II

106TH CONGRESS

2D SESSION S. 2237

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

of premiums for any medigap insurance policy or Medicare+Choice plan

which contains an outpatient prescription drug benefit, and to amend

title XVIII of the Social Security Act to provide authority to expand

existing medigap insurance policies.

IN THE SENATE OF THE UNITED STATES

MARCH 9, 2000

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

to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to provide

for the deductibility of premiums for any medigap insurance policy or Medicare+Choice plan which contains an

outpatient prescription drug benefit, and to amend title

XVIII of the Social Security Act to provide authority

to expand existing medigap insurance policies.

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

5 ‘‘Seniors’ Security Act of 2000’’.
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1 (b) TABLE OF CONTENTS.—The table of contents of

2 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Deduction for premiums for medigap insurance policies and

Medicare+Choice plans containing outpatient prescription drug

benefits and for long-term care insurance.

Sec. 3. Determination of annual actuarial value of drug benefits covered under

a Medicare+Choice plan and a medigap policy.

Sec. 4. Inclusion of qualified long-term care insurance contracts in cafeteria

plans and flexible spending arrangements.

Sec. 5. Authority to provide for additional medigap insurance policies.

3 SEC. 2. DEDUCTION FOR PREMIUMS FOR MEDIGAP INSUR4 ANCE POLICIES AND MEDICARE+CHOICE

5 PLANS CONTAINING OUTPATIENT PRESCRIP6 TION DRUG BENEFITS AND FOR LONG-TERM

7 CARE INSURANCE.

8 (a) IN GENERAL.—Part VII of subchapter B of chap9 ter 1 of the Internal Revenue Code of 1986 (relating to

10 additional itemized deductions) is amended by redesig11 nating section 222 as section 223 and by inserting after

12 section 221 the following:

13 ‘‘SEC. 222. PREMIUMS FOR MEDIGAP INSURANCE POLICIES

14 AND MEDICARE+CHOICE PLANS CONTAINING

15 OUTPATIENT PRESCRIPTION DRUG BENE16 FITS AND FOR LONG-TERM CARE INSURANCE.

17 ‘‘(a) DEDUCTION.—

18 ‘‘(1) IN GENERAL.—There shall be allowed as a

19 deduction an amount equal to 100 percent of the

20 amount paid during the taxable year for—
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1 ‘‘(A) any medicare supplemental policy (as

2 defined in section 1882(g)(1) of the Social Se3 curity Act) which contains an outpatient pre4 scription drug benefit with an annual actuarial

5 value that is equal to or greater than $500,

6 ‘‘(B) any Medicare+Choice plan (as de7 fined in section 1859(b)(1) of such Act) which

8 contains an outpatient prescription drug benefit

9 with an annual actuarial value that is equal to

10 or greater than $500, and

11 ‘‘(C) any coverage limited to qualified long12 term care services (as defined in section

13 7702B(c)) or any qualified long-term care in14 surance contract (as defined in section

15 7702B(b)).

16 ‘‘(2) INFLATION ADJUSTMENT.—

17 ‘‘(A) IN GENERAL.—In the case of any cal18 endar year beginning after 2000, each of the

19 dollar amounts in subparagraphs (A) and (B)

20 of paragraph (1) shall be increased by an

21 amount equal to—

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

23 ‘‘(ii) an adjustment for changes in per

24 capita expenditures under title XVIII of

25 the Social Security Act for prescription
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1 drugs as determined under the most recent

2 Health Care Financing Administration Na3 tional Health Expenditure projection.

4 ‘‘(B) ROUNDING.—If any dollar amount

5 after being increased under subparagraph (A) is

6 not a multiple of $10, such dollar amount shall

7 be rounded to the nearest multiple of $10.

8 ‘‘(b) LIMITATIONS.—

9 ‘‘(1) DEDUCTION NOT AVAILABLE TO INDIVID10 UALS ELIGIBLE FOR EMPLOYER-SUBSIDIZED COV11 ERAGE.—

12 ‘‘(A) IN GENERAL.—In any taxable year—

13 ‘‘(i) subsection (a) shall not apply

14 with respect to any policy or coverage de15 scribed in paragraph (1)(A) or (1)(B) of

16 such subsection if in such taxable year the

17 taxpayer is eligible to participate in any

18 employer-subsidized plan for individuals

19 age 65 or older which contains an out20 patient prescription drug benefit described

21 in such subsection, and

22 ‘‘(ii) subsection (a) shall not apply

23 with respect to any policy or coverage de24 scribed in paragraph (1)(C) of such sub25 section if in such taxable year the taxpayer
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1 is eligible to participate in any employer2 subsidized plan which includes coverage for

3 qualified long-term care services (as so de4 fined) or any qualified long-term care in5 surance contract (as so defined).

6 ‘‘(B) EMPLOYER-SUBSIDIZED PLAN.—For

7 purposes of subparagraph (A)—

8 ‘‘(i) IN GENERAL.—The term ‘em9 ployer-subsidized plan’ means any plan de10 scribed in subparagraph (A)—

11 ‘‘(I) which is maintained by any

12 employer (or former employer) of the

13 taxpayer or of the spouse of the tax14 payer, and

15 ‘‘(II) 50 percent or more of the

16 cost of the premium of which (deter17 mined under section 4980B) is paid

18 or incurred by the employer.

19 ‘‘(ii) EMPLOYER CONTRIBUTIONS TO

20 CAFETERIA PLANS, FLEXIBLE SPENDING

21 ARRANGEMENTS, AND MEDICAL SAVINGS

22 ACCOUNTS.—Employer contributions to a

23 cafeteria plan, a flexible spending or simi24 lar arrangement, or a medical savings ac25 count which are excluded from gross in-
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1 come under section 106 shall be treated for

2 purposes of this subparagraph as paid by

3 the employer.

4 ‘‘(C) AGGREGATION OF PLANS OF EM5 PLOYER.—A health plan which is not otherwise

6 described in subparagraph (A) shall be treated

7 as described in such subparagraph if such plan

8 would be so described if all health plans of per9 sons treated as a single employer under sub10 section (b), (c), (m), or (o) of section 414 were

11 treated as one health plan.

12 ‘‘(D) SEPARATE APPLICATION TO HEALTH

13 INSURANCE AND LONG-TERM CARE INSUR14 ANCE.—Subparagraphs (A) and (C) shall be

15 applied separately with respect to—

16 ‘‘(i) plans which include coverage lim17 ited to qualified long-term care services or

18 are qualified long-term care insurance con19 tracts, and

20 ‘‘(ii) plans which do not include such

21 coverage and are not such contracts.

22 ‘‘(E) DEDUCTION AVAILABLE WITH RE23 SPECT TO POLICIES AND PLANS CONTAINING

24 OUTPATIENT PRESCRIPTION DRUG COVERAGE IF

25 DISCLOSURE REQUIREMENTS ARE MET.—Sub-
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1 section (a) shall apply in any taxable year with

2 respect to any policy or plan described in para3 graph (1)(A) or (1)(B) of such subsection only

4 if the issuer of such policy or the administrator

5 of such plan discloses to the taxpayer that such

6 policy or plan is intended to be a policy or plan

7 so described.

8 ‘‘(2) DEDUCTION NOT AVAILABLE FOR PAY9 MENT OF PART B PREMIUMS.—Any amount paid as

10 a premium under part B of title XVIII of the Social

11 Security Act shall not be taken into account under

12 subsection (a).

13 ‘‘(3) LIMITATION ON LONG-TERM CARE PRE14 MIUMS.—In the case of a qualified long-term care

15 insurance contract (as so defined), only eligible long16 term care premiums (as defined in section

17 213(d)(10)) shall be taken into account under sub18 section (a)(2).

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

20 section—

21 ‘‘(1) COORDINATION WITH MEDICAL DEDUC22 TION, ETC.—Any amount paid by a taxpayer for in23 surance to which subsection (a) applies shall not be

24 taken into account in computing the amount allow-
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1 able to the taxpayer as a deduction under section

2 213(a).

3 ‘‘(2) DEDUCTION NOT ALLOWED FOR SELF-EM4 PLOYMENT TAX PURPOSES.—The deduction allow5 able by reason of this section shall not be taken into

6 account in determining an individual’s net earnings

7 from self-employment (within the meaning of section

8 1402(a)) for purposes of chapter 2.’’

9 (b) CONFORMING AMENDMENTS.—

10 (1) Subsection (a) of section 62 of the Internal

11 Revenue Code of 1986 is amended by inserting after

12 paragraph (17) the following:

13 ‘‘(18) MEDICARE AND LONG-TERM CARE INSUR14 ANCE COSTS OF CERTAIN INDIVIDUALS.—The deduc15 tion allowed by section 222.’’

16 (2) The table of sections for part VII of sub17 chapter B of chapter 1 of such Code is amended by

18 striking the last item and inserting the following:

‘‘Sec. 222. Premiums for medigap insurance policies and

Medicare+Choice plans containing outpatient prescription drug benefits and for long-term care insurance.

‘‘Sec. 223. Cross reference.’’

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

20 this section shall apply to taxable years beginning after

21 December 31, 1999.
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1 SEC. 3. DETERMINATION OF ANNUAL ACTUARIAL VALUE

2 OF DRUG BENEFITS COVERED UNDER A

3 MEDICARE+CHOICE PLAN AND A MEDIGAP

4 POLICY.

5 (a) IN GENERAL.—For purposes of subparagraphs

6 (A) and (B) of section 222(a)(1) of the Internal Revenue

7 Code of 1986 (as added by section 2), the Secretary of

8 Health and Human Services shall establish procedures for

9 a Medicare+Choice organization offering a

10 Medicare+Choice plan under part C of title XVIII of the

11 Social Security Act (42 U.S.C. 1395w–21 et seq.) or an

12 issuer of a medicare supplemental policy (as defined in

13 section 1882(g)(1) of such Act (42 U.S.C. 1395ss(g)(1)))

14 to demonstrate that the annual actuarial value of the out15 patient prescription drug benefit offered under such plan

16 or policy is equal to or greater than the amount described

17 in section 222(a)(1) of the Internal Revenue Code of 1986

18 that is applicable for the year involved.

19 (b) REQUIREMENTS.—The procedures established

20 pursuant to subsection (a)—

21 (1) shall be based on—

22 (A) a standardized set of utilization and

23 price factors; and

24 (B) a standardized population that is rep25 resentative of all medicare enrollees and cal26 culated based on projected utilization if all en-
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1 rollees have outpatient prescription drug cov2 erage;

3 (2) shall apply the same principles and factors

4 in comparing the value of the coverage of different

5 outpatient prescription drug benefit packages; and

6 (3) shall not take into account the method of

7 delivery or means of cost control or utilization used

8 by the organization offering the plan or the issuer

9 of the policy.

10 (c) CONSULTATION.—In establishing the procedures

11 described in subsection (a), the Secretary of Health and

12 Human Services shall consult with an independent actuary

13 who is a member of the American Academy of Actuaries.

14 (d) UPDATE.—The Secretary shall periodically up15 date the procedures established under subsection (a).

16 (e) DEMONSTRATION OF ACTUARIAL VALUE.—The

17 actuarial value of the outpatient prescription drug benefit

18 shall be set forth by the Medicare+Choice organization

19 offering the Medicare+Choice plan or the issuer of the

20 medicare supplemental policy in an actuarial report that

21 has been prepared—

22 (1) by an individual who is a member of the

23 American Academy of Actuaries;

24 (2) using generally accepted actuarial prin25 ciples; and
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1 (3) in conformance with the requirements of

2 subsection (b).

3 SEC. 4. INCLUSION OF QUALIFIED LONG-TERM CARE IN4 SURANCE CONTRACTS IN CAFETERIA PLANS

5 AND FLEXIBLE SPENDING ARRANGEMENTS.

6 (a) CAFETERIA PLANS.—Section 125(f) of the Inter7 nal Revenue Code of 1986 (defining qualified benefits) is

8 amended by inserting before the period at the end ‘‘; ex9 cept that such term shall include the payment of pre10 miums for any qualified long-term care insurance contract

11 (as defined in section 7702B) to the extent the amount

12 of such payment does not exceed the eligible long-term

13 care premiums (as defined in section 213(d)(10)) for such

14 contract’’.

15 (b) FLEXIBLE SPENDING ARRANGEMENTS.—Section

16 106 of the Internal Revenue Code of 1986 (relating to

17 contributions by employer to accident and health plans)

18 is amended by striking subsection (c).

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

20 this section shall apply to taxable years beginning after

21 December 31, 1999.

22 SEC. 5. AUTHORITY TO PROVIDE FOR ADDITIONAL

23 MEDIGAP INSURANCE POLICIES.

24 (a) IN GENERAL.—
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1 (1) EXPANSION OF NUMBER OF BENEFIT PACK2 AGES.—Section 1882(p) of the Social Security Act

3 (42 U.S.C. 1395ss(p)) is amended—

4 (A) in paragraph (2)(B), by striking ‘‘,

5 and’’ and inserting ‘‘other than the medicare

6 supplemental policies described in subsection

7 (v); and’’; and

8 (B) in paragraph (2)(C), by striking the

9 period and inserting ‘‘and the policies described

10 in subsection (v).’’.

11 (2) AUTHORITY TO PROVIDE FOR ADDITIONAL

12 POLICIES.—Section 1882 of the Social Security Act

13 (42 U.S.C. 1395ss) is amended by adding at the end

14 the following:

15 ‘‘(v) AUTHORITY TO PROVIDE FOR ADDITIONAL

16 POLICIES.—

17 ‘‘(1) IN GENERAL.—The standards under sub18 section (p) may be modified (in the manner de19 scribed in paragraph (1)(E) of such subsection (ap20 plying paragraph (3)(A) of such subsection as if the

21 reference to ‘this subsection’ were a reference to ‘the

22 Seniors’ Security Act of 2000’)) to establish addi23 tional benefit packages consistent with the suc24 ceeding provisions of this subsection.
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1 ‘‘(2) REQUIREMENTS FOR NEW PACKAGES THAT

2 INCLUDE PRESCRIPTION DRUG COVERAGE.—In the

3 case of any benefit package added under paragraph

4 (1) that provides coverage for outpatient prescrip5 tion drugs, such benefit package—

6 ‘‘(A) shall not provide first-dollar coverage

7 of outpatient prescription drugs;

8 ‘‘(B) may provide a stop-loss coverage ben9 efit for outpatient prescription drugs that limits

10 the application of any beneficiary cost-sharing

11 during a year after incurring a certain amount

12 of out-of-pocket covered expenditures;

13 ‘‘(C) shall not include benefits for prescrip14 tion drugs otherwise available under part A or

15 B; and

16 ‘‘(D) shall be consistent with the require17 ments of this section and applicable law.

18 ‘‘(3) USE OF FORMULARIES.—In the case of

19 any benefit package added under paragraph (1) that

20 provides coverage for outpatient prescription drugs,

21 the issuer of any policy containing such a benefit

22 package may use formularies.

23 ‘‘(4) SPECIAL OPEN ENROLLMENT.—

24 ‘‘(A) ESTABLISHMENT.—If any benefit

25 package is added under paragraph (1), the Sec-
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1 retary shall establish an applicable period in

2 which any eligible beneficiary may enroll in any

3 medicare supplemental policy containing such

4 benefit package under the terms described in

5 subparagraph (D).

6 ‘‘(B) ELIGIBLE BENEFICIARY DEFINED.—

7 In this paragraph, the term ‘eligible beneficiary’

8 means a beneficiary under this title who is en9 rolled in a medicare supplemental policy as of

10 the first day that any benefit package added

11 under paragraph (1) is available in the State in

12 which such beneficiary resides.

13 ‘‘(C) APPLICABLE PERIOD DEFINED.—In

14 this paragraph, the term ‘applicable period’

15 means—

16 ‘‘(i) in the case of an eligible bene17 ficiary who is enrolled in a medicare sup18 plemental policy which has a benefit pack19 age classified as ‘H’, ‘I’, or ‘J’ under the

20 standards established under subsection

21 (p)(2), the 180-day period that begins on

22 the day described in subparagraph (B);

23 and

24 ‘‘(ii) in the case of an eligible bene25 ficiary who is enrolled in a medicare sup-
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1 plemental policy which has a benefit pack2 age classified as ‘A’ through ‘G’ under the

3 standards established under subsection

4 (p)(2), the 63-day period that begins on

5 the day described in subparagraph (B).

6 ‘‘(D) TERMS DESCRIBED.—The terms de7 scribed under this subparagraph are terms

8 which do not—

9 ‘‘(i) deny or condition the issuance or

10 effectiveness of a medicare supplemental

11 policy described in subparagraph (A) that

12 is offered and is available for issuance to

13 new enrollees by such issuer;

14 ‘‘(ii) discriminate in the pricing of

15 such policy, because of health status,

16 claims experience, receipt of health care, or

17 medical condition; or

18 ‘‘(iii) impose an exclusion of benefits

19 based on a preexisting condition under

20 such policy.

21 ‘‘(5) ABILITY FOR ISSUER TO CANCEL CERTAIN

22 POLICIES.—Notwithstanding subsection (q)(2), an

23 issuer of a policy containing a benefit package added

24 under paragraph (1) that provides coverage for out-
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1 patient prescription drugs may terminate such a pol2 icy in a market but only if—

3 ‘‘(A) the termination is—

4 ‘‘(i) done in accordance with State law

5 in such market; and

6 ‘‘(ii) applied uniformly to individuals

7 enrolled under such policy;

8 ‘‘(B) the issuer provides notice to each in9 dividual enrolled under such policy of such ter10 mination at least 90 days prior to the date of

11 the termination of coverage under such policy;

12 and

13 ‘‘(C) the issuer offers to each individual

14 enrolled under such policy, for at least 180 days

15 after providing the notice pursuant to subpara16 graph (B), the option to purchase all other

17 medicare supplemental policies currently being

18 offered by the issuer under the terms described

19 in paragraph (4)(D).’’.

20 (b) SALE OF NON-DUPLICATIVE MEDIGAP INSUR21 ANCE POLICIES AUTHORIZED.—Section 1882(d)(3) of the

22 Social Security Act (42 U.S.C. 1395ss(d)(3)) is

23 amended—

24 (1) in subparagraph (A), by adding at the end

25 the following:
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1 ‘‘(ix) Nothing in this subparagraph shall be construed

2 as preventing the sale of more than 1 medicare supple3 mental policy to an individual, provided that the sale is

4 of a medicare supplemental policy that does not duplicate

5 any health benefits under a medicare supplemental policy

6 owned by the individual.’’; and

7 (2) in subparagraph (B)—

8 (A) in clause (ii)(I), by inserting ‘‘, unless

9 a second policy is designed to compliment the

10 coverage under the first policy’’ before the

11 comma at the end; and

12 (B) in clause (iii)—

13 (i) in subclause (I), by striking ‘‘(II)

14 and (III)’’ and inserting ‘‘(II), (III), and

15 (IV)’’;

16 (ii) by redesignating subclause (III) as

17 subclause (IV); and

18 (iii) by inserting after subclause (II)

19 the following:

20 ‘‘(III) If the statement required by clause (i) is ob21 tained and indicates that the individual is enrolled in 1

22 or more medicare supplemental policies, the sale of an23 other policy is not in violation of clause (i) if such other

24 policy does not duplicate health benefits under any policy

25 in which the individual is enrolled.’’.
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1 (c) NAIC TO CONSULT WITH MEDPAC IN REVISING

2 MODEL STANDARDS.—

3 (1) IN GENERAL.—In revising the model regula4 tion under section 1882(v) of the Social Security Act

5 (42 U.S.C. 1395ss(v)) (as added by subsection (a)),

6 the National Association of Insurance Commis7 sioners (in this section referred to as the ‘‘NAIC’’)

8 should—

9 (A) consult with the Medicare Payment

10 Advisory Commission established under section

11 1805 of such Act (42 U.S.C. 1395b–6) (in this

12 subsection referred to as ‘‘MedPAC’’); and

13 (B) consider the MedPAC report trans14 mitted to NAIC in accordance with paragraph

15 (2)(B)(ii).

16 (2) MEDPAC ANALYSIS AND REPORT.—

17 (A) ANALYSIS.—MedPAC shall conduct an

18 analysis of the following issues:

19 (i) The conditions necessary to create

20 a well-functioning, voluntary medicare sup21 plemental insurance market that provides

22 coverage for outpatient prescription drugs.

23 (ii) The scope of outpatient prescrip24 tion drug coverage for medicare bene-
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1 ficiaries, including individuals enrolled in

2 Medicare+Choice plans.

3 (iii) The implications of a medicare

4 supplemental policy that would require

5 issuers of medicare supplemental policies

6 to provide outpatient prescription drug

7 coverage and a stop-loss benefit instead of

8 providing coverage for other benefits avail9 able through existing medicare supple10 mental policies.

11 (iv) The portion of out-of-pocket

12 spending of medicare beneficiaries on

13 health care expenses attributable to out14 patient prescription drugs.

15 (v) The availability of private health

16 insurance policies that cover outpatient

17 prescription drugs to beneficiaries that are

18 not entitled to benefits under the medicare

19 program.

20 (vi) The scope of outpatient prescrip21 tion drug coverage provided by employers

22 to medicare beneficiaries.

23 (vii) The impact of outpatient pre24 scription drugs on the overall health of

25 medicare beneficiaries.
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1 (viii) The effect of providing coverage

2 for outpatient prescription drugs on the

3 amount of funds expended by the medicare

4 program.

5 (ix) Whether modifications of benefit

6 packages of existing medicare supple7 mental policies that provide coverage for

8 outpatient prescription drugs or the cre9 ation of new benefit packages that provide

10 coverage for outpatient prescription drugs

11 would allow payment for these policies to

12 be integrated with a Federal contribution.

13 (x) Such other issues relating to out14 patient prescription drugs that would as15 sist Congress in improving the medicare

16 program.

17 (B) REPORT TO CONGRESS.—

18 (i) IN GENERAL.—Not later than

19 June 1, 2000, MedPAC shall submit to

20 Congress a report containing a detailed

21 analysis of the issues described in subpara22 graph (A) together with recommendations

23 for such legislation and administrative ac24 tions as MedPAC considers appropriate.
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1 (ii) TRANSMISSION TO NAIC.—At the

2 same time MedPAC submits the report to

3 Congress under clause (i), MedPAC shall

4 transmit such report to the NAIC.

Æ