States nationality before a diplomatic or

23 consular officer of the United States pursuant

24 to paragraph (5) of section 349(a) of the Immi-
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1 gration and Nationality Act (8 U.S.C.

2 1481(a)(5)),

3 ‘‘(B) the date the individual furnishes to

4 the United States Department of State a signed

5 statement of voluntary relinquishment of Unit6 ed States nationality confirming the perform7 ance of an act of expatriation specified in para8 graph (1), (2), (3), or (4) of section 349(a) of

9 the Immigration and Nationality Act (8 U.S.C.

10 1481(a)(1)–(4)),

11 ‘‘(C) the date the United States Depart12 ment of State issues to the individual a certifi13 cate of loss of nationality, or

14 ‘‘(D) the date a court of the United States

15 cancels a naturalized citizen’s certificate of nat16 uralization.

17 Subparagraph (A) or (B) shall not apply to any indi18 vidual unless the renunciation or voluntary relin19 quishment is subsequently approved by the issuance

20 to the individual of a certificate of loss of nationality

21 by the United States Department of State.

22 ‘‘(4) LONG-TERM RESIDENT.—

23 ‘‘(A) IN GENERAL.—The term ‘long-term

24 resident’ means any individual (other than a

25 citizen of the United States) who is a lawful
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1 permanent resident of the United States in at

2 least 8 taxable years during the period of 15

3 taxable years ending with the taxable year dur4 ing which the expatriation date occurs. For pur5 poses of the preceding sentence, an individual

6 shall not be treated as a lawful permanent resi7 dent for any taxable year if such individual is

8 treated as a resident of a foreign country for

9 the taxable year under the provisions of a tax

10 treaty between the United States and the for11 eign country and does not waive the benefits of

12 such treaty applicable to residents of the for13 eign country.

14 ‘‘(B) SPECIAL RULE.—For purposes of

15 subparagraph (A), there shall not be taken into

16 account—

17 ‘‘(i) any taxable year during which

18 any prior sale is treated under subsection

19 (a)(1) as occurring, or

20 ‘‘(ii) any taxable year prior to the tax21 able year referred to in clause (i).

22 ‘‘(f) SPECIAL RULES APPLICABLE TO BENE23 FICIARIES’ INTERESTS IN TRUST.—
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1 ‘‘(1) IN GENERAL.—Except as provided in para2 graph (2), if an individual is determined under para3 graph (3) to hold an interest in a trust—

4 ‘‘(A) the individual shall not be treated as

5 having sold such interest,

6 ‘‘(B) such interest shall be treated as a

7 separate share in the trust, and

8 ‘‘(C)(i) such separate share shall be treat9 ed as a separate trust consisting of the assets

10 allocable to such share,

11 ‘‘(ii) the separate trust shall be treated as

12 having sold its assets immediately before the ex13 patriation date for their fair market value and

14 as having distributed all of its assets to the in15 dividual as of such time, and

16 ‘‘(iii) the individual shall be treated as hav17 ing recontributed the assets to the separate

18 trust.

19 Subsection (a)(2) shall apply to any income, gain, or

20 loss of the individual arising from a distribution de21 scribed in subparagraph (C)(ii).

22 ‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI23 FIED TRUSTS.—
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1 ‘‘(A) IN GENERAL.—If the trust interest

2 described in paragraph (1) is an interest in a

3 qualified trust—

4 ‘‘(i) paragraph (1) and subsection (a)

5 shall not apply, and

6 ‘‘(ii) in addition to any other tax im7 posed by this title, there is hereby imposed

8 on each distribution with respect to such

9 interest a tax in the amount determined

10 under subparagraph (B).

11 ‘‘(B) AMOUNT OF TAX.—The amount of

12 tax under subparagraph (A)(ii) shall be equal to

13 the lesser of—

14 ‘‘(i) the highest rate of tax imposed by

15 section 1(e) for the taxable year in which

16 the expatriation date occurs, multiplied by

17 the amount of the distribution, or

18 ‘‘(ii) the balance in the deferred tax

19 account immediately before the distribution

20 determined without regard to any increases

21 under subparagraph (C)(ii) after the 30th

22 day preceding the distribution.

23 ‘‘(C) DEFERRED TAX ACCOUNT.—For pur24 poses of subparagraph (B)(ii)—
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1 ‘‘(i) OPENING BALANCE.—The open2 ing balance in a deferred tax account with

3 respect to any trust interest is an amount

4 equal to the tax which would have been im5 posed on the allocable expatriation gain

6 with respect to the trust interest if such

7 gain had been included in gross income

8 under subsection (a).

9 ‘‘(ii) INCREASE FOR INTEREST.—The

10 balance in the deferred tax account shall

11 be increased by the amount of interest de12 termined (on the balance in the account at

13 the time the interest accrues), for periods

14 after the 90th day after the expatriation

15 date, by using the rates and method appli16 cable under section 6621 for underpay17 ments of tax for such periods.

18 ‘‘(iii) DECREASE FOR TAXES PRE19 VIOUSLY PAID.—The balance in the tax de20 ferred account shall be reduced—

21 ‘‘(I) by the amount of taxes im22 posed by subparagraph (A) on any

23 distribution to the person holding the

24 trust interest, and
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1 ‘‘(II) in the case of a person

2 holding a nonvested interest, to the

3 extent provided in regulations, by the

4 amount of taxes imposed by subpara5 graph (A) on distributions from the

6 trust with respect to nonvested inter7 ests not held by such person.

8 ‘‘(D) ALLOCABLE EXPATRIATION GAIN.—

9 For purposes of this paragraph, the allocable

10 expatriation gain with respect to any bene11 ficiary’s interest in a trust is the amount of

12 gain which would be allocable to such bene13 ficiary’s vested and nonvested interests in the

14 trust if the beneficiary held directly all assets

15 allocable to such interests.

16 ‘‘(E) TAX DEDUCTED AND WITHHELD.—

17 ‘‘(i) IN GENERAL.—The tax imposed

18 by subparagraph (A)(ii) shall be deducted

19 and withheld by the trustees from the dis20 tribution to which it relates.

21 ‘‘(ii) EXCEPTION WHERE FAILURE TO

22 WAIVE TREATY RIGHTS.—If an amount

23 may not be deducted and withheld under

24 clause (i) by reason of the distributee fail-
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1 ing to waive any treaty right with respect

2 to such distribution—

3 ‘‘(I) the tax imposed by subpara4 graph (A)(ii) shall be imposed on the

5 trust and each trustee shall be person6 ally liable for the amount of such tax,

7 and

8 ‘‘(II) any other beneficiary of the

9 trust shall be entitled to recover from

10 the distributee the amount of such tax

11 imposed on the other beneficiary.

12 ‘‘(F) DISPOSITION.—If a trust ceases to be

13 a qualified trust at any time, a covered expatri14 ate disposes of an interest in a qualified trust,

15 or a covered expatriate holding an interest in a

16 qualified trust dies, then, in lieu of the tax im17 posed by subparagraph (A)(ii), there is hereby

18 imposed a tax equal to the lesser of—

19 ‘‘(i) the tax determined under para20 graph (1) as if the expatriation date were

21 the date of such cessation, disposition, or

22 death, whichever is applicable, or

23 ‘‘(ii) the balance in the tax deferred

24 account immediately before such date.
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1 Such tax shall be imposed on the trust and

2 each trustee shall be personally liable for the

3 amount of such tax and any other beneficiary

4 of the trust shall be entitled to recover from the

5 covered expatriate or the estate the amount of

6 such tax imposed on the other beneficiary.

7 ‘‘(G) DEFINITIONS AND SPECIAL RULE.—

8 For purposes of this paragraph—

9 ‘‘(i) QUALIFIED TRUST.—The term

10 ‘qualified trust’ means a trust—

11 ‘‘(I) which is organized under,

12 and governed by, the laws of the Unit13 ed States or a State, and

14 ‘‘(II) with respect to which the

15 trust instrument requires that at least

16 1 trustee of the trust be an individual

17 citizen of the United States or a do18 mestic corporation.

19 ‘‘(ii) VESTED INTEREST.—The term

20 ‘vested interest’ means any interest which,

21 as of the expatriation date, is vested in the

22 beneficiary.

23 ‘‘(iii) NONVESTED INTEREST.—The

24 term ‘nonvested interest’ means, with re25 spect to any beneficiary, any interest in a
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1 trust which is not a vested interest. Such

2 interest shall be determined by assuming

3 the maximum exercise of discretion in

4 favor of the beneficiary and the occurrence

5 of all contingencies in favor of the bene6 ficiary.

7 ‘‘(iv) ADJUSTMENTS.—The Secretary

8 may provide for such adjustments to the

9 bases of assets in a trust or a deferred tax

10 account, and the timing of such adjust11 ments, in order to ensure that gain is

12 taxed only once.

13 ‘‘(3) DETERMINATION OF BENEFICIARIES’ IN14 TEREST IN TRUST.—

15 ‘‘(A) DETERMINATIONS UNDER PARA16 GRAPH (1).—For purposes of paragraph (1), a

17 beneficiary’s interest in a trust shall be based

18 upon all relevant facts and circumstances, in19 cluding the terms of the trust instrument and

20 any letter of wishes or similar document, histor21 ical patterns of trust distributions, and the ex22 istence of and functions performed by a trust

23 protector or any similar advisor.

24 ‘‘(B) OTHER DETERMINATIONS.—For pur25 poses of this section—
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1 ‘‘(i) CONSTRUCTIVE OWNERSHIP.—If

2 a beneficiary of a trust is a corporation,

3 partnership, trust, or estate, the sharehold4 ers, partners, or beneficiaries shall be

5 deemed to be the trust beneficiaries for

6 purposes of this section.

7 ‘‘(ii) TAXPAYER RETURN POSITION.—

8 A taxpayer shall clearly indicate on its in9 come tax return—

10 ‘‘(I) the methodology used to de11 termine that taxpayer’s trust interest

12 under this section, and

13 ‘‘(II) if the taxpayer knows (or

14 has reason to know) that any other

15 beneficiary of such trust is using a

16 different methodology to determine

17 such beneficiary’s trust interest under

18 this section.

19 ‘‘(g) TERMINATION OF DEFERRALS, ETC.—On the

20 date any property held by an individual is treated as sold

21 under subsection (a), notwithstanding any other provision

22 of this title—

23 ‘‘(1) any period during which recognition of in24 come or gain is deferred shall terminate, and
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1 ‘‘(2) any extension of time for payment of tax

2 shall cease to apply and the unpaid portion of such

3 tax shall be due and payable at the time and in the

4 manner prescribed by the Secretary.

5 ‘‘(h) IMPOSITION OF TENTATIVE TAX.—

6 ‘‘(1) IN GENERAL.—If an individual is required

7 to include any amount in gross income under sub8 section (a) for any taxable year, there is hereby im9 posed, immediately before the expatriation date, a

10 tax in an amount equal to the amount of tax which

11 would be imposed if the taxable year were a short

12 taxable year ending on the expatriation date.

13 ‘‘(2) DUE DATE.—The due date for any tax im14 posed by paragraph (1) shall be the 90th day after

15 the expatriation date.

16 ‘‘(3) TREATMENT OF TAX.—Any tax paid under

17 paragraph (1) shall be treated as a payment of the

18 tax imposed by this chapter for the taxable year to

19 which subsection (a) applies.

20 ‘‘(4) DEFERRAL OF TAX.—The provisions of

21 subsection (b) shall apply to the tax imposed by this

22 subsection to the extent attributable to gain includ23 ible in gross income by reason of this section.
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1 ‘‘(i) COORDINATION WITH ESTATE AND GIFT

2 TAXES.—If subsection (a) applies to property held by an

3 individual for any taxable year and—

4 ‘‘(1) such property is includible in the gross es5 tate of such individual solely by reason of section

6 2107, or

7 ‘‘(2) section 2501 applies to a transfer of such

8 property by such individual solely by reason of sec9 tion 2501(a)(3),

10 then there shall be allowed as a credit against the addi11 tional tax imposed by section 2101 or 2501, whichever is

12 applicable, solely by reason of section 2107 or 2501(a)(3)

13 an amount equal to the increase in the tax imposed by

14 this chapter for such taxable year by reason of this sec15 tion.

16 ‘‘(j) REGULATIONS.—The Secretary shall prescribe

17 such regulations as may be necessary or appropriate to

18 carry out the purposes of this section, including regula19 tions—

20 ‘‘(1) to prevent double taxation by ensuring

21 that—

22 ‘‘(A) appropriate adjustments are made to

23 basis to reflect gain recognized by reason of

24 subsection (a) and the exclusion provided by

25 subsection (a)(3), and
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1 ‘‘(B) any gain by reason of a deemed sale

2 under subsection (a) of an interest in a corpora3 tion, partnership, trust, or estate is reduced to

4 reflect that portion of such gain which is attrib5 utable to an interest in a trust which a share6 holder, partner, or beneficiary is treated as

7 holding directly under subsection (f)(3)(B)(i),

8 and

9 ‘‘(2) which provide for the proper allocation of

10 the exclusion under subsection (a)(3) to property to

11 which this section applies.

12 ‘‘(k) CROSS REFERENCE.—

‘‘For income tax treatment of individuals who terminate United States citizenship, see section

7701(a)(47).’’.

13 (b) INCLUSION IN INCOME OF GIFTS AND INHERIT14 ANCES FROM COVERED EXPATRIATES.—Section 102 (re15 lating to gifts, etc. not included in gross income) is amend16 ed by adding at the end the following new subsection:

17 ‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX18 PATRIATES.—Subsection (a) shall not exclude from gross

19 income the value of any property acquired by gift, bequest,

20 devise, or inheritance from a covered expatriate after the

21 expatriation date. For purposes of this subsection, any

22 term used in this subsection which is also used in section

23 877A shall have the same meaning as when used in section

24 877A.’’.
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1 (c) DEFINITION OF TERMINATION OF UNITED

2 STATES CITIZENSHIP.—Section 7701(a) is amended by

3 adding at the end the following new paragraph:

4 ‘‘(47) TERMINATION OF UNITED STATES CITI5 ZENSHIP.—An individual shall not cease to be treat6 ed as a United States citizen before the date on

7 which the individual’s citizenship is treated as relin8 quished under section 877A(e)(3).’’.

9 (d) CONFORMING AMENDMENTS.—

10 (1) Section 877 is amended by adding at the

11 end the following new subsection:

12 ‘‘(f) APPLICATION.—This section shall not apply to

13 any individual who relinquishes (within the meaning of

14 section 877A(e)(3)) United States citizenship on or after

15 February 6, 1995.’’.

16 (2) Section 2107(c) is amended by adding at

17 the end the following new paragraph:

18 ‘‘(3) CROSS REFERENCE.—For credit against

19 the tax imposed by subsection (a) for expatriation

20 tax, see section 877A(i).’’.

21 (3) Section 2501(a)(3) is amended by adding at

22 the end the following new flush sentence:

23 ‘‘For credit against the tax imposed under this sec24 tion by reason of this paragraph, see section

25 877A(i).’’.
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1 (4) Paragraph (10) of section 7701(b) is

2 amended by adding at the end the following new

3 sentence: ‘‘This paragraph shall not apply to any

4 long-term resident of the United States who is an

5 expatriate (as defined in section 877A(e)(1)).’’.

6 (e) CLERICAL AMENDMENT.—The table of sections

7 for subpart A of part II of subchapter N of chapter 1

8 is amended by inserting after the item relating to section

9 877 the following new item:

‘‘Sec. 877A. Tax responsibilities of expatriation.’’.

10 (f) EFFECTIVE DATE.—

11 (1) IN GENERAL.—Except as provided in this

12 subsection, the amendments made by this section

13 shall apply to expatriates (within the meaning of

14 section 877A(e) of the Internal Revenue Code of

15 1986, as added by this section) whose expatriation

16 date (as so defined) occurs on or after February 6,

17 1995.

18 (2) GIFTS AND BEQUESTS.—Section 102(d) of

19 the Internal Revenue Code of 1986 (as added by

20 subsection (b)) shall apply to amounts received from

21 expatriates (as so defined) whose expatriation date

22 (as so defined) occurs on and after February 6,

23 1995.

24 (3) SPECIAL RULES RELATING TO CERTAIN

25 ACTS OCCURRING BEFORE FEBRUARY 6, 1995.—In
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1 the case of an individual who took an act of expa2 triation specified in paragraph (1), (2), (3), or (4)

3 of section 349(a) of the Immigration and Nationality

4 Act (8 U.S.C. 1481(a) (1)–(4)) before February 6,

5 1995, but whose expatriation date (as so defined)

6 occurs after February 6, 1995—

7 (A) the amendment made by subsection (c)

8 shall not apply,

9 (B) the amendment made by subsection

10 (d)(1) shall not apply for any period prior to

11 the expatriation date, and

12 (C) the other amendments made by this

13 section shall apply as of the expatriation date.

14 (4) DUE DATE FOR TENTATIVE TAX.—The due

15 date under section 877A(h)(2) of such Code shall in

16 no event occur before the 90th day after the date of

17 the enactment of this Act.

18 SEC. 472. INFORMATION ON INDIVIDUALS EXPATRIATING.

19 (a) IN GENERAL.—Subpart A of part III of sub20 chapter A of chapter 61 is amended by inserting after sec21 tion 6039E the following new section:

22 ‘‘SEC. 6039F. INFORMATION ON INDIVIDUALS EXPATRIAT23 ING.

24 ‘‘(a) REQUIREMENT.—
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1 ‘‘(1) IN GENERAL.—Notwithstanding any other

2 provision of law, any expatriate (within the meaning

3 of section 877A(e)(1)) shall provide a statement

4 which includes the information described in sub5 section (b).

6 ‘‘(2) TIMING.—

7 ‘‘(A) CITIZENS.—In the case of an expatri8 ate described in section 877(e)(1)(A), such

9 statement shall be—

10 ‘‘(i) provided not later than the expa11 triation date (within the meaning of sec12 tion 877A(e)(2)), and

13 ‘‘(ii) provided to the person or court

14 referred to in section 877A(e)(3).

15 ‘‘(B) NONCITIZENS.—In the case of an ex16 patriate described in section 877A(e)(1)(B),

17 such statement shall be provided to the Sec18 retary with the return of tax imposed by chap19 ter 1 for the taxable year during which the

20 event described in such section occurs.

21 ‘‘(b) INFORMATION TO BE PROVIDED.—Information

22 required under subsection (a) shall include—

23 ‘‘(1) the taxpayer’s TIN,

24 ‘‘(2) the mailing address of such individual’s

25 principal foreign residence,
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1 ‘‘(3) the foreign country in which such individ2 ual is residing,

3 ‘‘(4) the foreign country of which such individ4 ual is a citizen,

5 ‘‘(5) in the case of an individual having a net

6 worth of at least the dollar amount applicable under

7 section 877A(c)(1)(B), information detailing the as8 sets and liabilities of such individual, and

9 ‘‘(6) such other information as the Secretary

10 may prescribe.

11 ‘‘(c) PENALTY.—Any individual failing to provide a

12 statement required under subsection (a) shall be subject

13 to a penalty for each year during any portion of which

14 such failure continues in an amount equal to the greater

15 of—

16 ‘‘(1) 5 percent of the additional tax required to

17 be paid under section 877A for such year, or

18 ‘‘(2) $1,000,

19 unless it is shown that such failure is due to reasonable

20 cause and not to willful neglect.

21 ‘‘(d) INFORMATION TO BE PROVIDED TO SEC22 RETARY.—Notwithstanding any other provision of law—

23 ‘‘(1) any Federal agency or court which collects

24 (or is required to collect) the statement under sub25 section (a) shall provide to the Secretary—
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1 ‘‘(A) a copy of any such statement, and

2 ‘‘(B) the name (and any other identifying

3 information) of any individual refusing to com4 ply with the provisions of subsection (a),

5 ‘‘(2) the Secretary of State shall provide to the

6 Secretary a copy of each certificate as to the loss of

7 American nationality under section 358 of the Immi8 gration and Nationality Act which is approved by

9 the Secretary of State, and

10 ‘‘(3) the Federal agency primarily responsible

11 for administering the immigration laws shall provide

12 to the Secretary the name of each lawful permanent

13 resident of the United States (within the meaning of

14 section 7701(b)(6)) whose status as such has been

15 revoked or has been administratively or judicially de16 termined to have been abandoned.

17 Notwithstanding any other provision of law, not later than

18 30 days after the close of each calendar quarter, the Sec19 retary shall publish in the Federal Register the name of

20 each individual relinquishing United States citizenship

21 (within the meaning of section 877A(e)(3)) with respect

22 to whom the Secretary receives information under the pre23 ceding sentence during such quarter.

24 ‘‘(e) EXEMPTION.—The Secretary may by regulations

25 exempt any class of individuals from the requirements of
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1 this section if the Secretary determines that applying this

2 section to such individuals is not necessary to carry out

3 the purposes of this section.’’.

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

5 for such subpart A is amended by inserting after the item

6 relating to section 6039E the following new item:

‘‘Sec. 6039F. Information on individuals expatriating.’’.

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

8 this section shall apply to individuals to whom section

9 877A of the Internal Revenue Code of 1986 applies and

10 whose expatriation date (as defined in section 877A(e)(2))

11 occurs on or after February 6, 1995, except that no state12 ment shall be required by such amendments before the

13 90th day after the date of the enactment of this Act.

14 SEC. 473. REPORT ON TAX COMPLIANCE BY UNITED STATES

15 CITIZENS AND RESIDENTS LIVING ABROAD.

16 Not later than 90 days after the date of the enact17 ment of this Act, the Secretary of the Treasury shall pre18 pare and submit to the Committee on Ways and Means

19 of the House of Representatives and the Committee on

20 Finance of the Senate a report—

21 (1) describing the compliance with subtitle A of

22 the Internal Revenue Code of 1986 by citizens and

23 lawful permanent residents of the United States

24 (within the meaning of section 7701(b)(6) of such

25 Code) residing outside the United States, and
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1 (2) recommending measures to improve such

2 compliance (including improved coordination be3 tween executive branch agencies).

4 CHAPTER 2—COMPANY-OWNED

5 INSURANCE

6 SEC. 495. DENIAL OF DEDUCTION FOR INTEREST ON LOANS

7 WITH RESPECT TO COMPANY-OWNED INSUR8 ANCE.

9 (a) IN GENERAL.—Paragraph (4) of section 264(a)

10 is amended—

11 (1) by inserting ‘‘, or any endowment or annu12 ity contracts owned by the taxpayer covering any in13 dividual,’’ after ‘‘the life of any individual’’, and

14 (2) by striking all that follows ‘‘carried on by

15 the taxpayer’’ and inserting a period.

16 (b) EXCEPTION FOR CONTRACTS RELATING TO KEY

17 PERSONS; PERMISSIBLE INTEREST RATES.—Section 264

18 is amended—

19 (1) by striking ‘‘Any’’ in subsection (a)(4) and

20 inserting ‘‘Except as provided in subsection (d),

21 any’’, and

22 (2) by adding at the end the following new sub23 section:

24 ‘‘(d) SPECIAL RULES FOR APPLICATION OF SUB25 SECTION (a)(4).—
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1 ‘‘(1) EXCEPTION FOR KEY PERSONS.—Sub2 section (a)(4) shall not apply to any interest paid or

3 accrued on any indebtedness with respect to policies

4 or contracts covering an individual who is a key per5 son to the extent that the aggregate amount of such

6 indebtedness with respect to policies and contracts

7 covering such individual does not exceed $50,000.

8 ‘‘(2) INTEREST RATE CAP ON KEY PERSONS

9 AND PRE-1986 CONTRACTS.—

10 ‘‘(A) IN GENERAL.—No deduction shall be

11 allowed by reason of paragraph (1) or the last

12 sentence of subsection (a) with respect to inter13 est paid or accrued for any month to the extent

14 the amount of such interest exceeds the amount

15 which would have been determined if the appli16 cable rate of interest were used for such month.

17 ‘‘(B) APPLICABLE RATE OF INTEREST.—

18 For purposes of subparagraph (A)—

19 ‘‘(i) IN GENERAL.—The applicable

20 rate of interest for any month is the rate

21 of interest described as Moody’s Corporate

22 Bond Yield Average-Monthly Average

23 Corporates as published by Moody’s Inves24 tors Service, Inc., or any successor thereto,

25 for such month.
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1 ‘‘(ii) PRE-1986 CONTRACT.—In the

2 case of indebtedness on a contract to which

3 the last sentence of subsection (a) ap4 plies—

5 ‘‘(I) which is a contract providing

6 a fixed rate of interest, the applicable

7 rate of interest for any month shall be

8 the Moody’s rate described in clause

9 (i) for the month in which the con10 tract was purchased, or

11 ‘‘(II) which is a contract provid12 ing a variable rate of interest, the ap13 plicable rate of interest for any month

14 in an applicable period shall be such

15 Moody’s rate for the last month pre16 ceding such period.

17 For purposes of subclause (II), the tax18 payer shall elect an applicable period for

19 such contract on its return of tax imposed

20 by this chapter for its first taxable year

21 ending on or after October 13, 1995. Such

22 applicable period shall be for any number

23 of months (not greater than 12) specified

24 in the election and may not be changed by
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1 the taxpayer without the consent of the

2 Secretary.

3 ‘‘(3) KEY PERSON.—For purposes of paragraph

4 (1), the term ‘key person’ means an officer or 20-

5 percent owner, except that the number of individuals

6 who may be treated as key persons with respect to

7 any taxpayer shall not exceed the greater of—

8 ‘‘(A) 5 individuals, or

9 ‘‘(B) the lesser of 5 percent of the total of10 ficers and employees of the taxpayer or 10 indi11 viduals.

12 ‘‘(4) 20-PERCENT OWNER.—For purposes of

13 this subsection, the term ‘20-percent owner’

14 means—

15 ‘‘(A) if the taxpayer is a corporation, any

16 person who owns directly 20 percent or more of

17 the outstanding stock of the corporation or

18 stock possessing 20 percent or more of the total

19 combined voting power of all stock of the cor20 poration, or

21 ‘‘(B) if the taxpayer is not a corporation,

22 any person who owns 20 percent or more of the

23 capital or profits interest in the employer.

24 ‘‘(5) AGGREGATION RULES.—
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1 ‘‘(A) IN GENERAL.—For purposes of para2 graph (4)(A) and applying the $50,000 limita3 tion in paragraph (1)—

4 ‘‘(i) all members of a controlled group

5 shall be treated as 1 taxpayer, and

6 ‘‘(ii) such limitation shall be allocated

7 among the members of such group in such

8 manner as the Secretary may prescribe.

9 ‘‘(B) CONTROLLED GROUP.—For purposes

10 of this paragraph, all persons treated as a sin11 gle employer under subsection (a) or (b) of sec12 tion 52 or subsection (m) or (o) of section 414

13 shall be treated as members of a controlled

14 group.’’.

15 (c) EFFECTIVE DATES.—

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

17 this section shall apply to interest paid or accrued

18 after December 31, 1995.

19 (2) TRANSITION RULE FOR EXISTING INDEBT20 EDNESS.—

21 (A) IN GENERAL.—In the case of—

22 (i) indebtedness incurred before Janu23 ary 1, 1996, or
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1 (ii) indebtedness incurred before Jan2 uary 1, 1997 with respect to any contract

3 or policy entered into in 1994 or 1995,

4 the amendments made by this section shall not

5 apply to qualified interest paid or accrued on

6 such indebtedness after October 13, 1995, and

7 before January 1, 1999.

8 (B) QUALIFIED INTEREST.—For purposes

9 of subparagraph (A), the qualified interest with

10 respect to any indebtedness for any month is

11 the amount of interest which would be paid or

12 accrued for such month on such indebtedness

13 if—

14 (i) in the case of any interest paid or

15 accrued after December 31, 1995, indebt16 edness with respect to no more than

17 20,000 insured individuals were taken into

18 account, and

19 (ii) the lesser of the following rates of

20 interest were used for such month:

21 (I) The rate of interest specified

22 under the terms of the indebtedness

23 as in effect on October 13, 1995 (and

24 without regard to modification of such

25 terms after such date).
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1 (II) The applicable percentage

2 rate of interest described as Moody’s

3 Corporate Bond Yield Average-Month4 ly Average Corporates as published by

5 Moody’s Investors Service, Inc., or

6 any successor thereto, for such month.

7 For purposes of clause (i), all persons treated

8 as a single employer under subsection (a) or (b)

9 of section 52 of the Internal Revenue Code of

10 1986 or subsection (m) or (o) of section 414 of

11 such Code shall be treated as one person.

12 (C) APPLICABLE PERCENTAGE.—For pur13 poses of subparagraph (B), the applicable per14 centage is as follows:

For calendar year: The percentage is:

1995 .......................................................................... 100 percent

1996 .......................................................................... 90 percent

1997 .......................................................................... 80 percent

1998 .......................................................................... 70 percent.

15 (3) SPECIAL RULE FOR GRANDFATHERED CON16 TRACTS.—This section shall not apply to any con17 tract purchased on or before June 20, 1986, except

18 that section 264(d)(2) of the Internal Revenue Code

19 of 1986 shall apply to interest paid or accrued after

20 October 13, 1995.

21 (d) SPREAD OF INCOME INCLUSION ON SURRENDER,

22 ETC. OF CONTRACTS.—
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1 (1) IN GENERAL.—If any amount is received

2 under any life insurance policy or endowment or an3 nuity contract described in paragraph (4) of section

4 264(a) of the Internal Revenue Code of 1986—

5 (A) on the complete surrender, redemption,

6 or maturity of such policy or contract during

7 calendar year 1996, 1997, or 1998, or

8 (B) in full discharge during any such cal9 endar year of the obligation under the policy or

10 contract which is in the nature of a refund of

11 the consideration paid for the policy or con12 tract,

13 then (in lieu of any other inclusion in gross income)

14 such amount shall be includible in gross income rat15 ably over the 4-taxable year period beginning with

16 the taxable year such amount would (but for this

17 paragraph) be includible. The preceding sentence

18 shall only apply to the extent the amount is includ19 ible in gross income for the taxable year in which

20 the event described in subparagraph (A) or (B) oc21 curs.

22 (2) SPECIAL RULES FOR APPLYING SECTION

23 264.—A contract shall not be treated as—
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1 (A) failing to meet the requirement of sec2 tion 264(c)(1) of the Internal Revenue Code of

3 1986, or

4 (B) a single premium contract under sec5 tion 264(b)(1) of such Code,

6 solely by reason of an occurrence described in sub7 paragraph (A) or (B) of paragraph (1) of this sub8 section or solely by reason of no additional pre9 miums being received under the contract by reason

10 of a lapse occurring after October 13, 1995.

11 (3) SPECIAL RULE FOR DEFERRED ACQUISI12 TION COSTS.—In the case of the occurrence of any

13 event described in subparagraph (A) or (B) of para14 graph (1) of this subsection with respect to any pol15 icy or contract—

16 (A) section 848 of the Internal Revenue

17 Code of 1986 shall not apply to the

18 unamortized balance (if any) of the specified

19 policy acquisition expenses attributable to such

20 policy or contract immediately before the insur21 ance company’s taxable year in which such

22 event occurs, and

23 (B) there shall be allowed as a deduction

24 to such company for such taxable year under
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1 chapter 1 of such Code an amount equal to

2 such unamortized balance.

3 TITLE V—HEALTH CARE FRAUD

4 AND ABUSE PREVENTION

5 SEC. 500. AMENDMENTS.

6 Except as otherwise specifically provided, whenever in

7 this title an amendment is expressed in terms of an

8 amendment to or repeal of a section or other provision,

9 the reference shall be considered to be made to that sec10 tion or other provision of the Social Security Act.

11 Subtitle A—Fraud and Abuse

12 Control Program

13 SEC. 501. FRAUD AND ABUSE CONTROL PROGRAM.

14 (a) ESTABLISHMENT OF PROGRAM.—Title XI (42

15 U.S.C. 1301 et seq.) is amended by inserting after section

16 1128B the following new section:

17 ‘‘FRAUD AND ABUSE CONTROL PROGRAM

18 ‘‘SEC. 1128C. (a) ESTABLISHMENT OF PROGRAM.—

19 ‘‘(1) IN GENERAL.—Not later than January 1,

20 1997, the Secretary, acting through the Office of the

21 Inspector General of the Department of Health and

22 Human Services, and the Attorney General shall es23 tablish a program—

24 ‘‘(A) to coordinate Federal, State, and

25 local law enforcement programs to control fraud

26 and abuse with respect to health plans,
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1 ‘‘(B) to conduct investigations, audits,

2 evaluations, and inspections relating to the de3 livery of and payment for health care in the

4 United States,

5 ‘‘(C) to facilitate the enforcement of the

6 provisions of sections 1128, 1128A, and 1128B

7 and other statutes applicable to health care

8 fraud and abuse,

9 ‘‘(D) to provide for the modification and

10 establishment of safe harbors and to issue in11 terpretative rulings and special fraud alerts

12 pursuant to section 1128D, and

13 ‘‘(E) to provide for the reporting and dis14 closure of certain final adverse actions against

15 health care providers, suppliers, or practitioners

16 pursuant to the data collection system estab17 lished under section 1128E.

18 ‘‘(2) COORDINATION WITH HEALTH PLANS.—In

19 carrying out the program established under para20 graph (1), the Secretary and the Attorney General

21 shall consult with, and arrange for the sharing of

22 data with representatives of health plans.

23 ‘‘(3) GUIDELINES.—

24 ‘‘(A) IN GENERAL.—The Secretary and the

25 Attorney General shall issue guidelines to carry
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1 out the program under paragraph (1). The pro2 visions of sections 553, 556, and 557 of title 5,

3 United States Code, shall not apply in the issu4 ance of such guidelines.

5 ‘‘(B) INFORMATION GUIDELINES.—

6 ‘‘(i) IN GENERAL.—Such guidelines

7 shall include guidelines relating to the fur8 nishing of information by health plans,

9 providers, and others to enable the Sec10 retary and the Attorney General to carry

11 out the program (including coordination

12 with health plans under paragraph (2)).

13 ‘‘(ii) CONFIDENTIALITY.—Such guide14 lines shall include procedures to assure

15 that such information is provided and uti16 lized in a manner that appropriately pro17 tects the confidentiality of the information

18 and the privacy of individuals receiving

19 health care services and items.

20 ‘‘(iii) QUALIFIED IMMUNITY FOR PRO21 VIDING INFORMATION.—The provisions of

22 section 1157(a) (relating to limitation on

23 liability) shall apply to a person providing

24 information to the Secretary or the Attor-
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1 ney General in conjunction with their per2 formance of duties under this section.

3 ‘‘(4) ENSURING ACCESS TO DOCUMENTATION.—

4 The Inspector General of the Department of Health

5 and Human Services is authorized to exercise such

6 authority described in paragraphs (3) through (9) of

7 section 6 of the Inspector General Act of 1978 (5

8 U.S.C. App.) as necessary with respect to the activi9 ties under the fraud and abuse control program es10 tablished under this subsection.

11 ‘‘(5) AUTHORITY OF INSPECTOR GENERAL.—

12 Nothing in this Act shall be construed to diminish

13 the authority of any Inspector General, including

14 such authority as provided in the Inspector General

15 Act of 1978 (5 U.S.C. App.).

16 ‘‘(b) ADDITIONAL USE OF FUNDS BY INSPECTOR

17 GENERAL.—

18 ‘‘(1) REIMBURSEMENTS FOR INVESTIGA19 TIONS.—The Inspector General of the Department

20 of Health and Human Services is authorized to re21 ceive and retain for current use reimbursement for

22 the costs of conducting investigations and audits and

23 for monitoring compliance plans when such costs are

24 ordered by a court, voluntarily agreed to by the

25 payor, or otherwise.
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1 ‘‘(2) CREDITING.—Funds received by the In2 spector General under paragraph (1) as reimburse3 ment for costs of conducting investigations shall be

4 deposited to the credit of the appropriation from

5 which initially paid, or to appropriations for similar

6 purposes currently available at the time of deposit,

7 and shall remain available for obligation for 1 year

8 from the date of the deposit of such funds.

9 ‘‘(c) HEALTH PLAN DEFINED.—For purposes of this

10 section, the term ‘health plan’ means a plan or program

11 that provides health benefits, whether directly, through in12 surance, or otherwise, and includes—

13 ‘‘(1) a policy of health insurance;

14 ‘‘(2) a contract of a service benefit organiza15 tion; and

16 ‘‘(3) a membership agreement with a health

17 maintenance organization or other prepaid health

18 plan.’’.

19 (b) ESTABLISHMENT OF HEALTH CARE FRAUD AND

20 ABUSE CONTROL ACCOUNT IN FEDERAL HOSPITAL IN21 SURANCE TRUST FUND.—Section 1817 (42 U.S.C. 1395i)

22 is amended by adding at the end the following new sub23 section:

24 ‘‘(k) HEALTH CARE FRAUD AND ABUSE CONTROL

25 ACCOUNT.—
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1 ‘‘(1) ESTABLISHMENT.—There is hereby estab2 lished in the Trust Fund an expenditure account to

3 be known as the ‘Health Care Fraud and Abuse

4 Control Account’ (in this subsection referred to as

5 the ‘Account’).

6 ‘‘(2) APPROPRIATED AMOUNTS TO TRUST

7 FUND.—

8 ‘‘(A) IN GENERAL.—There are hereby ap9 propriated to the Trust Fund—

10 ‘‘(i) such gifts and bequests as may be

11 made as provided in subparagraph (B);

12 ‘‘(ii) such amounts as may be depos13 ited in the Trust Fund as provided in sec14 tions 541(b) and 542(c) of the Health In15 surance Reform Act of 1996, and title XI;

16 and

17 ‘‘(iii) such amounts as are transferred

18 to the Trust Fund under subparagraph

19 (C).

20 ‘‘(B) AUTHORIZATION TO ACCEPT GIFTS.—

21 The Trust Fund is authorized to accept on be22 half of the United States money gifts and be23 quests made unconditionally to the Trust Fund,

24 for the benefit of the Account or any activity fi25 nanced through the Account.
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1 ‘‘(C) TRANSFER OF AMOUNTS.—The Man2 aging Trustee shall transfer to the Trust Fund,

3 under rules similar to the rules in section 9601

4 of the Internal Revenue Code of 1986, an

5 amount equal to the sum of the following:

6 ‘‘(i) Criminal fines recovered in cases

7 involving a Federal health care offense (as

8 defined in section 982(a)(6)(B) of title 18,

9 United States Code).

10 ‘‘(ii) Civil monetary penalties and as11 sessments imposed in health care cases, in12 cluding amounts recovered under titles XI,

13 XVIII, and XXI, and chapter 38 of title

14 31, United States Code (except as other15 wise provided by law).

16 ‘‘(iii) Amounts resulting from the for17 feiture of property by reason of a Federal

18 health care offense.

19 ‘‘(iv) Penalties and damages obtained

20 and otherwise creditable to miscellaneous

21 receipts of the general fund of the Treas22 ury obtained under sections 3729 through

23 3733 of title 31, United States Code

24 (known as the False Claims Act), in cases

25 involving claims related to the provision of
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1 health care items and services (other than

2 funds awarded to a relator, for restitution

3 or otherwise authorized by law).

4 ‘‘(3) APPROPRIATED AMOUNTS TO ACCOUNT

5 FOR FRAUD AND ABUSE CONTROL PROGRAM, ETC.—

6 ‘‘(A) DEPARTMENTS OF HEALTH AND

7 HUMAN SERVICES AND JUSTICE.—

8 ‘‘(i) IN GENERAL.—There are hereby

9 appropriated to the Account from the

10 Trust Fund such sums as the Secretary

11 and the Attorney General certify are nec12 essary to carry out the purposes described

13 in subparagraph (C), to be available with14 out further appropriation, in an amount

15 not to exceed—

16 ‘‘(I) for fiscal year 1997,

17 $104,000,000, and

18 ‘‘(II) for each of the fiscal years

19 1998 through 2003, the limit for the

20 preceding fiscal year, increased by 15

21 percent; and

22 ‘‘(III) for each fiscal year after

23 fiscal year 2003, the limit for fiscal

24 year 2003.
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1 ‘‘(ii) MEDICARE AND MEDICAID AC2 TIVITIES.—For each fiscal year, of the

3 amount appropriated in clause (i), the fol4 lowing amounts shall be available only for

5 the purposes of the activities of the Office

6 of the Inspector General of the Depart7 ment of Health and Human Services with

8 respect to the medicare and medicaid pro9 grams—

10 ‘‘(I) for fiscal year 1997, not less

11 than $60,000,000 and not more than

12 $70,000,000;

13 ‘‘(II) for fiscal year 1998, not

14 less than $80,000,000 and not more

15 than $90,000,000;

16 ‘‘(III) for fiscal year 1999, not

17 less than $90,000,000 and not more

18 than $100,000,000;

19 ‘‘(IV) for fiscal year 2000, not

20 less than $110,000,000 and not more

21 than $120,000,000;

22 ‘‘(V) for fiscal year 2001, not

23 less than $120,000,000 and not more

24 than $130,000,000;
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1 ‘‘(VI) for fiscal year 2002, not

2 less than $140,000,000 and not more

3 than $150,000,000; and

4 ‘‘(VII) for each fiscal year after

5 fiscal year 2002, not less than

6 $150,000,000 and not more than

7 $160,000,000.

8 ‘‘(B) FEDERAL BUREAU OF INVESTIGA9 TION.—There are hereby appropriated from the

10 general fund of the United States Treasury and

11 hereby appropriated to the Account for transfer

12 to the Federal Bureau of Investigation to carry

13 out the purposes described in subparagraph

14 (C)(i), to be available without further appro15 priation—

16 ‘‘(i) for fiscal year 1997, $47,000,000;

17 ‘‘(ii) for fiscal year 1998,

18 $56,000,000;

19 ‘‘(iii) for fiscal year 1999,

20 $66,000,000;

21 ‘‘(iv) for fiscal year 2000,

22 $76,000,000;

23 ‘‘(v) for fiscal year 2001,

24 $88,000,000;
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1 ‘‘(vi) for fiscal year 2002,

2 $101,000,000; and

3 ‘‘(vii) for each fiscal year after fiscal

4 year 2002, $114,000,000.

5 ‘‘(C) USE OF FUNDS.—The purposes de6 scribed in this subparagraph are to cover the

7 costs (including equipment, salaries and bene8 fits, and travel and training) of the administra9 tion and operation of the health care fraud and

10 abuse control program established under section

11 1128C(a), including the costs of—

12 ‘‘(i) prosecuting health care matters

13 (through criminal, civil, and administrative

14 proceedings);

15 ‘‘(ii) investigations;

16 ‘‘(iii) financial and performance audits

17 of health care programs and operations;

18 ‘‘(iv) inspections and other evalua19 tions; and

20 ‘‘(v) provider and consumer education

21 regarding compliance with the provisions of

22 title XI.

23 ‘‘(4) APPROPRIATED AMOUNTS TO ACCOUNT

24 FOR MEDICARE INTEGRITY PROGRAM.—
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1 ‘‘(A) IN GENERAL.—There are hereby ap2 propriated to the Account from the Trust Fund

3 for each fiscal year such amounts as are nec4 essary to carry out the Medicare Integrity Pro5 gram under section 1893, subject to subpara6 graph (B) and to be available without further

7 appropriation.

8 ‘‘(B) AMOUNTS SPECIFIED.—The amount

9 appropriated under subparagraph (A) for a fis10 cal year is as follows:

11 ‘‘(i) For fiscal year 1997, such

12 amount shall be not less than

13 $430,000,000 and not more than

14 $440,000,000.

15 ‘‘(ii) For fiscal year 1998, such

16 amount shall be not less than

17 $490,000,000 and not more than

18 $500,000,000.

19 ‘‘(iii) For fiscal year 1999, such

20 amount shall be not less than

21 $550,000,000 and not more than

22 $560,000,000.

23 ‘‘(iv) For fiscal year 2000, such

24 amount shall be not less than
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1 $620,000,000 and not more than

2 $630,000,000.

3 ‘‘(v) For fiscal year 2001, such

4 amount shall be not less than

5 $670,000,000 and not more than

6 $680,000,000.

7 ‘‘(vi) For fiscal year 2002, such

8 amount shall be not less than

9 $690,000,000 and not more than

10 $700,000,000.

11 ‘‘(vii) For each fiscal year after fiscal

12 year 2002, such amount shall be not less

13 than $710,000,000 and not more than

14 $720,000,000.

15 ‘‘(5) ANNUAL REPORT.—The Secretary and the

16 Attorney General shall submit jointly an annual re17 port to Congress on the amount of revenue which is

18 generated and disbursed, and the justification for

19 such disbursements, by the Account in each fiscal

20 year.’’.

21 SEC. 502. MEDICARE INTEGRITY PROGRAM.

22 (a) ESTABLISHMENT OF MEDICARE INTEGRITY PRO23 GRAM.—Title XVIII is amended by adding at the end the

24 following new section:
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1 ‘‘MEDICARE INTEGRITY PROGRAM

2 ‘‘SEC. 1893. (a) ESTABLISHMENT OF PROGRAM.—

3 There is hereby established the Medicare Integrity Pro4 gram (in this section referred to as the ‘Program’) under

5 which the Secretary shall promote the integrity of the

6 medicare program by entering into contracts in accord7 ance with this section with eligible private entities to carry

8 out the activities described in subsection (b).

9 ‘‘(b) ACTIVITIES DESCRIBED.—The activities de10 scribed in this subsection are as follows:

11 ‘‘(1) Review of activities of providers of services

12 or other individuals and entities furnishing items

13 and services for which payment may be made under

14 this title (including skilled nursing facilities and

15 home health agencies), including medical and utiliza16 tion review and fraud review (employing similar

17 standards, processes, and technologies used by pri18 vate health plans, including equipment and software

19 technologies which surpass the capability of the

20 equipment and technologies used in the review of

21 claims under this title as of the date of the enact22 ment of this section).

23 ‘‘(2) Audit of cost reports.

24 ‘‘(3) Determinations as to whether payment

25 should not be, or should not have been, made under
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1 this title by reason of section 1862(b), and recovery

2 of payments that should not have been made.

3 ‘‘(4) Education of providers of services, bene4 ficiaries, and other persons with respect to payment

5 integrity and benefit quality assurance issues.

6 ‘‘(5) Developing (and periodically updating) a

7 list of items of durable medical equipment in accord8 ance with section 1834(a)(15) which are subject to

9 prior authorization under such section.

10 ‘‘(c) ELIGIBILITY OF ENTITIES.—An entity is eligible

11 to enter into a contract under the Program to carry out

12 any of the activities described in subsection (b) if—

13 ‘‘(1) the entity has demonstrated capability to

14 carry out such activities;

15 ‘‘(2) in carrying out such activities, the entity

16 agrees to cooperate with the Inspector General of

17 the Department of Health and Human Services, the

18 Attorney General of the United States, and other

19 law enforcement agencies, as appropriate, in the in20 vestigation and deterrence of fraud and abuse in re21 lation to this title and in other cases arising out of

22 such activities;

23 ‘‘(3) the entity complies with such conflict of in24 terest standards as are generally applicable to Fed25 eral acquisition and procurement;
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1 ‘‘(4) the entity meets such other requirements

2 as the Secretary may impose; and

3 ‘‘(5) in the case of any contract entered into for

4 years prior to 2000, the entity has entered into an

5 agreement under section 1816 or a contract under

6 section 1842.

7 In the case of the activity described in subsection (b)(5),

8 an entity shall be deemed to be eligible to enter into a

9 contract under the Program to carry out the activity if

10 the entity is a carrier with a contract in effect under sec11 tion 1842.

12 ‘‘(d) PROCESS FOR ENTERING INTO CONTRACTS.—

13 The Secretary shall enter into contracts under the Pro14 gram in accordance with such procedures as the Secretary

15 shall by regulation establish, except that such procedures

16 shall include the following:

17 ‘‘(1) Procedures for identifying, evaluating, and

18 resolving organizational conflicts of interest that are

19 generally applicable to Federal acquisition and pro20 curement.

21 ‘‘(2) Competitive procedures must be used when

22 entering into new contracts under this section, or at

23 any other time considered appropriate by the Sec24 retary, except that the Secretary may contract with

25 entities that are carrying out the activities described
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1 in this section pursuant to agreements under section

2 1816 or contracts under section 1842 in effect on

3 the date of the enactment of this section.

4 ‘‘(3) A contract under this section may be re5 newed without regard to any provision of law requir6 ing competition if the contractor has met or ex7 ceeded the performance requirements established in

8 the current contract.

9 ‘‘(e) LIMITATION ON CONTRACTOR LIABILITY.—The

10 Secretary shall by regulation provide for the limitation of

11 a contractor’s liability for actions taken to carry out a con12 tract under the Program, and such regulation shall, to the

13 extent the Secretary finds appropriate, employ the same

14 or comparable standards and other substantive and proce15 dural provisions as are contained in section 1157.’’.

16 (b) ELIMINATION OF FI AND CARRIER RESPONSIBIL17 ITY FOR CARRYING OUT ACTIVITIES SUBJECT TO PRO18 GRAM.—

19 (1) RESPONSIBILITIES OF FISCAL

20 INTERMEDIARIES UNDER PART A.—Section 1816

21 (42 U.S.C. 1395h) is amended by adding at the end

22 the following new subsection:

23 ‘‘(l) No payment may be made for carrying out any

24 activity pursuant to an agreement under this section to

25 the extent that the activity is carried out pursuant to a
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1 contract under the Medicare Integrity Program under sec2 tion 1893.’’.

3 (2) RESPONSIBILITIES OF CARRIERS UNDER

4 PART B.—Section 1842(c) (42 U.S.C. 1395u(c)) is

5 amended by adding at the end the following new

6 paragraph:

7 ‘‘(6) No payment may be made for carrying out any

8 activity pursuant to a contract under this subsection to

9 the extent that the activity is carried out pursuant to a

10 contract under the Medicare Integrity Program under sec11 tion 1893. The previous sentence shall not apply with re12 spect to the activity described in section 1893(b)(5) (relat13 ing to prior authorization of certain items of durable medi14 cal equipment under section 1834(a)(15)).’’.

15 SEC. 503. BENEFICIARY INCENTIVE PROGRAMS.

16 (a) CLARIFICATION OF REQUIREMENT TO PROVIDE

17 EXPLANATION OF MEDICARE BENEFITS.—The Secretary

18 of Health and Human Services (in this section referred

19 to as the ‘‘Secretary’’) shall provide an explanation of ben20 efits under the medicare program under title XVIII of the

21 Social Security Act with respect to each item or service

22 for which payment may be made under the program which

23 is furnished to an individual, without regard to whether

24 or not a deductible or coinsurance may be imposed against

25 the individual with respect to the item or service.
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1 (b) PROGRAM TO COLLECT INFORMATION ON FRAUD

2 AND ABUSE.—

3 (1) ESTABLISHMENT OF PROGRAM.—Not later

4 than 3 months after the date of the enactment of

5 this Act, the Secretary shall establish a program

6 under which the Secretary shall encourage individ7 uals to report to the Secretary information on indi8 viduals and entities who are engaging or who have

9 engaged in acts or omissions which constitute

10 grounds for the imposition of a sanction under sec11 tion 1128, section 1128A, or section 1128B of the

12 Social Security Act, or who have otherwise engaged

13 in fraud and abuse against the medicare program

14 for which there is a sanction provided under law.

15 The program shall discourage provision of, and not

16 consider, information which is frivolous or otherwise

17 not relevant or material to the imposition of such a

18 sanction.

19 (2) PAYMENT OF PORTION OF AMOUNTS COL20 LECTED.—If an individual reports information to

21 the Secretary under the program established under

22 paragraph (1) which serves as the basis for the col23 lection by the Secretary or the Attorney General of

24 any amount of at least $100 (other than any

25 amount paid as a penalty under section 1128B of
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1 the Social Security Act), the Secretary may pay a

2 portion of the amount collected to the individual

3 (under procedures similar to those applicable under

4 section 7623 of the Internal Revenue Code of 1986

5 to payments to individuals providing information on

6 violations of such Code).

7 (c) PROGRAM TO COLLECT INFORMATION ON PRO8 GRAM EFFICIENCY.—

9 (1) ESTABLISHMENT OF PROGRAM.—Not later

10 than 3 months after the date of the enactment of

11 this Act, the Secretary shall establish a program

12 under which the Secretary shall encourage individ13 uals to submit to the Secretary suggestions on meth14 ods to improve the efficiency of the medicare pro15 gram.

16 (2) PAYMENT OF PORTION OF PROGRAM SAV17 INGS.—If an individual submits a suggestion to the

18 Secretary under the program established under

19 paragraph (1) which is adopted by the Secretary and

20 which results in savings to the program, the Sec21 retary may make a payment to the individual of

22 such amount as the Secretary considers appropriate.
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1 SEC. 504. APPLICATION OF CERTAIN HEALTH ANTI-FRAUD

2 AND ABUSE SANCTIONS TO FRAUD AND

3 ABUSE AGAINST FEDERAL HEALTH CARE

4 PROGRAMS.

5 (a) IN GENERAL.—Section 1128B (42 U.S.C.

6 1320a–7b) is amended as follows:

7 (1) In the heading, by striking ‘‘MEDICARE OR

8 STATE HEALTH CARE PROGRAMS’’ and inserting

9 ‘‘FEDERAL HEALTH CARE PROGRAMS’’.

10 (2) In subsection (a)(1), by striking ‘‘a program

11 under title XVIII or a State health care program (as

12 defined in section 1128(h))’’ and inserting ‘‘a Fed13 eral health care program’’.

14 (3) In subsection (a)(5), by striking ‘‘a program

15 under title XVIII or a State health care program’’

16 and inserting ‘‘a Federal health care program’’.

17 (4) In the second sentence of subsection (a)—

18 (A) by striking ‘‘a State plan approved

19 under title XIX’’ and inserting ‘‘a Federal

20 health care program’’, and

21 (B) by striking ‘‘the State may at its op22 tion (notwithstanding any other provision of

23 that title or of such plan)’’ and inserting ‘‘the

24 administrator of such program may at its op25 tion (notwithstanding any other provision of

26 such program)’’.
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1 (5) In subsection (b), by striking ‘‘title XVIII

2 or a State health care program’’ each place it ap3 pears and inserting ‘‘a Federal health care pro4 gram’’.

5 (6) In subsection (c), by inserting ‘‘(as defined

6 in section 1128(h))’’ after ‘‘a State health care pro7 gram’’.

8 (7) By adding at the end the following new sub9 section:

10 ‘‘(f) For purposes of this section, the term ‘Federal

11 health care program’ means—

12 ‘‘(1) any plan or program that provides health

13 benefits, whether directly, through insurance, or oth14 erwise, which is funded directly, in whole or in part,

15 by the United States Government (other than the

16 health insurance program under chapter 89 of title

17 5, United States Code); or

18 ‘‘(2) any State health care program, as defined

19 in section 1128(h).’’.

20 (b) EFFECTIVE DATE.—The amendments made by

21 this section shall take effect on January 1, 1997.
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1 SEC. 505. GUIDANCE REGARDING APPLICATION OF HEALTH

2 CARE FRAUD AND ABUSE SANCTIONS.

3 Title XI (42 U.S.C. 1301 et seq.), as amended by

4 section 501, is amended by inserting after section 1128C

5 the following new section:

6 ‘‘GUIDANCE REGARDING APPLICATION OF HEALTH CARE

7 FRAUD AND ABUSE SANCTIONS

8 ‘‘SEC. 1128D. (a) SOLICITATION AND PUBLICATION

9 OF MODIFICATIONS TO EXISTING SAFE HARBORS AND

10 NEW SAFE HARBORS.—

11 ‘‘(1) IN GENERAL.—

12 ‘‘(A) SOLICITATION OF PROPOSALS FOR

13 SAFE HARBORS.—Not later than January 1,

14 1997, and not less than annually thereafter, the

15 Secretary shall publish a notice in the Federal

16 Register soliciting proposals, which will be ac17 cepted during a 60-day period, for—

18 ‘‘(i) modifications to existing safe har19 bors issued pursuant to section 14(a) of

20 the Medicare and Medicaid Patient and

21 Program Protection Act of 1987 (42

22 U.S.C. 1320a–7b note);

23 ‘‘(ii) additional safe harbors specifying

24 payment practices that shall not be treated

25 as a criminal offense under section
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1 1128B(b) and shall not serve as the basis

2 for an exclusion under section 1128(b)(7);

3 ‘‘(iii) interpretive rulings to be issued

4 pursuant to subsection (b); and

5 ‘‘(iv) special fraud alerts to be issued

6 pursuant to subsection (c).

7 ‘‘(B) PUBLICATION OF PROPOSED MODI8 FICATIONS AND PROPOSED ADDITIONAL SAFE

9 HARBORS.—After considering the proposals de10 scribed in clauses (i) and (ii) of subparagraph

11 (A), the Secretary, in consultation with the At12 torney General, shall publish in the Federal

13 Register proposed modifications to existing safe

14 harbors and proposed additional safe harbors, if

15 appropriate, with a 60-day comment period.

16 After considering any public comments received

17 during this period, the Secretary shall issue

18 final rules modifying the existing safe harbors

19 and establishing new safe harbors, as appro20 priate.

21 ‘‘(C) REPORT.—The Inspector General of

22 the Department of Health and Human Services

23 (in this section referred to as the ‘Inspector

24 General’) shall, in an annual report to Congress

25 or as part of the year-end semiannual report re-
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1 quired by section 5 of the Inspector General

2 Act of 1978 (5 U.S.C. App.), describe the pro3 posals received under clauses (i) and (ii) of sub4 paragraph (A) and explain which proposals

5 were included in the publication described in

6 subparagraph (B), which proposals were not in7 cluded in that publication, and the reasons for

8 the rejection of the proposals that were not in9 cluded.

10 ‘‘(2) CRITERIA FOR MODIFYING AND ESTAB11 LISHING SAFE HARBORS.—In modifying and estab12 lishing safe harbors under paragraph (1)(B), the

13 Secretary may consider the extent to which provid14 ing a safe harbor for the specified payment practice

15 may result in any of the following:

16 ‘‘(A) An increase or decrease in access to

17 health care services.

18 ‘‘(B) An increase or decrease in the quality

19 of health care services.

20 ‘‘(C) An increase or decrease in patient

21 freedom of choice among health care providers.

22 ‘‘(D) An increase or decrease in competi23 tion among health care providers.

24 ‘‘(E) An increase or decrease in the ability

25 of health care facilities to provide services in
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1 medically underserved areas or to medically un2 derserved populations.

3 ‘‘(F) An increase or decrease in the cost to

4 Federal health care programs (as defined in

5 section 1128B(f)).

6 ‘‘(G) An increase or decrease in the poten7 tial overutilization of health care services.

8 ‘‘(H) The existence or nonexistence of any

9 potential financial benefit to a health care pro10 fessional or provider which may vary based on

11 their decisions of—

12 ‘‘(i) whether to order a health care

13 item or service; or

14 ‘‘(ii) whether to arrange for a referral

15 of health care items or services to a par16 ticular practitioner or provider.

17 ‘‘(I) Any other factors the Secretary deems

18 appropriate in the interest of preventing fraud

19 and abuse in Federal health care programs (as

20 so defined).

21 ‘‘(b) INTERPRETIVE RULINGS.—

22 ‘‘(1) IN GENERAL.—

23 ‘‘(A) REQUEST FOR INTERPRETIVE RUL24 ING.—Any person may present, at any time, a

25 request to the Inspector General for a state-
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1 ment of the Inspector General’s current inter2 pretation of the meaning of a specific aspect of

3 the application of sections 1128A and 1128B

4 (in this section referred to as an ‘interpretive

5 ruling’).

6 ‘‘(B) ISSUANCE AND EFFECT OF INTER7 PRETIVE RULING.—

8 ‘‘(i) IN GENERAL.—If appropriate, the

9 Inspector General shall in consultation

10 with the Attorney General, issue an inter11 pretive ruling not later than 90 days after

12 receiving a request described in subpara13 graph (A). Interpretive rulings shall not

14 have the force of law and shall be treated

15 as an interpretive rule within the meaning

16 of section 553(b) of title 5, United States

17 Code. All interpretive rulings issued pursu18 ant to this clause shall be published in the

19 Federal Register or otherwise made avail20 able for public inspection.

21 ‘‘(ii) REASONS FOR DENIAL.—If the

22 Inspector General does not issue an inter23 pretive ruling in response to a request de24 scribed in subparagraph (A), the Inspector

25 General shall notify the requesting party of
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1 such decision not later than 60 days after

2 receiving such a request and shall identify

3 the reasons for such decision.

4 ‘‘(2) CRITERIA FOR INTERPRETIVE RULINGS.—

5 ‘‘(A) IN GENERAL.—In determining wheth6 er to issue an interpretive ruling under para7 graph (1)(B), the Inspector General may con8 sider—

9 ‘‘(i) whether and to what extent the

10 request identifies an ambiguity within the

11 language of the statute, the existing safe

12 harbors, or previous interpretive rulings;

13 and

14 ‘‘(ii) whether the subject of the re15 quested interpretive ruling can be ade16 quately addressed by interpretation of the

17 language of the statute, the existing safe

18 harbor rules, or previous interpretive rul19 ings, or whether the request would require

20 a substantive ruling (as defined in section

21 552 of title 5, United States Code) not au22 thorized under this subsection.

23 ‘‘(B) NO RULINGS ON FACTUAL ISSUES.—

24 The Inspector General shall not give an inter25 pretive ruling on any factual issue, including
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1 the intent of the parties or the fair market

2 value of particular leased space or equipment.

3 ‘‘(c) SPECIAL FRAUD ALERTS.—

4 ‘‘(1) IN GENERAL.—

5 ‘‘(A) REQUEST FOR SPECIAL FRAUD

6 ALERTS.—Any person may present, at any

7 time, a request to the Inspector General for a

8 notice which informs the public of practices

9 which the Inspector General considers to be

10 suspect or of particular concern under the med11 icare program or a State health care program,

12 as defined in section 1128(h) (in this subsection

13 referred to as a ‘special fraud alert’).

14 ‘‘(B) ISSUANCE AND PUBLICATION OF SPE15 CIAL FRAUD ALERTS.—Upon receipt of a re16 quest described in subparagraph (A), the In17 spector General shall investigate the subject

18 matter of the request to determine whether a

19 special fraud alert should be issued. If appro20 priate, the Inspector General shall issue a spe21 cial fraud alert in response to the request. All

22 special fraud alerts issued pursuant to this sub23 paragraph shall be published in the Federal

24 Register.
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1 ‘‘(2) CRITERIA FOR SPECIAL FRAUD ALERTS.—

2 In determining whether to issue a special fraud alert

3 upon a request described in paragraph (1), the In4 spector General may consider—

5 ‘‘(A) whether and to what extent the prac6 tices that would be identified in the special

7 fraud alert may result in any of the con8 sequences described in subsection (a)(2); and

9 ‘‘(B) the volume and frequency of the con10 duct that would be identified in the special

11 fraud alert.’’.

12 Subtitle B—Revisions to Current

13 Sanctions for Fraud and Abuse

14 SEC. 511. MANDATORY EXCLUSION FROM PARTICIPATION

15 IN MEDICARE AND STATE HEALTH CARE PRO16 GRAMS.

17 (a) INDIVIDUAL CONVICTED OF FELONY RELATING

18 TO HEALTH CARE FRAUD.—

19 (1) IN GENERAL.—Section 1128(a) (42 U.S.C.

20 1320a–7(a)) is amended by adding at the end the

21 following new paragraph:

22 ‘‘(3) FELONY CONVICTION RELATING TO

23 HEALTH CARE FRAUD.—Any individual or entity

24 that has been convicted after the date of the enact25 ment of the Health Insurance Reform Act of 1996,
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1 under Federal or State law, in connection with the

2 delivery of a health care item or service or with re3 spect to any act or omission in a health care pro4 gram (other than those specifically described in

5 paragraph (1)) operated by or financed in whole or

6 in part by any Federal, State, or local government

7 agency, of a criminal offense consisting of a felony

8 relating to fraud, theft, embezzlement, breach of fi9 duciary responsibility, or other financial mis10 conduct.’’.

11 (2) CONFORMING AMENDMENT.—Paragraph (1)

12 of section 1128(b) (42 U.S.C. 1320a–7(b)) is

13 amended to read as follows:

14 ‘‘(1) CONVICTION RELATING TO FRAUD.—Any

15 individual or entity that has been convicted after the

16 date of the enactment of the Health Insurance Re17 form Act of 1996, under Federal or State law—

18 ‘‘(A) of a criminal offense consisting of a

19 misdemeanor relating to fraud, theft, embezzle20 ment, breach of fiduciary responsibility, or

21 other financial misconduct—

22 ‘‘(i) in connection with the delivery of

23 a health care item or service, or

24 ‘‘(ii) with respect to any act or omis25 sion in a health care program (other than
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1 those specifically described in subsection

2 (a)(1)) operated by or financed in whole or

3 in part by any Federal, State, or local gov4 ernment agency; or

5 ‘‘(B) of a criminal offense relating to

6 fraud, theft, embezzlement, breach of fiduciary

7 responsibility, or other financial misconduct

8 with respect to any act or omission in a pro9 gram (other than a health care program) oper10 ated by or financed in whole or in part by any

11 Federal, State, or local government agency.’’.

12 (b) INDIVIDUAL CONVICTED OF FELONY RELATING

13 TO CONTROLLED SUBSTANCE.—

14 (1) IN GENERAL.—Section 1128(a) (42 U.S.C.

15 1320a–7(a)), as amended by subsection (a), is

16 amended by adding at the end the following new

17 paragraph:

18 ‘‘(4) FELONY CONVICTION RELATING TO CON19 TROLLED SUBSTANCE.—Any individual or entity

20 that has been convicted after the date of the enact21 ment of the Health Insurance Reform Act of 1996,

22 under Federal or State law, of a criminal offense

23 consisting of a felony relating to the unlawful manu24 facture, distribution, prescription, or dispensing of a

25 controlled substance.’’.
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1 (2) CONFORMING AMENDMENT.—Section

2 1128(b)(3) (42 U.S.C. 1320a–7(b)(3)) is amended—

3 (A) in the heading, by striking ‘‘CONVIC4 TION’’ and inserting ‘‘MISDEMEANOR CONVIC5 TION’’; and

6 (B) by striking ‘‘criminal offense’’ and in7 serting ‘‘criminal offense consisting of a mis8 demeanor’’.

9 SEC. 512. ESTABLISHMENT OF MINIMUM PERIOD OF EX10 CLUSION FOR CERTAIN INDIVIDUALS AND

11 ENTITIES SUBJECT TO PERMISSIVE EXCLU12 SION FROM MEDICARE AND STATE HEALTH

13 CARE PROGRAMS.

14 Section 1128(c)(3) (42 U.S.C. 1320a–7(c)(3)) is

15 amended by adding at the end the following new subpara16 graphs:

17 ‘‘(D) In the case of an exclusion of an individual or

18 entity under paragraph (1), (2), or (3) of subsection (b),

19 the period of the exclusion shall be 3 years, unless the

20 Secretary determines in accordance with published regula21 tions that a shorter period is appropriate because of miti22 gating circumstances or that a longer period is appro23 priate because of aggravating circumstances.

24 ‘‘(E) In the case of an exclusion of an individual or

25 entity under subsection (b)(4) or (b)(5), the period of the
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1 exclusion shall not be less than the period during which

2 the individual’s or entity’s license to provide health care

3 is revoked, suspended, or surrendered, or the individual

4 or the entity is excluded or suspended from a Federal or

5 State health care program.

6 ‘‘(F) In the case of an exclusion of an individual or

7 entity under subsection (b)(6)(B), the period of the exclu8 sion shall be not less than 1 year.’’.

9 SEC. 513. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH

10 OWNERSHIP OR CONTROL INTEREST IN

11 SANCTIONED ENTITIES.

12 Section 1128(b) (42 U.S.C. 1320a–7(b)) is amended

13 by adding at the end the following new paragraph:

14 ‘‘(15) INDIVIDUALS CONTROLLING A SANC15 TIONED ENTITY.—(A) Any individual—

16 ‘‘(i) who has a direct or indirect ownership

17 or control interest in a sanctioned entity and

18 who knows or should know (as defined in sec19 tion 1128A(i)(6)) of the action constituting the

20 basis for the conviction or exclusion described

21 in subparagraph (B); or

22 ‘‘(ii) who is an officer or managing em23 ployee (as defined in section 1126(b)) of such

24 an entity.
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1 ‘‘(B) For purposes of subparagraph (A), the

2 term ‘sanctioned entity’ means an entity—

3 ‘‘(i) that has been convicted of any offense

4 described in subsection (a) or in paragraph (1),

5 (2), or (3) of this subsection; or

6 ‘‘(ii) that has been excluded from partici7 pation under a program under title XVIII or

8 under a State health care program.’’.

9 SEC. 514. SANCTIONS AGAINST PRACTITIONERS AND PER10 SONS FOR FAILURE TO COMPLY WITH STATU11 TORY OBLIGATIONS.

12 (a) MINIMUM PERIOD OF EXCLUSION FOR PRACTI13 TIONERS AND PERSONS FAILING TO MEET STATUTORY

14 OBLIGATIONS.—

15 (1) IN GENERAL.—The second sentence of sec16 tion 1156(b)(1) (42 U.S.C. 1320c–5(b)(1)) is

17 amended by striking ‘‘may prescribe)’’ and inserting

18 ‘‘may prescribe, except that such period may not be

19 less than 1 year)’’.

20 (2) CONFORMING AMENDMENT.—Section

21 1156(b)(2) (42 U.S.C. 1320c–5(b)(2)) is amended

22 by striking ‘‘shall remain’’ and inserting ‘‘shall (sub23 ject to the minimum period specified in the second

24 sentence of paragraph (1)) remain’’.
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1 (b) REPEAL OF ‘‘UNWILLING OR UNABLE’’ CONDI2 TION FOR IMPOSITION OF SANCTION.—Section 1156(b)(1)

3 (42 U.S.C. 1320c–5(b)(1)) is amended—

4 (1) in the second sentence, by striking ‘‘and de5 termines’’ and all that follows through ‘‘such obliga6 tions,’’; and

7 (2) by striking the third sentence.

8 SEC. 515. INTERMEDIATE SANCTIONS FOR MEDICARE

9 HEALTH MAINTENANCE ORGANIZATIONS.

10 (a) APPLICATION OF INTERMEDIATE SANCTIONS FOR

11 ANY PROGRAM VIOLATIONS.—

12 (1) IN GENERAL.—Section 1876(i)(1) (42

13 U.S.C. 1395mm(i)(1)) is amended by striking ‘‘the

14 Secretary may terminate’’ and all that follows and

15 inserting ‘‘in accordance with procedures established

16 under paragraph (9), the Secretary may at any time

17 terminate any such contract or may impose the in18 termediate sanctions described in paragraph (6)(B)

19 or (6)(C) (whichever is applicable) on the eligible or20 ganization if the Secretary determines that the orga21 nization—

22 ‘‘(A) has failed substantially to carry out

23 the contract;
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1 ‘‘(B) is carrying out the contract in a man2 ner substantially inconsistent with the efficient

3 and effective administration of this section; or

4 ‘‘(C) no longer substantially meets the ap5 plicable conditions of subsections (b), (c), (e),

6 and (f).’’.

7 (2) OTHER INTERMEDIATE SANCTIONS FOR

8 MISCELLANEOUS PROGRAM VIOLATIONS.—Section

9 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is amended by

10 adding at the end the following new subparagraph:

11 ‘‘(C) In the case of an eligible organization for which

12 the Secretary makes a determination under paragraph (1)

13 the basis of which is not described in subparagraph (A),

14 the Secretary may apply the following intermediate sanc15 tions:

16 ‘‘(i) Civil money penalties of not more than

17 $25,000 for each determination under paragraph (1)

18 if the deficiency that is the basis of the determina19 tion has directly adversely affected (or has the sub20 stantial likelihood of adversely affecting) an individ21 ual covered under the organization’s contract.

22 ‘‘(ii) Civil money penalties of not more than

23 $10,000 for each week beginning after the initiation

24 of procedures by the Secretary under paragraph (9)
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1 during which the deficiency that is the basis of a de2 termination under paragraph (1) exists.

3 ‘‘(iii) Suspension of enrollment of individuals

4 under this section after the date the Secretary noti5 fies the organization of a determination under para6 graph (1) and until the Secretary is satisfied that

7 the deficiency that is the basis for the determination

8 has been corrected and is not likely to recur.’’.

9 (3) PROCEDURES FOR IMPOSING SANCTIONS.—

10 Section 1876(i) (42 U.S.C. 1395mm(i)) is amended

11 by adding at the end the following new paragraph:

12 ‘‘(9) The Secretary may terminate a contract with an

13 eligible organization under this section or may impose the

14 intermediate sanctions described in paragraph (6) on the

15 organization in accordance with formal investigation and

16 compliance procedures established by the Secretary under

17 which—

18 ‘‘(A) the Secretary first provides the organiza19 tion with the reasonable opportunity to develop and

20 implement a corrective action plan to correct the de21 ficiencies that were the basis of the Secretary’s de22 termination under paragraph (1) and the organiza23 tion fails to develop or implement such a plan;

24 ‘‘(B) in deciding whether to impose sanctions,

25 the Secretary considers aggravating factors such as
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1 whether an organization has a history of deficiencies

2 or has not taken action to correct deficiencies the

3 Secretary has brought to the organization’s atten4 tion;

5 ‘‘(C) there are no unreasonable or unnecessary

6 delays between the finding of a deficiency and the

7 imposition of sanctions; and

8 ‘‘(D) the Secretary provides the organization

9 with reasonable notice and opportunity for hearing

10 (including the right to appeal an initial decision) be11 fore imposing any sanction or terminating the con12 tract.’’.

13 (4) CONFORMING AMENDMENTS.—Section

14 1876(i)(6)(B) (42 U.S.C. 1395mm(i)(6)(B)) is

15 amended by striking the second sentence.

16 (b) AGREEMENTS WITH PEER REVIEW ORGANIZA17 TIONS.—Section 1876(i)(7)(A) (42 U.S.C.

18 1395mm(i)(7)(A)) is amended by striking ‘‘an agreement’’

19 and inserting ‘‘a written agreement’’.

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

21 this section shall apply with respect to contract years be22 ginning on or after January 1, 1997.
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1 SEC. 516. ADDITIONAL EXCEPTIONS TO ANTI-KICKBACK

2 PENALTIES FOR RISK-SHARING ARRANGE3 MENTS.

4 (a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C.

5 1320a–7b(b)(3)) is amended—

6 (1) by striking ‘‘and’’ at the end of subpara7 graph (D);

8 (2) by striking the period at the end of sub9 paragraph (E) and inserting ‘‘; and’’; and

10 (3) by adding at the end the following new sub11 paragraph:

12 ‘‘(F) any remuneration between an organization

13 and an individual or entity providing items or serv14 ices pursuant to a written agreement between the or15 ganization and the individual or entity if the organi16 zation is an eligible organization under section 1876,

17 or if the written agreement places the individual or

18 entity at substantial financial risk for the cost or

19 utilization of the items or services, or a combination

20 thereof, which the individual or entity is obligated to

21 provide, whether through a withhold or capitation,

22 or other similar risk arrangements which places the

23 individual or entity at substantial financial risk.’’.

24 (b) REGULATIONS.—Section 1128B(b) (42 U.S.C.

25 1320a–7b(b)) is amended by adding at the end the follow26 ing new paragraph:
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1 ‘‘(4) The Secretary, in consultation with the Attorney

2 General, not later than 1 year after the date of enactment

3 of Health Insurance Reform Act of 1996, and not less

4 than every 2 years thereafter, shall promulgate regulations

5 to define substantial financial risk as necessary to protect

6 against program or patient abuse.’’.

7 SEC. 517. EFFECTIVE DATE.

8 Except as otherwise provided, the amendments made

9 by this subtitle shall take effect January 1, 1997.

10 Subtitle C—Data Collection and

11 Miscellaneous Provisions

12 SEC. 521. ESTABLISHMENT OF THE HEALTH CARE FRAUD

13 AND ABUSE DATA COLLECTION PROGRAM.

14 (a) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.),

15 as amended by sections 501 and 505, is amended by in16 serting after section 1128D the following new section:

17 ‘‘HEALTH CARE FRAUD AND ABUSE DATA COLLECTION

18 PROGRAM

19 ‘‘SEC. 1128E. (a) GENERAL PURPOSE.—Not later

20 than January 1, 1997, the Secretary shall establish a na21 tional health care fraud and abuse data collection program

22 for the reporting of final adverse actions (not including

23 settlements in which no findings of liability have been

24 made) against health care providers, suppliers, or practi25 tioners as required by subsection (b), with access as set

26 forth in subsection (c).
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1 ‘‘(b) REPORTING OF INFORMATION.—

2 ‘‘(1) IN GENERAL.—Each Government agency

3 and health plan shall report any final adverse action

4 (not including settlements in which no findings of li5 ability have been made) taken against a health care

6 provider, supplier, or practitioner.

7 ‘‘(2) INFORMATION TO BE REPORTED.—The in8 formation to be reported under paragraph (1) in9 cludes:

10 ‘‘(A) The name and TIN (as defined in

11 section 7701(a)(41) of the Internal Revenue

12 Code of 1986) of any health care provider, sup13 plier, or practitioner who is the subject of a

14 final adverse action.

15 ‘‘(B) The name (if known) of any health

16 care entity with which a health care provider,

17 supplier, or practitioner is affiliated or associ18 ated.

19 ‘‘(C) The nature of the final adverse action

20 and whether such action is on appeal.

21 ‘‘(D) A description of the acts or omissions

22 and injuries upon which the final adverse action

23 was based, and such other information as the

24 Secretary determines by regulation is required
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1 for appropriate interpretation of information re2 ported under this section.

3 ‘‘(3) CONFIDENTIALITY.—In determining what

4 information is required, the Secretary shall include

5 procedures to assure that the privacy of individuals

6 receiving health care services is appropriately pro7 tected.

8 ‘‘(4) TIMING AND FORM OF REPORTING.—The

9 information required to be reported under this sub10 section shall be reported regularly (but not less often

11 than monthly) and in such form and manner as the

12 Secretary prescribes. Such information shall first be

13 required to be reported on a date specified by the

14 Secretary.

15 ‘‘(5) TO WHOM REPORTED.—The information

16 required to be reported under this subsection shall

17 be reported to the Secretary.

18 ‘‘(c) DISCLOSURE AND CORRECTION OF INFORMA19 TION.—

20 ‘‘(1) DISCLOSURE.—With respect to the infor21 mation about final adverse actions (not including

22 settlements in which no findings of liability have

23 been made) reported to the Secretary under this sec24 tion respecting a health care provider, supplier, or
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1 practitioner, the Secretary shall, by regulation, pro2 vide for—

3 ‘‘(A) disclosure of the information, upon

4 request, to the health care provider, supplier, or

5 licensed practitioner, and

6 ‘‘(B) procedures in the case of disputed ac7 curacy of the information.

8 ‘‘(2) CORRECTIONS.—Each Government agency

9 and health plan shall report corrections of informa10 tion already reported about any final adverse action

11 taken against a health care provider, supplier, or

12 practitioner, in such form and manner that the Sec13 retary prescribes by regulation.

14 ‘‘(d) ACCESS TO REPORTED INFORMATION.—

15 ‘‘(1) AVAILABILITY.—The information in this

16 database shall be available to Federal and State gov17 ernment agencies and health plans pursuant to pro18 cedures that the Secretary shall provide by regula19 tion.

20 ‘‘(2) FEES FOR DISCLOSURE.—The Secretary

21 may establish or approve reasonable fees for the dis22 closure of information in this database (other than

23 with respect to requests by Federal agencies). The

24 amount of such a fee shall be sufficient to recover

25 the full costs of operating the database. Such fees
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1 shall be available to the Secretary or, in the Sec2 retary’s discretion to the agency designated under

3 this section to cover such costs.

4 ‘‘(e) PROTECTION FROM LIABILITY FOR REPORT5 ING.—No person or entity, including the agency des6 ignated by the Secretary in subsection (b)(5) shall be held

7 liable in any civil action with respect to any report made

8 as required by this section, without knowledge of the fal9 sity of the information contained in the report.

10 ‘‘(f) COORDINATION WITH NATIONAL PRACTITIONER

11 DATA BANK.—The Secretary shall implement this section

12 in such a manner as to avoid duplication with the report13 ing requirements established for the National Practitioner

14 Data Bank under the Health Care Quality Improvement

15 Act of 1986 (42 U.S.C. 11101 et seq.).

16 ‘‘(g) DEFINITIONS AND SPECIAL RULES.—For pur17 poses of this section:

18 ‘‘(1) FINAL ADVERSE ACTION.—

19 ‘‘(A) IN GENERAL.—The term ‘final ad20 verse action’ includes:

21 ‘‘(i) Civil judgments against a health

22 care provider, supplier, or practitioner in

23 Federal or State court related to the deliv24 ery of a health care item or service.
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1 ‘‘(ii) Federal or State criminal convic2 tions related to the delivery of a health

3 care item or service.

4 ‘‘(iii) Actions by Federal or State

5 agencies responsible for the licensing and

6 certification of health care providers, sup7 pliers, and licensed health care practition8 ers, including—

9 ‘‘(I) formal or official actions,

10 such as revocation or suspension of a

11 license (and the length of any such

12 suspension), reprimand, censure or

13 probation,

14 ‘‘(II) any other loss of license or

15 the right to apply for, or renew, a li16 cense of the provider, supplier, or

17 practitioner, whether by operation of

18 law, voluntary surrender, non-renew19 ability, or otherwise, or

20 ‘‘(III) any other negative action

21 or finding by such Federal or State

22 agency that is publicly available infor23 mation.
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1 ‘‘(iv) Exclusion from participation in

2 Federal or State health care programs due

3 to program violations.

4 ‘‘(v) Any other adjudicated actions or

5 decisions that the Secretary shall establish

6 by regulation.

7 ‘‘(B) EXCEPTION.—The term does not in8 clude any action with respect to a malpractice

9 claim.

10 ‘‘(2) PRACTITIONER.—The terms ‘licensed

11 health care practitioner’, ‘licensed practitioner’, and

12 ‘practitioner’ mean, with respect to a State, an indi13 vidual who is licensed or otherwise authorized by the

14 State to provide health care services (or any individ15 ual who, without authority holds himself or herself

16 out to be so licensed or authorized).

17 ‘‘(3) GOVERNMENT AGENCY.—The term ‘Gov18 ernment agency’ shall include:

19 ‘‘(A) The Department of Justice.

20 ‘‘(B) The Department of Health and

21 Human Services.

22 ‘‘(C) Any other Federal agency that either

23 administers or provides payment for the deliv24 ery of health care services, including, but not
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1 limited to the Department of Defense and the

2 Veterans’ Administration.

3 ‘‘(D) State law enforcement agencies.

4 ‘‘(E) State medicaid fraud control units.

5 ‘‘(F) Federal or State agencies responsible

6 for the licensing and certification of health care

7 providers and licensed health care practitioners.

8 ‘‘(4) HEALTH PLAN.—The term ‘health plan’

9 has the meaning given such term by section

10 1128C(c).

11 ‘‘(5) DETERMINATION OF CONVICTION.—For

12 purposes of paragraph (1), the existence of a convic13 tion shall be determined under paragraph (4) of sec14 tion 1128(i).’’.

15 (b) IMPROVED PREVENTION IN ISSUANCE OF MEDI16 CARE PROVIDER NUMBERS.—Section 1842(r) (42 U.S.C.

17 1395u(r)) is amended by adding at the end the following

18 new sentence: ‘‘Under such system, the Secretary may im19 pose appropriate fees on such physicians to cover the costs

20 of investigation and recertification activities with respect

21 to the issuance of the identifiers.’’.
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1 Subtitle D—Civil Monetary

2 Penalties

3 SEC. 531. SOCIAL SECURITY ACT CIVIL MONETARY PEN4 ALTIES.

5 (a) GENERAL CIVIL MONETARY PENALTIES.—Sec6 tion 1128A (42 U.S.C. 1320a–7a) is amended as follows:

7 (1) In the third sentence of subsection (a), by

8 striking ‘‘programs under title XVIII’’ and inserting

9 ‘‘Federal health care programs (as defined in section

10 1128B(f)(1))’’.

11 (2) In subsection (f)—

12 (A) by redesignating paragraph (3) as

13 paragraph (4); and

14 (B) by inserting after paragraph (2) the

15 following new paragraph:

16 ‘‘(3) With respect to amounts recovered arising

17 out of a claim under a Federal health care program

18 (as defined in section 1128B(f)), the portion of such

19 amounts as is determined to have been paid by the

20 program shall be repaid to the program, and the

21 portion of such amounts attributable to the amounts

22 recovered under this section by reason of the amend23 ments made by the Health Insurance Reform Act of

24 1996 (as estimated by the Secretary) shall be depos-
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1 ited into the Federal Hospital Insurance Trust Fund

2 pursuant to section 1817(k)(2)(C).’’.

3 (3) In subsection (i)—

4 (A) in paragraph (2), by striking ‘‘title V,

5 XVIII, XIX, or XX of this Act’’ and inserting

6 ‘‘a Federal health care program (as defined in

7 section 1128B(f))’’,

8 (B) in paragraph (4), by striking ‘‘a health

9 insurance or medical services program under

10 title XVIII or XIX of this Act’’ and inserting

11 ‘‘a Federal health care program (as so de12 fined)’’, and

13 (C) in paragraph (5), by striking ‘‘title V,

14 XVIII, XIX, or XX’’ and inserting ‘‘a Federal

15 health care program (as so defined)’’.

16 (4) By adding at the end the following new sub17 section:

18 ‘‘(m)(1) For purposes of this section, with respect to

19 a Federal health care program not contained in this Act,

20 references to the Secretary in this section shall be deemed

21 to be references to the Secretary or Administrator of the

22 department or agency with jurisdiction over such program

23 and references to the Inspector General of the Department

24 of Health and Human Services in this section shall be
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1 deemed to be references to the Inspector General of the

2 applicable department or agency.

3 ‘‘(2)(A) The Secretary and Administrator of the de4 partments and agencies referred to in paragraph (1) may

5 include in any action pursuant to this section, claims with6 in the jurisdiction of other Federal departments or agen7 cies as long as the following conditions are satisfied:

8 ‘‘(i) The case involves primarily claims submit9 ted to the Federal health care programs of the de10 partment or agency initiating the action.

11 ‘‘(ii) The Secretary or Administrator of the de12 partment or agency initiating the action gives notice

13 and an opportunity to participate in the investiga14 tion to the Inspector General of the department or

15 agency with primary jurisdiction over the Federal

16 health care programs to which the claims were sub17 mitted.

18 ‘‘(B) If the conditions specified in subparagraph (A)

19 are fulfilled, the Inspector General of the department or

20 agency initiating the action is authorized to exercise all

21 powers granted under the Inspector General Act of 1978

22 with respect to the claims submitted to the other depart23 ments or agencies to the same manner and extent as pro24 vided in that Act with respect to claims submitted to such

25 departments or agencies.’’.
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1 (b) EXCLUDED INDIVIDUAL RETAINING OWNERSHIP

2 OR CONTROL INTEREST IN PARTICIPATING ENTITY.—

3 Section 1128A(a) (42 U.S.C. 1320a–7a(a)) is amended—

4 (1) by striking ‘‘or’’ at the end of paragraph

5 (1)(D);

6 (2) by striking ‘‘, or’’ at the end of paragraph

7 (2) and inserting a semicolon;

8 (3) by striking the semicolon at the end of

9 paragraph (3) and inserting ‘‘; or’’; and

10 (4) by inserting after paragraph (3) the follow11 ing new paragraph:

12 ‘‘(4) in the case of a person who is not an orga13 nization, agency, or other entity, is excluded from

14 participating in a program under title XVIII or a

15 State health care program in accordance with this

16 subsection or under section 1128 and who, at the

17 time of a violation of this subsection—

18 ‘‘(i) retains a direct or indirect ownership

19 or control interest in an entity that is partici20 pating in a program under title XVIII or a

21 State health care program, and who knows or

22 should know of the action constituting the basis

23 for the exclusion; or
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1 ‘‘(ii) is an officer or managing employee

2 (as defined in section 1126(b)) of such an en3 tity;’’.

4 (c) MODIFICATIONS OF AMOUNTS OF PENALTIES

5 AND ASSESSMENTS.—Section 1128A(a) (42 U.S.C.

6 1320a–7a(a)), as amended by subsection (b), is amended

7 in the matter following paragraph (4)—

8 (1) by striking ‘‘$2,000’’ and inserting

9 ‘‘$10,000’’;

10 (2) by inserting ‘‘; in cases under paragraph

11 (4), $10,000 for each day the prohibited relationship

12 occurs’’ after ‘‘false or misleading information was

13 given’’; and

14 (3) by striking ‘‘twice the amount’’ and insert15 ing ‘‘3 times the amount’’.

16 (d) CLAIM FOR ITEM OR SERVICE BASED ON INCOR17 RECT CODING OR MEDICALLY UNNECESSARY SERV18 ICES.—Section 1128A(a)(1) (42 U.S.C. 1320a–7a(a)(1)),

19 as amended by subsection (b), is amended—

20 (1) in subparagraph (A) by striking ‘‘claimed,’’

21 and inserting ‘‘claimed, including any person who

22 engages in a pattern or practice of presenting or

23 causing to be presented a claim for an item or serv24 ice that is based on a code that the person knows

25 or should know will result in a greater payment to
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1 the person than the code the person knows or should

2 know is applicable to the item or service actually

3 provided,’’;

4 (2) in subparagraph (C), by striking ‘‘or’’ at

5 the end;

6 (3) in subparagraph (D), by striking the semi7 colon and inserting ‘‘, or’’; and

8 (4) by inserting after subparagraph (D) the fol9 lowing new subparagraph:

10 ‘‘(E) is for a medical or other item or serv11 ice that a person knows or should know is not

12 medically necessary; or’’.

13 (e) SANCTIONS AGAINST PRACTITIONERS AND PER14 SONS FOR FAILURE TO COMPLY WITH STATUTORY OBLI15 GATIONS.—Section 1156(b)(3) (42 U.S.C. 1320c–5(b)(3))

16 is amended by striking ‘‘the actual or estimated cost’’ and

17 inserting ‘‘up to $10,000 for each instance’’.

18 (f) PROCEDURAL PROVISIONS.—Section 1876(i)(6)

19 (42 U.S.C. 1395mm(i)(6)), as amended by section

20 515(a)(2), is amended by adding at the end the following

21 new subparagraph:

22 ‘‘(D) The provisions of section 1128A (other than

23 subsections (a) and (b)) shall apply to a civil money pen24 alty under subparagraph (B)(i) or (C)(i) in the same man-
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1 ner as such provisions apply to a civil money penalty or

2 proceeding under section 1128A(a).’’.

3 (g) PROHIBITION AGAINST OFFERING INDUCEMENTS

4 TO INDIVIDUALS ENROLLED UNDER PROGRAMS OR

5 PLANS.—

6 (1) OFFER OF REMUNERATION.—Section

7 1128A(a) (42 U.S.C. 1320a–7a(a)), as amended by

8 subsection (b), is amended—

9 (A) by striking ‘‘or’’ at the end of para10 graph (1)(D);

11 (B) by striking the semicolon at the end of

12 paragraph (4) and inserting ‘‘; or’’; and

13 (C) by inserting after paragraph (4) the

14 following new paragraph:

15 ‘‘(5) offers to or transfers remuneration to any

16 individual eligible for benefits under title XVIII of

17 this Act, or under a State health care program (as

18 defined in section 1128(h)) that such person knows

19 or should know is likely to influence such individual

20 to order or receive from a particular provider, practi21 tioner, or supplier any item or service for which pay22 ment may be made, in whole or in part, under title

23 XVIII, or a State health care program (as so de24 fined);’’.
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1 (2) REMUNERATION DEFINED.—Section

2 1128A(i) (42 U.S.C. 1320a–7a(i)) is amended by

3 adding the following new paragraph:

4 ‘‘(6) The term ‘remuneration’ includes the waiv5 er of coinsurance and deductible amounts (or any

6 part thereof), and transfers of items or services for

7 free or for other than fair market value. The term

8 ‘remuneration’ does not include—

9 ‘‘(A) the waiver of coinsurance and deduct10 ible amounts by a person, if—

11 ‘‘(i) the waiver is not offered as part

12 of any advertisement or solicitation;

13 ‘‘(ii) the person does not routinely

14 waive coinsurance or deductible amounts;

15 and

16 ‘‘(iii) the person—

17 ‘‘(I) waives the coinsurance and

18 deductible amounts after determining

19 in good faith that the individual is in

20 financial need;

21 ‘‘(II) fails to collect coinsurance

22 or deductible amounts after making

23 reasonable collection efforts; or

24 ‘‘(III) provides for any permis25 sible waiver as specified in section
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1 1128B(b)(3) or in regulations issued

2 by the Secretary;

3 ‘‘(B) differentials in coinsurance and de4 ductible amounts as part of a benefit plan de5 sign as long as the differentials have been dis6 closed in writing to all beneficiaries, third party

7 payers, and providers, to whom claims are pre8 sented and as long as the differentials meet the

9 standards as defined in regulations promulgated

10 by the Secretary not later than 180 days after

11 the date of the enactment of the Health Insur12 ance Reform Act of 1996; or

13 ‘‘(C) incentives given to individuals to pro14 mote the delivery of preventive care as deter15 mined by the Secretary in regulations so pro16 mulgated.’’.

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

18 this section shall take effect January 1, 1997.

19 Subtitle E—Amendments to

20 Criminal Law

21 SEC. 541. HEALTH CARE FRAUD.

22 (a) IN GENERAL.—

23 (1) FINES AND IMPRISONMENT FOR HEALTH

24 CARE FRAUD VIOLATIONS.—Chapter 63 of title 18,
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1 United States Code, is amended by adding at the

2 end the following new section:

3 ‘‘§ 1347. Health care fraud

4 ‘‘Whoever knowingly and willfully executes, or at5 tempts to execute, a scheme or artifice—

6 ‘‘(1) to defraud any health care program, in

7 connection with the delivery of or payment for health

8 care benefits, items, or services; or

9 ‘‘(2) to obtain, by means of false or fraudulent

10 pretenses, representations, or promises, any of the

11 money or property owned by, or under the custody

12 or control of, any health care program in connection

13 with the delivery of or payment for health care bene14 fits, items, or services;

15 shall be fined under this title or imprisoned not more than

16 10 years, or both. If the violation results in serious bodily

17 injury (as defined in section 1365(g)(3) of this title), such

18 person may be imprisoned for any term of years.’’.

19 (2) CLERICAL AMENDMENT.—The table of sec20 tions at the beginning of chapter 63 of title 18,

21 United States Code, is amended by adding at the

22 end the following:

‘‘1347. Health care fraud.’’.

23 (b) CRIMINAL FINES DEPOSITED IN FEDERAL HOS24 PITAL INSURANCE TRUST FUND.—The Secretary of the

25 Treasury shall deposit into the Federal Hospital Insurance
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1 Trust Fund pursuant to section 1817(k)(2)(C) of the So2 cial Security Act, as added by section 501(b), an amount

3 equal to the criminal fines imposed under section 1347

4 of title 18, United States Code (relating to health care

5 fraud).

6 SEC. 542. FORFEITURES FOR FEDERAL HEALTH CARE OF7 FENSES.

8 (a) IN GENERAL.—Section 982(a) of title 18, United

9 States Code, is amended by adding after paragraph (5)

10 the following new paragraph:

11 ‘‘(6)(A) The court, in imposing sentence on a person

12 convicted of a Federal health care offense, shall order the

13 person to forfeit property, real or personal, that con14 stitutes or is derived, directly or indirectly, from gross pro15 ceeds traceable to the commission of the offense.

16 ‘‘(B) For purposes of this paragraph, the term ‘Fed17 eral health care offense’ means a violation of, or a criminal

18 conspiracy to violate—

19 ‘‘(i) section 1347 of this title;

20 ‘‘(ii) section 1128B of the Social Security Act;

21 and

22 ‘‘(iii) sections 287, 371, 664, 666, 669, 1001,

23 1027, 1341, 1343, 1920, or 1954 of this title if the

24 violation or conspiracy relates to health care fraud.’’.
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1 (b) CONFORMING AMENDMENT.—Section

2 982(b)(1)(A) of title 18, United States Code, is amended

3 by inserting ‘‘or (a)(6)’’ after ‘‘(a)(1)’’.

4 (c) PROPERTY FORFEITED DEPOSITED IN FEDERAL

5 HOSPITAL INSURANCE TRUST FUND.—

6 (1) IN GENERAL.—After the payment of the

7 costs of asset forfeiture has been made, and notwith8 standing any other provision of law, the Secretary of

9 the Treasury shall deposit into the Federal Hospital

10 Insurance Trust Fund pursuant to section

11 1817(k)(2)(C) of the Social Security Act, as added

12 by section 501(b), an amount equal to the net

13 amount realized from the forfeiture of property by

14 reason of a Federal health care offense pursuant to

15 section 982(a)(6) of title 18, United States Code.

16 (2) COSTS OF ASSET FORFEITURE.—For pur17 poses of paragraph (1), the term ‘‘payment of the

18 costs of asset forfeiture’’ means—

19 (A) the payment, at the discretion of the

20 Attorney General, of any expenses necessary to

21 seize, detain, inventory, safeguard, maintain,

22 advertise, sell, or dispose of property under sei23 zure, detention, or forfeited, or of any other

24 necessary expenses incident to the seizure, de-
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1 tention, forfeiture, or disposal of such property,

2 including payment for—

3 (i) contract services,

4 (ii) the employment of outside con5 tractors to operate and manage properties

6 or provide other specialized services nec7 essary to dispose of such properties in an

8 effort to maximize the return from such

9 properties; and

10 (iii) reimbursement of any Federal,

11 State, or local agency for any expenditures

12 made to perform the functions described in

13 this subparagraph;

14 (B) at the discretion of the Attorney Gen15 eral, the payment of awards for information or

16 assistance leading to a civil or criminal forfeit17 ure involving any Federal agency participating

18 in the Health Care Fraud and Abuse Control

19 Account;

20 (C) the compromise and payment of valid

21 liens and mortgages against property that has

22 been forfeited, subject to the discretion of the

23 Attorney General to determine the validity of

24 any such lien or mortgage and the amount of

25 payment to be made, and the employment of at-
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1 torneys and other personnel skilled in State real

2 estate law as necessary;

3 (D) payment authorized in connection with

4 remission or mitigation procedures relating to

5 property forfeited; and

6 (E) the payment of State and local prop7 erty taxes on forfeited real property that ac8 crued between the date of the violation giving

9 rise to the forfeiture and the date of the forfeit10 ure order.

11 SEC. 543. INJUNCTIVE RELIEF RELATING TO FEDERAL

12 HEALTH CARE OFFENSES.

13 (a) IN GENERAL.—Section 1345(a)(1) of title 18,

14 United States Code, is amended—

15 (1) by striking ‘‘or’’ at the end of subparagraph

16 (A);

17 (2) by inserting ‘‘or’’ at the end of subpara18 graph (B); and

19 (3) by adding at the end the following new sub20 paragraph:

21 ‘‘(C) committing or about to commit a

22 Federal health care offense (as defined in sec23 tion 982(a)(6)(B) of this title);’’.

24 (b) FREEZING OF ASSETS.—Section 1345(a)(2) of

25 title 18, United States Code, is amended by inserting ‘‘or
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1 a Federal health care offense (as defined in section

2 982(a)(6)(B))’’ after ‘‘title)’’.

3 SEC. 544. FALSE STATEMENTS.

4 (a) IN GENERAL.—Chapter 47 of title 18, United

5 States Code, is amended by adding at the end the follow6 ing new section:

7 ‘‘§ 1033. False statements relating to health care mat8 ters

9 ‘‘Whoever, in any matter involving a health care pro10 gram, knowingly and willfully—

11 ‘‘(1) falsifies, conceals, or covers up by any

12 trick, scheme, or device a material fact, or

13 ‘‘(2) makes any materially false, fictitious, or

14 fraudulent statement or representation, or makes or

15 uses any materially false writing or document know16 ing the same to contain any materially false, ficti17 tious, or fraudulent statement or entry,

18 shall be fined under this title or imprisoned not more than

19 5 years, or both.’’.

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

21 at the beginning of chapter 47 of title 18, United States

22 Code, is amended by adding at the end the following:

‘‘1033. False statements relating to health care matters.’’.
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1 SEC. 545. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF

2 FEDERAL HEALTH CARE OFFENSES.

3 (a) IN GENERAL.—Chapter 73 of title 18, United

4 States Code, is amended by adding at the end the follow5 ing new section:

6 ‘‘§ 1518. Obstruction of criminal investigations of

7 Federal health care offenses

8 ‘‘(a) Whoever willfully prevents, obstructs, misleads,

9 delays or attempts to prevent, obstruct, mislead, or delay

10 the communication of information or records relating to

11 a Federal health care offense to a criminal investigator

12 shall be fined under this title or imprisoned not more than

13 5 years, or both.

14 ‘‘(b) As used in this section the term ‘Federal health

15 care offense’ has the same meaning given such term in

16 section 982(a)(6)(B) of this title.

17 ‘‘(c) As used in this section the term ‘criminal inves18 tigator’ means any individual duly authorized by a depart19 ment, agency, or armed force of the United States to con20 duct or engage in investigations for prosecutions for viola21 tions of health care offenses.’’.

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

23 at the beginning of chapter 73 of title 18, United States

24 Code, is amended by adding at the end the following:

‘‘1518. Obstruction of Criminal Investigations of Federal Health Care Offenses.’’.
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1 SEC. 546. THEFT OR EMBEZZLEMENT.

2 (a) IN GENERAL.—Chapter 31 of title 18, United

3 States Code, is amended by adding at the end the follow4 ing new section:

5 ‘‘§ 669. Theft or embezzlement in connection with

6 health care

7 ‘‘Whoever willfully embezzles, steals, or otherwise

8 willfully and unlawfully converts to the use of any person

9 other than the rightful owner, or intentionally misapplies

10 any of the moneys, funds, securities, premiums, credits,

11 property, or other assets of a health care program, shall

12 be fined under this title or imprisoned not more than 10

13 years, or both.’’.

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

15 at the beginning of chapter 31 of title 18, United States

16 Code, is amended by adding at the end the following:

‘‘669. Theft or Embezzlement in Connection with Health Care.’’.

17 SEC. 547. LAUNDERING OF MONETARY INSTRUMENTS.

18 Section 1956(c)(7) of title 18, United States Code,

19 is amended by adding at the end the following new sub20 paragraph:

21 ‘‘(F) Any act or activity constituting an of22 fense involving a Federal health care offense as

23 that term is defined in section 982(a)(6)(B) of

24 this title.’’.
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1 SEC. 548. AUTHORIZED INVESTIGATIVE DEMAND PROCE2 DURES.

3 (a) IN GENERAL.—Chapter 233 of title 18, United

4 States Code, is amended by adding after section 3485 the

5 following new section:

6 ‘‘§ 3486. Authorized investigative demand procedures

7 ‘‘(a)(1)(A) In any investigation relating to functions

8 set forth in paragraph (2), the Attorney General or des9 ignee may issue in writing and cause to be served a sub10 poena compelling production of any records (including any

11 books, papers, documents, electronic media, or other ob12 jects or tangible things), which may be relevant to an au13 thorized law enforcement inquiry, that a person or legal

14 entity may possess or have care, custody, or control.

15 ‘‘(B) A custodian of records may be required to give

16 testimony concerning the production and authentication of

17 such records.

18 ‘‘(C) The production of records may be required from

19 any place in any State or in any territory or other place

20 subject to the jurisdiction of the United States at any des21 ignated place; except that such production shall not be re22 quired more than 500 miles distant from the place where

23 the subpoena is served.

24 ‘‘(D) Witnesses summoned under this section shall be

25 paid the same fees and mileage that are paid witnesses

26 in the courts of the United States.
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1 ‘‘(E) A subpoena requiring the production of records

2 shall describe the objects required to be produced and pre3 scribe a return date within a reasonable period of time

4 within which the objects can be assembled and made avail5 able.

6 ‘‘(2) Investigative demands utilizing an administra7 tive subpoena are authorized for any investigation with re8 spect to any act or activity constituting or involving health

9 care fraud, including a scheme or artifice—

10 ‘‘(A) to defraud any health care program, in

11 connection with the delivery of or payment for health

12 care benefits, items, or services; or

13 ‘‘(B) to obtain, by means of false or fraudulent

14 pretenses, representations, or promises, any of the

15 money or property owned by, or under the custody

16 or control of, any health care program in connection

17 with the delivery of or payment for health care bene18 fits, items, or services.

19 ‘‘(b)(1) A subpoena issued under this section may be

20 served by any person designated in the subpoena to serve

21 it.

22 ‘‘(2) Service upon a natural person may be made by

23 personal delivery of the subpoena to such person.

24 ‘‘(3) Service may be made upon a domestic or foreign

25 association which is subject to suit under a common name,
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1 by delivering the subpoena to an officer, to a managing

2 or general agent, or to any other agent authorized by ap3 pointment or by law to receive service of process.

4 ‘‘(4) The affidavit of the person serving the subpoena

5 entered on a true copy thereof by the person serving it

6 shall be proof of service.

7 ‘‘(c)(1) In the case of contumacy by or refusal to obey

8 a subpoena issued to any person, the Attorney General

9 may invoke the aid of any court of the United States with10 in the jurisdiction of which the investigation is carried on

11 or of which the subpoenaed person is an inhabitant, or

12 in which such person carries on business or may be found,

13 to compel compliance with the subpoena.

14 ‘‘(2) The court may issue an order requiring the sub15 poenaed person to appear before the Attorney General to

16 produce records, if so ordered, or to give testimony re17 quired under subsection (a)(1)(B).

18 ‘‘(3) Any failure to obey the order of the court may

19 be punished by the court as a contempt thereof.

20 ‘‘(4) All process in any such case may be served in

21 any judicial district in which such person may be found.

22 ‘‘(d) Notwithstanding any Federal, State, or local

23 law, any person, including officers, agents, and employees,

24 receiving a subpoena under this section, who complies in

25 good faith with the subpoena and thus produces the mate-
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1 rials sought, shall not be liable in any court of any State

2 or the United States to any customer or other person for

3 such production or for nondisclosure of that production

4 to the customer.

5 ‘‘(e)(1) Health information about an individual that

6 is disclosed under this section may not be used in, or dis7 closed to any person for use in, any administrative, civil,

8 or criminal action or investigation directed against the in9 dividual who is the subject of the information unless the

10 action or investigation arises out of and is directly related

11 to receipt of health care or payment for health care or

12 action involving a fraudulent claim related to health; or

13 if authorized by an appropriate order of a court of com14 petent jurisdiction, granted after application showing good

15 cause therefor.

16 ‘‘(2) In assessing good cause, the court shall weigh

17 the public interest and the need for disclosure against the

18 injury to the patient, to the physician-patient relationship,

19 and to the treatment services.

20 ‘‘(3) Upon the granting of such order, the court, in

21 determining the extent to which any disclosure of all or

22 any part of any record is necessary, shall impose appro23 priate safeguards against unauthorized disclosure.’’.

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

25 for chapter 223 of title 18, United States Code, is amend-
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1 ed by inserting after the item relating to section 3405 the

2 following new item:

‘‘3486. Authorized investigative demand procedures.’’.

3 (c) CONFORMING AMENDMENT.—Section

4 1510(b)(3)(B) of title 18, United States Code, is amended

5 by inserting ‘‘or a Department of Justice subpoena (issued

6 under section 3486),’’ after ‘‘subpoena’’.

7 TITLE VI—INTERNAL REVENUE

8 CODE AND OTHER PROVISIONS

9 SEC. 600. REFERENCES.

10 Except as otherwise expressly provided, whenever in

11 this title an amendment or repeal is expressed in terms

12 of an amendment to, or repeal of, a section or other provi13 sion, the reference shall be considered to be made to a

14 section or other provision of the Internal Revenue Code

15 of 1986.

16 Subtitle A—Foreign Trust Tax

17 Compliance

18 SEC. 601. IMPROVED INFORMATION REPORTING ON FOR19 EIGN TRUSTS.

20 (a) IN GENERAL.—Section 6048 (relating to returns

21 as to certain foreign trusts) is amended to read as follows:

22 ‘‘SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN

23 FOREIGN TRUSTS.

24 ‘‘(a) NOTICE OF CERTAIN EVENTS.—
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1 ‘‘(1) GENERAL RULE.—On or before the 90th

2 day (or such later day as the Secretary may pre3 scribe) after any reportable event, the responsible

4 party shall provide written notice of such event to

5 the Secretary in accordance with paragraph (2).

6 ‘‘(2) CONTENTS OF NOTICE.—The notice re7 quired by paragraph (1) shall contain such informa8 tion as the Secretary may prescribe, including—

9 ‘‘(A) the amount of money or other prop10 erty (if any) transferred to the trust in connec11 tion with the reportable event, and

12 ‘‘(B) the identity of the trust and of each

13 trustee and beneficiary (or class of bene14 ficiaries) of the trust.

15 ‘‘(3) REPORTABLE EVENT.—For purposes of

16 this subsection—

17 ‘‘(A) IN GENERAL.—The term ‘reportable

18 event’ means—

19 ‘‘(i) the creation of any foreign trust

20 by a United States person,

21 ‘‘(ii) the transfer of any money or

22 property (directly or indirectly) to a for23 eign trust by a United States person, in24 cluding a transfer by reason of death, and
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1 ‘‘(iii) the death of a citizen or resident

2 of the United States if—

3 ‘‘(I) the decedent was treated as

4 the owner of any portion of a foreign

5 trust under the rules of subpart E of

6 part I of subchapter J of chapter 1,

7 or

8 ‘‘(II) any portion of a foreign

9 trust was included in the gross estate

10 of the decedent.

11 ‘‘(B) EXCEPTIONS.—

12 ‘‘(i) FAIR MARKET VALUE SALES.—

13 Subparagraph (A)(ii) shall not apply to

14 any transfer of property to a trust in ex15 change for consideration of at least the fair

16 market value of the transferred property.

17 For purposes of the preceding sentence,

18 consideration other than cash shall be

19 taken into account at its fair market value

20 and the rules of section 679(a)(3) shall

21 apply.

22 ‘‘(ii) DEFERRED COMPENSATION AND

23 CHARITABLE TRUSTS.—Subparagraph (A)

24 shall not apply with respect to a trust

25 which is—
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1 ‘‘(I) described in section 402(b),

2 404(a)(4), or 404A, or

3 ‘‘(II) determined by the Sec4 retary to be described in section

5 501(c)(3).

6 ‘‘(4) RESPONSIBLE PARTY.—For purposes of

7 this subsection, the term ‘responsible party’

8 means—

9 ‘‘(A) the grantor in the case of the cre10 ation of an inter vivos trust,

11 ‘‘(B) the transferor in the case of a report12 able event described in paragraph (3)(A)(ii)

13 other than a transfer by reason of death, and

14 ‘‘(C) the executor of the decedent’s estate

15 in any other case.

16 ‘‘(b) UNITED STATES GRANTOR OF FOREIGN

17 TRUST.—

18 ‘‘(1) IN GENERAL.—If, at any time during any

19 taxable year of a United States person, such person

20 is treated as the owner of any portion of a foreign

21 trust under the rules of subpart E of part I of sub22 chapter J of chapter 1, such person shall be respon23 sible to ensure that—

24 ‘‘(A) such trust makes a return for such

25 year which sets forth a full and complete ac-
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1 counting of all trust activities and operations

2 for the year, the name of the United States

3 agent for such trust, and such other informa4 tion as the Secretary may prescribe, and

5 ‘‘(B) such trust furnishes such information

6 as the Secretary may prescribe to each United

7 States person (i) who is treated as the owner of

8 any portion of such trust or (ii) who receives

9 (directly or indirectly) any distribution from the

10 trust.

11 ‘‘(2) TRUSTS NOT HAVING UNITED STATES

12 AGENT.—

13 ‘‘(A) IN GENERAL.—If the rules of this

14 paragraph apply to any foreign trust, the deter15 mination of amounts required to be taken into

16 account with respect to such trust by a United

17 States person under the rules of subpart E of

18 part I of subchapter J of chapter 1 shall be de19 termined by the Secretary.

20 ‘‘(B) UNITED STATES AGENT REQUIRED.—

21 The rules of this paragraph shall apply to any

22 foreign trust to which paragraph (1) applies un23 less such trust agrees (in such manner, subject

24 to such conditions, and at such time as the Sec25 retary shall prescribe) to authorize a United
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1 States person to act as such trust’s limited

2 agent solely for purposes of applying sections

3 7602, 7603, and 7604 with respect to—

4 ‘‘(i) any request by the Secretary to

5 examine records or produce testimony re6 lated to the proper treatment of amounts

7 required to be taken into account under

8 the rules referred to in subparagraph (A),

9 or

10 ‘‘(ii) any summons by the Secretary

11 for such records or testimony.

12 The appearance of persons or production of

13 records by reason of a United States person

14 being such an agent shall not subject such per15 sons or records to legal process for any purpose

16 other than determining the correct treatment

17 under this title of the amounts required to be

18 taken into account under the rules referred to

19 in subparagraph (A). A foreign trust which ap20 points an agent described in this subparagraph

21 shall not be considered to have an office or a

22 permanent establishment in the United States,

23 or to be engaged in a trade or business in the

24 United States, solely because of the activities of

25 such agent pursuant to this subsection.
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1 ‘‘(C) OTHER RULES TO APPLY.—Rules

2 similar to the rules of paragraphs (2) and (4)

3 of section 6038A(e) shall apply for purposes of

4 this paragraph.

5 ‘‘(c) REPORTING BY UNITED STATES BENEFICIARIES

6 OF FOREIGN TRUSTS.—

7 ‘‘(1) IN GENERAL.—If any United States per8 son receives (directly or indirectly) during any tax9 able year of such person any distribution from a for10 eign trust, such person shall make a return with re11 spect to such trust for such year which includes—

12 ‘‘(A) the name of such trust,

13 ‘‘(B) the aggregate amount of the distribu14 tions so received from such trust during such

15 taxable year, and

16 ‘‘(C) such other information as the Sec17 retary may prescribe.

18 ‘‘(2) INCLUSION IN INCOME IF RECORDS NOT

19 PROVIDED.—

20 ‘‘(A) IN GENERAL.—If adequate records

21 are not provided to the Secretary to determine

22 the proper treatment of any distribution from a

23 foreign trust, such distribution shall be treated

24 as an accumulation distribution includible in

25 the gross income of the distributee under chap-
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1 ter 1. To the extent provided in regulations, the

2 preceding sentence shall not apply if the foreign

3 trust elects to be subject to rules similar to the

4 rules of subsection (b)(2)(B).

5 ‘‘(B) APPLICATION OF ACCUMULATION

6 DISTRIBUTION RULES.—For purposes of apply7 ing section 668 in a case to which subpara8 graph (A) applies, the applicable number of

years for purposes of section 668(a) shall be 1 9 ⁄2

10 of the number of years the trust has been in ex11 istence.

12 ‘‘(d) SPECIAL RULES.—

13 ‘‘(1) DETERMINATION OF WHETHER UNITED

14 STATES PERSON RECEIVES DISTRIBUTION.—For

15 purposes of this section, in determining whether a

16 United States person receives a distribution from a

17 foreign trust, the fact that a portion of such trust

18 is treated as owned by another person under the

19 rules of subpart E of part I of subchapter J of chap20 ter 1 shall be disregarded.

21 ‘‘(2) DOMESTIC TRUSTS WITH FOREIGN ACTIVI22 TIES.—To the extent provided in regulations, a trust

23 which is a United States person shall be treated as

24 a foreign trust for purposes of this section and sec25 tion 6677 if such trust has substantial activities, or
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1 holds substantial property, outside the United

2 States.

3 ‘‘(3) TIME AND MANNER OF FILING INFORMA4 TION.—Any notice or return required under this sec5 tion shall be made at such time and in such manner

6 as the Secretary shall prescribe.

7 ‘‘(4) MODIFICATION OF RETURN REQUIRE8 MENTS.—The Secretary is authorized to suspend or

9 modify any requirement of this section if the Sec10 retary determines that the United States has no sig11 nificant tax interest in obtaining the required infor12 mation.’’.

13 (b) INCREASED PENALTIES.—Section 6677 (relating

14 to failure to file information returns with respect to cer15 tain foreign trusts) is amended to read as follows:

16 ‘‘SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT

17 TO CERTAIN FOREIGN TRUSTS.

18 ‘‘(a) CIVIL PENALTY.—In addition to any criminal

19 penalty provided by law, if any notice or return required

20 to be filed by section 6048—

21 ‘‘(1) is not filed on or before the time provided

22 in such section, or

23 ‘‘(2) does not include all the information re24 quired pursuant to such section or includes incorrect

25 information,
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1 the person required to file such notice or return shall pay

2 a penalty equal to 35 percent of the gross reportable

3 amount. If any failure described in the preceding sentence

4 continues for more than 90 days after the day on which

5 the Secretary mails notice of such failure to the person

6 required to pay such penalty, such person shall pay a pen7 alty (in addition to the amount determined under the pre8 ceding sentence) of $10,000 for each 30-day period (or

9 fraction thereof) during which such failure continues after

10 the expiration of such 90-day period. In no event shall the

11 penalty under this subsection with respect to any failure

12 exceed the gross reportable amount.

13 ‘‘(b) SPECIAL RULES FOR RETURNS UNDER SEC14 TION 6048(b).—In the case of a return required under

15 section 6048(b)—

16 ‘‘(1) the United States person referred to in

17 such section shall be liable for the penalty imposed

18 by subsection (a), and

19 ‘‘(2) subsection (a) shall be applied by sub20 stituting ‘5 percent’ for ‘35 percent’.

21 ‘‘(c) GROSS REPORTABLE AMOUNT.—For purposes

22 of subsection (a), the term ‘gross reportable amount’

23 means—
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1 ‘‘(1) the gross value of the property involved in

2 the event (determined as of the date of the event)

3 in the case of a failure relating to section 6048(a),

4 ‘‘(2) the gross value of the portion of the trust’s

5 assets at the close of the year treated as owned by

6 the United States person in the case of a failure re7 lating to section 6048(b)(1), and

8 ‘‘(3) the gross amount of the distributions in

9 the case of a failure relating to section 6048(c).

10 ‘‘(d) REASONABLE CAUSE EXCEPTION.—No penalty

11 shall be imposed by this section on any failure which is

12 shown to be due to reasonable cause and not due to willful

13 neglect. The fact that a foreign jurisdiction would impose

14 a civil or criminal penalty on the taxpayer (or any other

15 person) for disclosing the required information is not rea16 sonable cause.

17 ‘‘(e) DEFICIENCY PROCEDURES NOT TO APPLY.—

18 Subchapter B of chapter 63 (relating to deficiency proce19 dures for income, estate, gift, and certain excise taxes)

20 shall not apply in respect of the assessment or collection

21 of any penalty imposed by subsection (a).’’.

22 (c) CONFORMING AMENDMENTS.—

23 (1) Paragraph (2) of section 6724(d) is amend24 ed by striking ‘‘or’’ at the end of subparagraph (S),

25 by striking the period at the end of subparagraph
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1 (T) and inserting ‘‘, or’’, and by inserting after sub2 paragraph (T) the following new subparagraph:

3 ‘‘(U) section 6048(b)(1)(B) (relating to

4 foreign trust reporting requirements).’’.

5 (2) The table of sections for subpart B of part

6 III of subchapter A of chapter 61 is amended by

7 striking the item relating to section 6048 and insert8 ing the following new item:

‘‘Sec. 6048. Information with respect to certain foreign trusts.’’.

9 (3) The table of sections for part I of sub10 chapter B of chapter 68 is amended by striking the

11 item relating to section 6677 and inserting the fol12 lowing new item:

‘‘Sec. 6677. Failure to file information with respect to certain foreign trusts.’’.

13 (d) EFFECTIVE DATES.—

14 (1) REPORTABLE EVENTS.—To the extent re15 lated to subsection (a) of section 6048 of the Inter16 nal Revenue Code of 1986, as amended by this sec17 tion, the amendments made by this section shall

18 apply to reportable events (as defined in such section

19 6048) occurring after the date of the enactment of

20 this Act.

21 (2) GRANTOR TRUST REPORTING.—To the ex22 tent related to subsection (b) of such section 6048,

23 the amendments made by this section shall apply to
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1 taxable years of United States persons beginning

2 after the date of the enactment of this Act.

3 (3) REPORTING BY UNITED STATES BENE4 FICIARIES.—To the extent related to subsection (c)

5 of such section 6048, the amendments made by this

6 section shall apply to distributions received after the

7 date of the enactment of this Act.

8 SEC. 602. MODIFICATIONS OF RULES RELATING TO FOR9 EIGN TRUSTS HAVING ONE OR MORE UNITED

10 STATES BENEFICIARIES.

11 (a) TREATMENT OF TRUST OBLIGATIONS, ETC.—

12 (1) Paragraph (2) of section 679(a) is amended

13 by striking subparagraph (B) and inserting the fol14 lowing:

15 ‘‘(B) TRANSFERS AT FAIR MARKET

16 VALUE.—To any transfer of property to a trust

17 in exchange for consideration of at least the fair

18 market value of the transferred property. For

19 purposes of the preceding sentence, consider20 ation other than cash shall be taken into ac21 count at its fair market value.’’.

22 (2) Subsection (a) of section 679 (relating to

23 foreign trusts having one or more United States

24 beneficiaries) is amended by adding at the end the

25 following new paragraph:
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1 ‘‘(3) CERTAIN OBLIGATIONS NOT TAKEN INTO

2 ACCOUNT UNDER FAIR MARKET VALUE EXCEP3 TION.—

4 ‘‘(A) IN GENERAL.—In determining wheth5 er paragraph (2)(B) applies to any transfer by

6 a person described in clause (ii) or (iii) of sub7 paragraph (C), there shall not be taken into ac8 count—

9 ‘‘(i) except as provided in regulations,

10 any obligation of a person described in

11 subparagraph (C), and

12 ‘‘(ii) to the extent provided in regula13 tions, any obligation which is guaranteed

14 by a person described in subparagraph (C).

15 ‘‘(B) TREATMENT OF PRINCIPAL PAY16 MENTS ON OBLIGATION.—Principal payments

17 by the trust on any obligation referred to in

18 subparagraph (A) shall be taken into account

19 on and after the date of the payment in deter20 mining the portion of the trust attributable to

21 the property transferred.

22 ‘‘(C) PERSONS DESCRIBED.—The persons

23 described in this subparagraph are—

24 ‘‘(i) the trust,
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1 ‘‘(ii) any grantor or beneficiary of the

2 trust, and

3 ‘‘(iii) any person who is related (with4 in the meaning of section 643(i)(2)(B)) to

5 any grantor or beneficiary of the trust.’’.

6 (b) EXEMPTION OF TRANSFERS TO CHARITABLE

7 TRUSTS.—Subsection (a) of section 679 is amended by

8 striking ‘‘section 404(a)(4) or 404A’’ and inserting ‘‘sec9 tion 6048(a)(3)(B)(ii)’’.

10 (c) OTHER MODIFICATIONS.—Subsection (a) of sec11 tion 679 is amended by adding at the end the following

12 new paragraphs:

13 ‘‘(4) SPECIAL RULES APPLICABLE TO FOREIGN

14 GRANTOR WHO LATER BECOMES A UNITED STATES

15 PERSON.—

16 ‘‘(A) IN GENERAL.—If a nonresident alien

17 individual has a residency starting date within

18 5 years after directly or indirectly transferring

19 property to a foreign trust, this section and sec20 tion 6048 shall be applied as if such individual

21 transferred to such trust on the residency start22 ing date an amount equal to the portion of such

23 trust attributable to the property transferred by

24 such individual to such trust in such transfer.
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1 ‘‘(B) TREATMENT OF UNDISTRIBUTED IN2 COME.—For purposes of this section, undistrib3 uted net income for periods before such individ4 ual’s residency starting date shall be taken into

5 account in determining the portion of the trust

6 which is attributable to property transferred by

7 such individual to such trust but shall not oth8 erwise be taken into account.

9 ‘‘(C) RESIDENCY STARTING DATE.—For

10 purposes of this paragraph, an individual’s resi11 dency starting date is the residency starting

12 date determined under section 7701(b)(2)(A).

13 ‘‘(5) OUTBOUND TRUST MIGRATIONS.—If—

14 ‘‘(A) an individual who is a citizen or resi15 dent of the United States transferred property

16 to a trust which was not a foreign trust, and

17 ‘‘(B) such trust becomes a foreign trust

18 while such individual is alive,

19 then this section and section 6048 shall be applied

20 as if such individual transferred to such trust on the

21 date such trust becomes a foreign trust an amount

22 equal to the portion of such trust attributable to the

23 property previously transferred by such individual to

24 such trust. A rule similar to the rule of paragraph

25 (4)(B) shall apply for purposes of this paragraph.’’.
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1 (d) MODIFICATIONS RELATING TO WHETHER TRUST

2 HAS UNITED STATES BENEFICIARIES.—Subsection (c) of

3 section 679 is amended by adding at the end the following

4 new paragraph:

5 ‘‘(3) CERTAIN UNITED STATES BENEFICIARIES

6 DISREGARDED.—A beneficiary shall not be treated

7 as a United States person in applying this section

8 with respect to any transfer of property to foreign

9 trust if such beneficiary first became a United

10 States person more than 5 years after the date of

11 such transfer.’’.

12 (e) TECHNICAL AMENDMENT.—Subparagraph (A) of

13 section 679(c)(2) is amended to read as follows:

14 ‘‘(A) in the case of a foreign corporation,

15 such corporation is a controlled foreign corpora16 tion (as defined in section 957(a)),’’.

17 (f) REGULATIONS.—Section 679 is amended by add18 ing at the end the following new subsection:

19 ‘‘(d) REGULATIONS.—The Secretary shall prescribe

20 such regulations as may be necessary or appropriate to

21 carry out the purposes of this section.’’.

22 (g) EFFECTIVE DATE.—The amendments made by

23 this section shall apply to transfers of property after Feb24 ruary 6, 1995.
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1 SEC. 603. FOREIGN PERSONS NOT TO BE TREATED AS OWN2 ERS UNDER GRANTOR TRUST RULES.

3 (a) GENERAL RULE.—

4 (1) Subsection (f) of section 672 (relating to

5 special rule where grantor is foreign person) is

6 amended to read as follows:

7 ‘‘(f) SUBPART NOT TO RESULT IN FOREIGN OWNER8 SHIP.—

9 ‘‘(1) IN GENERAL.—Notwithstanding any other

10 provision of this subpart, this subpart shall apply

11 only to the extent such application results in an

12 amount being currently taken into account (directly

13 or through 1 or more entities) under this chapter in

14 computing the income of a citizen or resident of the

15 United States or a domestic corporation.

16 ‘‘(2) EXCEPTIONS.—

17 ‘‘(A) CERTAIN REVOCABLE AND IRREV18 OCABLE TRUSTS.—Paragraph (1) shall not

19 apply to any trust if—

20 ‘‘(i) the power to revest absolutely in

21 the grantor title to the trust property is

22 exercisable solely by the grantor without

23 the approval or consent of any other per24 son or with the consent of a related or sub25 ordinate party who is subservient to the

26 grantor, or
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1 ‘‘(ii) the only amounts distributable

2 from such trust (whether income or cor3 pus) during the lifetime of the grantor are

4 amounts distributable to the grantor or the

5 spouse of the grantor.

6 ‘‘(B) COMPENSATORY TRUSTS.—Except as

7 provided in regulations, paragraph (1) shall not

8 apply to any portion of a trust distributions

9 from which are taxable as compensation for

10 services rendered.

11 ‘‘(3) SPECIAL RULES.—Except as otherwise

12 provided in regulations prescribed by the Sec13 retary—

14 ‘‘(A) a controlled foreign corporation (as

15 defined in section 957) shall be treated as a do16 mestic corporation for purposes of paragraph

17 (1), and

18 ‘‘(B) paragraph (1) shall not apply for

19 purposes of applying section 1296.

20 ‘‘(4) RECHARACTERIZATION OF PURPORTED

21 GIFTS.—In the case of any transfer directly or indi22 rectly from a partnership or foreign corporation

23 which the transferee treats as a gift or bequest, the

24 Secretary may recharacterize such transfer in such

25 circumstances as the Secretary determines to be ap-
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1 propriate to prevent the avoidance of the purposes of

2 this subsection.

3 ‘‘(5) SPECIAL RULE WHERE GRANTOR IS FOR4 EIGN PERSON.—If—

5 ‘‘(A) but for this subsection, a foreign per6 son would be treated as the owner of any por7 tion of a trust, and

8 ‘‘(B) such trust has a beneficiary who is a

9 United States person,

10 such beneficiary shall be treated as the grantor of

11 such portion to the extent such beneficiary has made

12 transfers of property by gift (directly or indirectly)

13 to such foreign person. For purposes of the preced14 ing sentence, any gift shall not be taken into account

15 to the extent such gift would be excluded from tax16 able gifts under section 2503(b).

17 ‘‘(6) REGULATIONS.—The Secretary shall pre18 scribe such regulations as may be necessary or ap19 propriate to carry out the purposes of this sub20 section, including regulations providing that para21 graph (1) shall not apply in appropriate cases.’’.

22 (2) The last sentence of subsection (c) of sec23 tion 672 of such Code is amended by inserting ‘‘sub24 section (f) and’’ before ‘‘sections 674’’.
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1 (b) CREDIT FOR CERTAIN TAXES.—Paragraph (2) of

2 section 665(d) is amended by adding at the end the follow3 ing new sentence: ‘‘Under rules or regulations prescribed

4 by the Secretary, in the case of any foreign trust of which

5 the settlor or another person would be treated as owner

6 of any portion of the trust under subpart E but for section

7 672(f), the term ‘taxes imposed on the trust’ includes the

8 allocable amount of any income, war profits, and excess

9 profits taxes imposed by any foreign country or possession

10 of the United States on the settlor or such other person

11 in respect of trust gross income.’’.

12 (c) DISTRIBUTIONS BY CERTAIN FOREIGN TRUSTS

13 THROUGH NOMINEES.—

14 (1) Section 643 is amended by adding at the

15 end the following new subsection:

16 ‘‘(h) DISTRIBUTIONS BY CERTAIN FOREIGN TRUSTS

17 THROUGH NOMINEES.—For purposes of this part, any

18 amount paid to a United States person which is derived

19 directly or indirectly from a foreign trust of which the

20 payor is not the grantor shall be deemed in the year of

21 payment to have been directly paid by the foreign trust

22 to such United States person.’’.

23 (2) Section 665 is amended by striking sub24 section (c).

25 (d) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—Except as provided by para2 graph (2), the amendments made by this section

3 shall take effect on the date of the enactment of this

4 Act.

5 (2) EXCEPTION FOR CERTAIN TRUSTS.—The

6 amendments made by this section shall not apply to

7 any trust—

8 (A) which is treated as owned by the

9 grantor or another person under section 676 or

10 677 (other than subsection (a)(3) thereof) of

11 the Internal Revenue Code of 1986, and

12 (B) which is in existence on September 19,

13 1995.

14 The preceding sentence shall not apply to the por15 tion of any such trust attributable to any transfer to

16 such trust after September 19, 1995.

17 (e) TRANSITIONAL RULE.—If—

18 (1) by reason of the amendments made by this

19 section, any person other than a United States per20 son ceases to be treated as the owner of a portion

21 of a domestic trust, and

22 (2) before January 1, 1997, such trust becomes

23 a foreign trust, or the assets of such trust are trans24 ferred to a foreign trust,
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1 no tax shall be imposed by section 1491 of the Internal

2 Revenue Code of 1986 by reason of such trust becoming

3 a foreign trust or the assets of such trust being trans4 ferred to a foreign trust.

5 SEC. 604. INFORMATION REPORTING REGARDING FOREIGN

6 GIFTS.

7 (a) IN GENERAL.—Subpart A of part III of sub8 chapter A of chapter 61 is amended by inserting after sec9 tion 6039E the following new section:

10 ‘‘SEC. 6039F. NOTICE OF GIFTS RECEIVED FROM FOREIGN

11 PERSONS.

12 ‘‘(a) IN GENERAL.—If the value of the aggregate for13 eign gifts received by a United States person (other than

14 an organization described in section 501(c) and exempt

15 from tax under section 501(a)) during any taxable year

16 exceeds $10,000, such United States person shall furnish

17 (at such time and in such manner as the Secretary shall

18 prescribe) such information as the Secretary may pre19 scribe regarding each foreign gift received during such

20 year.

21 ‘‘(b) FOREIGN GIFT.—For purposes of this section,

22 the term ‘foreign gift’ means any amount received from

23 a person other than a United States person which the re24 cipient treats as a gift or bequest. Such term shall not
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1 include any qualified transfer (within the meaning of sec2 tion 2503(e)(2)).

3 ‘‘(c) PENALTY FOR FAILURE TO FILE INFORMA4 TION.—

5 ‘‘(1) IN GENERAL.—If a United States person

6 fails to furnish the information required by sub7 section (a) with respect to any foreign gift within

8 the time prescribed therefor (including extensions)—

9 ‘‘(A) the tax consequences of the receipt of

10 such gift shall be determined by the Secretary

11 in the Secretary’s sole discretion from the Sec12 retary’s own knowledge or from such informa13 tion as the Secretary may obtain through testi14 mony or otherwise, and

15 ‘‘(B) such United States person shall pay

16 (upon notice and demand by the Secretary and

17 in the same manner as tax) an amount equal to

18 5 percent of the amount of such foreign gift for

19 each month for which the failure continues (not

20 to exceed 25 percent of such amount in the ag21 gregate).

22 ‘‘(2) REASONABLE CAUSE EXCEPTION.—Para23 graph (1) shall not apply to any failure to report a

24 foreign gift if the United States person shows that
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1 the failure is due to reasonable cause and not due

2 to willful neglect.

3 ‘‘(d) COST-OF-LIVING ADJUSTMENT.—In the case of

4 any taxable year beginning after December 31, 1996, the

5 $10,000 amount under subsection (a) shall be increased

6 by an amount equal to the product of such amount and

7 the cost-of-living adjustment for such taxable year under

8 section 1(f)(3), except that subparagraph (B) thereof shall

9 be applied by substituting ‘1995’ for ‘1992’.

10 ‘‘(e) REGULATIONS.—The Secretary shall prescribe

11 such regulations as may be necessary or appropriate to

12 carry out the purposes of this section.’’.

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

14 for such subpart is amended by inserting after the item

15 relating to section 6039E the following new item:

‘‘Sec. 6039F. Notice of large gifts received from foreign persons.’’.

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

17 this section shall apply to amounts received after the date

18 of the enactment of this Act in taxable years ending after

19 such date.

20 SEC. 605. MODIFICATION OF RULES RELATING TO FOREIGN

21 TRUSTS WHICH ARE NOT GRANTOR TRUSTS.

22 (a) MODIFICATION OF INTEREST CHARGE ON ACCU23 MULATION DISTRIBUTIONS.—Subsection (a) of section

24 668 (relating to interest charge on accumulation distribu25 tions from foreign trusts) is amended to read as follows:
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1 ‘‘(a) GENERAL RULE.—For purposes of the tax de2 termined under section 667(a)—

3 ‘‘(1) INTEREST DETERMINED USING UNDER4 PAYMENT RATES.—The interest charge determined

5 under this section with respect to any distribution is

6 the amount of interest which would be determined

7 on the partial tax computed under section 667(b) for

8 the period described in paragraph (2) using the

9 rates and the method under section 6621 applicable

10 to underpayments of tax.

11 ‘‘(2) PERIOD.—For purposes of paragraph (1),

12 the period described in this paragraph is the period

13 which begins on the date which is the applicable

14 number of years before the date of the distribution

15 and which ends on the date of the distribution.

16 ‘‘(3) APPLICABLE NUMBER OF YEARS.—For

17 purposes of paragraph (2)—

18 ‘‘(A) IN GENERAL.—The applicable num19 ber of years with respect to a distribution is the

20 number determined by dividing—

21 ‘‘(i) the sum of the products described

22 in subparagraph (B) with respect to each

23 undistributed income year, by

24 ‘‘(ii) the aggregate undistributed net

25 income.
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1 The quotient determined under the preceding

2 sentence shall be rounded under procedures

3 prescribed by the Secretary.

4 ‘‘(B) PRODUCT DESCRIBED.—For pur5 poses of subparagraph (A), the product de6 scribed in this subparagraph with respect to

7 any undistributed income year is the product

8 of—

9 ‘‘(i) the undistributed net income for

10 such year, and

11 ‘‘(ii) the sum of the number of taxable

12 years between such year and the taxable

13 year of the distribution (counting in each

14 case the undistributed income year but not

15 counting the taxable year of the distribu16 tion).

17 ‘‘(4) UNDISTRIBUTED INCOME YEAR.—For pur18 poses of this subsection, the term ‘undistributed in19 come year’ means any prior taxable year of the trust

20 for which there is undistributed net income, other

21 than a taxable year during all of which the bene22 ficiary receiving the distribution was not a citizen or

23 resident of the United States.

24 ‘‘(5) DETERMINATION OF UNDISTRIBUTED NET

25 INCOME.—Notwithstanding section 666, for pur-
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1 poses of this subsection, an accumulation distribu2 tion from the trust shall be treated as reducing pro3 portionately the undistributed net income for undis4 tributed income years.

5 ‘‘(6) PERIODS BEFORE 1996.—Interest for the

6 portion of the period described in paragraph (2)

7 which occurs before January 1, 1996, shall be deter8 mined—

9 ‘‘(A) by using an interest rate of 6 percent,

10 and

11 ‘‘(B) without compounding until January

12 1, 1996.’’.

13 (b) ABUSIVE TRANSACTIONS.—Section 643(a) is

14 amended by inserting after paragraph (6) the following

15 new paragraph:

16 ‘‘(7) ABUSIVE TRANSACTIONS.—The Secretary

17 shall prescribe such regulations as may be necessary

18 or appropriate to carry out the purposes of this part,

19 including regulations to prevent avoidance of such

20 purposes.’’.

21 (c) TREATMENT OF LOANS FROM TRUSTS.—

22 (1) IN GENERAL.—Section 643 (relating to

23 definitions applicable to subparts A, B, C, and D)

24 is amended by adding at the end the following new

25 subsection:
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1 ‘‘(i) LOANS FROM FOREIGN TRUSTS.—For purposes

2 of subparts B, C, and D—

3 ‘‘(1) GENERAL RULE.—Except as provided in

4 regulations, if a foreign trust makes a loan of cash

5 or marketable securities directly or indirectly to—

6 ‘‘(A) any grantor or beneficiary of such

7 trust who is a United States person, or

8 ‘‘(B) any United States person not de9 scribed in subparagraph (A) who is related to

10 such grantor or beneficiary,

11 the amount of such loan shall be treated as a dis12 tribution by such trust to such grantor or bene13 ficiary (as the case may be).

14 ‘‘(2) DEFINITIONS AND SPECIAL RULES.—For

15 purposes of this subsection—

16 ‘‘(A) CASH.—The term ‘cash’ includes for17 eign currencies and cash equivalents.

18 ‘‘(B) RELATED PERSON.—

19 ‘‘(i) IN GENERAL.—A person is relat20 ed to another person if the relationship be21 tween such persons would result in a dis22 allowance of losses under section 267 or

23 707(b). In applying section 267 for pur24 poses of the preceding sentence, section

25 267(c)(4) shall be applied as if the family
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1 of an individual includes the spouses of the

2 members of the family.

3 ‘‘(ii) ALLOCATION.—If any person de4 scribed in paragraph (1)(B) is related to

5 more than one person, the grantor or bene6 ficiary to whom the treatment under this

7 subsection applies shall be determined

8 under regulations prescribed by the Sec9 retary.

10 ‘‘(C) EXCLUSION OF TAX-EXEMPTS.—The

11 term ‘United States person’ does not include

12 any entity exempt from tax under this chapter.

13 ‘‘(D) TRUST NOT TREATED AS SIMPLE

14 TRUST.—Any trust which is treated under this

15 subsection as making a distribution shall be

16 treated as not described in section 651.

17 ‘‘(3) SUBSEQUENT TRANSACTIONS REGARDING

18 LOAN PRINCIPAL.—If any loan is taken into account

19 under paragraph (1), any subsequent transaction be20 tween the trust and the original borrower regarding

21 the principal of the loan (by way of complete or par22 tial repayment, satisfaction, cancellation, discharge,

23 or otherwise) shall be disregarded for purposes of

24 this title.’’.
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1 (2) TECHNICAL AMENDMENT.—Paragraph (8)

2 of section 7872(f) is amended by inserting ‘‘,

3 643(i),’’ before ‘‘or 1274’’ each place it appears.

4 (d) EFFECTIVE DATES.—

5 (1) INTEREST CHARGE.—The amendment made

6 by subsection (a) shall apply to distributions after

7 the date of the enactment of this Act.

8 (2) ABUSIVE TRANSACTIONS.—The amendment

9 made by subsection (b) shall take effect on the date

10 of the enactment of this Act.

11 (3) LOANS FROM TRUSTS.—The amendment

12 made by subsection (c) shall apply to loans of cash

13 or marketable securities after September 19, 1995.

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

15 (a) TREATMENT AS UNITED STATES PERSON.—

16 (1) IN GENERAL.—Paragraph (30) of section

17 7701(a) is amended by striking subparagraph (D)

18 and by inserting after subparagraph (C) the follow19 ing:

20 ‘‘(D) any estate or trust if—

21 ‘‘(i) a court within the United States

22 is able to exercise primary supervision over

23 the administration of the estate or trust,

24 and
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1 ‘‘(ii) in the case of a trust, one or

2 more United States fiduciaries have the

3 authority to control all substantial deci4 sions of the trust.’’.

5 (2) CONFORMING AMENDMENT.—Paragraph

6 (31) of section 7701(a) is amended to read as fol7 lows:

8 ‘‘(31) FOREIGN ESTATE OR TRUST.—The term

9 ‘foreign estate’ or ‘foreign trust’ means any estate or

10 trust other than an estate or trust described in sec11 tion 7701(a)(30)(D).’’.

12 (3) EFFECTIVE DATE.—The amendments made

13 by this subsection shall apply—

14 (A) to taxable years beginning after De15 cember 31, 1996, or

16 (B) at the election of the trustee of a

17 trust, to taxable years ending after the date of

18 the enactment of this Act.

19 Such an election, once made, shall be irrevocable.

20 (b) DOMESTIC TRUSTS WHICH BECOME FOREIGN

21 TRUSTS.—

22 (1) IN GENERAL.—Section 1491 (relating to

23 imposition of tax on transfers to avoid income tax)

24 is amended by adding at the end the following new

25 flush sentence:
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1 ‘‘If a trust which is not a foreign trust becomes a foreign

2 trust, such trust shall be treated for purposes of this sec3 tion as having transferred, immediately before becoming

4 a foreign trust, all of its assets to a foreign trust.’’.

5 (2) PENALTY.—Section 1494 is amended by

6 adding at the end the following new subsection:

7 ‘‘(c) PENALTY.—In the case of any failure to file a

8 return required by the Secretary with respect to any trans9 fer described in section 1491 with respect to a trust, the

10 person required to file such return shall be liable for the

11 penalties provided in section 6677 in the same manner as

12 if such failure were a failure to file a return under section

13 6048(a).’’.

14 (3) EFFECTIVE DATE.—The amendments made

15 by this subsection shall take effect on the date of the

16 enactment of this Act.

17 Subtitle B—Repeal of Bad Debt Re18 serve Method for Thrift Savings

19 Associations

20 SEC. 611. REPEAL OF BAD DEBT RESERVE METHOD FOR

21 THRIFT SAVINGS ASSOCIATIONS.

22 (a) IN GENERAL.—Section 593 (relating to reserves

23 for losses on loans) is hereby repealed.

24 (b) CONFORMING AMENDMENTS.—
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1 (1) Subsection (d) of section 50 is amended by

2 adding at the end the following new sentence:

3 ‘‘Paragraphs (1)(A), (2)(A), and (4) of section 46(e) re4 ferred to in paragraph (1) of this subsection shall not

5 apply to any taxable year beginning after December 31,

6 1995.’’.

7 (2) Subsection (e) of section 52 is amended by

8 striking paragraph (1) and by redesignating para9 graphs (2) and (3) as paragraphs (1) and (2), re10 spectively.

11 (3) Subsection (a) of section 57 is amended by

12 striking paragraph (4).

13 (4) Section 246 is amended by striking sub14 section (f).

15 (5) Clause (i) of section 291(e)(1)(B) is amend16 ed by striking ‘‘or to which section 593 applies’’.

17 (6) Subparagraph (A) of section 585(a)(2) is

18 amended by striking ‘‘other than an organization to

19 which section 593 applies’’.

20 (7) Sections 595 and 596 are hereby repealed.

21 (8) Subsection (a) of section 860E is amend22 ed—

23 (A) by striking ‘‘Except as provided in

24 paragraph (2), the’’ in paragraph (1) and in25 serting ‘‘The’’,
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1 (B) by striking paragraphs (2) and (4) and

2 redesignating paragraphs (3) and (5) as para3 graphs (2) and (3), respectively, and

4 (C) by striking in paragraph (2) (as so re5 designated) all that follows ‘‘subsection’’ and

6 inserting a period.

7 (9) Paragraph (3) of section 992(d) is amended

8 by striking ‘‘or 593’’.

9 (10) Section 1038 is amended by striking sub10 section (f).

11 (11) Clause (ii) of section 1042(c)(4)(B) is

12 amended by striking ‘‘or 593’’.

13 (12) Subsection (c) of section 1277 is amended

14 by striking ‘‘or to which section 593 applies’’.

15 (13) Subparagraph (B) of section 1361(b)(2) is

16 amended by striking ‘‘or to which section 593 ap17 plies’’.

18 (14) The table of sections for part II of sub19 chapter H of chapter 1 is amended by striking the

20 items relating to sections 593, 595, and 596.

21 (c) EFFECTIVE DATE.—

22 (1) IN GENERAL.—Except as provided in para23 graph (2), the amendments made by this section

24 shall apply to taxable years beginning after Decem25 ber 31, 1995.
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1 (2) REPEAL OF SECTION 595.—The repeal of

2 section 595 under subsection (b)(7) shall apply to

3 property acquired in taxable years beginning after

4 December 31, 1995.

5 (d) 6-YEAR SPREAD OF ADJUSTMENTS.—

6 (1) IN GENERAL.—In the case of any taxpayer

7 who is required by reason of the amendments made

8 by this section to change its method of computing

9 reserves for bad debts—

10 (A) such change shall be treated as a

11 change in a method of accounting,

12 (B) such change shall be treated as initi13 ated by the taxpayer and as having been made

14 with the consent of the Secretary, and

15 (C) the net amount of the adjustments re16 quired to be taken into account by the taxpayer

17 under section 481(a)—

18 (i) shall be determined by taking into

19 account only applicable excess reserves,

20 and

21 (ii) as so determined, shall be taken

22 into account ratably over the 6-taxable

23 year period beginning with the first taxable

24 year beginning after December 31, 1995.

25 (2) APPLICABLE EXCESS RESERVES.—
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1 (A) IN GENERAL.—For purposes of para2 graph (1), the term ‘applicable excess reserves’

3 means the excess (if any) of—

4 (i) the balance of the reserves de5 scribed in section 593(c)(1) of such Code

6 (as in effect on the day before the date of

7 the enactment of this Act) as of the close

8 of the taxpayer’s last taxable year begin9 ning before January 1, 1996, over

10 (ii) the lesser of—

11 (I) the balance of such reserves

12 as of the close of the taxpayer’s last

13 taxable year beginning before January

14 1, 1988, or

15 (II) the balance of the reserves

16 described in subclause (I), reduce by

17 an amount determined in the same

18 manner as under section

19 585(b)(2)(B)(ii) on the basis of the

20 taxable years described in clause (i)

21 and this clause.

22 (B) SPECIAL RULE FOR THRIFTS WHICH

23 BECOME SMALL BANKS.—In the case of a bank

24 (as defined in section 581 of such Code) which

25 is not a large bank (as defined in section
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1 585(c)(2) of such Code) for its first taxable

2 year beginning after December 31, 1995—

3 (i) the balance taken into account

4 under subparagraph (A)(ii) shall not be

5 less than the amount which would be the

6 balance of such reserve as of the close of

7 its last taxable year beginning before Jan8 uary 1, 1996, if the additions to such re9 serve for all taxable years had been deter10 mined under section 585(b)(2)(A), and

11 (ii) the opening balance of the reserve

12 for bad debts as of the beginning of such

13 first taxable year shall be the balance

14 taken into account under subparagraph

15 (A)(ii) (determined after the application of

16 clause (i) of this subparagraph).

17 The preceding sentence shall not apply for pur18 poses of paragraphs (5), (6), and (7).

19 (3) RECAPTURE OF PRE-1988 RESERVES WHERE

20 TAXPAYER CEASES TO BE BANK.—If during any tax21 able year beginning after December 31, 1995, a tax22 payer to which paragraph (1) applied is not a bank

23 (as defined in section 581), paragraph (1) shall

24 apply to the reserves described in subparagraph

25 (A)(ii) except that such reserves shall be taken into
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1 account ratably over the 6-taxable year period begin2 ning with such taxable year.

3 (4) SUSPENSION OF RECAPTURE IF RESIDEN4 TIAL LOAN REQUIREMENT MET.—

5 (A) IN GENERAL.—In the case of a bank

6 which meets the residential loan requirement of

7 subparagraph (B) for a taxable year beginning

8 after December 31, 1995, and before January

9 1, 1998—

10 (i) no adjustment shall be taken into

11 account under paragraph (1) for such tax12 able year, and

13 (ii) such taxable year shall be dis14 regarded in determining—

15 (I) whether any other taxable

16 year is a taxable year for which an

17 adjustment is required to be taken

18 into account under paragraph (1), and

19 (II) the amount of such adjust20 ment.

21 (B) RESIDENTIAL LOAN REQUIREMENT.—

22 A taxpayer meets the residential loan require23 ment of this subparagraph for any taxable year

24 if the principal amount of the residential loans
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1 made by the taxpayer during such year is not

2 less than the base amount for such year.

3 (C) RESIDENTIAL LOAN.—For purposes of

4 this paragraph, the term ‘‘residential loan’’

5 means any loan described in clause (v) of sec6 tion 7701(a)(19)(C) of such Code but only if

7 such loan is incurred in acquiring, constructing,

8 or improving the property described in such

9 clause.

10 (D) BASE AMOUNT.—For purposes of sub11 paragraph (B), the base amount is the average

12 of the principal amounts of the residential loans

13 made by the taxpayer during the 6 most recent

14 taxable years beginning before January 1,

15 1996. At the election of the taxpayer who made

16 such loans during each of such 6 taxable years,

17 the preceding sentence shall be applied without

18 regard to the taxable year in which such prin19 cipal amount was the highest and the taxable

20 year in such principal amount was the lowest.

21 Such an election may be made only for the first

22 taxable year beginning after December 31,

23 1995, and, if made for such taxable year, shall

24 apply to the succeeding taxable year unless re-
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1 voked with the consent of the Secretary of the

2 Treasury or the Secretary’s delegate.

3 (E) CONTROLLED GROUPS.—In the case of

4 a taxpayer which is a member of any controlled

5 group of corporations described in section

6 1563(a)(1) of such Code, subparagraph (B)

7 shall be applied with respect to such group.

8 (5) CONTINUED APPLICATION OF FRESH START

9 UNDER SECTION 585 TRANSITIONAL RULES.—In the

10 case of a taxpayer to which paragraph (1) applied

11 and which was not a large bank (as defined in sec12 tion 585(c)(2) of such Code) for its first taxable

13 year beginning after December 31, 1995:

14 (A) IN GENERAL.—For purposes of deter15 mining the net amount of adjustments referred

16 to in section 585(c)(3)(A)(iii) of such Code,

17 there shall be taken into account only the ex18 cess of the reserve for bad debts as of the close

19 of the last taxable year before the disqualifica20 tion year over the balance taken into account by

21 such taxpayer under paragraph (2)(A)(ii) of

22 this subsection.

23 (B) TREATMENT UNDER ELECTIVE CUT24 OFF METHOD.—For purposes of applying sec25 tion 585(c)(4) of such Code—
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1 (i) the balance of the reserve taken

2 into account under subparagraph (B)

3 thereof shall be reduced by the balance

4 taken into account by such taxpayer under

5 paragraph (2)(A)(ii) of this subsection,

6 and

7 (ii) no amount shall be includible in

8 gross income by reason of such reduction.

9 (6) CONTINUED APPLICATION OF SECTION

10 593(e).—Notwithstanding the amendments made by

11 this section, in the case of a taxpayer to which para12 graph (1) of this subsection applies, section 593(e)

13 of such Code (as in effect on the day before the date

14 of the enactment of this Act) shall continue to apply

15 to such taxpayer as if such taxpayer were a domestic

16 building and loan association but the amount of the

17 reserves taken into account under subparagraphs

18 (B) and (C) of section 593(e)(1) (as so in effect)

19 shall be the balance taken into account by such tax20 payer under paragraph (2)(A)(ii) of this subsection.

21 (7) CERTAIN ITEMS INCLUDED AS SECTION

22 381(c) ITEMS.—The balance of the applicable excess

23 reserves, and the balance taken into account by a

24 taxpayer under paragraph (2)(A)(ii) of this sub-
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1 section, shall be treated as items described in section

2 381(c) of such Code.

3 (8) CONVERSIONS TO CREDIT UNIONS.—In the

4 case of a taxpayer to which paragraph (1) applied

5 which becomes a credit union described in section

6 501(c)(14)(A)—

7 (A) any amount required to be included in

8 the gross income of the credit union by reason

9 of this subsection shall be treated as derived

10 from an unrelated trade or business (as defined

11 in section 513), and

12 (B) for purposes of paragraph (3), the

13 credit union shall not be treated as if it were

14 a bank.

15 (9) REGULATIONS.—The Secretary of the

16 Treasury or the Secretary’s delegate shall prescribe

17 such regulations as may be necessary to carry out

18 this subsection, including regulations providing for

19 the application of paragraphs (4) and (6) in the case

20 of acquisitions, mergers, spin-offs, and other reorga21 nizations.
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1 Subtitle C—Other Provisions

2 SEC. 621. EXTENSION OF MEDICARE SECONDARY PAYOR

3 PROVISIONS.

4 Section 1862(b) of the Social Security Act (42 U.S.C.

5 1395y(b)) is amended—

6 (1) in paragraph (1)—

7 (A) in subparagraph (B), by striking

8 clause (iii) and redesignating clause (iv) as

9 clause (iii); and

10 (B) in the matter following clause (ii) of

11 subparagraph (C), by striking ‘‘, and before Oc12 tober 1, 1998’’; and

13 (2) in paragraph (5)(C), by striking clause (iii).

14 SEC. 622. ANNUAL ADJUSTMENT FACTORS FOR OPERATING

15 COSTS ONLY; RESTRAINT ON RENT IN16 CREASES.

17 (a) ANNUAL ADJUSTMENT FACTORS FOR OPERATING

18 COSTS ONLY.—Section 8(c)(2)(A) of the United States

19 Housing Act of 1937 (42 U.S.C. 1437f(c)(2)(A)) is

20 amended—

21 (1) by striking ‘‘(2)(A)’’ and inserting

22 ‘‘(2)(A)(i)’’;

23 (2) by striking the second sentence and all that

24 follows through the end of the subparagraph; and
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1 (3) by adding at the end the following new

2 clause:

3 ‘‘(ii) Each assistance contract under this section shall

4 provide that—

5 ‘‘(I) if the maximum monthly rent for a unit in

6 a new construction or substantial rehabilitation

7 project to be adjusted using an annual adjustment

8 factor exceeds 100 percent of the fair market rent

9 for an existing dwelling unit in the market area, the

10 Secretary shall adjust the rent using an operating

11 costs factor that increases the rent to reflect in12 creases in operating costs in the market area; and

13 ‘‘(II) if the owner of a unit in a project de14 scribed in subclause (I) demonstrates that the ad15 justed rent determined under subclause (I) would

16 not exceed the rent for an unassisted unit of similar

17 quality, type, and age in the same market area, as

18 determined by the Secretary, the Secretary shall use

19 the otherwise applicable annual adjustment factor.’’.

20 (b) RESTRAINT ON SECTION 8 RENT INCREASES.—

21 Section 8(c)(2)(A) of the United States Housing Act of

22 1937 (42 U.S.C. 1437f(c)(2)(A)), as amended by sub23 section (a) of this section, is amended by adding at the

24 end the following new clause:
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1 ‘‘(iii)(I) Subject to subclause (II), with respect to any

2 unit assisted under this section that is occupied by the

3 same family at the time of the most recent annual rental

4 adjustment, if the assistance contract provides for the ad5 justment of the maximum monthly rent by applying an

6 annual adjustment factor, and if the rent for the unit is

7 otherwise eligible for an adjustment based on the full

8 amount of the annual adjustment factor, 0.01 shall be

9 subtracted from the amount of the annual adjustment fac10 tor, except that the annual adjustment factor shall not be

11 reduced to less than 1.0.

12 ‘‘(II) With respect to any unit described in subclause

13 (I) that is assisted under the certificate program, the ad14 justed rent shall not exceed the rent for a comparable un15 assisted unit of similar quality, type, and age in the mar16 ket area in which the unit is located.’’.

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

18 this section shall be construed to have become effective

19 on October 1, 1995.

20 SEC. 623. FORECLOSURE AVOIDANCE AND BORROWER AS21 SISTANCE.

22 (a) EFFECTIVENESS AND APPLICABILITY.—Section

23 407 of The Balanced Budget Downpayment Act, I (Public

24 Law 104–99) is amended—

25 (1) in subsection (c)—
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1 (A) by striking ‘‘Except as provided in

2 subsection (e), the’’ and inserting ‘‘The’’; and

3 (B) by striking ‘‘only with respect to mort4 gages insured under the National Housing Act

5 that are originated before October 1, 1995’’

6 and inserting ‘‘to all mortgages insured under

7 the National Housing Act’’; and

8 (2) by striking subsection (e).

9 (b) TECHNICAL AMENDMENT.—Section 230(d) of the

10 National Housing Act (12 U.S.C. 1715u(d)) is amended

11 by striking ‘‘the Departments’’ and all that follows

12 through ‘‘1996’’ and inserting ‘‘The Balanced Budget

13 Downpayment Act, I’’.