II

104TH CONGRESS

1ST SESSION S. 411

To amend the Internal Revenue Code of 1986 to provide for the treatment

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

IN THE SENATE OF THE UNITED STATES

FEBRUARY 14 (legislative day, JANUARY 30), 1995

Ms. SNOWE 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

for the treatment of long-term care insurance, 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. TABLE OF CONTENTS.

4 The table of contents of this Act is as follows:

Section 1. Short title; table of contents.

TITLE I—TAX TREATMENT OF LONG-TERM CARE INSURANCE

Sec. 101. Treatment of long-term care insurance or plans.

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

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

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

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

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 Exclusion from gross income for amounts withdrawn from individual

retirement plans or 401(k) plans for long-term care insurance.
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Sec. 107. Tax treatment of accelerated death benefits under life insurance contracts.

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

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

in cafeteria plans.

Sec. 110. Effective date.

TITLE II—ESTABLISHMENT OF FEDERAL STANDARDS FOR LONGTERM CARE INSURANCE

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

TITLE III—DEDUCTION FOR CERTAIN EXPENSES FOR DEPENDENTS WITH ALZHEIMER’S DISEASE OR RELATED ORGANIC

BRAIN DISORDERS

Sec. 301. Deduction allowance for home health care and adult day and respite

care expenses of individuals for dependents with Alzheimer’s

disease or related organic brain disorders.

TITLE IV—DEPENDENT CARE CREDIT EXPANDED AND MADE

REFUNDABLE

Sec. 401. Dependent care tax credit expanded and made refundable.

1 TITLE I—TAX TREATMENT OF

2 LONG-TERM CARE INSURANCE

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

4 OR PLANS.

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

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

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

10 OR PLANS.

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

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

13 be treated as an accident or health insurance con14 tract,
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1 ‘‘(2) amounts received under such a contract

2 with respect to qualified long-term care services shall

3 be treated as amounts received for personal injuries

4 or sickness, and

5 ‘‘(3) any plan of an employer providing quali6 fied long-term care services shall be treated as an

7 accident or health plan.

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

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

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

11 any insurance contract issued if—

12 ‘‘(A) the only insurance protection pro13 vided under such contract is coverage of quali14 fied long-term care services and benefits inci15 dental to such coverage,

16 ‘‘(B) the maximum benefit under the pol17 icy (or certificate for a group long-term care in18 surance policy) for expenses incurred for any

19 day does not exceed $200,

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

21 incurred for services or items to the extent that

22 such expenses are reimbursable under title

23 XVIII of the Social Security Act or would be so

24 reimbursable but for the application of a de25 ductible or coinsurance amount,
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1 ‘‘(D) such contract is guaranteed renew2 able,

3 ‘‘(E) such contract does not have any cash

4 surrender value, and

5 ‘‘(F) all refunds of premiums, and all pol6 icyholder dividends or similar amounts, under

7 such contract are to be applied as a reduction

8 in future premiums or to increase future bene9 fits.

10 ‘‘(2) SPECIAL RULES.—

11 ‘‘(A) CONTRACT MAY COVER MEDICARE

12 REIMBURSABLE EXPENSES WHERE MEDICARE

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

14 not apply to expenses which are reimbursable

15 under title XVIII of the Social Security Act

16 only as a secondary payor.

17 ‘‘(B) REFUNDS OF PREMIUMS.—Para18 graph (1)(F) shall not apply to any refund of

19 premiums on surrender or cancellation of the

20 contract.

21 ‘‘(C) PER DIEM, ETC. PAYMENTS PER22 MITTED.—A contract shall not fail to be treated

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

24 payments being made on a per diem or other

25 periodic basis without regard to the expenses
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1 incurred or services rendered during the period

2 to which the payments relate.

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

4 purposes of this section:

5 ‘‘(1) IN GENERAL.—The term ‘qualified long6 term care services’ means—

7 ‘‘(A) necessary diagnostic, preventive,

8 therapeutic, and rehabilitative services, and

9 maintenance or personal care services, which—

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

11 individual in a qualified facility, and

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

13 of care prescribed by a licensed health care

14 practitioner; or

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

16 other periodic basis without regard to the ex17 penses incurred or services rendered during the

18 period to which the payments relate and which

19 are payable to a chronically ill individual in a

20 qualified facility who is receiving treatment pur21 suant to a plan of care prescribed by a licensed

22 health care practitioner.

23 ‘‘(2) CHRONICALLY ILL INDIVIDUAL.—

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

25 ill individual’ means any individual who has
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1 been certified by a licensed health care practi2 tioner as—

3 ‘‘(i)(I) being unable to perform (with4 out substantial assistance from another in5 dividual) at least 2 activities of daily living

6 (as defined in subparagraph (B)) for a pe7 riod of at least 90 days due to a loss of

8 functional capacity, or

9 ‘‘(II) having a level of disability simi10 lar (as determined by the Secretary in con11 sultation with the Secretary of Health and

12 Human Services) to the level of disability

13 described in subclause (I), or

14 ‘‘(ii) having a similar level of disabil15 ity due to cognitive impairment.

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

17 purposes of subparagraph (A), each of the fol18 lowing is an activity of daily living:

19 ‘‘(i) MOBILITY.—The process of walk20 ing or wheeling on a level surface which

21 may include the use of an assistive device

22 such as a cane, walker, wheelchair, or

23 brace.
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1 ‘‘(ii) DRESSING.—The overall complex

2 behavior of getting clothes from closets

3 and drawers and then getting dressed.

4 ‘‘(iii) TOILETING.—The act of going

5 to the toilet room for bowel and bladder

6 function, transferring on and off the toilet,

7 cleaning after elimination, and arranging

8 clothes or the ability to voluntarily control

9 bowel and bladder function, or in the event

10 of incontinence, the ability to maintain a

11 reasonable level of personal hygiene.

12 ‘‘(iv) TRANSFER.—The process of get13 ting in and out of bed or in and out of a

14 chair or wheelchair.

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

16 food from a plate or its equivalent into the

17 mouth.

18 ‘‘(3) QUALIFIED FACILITY.—The term ‘quali19 fied facility’ means—

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

21 adult day care facility (including a hospital, re22 tirement home, nursing home, skilled nursing

23 facility, intermediate care facility, or similar in24 stitution)—
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1 ‘‘(i) which is licensed under State law,

2 or

3 ‘‘(ii) which is a certified facility for

4 purposes of title XVIII or XIX of the So5 cial Security Act, or

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

7 health care practitioner certifies that without

8 home care the individual would have to be cared

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

10 ‘‘(4) MAINTENANCE OR PERSONAL CARE SERV11 ICES.—The term ‘maintenance or personal care serv12 ices’ means any care the primary purpose of which

13 is to provide needed assistance with any of the ac14 tivities of daily living described in paragraph (2)(B).

15 ‘‘(5) LICENSED HEALTH CARE PRACTI16 TIONER.—The term ‘licensed health care practi17 tioner’ means any physician (as defined in section

18 1861(r) of the Social Security Act) and any reg19 istered professional nurse, licensed social worker, or

20 other individual who meets such requirements as

21 may be prescribed by the Secretary.

22 ‘‘(d) CONTINUATION COVERAGE EXCISE TAX NOT

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

24 whether section 4980B (relating to failure to satisfy con-
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1 tinuation coverage requirements of group health plans) ap2 plies.

3 ‘‘(e) INFLATION ADJUSTMENT OF $200 BENEFIT

4 LIMIT.—

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

6 year after 1996, the $200 amount contained in sub7 section (b)(1)(B) shall be increased for such cal8 endar year by the medical care cost adjustment for

9 such calendar year or 5 percent per year, whichever

10 is greater. If any increase determined under the pre11 ceding sentence is not a multiple of $10, such in12 crease shall be rounded to the nearest multiple of

13 $10.

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

15 purposes of paragraph (1), the medical care cost ad16 justment for any calendar year is the percentage (if

17 any) by which—

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

19 Consumer Price Index (as defined in section

20 1(f)(5)) for August of the preceding calendar

21 year, exceeds

22 ‘‘(B) such component for August of

23 1995.’’.
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1 (b) CLERICAL AMENDMENT.—The table of sections

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

3 relating to section 818 the following new item:

‘‘Sec. 818A. Treatment of long-term care insurance or plans.’’.

4 SEC. 102. EXCLUSION FOR BENEFITS PROVIDED UNDER

5 LONG-TERM CARE INSURANCE; INCLUSION

6 OF EMPLOYER-PROVIDED COVERAGE.

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

8 the Internal Revenue Code of 1986 (relating to compensa9 tion for injuries or sickness) is amended by striking ‘‘and’’

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

11 end of paragraph (5) and inserting ‘‘, and’’, and by insert12 ing after paragraph (4) the following new paragraph:

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

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

15 (b) INCLUSION OF EMPLOYER-PROVIDED COV16 ERAGE.—Section 106 of such Code (relating to contribu17 tions by employer to accident and health plans) is amend18 ed by adding at the end thereof the following sentence:

19 ‘‘The preceding sentence shall not apply to any plan pro20 viding coverage for qualified long-term care services.’’.

21 SEC. 103. CREDIT FOR QUALIFIED LONG-TERM CARE PRE22 MIUMS.

23 (a) GENERAL RULE.—Subpart C of part IV of sub24 chapter A of chapter 1 of the Internal Revenue Code of

25 1986 (relating to refundable credits) is amended by redes-
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1 ignating section 35 as section 36 and by inserting after

2 section 34 the following new section:

3 ‘‘SEC. 35. LONG-TERM CARE INSURANCE CREDIT.

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

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

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

7 the applicable percentage of the eligible long-term care

8 premiums paid during such taxable year for such individ9 ual or the spouse of such individual.

10 ‘‘(b) APPLICABLE PERCENTAGE.—

11 ‘‘(1) IN GENERAL.—For purposes of this sec12 tion, the term ‘applicable percentage’ means 31 per13 cent reduced (but not below zero) by 1 percentage

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

15 the taxpayer’s adjusted gross income for the taxable

16 year exceeds the base amount.

17 ‘‘(2) BASE AMOUNT.—For purposes of para18 graph (1), the term ‘base amount’ means—

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

20 paragraph, $25,000,

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

22 and

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

24 ‘‘(i) is married at the close of the tax25 able year (within the meaning of section
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1 7703) but does not file a joint return for

2 such taxable year, and

3 ‘‘(ii) does not live apart from his or

4 her spouse at all times during the taxable

5 year.

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

7 ‘‘(1) IN GENERAL.—For purposes of this sec8 tion, the term ‘eligible long-term care premiums’

9 means the amount paid during a taxable year for

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

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

12 such amount does not exceed the limitation deter13 mined under the following table:

‘‘In the case of an individual

with an attained age before the The limitation

close of the taxable year of: is:

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

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

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

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

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

14 ‘‘(2) INDEXING.—

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

16 taxable year beginning in a calendar year after

17 1996, each dollar amount contained in para18 graph (1) shall be increased by the medical care

19 cost adjustment of such amount for such cal20 endar year. If any increase determined under

21 the preceding sentence is not a multiple of $10,
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1 such increase shall be rounded to the nearest

2 multiple of $10.

3 ‘‘(B) MEDICAL CARE COST ADJUST4 MENT.—For purposes of subparagraph (A), the

5 medical care cost adjustment for any calendar

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

7 ‘‘(i) the medical care component of

8 the Consumer Price Index (as defined in

9 section 1(f)(5)) for August of the preced10 ing calendar year, exceeds

11 ‘‘(ii) such component for August of

12 1995.

13 ‘‘(d) COORDINATION WITH MEDICAL EXPENSE DE14 DUCTION.—Any amount allowed as a credit under this

15 section shall not be taken into account under section

16 213.’’.

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

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

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

20 section 35 and inserting the following:

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

‘‘Sec. 36. Overpayments of tax.’’.

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

22 MEDICAL CARE.

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

24 213(d) of the Internal Revenue Code of 1986 (defining
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1 medical care) is amended by striking ‘‘or’’ at the end of

2 subparagraph (B), by redesignating subparagraph (C) as

3 subparagraph (D), and by inserting after subparagraph

4 (B) the following new subparagraph:

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

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

7 (b) DEDUCTION FOR LONG-TERM CARE EXPENSES

8 FOR PARENT OR GRANDPARENT.—Section 213 of such

9 Code (relating to deduction for medical expenses) is

10 amended by adding at the end the following new sub11 section:

12 ‘‘(f) SPECIAL RULE FOR CERTAIN LONG-TERM CARE

13 EXPENSES.—For purposes of subsection (a), the term ‘de14 pendent’ shall include any parent or grandparent of the

15 taxpayer for whom the taxpayer has expenses for long16 term care services described in section 818A(c), but only

17 to the extent of such expenses.’’.

18 (c) TECHNICAL AMENDMENTS.—

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

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

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

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

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

24 Code is amended by adding at the end the following

25 new flush sentence:
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1 ‘‘In the case of a long-term care insurance contract

2 (as defined in section 818A), only eligible long-term

3 care premiums (as defined in section 35(c)) shall be

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

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

6 Code is amended—

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

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

9 and (C)’’, and

10 (B) by striking ‘‘paragraph (1)(C)’’ in sub11 paragraph (A) and inserting ‘‘paragraph

12 (1)(D)’’.

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

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

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

16 and (C)’’.

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

18 INSURANCE CONTRACTS.

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

20 807(d)(3) of the Internal Revenue Code of 1986 (relating

21 to tax reserve method) is amended—

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

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

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

25 ‘‘(iii), or (iv), and
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1 (3) by inserting after clause (iii) the following

2 new clause:

3 ‘‘(iv) LONG-TERM CARE INSURANCE

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

5 care insurance contract, a one-year full

6 preliminary term method.’’.

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

8 807(d)(3)(A) of such Code is amended by inserting ‘‘other

9 than a long-term care insurance contract,’’ after ‘‘con10 tract,’’.

11 SEC. 106. EXCLUSION FROM GROSS INCOME FOR AMOUNTS

12 WITHDRAWN FROM INDIVIDUAL RETIRE13 MENT PLANS OR 401(k) PLANS FOR LONG14 TERM CARE INSURANCE.

15 (a) IN GENERAL.—Part III of subchapter B of chap16 ter 1 of the Internal Revenue Code of 1986 (relating to

17 items specifically excluded from gross income) is amended

18 by redesignating section 137 as section 138 and by insert19 ing after section 136 the following new section:

20 ‘‘SEC. 137. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT

21 ACCOUNTS AND SECTION 401(k) PLANS FOR

22 LONG-TERM CARE INSURANCE.

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

24 gross income of an individual for the taxable year by rea-
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1 son of qualified distributions during such taxable year

2 shall not exceed the excess of—

3 ‘‘(1) the amount which would (but for this sec4 tion) be so includible by reason of such distributions,

5 over

6 ‘‘(2) the aggregate premiums paid by such indi7 vidual during such taxable year for any long-term

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

9 for the benefit of such individual or the spouse of

10 such individual.

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

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

13 distribution to an individual from an individual retirement

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

attained age 591 15 ⁄2 on or before the date of the distribution

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

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

spouse has attained age 591 18 ⁄2 on or before the date of the

19 distribution).

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

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

22 term ‘individual retirement account’ has the mean23 ing given such term by section 408(a).

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

25 401(k) plan’ means any employer plan which meets
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1 the requirements of section 401(a) and which in2 cludes a qualified cash or deferred arrangement (as

3 defined in section 401(k)).

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

5 ‘‘(1) WITHDRAWALS CANNOT EXCEED ELEC6 TIVE CONTRIBUTIONS UNDER QUALIFIED CASH OR

7 DEFERRED ARRANGEMENT.—This section shall not

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

9 to the extent the aggregate amount of such distribu10 tions for the use described in subsection (a) exceeds

11 the aggregate employer contributions made pursuant

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

13 ‘‘(2) WITHDRAWALS NOT TO CAUSE DISQUALI14 FICATION.—A plan shall not be treated as failing to

15 satisfy the requirements of section 401, and an ar16 rangement shall not be treated as failing to be a

17 qualified cash or deferred arrangement (as defined

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

19 or arrangement distributions are permitted which

20 are excludable from gross income by reason of this

21 section.’’.

22 (b) CONFORMING AMENDMENTS.—

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

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

‘‘For provision permitting tax-free withdrawals

for payment of long-term care premiums, see section

137.’’.

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

3 adding at the end the following new paragraph:

4 ‘‘(8) CROSS REFERENCE.—

‘‘For provision permitting tax-free withdrawals

from individual retirement accounts for payment of

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

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

6 amended by striking the last item and inserting the

7 following new items:

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

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

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

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

10 Section 101 of the Internal Revenue Code of 1986

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

12 at the end the following new subsection:

13 ‘‘(g) TREATMENT OF CERTAIN ACCELERATED

14 DEATH BENEFITS.—

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

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

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

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

3 to a qualified facility (as defined in section

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

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

6 death of such insured.

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

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

12 death in 12 months or fewer.

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

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

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

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

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

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

2 RIDERS TREATED AS LIFE INSURANCE.—For purposes of

3 this part:

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

7 on such contract.

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

10 term ‘qualified accelerated death benefit rider’

11 means any rider or addendum on, or other provision

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

14 such insured—

15 ‘‘(A) becoming a terminally ill individual

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

17 ‘‘(B) becoming a chronically ill individual

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

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

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

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

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

3 following new clause:

4 ‘‘(v) any qualified accelerated death

5 benefit rider (as defined in section

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

7 contract rider which reduces the death

8 benefit, or’’.

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

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

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

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

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

19 modification or material change of such contract.

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

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

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

2 the end the following new subparagraph:

3 ‘‘(D) EXCEPTION FOR LONG-TERM CARE

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

6 providing deferred compensation by reason of

7 providing any long-term care insurance contract

8 (as defined in section 818A(b)) if—

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

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

14 does not exceed the premium which would

15 have been payable for such year under a

16 level premium structure.’’.

17 SEC. 110. EFFECTIVE DATE.

18 The amendments made by this title shall apply to tax19 able years beginning after December 31, 1995.
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1 TITLE II—ESTABLISHMENT OF

2 FEDERAL STANDARDS FOR

3 LONG-TERM CARE INSUR4 ANCE

5 SEC. 201. ESTABLISHMENT OF FEDERAL STANDARDS FOR

6 LONG-TERM CARE INSURANCE.

7 The Public Health Service Act (42 U.S.C. 201 et

8 seq.) is amended by adding at the end the following new

9 title:

10 ‘‘TITLE XXVII—LONG-TERM CARE

11 INSURANCE STANDARDS

12 ‘‘PART A—PROMULGATION OF STANDARDS AND MODEL

13 BENEFITS

14 ‘‘SEC. 2701. STANDARDS.

15 ‘‘(a) APPLICATION OF STANDARDS.—

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

17 the National Association of Insurance Commis18 sioners (hereafter in this title referred to as the

19 ‘NAIC’)—

20 ‘‘(A) develop specific standards that incor21 porate the requirements of this title; and

22 ‘‘(B) report to the Secretary on such

23 standards,

24 by not later than 12 months after the date of enact25 ment of this title. If the NAIC develops such stand-
25

•S 411 IS

1 ards that incorporate the requirements of this title

2 within such period and the Secretary finds that such

3 standards implement the requirements of this title,

4 such standards shall be the standards applied under

5 this title.

6 ‘‘(2) DEFAULT.—If the NAIC does not promul7 gate the standards under paragraph (1) by the dead8 line established in that paragraph, the Secretary

9 shall promulgate, within 12 months after such dead10 line, a regulation that provides standards that incor11 porate the requirements of this title and such stand12 ards shall apply as provided for in this title.

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

14 this title shall be construed as preventing a State

15 from applying standards that provide greater protec16 tion to policyholders of long-term care insurance

17 policies than the standards promulgated under this

18 title, except that such State standards may not be

19 inconsistent or in conflict with any of the require20 ments of this title.

21 ‘‘(b) DEADLINE FOR APPLICATION OF STAND22 ARDS.—

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

24 the date specified in this subsection for a State is—
26

•S 411 IS

1 ‘‘(A) the date the State adopts the stand2 ards established under subsection (a)(1); or

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

4 day of the first regular legislative session that

5 begins after the date such standards are first

6 established under subsection (a)(2);

7 whichever is earlier.

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

9 case of a State which the Secretary identifies, in

10 consultation with the NAIC, as—

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

12 legislation appropriating funds) in order for the

13 standards established under subsection (a) to be

14 applied; but

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

16 scheduled to meet within 1 year following the

17 beginning of the next regular legislative session

18 in which such legislation may be considered;

19 the date specified in this subsection is the first day

20 of the first calendar quarter beginning after the

21 close of the first legislative session of the State legis22 lature that begins on or after January 1, 1995. For

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

24 State that has a 2-year legislative session, each year
27

•S 411 IS

1 of such session shall be deemed to be a separate reg2 ular session of the State legislature.

3 ‘‘(c) ITEMS INCLUDED IN STANDARDS.—The stand4 ards promulgated under subsection (a) shall include—

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

6 care insurance consistent with the provisions of this

7 title;

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

9 consumers with long-term care insurance;

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

11 standards established under paragraph (1) in a

12 manner consistent with future laws to expand exist13 ing Federal or State long-term care benefits or es14 tablish a comprehensive Federal or State long-term

15 care benefit program; and

16 ‘‘(4) other activities determined appropriate by

17 Congress.

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

19 models of benefits under this section, the Secretary shall

20 provide for and consult with an advisory committee to be

21 chosen by the Secretary, and composed of—

22 ‘‘(1) three individuals who are representatives

23 of carriers;

24 ‘‘(2) three individuals who are representatives

25 of consumer groups;
28

•S 411 IS

1 ‘‘(3) three individuals who are representatives

2 of providers of long-term care services;

3 ‘‘(4) three other individuals who are not rep4 resentatives of carriers or of providers of long-term

5 care services and who have expertise in the delivery

6 and financing of such services; and

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

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

9 under subsection (d) shall—

10 ‘‘(1) recommend the appropriate inflationary

11 index to be used with respect to the inflation protec12 tion benefit portion of the standards;

13 ‘‘(2) recommend the uniform needs assessment

14 mechanism to be used in determining the eligibility

15 of individuals for benefits under a policy;

16 ‘‘(3) recommend appropriate standards for ben17 efits under section 2715(c); and

18 ‘‘(4) perform such other activities as deter19 mined appropriate by the Secretary.

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

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

22 shall apply to the advisory committee chosen under sub23 section (d) in the same manner as such provisions apply

24 under such section:
29

•S 411 IS

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

2 administration).

3 ‘‘(2) Subparagraph (D) (relating to compensa4 tion of members).

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

6 information).

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

8 funds).

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

10 GAO audits).

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

12 appropriations).

13 ‘‘PART B—ESTABLISHMENT AND IMPLEMENTATION OF

14 LONG-TERM CARE INSURANCE POLICY STANDARDS

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

16 ‘‘(a) IN GENERAL.—

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

18 care policy (as defined in section 2721) may be is19 sued, sold, or offered for sale as a long-term care in20 surance policy in a State on or after the date speci21 fied in section 2701(b) unless—

22 ‘‘(A) the Secretary determines that the

23 State has established a regulatory program

24 that—
30

•S 411 IS

1 ‘‘(i) provides for the application and

2 enforcement of the standards established

3 under section 2701(a); and

4 ‘‘(ii) complies with the requirements

5 of subsection (b);

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

7 the policy has been approved by the State com8 missioner or superintendent of insurance under

9 such program; or

10 ‘‘(B) in the case of a State that has not es11 tablished such a program, or a State whose reg12 ulatory program has been decertified, the policy

13 has been certified by the Secretary (in accord14 ance with such procedures as the Secretary may

15 establish) as meeting the standards established

16 under section 2701(a) by the date specified in

17 section 2701(b).

18 For purposes of this subsection, the advertising or

19 soliciting with respect to a policy, directly or indi20 rectly, shall be deemed the offering for sale of the

21 policy.

22 ‘‘(2) REVIEW OF STATE REGULATORY PRO23 GRAMS.—The Secretary periodically shall review reg24 ulatory programs described in paragraph (1)(A) to

25 determine if they continue to provide for the applica-
31

•S 411 IS

1 tion and enforcement of the standards and proce2 dures established under subsections (a) and (b) of

3 section 2701. If the Secretary determines that a

4 State regulatory program no longer meets such

5 standards and requirements, before making a final

6 determination, the Secretary shall provide the State

7 an opportunity to adopt such a plan of correction as

8 would permit the program to continue to meet such

9 standards and requirements. If the Secretary makes

10 a final determination that the State regulatory pro11 gram, after such an opportunity, fails to meet such

12 standards and requirements, the Secretary shall as13 sume responsibility under paragraph (1)(B) with re14 spect to certifying policies in the State and shall ex15 ercise full authority under section 2701 for carriers,

16 agents, or associations or its subsidiary in the State

17 plans in the State.

18 ‘‘(b) ADDITIONAL REQUIREMENTS FOR APPROVAL

19 OF STATE REGULATORY PROGRAMS.—For purposes of

20 subsection (a)(1)(A)(ii), the requirements of this sub21 section for a State regulatory program are as follows:

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

23 the program—

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

25 to secure compliance with the standards within
32

•S 411 IS

1 30 days after the date of a finding of non2 compliance with such standards; and

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

4 report required under paragraph (5) to the Sec5 retary of cases where such compliance is not se6 cured within such 30-day period.

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

8 under each State regulatory program shall provide

9 for—

10 ‘‘(A) procedures for individuals and enti11 ties to file written, signed complaints respecting

12 alleged violations of the standards;

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

14 complaints;

15 ‘‘(C) the investigation of—

16 ‘‘(i) those complaints which have a

17 reasonable probability of validity, and

18 ‘‘(ii) such other alleged violations of

19 the standards as the program finds appro20 priate; and

21 ‘‘(D) the imposition of appropriate sanc22 tions (which include, in appropriate cases, the

23 imposition of a civil money penalty as provided

24 for in section 2718) in the case of a carrier,
33

•S 411 IS

1 agent, or association or its subsidiary deter2 mined to have violated the standards.

3 ‘‘(3) CONSUMER ACCESS TO COMPLIANCE IN4 FORMATION.—

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

6 program must provide for consumer access to

7 complaints filed with the State commissioner or

8 superintendent of insurance with respect to

9 long-term care insurance policies.

10 ‘‘(B) CONFIDENTIALITY.—The access pro11 vided under subparagraph (A) shall be limited

12 to the extent required to protect the confiden13 tiality of the identity of individual policyholders.

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

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

16 program shall—

17 ‘‘(i) provide for a process for approv18 ing or disapproving proposed premium in19 creases or decreases with respect to long20 term care insurance policies; and

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

22 consideration of public comments before

23 approving such a premium increase or de24 crease.
34

•S 411 IS

1 ‘‘(B) CONDITIONS FOR APPROVAL.—No

2 premium increase shall be approved (or deemed

3 approved) under subparagraph (A) unless the

4 proposed increase is accompanied by an actuar5 ial memorandum which—

6 ‘‘(i) includes a description of the as7 sumptions that justify the increase;

8 ‘‘(ii) contains such information as

9 may be required under the Standards; and

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

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

12 subparagraph (D), this paragraph shall not

13 apply to a group long-term care insurance pol14 icy issued to a group described in section

15 4(E)(1) of the NAIC Long Term Care Insur16 ance Model Act (effective January 1991), ex17 cept that such group policy shall, pursuant to

18 guidelines developed by the NAIC, provide no19 tice to policyholders and certificate holders of

20 any premium change under such group policy.

21 ‘‘(D) EXCEPTION.—Subparagraph (C)

22 shall not apply to—

23 ‘‘(i) group conversion policies;

24 ‘‘(ii) the group continuation feature of

25 a group policy if the insurer separately
35

•S 411 IS

1 rates employee and continuation coverages;

2 and

3 ‘‘(iii) group policies where the func4 tion of the employer is limited solely to col5 lecting premiums (through payroll deduc6 tions or dues checkoff) and remitting them

7 to the insurer.

8 ‘‘(E) CONSTRUCTION.—Nothing in this

9 paragraph shall be construed as preventing the

10 NAIC from promulgating standards, or a State

11 from enacting and enforcing laws, with respect

12 to premium rates or loss ratios for all, including

13 group, long-term care insurance policies.

14 ‘‘(5) ANNUAL REPORTS.—Each State regu15 latory program shall provide for annual reports to be

16 submitted to the Secretary on the implementation

17 and enforcement of the standards in the State, in18 cluding information concerning violations in excess

19 of 30 days.

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

21 State regulatory program must provide for consumer

22 access to actuarial memoranda provided under para23 graph (4).

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

25 a regulatory program approved under subsection (a),
36

•S 411 IS

1 the Secretary shall provide for the enforcement ac2 tivities described in subsection (c).

3 ‘‘(c) SECRETARIAL ENFORCEMENT AUTHORITY.—

4 ‘‘(1) IN GENERAL.—The Secretary shall exer5 cise authority under this section in the case of a

6 State that does not have a regulatory program ap7 proved under this section.

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

9 Secretary shall establish procedures—

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

11 written, signed complaints respecting alleged

12 violations of the requirements of this title;

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

14 such complaints; and

15 ‘‘(C) for the investigation of—

16 ‘‘(i) those complaints that have a rea17 sonable probability of validity; and

18 ‘‘(ii) such other alleged violations of

19 the requirements of this title as the Sec20 retary determines to be appropriate.

21 In conducting investigations under this subsection,

22 agents of the Secretary shall have reasonable access

23 necessary to enable such agents to examine evidence

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

25 being investigated.
37

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1 ‘‘(3) HEARINGS.—

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

3 order described in paragraph (4) against a car4 rier, agent, or association or its subsidiary

5 under this section for a violation of the require6 ments of this title, the Secretary shall provide

7 the carrier, agent, association or subsidiary

8 with notice and, upon request made within a

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

10 established by the Secretary by regulation) of

11 the date of the notice, a hearing respecting the

12 violation.

13 ‘‘(B) CONDUCT OF HEARING.—Any hear14 ing requested under subparagraph (A) shall be

15 conducted before an administrative law judge.

16 If no hearing is so requested, the Secretary’s

17 imposition of the order shall constitute a final

18 and unappealable order.

19 ‘‘(C) AUTHORITY IN HEARINGS.—In con20 ducting hearings under this paragraph—

21 ‘‘(i) agents of the Secretary and ad22 ministrative law judges shall have reason23 able access necessary to enable such agents

24 and judges to examine evidence of any car-
38

•S 411 IS

1 rier, agent, or association or its subsidiary

2 being investigated; and

3 ‘‘(ii) administrative law judges may, if

4 necessary, compel by subpoena the attend5 ance of witnesses and the production of

6 evidence at any designated place or hear7 ing.

8 In case of contumacy or refusal to obey a sub9 poena lawfully issued under this subparagraph

10 and upon application of the Secretary, an ap11 propriate district court of the United States

12 may issue an order requiring compliance with

13 such subpoena and any failure to obey such

14 order may be punished by such court as a con15 tempt thereof.

16 ‘‘(D) ISSUANCE OF ORDERS.—If an admin17 istrative law judge determines in a hearing

18 under this paragraph, upon the preponderance

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

20 or association or its subsidiary named in the

21 complaint has violated the requirements of this

22 title, the administrative law judge shall state

23 the findings of fact and issue and cause to be

24 served on such carrier, agent, association, or

25 subsidiary an order described in paragraph (4).
39

•S 411 IS

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

2 MONEY PENALTY.—

3 ‘‘(A) IN GENERAL.—Subject to the provi4 sions of subparagraphs (B) through (F), an

5 order under this paragraph—

6 ‘‘(i) shall require the agent, associa7 tion or its subsidiary, or a carrier—

8 ‘‘(I) to cease and desist from

9 such violations; and

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

11 amount not to exceed $15,000 in the

12 case of each agent, and not to exceed

13 $25,000 for each association or its

14 subsidiary or a carrier for each such

15 violation; and

16 ‘‘(ii) may require the agent, associa17 tion or its subsidiary, or a carrier to take

18 such other remedial action as is appro19 priate.

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

21 order shall be imposed under this paragraph by

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

23 association or its subsidiary establishes to the

24 satisfaction of the Secretary that—
40

•S 411 IS

1 ‘‘(i) such violation was due to reason2 able cause and was not intentional and was

3 not due to willful neglect; and

4 ‘‘(ii) such violation is corrected within

5 the 30-day period beginning on the earliest

6 date the carrier, agent, association, or sub7 sidiary knew, or exercising reasonable dili8 gence could have known, that such a viola9 tion was occurring.

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

11 of a violation under this title that is due to rea12 sonable cause and not to willful neglect, the

13 Secretary may waive part or all of the civil

14 money penalty imposed under subparagraph

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

16 penalty would be grossly excessive relative to

17 the violation involved and to the need for deter18 rence of violations.

19 ‘‘(D) ADMINISTRATIVE APPELLATE RE20 VIEW.—The decision and order of an adminis21 trative law judge under this paragraph shall be22 come the final agency decision and order of the

23 Secretary unless, within 30 days, the Secretary

24 modifies or vacates the decision and order, in

25 which case the decision and order of the Sec-
41

•S 411 IS

1 retary shall become a final order under this

2 paragraph.

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

4 or association or its subsidiary or any other in5 dividual adversely affected by a final order is6 sued under this paragraph may, within 45 days

7 after the date the final order is issued, file a pe8 tition in the Court of Appeals for the appro9 priate circuit for review of the order.

10 ‘‘(F) ENFORCEMENT OF ORDERS.—If a

11 carrier, agent, or association or its subsidiary

12 fails to comply with a final order issued under

13 this paragraph against the carrier, agent, asso14 ciation or subsidiary after opportunity for judi15 cial review under subparagraph (E), the Sec16 retary shall file a suit to seek compliance with

17 the order in any appropriate district court of

18 the United States. In any such suit, the validity

19 and appropriateness of the final order shall not

20 be subject to review.

21 ‘‘(d) DEMONSTRATION GRANT PROGRAM.—

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

23 grants to States for the establishment of demonstra24 tion programs to improve the enforcement within
42

•S 411 IS

1 such States of long-term care insurance standards

2 applicable under this title.

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

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

5 and submit to the Secretary an application at such

6 time, in such manner, and containing such informa7 tion as the Secretary may require, including a de8 scription of the program for which the State intends

9 to use the amounts provided under the grant.

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

11 amount of a grant awarded under this subsection

12 shall not be less than $100,000.

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

14 grant under this subsection shall comply with such

15 evaluation procedures as the Secretary shall by regu16 lation establish. The Secretary shall utilize such

17 evaluations to conduct an overall evaluation of the

18 results of the demonstration programs established

19 under this section.

20 ‘‘(5) AUTHORIZATION OF APPROPRIATIONS.—

21 There are authorized to be appropriated to carry out

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

23 years 1993 through 1997.

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

25 ‘‘(a) DUTY OF GOOD FAITH AND FAIR DEALING.—
43

•S 411 IS

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

2 section 2733) or association that is selling or offer3 ing for sale a long-term care insurance policy has

4 the duty of good faith and fair dealing to the pur5 chaser or potential purchaser of such a policy.

6 ‘‘(2) PROHIBITED PRACTICES.—An agent or as7 sociation is considered to have violated paragraph

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

9 following practices:

10 ‘‘(A) TWISTING.—

11 ‘‘(i) IN GENERAL.—Knowingly making

12 any misleading representation (including

13 the inaccurate completion of medical his14 tories) or incomplete or fraudulent com15 parison of any long-term care insurance

16 policy or insurers for the purpose of induc17 ing, or tending to induce, any person to re18 tain or effect a change with respect to a

19 long-term care insurance policy.

20 ‘‘(ii) POLICY REPLACEMENT FORM.—

21 With respect to any person who elects to

22 replace or effect a change in a long-term

23 care insurance policy, the individual that is

24 selling such policy shall ensure that such

25 person completes a policy replacement
44

•S 411 IS

1 form developed by the NAIC. A copy of

2 such form shall be provided to such person

3 and additional copies shall be delivered by

4 the selling individual to the old policy is5 suer and the new issuer and kept on file

6 for inspection by the State regulatory

7 agency.

8 ‘‘(B) HIGH PRESSURE TACTICS.—Employ9 ing any method of marketing having the effect

10 of, or intending to, induce the purchase of long11 term care insurance policy through force, fright,

12 threat or undue pressure, whether explicit or

13 implicit.

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

15 use directly or indirectly of any method of mar16 keting which fails to disclose in a conspicuous

17 manner that a purpose of the method of mar18 keting is solicitation of insurance and that con19 tact will be made by an insurance agent or in20 surance company.

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

22 practices determined inappropriate under guide23 lines issued by the NAIC.

24 ‘‘(b) FINANCIAL STANDARDS.—The NAIC shall de25 velop recommended financial minimum standards (includ-
45

•S 411 IS

1 ing both income and asset criteria) for the purpose of ad2 vising individuals considering the purchase of a long-term

3 care insurance policy.

4 ‘‘(c) PROHIBITION OF SALE OR ISSUANCE TO MEDIC5 AID BENEFICIARIES.—An agent, an association, or a car6 rier may not knowingly sell or issue a long-term care in7 surance policy to an individual who is eligible for medical

8 assistance under title XIX of the Social Security Act.

9 ‘‘(d) PROHIBITION OF SALE OR ISSUANCE OF DUPLI10 CATE SERVICE BENEFIT POLICIES.—An agent, associa11 tion or its subsidiary, or a carrier may not sell or issue

12 a service-benefit long-term care insurance policy to an in13 dividual—

14 ‘‘(1) knowing that the policy provides for cov15 erage that duplicates coverage already provided in

16 another service-benefit long-term care insurance pol17 icy held by such individual (unless the policy is in18 tended to replace such other policy); or

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

20 individual (or a representative of the individual) pro21 vides a written statement to the effect that the cov22 erage—

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

24 effect under a service-benefit long-term care in25 surance policy; or
46

•S 411 IS

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

2 long-term care insurance policy.

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

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

5 which provides for benefits based on the type and amount

6 of services furnished.

7 ‘‘(e) PROHIBITION BASED ON ELIGIBILITY FOR

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

9 long-term care insurance policy that reduces, limits or co10 ordinates the benefits provided under the policy on the

11 basis that the policyholder has or is eligible for other long12 term care insurance coverage or benefits.

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

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

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

16 a certificate under a group long-term care insurance pol17 icy) without providing to the purchaser or potential pur18 chaser (or representative) an outline of coverage that com19 plies with the standards established under section

20 2701(a).

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

22 sale, or issues a long-term care insurance policy in viola23 tion of this section may be imprisoned not more than 5

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

25 Code, and, in addition, is subject to a civil money penalty
47

•S 411 IS

1 of not to exceed $15,000 for each such violation. Any asso2 ciation or its subsidiary or carrier that sells, offers for

3 sale, or issues a long-term care insurance policy in viola4 tion of this section may be fined in accordance with title

5 18, United States Code, and in addition, is subject to a

6 civil money penalty of not to exceed $25,000 for each vio7 lation.

8 ‘‘(h) AGENT TRAINING AND CERTIFICATION RE9 QUIREMENTS.—The NAIC shall establish requirements

10 for long-term care insurance agent training and certifi11 cation that—

12 ‘‘(1) specify requirements for training insurance

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

14 care insurance policies; and

15 ‘‘(2) specify procedures for certifying agents

16 who have completed such training and who are as

17 qualified to sell or offer for sale long-term care in18 surance policies.

19 ‘‘SEC. 2713. ADDITIONAL RESPONSIBILITIES FOR CAR20 RIERS.

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

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

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

24 or an applicant returns a policy or certificate within 30

25 days of the date of its issuance pursuant to subsection
48

•S 411 IS

1 2717, the carrier shall refund directly to the applicant,

2 or in the case of an employer to whomever remits the pre3 mium, and not by delivery by the agent, not later than

4 30 days after the date of the denial or return, any pre5 miums paid with respect to such a policy (or certificate).

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

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

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

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

10 group plan the employer, the policy (or certificate) of in11 surance not later than 30 days after the date of the ap12 proval.

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

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

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

16 request by the policyholder or certificate holder (or rep17 resentative)—

18 ‘‘(1) provide a written explanation of the rea19 sons for the denial; and

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

21 records directly relating to such denial.

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

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

24 a failure to disclose a condition at the time of issuance
49

•S 411 IS

1 of the policy if the application for the policy failed to re2 quest information respecting the condition.

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

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

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

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

7 Commissioner, superintendent or director of insurance of

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

9 available to the Secretary, upon request, information in

10 a form and manner determined by the NAIC concerning—

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

12 carrier that are in force;

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

14 and the premiums imposed for such policies since

15 their initial issuance;

16 ‘‘(3) the lapse rate, replacement rate, and re17 scission rates by policy;

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

19 that—

20 ‘‘(A) have the greatest lapse and replace21 ment rate; and

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

23 long-term care insurance sales in the previous

24 year; and
50

•S 411 IS

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

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

3 Information required under this subsection shall be re4 ported in a format specified in the standards established

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

6 there shall be included (but reported separately) data con7 cerning lapses due to the death of the policyholder. For

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

9 a claim any claim that is denied solely because of the fail10 ure to meet a deductible, waiting period, or exclusionary

11 period.

12 ‘‘SEC. 2714. RENEWABILITY STANDARDS FOR ISSUANCE,

13 AND BASIS FOR CANCELLATION OF POLICIES.

14 ‘‘(a) IN GENERAL.—No long-term care insurance pol15 icy may be canceled or nonrenewed for any reason other

16 than nonpayment of premium, material misrepresentation

17 or fraud.

18 ‘‘(b) CONTINUATION AND CONVERSION RIGHTS FOR

19 GROUP POLICIES.—

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

21 insurance policy shall provide covered individuals

22 with a basis for continuation or conversion in ac23 cordance with this subsection.

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

25 of paragraph (1), a policy provides a basis for con-
51

•S 411 IS

1 tinuation of coverage if the policy maintains cov2 erage under the existing group policy when such cov3 erage would otherwise terminate and which is sub4 ject only to the continued timely payment of pre5 mium when due. A group policy which restricts pro6 vision of benefits and services to or contains incen7 tives to use certain providers or facility, may provide

8 continuation benefits which are substantially equiva9 lent to the benefits of the existing group policy.

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

11 paragraph (1), a policy provides a basis for conver12 sion of coverage if the policy entitles each individ13 ual—

14 ‘‘(A) whose coverage under the group pol15 icy would otherwise be terminated for any rea16 son; and

17 ‘‘(B) who has been continuously insured

18 under the policy (or group policy which was re19 placed) for at least 6 months before the date of

20 the termination;

21 to issuance of a policy providing benefits identical to,

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

23 the policy being terminated, without evidence of in24 surability.
52

•S 411 IS

1 ‘‘(4) TREATMENT OF SUBSTANTIAL EQUIVA2 LENCE.—In determining under this subsection

3 whether benefits are substantially equivalent, consid4 eration should be given to the difference between

5 managed care and non-managed care plans.

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

7 group long-term care insurance policy is replaced by

8 another long-term care insurance policy purchased

9 by the same policyholder, the succeeding issuer shall

10 offer coverage to all persons covered under the old

11 group policy on its date of termination. Coverage

12 under the new group policy shall not result in any

13 exclusion for preexisting conditions that would have

14 been covered under the group policy being replaced.

15 ‘‘(c) STANDARDS FOR ISSUANCE.—

16 ‘‘(1) IN GENERAL.—

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

18 or carrier that sells or issues long-term care in19 surance policies shall guarantee that such poli20 cies shall be sold or issued to an individual, or

21 eligible individual in the case of a group plan,

22 if such individual meets the minimum medical

23 underwriting requirements of such policy.

24 ‘‘(B) PREMIUM FOR CONVERTED POL25 ICY.—If a group policy from which conversion
53

•S 411 IS

1 is made is a replacement for a previous group

2 policy, the premium for the converted policy

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

4 age at the inception of coverage under the

5 group policy from which conversion is made.

6 Where the group policy from which conversion

7 is made replaced previous group coverage, the

8 premium for the converted policy shall be cal9 culated on the basis of the insured’s age at in10 ception of coverage under the group policy re11 placed.

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

13 NAIC shall establish standards, including those pro14 viding guidance on medical underwriting and age

15 rating, with respect to the access of individuals to

16 policies offering upgraded benefits.

17 ‘‘(d) EFFECT OF INCAPACITATION.—

18 ‘‘(1) IN GENERAL.—

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

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

21 policy in effect as of the effective date of the

22 standards established under section 2701(a)

23 may not be canceled for nonpayment if the pol24 icy holder is determined by a long-term care

25 provider, physician or other health care pro-
54

•S 411 IS

1 vider, independent of the issuer of the policy, to

2 be cognitively or mentally incapacitated so as to

3 not make payments in a timely manner.

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

5 policy shall include a provision that provides for

6 the reinstatement of such coverage, in the event

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

8 cognitive or mental incapacitation. Such rein9 statement option shall remain available for a

10 period of not less than 5 months after termi11 nation and shall allow for the collection of past

12 due premium.

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

14 care insurance policy may be canceled under para15 graph (1) for nonpayment if—

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

17 excess of 30 days; and

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

19 to the policyholder or designated representative

20 of the policy holder not less than 30 days prior

21 to such cancellation, except that notice may not

22 be provided until the expiration of 30 days after

23 a premium is due and unpaid.

24 Notice under this paragraph shall be deemed to have

25 been given as of 5 days after the mailing date.
55

•S 411 IS

1 ‘‘SEC. 2715. BENEFIT STANDARDS.

2 ‘‘(a) USE OF STANDARD DEFINITIONS AND TERMI3 NOLOGY, UNIFORM FORMAT, AND STANDARD BENE4 FITS.—Each long-term care insurance policy shall, with

5 respect to services, providers or facilities, pursuant to

6 standards established under section 2701(a)—

7 ‘‘(1) use uniform language and definitions, ex8 cept that such language and definitions may take

9 into account the differences between States with re10 spect to definitions and terminology used for long11 term care services and providers;

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

13 outline of coverage under such a policy; and

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

15 benefits package (of those developed by the NAIC)

16 that shall include the limitations on the amount of

17 payments per day and the lengths of covered stays

18 for nursing facility and home health care services;

19 as prescribed under guidelines issued by the NAIC and

20 periodically updated.

21 ‘‘(b) DISCLOSURE.—

22 ‘‘(1) OUTLINE OF COVERAGE.—

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

24 sells or offers for sale a long-term care insur25 ance policy shall provide an outline of coverage

26 under such policy that meets the applicable
56

•S 411 IS

1 standards established pursuant to section

2 2701(a), complies with the requirements of sub3 paragraph (B), and is in a uniform format as

4 prescribed in guidelines issued by the NAIC

5 and periodically updated.

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

7 for each long-term care insurance policy shall

8 include at least the following:

9 ‘‘(i) A description of the principal

10 benefits and coverage under the policy.

11 ‘‘(ii) A statement of the principal ex12 clusions, reductions, and limitations con13 tained in the policy.

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

15 which the policy (or certificate) may be

16 continued in force or discontinued, the

17 terms for continuation or conversion, and

18 any reservation in the policy of a right to

19 change premiums.

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

21 on the face of the document in language

22 that is understandable to an average indi23 vidual, that the outline of coverage is a

24 summary only, not a contract of insurance,

25 and that the policy (or master policy) con-
57

•S 411 IS

1 tains the contractual provisions that gov2 ern, except that such summary shall sub3 stantially and accurately reflect the con4 tents of the policy or the master policy.

5 ‘‘(v) A description of the terms, speci6 fied in section 2717, under which a policy

7 or certificate may be returned and pre8 mium refunded.

9 ‘‘(vi) Information on national average

10 costs for nursing facility and home health

11 care and information (in graphic form) on

12 the relationship of the value of the benefits

13 provided under the policy to such national

14 average costs and State average costs,

15 where available.

16 ‘‘(vii) A statement of the percentage

17 limit on annual premium increases that is

18 provided under the policy pursuant to this

19 section.

20 ‘‘(2) CERTIFICATES.—A certificate issued pur21 suant to a group long-term care insurance policy

22 shall include—

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

24 and coverage provided in the policy;
58

•S 411 IS

1 ‘‘(B) a statement of the principal exclu2 sions, reductions, and limitations contained in

3 the policy; and

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

5 policy determines governing contractual provi6 sions.

7 ‘‘(3) LONG-TERM CARE AS PART OF LIFE IN8 SURANCE.—In the case of a long-term care insur9 ance policy issued as a part of, or a rider on, a life

10 insurance policy, at the time of policy delivery there

11 shall be provided a policy summary that includes—

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

13 care benefits interact with other components of

14 the policy (including deductions from death

15 benefits);

16 ‘‘(B) an illustration of the amount of bene17 fits, the length of benefit, and the guaranteed

18 lifetime benefits (if any) for each covered per19 son; and

20 ‘‘(C) any exclusions, reductions, and limi21 tations on benefits of long-term care.

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

23 shall develop recommendations with respect to in24 forming consumers of the long-term economic viabil-
59

•S 411 IS

1 ity of carriers issuing long-term care insurance poli2 cies.

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

4 BENEFITS.—

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

6 policy may not condition or limit eligibility—

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

8 the need for or receipt of any other services;

9 ‘‘(B) for any benefit on the medical neces10 sity for such benefit;

11 ‘‘(C) for benefits furnished by licensed or

12 certified providers in compliance with conditions

13 which are in addition to those required for li14 censure or certification under State law, except

15 that if no State licensure or certification laws

16 exists, in compliance with qualifications devel17 oped by the NAIC; or

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

19 the policy) only—

20 ‘‘(i) to care provided in facilities

21 which provide a higher level of care; or

22 ‘‘(ii) to care provided in facilities

23 which provide for 24-hour or other nursing

24 care not required in order to be licensed by

25 the State.
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•S 411 IS

1 ‘‘(2) HOME HEALTH CARE OR COMMUNITY2 BASED SERVICES.—If a long-term care insurance

3 policy provides benefits for the payment of specified

4 home health care or community-based services, the

5 policy—

6 ‘‘(A) may not limit such benefits to serv7 ices provided by registered nurses or licensed

8 practical nurses;

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

10 services to be provided by a nurse or therapist

11 that can be provided by a home health aide or

12 licensed or certified home care worker, except

13 that if no State licensure or certification laws

14 exists, in compliance with qualifications devel15 oped by the NAIC;

16 ‘‘(C) may not limit such benefits to serv17 ices provided by agencies or providers certified

18 under title XVIII of the Social Security Act;

19 and

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

21 for personal care services (including home

22 health aide and home care worker services as

23 defined by the NAIC) home health services,

24 adult day care, and respite care in an individ25 ual’s home or in another setting in the commu-
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•S 411 IS

1 nity, or any of these benefits on a respite care

2 basis.

3 ‘‘(3) NURSING FACILITY SERVICES.—If a long4 term care insurance policy provides benefits for the

5 payment of specified nursing facility services, the

6 policy must provide such benefits with respect to all

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

8 the Social Security Act or until such time as subse9 quently provided for by the NAIC in establishing

10 uniform language and definitions under section

11 2715(a)(1)) in the State.

12 ‘‘(4) PER DIEM POLICIES.—

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

14 title, the term ‘per diem long-term care insur15 ance policy’ means a long-term care insurance

16 policy (or certificate under a group long-term

17 care insurance policy) that provides for benefit

18 payments on a periodic basis due to cognitive

19 impairment or loss of functional capacity with20 out regard to the expenses incurred or services

21 rendered during the period to which the pay22 ments relate.

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

24 care insurance policy (or certificate) may condi25 tion or otherwise exclude benefit payments
62

•S 411 IS

1 based on the receipt of any type of nursing fa2 cility, home health care or community-based

3 services.

4 ‘‘(d) PROHIBITION OF DISCRIMINATION.—A long5 term care insurance policy may not treat benefits under

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

7 disease, with any related progressive degenerative demen8 tia of an organic origin, with any organic or inorganic

9 mental illness, or with mental retardation or any other

10 cognitive or mental impairment differently from an indi11 vidual having another medical condition for which benefits

12 may be made available.

13 ‘‘(e) LIMITATION ON USE OF PREEXISTING CONDI14 TION LIMITS.—

15 ‘‘(1) INITIAL ISSUANCE.—

16 ‘‘(A) IN GENERAL.—Subject to subpara17 graph (B), a long-term care insurance policy

18 may not exclude or condition benefits based on

19 a medical condition for which the policyholder

20 received treatment or was otherwise diagnosed

21 before the issuance of the policy.

22 ‘‘(B) 6-MONTH LIMIT.—

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

24 insurance policy or certificate issued under

25 this title shall utilize a definition of ‘pre-
63

•S 411 IS

1 existing condition’ that is more restrictive

2 than the following: The term ‘preexisting

3 condition’ means a condition for which

4 medical advice or treatment was rec5 ommended by, or received from a provider

6 of health care services, within 6 months

7 preceding the effective date of coverage of

8 an insured individual.

9 ‘‘(ii) PROHIBITION ON EXCLUSION OF

10 COVERAGE.—No long-term care insurance

11 policy or certificate may exclude coverage

12 for a loss or confinement that is the result

13 of a preexisting condition unless such loss

14 or confinement begins within 6 months fol15 lowing the effective date of the coverage of

16 the insured individual.

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

18 care insurance policy replaces another long-term

19 care insurance policy, the issuer of the replacing pol20 icy shall waive any time periods applicable to pre21 existing conditions, waiting period, elimination peri22 ods and probationary periods in the new policy for

23 similar benefits to the extent such time was spent

24 under the original policy.

25 ‘‘(f) ELIGIBILITY FOR BENEFITS.—
64

•S 411 IS

1 ‘‘(1) LONG-TERM CARE POLICIES.—Each long2 term care insurance policy shall—

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

4 under the policy; and

5 ‘‘(B) specify in clear, understandable

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

7 or mental impairment required in order to re8 ceive benefits under the policy.

9 ‘‘(2) FUNCTIONAL ASSESSMENT.—In order to

10 submit a claim under any long-term care insurance

11 policy, each claimant shall have a professional func12 tional assessment of his or her physical, cognitive,

13 and mental abilities. Such initial assessment shall be

14 conducted by an individual or entity, meeting the

15 qualifications established by the NAIC to assure the

16 professional competence and credibility of such indi17 vidual or entity and that such individual meets any

18 applicable State licensure and certification require19 ments. The individual or entity conducting such as20 sessment may not control, or be controlled by, the

21 issuer of the policy. For purposes of this paragraph

22 and paragraph (4), the term ‘control’ means the di23 rect or indirect possession of the power to direct the

24 management and policies of a person. Control is pre25 sumed to exist, if any person directly or indirectly,
65

•S 411 IS

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

2 holds proxies representing 10 percent of the voting

3 securities of another person.

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

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

6 shall be subject to final claims review by the carrier

7 pursuant to the terms of the long-term care insur8 ance policy.

9 ‘‘(4) APPEALS PROCESS.—

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

11 insurance policy shall provide for a timely and

12 independent appeals process, meeting standards

13 established by the NAIC, for individuals who

14 dispute the results of the claims review, con15 ducted under paragraph (3), of the claimant’s

16 functional assessment, conducted under para17 graph (2).

18 ‘‘(B) INDEPENDENT ASSESSMENT.—An

19 appeals process under this paragraph shall in20 clude, at the request of the claimant, an inde21 pendent assessment of the claimant’s physical,

22 cognitive or mental abilities.

23 ‘‘(C) CONDUCT.—An independent assess24 ment under subparagraph (B) shall be con25 ducted by an individual or entity meeting the
66

•S 411 IS

1 qualifications established by the NAIC to as2 sure the professional competence and credibility

3 of such individual or entity and any applicable

4 State licensure and certification requirements

5 and may not be conducted—

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

7 or indirect significant or controlling inter8 est in, or direct affiliation or relationship

9 with, the issuer of the policy;

10 ‘‘(ii) by an entity that provides serv11 ices to the policyholder or certificateholder

12 for which benefits are available under the

13 long-term care insurance policy; or

14 ‘‘(iii) by an individual or entity in con15 trol of, or controlled by, the issuer of the

16 policy.

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

18 2 years after the date of enactment of this title, the

19 advisory committee established under section

20 2701(d) shall recommend uniform needs assessment

21 mechanisms for the determination of eligibility for

22 benefits under such assessments.

23 ‘‘(g) INFLATION PROTECTION.—

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

25 not offer a long-term care insurance policy unless
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•S 411 IS

1 the carrier also offers to the proposed policyholder,

2 including each group policyholder, the option to pur3 chase a policy that provides for increases in benefit

4 levels, with benefit maximums or reasonable dura5 tions that are meaningful, to account for reasonably

6 anticipated increases in the costs of long-term care

7 services covered by the policy. A carrier may not

8 offer to a policyholder an inflation protection feature

9 that is less favorable to the policyholder than one of

10 the following:

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

12 for automatic periodic increases in benefits, the

13 policy provides for an annual increase in bene14 fits in a manner so that such increases are

15 computed annually at a rate of not less than 5

16 percent.

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

18 for periodic opportunities to elect an increase in

19 benefits, the policy guarantees that the insured

20 individual will have the right to periodically in21 crease the benefit levels under the policy with22 out providing evidence of insurability or health

23 status so long as the option for the previous pe24 riod was not declined. The amount of any such
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•S 411 IS

1 additional benefit may not be less than the dif2 ference between—

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

4 ‘‘(ii) such existing benefit compounded

5 annually at a rate of at least 5 percent for

6 the period beginning on the date on which

7 the existing benefit is purchased and ex8 tending until the year in which the offer of

9 increase is made.

10 ‘‘(C) With respect to service benefit poli11 cies, the policy covers a specified percentage of

12 the actual or reasonable charges and does not

13 include a maximum specified indemnity amount

14 or limit.

15 ‘‘(2) EXCEPTION.—The requirements of para16 graph (1) shall not apply to life insurance policies or

17 riders containing accelerated long-term care benefits.

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

19 include the following information in or together with

20 the outline of coverage provided under this title:

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

22 levels of a policy that increases benefits over the

23 policy period with a policy that does not in24 crease benefits. Such comparison shall show
69

•S 411 IS

1 benefit levels over not less than a 20-year pe2 riod.

3 ‘‘(B) Any expected premium increases or

4 additional premiums required to pay for any

5 automatic or optional benefit increases, whether

6 the individual who purchases the policy obtains

7 the inflation protection initially or whether such

8 individual delays purchasing such protection

9 until a future time.

10 ‘‘(4) CONTINUATION OF PROTECTION.—Infla11 tion protection benefit increases under this sub12 section under a policy that contains such protection

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

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

15 the individual has been insured under the policy.

16 ‘‘(5) CONSTANT PREMIUM.—An offer of infla17 tion protection under this subsection that provides

18 for automatic benefit increases shall include an offer

19 of a premium that the carrier expects to remain con20 stant. Such offer shall disclose in a conspicuous

21 manner that the premium may change in the future

22 unless the premium is guaranteed to remain con23 stant.

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

25 this subsection shall be included in a long-term care
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•S 411 IS

1 insurance policy unless a carrier obtains a written

2 rejection of such protection signed by the policy3 holder.

4 ‘‘SEC. 2716. NONFORFEITURE.

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

6 policy (or certificate) may provide that if the policy lapses

7 after the policy has been in effect for a minimum period

8 (specified under the standards under section 2701(a)), the

9 policy will provide, without payment of any additional pre10 miums, nonforfeiture benefits as determined appropriate

11 by the NAIC.

12 ‘‘(b) ESTABLISHMENT OF STANDARDS.—The stand13 ards under section 2701(a) shall provide that the percent14 age or amount of benefits under subsection (a) must in15 crease based upon the policyholder’s equity in the policy.

16 Such standards shall apply only to policies which provide

17 nonforfeiture benefits.

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

19 RIGHT TO RETURN.

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

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

22 under the policy based on fraud or material misrepresenta23 tion relating to the issuance of the policy unless notice

24 of such fraud or material misrepresentation is provided

25 within a time period to be determined by the NAIC.
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•S 411 IS

1 ‘‘(b) RIGHT TO RETURN.—Each applicant for a long2 term care insurance policy shall have the right to return

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

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

5 examination of the policy or certificate, the applicant is

6 not satisfied for any reason.

7 ‘‘SEC. 2718. CIVIL MONEY PENALTY.

8 ‘‘(a) CARRIER.—Any carrier, association or its sub9 sidiary that sells or offers for sale a long-term care insur10 ance policy and that—

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

12 section 2713(a);

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

14 with section 2713(b);

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

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

17 of section 2713;

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

19 violation of section 2713(e);

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

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

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

23 information in violation of section 2715(f);

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

25 for each such violation.
72

•S 411 IS

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

2 a long-term care insurance policy and that—

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

4 section 2713(a);

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

6 with section 2713(b);

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

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

9 of section 2713;

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

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

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

13 information in violation of section 2715(f);

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

15 for each such violation.

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

17 DEFINITION AND ENDORSEMENTS

18 ‘‘SEC. 2721. LONG-TERM CARE INSURANCE POLICY DE19 FINED.

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

21 ‘long-term care insurance policy’ means any insurance pol22 icy, rider or certificate advertised, marketed, offered or de23 signed to provide coverage for not less than 12 consecutive

24 months for each covered person on an expense incurred,

25 indemnity prepaid or other basis, for one or more nec-
73

•S 411 IS

1 essary diagnostic, preventive, therapeutic, rehabilitative,

2 maintenance or personal care services, provided in a set3 ting other than an acute care unit of a hospital. Such term

4 includes—

5 ‘‘(1) group and individual annuities and life in6 surance policies, riders or certificates that provide

7 directly, or that supplement long-term care insur8 ance; and

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

10 for payment of benefits based on cognitive impair11 ment or the loss of functional capacity.

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

13 may be issued by—

14 ‘‘(1) carriers;

15 ‘‘(2) fraternal benefit societies;

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

17 service corporations;

18 ‘‘(4) prepaid health plans;

19 ‘‘(5) health maintenance organizations; or

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

21 are otherwise authorized to issue life or health insur22 ance.

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

24 care insurance policy’ shall not include any insurance pol25 icy, rider or certificate that is offered primarily to provide
74

•S 411 IS

1 basic Medicare supplement coverage, basic hospital ex2 pense coverage, basic medical-surgical expense coverage,

3 hospital confinement indemnity coverage, major medical

4 expense coverage, disability income or related asset-protec5 tion coverage, accident only coverage, specified disease or

6 specified accident coverage, or limited benefit health cov7 erage. With respect to life insurance, such term shall not

8 include life insurance policies, riders or certificates that

9 accelerate the death benefit specifically for one or more

10 of the qualifying events of terminal illness, medical condi11 tions requiring extraordinary medical intervention, or per12 manent institutional confinement, and that provide the op13 tion of a lump-sum payment for those benefits and in

14 which neither the benefits nor the eligibility for the bene15 fits is conditioned upon the receipt of long-term care.

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

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

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

19 policy, rider or certificate.

20 ‘‘SEC. 2722. CODE OF CONDUCT WITH RESPECT TO EN21 DORSEMENTS.

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

23 of this title the NAIC shall issue guidelines that shall

24 apply to organizations and associations, other than em25 ployers and labor organizations that do not accept com-
75

•S 411 IS

1 pensation, and their subsidiaries that provide endorse2 ments of long-term care insurance policies, or that permit

3 such policies to be offered for sale through the organiza4 tion or association. Such guidelines shall include at mini5 mum the following:

6 ‘‘(1) In endorsing or selling long-term care in7 surance policies, the primary responsibility of an or8 ganization or association shall be to educate their

9 members concerning such policies and assist such

10 members in making informed decisions. Such organi11 zations and associations may not function primarily

12 as sales agents for insurance companies.

13 ‘‘(2) Organizations and associations shall pro14 vide objective information regarding long-term care

15 insurance policies sold or endorsed by such organiza16 tions and associations to ensure that members of

17 such organizations and associations have a balanced

18 and complete understanding of both the strengths

19 and weaknesses of the policies that are being en20 dorsed or sold.

21 ‘‘(3) Organizations and associations selling or

22 endorsing long-term care insurance policies shall dis23 close in marketing literature provided to their mem24 bers concerning such policies the manner in which

25 such policies and the insurance company issuing
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•S 411 IS

1 such policies were selected. If the organization or as2 sociation and the insurance company have interlock3 ing directorates, the organization or association shall

4 disclose such fact to their members.

5 ‘‘(4) Organizations and associations selling or

6 endorsing long-term care insurance policies shall dis7 close in marketing literature provided to their mem8 bers concerning such policies the nature and amount

9 of the compensation arrangements (including all

10 fees, commissions, administrative fees and other

11 forms of financial support that the organization or

12 association receives) from the endorsement or sale of

13 the policy to its members.

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

15 and associations selling or endorsing long-term care

16 insurance policies, if such organizations and associa17 tions have a Board of Directors, shall review and ap18 prove such insurance policies, the compensation ar19 rangements and the marketing materials used to

20 promote sales of such policies.
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•S 411 IS

1 ‘‘PART D—MISCELLANEOUS PROVISIONS

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

3 INFORMATION, COUNSELING, AND ASSIST4 ANCE.

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

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

7 and national organizations with demonstrated experience

8 in long-term care insurance, for the establishment of pro9 grams to provide information, counseling, and assistance

10 relating to the procurement of adequate and appropriate

11 long-term care insurance.

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

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

14 shall prepare and submit to the Secretary an application

15 at such time, in such manner, and containing such infor16 mation as the Secretary may require, including a descrip17 tion of the program for which the State or organization

18 intends to use the amounts provided under the grant.

19 ‘‘(c) AUTHORIZATION OF APPROPRIATIONS.—

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

21 appropriate for grants to States under subsection

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

23 through 1996.

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

25 authorized to be appropriate for grants to national
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1 organizations under subsection (a), $1,000,000 for

2 each of the fiscal years 1994 through 1996.

3 ‘‘SEC. 2732. DEFINITIONS.

4 ‘‘As used in this title:

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

6 ‘‘(A) prior to 2 years after the date of en7 actment of this Act, an individual who sells or

8 offers for sale a long-term care insurance policy

9 subject to the requirements of this title and is

10 licensed or required to be licensed under State

11 law for such purpose; and

12 ‘‘(B) after the date referred to in subpara13 graph (A), an individual who meets the training

14 and certification requirements established under

15 section 2712(f).

16 ‘‘(2) ASSOCIATION.—The term ‘association’ in17 cludes the association and its subsidiaries.

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

19 person that offers a health benefit plan, whether

20 through insurance or otherwise, including a licensed

21 insurance company, a prepaid hospital or medical

22 service plan, a health maintenance organization, a

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

24 multiple employer welfare arrangement (a combina25 tion of employers associated for the purpose of pro-
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1 viding health benefit plan coverage for their employ2 ees).’’.

3 TITLE III—DEDUCTION FOR CER4 TAIN EXPENSES FOR DE5 PENDENTS WITH ALZ6 HEIMER’S DISEASE OR RE7 LATED ORGANIC BRAIN DIS8 ORDERS

9 SEC. 301. DEDUCTION ALLOWANCE FOR HOME HEALTH

10 CARE AND ADULT DAY AND RESPITE CARE

11 EXPENSES OF INDIVIDUALS FOR DEPEND12 ENTS WITH ALZHEIMER’S DISEASE OR RELAT13 ED ORGANIC BRAIN DISORDERS.

14 (a) IN GENERAL.—Part VII of subchapter B of chap15 ter 1 of the Internal Revenue Code of 1986 (relating to

16 additional itemized deductions for individuals) is amended

17 by redesignating section 220 as section 221 and by insert18 ing after section 219 the following new section:

19 ‘‘SEC. 220. HOME HEALTH CARE AND ADULT DAY AND RES20 PITE CARE EXPENSES FOR DEPENDENTS

21 WITH ALZHEIMER’S DISEASE OR RELATED

22 ORGANIC BRAIN DISORDERS.

23 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi24 vidual who maintains a household which includes a quali25 fied dependent of such individual, there shall be allowed
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1 as a deduction the qualified home health care and adult

2 day respite care expenses of such individual with respect

3 to such dependent.

4 ‘‘(b) DEFINITIONS.—For purposes of this section:

5 ‘‘(1) QUALIFIED DEPENDENT.—The term

6 ‘qualified dependent’ means any individual (includ7 ing the spouse of the taxpayer but not including the

8 taxpayer) who—

9 ‘‘(A) has as his principal place of abode

10 the principal residence of the taxpayer, and is

11 a member of the taxpayer’s household, for more

12 than 180 days of the calendar year during

13 which the taxable year of the taxpayer begins,

14 ‘‘(B) is a dependent of the taxpayer (with15 in the meaning given to such term by sub16 section (a) of section 152 other than paragraph

17 (9) of such subsection) for such calendar year,

18 and

19 ‘‘(C) at the close of such calendar year,

20 suffers from Alzheimer’s disease (or a related

21 organic brain disorder) and is physically or

22 mentally incapable of caring for himself, as de23 termined by a physician.

24 ‘‘(2) QUALIFIED HOME HEALTH CARE AND

25 ADULT DAY AND RESPITE CARE EXPENSES.—The
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1 term ‘qualified home health care and adult day and

2 respite care expenses’ means the excess of—

3 ‘‘(A) the reasonable and necessary ex4 penses paid or incurred by the taxpayer for—

5 ‘‘(i) household services for a qualified

6 dependent, and

7 ‘‘(ii) the care (including respite care)

8 of such dependent in the home or in an

9 adult day care center, over

10 ‘‘(B) the reasonable and necessary ex11 penses such taxpayer would have paid or in12 curred for household services for, and the care

13 of, such qualified dependent if such dependent

14 had been capable of caring for himself.

15 ‘‘(3) PHYSICIAN.—The term ‘physician’ has the

16 meaning given to such term by section 1861(r) of

17 the Social Security Act (42 U.S.C. 1395x(r)).

18 ‘‘(c) SPECIAL RULES.—For purposes of this

19 section:

20 ‘‘(1) MAINTAINING A HOUSEHOLD.—An individ21 ual shall be treated as maintaining a household for

22 any period only if over half the cost of maintaining

23 the household for such period is furnished by such

24 individual (or, if the individual is married, by the in25 dividual and his spouse).
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1 ‘‘(2) MARRIED COUPLE MUST FILE JOINT RE2 TURN.—If the taxpayer is married at the close of

3 the taxable year, the deduction shall be allowed

4 under subsection (a) only if the taxpayer and his

5 spouse file a joint return under section 6013 for the

6 taxable year.

7 ‘‘(d) CERTIFICATION OF DIAGNOSIS BY PHYSI8 CIAN.—Any determination by a physician that—

9 ‘‘(1) an individual suffers from Alzheimer’s dis10 ease or a related organic brain disorder, and

11 ‘‘(2) such individual is mentally or physically

12 incapable of caring for himself,

13 shall be certified by the physician to the Secretary at such

14 time and in such manner as the Secretary shall by regula15 tion prescribe.

16 ‘‘(e) COORDINATION WITH SECTIONS 36 AND 213.—

17 If any amount allowable as a deduction under this section

18 would (but for this subsection) also be taken into account

19 for purposes of determining the amount of any credit al20 lowable under section 36 (relating to expenses for house21 hold and dependent care services necessary for gainful em22 ployment) or any deduction allowable under section 213

23 (relating to medical, dental, etc. expenses), this section

24 shall apply only if the taxpayer elects its application. If

25 this section is elected with respect to any amount, such
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1 amount shall not be taken into account under section 36

2 or 213. Such election shall be made at such time and in

3 such manner as the Secretary shall by regulation pre4 scribe.’’.

5 (b) DEDUCTION ALLOWED IN ARRIVING AT AD6 JUSTED GROSS INCOME.—Section 62(a) of such Code (de7 fining adjusted gross income) is amended by inserting

8 after paragraph (15) the following new paragraph:

9 ‘‘(16) QUALIFIED HOME HEALTH CARE AND

10 ADULT DAY AND RESPITE CARE EXPENSES.—The

11 deduction allowed by section 220.’’.

12 (c) CLERICAL AMENDMENT.—The table of sections

13 for part VII of subchapter B of chapter 1 of such Code

14 is amended by striking the last item and inserting the fol15 lowing new items:

‘‘Sec. 220. Home health care and adult day and respite care expenses for dependents with Alzheimer’s disease or

related organic brain disorders.

‘‘Sec. 221. Cross reference.’’.

16 (d) EFFECTIVE DATE.—The amendments made by

17 this section shall apply to taxable years beginning after

18 December 31, 1995.
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1 TITLE IV—DEPENDENT CARE

2 CREDIT EXPANDED AND

3 MADE REFUNDABLE

4 SEC. 401. DEPENDENT CARE TAX CREDIT EXPANDED AND

5 MADE REFUNDABLE.

6 (a) DEPENDENT CARE SERVICES.—Subpart C of

7 part IV of subchapter A of chapter 1 of the Internal Reve8 nue Code of 1986 (relating to refundable credits) is

9 amended by redesignating section 36 as section 37 and

10 by inserting after section 35 the following new section:

11 ‘‘SEC. 36. DEPENDENT CARE SERVICES.

12 ‘‘(a) ALLOWANCE OF CREDIT.—

13 ‘‘(1) IN GENERAL.—In the case of an individual

14 who maintains a household which includes as a

15 member 1 or more qualifying individuals, there shall

16 be allowed as a credit against the tax imposed by

17 this subtitle for the taxable year an amount equal to

18 the applicable percentage of the sum of—

19 ‘‘(A) the employment-related expenses paid

20 by such individual during the taxable year, plus

21 ‘‘(B) the respite care expenses paid by

22 such individual during the taxable year.

23 ‘‘(2) APPLICABLE PERCENTAGE DEFINED.—

24 ‘‘(A) IN GENERAL.—For purposes of para25 graph (1), the term ‘applicable percentage’
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1 means 50 percent reduced (but not below 20

2 percent) by 1 percentage point for each full

3 $1,000 amount by which the taxpayer’s ad4 justed gross income for the taxable year exceeds

5 $15,000.

6 ‘‘(B) COST-OF-LIVING ADJUSTMENT.—

7 ‘‘(i) IN GENERAL.—In the case of a

8 taxable year beginning in a calendar year

9 after 1996, subparagraph (A) shall be ap10 plied by increasing the $15,000 amount

11 contained therein by the cost-of-living ad12 justment (as defined in section 1(f)(3)) for

13 such calendar year determined by sub14 stituting ‘‘1995’’ for ‘‘1992’’ in subpara15 graph (B) of section 1(f)(3).

16 ‘‘(ii) ROUNDING.—If any increase de17 termined under clause (i) is not a multiple

18 of $10, such increase shall be rounded to

19 the nearest multiple of $10 (or if such in20 crease is a multiple of $5, such increase

21 shall be increased to the next highest mul22 tiple of $10).

23 ‘‘(b) EMPLOYMENT-RELATED EXPENSES.—For pur24 poses of this section—
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1 ‘‘(1) DETERMINATION OF ELIGIBLE EX2 PENSES.—

3 ‘‘(A) IN GENERAL.—The term ‘employ4 ment-related expenses’ means amounts paid for

5 the following expenses, but only if such ex6 penses are incurred to enable the taxpayer to be

7 gainfully employed for any period for which

8 there are 1 or more qualifying individuals with

9 respect to the taxpayer:

10 ‘‘(i) expenses for household services,

11 and

12 ‘‘(ii) expenses for the care of a quali13 fying individual.

14 Such term shall not include any amount paid

15 for services outside the taxpayer’s household at

16 a camp where the qualifying individual stays

17 overnight and shall not include any respite care

18 expense taken into account under subsection

19 (a).

20 ‘‘(B) EXCEPTION.—Employment-related

21 expenses described in subparagraph (A) which

22 are incurred for services outside the taxpayer’s

23 household shall be taken into account only if in24 curred for the care of—
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1 ‘‘(i) a qualifying individual described

2 in subsection (d)(1), or

3 ‘‘(ii) a qualifying individual (not de4 scribed in subsection (d)(1)) who regularly

5 spends at least 8 hours each day in the

6 taxpayer’s household.

7 ‘‘(C) DEPENDENT CARE CENTERS.—Em8 ployment-related expenses described in subpara9 graph (A) which are incurred for services pro10 vided outside the taxpayer’s household by a de11 pendent care center (as defined in subpara12 graph (D)) shall be taken into account only if—

13 ‘‘(i) such center complies with all ap14 plicable laws and regulations of a State or

15 unit of local government, and

16 ‘‘(ii) the requirements of subpara17 graph (B) are met.

18 ‘‘(D) DEPENDENT CARE CENTER DE19 FINED.—For purposes of this paragraph, the

20 term ‘dependent care center’ means any facility

21 which—

22 ‘‘(i) provides care for more than 6 in23 dividuals (other than individuals who re24 side at the facility), and
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1 ‘‘(ii) receives a fee, payment, or grant

2 for providing services for any of the indi3 viduals (regardless of whether such facility

4 is operated for profit).

5 ‘‘(2) DOLLAR LIMIT ON AMOUNT CRED6 ITABLE.—

7 ‘‘(A) IN GENERAL.—The amount of the

8 employment-related expenses incurred during

9 any taxable year which may be taken into ac10 count under subsection (a) shall not exceed—

11 ‘‘(i) $2,400 if there is 1 qualifying in12 dividual with respect to the taxpayer for

13 such taxable year, or

14 ‘‘(ii) $4,800 if there are 2 or more

15 qualifying individuals with respect to the

16 taxpayer for such taxable year.

17 The amount determined under clause (i) or (ii)

18 (whichever is applicable) shall be reduced by the

19 aggregate amount excludable from gross income

20 under section 129 for the taxable year.

21 ‘‘(B) REDUCTION IN LIMIT FOR AMOUNT

22 OF RESPITE CARE EXPENSES.—The limitation

23 of subparagraph (A) shall be reduced by the

24 amount of the respite care expenses taken into
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1 account by the taxpayer under subsection (a)

2 for the taxable year.

3 ‘‘(3) EARNED INCOME LIMITATION.—

4 ‘‘(A) IN GENERAL.—Except as otherwise

5 provided in this paragraph, the amount of the

6 employment-related expenses incurred during

7 any taxable year which may be taken into ac8 count under subsection (a) shall not exceed—

9 ‘‘(i) in the case of an individual who

10 is not married at the close of such year,

11 such individual’s earned income for such

12 year, or

13 ‘‘(ii) in the case of an individual who

14 is married at the close of such year, the

15 lesser of such individual’s earned income or

16 the earned income of his spouse for such

17 year.

18 ‘‘(B) SPECIAL RULE FOR SPOUSE WHO IS

19 A STUDENT OR INCAPABLE OF CARING FOR

20 HIMSELF.—In the case of a spouse who is a

21 student or a qualified individual described in

22 subsection (d)(3), for purposes of subparagraph

23 (A), such spouse shall be deemed for each

24 month during which such spouse is a full-time

25 student at an educational institution, or is such
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1 a qualifying individual, to be gainfully employed

2 and to have earned income of not less than—

3 ‘‘(i) $200 if paragraph (2)(A)(i) ap4 plies for the taxable year, or

5 ‘‘(ii) $400 if paragraph (2)(A)(ii) ap6 plies for the taxable year.

7 In the case of any husband and wife, this sub8 paragraph shall apply with respect to only one

9 spouse for any one month.

10 ‘‘(c) RESPITE CARE EXPENSES.—For purposes of

11 this section:

12 ‘‘(1) IN GENERAL.—The term ‘respite care ex13 penses’ means expenses paid (whether or not to en14 able the taxpayer to be gainfully employed) for—

15 ‘‘(A) the care of a qualifying individual—

16 ‘‘(i) who has attained the age of 13,

17 or

18 ‘‘(ii) who is under the age of 13 but

19 has a physical or mental impairment which

20 results in the individual being incapable of

21 caring for himself,

22 during any period when such individual regu23 larly spends at least 8 hours each day in the

24 taxpayer’s household, or
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1 ‘‘(B) care (for not more than 14 days dur2 ing the calendar year) of a qualifying individual

3 described in subparagraph (A) during any pe4 riod during which the individual does not regu5 larly spend at least 8 hours each day in the tax6 payer’s household.

7 ‘‘(2) DOLLAR LIMIT.—The amount of the res8 pite care expenses incurred during any taxable year

9 which may be taken into account under subsection

10 (a) shall not exceed—

11 ‘‘(A) $1,200 if such expenses are incurred

12 with respect to only 1 qualifying individual for

13 the taxable year, or

14 ‘‘(B) $2,400 if such expenses are incurred

15 for 2 or more qualifying individuals for such

16 taxable year.

17 ‘‘(d) QUALIFYING INDIVIDUAL.—For purposes of this

18 section, the term ‘qualifying individual’ means—

19 ‘‘(1) a dependent of the taxpayer who is under

20 the age of 13 and with respect to whom the taxpayer

21 is entitled to a deduction under section 151(e),

22 ‘‘(2) a dependent of the taxpayer who is phys23 ically or mentally incapable of caring for himself, or

24 ‘‘(3) the spouse of the taxpayer, if he is phys25 ically or mentally incapable of caring for himself.
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1 ‘‘(e) SPECIAL RULES.—For purposes of this section:

2 ‘‘(1) MAINTAINING HOUSEHOLD.—An individ3 ual shall be treated as maintaining a household for

4 any period only if over half the cost of maintaining

5 the household for such period is furnished by such

6 individual (or, if such individual is married during

7 such period, is furnished by such individual and his

8 spouse).

9 ‘‘(2) MARRIED COUPLES MUST FILE JOINT RE10 TURN.—If the taxpayer is married at the close of

11 the taxable year, the credit shall be allowed under

12 subsection (a) only if the taxpayer and his spouse

13 file a joint return for the taxable year.

14 ‘‘(3) MARITAL STATUS.—An individual legally

15 separated from his spouse under a decree of divorce

16 or of separate maintenance shall not be considered

17 as married.

18 ‘‘(4) CERTAIN MARRIED INDIVIDUALS LIVING

19 APART.—If—

20 ‘‘(A) an individual who is married and who

21 files a separate return—

22 ‘‘(i) maintains as his home a house23 hold which constitutes for more than one24 half of the taxable year the principal place

25 of abode of a qualifying individual, and
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1 ‘‘(ii) furnishes over half the cost of

2 maintaining such household during the

3 taxable year, and

4 ‘‘(B) during the last 6 months of such tax5 able year such individual’s spouse is not a mem6 ber of such household,

7 such individual shall not be considered as married.

8 ‘‘(5) SPECIAL DEPENDENCY TEST IN CASE OF

9 DIVORCED PARENTS, ETC.—If—

10 ‘‘(A) paragraph (2) or (4) of section

11 152(e) applies to any child with respect to any

12 calendar year, and

13 ‘‘(B) such child is under the age of 13 or

14 is physically or mentally incapable of caring for

15 himself,

16 in the case of any taxable year beginning in such

17 calendar year, such child shall be treated as a quali18 fying individual with respect to the custodial parent

19 (within the meaning of section 152(e)(1)), and shall

20 not be treated as a qualifying individual with respect

21 to the noncustodial parent.

22 ‘‘(6) PAYMENTS TO RELATED INDIVIDUALS.—

23 No credit shall be allowed under subsection (a) for

24 any amount paid by the taxpayer to an individual—
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1 ‘‘(A) with respect to whom, for the taxable

2 year, a deduction under section 151(e) (relating

3 to deduction for personal exemptions for de4 pendents) is allowable either to the taxpayer or

5 his spouse, or

6 ‘‘(B) who is a child of the taxpayer (within

7 the meaning of section 151(e)(3)) who has not

8 attained the age of 19 at the close of the tax9 able year.

10 For purposes of this paragraph, the term ‘taxable

11 year’ means the taxable year of the taxpayer in

12 which the service is performed.

13 ‘‘(7) STUDENT.—The term ‘student’ means an

14 individual who during each of 5 calendar months

15 during the taxable year is a full-time student at an

16 educational organization.

17 ‘‘(8) EDUCATIONAL ORGANIZATION.—The term

18 ‘educational organization’ means an educational or19 ganization described in section 170(b)(1)(A)(ii).

20 ‘‘(9) IDENTIFYING INFORMATION REQUIRED

21 WITH RESPECT TO SERVICE PROVIDER.—No credit

22 shall be allowed under subsection (a) for any amount

23 paid to any person unless—
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1 ‘‘(A) the name, address, and taxpayer

2 identification number of such person are in3 cluded on the return claiming the credit, or

4 ‘‘(B) if such person is an organization de5 scribed in section 501(c)(3) and exempt from

6 tax under section 501(a), the name and address

7 of such person are included on the return

8 claiming the credit.

9 In the case of a failure to provide the information

10 required under the preceding sentence, the preceding

11 sentence shall not apply if it is shown that the tax12 payer exercised due diligence in attempting to pro13 vide the information so required.

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

15 such regulations as may be necessary to carry out the pur16 poses of this section.’’.

17 (b) CONFORMING AMENDMENTS.—

18 (1) Section 21 of such Code is hereby repealed.

19 (2) Paragraph (2) of section 129(b) of such

20 Code is amended by striking out ‘‘section 21(d)(2)’’

21 and inserting ‘‘section 36(b)(3)(B)’’.

22 (3) Subsection (e) of section 213 of such Code

23 is amended by striking out ‘‘section 21’’ and insert24 ing ‘‘section 36’’.

25 (c) TECHNICAL AMENDMENTS.—
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1 (1) The table of sections for subpart C of part

2 IV of subchapter A of chapter 1 of such Code is

3 amended by striking out the item relating to section

4 35 and inserting in lieu thereof the following:

‘‘Sec. 36. Dependent care services.

‘‘Sec. 37. Overpayments of tax.’’.

5 (2) The table of sections for subpart A of such

6 part IV is amended by striking out the item relating

7 to section 21.

8 (d) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to taxable years beginning after

10 December 31, 1995.

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