I

103D CONGRESS

1ST SESSION H. R. 2407

To amend title XIX of the Social Security Act to improve coverage of

nursing facility services under the medicaid program and to amend

the Internal Revenue Code of 1986 to clarify the tax treatment of

long-term care insurance.

IN THE HOUSE OF REPRESENTATIVES

JUNE 14, 1993

Mrs. KENNELLY introduced the following bill; which was referred jointly to

the Committees on Energy and Commerce and Ways and Means

A BILL

To amend title XIX of the Social Security Act to improve

coverage of nursing facility services under the medicaid

program and to amend the Internal Revenue Code of

1986 to clarify the tax treatment of long-term care

insurance.

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.

4 This Act may be cited as the ‘‘Partnership for Long5 Term Care Act of 1993’’.
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1 TITLE I—MEDICAID PROGRAM

2 IMPROVEMENTS

3 SEC. 101. REQUIRING MEDICALLY NEEDY PROGRAM FOR

4 INDIVIDUALS WITH INCOMES BELOW THE

5 POVERTY LEVEL.

6 (a) IN GENERAL.—Section 1902(a)(10) of the Social

7 Security Act (42 U.S.C. 1396a(a)(10)) is amended—

8 (1) by striking ‘‘and’’ at the end of subpara9 graph (E);

10 (2) by inserting ‘‘and’’ at the end of subpara11 graph (F); and

12 (3) by inserting after subparagraph (F) the fol13 lowing new subparagraph:

14 ‘‘(G)(i) for making medical assistance

15 available under subparagraph (C) for all indi16 viduals—

17 ‘‘(I) whose income (taking into ac18 count the costs incurred for medical care

19 or for any other type of remedial care rec20 ognized under State law) does not exceed

21 100 percent of the official poverty level (as

22 defined by the Office of Management and

23 Budget, and revised annually in accord24 ance with section 673(2) of the Omnibus
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1 Budget Reconciliation Act of 1981) appli2 cable to a family of the size involved, and

3 ‘‘(II) whose resources (as determined

4 under section 1613 for purposes of the

5 supplemental security income program) do

6 not exceed such level (at least equal to the

7 maximum amount of resources that an in8 dividual may have and obtain benefits

9 under that program) as the State estab10 lishes; and

11 ‘‘(ii) for including in medical assistance

12 under clause (i)—

13 ‘‘(I) for individuals described in sub14 paragraph (C)(ii), at least the care and

15 services listed in paragraphs (1) through

16 (5) and (17) of section 1905(a), and

17 ‘‘(II) for other individuals at least

18 nursing facility services (and, to the extent

19 applicable, services under a waiver under

20 section 1915(c));’’.

21 (b) EFFECTIVE DATE.—(1) The amendments made

22 by this section apply (except as provided under paragraph

23 (2)) to payments under title XIX of the Social Security

24 Act for calendar quarters beginning on or after January

25 1, 1994, without regard to whether or not final regulations
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1 to carry out such amendments have been promulgated by

2 such date.

3 (2) In the case of a State plan for medical assistance

4 under title XIX of the Social Security Act which the Sec5 retary of Health and Human Services determines requires

6 State legislation (other than legislation appropriating

7 funds) in order for the plan to meet the additional require8 ments imposed by the amendments made by this section,

9 the State plan shall not be regarded as failing to comply

10 with the requirements of such title solely on the basis of

11 its failure to meet these additional requirements before the

12 first day of the first calendar quarter beginning after the

13 close of the first regular session of the State legislature

14 that begins after the date of the enactment of this Act.

15 For purposes of the previous sentence, in the case of a

16 State that has a 2-year legislative session, each year of

17 such session shall be deemed to be a separate regular ses18 sion of the State legislature.

19 SEC. 102. PREMIUM SUBSIDY PROGRAM.

20 (a) REQUIREMENT FOR STATE PLAN.—Section

21 1902(a) of the Social Security Act (42 U.S.C. 1396a(a))

22 is amended—

23 (1) by striking ‘‘and’’ at the end of paragraph

24 (54);
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1 (2) in the paragraph (55) inserted by section

2 4602(a)(3) of the Omnibus Budget Reconciliation

3 Act of 1990 (hereafter referred to as ‘‘OBRA–

4 1990’’), by striking the period at the end and insert5 ing a semicolon;

6 (3) by redesignating the paragraph (55) in7 serted by section 4604(b)(3) of OBRA–1990 as

8 paragraph (56), by transferring and inserting it

9 after the paragraph (55) inserted by section

10 4602(a)(3) of such Act, and by striking the period

11 at the end and inserting a semicolon;

12 (4) by placing paragraphs (57) and (58), in13 serted by section 4751(a)(1)(C) of OBRA–1990, im14 mediately after paragraph (56), as redesignated by

15 paragraph (3);

16 (5) in the paragraph (58) inserted by section

17 4751(a)(1)(C) of OBRA–1990, by striking the pe18 riod at the end and inserting a semicolon;

19 (6) by redesignating the paragraph (58) in20 serted by section 4752(c)(1)(C) of OBRA–1990 as

21 paragraph (59) and by transferring and inserting it

22 after the paragraph (58) inserted by section

23 4751(a)(1)(C) of such Act;
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1 (7) by striking the period at the end of para2 graph (59) (as so redesignated) and inserting ‘‘;

3 and’’; and

4 (8) by inserting after paragraph (59) (as so re5 designated) the following new paragraph:

6 ‘‘(60) meet the requirements of section 1928

7 (relating to a premium subsidy program for low in8 come individuals to purchase long-term care insur9 ance).’’.

10 (b) PREMIUM SUBSIDY PROGRAM.—Title XIX of

11 such Act is amended—

12 (1) by transferring section 1928 to the end;

13 (2) by redesignating section 1928 as section

14 1931; and

15 (3) by inserting after section 1927 the following

16 new section:

17 ‘‘PREMIUM SUBSIDY PROGRAM

18 ‘‘SEC. 1928. (a) In order to meet the requirements

19 of this section, a State must establish and maintain a pro20 gram to assist low income individuals in the purchase of

21 qualified long-term care insurance.

22 ‘‘(b) Under the program, each low income individual

23 (as defined in subsection (c)(1) is entitled to payment of

24 a subsidy, expressed as a percentage of the premium oth25 erwise required for a qualified long-term care insurance,

26 equal to 50 percent minus 40 percent multiplied by the
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1 factor (P–100 percent)/100 percent, where ‘P’ is the indi2 vidual’s family’s income expressed as a percent of the offi3 cial poverty level.

4 ‘‘(c) In this section:

5 ‘‘(1) The term ‘low income individual’ means an

6 individual in a family—

7 ‘‘(A) the income of which (as determined

8 under section 1612 for purposes of the supple9 mental security income program) is at least 100

10 percent, but does not exceed 200 percent, of the

11 official poverty level, and

12 ‘‘(B) the resources of which (as determined

13 under section 1613 for purposes of the supple14 mental security income program) do not exceed

15 an amount established by the State.

16 The resource level established by a State under sub17 paragraph (B) may not be less than twice the maxi18 mum amount of resources that an individual may

19 have and obtain benefits under the supplemental se20 curity income program under title XVI.

21 ‘‘(2) The term ‘official poverty line’ means such

22 term as defined by the Office of Management and

23 Budget, and revised annually in accordance with sec24 tion 673(2) of the Omnibus Budget Reconciliation

25 Act of 1981.
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1 ‘‘(3) The term ‘qualified long-term care insur2 ance’ means insurance against the costs of nursing

3 facility services and related long-term care services

4 which meets requirements established by the State.

5 In establishing such requirements, the State shall

6 take into consideration model requirements estab7 lished with respect to such insurance by the Na8 tional Association of Insurance Commissioners as

9 well as requirements imposed with respect to medi10 care supplemental policies under section 1882.’’.

11 (c) EFFECTIVE DATE.—(1) The amendments made

12 by this section apply (except as provided under paragraph

13 (2)) to payments under title XIX of the Social Security

14 Act for calendar quarters beginning on or after Janu15 ary 1, 1994, without regard to whether or not final regula16 tions to carry out such amendments have been promul17 gated by such date.

18 (2) In the case of a State plan for medical assistance

19 under title XIX of the Social Security Act which the Sec20 retary of Health and Human Services determines requires

21 State legislation (other than legislation appropriating

22 funds) in order for the plan to meet the additional require23 ment imposed by the amendments made by this section,

24 the State plan shall not be regarded as failing to comply

25 with the requirements of such title solely on the basis of
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1 its failure to meet this additional requirement before the

2 first day of the first calendar quarter beginning after the

3 close of the first regular session of the State legislature

4 that begins after the date of the enactment of this Act.

5 For purposes of the previous sentence, in the case of a

6 State that has a 2-year legislative session, each year of

7 such session shall be deemed to be a separate regular ses8 sion of the State legislature.

9 TITLE II—MEDICAID AMEND10 MENTS RELATING TO TREAT11 MENT OF PAYMENTS UNDER

12 QUALIFIED LONG-TERM CARE

13 INSURANCE POLICIES

14 SEC. 201. PROTECTION OF ASSETS TO THE EXTENT OF PAY15 MENTS UNDER QUALIFIED LONG-TERM CARE

16 INSURANCE POLICIES.

17 (a) IN GENERAL.—Section 1902(a) of the Social Se18 curity Act (42 U.S.C. 1396a(a)), as amended by section

19 102(a), is amended—

20 (1) by striking ‘‘and’’ at the end of paragraph

21 (59);

22 (2) by striking the period at the end of para23 graph (60) and inserting ‘‘, and’’; and

24 (3) by inserting after paragraph (60) the fol25 lowing new paragraph:
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1 ‘‘(61) notwithstanding paragraph (17), in deter2 mining the eligibility of an individual for medical as3 sistance under the plan, provide for reducing the

4 amount of assets the individual is considered to have

5 by the amount of any payments made with respect

6 to, and for the benefit of, the individual under a pol7 icy of qualified long-term care insurance (as defined

8 in section 1928(c)(3)).’’.

9 (b) EFFECTIVE DATE.—(1) The amendments made

10 by this section apply (except as provided under paragraph

11 (2)) to payments under title XIX of the Social Security

12 Act for calendar quarters beginning on or after January

13 1, 1994, without regard to whether or not final regulations

14 to carry out such amendments have been promulgated by

15 such date.

16 (2) In the case of a State plan for medical assistance

17 under title XIX of the Social Security Act which the Sec18 retary of Health and Human Services determines requires

19 State legislation (other than legislation appropriating

20 funds) in order for the plan to meet the additional require21 ment imposed by the amendments made by this section,

22 the State plan shall not be regarded as failing to comply

23 with the requirements of such title solely on the basis of

24 its failure to meet this additional requirement before the

25 first day of the first calendar quarter beginning after the
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1 close of the first regular session of the State legislature

2 that begins after the date of the enactment of this Act.

3 For purposes of the previous sentence, in the case of a

4 State that has a 2-year legislative session, each year of

5 such session shall be deemed to be a separate regular ses6 sion of the State legislature.

7 TITLE III—TAX TREATMENT OF

8 LONG-TERM CARE INSURANCE

9 SEC. 301. QUALIFIED LONG-TERM CARE INSURANCE DE10 FINED AND TREATED AS ACCIDENT OR

11 HEALTH INSURANCE.

12 (a) IN GENERAL.—Section 818 of the Internal Reve13 nue Code of 1986 (relating to definitions) is amended by

14 adding at the end thereof the following new subsection:

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

16 TREATED AS ACCIDENT OR HEALTH INSURANCE.—For

17 purposes of this subchapter—

18 ‘‘(1) IN GENERAL.—Any reference to

19 noncancellable accident or health insurance contracts

20 shall be treated as including a reference to qualified

21 long-term care insurance.

22 ‘‘(2) QUALIFIED LONG-TERM CARE INSUR23 ANCE.—For purposes of this subsection—

24 ‘‘(A) IN GENERAL.—Subject to subpara25 graphs (B) and (C), the term ‘qualified long-
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1 term care insurance’ means insurance under a

2 policy or rider, issued by a qualified issuer, to

3 be advertised, marketed, offered, or designed to

4 provide coverage—

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

6 months for each covered person,

7 ‘‘(ii) on an expense incurred, indem8 nity, prepaid or other basis,

9 ‘‘(iii) for 1 or more necessary or medi10 cally necessary diagnostic services, preven11 tive services, therapeutic services, rehabili12 tation services, maintenance services, or

13 personal care services,

14 ‘‘(iv) for the loss of functional capac15 ity, and

16 ‘‘(v) provided in a setting other than

17 an acute care unit of a hospital.

18 ‘‘(B) QUALIFIED ISSUER.—For purposes

19 of subparagraph (A), the term ‘qualified issuer’

20 means any of the following provided they are

21 subject to the jurisdiction and regulation of at

22 least one State insurance department:

23 ‘‘(i) Private insurance company.

24 ‘‘(ii) Fraternal benefit society.

25 ‘‘(iii) Nonprofit health corporation.
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1 ‘‘(iv) Nonprofit hospital corporation.

2 ‘‘(v) Nonprofit medical service cor3 poration.

4 ‘‘(vi) Prepaid health plan.’’

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

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

7 December 31, 1993.

8 SEC. 302. QUALIFIED LONG-TERM CARE INSURANCE TREAT9 ED AS ACCIDENT AND HEALTH INSURANCE

10 FOR PURPOSES OF EXCLUSION FOR BENE11 FITS RECEIVED UNDER SUCH INSURANCE

12 AND FOR EMPLOYER CONTRIBUTIONS FOR

13 SUCH INSURANCE.

14 (a) IN GENERAL.—Section 105 of the Internal Reve15 nue Code of 1986 (relating to amounts received under ac16 cident and health plans) is amended by adding at the end

17 thereof the following new subsection:

18 ‘‘(j) SPECIAL RULES RELATING TO QUALIFIED

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

20 104, this section, and section 106—

21 ‘‘(1) BENEFITS TREATED AS PAYABLE FOR

22 SICKNESS, ETC.—Any benefit received through quali23 fied long-term care insurance (as defined in section

24 818(g)) shall be treated as amounts received
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1 through accident or health insurance for personal in2 juries or sickness.

3 ‘‘(2) EXPENSES FOR WHICH REIMBURSEMENT

4 PROVIDED UNDER QUALIFIED LONG-TERM CARE IN5 SURANCE TREATED AS INCURRED FOR MEDICAL

6 CARE OR FUNCTIONAL LOSS.—Expenses incurred by

7 an individual to the extent of benefits paid under

8 qualified long-term care insurance (as defined in sec9 tion 818(g)) shall be treated for purposes of sub10 section (b) as incurred for medical care (as defined

11 in section 213(d)) and for purposes of subsection (c)

12 as payment for the permanent loss or loss of use of

13 a member or function of the body or the permanent

14 disfigurement of the taxpayer, his spouse, any de15 pendent of the taxpayer, or any parent of the tax16 payer of his spouse.

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 (as de21 fined in section 818(g)).’’

22 (b) CURRENT DEDUCTION FOR EMPLOYER PRE23 MIUMS FOR LONG-TERM CARE POLICIES.—Subparagraph

24 (B) of section 404(b)(2) of such Code (relating to plans

25 providing certain deferred benefits) is amended by striking
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1 ‘‘or’’ at the end of clause (i), by striking the period at

2 the end of clause (ii) and inserting ‘‘, or’’, and by adding

3 at the end thereof the following new clause:

4 ‘‘(iii) any benefit provided under a

5 policy of qualified long-term care insurance

6 (as defined in section 818(g)) through the

7 payment (in whole or in part) of premiums

8 by an employer pursuant to a plan for its

9 active or retired employees, but only if any

10 refund of premiums is applied to reduce

11 the future costs of the plan or increase

12 benefits under the plan.’’

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

14 this section shall apply to taxable years beginning after

15 December 31, 1993.

16 SEC. 303. EARLY DISTRIBUTION PENALTY TAX NOT TO

17 APPLY TO AMOUNTS WITHDRAWN FROM

18 QUALIFIED PLANS, INDIVIDUAL RETIREMENT

19 PLANS, ETC. FOR QUALIFIED LONG-TERM IN20 SURANCE.

21 (a) IN GENERAL.—Paragraph (1) of section 72(t) of

22 the Internal Revenue Code of 1986 (relating to 10-percent

23 additional tax on early distributions from qualified retire24 ment plans) is amended by adding at the end thereof the

25 following new subparagraph:
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1 ‘‘(D) DISTRIBUTIONS FOR QUALIFIED

2 LONG-TERM CARE INSURANCE PREMIUMS.—Any

3 distribution to the extent used during the tax4 able year to pay premiums for any policy of

5 qualified long-term care insurance (as defined

6 in section 818(g)) or to pay for services de7 scribed in section 818(g)(2)(A)(iii) (relating to

8 services provided under long-term care insur9 ance) for the benefit of the payee or distributee,

10 the spouse of the payee or distributee, any de11 pendent of the payee or distributee, or any par12 ent of the payee or distributee or such spouse.’’

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

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

15 December 31, 1993.

16 SEC. 304. DEDUCTION OF EXPENSES RELATING TO QUALI17 FIED LONG-TERM CARE.

18 (a) IN GENERAL.—Paragraph (1) of section 213(d)

19 of the Internal Revenue Code of 1986 (relating to the defi20 nition of medical care) is amended—

21 (1) by striking ‘‘or’’ at the end of subparagraph

22 (B), and

23 (2) by redesignating subparagraph (C) as sub24 paragraph (D) and by inserting after subparagraph

25 (B) the following new subparagraph:
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1 ‘‘(C) for those services described in section

2 818(g)(2)(A)(iii) (relating to services provided

3 under qualified long-term care insurance), or’’.

4 (b) TECHNICAL AMENDMENTS.—

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

6 such Code, as redesignated by subsection (a), is

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

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

9 (2) Paragraph (6) of section 213(d) of such

10 Code is amended—

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

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

13 and (C)’’, and

14 (B) by striking ‘‘paragraph (1)(C)’’ and in15 serting ‘‘paragraph (1)(D)’’.

16 (3) Paragraph (7) of section 213(d) of such

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

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

19 and (C)’’.

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

21 this section shall apply to taxable years beginning after

22 December 31, 1993.

23 SEC. 305. TREATMENT OF PREFUNDED LONG-TERM CARE

24 BENEFITS.

25 (a) IN GENERAL.—
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1 (1) Paragraph (2) of section 419A(c) of the In2 ternal Revenue Code of 1986 (relating to additional

3 reserve for post-retirement medical and life insur4 ance benefits) is amended by striking ‘‘or’’ at the

5 end of subparagraph (A), by striking the period at

6 the end of subparagraph (B) and inserting ‘‘, or’’,

7 and by adding at the end thereof the following new

8 subparagraph:

9 ‘‘(C) post-retirement long-term care bene10 fits (as defined in section 818(g)) to be pro11 vided to covered employees.’’

12 (2) The paragraph heading for such paragraph

13 (2) is amended by inserting ‘‘, LONG-TERM CARE,’’

14 after ‘‘MEDICAL’’.

15 (b) RESERVE FOR LONG-TERM CARE BENEFITS

16 MUST BE NONDISCRIMINATORY.—

17 (1) Paragraph (1) of section 419A(e) of such

18 Code (relating to special limitations on reserves for

19 medical benefits or life insurance benefits provided

20 to retired employees) is amended by inserting ‘‘,

21 long-term care benefits,’’ after ‘‘medical benefits’’

22 each place it appears.

23 (2) The subsection heading for section 419A(e)

24 of such Code is amended by inserting ‘‘, LONG-TERM

25 CARE BENEFITS,’’ after ‘‘MEDICAL BENEFITS’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1993.

4 SEC. 306. QUALIFIED LONG-TERM CARE INSURANCE PER5 MITTED TO BE OFFERED IN CAFETERIA

6 PLANS.

7 (a) IN GENERAL.—Paragraph (2) of section 125(c)

8 of the Internal Revenue Code of 1986 (relating to the ex9 clusion of deferred compensation) is amended by adding

10 at the end thereof the following new subparagraph:

11 ‘‘(D) EXCEPTION FOR LONG-TERM CARE

12 INSURANCE.—For purposes of subparagraph

13 (A), a plan shall not be treated as providing de14 ferred compensation by reason of providing

15 qualified long-term care insurance (as defined

16 in section 818(g)) if—

17 ‘‘(i) the employee may not surrender

18 such insurance for cash, and

19 ‘‘(ii) the terms of the plan permits,

20 the employee may elect to continue the in21 surance upon cessation of participation in

22 the plan.’’

23 (b) LONG-TERM CARE INSURANCE INCLUDED AS

24 QUALIFIED BENEFIT.—Paragraph (2) of section 125(e)

25 of such Code (defining qualified benefits) is amended by
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1 striking ‘‘and’’ at the end of subparagraph (A), by striking

2 the period at the end of subparagraph (B) and inserting

3 ‘‘, and’’, and by adding at the end thereof the following

4 new subparagraph:

5 ‘‘(C) qualified long-term care insurance (as

6 defined in section 818(g)).’’

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

8 this section shall apply to taxable years beginning after

9 December 31, 1993.

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