I

103D CONGRESS

2D SESSION H. R. 150

To amend the Internal Revenue Code of 1986 to improve access to health

care, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 5, 1993

Mr. HASTERT (for himself, Mr. GOSS and Ms. FOWLER) introduced the following bill; which was referred jointly to the Committees on Ways and

Means, Energy and Commerce, and the Judiciary

JANUARY 27, 1994

Additional sponsors: Mr. GALLEGLY, Mr. BAKER of Louisiana, Mr. HERGER,

Mr. COX, Mr. SUNDQUIST, Mr. EMERSON, Mr. KYL, Mr. MACHTLEY, Mr.

MCKEON, Mr. LEWIS of Florida, Mr. SENSENBRENNER, Mr. ZELIFF, Mr.

KINGSTON, and Mr. BALLENGER

A BILL

To amend the Internal Revenue Code of 1986 to improve

access to health care, and for other purposes.

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

3 SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

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

5 ‘‘Health Care Choice and Access Improvement Act of

6 1993’’.

7 (b) TABLE OF CONTENTS.—
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Sec. 1. Short title and table of contents.

TITLE I—FAMILY HEALTH AND WELLNESS SAVINGS PLAN

Sec. 101. Medical savings accounts.

Sec. 102. Unused amounts in flexible spending accounts transferable to medical

savings accounts.

Sec. 103. Deduction for amounts paid for qualified catastrophic coverage health

plan.

TITLE II—TAX TREATMENT OF LONG-TERM CARE INSURANCE

AND PLANS

Subtitle A—Treatment of Long-Term Care Insurance

Sec. 201. Qualified long-term care insurance treated as accident and health insurance for purposes of taxation of life insurance companies.

Sec. 202. Qualified long-term care insurance treated as accident and health insurance for purposes of exclusion for benefits received under

such insurance and for employer contributions for such insurance.

Sec. 203. Exclusion from gross income for amounts withdrawn from individual

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

insurance.

Sec. 204. Exchange of life insurance policy for qualified long-term care policy

not taxable.

Subtitle B—Employer Funding of Medical Benefits

Sec. 211. Medical benefits for retired employees and their spouses and dependents.

Sec. 212. Treatment of health benefits accounts.

Subtitle C—Reverse Mortgage Insurance for Older Americans

Sec. 221. Maximum amount insured.

Subtitle D—Income Tax Credits

Sec. 231. Refundable credit for custodial care of certain dependents in taxpayer’s home.

Sec. 232. Credit for expenses for long-term care services provided to certain

independent persons requiring such care.

Subtitle E—Treatment of Accelerated Death Benefits

Sec. 241. Tax treatment of accelerated death benefits under life insurance contracts.

Sec. 242. Tax treatment of companies issuing qualified accelerated death benefit riders.

Subtitle F—Federal National Long-Term Care Reinsurance Corporation

Sec. 251. Authorization for establishment of Corporation.

Sec. 252. Board of directors and officers.

Sec. 253. Purpose and authority of Corporation.

Sec. 254. Capitalization.

Sec. 255. Exemption from state regulation and taxation.

Sec. 256. Audit and annual report.
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Sec. 257. Protection of name.

Sec. 258. Termination.

TITLE III—MALPRACTICE LIABILITY REFORM

Sec. 301. Definitions.

Sec. 302. Malpractice liability reform requirements described.

Sec. 303. Waiver of requirements for good cause or for carrying out demonstration projects.

Sec. 304. Certification of state compliance.

Sec. 305. Incentives through Medicare and Medicaid.

Sec. 306. Applicability of certain provisions to Federal Tort Claims Act.

Sec. 307. Rules of construction.

TITLE IV—WORKING AMERICANS ACCESS TO HEALTH CARE

Subtitle A—Increase in Small Employer Access to Affordable Health

Insurance

Sec. 401. Establishment and enforcement of standards for small employer

health insurance plans.

Sec. 402. Preemption of state benefits mandates for plans that meet consumer

protection standards.

Sec. 403. Requirement for offering of basic, low cost plan (medequity plan).

Sec. 404. Requirements relating to initial writing of policies.

Sec. 405. Requirements relating to renewal.

Sec. 406. Establishment of reinsurance mechanisms for high risk individuals.

Sec. 407. Registration of all health benefit plans required.

Sec. 408. Definitions.

Sec. 409. Preemption from insurance mandates for qualified small employer

purchasing groups.

Subtitle B—Equalization of Tax Benefits for Self-Employed Persons Under

Certain Plans

Sec. 411. Equalization of tax benefits for self-employed persons under certain

plans.

Subtitle C—Managed Care Rights

Sec. 421. Managed care rights.

Subtitle D—Study and Report

Sec. 431. Study and report on impact.

TITLE V—ADMINISTRATIVE COST SAVINGS

Subtitle A—Standardization of Claims Processing

Sec. 501. Adoption of data elements, uniform claims, and uniform electronic

transmission standards.

Sec. 502. Application of standards.

Sec. 503. Periodic review and revision of standards.

Sec. 504. Health benefit plan defined.

Subtitle B—Electronic Medical Data Standards

Sec. 511. Medical data standards for hospitals and other providers.
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Sec. 512. Application of electronic data standards to certain hospitals.

Sec. 513. Electronic transmission to Federal agencies.

Sec. 514. Limitation on data requirements where standards in effect.

Sec. 515. Advisory commission.

Subtitle C—Development and Distribution of Comparative Value Information

Sec. 521. State comparative value information programs for health care purchasing.

Sec. 522. Federal implementation.

Sec. 523. Comparative value information concerning Federal programs.

Sec. 524. Development of model systems.

Subtitle D—Additional Standards and Requirements; Research and

Demonstrations

Sec. 531. Standards relating to use of Medicare and Medicaid magnetized

health benefit cards; secondary payor data bank.

Sec. 532. Preemption of State quill pen laws.

Sec. 533. Use of standard identification numbers.

Sec. 534. Coordination of benefit standards.

Sec. 535. Research and demonstrations.

1 TITLE I—FAMILY HEALTH AND

2 WELLNESS SAVINGS PLAN

3 SEC. 101. MEDICAL SAVINGS ACCOUNTS.

4 (a) IN GENERAL.—Part VII of subchapter B of chap5 ter 1 of the Internal Revenue Code of 1986 (relating to

6 additional itemized deductions for individuals) is amended

7 by redesignating section 220 as section 221 and by insert8 ing after section 219 the following new section:

9 ‘‘SEC. 220. MEDICAL SAVINGS ACCOUNTS.

10 ‘‘(a) DEDUCTION ALLOWED.—In the case of an eligi11 ble individual, there shall be allowed as a deduction

12 amounts paid in cash during the taxable year by or on

13 behalf of such individual to a medical savings account.

14 ‘‘(b) LIMITATION.—
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1 ‘‘(1) IN GENERAL.—The amount allowable as a

2 deduction under subsection (a) to an individual for

3 the taxable year shall not exceed the excess (if any)

4 of—

5 ‘‘(A) the lesser of—

6 ‘‘(i) the applicable limit, or

7 ‘‘(ii) the compensation (as defined in

8 section 219(f)) includible in the individ9 ual’s gross income for the taxable year,

10 over

11 ‘‘(B) the sum of—

12 ‘‘(i) the value of employer-provided

13 coverage for the medical expenses of such

14 individual,

15 ‘‘(ii) the amount paid by the individ16 ual (other than from amounts distributed

17 from a medical savings account) for cov18 erage under qualified catastrophic coverage

19 health plan for coverage for such individ20 ual, the spouse of such individual, and de21 pendents (as defined in section 152) of

22 such individual, plus

23 ‘‘(iii) the aggregate amount contrib24 uted to such account during the taxable

25 year pursuant to section 125(d)(3).
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1 ‘‘(2) APPLICABLE LIMIT.—For purposes of

2 paragraph (1), the applicable limit is the sum of—

3 ‘‘(A) $4,800, plus

4 ‘‘(B) $600 for each individual who is a de5 pendent (as defined in section 152) of the indi6 vidual for whose benefit the account is estab7 lished.

8 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur9 poses of this section—

10 ‘‘(1) MEDICAL SAVINGS ACCOUNT.—The term

11 ‘medical savings account’ means a trust created or

12 organized in the United States exclusively for the

13 purpose of paying the qualified medical expenses of

14 the individual for whose benefit the trust is estab15 lished, but only if the written governing instrument

16 creating the trust meets the following requirements:

17 ‘‘(A) No contribution will be accepted un18 less it is in cash and contributions will not be

19 accepted for any taxable year in excess of the

20 applicable limit (as defined in subsection

21 (b)(2)).

22 ‘‘(B) The trustee is a bank (as defined in

23 section 408(n)) or another person who dem24 onstrates to the satisfaction of the Secretary

25 that the manner in which such person will ad-
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1 minister the trust will be consistent with the re2 quirements of this section.

3 ‘‘(C) No part of the trust assets will be in4 vested in life insurance contracts.

5 ‘‘(D) The assets of the trust will not be

6 commingled with other property except in a

7 common trust fund or common investment

8 fund.

9 ‘‘(2) ELIGIBLE INDIVIDUAL.—The term ‘eligible

10 individual’ means any individual if—

11 ‘‘(A) such individual is not covered by any

12 employer-provided group health plan, or

13 ‘‘(B) such individual is covered by an em14 ployer-provided group health plan which is a

15 qualified catastrophic coverage health plan and

16 is not covered by any other health plan.

17 ‘‘(3) QUALIFIED MEDICAL EXPENSES.—

18 ‘‘(A) IN GENERAL.—The term ‘qualified

19 medical expenses’ means—

20 ‘‘(i) medical expenses, and

21 ‘‘(ii) amounts paid for qualified long22 term care insurance (as defined in section

23 818(g)).

24 ‘‘(B) MEDICAL EXPENSES.—The term

25 ‘medical expenses’ means amounts paid by the
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1 individual for whose benefit the account was es2 tablished for medical care (as defined in section

3 213) of such individual, the spouse of such indi4 vidual, and any dependent (as defined in section

5 152) of such individual, but only to the extent

6 such amounts are not compensated for by in7 surance or otherwise.

8 ‘‘(4) QUALIFIED CATASTROPHIC COVERAGE

9 HEALTH PLAN.—The term ‘qualified catastrophic

10 coverage health plan’ means any health plan which

11 is certified by the Secretary of Health and Human

12 Services as a plan—

13 ‘‘(A) which provides no compensation for

14 medical expenses not exceeding $3,000 during

15 any year,

16 ‘‘(B) which requires the individual to pay

17 15 percent of such individual’s medical expenses

18 to the extent they exceed $3,000 but not

19 $9,000 during any year, and

20 ‘‘(C) which provides full reimbursement for

21 medical expenses exceeding $9,000.

22 ‘‘(5) TIME WHEN CONTRIBUTIONS DEEMED

23 MADE.—A taxpayer shall be deemed to have made a

24 contribution on the last day of the preceding taxable

25 year if the contribution is made on account of such
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1 taxable year and is made not later than the time

2 prescribed by law for filing the return for such tax3 able year (not including extensions thereof).

4 ‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—

5 ‘‘(1) IN GENERAL.—Except as otherwise pro6 vided in this subsection, any amount paid or distrib7 uted out of a medical savings account shall be in8 cluded in the gross income of the individual for

9 whose benefit such account was established unless

10 such amount is used exclusively to pay the qualified

11 medical expenses of such individual.

12 ‘‘(2) EXCESS CONTRIBUTIONS RETURNED BE13 FORE DUE DATE OF RETURN.—Paragraph (1) shall

14 not apply to the distribution of any contribution paid

15 during a taxable year to a medical savings account

16 to the extent that such contribution exceeds the

17 amount allowable as a deduction under subsection

18 (a) if—

19 ‘‘(A) such distribution is received on or be20 fore the day prescribed by law (including exten21 sions of time) for filing such individual’s return

22 for such taxable year,

23 ‘‘(B) no deduction is allowed under sub24 section (a) with respect to such excess contribu25 tion, and
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1 ‘‘(C) such distribution is accompanied by

2 the amount of net income attributable to such

3 excess contribution.

4 Any net income described in subparagraph (C) shall

5 be included in the gross income of the individual for

6 the taxable year in which it is received.

7 ‘‘(e) TAX TREATMENT OF ACCOUNTS.—

8 ‘‘(1) EXEMPTION FROM TAX.—A medical sav9 ings account is exempt from taxation under this sub10 title unless such account has ceased to be an invest11 ment savings account by reason of paragraph (2).

12 Notwithstanding the preceding sentence, any such

13 account is subject to the taxes imposed by section

14 511 (relating to imposition of tax on unrelated busi15 ness income of charitable, etc. organizations).

16 ‘‘(2) LOSS OF EXEMPTION OF ACCOUNT WHERE

17 INDIVIDUAL ENGAGES IN PROHIBITED TRANS18 ACTION.—

19 ‘‘(A) IN GENERAL.—If, during any taxable

20 year of the individual for whose benefit the

21 medical savings account was established, such

22 individual engages in any transaction prohibited

23 by section 4975 with respect to the account, the

24 account ceases to be a medical savings account

25 as of the first day of that taxable year.
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1 ‘‘(B) ACCOUNT TREATED AS DISTRIBUTING

2 ALL ITS ASSETS.—In any case in which any ac3 count ceases to be a medical savings account by

4 reason of subparagraph (A) on the first day of

5 any taxable year, paragraph (1) of subsection

6 (d) applies as if there were a distribution on

7 such first day in an amount equal to the fair

8 market value (on such first day) of all assets in

9 the account (on such first day).

10 ‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU11 RITY.—If, during any taxable year, the individual for

12 whose benefit a medical savings account was estab13 lished uses the account or any portion thereof as se14 curity for a loan, the portion so used is treated as

15 distributed to that individual.

16 ‘‘(f) ADDITIONAL TAX ON CERTAIN AMOUNTS IN17 CLUDED IN GROSS INCOME.—

18 ‘‘(1) DISTRIBUTION NOT USED FOR QUALIFIED

19 MEDICAL EXPENSES.—If a distribution from a medi20 cal savings account is made, and not used to pay the

21 qualified medical expenses of the individual for

22 whose benefit the account was established, the tax li23 ability of such individual for the taxable year in

24 which such distribution is received shall be increased

25 by an amount equal to 10 percent of the amount of
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1 the distribution which is includible in gross income

2 for such taxable year.

3 ‘‘(2) DISQUALIFICATION CASES.—If an amount

4 is includible in the gross income of an individual for

5 a taxable year under subsection (e), his tax under

6 this chapter for such taxable year shall be increased

7 by an amount equal to 10 percent of such amount

8 includible in his gross income.

9 ‘‘(3) DISABILITY OR DEATH CASES.—Para10 graphs (1) and (2) do not apply if the payment or

11 distribution is made after the individual for whose

12 benefit the medical savings account was established

13 becomes disabled within the meaning of section

14 72(m)(7) or dies.

15 ‘‘(g) SPECIAL RULES.—

16 ‘‘(1) COMMUNITY PROPERTY LAWS.—This sec17 tion shall be applied without regard to any commu18 nity property laws.

19 ‘‘(2) CUSTODIAL ACCOUNTS.—For purposes of

20 this section, a custodial account shall be treated as

21 a trust if—

22 ‘‘(A) the assets of such account are held by

23 a bank (as defined in section 408(n)) or an24 other person who demonstrates to the satisfac25 tion of the Secretary that the manner in which
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1 he will administer the account will be consistent

2 with the requirements of this section, and

3 ‘‘(B) the custodial account would, except

4 for the fact that it is not a trust, constitute a

5 medical savings account described in subsection

6 (c).

7 For purposes of this title, in the case of a custodial

8 account treated as a trust by reason of the preceding

9 sentence, the custodian of such account shall be

10 treated as the trustee thereof.

11 ‘‘(3) DENIAL OF DEDUCTIONS.—No amount

12 paid or distributed from a medical savings account

13 shall be taken into account in determining the de14 duction provided by section 213.

15 ‘‘(h) INFLATION ADJUSTMENT.—

16 ‘‘(1) IN GENERAL.—In the case of any taxable

17 year beginning in a calendar year after 1993, each

18 applicable dollar amount shall be increased by an

19 amount equal to—

20 ‘‘(A) such dollar amount, multiplied by

21 ‘‘(B) the cost-of-living adjustment for the

22 calendar year in which the taxable year begins.

23 ‘‘(2) COST-OF-LIVING ADJUSTMENT.—For pur24 poses of paragraph (1), the cost-of-living adjustment
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1 for any calendar year is the percentage (if any) by

2 which—

3 ‘‘(A) the deemed average total wages (as

4 defined in section 209(k) of the Social Security

5 Act) for the preceding calendar year, exceeds

6 ‘‘(B) the deemed average total wages (as

7 so defined) for calendar year 1992.

8 ‘‘(3) APPLICABLE DOLLAR AMOUNT.—For pur9 poses of paragraph (1), the term ‘applicable dollar

10 amount’ means—

11 ‘‘(A) the $4,800 and $600 amounts in sub12 section (b), and

13 ‘‘(B) the $3,000 and $9,000 amounts in

14 subsection (c)(4).

15 ‘‘(4) ROUNDING.—If any amount as adjusted

16 under paragraph (1) is not a multiple of $10, such

17 amount shall be rounded to the nearest multiple of

18 $10 (or, if such amount is a multiple of $5 and not

19 of $10, such amount shall be rounded to the next

20 highest multiple of $10).

21 ‘‘(i) REPORTS.—The trustee of a medical savings ac22 count shall make such reports regarding such account to

23 the Secretary and to the individual for whose benefit the

24 account is maintained with respect to contributions, dis25 tributions, and such other matters as the Secretary may
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1 require under regulations. The reports required by this

2 subsection shall be filed at such time and in such manner

3 and furnished to such individuals at such time and in such

4 manner as may be required by those regulations.’’

5 (b) DEDUCTION ALLOWED IN ARRIVING AT AD6 JUSTED GROSS INCOME.—Paragraph (7) of section 62(a)

7 of such Code (relating to retirement savings) is amend8 ed—

9 (1) by inserting ‘‘OR MEDICAL EXPENSE’’ after

10 ‘‘RETIREMENT’’ in the heading of such paragraph,

11 and

12 (2) by inserting before the period at the end

13 thereof the following: ‘‘and the deduction allowed by

14 section 220 (relating to deduction of certain pay15 ments to medical savings accounts)’’.

16 (c) TAX ON EXCESS CONTRIBUTIONS.—Section 4973

17 of such Code (relating to tax on excess contributions to

18 individual retirement accounts, certain section 403(b) con19 tracts, and certain individual retirement annuities) is

20 amended—

21 (1) by inserting ‘‘MEDICAL SAVINGS AC22 COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of

23 such section,
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1 (2) by redesignating paragraph (2) of sub2 section (a) as paragraph (3) and by inserting after

3 paragraph (1) the following:

4 ‘‘(2) a medical savings account (within the

5 meaning of section 220(c)),’’,

6 (3) by striking ‘‘or’’ at the end of paragraph

7 (1) of subsection (a), and

8 (4) by adding at the end thereof the following

9 new subsection:

10 ‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS

11 ACCOUNTS.—For purposes of this section, in the case of

12 a medical savings account, the term ‘excess contributions’

13 means the amount by which the amount contributed for

14 the taxable year to the account exceeds the amount allow15 able as a deduction under section 220 for such taxable

16 year. For purposes of this subsection, any contribution

17 which is distributed out of the medical savings account

18 and a distribution to which section 220(d)(2) applies shall

19 be treated as an amount not contributed.’’

20 (d) TAX ON PROHIBITED TRANSACTIONS.—Section

21 4975 of such Code (relating to prohibited transactions)

22 is amended—

23 (1) by adding at the end of subsection (c) the

24 following new paragraph:
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1 ‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC2 COUNTS.—An individual for whose benefit a medical

3 savings account is established shall be exempt from

4 the tax imposed by this section with respect to any

5 transaction concerning such account (which would

6 otherwise be taxable under this section) if, with re7 spect to such transaction, the account ceases to be

8 a medical savings account by reason of the applica9 tion of section 220(e)(2)(A) to such account.’’, and

10 (2) by inserting ‘‘or a medical savings account

11 described in section 220(c)’’ in subsection (e)(1)

12 after ‘‘described in section 408(a)’’.

13 (e) FAILURE TO PROVIDE REPORTS ON MEDICAL

14 SAVINGS ACCOUNTS.—Section 6693 of such Code (relat15 ing to failure to provide reports on individual retirement

16 account or annuities) is amended—

17 (1) by inserting ‘‘OR ON MEDICAL SAVINGS

18 ACCOUNTS’’ after ‘‘ANNUITIES’’ in the heading of

19 such section, and

20 (2) by adding at the end of subsection (a) the

21 following: ‘‘The person required by section 220(i) to

22 file a report regarding a medical savings account at

23 the time and in the manner required by such section

24 shall pay a penalty of $50 for each failure unless it
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1 is shown that such failure is due to reasonable

2 cause.’’

3 (f) CLERICAL AMENDMENTS.—

4 (1) The table of sections for part VII of sub5 chapter B of chapter 1 of such Code is amended by

6 striking the item relating to section 220 and insert7 ing the following:

‘‘Sec. 220. Medical savings accounts.

‘‘Sec. 221. Cross reference.’’

8 (2) The table of sections for chapter 43 of such

9 Code is amended by striking the item relating to sec10 tion 4973 and inserting the following:

‘‘Sec. 4973. Tax on excess contributions to individual retirement

accounts, medical savings accounts, certain 403(b)

contracts, and certain individual retirement annuities.’’

11 (3) The table of sections for subchapter B of

12 chapter 68 of such Code is amended by inserting ‘‘or

13 on medical savings accounts’’ after ‘‘annuities’’ in

14 the item relating to section 6693.

15 (g) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to taxable years beginning after

17 December 31, 1992.

18 SEC. 102. UNUSED AMOUNTS IN FLEXIBLE SPENDING AC19 COUNTS TRANSFERABLE TO MEDICAL SAV20 INGS ACCOUNTS.

21 (a) IN GENERAL.—Subsection (d) of section 125 of

22 the Internal Revenue Code of 1986 (relating to cafeteria
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1 plans) is amended by adding at the end thereof the follow2 ing new paragraph:

3 ‘‘(3) UNUSED AMOUNTS TRANSFERABLE TO

4 MEDICAL SAVINGS ACCOUNTS.—

5 ‘‘(A) IN GENERAL.—Subsection (a) shall

6 not fail to apply to a participant in a plan, and

7 a plan shall not fail to be treated as a cafeteria

8 plan, solely because under the plan amounts not

9 paid out as reimbursements under a flexible

10 spending arrangement for health and disability

11 for the benefit of an individual are contributed

12 to a medical savings account (as defined in sec13 tion 220(c)) for the benefit of such individual.

14 ‘‘(B) SPECIAL RULES.—

15 ‘‘(i) TIMING OF CONTRIBUTIONS.—

16 Contributions made under this paragraph

17 shall be made on the last day of the plan

18 year of the cafeteria plan.

19 ‘‘(ii) AVAILABILITY REQUIREMENT.—

20 Subparagraph (A) shall apply only if the

21 plan is available to at least 80 percent of

22 the employees of the employer. For pur23 poses of the preceding sentence, there shall

24 be excluded employees who are excluded

25 under section 414(q)(8) or who would be
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1 so excluded if ‘30’ were substituted for

‘171 2 ⁄2’ in subparagraph (B) thereof.’’

3 (b) TREATMENT OF AMOUNTS RECEIVED BY QUALI4 FIED CASH OR DEFERRED ARRANGEMENT.—

5 (1) Paragraph (2) of section 401(k) of such

6 Code is amended by striking ‘‘and’’ at the end of

7 subparagraph (C), by striking the period at the end

8 of subparagraph (D) and inserting ‘‘, and’’, and by

9 adding at the end thereof the following new subpara10 graph:

11 ‘‘(E) which provides that, with respect to

12 amounts held by the trust which are attrib13 utable to contributions made to the trust pursu14 ant to section 125(d)(3)—

15 ‘‘(i) an employee’s right to such

16 amounts is nonforfeitable, and

17 ‘‘(ii) such amounts may be used only

18 to pay expenses (not compensated for by

19 insurance or otherwise) for the medical

20 care (as defined in section 213) of the em21 ployee, the spouse of the employee, or any

22 dependent (as defined in section 152) of

23 the employee.’’
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1 (2) Subsection (k) of section 401 of such Code

2 is amended by adding at the end thereof the follow3 ing new paragraph:

4 ‘‘(11) TREATMENT OF AMOUNTS RECEIVED

5 FROM MEDICAL SAVINGS ARRANGEMENTS.—Con6 tributions made to a trust by reason of section

7 125(d)(3) shall not be taken into account under

8 paragraph (3)(A)(ii), and subsection (l) shall not

9 apply to such contributions.’’

10 (c) EFFECTIVE DATE.—The amendment made by

11 this section shall apply to taxable years beginning after

12 December 31, 1992.

13 SEC. 103. DEDUCTION FOR AMOUNTS PAID FOR QUALIFIED

14 CATASTROPHIC COVERAGE HEALTH PLAN.

15 (a) IN GENERAL.—Section 213 of the Internal Reve16 nue Code of 1986 (relating to medical, dental, etc., ex17 penses) is amended adding at the end thereof the following

18 new subsection:

19 ‘‘(g) FULL DEDUCTION FOR AMOUNTS PAID FOR

20 QUALIFIED CATASTROPHIC COVERAGE HEALTH

21 PLANS.—In the case of amounts paid for coverage under

22 a qualified catastrophic coverage health plan (as defined

23 in section 220(c))—
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1 ‘‘(1) subsection (a) shall be applied without re2 gard to the limitation based on adjusted gross in3 come, and

4 ‘‘(2) such amounts shall not be taken into ac5 count in determining whether any other amounts are

6 allowable as a deduction under this section.’’

7 (b) TECHNICAL AMENDMENT.—Paragraph (2) of

8 section 162(l) of such Code is amended by adding at the

9 end thereof the following new subparagraph:

10 ‘‘(C) QUALIFIED CATASTROPHIC COV11 ERAGE.—Paragraph (1) shall not apply to any

12 amount allowed as a deduction under section

13 213 for amounts paid for coverage under a

14 qualified catastrophic coverage health plan (as

15 defined in section 220(c)).’’

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

17 this section shall apply to taxable years beginning after

18 December 31, 1992.
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1 TITLE II—TAX TREATMENT OF

2 LONG-TERM CARE INSUR3 ANCE AND PLANS

4 Subtitle A—Treatment of Long5 Term Care Insurance

6 SEC. 201. QUALIFIED LONG-TERM CARE INSURANCE TREAT7 ED AS ACCIDENT AND HEALTH INSURANCE

8 FOR PURPOSES OF TAXATION OF LIFE INSUR9 ANCE COMPANIES.

10 (a) IN GENERAL.—Section 818 of the Internal Reve11 nue Code of 1986 (relating to other definitions and special

12 rules) is amended by adding at the end the following new

13 subsection:

14 ‘‘(g) QUALIFIED LONG-TERM CARE INSURANCE

15 TREATED AS ACCIDENT OR HEALTH INSURANCE.—For

16 purposes of this part—

17 ‘‘(1) IN GENERAL.—Any reference to accident

18 or health insurance shall be treated as including a

19 reference to qualified long-term care insurance.

20 ‘‘(2) QUALIFIED LONG-TERM CARE INSUR21 ANCE.—For purposes of this subsection—

22 ‘‘(A) IN GENERAL.—Subject to subpara23 graphs (B) and (C), the term ‘qualified long24 term care insurance’ means insurance under a

25 policy or rider, which is issued by a qualified is-
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1 suer, which meets standards at least as strin2 gent as those set forth in the January 1990

3 Long-Term Care Insurance Model Regulation

4 of the National Association of Insurance Com5 missioners, and which is certified by the Sec6 retary of Health and Human Services (in ac7 cordance with procedures similar to the proce8 dures prescribed in section 1882 of the Social

9 Security Act (42 U.S.C. 1385ss) used in the

10 certification of medicare supplemental policies

11 (as defined in subsection (g)(1) of such sec12 tion)) to be advertised, marketed, offered, or

13 designed to provide coverage—

14 ‘‘(i) for not less than 12 consecutive

15 months for each covered person who has

16 attained age 50,

17 ‘‘(ii) on an expense incurred, indem18 nity, or prepaid basis,

19 ‘‘(iii) for 1 or more medically nec20 essary, diagnostic services, preventive serv21 ices, therapeutic services, rehabilitation

22 services, maintenance services, or personal

23 care services, and

24 ‘‘(iv) provided in a setting other than

25 an acute care unit of a hospital.
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1 The requirement of clause (iv) shall be met only

2 if at least 1 of the settings in which such cov3 erage is provided is the patient’s home.

4 ‘‘(B) COVERAGE SPECIFICALLY EX5 CLUDED.—Such term does not include any in6 surance under any policy or rider which is of7 fered primarily to provide any combination of

8 the following kinds of coverage:

9 ‘‘(i) Basic Medicare supplement cov10 erage.

11 ‘‘(ii) Basic hospital-based acute care

12 expense coverage.

13 ‘‘(iii) Basic medical-surgical expense

14 coverage.

15 ‘‘(iv) Hospital confinement indemnity

16 coverage.

17 ‘‘(v) Major medical expense coverage.

18 ‘‘(vi) Disability income protection cov19 erage.

20 ‘‘(vii) Accident only coverage.

21 ‘‘(viii) Specified disease coverage.

22 ‘‘(ix) Specified accident coverage.

23 ‘‘(x) Limited benefit health coverage.
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1 ‘‘(C) QUALIFIED ISSUER.—For purposes of

2 subparagraph (A), the term ‘qualified issuer’

3 means any of the following:

4 ‘‘(i) Private insurance company.

5 ‘‘(ii) Fraternal benefit society.

6 ‘‘(iii) Nonprofit health corporation.

7 ‘‘(iv) Nonprofit hospital corporation.

8 ‘‘(v) Nonprofit medical service cor9 poration.

10 ‘‘(vi) Prepaid health plan.’’

11 (b) EFFECTIVE DATE.—The amendment made by

12 subsection (a) shall apply to taxable years beginning after

13 December 31, 1992.

14 SEC. 202. QUALIFIED LONG-TERM CARE INSURANCE TREAT15 ED AS ACCIDENT AND HEALTH INSURANCE

16 FOR PURPOSES OF EXCLUSION FOR BENE17 FITS RECEIVED UNDER SUCH INSURANCE

18 AND FOR EMPLOYER CONTRIBUTIONS FOR

19 SUCH INSURANCE.

20 (a) IN GENERAL.—Section 105 of the Internal Reve21 nue Code of 1986 (relating to amounts received under ac22 cident and health plans) is amended by adding at the end

23 the following new subsection:
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1 ‘‘(j) SPECIAL RULES RELATING TO QUALIFIED

2 LONG-TERM CARE INSURANCE.—For purposes of section

3 104, this section, and section 106—

4 ‘‘(1) BENEFITS TREATED AS PAYABLE FOR

5 SICKNESS, ETC.—Any benefit received through quali6 fied long-term care insurance (as defined in section

7 818(g)) shall be treated as received for personal in8 juries or sickness.

9 ‘‘(2) EXPENSES FOR WHICH REIMBURSEMENT

10 PROVIDED UNDER QUALIFIED LONG-TERM CARE IN11 SURANCE TREATED AS INCURRED FOR MEDICAL

12 CARE.—Expenses incurred by a taxpayer for which

13 reimbursement is paid through qualified long-term

14 care insurance (as so defined) shall be treated for

15 purposes of subsection (b) as incurred for medical

16 care (as defined in section 213(d)).

17 ‘‘(3) REFERENCES TO ACCIDENT AND HEALTH

18 PLANS.—Any reference to an accident or health plan

19 shall be treated as including a reference to a plan

20 providing qualified long-term care insurance.’’

21 (b) EFFECTIVE DATE.—The amendment made by

22 subsection (a) shall apply to taxable years beginning after

23 December 31, 1992.
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1 SEC. 203. EXCLUSION FROM GROSS INCOME FOR AMOUNTS

2 WITHDRAWN FROM INDIVIDUAL RETIRE3 MENT PLANS OR 401(k) PLANS FOR QUALI4 FIED LONG-TERM CARE INSURANCE.

5 (a) IN GENERAL.—Part III of subchapter B of chap6 ter 1 of the Internal Revenue Code of 1986 (relating to

7 items specifically excluded from gross income) is amended

8 by redesignating section 136 as section 137 and by insert9 ing after section 135 the following new section:

10 ‘‘SEC. 136. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT

11 ACCOUNTS AND SECTION 401(k) PLANS FOR

12 QUALIFIED LONG-TERM CARE INSURANCE.

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

14 gross income of an individual for the taxable year by rea15 son of qualified distributions during such taxable year

16 shall not exceed the excess of—

17 ‘‘(1) the amount which would (but for this sec18 tion) be so includible by reason of such distributions,

19 over

20 ‘‘(2) the aggregate premiums paid by such indi21 vidual during such taxable year for any policy of

22 qualified long-term care insurance (as defined in sec23 tion 818(g)) for the benefit of such individual or the

24 spouse of such individual.

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

26 this section, the term ‘qualified distribution’ means any
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1 distribution to an individual from an individual retirement

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

attained age 591 3 ⁄2 on or before the date of the distribution

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

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

spouse has attained age 591 6 ⁄2 on or before the date of the

7 distribution).

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

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

10 term ‘individual retirement account’ has the mean11 ing given such term by section 408(a).

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

13 401(k) plan’ means any employer plan which meets

14 the requirements of section 401(a) and which in15 cludes a qualified cash or deferred arrangement (as

16 defined in section 401(k)).

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

18 ‘‘(1) WITHDRAWALS CANNOT EXCEED ELEC19 TIVE CONTRIBUTIONS UNDER QUALIFIED CASH OR

20 DEFERRED ARRANGEMENT.—This section shall not

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

22 to the extent the aggregate amount of such distribu23 tions for the use described in subsection (a) exceeds

24 the aggregate employer contributions made pursuant

25 to the employee’s election under section 401(k)(2).
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1 ‘‘(2) WITHDRAWALS NOT TO CAUSE DISQUALI2 FICATION.—A plan shall not be treated as failing to

3 satisfy the requirements of section 401, and an ar4 rangement shall not be treated as failing to be a

5 qualified cash or deferred arrangement (as defined

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

7 or arrangement distributions are permitted which

8 are excludable from gross income by reason of this

9 section.’’

10 (b) CONFORMING AMENDMENTS.—

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

12 adding at the end the following new paragraph:

13 ‘‘(11) CROSS REFERENCE.—

‘‘For provision permitting tax-free withdrawals

for payment of long-term care premiums, see section

136.’’

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

15 adding at the end the following new paragraph:

16 ‘‘(8) CROSS REFERENCE.—

‘‘For provision permitting tax-free withdrawals

from individual retirement accounts for payment of

long-term care premiums, see section 136.’’

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

18 amended by striking the last item and inserting the

19 following new items:

‘‘Sec. 136. Distributions from individual retirement accounts and

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

‘‘Sec. 137. Cross references to other Acts.’’
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1 (c) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall apply to taxable years beginning after

3 December 31, 1992.

4 SEC. 204. EXCHANGE OF LIFE INSURANCE POLICY FOR

5 QUALIFIED LONG-TERM CARE POLICY NOT

6 TAXABLE.

7 (a) IN GENERAL.—Subsection (a) of section 1035 of

8 the Internal Revenue Code of 1986 (relating to certain

9 exchanges of insurance policies) is amended by striking

10 the period at the end of paragraph (3) and inserting ‘‘;

11 or’’ and by adding at the end the following new paragraph:

12 ‘‘(4) in the case of an individual who has attained age 591 13 ⁄2, a contract of life insurance or a

14 contract of endowment insurance or an annuity con15 tract for a contract of qualified long-term care insur16 ance (as defined in section 818(g)) for the benefit of

17 such individual or the spouse of such individual if

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

19 date of the exchange.’’

20 (b) EFFECTIVE DATE.—The amendment made by

21 this section shall apply to taxable years beginning after

22 December 31, 1992.
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1 Subtitle B—Employer Funding of

2 Medical Benefits

3 SEC. 211. MEDICAL BENEFITS FOR RETIRED EMPLOYEES

4 AND THEIR SPOUSES AND DEPENDENTS.

5 (a) IN GENERAL.—Section 401(h) of the Internal

6 Revenue Code of 1986 (relating to medical, etc., benefits

7 for retired employees and their spouses and dependents)

8 is amended to read as follows:

9 ‘‘(h) RETIREE HEALTH ACCOUNTS.—

10 ‘‘(1) GENERAL RULE.—Under regulations pre11 scribed by the Secretary, a defined benefit plan may

12 establish and maintain a separate health benefits ac13 count for the payment of medical benefits of retired

14 employees and their spouses and dependents.

15 ‘‘(2) SEPARATE ACCOUNTING REQUIRED.—An

16 employer establishing a health benefits account shall

17 maintain separate accounts within the health bene18 fits account for funded reserve accounts established

19 under section 420A.

20 ‘‘(3) USE OF ASSETS.—Subject to the provi21 sions of part III of this subchapter, the corpus or in22 come of a health benefits account shall not be used

23 for, or diverted to, any purpose other than providing

24 medical benefits to retired employees and their

25 spouses and dependents.
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1 ‘‘(4) KEY EMPLOYEES.—

2 ‘‘(A) IN GENERAL.—In the case of an em3 ployee who is a key employee—

4 ‘‘(i) a separate account shall be estab5 lished and maintained for medical benefits

6 payable to such employee (and the employ7 ee’s spouse or dependents), and

8 ‘‘(ii) medical benefits of such em9 ployee, spouse, or dependents which are at10 tributable to plan years beginning after

11 March 31, 1984, for which the employee is

12 a key employee may be payable only from

13 such account.

14 ‘‘(B) KEY EMPLOYEE.—For purposes of

15 subparagraph (A), the term ‘key employee’

16 means any employee who, at any time during

17 the plan year or any preceding plan year during

18 which contributions were made on behalf of

19 such employee, is or was a key employee (as de20 fined in section 416(i)).

21 ‘‘(5) APPLICABLE RULES.—For rules applicable

22 to health benefits accounts, see subpart F of this

23 part (sec. 420A et seq.).’’

24 (b) CONFORMING AMENDMENT.—Section 415(l)(2)

25 of such Code (relating to treatment of certain medical ben-
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1 efits) is amended by inserting ‘‘by reason of section

2 401(h)(4)’’ after ‘‘dependents’’ in subparagraph (B).

3 (c) EFFECTIVE DATE.—

4 (1) IN GENERAL.—Except as provided in para5 graph (2), the amendments made by this section

6 shall apply to years beginning after December 31,

7 1992.

8 (2) TRANSITION RULE.—In the case of—

9 (A) a plan other than a defined benefit

10 plan, or

11 (B) a defined benefit plan which elects, at

12 such time and in such manner as the Secretary

13 of the Treasury or his delegate may prescribe,

14 to have this paragraph apply,

15 which on or before the date of the enactment of this

16 Act established an account to which section 401(h)

17 of the Internal Revenue Code of 1986 (as in effect

18 before the amendments made by this section) ap19 plied (and which is in existence on such date), the

20 amendments made by this section shall not apply to

21 such account.

22 SEC. 212. TREATMENT OF HEALTH BENEFITS ACCOUNTS.

23 (a) IN GENERAL.—Part I of subchapter D of chapter

24 1 of the Internal Revenue Code of 1986 is amended by

25 adding at the end the following new subpart:
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1 ‘‘Subpart F—Treatment of Health Benefits Accounts

‘‘Sec. 420A. Deduction for employer contributions to health benefits accounts.

‘‘Sec. 420B. Funded reserve account.

‘‘Sec. 420C. Definitions; special rules.

2 ‘‘SEC. 420A. DEDUCTION FOR EMPLOYER CONTRIBUTIONS

3 TO HEALTH BENEFITS ACCOUNTS.

4 ‘‘(a) GENERAL RULE.—Amounts paid by an em5 ployer to a defined benefit plan which are allocated to a

6 health benefits account—

7 ‘‘(1) shall not be allowed as a deduction under

8 this chapter, but

9 ‘‘(2) if they would otherwise be deductible, shall

10 be allowed as a deduction under this section for the

11 taxable year in which paid.

12 ‘‘(b) LIMITATION.—The amount of the deduction al13 lowable under subsection (a)(2) for any taxable year shall

14 not exceed the health benefits account’s qualified cost for

15 the taxable year.

16 ‘‘(c) QUALIFIED COST.—For purposes of this sec17 tion—

18 ‘‘(1) IN GENERAL.—The term ‘qualified cost’

19 means, with respect to any taxable year, the sum

20 of—

21 ‘‘(A) the qualified direct cost for such tax22 able year, plus
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1 ‘‘(B) subject to the limitation of section

2 420B(b), any addition to the funded reserve ac3 count established under section 420B.

4 ‘‘(2) QUALIFIED DIRECT COST.—

5 ‘‘(A) IN GENERAL.—The term ‘qualified

6 direct cost’ means, with respect to any taxable

7 year, the aggregate amount (including adminis8 trative expenses) which would have been allow9 able as a deduction to the employer with re10 spect to the qualified section 401(h) medical

11 benefits provided through the health benefits

12 account during the taxable year if—

13 ‘‘(i) such benefits were provided di14 rectly by the employer, and

15 ‘‘(ii) the employer used the cash re16 ceipts and disbursements method of ac17 counting.

18 ‘‘(B) TIME WHEN BENEFITS PROVIDED.—

19 For purposes of subparagraph (A), a benefit

20 shall be treated as provided when such benefit

21 would be includible in the gross income of the

22 employee if provided directly by the employer

23 (or would be so includible but for any provision

24 of this chapter excluding such benefit from

25 gross income).
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1 ‘‘SEC. 420B. FUNDED RESERVE ACCOUNT.

2 ‘‘(a) GENERAL RULE.—For purposes of this subpart

3 and section 401(h), the term ‘funded reserve account’

4 means an account within a health benefits account—

5 ‘‘(1) to which contributions paid or accrued to

6 a defined benefit plan are allocated to provide a re7 serve for the payment of qualified section 401(h)

8 medical benefits of employees and their spouses and

9 dependents,

10 ‘‘(2) with respect to which the only contribu11 tions allocated are employer contributions, and

12 ‘‘(3) with respect to which—

13 ‘‘(A) the vesting requirements of sub14 section (c),

15 ‘‘(B) the portability requirements of sub16 section (d), and

17 ‘‘(C) the availability requirements of sub18 section (e),

19 are met.

20 ‘‘(b) LIMITATION ON ALLOCATION TO ACCOUNT.—

21 ‘‘(1) IN GENERAL.—No amount may be allo22 cated to a funded reserve account (and taken into

23 account under section 420A(c)(1)(B)) to the extent

24 such addition results in the amount allocated to such

25 account exceeding the account limit.
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1 ‘‘(2) ACCOUNT LIMIT.—The account limit for

2 any taxable year is an amount equal to 125 percent

3 of the termination liability of the account as of the

4 close of the last plan year ending with or within the

5 taxable year.

6 ‘‘(3) TERMINATION LIABILITY.—For purposes

7 of this section—

8 ‘‘(A) IN GENERAL.—The term ‘termination

9 liability’ means the present value of the quali10 fied section 401(h) medical benefits—

11 ‘‘(i) which are to be provided to em12 ployees (and their spouses and depend13 ents), and

14 ‘‘(ii) any portion of which is to be pro15 vided through a funded reserve account.

16 ‘‘(B) DETERMINATIONS.—The termination

17 liability under subparagraph (A) shall be deter18 mined—

19 ‘‘(i) on the basis of actuarial assump20 tions which are used in determining the

21 full-funding limitation of the plan under

22 section 412(c)(7),

23 ‘‘(ii) as if the benefits under the plan

24 commenced at Social Security retirement

25 age, and
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1 ‘‘(iii) by not taking into account any

2 portion of the maximum annual benefit

3 under the plan for—

4 ‘‘(I) benefits (other than post-re5 tirement long-term health care bene6 fits) in excess of $1,500, or

7 ‘‘(II) post-retirement long-term

8 health care benefits in excess of

9 $1,500.

10 ‘‘(C) ADJUSTMENTS TO ACCOUNT.—The

11 amount in the account shall be adjusted at such

12 time and in such manner as the Secretary may

13 prescribe to take into account income, gains,

14 deductions, or losses which are properly alloca15 ble to amounts in the account.

16 ‘‘(D) ACTUARIAL ADJUSTMENT.—For pur17 poses of determining termination liability, the

18 benefits provided to any participant under the

19 plan shall be actuarially adjusted to reflect any

20 commencement of benefits before or after Social

21 Security retirement age.

22 ‘‘(E) EMPLOYEE.—For purposes of this

23 paragraph, the term ‘employee’ does not include

24 a former employee.
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1 ‘‘(F) COST-OF-LIVING ADJUSTMENT.—In

2 the case of years beginning after 1995, the

3 $1,500 amounts in subparagraph (B) shall be

4 adjusted annually at the same time and in the

5 same manner as under section 415(d).

6 ‘‘(c) VESTING REQUIREMENTS.—

7 ‘‘(1) IN GENERAL.—The requirements of this

8 subsection are met if the requirements of either sub9 paragraph (A) or (B) of section 411(a)(2) are met

10 with respect to the accrued qualified section 401(h)

11 medical benefits derived from amounts which are al12 located to the funded reserve account.

13 ‘‘(2) UNIFORM RATE OF ACCRUAL OF BENE14 FITS.—

15 ‘‘(A) IN GENERAL.—Except as provided in

16 this paragraph, a plan shall not be treated as

17 meeting the requirements of this subsection un18 less the rate at which benefits accrue during a

19 plan year is the same for all participants.

20 ‘‘(B) SPECIAL RULES FOR CERTAIN INDI21 VIDUALS AGE 55 AND OVER.—A plan shall not

22 be treated as failing to meet the requirements

23 of this subsection if the plan provides that an

24 employee who as of the close of the plan year

25 in which he attains age 55 has accrued less
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1 than 30 percent of the maximum amount of

2 benefits which may be accrued under the plan

3 may accrue benefits during succeeding plan

4 years at a greater rate than the rate for other

5 employees (but not in excess of 125 percent of

6 such other rate).

7 ‘‘(C) MINIMUM HOURS OF SERVICE.—For

8 purposes of subparagraph (A), an employee

9 shall not be treated as a participant for any

10 plan year unless such individual completes more

11 than 500 hours of service during such year.

12 ‘‘(3) CERTAIN RULES MADE APPLICABLE.—Ex13 cept to the extent inconsistent with the provisions of

14 this subpart, the rules of section 411 shall apply for

15 purposes of this subsection.

16 ‘‘(d) PORTABILITY REQUIREMENTS.—

17 ‘‘(1) IN GENERAL.—Except as provided in para18 graph (2), the requirements of this subsection are

19 met if, in accordance with procedures determined by

20 the Secretary, the plan provides that—

21 ‘‘(A) except as provided in regulations, the

22 plan shall transfer, within 120 days after an

23 employee separates from service with the em24 ployer or after the termination of the plan, the

25 present value of the nonforfeitable accrued
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1 qualified section 401(h) medical benefits of the

2 employee attributable to amounts which are al3 located to the funded reserve account to—

4 ‘‘(i) a plan which is maintained by an

5 employer of such employee and which

6 maintains a health benefits account, or

7 ‘‘(ii) if the employer does not main8 tain a plan described in clause (i), an indi9 vidual retirement account established for

10 the benefit of such employee, and

11 ‘‘(B) the plan accepts transfers under sub12 paragraph (A) from another plan or individual

13 retirement account.

14 ‘‘(2) NO TRANSFERS AFTER EMPLOYEE IS DIS15 ABLED OR ATTAINS RETIREMENT AGE.—Except in

16 the case of a termination of a plan, a plan shall not

17 meet the requirements of this subsection if it per18 mits the transfer of a benefit after—

19 ‘‘(A) an employee has attained Social Se20 curity retirement age, or

21 ‘‘(B) an employee has become disabled

22 (within the meaning of section 72(m)(7)).

23 ‘‘(3) INCLUSION IN INCOME WHERE MORE

24 THAN 1 ACCOUNT.—

25 ‘‘(A) IN GENERAL.—If—
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1 ‘‘(i) an individual is a participant or

2 beneficiary under 2 or more plans main3 taining a funded reserve account or indi4 vidual retirement account to which assets

5 were transferred from such a plan, and

6 ‘‘(ii) such individual does not (within

7 a reasonable period) consolidate the

8 present value of the individual’s nonforfeit9 able accrued benefit in all such plans and

10 the assets so transferred to all such ac11 counts into 1 such plan or into 1 such ac12 count,

13 then an amount equal to the sum of the present

14 value of such benefits and the fair market value

15 of such assets shall be treated as distributed in

16 cash to such individual at the close of the plan

17 year for the plan or account involved and such

18 distribution shall be included in gross income.

19 ‘‘(B) SPECIAL RULES.—

20 ‘‘(i) EMPLOYEE MUST CONSOLIDATE

21 INTO PLAN OF CURRENT EMPLOYER.—In

22 the case of an employee who is employed

23 by an employer maintaining a plan de24 scribed in subparagraph (A)(i), a consoli25 dation satisfies subparagraph (A) only if
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1 such consolidation is into such a plan

2 maintained by such employer.

3 ‘‘(ii) MORE THAN 1 CURRENT EM4 PLOYER.—If an individual is a participant

5 in more than 1 plan described in subpara6 graph (A)(i) by reason of being currently

7 employed by more than 1 employer, such

8 plans shall be treated as 1 plan for pur9 poses of subparagraph (A).

10 ‘‘(iii) EMPLOYEE WITH NO CURRENT

11 EMPLOYER MAINTAINING PLAN.—In the

12 case of an employee who is currently not

13 employed by an employer maintaining a

14 plan described in subparagraph (A)(i), a

15 consolidation satisfies subparagraph (A)

16 only if such consolidation is into—

17 ‘‘(I) a plan described in subpara18 graph (A)(i) maintained by his most

19 recent employer maintaining such

20 plan, or

21 ‘‘(II) an individual retirement ac22 count of the individual.

23 ‘‘(C) AMOUNT TRANSFERRED NOT INCLUD24 IBLE IN INCOME.—No amount shall be includ25 ible in gross income by reason of any transfer
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1 which is part of a consolidation required under

2 this paragraph.

3 ‘‘(e) RETIRED EMPLOYEES NOT COVERED BY

4 HEALTH BENEFITS ACCOUNT MAY ELECT COVERAGE.—

5 ‘‘(1) IN GENERAL.—The requirements of this

6 subsection are met if the plan provides that a former

7 employee who—

8 ‘‘(A) is in pay status under the plan, but

9 ‘‘(B) is not eligible to receive all or any

10 portion of qualified section 401(h) medical ben11 efits provided for any period through the fund12 ed reserve account,

13 is entitled to elect such benefits for himself or his

14 spouse and dependents. A plan shall not be treated

15 as failing to meet the requirements of this sub16 section if an employee is required to pay a premium

17 for such benefits as long as such premium does not

18 exceed 102 percent of applicable premium for the

19 period such benefits are provided.

20 ‘‘(2) APPLICABLE PREMIUM.—For purposes of

21 paragraph (1), the applicable premium for any pe22 riod shall be determined in the same manner as

23 under section 4980B(f)(4).
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1 ‘‘SEC. 420C. DEFINITIONS; SPECIAL RULES.

2 ‘‘(a) QUALIFIED SECTION 401(h) MEDICAL BENE3 FITS.—For purposes of this subpart, the term ‘qualified

4 section 401(h) medical benefits’ means benefits—

5 ‘‘(1) which are—

6 ‘‘(A) benefits for sickness, accident, hos7 pitalization, and medical expenses of former

8 employees who are in pay status under the plan

9 (and their spouse or dependents) after the

10 former employee—

11 ‘‘(i) has attained Social Security re12 tirement age, or

13 ‘‘(ii) is disabled (within the meaning

14 of section 72(m)(7)), or

15 ‘‘(B) post-retirement long-term health care

16 benefits, and

17 ‘‘(2) which are provided through 1 or more of

18 the following:

19 ‘‘(A) insurance acquired by the plan, or

20 ‘‘(B) self-insurance by the employer or the

21 plan.

22 ‘‘(b) POST-RETIREMENT LONG-TERM HEALTH

23 CARE.—For purposes of this subpart—

24 ‘‘(1) IN GENERAL.—The term ‘post-retirement

25 long-term health care’ means long-term health care

26 benefits provided to a former employee (or the
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1 spouse of the former employee) who is in pay status

2 under the plan after the former employee—

3 ‘‘(A) has attained Social Security retire4 ment age, or

5 ‘‘(B) is disabled (within the meaning of

6 section 72(m)(7)).

7 ‘‘(2) SPOUSE OF DECEASED EMPLOYEE.—For

8 purposes of paragraph (1), the spouse of a deceased

9 employee shall be treated—

10 ‘‘(A) as a former employee, and

11 ‘‘(B) as satisfying the requirements of

12 paragraph (1) if such spouse was receiving ben13 efits immediately before the death of the em14 ployee.

15 ‘‘(3) LONG-TERM HEALTH CARE BENEFIT.—

16 ‘‘(A) IN GENERAL.—The term ‘long-term

17 health care benefit’ means a benefit which con18 sists of the providing by a qualified provider in

19 a qualified facility of necessary diagnostic, pre20 ventive, therapeutic, rehabilitative, and personal

21 care services, required by a chronically ill indi22 vidual.

23 ‘‘(B) CERTAIN ITEMS NOT INCLUDED.—

24 The term ‘long-term health care benefits’ does

25 not include basic medicare supplement cov-
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1 erage, basic hospital expense coverage, basic

2 medical-surgical expense coverage, hospital con3 finement indemnity coverage, major medical ex4 pense coverage, disability income protection cov5 erage, accident only coverage, specified disease

6 or specified accident coverage, or limited benefit

7 health coverage.

8 ‘‘(4) QUALIFIED FACILITY.—The term ‘quali9 fied facility’ means—

10 ‘‘(A) a rehabilitative, hospice, or adult day

11 care facility, including a hospital, retirement

12 home, skilled nursing facility (within the mean13 ing of section 1919(a) of the Social Security

14 Act), or other similar facility determined by the

15 plan administrator, or

16 ‘‘(B) a home where the chronically ill indi17 vidual resides.

18 ‘‘(5) CHRONICALLY ILL INDIVIDUAL.—The term

19 ‘chronically ill individual’ means an individual whose

20 disability is such that the individual has been cer21 tified as requiring assistance with daily living (as de22 fined by the plan administrator) for a period of at

23 least 90 days.

24 ‘‘(6) QUALIFIED PROVIDER.—The term ‘quali25 fied provider’ means a medical practitioner licensed
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1 under State law, registered nurse, licensed vocational

2 nurse, qualified therapist, or trained home health

3 aide (or any organization employing such providers),

4 but does not include a relative or other person who

5 ordinarily resides in the home where the chronically

6 ill individual resides.

7 ‘‘(c) HEALTH BENEFITS ACCOUNT.—For purposes of

8 this subpart, the term ‘health benefits account’ means an

9 account established and maintained under section 401(h).

10 ‘‘(d) SOCIAL SECURITY RETIREMENT AGE.—For

11 purposes of this subpart, the term ‘Social Security retire12 ment age’ has the meaning given such term by section

13 415(b)(8).’’

14 (b) INDIVIDUAL RETIREMENT ACCOUNTS.—

15 (1) IN GENERAL.—Section 408 of such Code is

16 amended by redesignating subsection (p) as sub17 section (q) and by inserting after subsection (o) the

18 following new subsection:

19 ‘‘(p) SPECIAL RULES FOR FUNDED RESERVE AC20 COUNTS.—

21 ‘‘(1) IN GENERAL.—A trust shall not be treated

22 as an individual retirement account under subsection

23 (a) unless the trust instrument provides that the

24 trust will accept transfers of assets as provided in

25 section 420B(d)(1).
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1 ‘‘(2) ACCOUNTING.—The trustee of an individ2 ual retirement account shall maintain separate ac3 counting for assets transferred to the account under

4 section 420B(d)(1) (and any income allocable there5 to).’’

6 (2) PENALTY FOR EARLY DISTRIBUTIONS.—

7 Section 72(t) of such Code (relating to 10-percent

8 additional tax on early distributions) is amended by

9 adding at the end the following new paragraph:

10 ‘‘(6) EARLY DISTRIBUTION OF MEDICAL BENE11 FITS.—If—

12 ‘‘(A) a taxpayer receives a distribution of

13 amounts transferred to an individual retirement

14 account under section 420B(d)(1) (or any in15 come or gain allocable thereto), and

16 ‘‘(B) such distribution—

17 ‘‘(i) is made before the individual at18 tains Social Security retirement age (with19 in the meaning of section 415(b)(8)) or be20 comes disabled (within the meaning of sub21 section (m)(7)), or

22 ‘‘(ii) exceeds the amount of qualified

23 section 401(h) medical expenses of the tax24 payer, his spouse, or dependents for the

25 taxable year,
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1 then paragraph (1) shall apply to such distribution

2 or such excess, except that ‘50 percent’ shall be sub3 stituted for ‘10 percent’. Paragraph (2) shall not

4 apply to a distribution to which this paragraph ap5 plies.’’

6 (c) EXCISE TAX ON ALLOCATED ASSETS NOT USED

7 TO PROVIDE RETIREE HEALTH BENEFITS.—Section

8 4980 of such Code (relating to tax on reversion of quali9 fied plan assets to employers) is amended by adding at

10 the end the following new subsection:

11 ‘‘(e) ASSETS ALLOCATED TO RETIREE HEALTH BEN12 EFITS ACCOUNTS.—In the case of a plan which establishes

13 a health benefits account described in section 401(h), if—

14 ‘‘(1) amounts are allocated to a funded reserve

15 account under section 420B, and

16 ‘‘(2) any amount in such account is paid or dis17 tributed other than to pay for qualified section

18 401(h) medical benefits (as defined in section

19 420C(a)) provided through such account,

20 the amount so paid or distributed shall be treated as an

21 employer reversion for purposes of this section, except that

22 subsection (a) shall be applied by substituting ‘100 per23 cent’ for ‘25 percent’.’’

24 (d) CONFORMING AMENDMENTS.—
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1 (1) Section 419(e) of such Code (defining wel2 fare benefit fund) is amended by adding at the end

3 the following new paragraph:

4 ‘‘(5) HEALTH BENEFITS ACCOUNTS.—The term

5 ‘welfare benefits fund’ does not include any health

6 benefits account established under section 401(h).’’

7 (2) The table of subparts for part I of sub8 chapter D of chapter 1 of such Code is amended by

9 adding at the end the following new item:

‘‘Subpart F. Treatment of health benefit accounts.’’

10 (e) EFFECTIVE DATE.—

11 (1) IN GENERAL.—Except as provided in para12 graph (2), the amendments made by this section

13 shall apply to contributions after December 31,

14 1992.

15 (2) INDIVIDUAL RETIREMENT ACCOUNTS.—The

16 amendments made by subsection (b) shall apply to

17 accounts established after December 31, 1992.

18 Subtitle C—Reverse Mortgage

19 Insurance for Older Americans

20 SEC. 221. MAXIMUM AMOUNT INSURED.

21 Section 255(g) of the National Housing Act (12

22 U.S.C. 1715z–20(g)) is amended by striking the third sen23 tence and inserting the following new sentence: ‘‘In no

24 case may the benefits of insurance under this section ex25 ceed the greater of 95 percent of the median 1-family
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1 house price in the United States or 95 percent of the me2 dian 1-family house price in the area, as determined by

3 the Secretary.’’

4 Subtitle D—Income Tax Credits

5 SEC. 231. REFUNDABLE CREDIT FOR CUSTODIAL CARE OF

6 CERTAIN DEPENDENTS IN TAXPAYER’S

7 HOME.

8 (a) IN GENERAL.—Subpart C of part IV of sub9 chapter A of chapter 1 of the Internal Revenue Code of

10 1986 (relating to refundable credits) is amended by redes11 ignating section 35 as section 37 and by inserting after

12 section 34 the following new section:

13 ‘‘SEC. 35. CREDIT FOR TAXPAYERS WITH CERTAIN PERSONS

14 REQUIRING CUSTODIAL CARE IN THEIR

15 HOUSEHOLDS.

16 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in17 dividual who maintains a household which includes as a

18 member one or more qualified persons, there shall be al19 lowed as a credit against the tax imposed by this chapter

20 for the taxable year an amount equal to $2,000 for each

21 such person.

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

23 ‘‘(1) QUALIFIED PERSON.—The term ‘qualified

24 person’ means any individual—
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1 ‘‘(A) who is a parent, grandparent, de2 pendent (as defined in section 152), or spouse

3 of the taxpayer,

4 ‘‘(B) who has been certified by a physician

5 as—

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

7 substantial assistance from another indi8 vidual) at least 2 activities of daily living

9 (as defined in paragraph (2)), or

10 ‘‘(ii) having a similar level of disabil11 ity due to cognitive impairment, and

12 ‘‘(C) who has as his principal place of

13 abode for more than half of the taxable year the

14 home of the taxpayer.

15 ‘‘(2) ACTIVITIES OF DAILY LIVING.—For pur16 poses of paragraph (1), each of the following is an

17 activity of daily living:

18 ‘‘(A) BATHING.—The overall complex be19 havior of getting water and cleansing the whole

20 body, including turning on the water for a bath,

21 shower, or sponge bath, getting to, in, and out

22 of a tub or shower, and washing and drying

23 oneself.
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1 ‘‘(B) DRESSING.—The overall complex be2 havior of getting clothes from closets and draw3 ers and then getting dressed.

4 ‘‘(C) TOILETING.—The act of going to the

5 toilet room for bowel and bladder function,

6 transferring on and off the toilet, cleaning after

7 elimination, and arranging clothes.

8 ‘‘(D) TRANSFER.—The process of getting

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

10 wheelchair.

11 ‘‘(E) EATING.—The process of getting

12 food from a plate or its equivalent into the

13 mouth.

14 ‘‘(3) PHYSICIAN.—The term ‘physician’ means

15 a doctor of medicine or osteopathy legally authorized

16 to practice medicine or surgery in the jurisdiction in

17 which he makes the determination under paragraph

18 (1).

19 ‘‘(d) SPECIAL RULES.—For purposes of this sec20 tion—

21 ‘‘(1) MAINTAINING A HOUSEHOLD.—An individ22 ual shall be treated as maintaining a household for

23 any period if over half the cost of maintaining the

24 household for such period is furnished by such indi-
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1 vidual (or, if such individual is married during such

2 period, by such individual and his spouse).

3 ‘‘(2) MARRIED COUPLES MUST FILE JOINT RE4 TURN.—If the taxpayer is married at the close of

5 the taxable year, the credit under subsection (a)

6 shall be allowed only if the taxpayer and his spouse

7 file a joint return for the taxable year.

8 ‘‘(3) MARITAL STATUS.—An individual legally

9 separated from his spouse under a decree of divorce

10 or separate maintenance shall not be considered as

11 married.

12 ‘‘(4) CERTAIN MARRIED INDIVIDUALS LIVING

13 APART.—If—

14 ‘‘(A) an individual who is married and who

15 files a separate return—

16 ‘‘(i) maintains a household which in17 cludes as a member one or more qualified

18 persons, and

19 ‘‘(ii) furnishes over half of the cost of

20 maintaining such household during such

21 taxable year, and

22 ‘‘(B) during the last 6 months of such tax23 able year such individual’s spouse is not a mem24 ber of such household,

25 such individual shall not be considered as married.
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1 ‘‘(e) REGULATIONS.—The Secretary shall prescribe

2 such regulations as may be necessary to carry out the pur3 poses of this section.’’

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

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

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

7 section 35 and inserting the following:

‘‘Sec. 35. Credit for taxpayers with certain persons requiring custodial care in their households.’’

8 (c) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to taxable years beginning after

10 December 31, 1992.

11 SEC. 232. CREDIT FOR EXPENSES FOR LONG-TERM CARE

12 SERVICES PROVIDED TO CERTAIN INDE13 PENDENT PERSONS REQUIRING SUCH CARE.

14 (a) GENERAL RULE.—Subpart C of part IV of sub15 chapter A of chapter 1 of the Internal Revenue Code of

16 1986 (relating to refundable credits) is amended by insert17 ing after section 35 the following new section:

18 ‘‘SEC. 36. CREDIT FOR EXPENSES FOR LONG-TERM CARE

19 SERVICES PROVIDED TO CERTAIN INDE20 PENDENT PERSONS REQUIRING SUCH CARE.

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

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

23 by this subtitle for the taxable year an amount equal to
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1 25 percent of the qualified long-term care expenses paid

2 during such taxable year.

3 ‘‘(b) MAXIMUM CREDIT.—

4 ‘‘(1) IN GENERAL.—The credit allowed by sub5 section (a) for any taxable year shall not exceed

6 $2,000 with respect to each independent qualified

7 person.

8 ‘‘(2) PHASEOUT OF CREDIT FOR TAXPAYERS

9 WITH INCOMES EXCEEDING 150 PERCENT OF THE

10 POVERTY LEVEL.—If the adjusted gross income of

11 the taxpayer for the taxable year exceeds the base

12 amount, the $2,000 amount in paragraph (1) shall

13 be reduced (but not below zero) by an amount which

14 bears the same ratio to $2,000 as—

15 ‘‘(A) the excess of the taxpayer’s adjusted

16 gross income for the taxable year over the base

17 amount, bears to

18 ‘‘(B) $10,000.

19 For purposes of the preceding sentence, the base

20 amount is 150 percent of the poverty level applicable

21 to the taxpayer.

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

23 ‘‘(1) QUALIFIED LONG-TERM CARE EX24 PENSES.—
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1 ‘‘(A) IN GENERAL.—The term ‘qualified

2 long-term care expenses’ means the amount

3 paid by the taxpayer during the taxable year for

4 1 or more medically necessary, diagnostic serv5 ices, preventive services, therapeutic services,

6 rehabilitation services, maintenance services, or

7 personal care services which are required by an

8 independent qualified person and which are pro9 vided in the household referred to in paragraph

10 (2)(C).

11 ‘‘(B) COVERAGE SPECIFICALLY EX12 CLUDED.—Such term does not include any com13 bination of the following kinds of coverage:

14 ‘‘(i) Basic Medicare supplement cov15 erage.

16 ‘‘(ii) Basic hospital-based acute care

17 expense coverage.

18 ‘‘(iii) Basic medical-surgical expense

19 coverage.

20 ‘‘(iv) Hospital confinement indemnity

21 coverage.

22 ‘‘(v) Major medical expense coverage.

23 ‘‘(vi) Disability income protection cov24 erage.

25 ‘‘(vii) Accident only coverage.
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1 ‘‘(viii) Specified disease coverage.

2 ‘‘(ix) Specified accident coverage.

3 ‘‘(x) Limited benefit health coverage.

4 ‘‘(2) INDEPENDENT QUALIFIED PERSON.—The

5 term ‘independent qualified person’ means any indi6 vidual—

7 ‘‘(A) who is a parent, grandparent, or de8 pendent (as defined in section 152) of the tax9 payer,

10 ‘‘(B) who has been certified by a physician

11 as—

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

13 substantial assistance from another indi14 vidual) at least 2 activities of daily living

15 (as defined in section 35(b)(2)), or

16 ‘‘(ii) having a similar level of disabil17 ity due to cognitive impairment, and

18 ‘‘(C) who maintains a household which is

19 his principal place of abode for more than half

20 of the taxable year of the taxpayer.

21 Such term shall not include any qualified person as

22 defined in section 35(b).’’

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

24 for subpart C of part IV of subchapter A of chapter 1
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1 of such Code is amended by adding at the end the follow2 ing:

‘‘Sec. 36. Credit for expenses for long-term care services provided

to certain independent persons requiring such care.

‘‘Sec. 37. Overpayments of tax.’’

3 (c) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to taxable years beginning after

5 December 31, 1992.

6 Subtitle E—Treatment of

7 Accelerated Death Benefits

8 SEC. 241. TAX TREATMENT OF ACCELERATED DEATH BENE9 FITS UNDER LIFE INSURANCE CONTRACTS.

10 (a) GENERAL RULE.—Section 101 of the Internal

11 Revenue Code of 1986 (relating to certain death benefits)

12 is amended by adding at the end thereof the following new

13 subsection:

14 ‘‘(g) TREATMENT OF CERTAIN ACCELERATED

15 DEATH BENEFITS.—

16 ‘‘(1) IN GENERAL.—For purposes of this sec17 tion, any amount paid to an individual under a life

18 insurance contract on the life of an insured who is

19 a terminally ill individual or who is permanently con20 fined to a nursing home shall be treated as an

21 amount paid by reason of the death of such insured.

22 ‘‘(2) TERMINALLY ILL INDIVIDUAL.—For pur23 poses of this subsection, the term ‘terminally ill indi24 vidual’ means an individual who has been certified
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1 by a physician, licensed under State law, as having

2 an illness or physical condition which can reasonably

3 be expected to result in death in 12 months or less.

4 ‘‘(3) PERMANENTLY CONFINED TO A NURSING

5 HOME.—For purposes of this subsection, an individ6 ual has been permanently confined to a nursing

7 home if the individual is presently confined to a

8 nursing home and has been certified by a physician,

9 licensed under State law, as having an illness or

10 physical condition which can reasonably be expected

11 to result in the individual remaining in a nursing

12 home for the rest of his life.’’

13 (b) EFFECTIVE DATE.—The amendment made by

14 this section shall apply to taxable years beginning after

15 December 31, 1992.

16 SEC. 242. TAX TREATMENT OF COMPANIES ISSUING QUALI17 FIED ACCELERATED DEATH BENEFIT RID18 ERS.

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

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

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

2 RIDERS TREATED AS LIFE INSURANCE.—For purposes of

3 this part—

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

7 on such contract.

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

10 term ‘qualified accelerated death benefit rider’

11 means any rider or addendum on, or other provision

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

14 such insured becoming a terminally ill individual (as

15 defined in section 101(g)(2)) or being permanently

16 confined to a nursing home (as defined in section

17 101(g)(3)).’’

18 (b) DEFINITIONS OF LIFE INSURANCE AND MODI19 FIED ENDOWMENT CONTRACTS.—

20 (1) RIDER TREATED AS QUALIFIED ADDI21 TIONAL BENEFIT.—Paragraph (5)(A) of section

22 7702(f) of such Code is amended by striking ‘‘or’’

23 at the end of clause (iv), by redesignating clause (v)

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

25 following new clause:
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1 ‘‘(v) any qualified accelerated death

2 benefit rider (as defined in section

3 818(g)(2)) or any qualified long-term care

4 insurance rider which reduces the death

5 benefit, or’’.

6 (2) TRANSITIONAL RULE.—For purposes of ap7 plying section 7702 or 7702A of the Internal Reve8 nue Code of 1986 to any contract (or determining

9 whether either such section applies to such con10 tract), the issuance of a rider or addendum on, or

11 other provision of, a life insurance contract permit12 ting the acceleration of death benefits (as described

13 in section 101(g) of such Code) or for qualified long14 term care insurance (as defined in section 849(b) of

15 such Code) shall not be treated as a modification or

16 material change of such contract.

17 (c) EFFECTIVE DATE.—The amendments made by

18 this section shall apply to taxable years beginning before,

19 on, or after December 31, 1992.
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1 Subtitle F—Federal National Long2 Term Care Reinsurance Cor3 poration

4 SEC. 251. AUTHORIZATION FOR ESTABLISHMENT OF COR5 PORATION.

6 The Secretary of Health and Human Services (in this

7 subtitle referred to as the ‘‘Secretary’’) is authorized to

8 provide, in accordance with this subtitle, for the incorpora9 tion of a corporation to be known as the Federal National

10 Long-Term Care Reinsurance Corporation (in this subtitle

11 referred to as the ‘‘Corporation’’), which shall not be an

12 agency or establishment of the United States Government.

13 SEC. 252. BOARD OF DIRECTORS AND OFFICERS.

14 (a) BOARD OF DIRECTORS.—The Corporation shall

15 have a Board of Directors (in this subtitle referred to as

16 the ‘‘Board’’) consisting of 9 members, of which—

17 (1) 3 shall be appointed by the President of the

18 United States, of which one shall be representative

19 of entities providing long-term care, one shall be a

20 representative from an insurer, and one shall be a

21 representative of consumers of long-term care; and

22 (2) 6 shall be elected annually by the stockhold23 ers of the Corporation entitled to vote for such mem24 bers.
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1 Within the limitations of law and regulation, the Board

2 shall determine the general policies which shall govern the

3 operations of the Corporation, and shall have power to

4 adopt, amend, and repeal bylaws governing the perform5 ance of the powers and duties granted to or imposed upon

6 it by law.

7 (b) INITIAL BOARD.—Notwithstanding subsection

8 (a), the members described in subsection (a)(1) shall serve

9 as incorporators and are authorized to assist the Secretary

10 in taking whatever actions are necessary to incorporate

11 the Corporation.

12 (c) TERMS OF OFFICE.—The terms of office of each

13 member of the Board shall be one year, expiring on the

14 date of the annual meeting of the stockholders of the Cor15 poration; except that (1) in the case of a vacancy occurring

16 prior to the expiration of the term of a member, the va17 cancy shall be filled by the President (for members de18 scribed in subsection (a)(1)) or by the remaining members

19 of the Board (for other members) for the remainder of

20 such term, and (2) any member may be removed by the

21 President for good cause. Any vacancy in the Board shall

22 not affect its power.

23 (d) CHAIRMAN.—The President shall designate one

24 of the members described in subsection (a)(1) as the initial

25 Chairman of the Board. Thereafter, the members of the
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1 Boards shall annually elect one of their number as Chair2 man.

3 (e) TREATMENT OF MEMBERS.—

4 (1) The members of the Board shall not by rea5 son of such membership, be deemed to be employees

6 of the United States Government. Except as pro7 vided in paragraph (2), each member of the Board

8 shall be entitled to receive the daily equivalent of the

9 maximum annual rate of basic pay in effect for

10 grade GS–18 of the General Schedule for each day

11 (including travel time) during which he is engaged

12 in the actual performance of duties vested in the

13 Corporation.

14 (2) Members of the Board who are full-time of15 ficers or employees of the United States shall receive

16 no additional pay by reason of their service on the

17 Board.

18 (f) OFFICERS.—The Corporation shall have a Presi19 dent and such other executive officers and employees as

20 may be appointed by the Board at rates of compensation

21 fixed by the Board, without regard to any provisions of

22 title 5, United States Code. No such executive officer may

23 receive any salary or other compensation from any source

24 other than the Corporation during the period of his em25 ployment by the Corporation.
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1 SEC. 253. PURPOSE AND AUTHORITY OF CORPORATION.

2 (a) PURPOSE.—The Corporation shall confine its ac3 tivities to providing for the reinsurance of insurance com4 panies for extraordinary loss in the issuance or payment

5 of benefits for qualified long-term care insurance (as de6 fined in section 848(b) of the Internal Revenue Code of

7 1986). Except as may be provided by the Secretary in reg8 ulations, the Corporation may not refuse to provide for

9 such reinsurance for any insurance meeting the require10 ments of such section (other than paragraph (4)(C)(iii)

11 thereof).

12 (b) PREMIUMS.—The Corporation shall impose for

13 such reinsurance reasonable premiums which—

14 (1) are related to actuarial estimates of the

15 type and amount of financial risk assumed by the

16 Corporation, and

17 (2) in the aggregate (in conjunction with other

18 income which the Corporation may have) provide for

19 all the expenses of the Corporation.

20 (c) NO POLITICAL CONTRIBUTIONS.—The Corpora21 tion shall not contribute or otherwise support any political

22 party or candidate for elective public office.

23 (d) GENERAL POWERS.—Except as otherwise specifi24 cally provided in this subtitle, the Corporation and Board

25 shall have the powers of a corporation and board of direc26 tors in the State in which incorporated.
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1 SEC. 254. CAPITALIZATION.

2 (a) COMMON STOCK.—The Corporation shall have

3 common stock, with such par value as the Board estab4 lishes, which shall be vested with all voting rights, each

5 share being entitled to one vote with rights of cumulative

6 voting at all elections of directors. The free transferability

7 of the common stock at all times to any person, firm, cor8 poration, or other entity shall not be restricted, except

9 that, as to the Corporation, it shall be transferable only

10 on the books of the Corporation. The Corporation shall

11 only issue such common stock with the approval of the

12 Secretary.

13 (b) DEBT.—

14 (1) For purposes of carrying out this subtitle,

15 the Corporation may, with the approval of the Sec16 retary and consistent with section 258, issue obliga17 tions having such maturities and bearing such rate

18 or rates and having such conditions (including sub19 ordination to other such obligations) as the Board

20 determines to be appropriate.

21 (2) The full faith and credit of the United

22 States is not pledged to the obligations and debts of

23 the Corporation. The Corporation shall insert appro24 priate language in all of its obligations issued under

25 this subsection clearly indicating that such obliga26 tions, together with the interest thereon, are not
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1 guaranteed by the United States and do not con2 stitute debt or obligation of the United States or of

3 any agency or instrumentality thereof. The Corpora4 tion may purchase in the open market any of its ob5 ligations outstanding under this subsection at any

6 time and at any price.

7 (3) All obligations, participations, or other in8 struments issued by the Corporation shall be lawful

9 investments, and may be accepted as security for all

10 fiduciary, trust, and public funds, the investment or

11 deposit of which shall be under the authority and

12 control of the United States or any officer or officers

13 thereof.

14 SEC. 255. EXEMPTION FROM STATE REGULATION AND TAX15 ATION.

16 (a) TAXATION.—The Corporation, including its cap17 ital, reserves, surplus, security holdings, and income, shall

18 be exempt from all taxation now or hereafter imposed by

19 any State, district, Commonwealth, county, municipality,

20 or local taxing authority, except that any real property of

21 the Corporation shall be subject to such taxation to the

22 same extent according to its value as other real property

23 is taxed.

24 (b) INSURANCE REGULATION.—Except to the extent

25 specified by the Secretary in regulations, the Corporation
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1 shall not be subject to any regulation under the insurance

2 laws of any State, district, or Commonwealth.

3 SEC. 256. AUDIT AND ANNUAL REPORT.

4 (a) AUDIT.—The Board shall provide for an annual

5 audit of the operations of the Corporation. Such audit

6 shall be conducted by a certified public accountant in ac7 cordance with generally accepted auditing principles (as

8 recognized by the Comptroller General).

9 (b) ANNUAL REPORT.—The Board shall report annu10 ally to the President and the Congress on the activities

11 of the Corporation. Such report shall include a presen12 tation of the financial status of the Corporation, as cer13 tified under the audit described in subsection (a).

14 SEC. 257. PROTECTION OF NAME.

15 No individual association, partnership, or corpora16 tion, except the Corporation, shall hereafter use the word

17 ‘‘Federal National Long-Term Care Reinsurance Corpora18 tion’’, or any combination of such words, as the name or

19 a part thereof under which he or it shall do business. Vio20 lations of the foregoing sentence may be enjoined by any

21 court of general jurisdiction at the suit of the Corporation.

22 In any such suit, the Corporation may recover any actual

23 damages flowing from such violations, and, in addition,

24 shall be entitled to punitive damages (regardless of the

25 existence or nonexistence of actual damages) of not ex-
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1 ceeding $10,000 for each day during which such violation

2 is committed or repealed.

3 SEC. 258. TERMINATION.

4 The Corporation shall terminate its activities not

5 later than 10 years after the date of the enactment of this

6 Act.

7 TITLE III—MALPRACTICE

8 LIABILITY REFORM

9 SEC. 301. DEFINITIONS.

10 In this title, the following definitions shall apply:

11 (1) ECONOMIC DAMAGES.—The term ‘‘economic

12 damages’’ means damages paid to compensate an in13 dividual for medical expenses, lost wages or other in14 come, lost employment, burial expenses, and other

15 pecuniary losses.

16 (2) HEALTH CARE LIABILITY ACTION.—The

17 term ‘‘health care liability action’’ means a civil ac18 tion brought against a health care provider (regard19 less of the theory of liability on which the action is

20 based) in which a plaintiff alleges an injury caused

21 by the provision of (or the failure to provide) health

22 care services, except that such term does not in23 clude—

24 (A) any action in which a plaintiff alleges

25 an intentional tort; or
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1 (B) any action in which the plaintiff’s sole

2 allegation is an allegation of an injury arising

3 from the use of a medical product.

4 (3) HEALTH CARE PROVIDER.—The term

5 ‘‘health care provider’’ means any individual or en6 tity that is engaged in the delivery of health care

7 services and is required under Federal or State law

8 to be licensed, certified, or accredited in order to de9 liver such services.

10 (4) INJURY.—The term ‘‘injury’’ means any ill11 ness, disease, or other harm that is the subject of

12 a health care liability action.

13 (5) NON-ECONOMIC DAMAGES.—The term

14 ‘‘non-economic damages’’ means any damages paid

15 to compensate an individual for subjective, non-mon16 etary losses, including pain, suffering, inconvenience,

17 mental suffering, emotional distress, loss of society

18 and companionship, loss of consortium, injury to

19 reputation, and humiliation, but does not include pu20 nitive damages.

21 (6) SECRETARY.—The term ‘‘Secretary’’ means

22 the Secretary of Health and Human Services.

23 (7) STATE.—The term ‘‘State’’ means each of

24 the several States, the District of Columbia, the

25 Commonwealth of Puerto Rico, the Virgin Islands,
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1 Guam, American Samoa, and the Northern Mariana

2 Islands.

3 SEC. 302. MALPRACTICE LIABILITY REFORM REQUIRE4 MENTS DESCRIBED.

5 (a) IN GENERAL.—Subject to section 303, a State

6 meets the requirements of this section if it has enacted

7 laws, rules, or regulations relating to the treatment of

8 health care liability actions that meet the requirements of

9 subsections (b) through (h), relating to alternative dispute

10 resolution mechanisms that meet the requirements of sub11 section (i), and relating to quality assurance reform that

12 meet the requirements of subsection (j).

13 (b) LIABILITY SEVERAL AND NOT JOINT FOR NON14 ECONOMIC DAMAGES.—

15 (1) IN GENERAL.—With respect to non-eco16 nomic damages, the liability of each defendant in a

17 health care liability action shall be several only and

18 shall not be joint. Each defendant shall be liable

19 only for the amount of non-economic losses incurred

20 by the plaintiff that is in direct proportion to the de21 fendant’s percentage of responsibility for the injury

22 suffered by the plaintiff (as determined by the trier

23 of fact pursuant to paragraph (2)).

24 (2) DETERMINATION OF PERCENTAGE OF RE25 SPONSIBILITY.—The trier of fact shall determine the
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1 extent of each defendant’s responsibility for the non2 economic injury suffered by the plaintiff, and shall

3 assign a percentage of responsibility for such injury

4 to each defendant.

5 (c) LIMITATION ON NON-ECONOMIC DAMAGES.—

6 (1) IN GENERAL.—The total amount of non7 economic damages that may be awarded to an indi8 vidual and the family members of such individual for

9 losses resulting from an injury which is the subject

10 of a health care liability action may not exceed

11 $250,000, regardless of the number of health care

12 providers against whom the action is brought or the

13 number of actions brought with respect to the in14 jury.

15 (2) ADJUSTMENT FOR INFLATION.—The

16 amount referred to in paragraph (1) shall be in17 creased every 3rd year (beginning with the 3rd year

18 that begins after the date of the enactment of this

19 Act) in the same manner as amounts are increased

20 under section 215(i) of the Social Security Act for

21 base quarters or cost-of-living computation quarters

22 in such a year.

23 (d) MANDATORY OFFSETS FOR DAMAGES PAID BY

24 A COLLATERAL SOURCE.—
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1 (1) IN GENERAL.—The total amount of dam2 ages received by an individual under a health care

3 liability action shall be reduced (in accordance with

4 paragraph (2)) by any other payment that has been

5 or will be made to the individual to compensate the

6 individual for the injury that was the subject of the

7 health care liability action, including payment

8 under—

9 (A) Federal or State disability or sickness

10 programs;

11 (B) Federal, State, or private health insur12 ance programs;

13 (C) private disability insurance programs;

14 (D) employer wage continuation programs;

15 and

16 (E) any other source of payment intended

17 to compensate such individual for such injury.

18 (2) AMOUNT OF REDUCTION.—The amount by

19 which an award of damages to an individual shall be

20 reduced under paragraph (1) shall be the total

21 amount of any payments (other than such award)

22 that have been made or that will be made to the in23 dividual to compensate the individual for the injury

24 that was the subject of the action.
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1 (f) TREATMENT OF PAYMENTS FOR FUTURE ECO2 NOMIC LOSSES.—

3 (1) PROHIBITING SINGLE LUMP-SUM PAY4 MENT.—No health care provider shall be required to

5 make a single, lump-sum payment for damages for

6 any economic losses to be incurred after the date on

7 which judgment is entered in a health care liability

8 action, but shall be permitted to make periodic pay9 ments of such damages on the basis of projections

10 of the amount of costs expected to be incurred by

11 the plaintiff at appropriate intervals (as determined

12 by the trier of fact).

13 (2) USE OF ANNUITIES OR TRUSTS.—The court

14 may require a health care provider to purchase an

15 annuity or fund a reversionary trust to make peri16 odic payments under paragraph (1) if the court

17 finds a reasonable basis for concluding that the

18 health care provider may be unable to or will not

19 otherwise make the periodic payments.

20 (3) REQUIREMENT OF PERIODIC PAYMENT AS

21 FINAL ORDER.—The judgment of the court awarding

22 periodic payments may not be reopened at any time

23 to contest, amend, or modify the schedule or amount

24 of the payments in the absence of fraud or any other
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1 basis under which a party may obtain relief from a

2 final judgment.

3 (4) LUMP-SUM PAYMENT UNDER SETTLEMENT

4 NOT PRECLUDED.—Nothing in this subsection shall

5 be construed to preclude the parties to a health care

6 liability action from entering into a settlement pro7 viding for a single, lump-sum payment for damages

8 described in paragraph (1).

9 (g) LIMITATION ON ATTORNEY’S FEES.—The

10 amount of attorney’s fees that may be collected by the at11 torney for any party to a health care liability action for

12 services relating to the action may not exceed—

13 (1) 33 percent of the first $50,000 awarded to

14 the party;

15 (2) 20 percent of the next $100,000 awarded to

16 the party;

17 (3) 15 percent of the next $100,000 awarded to

18 the party; and

19 (4) 10 percent of any amount in excess of

20 $250,000 awarded to the party.

21 (h) SPECIAL PROVISION FOR CERTAIN OBSTETRIC

22 SERVICES.—

23 (1) IMPOSITION OF HIGHER STANDARD OF

24 PROOF.—In the case of a health care liability action

25 relating to services provided during labor or the de-
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1 livery of a baby, if the plaintiff was not previously

2 treated for the pregnancy by the defendant health

3 care provider a court may not find that the defend4 ant committed malpractice and may not assess dam5 ages against the defendant unless the malpractice is

6 proven by clear and convincing evidence.

7 (2) APPLICABILITY TO GROUP PRACTICES OR

8 AGREEMENTS AMONG PROVIDERS.—For purposes of

9 paragraph (1), a health care provider shall be con10 sidered to have previously treated an individual for

11 a pregnancy if the provider is a member of a group

12 practice whose members previously treated the indi13 vidual for the pregnancy or is providing services to

14 the individual during labor or the delivery of a baby

15 pursuant to an agreement with another provider.

16 (i) ESTABLISHMENT OF ALTERNATIVE DISPUTE

17 RESOLUTION MECHANISMS.—

18 (1) IN GENERAL.—Each State shall have in ef19 fect at least one mediation or pretrial screening

20 panel that meets requirements specified in regula21 tions issued by the Secretary, or shall have in effect

22 another alternative dispute resolution mechanism

23 which the Secretary, in consultation with the Attor24 ney General, finds to be equally effective in deterring

25 the filing of frivolous health care liability actions and
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1 providing fair and expeditious compensation for mer2 itorious health care liability claims.

3 (2) PROMULGATION OF REGULATIONS.—Sub4 ject to paragraph (3), the Secretary, in consultation

5 with the Administrative Conference of the United

6 States and the Attorney General, shall promulgate

7 regulations that specify the Secretary’s criteria for

8 mediation and pretrial screening panels and for eval9 uating the effectiveness of other alternative dispute

10 resolution mechanisms under paragraph (1).

11 (3) TOLLING OF STATUTE OF LIMITATIONS

12 DURING ALTERNATIVE PROCEDURES.—Any regula13 tions promulgated by the Secretary pursuant to

14 paragraph (2) shall include a requirement that a

15 State may not include any time occurring after a

16 claim is filed with a mediation or pretrial screening

17 panel or under any other alternative dispute resolu18 tion mechanism under paragraph (1) for purposes of

19 determining the applicability of any statute of limi20 tations to a health care liability action arising from

21 the injury that is the subject of the claim.

22 (j) QUALITY ASSURANCE REFORM.—

23 (1) IMPROVING THE PERFORMANCE OF STATE

24 MEDICAL BOARDS.—(A) The State, through the ap25 propriate health authority, shall collect, analyze and
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1 supply the Secretary with information and data, as

2 specified in regulations to be promulgated by the

3 Secretary, on staffing, revenue, disciplinary actions,

4 expenditures, case-loads of the State Medical Board,

5 and use of continuing medical education programs in

6 order to demonstrate that the State medical boards

7 meet performance criteria established by the Sec8 retary in regulations.

9 (B) The State, through the appropriate health

10 authority, shall impose a requirement on the State

11 Medical Board to require a physician disciplined by

12 the State Medical Board to take a certain number

13 of continuing education courses as the board re14 quires, with educational outcome measures required,

15 in the subject areas in which the board determines

16 that the physician’s knowledge is deficient.

17 (2) ALTERNATIVE PROGRAMS.—The Secretary

18 shall deem a State in compliance with the require19 ments of this section if (instead of complying with

20 the requirements of paragraph (1)) the State has in

21 effect a program to reduce the incidence of physician

22 negligence which the Secretary finds to be at least

23 as effective in reducing the incidence of negligence

24 as compliance with the requirements of paragraph
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1 (1), in accordance with criteria established by the

2 Secretary that may include—

3 (A) requirements for risk management sys4 tems to be carried out by institutions providing

5 health care in the State;

6 (B) quality assurance systems, adminis7 tered by the State or professional bodies, which

8 review the quality of care rendered by the phy9 sicians of the State; or

10 (3) State programs for the promulgation of

11 standards of care in areas of medical practice in

12 which the risk of negligence is greatest.

13 SEC. 303. WAIVER OF REQUIREMENTS FOR GOOD CAUSE OR

14 FOR CARRYING OUT DEMONSTRATION

15 PROJECTS.

16 The Secretary may waive any of the requirements of

17 subsections (b) through (j) of section 302 for good cause

18 or to the extent necessary to enable a State to carry out

19 an experimental, demonstration, or pilot project if, in the

20 judgment of the Secretary, the project is likely to promote

21 the objectives of this title.

22 SEC. 304. CERTIFICATION OF STATE COMPLIANCE.

23 (a) NOTIFICATION.—

24 (1) IN GENERAL.—Not later than 6 months be25 fore the beginning of each year (beginning with the
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1 first year that begins after the expiration of the 3-

2 year period beginning on the date of the enactment

3 of this Act), each State shall submit a notification

4 to the Secretary, with a certification by the Chief

5 Executive Officer of the State that, on the date the

6 notification is submitted, the State has enacted,

7 adopted, or otherwise has in effect laws, rules, or

8 regulations that meet the requirements of section

9 302.

10 (2) CONTENTS OF NOTIFICATION.—The notifi11 cation shall be accompanied by documentation to

12 support the certification required by this subsection,

13 including copies of relevant State statutes, rules,

14 procedures, regulations, judicial decisions, State con15 stitutional provisions, and opinions of the State At16 torney General, and shall contain such other infor17 mation, be in such form, and be submitted in such

18 manner, as the Secretary may require.

19 (b) REVIEW OF NOTIFICATION.—

20 (1) IN GENERAL.—Within 90 days after receiv21 ing a notification under subsection (a), the Secretary

22 shall review the notification and determine whether

23 the notification demonstrates that the State has en24 acted, adopted, or otherwise has in effect laws, rules,
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1 or regulations that meet the requirements of section

2 302.

3 (2) APPROVAL OF NOTIFICATION.—If the Sec4 retary determines that the notification makes such

5 demonstration, the Secretary shall approve the noti6 fication.

7 (3) NOTICE OF DISAPPROVAL.—If, after review8 ing a State’s notification under subsection (a), the

9 Secretary determines that the notification does not

10 make the demonstration required, the Secretary

11 shall, not later than 15 days after making such de12 termination, provide the State with a written notice

13 specifying such determination and containing rec14 ommendations for revisions which would cause the

15 notification of the State to be approved.

16 (4) REVIEW OF REVISED NOTIFICATIONS.—Not

17 later than 30 days after receiving a revised notifica18 tion, the Secretary shall review the revised notifica19 tion and determine whether the notification dem20 onstrates that the State has enacted, adopted, or

21 otherwise has in effect laws, rules, or regulations

22 that meet the requirements of section 302. If the

23 Secretary determines that the revised notification

24 makes such a demonstration, the Secretary shall ap25 prove the revised notification.
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1 (c) NON-COMPLIANCE.—

2 (1) FAILURE TO SUBMIT NOTIFICATION.—If a

3 State fails to submit to the Secretary a notification

4 or revised notification pursuant to this section, the

5 Secretary shall, not later than 15 days after the pe6 riod provided for submitting notification under this

7 section, send the State written notice of determina8 tion of non-compliance.

9 (2) FAILURE TO MEET REQUIREMENTS.—If the

10 Secretary determines that a revised notification sub11 mitted under subsection (b) does not demonstrate

12 that the State has enacted, adopted, or otherwise

13 has in effect laws, rules, or regulations that meet the

14 requirements of section 302, and disapproves the

15 State’s revised notification, the Secretary shall, not

16 later than 15 days after making such determination,

17 provide the State with written notice of non-compli18 ance, including the determination of the Secretary

19 and the reasons therefore.

20 (3) FAILURE TO MEET REQUIREMENTS AFTER

21 INITIAL APPROVAL.—If, during any time period after

22 a notification is approved under this section, the

23 Secretary determines that the State does not have

24 currently in effect or has ceased enforcing the laws,

25 rules, or regulations upon which the notification was
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1 approved, the Secretary shall, not later than thirty

2 days of making such determination provide the State

3 with written notice of such determination and with4 draw the approval of the notification. Such notice

5 shall specify the determination of the Secretary and

6 the reasons therefore.

7 (d) CONSULTATION WITH ATTORNEY GENERAL.—In

8 making determinations of compliance or non-compliance

9 pursuant to this section, the Secretary shall consult with

10 the Attorney General.

11 SEC. 305. INCENTIVES THROUGH MEDICARE AND MEDIC12 AID.

13 (a) MEDICARE INCENTIVES.—

14 (1) IN GENERAL.—Section 1886 of the Social

15 Security Act (42 U.S.C. 1395ww) is amended by

16 adding at the end the following new subsection:

17 ‘‘(j) PAYMENT INCENTIVES TO ENCOURAGE MEDI18 CAL MALPRACTICE LIABILITY REFORM.—

19 ‘‘(1) REDUCTION IN PAYMENTS FOR HOSPITALS

20 LOCATED IN CERTAIN STATES.—Notwithstanding

21 any other provision of this title, the Secretary shall

22 reduce each payment amount otherwise determined

23 under this section by 1 percent for discharges during

24 a cost reporting period with respect to hospitals that

25 are not located in a State which the Secretary cer-
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1 tifies (pursuant to section 304 of the Health Care

2 Choice and Access Improvement Act of 1992) meets

3 the requirements of section 302 of the Health Care

4 Choice and Access Improvement Act of 1992 for the

5 cost reporting period.

6 ‘‘(2) ADDITIONAL PAYMENT FOR HOSPITALS

7 LOCATED IN STATES ENACTING REFORMS.—With re8 spect to hospitals that are not subject to a reduction

9 in payment under paragraph (1), the Secretary shall

10 make an additional payment for discharges during a

11 cost reporting period equal to the product of—

12 ‘‘(A) an amount equal to the total of all

13 amounts that were not paid to hospitals during

14 the cost reporting period as a result of the re15 ductions made under such paragraph; and

16 ‘‘(B) a percentage equal to the percentage

17 of all payments under this section during the

18 year to all hospitals that are not subject to the

19 reduction described in such paragraph that is

20 attributable to payments to that hospital.’’.

21 (2) EFFECTIVE DATE.—The amendment made

22 by paragraph (1) shall apply with respect to dis23 charges for cost reporting periods beginning on or

24 after the first day of the first fiscal year that begins
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1 after the expiration of the 3-year period beginning

2 on the date of the enactment of this Act.

3 (b) MEDICAID INCENTIVES.—

4 (1) IN GENERAL.—Section 1903 of the Social

5 Security Act (42 U.S.C. 1396b) is amended by in6 serting after subsection (r) the following new sub7 section:

8 ‘‘(s)(1)(A) In order for a State to receive payments

9 under paragraph (7) of subsection (a) for quarters in a

10 year without being subject to the reduction described in

11 subparagraph (B), the Secretary must certify (pursuant

12 to section 304 of the Health Care Choice and Access Im13 provement Act of 1992) that the State meets the require14 ments of section 302 of the Health Care Choice and Ac15 cess Improvement Act of 1992 for the year.

16 ‘‘(B) If a State is not certified for a year by the Sec17 retary under subparagraph (A), the per centum specified

18 in paragraph (7) of subsection (a) with respect to the

19 State shall be reduced by 2 percentage points for quarters

20 during the year.

21 ‘‘(2) In the case of a State that is not subject to the

22 reduction described in paragraph (1)(B) for quarters dur23 ing a year, the Secretary shall make an additional pay24 ment to the State equal to the product of—
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1 ‘‘(A) an amount equal to the total of all

2 amounts that were not paid to States during the

3 year as a result of the reductions made under such

4 paragraph; and

5 ‘‘(B) a percentage equal to the percentage of all

6 payments under this section during the year to all

7 States that are not subject to the reduction de8 scribed in such paragraph that is attributable to

9 payments to that State.’’.

10 (2) EFFECTIVE DATE.—The amendment made

11 by paragraph (1) shall apply to calendar quarters

12 beginning on or after the first January 1 that begins

13 after the expiration of the 3-year period beginning

14 on the date of the enactment of this Act.

15 SEC. 306. APPLICABILITY OF CERTAIN PROVISIONS TO FED16 ERAL TORT CLAIMS ACT.

17 (a) IN GENERAL.—Chapter 171 of title 28, United

18 States Code, is amended by adding at the end the follow19 ing new section:

20 ‘‘§ 2681. Special rules for health care liability actions

21 ‘‘(a) Notwithstanding any other provision of this

22 chapter, any action brought against the United States

23 under this chapter that is a health care liability action

24 shall be subject to the following:
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1 ‘‘(1)(A) With respect to non-economic damages,

2 the liability of the United States shall be several

3 only and shall not be joint. The United States shall

4 be liable only for the amount of non-economic losses

5 incurred by the plaintiff that is in direct proportion

6 to the United States’ percentage of responsibility for

7 the injury suffered by the plaintiff (as determined by

8 the court pursuant to subparagraph (B)).

9 ‘‘(B) The court shall determine the extent of

10 each defendant’s responsibility for the non-economic

11 injury suffered by the plaintiff, and shall assign a

12 percentage of responsibility for such injury to each

13 defendant.

14 ‘‘(2)(A) The total amount of non-economic

15 damages that may be awarded to an individual and

16 the family members of such individual for losses re17 sulting from an injury which is the subject of the ac18 tion may not exceed $250,000, regardless of the

19 number of defendants against whom the action is

20 brought or the number of actions brought with re21 spect to the injury.

22 ‘‘(B) The amount referred to in subparagraph

23 (A) shall be increased every 3rd year (beginning

24 with the 3rd year that begins after the date of the

25 enactment of this Act) in the same manner as
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1 amounts are increased under section 215(i) of the

2 Social Security Act for base quarters or cost-of-liv3 ing computation quarters in such a year.

4 ‘‘(3)(A) The total amount of damages received

5 by an individual shall be reduced (in accordance with

6 subparagraph (B)) by any other payment that has

7 been or will be made to the individual to compensate

8 the individual for the injury that was the subject of

9 the action, including payment under—

10 ‘‘(i) Federal or State disability or sickness

11 programs;

12 ‘‘(ii) Federal, State, or private health in13 surance programs;

14 ‘‘(iii) private disability insurance programs;

15 ‘‘(iv) employer wage continuation pro16 grams; and

17 ‘‘(v) any other source of payment intended

18 to compensate such individual for such injury.

19 ‘‘(B) The amount by which an award of dam20 ages to an individual shall be reduced under sub21 paragraph (A) shall be the total amount of any pay22 ments (other than such award) that have been made

23 or that will be made to the individual to compensate

24 the individual for the injury that was the subject of

25 the action.
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1 ‘‘(4)(A) The United States may not be required

2 to make a single, lump-sum payment for damages

3 for any economic losses to be incurred after the date

4 on which judgment is entered, but shall be permitted

5 to make periodic payments of such damages on the

6 basis of projections of the amount of costs expected

7 to be incurred by the plaintiff at appropriate inter8 vals (as determined by the court).

9 ‘‘(B) The United States may at its discretion

10 purchase an annuity or fund a reversionary trust to

11 make periodic payments under subparagraph (A).

12 ‘‘(C) The judgment of the court awarding peri13 odic payments may not be reopened at any time to

14 contest, amend, or modify the schedule or amount of

15 the payments in the absence of fraud or any other

16 basis under which a party may obtain relief from a

17 final judgment.

18 ‘‘(D) Nothing in this paragraph shall be con19 strued to preclude the parties to an action from en20 tering into a settlement providing for a single, lump21 sum payment for damages described in subpara22 graph (A).

23 ‘‘(b) In this section, the following definitions shall

24 apply:
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1 ‘‘(1) The term ‘economic damages’ means dam2 ages paid to compensate an individual for medical

3 expenses, lost wages or other income, lost employ4 ment, burial expenses, and other pecuniary losses.

5 ‘‘(2) The term ‘health care liability action’

6 means a civil action brought against the United

7 States (regardless of the theory of liability on which

8 the action is based) in which a plaintiff alleges an

9 injury caused by the provision of (or the failure to

10 provide) health care services, except that such term

11 does not include—

12 ‘‘(A) any action in which a plaintiff alleges

13 an intentional tort; or

14 ‘‘(B) any action in which the plaintiff’s

15 sole allegation is an allegation of an injury aris16 ing from the use of a medical product.

17 ‘‘(3) The term ‘injury’ means any illness, dis18 ease, or other harm that is the subject of a health

19 care liability action.

20 ‘‘(4) The term ‘non-economic damages’ means

21 any damages paid to compensate an individual for

22 subjective, non-monetary losses, including pain, suf23 fering, inconvenience, mental suffering, emotional

24 distress, loss of society and companionship, loss of
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1 consortium, injury to reputation, and humiliation,

2 but does not include punitive damages.’’.

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

4 at the beginning of chapter 171 of title 28, United States

5 Code, is amended by adding at the end the following new

6 item:

‘‘2681. Special rules for health care liability actions.’’.

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

8 subsections (a) and (b) shall apply to actions brought

9 against the United States on or after the date of the en10 actment of this Act.

11 SEC. 307. RULES OF CONSTRUCTION.

12 Nothing in this title may be construed to—

13 (1) waive or affect any defense of sovereign im14 munity asserted by any State under any law or by

15 the United States;

16 (2) preempt State choice-of-law rules with re17 spect to claims brought by a foreign nation or a citi18 zen of a foreign nation;

19 (3) affect the right of any court to transfer

20 venue, to apply the law of a foreign nation, or to dis21 miss a claim of a foreign nation or of a citizen of

22 a foreign nation on the ground of inconvenient

23 forum;

24 (4) create or vest jurisdiction in the district

25 courts of the United States over any health care li-
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1 ability action subject to this Act (which is not other2 wise properly in Federal district court); or

3 (5) prevent any State from enacting, adopting,

4 or otherwise having in effect more comprehensive or

5 additional health care liability reforms than those set

6 forth in this Act.

7 TITLE IV—WORKING AMERICANS

8 ACCESS TO HEALTH CARE

9 Subtitle A—Increase in Small Em10 ployer Access to Affordable

11 Health Insurance

12 SEC. 401. ESTABLISHMENT AND ENFORCEMENT OF STAND13 ARDS FOR SMALL EMPLOYER HEALTH INSUR14 ANCE PLANS.

15 (a) ESTABLISHMENT OF GENERAL STANDARDS.—

16 (1) ROLE OF NAIC.—The Secretary of Health

17 and Human Services shall request the National As18 sociation of Insurance Commissioners to develop,

19 within 1 year after the date of the enactment of this

20 Act, model regulations that specify standards with

21 respect to each of the following:

22 (A) The requirement, under section

23 403(a), that small employer carriers offer

24 MedEquity plans.
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1 (B) The basic benefits to be included in

2 MedEquity plans under section 403(b).

3 (C) The requirements of guaranteed issue

4 of MedEquity plans under section 403(c).

5 (D) The requirements of sections 404 and

6 405(b).

7 (E) The requirements of subsections (a)

8 and (c) of section 405.

9 If the NAIC develops such regulations specifying

10 such standards within such period, the Secretary

11 shall review such standards to determine if they

12 meet such requirements. Such review shall be com13 pleted within 6 months after the date the regulations

14 are developed. Unless the Secretary determines with15 in such period that the standards do not meet the

16 requirements, such standards shall serve as the

17 standards under this section.

18 (2) CONTINGENCY.—If the NAIC does not de19 velop such model regulations within such period or

20 the Secretary determines that such regulations do

21 not meet the requirements described in paragraph

22 (1), the Secretary shall inform the NAIC of the spe23 cific deficiencies and request the NAIC to develop

24 such model regulations in conformity with paragraph

25 (1).
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1 (3) EFFECTIVE DATE.—The standards provided

2 under this subsection—

3 (A) shall apply to small employer health

4 benefit plans offered in a State on or after the

5 date the standards are implemented in the

6 State under subsection (b)(1), and

7 (B) with respect to the requirements re8 ferred to in paragraph (1)(D), shall apply to

9 small employer health benefit plans renewed on

10 or after 3 years after the date such standards

11 are implemented in the State under subsection

12 (b)(1).

13 (b) APPLICATION OF STANDARDS THROUGH

14 STATES.—

15 (1) APPLICATION OF ALL STANDARDS TO NEW

16 PLANS.—

17 (A) IN GENERAL.—Each State shall sub18 mit to the Secretary, by the deadline specified

19 in subparagraph (B), a report on the implemen20 tation and enforcement of the standards estab21 lished under subsection (a) with respect to

22 small employer health benefit plans offered not

23 later than such deadline.

24 (B) DEADLINE FOR REPORT.—
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1 (i) 1 YEAR AFTER STANDARDS ESTAB2 LISHED.—Subject to clause (ii), the dead3 line under this subparagraph is 1 year

4 after the date standards are established

5 under subsection (a).

6 (ii) EXCEPTION FOR LEGISLATION.—

7 In the case of a State which the Secretary

8 identifies, in consultation with the NAIC,

9 as—

10 (I) requiring State legislation

11 (other than legislation appropriating

12 funds) in order for carriers and health

13 benefit plans offered to small employ14 ers to meet the standards established

15 under subsection (a), but

16 (II) having a legislature which is

17 not scheduled to meet in 1993 in a

18 legislative session in which such legis19 lation may be considered,

20 the date specified in this subparagraph is

21 the first day of the first calendar quarter

22 beginning after the close of the first legis23 lative session of the State legislature that

24 begins on or after January 1, 1993. For

25 purposes of the previous sentence, in the
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1 case of a State that has a 2-year legislative

2 session, each year of such session shall be

3 deemed to be a separate regular session of

4 the State legislature.

5 (2) APPLICATION OF CONSUMER PROTECTION

6 TO ALL PLANS.—Each State shall submit to the Sec7 retary, by not later than 4 years after the date

8 standards are established under subsection (a), a re9 port on the implementation and enforcement of the

10 standards established under subparagraphs (D) and

11 (E) subsection (a)(1) with respect to small employer

12 health benefit plans renewed not later than 4 years

13 after the date such standards were established.

14 (3) MORE STRINGENT STATE STANDARDS PER15 MITTED.—A State may implement standards that

16 are more stringent than the standards established

17 under subsection (a).

18 (4) ENFORCEMENT.—If the Secretary deter19 mines that a State has failed to submit a report by

20 the deadline under paragraph (1) or (2) or finds

21 that the State no longer is carrying out its respon22 sibility under the respective paragraph, the Sec23 retary shall notify the State and provide the State

24 a period of 30 days in which to submit such report

25 or to carry out its responsibilities under the respec-
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1 tive paragraph. If, after such 30-day period, the Sec2 retary finds that such a failure has not been cor3 rected, the Secretary shall provide for such mecha4 nism for the implementation and enforcement of the

5 standards established under subsection (a) in the

6 State as the Secretary determines to be appropriate.

7 Such standards shall apply to health benefit plans

8 offered or renewed on or after 3 months after the

9 applicable deadlines established under subpara10 graphs (A) through (C) of subsection (a)(3).

11 SEC. 402. PREEMPTION OF STATE BENEFITS MANDATES

12 FOR PLANS THAT MEET CONSUMER PROTEC13 TION STANDARDS.

14 (a) FINDING.—Congress finds that health benefit

15 plans offered with respect to small employers affect inter16 state commerce.

17 (b) PREEMPTION.—In the case of a small employer

18 health benefit plan that meets the standards with respect

19 to the requirements referred to in subparagraphs (D) and

20 (E) of section 401(a)(1), no provision of State law shall

21 apply that requires the offering, as part of the health ben22 efit plan with respect to such an employer, of any services,

23 category of care, or services of any class or type of pro24 vider.
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1 SEC. 403. REQUIREMENT FOR OFFERING OF BASIC, LOW

2 COST PLAN (MEDEQUITY PLAN).

3 (a) IN GENERAL.—Each small employer carrier

4 which makes available in a State any small employer

5 health benefit plan shall make available to each small em6 ployer in the State a MedEquity plan (as defined in sub7 section (b)).

8 (b) MEDEQUITY PLAN DEFINED.—

9 (1) IN GENERAL.—In this title, except as pro10 vided in paragraph (2), the term ‘‘MedEquity plan’’

11 means a health benefits plan that—

12 (A) is designed to provide only basic hos13 pital, medical, and surgical benefits, specified

14 under standards under section 401(a)(1)(B), so

15 as to make it affordable to small employers;

16 (B) is guaranteed issue (as described in

17 subsection (c));

18 (C) meets the standards established under

19 subparagraphs (D) and (E) section 401(a)(1)

20 (relating to the requirements of sections 404

21 and 405); and

22 (D) provides for cost-containment in ac23 cordance with the model made applicable under

24 subsection (d) in the State in which the plan is

25 issued.
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1 (2) SPECIAL RULES FOR HEALTH MAINTE2 NANCE ORGANIZATIONS.—With respect to a carrier

3 that is a Federally-qualified health maintenance or4 ganization (as defined in section 1301(a) of the Pub5 lic Health Service Act), the term ‘‘MedEquity plan’’

6 means a plan of the type described in paragraph (1)

7 but with benefits that are consistent with the re8 quirements for the plans of such an organization

9 under title XIII of such Act. With respect to a car10 rier that is not such a Federally-qualified health

11 maintenance organization but which is recognized

12 under State law as a health maintenance organiza13 tion, the term ‘‘MedEquity plan’’ means a plan of

14 the type described in paragraph (1) but with bene15 fits that are consistent with the requirements of

16 State law for the plans of such an organization.

17 (3) REVIEW OF MINIMUM BENEFIT STAND18 ARDS.—The NAIC is requested to periodically review

19 the standards for minimum benefits described in

20 paragraph (1)(A). The NAIC is requested to submit

21 to the Secretary and the Congress its recommenda22 tions on changes that should be made in such stand23 ards.

24 (c) GUARANTEED ISSUE FOR MEDEQUITY PLANS.—
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1 (1) IN GENERAL.—Each MedEquity plan in a

2 State—

3 (A) subject to paragraph (2), must accept

4 every small employer in the State that applies

5 for coverage under the plan;

6 (B) subject to paragraphs (2) and (3),

7 must accept for enrollment every individual who

8 is a full-time employee (or, in the case of family

9 enrollment with respect to such an employee,

10 the employee’s spouse and the employee’s de11 pendents who are under 19 years of age or who

12 are full-time students and under 21 years of

13 age) who applies for enrollment on a timely

14 basis; and

15 (C) subject to paragraphs (2) and (3), may

16 not place any restriction on the eligibility of an

17 individual to enroll, so long as such an individ18 ual is a full-time employee or the employee’s

19 spouse or dependent described in subparagraph

20 (B).

21 (2) SPECIAL RULES FOR HEALTH MAINTE22 NANCE ORGANIZATIONS.—In the case of a

23 MedEquity plan offered by a health maintenance or24 ganization, the plan shall—
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1 (A) limit the employers that may apply for

2 coverage to those with eligible individuals resid3 ing in the service area of the plan,

4 (B) limit the individuals who may be en5 rolled under the plan to those who reside in the

6 service area of the plan, and

7 (C) within the service area of the plan,

8 deny coverage to such employers if the plan

9 demonstrates that—

10 (i) it will not have the capacity to de11 liver services adequately to enrollees of any

12 additional groups because of its obligations

13 to existing group contract holders and en14 rollees, and

15 (ii) it is applying this subparagraph

16 uniformly to all employers without regard

17 to the health status, claims experience, or

18 duration of coverage of those employers

19 and their employees.

20 (3) EXCEPTION FOR CERTAIN LATE ENROLL21 EES.—

22 (A) IN GENERAL.—Except as provided in

23 this paragraph, paragraph (1)(B) shall not

24 apply to an eligible employee or dependent who

25 fails to enroll in a health benefit plan during an
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1 initial enrollment period, if such period is at

2 least 30 days long.

3 (B) EXCEPTION FOR THOSE WITH PRE4 VIOUS EMPLOYER COVERAGE.—Subparagraph

5 (A) shall not apply to an individual who—

6 (i) was covered under another em7 ployer health benefit plan at the time of

8 the individual’s initial enrollment period,

9 (ii) stated at the time of initial enroll10 ment period that coverage under another

11 employer health benefit plan was the rea12 son for declining enrollment,

13 (iii) lost coverage under another em14 ployer health benefit plan as a result of

15 termination of employment, the termi16 nation of the other plan’s coverage, death

17 of a spouse, or divorce, and

18 (iv) requests enrollment within 30

19 days after termination of coverage under

20 another employer health benefit plan.

21 (C) EXCEPTION FOR OPEN ENROLL22 MENT.—Subparagraph (A) shall not apply to

23 an individual who—

24 (i) is employed by an employer which

25 offers multiple health benefit plans, and
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1 (ii) elects a different plan during an

2 open enrollment period.

3 (D) EXCEPTION FOR COURT ORDERS.—

4 Subparagraph (A) shall not apply to a spouse

5 or minor child if a court has ordered coverage

6 be provided for the spouse or child under a cov7 ered employee’s health benefit plan and request

8 for such coverage is made within 30 days after

9 issuance of such court order.

10 (d) COST CONTAINMENT STANDARDS.—

11 (1) DEVELOPMENT OF MODELS.—

12 (A) ROLE OF NAIC.—The Secretary shall

13 request the NAIC to develop, within 1 year

14 after the date of the enactment of this Act,

15 models for cost-containment features in

16 MedEquity plans. Such models shall include a

17 managed care plan (described in paragraph (3))

18 and any combination of such models the NAIC

19 finds appropriate. If the NAIC develops such

20 models within such period, the Secretary shall

21 review such models to determine if they provide

22 for effective cost-containment. Such review shall

23 be completed within 6 months after the date the

24 models are developed. Unless the Secretary de25 termines within such period that such a model
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1 does not provide effective cost-containment,

2 such remaining models shall serve as the mod3 els under this subsection.

4 (B) CONTINGENCY.—If the NAIC does not

5 develop such models within such period or the

6 Secretary determines that all such models do

7 not provide for effective cost-containment, the

8 Secretary shall inform the NAIC of the specific

9 deficiencies and request the NAIC to develop

10 such models in conformity with paragraph (1).

11 (2) SELECTION OF COST-CONTAINMENT MODEL

12 BY STATE.—By not later than 2 years after the date

13 of the enactment of this Act, each State shall specify

14 the cost-containment model (developed under para15 graph (1)) that will be applied under subsection (a)

16 to MedEquity plans issued in the State.

17 (3) MANAGED CARE PLAN DEFINED.—For pur18 poses of paragraph (1), the term ‘‘managed care

19 plan’’ includes (but is not limited to) any plan

20 that—

21 (A) arranges with selected providers for

22 the furnishing of health care services,

23 (B) provides explicit standards for the se24 lection of such providers,
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1 (C) has formal programs for ongoing qual2 ity assurance and utilization review, and

3 (D) provides significant financial incentives

4 for beneficiaries to use providers and proce5 dures associated with the plan.

6 SEC. 404. REQUIREMENTS RELATING TO INITIAL WRITING

7 OF POLICIES.

8 (a) LIMITATIONS ON TREATMENT OF PRE-EXISTING

9 CONDITIONS.—

10 (1) IN GENERAL.—A carrier may not impose

11 (or require an employer to impose through a waiting

12 period for coverage under a health benefit policy or

13 similar requirement) a limitation or exclusion of ben14 efits under a small employer health benefit plan re15 lating to treatment of a condition based on the fact

16 that the condition pre-existed the effectiveness of the

17 policy if—

18 (A) the condition relates to a condition

19 that did not exist within 6 months before the

20 date of coverage under the plan, or

21 (B) the limitation or exclusion extends over

22 more than 12 months after the date of coverage

23 under the plan.

24 (2) PREVIOUS SATISFACTION OF PRE-EXISTING

25 CONDITION REQUIREMENT.—
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1 (A) IN GENERAL.—In addition, each car2 rier shall waive any period applicable to a pre3 existing condition for similar benefits with re4 spect to an individual to the extent that the in5 dividual was covered for the condition under a

6 small employer health benefit plan that was in

7 effect before the date of the enrollment under

8 the carrier’s plan.

9 (B) CONTINUOUS COVERAGE REQUIRED.—

10 Subparagraph (A) shall no longer apply if there

11 is a continuous period of more than 60 days on

12 which the individual was not covered under an

13 employer health benefit plan.

14 (b) LIMITS ON PREMIUMS.—

15 (1) LIMIT ON VARIATION OF INDEX RATES BE16 TWEEN BLOCKS OF BUSINESS.—

17 (A) IN GENERAL.—As a standard under

18 section 402, the index rate for a rating period

19 for any block of business of a small employer

20 carrier may not exceed the index rate for any

21 other block of business by more than 20 per22 cent.

23 (B) EXCEPTIONS.—Subparagraph (A)

24 shall not apply to a block of business if—
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1 (i) the block is one for which the car2 rier does not reject, and never has rejected,

3 small employers included within the defini4 tion of employers eligible for the block of

5 business or otherwise eligible employees

6 and dependents who enroll on a timely

7 basis, based upon their claim experience or

8 health status,

9 (ii) the carrier does not involuntarily

10 transfer, and never has involuntarily trans11 ferred, a health benefit plan into or out of

12 the block of business, and

13 (iii) the block of business is currently

14 available for purchase.

15 (2) LIMIT ON VARIATION OF PREMIUM RATES

16 WITHIN A BLOCK OF BUSINESS.—For a block of

17 business of a small employer carrier, as a standard

18 under section 402 the premium rates charged during

19 a rating period to small employers with similar de20 mographic or other relevant characteristics (not re21 lating to claims experience, health status, or dura22 tion of coverage) for the same or similar coverage,

23 or the rates which could be charged to such employ24 ers under the rating system for that block of busi-
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1 ness, shall not vary from the index rate by more

2 than 25 percent of the index rate.

3 (3) LIMIT ON PERMISSIBLE RATE VARI4 ATIONS.—Subject to paragraphs (1) and (2), as a

5 standard under section 402, a carrier may establish

6 rate variations based on factors such as geography,

7 demography, and industry and plan design.

8 (4) LIMIT ON TRANSFER OF EMPLOYERS

9 AMONG BLOCKS OF BUSINESS.—As a standard under

10 section 402, a small employer carrier may not invol11 untarily transfer a small employer into or out of a

12 block of business. A small employer carrier may not

13 offer to transfer a small employer into or out of a

14 block of business unless such offer is made to trans15 fer all small employers in the block of business with16 out regard to demographic characteristics, claim ex17 perience, health status, or duration since issue.

18 (5) DEFINITIONS.—In this subsection:

19 (A) BASE PREMIUM RATE.—The term

20 ‘‘base premium rate’’ means, for each block of

21 business for each rating period, the lowest pre22 mium rate charged or which could have been

23 charged under a rating system for that block of

24 business by the small employer carrier to small

25 employers with similar demographic or other
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1 relevant characteristics (not relating to claims

2 experience, health status, or duration of cov3 erage) for health benefit plans with the same or

4 similar coverage.

5 (B) BLOCK OF BUSINESS.—The term

6 ‘‘block of business’’ means, with respect to a

7 carrier, all (or a distinct group of) small em8 ployers as shown on the records of the carrier.

9 (C) RULES FOR ESTABLISHING BLOCKS OF

10 BUSINESS.—For purposes of subparagraph

11 (B)—

12 (i) a carrier may establish, subject to

13 clause (ii), a distinct group of small em14 ployers on the basis that the applicable

15 health benefit plans either—

16 (I) are marketed and sold

17 through individuals and organizations

18 which are not participating in the

19 marketing or sale of other distinct

20 groups of small employers for the car21 rier,

22 (II) have been acquired from an23 other carrier as a distinct group, or

24 (III) are provided through an as25 sociation with membership of not less
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1 than 100 small employers which has

2 been formed for purposes other than

3 obtaining insurance;

4 (ii) a carrier may not establish more

5 than 2 groupings under each block of busi6 ness because the carrier uses managed-care

7 techniques which are expected to produce

8 substantial variation in health care costs;

9 and

10 (iii) notwithstanding clauses (i) and

11 (ii), a Commissioner of Insurance of a

12 State may, upon application, approve addi13 tional distinct groups upon a finding that

14 such approval would enhance the efficiency

15 and fairness of the small employer market16 place.

17 (D) INDEX RATE.—The term ‘‘index rate’’

18 means, with respect to a block of business, the

19 arithmetic average of the applicable base pre20 mium rate and the corresponding highest pre21 mium rate for the block.

22 (c) FULL DISCLOSURE OF RATING PRACTICES.—At

23 the time a carrier offers a health benefit plan to a small

24 employer, the carrier shall fully disclose to the employer

25 rating practices for small employer health benefit plans,
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1 including rating practices for different industries, popu2 lations, and benefit designs.

3 (d) ACTUARIAL CERTIFICATION.—Each carrier shall

4 file annually with the State commissioner of insurance a

5 written statement by a member of the American Academy

6 of Actuaries (or other individual acceptable to the commis7 sioner) that, based upon an examination by the individual

8 which includes a review of the appropriate records and of

9 the actuarial assumptions of the carrier and methods used

10 by the carrier in establishing premium rates for applicable

11 small employer health benefit plans—

12 (1) the carrier is in compliance with the appli13 cable provisions of this section, and

14 (2) the rating methods are actuarially sound.

15 Each carrier shall retain a copy of such statement for ex16 amination at its principal place of business.

17 (e) REGISTRATION AND REPORTING.—Each carrier

18 that issues any small employer health benefit plan in a

19 State shall be registered or licensed with the State com20 missioner of insurance and shall comply with any report21 ing requirements of the commissioner relating to such a

22 plan.

23 (f) USE OF MINIMUM PARTICIPATION REQUIRE24 MENT.—A carrier may condition issuance, or renewal, of

25 a health benefit plan to a small employer on the enroll-
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1 ment of a minimum number (or percentage) of its full2 time employees, in accordance with standards established

3 to carry out this section. Such standards shall require that

4 any such conditions be imposed uniformly on employers

5 of the same size.

6 SEC. 405. REQUIREMENTS RELATING TO RENEWAL.

7 (a) RENEWABILITY.—A carrier may not cancel a

8 small employer health benefit plan or deny renewal of cov9 erage under such a plan other than—

10 (1) for nonpayment of premiums,

11 (2) for fraud or other misrepresentation by the

12 insured,

13 (3) for noncompliance with plan provisions,

14 (4) for failure to maintain (in accordance with

15 standards established under section 404(f)) the

16 number of enrollees under the plan at the number

17 (or percentage) required under the plan,

18 (5) for misuse of a provider network provision,

19 or

20 (6) because the carrier is ceasing to provide any

21 small employer health benefit plan in a State, or, in

22 the case of a health maintenance organization, in a

23 geographic area.

24 (b) LIMITATION ON PREMIUM INCREASES.—A carrier

25 may not provide for an increase in the premium charged
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1 a small employer for a small employer health benefit plan

2 in a percentage greater than such percentage as shall be

3 specified in standards referred to in section 401(a)(1)(E).

4 Such standards shall take into account increases in pre5 miums charged for new coverage of small employers under

6 the plan.

7 (c) LIMITATION ON MARKET REENTRY.—If a carrier

8 terminates the offering of health benefit plans to small

9 employers in an area, the carrier may not offer such a

10 health benefit plan to any small employer in the area until

11 5 years have elapsed since the date of the termination.

12 SEC. 406. ESTABLISHMENT OF REINSURANCE MECHANISMS

13 FOR HIGH RISK INDIVIDUALS.

14 (a) ESTABLISHMENT OF STANDARDS.—

15 (1) ROLE OF NAIC.—The Secretary shall re16 quest the NAIC to develop, within 1 year after the

17 date of the enactment of this Act, models for rein18 surance mechanisms (each in this section referred to

19 as the ‘‘reinsurance mechanism’’) for individuals and

20 small employers who are enrolled under a small em21 ployer health benefit plan that meets the standards

22 with respect to the requirements referred to in sub23 paragraphs (D) and (E) of section 401(a)(1) and for

24 whom a carrier is at risk of incurring high costs
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1 under the plan. Such models shall include models

2 based on each of the following:

3 (A) A voluntary prospective reinsurance

4 option.

5 (B) A retrospective reinsurance option.

6 (C) An allocation option.

7 (D) A pooled employee option.

8 (E) A designated carrier option.

9 (F) A mandatory reinsurance option.

10 If the NAIC develops such models within such pe11 riod, the Secretary shall review such models to deter12 mine if they provide for an effective reinsurance

13 mechanism. Such review shall be completed within 6

14 months after the date the models are developed. Un15 less the Secretary determines within such period

16 that such a model is not an effective reinsurance

17 mechanism, such remaining models shall serve as

18 the models under this section.

19 (2) CONTINGENCY.—If the NAIC does not de20 velop such models within such period or the Sec21 retary determines that all such models do not pro22 vide for an effective reinsurance mechanism, the

23 Secretary shall inform the NAIC of the specific defi24 ciencies and request the NAIC to develop such mod25 els in conformity with paragraph (1).
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1 (b) REQUIREMENT OF IMPLEMENTATION OF REIN2 SURANCE MECHANISMS.—

3 (1) IN GENERAL.—By not later than 2 years

4 after the date of the enactment of this Act, each

5 State shall establish one or more reinsurance mecha6 nisms by not later than the deadline specified in sec7 tion 401(b)(1)(B) of this Act.

8 (2) DEFAULT.—If the Secretary determines

9 that a State has failed to establish any reinsurance

10 mechanism under paragraph (1), the Secretary shall

11 establish one or more such mechanisms with respect

12 to that State. The authority provided under the pre13 vious sentence shall expire upon the Secretary’s de14 termination that the State has provided, by law, for

15 establishment of a reinsurance mechanism that

16 meets the requirement of paragraph (1).

17 (c) CONSTRUCTION.—Nothing in this section shall be

18 construed as to prohibit reinsurance arrangements, wheth19 er on a State or regional basis, not required under this

20 section.

21 SEC. 407. REGISTRATION OF ALL HEALTH BENEFIT PLANS

22 REQUIRED.

23 Notwithstanding any other provision of law, each

24 State commissioner or superintendant of insurance may,

25 under State law, require each employer health benefit plan
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1 (including a self-insured plan) to be registered with such

2 official, if the plan is not otherwise required to be reg3 istered or licensed with the official under section 404(e),

4 and to provide the official with such information on the

5 plan as may be necessary to carry out section 406.

6 SEC. 408. DEFINITIONS.

7 In this subtitle:

8 (1)(A) The term ‘‘carrier’’ means any entity

9 which provides health insurance or health benefits in

10 a State, and includes a licensed insurance company,

11 a prepaid hospital or medical service plan, a health

12 maintenance organization, a multiple employer wel13 fare arrangement or employee benefits plan (as de14 fined under the Employee Retirement Income Secu15 rity Act of 1974), or any other entity providing a

16 plan of health insurance subject to State insurance

17 regulation.

18 (B) The term ‘‘small employer carrier’’ means

19 a carrier with respect to the issuance of a small em20 ployer health benefit plan.

21 (2) The term ‘‘health benefit plan’’ means any

22 hospital or medical expense incurred policy or certifi23 cate, hospital or medical service plan contract, or

24 health maintenance subscriber contract, but does not

25 include—
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1 (A) accident-only, credit, dental, or disabil2 ity income insurance,

3 (B) coverage issued as a supplement to li4 ability insurance,

5 (C) worker’s compensation or similar in6 surance, or

7 (D) automobile medical-payment insur8 ance.

9 (2) The term ‘‘NAIC’’ means the National As10 sociation of Insurance Commissioners.

11 (3) The term ‘‘Secretary’’ means the Secretary

12 of Health and Human Services.

13 (4)(A) The term ‘‘small employer’’ means an

14 entity actively engaged in business which, on at least

15 50 percent of its working days during the preceding

16 year, employed at least 3, but fewer than 50, full17 time employees. For purposes of determining if an

18 employer is a small employer, rules similar to the

19 rules of subsections (b) and (c) of section 414 of the

20 Internal Revenue Code of 1986 shall apply.

21 (B) The term ‘‘full-time employee’’ means, with

22 respect to an employer, an individual who normally

23 is employed for at least 30 hours per week by the

24 employer.
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1 (5) The term ‘‘small employer health benefit

2 plan’’ means a health benefit plan which provides

3 coverage to one or more full-time employees of a

4 small employer.

5 (6) The term ‘‘State’’ means the 50 States, the

6 District of Columbia, and Puerto Rico.

7 (7) The term ‘‘State commissioner of insur8 ance’’ includes a State superintendent of insurance.

9 SEC. 409. PREEMPTION FROM INSURANCE MANDATES FOR

10 QUALIFIED SMALL EMPLOYER PURCHASING

11 GROUPS.

12 (a) QUALIFIED SMALL EMPLOYER PURCHASING

13 GROUP DEFINED.—For purposes of this section, an asso14 ciation is a qualified small employer purchasing group if—

15 (1) the association submits an application to

16 the Secretary of Health and Human Services at such

17 time and in such form as the Secretary may require;

18 and

19 (2) on the basis of information contained in the

20 application and any other information the Secretary

21 may require, the Secretary determines that—

22 (A) the association is administered solely

23 under the authority and control of its mem24 ber employers,
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1 (B) the association’s membership consists

2 solely of employers with not more than 100 em3 ployees (except that an employer member of the

4 group may retain its membership in the group

5 if, after the Secretary determines that the asso6 ciation meets the requirements of this para7 graph, the number of employees of the employer

8 member increases to more than 100),

9 (C) with respect to each State in which its

10 members are located, the association consists of

11 not fewer than 100 employers, and

12 (D) at the time the association submits its

13 application, the health benefit plans with re14 spect to the employer members of the associa15 tion are in compliance with applicable State

16 laws relating to health benefit plans.

17 (b) PREEMPTION FROM INSURANCE MANDATES.—

18 (1) FINDING.—Congress finds that employer

19 purchasing groups organized for the purpose of ob20 taining health insurance for employer members af21 fect interstate commerce.

22 (2) PREEMPTION OF STATE MANDATES.—In the

23 case of a qualified small employer purchasing group

24 described in subsection (a), no provision of State law

25 shall apply that requires the offering, as part of the
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1 health benefit plan with respect to an employer

2 member of such a group, of any services, category

3 of care, or services of any class or type of provider.

4 (3) PREEMPTION OF TAXES ON PREMIUMS.—In

5 the case of a qualified small employer purchasing

6 group described in subsection (a), no provision of

7 State or local law shall apply that requires a pro8 vider of insurance to pay a tax on premiums received

9 from employer members of the group under a health

10 benefit plan obtained by the group from the insurer

11 for its employer members.

12 (4) PREEMPTION OF PROVISIONS RELATING TO

13 MANAGED CARE.—In the case of a qualified small

14 employer purchasing group described in subsection

15 (a), the following provisions of State law are pre16 empted and may not be enforced against the health

17 benefit plan with respect to an employer member of

18 such a group:

19 (A) RESTRICTIONS ON REIMBURSEMENT

20 RATES OR SELECTIVE CONTRACTING.—Any law

21 that restricts the ability of a carrier to nego22 tiate reimbursement rates with providers or to

23 contract selectively with one provider or a lim24 ited number of providers.
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1 (B) RESTRICTIONS ON DIFFERENTIAL FI2 NANCIAL INCENTIVES.—Any law that limits the

3 financial incentives that a health benefit plan

4 may require a beneficiary to pay when a

5 nonplan provider is used on a nonemergency

6 basis.

7 (C) RESTRICTIONS ON UTILIZATION RE8 VIEW METHODS.—(i) Any law that—

9 (I) prohibits utilization review of any

10 or all treatments and conditions;

11 (II) requires that such review be made

12 by a resident of the State in which the

13 treatment is to be offered or by an individ14 ual licensed in such State, or by a physi15 cian in any particular specialty or with any

16 board certified specialty of the same medi17 cal specialty as the provider whose services

18 are being rendered;

19 (III) requires the use of specified

20 standards of health care practice in such

21 reviews or requires the disclosure of the

22 specific criteria used in such reviews;

23 (IV) requires payments to providers

24 for the expenses of responding to utiliza25 tion review requests; or
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1 (V) imposes liability for delays in per2 forming such review.

3 (ii) Nothing in clause (i)(II) shall be con4 strued as prohibiting a State from requiring

5 that utilization review be conducted by a li6 censed health care professional, or requiring

7 that any appeal from such a review be made by

8 a licensed physician or by a licensed physi9 cian in any particular specialty or with any

10 board certified specialty of the same medical

11 specialty as the provider whose services are

12 being rendered.

13 (c) EFFECTIVE DATE.—This section shall take effect

14 60 days after the date of the enactment of this Act.

15 Subtitle B—Equalization of Tax

16 Benefits for Self-employed Per17 sons Under Certain Plans

18 SEC. 411. EQUALIZATION OF TAX BENEFITS FOR SELF-EM19 PLOYED PERSONS UNDER CERTAIN PLANS.

20 (a) INCREASE IN DEDUCTION.—Paragraph (1) of

21 section 162(l) of the Internal Revenue Code of 1986 (re22 lating to special rules for health insurance costs of self23 employed individuals) is amended by striking ‘‘25 percent’’

24 and inserting ‘‘100 percent’’.
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1 (b) DEDUCTION MADE PERMANENT.—Subsection (l)

2 of section 162 of such Code is amended by striking para3 graph (6).

4 (c) EFFECTIVE DATE.—The amendments made by

5 this section shall apply to taxable years beginning after

6 December 31, 1992.

7 Subtitle C—Managed Care Rights

8 SEC. 421. MANAGED CARE RIGHTS.

9 (a) PREEMPTION OF STATE LAW PROVISIONS.—The

10 following provisions of State law are preempted and may

11 not be enforced:

12 (1) RESTRICTIONS ON REIMBURSEMENT RATES

13 OR SELECTIVE CONTRACTING.—Any law that re14 stricts the ability of a carrier to negotiate reimburse15 ment rates with providers or to contract selectively

16 with one provider or a limited number of providers.

17 (2) RESTRICTIONS ON DIFFERENTIAL FINAN18 CIAL INCENTIVES.—Any law that limits the financial

19 incentives that a health benefit plan may require a

20 beneficiary to pay when a non-plan provider is used

21 on a non-emergency basis.

22 (3) RESTRICTIONS ON UTILIZATION REVIEW

23 METHODS.—Any law that—

24 (A) prohibits utilization review of any or

25 all treatments and conditions,
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1 (B) requires that such review be made (i)

2 by a resident of the State in which the treat3 ment is to be offered or by an individual li4 censed in such State, or (ii) by a physician in

5 any particular specialty or with any board cer6 tified specialty of the same medical specialty as

7 the provider whose services are being rendered,

8 (C) requires the use of specified standards

9 of health care practice in such reviews or re10 quires the disclosure of the specific criteria used

11 in such reviews,

12 (D) requires payments to providers for the

13 expenses of responding to utilization review re14 quests, or

15 (E) imposes liability for delays in perform16 ing such review.

17 Nothing in subparagraph (B) shall be construed as

18 prohibiting a State from (i) requiring that utilization

19 review be conducted by a licensed health care profes20 sional or (ii) requiring that any appeal from such a

21 review be made by a licensed physician or by a li22 censed physician in any particular specialty or with

23 any board certified specialty of the same medical

24 specialty as the provider whose services are being

25 rendered.
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1 (b) GAO STUDY.—

2 (1) IN GENERAL.—The Comptroller General

3 shall conduct a study of the benefits and cost effec4 tiveness of the use of managed care in the delivery

5 of health services.

6 (2) REPORT.—By not later than 4 years after

7 the date of the enactment of this Act, the Comptrol8 ler General shall submit a report to Congress on the

9 study conducted under paragraph (1) and shall in10 clude in the report such recommendations as may be

11 appropriate.

12 Subtitle D—Study and Report

13 SEC. 431. STUDY AND REPORT ON IMPACT.

14 (a) STUDY.—The Secretary of Health and Human

15 Services shall provide for a study of the impact of the

16 changes made by this title on—

17 (1) increasing access to health care,

18 (2) the number of employees of small employers

19 who do not have health insurance coverage,

20 (3) the cost of small employer health benefit

21 plans, and

22 (4) the effectiveness of MedEquity plans.

23 (b) REPORT.—Not later than 2 years after the first

24 date provided in section 401(b), the Secretary shall submit

25 to Congress a report on the study conducted under sub-
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1 section (a). The Secretary shall include in the report such

2 recommendations for changes in the provisions of this Act

3 as the Secretary deems appropriate.

4 TITLE V—ADMINISTRATIVE

5 COST SAVINGS

6 Subtitle A—Standardization of

7 Claims Processing

8 SEC. 501. ADOPTION OF DATA ELEMENTS, UNIFORM

9 CLAIMS, AND UNIFORM ELECTRONIC TRANS10 MISSION STANDARDS.

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

12 Human Services (in this subtitle referred to as the ‘‘Sec13 retary’’) shall adopt standards relating to each of the fol14 lowing:

15 (1) Data elements for use in paper and elec16 tronic claims processing under health benefit plans,

17 as well as for use in utilization review and manage18 ment of care (including data fields, formats, and

19 medical nomenclature, and including plan benefit

20 and insurance information).

21 (2) Uniform claims forms (including uniform

22 procedure and billing codes for uses with such forms

23 and including information on other health benefit

24 plans that may be liable for benefits).
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1 (3) Uniform electronic transmission of the data

2 elements (for purposes of billing and utilization re3 view).

4 Standards under paragraph (3) relating to electronic

5 transmission of data elements for claims for services shall

6 supersede (to the extent specified in such standards) the

7 standards adopted under paragraph (2) relating to the

8 submission of paper claims for such services. Standards

9 under paragraph (3) shall include protections to assure

10 the confidentiality of patient-specific information and to

11 protect against the unauthorized use and disclosure of in12 formation.

13 (b) USE OF TASK FORCES.—In adopting standards

14 under this section—

15 (1) the Secretary shall take into account the

16 recommendations of current task forces, including at

17 least the Workgroup on Electronic Data Inter18 change, National Uniform Billing Committee, the

19 Uniform Claim Task Force, and the Computer-based

20 Patient Record Institute;

21 (2) the Secretary shall consult with the Na22 tional Association of Insurance Commissioners (and,

23 with respect to standards under subsection (a)(3),

24 the American National Standards Institute); and
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1 (3) the Secretary shall, to the maximum extent

2 practicable, seek to make the standards consistent

3 with any uniform clinical data sets which have been

4 adopted and are widely recognized.

5 (c) DEADLINES FOR PROMULGATION.—The Sec6 retary shall promulgate the standards under—

7 (1) subsection (a)(1) relating to claims process8 ing data, by not later than 12 months after the date

9 of the enactment of this Act;

10 (2) subsection (a)(2) (relating to uniform

11 claims forms) by not later than 12 months after the

12 date of the enactment of this Act; and

13 (3)(A) subsection (a)(3) relating to trans14 mission of information concerning hospital and phy15 sicians services, by not later than 24 months after

16 the date of the enactment of this Act, and

17 (B) subsection (a)(3) relating to transmission

18 of information on other services, by such later date

19 as the Secretary may determine it to be feasible.

20 (d) REPORT TO CONGRESS.—Not later than 3 years

21 after the date of the enactment of this Act, the Secretary

22 shall report to Congress recommendations regarding re23 structuring the medicare peer review quality assurance

24 program given the availability of hospital data in elec25 tronic form.
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1 SEC. 502. APPLICATION OF STANDARDS.

2 (a) IN GENERAL.—If the Secretary determines, at

3 the end of the 2-year period beginning on the date that

4 standards are adopted under section 501 with respect to

5 classes of services, that a significant number of claims for

6 benefits for such services under health benefit plans are

7 not being submitted in accordance with such standards,

8 the Secretary may require, after notice in the Federal

9 Register of not less than 6 months, that all providers of

10 such services must submit claims to health benefit plans

11 in accordance with such standards. The Secretary may

12 waive the application of such a requirement in such cases

13 as the Secretary finds that the imposition of the require14 ment would not be economically practicable.

15 (b) SIGNIFICANT NUMBER.—The Secretary shall

16 make an affirmative determination described in subsection

17 (a) for a class of services only if the Secretary finds that

18 there would be a significant, measurable additional gain

19 in efficiencies in the health care system that would be ob20 tained by imposing the requirement described in such

21 paragraph with respect to such services.

22 (c) APPLICATION OF REQUIREMENT.—

23 (1) IN GENERAL.—If the Secretary imposes the

24 requirement under subsection (a)—

25 (A) in the case of a requirement that im26 poses the standards relating to electronic trans-
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1 mission of claims for a class of services, each

2 health care provider that furnishes such services

3 for which benefits are payable under a health

4 benefit plan shall transmit electronically and di5 rectly to the plan on behalf of the beneficiary

6 involved a claim for such services in accordance

7 with such standards;

8 (B) any health benefit plan may reject any

9 claim subject to the standards adopted under

10 section 501 but which is not submitted in ac11 cordance with such standards;

12 (C) it is unlawful for a health benefit plan

13 (i) to reject any such claim on the basis of the

14 form in which it is submitted if it is submitted

15 in accordance with such standards or (ii) to re16 quire, for the purpose of utilization review or as

17 a condition of providing benefits under the plan,

18 a provider to transmit medical data elements

19 that are inconsistent with the standards estab20 lished under section 501(a)(1); and

21 (D) the Secretary may impose a civil

22 money penalty on any provider that knowingly

23 and repeatedly submits claims in violation of

24 such standards or on any health benefit plan

25 (other than a health benefit plan described in
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1 paragraph (2)) that knowingly and repeatedly

2 rejects claims in violation of subparagraph (B),

3 in an amount not to exceed $100 for each such

4 claim.

5 The provisions of section 1128A of the Social Secu6 rity Act (other than the first sentence of subsection

7 (a) and other than subsection (b)) shall apply to a

8 civil money penalty under subparagraph (D) in the

9 same manner as such provisions apply to a penalty

10 or proceeding under section 1128A(a) of such Act.

11 (2) PLANS SUBJECT TO EFFECTIVE STATE REG12 ULATION.—A plan described in this paragraph is a

13 health benefit plan—

14 (A) that is subject to regulation by a

15 State, and

16 (B) with respect to which the Secretary

17 finds that—

18 (i) the State provides for application

19 of the standards established under section

20 501, and

21 (ii) the State regulatory program pro22 vides for the appropriate and effective en23 forcement of such standards.

24 (d) TREATMENT OF REJECTIONS.—If a plan rejects

25 a claim pursuant to subsection (c)(1), the plan shall per-
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1 mit the person submitting the claim a reasonable oppor2 tunity to resubmit the claim on a form or in an electronic

3 manner that meets the requirements for acceptance of the

4 claim under such subsection.

5 SEC. 503. PERIODIC REVIEW AND REVISION OF

6 STANDARDS.

7 (a) IN GENERAL.—The Secretary shall—

8 (1) provide for the ongoing receipt and review

9 of comments and suggestions for changes in the

10 standards adopted and promulgated under section

11 501;

12 (2) establish a schedule for the periodic review

13 of such standards; and

14 (3) based upon such comments, suggestions,

15 and review, revise such standards and promulgate

16 such revisions.

17 (b) APPLICATION OF REVISED STANDARDS.—If the

18 Secretary under subsection (a) revises the standards de19 scribed in 501, then, in the case of any claim for benefits

20 submitted under a health benefit plan more than the mini21 mum period (of not less than 6 months specified by the

22 Secretary) after the date the revision is promulgated

23 under subsection (a)(3), such standards shall apply under

24 section 502 instead of the standards previously promul25 gated.
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1 SEC. 504. HEALTH BENEFIT PLAN DEFINED.

2 In this subtitle, the term ‘‘health benefit plan’’ has

3 the meaning given such term in section 408(2) and in4 cludes—

5 (1) the medicare program (under title XVIII of

6 the Social Security Act) and medicare supplemental

7 health insurance, and

8 (2) a State medicaid plan (approved under title

9 XIX of such Act).

10 Subtitle B—Electronic Medical

11 Data Standards

12 SEC. 511. MEDICAL DATA STANDARDS FOR HOSPITALS AND

13 OTHER PROVIDERS.

14 (a) PROMULGATION OF HOSPITAL DATA STAND15 ARDS.—

16 (1) IN GENERAL.—Between July 1, 1995, and

17 January 1, 1996, the Secretary shall promulgate

18 standards described in subsection (b) for hospitals

19 concerning electronic medical data.

20 (2) REVISION.—The Secretary may from time

21 to time revise the standards promulgated under this

22 subsection.

23 (b) CONTENTS OF DATA STANDARDS.—The stand24 ards promulgated under subsection (a) shall include at

25 least the following:
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1 (1) A definition of a standard set of data ele2 ments for use by utilization and quality control peer

3 review organizations.

4 (2) A definition of the set of comprehensive

5 data elements, which set shall include for hospitals

6 the standard set of data elements defined under

7 paragraph (1).

8 (3) Standards for an electronic patient care in9 formation system with data obtained at the point of

10 care, including standards to protect against the un11 authorized use and disclosure of information.

12 (4) A specification of, and manner of presen13 tation of, the individual data elements of the sets

14 and system under this subsection.

15 (5) Standards concerning the transmission of

16 electronic medical data.

17 (6) Standards relating to confidentiality of pa18 tient-specific information.

19 The standards under this section shall be consistent with

20 standards for data elements established under section 501.

21 (c) OPTIONAL DATA STANDARDS FOR OTHER PRO22 VIDERS.—

23 (1) IN GENERAL.—The Secretary may promul24 gate standards described in paragraph (2) concern25 ing electronic medical data for providers that are not
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1 hospitals. The Secretary may from time to time re2 vise the standards promulgated under this sub3 section.

4 (2) CONTENTS OF DATA STANDARDS.—The

5 standards promulgated under paragraph (1) for non6 hospital providers may include standards comparable

7 to the standards described in paragraphs (2), (4),

8 and (5) of subsection (b) for hospitals.

9 (d) CONSULTATION.—In promulgating and revising

10 standards under this section, the Secretary shall—

11 (1) consult with the American National Stand12 ards Institute, hospitals, with the advisory commis13 sion established under section 515, and with other

14 affected providers, health benefit plans, and other

15 interested parties, and

16 (2) take into consideration, in developing stand17 ards under subsection (b)(1), the data set used by

18 the utilization and quality control peer review pro19 gram under part B of title XI of the Social Security

20 Act.

21 SEC. 512. APPLICATION OF ELECTRONIC DATA STANDARDS

22 TO CERTAIN HOSPITALS.

23 (a) MEDICARE REQUIREMENT FOR SHARING OF

24 HOSPITAL INFORMATION.—As of January 1, 1997, sub25 ject to paragraph (2), each hospital, as a requirement of
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1 each participation agreement under section 1866 of the

2 Social Security Act, shall—

3 (1) maintain clinical data included in the set of

4 comprehensive data elements under section

5 511(b)(2) in electronic form on all inpatients,

6 (2) upon request of the Secretary or of a utili7 zation and quality control peer review organization

8 (with which the Secretary has entered into a con9 tract under part B of title XI of such Act), transmit

10 electronically the data set, and

11 (3) upon request of the Secretary, or of a fiscal

12 intermediary or carrier, transmit electronically any

13 data (with respect to a claim) from such data set,

14 in accordance with the standards promulgated under sec15 tion 511(a).

16 (b) WAIVER AUTHORITY.—Until January 1, 2000:

17 (1) The Secretary may waive the application of

18 the requirements of subsection (a) for a hospital

19 that is a small rural hospital, for such period as the

20 hospital demonstrates compliance with such require21 ments would constitute an undue financial hardship.

22 (2) The Secretary may waive the application of

23 the requirements of subsection (a) for a hospital

24 that is in the process of developing a system to pro25 vide the required data set and executes agreements
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1 with its fiscal intermediary and its utilization and

2 quality control peer review organization that the hos3 pital will meet the requirements of subsection (a) by

4 a specified date (not later than January 1, 2000).

5 (3) The Secretary may waive the application of

6 the requirement of subsection (a)(1) for a hospital

7 that agrees to obtain from its records the data ele8 ments that are needed to meet the requirements of

9 paragraphs (2) and (3) of subsection (a) and agrees

10 to subject its data transfer process to a quality as11 surance program specified by the Secretary.

12 (c) APPLICATION TO HOSPITALS OF THE DEPART13 MENT OF VETERANS AFFAIRS.—

14 (1) IN GENERAL.—The Secretary of Veterans

15 Affairs shall provide that each hospital of the De16 partment of Veterans Affairs shall comply with the

17 requirements of subsection (a) in the same manner

18 as such requirements would apply to the hospital if

19 it were participating in the medicare program.

20 (2) WAIVER.—Such Secretary may waive the

21 application of such requirements to a hospital in the

22 same manner as the Secretary of Health and

23 Human Services may waive under subsection (b) the

24 application of the requirements of subsection (a).
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1 SEC. 513. ELECTRONIC TRANSMISSION TO FEDERAL AGEN2 CIES.

3 (a) IN GENERAL.—Effective January 1, 2000, if a

4 provider is required under a Federal program to transmit

5 a data element that is subject to a presentation or trans6 mission standard (as defined in subsection (b)), the head

7 of the Federal agency responsible for such program (if not

8 otherwise authorized) is authorized to require the provider

9 to present and transmit the data element electronically in

10 accordance with such a standard.

11 (b) PRESENTATION OR TRANSMISSION STANDARD

12 DEFINED.—In subsection (a), the term ‘‘presentation or

13 transmission standard’’ means a standard, promulgated

14 under subsection (b) or (c) of section 511, described in

15 paragraph (4) or (5) of section 511(b).

16 SEC. 514. LIMITATION ON DATA REQUIREMENTS WHERE

17 STANDARDS ARE IN EFFECT.

18 (a) IN GENERAL.—If standards with respect to data

19 elements are promulgated under section 511 with respect

20 to a class of provider, a health benefit plan may not re21 quire, for the purpose of utilization review or as a condi22 tion of providing benefits under the plan, that a provider

23 in the class—

24 (1) provide any data element not in the set of

25 comprehensive data elements specified under such

26 standards, or
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1 (2) transmit or present any such data element

2 in a manner inconsistent with the applicable stand3 ards for such transmission or presentation.

4 (b) COMPLIANCE.—

5 (1) IN GENERAL.—The Secretary may impose a

6 civil money penalty on any health benefit plan (other

7 than a health benefit plan described in paragraph

8 (2)) that fails to comply with subsection (a) in an

9 amount not to exceed $100 for each such failure.

10 The provisions of section 1128A of the Social Secu11 rity Act (other than the first sentence of subsection

12 (a) and other than subsection (b)) shall apply to a

13 civil money penalty under this paragraph in the

14 same manner as such provisions apply to a penalty

15 or proceeding under section 1128A(a) of such Act.

16 (2) PLANS SUBJECT TO EFFECTIVE STATE REG17 ULATION.—A plan described in this paragraph is a

18 health benefit plan that is subject to regulation by

19 a State, if the Secretary finds that—

20 (A) the State provides for application of

21 the requirement of subsection (a), and

22 (B) the State regulatory program provides

23 for the appropriate and effective enforcement of

24 such requirement with respect to such plans.
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1 SEC. 515. ADVISORY COMMISSION.

2 (a) IN GENERAL.—The Secretary shall establish an

3 advisory commission including hospital executives, hospital

4 data base managers, physicians, health services research5 ers, and technical experts in collection and use of data

6 and operation of data systems. Such commission shall in7 clude, as ex officio members, a representative of the Direc8 tor of the National Institutes of Health, the Administrator

9 for Health Care Policy and Research, the Secretary of

10 Veterans Affairs, and the Director of the Centers for Dis11 ease Control.

12 (b) FUNCTIONS.—The advisory commission shall

13 monitor and advise the Secretary concerning—

14 (1) the standards established under this part,

15 and

16 (2) operational concerns about the implementa17 tion of such standards under this part.

18 (c) STAFF.—From the amounts appropriated under

19 subsection (d), the Secretary shall provide sufficient staff

20 to assist the advisory commission in its activities under

21 this section.

22 (d) AUTHORIZATION OF APPROPRIATIONS.—There

23 are authorized to be appropriated $2,000,000 for each of

24 fiscal years 1994 through 1998 to carry out this section.
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1 Subtitle C—Development and Dis2 tribution of Comparative Value

3 Information

4 SEC. 521. STATE COMPARATIVE VALUE INFORMATION PRO5 GRAMS FOR HEALTH CARE PURCHASING.

6 (a) PURPOSE.—In order to assure the availability of

7 comparative value information to purchasers of health

8 care in each State, the Secretary shall determine whether

9 each State is developing and implementing a health care

10 value information program that meets the criteria and

11 schedule set forth in subsection (b).

12 (b) CRITERIA AND SCHEDULE FOR STATE PRO13 GRAMS.—The criteria and schedule for a State health care

14 value information program in this subsection shall be spec15 ified by the Secretary as follows:

16 (1) The State begins promptly after enactment

17 of this Act to develop (directly or through contrac18 tual or other arrangements with one or more States,

19 coalitions of health insurance purchasers, other enti20 ties, or any combination of such arrangements) in21 formation systems regarding comparative health val22 ues.

23 (2) The information contained in such systems

24 covers at least the average prices of common health

25 care services (as defined in subsection (d)) and
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1 health insurance plans, and, where available, meas2 ures of the variability of these prices within a State

3 or other market areas.

4 (3) The information described in paragraph (2)

5 is made available within the State beginning not

6 later than one year after the date of the enactment

7 of this Act, and is revised as frequently as reason8 ably necessary, but at intervals of no greater than

9 one year.

10 (4) Not later than 6 years after the date of the

11 enactment of this Act the State has developed infor12 mation systems that provide comparative costs, qual13 ity, and outcomes data with respect to health insur14 ance plans and hospitals and made the information

15 broadly available within the relevant market areas.

16 Nothing in this section shall preclude a State from provid17 ing additional information, such as information on prices

18 and benefits of different health benefit plans, available.

19 (c) GRANTS TO STATES FOR THE DEVELOPMENT OF

20 STATE PROGRAMS.—

21 (1) GRANT AUTHORITY.—The Secretary may

22 make grants to each State to enable such State to

23 plan the development of its health care value infor24 mation program and, if necessary, to initiate the im25 plementation of such program. Each State seeking
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1 such a grant shall submit an application therefore,

2 containing such information as the Secretary finds

3 necessary to assure that the State is likely to de4 velop and implement a program in accordance with

5 the criteria and schedule in subsection (b).

6 (2) OFFSET AUTHORITY.—If, at any time with7 in the 3-year period following the receipt by a State

8 of a grant under this subsection, the Secretary is re9 quired by section 522 to implement a health care in10 formation program in the State, the Secretary may

11 recover the amount of the grant under this sub12 section by offset against any other amount payable

13 to the State under the Social Security Act. The

14 amount of the offset shall be made available (from

15 the appropriation account with respect to which the

16 offset was taken) to the Secretary to carry out such

17 section.

18 (3) AUTHORIZATION OF APPROPRIATIONS.—

19 There are authorized to be appropriated such sums

20 as are necessary to make grants under this sub21 section, to remain available until expended.

22 (d) COMMON HEALTH CARE SERVICES DEFINED.—

23 In this section, the term ‘‘common health care services’’

24 includes such procedures as the Secretary may specify and
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1 any additional health care services which a State may wish

2 to include in its comparative value information program.

3 (e) STATE DEFINED.—In this subtitle, the term

4 ‘‘State’’ includes the District of Columbia, Puerto Rico,

5 the Virgin Islands, Guam, and American Samoa.

6 SEC. 522. FEDERAL IMPLEMENTATION.

7 (a) IN GENERAL.—If the Secretary finds, at any

8 time, that a State has failed to develop or to continue to

9 implement a health care value information program in ac10 cordance with the criteria and schedule in section 521(b),

11 the Secretary shall take the actions necessary, directly or

12 through grants or contract, to implement a comparable

13 program in the State.

14 (b) FEES.—Fees may be charged by the Secretary

15 for the information materials provided pursuant to a pro16 gram under this section. Any amounts so collected shall

17 be deposited in the appropriation account from which the

18 Secretary’s costs of providing such materials were met,

19 and shall remain available for such purposes until ex20 pended.

21 SEC. 523. COMPARATIVE VALUE INFORMATION CONCERN22 ING FEDERAL PROGRAMS.

23 (a) DEVELOPMENT.—The head of each Federal agen24 cy with responsibility for the provision of health insurance

25 or of health care services to individuals shall promptly de-
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1 velop health care value information relating to each pro2 gram that such head administers and covering the same

3 types of data that a State program meeting the criteria

4 of section 521(b) would provide.

5 (b) DISSEMINATION OF INFORMATION.—Such infor6 mation shall be made generally available to States and to

7 providers and consumers of health care services.

8 SEC. 524. DEVELOPMENT OF MODEL SYSTEMS.

9 (a) IN GENERAL.—The Secretary shall, directly or

10 through grant or contract, develop model systems to facili11 tate—

12 (1) the gathering of data on health care cost,

13 quality, and outcome described in section 521(b)(4),

14 and

15 (2) analyzing such data in a manner that will

16 permit the valid comparison of such data among

17 providers and among health plans.

18 (b) EXPERIMENTATION.—The Secretary shall sup19 port experimentation with different approaches to achieve

20 the objectives of subsection (a) in the most cost effective

21 manner (relative to the accuracy and timeliness of the

22 data secured) and shall evaluate the various methods to

23 determine their relative success.

24 (c) STANDARDS.—When the Secretary considers it

25 appropriate, the Secretary may establish standards for the
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1 collection and reporting of data on health care cost, qual2 ity and outcomes in order to facilitate analysis and com3 parisons among States and nationally.

4 (e) REPORT.—By not later than 3 years after the

5 date of the enactment of this Act, the Secretary shall re6 port to the Congress and the States on the models devel7 oped, and experiments conducted, under this section.

8 (e) AUTHORIZATION OF APPROPRIATIONS.—There

9 are authorized to be appropriated such sums as are nec10 essary for each fiscal year beginning with fiscal year 1994

11 to enable the Secretary to carry out this section, including

12 evaluation of the different approaches tested under sub13 section (b) and their relative cost effectiveness.

14 Subtitle D—Additional Standards

15 and Requirements; Research

16 and Demonstrations

17 SEC. 531. STANDARDS RELATING TO USE OF MEDICARE

18 AND MEDICAID MAGNETIZED HEALTH BENE19 FIT CARDS; SECONDARY PAYOR DATA BANK.

20 (a) MAGNETIZED IDENTIFICATION CARDS UNDER

21 MEDICARE PROGRAM.—The Secretary shall adopt stand22 ards relating to the design and use of magnetized medi23 care identification cards in order to assist health care pro24 viders providing medicare covered services to individuals—
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1 (1) in determining whether individuals are eligi2 ble for benefits under the medicare program, and

3 (2) in billing the medicare program for such

4 services provided to eligible individuals.

5 Such cards shall be designed to be compatible with ma6 chines currently employed to transmit information on

7 credit cards. Such cards also shall be designed to be able

8 to be used with respect to the provision of benefits under

9 medicare supplemental policies.

10 (b) ADOPTION UNDER MEDICAID PLANS.—

11 (1) IN GENERAL.—The Secretary shall take

12 such steps as may be necessary to encourage and as13 sist States to design and use magnetized medicaid

14 identification cards that meet such standards, for

15 use under their medicaid plans.

16 (2) LIMITATION ON MMIS FUNDS.—In applying

17 section 1903(a)(3) of the Social Security Act, the

18 Secretary may determine that Federal financial par19 ticipation is not available under that section to a

20 State which has provided for a magnetized card sys21 tem that is inconsistent with the standards adopted

22 under subsection (a).

23 (c) MEDICARE AND MEDICAID SECONDARY PAYOR

24 DATA BANK.—The Secretary shall establish a medicare

25 and medicaid information system which is designed to pro-
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1 vide information on those group health plans and other

2 health benefit plans that are primary payors to the medi3 care program and medicaid program under section

4 1862(b) or section 1905(a)(25) of the Social Security Act.

5 (d) AUTHORIZATION OF APPROPRIATIONS.—There

6 are authorized to be appropriated, in equal proportions

7 from the Federal Hospital Insurance Trust Fund and

8 from the Federal Supplementary Medical Insurance Trust

9 Fund, a total of $25,000,000 to carry out subsections (a)

10 and (c), including the issuance of magnetized cards to

11 medicare beneficiaries.

12 SEC. 532. PREEMPTION OF STATE QUILL PEN LAWS.

13 (a) IN GENERAL.—Effective January 1, 1995, no ef14 fect shall be given to any provision of State law that re15 quires medical or health insurance records (including bill16 ing information) to be maintained in written, rather than

17 electronic, form.

18 (b) SECRETARIAL AUTHORITY.—The Secretary of

19 Health and Human Services may issue regulations to

20 carry out subsection (a). Such regulations may provide for

21 such exceptions to subsection (a) as the Secretary deter22 mines to be necessary to prevent fraud and abuse, with

23 respect to controlled substances, and in such other cases

24 as the Secretary deems appropriate.
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1 SEC. 533. USE OF STANDARD IDENTIFICATION NUMBERS.

2 (a) IN GENERAL.—Effective January 1, 1995, each

3 health benefit plan shall—

4 (1) for each of its beneficiaries that has a social

5 security account number, use that number as the

6 personal identifier for claims processing and related

7 purposes, and

8 (2) for each provider that has a unique identi9 fier for purposes of title XVIII of the Social Security

10 Act and that furnishes health care items or services

11 to a beneficiary under the plan, use that identifier

12 as the identifier of that provider for claims process13 ing and related purposes.

14 (b) COMPLIANCE.—

15 (1) IN GENERAL.—The Secretary may impose a

16 civil money penalty on any health benefit plan (other

17 than a health benefit plan described in paragraph

18 (2)) that fails to comply with standards established

19 under subsection (a) in an amount not to exceed

20 $100 for each such failure. The provisions of section

21 1128A of the Social Security Act (other than the

22 first sentence of subsection (a) and other than sub23 section (b)) shall apply to a civil money penalty

24 under this paragraph in the same manner as such

25 provisions apply to a penalty or proceeding under

26 section 1128A(a) of such Act.
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1 (2) PLANS SUBJECT TO EFFECTIVE STATE REG2 ULATION.—A plan described in this paragraph is a

3 health benefit plan that is subject to regulation by

4 a State, if the Secretary finds that—

5 (A) the State provides for application of

6 the requirement of subsection (a), and

7 (B) the State regulatory program provides

8 for the appropriate and effective enforcement of

9 such requirement with respect to such plans.

10 SEC. 534. COORDINATION OF BENEFIT STANDARDS.

11 (a) REVIEW OF COORDINATION OF BENEFIT PROB12 LEMS.—Between July 1, 1995, and January 1, 1996, the

13 Secretary shall determine whether problems relating to—

14 (1) the rules for determining the liability of

15 health benefit plans when benefits are payable under

16 two or more such plans, or

17 (2) the availability of information among such

18 health benefit plans when benefits are so payable,

19 cause significant administrative costs.

20 (b) CONTINGENT PROMULGATION OF STANDARDS.—

21 (1) IN GENERAL.—If the Secretary determines

22 that such problems do cause significant administra23 tive costs that could be significantly reduced through

24 the implementation of standards, the Secretary shall

25 promulgate standards concerning—
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1 (A) the liability of health benefit plans

2 when benefits are payable under two or more

3 such plans, and

4 (B) the transfer among health benefit

5 plans of appropriate information (which may in6 clude standards for the use of unique identifi7 ers, and for the listing of all individuals covered

8 under a health benefit plan) in determining li9 ability in cases when benefits are payable under

10 two or more such plans.

11 (2) EFFECTIVE DATE.—The standards promul12 gated under paragraph (1) shall become effective on

13 a date specified by the Secretary, which date shall

14 be not earlier than one year after the date of pro15 mulgation of the standards.

16 (c) COMPLIANCE.—

17 (1) IN GENERAL.—The Secretary may impose a

18 civil money penalty on any health benefit plan (other

19 than a health benefit plan described in paragraph

20 (2)) that fails to comply with standards promulgated

21 under subsection (b) in an amount not to exceed

22 $100 for each such failure. The provisions of section

23 1128A of the Social Security Act (other than the

24 first sentence of subsection (a) and other than sub25 section (b)) shall apply to a civil money penalty
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1 under this paragraph in the same manner as such

2 provisions apply to a penalty or proceeding under

3 section 1128A(a) of such Act.

4 (2) PLANS SUBJECT TO EFFECTIVE STATE REG5 ULATION.—A plan described in this paragraph is a

6 health benefit plan that is subject to regulation by

7 a State, if the Secretary finds that—

8 (A) the State provides for application of

9 the standards established under subsection (b),

10 and

11 (B) the State regulatory program provides

12 for the appropriate and effective enforcement of

13 such standards with respect to such plans.

14 (d) REVISION OF STANDARDS.—If the Secretary es15 tablishes standards under subsection (b), the Secretary

16 may revise such standards from time to time and such

17 revised standards shall be applied under subsection (c) on

18 or after such date (not earlier than 6 months after the

19 date the revision is promulgated) as the Secretary shall

20 specify.

21 SEC. 535. RESEARCH AND DEMONSTRATIONS.

22 (a) DEMONSTRATIONS AND RESEARCH ON MONITOR23 ING AND IMPROVING PATIENT CARE.—

24 (1) The Secretary shall provide grants to quali25 fied entities to demonstrate (and conduct research
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1 concerning) the application of comprehensive infor2 mation systems—

3 (A) in continuously monitoring patient

4 care, and

5 (B) in improving patient care.

6 (2) To make grants under this subsection, there

7 are authorized to be appropriated from the Federal

8 Hospital Insurance Trust Fund $10,000,000 for

9 each fiscal year (beginning with fiscal year 1995 and

10 ending with fiscal year 1999).

11 (b) COMMUNICATION LINKS.—

12 (1) The Secretary may make grants to at least

13 two, but not more than five, community organiza14 tions, or coalitions of health care providers, health

15 benefit plans, and purchasers, to establish and docu16 ment the efficacy of communication links between

17 the information systems of health benefit plans and

18 of health care providers.

19 (2) To make grants under this subsection, there

20 are authorized to be appropriated such sums as may

21 be necessary for fiscal year 1994, to remain avail22 able until expended.

23 (c) REGIONAL OR COMMUNITY BASED CLINICAL IN24 FORMATION SYSTEMS.—
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1 (1) The Secretary may make grants to at least

2 two, but not more than five, public or private non3 profit entities for the development of regional or

4 community-based clinical information systems.

5 (2) To make grants under this subsection, there

6 are authorized to be appropriated such sums as may

7 be necessary for fiscal year 1994, to remain avail8 able until expended.

9 (d) AMBULATORY CARE DATA SETS.—

10 (1) The Secretary may make grants to public or

11 private non-profit entities to develop and test, for

12 electronic medical data generated by physicians and

13 other entities (other than hospitals) that provide

14 health care services—

15 (A) the definition of a comprehensive set of

16 data elements, and

17 (B) the specification of, and manner of

18 presentation of, the individual data elements of

19 the set under subparagraph (A).

20 (2) To make grants under this subsection, there

21 are authorized to be appropriated such sums as may

22 be necessary for fiscal year 1994, to remain avail23 able until expended.

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