In the Senate of the United States,
April 23, 1996.
Resolved, That the bill from the House of Representa-
tives (H.R. 3103) entitled ‘‘An Act to amend the Internal
Revenue Code of 1986 to improve portability and continuity
of health insurance coverage in the group and individual mar-
kets, to combat waste, fraud, and abuse in health insurance
and health care delivery, to promote the use of medical sav-
ings accounts, to improve access to long-term care services
and coverage, to simplify the administration of health insur-
ance, and for other purposes’’, do pass with the following
AMENDMENT:
Strike out all after the enacting clause and insert:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Health Insurance Reform Act of 1996’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
HR 3103 EAS
TITLE I—HEALTH CARE ACCESS, PORTABILITY, AND
RENEWABILITY
Subtitle A—Group Market Rules
Sec. 101. Guaranteed availability of health coverage.
Sec. 102. Guaranteed renewability of health coverage.
Sec. 103. Portability of health coverage and limitation on preexisting condition
exclusions.
Sec. 104. Special enrollment periods.
Sec. 105. Disclosure of information.
Subtitle B—Individual Market Rules
Sec. 110. Individual health plan portability.
Sec. 111. Guaranteed renewability of individual health coverage.
Sec. 112. State flexibility in individual market reforms.
Sec. 113. Definition.
Subtitle C—COBRA Clarifications
Sec. 121. COBRA clarifications.
Subtitle D—Private Health Plan Purchasing Cooperatives
Sec. 131. Private health plan purchasing cooperatives.
TITLE II—APPLICATION AND ENFORCEMENT OF STANDARDS
Sec. 201. Applicability.
Sec. 202. Enforcement of standards.
TITLE III—MISCELLANEOUS PROVISIONS
Sec. 301. HMOs allowed to offer plans with deductibles to individuals with medi-
cal savings accounts.
Sec. 302. Health coverage availability study.
Sec. 303. Reimbursement of telemedicine.
Sec. 304. Sense of the Committee concerning medicare.
Sec. 305. Parity for mental health services.
Sec. 306. Waiver of foreign country residence requirement with respect to inter-
national medical graduates.
Sec. 307. Organ and tissue donation information included with income tax re-
fund payments.
Sec. 308. Sense of the Senate regarding adequate health care coverage for all chil-
dren and pregnant women.
Sec. 309. Sense of the Senate regarding available treatments.
Sec. 310. Medical volunteers.
Sec. 311. Effective date.
Sec. 312. Severability.
TITLE IV—TAX-RELATED HEALTH PROVISIONS
Sec. 400. Short title; amendment of 1986 Code.
HR 3103 EAS
Subtitle A—Increase in Deduction for Health Insurance Costs of Self-Employed
Individuals
Sec. 401. Increase in self-employed individuals’ deduction for health insurance
costs.
Subtitle B—Long-Term Care Provisions
CHAPTER 1—LONG-TERM CARE SERVICES AND CONTRACTS
SUBCHAPTER A—GENERAL PROVISIONS
Sec. 411. Treatment of long-term care insurance.
Sec. 412. Qualified long-term care services treated as medical care.
Sec. 413. Certain exchanges of life insurance contracts for qualified long-term
care insurance contracts not taxable.
Sec. 414. Exception from penalty tax for amounts withdrawn from certain retire-
ment plans for qualified long-term care insurance.
Sec. 415. Reporting requirements.
SUBCHAPTER B—CONSUMER PROTECTION PROVISIONS
Sec. 421. Policy requirements.
Sec. 422. Requirements for issuers of long-term care insurance policies.
Sec. 423. Coordination with State requirements.
Sec. 424. Effective dates.
CHAPTER 2—TREATMENT OF ACCELERATED DEATH BENEFITS
Sec. 431. Treatment of accelerated death benefits by recipient.
Sec. 432. Tax treatment of companies issuing qualified accelerated death benefit
riders.
Subtitle C—High-Risk Pools
Sec. 451. Exemption from income tax for State-sponsored organizations providing
health coverage for high-risk individuals.
Subtitle D—Penalty-Free IRA Distributions
Sec. 461. Distributions from certain plans may be used without penalty to pay
financially devastating medical expenses.
Subtitle E—Revenue Offsets
CHAPTER 1—TREATMENT OF INDIVIDUALS WHO EXPATRIATE
Sec. 471. Revision of tax rules on expatriation.
Sec. 472. Information on individuals expatriating.
Sec. 473. Report on tax compliance by United States citizens and residents living
abroad.
CHAPTER 2—COMPANY-OWNED INSURANCE
Sec. 495. Denial of deduction for interest on loans with respect to company-owned
insurance.
TITLE V—HEALTH CARE FRAUD AND ABUSE PREVENTION
Sec. 500. Amendments.
HR 3103 EAS
Subtitle A—Fraud and Abuse Control Program
Sec. 501. Fraud and abuse control program.
Sec. 502. Medicare integrity program.
Sec. 503. Beneficiary incentive programs.
Sec. 504. Application of certain health anti-fraud and abuse sanctions to fraud
and abuse against Federal health care programs.
Sec. 505. Guidance regarding application of health care fraud and abuse sanc-
tions.
Subtitle B—Revisions to Current Sanctions for Fraud and Abuse
Sec. 511. Mandatory exclusion from participation in medicare and State health
care programs.
Sec. 512. Establishment of minimum period of exclusion for certain individuals
and entities subject to permissive exclusion from medicare and
State health care programs.
Sec. 513. Permissive exclusion of individuals with ownership or control interest
in sanctioned entities.
Sec. 514. Sanctions against practitioners and persons for failure to comply with
statutory obligations.
Sec. 515. Intermediate sanctions for medicare health maintenance organizations.
Sec. 516. Additional exceptions to anti-kickback penalties for risk-sharing ar-
rangements.
Sec. 517. Effective date.
Subtitle C—Data Collection and Miscellaneous Provisions
Sec. 521. Establishment of the health care fraud and abuse data collection pro-
gram.
Subtitle D—Civil Monetary Penalties
Sec. 531. Social Security Act civil monetary penalties.
Subtitle E—Amendments to Criminal Law
Sec. 541. Health care fraud.
Sec. 542. Forfeitures for Federal health care offenses.
Sec. 543. Injunctive relief relating to Federal health care offenses.
Sec. 544. False statements.
Sec. 545. Obstruction of criminal investigations of Federal health care offenses.
Sec. 546. Theft or embezzlement.
Sec. 547. Laundering of monetary instruments.
Sec. 548. Authorized investigative demand procedures.
TITLE VI—INTERNAL REVENUE CODE AND OTHER PROVISIONS
Sec. 600. References.
Subtitle A—Foreign Trust Tax Compliance
Sec. 601. Improved information reporting on foreign trusts.
Sec. 602. Modifications of rules relating to foreign trusts having one or more
United States beneficiaries.
Sec. 603. Foreign persons not to be treated as owners under grantor trust rules.
Sec. 604. Information reporting regarding foreign gifts.
HR 3103 EAS
Sec. 605. Modification of rules relating to foreign trusts which are not grantor
trusts.
Sec. 606. Residence of estates and trusts, etc.
Subtitle B—Repeal of Bad Debt Reserve Method for Thrift Savings Associations
Sec. 611. Repeal of bad debt reserve method for Thrift Savings Associations.
Subtitle C—Other Provisions
Sec. 621. Extension of medicare secondary payor provisions.
Sec. 622. Annual adjustment factors for operating costs only; restraint on rent in-
creases.
Sec. 623. Foreclosure avoidance and borrower assistance.
SEC. 2. DEFINITIONS.
As used in this Act:
(1) BENEFICIARY.—The term ‘‘beneficiary’’ has
the meaning given such term under section 3(8) of the
Employee Retirement Income Security Act of 1974
(29 U.S.C. 1002(8)).
(2) EMPLOYEE.—The term ‘‘employee’’ has the
meaning given such term under section 3(6) of the
Employee Retirement Income Security Act of 1974
(29 U.S.C. 1002(6)).
(3) EMPLOYER.—The term ‘‘employer’’ has the
meaning given such term under section 3(5) of the
Employee Retirement Income Security Act of 1974
(29 U.S.C. 1002(5)), except that such term shall in-
clude only employers of two or more employees.
(4) EMPLOYEE HEALTH BENEFIT PLAN.—
(A) IN
GENERAL.—The term ‘‘employee
health benefit plan’’ means any employee welfare
benefit plan, governmental plan, or church plan
HR 3103 EAS
(ii) Medicare supplemental health in-
surance 
(as 
defined 
under 
section
1882(g)(1) of the Social Security Act).
(iii) Coverage issued as a supplement
to liability insurance.
(iv) Liability insurance, including
general liability insurance and automobile
liability insurance.
(v) Workers compensation or similar
insurance.
(vi) Automobile medical payment in-
surance.
(vii) Coverage for a specified disease or
illness.
(viii) Hospital or fixed indemnity in-
surance.
(ix) Short-term limited duration insur-
ance.
(x) Credit-only, dental-only, or vision-
only insurance.
(xi) A health insurance policy provid-
ing benefits only for long-term care, nursing
home care, home health care, community-
based care, or any combination thereof.
(5) FAMILY.—
HR 3103 EAS
(A) IN
GENERAL.—The term ‘‘family’’
means an individual, the individual’s spouse,
and the child of the individual (if any).
(B) CHILD.—For purposes of subparagraph
(A), the term ‘‘child’’ means any individual who
is a child within the meaning of section
151(c)(3) of the Internal Revenue Code of 1986.
(6) GROUP HEALTH PLAN.—
(A) IN GENERAL.—The term ‘‘group health
plan’’ means any contract, policy, certificate or
other arrangement offered by a health plan is-
suer to a group purchaser that provides or pays
for health benefits (such as provider and hospital
benefits) in connection with an employee health
benefit plan.
(B) ARRANGEMENTS NOT INCLUDED.—Such
term does not include the following, or any com-
bination thereof:
(i) Coverage only for accident, or dis-
ability income insurance, or any combina-
tion thereof.
(ii) Medicare supplemental health in-
surance 
(as 
defined 
under 
section
1882(g)(1) of the Social Security Act).
HR 3103 EAS
(iii) Coverage issued as a supplement
to liability insurance.
(iv) Liability insurance, including
general liability insurance and automobile
liability insurance.
(v) Workers compensation or similar
insurance.
(vi) Automobile medical payment in-
surance.
(vii) Coverage for a specified disease or
illness.
(viii) Hospital or fixed indemnity in-
surance.
(ix) Short-term limited duration insur-
ance.
(x) Credit-only, dental-only, or vision-
only insurance.
(xi) A health insurance policy provid-
ing benefits only for long-term care, nursing
home care, home health care, community-
based care, or any combination thereof.
(7) GROUP PURCHASER.—The term ‘‘group pur-
chaser’’ means any person (as defined under para-
graph (9) of section 3 of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1002(9)) or en-
HR 3103 EAS
tity that purchases or pays for health benefits (such
as provider or hospital benefits) on behalf of two or
more participants or beneficiaries in connection with
an employee health benefit plan. A health plan pur-
chasing cooperative established under section 131
shall not be considered to be a group purchaser.
(8) HEALTH PLAN ISSUER.—The term ‘‘health
plan issuer’’ means any entity that is licensed (prior
to or after the date of enactment of this Act) by a
State to offer a group health plan or an individual
health plan.
(9) PARTICIPANT.—The term ‘‘participant’’ has
the meaning given such term under section 3(7) of the
Employee Retirement Income Security Act of 1974
(29 U.S.C. 1002(7)).
(10) PLAN SPONSOR.—The term ‘‘plan sponsor’’
has the meaning given such term under section
3(16)(B) of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1002(16)(B)).
(11) SECRETARY.—The term ‘‘Secretary’’, unless
specifically provided otherwise, means the Secretary
of Labor.
(12) STATE.—The term ‘‘State’’ means each of
the several States, the District of Columbia, Puerto
Rico, the United States Virgin Islands, Guam, Amer-
HR 3103 EAS
ican Samoa, and the Commonwealth of the Northern
Mariana Islands.
TITLE I—HEALTH CARE ACCESS,
PORTABILITY, 
AND 
RENEW-
ABILITY
Subtitle A—Group Market Rules
SEC. 101. GUARANTEED AVAILABILITY OF HEALTH COV-
ERAGE.
(a) IN GENERAL.—
(1) NONDISCRIMINATION.—Except as provided in
subsection (b), section 102 and section 103—
(A) a health plan issuer offering a group
health plan may not decline to offer whole group
coverage to a group purchaser desiring to pur-
chase such coverage; and
(B) an employee health benefit plan or a
health plan issuer offering a group health plan
may establish, under the terms of such plan, eli-
gibility, enrollment, or premium contribution re-
quirements for individual participants or bene-
ficiaries, except that such requirements shall not
be based on health status, medical condition,
claims experience, receipt of health care, medical
history, evidence of insurability (including con-
HR 3103 EAS
ditions arising out of acts of domestic violence),
genetic information, or disability.
(2) HEALTH PROMOTION AND DISEASE PREVEN-
TION.—Nothing in this subsection shall prevent an
employee health benefit plan or a health plan issuer
from establishing premium discounts or modifying
otherwise applicable copayments or deductibles in re-
turn for adherence to programs of health promotion
and disease prevention.
(b) APPLICATION OF CAPACITY LIMITS.—
(1) IN GENERAL.—Subject to paragraph (2), a
health plan issuer offering a group health plan may
cease offering coverage to group purchasers under the
plan if—
(A) the health plan issuer ceases to offer
coverage to any additional group purchasers;
and
(B) the health plan issuer can demonstrate
to the applicable certifying authority (as defined
in section 202(d)), if required, that its financial
or provider capacity to serve previously covered
participants and beneficiaries (and additional
participants and beneficiaries who will be ex-
pected to enroll because of their affiliation with
a group purchaser or such previously covered
HR 3103 EAS
participants or beneficiaries) will be impaired if
the health plan issuer is required to offer cov-
erage to additional group purchasers.
Such health plan issuer shall be prohibited from offer-
ing coverage after a cessation in offering coverage
under this paragraph for a 6-month period or until
the health plan issuer can demonstrate to the applica-
ble certifying authority (as defined in section 202(d))
that the health plan issuer has adequate capacity,
whichever is later.
(2) FIRST-COME-FIRST-SERVED.—A health plan
issuer offering a group health plan is only eligible to
exercise the limitations provided for in paragraph (1)
if the health plan issuer offers coverage to group pur-
chasers under such plan on a first-come-first-served
basis or other basis established by a State to ensure
a fair opportunity to enroll in the plan and avoid
risk selection.
(c) CONSTRUCTION.—
(1) MARKETING
OF
GROUP
HEALTH
PLANS.—
Nothing in this section shall be construed to prevent
a State from requiring health plan issuers offering
group health plans to actively market such plans.
(2) INVOLUNTARY OFFERING OF GROUP HEALTH
PLANS.—Nothing in this section shall be construed to
HR 3103 EAS
require a health plan issuer to involuntarily offer
group health plans in a particular market or to re-
quire a health plan issuer to involuntarily issue a
group health plan to a group health plan purchaser
in a particular market if the group health plan was
specifically designed for a different market. For the
purposes of this paragraph, the term ‘‘market’’ means
either the large employer market or the small em-
ployer market (as defined under applicable State law,
or if not so defined, an employer with more than one
employee and not more than 50 employees).
SEC. 102. GUARANTEED RENEWABILITY OF HEALTH COV-
ERAGE.
(a) IN GENERAL.—
(1) GROUP PURCHASER.—Subject to subsections
(b) and (c), a group health plan shall be renewed or
continued in force by a health plan issuer at the op-
tion of the group purchaser, except that the require-
ment of this subparagraph shall not apply in the case
of—
(A) the nonpayment of premiums or con-
tributions by the group purchaser in accordance
with the terms of the group health plan or where
the health plan issuer has not received timely
premium payments;
HR 3103 EAS
(B) fraud or misrepresentation of material
fact on the part of the group purchaser;
(C) the termination of the group health
plan in accordance with subsection (b); or
(D) the failure of the group purchaser to
meet contribution or participation requirements
in accordance with paragraph (3).
(2) PARTICIPANT.—Subject to subsections (b)
and (c), coverage under an employee health benefit
plan or group health plan shall be renewed or contin-
ued in force, if the group purchaser elects to continue
to provide coverage under such plan, at the option of
the participant (or beneficiary where such right exists
under the terms of the plan or under applicable law),
except that the requirement of this paragraph shall
not apply in the case of—
(A) the nonpayment of premiums or con-
tributions by the participant or beneficiary in
accordance with the terms of the employee health
benefit plan or group health plan or where such
plan has not received timely premium payments;
(B) fraud or misrepresentation of material
fact on the part of the participant or beneficiary
relating to an application for coverage or claim
for benefits;
HR 3103 EAS
(C) the termination of the employee health
benefit plan or group health plan;
(D) loss of eligibility for continuation cov-
erage as described in part 6 of subtitle B of title
I of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1161 et seq.); or
(E) failure of a participant or beneficiary
to meet requirements for eligibility for coverage
under an employee health benefit plan or group
health plan that are not prohibited by this Act.
(3) RULES OF CONSTRUCTION.—Nothing in this
subsection, nor in section 101(a), shall be construed
to—
(A) preclude a health plan issuer from es-
tablishing employer contribution rules or group
participation rules for group health plans as al-
lowed under applicable State law;
(B) preclude a plan defined in section 3(37)
of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1102(37)) from establishing
employer contribution rules or group participa-
tion rules; or
(C) permit individuals to decline coverage
under an employee health benefit plan if such
right is not otherwise available under such plan.
HR 3103 EAS
(b) TERMINATION OF GROUP HEALTH PLANS.—
(1) PARTICULAR TYPE OF GROUP HEALTH PLAN
NOT OFFERED.—In any case in which a health plan
issuer decides to discontinue offering a particular
type of group health plan, a group health plan of such
type may be discontinued by the health plan issuer
only if—
(A) the health plan issuer provides notice to
each group purchaser covered under a group
health plan of this type (and participants and
beneficiaries covered under such group health
plan) of such discontinuation at least 90 days
prior to the date of the discontinuation of such
plan;
(B) the health plan issuer offers to each
group purchaser covered under a group health
plan of this type, the option to purchase any
other group health plan currently being offered
by the health plan issuer; and
(C) in exercising the option to discontinue
a group health plan of this type and in offering
one or more replacement plans, the health plan
issuer acts uniformly without regard to the
health status or insurability of participants or
beneficiaries covered under the group health
HR 3103 EAS
plan, or new participants or beneficiaries who
may become eligible for coverage under the group
health plan.
(2) DISCONTINUANCE
OF
ALL
GROUP
HEALTH
PLANS.—
(A) IN GENERAL.—In any case in which a
health plan issuer elects to discontinue offering
all group health plans in a State, a group health
plan may be discontinued by the health plan is-
suer only if—
(i) the health plan issuer provides no-
tice to the applicable certifying authority
(as defined in section 202(d)) and to each
group purchaser (and participants and
beneficiaries covered under such group
health plan) of such discontinuation at least
180 days prior to the date of the expiration
of such plan; and
(ii) all group health plans issued or de-
livered for issuance in the State are discon-
tinued and coverage under such plans is not
renewed.
(B) APPLICATION
OF
PROVISIONS.—The
provisions of this paragraph and paragraph (3)
HR 3103 EAS
may be applied separately by a health plan is-
suer—
(i) to all group health plans offered to
small employers (as defined under applica-
ble State law, or if not so defined, an em-
ployer with not more than 50 employees); or
(ii) to all other group health plans of-
fered by the health plan issuer in the State.
(3) PROHIBITION ON MARKET REENTRY.—In the
case of a discontinuation under paragraph (2), the
health plan issuer may not provide for the issuance
of any group health plan in the market sector (as de-
scribed in paragraph (2)(B)) in which issuance of
such group health plan was discontinued in the State
involved during the 5-year period beginning on the
date of the discontinuation of the last group health
plan not so renewed.
(c) TREATMENT OF NETWORK PLANS.—
(1) GEOGRAPHIC LIMITATIONS.—A network plan
(as defined in paragraph (2)) may deny continued
participation under such plan to participants or
beneficiaries who neither live, reside, nor work in an
area in which such network plan is offered, but only
if such denial is applied uniformly, without regard to
HR 3103 EAS
health status or the insurability of particular partici-
pants or beneficiaries.
(2) NETWORK PLAN.—As used in paragraph (1),
the term ‘‘network plan’’ means an employee health
benefit plan or a group health plan that arranges for
the financing and delivery of health care services to
participants or beneficiaries covered under such plan,
in whole or in part, through arrangements with pro-
viders.
(d) COBRA COVERAGE.—Nothing in subsection
(a)(2)(E) or subsection (c) shall be construed to affect any
right to COBRA continuation coverage as described in part
6 of subtitle B of title I of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1161 et seq.).
SEC. 103. PORTABILITY OF HEALTH COVERAGE AND LIMITA-
TION ON PREEXISTING CONDITION EXCLU-
SIONS.
(a) IN GENERAL.—An employee health benefit plan or
a health plan issuer offering a group health plan may, with
respect to a participant or beneficiary, impose a limitation
or exclusion of benefits, otherwise available under the terms
of the plan only if—
(1) such limitation or exclusion is a limitation
or exclusion of benefits relating to the treatment of a
preexisting condition; and
HR 3103 EAS
(2) such limitation or exclusion extends for a pe-
riod of not more than 12 months after the date of en-
rollment in the plan.
(b) CREDITING
OF
PREVIOUS
QUALIFYING
COV-
ERAGE.—
(1) IN GENERAL.—Subject to paragraph (4), an
employee health benefit plan or a health plan issuer
offering a group health plan shall provide that if a
participant or beneficiary is in a period of previous
qualifying coverage as of the date of enrollment under
such plan, any period of exclusion or limitation of
coverage with respect to a preexisting condition shall
be reduced by 1 month for each month in which the
participant or beneficiary was in the period of pre-
vious qualifying coverage. With respect to a partici-
pant or beneficiary described in subsection (e)(2)(A)
who maintains continuous coverage, no limitation or
exclusion of benefits relating to treatment of a pre-
existing condition may be applied to a child within
the child’s first 12 months of life or within 12 months
after the placement of a child for adoption.
(2) DISCHARGE OF DUTY.—An employee health
benefit plan shall provide documentation of coverage
to participants and beneficiaries whose coverage is
terminated under the plan. Pursuant to regulations
HR 3103 EAS
promulgated by the Secretary, the duty of an em-
ployee health benefit plan to verify previous qualify-
ing coverage with respect to a participant or bene-
ficiary is effectively discharged when such employee
health benefit plan provides documentation to a par-
ticipant or beneficiary that includes the following in-
formation:
(A) the dates that the participant or bene-
ficiary was covered under the plan; and
(B) the benefits and cost-sharing arrange-
ment available to the participant or beneficiary
under such plan.
An employee health benefit plan shall retain the docu-
mentation provided to a participant or beneficiary
under subparagraphs (A) and (B) for at least the 12-
month period following the date on which the partici-
pant or beneficiary ceases to be covered under the
plan. Upon request, an employee health benefit plan
shall provide a second copy of such documentation to
such participant or beneficiary within the 12-month
period following the date of such ineligibility.
(3) DEFINITIONS.—As used in this section:
(A) PREVIOUS
QUALIFYING
COVERAGE.—
The term ‘‘previous qualifying coverage’’ means
the period beginning on the date—
HR 3103 EAS
(i) a participant or beneficiary is en-
rolled under an employee health benefit
plan or a group health plan, and ending on
the date the participant or beneficiary is
not so enrolled; or
(ii) an individual is enrolled under an
individual health plan (as defined in sec-
tion 113) or under a public or private
health plan established under Federal or
State law, and ending on the date the indi-
vidual is not so enrolled;
for a continuous period of more than 30 days
(without regard to any waiting period).
(B) LIMITATION OR EXCLUSION OF BENE-
FITS RELATING TO TREATMENT OF A PREEXIST-
ING CONDITION.—The term ‘‘limitation or exclu-
sion of benefits relating to treatment of a pre-
existing condition’’ means a limitation or exclu-
sion of benefits imposed on an individual based
on a preexisting condition of such individual.
(4) EFFECT OF PREVIOUS COVERAGE.—An em-
ployee health benefit plan or a health plan issuer of-
fering a group health plan may impose a limitation
or exclusion of benefits relating to the treatment of a
preexisting condition, subject to the limits in sub-
HR 3103 EAS
section (a), only to the extent that such service or ben-
efit was not previously covered under the group health
plan, employee health benefit plan, or individual
health plan in which the participant or beneficiary
was enrolled immediately prior to enrollment in the
plan involved.
(c) LATE ENROLLEES.—Except as provided in section
104, with respect to a participant or beneficiary enrolling
in an employee health benefit plan or a group health plan
during a time that is other than the first opportunity to
enroll during an enrollment period of at least 30 days, cov-
erage with respect to benefits or services relating to the
treatment of a preexisting condition in accordance with
subsections (a) and (b) may be excluded, except the period
of such exclusion may not exceed 18 months beginning on
the date of coverage under the plan.
(d) AFFILIATION PERIODS.—With respect to a partici-
pant or beneficiary who would otherwise be eligible to re-
ceive benefits under an employee health benefit plan or a
group health plan but for the operation of a preexisting con-
dition limitation or exclusion, if such plan does not utilize
a limitation or exclusion of benefits relating to the treat-
ment of a preexisting condition, such plan may impose an
affiliation period on such participant or beneficiary not to
exceed 60 days (or in the case of a late participant or bene-
HR 3103 EAS
ficiary described in subsection (c), 90 days) from the date
on which the participant or beneficiary would otherwise be
eligible to receive benefits under the plan. An employee
health benefit plan or a health plan issuer offering a group
health plan may also use alternative methods to address ad-
verse selection as approved by the applicable certifying au-
thority (as defined in section 202(d)). During such an af-
filiation period, the plan may not be required to provide
health care services or benefits and no premium shall be
charged to the participant or beneficiary.
(e) PREEXISTING CONDITION.—
(1) IN GENERAL.—For purposes of this section,
the term ‘‘preexisting condition’’ means a condition,
regardless of the cause of the condition, for which
medical advice, diagnosis, care, or treatment was rec-
ommended or received within the 6-month period end-
ing on the day before the effective date of the coverage
(without regard to any waiting period).
(2) BIRTH, ADOPTION
AND
PREGNANCY
EX-
CLUDED.—The term ‘‘preexisting condition’’ does not
apply to—
(A) an individual who, within 30 days of
the date of the birth or placement for adoption
of a child (as determined under section
609(c)(3)(B) of the Employee Retirement Income
HR 3103 EAS
Security Act of 1974 (29 U.S.C. 1169(c)(3)(B)),
was covered under the plan; or
(B) pregnancy.
(f) STATE FLEXIBILITY.—Nothing in this section shall
be construed to preempt State laws that—
(1) require health plan issuers to impose a limi-
tation or exclusion of benefits relating to the treat-
ment of a preexisting condition for periods that are
shorter than those provided for under this section; or
(2) allow individuals, participants, and bene-
ficiaries to be considered to be in a period of previous
qualifying coverage if such individual, participant, or
beneficiary experiences a lapse in coverage that is
greater than the 30-day period provided for under
subsection (b)(3); or
(3) require health plan issuers to have a lookback
period that is shorter than the period described in
subsection (e)(1);
unless such laws are preempted by section 514 of the Em-
ployee Retirement Income Security Act of 1974 (29 U.S.C.
1144).
SEC. 104. SPECIAL ENROLLMENT PERIODS.
In the case of a participant, beneficiary or family
member who—
HR 3103 EAS
(1) through marriage, separation, divorce, death,
birth or placement of a child for adoption, experiences
a change in family composition affecting eligibility
under a group health plan, individual health plan, or
employee health benefit plan;
(2) experiences a change in employment status,
as described in section 603(2) of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C.
1163(2)), that causes the loss of eligibility for cov-
erage, other than COBRA continuation coverage
under a group health plan, individual health plan, or
employee health benefit plan; or
(3) experiences a loss of eligibility under a group
health plan, individual health plan, or employee
health benefit plan because of a change in the employ-
ment status of a family member;
each employee health benefit plan and each group health
plan shall provide for a special enrollment period extending
for a reasonable time after such event that would permit
the participant to change the individual or family basis
of coverage or to enroll in the plan if coverage would have
been available to such individual, participant, or bene-
ficiary but for failure to enroll during a previous enroll-
ment period. Such a special enrollment period shall ensure
that a child born or placed for adoption shall be deemed
HR 3103 EAS
to be covered under the plan as of the date of such birth
or placement for adoption if such child is enrolled within
30 days of the date of such birth or placement for adoption.
SEC. 105. DISCLOSURE OF INFORMATION.
(a) DISCLOSURE OF INFORMATION BY HEALTH PLAN
ISSUERS.—
(1) IN GENERAL.—In connection with the offer-
ing of any group health plan to a small employer (as
defined under applicable State law, or if not so de-
fined, an employer with not more than 50 employees),
a health plan issuer shall make a reasonable disclo-
sure to such employer, as part of its solicitation and
sales materials, of—
(A) the provisions of such group health plan
concerning the health plan issuer’s right to
change premium rates and the factors that may
affect changes in premium rates;
(B) the provisions of such group health plan
relating to renewability of coverage;
(C) the provisions of such group health plan
relating to any preexisting condition provision;
and
(D) descriptive information about the bene-
fits and premiums available under all group
health plans for which the employer is qualified.
HR 3103 EAS
Information shall be provided to small employers
under this paragraph in a manner determined to be
understandable by the average small employer, and
shall be sufficiently accurate and comprehensive to
reasonably inform small employers, participants and
beneficiaries of their rights and obligations under the
group health plan.
(2) EXCEPTION.—With respect to the require-
ment of paragraph (1), any information that is pro-
prietary and trade secret information under applica-
ble law shall not be subject to the disclosure require-
ments of such paragraph.
(3) CONSTRUCTION.—Nothing in this subsection
shall be construed to preempt State reporting and dis-
closure requirements to the extent that such require-
ments are not preempted under section 514 of the
Employee Retirement Income Security Act of 1974
(29 U.S.C. 1144).
(b) DISCLOSURE OF INFORMATION TO PARTICIPANTS
AND BENEFICIARIES.—
(1) IN GENERAL.—Section 104(b)(1) of the Em-
ployee Retirement Income Security Act of 1974 (29
U.S.C. 1024(b)(1)) is amended in the matter follow-
ing subparagraph (B)—
HR 3103 EAS
(A) by striking ‘‘102(a)(1),’’ and inserting
‘‘102(a)(1) that is not a material reduction in
covered services or benefits provided,’’; and
(B) by adding at the end thereof the follow-
ing new sentences: ‘‘If there is a modification or
change described in section 102(a)(1) that is a
material reduction in covered services or benefits
provided, a summary description of such modi-
fication or change shall be furnished to partici-
pants not later than 60 days after the date of the
adoption of the modification or change. In the
alternative, the plan sponsors may provide such
description at regular intervals of not more than
90 days. The Secretary shall issue regulations
within 180 days after the date of enactment of
the Health Insurance Reform Act of 1996, pro-
viding alternative mechanisms to delivery by
mail through which employee health benefit
plans may notify participants of material reduc-
tions in covered services or benefits.’’.
(2) PLAN DESCRIPTION AND SUMMARY.—Section
102(b) of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1022(b)) is amended—
(A) by inserting ‘‘including the office or
title of the individual who is responsible for ap-
HR 3103 EAS
proving or denying claims for coverage of bene-
fits’’ after ‘‘type of administration of the plan’’;
(B) by inserting ‘‘including the name of the
organization responsible for financing claims’’
after ‘‘source of financing of the plan’’; and
(C) by inserting ‘‘including the office, con-
tact, or title of the individual at the Department
of Labor through which participants may seek
assistance or information regarding their rights
under this Act and the Health Insurance Reform
Act of 1996 with respect to health benefits that
are not offered through a group health plan.’’
after ‘‘benefits under the plan’’.
Subtitle B—Individual Market
Rules
SEC. 110. INDIVIDUAL HEALTH PLAN PORTABILITY.
(a) LIMITATION ON REQUIREMENTS.—
(1) IN GENERAL.—Except as provided in sub-
sections (c) and (d), a health plan issuer described in
paragraph (3) may not, with respect to an eligible in-
dividual (described in subsection (b)) desiring to en-
roll in an individual health plan—
(A) decline to offer coverage to, or deny en-
rollment of, such individual; or
HR 3103 EAS
(B) impose a limitation or exclusion of ben-
efits, otherwise available under such plan, for
which coverage was available under the group
health plan or employee health benefit plan in
which the individual was previously enrolled.
(2) HEALTH PROMOTION AND DISEASE PREVEN-
TION.—Nothing in this subsection shall be construed
to prevent a health plan issuer offering an individual
health plan from establishing premium discounts or
modifying 
otherwise 
applicable 
copayments 
or
deductibles in return for adherence to programs of
health promotion or disease prevention.
(3) HEALTH PLAN ISSUER.—A health plan is-
suer described in this paragraph is a health plan is-
suer that issues or renews individual health plans.
(4) PREMIUMS.—Nothing in this subsection shall
be construed to affect the determination of a health
plan issuer as to the amount of the premium payable
under an individual health plan under applicable
State law.
(b) DEFINITION OF ELIGIBLE INDIVIDUAL.—As used
in subsection (a)(1), the term ‘‘eligible individual’’ means
an individual who—
(1) was a participant or beneficiary enrolled
under one or more group health plans or employee
HR 3103 EAS
health benefit plans for not less than 18 months
(without a lapse of more than 30 days) immediately
prior to the date on which such individual applies for
enrollment in the individual health plan;
(2) is not eligible for coverage under a group
health plan or an employee health benefit plan;
(3) has not had coverage terminated under a
group health plan or employee health benefit plan for
failure to make required premium payments or con-
tributions, or for fraud or misrepresentation of mate-
rial fact; and
(4) has, if applicable, elected coverage and ex-
hausted the maximum period of coverage as described
in section 602(2)(A) of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1162(2)(A)) or
under a State program providing an extension of
such coverage.
(c) APPLICATION OF CAPACITY LIMITS.—
(1) IN GENERAL.—Subject to paragraph (2), a
health plan issuer offering coverage to individuals
under an individual health plan may cease enrolling
individuals under the plan if—
(A) the health plan issuer ceases to enroll
any new individuals; and
HR 3103 EAS
(B) the health plan issuer can demonstrate
to the applicable certifying authority (as defined
in section 202(d)), if required, that its financial
or provider capacity to serve previously covered
individuals will be impaired if the health plan
issuer is required to enroll additional individ-
uals.
Such a health plan issuer shall be prohibited from of-
fering coverage after a cessation in offering coverage
under this paragraph for a 6-month period or until
the health plan issuer can demonstrate to the applica-
ble certifying authority (as defined in section 202(d))
that the health plan issuer has adequate capacity,
whichever is later.
(2) FIRST-COME-FIRST-SERVED.—A health plan
issuer offering coverage to individuals under an indi-
vidual health plan is only eligible to exercise the limi-
tations provided for in paragraph (1) if the health
plan issuer provides for enrollment of individuals
under such plan on a first-come-first-served basis or
other basis established by a State to ensure a fair op-
portunity to enroll in the plan and avoid risk selec-
tion.
(d) MARKET REQUIREMENTS.—
HR 3103 EAS
(1) IN GENERAL.—The provisions of subsection
(a) shall not be construed to require that a health
plan issuer offering group health plans to group pur-
chasers offer individual health plans to individuals.
(2) CONVERSION POLICIES.—A health plan is-
suer offering group health plans to group purchasers
under this Act shall not be deemed to be a health plan
issuer offering an individual health plan solely be-
cause such health plan issuer offers a conversion pol-
icy.
(3) MARKETING OF PLANS.—Nothing in this sec-
tion shall be construed to prevent a State from requir-
ing health plan issuers offering coverage to individ-
uals under an individual health plan to actively mar-
ket such plan.
(4) CONSTRUCTION.—Nothing in this Act shall
be construed to require that a State replace or dissolve
high risk pools or other similar State mechanisms
which are designed to provide individuals in such
State with access to health benefits.
SEC. 111. GUARANTEED RENEWABILITY OF INDIVIDUAL
HEALTH COVERAGE.
(a) IN GENERAL.—Subject to subsections (b) and (c),
coverage for individuals under an individual health plan
shall be renewed or continued in force by a health plan is-
HR 3103 EAS
suer at the option of the individual, except that the require-
ment of this subsection shall not apply in the case of—
(1) the nonpayment of premiums or contribu-
tions by the individual in accordance with the terms
of the individual health plan or where the health plan
issuer has not received timely premium payments;
(2) fraud or misrepresentation of material fact
on the part of the individual; or
(3) the termination of the individual health plan
in accordance with subsection (b).
(b) TERMINATION OF INDIVIDUAL HEALTH PLANS.—
(1) PARTICULAR TYPE OF INDIVIDUAL HEALTH
PLAN NOT OFFERED.—In any case in which a health
plan issuer decides to discontinue offering a particu-
lar type of individual health plan to individuals, an
individual health plan may be discontinued by the
health plan issuer only if—
(A) the health plan issuer provides notice to
each individual covered under the plan of such
discontinuation at least 90 days prior to the
date of the expiration of the plan;
(B) the health plan issuer offers to each in-
dividual covered under the plan the option to
purchase any other individual health plan cur-
HR 3103 EAS
rently being offered by the health plan issuer to
individuals; and
(C) in exercising the option to discontinue
the individual health plan and in offering one or
more replacement plans, the health plan issuer
acts uniformly without regard to the health sta-
tus or insurability of particular individuals.
(2) 
DISCONTINUANCE
OF
ALL
INDIVIDUAL
HEALTH PLANS.—In any case in which a health plan
issuer elects to discontinue all individual health plans
in a State, an individual health plan may be discon-
tinued by the health plan issuer only if—
(A) the health plan issuer provides notice to
the applicable certifying authority (as defined in
section 202(d)) and to each individual covered
under the plan of such discontinuation at least
180 days prior to the date of the discontinuation
of the plan; and
(B) all individual health plans issued or de-
livered for issuance in the State are discontinued
and coverage under such plans is not renewed.
(3) PROHIBITION ON MARKET REENTRY.—In the
case of a discontinuation under paragraph (2), the
health plan issuer may not provide for the issuance
of any individual health plan in the State involved
HR 3103 EAS
during the 5-year period beginning on the date of the
discontinuation of the last plan not so renewed.
(c) TREATMENT OF NETWORK PLANS.—
(1) GEOGRAPHIC LIMITATIONS.—A health plan
issuer which offers a network plan (as defined in
paragraph (2)) may deny continued participation
under the plan to individuals who neither live, reside,
nor work in an area in which the individual health
plan is offered, but only if such denial is applied uni-
formly, without regard to health status or the insur-
ability of particular individuals.
(2) NETWORK PLAN.—As used in paragraph (1),
the term ‘‘network plan’’ means an individual health
plan that arranges for the financing and delivery of
health care services to individuals covered under such
health plan, in whole or in part, through arrange-
ments with providers.
SEC. 112. STATE FLEXIBILITY IN INDIVIDUAL MARKET RE-
FORMS.
(a) ADOPTION OF ALTERNATIVE MECHANISMS.—
(1) IN GENERAL.—A State, in accordance with
this section, may adopt alternative mechanisms (pub-
lic or private) that are designed to provide access to
affordable health benefits for individuals meeting the
requirements of sections 110(b) and 111 (such as
HR 3103 EAS
mechanisms providing for guaranteed issue, open en-
rollment by one or more health plan issuers, high-risk
pools, mandatory conversion policies, or any com-
bination thereof).
(2) PROCEDURE FOR STATE ELECTION.—If, not
later than 6 months after the date of enactment of this
Act, the Governor of a State notifies the Secretary of
Health and Human Services that—
(A) the State has adopted an alternative
mechanism that achieves the goals of sections 110
and 111; or
(B) the State intends to implement an al-
ternative mechanism that is designed to achieve
the goals of sections 110 and 111;
such State alternative mechanism shall, except as pro-
vided in paragraphs (3) and (4), apply in lieu of the
standards described in sections 110 and 111.
(3) NONAPPLICATION OF MECHANISM.—A State
alternative mechanism adopted under paragraph (1)
shall be presumed to achieve the goals of sections 110
and 111 and shall apply in lieu of such sections, un-
less the Secretary of Health and Human Services, in
consultation with the Governor and Insurance Com-
missioner or chief insurance regulatory official of the
HR 3103 EAS
State, finds that the State alternative mechanism
fails to—
(A) offer coverage to those individuals who
meet the requirements of sections 110(b) and
111;
(B) prohibit a limitation or exclusion of
benefits relating to treatment of a preexisting
condition that was covered under the previous
group health plan or employee health benefit
plan of an individual who meets the require-
ments of sections 110(b) and 111;
(C) offer individuals who meet the require-
ments of sections 110(b) and 111 a choice of in-
dividual health plans, including at least one
plan comparable to comprehensive plans offered
in the individual market in such State or a plan
comparable to a standard option plan available
under the group or individual health insurance
laws of such State; or
(D) except as provided in paragraph (4),
implement a risk spreading mechanism, cross
subsidy mechanism, risk adjustment mechanism,
rating limitation or other mechanism (such as
mechanisms described in the NAIC Model Health
Plan for Uninsurable Individuals Act) designed
HR 3103 EAS
to reduce the variation among the cost of such
plans and other individual health plans offered
by the carrier or available in such State.
(4) CHOICE OF PLANS.—The Secretary of Health
and Human Services shall waive the requirement in
subparagraph (D) of paragraph (3) with respect to a
State if individuals who meet the requirements of sec-
tions 110(b) and 111 in such State are provided with
a choice of all individual health plans otherwise
available in the individual market.
(5) FUTURE ADOPTION OF MECHANISMS.—With
respect to a State that implements an alternative
mechanism under paragraph (1) after the period re-
ferred to in paragraph (2)—
(A) the State shall provide notice to the Sec-
retary that such alternative mechanism achieves
the goals of sections 110 and 111;
(B) the State alternative mechanism shall
apply in lieu of sections 110 and 111;
(C) except as provided in subsections (d)
and (e), the Secretary may make a determina-
tion as provided for in paragraph (3); and
(D) the procedures described in subsection
(c) shall apply.
HR 3103 EAS
(b) TIMEFRAME
FOR
SECRETARIAL
DETERMINA-
TION.—
(1) IN GENERAL.—With respect to a State elec-
tion under subsection (a)(2)(B), the Secretary of
Health and Human Services shall not make a deter-
mination under subsection (a)(3) until the expiration
of the 12-month period beginning on the date on
which such notification is made, or until January 1,
1998, whichever is later.
(2) RULE APPLICABLE TO CERTAIN STATES.—
With respect to a State that makes an election under
subsection (a)(2)(B) and that has a legislature that
does not meet within the 12-month period beginning
on the date of enactment of this Act, the Secretary of
Health and Human Services shall not make a deter-
mination under subsection (a) prior to January 1,
1999.
(c) NOTICE TO STATE.—If the Secretary of Health and
Human Services determines that a State alternative mecha-
nism fails to meet the criteria described in subsection (a)(3),
or that such mechanism is no longer being implemented,
the Secretary of Health and Human Services shall notify
the Governor of such State of such preliminary determina-
tion and permit the State a reasonable opportunity in
which to modify the alternative mechanism or to adopt an-
HR 3103 EAS
other mechanism that is designed to meet the goals of sec-
tions 110 and 111. If, after an opportunity to modify such
State alternative mechanism, the mechanism fails to meet
the criteria described in subsection (a)(3), the Secretary
shall notify the Governor of such State that sections 110
and 111 shall apply in the State.
(d) ADOPTION OF NAIC MODEL.—If, not later than
9 months after the date of enactment of this Act—
(1) the National Association of Insurance Com-
missioners (hereafter referred to as the ‘‘NAIC’’),
through a process which the Secretary of Health and
Human Services determines has included consultation
with representatives of the insurance industry and
consumer groups, has adopted a model act or acts in-
cluding provisions addressing portability from a
group health plan or employee health benefit plan
into the individual health insurance market; and
(2) the Secretary of Health and Human Services
determines, within 30 days of the adoption of such
NAIC model act or acts, that such act or acts comply
with the goals of sections 110 and 111;
a State that elects to adopt such model act or acts shall
be deemed to have met the requirements of sections 110 and
111 and shall not be subject to a determination under sub-
section (a)(3).
HR 3103 EAS
(e) STATE HIGH RISK POOLS DEEMED IN COMPLI-
ANCE.—If the Governor of a State notifies the Secretary of
Health and Human Services in a timeframe consistent with
either subsection (a)(2) or (a)(5) that such State has a high
risk pool open to those individuals meeting the requirements
of sections 110(b) and 111, that limits preexisting condition
waiting periods consistent with section 110(a)(1)(B) and
that with respect to premium rates and covered benefits is
consistent with standards included in the NAIC Model
Health Plan for Uninsurable Individuals Act, such State
high risk pool shall be deemed to have met the requirements
of sections 110 and 111 and shall not be subject to a deter-
mination under subsection (a)(3).
SEC. 113. DEFINITION.
(a) IN GENERAL.—As used in this title, the term ‘‘in-
dividual health plan’’ means any contract, policy, certifi-
cate or other arrangement offered to individuals by a health
plan issuer that provides or pays for health benefits (such
as provider and hospital benefits) and that is not a group
health plan under section 2(6).
(b) ARRANGEMENTS NOT INCLUDED.—Such term does
not include the following, or any combination thereof:
(1) Coverage only for accident, or disability in-
come insurance, or any combination thereof.
HR 3103 EAS
(2) Medicare supplemental health insurance (as
defined under section 1882(g)(1) of the Social Secu-
rity Act).
(3) Coverage issued as a supplement to liability
insurance.
(4) Liability insurance, including general liabil-
ity insurance and automobile liability insurance.
(5) Workers’ compensation or similar insurance.
(6) Automobile medical payment insurance.
(7) Coverage for a specified disease or illness.
(8) Hospital or fixed indemnity insurance.
(9) Short-term limited duration insurance.
(10) Credit-only, dental-only, or vision-only in-
surance.
(11) A health insurance policy providing benefits
only for long-term care, nursing home care, home
health care, community-based care, or any combina-
tion thereof.
Subtitle C—COBRA Clarifications
SEC. 121. COBRA CLARIFICATIONS.
(a) PUBLIC HEALTH SERVICE ACT.—
(1) PERIOD OF COVERAGE.—Section 2202(2) of
the Public Health Service Act (42 U.S.C. 300bb–2(2))
is amended—
(A) in subparagraph (A)—
HR 3103 EAS
(i) by transferring the sentence imme-
diately preceding clause (iv) so as to appear
immediately following such clause (iv); and
(ii) in the last sentence (as so trans-
ferred)—
(I) by inserting ‘‘, or a bene-
ficiary-family member of the individ-
ual,’’ after ‘‘an individual’’; and
(II) by striking ‘‘at the time of a
qualifying event described in section
2203(2)’’ and inserting ‘‘at any time
during the initial 18-month period of
continuing coverage under this title’’;
(B) in subparagraph (D)(i), by inserting
before ‘‘, or’’ the following: ‘‘, except that the ex-
clusion or limitation contained in this clause
shall not be considered to apply to a plan under
which a preexisting condition or exclusion does
not apply to an individual otherwise eligible for
continuation coverage under this section because
of the provision of the Health Insurance Reform
Act of 1996’’; and
(C) in subparagraph (E), by striking ‘‘at
the time of a qualifying event described in sec-
tion 2203(2)’’ and inserting ‘‘at any time during
HR 3103 EAS
the initial 18-month period of continuing cov-
erage under this title’’.
(2) NOTICES.—Section 2206(3) of the Public
Health Service Act (42 U.S.C. 300bb–6(3)) is amend-
ed by striking ‘‘at the time of a qualifying event de-
scribed in section 2203(2)’’ and inserting ‘‘at any
time during the initial 18-month period of continuing
coverage under this title’’.
(3) BIRTH OR ADOPTION OF A CHILD.—Section
2208(3)(A) of the Public Health Service Act (42
U.S.C. 300bb–8(3)(A)) is amended by adding at the
end thereof the following new flush sentence:
‘‘Such term shall also include a child who is born to
or placed for adoption with the covered employee dur-
ing the period of continued coverage under this title.’’.
(b) EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974.—
(1) PERIOD OF COVERAGE.—Section 602(2) of
the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1162(2)) is amended—
(A) in the last sentence of subparagraph
(A)—
(i) by inserting ‘‘, or a beneficiary-
family member of the individual,’’ after ‘‘an
individual’’; and
HR 3103 EAS
(ii) by striking ‘‘at the time of a quali-
fying event described in section 603(2)’’ and
inserting ‘‘at any time during the initial
18-month period of continuing coverage
under this part’’;
(B) in subparagraph (D)(i), by inserting
before ‘‘, or’’ the following: ‘‘, except that the ex-
clusion or limitation contained in this clause
shall not be considered to apply to a plan under
which a preexisting condition or exclusion does
not apply to an individual otherwise eligible for
continuation coverage under this section because
of the provision of the Health Insurance Reform
Act of 1996’’; and
(C) in subparagraph (E), by striking ‘‘at
the time of a qualifying event described in sec-
tion 603(2)’’ and inserting ‘‘at any time during
the initial 18-month period of continuing cov-
erage under this part’’.
(2) NOTICES.—Section 606(3) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1166(3)) is amended by striking ‘‘at the time of a
qualifying event described in section 603(2)’’ and in-
serting ‘‘at any time during the initial 18-month pe-
riod of continuing coverage under this part’’.
HR 3103 EAS
(3) BIRTH OR ADOPTION OF A CHILD.—Section
607(3)(A) of the Employee Retirement Income Secu-
rity Act of 1974 (29 U.S.C. 1167(3)) is amended by
adding at the end thereof the following new flush sen-
tence:
‘‘Such term shall also include a child who is born to
or placed for adoption with the covered employee dur-
ing the period of continued coverage under this
part.’’.
(c) INTERNAL REVENUE CODE OF 1986.—
(1) 
PERIOD
OF
COVERAGE.—Section
4980B(f)(2)(B) of the Internal Revenue Code of 1986
is amended—
(A) in the last sentence of clause (i) by
striking ‘‘at the time of a qualifying event de-
scribed in paragraph (3)(B)’’ and inserting ‘‘at
any time during the initial 18-month period of
continuing coverage under this section’’;
(B) in clause (iv)(I), by inserting before ‘‘,
or’’ the following: ‘‘, except that the exclusion or
limitation contained in this subclause shall not
be considered to apply to a plan under which a
preexisting condition or exclusion does not apply
to an individual otherwise eligible for continu-
ation coverage under this subsection because of
HR 3103 EAS
the provision of the Health Insurance Reform
Act of 1995’’; and
(C) in clause (v), by striking ‘‘at the time
of a qualifying event described in paragraph
(3)(B)’’ and inserting ‘‘at any time during the
initial 18-month period of continuing coverage
under this section’’.
(2) NOTICES.—Section 4980B(f)(6)(C) of the In-
ternal Revenue Code of 1986 is amended by striking
‘‘at the time of a qualifying event described in para-
graph (3)(B)’’ and inserting ‘‘at any time during the
initial 18-month period of continuing coverage under
this section’’.
(3) BIRTH OR ADOPTION OF A CHILD.—Section
4980B(g)(1)(A) of the Internal Revenue Code of 1986
is amended by adding at the end thereof the following
new flush sentence:
‘‘Such term shall also include a child who
is born to or placed for adoption with the
covered employee during the period of con-
tinued coverage under this section.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to qualifying events occurring on or
after the date of the enactment of this Act for plan years
beginning after December 31, 1997.
HR 3103 EAS
(e) NOTIFICATION OF CHANGES.—Not later than 60
days prior to the date on which this section becomes effec-
tive, each group health plan (covered under title XXII of
the Public Health Service Act, part 6 of subtitle B of title
I of the Employee Retirement Income Security Act of 1974,
and section 4980B(f) of the Internal Revenue Code of 1986)
shall notify each qualified beneficiary who has elected con-
tinuation coverage under such title, part or section of the
amendments made by this section.
Subtitle D—Private Health Plan
Purchasing Cooperatives
SEC. 131. PRIVATE HEALTH PLAN PURCHASING COOPERA-
TIVES.
(a) DEFINITION.—As used in this Act, the term ‘‘health
plan purchasing cooperative’’ means a group of employees
or a group of individuals and employers that, on a vol-
untary basis and in accordance with this section, form a
cooperative for the purpose of purchasing individual health
plans or group health plans offered by health plan issuers.
(b) CERTIFICATION.—
(1) REQUIREMENT.—If a group described in sub-
section (a), desires to form a health plan purchasing
cooperative in accordance with this section and such
group appropriately notifies the State and the Sec-
retary of such desire, the State, upon a determination
HR 3103 EAS
that such group meets the requirements of this section,
shall certify the group as a health plan purchasing
cooperative. The State shall make a determination of
whether such group meets the requirements of this sec-
tion in a timely fashion and shall oversee the oper-
ations of such cooperative in order to ensure contin-
ued compliance with the requirements of this section.
Each such cooperative shall also be registered with the
Secretary.
(2) STATE REFUSAL TO CERTIFY.—
(A) IN GENERAL.—If a State fails to imple-
ment a program for certifying health plan pur-
chasing cooperatives in accordance with the
standards under this Act, the Secretary shall cer-
tify and oversee the operations of such coopera-
tives in such State.
(B) EXCEPTION.—The Secretary shall not
certify a health plan purchasing cooperative de-
scribed in this section if, upon the submission of
an application by the State to the Secretary, the
Secretary determines that under a State law in
effect on the date of enactment of this Act, all
small employers have a means readily available
that ensures—
HR 3103 EAS
(i) that individuals and employees
have a choice of multiple, unaffiliated
health plan issuers;
(ii) that health plan coverage is subject
to State premium rating requirements that
are not based on the factors described in
subsection (f)(3) and that contains a man-
datory minimum loss ratio; and
(iii) that comparative health plan ma-
terials are disseminated consistent with sub-
section (e)(1)(D);
and that otherwise meets the objectives of this
Act.
(3) INTERSTATE COOPERATIVES.—For purposes
of this section, a health plan purchasing cooperative
operating in more than one State shall be certified by
the State in which the cooperative is domiciled. States
may enter into cooperative agreements for the purpose
of overseeing the operation of such cooperatives. For
purposes of this subsection, a cooperative shall be con-
sidered to be domiciled in the State in which most of
the members of the cooperative reside.
(c) BOARD OF DIRECTORS.—
(1) IN GENERAL.—Each health plan purchasing
cooperative shall be governed by a Board of Directors
HR 3103 EAS
that shall be responsible for ensuring the performance
of the duties of the cooperative under this section. The
Board shall be composed of a broad cross-section of
representatives of employers, employees, and individ-
uals participating in the cooperative.
(2) LIMITATION
ON
COMPENSATION.—A health
plan purchasing cooperative may not provide com-
pensation to members of the Board of Directors. The
cooperative may provide reimbursements to such
members for the reasonable and necessary expenses in-
curred by the members in the performance of their du-
ties as members of the Board.
(d) MEMBERSHIP AND MARKETING AREA.—
(1) MEMBERSHIP.—A health plan purchasing
cooperative may establish limits on the maximum size
of employers who may become members of the cooper-
ative, and may determine whether to permit individ-
uals to become members. Upon the establishment of
such membership requirements, the cooperative shall,
except as provided in subparagraph (B), accept all
employers (or individuals) residing within the area
served by the cooperative who meet such requirements
as members on a first come, first-served basis, or on
another basis established by the State to ensure equi-
table access to the cooperative.
HR 3103 EAS
(2) MARKETING AREA.—A State may establish
rules regarding the geographic area that must be
served by health plan purchasing cooperatives to en-
sure that cooperatives do not discriminate on the
basis of the health status or insurability of the popu-
lations that reside in the area served. A State may
not use such rules to arbitrarily limit the number of
health plan purchasing cooperatives.
(e) DUTIES AND RESPONSIBILITIES.—
(1) IN GENERAL.—A health plan purchasing co-
operative shall—
(A) objectively evaluate potential health
plan issuers and enter into agreements with mul-
tiple, unaffiliated health plan issuers, except that
the requirement of this subparagraph shall not
apply in regions (such as remote or frontier
areas) in which compliance with such require-
ment is not possible;
(B) enter into agreements with employers
and individuals who become members of the co-
operative;
(C) participate in any program of risk-ad-
justment or reinsurance, or any similar pro-
gram, that is established by the State;
HR 3103 EAS
(D) prepare and disseminate comparative
health plan materials (including information
about cost, quality, benefits, and other informa-
tion concerning group health plans and individ-
ual health plans offered through the cooperative);
(E) broadly solicit and actively market to
all eligible employers and individuals residing
within the service area; and
(F) act as an ombudsman for group health
plan or individual health plan enrollees.
(2) PERMISSIBLE
ACTIVITIES.—A health plan
purchasing cooperative may perform such other func-
tions as necessary to further the purposes of this Act,
including—
(A) collecting and distributing premiums
and performing other administrative functions;
(B) collecting and analyzing surveys of en-
rollee satisfaction;
(C) charging membership fee to enrollees
(such fees may not be based on health status)
and charging participation fees to health plan
issuers;
(D) cooperating with (or accepting as mem-
bers) employers who provide health benefits di-
HR 3103 EAS
rectly to participants and beneficiaries only for
the purpose of negotiating with providers; and
(E) negotiating with health care providers
and health plan issuers.
(f) LIMITATIONS
ON COOPERATIVE ACTIVITIES.—A
health plan purchasing cooperative shall not—
(1) perform any activity relating to the licensing
of health plan issuers;
(2) assume financial risk directly or indirectly
on behalf of members of a health plan purchasing co-
operative relating to any group health plan or indi-
vidual health plan;
(3) establish eligibility, enrollment, or premium
contribution requirements for individual participants
or beneficiaries based on health status, medical condi-
tion, claims experience, receipt of health care, medical
history, evidence of insurability, genetic information,
or disability;
(4) operate on a for-profit or other basis where
the legal structure of the cooperative permits profits
to be made and not returned to the members of the
cooperative, except that a for-profit health plan pur-
chasing cooperative may be formed by a nonprofit or-
ganization or organizations—
HR 3103 EAS
(A) in which membership in such organiza-
tion is not based on health status, medical condi-
tion, claims experience, receipt of health care,
medical history, evidence of insurability, genetic
information, or disability; and
(B) that accepts as members all employers
or individuals on a first-come, first-served basis,
subject to any established limit on the maximum
size of an employer that may become a member;
or
(5) perform any other activities that conflict or
are inconsistent with the performance of its duties
under this Act.
(g) CONFLICT OF INTEREST.—
(1) PROHIBITION.—No individual, partnership,
or corporation shall serve on the board of a health
plan purchasing cooperative, be employed by such a
cooperative, receive compensation from such a cooper-
ative, or initiate or finance such a cooperative if such
individual, partnership, or corporation—
(A) fails to discharge the duties and respon-
sibilities of such individual, partnership or cor-
poration in a manner that is solely in the inter-
est of the members of the cooperative; or
HR 3103 EAS
(B) derives personal benefit (other than in
the form of ordinary compensation received)
from the sale of, or has a financial interest in,
health plans, services or products sold by or dis-
tributed through that cooperative.
(2) CONTRACTS WITH THIRD PARTIES.—Nothing
in paragraph (1) shall be construed to prohibit the
board of directors of a health plan purchasing cooper-
ative, or its officers, at the initiative and under this
direction of the board, from contracting with third
parties 
to 
provide 
administrative, 
marketing,
consultive, or other services to the cooperative.
(h) LIMITED
PREEMPTION
OF
CERTAIN
STATE
LAWS.—
(1) IN GENERAL.—With respect to a health plan
purchasing cooperative that meets the requirements of
this section, State fictitious group laws shall be pre-
empted.
(2) HEALTH PLAN ISSUERS.—
(A) RATING.—Except as provided in sub-
paragraph (B), a health plan issuer offering a
group health plan or individual health plan
through a health plan purchasing cooperative
that meets the requirements of this section shall
comply with all State rating requirements that
HR 3103 EAS
would otherwise apply if the health plan were of-
fered outside of the cooperative.
(B) EXCEPTION.—A State shall permit a
health plan issuer to reduce premium rates nego-
tiated with a health plan purchasing cooperative
that meets the requirements of this section to re-
flect savings derived from administrative costs,
marketing costs, profit margins, economies of
scale, or other factors, except that any such re-
duction in premium rates may not be based on
the health status, demographic factors, industry
type, duration, or other indicators of health risk
of the members of the cooperative.
(C) BENEFITS.—Except as provided in sub-
paragraph (D), a health plan issuer offering a
group health plan or individual health plan
through a health plan purchasing cooperative
shall comply with all State mandated benefit
laws that require the offering of any services,
category of care, or services of any class or type
of provider.
(D) EXCEPTION.—In those States that have
enacted laws authorizing the issuance of alter-
native benefit plans to small employers, health
plan issuers may offer such alternative benefit
HR 3103 EAS
plans through a health plan purchasing coopera-
tive that meets the requirements of this section.
(i) RULES OF CONSTRUCTION.—Nothing in this sec-
tion shall be construed to—
(1) require that a State organize, operate, or oth-
erwise create health plan purchasing cooperatives;
(2) otherwise require the establishment of health
plan purchasing cooperatives;
(3) require individuals, plan sponsors, or em-
ployers to purchase group health plans or individual
health plans through a health plan purchasing cooper-
ative;
(4) preempt a State from requiring licensure for
individuals who are involved in directly supplying
advice or selling health plans on behalf of a purchas-
ing cooperative;
(5) require that a health plan purchasing cooper-
ative be the only type of purchasing arrangement per-
mitted to operate in a State;
(6) confer authority upon a State that the State
would not otherwise have to regulate health plan issu-
ers or employee health benefits plans;
(7) confer authority upon a State (or the Federal
Government) that the State (or Federal Government)
would not otherwise have to regulate group purchas-
HR 3103 EAS
ing arrangements, coalitions, association plans, or
other similar entities that do not desire to become a
health plan purchasing cooperative in accordance
with this section; or
(8) except as specifically provided otherwise in
this subsection, prevent the application of State laws
and regulations otherwise applicable to health plan
issuers offering group health plans or individual
health plans through a health plan purchasing cooper-
ative.
(j) APPLICATION OF ERISA.—For purposes of enforce-
ment only, the requirements of parts 4 and 5 of subtitle
B of title I of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1101) shall apply to a health plan
purchasing cooperative as if such plan were an employee
welfare benefit plan.
TITLE II—APPLICATION AND
ENFORCEMENT OF STANDARDS
SEC. 201. APPLICABILITY.
(a) CONSTRUCTION.—
(1) ENFORCEMENT.—
(A) IN GENERAL.—A requirement or stand-
ard imposed under this Act on a group health
plan or individual health plan offered by a
health plan issuer shall be deemed to be a re-
HR 3103 EAS
quirement or standard imposed on the health
plan issuer. Such requirements or standards
shall be enforced by the State insurance commis-
sioner for the State involved or the official or of-
ficials designated by the State to enforce the re-
quirements of this Act. In the case of a group
health plan offered by a health plan issuer in
connection with an employee health benefit plan,
the requirements or standards imposed under
this Act shall be enforced with respect to the
health plan issuer by the State insurance com-
missioner for the State involved or the official or
officials designated by the State to enforce the re-
quirements of this Act.
(B) LIMITATION.—Except as provided in
subsection (c), the Secretary shall not enforce the
requirements or standards of this Act as they re-
late to health plan issuers, group health plans, or
individual health plans. In no case shall a State
enforce the requirements or standards of this Act
as they relate to employee health benefit plans.
(2) PREEMPTION OF STATE LAW.—Nothing in
this Act shall be construed to prevent a State from es-
tablishing, implementing, or continuing in effect
standards and requirements—
HR 3103 EAS
(A) not prescribed in this Act; or
(B) related to the issuance, renewal, or
portability of health insurance or the establish-
ment or operation of group purchasing arrange-
ments, that are consistent with, and are not in
direct conflict with, this Act and provide greater
protection or benefit to participants, bene-
ficiaries or individuals.
(b) RULE OF CONSTRUCTION.—Nothing in this Act
shall be construed to affect or modify the provisions of sec-
tion 514 of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1144).
(c) CONTINUATION.—Nothing in this Act shall be con-
strued as requiring a group health plan or an employee
health benefit plan to provide benefits to a particular par-
ticipant or beneficiary, to all participants or beneficiaries,
or to any class or group of participants or beneficiaries,
in excess of or other than those provided under the terms
of such plan.
SEC. 202. ENFORCEMENT OF STANDARDS.
(a) HEALTH PLAN ISSUERS.—Each State shall require
that each group health plan and individual health plan is-
sued, sold, renewed, offered for sale or operated in such
State by a health plan issuer meet the standards established
under this Act pursuant to an enforcement plan filed by
HR 3103 EAS
the State with the Secretary. A State shall submit such in-
formation as required by the Secretary demonstrating effec-
tive implementation of the State enforcement plan.
(b) EMPLOYEE HEALTH BENEFIT PLANS.—With re-
spect to employee health benefit plans, the Secretary shall
enforce the reform standards established under this Act in
the same manner as provided for under sections 502, 504,
506, and 510 of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1132, 1134, 1136, and 1140). The
civil penalties contained in paragraphs (1) and (2) of sec-
tion 502(c) of such Act (29 U.S.C. 1132(c)(1) and (2)) shall
apply to any information required by the Secretary to be
disclosed and reported under this section.
(c) FAILURE TO IMPLEMENT PLAN.—In the case of the
failure of a State to substantially enforce the standards and
requirements set forth in this Act with respect to group
health plans and individual health plans as provided for
under the State enforcement plan filed under subsection (a),
the Secretary, in consultation with the Secretary of Health
and Human Services, shall implement an enforcement plan
meeting the standards of this Act in such State. In the case
of a State that fails to substantially enforce the standards
and requirements set forth in this Act, each health plan is-
suer operating in such State shall be subject to civil enforce-
ment as provided for under sections 502, 504, 506, and 510
HR 3103 EAS
of the Employee Retirement Income Security Act of 1974
(29 U.S.C. 1132, 1134, 1136, and 1140). The civil penalties
contained in paragraphs (1) and (2) of section 502(c) of
such Act (29 U.S.C. 1132(c)(1) and (2)) shall apply to any
information required by the Secretary to be disclosed and
reported under this section.
(d) APPLICABLE CERTIFYING AUTHORITY.—As used in
this title, the term ‘‘applicable certifying authority’’ means,
with respect to—
(1) health plan issuers, the State insurance com-
missioner or official or officials designated by the
State to enforce the requirements of this Act for the
State involved; and
(2) an employee health benefit plan, the Sec-
retary.
(e) REGULATIONS.—The Secretary may promulgate
such regulations as may be necessary or appropriate to
carry out this Act.
(f) TECHNICAL AMENDMENT.—Section 508 of the Em-
ployee Retirement Income Security Act of 1974 (29 U.S.C.
1138) is amended by inserting ‘‘and under the Health In-
surance Reform Act of 1996’’ before the period.
HR 3103 EAS
TITLE III—MISCELLANEOUS
PROVISIONS
SEC. 
301. 
HMOS 
ALLOWED 
TO 
OFFER 
PLANS 
WITH
DEDUCTIBLES TO INDIVIDUALS WITH MEDI-
CAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Section 1301(b) of the Public
Health Service Act (42 U.S.C. 300e(b)) is amended by add-
ing at the end the following new paragraph:
‘‘(6)(A) If a member certifies that a medical sav-
ings account has been established for the benefit of
such member, a health maintenance organization
may, at the request of such member reduce the basic
health services payment otherwise determined under
paragraph (1) by requiring the payment of a deduct-
ible by the member for basic health services.
‘‘(B) For purposes of this paragraph, the term
‘medical savings account’ means an account which,
by its terms, allows the deposit of funds and the use
of such funds and income derived from the investment
of such funds for the payment of the deductible de-
scribed in subparagraph (A).’’.
(b) MEDICAL SAVINGS ACCOUNTS.—It is the sense of
the Committee on Labor and Human Resources of the Sen-
ate that the establishment of medical savings accounts, in-
cluding those defined in section 1301(b)(6)(B) of the Public
HR 3103 EAS
Health Service Act (42 U.S.C. 300e(b)(6)(B)), should be en-
couraged as part of any health insurance reform legislation
passed by the Senate through the use of tax incentives relat-
ing to contributions to, the income growth of, and the quali-
fied use of, such accounts.
(c) SENSE OF THE SENATE.—It is the sense of the Sen-
ate that the Congress should take measures to further the
purposes of this Act, including any necessary changes to
the Internal Revenue Code of 1986 to encourage groups and
individuals to obtain health coverage, and to promote ac-
cess, equity, portability, affordability, and security of health
benefits.
SEC. 302. HEALTH COVERAGE AVAILABILITY STUDY.
(a) IN GENERAL.—The Secretary of Health and
Human Services, in consultation with the Secretary, rep-
resentatives of State officials, consumers, and other rep-
resentatives of individuals and entities that have expertise
in health insurance and employee benefits, shall conduct a
three-part study, and prepare and submit reports, in ac-
cordance with this section.
(b) EVALUATION OF AVAILABILITY.—Not later than
January 1, 1998, the Secretary of Health and Human Serv-
ices shall prepare and submit to the appropriate committees
of Congress a report, concerning—
HR 3103 EAS
(1) an evaluation, based on the experience of
States, expert opinions, and such additional data as
may be available, of the various mechanisms used to
ensure the availability of reasonably priced health
coverage to employers purchasing group coverage and
to individuals purchasing coverage on a non-group
basis; and
(2) whether standards that limit the variation in
premiums will further the purposes of this Act.
(c) EVALUATION OF EFFECTIVENESS.—Not later than
January 1, 1999, the Secretary of Health and Human Serv-
ices shall prepare and submit to the appropriate committees
of Congress a report, concerning the effectiveness of the pro-
visions of this Act and the various State laws, in ensuring
the availability of reasonably priced health coverage to em-
ployers purchasing group coverage and individuals pur-
chasing coverage on a non-group basis.
(d) EVALUATION OF ACCESS AND CHOICE.—Not later
than June 1, 1998, the Secretary of Health and Human
Services shall prepare and submit to the appropriate com-
mittees of Congress a report concerning—
(1) an evaluation of the extent to which patients
have direct access to, and choice of, health care pro-
vider, including specialty providers, within a network
of providers, as well as the opportunity to utilize pro-
HR 3103 EAS
viders outside of the network, under the various types
of coverage offered under the provisions of this Act;
(2) an evaluation of the cost to the insurer of
providing out-of-network access to providers, and the
feasibility of providing out-of-network access in all
health plans offered under provisions of this Act; and
(3) an evaluation of the percent of premium dol-
lar utilized for medical care and administration of
the various types of coverage offered, including cov-
erage which permits out-of-network access and choice
of provider, under provisions of this Act.
SEC. 303. REIMBURSEMENT OF TELEMEDICINE.
The Health Care Financing Administration is directed
to complete their ongoing study of reimbursement of all tele-
medicine services and submit a report to Congress with a
proposal for reimbursement of fee-for-service medicine by
March 1, 1997. The report shall utilize data compiled from
the current demonstration projects already under review
and gather data from other ongoing telemedicine networks.
This report shall include an analysis of the cost of services
provided via telemedicine.
HR 3103 EAS
SEC. 304. SENSE OF THE COMMITTEE CONCERNING MEDI-
CARE.
(a) FINDINGS.—The Committee on Labor and Human
Resources of the Senate finds that the Public Trustees of
Medicare concluded in their 1995 Annual Report that—
(1) 
the 
Medicare 
program 
is 
clearly
unsustainable in its present form;
(2) ‘‘the Hospital Insurance Trust Fund, which
pays inpatient hospital expenses, will be able to pay
benefits for only about 7 years and is severely out of
financial balance in the long range’’; and
(3) the Public Trustees ‘‘strongly recommend
that the crisis presented by the financial condition of
the Medicare trust fund be urgently addressed on a
comprehensive basis, including a review of the
programs’s financing methods, benefit provisions, and
delivery mechanisms’’.
(b) SENSE OF THE COMMITTEE.—It is the Sense of the
Committee on Labor and Human Resources of the Senate
that the Senate should take measures necessary to reform
the Medicare program, to provide increased choice for sen-
iors, and to respond to the findings of the Public Trustees
by protecting the short-term solvency and long-term sus-
tainability of the Medicare program.
HR 3103 EAS
SEC. 305. PARITY FOR MENTAL HEALTH SERVICES.
(a) PROHIBITION.—An employee health benefit plan,
or a health plan issuer offering a group health plan or an
individual health plan, shall not impose treatment limita-
tions or financial requirements on the coverage of mental
health services if similar limitations or requirements are
not imposed on coverage for services for other conditions.
(b) RULE OF CONSTRUCTION.—Nothing in subsection
(a) shall be construed as prohibiting an employee health
benefit plan, or a health plan issuer offering a group health
plan or an individual health plan, from requiring
preadmission screening prior to the authorization of serv-
ices covered under the plan or from applying other limita-
tions that restrict coverage for mental health services to
those services that are medically necessary.
SEC. 306. WAIVER OF FOREIGN COUNTRY RESIDENCE RE-
QUIREMENT 
WITH 
RESPECT 
TO 
INTER-
NATIONAL MEDICAL GRADUATES.
(a) EXTENSION
OF
WAIVER
PROGRAM.—Section
220(c) of the Immigration and Nationality Technical Cor-
rections Act of 1994 (8 U.S.C. 1182 note) is amended by
striking ‘‘June 1, 1996’’ and inserting ‘‘June 1, 2002’’.
(b) CONDITIONS ON FEDERALLY REQUESTED WAIV-
ERS.—Section 212(e) of the Immigration and Nationality
Act (8 U.S.C. 1184(e)) is amended by inserting after ‘‘ex-
cept that in the case of a waiver requested by a State De-
HR 3103 EAS
partment of Public Health or its equivalent’’ the following:
‘‘or in the case of a waiver requested by an interested Unit-
ed States Government agency on behalf of an alien described
in clause (iii)’’.
(c) RESTRICTIONS ON FEDERALLY REQUESTED WAIV-
ERS.—Section 214(k) (8 U.S.C. 1184(k)) is amended to
read as follows:
‘‘(k)(1) In the case of a request by an interested State
agency or by an interested United States Government agen-
cy for a waiver of the two-year foreign residence require-
ment under section 212(e) with respect to an alien described
in clause (iii) of that section, the Attorney General shall
not grant such waiver unless—
‘‘(A) in the case of an alien who is otherwise
contractually obligated to return to a foreign country,
the government of such country furnishes the Director
of the United States Information Agency with a state-
ment in writing that it has no objection to such waiv-
er; and
‘‘(B)(i) in the case of a request by an interested
State agency—
‘‘(I) the alien demonstrates a bona fide offer
of full-time employment, agrees to begin employ-
ment with the health facility or organization
named in the waiver application within 90 days
HR 3103 EAS
of receiving such waiver, and agrees to work for
a total of not less than three years (unless the At-
torney General determines that extenuating cir-
cumstances exist, such as closure of the facility
or hardship to the alien would justify a lesser pe-
riod of time); and
‘‘(II) the alien’s employment continues to
benefit the public interest; or
‘‘(ii) in the case of a request by an interested
United States Government agency—
‘‘(I) the alien demonstrates a bona fide offer
of full-time employment that has been found to
be in the public interest, agrees to begin employ-
ment with the health facility or organization
named in the waiver application within 90 days
of receiving such waiver, and agrees to work for
a total of not less than three years (unless the At-
torney General determines that extenuating cir-
cumstances exist, such as closure of the facility
or hardship to the alien would justify a lesser pe-
riod of time); and
‘‘(II) the alien’s employment continues to
benefit the public interest;
‘‘(C) in the case of a request by an interested
State agency, the alien agrees to practice medicine in
HR 3103 EAS
accordance with paragraph (2) for a total of not less
than three years only in the geographic area or areas
which are designated by the Secretary of Health and
Human Services as having a shortage of health care
professionals; and
‘‘(D) in the case of a request by an interested
State agency, the grant of such a waiver would not
cause the number of waivers allotted for that State for
that fiscal year to exceed 20.
‘‘(2)(A) Notwithstanding section 248(2) the Attorney
General may change the status of an alien that qualifies
under this subsection and section 212(e) to that of an alien
described in section 101(a)(15)(H)(i)(b).
‘‘(B) No person who has obtained a change of status
under subparagraph (A) and who has failed to fulfill the
terms of the contract with the health facility or organization
named in the waiver application shall be eligible to apply
for an immigrant visa, for permanent residence, or for any
other change of nonimmigrant status until it is established
that such person has resided and been physically present
in the country of his nationality or his last residence for
an aggregate of at least two years following departure from
the United States.
‘‘(3) Notwithstanding any other provisions of this sub-
section, the two-year foreign residence requirement under
HR 3103 EAS
section 212(e) shall apply with respect to an alien in clause
(iii) of that section who has not otherwise been accorded
status under section 101(a)(27)(H)—
‘‘(A) in the case of a request by an interested
State agency, if at any time the alien practices medi-
cine in an area other than an area described in para-
graph (1)(C); and
‘‘(B) in the case of a request by an interested
United States Government agency, if at any time the
alien engages in employment for a health facility or
organization not named in the waiver application.’’.
SEC. 307. ORGAN AND TISSUE DONATION INFORMATION IN-
CLUDED WITH INCOME TAX REFUND PAY-
MENTS.
(a) IN GENERAL.—The Secretary of the Treasury shall
include with any payment of a refund of individual income
tax made during the period beginning on February 1, 1997,
and ending on June 30, 1997, a copy of the document de-
scribed in subsection (b).
(b) TEXT OF DOCUMENT.—The Secretary of the Treas-
ury shall, after consultation with the Secretary of Health
and Human Services and organizations promoting organ
and tissue (including eye) donation, prepare a document
suitable for inclusion with individual income tax refund
payments which—
HR 3103 EAS
(1) encourages organ and tissue donation;
(2) includes a detachable organ and tissue donor
card; and
(3) urges recipients to—
(A) sign the organ and tissue donor card;
(B) discuss organ and tissue donation with
family members and tell family members about
the recipient’s desire to be an organ and tissue
donor if the occasion arises; and
(C) encourage family members to request or
authorize organ and tissue donation if the occa-
sion arises.
SEC. 308. SENSE OF THE SENATE REGARDING ADEQUATE
HEALTH CARE COVERAGE FOR ALL CHILDREN
AND PREGNANT WOMEN.
(a) FINDINGS.—The Senate finds the following:
(1) The health care coverage of mothers and chil-
dren in the United States is unacceptable, with more
than 9,300,000 children and 500,000 expectant moth-
ers having no health insurance.
(2) Among industrial nations, the United States
ranks 1st in wealth but 18th in infant mortality, and
14th among such nations in maternal mortality.
(3) 22 percent of pregnant women do not have
prenatal care in the first trimester, and 22 percent of
HR 3103 EAS
all poor children are uninsured, despite the medicaid
program under title XIX of the Social Security Act.
(4) Of the 1,100,000 net increase in uninsured
persons from 1992 to 1993, 84 percent or 922,500
were children.
(5) Since 1987, the number of children covered
by employment based health insurance has decreased,
and many children lack health insurance despite the
relative affordability of providing insurance for chil-
dren.
(6) Health care coverage for children is relatively
inexpensive and in 1993 the medicaid program spent
an average of $1,012 per child compared to $8,220
per elderly adult.
(7) Uninsured children are generally children of
lower income workers, who are less likely than higher
income workers to have health insurance for their
families because they are less likely to work for a firm
that offers insurance, and if such insurance is offered,
it is often too costly for lower income workers to pur-
chase.
(8) In 1993, 61 percent of uninsured children
were in families with at least one parent working full
time for the entire year the child was uninsured, and
about 57 percent of uninsured children had a family
HR 3103 EAS
income at or below 150 percent of the Federal poverty
level.
(9) If Congress eliminates the Federal guarantee
of medicaid, an estimated 4,900,000 children may
lose their guarantee of health care coverage, and those
same children may be added to the currently projected
12,600,000 children who will be uninsured by the
year 2002.
(10) Studies have shown that uninsured children
are less likely than insured children to receive needed
health and preventive care, which can affect their
health status adversely throughout their lives, with
such children less likely to have routine doctor visits,
receive care for injuries, and have a regular source of
medical care.
(11) The families of uninsured children are more
likely to take the children to an emergency room than
to a private physician or health maintenance organi-
zation.
(12) Children without health insurance are less
likely to be appropriately immunized or receive other
preventive care for childhood illnesses.
(13) Ensuring the health of children clearly in-
creases their chances to become productive members of
society and averts more serious or more expensive
HR 3103 EAS
health conditions later in life, and ensuring that all
pregnant women receive competent prenatal care also
saves social costs.
(14) Although the United States has made great
improvements in health care coverage through the
medicaid program, it is still the only developed na-
tion that does not ensure that all of its children and
pregnant women have health care coverage.
(15) The United States should not accept a sta-
tus quo in which children in many neighborhoods are
more likely to have access to drugs and guns than to
doctors, or accept a status quo in which health care
is ensured for all prisoners but not for all children.
(b) SENSE OF THE SENATE.—It is the sense of the Sen-
ate that the issue of adequate health care for our mothers
and children is important to the future of the United States,
and in consideration of the importance of such issue, the
Senate should pass health care legislation that will ensure
health care coverage for all of the United States’s pregnant
women and children.
SEC. 309. SENSE OF THE SENATE REGARDING AVAILABLE
TREATMENTS.
It is the sense of the Senate that the Senate finds that
patients deserve to know the full range of treatments avail-
able to them and Congress should thoughtfully examine
HR 3103 EAS
these issues to ensure that all patients get the care they de-
serve.
SEC. 310. MEDICAL VOLUNTEERS.
(a) SHORT TITLE.—This title may be cited as the
‘‘Medical Volunteer Act’’.
(b) TORT CLAIM IMMUNITY.—
(1) GENERAL RULE.—A health care professional
who provides a health care service to a medically un-
derserved person without receiving compensation for
such health care service, shall be regarded, for pur-
poses of any medical malpractice claim that may
arise in connection with the provision of such service,
as an employee of the Federal Government for pur-
poses of the Federal tort claims provisions in title 28,
United States Code.
(2) COMPENSATION.—For purposes of paragraph
(1), a health care professional shall be deemed to have
provided a health care service without compensation
only if, prior to furnishing a health care service, the
health care professional—
(A) agrees to furnish the health care service
without charge to any person, including any
health insurance plan or program under which
the recipient is covered; and
HR 3103 EAS
(B) provides the recipient of the health care
service with adequate notice (as determined by
the Secretary) of the limited liability of the
health care professional with respect to the serv-
ice.
(c) PREEMPTION.—The provisions of this section shall
preempt any State law to the extent that such law is incon-
sistent with such provisions. The provisions of this section
shall not preempt any State law that provides greater in-
centives or protections to a health care professional render-
ing a health care service.
(d) DEFINITIONS.—For purposes of this section:
(1) HEALTH
CARE
PROFESSIONAL.—The term
‘‘health care professional’’ means a person who, at the
time the person provides a health care service, is li-
censed or certified by the appropriate authorities for
practice in a State to furnish health care services.
(2) HEALTH CARE SERVICE.—The term ‘‘health
care service’’ means any medical assistance to the ex-
tent it is included in the plan submitted under title
XIX of the Social Security Act for the State in which
the service was provided.
(3) MEDICALLY
UNDERSERVED
PERSON.—The
term ‘‘medically underserved person’’ means a person
who resides in—
HR 3103 EAS
(A) a medically underserved area as defined
for purposes of determining a medically under-
served population under section 330 of the Public
Health Service Act (42 U.S.C. 254c); or
(B) a health professional shortage area as
defined in section 332 of such Act (42 U.S.C.
254e);
and who receives care in a health care facility sub-
stantially comparable to any of those designated in
the Federally Supported Health Centers Assistance
Act (42 U.S.C. 233 et seq.), as shall be determined in
regulations promulgated by the Secretary.
(4) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of the Department of Health and
Human Services.
SEC. 311. EFFECTIVE DATE.
Except as otherwise provided for in this Act, the provi-
sions of this Act shall apply as follows:
(1) With respect to group health plans, such pro-
visions shall apply to plans offered, sold, issued, re-
newed, in effect, or operated on or after January 1,
1997.
(2) With respect to individual health plans, such
provisions shall apply to plans offered, sold, issued,
renewed, in effect, or operated on or after the date
HR 3103 EAS
that is 6 months after the date of enactment of this
Act, or January 1, 1997, whichever is later.
(3) With respect to employee health benefit plans,
such provisions shall apply to such plans on the first
day of the first plan year beginning on or after Janu-
ary 1, 1997.
SEC. 312. SEVERABILITY.
If any provision of this Act or the application of such
provision to any person or circumstance is held to be uncon-
stitutional, the remainder of this Act and the application
of the provisions of such to any person or circumstance shall
not be affected thereby.
TITLE IV—TAX-RELATED HEALTH
PROVISIONS
SEC. 400. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This title may be cited as the
‘‘Health Insurance and Long-Term Care Affordability Act
of 1996’’.
(b) AMENDMENT OF 1986 CODE.—Except as otherwise
expressly provided, whenever in this title an amendment
or repeal is expressed in terms of an amendment to, or re-
peal of, a section or other provision, the reference shall be
considered to be made to a section or other provision of the
Internal Revenue Code of 1986.
HR 3103 EAS
Subtitle A—Increase in Deduction
for Health Insurance Costs of
Self-Employed Individuals
SEC. 401. INCREASE IN SELF-EMPLOYED INDIVIDUALS’ DE-
DUCTION FOR HEALTH INSURANCE COSTS.
(a) IN GENERAL.—Section 162(l) (relating to special
rules for health insurance costs of self-employed individ-
uals) is amended—
(1) by striking ‘‘30 percent’’ in paragraph (1)
and inserting ‘‘the applicable percentage’’, and
(2) by adding at the end the following new para-
graph:
‘‘(6) APPLICABLE
PERCENTAGE.—For purposes
of this subsection, the term ‘applicable percentage’
means the percentage determined in accordance with
the following table:
‘‘In the case of taxable years
The applicable
beginning in:
percentage is:
1997 ................................................................................................
1998 ................................................................................................
1999 ................................................................................................
2000 ................................................................................................
2001 ................................................................................................
2002 ................................................................................................
2003 ................................................................................................
2004 ................................................................................................
2005 ................................................................................................
2006 and thereafter ........................................................................
80.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1996.
HR 3103 EAS
Subtitle B—Long-Term Care
Provisions
CHAPTER 1—LONG-TERM CARE SERVICES
AND CONTRACTS
Subchapter A—General Provisions
SEC. 411. TREATMENT OF LONG-TERM CARE INSURANCE.
(a) GENERAL RULE.—Chapter 79 (relating to defini-
tions) is amended by inserting after section 7702A the fol-
lowing new section:
‘‘SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE
INSURANCE.
‘‘(a) IN GENERAL.—For purposes of this title—
‘‘(1) a qualified long-term care insurance con-
tract shall be treated as an accident and health insur-
ance contract,
‘‘(2) amounts (other than policyholder dividends,
as defined in section 808, or premium refunds) re-
ceived under a qualified long-term care insurance
contract shall be treated as amounts received for per-
sonal injuries and sickness and shall be treated as re-
imbursement for expenses actually incurred for medi-
cal care (as defined in section 213(d)),
‘‘(3) any plan of an employer providing coverage
under a qualified long-term care insurance contract
HR 3103 EAS
shall be treated as an accident and health plan with
respect to such coverage,
‘‘(4) except as provided in subsection (e)(3),
amounts paid for a qualified long-term care insur-
ance contract providing the benefits described in sub-
section (b)(2)(A) shall be treated as payments made
for insurance for purposes of section 213(d)(1)(D),
and
‘‘(5) a qualified long-term care insurance con-
tract shall be treated as a guaranteed renewable con-
tract subject to the rules of section 816(e).
‘‘(b) QUALIFIED LONG-TERM CARE INSURANCE CON-
TRACT.—For purposes of this title—
‘‘(1) IN
GENERAL.—The term ‘qualified long-
term care insurance contract’ means any insurance
contract if—
‘‘(A) the only insurance protection provided
under such contract is coverage of qualified long-
term care services,
‘‘(B) such contract does not pay or reim-
burse expenses incurred for services or items to
the extent that such expenses are reimbursable
under title XVIII of the Social Security Act or
would be so reimbursable but for the application
of a deductible or coinsurance amount,
HR 3103 EAS
‘‘(C) such contract is guaranteed renewable,
‘‘(D) such contract does not provide for a
cash surrender value or other money that can
be—
‘‘(i) paid, assigned, or pledged as col-
lateral for a loan, or
‘‘(ii) borrowed,
other than as provided in subparagraph (E) or
paragraph (2)(C), and
‘‘(E) all refunds of premiums, and all pol-
icyholder dividends or similar amounts, under
such contract are to be applied as a reduction in
future premiums or to increase future benefits.
‘‘(2) SPECIAL RULES.—
‘‘(A) PER
DIEM, 
ETC. 
PAYMENTS
PER-
MITTED.—A contract shall not fail to be de-
scribed in subparagraph (A) or (B) of paragraph
(1) by reason of payments being made on a per
diem or other periodic basis without regard to
the expenses incurred during the period to which
the payments relate.
‘‘(B) SPECIAL RULES RELATING TO MEDI-
CARE.—
‘‘(i) Paragraph (1)(B) shall not apply
to expenses which are reimbursable under
HR 3103 EAS
title XVIII of the Social Security Act only
as a secondary payor.
‘‘(ii) No provision of law shall be con-
strued or applied so as to prohibit the offer-
ing of a qualified long-term care insurance
contract on the basis that the contract co-
ordinates its benefits with those provided
under such title.
‘‘(C) REFUNDS OF PREMIUMS.—Paragraph
(1)(E) shall not apply to any refund on the
death of the insured, or on a complete surrender
or cancellation of the contract, which cannot ex-
ceed the aggregate premiums paid under the con-
tract. Any refund on a complete surrender or
cancellation of the contract shall be includible in
gross income to the extent that any deduction or
exclusion was allowable with respect to the pre-
miums.
‘‘(c) QUALIFIED LONG-TERM CARE SERVICES.—For
purposes of this section—
‘‘(1) IN
GENERAL.—The term ‘qualified long-
term care services’ means necessary diagnostic, pre-
ventive, therapeutic, curing, treating, mitigating, and
rehabilitative services, and maintenance or personal
care services, which—
HR 3103 EAS
‘‘(A) are required by a chronically ill indi-
vidual, and
‘‘(B) are provided pursuant to a plan of
care prescribed by a licensed health care practi-
tioner.
‘‘(2) CHRONICALLY ILL INDIVIDUAL.—
‘‘(A) IN GENERAL.—The term ‘chronically
ill individual’ means any individual who has
been certified by a licensed health care practi-
tioner as—
‘‘(i) being unable to perform (without
substantial assistance from another individ-
ual) at least 2 activities of daily living for
a period of at least 90 days due to a loss
of functional capacity,
‘‘(ii) having a level of disability simi-
lar (as determined by the Secretary in con-
sultation with the Secretary of Health and
Human Services) to the level of disability
described in clause (i), or
‘‘(iii) requiring substantial supervision
to protect such individual from threats to
health and safety due to severe cognitive im-
pairment.
HR 3103 EAS
Such term shall not include any individual oth-
erwise meeting the requirements of the preceding
sentence unless within the preceding 12-month
period a licensed health care practitioner has
certified that such individual meets such require-
ments.
‘‘(B) ACTIVITIES
OF
DAILY
LIVING.—For
purposes of subparagraph (A), each of the follow-
ing is an activity of daily living:
‘‘(i) Eating.
‘‘(ii) Toileting.
‘‘(iii) Transferring.
‘‘(iv) Bathing.
‘‘(v) Dressing.
‘‘(vi) Continence.
Nothing in this section shall be construed to re-
quire a contract to take into account all of the
preceding activities of daily living.
‘‘(3) MAINTENANCE OR PERSONAL CARE SERV-
ICES.—The term ‘maintenance or personal care serv-
ices’ means any care the primary purpose of which
is the provision of needed assistance with any of the
disabilities as a result of which the individual is a
chronically ill individual (including the protection
HR 3103 EAS
from threats to health and safety due to severe cog-
nitive impairment).
‘‘(4) LICENSED HEALTH CARE PRACTITIONER.—
The term ‘licensed health care practitioner’ means
any physician (as defined in section 1861(r)(1) of the
Social Security Act (42 U.S.C. 1395x(r)(1)) and any
registered professional nurse, licensed social worker,
or other individual who meets such requirements as
may be prescribed by the Secretary.
‘‘(d) AGGREGATE PAYMENTS IN EXCESS OF LIMITS.—
‘‘(1) IN GENERAL.—If the aggregate amount of
periodic payments under all qualified long-term care
insurance contracts with respect to an insured for
any period exceeds the dollar amount in effect for
such period under paragraph (3), such excess pay-
ments shall be treated as made for qualified long-term
care services only to the extent of the costs incurred
by the payee (not otherwise compensated for by insur-
ance or otherwise) for qualified long-term care serv-
ices provided during such period for such insured.
‘‘(2) PERIODIC
PAYMENTS.—For purposes of
paragraph (1), the term ‘periodic payment’ means
any payment (whether on a periodic basis or other-
wise) made without regard to the extent of the costs
HR 3103 EAS
incurred by the payee for qualified long-term care
services.
‘‘(3) DOLLAR AMOUNT.—The dollar amount in
effect under this subsection shall be $175 per day (or
the equivalent amount in the case of payments on an-
other periodic basis).
‘‘(4) INFLATION ADJUSTMENT.—In the case of a
calendar year after 1997, the dollar amount contained
in paragraph (3) shall be increased at the same time
and in the same manner as amounts are increased
pursuant to section 213(d)(11).
‘‘(e) TREATMENT OF COVERAGE PROVIDED AS PART
OF A LIFE INSURANCE CONTRACT.—Except as otherwise
provided in regulations prescribed by the Secretary, in the
case of any long-term care insurance coverage (whether or
not qualified) provided by a rider on or as a part of a
life insurance contract—
‘‘(1) IN GENERAL.—This section shall apply as
if the portion of the contract providing such coverage
is a separate contract.
‘‘(2) APPLICATION OF 7702.—Section 7702(c)(2)
(relating to the guideline premium limitation) shall
be applied by increasing the guideline premium limi-
tation with respect to a life insurance contract, as of
any date—
HR 3103 EAS
‘‘(A) by the sum of any charges (but not
premium payments) against the life insurance
contract’s cash surrender value (within the
meaning of section 7702(f)(2)(A)) for such cov-
erage made to that date under the contract, less
‘‘(B) any such charges the imposition of
which reduces the premiums paid for the con-
tract (within the meaning of section 7702(f)(1)).
‘‘(3) APPLICATION OF SECTION 213.—No deduc-
tion shall be allowed under section 213(a) for charges
against the life insurance contract’s cash surrender
value described in paragraph (2), unless such charges
are includible in income as a result of the application
of section 72(e)(10) and the rider is a qualified long-
term care insurance contract under subsection (b).
‘‘(4) PORTION DEFINED.—For purposes of this
subsection, the term ‘portion’ means only the terms
and benefits under a life insurance contract that are
in addition to the terms and benefits under the con-
tract without regard to the coverage under a qualified
long-term care insurance contract.’’.
(b) RESERVE
METHOD.—Clause (iii) of section
807(d)(3)(A) is amended by inserting ‘‘(other than a quali-
fied long-term care insurance contract, as defined in section
7702B(b))’’ after ‘‘insurance contract’’.
HR 3103 EAS
(c) LONG-TERM CARE INSURANCE NOT PERMITTED
UNDER CAFETERIA PLANS OR FLEXIBLE SPENDING AR-
RANGEMENTS.—
(1) 
CAFETERIA
PLANS.—Section 
125(f) 
is
amended by adding at the end the following new sen-
tence: ‘‘Such term shall not include any long-term
care insurance contract (as defined in section
4980C).’’.
(2) FLEXIBLE SPENDING ARRANGEMENTS.—The
text of section 106 (relating to contributions by em-
ployer to accident and health plans) is amended to
read as follows:
‘‘(a) GENERAL RULE.—Except as otherwise provided
in this section, gross income of an employee does not include
employer-provided coverage under an accident or health
plan.
‘‘(b) INCLUSION OF LONG-TERM CARE BENEFITS PRO-
VIDED THROUGH FLEXIBLE SPENDING ARRANGEMENTS.—
‘‘(1) IN GENERAL.—Effective on and after Janu-
ary 1, 1997, gross income of an employee shall in-
clude employer-provided coverage for qualified long-
term care services (as defined in section 7702B(c)) to
the extent that such coverage is provided through a
flexible spending or similar arrangement.
HR 3103 EAS
‘‘(2) FLEXIBLE SPENDING ARRANGEMENT.—For
purposes of this subsection, a flexible spending ar-
rangement is a benefit program which provides em-
ployees with coverage under which—
‘‘(A) specified incurred expenses may be re-
imbursed (subject to reimbursement maximums
and other reasonable conditions), and
‘‘(B) the maximum amount of reimburse-
ment which is reasonably available to a partici-
pant for such coverage is less than 500 percent
of the value of such coverage.
In the case of an insured plan, the maximum amount
reasonably available shall be determined on the basis
of the underlying coverage.’’.
(d) CONTINUATION COVERAGE EXCISE TAX NOT TO
APPLY.—Subsection (f) of section 4980B is amended by
adding at the end the following new paragraph:
‘‘(9) CONTINUATION OF LONG-TERM CARE COV-
ERAGE NOT REQUIRED.—A group health plan shall
not be treated as failing to meet the requirements of
this subsection solely by reason of failing to provide
coverage under any qualified long-term care insur-
ance contract (as defined in section 7702B(b)).’’.
HR 3103 EAS
(e) AMOUNTS PAID TO SPOUSE OR RELATIVES TREAT-
ED AS NOT PAID FOR MEDICAL CARE.—Section 213(d) is
amended by adding at the end the following new paragraph:
‘‘(10) CERTAIN PAYMENTS TO SPOUSE OR REL-
ATIVES TREATED AS NOT PAID FOR MEDICAL CARE.—
An amount paid for a qualified long-term care service
(as defined in section 7702B(c)) provided to an indi-
vidual shall be treated as not paid for medical care
if such service is provided—
‘‘(A) by the spouse of the individual or a
relative (directly or through a partnership, cor-
poration, or other entity) unless the spouse or
relative is a licensed professional with respect to
such services, or
‘‘(B) by a corporation or partnership which
is related (within the meaning of section 267(b)
or 707(b)) to the individual.
For purposes of this paragraph, the term ‘relative’
means an individual bearing a relationship to the in-
dividual which is described in any of paragraphs (1)
through (8) of section 152(a). This paragraph shall
not apply for purposes of section 105(b) with respect
to reimbursements through insurance.’’.
HR 3103 EAS
(f) CLERICAL AMENDMENT.—The table of sections for
chapter 79 is amended by inserting after the item relating
to section 7702A the following new item:
‘‘Sec. 7702B. Treatment of qualified long-term care insurance.’’.
(g) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to contracts issued after De-
cember 31, 1996.
(2) CONTINUATION OF EXISTING POLICIES.—In
the case of any contract issued before January 1,
1997, which met the long-term care insurance require-
ments of the State in which the contract was issued
at the time the contract was issued—
(A) such contract shall be treated for pur-
poses of the Internal Revenue Code of 1986 as a
qualified long-term care insurance contract (as
defined in section 7702B(b) of such Code), and
(B) services provided under, or reimbursed
by, such contract shall be treated for such pur-
poses as qualified long-term care services (as de-
fined in section 7702B(c) of such Code).
(3) EXCHANGES
OF
EXISTING
POLICIES.—If,
after the date of enactment of this Act and before Jan-
uary 1, 1998, a contract providing for long-term care
insurance coverage is exchanged solely for a qualified
long-term care insurance contract (as defined in sec-
HR 3103 EAS
tion 7702B(b) of such Code), no gain or loss shall be
recognized on the exchange. If, in addition to a quali-
fied long-term care insurance contract, money or
other property is received in the exchange, then any
gain shall be recognized to the extent of the sum of
the money and the fair market value of the other
property received. For purposes of this paragraph, the
cancellation of a contract providing for long-term
care insurance coverage and reinvestment of the can-
cellation proceeds in a qualified long-term care insur-
ance contract within 60 days thereafter shall be treat-
ed as an exchange.
(4) 
ISSUANCE
OF
CERTAIN
RIDERS
PER-
MITTED.—For purposes of applying sections 101(f),
7702, and 7702A of the Internal Revenue Code of
1986 to any contract—
(A) the issuance of a rider which is treated
as a qualified long-term care insurance contract
under section 7702B, and
(B) the addition of any provision required
to conform any other long-term care rider to be
so treated,
shall not be treated as a modification or material
change of such contract.
100
HR 3103 EAS
SEC. 412. QUALIFIED LONG-TERM CARE SERVICES TREATED
AS MEDICAL CARE.
(a) GENERAL RULE.—Paragraph (1) of section 213(d)
(defining medical care) is amended by striking ‘‘or’’ at the
end of subparagraph (B), by redesignating subparagraph
(C) as subparagraph (D), and by inserting after subpara-
graph (B) the following new subparagraph:
‘‘(C) for qualified long-term care services
(as defined in section 7702B(c)), or’’.
(b) TECHNICAL AMENDMENTS.—
(1) Subparagraph (D) of section 213(d)(1) (as
redesignated by subsection (a)) is amended by strik-
ing ‘‘subparagraphs (A) and (B)’’ and inserting ‘‘sub-
paragraphs (A), (B), and (C)’’.
(2)(A) Paragraph (1) of section 213(d) is
amended by adding at the end the following new flush
sentence:
‘‘In the case of a qualified long-term care insurance
contract (as defined in section 7702B(b)), only eligi-
ble long-term care premiums (as defined in para-
graph (11)) shall be taken into account under sub-
paragraph (D).’’.
(B) Subsection (d) of section 213 is amended by
adding at the end the following new paragraph:
‘‘(11) ELIGIBLE LONG-TERM CARE PREMIUMS.—
101
HR 3103 EAS
‘‘(A) IN
GENERAL.—For purposes of this
section, the term ‘eligible long-term care pre-
miums’ means the amount paid during a taxable
year for any qualified long-term care insurance
contract (as defined in section 7702B(b)) cover-
ing an individual, to the extent such amount
does not exceed the limitation determined under
the following table:
‘‘In the case of an individual
with an attained age before the
The limitation
close of the taxable year of:
is:
40 or less ........................................................
$200
More than 40 but not more than 50 ............
375
More than 50 but not more than 60 ............
750
More than 60 but not more than 70 ............
2,000
More than 70 .................................................
2,500.
‘‘(B) INDEXING.—
‘‘(i) IN GENERAL.—In the case of any
taxable year beginning in a calendar year
after 1997, each dollar amount contained in
subparagraph (A) shall be increased by the
medical care cost adjustment of such
amount for such calendar year. If any in-
crease determined under the preceding sen-
tence is not a multiple of $10, such increase
shall be rounded to the nearest multiple of
$10.
‘‘(ii) MEDICAL
CARE
COST
ADJUST-
MENT.—For purposes of clause (i), the med-
102
HR 3103 EAS
ical care cost adjustment for any calendar
year is the percentage (if any) by which—
‘‘(I) the medical care component
of the Consumer Price Index (as de-
fined in section 1(f)(5)) for August of
the preceding calendar year, exceeds
‘‘(II) such component for August
of 1996.
The Secretary shall, in consultation with
the Secretary of Health and Human Serv-
ices, prescribe an adjustment which the Sec-
retary determines is more appropriate for
purposes of this paragraph than the adjust-
ment described in the preceding sentence,
and the adjustment so prescribed shall
apply in lieu of the adjustment described in
the preceding sentence.’’.
(3) Paragraph (6) of section 213(d) is amend-
ed—
(A) by striking ‘‘subparagraphs (A) and
(B)’’ and inserting ‘‘subparagraphs (A), (B),
and (C)’’, and
(B) by striking ‘‘paragraph (1)(C)’’ in sub-
paragraph 
(A) 
and 
inserting 
‘‘paragraph
(1)(D)’’.
103
HR 3103 EAS
(4) Paragraph (7) of section 213(d) is amended
by striking ‘‘subparagraphs (A) and (B)’’ and insert-
ing ‘‘subparagraphs (A), (B), and (C)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1996.
SEC. 413. CERTAIN EXCHANGES OF LIFE INSURANCE CON-
TRACTS FOR QUALIFIED LONG-TERM CARE
INSURANCE CONTRACTS NOT TAXABLE.
(a) IN GENERAL.—Subsection (a) of section 1035 (re-
lating to certain exchanges of insurance contracts) is
amended by striking the period at the end of paragraph
(3) and inserting ‘‘; or’’, and by adding at the end the fol-
lowing new paragraph:
‘‘(4) a contract of life insurance or an endow-
ment or annuity contract for a qualified long-term
care insurance contract (as defined in section
7702B(b)).’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1997.
104
HR 3103 EAS
SEC. 414. EXCEPTION FROM PENALTY TAX FOR AMOUNTS
WITHDRAWN FROM CERTAIN RETIREMENT
PLANS FOR QUALIFIED LONG-TERM CARE IN-
SURANCE.
(a) IN GENERAL.—Paragraph (2) of section 72(t) is
amended by adding at the end the following new subpara-
graph:
‘‘(D) PREMIUMS
FOR
QUALIFIED
LONG-
TERM CARE INSURANCE CONTRACTS.—Distribu-
tions to an individual from an individual retire-
ment plan, or from amounts attributable to em-
ployer contributions made pursuant to elective
deferrals described in subparagraph (A) or (C) of
section 402(g)(3), to the extent such distributions
do not exceed the premiums for a qualified long-
term care insurance contract (as defined in sec-
tion 7702B(b)) for such individual or the spouse
of such individual. In applying subparagraph
(B), such premiums shall be treated as amounts
not paid for medical care.’’.
(b) DISTRIBUTIONS
PERMITTED
FROM
CERTAIN
PLANS TO PAY LONG-TERM CARE PREMIUMS.—
(1) Section 401(k)(2)(B)(i) is amended by strik-
ing ‘‘or’’ at the end of subclause (III), by striking
‘‘and’’ at the end of subclause (IV) and inserting
105
HR 3103 EAS
‘‘or’’, and by inserting after subclause (IV) the follow-
ing new subclause:
‘‘(V) the date distributions for
premiums for a long-term care insur-
ance contract (as defined in section
7702B(b)) for coverage of such individ-
ual or the spouse of such individual
are made, and’’.
(2) Section 403(b)(11) is amended by striking
‘‘or’’ at the end of subparagraph (A), by striking the
period at the end of subparagraph (B) and inserting
‘‘, or’’, and by inserting after subparagraph (B) the
following new subparagraph:
‘‘(C) for the payment of premiums for a
long-term care insurance contract (as defined in
section 7702B(b)) for coverage of the employee or
the spouse of the employee.’’.
(3) Subparagraph (A) of section 457(d)(1) is
amended by striking ‘‘or’’ at the end of clause (ii), by
striking ‘‘and’’ at the end of clause (iii) and inserting
‘‘or’’, and by inserting after clause (iii) the following
new clause:
‘‘(iv) the date distributions for pre-
miums for a long-term care insurance con-
tract (as defined in section 7702B(b)) for
106
HR 3103 EAS
coverage of such individual or the spouse of
such individual are made, and’’.
(c) CONFORMING AMENDMENT.—Section 72t(2)(B) is
amended by striking ‘‘subparagraph (A) or (C))’’ and in-
serting ‘‘subparagraph (A), (C), or (D))’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to payments and distributions after De-
cember 31, 1996.
SEC. 415. REPORTING REQUIREMENTS.
(a) IN GENERAL.—Subpart B of part III of subchapter
A of chapter 61 is amended by adding at the end the follow-
ing new section:
‘‘SEC. 6050Q. CERTAIN LONG-TERM CARE BENEFITS.
‘‘(a) REQUIREMENT OF REPORTING.—Any person who
pays long-term care benefits shall make a return, according
to the forms or regulations prescribed by the Secretary, set-
ting forth—
‘‘(1) the aggregate amount of such benefits paid
by such person to any individual during any cal-
endar year, and
‘‘(2) the name, address, and TIN of such individ-
ual.
‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS
WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—
Every person required to make a return under subsection
107
HR 3103 EAS
(a) shall furnish to each individual whose name is required
to be set forth in such return a written statement showing—
‘‘(1) the name of the person making the pay-
ments, and
‘‘(2) the aggregate amount of long-term care ben-
efits paid to the individual which are required to be
shown on such return.
The written statement required under the preceding sen-
tence shall be furnished to the individual on or before Janu-
ary 31 of the year following the calendar year for which
the return under subsection (a) was required to be made.
‘‘(c) LONG-TERM CARE BENEFITS.—For purposes of
this section, the term ‘long-term care benefit’ means any
amount paid under a long-term care insurance policy
(within the meaning of section 4980C(e)).’’.
(b) PENALTIES.—
(1) Subparagraph (B) of section 6724(d)(1) is
amended by redesignating clauses (ix) through (xiv)
as clauses (x) through (xv), respectively, and by in-
serting after clause (viii) the following new clause:
‘‘(ix) section 6050Q (relating to certain
long-term care benefits),’’.
(2) Paragraph (2) of section 6724(d) is amended
by redesignating subparagraphs (Q) through (T) as
subparagraphs (R) through (U), respectively, and by
108
HR 3103 EAS
inserting after subparagraph (P) the following new
subparagraph:
‘‘(Q) section 6050Q(b) (relating to certain
long-term care benefits),’’.
(c) CLERICAL AMENDMENT.—The table of sections for
subpart B of part III of subchapter A of chapter 61 is
amended by adding at the end the following new item:
‘‘Sec. 6050Q. Certain long-term care benefits.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to benefits paid after December 31, 1996.
Subchapter B—Consumer Protection
Provisions
SEC. 421. POLICY REQUIREMENTS.
Section 7702B (as added by section 411) is amended
by adding at the end the following new subsection:
‘‘(f) CONSUMER PROTECTION PROVISIONS.—
‘‘(1) IN GENERAL.—The requirements of this sub-
section are met with respect to any contract if any
long-term care insurance policy issued under the con-
tract meets—
‘‘(A) the requirements of the model regula-
tion and model Act described in paragraph (2),
‘‘(B) the disclosure requirement of para-
graph (3), and
‘‘(C) the requirements relating to nonforfeit-
ability under paragraph (4).
109
HR 3103 EAS
‘‘(2) REQUIREMENTS
OF
MODEL
REGULATION
AND ACT.—
‘‘(A) IN
GENERAL.—The requirements of
this paragraph are met with respect to any pol-
icy if such policy meets—
‘‘(i) MODEL REGULATION.—The follow-
ing requirements of the model regulation:
‘‘(I) Section 7A (relating to guar-
anteed renewal or noncancellability),
and the requirements of section 6B of
the model Act relating to such section
7A.
‘‘(II) Section 7B (relating to pro-
hibitions on limitations and exclu-
sions).
‘‘(III) Section 7C (relating to ex-
tension of benefits).
‘‘(IV) Section 7D (relating to con-
tinuation or conversion of coverage).
‘‘(V) Section 7E (relating to dis-
continuance and replacement of poli-
cies).
‘‘(VI) Section 8 (relating to unin-
tentional lapse).
110
HR 3103 EAS
‘‘(VII) Section 9 (relating to dis-
closure), other than section 9F thereof.
‘‘(VIII) Section 10 (relating to
prohibitions against post-claims under-
writing).
‘‘(IX) Section 11 (relating to min-
imum standards).
‘‘(X) Section 12 (relating to re-
quirement to offer inflation protection),
except that any requirement for a sig-
nature on a rejection of inflation pro-
tection shall permit the signature to be
on an application or on a separate
form.
‘‘(XI) Section 23 (relating to pro-
hibition against preexisting conditions
and probationary periods in replace-
ment policies or certificates).
‘‘(ii) MODEL ACT.—The following re-
quirements of the model Act:
‘‘(I) Section 6C (relating to pre-
existing conditions).
‘‘(II) Section 6D (relating to
prior hospitalization).
111
HR 3103 EAS
‘‘(B) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) MODEL
PROVISIONS.—The terms
‘model regulation’ and ‘model Act’ mean the
long-term care insurance model regulation,
and the long-term care insurance model Act,
respectively, promulgated by the National
Association of Insurance Commissioners (as
adopted as of January 1993).
‘‘(ii) COORDINATION.—Any provision
of the model regulation or model Act listed
under clause (i) or (ii) of subparagraph (A)
shall be treated as including any other pro-
vision of such regulation or Act necessary to
implement the provision.
‘‘(3) DISCLOSURE REQUIREMENT.—The require-
ment of this paragraph is met with respect to any
policy if such policy meets the requirements of section
4980C(d)(1).
‘‘(4) NONFORFEITURE REQUIREMENTS.—
‘‘(A) IN
GENERAL.—The requirements of
this paragraph are met with respect to any level
premium long-term care insurance policy, if the
issuer of such policy offers to the policyholder,
including any group policyholder, a nonforfeit-
112
HR 3103 EAS
ure provision meeting the requirements of sub-
paragraph (B).
‘‘(B) REQUIREMENTS OF PROVISION.—The
nonforfeiture provision required under subpara-
graph (A) shall meet the following requirements:
‘‘(i) The nonforfeiture provision shall
be appropriately captioned.
‘‘(ii) The nonforfeiture provision shall
provide for a benefit available in the event
of a default in the payment of any pre-
miums and the amount of the benefit may
be adjusted subsequent to being initially
granted only as necessary to reflect changes
in claims, persistency, and interest as re-
flected in changes in rates for premium
paying policies approved by the appro-
priate State regulatory authority for the
same policy form.
‘‘(iii) The nonforfeiture provision shall
provide at least one of the following:
‘‘(I) Reduced paid-up insurance.
‘‘(II) Extended term insurance.
‘‘(III) Shortened benefit period.
‘‘(IV) Other similar offerings ap-
proved by the Secretary.
113
HR 3103 EAS
‘‘(5) LONG-TERM CARE INSURANCE POLICY DE-
FINED.—For purposes of this subsection, the term
‘long-term care insurance policy’ has the meaning
given such term by section 4980C(e).’’.
SEC. 422. REQUIREMENTS FOR ISSUERS OF LONG-TERM
CARE INSURANCE POLICIES.
(a) IN GENERAL.—Chapter 43 is amended by adding
at the end the following new section:
‘‘SEC. 4980C. REQUIREMENTS FOR ISSUERS OF LONG-TERM
CARE INSURANCE POLICIES.
‘‘(a) GENERAL RULE.—There is hereby imposed on
any person failing to meet the requirements of subsection
(c) or (d) a tax in the amount determined under subsection
(b).
‘‘(b) AMOUNT.—
‘‘(1) IN GENERAL.—The amount of the tax im-
posed by subsection (a) shall be $100 per policy for
each day any requirements of subsection (c) or (d) are
not met with respect to each long-term care insurance
policy.
‘‘(2) WAIVER.—In the case of a failure which is
due to reasonable cause and not to willful neglect, the
Secretary may waive part or all of the tax imposed
by subsection (a) to the extent that payment of the tax
would be excessive relative to the failure involved.
114
HR 3103 EAS
‘‘(c) RESPONSIBILITIES.—The requirements of this
subsection are as follows:
‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.—
‘‘(A) MODEL REGULATION.—The following
requirements of the model regulation must be
met:
‘‘(i) Section 13 (relating to application
forms and replacement coverage).
‘‘(ii) Section 14 (relating to reporting
requirements), except that the issuer shall
also report at least annually the number of
claims denied during the reporting period
for each class of business (expressed as a
percentage of claims denied), other than
claims denied for failure to meet the wait-
ing period or because of any applicable pre-
existing condition.
‘‘(iii) Section 20 (relating to filing re-
quirements for marketing).
‘‘(iv) Section 21 (relating to standards
for marketing), including inaccurate com-
pletion of medical histories, other than sec-
tions 21C(1) and 21C(6) thereof, except
that—
115
HR 3103 EAS
‘‘(I) in addition to such require-
ments, no person shall, in selling or of-
fering to sell a long-term care insur-
ance policy, misrepresent a material
fact; and
‘‘(II) no such requirements shall
include a requirement to inquire or
identify whether a prospective appli-
cant or enrollee for long-term care in-
surance has accident and sickness in-
surance.
‘‘(v) Section 22 (relating to appro-
priateness of recommended purchase).
‘‘(vi) Section 24 (relating to standard
format outline of coverage).
‘‘(vii) Section 25 (relating to require-
ment to deliver shopper’s guide).
‘‘(B) MODEL ACT.—The following require-
ments of the model Act must be met:
‘‘(i) Section 6F (relating to right to re-
turn), except that such section shall also
apply to denials of applications and any
refund shall be made within 30 days of the
return or denial.
116
HR 3103 EAS
‘‘(ii) Section 6G (relating to outline of
coverage).
‘‘(iii) Section 6H (relating to require-
ments for certificates under group plans).
‘‘(iv) Section 6I (relating to policy
summary).
‘‘(v) Section 6J (relating to monthly
reports on accelerated death benefits).
‘‘(vi) Section 7 (relating to incontest-
ability period).
‘‘(C) DEFINITIONS.—For purposes of this
paragraph, the terms ‘model regulation’ and
‘model Act’ have the meanings given such terms
by section 7702B(f)(2)(B).
‘‘(2) DELIVERY OF POLICY.—If an application
for a long-term care insurance policy (or for a certifi-
cate under a group long-term care insurance policy)
is approved, the issuer shall deliver to the applicant
(or policyholder or certificateholder) the policy (or
certificate) of insurance not later than 30 days after
the date of the approval.
‘‘(3) INFORMATION ON DENIALS OF CLAIMS.—If
a claim under a long-term care insurance policy is
denied, the issuer shall, within 60 days of the date of
117
HR 3103 EAS
a 
written 
request 
by 
the 
policyholder 
or
certificateholder (or representative)—
‘‘(A) provide a written explanation of the
reasons for the denial, and
‘‘(B) make available all information di-
rectly relating to such denial.
‘‘(d) DISCLOSURE.—The requirements of this sub-
section are met if the issuer of a long-term care insurance
policy discloses in such policy and in the outline of coverage
required under subsection (c)(1)(B)(ii) that the policy is in-
tended to be a qualified long-term care insurance contract
under section 7702B(b).
‘‘(e) LONG-TERM
CARE
INSURANCE
POLICY
DE-
FINED.—For purposes of this section, the term ‘long-term
care insurance policy’ means any product which is adver-
tised, marketed, or offered as long-term care insurance.’’.
(b) CONFORMING AMENDMENT.—The table of sections
for chapter 43 is amended by adding at the end the follow-
ing new item:
‘‘Sec. 4980C. Requirements for issuers of long-term care insurance policies.’’.
SEC. 423. COORDINATION WITH STATE REQUIREMENTS.
Nothing in this subchapter shall prevent a State from
establishing, implementing, or continuing in effect stand-
ards related to the protection of policyholders of long-term
care insurance policies (as defined in section 4980C(e) of
the Internal Revenue Code of 1986), if such standards are
118
HR 3103 EAS
not in conflict with or inconsistent with the standards es-
tablished under such Code.
SEC. 424. EFFECTIVE DATES.
(a) IN GENERAL.—The provisions of, and amendments
made by, this subchapter shall apply to contracts issued
after December 31, 1996. The provisions of section 411(g)
of this Act (relating to transition rule) shall apply to such
contracts.
(b) ISSUERS.—The amendments made by section 422
shall apply to actions taken after December 31, 1996.
CHAPTER 2—TREATMENT OF
ACCELERATED DEATH BENEFITS
SEC. 431. TREATMENT OF ACCELERATED DEATH BENEFITS
BY RECIPIENT.
(a) IN GENERAL.—Section 101 (relating to certain
death benefits) is amended by adding at the end the follow-
ing new subsection:
‘‘(g) TREATMENT OF CERTAIN ACCELERATED DEATH
BENEFITS.—
‘‘(1) IN GENERAL.—For purposes of this section,
the following amounts shall be treated as an amount
paid by reason of the death of an insured:
‘‘(A) Any amount received under a life in-
surance contract on the life of an insured who is
a terminally ill individual.
119
HR 3103 EAS
‘‘(B) Any amount received under a life in-
surance contract on the life of an insured who is
a chronically ill individual (as defined in section
7702B(c)(2)) but only if such amount is received
under a rider or other provision of such contract
which is treated as a qualified long-term care in-
surance contract under section 7702B.
‘‘(2) TREATMENT OF VIATICAL SETTLEMENTS.—
‘‘(A) IN GENERAL.—In the case of a life in-
surance contract on the life of an insured de-
scribed in paragraph (1), if—
‘‘(i) any portion of such contract is
sold to any viatical settlement provider, or
‘‘(ii) any portion of the death benefit is
assigned to such a provider,
the amount paid for such sale or assignment
shall be treated as an amount paid under the life
insurance contract by reason of the death of such
insured.
‘‘(B) VIATICAL
SETTLEMENT
PROVIDER.—
The term ‘viatical settlement provider’ means
any person regularly engaged in the trade or
business of purchasing, or taking assignments of,
life insurance contracts on the lives of insureds
described in paragraph (1) if—
120
HR 3103 EAS
‘‘(i) such person is licensed for such
purposes in the State in which the insured
resides, or
‘‘(ii) in the case of an insured who re-
sides in a State not requiring the licensing
of such persons for such purposes—
‘‘(I) such person meets the re-
quirements of sections 8 and 9 of the
Viatical Settlements Model Act of the
National 
Association 
of 
Insurance
Commissioners, and
‘‘(II) meets the requirements of the
Model Regulations of the National As-
sociation of Insurance Commissioners
(relating to standards for evaluation of
reasonable payments) in determining
amounts paid by such person in con-
nection with such purchases or assign-
ments.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) TERMINALLY
ILL
INDIVIDUAL.—The
term ‘terminally ill individual’ means an indi-
vidual who has been certified by a physician as
having an illness or physical condition which
121
HR 3103 EAS
can reasonably be expected to result in death in
24 months or less after the date of the certifi-
cation.
‘‘(B) PHYSICIAN.—The term ‘physician’ has
the meaning given to such term by section
1861(r)(1) of the Social Security Act (42 U.S.C.
1395x(r)(1)).
‘‘(4) EXCEPTION FOR BUSINESS-RELATED POLI-
CIES.—This subsection shall not apply in the case of
any amount paid to any taxpayer other than the in-
sured if such taxpayer has an insurable interest with
respect to the life of the insured by reason of the in-
sured being a director, officer, or employee of the tax-
payer or by reason of the insured being financially
interested in any trade or business carried on by the
taxpayer.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to amounts received after December
31, 1996.
SEC. 432. TAX TREATMENT OF COMPANIES ISSUING QUALI-
FIED ACCELERATED DEATH BENEFIT RIDERS.
(a) QUALIFIED ACCELERATED DEATH BENEFIT RID-
ERS TREATED AS LIFE INSURANCE.—Section 818 (relating
to other definitions and special rules) is amended by adding
at the end the following new subsection:
122
HR 3103 EAS
‘‘(g) QUALIFIED ACCELERATED DEATH BENEFIT RID-
ERS TREATED AS LIFE INSURANCE.—For purposes of this
part—
‘‘(1) IN GENERAL.—Any reference to a life insur-
ance contract shall be treated as including a reference
to a qualified accelerated death benefit rider on such
contract.
‘‘(2) QUALIFIED ACCELERATED DEATH BENEFIT
RIDERS.—For purposes of this subsection, the term
‘qualified accelerated death benefit rider’ means any
rider on a life insurance contract if the only pay-
ments under the rider are payments meeting the re-
quirements of section 101(g).
‘‘(3) EXCEPTION
FOR
LONG-TERM
CARE
RID-
ERS.—Paragraph (1) shall not apply to any rider
which is treated as a long-term care insurance con-
tract under section 7702B.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by this
section shall take effect on January 1, 1997.
(2) ISSUANCE OF RIDER NOT TREATED AS MATE-
RIAL
CHANGE.—For purposes of applying sections
101(f), 7702, and 7702A of the Internal Revenue Code
of 1986 to any contract—
123
HR 3103 EAS
(A) the issuance of a qualified accelerated
death benefit rider (as defined in section 818(g)
of such Code (as added by this Act)), and
(B) the addition of any provision required
to conform an accelerated death benefit rider to
the requirements of such section 818(g),
shall not be treated as a modification or material
change of such contract.
Subtitle C—High-Risk Pools
SEC. 451. EXEMPTION FROM INCOME TAX FOR STATE-SPON-
SORED ORGANIZATIONS PROVIDING HEALTH
COVERAGE FOR HIGH-RISK INDIVIDUALS.
(a) IN GENERAL.—Subsection (c) of section 501 (relat-
ing to list of exempt organizations) is amended by adding
at the end the following new paragraph:
‘‘(26) Any membership organization if—
‘‘(A) such organization is established by a
State exclusively to provide coverage for medical
care (as defined in section 213(d)) on a not-for-
profit basis to individuals described in subpara-
graph (B) through—
‘‘(i) insurance issued by the organiza-
tion, or
124
HR 3103 EAS
‘‘(ii) a health maintenance organiza-
tion under an arrangement with the organi-
zation,
‘‘(B) the only individuals receiving such
coverage through the organization are individ-
uals—
‘‘(i) who are residents of such State,
and
‘‘(ii) who, by reason of the existence or
history of a medical condition, are unable
to acquire medical care coverage for such
condition through insurance or from a
health maintenance organization or are able
to acquire such coverage only at a rate
which is substantially in excess of the rate
for such coverage through the membership
organization,
‘‘(C) the composition of the membership in
such organization is specified by such State, and
‘‘(D) no part of the net earnings of the or-
ganization inures to the benefit of any private
shareholder or individual.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1996.
125
HR 3103 EAS
Subtitle D—Penalty-Free IRA
Distributions
SEC. 461. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE
USED WITHOUT PENALTY TO PAY FINAN-
CIALLY DEVASTATING MEDICAL EXPENSES.
(a) IN GENERAL.—Section 72(t)(3)(A) is amended by
striking ‘‘(B),’’.
(b) PENALTY-FREE DISTRIBUTIONS FOR PAYMENT OF
HEALTH INSURANCE PREMIUMS OF CERTAIN UNEMPLOYED
INDIVIDUALS.—Paragraph (2) of section 72(t), as amended
by section 414, is amended by adding at the end the follow-
ing new subparagraph:
‘‘(E) DISTRIBUTIONS TO UNEMPLOYED INDI-
VIDUALS FOR HEALTH INSURANCE PREMIUMS.—
Distributions from an individual retirement
plan to an individual after separation from em-
ployment—
‘‘(i) if such individual has received un-
employment compensation for 12 consecu-
tive weeks under any Federal or State un-
employment compensation law by reason of
such separation,
‘‘(ii) if such distributions are made
during any taxable year during which such
126
HR 3103 EAS
unemployment compensation is paid or the
succeeding taxable year, and
‘‘(iii) to the extent such distributions
do not exceed the amount paid during the
taxable year for insurance described in sec-
tion 213(d)(1)(D) with respect to the indi-
vidual and the individual’s spouse and de-
pendents (as defined in section 152).
To the extent provided in regulations, a self-em-
ployed individual shall be treated as meeting the
requirements of clause (i) if, under Federal or
State law, the individual would have received
unemployment compensation but for the fact the
individual was self-employed.’’.
(c) CONFORMING AMENDMENT.—Subparagraph (B) of
section 72(t)(2), as amended by section 414, is amended by
striking ‘‘or (D)’’ and inserting ‘‘, (D), or (E)’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1996.
127
HR 3103 EAS
Subtitle E—Revenue Offsets
CHAPTER 1—TREATMENT OF
INDIVIDUALS WHO EXPATRIATE
SEC. 471. REVISION OF TAX RULES ON EXPATRIATION.
(a) IN GENERAL.—Subpart A of part II of subchapter
N of chapter 1 is amended by inserting after section 877
the following new section:
‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.
‘‘(a) GENERAL RULES.—For purposes of this sub-
title—
‘‘(1) MARK TO MARKET.—Except as provided in
subsection (f), all property of a covered expatriate to
which this section applies shall be treated as sold on
the expatriation date for its fair market value.
‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the
case of any sale under paragraph (1)—
‘‘(A) notwithstanding any other provision of
this title, any gain arising from such sale shall
be taken into account for the taxable year of the
sale unless such gain is excluded from gross in-
come under part III of subchapter B, and
‘‘(B) any loss arising from such sale shall
be taken into account for the taxable year of the
sale to the extent otherwise provided by this title,
128
HR 3103 EAS
except that section 1091 shall not apply (and
section 1092 shall apply) to any such loss.
‘‘(3) EXCLUSION
FOR
CERTAIN
GAIN.—The
amount which would (but for this paragraph) be in-
cludible in the gross income of any individual by rea-
son of this section shall be reduced (but not below
zero) by $600,000. For purposes of this paragraph, al-
locable expatriation gain taken into account under
subsection (f)(2) shall be treated in the same manner
as an amount required to be includible in gross in-
come.
‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS
UNITED STATES CITIZEN.—
‘‘(A) IN GENERAL.—If an expatriate elects
the application of this paragraph—
‘‘(i) this section (other than this para-
graph) shall not apply to the expatriate, but
‘‘(ii) the expatriate shall be subject to
tax under this title, with respect to property
to which this section would apply but for
such election, in the same manner as if the
individual were a United States citizen.
‘‘(B) LIMITATION ON AMOUNT OF ESTATE,
GIFT, 
AND
GENERATION-SKIPPING
TRANSFER
TAXES.—The aggregate amount of taxes imposed
129
HR 3103 EAS
under subtitle B with respect to any transfer of
property by reason of an election under subpara-
graph (A) shall not exceed the amount of income
tax which would be due if the property were sold
for its fair market value immediately before the
time of the transfer or death (taking into account
the rules of paragraph (2)).
‘‘(C) REQUIREMENTS.—Subparagraph (A)
shall not apply to an individual unless the indi-
vidual—
‘‘(i) provides security for payment of
tax in such form and manner, and in such
amount, as the Secretary may require,
‘‘(ii) consents to the waiver of any
right of the individual under any treaty of
the United States which would preclude as-
sessment or collection of any tax which may
be imposed by reason of this paragraph,
and
‘‘(iii) complies with such other require-
ments as the Secretary may prescribe.
‘‘(D) ELECTION.—An election under sub-
paragraph (A) shall apply to all property to
which this section would apply but for the elec-
tion and, once made, shall be irrevocable. Such
130
HR 3103 EAS
election shall also apply to property the basis of
which is determined in whole or in part by ref-
erence to the property with respect to which the
election was made.
‘‘(b) ELECTION TO DEFER TAX.—
‘‘(1) IN GENERAL.—If the taxpayer elects the ap-
plication of this subsection with respect to any prop-
erty—
‘‘(A) no amount shall be required to be in-
cluded in gross income under subsection (a)(1)
with respect to the gain from such property for
the taxable year of the sale, but
‘‘(B) the taxpayer’s tax for the taxable year
in which such property is disposed of shall be in-
creased by the deferred tax amount with respect
to the property.
Except to the extent provided in regulations, subpara-
graph (B) shall apply to a disposition whether or not
gain or loss is recognized in whole or in part on the
disposition.
‘‘(2) DEFERRED TAX AMOUNT.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘deferred tax amount’ means,
with respect to any property, an amount equal
to the sum of—
131
HR 3103 EAS
‘‘(i) the difference between the amount
of tax paid for the taxable year described in
paragraph (1)(A) and the amount which
would have been paid for such taxable year
if the election under paragraph (1) had not
applied to such property, plus
‘‘(ii) an amount of interest on the
amount described in clause (i) determined
for the period—
‘‘(I) beginning on the 91st day
after the expatriation date, and
‘‘(II) ending on the due date for
the taxable year described in para-
graph (1)(B),
by using the rates and method applicable
under section 6621 for underpayments of
tax for such period.
For purposes of clause (ii), the due date is the
date prescribed by law (determined without re-
gard to extension) for filing the return of the tax
imposed by this chapter for the taxable year.
‘‘(B) ALLOCATION
OF
LOSSES.—For pur-
poses of subparagraph (A), any losses described
in subsection (a)(2)(B) shall be allocated ratably
132
HR 3103 EAS
among 
the 
gains 
described 
in 
subsection
(a)(2)(A).
‘‘(3) SECURITY.—
‘‘(A) IN
GENERAL.—No election may be
made under paragraph (1) with respect to any
property unless adequate security is provided
with respect to such property.
‘‘(B) ADEQUATE SECURITY.—For purposes
of subparagraph (A), security with respect to
any property shall be treated as adequate secu-
rity if—
‘‘(i) it is a bond in an amount equal
to the deferred tax amount under paragraph
(2)(A) for the property, or
‘‘(ii) the taxpayer otherwise establishes
to the satisfaction of the Secretary that the
security is adequate.
‘‘(4) WAIVER OF CERTAIN RIGHTS.—No election
may be made under paragraph (1) unless the tax-
payer consents to the waiver of any right under any
treaty of the United States which would preclude as-
sessment or collection of any tax imposed by reason
of this section.
‘‘(5) DISPOSITIONS.—For purposes of this sub-
section, a taxpayer making an election under this
133
HR 3103 EAS
subsection with respect to any property shall be treat-
ed as having disposed of such property—
‘‘(A) immediately before death if such prop-
erty is held at such time, and
‘‘(B) at any time the security provided with
respect to the property fails to meet the require-
ments of paragraph (3) and the taxpayer does
not correct such failure within the time specified
by the Secretary.
‘‘(6) ELECTIONS.—An election under paragraph
(1) shall only apply to property described in the elec-
tion and, once made, is irrevocable. An election may
be under paragraph (1) with respect to an interest in
a trust with respect to which gain is required to be
recognized under subsection (f)(1).
‘‘(c) COVERED EXPATRIATE.—For purposes of this sec-
tion—
‘‘(1) IN GENERAL.—The term ‘covered expatriate’
means an expatriate—
‘‘(A) whose average annual net income tax
(as defined in section 38(c)(1)) for the period of
5 taxable years ending before the expatriation
date is greater than $100,000, or
‘‘(B) whose net worth as of such date is
$500,000 or more.
134
HR 3103 EAS
If the expatriation date is after 1996, such $100,000
and $500,000 amounts shall be increased by an
amount equal to such dollar amount multiplied by
the cost-of-living adjustment determined under section
1(f)(3) for such calendar year by substituting ‘1995’
for ‘1992’ in subparagraph (B) thereof. Any increase
under the preceding sentence shall be rounded to the
nearest multiple of $1,000.
‘‘(2) EXCEPTIONS.—An individual shall not be
treated as a covered expatriate if—
‘‘(A) the individual—
‘‘(i) became at birth a citizen of the
United States and a citizen of another
country and, as of the expatriation date,
continues to be a citizen of, and is taxed as
a resident of, such other country, and
‘‘(ii) has been a resident of the United
States 
(as 
defined 
in 
section
7701(b)(1)(A)(ii)) for not more than 8 tax-
able years during the 15-taxable year period
ending with the taxable year during which
the expatriation date occurs, or
‘‘(B)(i) the individual’s relinquishment of
United States citizenship occurs before such indi-
vidual attains age 181⁄2, and
135
HR 3103 EAS
‘‘(ii) the individual has been a resident of
the United States (as so defined) for not more
than 5 taxable years before the date of relin-
quishment.
‘‘(d) PROPERTY TO WHICH SECTION APPLIES.—For
purposes of this section—
‘‘(1) IN GENERAL.—Except as otherwise provided
by the Secretary, this section shall apply to—
‘‘(A) any interest in property held by a cov-
ered expatriate on the expatriation date the gain
from which would be includible in the gross in-
come of the expatriate if such interest had been
sold for its fair market value on such date in a
transaction in which gain is recognized in whole
or in part, and
‘‘(B) any other interest in a trust to which
subsection (f) applies.
‘‘(2) EXCEPTIONS.—This section shall not apply
to the following property:
‘‘(A) UNITED STATES REAL PROPERTY IN-
TERESTS.—Any United States real property in-
terest (as defined in section 897(c)(1)), other
than stock of a United States real property hold-
ing corporation which does not, on the expatria-
136
HR 3103 EAS
tion date, meet the requirements of section
897(c)(2).
‘‘(B) INTEREST
IN
CERTAIN
RETIREMENT
PLANS.—
‘‘(i) IN GENERAL.—Any interest in a
qualified retirement plan (as defined in sec-
tion 4974(c)), other than any interest at-
tributable to contributions which are in ex-
cess of any limitation or which violate any
condition for tax-favored treatment.
‘‘(ii) FOREIGN PENSION PLANS.—
‘‘(I) IN GENERAL.—Under regula-
tions prescribed by the Secretary, in-
terests in foreign pension plans or
similar retirement arrangements or
programs.
‘‘(II) LIMITATION.—The value of
property which is treated as not sold
by reason of this subparagraph shall
not exceed $500,000.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) 
EXPATRIATE.—The 
term 
‘expatriate’
means—
‘‘(A) any United States citizen who relin-
quishes his citizenship, or
137
HR 3103 EAS
‘‘(B) any long-term resident of the United
States who—
‘‘(i) ceases to be a lawful permanent
resident of the United States (within the
meaning of section 7701(b)(6)), or
‘‘(ii) commences to be treated as a resi-
dent of a foreign country under the provi-
sions of a tax treaty between the United
States and the foreign country and who
does not waive the benefits of such treaty
applicable to residents of the foreign coun-
try.
‘‘(2) EXPATRIATION DATE.—The term ‘expatria-
tion date’ means—
‘‘(A) the date an individual relinquishes
United States citizenship, or
‘‘(B) in the case of a long-term resident of
the United States, the date of the event described
in clause (i) or (ii) of paragraph (1)(B).
‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A citi-
zen shall be treated as relinquishing his United States
citizenship on the earliest of—
‘‘(A) the date the individual renounces his
United States nationality before a diplomatic or
consular officer of the United States pursuant to
138
HR 3103 EAS
paragraph (5) of section 349(a) of the Immigra-
tion and Nationality Act (8 U.S.C. 1481(a)(5)),
‘‘(B) the date the individual furnishes to the
United States Department of State a signed
statement of voluntary relinquishment of United
States nationality confirming the performance of
an act of expatriation specified in paragraph
(1), (2), (3), or (4) of section 349(a) of the Im-
migration and Nationality Act (8 U.S.C.
1481(a)(1)–(4)),
‘‘(C) the date the United States Department
of State issues to the individual a certificate of
loss of nationality, or
‘‘(D) the date a court of the United States
cancels a naturalized citizen’s certificate of natu-
ralization.
Subparagraph (A) or (B) shall not apply to any in-
dividual unless the renunciation or voluntary relin-
quishment is subsequently approved by the issuance to
the individual of a certificate of loss of nationality by
the United States Department of State.
‘‘(4) LONG-TERM RESIDENT.—
‘‘(A) IN
GENERAL.—The term ‘long-term
resident’ means any individual (other than a cit-
izen of the United States) who is a lawful per-
139
HR 3103 EAS
manent resident of the United States in at least
8 taxable years during the period of 15 taxable
years ending with the taxable year during which
the expatriation date occurs. For purposes of the
preceding sentence, an individual shall not be
treated as a lawful permanent resident for any
taxable year if such individual is treated as a
resident of a foreign country for the taxable year
under the provisions of a tax treaty between the
United States and the foreign country and does
not waive the benefits of such treaty applicable
to residents of the foreign country.
‘‘(B) SPECIAL RULE.—For purposes of sub-
paragraph (A), there shall not be taken into ac-
count—
‘‘(i) any taxable year during which
any prior sale is treated under subsection
(a)(1) as occurring, or
‘‘(ii) any taxable year prior to the tax-
able year referred to in clause (i).
‘‘(f) SPECIAL RULES APPLICABLE TO BENEFICIARIES’
INTERESTS IN TRUST.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), if an individual is determined under para-
graph (3) to hold an interest in a trust—
140
HR 3103 EAS
‘‘(A) the individual shall not be treated as
having sold such interest,
‘‘(B) such interest shall be treated as a sep-
arate share in the trust, and
‘‘(C)(i) such separate share shall be treated
as a separate trust consisting of the assets alloca-
ble to such share,
‘‘(ii) the separate trust shall be treated as
having sold its assets immediately before the ex-
patriation date for their fair market value and
as having distributed all of its assets to the indi-
vidual as of such time, and
‘‘(iii) the individual shall be treated as hav-
ing recontributed the assets to the separate trust.
Subsection (a)(2) shall apply to any income, gain, or
loss of the individual arising from a distribution de-
scribed in subparagraph (C)(ii).
‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI-
FIED TRUSTS.—
‘‘(A) IN GENERAL.—If the trust interest de-
scribed in paragraph (1) is an interest in a
qualified trust—
‘‘(i) paragraph (1) and subsection (a)
shall not apply, and
141
HR 3103 EAS
‘‘(ii) in addition to any other tax im-
posed by this title, there is hereby imposed
on each distribution with respect to such in-
terest a tax in the amount determined
under subparagraph (B).
‘‘(B) AMOUNT OF TAX.—The amount of tax
under subparagraph (A)(ii) shall be equal to the
lesser of—
‘‘(i) the highest rate of tax imposed by
section 1(e) for the taxable year in which
the expatriation date occurs, multiplied by
the amount of the distribution, or
‘‘(ii) the balance in the deferred tax ac-
count immediately before the distribution
determined without regard to any increases
under subparagraph (C)(ii) after the 30th
day preceding the distribution.
‘‘(C) DEFERRED TAX ACCOUNT.—For pur-
poses of subparagraph (B)(ii)—
‘‘(i) OPENING BALANCE.—The opening
balance in a deferred tax account with re-
spect to any trust interest is an amount
equal to the tax which would have been im-
posed on the allocable expatriation gain
with respect to the trust interest if such
142
HR 3103 EAS
gain had been included in gross income
under subsection (a).
‘‘(ii) INCREASE
FOR
INTEREST.—The
balance in the deferred tax account shall be
increased by the amount of interest deter-
mined (on the balance in the account at the
time the interest accrues), for periods after
the 90th day after the expatriation date, by
using the rates and method applicable
under section 6621 for underpayments of
tax for such periods.
‘‘(iii) DECREASE
FOR
TAXES
PRE-
VIOUSLY PAID.—The balance in the tax de-
ferred account shall be reduced—
‘‘(I) by the amount of taxes im-
posed by subparagraph (A) on any dis-
tribution to the person holding the
trust interest, and
‘‘(II) in the case of a person hold-
ing a nonvested interest, to the extent
provided in regulations, by the amount
of taxes imposed by subparagraph (A)
on distributions from the trust with re-
spect to nonvested interests not held by
such person.
143
HR 3103 EAS
‘‘(D) ALLOCABLE EXPATRIATION GAIN.—For
purposes of this paragraph, the allocable expa-
triation gain with respect to any beneficiary’s
interest in a trust is the amount of gain which
would be allocable to such beneficiary’s vested
and nonvested interests in the trust if the bene-
ficiary held directly all assets allocable to such
interests.
‘‘(E) TAX DEDUCTED AND WITHHELD.—
‘‘(i) IN GENERAL.—The tax imposed by
subparagraph (A)(ii) shall be deducted and
withheld by the trustees from the distribu-
tion to which it relates.
‘‘(ii) EXCEPTION WHERE FAILURE TO
WAIVE TREATY RIGHTS.—If an amount may
not be deducted and withheld under clause
(i) by reason of the distributee failing to
waive any treaty right with respect to such
distribution—
‘‘(I) the tax imposed by subpara-
graph (A)(ii) shall be imposed on the
trust and each trustee shall be person-
ally liable for the amount of such tax,
and
144
HR 3103 EAS
‘‘(II) any other beneficiary of the
trust shall be entitled to recover from
the distributee the amount of such tax
imposed on the other beneficiary.
‘‘(F) DISPOSITION.—If a trust ceases to be
a qualified trust at any time, a covered expatri-
ate disposes of an interest in a qualified trust,
or a covered expatriate holding an interest in a
qualified trust dies, then, in lieu of the tax im-
posed by subparagraph (A)(ii), there is hereby
imposed a tax equal to the lesser of—
‘‘(i) the tax determined under para-
graph (1) as if the expatriation date were
the date of such cessation, disposition, or
death, whichever is applicable, or
‘‘(ii) the balance in the tax deferred ac-
count immediately before such date.
Such tax shall be imposed on the trust and each
trustee shall be personally liable for the amount
of such tax and any other beneficiary of the trust
shall be entitled to recover from the covered expa-
triate or the estate the amount of such tax im-
posed on the other beneficiary.
‘‘(G) DEFINITIONS
AND
SPECIAL
RULE.—
For purposes of this paragraph—
145
HR 3103 EAS
‘‘(i) QUALIFIED
TRUST.—The term
‘qualified trust’ means a trust—
‘‘(I) which is organized under,
and governed by, the laws of the Unit-
ed States or a State, and
‘‘(II) with respect to which the
trust instrument requires that at least
1 trustee of the trust be an individual
citizen of the United States or a do-
mestic corporation.
‘‘(ii) VESTED
INTEREST.—The term
‘vested interest’ means any interest which,
as of the expatriation date, is vested in the
beneficiary.
‘‘(iii) 
NONVESTED
INTEREST.—The
term ‘nonvested interest’ means, with re-
spect to any beneficiary, any interest in a
trust which is not a vested interest. Such
interest shall be determined by assuming the
maximum exercise of discretion in favor of
the beneficiary and the occurrence of all
contingencies in favor of the beneficiary.
‘‘(iv) ADJUSTMENTS.—The Secretary
may provide for such adjustments to the
bases of assets in a trust or a deferred tax
146
HR 3103 EAS
account, and the timing of such adjust-
ments, in order to ensure that gain is taxed
only once.
‘‘(3) DETERMINATION OF BENEFICIARIES’ INTER-
EST IN TRUST.—
‘‘(A) DETERMINATIONS UNDER PARAGRAPH
(1).—For purposes of paragraph (1), a bene-
ficiary’s interest in a trust shall be based upon
all relevant facts and circumstances, including
the terms of the trust instrument and any letter
of wishes or similar document, historical pat-
terns of trust distributions, and the existence of
and functions performed by a trust protector or
any similar advisor.
‘‘(B) OTHER DETERMINATIONS.—For pur-
poses of this section—
‘‘(i) CONSTRUCTIVE OWNERSHIP.—If a
beneficiary of a trust is a corporation, part-
nership, trust, or estate, the shareholders,
partners, or beneficiaries shall be deemed to
be the trust beneficiaries for purposes of this
section.
‘‘(ii) TAXPAYER RETURN POSITION.—A
taxpayer shall clearly indicate on its in-
come tax return—
147
HR 3103 EAS
‘‘(I) the methodology used to de-
termine that taxpayer’s trust interest
under this section, and
‘‘(II) if the taxpayer knows (or
has reason to know) that any other
beneficiary of such trust is using a dif-
ferent methodology to determine such
beneficiary’s trust interest under this
section.
‘‘(g) TERMINATION OF DEFERRALS, ETC.—On the date
any property held by an individual is treated as sold under
subsection (a), notwithstanding any other provision of this
title—
‘‘(1) any period during which recognition of in-
come or gain is deferred shall terminate, and
‘‘(2) any extension of time for payment of tax
shall cease to apply and the unpaid portion of such
tax shall be due and payable at the time and in the
manner prescribed by the Secretary.
‘‘(h) IMPOSITION OF TENTATIVE TAX.—
‘‘(1) IN GENERAL.—If an individual is required
to include any amount in gross income under sub-
section (a) for any taxable year, there is hereby im-
posed, immediately before the expatriation date, a tax
in an amount equal to the amount of tax which
148
HR 3103 EAS
would be imposed if the taxable year were a short tax-
able year ending on the expatriation date.
‘‘(2) DUE DATE.—The due date for any tax im-
posed by paragraph (1) shall be the 90th day after the
expatriation date.
‘‘(3) TREATMENT OF TAX.—Any tax paid under
paragraph (1) shall be treated as a payment of the
tax imposed by this chapter for the taxable year to
which subsection (a) applies.
‘‘(4) DEFERRAL OF TAX.—The provisions of sub-
section (b) shall apply to the tax imposed by this sub-
section to the extent attributable to gain includible in
gross income by reason of this section.
‘‘(i) 
COORDINATION
WITH
ESTATE
AND
GIFT
TAXES.—If subsection (a) applies to property held by an
individual for any taxable year and—
‘‘(1) such property is includible in the gross es-
tate of such individual solely by reason of section
2107, or
‘‘(2) section 2501 applies to a transfer of such
property by such individual solely by reason of sec-
tion 2501(a)(3),
then there shall be allowed as a credit against the additional
tax imposed by section 2101 or 2501, whichever is applica-
ble, solely by reason of section 2107 or 2501(a)(3) an
149
HR 3103 EAS
amount equal to the increase in the tax imposed by this
chapter for such taxable year by reason of this section.
‘‘(j) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section, including regula-
tions—
‘‘(1) to prevent double taxation by ensuring
that—
‘‘(A) appropriate adjustments are made to
basis to reflect gain recognized by reason of sub-
section (a) and the exclusion provided by sub-
section (a)(3), and
‘‘(B) any gain by reason of a deemed sale
under subsection (a) of an interest in a corpora-
tion, partnership, trust, or estate is reduced to
reflect that portion of such gain which is attrib-
utable to an interest in a trust which a share-
holder, partner, or beneficiary is treated as hold-
ing directly under subsection (f)(3)(B)(i), and
‘‘(2) which provide for the proper allocation of
the exclusion under subsection (a)(3) to property to
which this section applies.
150
HR 3103 EAS
‘‘(k) CROSS REFERENCE.—
‘‘For income tax treatment of individuals who ter-
minate 
United 
States 
citizenship, 
see 
section
7701(a)(47).’’.
(b) INCLUSION IN INCOME OF GIFTS AND INHERIT-
ANCES FROM COVERED EXPATRIATES.—Section 102 (relat-
ing to gifts, etc. not included in gross income) is amended
by adding at the end the following new subsection:
‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX-
PATRIATES.—Subsection (a) shall not exclude from gross in-
come the value of any property acquired by gift, bequest,
devise, or inheritance from a covered expatriate after the
expatriation date. For purposes of this subsection, any term
used in this subsection which is also used in section 877A
shall have the same meaning as when used in section
877A.’’.
(c) DEFINITION OF TERMINATION OF UNITED STATES
CITIZENSHIP.—Section 7701(a) is amended by adding at
the end the following new paragraph:
‘‘(47) TERMINATION OF UNITED STATES CITIZEN-
SHIP.—An individual shall not cease to be treated as
a United States citizen before the date on which the
individual’s citizenship is treated as relinquished
under section 877A(e)(3).’’.
(d) CONFORMING AMENDMENTS.—
(1) Section 877 is amended by adding at the end
the following new subsection:
151
HR 3103 EAS
‘‘(f) APPLICATION.—This section shall not apply to
any individual who relinquishes (within the meaning of
section 877A(e)(3)) United States citizenship on or after
February 6, 1995.’’.
(2) Section 2107(c) is amended by adding at the
end the following new paragraph:
‘‘(3) CROSS REFERENCE.—For credit against the
tax imposed by subsection (a) for expatriation tax, see
section 877A(i).’’.
(3) Section 2501(a)(3) is amended by adding at
the end the following new flush sentence:
‘‘For credit against the tax imposed under this section
by reason of this paragraph, see section 877A(i).’’.
(4) Paragraph (10) of section 7701(b) is amend-
ed by adding at the end the following new sentence:
‘‘This paragraph shall not apply to any long-term
resident of the United States who is an expatriate (as
defined in section 877A(e)(1)).’’.
(e) CLERICAL AMENDMENT.—The table of sections for
subpart A of part II of subchapter N of chapter 1 is amend-
ed by inserting after the item relating to section 877 the
following new item:
‘‘Sec. 877A. Tax responsibilities of expatriation.’’.
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in this
subsection, the amendments made by this section shall
152
HR 3103 EAS
apply to expatriates (within the meaning of section
877A(e) of the Internal Revenue Code of 1986, as
added by this section) whose expatriation date (as so
defined) occurs on or after February 6, 1995.
(2) GIFTS AND BEQUESTS.—Section 102(d) of
the Internal Revenue Code of 1986 (as added by sub-
section (b)) shall apply to amounts received from ex-
patriates (as so defined) whose expatriation date (as
so defined) occurs on and after February 6, 1995.
(3) SPECIAL RULES RELATING TO CERTAIN ACTS
OCCURRING BEFORE FEBRUARY 6, 1995.—In the case
of an individual who took an act of expatriation spec-
ified in paragraph (1), (2), (3), or (4) of section
349(a) of the Immigration and Nationality Act (8
U.S.C. 1481(a) (1)–(4)) before February 6, 1995, but
whose expatriation date (as so defined) occurs after
February 6, 1995—
(A) the amendment made by subsection (c)
shall not apply,
(B) the amendment made by subsection
(d)(1) shall not apply for any period prior to the
expatriation date, and
(C) the other amendments made by this sec-
tion shall apply as of the expatriation date.
153
HR 3103 EAS
(4) DUE DATE FOR TENTATIVE TAX.—The due
date under section 877A(h)(2) of such Code shall in
no event occur before the 90th day after the date of
the enactment of this Act.
SEC. 472. INFORMATION ON INDIVIDUALS EXPATRIATING.
(a) IN GENERAL.—Subpart A of part III of subchapter
A of chapter 61 is amended by inserting after section 6039E
the following new section:
‘‘SEC. 6039F. INFORMATION ON INDIVIDUALS EXPATRIAT-
ING.
‘‘(a) REQUIREMENT.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of law, any expatriate (within the meaning
of section 877A(e)(1)) shall provide a statement which
includes the information described in subsection (b).
‘‘(2) TIMING.—
‘‘(A) CITIZENS.—In the case of an expatri-
ate described in section 877(e)(1)(A), such state-
ment shall be—
‘‘(i) provided not later than the expa-
triation date (within the meaning of section
877A(e)(2)), and
‘‘(ii) provided to the person or court
referred to in section 877A(e)(3).
154
HR 3103 EAS
‘‘(B) NONCITIZENS.—In the case of an ex-
patriate described in section 877A(e)(1)(B), such
statement shall be provided to the Secretary with
the return of tax imposed by chapter 1 for the
taxable year during which the event described in
such section occurs.
‘‘(b) INFORMATION TO BE PROVIDED.—Information
required under subsection (a) shall include—
‘‘(1) the taxpayer’s TIN,
‘‘(2) the mailing address of such individual’s
principal foreign residence,
‘‘(3) the foreign country in which such individ-
ual is residing,
‘‘(4) the foreign country of which such individual
is a citizen,
‘‘(5) in the case of an individual having a net
worth of at least the dollar amount applicable under
section 877A(c)(1)(B), information detailing the as-
sets and liabilities of such individual, and
‘‘(6) such other information as the Secretary
may prescribe.
‘‘(c) PENALTY.—Any individual failing to provide a
statement required under subsection (a) shall be subject to
a penalty for each year during any portion of which such
failure continues in an amount equal to the greater of—
155
HR 3103 EAS
‘‘(1) 5 percent of the additional tax required to
be paid under section 877A for such year, or
‘‘(2) $1,000,
unless it is shown that such failure is due to reasonable
cause and not to willful neglect.
‘‘(d) INFORMATION
TO
BE
PROVIDED
TO
SEC-
RETARY.—Notwithstanding any other provision of law—
‘‘(1) any Federal agency or court which collects
(or is required to collect) the statement under sub-
section (a) shall provide to the Secretary—
‘‘(A) a copy of any such statement, and
‘‘(B) the name (and any other identifying
information) of any individual refusing to com-
ply with the provisions of subsection (a),
‘‘(2) the Secretary of State shall provide to the
Secretary a copy of each certificate as to the loss of
American nationality under section 358 of the Immi-
gration and Nationality Act which is approved by the
Secretary of State, and
‘‘(3) the Federal agency primarily responsible for
administering the immigration laws shall provide to
the Secretary the name of each lawful permanent resi-
dent of the United States (within the meaning of sec-
tion 7701(b)(6)) whose status as such has been re-
156
HR 3103 EAS
voked or has been administratively or judicially de-
termined to have been abandoned.
Notwithstanding any other provision of law, not later than
30 days after the close of each calendar quarter, the Sec-
retary shall publish in the Federal Register the name of
each individual relinquishing United States citizenship
(within the meaning of section 877A(e)(3)) with respect to
whom the Secretary receives information under the preced-
ing sentence during such quarter.
‘‘(e) EXEMPTION.—The Secretary may by regulations
exempt any class of individuals from the requirements of
this section if the Secretary determines that applying this
section to such individuals is not necessary to carry out
the purposes of this section.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
such subpart A is amended by inserting after the item relat-
ing to section 6039E the following new item:
‘‘Sec. 6039F. Information on individuals expatriating.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to individuals to whom section 877A
of the Internal Revenue Code of 1986 applies and whose
expatriation date (as defined in section 877A(e)(2)) occurs
on or after February 6, 1995, except that no statement shall
be required by such amendments before the 90th day after
the date of the enactment of this Act.
157
HR 3103 EAS
SEC. 473. REPORT ON TAX COMPLIANCE BY UNITED STATES
CITIZENS AND RESIDENTS LIVING ABROAD.
Not later than 90 days after the date of the enactment
of this Act, the Secretary of the Treasury shall prepare and
submit to the Committee on Ways and Means of the House
of Representatives and the Committee on Finance of the
Senate a report—
(1) describing the compliance with subtitle A of
the Internal Revenue Code of 1986 by citizens and
lawful permanent residents of the United States
(within the meaning of section 7701(b)(6) of such
Code) residing outside the United States, and
(2) recommending measures to improve such
compliance (including improved coordination between
executive branch agencies).
CHAPTER 2—COMPANY-OWNED
INSURANCE
SEC. 495. DENIAL OF DEDUCTION FOR INTEREST ON LOANS
WITH RESPECT TO COMPANY-OWNED INSUR-
ANCE.
(a) IN GENERAL.—Paragraph (4) of section 264(a) is
amended—
(1) by inserting ‘‘, or any endowment or annuity
contracts owned by the taxpayer covering any indi-
vidual,’’ after ‘‘the life of any individual’’, and
158
HR 3103 EAS
(2) by striking all that follows ‘‘carried on by the
taxpayer’’ and inserting a period.
(b) EXCEPTION FOR CONTRACTS RELATING TO KEY
PERSONS; PERMISSIBLE INTEREST RATES.—Section 264 is
amended—
(1) by striking ‘‘Any’’ in subsection (a)(4) and
inserting ‘‘Except as provided in subsection (d), any’’,
and
(2) by adding at the end the following new sub-
section:
‘‘(d) SPECIAL RULES FOR APPLICATION
OF SUB-
SECTION (a)(4).—
‘‘(1) EXCEPTION FOR KEY PERSONS.—Subsection
(a)(4) shall not apply to any interest paid or accrued
on any indebtedness with respect to policies or con-
tracts covering an individual who is a key person to
the extent that the aggregate amount of such indebted-
ness with respect to policies and contracts covering
such individual does not exceed $50,000.
‘‘(2) INTEREST RATE CAP ON KEY PERSONS AND
PRE-1986 CONTRACTS.—
‘‘(A) IN GENERAL.—No deduction shall be
allowed by reason of paragraph (1) or the last
sentence of subsection (a) with respect to interest
paid or accrued for any month to the extent the
159
HR 3103 EAS
amount of such interest exceeds the amount
which would have been determined if the appli-
cable rate of interest were used for such month.
‘‘(B) APPLICABLE RATE OF INTEREST.—For
purposes of subparagraph (A)—
‘‘(i) IN GENERAL.—The applicable rate
of interest for any month is the rate of in-
terest described as Moody’s Corporate Bond
Yield Average-Monthly Average Corporates
as published by Moody’s Investors Service,
Inc., or any successor thereto, for such
month.
‘‘(ii) PRE-1986 CONTRACT.—In the case
of indebtedness on a contract to which the
last sentence of subsection (a) applies—
‘‘(I) which is a contract providing
a fixed rate of interest, the applicable
rate of interest for any month shall be
the Moody’s rate described in clause (i)
for the month in which the contract
was purchased, or
‘‘(II) which is a contract provid-
ing a variable rate of interest, the ap-
plicable rate of interest for any month
in an applicable period shall be such
160
HR 3103 EAS
Moody’s rate for the last month preced-
ing such period.
For purposes of subclause (II), the taxpayer
shall elect an applicable period for such
contract on its return of tax imposed by
this chapter for its first taxable year ending
on or after October 13, 1995. Such applica-
ble period shall be for any number of
months (not greater than 12) specified in
the election and may not be changed by the
taxpayer without the consent of the Sec-
retary.
‘‘(3) KEY PERSON.—For purposes of paragraph
(1), the term ‘key person’ means an officer or 20-per-
cent owner, except that the number of individuals who
may be treated as key persons with respect to any
taxpayer shall not exceed the greater of—
‘‘(A) 5 individuals, or
‘‘(B) the lesser of 5 percent of the total offi-
cers and employees of the taxpayer or 10 indi-
viduals.
‘‘(4) 20-PERCENT OWNER.—For purposes of this
subsection, the term ‘20-percent owner’ means—
‘‘(A) if the taxpayer is a corporation, any
person who owns directly 20 percent or more of
161
HR 3103 EAS
the outstanding stock of the corporation or stock
possessing 20 percent or more of the total com-
bined voting power of all stock of the corpora-
tion, or
‘‘(B) if the taxpayer is not a corporation,
any person who owns 20 percent or more of the
capital or profits interest in the employer.
‘‘(5) AGGREGATION RULES.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (4)(A) and applying the $50,000 limita-
tion in paragraph (1)—
‘‘(i) all members of a controlled group
shall be treated as 1 taxpayer, and
‘‘(ii) such limitation shall be allocated
among the members of such group in such
manner as the Secretary may prescribe.
‘‘(B) CONTROLLED
GROUP.—For purposes
of this paragraph, all persons treated as a single
employer under subsection (a) or (b) of section
52 or subsection (m) or (o) of section 414 shall
be treated as members of a controlled group.’’.
(c) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to interest paid or accrued
after December 31, 1995.
162
HR 3103 EAS
(2) TRANSITION RULE FOR EXISTING INDEBTED-
NESS.—
(A) IN GENERAL.—In the case of—
(i) indebtedness incurred before Janu-
ary 1, 1996, or
(ii) indebtedness incurred before Janu-
ary 1, 1997 with respect to any contract or
policy entered into in 1994 or 1995,
the amendments made by this section shall not
apply to qualified interest paid or accrued on
such indebtedness after October 13, 1995, and be-
fore January 1, 1999.
(B) QUALIFIED INTEREST.—For purposes of
subparagraph (A), the qualified interest with re-
spect to any indebtedness for any month is the
amount of interest which would be paid or ac-
crued for such month on such indebtedness if—
(i) in the case of any interest paid or
accrued after December 31, 1995, indebted-
ness with respect to no more than 20,000
insured individuals were taken into ac-
count, and
(ii) the lesser of the following rates of
interest were used for such month:
163
HR 3103 EAS
(I) The rate of interest specified
under the terms of the indebtedness as
in effect on October 13, 1995 (and
without regard to modification of such
terms after such date).
(II) The applicable percentage
rate of interest described as Moody’s
Corporate Bond Yield Average-Monthly
Average Corporates as published by
Moody’s Investors Service, Inc., or any
successor thereto, for such month.
For purposes of clause (i), all persons treated as
a single employer under subsection (a) or (b) of
section 52 of the Internal Revenue Code of 1986
or subsection (m) or (o) of section 414 of such
Code shall be treated as one person.
(C) APPLICABLE
PERCENTAGE.—For pur-
poses of subparagraph (B), the applicable per-
centage is as follows:
For calendar year:
The percentage is:
1995 .................................................................................
100 percent
1996 .................................................................................
90 percent
1997 .................................................................................
80 percent
1998 .................................................................................
70 percent.
(3) SPECIAL RULE FOR GRANDFATHERED CON-
TRACTS.—This section shall not apply to any con-
tract purchased on or before June 20, 1986, except
164
HR 3103 EAS
that section 264(d)(2) of the Internal Revenue Code of
1986 shall apply to interest paid or accrued after Oc-
tober 13, 1995.
(d) SPREAD OF INCOME INCLUSION ON SURRENDER,
ETC. OF CONTRACTS.—
(1) IN
GENERAL.—If any amount is received
under any life insurance policy or endowment or an-
nuity contract described in paragraph (4) of section
264(a) of the Internal Revenue Code of 1986—
(A) on the complete surrender, redemption,
or maturity of such policy or contract during
calendar year 1996, 1997, or 1998, or
(B) in full discharge during any such cal-
endar year of the obligation under the policy or
contract which is in the nature of a refund of the
consideration paid for the policy or contract,
then (in lieu of any other inclusion in gross income)
such amount shall be includible in gross income rat-
ably over the 4-taxable year period beginning with the
taxable year such amount would (but for this para-
graph) be includible. The preceding sentence shall
only apply to the extent the amount is includible in
gross income for the taxable year in which the event
described in subparagraph (A) or (B) occurs.
165
HR 3103 EAS
(2) SPECIAL
RULES
FOR
APPLYING
SECTION
264.—A contract shall not be treated as—
(A) failing to meet the requirement of sec-
tion 264(c)(1) of the Internal Revenue Code of
1986, or
(B) a single premium contract under sec-
tion 264(b)(1) of such Code,
solely by reason of an occurrence described in sub-
paragraph (A) or (B) of paragraph (1) of this sub-
section or solely by reason of no additional premiums
being received under the contract by reason of a lapse
occurring after October 13, 1995.
(3) SPECIAL RULE FOR DEFERRED ACQUISITION
COSTS.—In the case of the occurrence of any event de-
scribed in subparagraph (A) or (B) of paragraph (1)
of this subsection with respect to any policy or con-
tract—
(A) section 848 of the Internal Revenue
Code of 1986 shall not apply to the unamortized
balance (if any) of the specified policy acquisi-
tion expenses attributable to such policy or con-
tract immediately before the insurance compa-
ny’s taxable year in which such event occurs,
and
166
HR 3103 EAS
(B) there shall be allowed as a deduction to
such company for such taxable year under chap-
ter 1 of such Code an amount equal to such
unamortized balance.
TITLE V—HEALTH CARE FRAUD
AND ABUSE PREVENTION
SEC. 500. AMENDMENTS.
Except as otherwise specifically provided, whenever in
this title an amendment is expressed in terms of an amend-
ment to or repeal of a section or other provision, the ref-
erence shall be considered to be made to that section or other
provision of the Social Security Act.
Subtitle A—Fraud and Abuse
Control Program
SEC. 501. FRAUD AND ABUSE CONTROL PROGRAM.
(a) ESTABLISHMENT
OF PROGRAM.—Title XI (42
U.S.C. 1301 et seq.) is amended by inserting after section
1128B the following new section:
‘‘FRAUD AND ABUSE CONTROL PROGRAM
‘‘SEC. 1128C. (a) ESTABLISHMENT OF PROGRAM.—
‘‘(1) IN GENERAL.—Not later than January 1,
1997, the Secretary, acting through the Office of the
Inspector General of the Department of Health and
Human Services, and the Attorney General shall es-
tablish a program—
167
HR 3103 EAS
‘‘(A) to coordinate Federal, State, and local
law enforcement programs to control fraud and
abuse with respect to health plans,
‘‘(B) to conduct investigations, audits, eval-
uations, and inspections relating to the delivery
of and payment for health care in the United
States,
‘‘(C) to facilitate the enforcement of the pro-
visions of sections 1128, 1128A, and 1128B and
other statutes applicable to health care fraud and
abuse,
‘‘(D) to provide for the modification and es-
tablishment of safe harbors and to issue interpre-
tative rulings and special fraud alerts pursuant
to section 1128D, and
‘‘(E) to provide for the reporting and disclo-
sure of certain final adverse actions against
health care providers, suppliers, or practitioners
pursuant to the data collection system established
under section 1128E.
‘‘(2) COORDINATION WITH HEALTH PLANS.—In
carrying out the program established under para-
graph (1), the Secretary and the Attorney General
shall consult with, and arrange for the sharing of
data with representatives of health plans.
168
HR 3103 EAS
‘‘(3) GUIDELINES.—
‘‘(A) IN GENERAL.—The Secretary and the
Attorney General shall issue guidelines to carry
out the program under paragraph (1). The pro-
visions of sections 553, 556, and 557 of title 5,
United States Code, shall not apply in the issu-
ance of such guidelines.
‘‘(B) INFORMATION GUIDELINES.—
‘‘(i) IN
GENERAL.—Such guidelines
shall include guidelines relating to the fur-
nishing of information by health plans, pro-
viders, and others to enable the Secretary
and the Attorney General to carry out the
program 
(including 
coordination 
with
health plans under paragraph (2)).
‘‘(ii) CONFIDENTIALITY.—Such guide-
lines shall include procedures to assure that
such information is provided and utilized
in a manner that appropriately protects the
confidentiality of the information and the
privacy of individuals receiving health care
services and items.
‘‘(iii) QUALIFIED IMMUNITY FOR PRO-
VIDING
INFORMATION.—The provisions of
section 1157(a) (relating to limitation on
169
HR 3103 EAS
liability) shall apply to a person providing
information to the Secretary or the Attor-
ney General in conjunction with their per-
formance of duties under this section.
‘‘(4) ENSURING ACCESS TO DOCUMENTATION.—
The Inspector General of the Department of Health
and Human Services is authorized to exercise such
authority described in paragraphs (3) through (9) of
section 6 of the Inspector General Act of 1978 (5
U.S.C. App.) as necessary with respect to the activi-
ties under the fraud and abuse control program estab-
lished under this subsection.
‘‘(5) AUTHORITY
OF
INSPECTOR
GENERAL.—
Nothing in this Act shall be construed to diminish the
authority of any Inspector General, including such
authority as provided in the Inspector General Act of
1978 (5 U.S.C. App.).
‘‘(b) ADDITIONAL USE OF FUNDS BY INSPECTOR GEN-
ERAL.—
‘‘(1) REIMBURSEMENTS FOR INVESTIGATIONS.—
The Inspector General of the Department of Health
and Human Services is authorized to receive and re-
tain for current use reimbursement for the costs of
conducting investigations and audits and for mon-
itoring compliance plans when such costs are ordered
170
HR 3103 EAS
by a court, voluntarily agreed to by the payor, or oth-
erwise.
‘‘(2) CREDITING.—Funds received by the Inspec-
tor General under paragraph (1) as reimbursement
for costs of conducting investigations shall be depos-
ited to the credit of the appropriation from which ini-
tially paid, or to appropriations for similar purposes
currently available at the time of deposit, and shall
remain available for obligation for 1 year from the
date of the deposit of such funds.
‘‘(c) HEALTH PLAN DEFINED.—For purposes of this
section, the term ‘health plan’ means a plan or program
that provides health benefits, whether directly, through in-
surance, or otherwise, and includes—
‘‘(1) a policy of health insurance;
‘‘(2) a contract of a service benefit organization;
and
‘‘(3) a membership agreement with a health
maintenance organization or other prepaid health
plan.’’.
(b) ESTABLISHMENT OF HEALTH CARE FRAUD AND
ABUSE CONTROL ACCOUNT IN FEDERAL HOSPITAL INSUR-
ANCE TRUST FUND.—Section 1817 (42 U.S.C. 1395i) is
amended by adding at the end the following new subsection:
171
HR 3103 EAS
‘‘(k) HEALTH CARE FRAUD AND ABUSE CONTROL AC-
COUNT.—
‘‘(1) ESTABLISHMENT.—There is hereby estab-
lished in the Trust Fund an expenditure account to
be known as the ‘Health Care Fraud and Abuse Con-
trol Account’ (in this subsection referred to as the ‘Ac-
count’).
‘‘(2) 
APPROPRIATED
AMOUNTS
TO
TRUST
FUND.—
‘‘(A) IN GENERAL.—There are hereby ap-
propriated to the Trust Fund—
‘‘(i) such gifts and bequests as may be
made as provided in subparagraph (B);
‘‘(ii) such amounts as may be depos-
ited in the Trust Fund as provided in sec-
tions 541(b) and 542(c) of the Health Insur-
ance Reform Act of 1996, and title XI; and
‘‘(iii) such amounts as are transferred
to the Trust Fund under subparagraph (C).
‘‘(B) AUTHORIZATION TO ACCEPT GIFTS.—
The Trust Fund is authorized to accept on behalf
of the United States money gifts and bequests
made unconditionally to the Trust Fund, for the
benefit of the Account or any activity financed
through the Account.
172
HR 3103 EAS
‘‘(C) TRANSFER OF AMOUNTS.—The Manag-
ing Trustee shall transfer to the Trust Fund,
under rules similar to the rules in section 9601
of the Internal Revenue Code of 1986, an amount
equal to the sum of the following:
‘‘(i) Criminal fines recovered in cases
involving a Federal health care offense (as
defined in section 982(a)(6)(B) of title 18,
United States Code).
‘‘(ii) Civil monetary penalties and as-
sessments imposed in health care cases, in-
cluding amounts recovered under titles XI,
XVIII, and XXI, and chapter 38 of title 31,
United States Code (except as otherwise
provided by law).
‘‘(iii) Amounts resulting from the for-
feiture of property by reason of a Federal
health care offense.
‘‘(iv) Penalties and damages obtained
and otherwise creditable to miscellaneous re-
ceipts of the general fund of the Treasury
obtained under sections 3729 through 3733
of title 31, United States Code (known as
the False Claims Act), in cases involving
claims related to the provision of health
173
HR 3103 EAS
care items and services (other than funds
awarded to a relator, for restitution or oth-
erwise authorized by law).
‘‘(3) APPROPRIATED AMOUNTS TO ACCOUNT FOR
FRAUD AND ABUSE CONTROL PROGRAM, ETC.—
‘‘(A) 
DEPARTMENTS
OF
HEALTH
AND
HUMAN SERVICES AND JUSTICE.—
‘‘(i) IN
GENERAL.—There are hereby
appropriated to the Account from the Trust
Fund such sums as the Secretary and the
Attorney General certify are necessary to
carry out the purposes described in sub-
paragraph (C), to be available without fur-
ther appropriation, in an amount not to ex-
ceed—
‘‘(I) 
for 
fiscal 
year 
1997,
$104,000,000, and
‘‘(II) for each of the fiscal years
1998 through 2003, the limit for the
preceding fiscal year, increased by 15
percent; and
‘‘(III) for each fiscal year after
fiscal year 2003, the limit for fiscal
year 2003.
174
HR 3103 EAS
‘‘(ii) MEDICARE AND MEDICAID ACTIVI-
TIES.—For each fiscal year, of the amount
appropriated in clause (i), the following
amounts shall be available only for the pur-
poses of the activities of the Office of the In-
spector General of the Department of Health
and Human Services with respect to the
medicare and medicaid programs—
‘‘(I) for fiscal year 1997, not less
than $60,000,000 and not more than
$70,000,000;
‘‘(II) for fiscal year 1998, not less
than $80,000,000 and not more than
$90,000,000;
‘‘(III) for fiscal year 1999, not
less than $90,000,000 and not more
than $100,000,000;
‘‘(IV) for fiscal year 2000, not less
than $110,000,000 and not more than
$120,000,000;
‘‘(V) for fiscal year 2001, not less
than $120,000,000 and not more than
$130,000,000;
175
HR 3103 EAS
‘‘(VI) for fiscal year 2002, not less
than $140,000,000 and not more than
$150,000,000; and
‘‘(VII) for each fiscal year after
fiscal 
year 
2002, 
not 
less 
than
$150,000,000 and not more than
$160,000,000.
‘‘(B) FEDERAL
BUREAU
OF
INVESTIGA-
TION.—There are hereby appropriated from the
general fund of the United States Treasury and
hereby appropriated to the Account for transfer
to the Federal Bureau of Investigation to carry
out the purposes described in subparagraph
(C)(i), to be available without further appropria-
tion—
‘‘(i) for fiscal year 1997, $47,000,000;
‘‘(ii) for fiscal year 1998, $56,000,000;
‘‘(iii) for fiscal year 1999, $66,000,000;
‘‘(iv) for fiscal year 2000, $76,000,000;
‘‘(v) for fiscal year 2001, $88,000,000;
‘‘(vi) 
for 
fiscal 
year 
2002,
$101,000,000; and
‘‘(vii) for each fiscal year after fiscal
year 2002, $114,000,000.
176
HR 3103 EAS
‘‘(C) USE
OF
FUNDS.—The purposes de-
scribed in this subparagraph are to cover the
costs (including equipment, salaries and benefits,
and travel and training) of the administration
and operation of the health care fraud and abuse
control 
program 
established 
under 
section
1128C(a), including the costs of—
‘‘(i) prosecuting health care matters
(through criminal, civil, and administrative
proceedings);
‘‘(ii) investigations;
‘‘(iii) financial and performance au-
dits of health care programs and operations;
‘‘(iv) inspections and other evalua-
tions; and
‘‘(v) provider and consumer education
regarding compliance with the provisions of
title XI.
‘‘(4) APPROPRIATED AMOUNTS TO ACCOUNT FOR
MEDICARE INTEGRITY PROGRAM.—
‘‘(A) IN GENERAL.—There are hereby ap-
propriated to the Account from the Trust Fund
for each fiscal year such amounts as are nec-
essary to carry out the Medicare Integrity Pro-
gram under section 1893, subject to subpara-
177
HR 3103 EAS
graph (B) and to be available without further
appropriation.
‘‘(B) AMOUNTS
SPECIFIED.—The amount
appropriated under subparagraph (A) for a fis-
cal year is as follows:
‘‘(i) For fiscal year 1997, such amount
shall be not less than $430,000,000 and not
more than $440,000,000.
‘‘(ii) For fiscal year 1998, such
amount shall be not less than $490,000,000
and not more than $500,000,000.
‘‘(iii) For fiscal year 1999, such
amount shall be not less than $550,000,000
and not more than $560,000,000.
‘‘(iv) For fiscal year 2000, such
amount shall be not less than $620,000,000
and not more than $630,000,000.
‘‘(v) For fiscal year 2001, such amount
shall be not less than $670,000,000 and not
more than $680,000,000.
‘‘(vi) For fiscal year 2002, such
amount shall be not less than $690,000,000
and not more than $700,000,000.
‘‘(vii) For each fiscal year after fiscal
year 2002, such amount shall be not less
178
HR 3103 EAS
than $710,000,000 and not more than
$720,000,000.
‘‘(5) ANNUAL REPORT.—The Secretary and the
Attorney General shall submit jointly an annual re-
port to Congress on the amount of revenue which is
generated and disbursed, and the justification for such
disbursements, by the Account in each fiscal year.’’.
SEC. 502. MEDICARE INTEGRITY PROGRAM.
(a) ESTABLISHMENT OF MEDICARE INTEGRITY PRO-
GRAM.—Title XVIII is amended by adding at the end the
following new section:
‘‘MEDICARE INTEGRITY PROGRAM
‘‘SEC. 1893. (a) ESTABLISHMENT
OF PROGRAM.—
There is hereby established the Medicare Integrity Program
(in this section referred to as the ‘Program’) under which
the Secretary shall promote the integrity of the medicare
program by entering into contracts in accordance with this
section with eligible private entities to carry out the activi-
ties described in subsection (b).
‘‘(b) ACTIVITIES DESCRIBED.—The activities described
in this subsection are as follows:
‘‘(1) Review of activities of providers of services
or other individuals and entities furnishing items and
services for which payment may be made under this
title (including skilled nursing facilities and home
health agencies), including medical and utilization
179
HR 3103 EAS
review and fraud review (employing similar stand-
ards, processes, and technologies used by private
health plans, including equipment and software tech-
nologies which surpass the capability of the equip-
ment and technologies used in the review of claims
under this title as of the date of the enactment of this
section).
‘‘(2) Audit of cost reports.
‘‘(3) Determinations as to whether payment
should not be, or should not have been, made under
this title by reason of section 1862(b), and recovery
of payments that should not have been made.
‘‘(4) Education of providers of services, bene-
ficiaries, and other persons with respect to payment
integrity and benefit quality assurance issues.
‘‘(5) Developing (and periodically updating) a
list of items of durable medical equipment in accord-
ance with section 1834(a)(15) which are subject to
prior authorization under such section.
‘‘(c) ELIGIBILITY OF ENTITIES.—An entity is eligible
to enter into a contract under the Program to carry out
any of the activities described in subsection (b) if—
‘‘(1) the entity has demonstrated capability to
carry out such activities;
180
HR 3103 EAS
‘‘(2) in carrying out such activities, the entity
agrees to cooperate with the Inspector General of the
Department of Health and Human Services, the At-
torney General of the United States, and other law
enforcement agencies, as appropriate, in the inves-
tigation and deterrence of fraud and abuse in relation
to this title and in other cases arising out of such ac-
tivities;
‘‘(3) the entity complies with such conflict of in-
terest standards as are generally applicable to Federal
acquisition and procurement;
‘‘(4) the entity meets such other requirements as
the Secretary may impose; and
‘‘(5) in the case of any contract entered into for
years prior to 2000, the entity has entered into an
agreement under section 1816 or a contract under sec-
tion 1842.
In the case of the activity described in subsection (b)(5),
an entity shall be deemed to be eligible to enter into a con-
tract under the Program to carry out the activity if the
entity is a carrier with a contract in effect under section
1842.
‘‘(d) PROCESS FOR ENTERING INTO CONTRACTS.—The
Secretary shall enter into contracts under the Program in
accordance with such procedures as the Secretary shall by
181
HR 3103 EAS
regulation establish, except that such procedures shall in-
clude the following:
‘‘(1) Procedures for identifying, evaluating, and
resolving organizational conflicts of interest that are
generally applicable to Federal acquisition and pro-
curement.
‘‘(2) Competitive procedures must be used when
entering into new contracts under this section, or at
any other time considered appropriate by the Sec-
retary, except that the Secretary may contract with
entities that are carrying out the activities described
in this section pursuant to agreements under section
1816 or contracts under section 1842 in effect on the
date of the enactment of this section.
‘‘(3) A contract under this section may be re-
newed without regard to any provision of law requir-
ing competition if the contractor has met or exceeded
the performance requirements established in the cur-
rent contract.
‘‘(e) LIMITATION
ON CONTRACTOR LIABILITY.—The
Secretary shall by regulation provide for the limitation of
a contractor’s liability for actions taken to carry out a con-
tract under the Program, and such regulation shall, to the
extent the Secretary finds appropriate, employ the same or
182
HR 3103 EAS
comparable standards and other substantive and procedural
provisions as are contained in section 1157.’’.
(b) ELIMINATION OF FI AND CARRIER RESPONSIBIL-
ITY FOR CARRYING OUT ACTIVITIES SUBJECT TO PRO-
GRAM.—
(1) 
RESPONSIBILITIES
OF
FISCAL
INTERMEDIARIES UNDER PART A.—Section 1816 (42
U.S.C. 1395h) is amended by adding at the end the
following new subsection:
‘‘(l) No payment may be made for carrying out any
activity pursuant to an agreement under this section to the
extent that the activity is carried out pursuant to a contract
under the Medicare Integrity Program under section
1893.’’.
(2) RESPONSIBILITIES
OF
CARRIERS
UNDER
PART B.—Section 1842(c) (42 U.S.C. 1395u(c)) is
amended by adding at the end the following new
paragraph:
‘‘(6) No payment may be made for carrying out any
activity pursuant to a contract under this subsection to the
extent that the activity is carried out pursuant to a contract
under the Medicare Integrity Program under section 1893.
The previous sentence shall not apply with respect to the
activity described in section 1893(b)(5) (relating to prior
183
HR 3103 EAS
authorization of certain items of durable medical equipment
under section 1834(a)(15)).’’.
SEC. 503. BENEFICIARY INCENTIVE PROGRAMS.
(a) CLARIFICATION OF REQUIREMENT TO PROVIDE
EXPLANATION OF MEDICARE BENEFITS.—The Secretary of
Health and Human Services (in this section referred to as
the ‘‘Secretary’’) shall provide an explanation of benefits
under the medicare program under title XVIII of the Social
Security Act with respect to each item or service for which
payment may be made under the program which is fur-
nished to an individual, without regard to whether or not
a deductible or coinsurance may be imposed against the in-
dividual with respect to the item or service.
(b) PROGRAM TO COLLECT INFORMATION ON FRAUD
AND ABUSE.—
(1) ESTABLISHMENT
OF
PROGRAM.—Not later
than 3 months after the date of the enactment of this
Act, the Secretary shall establish a program under
which the Secretary shall encourage individuals to re-
port to the Secretary information on individuals and
entities who are engaging or who have engaged in
acts or omissions which constitute grounds for the im-
position of a sanction under section 1128, section
1128A, or section 1128B of the Social Security Act,
or who have otherwise engaged in fraud and abuse