II

104TH CONGRESS

1ST SESSION S. 423

To amend the Internal Revenue Code of 1986 to provide improved access

to quality long-term care services, to create incentives for greater private

sector participation and personal responsibility in financing such services,

and for other purposes.

IN THE SENATE OF THE UNITED STATES

FEBRUARY 15 (legislative day, JANUARY 30), 1995

Mr. COHEN introduced the following bill; which was read twice and referred

to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to provide

improved access to quality long-term care services, to

create incentives for greater private sector participation

and personal responsibility in financing such services,

and for other purposes.

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

5 ‘‘Private Long-Term Care Family Protection Act of

6 1995’’.
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1 (b) TABLE OF CONTENTS.—The table of contents is

2 as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Amendment of 1986 Code.

TITLE I—TAX TREATMENT OF LONG-TERM CARE INSURANCE

Sec. 101. Qualified long-term care services treated as medical care.

Sec. 102. Treatment of long-term care insurance.

Sec. 103. Treatment of qualified long-term care plans.

Sec. 104. Tax reserves for qualified long-term care insurance policies.

Sec. 105. Tax treatment of accelerated death benefits under life insurance contracts.

Sec. 106. Tax treatment of companies issuing qualified accelerated death benefit riders.

TITLE II—STANDARDS FOR LONG-TERM CARE INSURANCE

Sec. 201. National Long-Term Care Insurance Advisory Council.

Sec. 202. Additional requirements for issuers of long-term care insurance policies.

Sec. 203. Coordination with State requirements.

Sec. 204. Uniform language and definitions.

TITLE III—INCENTIVES TO ENCOURAGE THE PURCHASE OF

PRIVATE INSURANCE

Sec. 301. Public information and education program.

Sec. 302. Assets or resources disregarded under the medicaid program.

Sec. 303. Distributions from individual retirement accounts for the purchase of

long-term care insurance coverage.

TITLE IV—EFFECTIVE DATE

Sec. 401. Effective date of tax provisions.

3 SEC. 2. AMENDMENT OF 1986 CODE.

4 Except as otherwise expressly provided, whenever in

5 this Act an amendment or repeal is expressed in terms

6 of an amendment to, or repeal of, a section or other provi7 sion, the reference shall be considered to be made to a

8 section or other provision of the Internal Revenue Code

9 of 1986.
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1 TITLE I—TAX TREATMENT OF

2 LONG-TERM CARE INSURANCE

3 SEC. 101. QUALIFIED LONG-TERM CARE SERVICES TREAT4 ED AS MEDICAL CARE.

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

6 213(d) (defining medical care) is amended by striking

7 ‘‘or’’ at the end of subparagraph (B), by striking subpara8 graph (C), and by inserting after subparagraph (B) the

9 following new subparagraphs:

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

11 (as defined in subsection (f)),

12 ‘‘(D) for insurance covering medical care

13 referred to in—

14 ‘‘(i) subparagraphs (A) and (B), or

15 ‘‘(ii) subparagraph (C), but only if

16 such insurance is provided under a quali17 fied long-term care insurance policy (as de18 fined in section 7702B(b)) and the deduc19 tion under this section for amounts paid

20 for such insurance is not disallowed under

21 section 7702B(d)(4), or

22 ‘‘(E) for premiums under part B of title

23 XVIII of the Social Security Act, relating to

24 supplementary medical insurance for the

25 aged.’’.
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1 (b) QUALIFIED LONG-TERM CARE SERVICES DE2 FINED.—Section 213 (relating to the deduction for medi3 cal, dental, etc., expenses) is amended by adding at the

4 end the following new subsection:

5 ‘‘(f) QUALIFIED LONG-TERM CARE SERVICES.—For

6 purposes of this section—

7 ‘‘(1) IN GENERAL.—The term ‘qualified long8 term care services’ means necessary diagnostic, cur9 ing, mitigating, treating, preventive, therapeutic, and

10 rehabilitative services, and maintenance and per11 sonal care services (whether performed in a residen12 tial or nonresidential setting), which—

13 ‘‘(A) are required by an individual during

14 any period the individual is an incapacitated in15 dividual (as defined in paragraph (2)),

16 ‘‘(B) have as their primary purpose—

17 ‘‘(i) the provision of needed assistance

18 with 1 or more activities of daily living (as

19 defined in paragraph (3)), or

20 ‘‘(ii) protection from threats to health

21 and safety due to severe cognitive impair22 ment, and

23 ‘‘(C) are provided pursuant to a continuing

24 plan of care prescribed by a licensed profes25 sional (as defined in paragraph (4)).
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1 ‘‘(2) INCAPACITATED INDIVIDUAL.—The term

2 ‘incapacitated individual’ means any individual who

3 has been certified by a licensed professional as—

4 ‘‘(A) being unable to perform, without sub5 stantial assistance from another individual, at

6 least 2 activities of daily living (as defined in

7 paragraph (3)),

8 ‘‘(B) having moderate cognitive impair9 ment as defined by the Secretary in consulta10 tion with the Secretary of Health and Human

11 Services, or

12 ‘‘(C) having a level of disability similar (as

13 determined by the Secretary in consultation

14 with the Secretary of Health and Human Serv15 ices) to the level of disability described in sub16 paragraph (A).

17 ‘‘(3) ACTIVITIES OF DAILY LIVING.—

18 ‘‘(A) IN GENERAL.—Each of the following

19 is an activity of daily living:

20 ‘‘(i) Eating.

21 ‘‘(ii) Toileting.

22 ‘‘(iii) Transferring.

23 ‘‘(iv) Bathing.

24 ‘‘(v) Dressing.

25 ‘‘(vi) Continence.
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1 ‘‘(B) DEFINITIONS.—For purposes of this

2 paragraph:

3 ‘‘(i) EATING.—The term ‘eating’

4 means the process of getting food from a

5 plate or its equivalent into the mouth.

6 ‘‘(ii) TOILETING.—The term

7 ‘toileting’ means the act of going to the

8 toilet room for bowel and bladder function,

9 transferring on and off of the toilet, clean10 ing oneself after elimination, and arrang11 ing clothes.

12 ‘‘(iii) TRANSFERRING.—The term

13 ‘transferring’ means the process of getting

14 in and out of bed or in and out of a chair

15 or wheelchair.

16 ‘‘(iv) BATHING.—The term ‘bathing’

17 means the overall complex behavior of

18 using water for cleansing the whole body,

19 including cleansing as part of a bath,

20 shower, or sponge bath, getting to, in, and

21 out of a tub or shower, and washing and

22 drying oneself.

23 ‘‘(v) DRESSING.—The term ‘dressing’

24 means the overall complex behavior of get-
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1 ting clothes from closets and drawers and

2 then getting dressed.

3 ‘‘(vi) CONTINENCE.—The term ‘con4 tinence’ means the ability to voluntarily

5 control bowel and bladder function and to

6 maintain a reasonable level of personal hy7 giene.

8 ‘‘(4) LICENSED PROFESSIONAL.—

9 ‘‘(A) IN GENERAL.—The term ‘licensed

10 professional’ means—

11 ‘‘(i) a physician or registered profes12 sional nurse,

13 ‘‘(ii) a qualified community care case

14 manager (as defined in subparagraph (B)),

15 or

16 ‘‘(iii) any other individual who meets

17 such requirements as may be prescribed by

18 the Secretary after consultation with the

19 Secretary of Health and Human Services.

20 ‘‘(B) QUALIFIED COMMUNITY CARE CASE

21 MANAGER.—The term ‘qualified community

22 care case manager’ means an individual or en23 tity which—

24 ‘‘(i) has experience or has been

25 trained in providing case management
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1 services and in preparing individual care

2 plans,

3 ‘‘(ii) has experience in assessing indi4 viduals to determine their functional and

5 cognitive impairment, and

6 ‘‘(iii) meets such requirements as may

7 be prescribed by the Secretary after con8 sultation with the Secretary of Health and

9 Human Services.

10 ‘‘(5) CERTAIN SERVICES NOT INCLUDED.—The

11 term ‘qualified long-term care services’ shall not in12 clude any services provided to an individual—

13 ‘‘(A) by a relative (directly or through a

14 partnership, corporation, or other entity) unless

15 the relative is a licensed professional with re16 spect to such services, or

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

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

19 or 707(b)) to the individual.

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

21 means an individual bearing a relationship to the in22 dividual which is described in paragraphs (1)

23 through (8) of section 152(a).’’.

24 (c) TECHNICAL AMENDMENTS.—Paragraph (6) of

25 section 213(d) is amended—
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1 (1) by striking ‘‘subparagraphs (A) and (B)’’

2 and inserting ‘‘subparagraphs (A), (B), and (C)’’,

3 and

4 (2) by striking ‘‘paragraph (1)(C) applies’’ in

5 subparagraph (A) and inserting ‘‘subparagraphs (C)

6 and (D) of paragraph (1) apply’’.

7 SEC. 102. TREATMENT OF LONG-TERM CARE INSURANCE.

8 (a) GENERAL RULE.—Chapter 79 (relating to defini9 tions) is amended by inserting after section 7702A the fol10 lowing new section:

11 ‘‘SEC. 7702B. TREATMENT OF LONG-TERM CARE INSUR12 ANCE.

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

14 ‘‘(1) a qualified long-term care insurance policy

15 (as defined in subsection (b)) shall be treated as an

16 accident and health insurance contract,

17 ‘‘(2) any plan of an employer providing cov18 erage under a qualified long-term care insurance pol19 icy shall be treated as an accident and health plan

20 with respect to such coverage,

21 ‘‘(3) amounts (other than policyholder dividends

22 (as defined in section 808) or premium refunds) re23 ceived under a qualified long-term care insurance

24 policy (including nonreimbursement payments de25 scribed in subsection (b)(6)) shall be treated—
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1 ‘‘(A) as amounts received for personal in2 juries and sickness, and

3 ‘‘(B) as amounts received for the perma4 nent loss of a function of the body and as

5 amounts computed with reference to the nature

6 of injury under section 105(c) to the extent

7 that such amounts do not exceed the dollar

8 amount in effect under subsection (f) for the

9 taxable year,

10 ‘‘(4) amounts paid for a qualified long-term

11 care insurance policy described in subsection (b)(11)

12 shall be treated as payments made for insurance for

13 purposes of section 213(d)(1)(D), and

14 ‘‘(5) a qualified long-term care insurance policy

15 shall be treated as a guaranteed renewable contract

16 subject to the rules of section 816(e).

17 ‘‘(b) QUALIFIED LONG-TERM CARE INSURANCE POL18 ICY.—For purposes of this title—

19 ‘‘(1) IN GENERAL.—The term ‘qualified long20 term care insurance policy’ means any long-term

21 care insurance policy (as defined in paragraph (10))

22 that—

23 ‘‘(A) limits benefits under such policy to

24 incapacitated individuals (as defined in section

25 213(f)(2)), and
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1 ‘‘(B) satisfies the requirements of para2 graphs (2) through (9).

3 ‘‘(2) PREMIUM REQUIREMENTS.—The require4 ments of this paragraph are met with respect to a

5 long-term care insurance policy if such policy pro6 vides that premium payments may not be made ear7 lier than the date such payments would have been

8 made if the policy provided for level annual pay9 ments over the life expectancy of the insured or 20

10 years, whichever is shorter. A policy shall not be

11 treated as failing to meet the requirements of the

12 preceding sentence solely by reason of a provision in

13 the policy providing for a waiver of premiums if the

14 insured becomes an incapacitated individual (as de15 fined in section 213(f)(2)).

16 ‘‘(3) PROHIBITION OF CASH VALUE.—The re17 quirements of this paragraph are met with respect

18 to a long-term care insurance policy if such policy

19 does not provide for a cash value or other money

20 that can be paid, assigned, pledged as collateral for

21 a loan, or borrowed, other than as provided in para22 graph (4).

23 ‘‘(4) REFUNDS OF PREMIUMS AND DIVI24 DENDS.—The requirements of this paragraph are
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1 met with respect to a long-term care insurance pol2 icy if such policy provides that—

3 ‘‘(A) policyholder dividends are required to

4 be applied as a reduction in future premiums or

5 to increase benefits described in subsection

6 (a)(2),

7 ‘‘(B) refunds of premiums upon a partial

8 surrender or a partial cancellation are required

9 to be applied as a reduction in future pre10 miums, and

11 ‘‘(C) any refund on the death of the in12 sured, or on a complete surrender or cancella13 tion of the policy, cannot exceed the aggregate

14 premiums paid under the policy.

15 Any refund on a complete surrender or cancellation

16 of the policy shall be includable in gross income to

17 the extent that any deduction or exclusion was allow18 able with respect to the premiums.

19 ‘‘(5) COORDINATION WITH OTHER ENTITLE20 MENTS.—The requirements of this paragraph are

21 met with respect to a long-term care insurance pol22 icy if such policy does not cover expenses incurred

23 to the extent that such expenses are also covered

24 under title XVIII of the Social Security Act. For

25 purposes of this paragraph, a long-term care insur-
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1 ance policy which coordinates expenses incurred

2 under such policy with expenses incurred under title

3 XVIII of such Act shall not be considered to dupli4 cate such expenses.

5 ‘‘(6) REQUIREMENTS OF MODEL REGULATION

6 AND ACT.—

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

8 this paragraph are met with respect to a long9 term care insurance policy if such policy

10 meets—

11 ‘‘(i) MODEL REGULATION.—The fol12 lowing requirements of the model regula13 tion:

14 ‘‘(I) Section 7A (relating to guar15 anteed renewal or noncancellability),

16 and the requirements of section 6B of

17 the model Act relating to such section

18 7A.

19 ‘‘(II) Section 7B (relating to pro20 hibitions on limitations and exclu21 sions).

22 ‘‘(III) Section 7C (relating to ex23 tension of benefits).
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1 ‘‘(IV) Section 7D (relating to

2 continuation or conversion of cov3 erage).

4 ‘‘(V) Section 7E (relating to dis5 continuance and replacement of poli6 cies).

7 ‘‘(VI) Section 8 (relating to unin8 tentional lapse).

9 ‘‘(VII) Section 9 (relating to dis10 closure), other than section 9F there11 of.

12 ‘‘(VIII) Section 10 (relating to

13 prohibitions against post-claims un14 derwriting).

15 ‘‘(IX) Section 11 (relating to

16 minimum standards).

17 ‘‘(X) Section 12 (relating to re18 quirement to offer inflation protec19 tion), except that any requirement for

20 a signature on a rejection of inflation

21 protection shall permit the signature

22 to be on an application or on a sepa23 rate form.

24 ‘‘(XI) Section 23 (relating to pro25 hibition against preexisting conditions
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1 and probationary periods in replace2 ment policies or certificates).

3 ‘‘(ii) MODEL ACT.—The following re4 quirements of the model Act:

5 ‘‘(I) Section 6C (relating to pre6 existing conditions).

7 ‘‘(II) Section 6D (relating to

8 prior hospitalization).

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

10 paragraph—

11 ‘‘(i) MODEL PROVISIONS.—The terms

12 ‘model regulation’ and ‘model Act’ mean

13 the long-term care insurance model regula14 tion, and the long-term care insurance

15 model Act, respectively, promulgated by

16 the National Association of Insurance

17 Commissioners (as adopted in January of

18 1993).

19 ‘‘(ii) COORDINATION.—Any provision

20 of the model regulation or model Act listed

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

22 (A) shall be treated as including any other

23 provision of such regulation or Act nec24 essary to implement the provision.
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1 ‘‘(7) TAX DISCLOSURE REQUIREMENT.—The re2 quirement of this paragraph is met with respect to

3 a long-term care insurance policy if such policy

4 meets the requirements of section 4980C(d)(1).

5 ‘‘(8) NONFORFEITURE REQUIREMENTS.—

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

7 this paragraph are met with respect to a long8 term care insurance policy, if the issuer of such

9 policy offers to the policyholder, including any

10 group policyholder, a nonforfeiture provision

11 meeting the requirements specified in subpara12 graph (B).

13 ‘‘(B) REQUIREMENTS OF PROVISION.—The

14 requirements specified in this subparagraph are

15 as follows:

16 ‘‘(i) The nonforfeiture provision shall

17 be appropriately captioned.

18 ‘‘(ii) The nonforfeiture provision shall

19 provide for a benefit available in the event

20 of a default in the payment of any pre21 miums and the amount of the benefit may

22 be adjusted subsequent to being initially

23 granted only as necessary to reflect

24 changes in claims, persistency, and interest

25 as reflected in changes in rates for pre-
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1 mium paying policies approved by the Sec2 retary for the same policy form.

3 ‘‘(iii) The nonforfeiture provision shall

4 provide at least 1 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 ‘‘(9) RATE STABILIZATION.—

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

12 this paragraph are met with respect to a long13 term care insurance policy, including any group

14 master policy, if—

15 ‘‘(i) such policy contains the minimum

16 rate guarantees specified in subparagraph

17 (B), and

18 ‘‘(ii) the issuer of such policy meets

19 the requirements specified in subparagraph

20 (C).

21 ‘‘(B) MINIMUM RATE GUARANTEES.—The

22 minimum rate guarantees specified in this sub23 paragraph are as follows:
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1 ‘‘(i) Rates under the policy shall be

2 guaranteed for a period of at least 3 years

3 from the date of issue of the policy.

4 ‘‘(ii) After the expiration of the 3-year

5 period required under clause (i), any rate

6 increase shall be guaranteed for a period of

7 at least 2 years from the effective date of

8 such rate increase.

9 ‘‘(iii) In the case of any individual age

10 75 or older who has maintained coverage

11 under a long-term care insurance policy for

12 10 years, rate increases under such policy

13 shall not exceed 10 percent in any 12-

14 month period.

15 ‘‘(C) INCREASES IN PREMIUMS.—The re16 quirements specified in this subparagraph are

17 as follows:

18 ‘‘(i) IN GENERAL.—If an issuer of a

19 long-term care insurance policy, including

20 any group master policy, plans to increase

21 the premium rates for a policy, such issuer

22 shall, at least 90 days before the effective

23 date of the rate increase, offer to each in24 dividual policyholder under such policy the

25 option to remain insured under the policy
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1 at a reduced level of benefits that main2 tains the premium rate at the rate in effect

3 on the day before the effective date of the

4 rate increase.

5 ‘‘(ii) INCREASES OF MORE THAN 50

6 PERCENT.—If an issuer of a long-term

7 care insurance policy, including any group

8 master policy, increases premium rates for

9 a policy by more than 50 percent in any 3-

10 year period—

11 ‘‘(I) in the case of an individual

12 long-term care insurance policy, the

13 issuer shall discontinue issuing all in14 dividual long-term care policies in any

15 State in which the issuer issues such

16 policy for a period of 2 years from the

17 effective date of such premium in18 crease, and

19 ‘‘(II) in the case of a group mas20 ter long-term care insurance policy,

21 the issuer shall discontinue issuing all

22 group master long-term care insur23 ance policies in any State in which the

24 issuer issues such policy for a period
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1 of 2 years from the effective date of

2 such premium increase.

3 This clause shall apply to any issuer of

4 long-term care insurance policies or any

5 other person that purchases or otherwise

6 acquires any long-term care insurance poli7 cies from another issuer or person.

8 ‘‘(D) MODIFICATIONS OR WAIVERS OF RE9 QUIREMENTS.—The Secretary may modify or

10 waive any of the requirements under this para11 graph if—

12 ‘‘(i) such requirements will adversely

13 affect an issuer’s solvency,

14 ‘‘(ii) such modification or waiver is re15 quired for the issuer to meet other State or

16 Federal requirements,

17 ‘‘(iii) medical developments, new dis18 abling diseases, changes in long-term care

19 delivery, or a new method of financing

20 long-term care will result in changes to

21 mortality and morbidity patterns or as22 sumptions,

23 ‘‘(iv) judicial interpretation of a pol24 icy’s benefit features results in unintended

25 claim liabilities, or
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1 ‘‘(v) in the case of a purchase or other

2 acquisition of long-term care insurance

3 policies of an issuer or other person, the

4 continued sale of other long-term care in5 surance policies by the purchasing issuer

6 or person is in the best interests of individ7 ual consumers.

8 ‘‘(10) LONG-TERM CARE INSURANCE POLICY

9 DEFINED.—

10 ‘‘(A) IN GENERAL.—For purposes of this

11 section, the term ‘long-term care insurance pol12 icy’ means any product which is advertised,

13 marketed, or offered as long-term care insur14 ance (as defined in subparagraph (B)).

15 ‘‘(B) LONG-TERM CARE INSURANCE.—

16 ‘‘(i) IN GENERAL.—The term ‘long17 term care insurance’ means any insurance

18 policy or rider—

19 ‘‘(I) advertised, marketed, of20 fered, or designed to provide coverage

21 for not less than 12 consecutive

22 months for each covered person on an

23 expense incurred, indemnity, prepaid

24 or other basis for 1 or more necessary

25 or medically necessary diagnostic, pre-
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1 ventive, therapeutic, rehabilitative,

2 maintenance, or personal care services

3 provided in a setting other than an

4 acute care unit of a hospital, and

5 ‘‘(II) issued by insurers, fraternal

6 benefit societies, nonprofit health, hos7 pital, and medical service corpora8 tions, prepaid health plans, health

9 maintenance organizations or any

10 similar organization to the extent such

11 organizations are otherwise authorized

12 to issue life or health insurance.

13 Such term includes group and individual annu14 ities and life insurance policies or riders which

15 provide directly or which supplement long-term

16 care insurance and includes a policy or rider

17 which provides for payment of benefits based on

18 cognitive impairment or the loss of functional

19 capacity.

20 ‘‘(ii) EXCLUSIONS.—The term ‘long21 term care insurance’ shall not include—

22 ‘‘(I) any insurance policy which

23 is offered primarily to provide basic

24 coverage to supplement coverage

25 under the medicare program under
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1 title XVIII of the Social Security Act,

2 basic hospital expense coverage, basic

3 medical-surgical expense coverage,

4 hospital confinement coverage, major

5 medical expense coverage, disability

6 income or related asset-protection cov7 erage, accident only coverage, speci8 fied disease or specified accident cov9 erage, or limited benefit health cov10 erage, or

11 ‘‘(II) life insurance policies—

12 ‘‘(aa) which accelerate the

13 death benefit specifically for 1 or

14 more of the qualifying events of

15 terminal illness or medical condi16 tions requiring extraordinary

17 medical intervention or perma18 nent institutional confinement,

19 ‘‘(bb) which provide the op20 tion of a lump-sum payment for

21 such benefits, and

22 ‘‘(cc) under which neither

23 such benefits nor the eligibility

24 for the benefits is conditioned
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1 upon the receipt of long-term

2 care.

3 ‘‘(11) NONREIMBURSEMENT PAYMENTS PER4 MITTED.—For purposes of subsection (a)(4), a pol5 icy is described in this paragraph if, under the pol6 icy, payments are made to (or on behalf of) an in7 sured individual on a per diem or other periodic

8 basis without regard to the expenses incurred or

9 services rendered during the period to which the

10 payments relate.

11 ‘‘(c) TREATMENT OF LONG-TERM CARE INSURANCE

12 POLICIES.—For purposes of this title, any amount re13 ceived or coverage provided under a long-term care insur14 ance policy that is not a qualified long-term care insurance

15 policy shall not be treated as an amount received for per16 sonal injuries or sickness or provided under an accident

17 and health plan and shall not be treated as excludable

18 from gross income under any provision of this title.

19 ‘‘(d) TREATMENT OF COVERAGE PROVIDED AS PART

20 OF A LIFE INSURANCE CONTRACT.—Except as otherwise

21 provided in regulations, in the case of any long-term care

22 insurance coverage provided by rider on a life insurance

23 contract, the following rules shall apply:
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1 ‘‘(1) IN GENERAL.—This section shall apply as

2 if the portion of the contract providing such cov3 erage is a separate contract or policy.

4 ‘‘(2) PREMIUMS AND CHARGES FOR LONG-TERM

5 CARE COVERAGE.—Premium payments for long-term

6 care insurance policy coverage and charges against

7 the life insurance contract’s cash surrender value

8 (within the meaning of section 7702(f)(2)(A)) for

9 such coverage, shall be treated as premiums for pur10 poses of subsection (b)(2).

11 ‘‘(3) APPLICATION OF 7702.—Section

12 7702(c)(2) (relating to the guideline premium limi13 tation) shall be applied by increasing, as of any date,

14 the guideline premium limitation with respect to a

15 life insurance contract by an amount equal to—

16 ‘‘(A) the sum of any charges (but not pre17 mium payments) described in paragraph (2)

18 made to that date under the contract, reduced

19 by

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

21 which reduces the premiums paid for the con22 tract (within the meaning of section

23 7702(f)(1)).

24 ‘‘(4) APPLICATION OF SECTION 213.—No deduc25 tion shall be allowed under section 213(a) for
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1 charges against the life insurance contract’s cash

2 surrender value described in paragraph (2), unless

3 such charges are includable in income as a result of

4 the application of section 72(e)(10) and the coverage

5 provided by the rider is a qualified long-term care

6 insurance policy under subsection (b).

7 For purposes of this subsection, the term ‘portion’ means

8 only the terms and benefits under a life insurance contract

9 that are in addition to the terms and benefits under the

10 contract without regard to the coverage under a qualified

11 long-term care insurance policy.

12 ‘‘(e) EMPLOYER PLANS NOT TREATED AS DE13 FERRED COMPENSATION PLANS.—For purposes of this

14 title, a plan of an employer providing coverage under a

15 qualified long-term care insurance policy shall not be

16 treated as a plan which provides for deferred compensa17 tion by reason of providing such coverage.

18 ‘‘(f) DOLLAR AMOUNT FOR PURPOSES OF GROSS IN19 COME EXCLUSION.—

20 ‘‘(1) DOLLAR AMOUNT.—

21 ‘‘(A) IN GENERAL.—The dollar amount in

22 effect under this subsection shall be $200 per

23 day.

24 ‘‘(B) INFLATION ADJUSTMENTS.—In the

25 case of any taxable year beginning in a calendar
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1 year after 1996, the dollar amount contained in

2 subparagraph (A) shall be increased by an

3 amount equal to—

4 ‘‘(i) such dollar amount, multiplied by

5 ‘‘(ii) the cost-of-living adjustment de6 termined under section 1(f)(3) for the cal7 endar year in which the taxable year be8 gins, by substituting ‘calendar year 1995’

9 for ‘calendar year 1992’ in subparagraph

10 (B) thereof.

11 ‘‘(2) AGGREGATION RULE.—For purposes of

12 this subsection, all policies issued with respect to the

13 same taxpayer shall be treated as 1 policy.

14 ‘‘(g) REGULATIONS.—The Secretary shall prescribe

15 such regulations as may be necessary to carry out the re16 quirements of this section, including regulations to prevent

17 the avoidance of this section by providing long-term care

18 insurance coverage under a life insurance contract and to

19 provide for the proper allocation of amounts between the

20 long-term care and life insurance portions of a contract.’’.

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

22 for chapter 79 is amended by inserting after the item re23 lating to section 7702A the following new item:

‘‘Sec. 7702B. Treatment of long-term care insurance.’’.

24 (c) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—The amendments made by

2 this section shall apply to policies issued after De3 cember 31, 1995. Solely for purposes of the preced4 ing sentence, a policy issued prior to January 1,

5 1996, that satisfies the requirements of a qualified

6 long-term care insurance policy as set forth in sec7 tion 7702B(b) of the Internal Revenue Code of 1986

8 (as added by this section) shall, on and after Janu9 ary 1, 1996, be treated as having been issued after

10 December 31, 1995.

11 (2) TRANSITION RULE.—If, after the date of

12 enactment of this Act and before January 1, 1996,

13 a policy providing for long-term care insurance cov14 erage is exchanged solely for a qualified long-term

15 care insurance policy (as defined in such section

16 7702B(b)), no gain or loss shall be recognized on

17 the exchange. If, in addition to a qualified long-term

18 care insurance policy, money or other property is re19 ceived in the exchange, then any gain shall be recog20 nized to the extent of the sum of the money and the

21 fair market value of the other property received. For

22 purposes of this paragraph, the cancellation of a pol23 icy providing for long-term care insurance coverage

24 and reinvestment of the cancellation proceeds in a
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1 qualified long-term care insurance policy within 60

2 days thereafter shall be treated as an exchange.

3 (3) ISSUANCE OF CERTAIN RIDERS PER4 MITTED.—For purposes of determining whether sec5 tion 7702 or 7702A of the Internal Revenue Code

6 of 1986 applies to any contract, the issuance, wheth7 er before, on, or after December 31, 1995, of a rider

8 on a life insurance contract providing long-term care

9 insurance coverage shall not be treated as a modi10 fication or material change of such contract.

11 SEC. 103. TREATMENT OF QUALIFIED LONG-TERM CARE

12 PLANS.

13 (a) EXCLUSION FROM COBRA CONTINUATION RE14 QUIREMENTS.—Subparagraph (A) of section 4980B(f)(2)

15 (defining continuation coverage) is amended by adding at

16 the end the following new sentence: ‘‘The coverage shall

17 not include coverage for qualified long-term care services

18 (as defined in section 213(f)).’’.

19 (b) BENEFITS INCLUDED IN CAFETERIA PLANS.—

20 Section 125(f) (defining qualified benefits) is amended by

21 adding at the end the following new sentence: ‘‘Such term

22 includes coverage under a qualified long-term care insur23 ance policy (as defined in section 7702B(b)) which is in24 cludible in gross income only because it exceeds the dollar

25 limitation of section 105(c)(2).’’.
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1 SEC. 104. TAX RESERVES FOR QUALIFIED LONG-TERM

2 CARE INSURANCE POLICIES.

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

4 807(d)(3) (relating to tax reserve methods) is amended

5 by redesignating clause (iv) as clause (v) and by inserting

6 after clause (iii) the following new clause:

7 ‘‘(iv) QUALIFIED LONG-TERM CARE

8 INSURANCE POLICIES.—In the case of any

9 qualified long-term care insurance policy

10 (as defined in section 7702B(b)), a 1 year

11 full preliminary term method, as prescribed

12 by the National Association of Insurance

13 Commissioners.’’.

14 (b) CONFORMING AMENDMENTS.—Section

15 807(d)(3)(A) (relating to tax reserve methods), is amend16 ed—

17 (1) in clause (v), as redesignated by subsection

18 (a), by striking ‘‘or (iii)’’ each place it appears and

19 inserting ‘‘(iii), or (iv)’’; and

20 (2) in clause (iii), by inserting ‘‘(other than a

21 qualified long-term care insurance policy)’’ after ‘‘in22 surance contract’’.
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1 SEC. 105. TAX TREATMENT OF ACCELERATED DEATH BENE2 FITS UNDER LIFE INSURANCE CONTRACTS.

3 Section 101 (relating to certain death benefits) is

4 amended by adding at the end the following new sub5 section:

6 ‘‘(g) TREATMENT OF CERTAIN ACCELERATED

7 DEATH BENEFITS.—

8 ‘‘(1) IN GENERAL.—For purposes of this sec9 tion, any amount distributed to an individual under

10 a life insurance contract on the life of an insured

11 who is a terminally ill individual (as defined in para12 graph (3)) shall be treated as an amount paid by

13 reason of the death of such insured.

14 ‘‘(2) NECESSARY CONDITIONS.—

15 ‘‘(A) IN GENERAL.—Paragraph (1) shall

16 not apply to any distribution unless—

17 ‘‘(i) the distribution is not less than

18 the present value (determined under sub19 paragraph (B)) of the reduction in the

20 death benefit otherwise payable in the

21 event of the death of the insured, and

22 ‘‘(ii) the percentage derived by divid23 ing the cash surrender value of the con24 tract, if any, immediately after the dis25 tribution by the cash surrender value of

26 the contract immediately before the dis-
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1 tribution is equal to or greater than the

2 percentage derived by dividing the death

3 benefit immediately after the distribution

4 by the death benefit immediately before the

5 distribution.

6 ‘‘(B) REDUCTION VALUE.—The present

7 value of the reduction in the death benefit oc8 curring by reason of the distribution shall be

9 determined by—

10 ‘‘(i) using as the discount rate a rate

11 not in excess of the highest rate set forth

12 in subparagraph (C), and

13 ‘‘(ii) assuming that the death benefit

14 (or the portion thereof) would have been

15 paid at the end of a period that is no more

16 than the insured’s life expectancy from the

17 date of the distribution or 12 months,

18 whichever is shorter.

19 ‘‘(C) RATES.—The rates set forth in this

20 subparagraph are the following:

21 ‘‘(i) the 90-day Treasury bill yield,

22 ‘‘(ii) the rate described as Moody’s

23 Corporate Bond Yield Average-Monthly

24 Average Corporates as published by

25 Moody’s Investors Service, Inc., or any
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1 successor thereto, for the calendar month

2 ending 2 months before the date on which

3 the rate is determined,

4 ‘‘(iii) the rate used to compute the

5 cash surrender values under the contract

6 during the applicable period plus 1 percent

7 per annum, and

8 ‘‘(iv) the maximum permissible inter9 est rate applicable to policy loans under

10 the contract.

11 ‘‘(3) TERMINALLY ILL INDIVIDUAL.—For pur12 poses of this subsection, the term ‘terminally ill indi13 vidual’ means an individual who, as determined by

14 the insurer on the basis of an acceptable certifi15 cation by a licensed physician, has an illness or

16 physical condition which can reasonably be expected

17 to result in death within 12 months of the date of

18 certification.

19 ‘‘(4) APPLICATION OF SECTION 72(e)(10).—For

20 purposes of section 72(e)(10) (relating to the treat21 ment of modified endowment contracts), section

22 72(e)(4)(A)(i) shall not apply to distributions de23 scribed in paragraph (1).’’.
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1 SEC. 106. TAX TREATMENT OF COMPANIES ISSUING QUALI2 FIED ACCELERATED DEATH BENEFIT RID3 ERS.

4 (a) QUALIFIED ACCELERATED DEATH BENEFIT RID5 ERS TREATED AS LIFE INSURANCE.—Section 818 (relat6 ing to other definitions and special rules) is amended by

7 adding at the end the following new subsection:

8 ‘‘(g) QUALIFIED ACCELERATED DEATH BENEFIT

9 RIDERS TREATED AS LIFE INSURANCE.—For purposes of

10 this part—

11 ‘‘(1) IN GENERAL.—Any reference to a life in12 surance contract shall be treated as including a ref13 erence to a qualified accelerated death benefit rider

14 on such contract.

15 ‘‘(2) QUALIFIED ACCELERATED DEATH BENE16 FIT RIDERS.—For purposes of this subsection, the

17 term ‘qualified accelerated death benefit rider’

18 means any rider on a life insurance contract which

19 provides for a distribution to an individual upon the

20 insured becoming a terminally ill individual (as de21 fined in section 101(g)(3)).’’.

22 (b) DEFINITIONS OF LIFE INSURANCE AND MODI23 FIED ENDOWMENT CONTRACTS.—Paragraph (5)(A) of

24 section 7702(f) (defining qualified additional benefits) is

25 amended by striking ‘‘or’’ at the end of clause (iv), by
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1 redesignating clause (v) as clause (vi), and by inserting

2 after clause (iv) the following new clause:

3 ‘‘(v) any qualified accelerated death

4 benefit rider (as defined in section 818(g)),

5 or’’.

6 (c) EFFECTIVE DATE.—

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

8 this section shall apply to contracts issued after

9 December 31, 1995.

10 (2) TRANSITIONAL RULE.—For purposes of de11 termining whether section 7702 or 7702A of the In12 ternal Revenue Code of 1986 applies to any con13 tract, the issuance, whether before, on, or after De14 cember 31, 1995, of a rider on a life insurance con15 tract permitting the acceleration of death benefits

16 (as described in section 101(g) of such Code (as

17 added by section 105)) shall not be treated as a

18 modification or material change of such contract.

19 TITLE II—STANDARDS FOR

20 LONG-TERM CARE INSURANCE

21 SEC. 201. NATIONAL LONG-TERM CARE INSURANCE ADVI22 SORY COUNCIL.

23 (a) IN GENERAL.—Congress shall appoint an advi24 sory board to be known as the National Long-Term Care
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1 Insurance Advisory Council (hereafter referred to in this

2 title as the ‘‘Advisory Council’’).

3 (b) MEMBERSHIP.—The Advisory Council shall con4 sist of 5 members, each of whom has substantial expertise

5 in matters relating to the provision and regulation of long6 term care insurance or long-term care financing and deliv7 ery systems.

8 (c) DUTIES.—The Advisory Council shall—

9 (1) provide advice, recommendations on the im10 plementation of standards for long-term care insur11 ance, and assistance to Congress on matters relating

12 to long-term care insurance as specified in this sec13 tion and as otherwise required by the Secretary of

14 Health and Human Services;

15 (2) collect, analyze, and disseminate informa16 tion relating to long-term care insurance in order to

17 increase the understanding of insurers, providers,

18 consumers, and regulatory bodies of the issues relat19 ing to, and to facilitate improvements in, such insur20 ance;

21 (3) develop educational models to inform the

22 public on the risks of incurring long-term care ex23 penses and private financing options available to

24 them; and
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1 (4) monitor the development of the long-term

2 care insurance market and advise Congress concern3 ing the need for statutory changes.

4 (d) ADMINISTRATION.—In order to carry out its re5 sponsibilities under this section, the Advisory Council is

6 authorized to—

7 (1) consult individuals and public and private

8 entities with experience and expertise in matters re9 lating to long-term care insurance;

10 (2) conduct meetings and hold hearings;

11 (3) conduct research (either directly or under

12 grant or contract);

13 (4) collect, analyze, publish, and disseminate

14 data and information (either directly or under grant

15 or contract); and

16 (5) develop model formats and procedures for

17 insurance products, and develop proposed standards,

18 rules and procedures for regulatory programs, as

19 appropriate.

20 (e) AUTHORIZATION OF APPROPRIATIONS.—There

21 are authorized to be appropriated, for activities of the Ad22 visory Council, $1,500,000 for fiscal year 1996, and each

23 subsequent year.
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1 SEC. 202. ADDITIONAL REQUIREMENTS FOR ISSUERS OF

2 LONG-TERM CARE INSURANCE POLICIES.

3 (a) IN GENERAL.—Chapter 43 is amended by adding

4 at the end the following new section:

5 ‘‘SEC. 4980C. FAILURE TO MEET REQUIREMENTS FOR

6 QUALIFIED LONG-TERM CARE INSURANCE

7 POLICIES.

8 ‘‘(a) GENERAL RULE.—There is hereby imposed on

9 the issuer of any qualified long-term care insurance policy

10 with respect to which any requirement of subsection (c)

11 or (d) is not met a tax in the amount determined under

12 subsection (b).

13 ‘‘(b) AMOUNT OF TAX.—

14 ‘‘(1) IN GENERAL.—

15 ‘‘(A) PER POLICY.—The amount of the tax

16 imposed by subsection (a) shall be $100 per

17 policy for each day any requirement of sub18 section (c) or (d) is not met with respect to the

19 policy.

20 ‘‘(B) LIMITATIONS.—

21 ‘‘(i) PER CARRIER.—The amount of

22 the tax imposed under subparagraph (A)

23 against any insurance carrier, association,

24 or any subsidiary thereof, shall not exceed

25 $25,000 per policy.
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1 ‘‘(ii) PER AGENT.—The amount of the

2 tax imposed under subparagraph (A)

3 against insurance agent or broker shall not

4 exceed $15,000 per policy.

5 ‘‘(2) WAIVER.—In the case of a failure which is

6 due to reasonable cause and not to willful neglect,

7 the Secretary may waive part or all of the tax im8 posed by subsection (a) to the extent that payment

9 of the tax would be excessive relative to the failure

10 involved.

11 ‘‘(c) ADDITIONAL RESPONSIBILITIES.—The require12 ments of this subsection with respect to any qualified long13 term care insurance policy are as follows:

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

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

16 requirements of the model regulation shall 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 (expended 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 qualified long-term

14 care insurance policy, misrepresent a

15 material 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 qualified long20 term care insurance has accident and

21 sickness insurance.

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(b)(6)(B).

24 ‘‘(2) DELIVERY OF POLICY.—If an application

25 for a qualified long-term care insurance policy (or
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1 for a certificate under a group qualified long-term

2 care insurance policy) is approved, the issuer shall

3 deliver to the applicant (or policyholder or certifi4 cate-holder) the policy (or certificate) of insurance

5 not later than 30 days after the date of the ap6 proval.

7 ‘‘(3) INFORMATION ON DENIALS OF CLAIMS.—

8 If a claim under a qualified long-term care insurance

9 policy is denied, the issuer shall, within 60 days of

10 the date of a written request by the policyholder or

11 certificate-holder (or representative)—

12 ‘‘(A) provide a written explanation of the

13 reasons for the denial, and

14 ‘‘(B) make available all information di15 rectly relating to such denial.

16 ‘‘(d) DISCLOSURE.—The requirements of this sub17 section are met with respect to any qualified long-term

18 care insurance policy if the following statement is promi19 nently displayed on the front page of the policy and in

20 the outline of coverage required under subsection

21 (c)(1)(B)(ii):

22 ‘‘‘This is a federally qualified long-term care in23 surance contract. The policy meets all the Federal

24 consumer protection standards necessary to receive
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1 favorable tax treatment under section 7702B(b) of

2 the Internal Revenue Code of 1986.’.

3 ‘‘(e) QUALIFIED LONG-TERM CARE INSURANCE POL4 ICY DEFINED.—For purposes of this section, the term

5 ‘qualified long-term care insurance policy’ has the mean6 ing given such term by section 7702B(b).’’.

7 (b) CONFORMING AMENDMENT.—The table of sec8 tions for chapter 43 is amended by adding at the end the

9 following new item:

‘‘Sec. 4980C. Failure to meet requirements for long-term care insurance policies.’’.

10 SEC. 203. COORDINATION WITH STATE REQUIREMENTS.

11 Nothing in this title shall be construed as preventing

12 a State from applying standards that provide greater pro13 tection of policyholders of qualified long-term care insur14 ance policies (as defined in section 7702B(b) of the Inter15 nal Revenue Code of 1986 (as added by section 102)).

16 SEC. 204. UNIFORM LANGUAGE AND DEFINITIONS.

17 (a) IN GENERAL.—Not later than June 30, 1996, the

18 Advisory Council shall promulgate standards for the use

19 of uniform language and definitions in qualified long-term

20 care insurance policies (as defined in section 7702B(b) of

21 the Internal Revenue Code of 1986 (as added by section

22 102)).

23 (b) VARIATIONS.—Standards under subsection (a)

24 may permit the use of nonuniform language to the extent
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1 required to take into account differences among States in

2 the licensing of nursing facilities and other providers of

3 long-term care.

4 TITLE III—INCENTIVES TO EN5 COURAGE THE PURCHASE OF

6 PRIVATE INSURANCE

7 SEC. 301. PUBLIC INFORMATION AND EDUCATION PRO8 GRAM.

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

10 Human Services shall establish a program designed to

11 educate individuals regarding—

12 (1) the risk of incurring catastrophic long-term

13 care costs;

14 (2) the coverage or lack of coverage of such

15 costs through Federal programs;

16 (3) the importance of planning for such costs;

17 and

18 (4) the benefits of securing long-term care in19 surance coverage.

20 (b) AUTHORIZATION OF APPROPRIATIONS.—There

21 are authorized to be appropriated such sums as may be

22 necessary to carry out the purposes of this section.

23 SEC. 302. ASSETS OR RESOURCES DISREGARDED UNDER

24 THE MEDICAID PROGRAM.

25 (a) MEDICAID ESTATE RECOVERIES.—
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1 (1) IN GENERAL.—Section 1917(b) of the So2 cial Security Act (42 U.S.C. 1396p(b)) is

3 amended—

4 (A) in paragraph (1), by striking subpara5 graph (C);

6 (B) in paragraph (3), by striking ‘‘(other

7 than paragraph (1)(C))’’; and

8 (C) in paragraph (4)(B), by striking ‘‘(and

9 shall include, in the case of an individual to

10 whom paragraph (1)(C)(i) applies)’’.

11 (2) EFFECTIVE DATE.—Section 1917(b) of the

12 Social Security Act (42 U.S.C. 1396p(b)) shall be

13 applied and administered as if the provisions strick14 en by paragraph (1) had not been enacted.

15 (b) REPORTING REQUIREMENTS FOR CERTAIN

16 ASSET PROTECTION PROGRAMS.—Section 1902 of the So17 cial Security Act (42 U.S.C. 1396a) is amended by adding

18 at the end the following new subsection:

19 ‘‘(aa)(1) The Secretary shall not approve any State

20 plan amendment providing for an asset protection pro21 gram (as described in paragraph (2)) unless the State re22 quires all insurers participating in such program to submit

23 reports to the State and the Secretary at such times, and

24 containing such information, as the Secretary determines

25 appropriate. The information included in the reports re-
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1 quired to be submitted under the preceding sentence shall

2 be submitted in accordance with the data standards estab3 lished by the Secretary under paragraph (3).

4 ‘‘(2) An asset protection program described in this

5 paragraph is a program under which an individual’s assets

6 and resources are disregarded for purposes of the program

7 under this title—

8 ‘‘(A) to the extent that payments are made

9 under a qualified long-term care insurance policy (as

10 defined in section 7702B(b) of the Internal Revenue

11 Code of 1986); or

12 ‘‘(B) because an individual has received (or is

13 entitled to receive) benefits under a qualified long14 term care insurance policy (as defined in section

15 7702B(b) of such Code).

16 ‘‘(3)(A) Not later than 90 days after the date of the

17 enactment of the Private Long-Term Care Family Protec18 tion Act of 1995, the Secretary shall select data standards

19 for the information required to be included in reports sub20 mitted in accordance with paragraph (1). Such data

21 standards shall be selected from the data standards in22 cluded in the Long-Term Care Insurance Uniform Data

23 Set developed by the University of Maryland Center on

24 Aging and Laguna Research Associates, and used by the

25 States of California, Connecticut, Indiana, and New York
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1 for reports submitted by insurers under the asset protec2 tion programs conducted by such States.

3 ‘‘(B) The Secretary shall modify the standards se4 lected under subparagraph (A) as the Secretary deter5 mines appropriate.’’.

6 SEC. 303. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT

7 ACCOUNTS FOR THE PURCHASE OF LONG8 TERM CARE INSURANCE COVERAGE.

9 (a) EXCLUSION FROM GROSS INCOME FOR CERTAIN

10 INDIVIDUALS.—Subsection (d) of section 408 (relating to

11 tax treatment of distributions from individual retirement

12 accounts) is amended by adding at the end the following

13 new paragraph:

14 ‘‘(8) DISTRIBUTIONS TO PURCHASE LONG-TERM

15 CARE INSURANCE.—Paragraph (1) shall not apply to

16 any amount paid or distributed out of an individual

17 retirement account or individual retirement annuity

18 to the individual for whose benefit the account or

19 annuity is maintained if—

‘‘(A) the individual has attained age 591 20 ⁄2

21 by the date of the payment or distribution, and

22 ‘‘(B) the entire amount received (including

23 money and any other property) is used within

24 90 days to purchase a qualified long-term care

25 insurance policy (as defined in section
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1 7702B(b)) for the benefit of the individual or

2 the spouse of the individual (if the spouse has

attained age 591 3 ⁄2 by the date of the payment

4 or distribution).’’.

5 (b) NO PENALTY FOR DISTRIBUTIONS.—

6 (1) IN GENERAL.—Subparagraph (B) of section

7 72(t)(2) (relating to distributions from qualified re8 tirement plans not subject to 10 percent additional

9 tax) is amended to read as follows:

10 ‘‘(B) MEDICAL EXPENSES.—

11 ‘‘(i) IN GENERAL.—Distributions

12 made to the employee (other than distribu13 tions described in clause (ii) or subpara14 graph (A) or (C)) to the extent such dis15 tributions do not exceed the amount allow16 able as a deduction under section 213 to

17 the employee for amounts paid during the

18 taxable year for medical care (determined

19 without regard to whether the employee

20 itemizes deductions for such taxable year).

21 ‘‘(ii) CERTAIN DISTRIBUTIONS TO

22 PURCHASE LONG-TERM CARE INSUR23 ANCE.—Distributions made to the taxpayer

24 out of an individual retirement plan if the

25 entire amount received (including money
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1 and any other property) is used within 90

2 days to purchase a qualified long-term care

3 insurance policy (as defined in section

4 7702B(b)) for the benefit of the individual

5 or the spouse of the individual.’’.

6 (2) CONFORMING AMENDMENT.—Subparagraph

7 (A) of section 72(t)(3) is amended by striking ‘‘(B)’’

8 and inserting ‘‘(B)(i)’’.

9 (c) DEDUCTION FOR EXPENSES TO PURCHASE A

10 QUALIFIED LONG-TERM CARE INSURANCE POLICY.—

11 (1) IN GENERAL.—Paragraph (8) of section

12 408(d) (relating to distributions from individual re13 tirement accounts to purchase long-term care insur14 ance), as added by subsection (a), is amended by

15 adding at the end the following new subparagraph:

16 ‘‘(D) APPLICATION OF SECTION 213.—No

17 deduction shall be allowed under section 213(a)

18 for expenses incurred to purchase a qualified

19 long-term care insurance policy (as defined in

20 section 7702B(b)) using amounts paid or dis21 tributed out of an individual retirement account

22 or individual retirement annuity in accordance

23 with this paragraph.’’.

24 (2) CONFORMING AMENDMENT.—Clause (ii) of

25 section 213(d)(1)(D) (relating to definition of medi-
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1 cal care), as added by section 101(a), is amended by

2 striking ‘‘section 7702(d)(4)’’ and inserting ‘‘section

3 408(d)(8)(D) or section 7702(d)(4)’’.

4 TITLE IV—EFFECTIVE DATE

5 SEC. 401. EFFECTIVE DATE OF TAX PROVISIONS.

6 Except as otherwise provided in this Act, the amend7 ments made by this Act to the Internal Revenue Code of

8 1986 shall apply to taxable years beginning after Decem9 ber 31, 1995.

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