H. R. 3103—124
(3) Paragraph (1) of section 2208 of the Public Health
Service Act is amended by adding at the end the following
new sentence: ‘‘Such term shall not include any plan substan-
tially all of the coverage under which is for qualified long-
term care services (as defined in section 7702B(c) of such
Code).’’
(e) 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.’’.
(f) EFFECTIVE DATES.—
(1) GENERAL EFFECTIVE DATE.—
(A) IN GENERAL.—Except as provided in subparagraph
(B), the amendments made by this section shall apply
to contracts issued after December 31, 1996.
(B) RESERVE METHOD.—The amendment made by sub-
section (b) shall apply to contracts issued after December
31, 1997.
(2) CONTINUATION OF EXISTING POLICIES.—In the case of
any contract issued before January 1, 1997, which met the
long-term care insurance requirements of the State in which
the contract was sitused at the time the contract was issued—
(A) such contract shall be treated for purposes 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 purposes as qualified
long-term care services (as defined in section 7702B(c) of
such Code).
In the case of an individual who is covered on December 31,
1996, under a State long-term care plan (as defined in section
7702B(f)(2) of such Code), the terms of such plan on such
date shall be treated for purposes of the preceding sentence
as a contract issued on such date which met the long-term
care insurance requirements of such State.
(3) EXCHANGES OF EXISTING POLICIES.—If, after the date
of enactment of this Act and before January 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 section 7702B(b) of such Code), no gain or loss
shall be recognized on the exchange. If, in addition to a qualified
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 para-
graph, the cancellation of a contract providing for long-term
care insurance coverage and reinvestment of the cancellation
proceeds in a qualified long-term care insurance contract within
60 days thereafter shall be treated as an exchange.
(4) ISSUANCE OF CERTAIN RIDERS PERMITTED.—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 quali-
fied long-term care insurance contract under section 7702B,
and
H. R. 3103—125
(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.
(5) APPLICATION OF PER DIEM LIMITATION TO EXISTING CON-
TRACTS.—The amount of per diem payments made under a
contract issued on or before July 31, 1996, with respect to
an insured which are excludable from gross income by reason
of section 7702B of the Internal Revenue Code of 1986 (as
added by this section) shall not be reduced under subsection
(d)(2)(B) thereof by reason of reimbursements received under
a contract issued on or before such date. The preceding sentence
shall cease to apply as of the date (after July 31, 1996) such
contract is exchanged or there is any contract modification
which results in an increase in the amount of such per diem
payments or the amount of such reimbursements.
(g) LONG-TERM CARE STUDY REQUEST.—The Chairman of the
Committee on Ways and Means of the House of Representatives
and the Chairman of the Committee on Finance of the Senate
shall jointly request the National Association of Insurance Commis-
sioners, in consultation with representatives of the insurance indus-
try and consumer organizations, to formulate, develop, and conduct
a study to determine the marketing and other effects of per diem
limits on certain types of long-term care policies. If the National
Association of Insurance Commissioners agrees to the study request,
the National Association of Insurance Commissioners shall report
the results of its study to such committees not later than 2 years
after accepting the request.
SEC. 322. QUALIFIED LONG-TERM CARE SERVICES TREATED AS MEDI-
CAL CARE.
(a) GENERAL RULE.—Paragraph (1) of section 213(d) (defining
medical care) is amended by striking ‘‘or’’ at the end of subpara-
graph (B), by redesignating subparagraph (C) as subparagraph
(D), and by inserting after subparagraph (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 inserting before the period
‘‘or for any qualified long-term care insurance contract (as
defined in section 7702B(b))’’.
(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 eligible long-term care
premiums (as defined in paragraph (10)) shall be taken into
account under subparagraph (D).’’
(B) Paragraph (2) of section 162(l) is amended by adding
at the end the following new subparagraph:
‘‘(C) LONG-TERM
CARE
PREMIUMS.—In the case of a
qualified long-term care insurance contract (as defined in
section 7702B(b)), only eligible long-term care premiums
(as defined in section 213(d)(10)) shall be taken into account
under paragraph (1).’’
H. R. 3103—126
(C) Subsection (d) of section 213 is amended by adding
at the end the following new paragraphs:
‘‘(10) ELIGIBLE LONG-TERM CARE PREMIUMS.—
‘‘(A) IN GENERAL.—For purposes of this section, the
term ‘eligible long-term care premiums’ means the amount
paid during a taxable year for any qualified long-term
care insurance contract (as defined in section 7702B(b))
covering 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 increase deter-
mined under the preceding sentence 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 medical 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 defined 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 Secre-
tary of Health and Human Services, prescribe an
adjustment which the Secretary determines is more
appropriate for purposes of this paragraph than the
adjustment described in the preceding sentence, and
the adjustment so prescribed shall apply in lieu of
the adjustment described in the preceding sentence.
‘‘(11) CERTAIN PAYMENTS TO RELATIVES 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 individual shall be treated as not paid for medical care
if such service is provided—
‘‘(A) by the spouse of the individual or by a relative
(directly or through a partnership, corporation, or other
entity) unless the service is provided by a licensed profes-
sional with respect to such service, 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 individual which is
described in any of paragraphs (1) through (8) of section 152(a).
H. R. 3103—127
This paragraph shall not apply for purposes of section 105(b)
with respect to reimbursements through insurance.’’.
(3) Paragraph (6) of section 213(d) is amended—
(A) by striking ‘‘subparagraphs (A) and (B)’’ and insert-
ing ‘‘subparagraphs (A), (B), and (C)’’, and
(B) by striking ‘‘paragraph (1)(C)’’ in subparagraph (A)
and inserting ‘‘paragraph (1)(D)’’.
(4) Paragraph (7) of section 213(d) is amended by striking
‘‘subparagraphs (A) and (B)’’ and inserting ‘‘subparagraphs (A),
(B), and (C)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1996.
SEC. 323. REPORTING REQUIREMENTS.
(a) IN GENERAL.—Subpart B of part III of subchapter A of
chapter 61 is amended by adding at the end the following 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, setting forth—
‘‘(1) the aggregate amount of such benefits paid by such
person to any individual during any calendar year,
‘‘(2) whether or not such benefits are paid in whole or
in part on a per diem or other periodic basis without regard
to the expenses incurred during the period to which the pay-
ments relate,
‘‘(3) the name, address, and TIN of such individual, and
‘‘(4) the name, address, and TIN of the chronically ill or
terminally ill individual on account of whose condition such
benefits are paid.
‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS WITH RESPECT
TO WHOM INFORMATION IS REQUIRED.—Every person required to
make a return under subsection (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 payments, and
‘‘(2) the aggregate amount of long-term care benefits paid
to the individual which are required to be shown on such
return.
The written statement required under the preceding sentence shall
be furnished to the individual on or before January 31 of the
year following the calendar year for which the return under sub-
section (a) was required to be made.
‘‘(c) LONG-TERM CARE BENEFITS.—For purposes of this section,
the term ‘long-term care benefit’ means—
‘‘(1) any payment under a product which is advertised,
marketed, or offered as long-term care insurance, and
‘‘(2) any payment which is excludable from gross income
by reason of section 101(g).’’.
(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 inserting after clause (viii) the follow-
ing new clause:
‘‘(ix) section 6050Q (relating to certain long-term
care benefits),’’.
H. R. 3103—128
(2) Paragraph (2) of section 6724(d) is amended by
redesignating subparagraphs (Q) through (T) as subparagraphs
(R) through (U), respectively, and by inserting after subpara-
graph (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.
PART II—CONSUMER PROTECTION
PROVISIONS
SEC. 325. POLICY REQUIREMENTS.
Section 7702B (as added by section 321) is amended by adding
at the end the following new subsection:
‘‘(g) CONSUMER PROTECTION PROVISIONS.—
‘‘(1) IN GENERAL.—The requirements of this subsection are
met with respect to any contract if the contract meets—
‘‘(A) the requirements of the model regulation and
model Act described in paragraph (2),
‘‘(B) the disclosure requirement of paragraph (3), and
‘‘(C) the requirements relating to nonforfeitability
under paragraph (4).
‘‘(2) REQUIREMENTS OF MODEL REGULATION AND ACT.—
‘‘(A) IN GENERAL.—The requirements of this paragraph
are met with respect to any contract if such contract
meets—
‘‘(i) MODEL REGULATION.—The following require-
ments of the model regulation:
‘‘(I) Section 7A (relating to guaranteed renewal
or noncancellability), and the requirements of
section 6B of the model Act relating to such section
7A.
‘‘(II) Section 7B (relating to prohibitions on
limitations and exclusions).
‘‘(III) Section 7C (relating to extension of bene-
fits).
‘‘(IV) Section 7D (relating to continuation or
conversion of coverage).
‘‘(V) Section 7E (relating to discontinuance and
replacement of policies).
‘‘(VI) Section 8 (relating to unintentional
lapse).
‘‘(VII) Section 9 (relating to disclosure), other
than section 9F thereof.
‘‘(VIII) Section 10 (relating to prohibitions
against post-claims underwriting).
‘‘(IX) Section 11 (relating to minimum stand-
ards).
‘‘(X) Section 12 (relating to requirement to
offer inflation protection), except that any require-
ment for a signature on a rejection of inflation
H. R. 3103—130
‘‘(5) CROSS REFERENCE.—
‘‘For coordination of the requirements of this subsection with
State requirements, see section 4980C(f).’’.
SEC. 326. REQUIREMENTS FOR ISSUERS OF QUALIFIED LONG-TERM
CARE INSURANCE CONTRACTS.
(a) IN GENERAL.—Chapter 43 is amended by adding at the
end the following new section:
‘‘SEC. 4980C. REQUIREMENTS FOR ISSUERS OF QUALIFIED LONG-TERM
CARE INSURANCE CONTRACTS.
‘‘(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 imposed by sub-
section (a) shall be $100 per insured for each day any require-
ment of subsection (c) or (d) is not met with respect to each
qualified long-term care insurance contract.
‘‘(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.
‘‘(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 require-
ments), 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 waiting
period or because of any applicable preexisting condi-
tion.
‘‘(iii) Section 20 (relating to filing requirements
for marketing).
‘‘(iv) Section 21 (relating to standards for market-
ing), including inaccurate completion of medical his-
tories, other than sections 21C(1) and 21C(6) thereof,
except that—
‘‘(I) in addition to such requirements, no per-
son 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 applicant or enrollee for long-term care
insurance has accident and sickness insurance.
‘‘(v) Section 22 (relating to appropriateness of
recommended purchase).
‘‘(vi) Section 24 (relating to standard format outline
of coverage).
H. R. 3103—131
‘‘(vii) Section 25 (relating to requirement to deliver
shopper’s guide).
‘‘(B) MODEL ACT.—The following requirements 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 applica-
tions and any refund shall be made within 30 days
of the return or denial.
‘‘(ii) Section 6G (relating to outline of coverage).
‘‘(iii) Section 6H (relating to requirements for cer-
tificates 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 incontestability period).
‘‘(C) DEFINITIONS.—For purposes of this paragraph, the
terms ‘model regulation’ and ‘model Act’ have the meanings
given such terms by section 7702B(g)(2)(B).
‘‘(2) DELIVERY OF POLICY.—If an application for a qualified
long-term care insurance contract (or for a certificate under
such a contract for a group) is approved, the issuer shall deliver
to the applicant (or policyholder or certificateholder) the con-
tract (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 qualified long-term care insurance contract is denied, the
issuer shall, within 60 days of the date of 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 directly relating
to such denial.
‘‘(d) DISCLOSURE.—The requirements of this subsection 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 intended to be a qualified long-term
care insurance contract under section 7702B(b).
‘‘(e) 
QUALIFIED
LONG-TERM
CARE
INSURANCE
CONTRACT
DEFINED.—For purposes of this section, the term ‘qualified long-
term care insurance contract’ has the meaning given such term
by section 7702B.
‘‘(f) COORDINATION WITH STATE REQUIREMENTS.—If a State
imposes any requirement which is more stringent than the analo-
gous requirement imposed by this section or section 7702B(g), the
requirement imposed by this section or section 7702B(g) shall be
treated as met if the more stringent State requirement is met.’’.
(b) CONFORMING AMENDMENT.—The table of sections for chapter
43 is amended by adding at the end the following new item:
‘‘Sec. 4980C. Requirements for issuers of qualified long-term care insurance con-
tracts.’’.
SEC. 327. EFFECTIVE DATES.
(a) IN GENERAL.—The provisions of, and amendments made
by, this part shall apply to contracts issued after December 31,
1996. The provisions of section 321(f) (relating to transition rule)
shall apply to such contracts.
H. R. 3103—132
(b) ISSUERS.—The amendments made by section 326 shall apply
to actions taken after December 31, 1996.
Subtitle D—Treatment of Accelerated
Death Benefits
SEC. 331. TREATMENT 
OF 
ACCELERATED 
DEATH 
BENEFITS 
BY
RECIPIENT.
(a) IN GENERAL.—Section 101 (relating to certain death bene-
fits) is amended by adding at the end the following new subsection:
‘‘(g) TREATMENT OF CERTAIN ACCELERATED DEATH BENEFITS.—
‘‘(1) IN GENERAL.—For purposes of this section, the follow-
ing amounts shall be treated as an amount paid by reason
of the death of an insured:
‘‘(A) Any amount received under a life insurance con-
tract on the life of an insured who is a terminally ill
individual.
‘‘(B) Any amount received under a life insurance con-
tract on the life of an insured who is a chronically ill
individual.
‘‘(2) TREATMENT OF VIATICAL SETTLEMENTS.—
‘‘(A) IN GENERAL.—If any portion of the death benefit
under a life insurance contract on the life of an insured
described in paragraph (1) is sold or assigned to a viatical
settlement provider, the amount paid for the sale or assign-
ment of such portion shall be treated as an amount paid
under the life insurance contract by reason of the death
of such insured.
‘‘(B) VIATICAL SETTLEMENT PROVIDER.—
‘‘(i) IN
GENERAL.—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—
‘‘(I) such person is licensed for such purposes
(with respect to insureds described in the same
subparagraph of paragraph (1) as the insured) in
the State in which the insured resides, or
‘‘(II) in the case of an insured who resides
in a State not requiring the licensing of such per-
sons for such purposes with respect to such
insured, such person meets the requirements of
clause (ii) or (iii), whichever applies to such
insured.
‘‘(ii) TERMINALLY ILL INSUREDS.—A person meets
the requirements of this clause with respect to an
insured who is a terminally ill individual if such
person—
‘‘(I) meets the requirements 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 Association of Insur-
ance Commissioners (relating to standards for
evaluation of reasonable payments) in determining
H. R. 3103—133
amounts paid by such person in connection with
such purchases or assignments.
‘‘(iii) CHRONICALLY ILL INSUREDS.—A person meets
the requirements of this clause with respect to an
insured who is a chronically ill individual if such
person—
‘‘(I) meets requirements similar to the require-
ments referred to in clause (ii)(I), and
‘‘(II) meets the standards (if any) of the
National Association of Insurance Commissioners
for evaluating the reasonableness of amounts paid
by such person in connection with such purchases
or assignments with respect to chronically ill
individuals.
‘‘(3) SPECIAL RULES FOR CHRONICALLY ILL INSUREDS.—In
the case of an insured who is a chronically ill individual—
‘‘(A) IN GENERAL.—Paragraphs (1) and (2) shall not
apply to any payment received for any period unless—
‘‘(i) such payment is for costs incurred by the payee
(not compensated for by insurance or otherwise) for
qualified long-term care services provided for the
insured for such period, and
‘‘(ii) the terms of the contract giving rise to such
payment satisfy—
‘‘(I) the requirements of section 7702B(b)(1)(B),
and
‘‘(II) the requirements (if any) applicable under
subparagraph (B).
For purposes of the preceding sentence, the rule of section
7702B(b)(2)(B) shall apply.
‘‘(B) 
OTHER
REQUIREMENTS.—The 
requirements
applicable under this subparagraph are—
‘‘(i) those requirements of section 7702B(g) and
section 4980C which the Secretary specifies as applying
to such a purchase, assignment, or other arrangement,
‘‘(ii) standards adopted by the National Association
of Insurance Commissioners which specifically apply
to chronically ill individuals (and, if such standards
are adopted, the analogous requirements specified
under clause (i) shall cease to apply), and
‘‘(iii) standards adopted by the State in which the
policyholder resides (and if such standards are adopted,
the analogous requirements specified under clause (i)
and (subject to section 4980C(f)) standards under
clause (ii), shall cease to apply).
‘‘(C) PER DIEM PAYMENTS.—A payment shall not fail
to be described in subparagraph (A) by reason of being
made on a per diem or other periodic basis without regard
to the expenses incurred during the period to which the
payment relates.
‘‘(D) LIMITATION
ON
EXCLUSION
FOR
PERIODIC
PAY-
MENTS.—
‘‘For limitation on amount of periodic payments which are
treated as described in paragraph (1), see section 7702B(d).’’.
‘‘(4) DEFINITIONS.—For purposes of this subsection—
‘‘(A) TERMINALLY
ILL
INDIVIDUAL.—The term ‘termi-
nally ill individual’ means an individual who has been
H. R. 3103—134
certified by a physician as having an illness or physical
condition which can reasonably be expected to result in
death in 24 months or less after the date of the certification.
‘‘(B) CHRONICALLY ILL INDIVIDUAL.—The term ‘chron-
ically ill individual’ has the meaning given such term by
section 7702B(c)(2); except that such term shall not include
a terminally ill individual.
‘‘(C) QUALIFIED LONG-TERM CARE SERVICES.—The term
‘qualified long-term care services’ has the meaning given
such term by section 7702B(c).
‘‘(D) PHYSICIAN.—The term ‘physician’ has the meaning
given to such term by section 1861(r)(1) of the Social Secu-
rity Act (42 U.S.C. 1395x(r)(1)).
‘‘(5) EXCEPTION FOR BUSINESS-RELATED POLICIES.—This sub-
section shall not apply in the case of any amount paid to
any taxpayer other than the insured if such taxpayer has
an insurable interest with respect to the life of the insured
by reason of the insured being a director, officer, or employee
of the taxpayer 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 subsection (a)
shall apply to amounts received after December 31, 1996.
SEC. 332. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED
ACCELERATED DEATH BENEFIT RIDERS.
(a) QUALIFIED ACCELERATED DEATH BENEFIT RIDERS TREATED
AS LIFE INSURANCE.—Section 818 (relating to other definitions and
special rules) is amended by adding at the end the following new
subsection:
‘‘(g) QUALIFIED ACCELERATED DEATH BENEFIT RIDERS TREATED
AS LIFE INSURANCE.—For purposes of this part—
‘‘(1) IN GENERAL.—Any reference to a life insurance contract
shall be treated as including a reference to a qualified acceler-
ated 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 payments under the rider are payments meeting
the requirements of section 101(g).
‘‘(3) EXCEPTION FOR LONG-TERM CARE RIDERS.—Paragraph
(1) shall not apply to any rider which is treated as a long-
term care insurance contract 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
MATERIAL
CHANGE.—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 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.
H. R. 3103—137
‘‘(II) if such distributions are made during any
taxable year during which such 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 section 213(d)(1)(D) with
respect to the individual and the individual’s
spouse and dependents (as defined in section 152).
‘‘(ii) 
DISTRIBUTIONS
AFTER
REEMPLOYMENT.—
Clause (i) shall not apply to any distribution made
after the individual has been employed for at least
60 days after the separation from employment to which
clause (i) applies.
‘‘(iii) SELF-EMPLOYED INDIVIDUALS.—To the extent
provided in regulations, a self-employed individual
shall be treated as meeting the requirements of clause
(i)(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) is amended by striking ‘‘or (C)’’ and inserting ‘‘, (C), or
(D)’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to distributions after December 31, 1996.
Subtitle H—Organ and Tissue Donation
Information Included With Income Tax
Refund Payments
SEC. 371. ORGAN AND TISSUE DONATION INFORMATION INCLUDED
WITH INCOME TAX REFUND PAYMENTS.
(a) IN GENERAL.—The Secretary of the Treasury shall, to the
extent practicable, include with the mailing of 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 described in subsection (b).
(b) TEXT OF DOCUMENT.—The Secretary of the Treasury shall,
after consultation with the Secretary of Health and Human Services
and organizations promoting organ and tissue (including eye) dona-
tion, prepare a document suitable for inclusion with individual
income tax refund payments which—
(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 mem-
bers 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 occasion arises.
H. R. 3103—138
TITLE IV—APPLICATION AND ENFORCE-
MENT 
OF 
GROUP 
HEALTH 
PLAN
REQUIREMENTS
Subtitle A—Application and Enforcement
of Group Health Plan Requirements
SEC. 401. GROUP HEALTH PLAN PORTABILITY, ACCESS, AND RENEW-
ABILITY REQUIREMENTS.
(a) IN GENERAL.—The Internal Revenue Code of 1986 is
amended by adding at the end the following new subtitle:
‘‘Subtitle 
K—Group 
Health 
Plan 
Port-
ability, 
Access, 
and 
Renewability
Requirements
‘‘Chapter 100. Group health plan portability, access, and renewability requirements.
‘‘CHAPTER 100—GROUP HEALTH PLAN PORTABILITY,
ACCESS, AND RENEWABILITY REQUIREMENTS
‘‘Sec. 9801. Increased portability through limitation on preexisting condition exclu-
sions.
‘‘Sec. 9802. Prohibiting discrimination against individual participants and bene-
ficiaries based on health status.
‘‘Sec. 9803. Guaranteed renewability in multiemployer plans and certain multiple
employer welfare arrangements.
‘‘Sec. 9804. General exceptions.
‘‘Sec. 9805. Definitions.
‘‘Sec. 9806. Regulations.
‘‘SEC. 9801. INCREASED 
PORTABILITY 
THROUGH 
LIMITATION 
ON
PREEXISTING CONDITION EXCLUSIONS.
‘‘(a) LIMITATION ON PREEXISTING CONDITION EXCLUSION PERIOD;
CREDITING FOR PERIODS OF PREVIOUS COVERAGE.—Subject to sub-
section (d), a group health plan may, with respect to a participant
or beneficiary, impose a preexisting condition exclusion only if—
‘‘(1) such exclusion relates to a condition (whether physical
or mental), regardless of the cause of the condition, for which
medical advice, diagnosis, care, or treatment was recommended
or received within the 6-month period ending on the enrollment
date;
‘‘(2) such exclusion extends for a period of not more than
12 months (or 18 months in the case of a late enrollee) after
the enrollment date; and
‘‘(3) the period of any such preexisting condition exclusion
is reduced by the length of the aggregate of the periods of
creditable coverage (if any) applicable to the participant or
beneficiary as of the enrollment date.
‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) PREEXISTING CONDITION EXCLUSION.—
‘‘(A) IN
GENERAL.—The term ‘preexisting condition
exclusion’ means, with respect to coverage, a limitation
or exclusion of benefits relating to a condition based on
H. R. 3103—139
the fact that the condition was present before the date
of enrollment for such coverage, whether or not any medical
advice, diagnosis, care, or treatment was recommended
or received before such date.
‘‘(B) TREATMENT OF GENETIC INFORMATION.—For pur-
poses of this section, genetic information shall not be
treated as a condition described in subsection (a)(1) in
the absence of a diagnosis of the condition related to such
information.
‘‘(2) ENROLLMENT
DATE.—The term ‘enrollment date’
means, with respect to an individual covered under a group
health plan, the date of enrollment of the individual in the
plan or, if earlier, the first day of the waiting period for such
enrollment.
‘‘(3) LATE ENROLLEE.—The term ‘late enrollee’ means, with
respect to coverage under a group health plan, a participant
or beneficiary who enrolls under the plan other than during—
‘‘(A) the first period in which the individual is eligible
to enroll under the plan, or
‘‘(B) a special enrollment period under subsection (f).
‘‘(4) WAITING PERIOD.—The term ‘waiting period’ means,
with respect to a group health plan and an individual who
is a potential participant or beneficiary in the plan, the period
that must pass with respect to the individual before the individ-
ual is eligible to be covered for benefits under the terms of
the plan.
‘‘(c) RULES RELATING TO CREDITING PREVIOUS COVERAGE.—
‘‘(1) CREDITABLE COVERAGE DEFINED.—For purposes of this
part, the term ‘creditable coverage’ means, with respect to
an individual, coverage of the individual under any of the
following:
‘‘(A) A group health plan.
‘‘(B) Health insurance coverage.
‘‘(C) Part A or part B of title XVIII of the Social
Security Act.
‘‘(D) Title XIX of the Social Security Act, other than
coverage consisting solely of benefits under section 1928.
‘‘(E) Chapter 55 of title 10, United States Code.
‘‘(F) A medical care program of the Indian Health
Service or of a tribal organization.
‘‘(G) A State health benefits risk pool.
‘‘(H) A health plan offered under chapter 89 of title
5, United States Code.
‘‘(I) A public health plan (as defined in regulations).
‘‘(J) A health benefit plan under section 5(e) of the
Peace Corps Act (22 U.S.C. 2504(e)).
Such term does not include coverage consisting solely of cov-
erage of excepted benefits (as defined in section 9805(c)).
‘‘(2) NOT COUNTING PERIODS BEFORE SIGNIFICANT BREAKS
IN COVERAGE.—
‘‘(A) IN GENERAL.—A period of creditable coverage shall
not be counted, with respect to enrollment of an individual
under a group health plan, if, after such period and before
the enrollment date, there was a 63-day period during
all of which the individual was not covered under any
creditable coverage.
H. R. 3103—140
‘‘(B) WAITING
PERIOD
NOT
TREATED
AS
A
BREAK
IN
COVERAGE.—For purposes of subparagraph (A) and sub-
section (d)(4), any period that an individual is in a waiting
period for any coverage under a group health plan or is
in an affiliation period shall not be taken into account
in determining the continuous period under subpara-
graph (A).
‘‘(C) AFFILIATION PERIOD.—
‘‘(i) IN GENERAL.—For purposes of this section, the
term ‘affiliation period’ means a period which, under
the terms of the health insurance coverage offered
by the health maintenance organization, must expire
before the health insurance coverage becomes effective.
During such an affiliation period, the organization is
not required to provide health care services or benefits
and no premium shall be charged to the participant
or beneficiary.
‘‘(ii) BEGINNING.—Such period shall begin on the
enrollment date.
‘‘(iii) RUNS
CONCURRENTLY
WITH
WAITING
PERI-
ODS.—Any such affiliation period shall run concur-
rently with any waiting period under the plan.
‘‘(3) METHOD OF CREDITING COVERAGE.—
‘‘(A) STANDARD METHOD.—Except as otherwise provided
under subparagraph (B), for purposes of applying sub-
section (a)(3), a group health plan shall count a period
of creditable coverage without regard to the specific benefits
for which coverage is offered during the period.
‘‘(B) ELECTION
OF
ALTERNATIVE
METHOD.—A group
health plan may elect to apply subsection (a)(3) based
on coverage of any benefits within each of several classes
or categories of benefits specified in regulations rather
than as provided under subparagraph (A). Such election
shall be made on a uniform basis for all participants and
beneficiaries. Under such election a group health plan shall
count a period of creditable coverage with respect to any
class or category of benefits if any level of benefits is
covered within such class or category.
‘‘(C) PLAN NOTICE.—In the case of an election with
respect to a group health plan under subparagraph (B),
the plan shall—
‘‘(i) prominently state in any disclosure statements
concerning the plan, and state to each enrollee at the
time of enrollment under the plan, that the plan has
made such election, and
‘‘(ii) include in such statements a description of
the effect of this election.
‘‘(4) ESTABLISHMENT OF PERIOD.—Periods of creditable cov-
erage with respect to an individual shall be established through
presentation of certifications described in subsection (e) or in
such other manner as may be specified in regulations.
‘‘(d) EXCEPTIONS.—
‘‘(1) EXCLUSION NOT APPLICABLE TO CERTAIN NEWBORNS.—
Subject to paragraph (4), a group health plan may not impose
any preexisting condition exclusion in the case of an individual
who, as of the last day of the 30-day period beginning with
the date of birth, is covered under creditable coverage.
H. R. 3103—141
‘‘(2) EXCLUSION NOT APPLICABLE TO CERTAIN ADOPTED CHIL-
DREN.—Subject to paragraph (4), a group health plan may
not impose any preexisting condition exclusion in the case
of a child who is adopted or placed for adoption before attaining
18 years of age and who, as of the last day of the 30-day
period beginning on the date of the adoption or placement
for adoption, is covered under creditable coverage. The previous
sentence shall not apply to coverage before the date of such
adoption or placement for adoption.
‘‘(3) EXCLUSION NOT APPLICABLE TO PREGNANCY.—For pur-
poses of this section, a group health plan may not impose
any preexisting condition exclusion relating to pregnancy as
a preexisting condition.
‘‘(4) LOSS IF BREAK IN COVERAGE.—Paragraphs (1) and (2)
shall no longer apply to an individual after the end of the
first 63-day period during all of which the individual was not
covered under any creditable coverage.
‘‘(e) CERTIFICATIONS AND DISCLOSURE OF COVERAGE.—
‘‘(1) REQUIREMENT
FOR
CERTIFICATION
OF
PERIOD
OF
CREDITABLE COVERAGE.—
‘‘(A) IN GENERAL.—A group health plan shall provide
the certification described in subparagraph (B)—
‘‘(i) at the time an individual ceases to be covered
under the plan or otherwise becomes covered under
a COBRA continuation provision,
‘‘(ii) in the case of an individual becoming covered
under such a provision, at the time the individual
ceases to be covered under such provision, and
‘‘(iii) on the request on behalf of an individual
made not later than 24 months after the date of ces-
sation of the coverage described in clause (i) or (ii),
whichever is later.
The certification under clause (i) may be provided, to the
extent practicable, at a time consistent with notices
required under any applicable COBRA continuation
provision.
‘‘(B) CERTIFICATION.—The certification described in this
subparagraph is a written certification of—
‘‘(i) the period of creditable coverage of the individ-
ual under such plan and the coverage under such
COBRA continuation provision, and
‘‘(ii) the waiting period (if any) (and affiliation
period, if applicable) imposed with respect to the
individual for any coverage under such plan.
‘‘(C) ISSUER COMPLIANCE.—To the extent that medical
care under a group health plan consists of health insurance
coverage offered in connection with the plan, the plan
is deemed to have satisfied the certification requirement
under this paragraph if the issuer provides for such certifi-
cation in accordance with this paragraph.
‘‘(2) DISCLOSURE OF INFORMATION ON PREVIOUS BENEFITS.—
‘‘(A) IN GENERAL.—In the case of an election described
in subsection (c)(3)(B) by a group health plan, if the plan
enrolls an individual for coverage under the plan and the
individual provides a certification of coverage of the individ-
ual under paragraph (1)—
H. R. 3103—142
‘‘(i) upon request of such plan, the entity which
issued the certification provided by the individual shall
promptly disclose to such requesting plan information
on coverage of classes and categories of health benefits
available under such entity’s plan, and
‘‘(ii) such entity may charge the requesting plan
or issuer for the reasonable cost of disclosing such
information.
‘‘(3) REGULATIONS.—The Secretary shall establish rules to
prevent an entity’s failure to provide information under para-
graph (1) or (2) with respect to previous coverage of an individ-
ual from adversely affecting any subsequent coverage of the
individual under another group health plan or health insurance
coverage.
‘‘(f) SPECIAL ENROLLMENT PERIODS.—
‘‘(1) INDIVIDUALS LOSING OTHER COVERAGE.—A group health
plan shall permit an employee who is eligible, but not enrolled,
for coverage under the terms of the plan (or a dependent
of such an employee if the dependent is eligible, but not
enrolled, for coverage under such terms) to enroll for coverage
under the terms of the plan if each of the following conditions
is met:
‘‘(A) The employee or dependent was covered under
a group health plan or had health insurance coverage at
the time coverage was previously offered to the employee
or individual.
‘‘(B) The employee stated in writing at such time that
coverage under a group health plan or health insurance
coverage was the reason for declining enrollment, but only
if the plan sponsor (or the health insurance issuer offering
health insurance coverage in connection with the plan)
required such a statement at such time and provided the
employee with notice of such requirement (and the con-
sequences of such requirement) at such time.
‘‘(C) The employee’s or dependent’s coverage described
in subparagraph (A)—
‘‘(i) was under a COBRA continuation provi-
sion and the coverage under such provision was
exhausted; or
‘‘(ii) was not under such a provision and either
the coverage was terminated as a result of loss of
eligibility for the coverage (including as a result of
legal separation, divorce, death, termination of employ-
ment, or reduction in the number of hours of employ-
ment) or employer contributions toward such coverage
were terminated.
‘‘(D) Under the terms of the plan, the employee
requests such enrollment not later than 30 days after the
date of exhaustion of coverage described in subparagraph
(C)(i) or termination of coverage or employer contribution
described in subparagraph (C)(ii).
‘‘(2) FOR DEPENDENT BENEFICIARIES.—
‘‘(A) IN GENERAL.—If—
‘‘(i) a group health plan makes coverage available
with respect to a dependent of an individual,
‘‘(ii) the individual is a participant under the plan
(or has met any waiting period applicable to becoming
H. R. 3103—143
a participant under the plan and is eligible to be
enrolled under the plan but for a failure to enroll
during a previous enrollment period), and
‘‘(iii) a person becomes such a dependent of the
individual through marriage, birth, or adoption or
placement for adoption,
the group health plan shall provide for a dependent special
enrollment period described in subparagraph (B) during
which the person (or, if not otherwise enrolled, the individ-
ual) may be enrolled under the plan as a dependent of
the individual, and in the case of the birth or adoption
of a child, the spouse of the individual may be enrolled
as a dependent of the individual if such spouse is otherwise
eligible for coverage.
‘‘(B) DEPENDENT
SPECIAL
ENROLLMENT
PERIOD.—The
dependent special enrollment period under this subpara-
graph shall be a period of not less than 30 days and
shall begin on the later of—
‘‘(i) the date dependent coverage is made avail-
able, or
‘‘(ii) the date of the marriage, birth, or adoption
or placement for adoption (as the case may be)
described in subparagraph (A)(iii).
‘‘(C) NO WAITING PERIOD.—If an individual seeks cov-
erage of a dependent during the first 30 days of such
a dependent special enrollment period, the coverage of the
dependent shall become effective—
‘‘(i) in the case of marriage, not later than the
first day of the first month beginning after the date
the completed request for enrollment is received;
‘‘(ii) in the case of a dependent’s birth, as of the
date of such birth; or
‘‘(iii) in the case of a dependent’s adoption or place-
ment for adoption, the date of such adoption or
placement for adoption.
‘‘SEC. 9802. PROHIBITING 
DISCRIMINATION 
AGAINST 
INDIVIDUAL
PARTICIPANTS AND BENEFICIARIES BASED ON HEALTH
STATUS.
‘‘(a) IN ELIGIBILITY TO ENROLL.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), a group health
plan may not establish rules for eligibility (including continued
eligibility) of any individual to enroll under the terms of the
plan based on any of the following factors in relation to the
individual or a dependent of the individual:
‘‘(A) Health status.
‘‘(B) Medical condition (including both physical and
mental illnesses).
‘‘(C) Claims experience.
‘‘(D) Receipt of health care.
‘‘(E) Medical history.
‘‘(F) Genetic information.
‘‘(G) Evidence of insurability (including conditions aris-
ing out of acts of domestic violence).
‘‘(H) Disability.
H. R. 3103—144
‘‘(2) NO APPLICATION TO BENEFITS OR EXCLUSIONS.—To the
extent consistent with section 9801, paragraph (1) shall not
be construed—
‘‘(A) to require a group health plan to provide particular
benefits (or benefits with respect to a specific procedure,
treatment, or service) other than those provided under
the terms of such plan; or
‘‘(B) to prevent such a plan from establishing limita-
tions or restrictions on the amount, level, extent, or nature
of the benefits or coverage for similarly situated individuals
enrolled in the plan or coverage.
‘‘(3) CONSTRUCTION.—For purposes of paragraph (1), rules
for eligibility to enroll under a plan include rules defining
any applicable waiting periods for such enrollment.
‘‘(b) IN PREMIUM CONTRIBUTIONS.—
‘‘(1) IN GENERAL.—A group health plan may not require
any individual (as a condition of enrollment or continued enroll-
ment under the plan) to pay a premium or contribution which
is greater than such premium or contribution for a similarly
situated individual enrolled in the plan on the basis of any
factor described in subsection (a)(1) in relation to the individual
or to an individual enrolled under the plan as a dependent
of the individual.
‘‘(2) CONSTRUCTION.—Nothing in paragraph (1) shall be
construed—
‘‘(A) to restrict the amount that an employer may be
charged for coverage under a group health plan; or
‘‘(B) to prevent a group health plan from establishing
premium discounts or rebates or modifying otherwise
applicable copayments or deductibles in return for adher-
ence to programs of health promotion and disease preven-
tion.
‘‘SEC. 9803. GUARANTEED RENEWABILITY IN MULTIEMPLOYER PLANS
AND 
CERTAIN 
MULTIPLE 
EMPLOYER 
WELFARE
ARRANGEMENTS.
‘‘(a) IN GENERAL.—A group health plan which is a multiem-
ployer plan (as defined in section 414(f)) or which is a multiple
employer welfare arrangement may not deny an employer continued
access to the same or different coverage under such plan, other
than—
‘‘(1) for nonpayment of contributions;
‘‘(2) for fraud or other intentional misrepresentation of
material fact by the employer;
‘‘(3) for noncompliance with material plan provisions;
‘‘(4) because the plan is ceasing to offer any coverage in
a geographic area;
‘‘(5) in the case of a plan that offers benefits through
a network plan, because there is no longer any individual
enrolled through the employer who lives, resides, or works
in the service area of the network plan and the plan applies
this paragraph uniformly without regard to the claims experi-
ence of employers or a factor described in section 9802(a)(1)
in relation to such individuals or their dependents; or
‘‘(6) for failure to meet the terms of an applicable collective
bargaining agreement, to renew a collective bargaining or other
H. R. 3103—145
agreement requiring or authorizing contributions to the plan,
or to employ employees covered by such an agreement.
‘‘(b) MULTIPLE EMPLOYER WELFARE ARRANGEMENT.—For pur-
poses of subsection (a), the term ‘multiple employer welfare arrange-
ment’ has the meaning given such term by section 3(40) of the
Employee Retirement Income Security Act of 1974, as in effect
on the date of the enactment of this section.
‘‘SEC. 9804. GENERAL EXCEPTIONS.
‘‘(a) EXCEPTION FOR CERTAIN PLANS.—The requirements of this
chapter shall not apply to—
‘‘(1) any governmental plan, and
‘‘(2) any group health plan for any plan year if, on the
first day of such plan year, such plan has less than 2 partici-
pants who are current employees.
‘‘(b) EXCEPTION FOR CERTAIN BENEFITS.—The requirements of
this chapter shall not apply to any group health plan in relation
to its provision of excepted benefits described in section 9805(c)(1).
‘‘(c) EXCEPTION FOR CERTAIN BENEFITS IF CERTAIN CONDITIONS
MET.—
‘‘(1) LIMITED, EXCEPTED
BENEFITS.—The requirements of
this chapter shall not apply to any group health plan in relation
to its provision of excepted benefits described in section
9805(c)(2) if the benefits—
‘‘(A) are provided under a separate policy, certificate,
or contract of insurance; or
‘‘(B) are otherwise not an integral part of the plan.
‘‘(2) NONCOORDINATED, EXCEPTED BENEFITS.—The require-
ments of this chapter shall not apply to any group health
plan in relation to its provision of excepted benefits described
in section 9805(c)(3) if all of the following conditions are met:
‘‘(A) The benefits are provided under a separate policy,
certificate, or contract of insurance.
‘‘(B) There is no coordination between the provision
of such benefits and any exclusion of benefits under any
group health plan maintained by the same plan sponsor.
‘‘(C) Such benefits are paid with respect to an event
without regard to whether benefits are provided with
respect to such an event under any group health plan
maintained by the same plan sponsor.
‘‘(3) SUPPLEMENTAL
EXCEPTED
BENEFITS.—The require-
ments of this chapter shall not apply to any group health
plan in relation to its provision of excepted benefits described
in section 9805(c)(4) if the benefits are provided under a sepa-
rate policy, certificate, or contract of insurance.
‘‘SEC. 9805. DEFINITIONS.
‘‘(a) GROUP HEALTH PLAN.—For purposes of this chapter, the
term ‘group health plan’ has the meaning given to such term
by section 5000(b)(1).
‘‘(b) DEFINITIONS RELATING TO HEALTH INSURANCE.—For pur-
poses of this chapter—
‘‘(1) HEALTH INSURANCE COVERAGE.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), the term ‘health insurance coverage’ means benefits
consisting of medical care (provided directly, through insur-
ance or reimbursement, or otherwise) under any hospital
or medical service policy or certificate, hospital or medical
H. R. 3103—146
service plan contract, or health maintenance organization
contract offered by a health insurance issuer.
‘‘(B) NO APPLICATION TO CERTAIN EXCEPTED BENEFITS.—
In applying subparagraph (A), excepted benefits described
in subsection (c)(1) shall not be treated as benefits consist-
ing of medical care.
‘‘(2) HEALTH INSURANCE ISSUER.—The term ‘health insur-
ance issuer’ means an insurance company, insurance service,
or insurance organization (including a health maintenance
organization, as defined in paragraph (3)) which is licensed
to engage in the business of insurance in a State and which
is subject to State law which regulates insurance (within the
meaning of section 514(b)(2) of the Employee Retirement
Income Security Act of 1974, as in effect on the date of the
enactment of this section). Such term does not include a group
health plan.
‘‘(3) HEALTH
MAINTENANCE
ORGANIZATION.—The term
‘health maintenance organization’ means—
‘‘(A) a federally qualified health maintenance organiza-
tion (as defined in section 1301(a) of the Public Health
Service Act (42 U.S.C. 300e(a))),
‘‘(B) an organization recognized under State law as
a health maintenance organization, or
‘‘(C) a similar organization regulated under State law
for solvency in the same manner and to the same extent
as such a health maintenance organization.
‘‘(c) EXCEPTED BENEFITS.—For purposes of this chapter, the
term ‘excepted benefits’ means benefits under one or more (or
any combination thereof) of the following:
‘‘(1) BENEFITS NOT SUBJECT TO REQUIREMENTS.—
‘‘(A) Coverage only for accident, or disability income
insurance, or any combination thereof.
‘‘(B) Coverage issued as a supplement to liability in-
surance.
‘‘(C) Liability insurance, including general liability
insurance and automobile liability insurance.
‘‘(D) Workers’ compensation or similar insurance.
‘‘(E) Automobile medical payment insurance.
‘‘(F) Credit-only insurance.
‘‘(G) Coverage for on-site medical clinics.
‘‘(H) Other similar insurance coverage, specified in
regulations, under which benefits for medical care are
secondary or incidental to other insurance benefits.
‘‘(2) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED
SEPARATELY.—
‘‘(A) Limited scope dental or vision benefits.
‘‘(B) Benefits for long-term care, nursing home care,
home health care, community-based care, or any combina-
tion thereof.
‘‘(C) Such other similar, limited benefits as are specified
in regulations.
‘‘(3) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED
AS INDEPENDENT, NONCOORDINATED BENEFITS.—
‘‘(A) Coverage only for a specified disease or illness.
‘‘(B) Hospital indemnity or other fixed indemnity in-
surance.
H. R. 3103—147
‘‘(4) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED
AS
SEPARATE
INSURANCE
POLICY.—Medicare supplemental
health insurance (as defined under section 1882(g)(1) of the
Social Security Act), coverage supplemental to the coverage
provided under chapter 55 of title 10, United States Code,
and similar supplemental coverage provided to coverage under
a group health plan.
‘‘(d) OTHER DEFINITIONS.—For purposes of this chapter—
‘‘(1) COBRA CONTINUATION PROVISION.—The term ‘COBRA
continuation provision’ means any of the following:
‘‘(A) Section 4980B, other than subsection (f)(1) thereof
insofar as it relates to pediatric vaccines.
‘‘(B) Part 6 of subtitle B of title I of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1161
et seq.), other than section 609 of such Act.
‘‘(C) Title XXII of the Public Health Service Act.
‘‘(2) GOVERNMENTAL PLAN.—The term ‘governmental plan’
has the meaning given such term by section 414(d).
‘‘(3) MEDICAL CARE.—The term ‘medical care’ has the mean-
ing given such term by section 213(d) determined without
regard to—
‘‘(A) paragraph (1)(C) thereof, and
‘‘(B) so much of paragraph (1)(D) thereof as relates
to qualified long-term care insurance.
‘‘(4) NETWORK
PLAN.—The term ‘network plan’ means
health insurance coverage of a health insurance issuer under
which the financing and delivery of medical care are provided,
in whole or in part, through a defined set of providers under
contract with the issuer.
‘‘(5) PLACED FOR ADOPTION DEFINED.—The term ‘placement’,
or being ‘placed’, for adoption, in connection with any placement
for adoption of a child with any person, means the assumption
and retention by such person of a legal obligation for total
or partial support of such child in anticipation of adoption
of such child. The child’s placement with such person termi-
nates upon the termination of such legal obligation.
‘‘SEC. 9806. REGULATIONS.
‘‘The Secretary, consistent with section 104 of the Health Care
Portability and Accountability Act of 1996, may promulgate such
regulations as may be necessary or appropriate to carry out the
provisions of this chapter. The Secretary may promulgate any
interim final rules as the Secretary determines are appropriate
to carry out this chapter.’’.
(b) CLERICAL AMENDMENT.—The table of subtitles of such Code
is amended by adding at the end the following new item:
‘‘Subtitle K. Group health plan portability, access, and renewability requirements.’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section
shall apply to plan years beginning after June 30, 1997.
(2) DETERMINATION OF CREDITABLE COVERAGE.—
(A) PERIOD OF COVERAGE.—
(i) IN GENERAL.—Subject to clause (ii), no period
before July 1, 1996, shall be taken into account under
chapter 100 of the Internal Revenue Code of 1986
(as added by this section) in determining creditable
coverage.
H. R. 3103—148
(ii) SPECIAL RULE FOR CERTAIN PERIODS.—The Sec-
retary of the Treasury, consistent with section 104,
shall provide for a process whereby individuals who
need to establish creditable coverage for periods before
July 1, 1996, and who would have such coverage cred-
ited but for clause (i) may be given credit for creditable
coverage for such periods through the presentation
of documents or other means.
(B) CERTIFICATIONS, ETC.—
(i) IN GENERAL.—Subject to clauses (ii) and (iii),
subsection (e) of section 9801 of the Internal Revenue
Code of 1986 (as added by this section) shall apply
to events occurring after June 30, 1996.
(ii) NO CERTIFICATION REQUIRED TO BE PROVIDED
BEFORE
JUNE
1, 1997.—In no case is a certification
required to be provided under such subsection before
June 1, 1997.
(iii) CERTIFICATION ONLY ON WRITTEN REQUEST FOR
EVENTS OCCURRING BEFORE OCTOBER 1, 1996.—In the
case of an event occurring after June 30, 1996, and
before October 1, 1996, a certification is not required
to be provided under such subsection unless an individ-
ual (with respect to whom the certification is otherwise
required to be made) requests such certification in
writing.
(C) TRANSITIONAL RULE.—In the case of an individual
who seeks to establish creditable coverage for any period
for which certification is not required because it relates
to an event occurring before June 30, 1996—
(i) the individual may present other credible evi-
dence of such coverage in order to establish the period
of creditable coverage; and
(ii) a group health plan and a health insurance
issuer shall not be subject to any penalty or enforce-
ment action with respect to the plan’s or issuer’s credit-
ing (or not crediting) such coverage if the plan or
issuer has sought to comply in good faith with the
applicable requirements under the amendments made
by this section.
(3) SPECIAL
RULE
FOR
COLLECTIVE
BARGAINING
AGREE-
MENTS.—Except as provided in paragraph (2), in the case of
a group health plan maintained pursuant to 1 or more collective
bargaining agreements between employee representatives and
one or more employers ratified before the date of the enactment
of this Act, the amendments made by this section shall not
apply to plan years beginning before the later of—
(A) the date on which the last of the collective bargain-
ing agreements relating to the plan terminates (determined
without regard to any extension thereof agreed to after
the date of the enactment of this Act), or
(B) July 1, 1997.
For purposes of subparagraph (A), any plan amendment made
pursuant to a collective bargaining agreement relating to the
plan which amends the plan solely to conform to any require-
ment added by this section shall not be treated as a termination
of such collective bargaining agreement.
H. R. 3103—149
(4) TIMELY REGULATIONS.—The Secretary of the Treasury,
consistent with section 104, shall first issue by not later than
April 1, 1997, such regulations as may be necessary to carry
out the amendments made by this section.
(5) LIMITATION ON ACTIONS.—No enforcement action shall
be taken, pursuant to the amendments made by this section,
against a group health plan or health insurance issuer with
respect to a violation of a requirement imposed by such amend-
ments before January 1, 1998, or, if later, the date of issuance
of regulations referred to in paragraph (4), if the plan or issuer
has sought to comply in good faith with such requirements.
SEC. 402. PENALTY ON FAILURE TO MEET CERTAIN GROUP HEALTH
PLAN REQUIREMENTS.
(a) IN GENERAL.—Chapter 43 of the Internal Revenue Code
of 1986 (relating to qualified pension, etc., plans) is amended by
adding after section 4980C the following new section:
‘‘SEC. 4980D. FAILURE TO MEET CERTAIN GROUP HEALTH PLAN
REQUIREMENTS.
‘‘(a) GENERAL RULE.—There is hereby imposed a tax on any
failure of a group health plan to meet the requirements of chapter
100 (relating to group health plan portability, access, and renewabil-
ity requirements).
‘‘(b) AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—The amount of the tax imposed by sub-
section (a) on any failure shall be $100 for each day in the
noncompliance period with respect to each individual to whom
such failure relates.
‘‘(2) NONCOMPLIANCE PERIOD.—For purposes of this section,
the term ‘noncompliance period’ means, with respect to any
failure, the period—
‘‘(A) 
beginning 
on 
the 
date 
such 
failure 
first
occurs, and
‘‘(B) ending on the date such failure is corrected.
‘‘(3) MINIMUM
TAX
FOR
NONCOMPLIANCE
PERIOD
WHERE
FAILURE DISCOVERED AFTER NOTICE OF EXAMINATION.—Notwith-
standing paragraphs (1) and (2) of subsection (c)—
‘‘(A) IN GENERAL.—In the case of 1 or more failures
with respect to an individual—
‘‘(i) which are not corrected before the date a notice
of examination of income tax liability is sent to the
employer, and
‘‘(ii) which occurred or continued during the period
under examination,
the amount of tax imposed by subsection (a) by reason
of such failures with respect to such individual shall not
be less than the lesser of $2,500 or the amount of tax
which would be imposed by subsection (a) without regard
to such paragraphs.
‘‘(B) HIGHER
MINIMUM
TAX
WHERE
VIOLATIONS
ARE
MORE THAN DE MINIMIS.—To the extent violations for which
any person is liable under subsection (e) for any year
are more than de minimis, subparagraph (A) shall be
applied by substituting ‘$15,000’ for ‘$2,500’ with respect
to such person.
H. R. 3103—150
‘‘(C) EXCEPTION FOR CHURCH PLANS.—This paragraph
shall not apply to any failure under a church plan (as
defined in section 414(e)).
‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—
‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT DISCOVERED
EXERCISING REASONABLE DILIGENCE.—No tax shall be imposed
by subsection (a) on any failure during any period for which
it is established to the satisfaction of the Secretary that the
person otherwise liable for such tax did not know, and exercis-
ing reasonable diligence would not have known, that such fail-
ure existed.
‘‘(2) TAX NOT TO APPLY TO FAILURES CORRECTED WITHIN
CERTAIN PERIODS.—No tax shall be imposed by subsection (a)
on any failure if—
‘‘(A) such failure was due to reasonable cause and
not to willful neglect, and
‘‘(B)(i) in the case of a plan other than a church plan
(as defined in section 414(e)), such failure is corrected
during the 30-day period beginning on the first date the
person otherwise liable for such tax knew, or exercising
reasonable diligence would have known, that such failure
existed, and
‘‘(ii) in the case of a church plan (as so defined), such
failure is corrected before the close of the correction period
(determined under the rules of section 414(e)(4)(C)).
‘‘(3) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.—
In the case of failures which are due to reasonable cause
and not to willful neglect—
‘‘(A) SINGLE EMPLOYER PLANS.—
‘‘(i) IN
GENERAL.—In the case of failures with
respect to plans other than specified multiple employer
health plans, the tax imposed by subsection (a) for
failures during the taxable year of the employer shall
not exceed the amount equal to the lesser of—
‘‘(I) 10 percent of the aggregate amount paid
or incurred by the employer (or predecessor
employer) during the preceding taxable year for
group health plans, or
‘‘(II) $500,000.
‘‘(ii) TAXABLE YEARS IN THE CASE OF CERTAIN CON-
TROLLED GROUPS.—For purposes of this subparagraph,
if not all persons who are treated as a single employer
for purposes of this section have the same taxable
year, the taxable years taken into account shall be
determined under principles similar to the principles
of section 1561.
‘‘(B) SPECIFIED MULTIPLE EMPLOYER HEALTH PLANS.—
‘‘(i) IN
GENERAL.—In the case of failures with
respect to a specified multiple employer health plan,
the tax imposed by subsection (a) for failures during
the taxable year of the trust forming part of such
plan shall not exceed the amount equal to the
lesser of—
‘‘(I) 10 percent of the amount paid or incurred
by such trust during such taxable year to provide
medical care (as defined in section 9805(d)(3))
H. R. 3103—151
directly or through insurance, reimbursement, or
otherwise, or
‘‘(II) $500,000.
For purposes of the preceding sentence, all plans of
which the same trust forms a part shall be treated
as one plan.
‘‘(ii) SPECIAL RULE FOR EMPLOYERS REQUIRED TO
PAY TAX.—If an employer is assessed a tax imposed
by subsection (a) by reason of a failure with respect
to a specified multiple employer health plan, the limit
shall be determined under subparagraph (A) (and not
under this subparagraph) and as if such plan were
not a specified multiple employer health plan.
‘‘(4) WAIVER BY SECRETARY.—In the case of a failure which
is due to reasonable cause and not to willful neglect, the Sec-
retary may waive part or all of the tax imposed by subsection
(a) to the extent that the payment of such tax would be exces-
sive relative to the failure involved.
‘‘(d) TAX NOT TO APPLY TO CERTAIN INSURED SMALL EMPLOYER
PLANS.—
‘‘(1) IN GENERAL.—In the case of a group health plan of
a small employer which provides health insurance coverage
solely through a contract with a health insurance issuer, no
tax shall be imposed by this section on the employer on any
failure which is solely because of the health insurance coverage
offered by such issuer.
‘‘(2) SMALL EMPLOYER.—
‘‘(A) IN GENERAL.—For purposes of paragraph (1), the
term ‘small employer’ means, with respect to a calendar
year and a plan year, an employer who employed an aver-
age of at least 2 but not more than 50 employees on
business days during the preceding calendar year and who
employs at least 2 employees on the first day of the plan
year. For purposes of the preceding sentence, all persons
treated as a single employer under subsection (b), (c), (m),
or (o) of section 414 shall be treated as one employer.
‘‘(B) EMPLOYERS
NOT
IN
EXISTENCE
IN
PRECEDING
YEAR.—In the case of an employer which was not in exist-
ence throughout the preceding calendar year, the deter-
mination of whether such employer is a small employer
shall be based on the average number of employees that
it is reasonably expected such employer will employ on
business days in the current calendar year.
‘‘(C) PREDECESSORS.—Any reference in this paragraph
to an employer shall include a reference to any predecessor
of such employer.
‘‘(3) HEALTH
INSURANCE
COVERAGE; HEALTH
INSURANCE
ISSUER.—For purposes of paragraph (1), the terms ‘health insur-
ance coverage’ and ‘health insurance issuer’ have the respective
meanings given such terms by section 9805.
‘‘(e) LIABILITY FOR TAX.—The following shall be liable for the
tax imposed by subsection (a) on a failure:
‘‘(1) Except as otherwise provided in this subsection, the
employer.
‘‘(2) In the case of a multiemployer plan, the plan.
H. R. 3103—152
‘‘(3) In the case of a failure under section 9803 (relating
to guaranteed renewability) with respect to a plan described
in subsection (f)(2)(B), the plan.
‘‘(f) DEFINITIONS.—For purposes of this section—
‘‘(1) GROUP HEALTH PLAN.—The term ‘group health plan’
has the meaning given such term by section 9805(a).
‘‘(2) SPECIFIED
MULTIPLE
EMPLOYER
HEALTH
PLAN.—The
term ‘specified multiple employer health plan’ means a group
health plan which is—
‘‘(A) any multiemployer plan, or
‘‘(B) any multiple employer welfare arrangement (as
defined in section 3(40) of the Employee Retirement Income
Security Act of 1974, as in effect on the date of the enact-
ment of this section).
‘‘(3) CORRECTION.—A failure of a group health plan shall
be treated as corrected if—
‘‘(A) such failure is retroactively undone to the extent
possible, and
‘‘(B) the person to whom the failure relates is placed
in a financial position which is as good as such person
would have been in had such failure not occurred.’’.
(b) CLERICAL AMENDMENT.—The table of sections for chapter
43 of such Code is amended by adding after the item relating
to section 4980C the following new item:
‘‘Sec. 4980D. Failure to meet certain group health plan requirements.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to failures under chapter 100 of the Internal Revenue
Code of 1986 (as added by section 401 of this Act).
Subtitle B—Clarification of Certain
Continuation Coverage Requirements
SEC. 421. 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)—
(i) by transferring the sentence immediately
preceding clause (iv) so as to appear immediately fol-
lowing such clause (iv); and
(ii) in the last sentence (as so transferred)—
(I) by striking ‘‘an individual’’ and inserting
‘‘a qualified beneficiary’’;
(II) by striking ‘‘at the time of a qualifying
event described in section 2203(2)’’ and inserting
‘‘at any time during the first 60 days of continu-
ation coverage under this title’’;
(III) by striking ‘‘with respect to such event,’’;
and
(IV) by inserting ‘‘(with respect to all qualified
beneficiaries)’’ after ‘‘29 months’’;
(B) in subparagraph (D)(i), by inserting before ‘‘, or’’
the following: ‘‘(other than such an exclusion or limitation
which does not apply to (or is satisfied by) such beneficiary
by reason of chapter 100 of the Internal Revenue Code
H. R. 3103—153
of 1986, part 7 of subtitle B of title I of the Employee
Retirement Income Security Act of 1974, or title XXVII
of this Act)’’; and
(C) in subparagraph (E), by striking ‘‘at the time of
a qualifying event described in section 2203(2)’’ and insert-
ing ‘‘at any time during the first 60 days of continuation
coverage under this title’’.
(2) NOTICES.—Section 2206(3) of the Public Health Service
Act (42 U.S.C. 300bb–6(3)) is amended by striking ‘‘at the
time of a qualifying event described in section 2203(2)’’ and
inserting ‘‘at any time during the first 60 days of continuation
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 during the period of
continuation 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 striking ‘‘an individual’’ and inserting ‘‘a
qualified beneficiary’’;
(ii) by striking ‘‘at the time of a qualifying event
described in section 603(2)’’ and inserting ‘‘at any time
during the first 60 days of continuation coverage under
this part’’;
(iii) by striking ‘‘with respect to such event’’; and
(iv) by inserting ‘‘(with respect to all qualified bene-
ficiaries)’’ after ‘‘29 months’’;
(B) in subparagraph (D)(i), by inserting before ‘‘, or’’
the following: ‘‘(other than such an exclusion or limitation
which does not apply to (or is satisfied by) such beneficiary
by reason of chapter 100 of the Internal Revenue Code
of 1986, part 7 of this subtitle, or title XXVII of the Public
Health Service Act)’’; and
(C) in subparagraph (E), by striking ‘‘at the time of
a qualifying event described in section 603(2)’’ and inserting
‘‘at any time during the first 60 days of continuation cov-
erage under this part’’.
(2) NOTICES.—Section 606(a)(3) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1166(a)(3)) is amended
by striking ‘‘at the time of a qualifying event described in
section 603(2)’’ and inserting ‘‘at any time during the first
60 days of continuation coverage under this part’’.
(3) BIRTH OR ADOPTION OF A CHILD.—Section 607(3)(A) of
the Employee Retirement Income Security Act of 1974 (29
U.S.C. 1167(3)) 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
continuation coverage under this part.’’.
(c) INTERNAL REVENUE CODE OF 1986.—
H. R. 3103—154
(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)—
(i) by striking ‘‘at the time of a qualifying event
described in paragraph (3)(B)’’ and inserting ‘‘at any
time during the first 60 days of continuation coverage
under this section’’;
(ii) by striking ‘‘with respect to such event’’; and
(iii) by inserting ‘‘(with respect to all qualified
beneficiaries)’’ after ‘‘29 months’’;
(B) in clause (iv)(I), by inserting before ‘‘, or’’ the follow-
ing: ‘‘(other than such an exclusion or limitation which
does not apply to (or is satisfied by) such beneficiary by
reason of chapter 100 of this title, part 7 of subtitle B
of title I of the Employee Retirement Income Security
Act of 1974, or title XXVII of the Public Health Service
Act)’’; 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 first 60 days of continuation coverage
under this section’’.
(2) NOTICES.—Section 4980B(f)(6)(C) of the Internal
Revenue Code of 1986 is amended by striking ‘‘at the time
of a qualifying event described in paragraph (3)(B)’’ and insert-
ing ‘‘at any time during the first 60 days of continuation cov-
erage 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 continuation coverage under this
section.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall become effective on January 1, 1997, regardless of whether
the qualifying event occurred before, on, or after such date.
(e) NOTIFICATION OF CHANGES.—Not later than November 1,
1996, 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 continuation coverage under
such title, part or section of the amendments made by this section.
TITLE V—REVENUE OFFSETS
SEC. 500. 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 repeal 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.
H. R. 3103—155
Subtitle A—Company-Owned Life
Insurance
SEC. 501. DENIAL OF DEDUCTION FOR INTEREST ON LOANS WITH
RESPECT TO COMPANY-OWNED LIFE INSURANCE.
(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 individual,’’ after ‘‘the
life of any individual’’, and
(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 subsection:
‘‘(d) SPECIAL RULES FOR APPLICATION OF SUBSECTION (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 contracts covering an individual
who is a key person to the extent that the aggregate amount
of such indebtedness 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
beginning after December 31, 1995, to the extent the
amount of such interest exceeds the amount which would
have been determined if the applicable 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 interest described as
Moody’s Corporate Bond Yield Average-Monthly Aver-
age Corporates as published by Moody’s Investors
Service, Inc., or any successor thereto, for such month.
‘‘(ii) PRE-1986 CONTRACTS.—In the case of indebted-
ness on a contract purchased on or before June 20,
1986—
‘‘(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 providing a variable
rate of interest, the applicable rate of interest for
any month in an applicable period shall be such
Moody’s rate for the third month preceding the
first month in 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
H. R. 3103—156
applicable 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 con-
sent of the Secretary.
‘‘(3) KEY PERSON.—For purposes of paragraph (1), the term
‘key person’ means an officer or 20-percent 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 officers and
employees of the taxpayer or 20 individuals.
‘‘(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 the outstanding stock
of the corporation or stock possessing 20 percent or more
of the total combined voting power of all stock of the
corporation, 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 paragraph (4)(A)
and applying the $50,000 limitation in paragraph (1)—
‘‘(i) all members of a controlled group shall be
treated as one taxpayer, and
‘‘(ii) such limitation shall be allocated among the
members of such group in such manner as the Sec-
retary may prescribe.
‘‘(B) CONTROLLED GROUP.—For purposes of this para-
graph, all persons treated as a single employer under sub-
section (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 October 13, 1995.
(2) TRANSITION RULE FOR EXISTING INDEBTEDNESS.—
(A) IN GENERAL.—In the case of—
(i) indebtedness incurred before January 1,
1996, or
(ii) indebtedness incurred before January 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 before January 1, 1999.
(B) QUALIFIED
INTEREST.—For purposes of subpara-
graph (A), the qualified interest with respect to any indebt-
edness for any month is the amount of interest (otherwise
deductible) which would be paid or accrued for such month
on such indebtedness if—
(i) in the case of any interest paid or accrued
after December 31, 1995, indebtedness with respect
to no more than 20,000 insured individuals were taken
into account, and
H. R. 3103—157
(ii) the lesser of the following rates of interest
were used for such month:
(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 of the rate of
interest described as Moody’s Corporate Bond
Yield Average-Monthly Average Corporates as pub-
lished 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 1 person.
Subclause (II) of clause (ii) shall not apply to any month
before January 1, 1996.
(C) APPLICABLE
PERCENTAGE.—For purposes of sub-
paragraph (B), the applicable percentage is as follows:
For calendar year:
The percentage is:
1996 ..........................................................................................
100 percent
1997 ..........................................................................................
90 percent
1998 ..........................................................................................
80 percent.
(3) SPECIAL RULE FOR GRANDFATHERED CONTRACTS.—This
section shall not apply to any contract purchased on or before
June 20, 1986, except that section 264(d)(2) of the Internal
Revenue Code of 1986 shall apply to interest paid or accrued
after October 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 annuity 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 calendar 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 ratably over the
4-taxable year period beginning with the taxable year such
amount would (but for this paragraph) 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.
(2) SPECIAL RULES FOR APPLYING SECTION 264.—A contract
shall not be treated as—
(A) failing to meet the requirement of section 264(c)(1)
of the Internal Revenue Code of 1986, or
(B) a single premium contract under section 264(b)(1)
of such Code,
solely by reason of an occurrence described in subparagraph
(A) or (B) of paragraph (1) of this subsection or solely by
H. R. 3103—158
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 described in subpara-
graph (A) or (B) of paragraph (1) of this subsection with respect
to any policy or contract—
(A) section 848 of the Internal Revenue Code of 1986
shall not apply to the unamortized balance (if any) of
the specified policy acquisition expenses attributable to
such policy or contract immediately before the insurance
company’s taxable year in which such event occurs, and
(B) there shall be allowed as a deduction to such com-
pany for such taxable year under chapter 1 of such Code
an amount equal to such unamortized balance.
Subtitle B—Treatment of Individuals Who
Lose United States Citizenship
SEC. 511. REVISION OF INCOME, ESTATE, AND GIFT TAXES ON
INDIVIDUALS WHO LOSE UNITED STATES CITIZENSHIP.
(a) IN GENERAL.—Subsection (a) of section 877 is amended
to read as follows:
‘‘(a) TREATMENT OF EXPATRIATES.—
‘‘(1) IN GENERAL.—Every nonresident alien individual who,
within the 10-year period immediately preceding the close of
the taxable year, lost United States citizenship, unless such
loss did not have for one of its principal purposes the avoidance
of taxes under this subtitle or subtitle B, shall be taxable
for such taxable year in the manner provided in subsection
(b) if the tax imposed pursuant to such subsection exceeds
the tax which, without regard to this section, is imposed pursu-
ant to section 871.
‘‘(2) CERTAIN INDIVIDUALS TREATED AS HAVING TAX AVOID-
ANCE PURPOSE.—For purposes of paragraph (1), an individual
shall be treated as having a principal purpose to avoid such
taxes if—
‘‘(A) the average annual net income tax (as defined
in section 38(c)(1)) of such individual for the period of
5 taxable years ending before the date of the loss of United
States citizenship is greater than $100,000, or
‘‘(B) the net worth of the individual as of such date
is $500,000 or more.
In the case of the loss of United States citizenship in any
calendar year 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 ‘1994’
for ‘1992’ in subparagraph (B) thereof. Any increase under
the preceding sentence shall be rounded to the nearest multiple
of $1,000.’’.
(b) EXCEPTIONS.—
(1) IN GENERAL.—Section 877 is amended by striking sub-
section (d), by redesignating subsection (c) as subsection (d),
and by inserting after subsection (b) the following new sub-
section:
‘‘(c) TAX AVOIDANCE NOT PRESUMED IN CERTAIN CASES.—
H. R. 3103—159
‘‘(1) IN GENERAL.—Subsection (a)(2) shall not apply to an
individual if—
‘‘(A) such individual is described in a subparagraph
of paragraph (2) of this subsection, and
‘‘(B) within the 1-year period beginning on the date
of the loss of United States citizenship, such individual
submits a ruling request for the Secretary’s determination
as to whether such loss has for one of its principal purposes
the avoidance of taxes under this subtitle or subtitle B.
‘‘(2) INDIVIDUALS DESCRIBED.—
‘‘(A) 
DUAL
CITIZENSHIP, 
ETC.—An 
individual 
is
described in this subparagraph if—
‘‘(i) the individual became at birth a citizen
of the United States and a citizen of another country
and continues to be a citizen of such other country,
or
‘‘(ii) the individual becomes (not later than the
close of a reasonable period after loss of United States
citizenship) a citizen of the country in which—
‘‘(I) such individual was born,
‘‘(II) if such individual is married, such indi-
vidual’s spouse was born, or
‘‘(III) either of such individual’s parents were
born.
‘‘(B) LONG-TERM
FOREIGN
RESIDENTS.—An individual
is described in this subparagraph if, for each year in the
10-year period ending on the date of loss of United States
citizenship, the individual was present in the United States
for 30 days or less. The rule of section 7701(b)(3)(D)(ii)
shall apply for purposes of this subparagraph.
‘‘(C) RENUNCIATION
UPON
REACHING
AGE
OF
MAJOR-
ITY.—An individual is described in this subparagraph if
the individual’s loss of United States citizenship occurs
before such individual attains age 181⁄2.
‘‘(D) INDIVIDUALS
SPECIFIED
IN
REGULATIONS.—An
individual is described in this subparagraph if the indi-
vidual is described in a category of individuals prescribed
by regulation by the Secretary.’’.
(2) TECHNICAL
AMENDMENT.—Paragraph (1) of section
877(b) of such Code is amended by striking ‘‘subsection (c)’’
and inserting ‘‘subsection (d)’’.
(c) TREATMENT OF PROPERTY DISPOSED OF IN NONRECOGNITION
TRANSACTIONS; TREATMENT OF DISTRIBUTIONS FROM CERTAIN CON-
TROLLED FOREIGN CORPORATIONS.—Subsection (d) of section 877,
as redesignated by subsection (b), is amended to read as follows:
‘‘(d) SPECIAL RULES FOR SOURCE, ETC.—For purposes of sub-
section (b)—
‘‘(1) SOURCE RULES.—The following items of gross income
shall be treated as income from sources within the United
States:
‘‘(A) SALE OF PROPERTY.—Gains on the sale or exchange
of property (other than stock or debt obligations) located
in the United States.
‘‘(B) STOCK OR DEBT OBLIGATIONS.—Gains on the sale
or exchange of stock issued by a domestic corporation or
debt obligations of United States persons or of the United
H. R. 3103—160
States, a State or political subdivision thereof, or the Dis-
trict of Columbia.
‘‘(C) INCOME
OR
GAIN
DERIVED
FROM
CONTROLLED
FOREIGN CORPORATION.—Any income or gain derived from
stock in a foreign corporation but only—
‘‘(i) if the individual losing United States citizen-
ship owned (within the meaning of section 958(a)),
or is considered as owning (by applying the ownership
rules of section 958(b)), at any time during the 2-
year period ending on the date of the loss of United
States citizenship, more than 50 percent of—
‘‘(I) the total combined voting power of all
classes of stock entitled to vote of such corpora-
tion, or
‘‘(II) the total value of the stock of such cor-
poration, and
‘‘(ii) to the extent such income or gain does not
exceed the earnings and profits attributable to such
stock which were earned or accumulated before the
loss of citizenship and during periods that the owner-
ship requirements of clause (i) are met.
‘‘(2) GAIN RECOGNITION ON CERTAIN EXCHANGES.—
‘‘(A) IN GENERAL.—In the case of any exchange of prop-
erty to which this paragraph applies, notwithstanding any
other provision of this title, such property shall be treated
as sold for its fair market value on the date of such
exchange, and any gain shall be recognized for the taxable
year which includes such date.
‘‘(B) EXCHANGES TO WHICH PARAGRAPH APPLIES.—This
paragraph shall apply to any exchange during the 10-
year period described in subsection (a) if—
‘‘(i) gain would not (but for this paragraph) be
recognized on such exchange in whole or in part for
purposes of this subtitle,
‘‘(ii) income derived from such property was from
sources within the United States (or, if no income
was so derived, would have been from such sources),
and
‘‘(iii) income derived from the property acquired
in the exchange would be from sources outside the
United States.
‘‘(C) EXCEPTION.—Subparagraph (A) shall not apply
if the individual enters into an agreement with the Sec-
retary which specifies that any income or gain derived
from the property acquired in the exchange (or any other
property which has a basis determined in whole or part
by reference to such property) during such 10-year period
shall be treated as from sources within the United States.
If the property transferred in the exchange is disposed
of by the person acquiring such property, such agreement
shall terminate and any gain which was not recognized
by reason of such agreement shall be recognized as of
the date of such disposition.
‘‘(D) SECRETARY MAY EXTEND PERIOD.—To the extent
provided in regulations prescribed by the Secretary,
subparagraph (B) shall be applied by substituting the 15-