IIB
107TH CONGRESS
2D SESSION
H. R. 4946
IN THE SENATE OF THE UNITED STATES
JULY 25, 2002
Received; read twice and referred to the Committee on Finance
AN ACT
To amend the Internal Revenue Code of 1986 to provide
health care incentives.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
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SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Improving Access to Long-Term Care Act of 2002’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
SEC. 2. DEDUCTION FOR PREMIUMS ON QUALIFIED LONG-
TERM CARE INSURANCE CONTRACTS.
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 (relating to additional itemized deductions) is
amended by redesignating section 223 as section 224 and
by inserting after section 222 the following new sub-
section:
‘‘SEC. 223. PREMIUMS ON QUALIFIED LONG-TERM CARE IN-
SURANCE CONTRACTS.
‘‘(a) IN GENERAL.—In the case of an individual,
there shall be allowed as a deduction an amount equal to
the applicable percentage of eligible long-term care pre-
miums (as defined in section 213(d)(10)) paid during the
taxable year by the taxpayer for coverage for the taxpayer
and the spouse and dependents of the taxpayer.
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‘‘(b) APPLICABLE PERCENTAGE.—For purposes of
subsection (a), the applicable percentage shall be deter-
mined in accordance with the following table:
‘‘For taxable years beginning
The applicable
in calendar year—
percentage is—
2003, 2004, and 2005 .............................................................
2006 and 2007 .........................................................................
2008 and 2009 .........................................................................
2010 and 2011 .........................................................................
2012 and thereafter .................................................................
50.
‘‘(c) LIMITATION BASED ON MODIFIED ADJUSTED
GROSS INCOME.—
‘‘(1) IN
GENERAL.—If the modified adjusted
gross income of the taxpayer for the taxable year ex-
ceeds $20,000 (twice the preceding dollar amount,
as adjusted under paragraph (2), in the case of a
joint return) the amount which would (but for this
subsection) be allowed as a deduction under sub-
section (a) shall be reduced (but not below zero) by
the amount which bears the same ratio to the
amount which would be so allowed as such excess
bears to $20,000 ($40,000 in the case of a joint re-
turn).
‘‘(2) ADJUSTMENTS FOR INFLATION.—
‘‘(A) IN GENERAL.—In the case of a tax-
able year beginning after December 31, 2003,
the first $20,000 amount contained in para-
graph (1) shall be increased by an amount
equal to—
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‘‘(i) such dollar amount, multiplied by
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for the cal-
endar year in which the taxable year be-
gins, determined by substituting ‘calendar
year 2002’ for ‘calendar year 1992’ in sub-
paragraph (B) thereof.
‘‘(B) ROUNDING.—If any amount as ad-
justed under subparagraph (A) is not a multiple
of $1,000, such amount shall be rounded to the
nearest multiple of $1,000 (or if such amount
is a multiple of $500, such amount shall be
rounded to the next highest multiple of $500).
‘‘(3) MODIFIED
ADJUSTED
GROSS
INCOME.—
For purposes of paragraph (1), the term ‘modified
adjusted gross income’ means adjusted gross income
determined—
‘‘(A) without regard to this section and
sections 911, 931, and 933, and
‘‘(B) after application of sections 86, 135,
137, 219, 221, 222, and 469.
‘‘(d) LIMITATION
BASED
ON
SUBSIDIZED
COV-
ERAGE.—
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‘‘(1) IN
GENERAL.—Subsection (a) shall not
apply to premiums paid for coverage of any indi-
vidual for any calendar month if—
‘‘(A) for such month such individual is cov-
ered by any insurance which is advertised, mar-
keted, or offered as long-term care insurance
under any health plan maintained by any em-
ployer of the taxpayer or of the taxpayer’s
spouse, and
‘‘(B) 50 percent or more of the cost of any
such 
coverage 
(determined 
under 
section
4980B) for such month is paid or incurred by
the employer.
‘‘(2) PLANS MAINTAINED BY CERTAIN EMPLOY-
ERS.—A health plan which is not otherwise de-
scribed in paragraph (1)(A) shall be treated as de-
scribed in such paragraph if such plan would be so
described if all health plans of persons treated as a
single employer under subsection (b), (c), (m), or (o)
of section 414 were treated as one health plan.
‘‘(e) COORDINATION WITH OTHER DEDUCTIONS.—
Any amount taken into account under subsection (a) shall
not be taken into account in computing the amount allow-
able as a deduction under section 162(l) or 213(a).
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‘‘(f) MARRIED COUPLES MUST FILE JOINT RE-
TURN.—
‘‘(1) IN GENERAL.—If the taxpayer is married
at the close of the taxable year, the deduction shall
be allowed under subsection (a) only if the taxpayer
and the taxpayer’s spouse file a joint return for the
taxable year.
‘‘(2) MARITAL STATUS.—For purposes of para-
graph (1), marital status shall be determined in ac-
cordance with section 7703.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out this
section, including regulations requiring employers to re-
port to their employees and the Secretary such informa-
tion as the Secretary determines to be appropriate.’’.
(b) DEDUCTION ALLOWED WHETHER OR NOT TAX-
PAYER ITEMIZES.—Subsection (a) of section 62 is amend-
ed by inserting after paragraph (18) the following new
item:
‘‘(19) PREMIUMS
ON
QUALIFIED
LONG-TERM
CARE
INSURANCE
CONTRACTS.—The deduction al-
lowed by section 223.’’.
(c) CONFORMING AMENDMENTS.—
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(1) 
Sections 
86(b)(2)(A), 
135(c)(4)(A),
137(b)(3)(A), 219(g)(3)(A)(ii), and 221(b)(2)(C)(i)
are each amended by inserting ‘‘223,’’ after ‘‘222,’’.
(2) Section 222(b)(2)(C)(i) is amended by in-
serting ‘‘223,’’ before ‘‘911’’.
(3) Section 469(i)(3)(F)(iii) is amended by
striking ‘‘and 222’’ and inserting ‘‘222, and 223’’.
(d) CLERICAL AMENDMENT.—The table of sections
for part VII of subchapter B of chapter 1 is amended by
striking the last item and inserting the following new
items:
‘‘Sec. 223. Premiums on qualified long-term care insurance con-
tracts.
‘‘Sec. 224. Cross reference.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 3. ADDITIONAL PERSONAL EXEMPTION FOR DEPEND-
ENTS WITH LONG-TERM CARE NEEDS IN TAX-
PAYER’S HOME.
(a) IN GENERAL.—Section 151 (relating to allowance
of deductions for personal exemptions) is amended by re-
designating subsections (d) and (e) as subsections (e) and
(f), respectively, and by inserting after subsection (c) the
following new subsection:
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‘‘(d) ADDITIONAL EXEMPTION
FOR DEPENDENTS
WITH
LONG-TERM
CARE
NEEDS
IN
TAXPAYER’S
HOME.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), an exemption of the exemption amount
for each qualified family member of the taxpayer.
‘‘(2) PHASE-IN.—In the case of taxable years
beginning in calendar years before 2012, the amount
of the exemption provided under paragraph (1) shall
not exceed the applicable limitation amount deter-
mined in accordance with the following table:
‘‘For taxable years beginning
The applicable
in calendar year—
limitation amount is—
2003 and 2004 .........................................................................
$500
2005 and 2006 .........................................................................
1,000
2007 and 2008 .........................................................................
1,500
2009 and 2010 .........................................................................
2,000
2011 .........................................................................................
2,500.
‘‘(3) QUALIFIED FAMILY MEMBER.—For pur-
poses of this subsection, the term ‘qualified family
member’ means, with respect to any taxable year,
any individual—
‘‘(A) who is—
‘‘(i) the spouse of the taxpayer, or
‘‘(ii) a dependent of the taxpayer with
respect to whom the taxpayer is entitled to
an exemption under subsection (c),
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‘‘(B) who is an individual with long-term
care needs during any portion of the taxable
year, and
‘‘(C) other than an individual described in
section 152(a)(9), who, for more than half of
such year, has as such individual’s principal
place of abode the home of the taxpayer and is
a member of the taxpayer’s household.
‘‘(4) INDIVIDUALS
WITH
LONG-TERM
CARE
NEEDS.—For purposes of this subsection, the term
‘individual with long-term care needs’ means, with
respect to any taxable year, an individual who has
been certified, during the 391⁄2-month period ending
on the due date (without extensions) for filing the
return of tax for the taxable year (or such other pe-
riod as the Secretary prescribes), by a physician (as
defined in section 1861(r)(1) of the Social Security
Act) as being, for a period which is at least 180 con-
secutive days—
‘‘(A) an individual who is unable to per-
form (without substantial assistance from an-
other individual) at least 2 activities of daily liv-
ing (as defined in section 7702B(c)(2)(B)) due
to a loss of functional capacity, or
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‘‘(B) an individual who requires substan-
tial supervision to protect such individual from
threats to health and safety due to severe cog-
nitive impairment and is unable to perform,
without reminding or cuing assistance, at least
1 activity of daily living (as so defined) or to
the extent provided in regulations prescribed by
the Secretary (in consultation with the Sec-
retary of Health and Human Services), is un-
able to engage in age appropriate activities.
‘‘(5) IDENTIFICATION REQUIREMENT.—No ex-
emption shall be allowed under this subsection to a
taxpayer with respect to any qualified family mem-
ber unless the taxpayer includes, on the return of
tax for the taxable year, the name and taxpayer
identification of the physician certifying such mem-
ber. In the case of a failure to provide the informa-
tion required under the preceding sentence, the pre-
ceding sentence shall not apply if it is shown that
the taxpayer exercised due diligence in attempting to
provide the information so required.
‘‘(6) SPECIAL
RULES.—Rules similar to the
rules of paragraphs (2), (3), and (4) of section 21(e)
shall apply for purposes of this subsection.’’.
(b) CONFORMING AMENDMENTS.—
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(1) Section 1(f)(6)(A) is amended by striking
‘‘151(d)(4)’’ and inserting ‘‘151(e)(4)’’.
(2) Section 1(f)(6)(B) is amended by striking
‘‘151(d)(4)(A)’’ and inserting ‘‘151(e)(4)(A)’’.
(3) Section 3402(f)(1)(A) is amended by strik-
ing ‘‘151(d)(2)’’ and inserting ‘‘151(e)(2)’’.
(4) Section 3402(r)(2)(B) is amended by strik-
ing ‘‘151(d)’’ and inserting ‘‘151(e)’’.
(5) Section 6012(a)(1)(D)(ii) is amended—
(A) by striking ‘‘151(d)’’ and inserting
‘‘151(e)’’, and
(B) by striking ‘‘151(d)(2)’’ and inserting
‘‘151(e)(2)’’.
(6) Section 6013(b)(3)(A) is amended by strik-
ing ‘‘151(d)’’ and inserting ‘‘151(e)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 4. ADDITIONAL CONSUMER PROTECTIONS FOR LONG-
TERM CARE INSURANCE.
(a) ADDITIONAL
PROTECTIONS
APPLICABLE
TO
LONG-TERM CARE INSURANCE.—Subparagraphs (A) and
(B) of section 7702B(g)(2) of the Internal Revenue Code
of 1986 (relating to requirements of model regulation and
Act) are amended to read as follows:
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‘‘(A) IN GENERAL.—The requirements of
this paragraph are met with respect to any con-
tract if such contract meets—
‘‘(i) MODEL
REGULATION.—The fol-
lowing requirements of the model regula-
tion:
‘‘(I) Section 6A (relating to guar-
anteed renewal or noncancellability),
and the requirements of section 6B of
the model Act relating to such section
6A.
‘‘(II) Section 6B (relating to pro-
hibitions on limitations and exclu-
sions).
‘‘(III) Section 6C (relating to ex-
tension of benefits).
‘‘(IV) Section 6D (relating to
continuation or conversion of cov-
erage).
‘‘(V) Section 6E (relating to dis-
continuance and replacement of poli-
cies).
‘‘(VI) Section 7 (relating to unin-
tentional lapse).
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‘‘(VII) Section 8 (relating to dis-
closure), other than section 8F there-
of.
‘‘(VIII) Section 11 (relating to
prohibitions against post-claims un-
derwriting).
‘‘(IX) Section 12 (relating to
minimum standards).
‘‘(X) Section 13 (relating to re-
quirement to offer inflation protec-
tion), except that any requirement for
a signature on a rejection of inflation
protection shall permit the signature
to be on an application or on a sepa-
rate form.
‘‘(XI) Section 25 (relating to pro-
hibition against preexisting conditions
and probationary periods in replace-
ment policies or certificates).
‘‘(XII) The provisions of section
26 relating to contingent nonforfeiture
benefits, if the policyholder declines
the offer of a nonforfeiture provision
described in paragraph (4).
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‘‘(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).
‘‘(III) The provisions of section 8
relating to contingent nonforfeiture
benefits, if the policyholder declines
the offer of a nonforfeiture provision
described in paragraph (4).
‘‘(B) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) MODEL PROVISIONS.—The terms
‘model regulation’ and ‘model Act’ means
the long-term care insurance model regula-
tion, and the long-term care insurance
model Act, respectively, promulgated by
the National Association of Insurance
Commissioners (as adopted as of October
2000).
‘‘(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
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provision of such regulation or Act nec-
essary to implement the provision.
‘‘(iii) 
DETERMINATION.—For 
pur-
poses of this section and section 4980C,
the determination of whether any require-
ment of a model regulation or the model
Act has been met shall be made by the
Secretary.’’.
(b) 
EXCISE
TAX.—Paragraph 
(1) 
of 
section
4980C(c) of the Internal Revenue Code of 1986 (relating
to requirements of model provisions) is amended to read
as follows:
‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.—
‘‘(A) MODEL REGULATION.—The following
requirements of the model regulation must be
met:
‘‘(i) Section 9 (relating to required
disclosure of rating practices to consumer).
‘‘(ii) Section 14 (relating to applica-
tion forms and replacement coverage).
‘‘(iii) Section 15 (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
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percentage of claims denied), other than
claims denied for failure to meet the wait-
ing period or because of any applicable
preexisting condition.
‘‘(iv) Section 22 (relating to filing re-
quirements for advertising).
‘‘(v) Section 23 (relating to standards
for marketing), including inaccurate com-
pletion of medical histories, other than
paragraphs (1), (6), and (9) of section
23C, except that—
‘‘(I) in addition to such require-
ments, no person shall, in selling or
offering to sell a qualified long-term
care insurance contract, 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.
‘‘(vi) Section 24 (relating to suit-
ability).
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‘‘(vii) Section 29 (relating to standard
format outline of coverage).
‘‘(viii) Section 30 (relating to require-
ment to deliver shopper’s guide).
The requirements referred to in clause (vi) shall
not include those portions of the personal work-
sheet described in Appendix B of the model reg-
ulation relating to consumer protection require-
ments not imposed by section 4980C or 7702B.
‘‘(B) MODEL ACT.—The following require-
ments of the model Act must be met:
‘‘(i) Section 6F (relating to right to
return), except that such section shall also
apply to denials of applications and any re-
fund shall be made within 30 days of the
return or denial.
‘‘(ii) Section 6G (relating to outline of
coverage).
‘‘(iii) Section 6H (relating to require-
ments for certificates under group plans).
‘‘(iv) Section 6J (relating to policy
summary).
‘‘(v) Section 6K (relating to monthly
reports on accelerated death benefits).
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‘‘(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 term
by section 7702B(g)(2)(B).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to policies issued after December
31, 2002.
SEC. 5. EXPANSION OF HUMAN CLINICAL TRIALS QUALI-
FYING FOR ORPHAN DRUG CREDIT.
(a) IN GENERAL.—Paragraph (2) of section 45C(b)
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following new subparagraph:
‘‘(C) TREATMENT OF CERTAIN EXPENSES
INCURRED
BEFORE
DESIGNATION.—For pur-
poses of subparagraph (A)(ii)(I), if a drug is
designated under section 526 of the Federal
Food, Drug, and Cosmetic Act not later than
the due date (including extensions) for filing
the return of tax under this subtitle for the tax-
able year in which the application for such des-
ignation of such drug was filed, such drug shall
be treated as having been designated on the
date that such application was filed.’’.
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(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to expenses incurred after the
date of the enactment of this Act.
SEC. 6. VACCINE TAX TO APPLY TO HEPATITIS A VACCINE.
(a) IN GENERAL.—Paragraph (1) of section 4132(a)
(defining taxable vaccine) is amended by redesignating
subparagraphs (I), (J), (K), and (L) as subparagraphs
(J), (K), (L), and (M), respectively, and by inserting after
subparagraph (H) the following new subparagraph:
‘‘(I) Any vaccine against hepatitis A.’’.
(b) EFFECTIVE DATE.—
(1) SALES, ETC.—The amendments made by
subsection (a) shall apply to sales and uses on or
after the first day of the first month which begins
more than 4 weeks after the date of the enactment
of this Act.
(2) DELIVERIES.—For purposes of paragraph
(1) and section 4131 of the Internal Revenue Code
of 1986, in the case of sales on or before the effec-
tive date described in such paragraph for which de-
livery is made after such date, the delivery date shall
be considered the sale date.
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SEC. 7. ELIGIBILITY FOR ARCHER MSA’S EXTENDED TO AC-
COUNT 
HOLDERS 
OF 
MEDICARE+CHOICE
MSA’S.
(a) IN GENERAL.—Subparagraph (B) of section
220(c)(2) of the Internal Revenue Code of 1986 is amend-
ed by adding at the end the following new clause:
‘‘(iii) MEDICARE+CHOICE MSA’S.—In
the case of an individual who is covered
under an MSA plan (as defined in section
1859(b)(3) of the Social Security Act)
which such individual elected under section
1851(a)(2)(B) of such Act—
‘‘(I) such plan shall be treated as
a high deductible health plan for pur-
poses of this section,
‘‘(II) subsection (b)(2)(A) shall
be applied by substituting ‘100 per-
cent’ for ‘65 percent’ with respect to
such individual,
‘‘(III) with respect to such indi-
vidual, the limitation under subsection
(d)(1)(A)(ii) shall be 100 percent of
the highest annual deductible limita-
tion under section 1859(b)(3)(B) of
the Social Security Act,