150
Title II, Subtitle A
of the Health Equity and Access Reform Today Act
of 1993).’’
(2) DEDUCTION NOT SUBJECT TO AGI LIMITA-
TION.—Section 213 (relating to medical, dental, etc.,
expenses) is amended by adding at the end the fol-
lowing new subsection:
‘‘(f) SPECIAL RULES FOR QUALIFIED HEALTH CARE
PREMIUM EXPENSES.—
‘‘(1) IN GENERAL.—In computing the deduction
under subsection (a) with respect to amounts paid
for premiums for coverage under a qualified health
plan (as defined in section 1601(20) of the Health
Equity and Access Reform Today Act of 1993)—
‘‘(A) the limitation under subsection (a)
based on adjusted gross income shall not apply
to such amounts (and such amounts shall not
be taken into account in determining whether
such limitation applies to other amounts), and
‘‘(B) no deduction shall be allowed to the
extent such amounts exceed the applicable dol-
lar limit for the taxpayer (within the meaning
of section 91(b)(2) and determined on an an-
nual basis).
‘‘(2) LIMIT.—In computing the amount allowed
as a deduction under paragraph (1) with respect to
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Title II, Subtitle A
the cost of providing coverage for any individual, the
applicable dollar limit shall be reduced by the aggre-
gate amount of payments to, or on behalf of, such
individual by—
‘‘(A) the Secretary of Health and Human
Services under section 1003 of the Health Eq-
uity and Access Reform Today Act of 1993,
and
‘‘(B) all other entities (including any em-
ployer or governmental agency),
for coverage of such individual under a qualified
health plan (as so defined).’’
(3) DEDUCTION ALLOWED AGAINST GROSS IN-
COME.—Section 62(a) (defining adjusted gross in-
come) is amended by inserting after paragraph (15)
the following new paragraph:
‘‘(16) DEDUCTION
FOR
QUALIFIED
HEALTH
PLAN PREMIUMS.—The deduction allowed under sec-
tion 213(f).’’
(d) EFFECTIVE DATE.—Except as provided in sub-
section (b)(1)(B), the amendments made by this section
shall apply to taxable years beginning after the first De-
cember 31 following the deadline specified in section
1401(c)(2) of this Act.
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Title II, Subtitle A
SEC. 2003. MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 (relating to additional itemized deductions for indi-
viduals) is amended by redesignating section 220 as sec-
tion 221 and by inserting after section 219 the following
new section:
‘‘SEC. 220. MEDICAL SAVINGS ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an eligi-
ble individual, there shall be allowed as a deduction the
amounts paid in cash during the taxable year by such indi-
vidual to a medical savings account for the benefit of such
individual or for the benefit of any spouse or dependent
of such individual who is an eligible individual.
‘‘(b) LIMITATIONS.—
‘‘(1) ONLY 1 ACCOUNT PER FAMILY.—Except as
provided in regulations prescribed by the Secretary,
no deduction shall be allowed under subsection (a)
for amounts paid to any medical savings account for
the benefit of an individual, such individual’s spouse,
or any dependent of such individual if such individ-
ual, spouse, or dependent is a beneficiary of any
other medical savings account.
‘‘(2) DOLLAR LIMITATION.—The amount allow-
able as a deduction under subsection (a) with re-
spect to any individual for the taxable year shall not
exceed the excess of—
153
Title II, Subtitle A
‘‘(A) the applicable dollar limit with re-
spect to such individual (within the meaning of
section 91(b)(2) and determined on an annual
basis), over
‘‘(B) the sum of—
‘‘(i) the aggregate amount paid by, or
on behalf of such individual, as a premium
for a catastrophic health plan covering
such eligible individual for such taxable
year, plus
‘‘(ii) the aggregate amount contrib-
uted to the eligible individual’s medical
savings account by persons other than the
eligible individual.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible
individual’ means any individual who is covered
under a catastrophic health plan during any portion
of the calendar year with or within which the taxable
year begins.
‘‘(2) CATASTROPHIC HEALTH PLAN.—For pur-
poses of paragraph (1), the term ‘catastrophic health
plan’ means a qualified health plan providing health
plan coverage through a catastrophic package. For
purposes of the preceding sentence, the terms ‘quali-
154
Title II, Subtitle A
fied health plan’ and ‘catastrophic package’ have the
meanings given to such terms by sections 1601(20)
and 1301(a)(2) of the Health Equity and Access Re-
form Today Act of 1993.
‘‘(d) MEDICAL SAVINGS ACCOUNTS.—For purposes
of this section—
‘‘(1) MEDICAL SAVINGS ACCOUNT.—
‘‘(A) IN
GENERAL.—The term ‘medical
savings account’ means a trust created or orga-
nized in the United States exclusively for the
purpose of paying the medical expenses of the
beneficiaries of such trust, but only if the writ-
ten governing instrument creating the trust
meets the following requirements:
‘‘(i) Except in the case of a rollover
contribution described in subsection (e)(4),
no contribution will be accepted unless it is
in cash, and, subject to subsection (e)(2),
contributions will not be accepted in excess
of the amount allowed as a deduction
under this section for the taxable year.
‘‘(ii) The trustee is a bank (as defined
in section 408(n)) or another person who
demonstrates to the satisfaction of the Sec-
retary that the manner in which such per-
155
Title II, Subtitle A
son will administer the trust will be con-
sistent with the requirements of this sec-
tion.
‘‘(iii) No part of the trust assets will
be invested in life insurance contracts.
‘‘(iv) The assets of the trust will not
be commingled with other property except
in a common trust fund or common invest-
ment fund.
‘‘(v) The interest of an individual in
the balance in his account is nonforfeit-
able.
‘‘(vi) Under regulations prescribed by
the Secretary, rules similar to the rules of
section 401(a)(9) shall apply to the dis-
tribution of the entire interest of bene-
ficiaries of such trust.
‘‘(B) TREATMENT
OF
COMPARABLE
AC-
COUNTS
HELD
BY
INSURANCE
COMPANIES.—
For purposes of this section, an account held by
an insurance company in the United States
shall be treated as a medical savings account
(and such company shall be treated as a bank)
if—
156
Title II, Subtitle A
‘‘(i) such account is part of a health
insurance plan that includes a catastrophic
health plan (as defined in subsection
(c)(2)),
‘‘(ii) such account is exclusively for
the purpose of paying the medical expenses
of the beneficiaries of such account who
are covered under such catastrophic health
plan, and
‘‘(iii) the written instrument govern-
ing the account meets the requirements of
clauses (i), (v), and (vi) of subparagraph
(A).
‘‘(2) MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—The term ‘medical ex-
penses’ means, with respect to an individual,
amounts paid or incurred by such individual
for—
‘‘(i) medical care (as defined in sec-
tion 213), or
‘‘(ii) long-term care (as defined in
paragraph (3)),
for such individual, the spouse of such individ-
ual, and any dependent (as defined in section
152) of such individual, but only to the extent
157
Title II, Subtitle A
such amounts are not compensated for by in-
surance or otherwise.
‘‘(B) HEALTH PLAN COVERAGE MAY NOT
BE PURCHASED FROM ACCOUNT.—
‘‘(i) IN
GENERAL.—Such term shall
not include any amount paid for coverage
under a health plan.
‘‘(ii) EXCEPTION.—Clause (i) shall
not apply—
‘‘(I) in the case of coverage of an
individual under 65 years of age
under a catastrophic health plan or
under a long-term care insurance
plan, or
‘‘(II) in the case of coverage of
an individual 65 years of age or older
under a medicare supplemental policy
or under a long-term care insurance
plan or for payment of premiums
under part A or part B of title XVIII
of the Social Security Act.
‘‘(3) LONG-TERM CARE.—
‘‘(A) IN GENERAL.—The term ‘long-term
care’ means diagnostic, preventive, therapeutic,
rehabilitative, maintenance, or personal care
158
Title II, Subtitle A
services which are required by, and provided to,
a functionally impaired individual, which have
as their primary purpose the direct provision of
needed assistance with 1 or more activities of
daily living (or the alleviation of the conditions
necessitating such assistance) that the individ-
ual is certified under subparagraph (B) as
being unable to perform, and which are pro-
vided in a setting other than an acute care unit
of a hospital pursuant to a continuing plan of
care prescribed by a physician or registered pro-
fessional nurse. Such term does not include
food or lodging provided in an institutional or
other setting, or basic living services associated
with the maintenance of a household or partici-
pation in community life, such as case manage-
ment, transportation or legal services, or the
performance of home maintenance or household
chores.
‘‘(B) FUNCTIONALLY
IMPAIRED
INDIVID-
UAL.—The term ‘functionally impaired individ-
ual’ means an individual who is certified by a
physician or registered professional nurse as
being unable to perform at least 3 activities of
daily living without substantial assistance from
159
Title II, Subtitle A
another individual. For purposes of this para-
graph, the term ‘activities of daily living’ means
bathing, dressing, eating, toileting, transferring,
and walking.
‘‘(4) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—A contribution shall be deemed to be made
on the last day of the preceding taxable year if the
contribution is made on account of such taxable year
and is made not later than the time prescribed by
law for filing the return for such taxable year (not
including extensions thereof).
‘‘(e) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Any amount paid or dis-
tributed out of a medical savings account shall be in-
cluded in the gross income of the individual for
whose benefit such account was established unless
such amount is used exclusively to pay the medical
expenses of such individual or the spouse or any de-
pendent of such individual.
‘‘(2) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.—Paragraph (1) shall
not apply to the distribution of any contribution paid
during a taxable year to a medical savings account
to the extent that such contribution exceeds the
160
Title II, Subtitle A
amount allowable as a deduction under subsection
(a) if—
‘‘(A) such distribution is received by the
individual on or before the last day prescribed
by law (including extensions of time) for filing
such individual’s return for such taxable year,
and
‘‘(B) such distribution is accompanied by
the amount of net income attributable to such
excess contribution.
Any net income described in subparagraph (B) shall
be included in the gross income of the individual for
the taxable year in which it is received.
‘‘(3) PENALTY FOR DISTRIBUTIONS NOT USED
FOR MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—The tax imposed by
this chapter for any taxable year in which there
is a payment or distribution from a medical
savings account which is not used to pay the
medical expenses of the individual for whose
benefit the account was established, shall be in-
creased by 10 percent of the amount of such
payment or distribution which is includible in
gross income under paragraph (1).
161
Title II, Subtitle A
‘‘(B) ACCOUNT
BALANCE
LIMITATION.—
If—
‘‘(i) the tax imposed by this chapter is
required to be increased under subpara-
graph (A) by reason of a distribution, and
‘‘(ii) after such distribution, the bal-
ance of the medical savings account estab-
lished for the benefit of the individual, is
less than the amount of the deductible
under the catastrophic health plan covering
such individual,
subparagraph (A) shall be applied by substitut-
ing ‘50 percent’ for ‘10 percent’.
‘‘(4) ROLLOVERS.—Paragraph (1) shall not
apply to any amount paid or distributed out of a
medical savings account to the individual for whose
benefit the account is maintained, if the entire
amount received (including money and any other
property) is paid into another medical savings ac-
count for the benefit of such individual not later
than the 60th day after the day on which the indi-
vidual received the payment or distribution.
‘‘(5) PENALTY
FOR
MANDATORY
DISTRIBU-
TIONS NOT MADE FROM ACCOUNT.—
162
Title II, Subtitle A
‘‘(A) IN GENERAL.—If during any taxable
year—
‘‘(i) there is a payment of a manda-
tory distribution expense incurred by a
beneficiary of a medical savings account,
and
‘‘(ii) the person making such payment
is not reimbursed for such payment with a
distribution from such account before the
60th day after such payment,
the taxpayer’s tax imposed by this chapter for
such taxable year shall be increased by 100 per-
cent of the excess of the amount of such pay-
ment over the amount of reimbursement made
before such 60th day.
‘‘(B) 
MANDATORY
DISTRIBUTION
EX-
PENSE.—For purposes of subparagraph (A),
the term ‘mandatory distribution expense’
means—
‘‘(i) any expense incurred which may
be counted toward a deductible, or for a
copayment or coinsurance, under the cata-
strophic health plan covering such bene-
ficiary, and
163
Title II, Subtitle A
‘‘(ii) in the case of a beneficiary who
has attained age 65, any expense for cov-
erage 
described 
in 
subsection
(d)(2)(B)(ii)(II) and any expense incurred
which may be counted toward a deductible,
or for a copayment or coinsurance, under
title XVIII of the Social Security Act.
‘‘(f) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) EXEMPTION FROM TAX.—Any medical sav-
ings account is exempt from taxation under this sub-
title unless such account has ceased to be a medical
savings account by reason of paragraph (2) or (3).
Notwithstanding the preceding sentence, any such
account shall be subject to the taxes imposed by sec-
tion 511 (relating to imposition of tax on unrelated
business income of charitable, etc. organizations).
‘‘(2) ACCOUNT TERMINATES IF INDIVIDUAL EN-
GAGES IN PROHIBITED TRANSACTION.—
‘‘(A) IN GENERAL.—If, during any taxable
year of the individual for whose benefit the
medical savings account was established, such
individual engages in any transaction prohibited
by section 4975 with respect to the account, the
account ceases to be a medical savings account
as of the first day of that taxable year.
164
Title II, Subtitle A
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a medical savings account by
reason of subparagraph (A) on the first day of
any taxable year, paragraph (1) of subsection
(e) shall be applied as if there were a distribu-
tion on such first day in an amount equal to
the fair market value (on such first day) of all
assets in the account (on such first day) and no
portion of such distribution were used to pay
medical expenses.
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the individual for
whose benefit a medical savings account was estab-
lished uses the account or any portion thereof as se-
curity for a loan, the portion so used is treated as
distributed to that individual and not used to pay
medical expenses.
‘‘(g) CUSTODIAL ACCOUNTS.—For purposes of this
section, a custodial account shall be treated as a trust if—
‘‘(1) the assets of such account are held by a
bank (as defined in section 408(n)) or another per-
son who demonstrates to the satisfaction of the Sec-
retary that the manner in which he will administer
165
Title II, Subtitle A
the account will be consistent with the requirements
of this section, and
‘‘(2) the custodial account would, except for the
fact that it is not a trust, constitute a medical sav-
ings account described in subsection (d).
For purposes of this title, in the case of a custodial ac-
count treated as a trust by reason of the preceding sen-
tence, the custodian of such account shall be treated as
the trustee thereof.
‘‘(h) REPORTS.—The trustee of a medical savings ac-
count shall make such reports regarding such account to
the Secretary and to the individual for whose benefit the
account is maintained with respect to contributions, dis-
tributions, and such other matters as the Secretary may
require under regulations. The reports required by this
subsection shall be filed at such time and in such manner
and furnished to such individuals at such time and in such
manner as may be required by those regulations.’’
(b) DEDUCTION ALLOWED WHETHER OR NOT INDI-
VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a)
of section 62 (defining adjusted gross income), as amend-
ed by section 2002(c)(3), is amended by inserting after
paragraph (16) the following new paragraph:
‘‘(17) MEDICAL SAVINGS ACCOUNTS.—The de-
duction allowed by section 220.’’
166
Title II, Subtitle A
(c) DISTRIBUTIONS FROM MEDICAL SAVINGS AC-
COUNTS NOT ALLOWED AS MEDICAL EXPENSE DEDUC-
TION.—Section 213 (relating to medical, dental, etc., ex-
penses), as amended by section 2002(c)(2), is amended
by adding at the end the following new subsection:
‘‘(g) COORDINATION WITH MEDICAL SAVINGS AC-
COUNTS.—The amount otherwise taken into account
under subsection (a) as expenses paid for medical care
shall be reduced by the amount (if any) of the distribu-
tions from any medical savings account of the taxpayer
during the taxable year which is not includible in gross
income by reason of being used for medical care.’’
(d) EXCLUSION OF EMPLOYER CONTRIBUTIONS TO
MEDICAL
SAVINGS
ACCOUNTS
FROM
EMPLOYMENT
TAXES.—
(1) SOCIAL SECURITY TAXES.—
(A) Subsection (a) of section 3121 (defin-
ing wages) is amended by striking ‘‘or’’ at the
end of paragraph (20), by striking the period at
the end of paragraph (21) and inserting ‘‘; or’’,
and by inserting after paragraph (21) the fol-
lowing new paragraph:
‘‘(22) remuneration paid to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
167
Title II, Subtitle A
lieve that a corresponding deduction is allowable
under section 220.’’
(B) Subsection (a) of section 209 of the
Social Security Act (42 U.S.C. 409) is amended
by striking ‘‘or’’ at the end of paragraph (17),
by striking the period at the end of paragraph
(18) and inserting ‘‘; or’’, and by inserting after
paragraph (18) the following new paragraph:
‘‘(19) remuneration paid to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
lieve that a corresponding deduction is allowable
under section 220 of the Internal Revenue Code of
1986.’’
(2) RAILROAD RETIREMENT TAX.—Subsection
(e) of section 3231 (defining compensation) is
amended by adding at the end the following new
paragraph:
‘‘(10) EMPLOYER CONTRIBUTIONS TO MEDICAL
SAVINGS ACCOUNTS.—The term ‘compensation’ shall
not include any payment made to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
lieve that a corresponding deduction is allowable
under section 220.’’
168
Title II, Subtitle A
(3) UNEMPLOYMENT TAX.—Subsection (b) of
section 3306 (defining wages) is amended by strik-
ing ‘‘or’’ at the end of paragraph (15), by striking
the period at the end of paragraph (16) and insert-
ing ‘‘; or’’, and by inserting after paragraph (16) the
following new paragraph:
‘‘(17) remuneration paid to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
lieve that a corresponding deduction is allowable
under section 220.’’
(4) WITHHOLDING TAX.—Subsection (a) of sec-
tion 3401 (defining wages) is amended by striking
‘‘or’’ at the end of paragraph (19), by striking the
period at the end of paragraph (20) and inserting ‘‘;
or’’, and by inserting after paragraph (20) the fol-
lowing new paragraph:
‘‘(21) remuneration paid to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
lieve that a corresponding deduction is allowable
under section 220.’’
(e) TAX ON EXCESS CONTRIBUTIONS.—Section 4973
(relating to tax on excess contributions to individual re-
169
Title II, Subtitle A
tirement accounts, certain section 403(b) contracts, and
certain individual retirement annuities) is amended—
(1) by inserting ‘‘MEDICAL
SAVINGS
AC-
COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of
such section,
(2) by striking ‘‘or’’ at the end of paragraph
(1) of subsection (a),
(3) by redesignating paragraph (2) of sub-
section (a) as paragraph (3) and by inserting after
paragraph (1) the following:
‘‘(2) a medical savings account (within the
meaning of section 220(d)), or’’, and
(4) by adding at the end the following new sub-
section:
‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS
ACCOUNTS.—For purposes of this section, in the case of
a medical savings account (within the meaning of section
220(d)), the term ‘excess contributions’ means the amount
by which the amount contributed for the taxable year to
the account exceeds the amount deductible under section
220 for such taxable year. For purposes of this subsection,
any contribution which is distributed out of the medical
savings account in a distribution to which section
220(e)(2) applies shall be treated as an amount not con-
tributed.’’
170
Title II, Subtitle A
(f) TAX ON PROHIBITED TRANSACTIONS.—Section
4975 (relating to prohibited transactions) is amended—
(1) by adding at the end of subsection (c) the
following new paragraph:
‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC-
COUNTS.—An individual for whose benefit a medical
savings account (within the meaning of section
220(d)) is established shall be exempt from the tax
imposed by this section with respect to any trans-
action concerning such account (which would other-
wise be taxable under this section) if, with respect
to such transaction, the account ceases to be a medi-
cal savings account by reason of the application of
section 220(f)(2)(A) to such account.’’, and
(2) by inserting ‘‘or a medical savings account
described in section 220(d)’’ in subsection (e)(1)
after ‘‘described in section 408(a)’’.
(g) FAILURE TO PROVIDE REPORTS ON MEDICAL
SAVINGS ACCOUNTS.—Section 6693 (relating to failure to
provide reports on individual retirement accounts or annu-
ities) is amended—
(1) by inserting ‘‘OR ON MEDICAL SAVINGS
ACCOUNTS’’ after ‘‘ANNUITIES’’ in the heading of
such section, and
171
Title II, Subtitle A
(2) by adding at the end of subsection (a) the
following: ‘‘The person required by section 220(h) to
file a report regarding a medical savings account at
the time and in the manner required by such section
shall pay a penalty of $50 for each failure unless it
is shown that such failure is due to reasonable
cause.’’
(h) CLERICAL AMENDMENTS.—
(1) The table of sections for part VII of sub-
chapter B of chapter 1 is amended by striking the
last item and inserting the following:
‘‘Sec. 220. Medical savings accounts.
‘‘Sec. 221. Cross reference.’’
(2) The table of sections for chapter 43 is
amended by striking the item relating to section
4973 and inserting the following:
‘‘Sec. 4973. Tax on excess contributions to individual retirement
accounts, medical savings accounts, certain 403(b)
contracts, and certain individual retirement annu-
ities.’’
(3) The table of sections for subchapter B of
chapter 68 is amended by inserting ‘‘or on medical
savings accounts’’ after ‘‘annuities’’ in the item re-
lating to section 6693.
(i) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the first December 31 following the deadline specified in
section 1401(c)(2) of this Act.
172
Title II, Subtitle A
SEC. 2004. ELIMINATING COMMONALITY OF INTEREST OR
GEOGRAPHIC LOCATION REQUIREMENT FOR
TAX EXEMPT TRUST STATUS.
(a) IN GENERAL.—Paragraph (9) of section 501(c)
(relating to exempt organizations) is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(9)’’; and
(2) by adding at the end the following:
‘‘(B) Any determination of whether a health
plan maintained by one or more large employers
(within the meaning of section 1601(16) of the
Health Equity and Access Reform Today Act of
1993) is a voluntary employees’ beneficiary associa-
tion meeting the requirements of this paragraph
shall be made without regard to any determination
of commonality of interest or geographic location if
the plan is a qualified health plan (as defined in
such section).’’
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply with respect to determinations
made on or after January 1, 1994.
SEC. 2005. REVISION OF COBRA CONTINUATION COVERAGE
REQUIREMENTS.
(a) PERIOD OF COVERAGE.—Clause (iv) of section
4980B(f)(2)(B) (defining period of coverage) is amend-
ed—
173
Title II, Subtitle A
(1) by striking ‘‘or’’ at the end of subclause (I),
by striking the period at the end of subclause (II)
and inserting ‘‘, or’’, and by adding at the end the
following new subclause:
‘‘(III) eligible for coverage under a qualified
health plan in accordance with title I of the Health
Equity and Access Reform Today Act of 1993.’’,
and
(2) by striking ‘‘OR MEDICARE ENTITLEMENT’’
in the heading and inserting ‘‘, MEDICARE ENTITLE-
MENT, OR QUALIFIED HEALTH PLAN ELIGIBILITY’’.
(b) QUALIFIED BENEFICIARY.—Section 4980B(g)(1)
(defining qualified beneficiary) is amended by adding at
the end the following new subparagraph:
‘‘(E) SPECIAL
RULE
FOR
INDIVIDUALS
COVERED BY HEALTH EQUITY AND ACCESS RE-
FORM TODAY ACT OF 1993.—The term ‘qualified
beneficiary’ shall not include any individual
who, upon termination of coverage under a
group health plan, is eligible coverage under a
qualified health plan in accordance with title I
of the Health Equity and Access Reform Today
Act of 1993.’’
(c) REPEAL UPON IMPLEMENTATION OF HEALTH
EQUITY AND ACCESS REFORM TODAY ACT OF 1993.—
174
Title II, Subtitle A
(1) IN GENERAL.—Section 4980B (relating to
failure to satisfy continuation coverage requirements
of group health care plans) is hereby repealed.
(2) CONFORMING AMENDMENTS.—
(A) Section 414(n)(3)(C) is amended by
striking ‘‘505, and 4980B’’ and inserting ‘‘and
505’’.
(B) Section 414(t)(2) is amended by strik-
ing ‘‘505, or 4980B’’ and inserting ‘‘or 505’’.
(C) The table of sections for chapter 43 is
amended by striking the item relating to section
4980B.
(d) EFFECTIVE DATE.—
(1) SUBSECTIONS
(a)
AND
(b).—The amend-
ments made by subsections (a) and (b) shall take ef-
fect on the date of the enactment of this Act.
(2) SUBSECTION (c).—The amendments made
by subsection (c) shall take effect on the first Janu-
ary 1 following the deadline specified in section
1401(c)(2) of this Act.
175
Title II, Subtitle B
Subtitle B—Provisions Relating to
Acceleration of Death Benefits
SEC. 2101. TAX TREATMENT OF PAYMENTS UNDER LIFE IN-
SURANCE CONTRACTS FOR TERMINALLY ILL
INDIVIDUALS .
(a) GENERAL RULE.—Section 101 (relating to cer-
tain death benefits) is amended by adding at the end the
following new subsection:
‘‘(g) TREATMENT OF AMOUNTS PAID WITH RESPECT
TO TERMINALLY ILL INDIVIDUALS.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, any amount paid to an individual under a life
insurance contract on the life of an insured who is
a terminally ill individual shall be treated as an
amount paid by reason of the death of such insured.
‘‘(2) TERMINALLY ILL INDIVIDUAL.—For pur-
poses of this subsection, the term ‘terminally ill indi-
vidual’ means an individual who has been certified
by a licensed physician as having an illness or phys-
ical condition which can reasonably be expected to
result in death in 12 months or less.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1993.
176
Title II, Subtitle B
SEC. 2102. TAX TREATMENT OF COMPANIES ISSUING
QUALIFIED TERMINAL ILLNESS RIDERS.
(a) QUALIFIED TERMINAL ILLNESS RIDER TREATED
AS LIFE INSURANCE.—Section 818 (relating to other defi-
nitions and special rules) is amended by adding at the end
the following new subsection:
‘‘(g) QUALIFIED TERMINAL ILLNESS RIDER TREAT-
ED AS LIFE INSURANCE.—For purposes of this part—
‘‘(1) IN GENERAL.—Any reference to life insur-
ance shall be treated as including a reference to a
qualified terminal illness rider.
‘‘(2) QUALIFIED TERMINAL ILLNESS RIDER.—
For purposes of this subsection, the term ‘qualified
terminal illness rider’ means any rider or addendum
on, or other provision of, a life insurance contract
which provides for payments to an individual upon
the insured becoming a terminally ill individual (as
defined in section 101(g)(2)).’’
(b) DEFINITIONS OF LIFE INSURANCE AND MODI-
FIED ENDOWMENT CONTRACTS.—
(1) RIDER
TREATED
AS
QUALIFIED
ADDI-
TIONAL
BENEFIT.—Paragraph (5)(A) of section
7702(f) is amended by striking ‘‘or’’ at the end of
clause (iv), by redesignating clause (v) as clause (vi),
and by inserting after clause (iv) the following new
clause:
177
Title II, Subtitle C
‘‘(v) any qualified terminal illness
rider (as defined in section 818(g)(2)), or’’.
(2) TRANSITIONAL RULE.—For purposes of ap-
plying section 7702 or 7702A of the Internal Reve-
nue Code of 1986 to any contract (or determining
whether either such section applies to such con-
tract), the issuance of a qualified terminal illness
rider (as defined in section 818(g)(2) of such Code)
with respect to any contract shall not be treated as
a modification or material change of such contract.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning before,
on, or after December 31, 1993.
Subtitle C—Long-Term Care Tax
Provisions
PART I—GENERAL PROVISIONS
SEC. 2201. QUALIFIED LONG-TERM CARE SERVICES TREAT-
ED AS MEDICAL CARE.
(a) GENERAL RULE.—Paragraph (1) of section
213(d) (defining medical care), as amended by section
2002(c)(1), is amended by striking ‘‘or’’ at the end of sub-
paragraph (B), by redesignating subparagraph (C) as sub-
paragraph (D), and by inserting after subparagraph (B)
the following new subparagraph:
178
Title II, Subtitle C
‘‘(C) for qualified long-term care services
(as defined in subsection (g)), or’’.
(b) QUALIFIED LONG-TERM CARE SERVICES DE-
FINED.—Section 213 (relating to deduction for medical,
dental, etc. expenses), as amended by section 2002(c)(2),
is amended by adding at the end the following new sub-
section:
‘‘(g) 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, rehabilitative, and maintenance
(including personal care) services—
‘‘(A) which are required by an individual
during any period during which such individual
is a functionally impaired individual,
‘‘(B) which have as their primary purpose
the provision of needed assistance with 1 or
more activities of daily living which a function-
ally impaired individual is certified as being un-
able to perform under paragraph (2)(A), and
‘‘(C) which are provided pursuant to a con-
tinuing plan of care prescribed by a licensed
health care practitioner (other than a relative of
such individual).
179
Title II, Subtitle C
‘‘(2) FUNCTIONALLY IMPAIRED INDIVIDUAL.—
‘‘(A) IN GENERAL.—The term ‘functionally
impaired individual’ means any individual who
is certified by a licensed health care practitioner
(other than a relative of such individual) as
being unable to perform, without substantial as-
sistance from another individual (including as-
sistance involving verbal reminding, physical
cueing, or substantial supervision), at least 3
activities of daily living described in paragraph
(3).
‘‘(B) SPECIAL RULE FOR HOME HEALTH
CARE SERVICES.—In the case of services which
are provided during any period during which an
individual is residing within the individual’s
home (whether or not the services are provided
within the home), subparagraph (A) shall be
applied by substituting ‘2’ for ‘3’. For purposes
of this subparagraph, a nursing home or similar
facility shall not be treated as a home.
‘‘(3) ACTIVITIES OF DAILY LIVING.—Each of
the following is an activity of daily living:
‘‘(A) Eating.
‘‘(B) Transferring.
‘‘(C) Toileting.
180
Title II, Subtitle C
‘‘(D) Dressing.
‘‘(E) Bathing.
‘‘(4) 
LICENSED
HEALTH
CARE
PRACTI-
TIONER.—
‘‘(A) IN
GENERAL.—The term ‘licensed
health care practitioner’ means—
‘‘(i) a physician or registered profes-
sional nurse,
‘‘(ii) a qualified community care case
manager (as defined in subparagraph (B)),
or
‘‘(iii) any other individual who meets
such requirements as may be prescribed by
the Secretary after consultation with the
Secretary of Health and Human Services.
‘‘(B) QUALIFIED COMMUNITY CARE CASE
MANAGER.—The term ‘qualified community
care case manager’ means an individual or en-
tity which—
‘‘(i) has experience or has been
trained in providing case management
services and in preparing individual care
plans;
181
Title II, Subtitle C
‘‘(ii) has experience in assessing indi-
viduals to determine their functional and
cognitive impairment;
‘‘(iii) is not a relative of the individual
receiving case management services; and
‘‘(iv) meets such requirements as may
be prescribed by the Secretary after con-
sultation with the Secretary of Health and
Human Services.
‘‘(5) RELATIVE.—The term ‘relative’ means an
individual bearing a relationship to another individ-
ual which is described in paragraphs (1) through (8)
of section 152(a).’’
(c) TECHNICAL AMENDMENTS.—
(1) Subparagraph (D) of section 213(d)(1) (as
redesignated by subsection (a)) is amended to read
as follows:
‘‘(D) for a qualified health plan (as defined
in section 1601(20) of the Health Equity and
Access Reform Today Act of 1993) (including
amounts paid as premiums under part B of
title XVIII of the Social Security Act, relating
to supplementary medical insurance for the
aged)—
182
Title II, Subtitle C
‘‘(i) covering medical care referred to
in subparagraphs (A) and (B), or
‘‘(ii) covering medical care referred to
in subparagraph (C), but only if such cov-
erage is provided under a qualified long-
term care insurance contract (as defined in
section 7702B(b)).’’
(2) Paragraph (6) of section 213(d) is amend-
ed—
(A) by striking ‘‘subparagraphs (A) and
(B)’’ in the matter preceding subparagraph (A)
and inserting ‘‘subparagraphs (A), (B), and
(C)’’, and
(B) by striking ‘‘paragraph (1)(C)’’ in sub-
paragraph 
(A) 
and 
inserting 
‘‘paragraph
(1)(D)’’.
(3) Paragraph (7) of section 213(d) is amended
by striking ‘‘subparagraphs (A) and (B)’’ and insert-
ing ‘‘subparagraphs (A), (B), and (C)’’.
SEC. 2202. TREATMENT OF LONG-TERM CARE INSURANCE
OR PLANS.
(a) GENERAL RULE.—Chapter 79 (relating to defini-
tions) is amended by inserting after section 7702A the fol-
lowing new section:
183
Title II, Subtitle C
‘‘SEC. 7702B. TREATMENT OF LONG-TERM CARE INSURANCE
OR PLANS.
‘‘(a) GENERAL RULE.—For purposes of this title—
‘‘(1) a qualified long-term care insurance con-
tract shall be treated as an accident or health insur-
ance contract,
‘‘(2) any plan of an employer providing cov-
erage of qualified long-term care services shall be
treated as an accident or health plan with respect to
such services,
‘‘(3) amounts received under such a contract or
plan with respect to qualified long-term care services
shall be treated as amounts received for personal in-
juries or sickness, and
‘‘(4) payments described in subsection (b)(5)
shall be treated as payments made with respect to
qualified long-term care services.
‘‘(b) QUALIFIED
LONG-TERM
CARE
INSURANCE
CONTRACT.—
‘‘(1) IN GENERAL.—For purposes of this title,
the term ‘qualified long-term care insurance con-
tract’ means any insurance contract if—
‘‘(A) the only insurance protection pro-
vided under such contract is coverage of quali-
fied long-term care services,
184
Title II, Subtitle C
‘‘(B) such contract meets the requirements
of paragraphs (2), (3), and (4), and
‘‘(C) such contract is issued by a qualified
issuer.
‘‘(2) PREMIUM REQUIREMENTS.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met with respect to a con-
tract if such contract provides that—
‘‘(i) premium payments may not be
made earlier than the date such payments
would have been made if the contract pro-
vided for level annual payments over the
life of the contract (or, if shorter, 20
years), and
‘‘(ii) all refunds of premiums, and all
policyholder dividends or similar amounts,
under such contract are to be applied as a
reduction in future premiums or to in-
crease future benefits.
A contract shall not be treated as failing to
meet the requirements of clause (i) solely by
reason of a provision providing for a waiver of
premiums if the policyholder becomes a func-
tionally impaired individual.
185
Title II, Subtitle C
‘‘(B) REFUNDS
UPON
DEATH
OR
COM-
PLETE SURRENDER OR CANCELLATION.—Sub-
paragraph (A)(ii) shall not apply to any refund
on the death of the policyholder, or on any com-
plete surrender or cancellation of the contract,
if, under the contract, the amount refunded
may not exceed the amount of the premiums
paid under the contract. For purposes of this
title, any refund described in the preceding sen-
tence shall be includible in gross income to the
extent that any deduction or exclusion was al-
lowed with respect to the refund.
‘‘(3) BORROWING, PLEDGING, OR
ASSIGNING
PROHIBITED.—The requirements of this paragraph
are met with respect to a contract if such contract
provides that no money may be borrowed under such
contract and that such contract (or any portion
thereof) may not be assigned or pledged as collateral
for a loan.
‘‘(4) PROHIBITION OF DUPLICATE PAYMENT.—
The requirements of this paragraph are met with re-
spect to a contract if such contract does not cover
expenses incurred to the extent that such expenses
are reimbursable under title XVIII of the Social Se-
curity Act.
186
Title II, Subtitle C
‘‘(5) PER
DIEM
AND
OTHER
PERIODIC
PAY-
MENTS PERMITTED.—
‘‘(A) IN GENERAL.—For purposes of sub-
section (a)(4), and except as provided in sub-
paragraph (B), payments are described in this
paragraph for any calendar year if, under the
contract, such payments are made to (or on be-
half of) a functionally impaired individual on a
per diem or other periodic basis without regard
to the expenses incurred or services rendered
during the period to which the payments relate.
‘‘(B) EXCEPTION WHERE AGGREGATE PAY-
MENTS EXCEED LIMIT.—If the aggregate pay-
ments under the contract for any period
(whether on a periodic basis or otherwise) ex-
ceed the dollar amount in effect for such pe-
riod—
‘‘(i) subparagraph (A) shall not apply
for such period, and
‘‘(ii) the requirements of paragraph
(1)(A) shall be met only if such payments
are made with respect to qualified long-
term care services provided during such
period.
187
Title II, Subtitle C
‘‘(C) 
DOLLAR
AMOUNT.—The 
dollar
amount in effect under this paragraph shall be
$100 per day (or the equivalent amount in the
case of payments on another periodic basis).
‘‘(D) 
ADJUSTMENTS
FOR
INCREASED
COSTS.—
‘‘(i) IN GENERAL.—In the case of any
calendar year after 1995, the dollar
amount in effect under subparagraph (C)
for any period occurring during such cal-
endar year shall be equal to the sum of—
‘‘(I) the amount in effect under
subparagraph (C) for the preceding
calendar year (after application of this
subparagraph), plus
‘‘(II) the applicable percentage of
the amount under subclause (I).
‘‘(ii) APPLICABLE PERCENTAGE.—For
purposes of clause (i), the term ‘applicable
percentage’ means, with respect to any cal-
endar year, the greater of—
‘‘(I) 5 percent, or
‘‘(II) the cost-of-living adjust-
ment for such calendar year.
188
Title II, Subtitle C
‘‘(iii) 
COST-OF-LIVING
ADJUST-
MENT.—For purposes of clause (ii), the
cost-of-living adjustment for any calendar
year is the percentage (if any) by which
the cost index under clause (iv) for the
preceding calendar year exceeds such index
for the second preceding calendar year. In
the case of any calendar year beginning be-
fore 1997, this clause shall be applied by
substituting the Consumer Price Index (as
defined in section 1(f)(5)) for the cost
index under clause (iv).
‘‘(iv) COST INDEX.—The Secretary, in
consultation with the Secretary of Health
and Human Services, shall before January
1, 1997, establish a cost index to measure
increases in costs of nursing home and
similar facilities. The Secretary may from
time to time revise such index to the extent
necessary to accurately measure increases
or decreases in such costs.
‘‘(E) AGGREGATION RULE.—For purposes
of this paragraph, all contracts issued with re-
spect to the same policyholder by the same
company shall be treated as 1 contract.
189
Title II, Subtitle C
‘‘(c) QUALIFIED ISSUER.—For purposes of this sec-
tion, the term ‘qualified issuer’ means any person which
at the time of the issuance of a long-term care insurance
contract—
‘‘(1) uses a one year preliminary term method
for setting up reserves, and
‘‘(2) maintains a capital ratio equal to not less
than 25 percent of long-term care insurance pre-
mium receivables.
‘‘(d) SPECIAL RULES FOR TAX TREATMENT OF POL-
ICYHOLDERS.—For purposes of this title, solely with re-
spect to the policyholder under any qualified long-term
care insurance contract—
‘‘(1) AGGREGATE
PAYMENTS
IN
EXCESS
OF
LIMITS.—If the aggregate payments under all quali-
fied long-term care insurance contracts with respect
to a policyholder for any period (whether on a peri-
odic basis or otherwise) exceed the dollar amount in
effect for such period under subsection (b)(5)—
‘‘(A) subsection (b)(5) shall not apply for
such period, and
‘‘(B) such payments shall be treated as
made for qualified long-term care services only
if made with respect to such services provided
during such period.
190
Title II, Subtitle C
‘‘(2) ASSIGNMENT OR PLEDGE.—Such contract
shall not be treated as a qualified long-term care in-
surance contract during any period on or after the
date on which the contract (or any portion thereof)
is assigned or pledged as collateral for a loan.
‘‘(e) TREATMENT OF COVERAGE AS PART OF A LIFE
INSURANCE CONTRACT.—Except as provided in regula-
tions, in the case of coverage of qualified long-term care
services provided as part of a life insurance contract, the
requirements of this section shall apply as if the portion
of the contract providing such coverage was a separate
contract.
‘‘(f) QUALIFIED LONG-TERM CARE SERVICES.—For
purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified long-
term care services’ has the meaning given such term
by section 213(g).
‘‘(2) RECERTIFICATION.—If an individual has
been certified as a functionally impaired individual
under section 213(g)(2)(A), services shall not be
treated as qualified long-term care services with re-
spect to the individual unless such individual is
recertified no less frequently than annually as a
functionally impaired individual in the same manner
as 
under 
such 
section, 
except 
that 
such
191
Title II, Subtitle C
recertification may be made by any licensed health
care practitioner (as defined in section 213(g)(4)),
other than a relative (as defined by section
213(g)(5)) of such individual.
‘‘(g) CONTINUATION COVERAGE EXCISE TAX NOT
TO APPLY.—Section 4980B shall not apply to—
‘‘(1) qualified long-term care insurance con-
tracts, or
‘‘(2) plans described in subsection (a)(2).
‘‘(h) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the re-
quirements of this section, including regulations to prevent
the avoidance of this section by providing qualified long-
term care services under a life insurance contract.’’
(b) CLERICAL AMENDMENT.—The table of sections
for chapter 79 is amended by inserting after the item re-
lating to section 7702A the following new item:
‘‘Sec. 7702B. Treatment of long-term care insurance or plans.’’
SEC. 2203. EFFECTIVE DATES.
(a) SECTION 2201.—The amendments made by sec-
tion 2201 shall apply to taxable years beginning after De-
cember 31, 1994.
(b) SECTION 2202.—The amendments made by sec-
tion 2202 shall apply to contracts issued after December
31, 1994.
192
Title II, Subtitle C
(c) TRANSITION RULE.—If, after the date of the en-
actment of this Act and before January 1, 1995, a con-
tract providing coverage for services which are similar to
qualified long-term care services (as defined in section
213(g) of the Internal Revenue Code of 1986) and issued
on or before January 1, 1994, is exchanged for a qualified
long-term care insurance contract (as defined in section
7702B(b) of such Code), such exchange shall be treated
as an exchange to which section 1035 of such Code ap-
plies.
PART II—CONSUMER PROTECTION PROVISIONS
SEC. 2301. POLICY REQUIREMENTS.
(a) IN GENERAL.—Section 7702B (as added by sec-
tion 2202) is amended by redesignating subsection (h) as
subsection (i) and by inserting after subsection (g) the fol-
lowing new subsection:
‘‘(h) CONSUMER PROTECTION PROVISIONS.—
‘‘(1) IN GENERAL.—The requirements of this
subsection are met with respect to any contract if
any long-term care insurance policy issued under the
contract meets—
‘‘(A) the requirements of the model regula-
tion and model Act described in paragraph (2),
‘‘(B) the disclosure requirement of para-
graph (3),
193
Title II, Subtitle C
‘‘(C) 
the 
requirements 
relating 
to
nonforfeitability under paragraph (4), and
‘‘(D) the requirements relating to rate sta-
bilization under paragraph (5).
‘‘(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 fol-
lowing requirements of the model regula-
tion:
‘‘(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
continuation or conversion of cov-
erage).
194
Title II, Subtitle C
‘‘(V) Section 7E (relating to dis-
continuance and replacement of poli-
cies).
‘‘(VI) Section 8 (relating to unin-
tentional lapse).
‘‘(VII) Section 9 (relating to dis-
closure), other than section 9F there-
of.
‘‘(VIII) Section 10 (relating to
prohibitions against post-claims un-
derwriting).
‘‘(IX) Section 11 (relating to
minimum standards).
‘‘(X) Section 12 (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 23 (relating to pro-
hibition against preexisting conditions
and probationary periods in replace-
ment policies or certificates).
195
Title II, Subtitle C
‘‘(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).
‘‘(B) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) MODEL PROVISIONS.—The terms
‘model regulation’ and ‘model Act’ mean
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 in January of
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
provision of such regulation or Act nec-
essary to implement the provision.
‘‘(3) TAX DISCLOSURE REQUIREMENT.—The re-
quirement of this paragraph is met with respect to
196
Title II, Subtitle C
any policy if such policy meets the requirements of
section 4980D(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
nonforfeiture provision.
‘‘(B) REQUIREMENTS OF PROVISION.—The
nonforfeiture provision required under subpara-
graph (A) shall meet the following require-
ments:
‘‘(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 reflected in changes in rates for pre-
mium paying policies approved by the Sec-
retary for the same policy form.
197
Title II, Subtitle C
‘‘(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.
‘‘(5) RATE STABILIZATION.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met with respect to any
long-term care insurance policy, including any
group master policy, if—
‘‘(i) such policy contains the minimum
rate guarantees specified in subparagraph
(B), and
‘‘(ii) the issuer of such policy meets
the requirements specified in subparagraph
(C).
‘‘(B) MINIMUM RATE GUARANTEES.—The
minimum rate guarantees specified in this sub-
paragraph are as follows:
‘‘(i) Rates under the policy shall be
guaranteed for a period of at least 3 years
from the date of issue of the policy.
198
Title II, Subtitle C
‘‘(ii) After the expiration of the 3-year
period required under clause (i), any rate
increase shall be guaranteed for a period of
at least 2 years from the effective date of
such rate increase.
‘‘(iii) In the case of any individual age
75 or older who has maintained coverage
under a long-term care insurance policy for
10 years, rate increases under such policy
shall not exceed 10 percent in any 12-
month period.
‘‘(C) INCREASES IN PREMIUMS.—The re-
quirements specified in this subparagraph are
as follows:
‘‘(i) IN GENERAL.—If an issuer of any
long-term care insurance policy, including
any group master policy, plans to increase
the premium rates for a policy, such issuer
shall, at least 90 days before the effective
date of the rate increase, offer to each in-
dividual policyholder under such policy the
option to remain insured under the policy
at a reduced level of benefits which main-
tains the premium rate at the rate in effect
199
Title II, Subtitle C
on the day before the effective date of the
rate increase.
‘‘(ii) INCREASES OF MORE THAN 50
PERCENT.—
‘‘(I) IN GENERAL.—If an issuer
of any long-term care insurance pol-
icy, including any group master pol-
icy, increases premium rates for a pol-
icy by more than 50 percent in any 3-
year period—
‘‘(aa) in the case of a group
master long-term care insurance
policy, 
the 
issuer 
shall 
dis-
continue issuing all group master
long-term care insurance policies
in any State in which the issuer
issues such policy for a period of
2 years from the effective date of
such premium increase; and
‘‘(bb) in the case of an indi-
vidual long-term care insurance
policy, 
the 
issuer 
shall 
dis-
continue issuing all individual
long-term care policies in any
State in which the issuer issues
200
Title II, Subtitle C
such policy for a period of 2
years from the effective date of
such premium increase.
‘‘(II) APPLICABILITY.—Subclause
(I) shall apply to any issuer of long-
term care insurance policies or any
other person that purchases or other-
wise acquires any long-term care in-
surance policies from another issuer
or person.
‘‘(D) MODIFICATIONS OR WAIVERS OF RE-
QUIREMENTS.—The Secretary may modify or
waive any of the requirements under this para-
graph if—
‘‘(i) such requirements will adversely
effect an issuer’s solvency;
‘‘(ii) such modification or waiver is re-
quired for the issuer to meet other State or
Federal requirements;
‘‘(iii) medical developments, new dis-
abling diseases, changes in long-term care
delivery, or a new method of financing
long-term care will result in changes to
mortality and morbidity patterns or as-
sumptions;
201
Title II, Subtitle C
‘‘(iv) judicial interpretation of a pol-
icy’s benefit features results in unintended
claim liabilities; or
‘‘(v) in the case of a purchase or other
acquisition of long-term care insurance
policies of an issuer or other person, the
continued sale of other long-term care in-
surance policies by the purchasing issuer
or person is in the best interests of individ-
ual consumers.
‘‘(6) 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 4980D(e).’’.
(b) 
CONFORMING
AMENDMENT.—Section
7702B(b)(1)(B) (as added by section 2202) is amended
by inserting ‘‘and of subsection (h)’’ after ‘‘and (4)’’.
SEC. 2302. ADDITIONAL REQUIREMENTS FOR ISSUERS OF
LONG-TERM CARE INSURANCE POLICIES.
(a) IN GENERAL.—Chapter 43, as amended by sec-
tion 2403, is amended by adding at the end the following
new section:
232
Title III, Subtitle A
pear to be the greatest need for strengthening
competitive purchasing, and
(C) States and localities for which, as re-
flected in expenditure levels and rates of in-
crease, there appear to be the greatest need for
additional cost control measures.
(3) SPECIAL
DISTRIBUTIONS.—The Secretary
may provide for the distribution to—
(A) a qualified health plan of such infor-
mation relating to the plan as may be appro-
priate in order to encourage the plan to improve
its delivery of care, and
(B) business, consumer, and other groups
and individuals of such information as may im-
prove their ability to effect improvements in the
outcomes, quality, and efficiency of health serv-
ices.
(4) ACCESS
BY
AGENCY
FOR
HEALTH
CARE
POLICY AND RESEARCH.—The Secretary shall make
available to the Agency for Health Care Policy and
Research information obtained under this section in
a manner consistent with subsection (a)(2).
278
Title III, Subtitle B
the head of such department or agency shall furnish
such information to the Commission.
(3) POSTAL SERVICES.—The Commission may
use the United States mails in the same manner and
under the same conditions as other departments and
agencies of the Federal Government.
(4) GIFTS.—The Commission may accept, use,
and dispose of gifts or donations of services or prop-
erty.
(f) COMMISSION PERSONNEL MATTERS.—
(1) COMPENSATION OF MEMBERS.—Each mem-
ber of the Commission who is not an officer or em-
ployee of the Federal Government shall be com-
pensated at a rate equal to the daily equivalent of
the annual rate of basic pay prescribed for level IV
of the Executive Schedule under section 5315 of title
5, United States Code, for each day (including travel
time) during which such member is engaged in the
performance of the duties of the Commission. All
members of the Commission who are officers or em-
ployees of the United States shall serve without com-
pensation in addition to that received for their serv-
ices as officers or employees of the United States.
(2) TRAVEL EXPENSES.—The members of the
Commission shall be allowed travel expenses, includ-