(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; table of contents.
TITLE I—STATE PROGRAMS FOR LONG-TERM CARE SERVICES
FOR NEEDY INDIVIDUALS WITH DISABILITIES
Subtitle A—State Long-Term Care Programs
Sec. 101. State programs for long-term care services for needy individuals with
disabilities.
Sec. 102. State plans.
Sec. 103. Individuals with disabilities and needy individual defined.
Sec. 104. Long-term care services covered under State plan.
Sec. 105. Cost sharing.
Sec. 106. Quality assurance and safeguards.
Sec. 107. Advisory groups.
Sec. 108. Payments to States.
Sec. 109. Total Federal budget; allotments to States.
Subtitle B—Increase in SSI Personal Needs Allowance
Sec. 111. Increase in SSI personal needs allowance.
Subtitle C—Repeal of Coverage Under the Medicaid Program of Long-Term
Care Services
Sec. 121. Repeal of coverage under the medicaid program of long-term care
services covered under State plan.
TITLE II—TAX TREATMENT OF LONG-TERM CARE INSURANCE
AND SERVICES
Sec. 201. Amendment of 1986 code.
Sec. 202. Qualified long-term care services treated as medical care.
Sec. 203. Treatment of long-term care insurance.
Sec. 204. Tax treatment of accelerated death benefits under life insurance con-
tracts.
Sec. 205. Tax treatment of companies issuing qualified accelerated death bene-
fit riders.
Sec. 206. Exclusion from gross income for amounts withdrawn from certain
plans to pay qualified long-term care insurance premiums.
Sec. 207. Nonrecognition of gain on sale of principal residence to extent pro-
ceeds used for entrance into continuing care retirement com-
munity.
TITLE III—LONG-TERM CARE INSURANCE REFORM
Subtitle A—General Provisions
Sec. 301. Federal regulations; prior application or certain requirements.
Sec. 302. Definitions.
Subtitle B—Federal Standards and Requirements
Sec. 321. Requirements to facilitate understanding and comparison of benefits.
Sec. 322. Requirements relating to coverage.
Sec. 323. Requirements relating to premiums.
Sec. 324. Requirements relating to sales practices.
Sec. 325. Continuation, renewal, replacement, conversion, and cancellation of
policies.
Sec. 326. Requirements relating to payment of benefits.
Subtitle C—Enforcement
Sec. 341. State programs for enforcement of standards.
Sec. 342. Authorization of appropriations for State programs.
Sec. 343. Allotments to States.
Sec. 344. Payments to States.
Sec. 345. Federal oversight of State enforcement.
Subtitle D—Recommendations for Consumer Education Program
Sec. 361. Recommendations for consumer education program.
TITLE IV—FINANCING
Sec. 401. Phase in of 24-cent/pack increase in excise taxes on cigarettes.
TITLE I—STATE PROGRAMS FOR
LONG-TERM CARE SERVICES
FOR 
NEEDY 
INDIVIDUALS
WITH DISABILITIES
Subtitle A—State Long-Term Care
Programs
SEC. 101. STATE PROGRAMS FOR LONG-TERM CARE SERV-
ICES FOR NEEDY INDIVIDUALS WITH DIS-
ABILITIES.
(a) IN GENERAL.—Each State that has a plan for
the long-term care services to needy individuals with dis-
abilities submitted to and approved by the Secretary under
section 102(b) is entitled to payment in accordance with
section 108.
(b) NO INDIVIDUAL ENTITLEMENT ESTABLISHED.—
Nothing in this subtitle shall be construed to create an
entitlement for individuals or a requirement that a State
with such an approved plan expend the entire amount of
funds to which it is entitled in any year.
(c) STATE DEFINED.—In this Act, the term ‘‘State’’
includes the District of Columbia, Puerto Rico, the Virgin
Islands, Guam, American Samoa, and the Northern Mari-
ana Islands.
SEC. 102. STATE PLANS.
(a) PLAN REQUIREMENTS.—In order to be approved
under subsection (b), a State plan for long-term care serv-
ices for needy individuals with disabilities must meet the
following requirements:
(1) ELIGIBILITY.—
(A) IN
GENERAL.—Within the amounts
provided by the State (and under section 108)
for such plan, the plan shall provide that serv-
ices under the plan will be available to needy in-
dividuals with disabilities (as defined in section
103(a)) in the State.
(B) INITIAL SCREENING.—The plan shall
provide a process for the initial screening of in-
dividuals who appear to have some reasonable
likelihood of being an individual with disabil-
ities.
(C) RESTRICTIONS.—The plan may not
limit the eligibility of needy individuals with dis-
abilities based on—
(i) age,
(ii) geography,
(iii) nature, severity, or category of
disability,
(iv) residential setting (other than an
institutional setting), or
(v) other grounds specified by the
Secretary.
(D) MAINTENANCE OF EFFORT.—The plan
must provide assurances that, in the case of an
individual receiving medical assistance for home
and community-based services under the State
medicaid plan as of the date of the enactment
of this Act, the State will continue to make
available (either under this plan or otherwise)
to such individual an appropriate level of assist-
ance for home and community-based services,
taking into account the level of assistance pro-
vided as of such date and the individual’s need
for home and community-based services.
(2) SERVICES.—
(A) SPECIFICATION.—Consistent with sec-
tion 104, the plan shall specify—
(i) the services made available under
the plan,
(ii) the extent and manner in which
such services are allocated and made avail-
able to individuals with disabilities, and
(iii) the manner in which services
under the plan are coordinated with each
other and with health and long-term care
services available outside the plan for indi-
viduals with disabilities.
(B) ALLOCATION.—The State plan—
(i) shall specify how it will allocate
services under the plan, during and after
the 4-fiscal-year phase-in period beginning
with fiscal year 1996, among covered indi-
viduals with disabilities, and
(ii) may not allocate such services
based on the income or other financial re-
sources of such individuals.
(C) LIMITATION ON LICENSURE OR CER-
TIFICATION.—The 
State 
may 
not 
subject
consumer-directed providers of personal assist-
ance services to licensure, certification, or other
requirements which the Secretary finds not to
be necessary for the health and safety of indi-
viduals with disabilities.
(D) CONSUMER
CHOICE.—To the extent
possible, the choice of an individual with dis-
abilities (and that individual’s family) regarding
which covered services to receive and the pro-
viders who will provide such services shall be
followed.
(3) COST SHARING.—The plan shall impose cost
sharing with respect to covered services only in ac-
cordance with section 105.
(4) TYPES OF PROVIDERS AND REQUIREMENTS
FOR PARTICIPATION.—The plan shall specify—
(A) the types of service providers eligible
to participate in the program under the plan,
which shall include consumer-directed providers
for home and community-based services, and
(B) any requirements for participation ap-
plicable to each type of service provider.
(5) BUDGET.—The plan shall specify how the
State will manage Federal and State funds available
under the plan for each fiscal year during the period
beginning with fiscal year 1996 and ending with fis-
cal year 2000 and for each 5-fiscal-year periods
thereafter to serve all categories of individuals with
disabilities and meet the requirements of this sub-
section. If the Secretary makes an adjustment under
section 109(a)(5)(C) for a year, each State shall up-
date the specifications under this paragraph to re-
flect the impact of such an adjustment.
(6) PROVIDER REIMBURSEMENT.—
(A) PAYMENT METHODS.—The plan shall
specify the payment methods to be used to re-
imburse providers for services furnished under
the plan. Such methods may include retrospec-
tive reimbursement on a fee-for-service basis,
prepayment on a capitation basis, payment by
cash or vouchers to individuals with disabilities,
or any combination of these methods. In the
case of the use of cash or vouchers, the plan
shall specify how the plan will assure compli-
ance with applicable employment tax provisions.
(B) PAYMENT
RATES.—The plan shall
specify the methods and criteria to be used to
set payment rates for services furnished under
the plan (including rates for cash payments or
vouchers to individuals with disabilities).
(C) PLAN
PAYMENT
AS
PAYMENT
IN
FULL.—The plan shall restrict payment under
the plan for covered services to those providers
that agree to accept the payment under the
plan (at the rates established pursuant to sub-
paragraph (B)) and any cost sharing permitted
or provided for under section 105 as payment
in full for services furnished under the plan.
(7) QUALITY ASSURANCE AND SAFEGUARDS.—
The State plan shall provide for quality assurance
and safeguards for applicants and beneficiaries in
accordance with section 106.
(8) ADVISORY GROUP.—The State plan shall—
(A) assure the establishment and mainte-
nance of an advisory group under section
107(b), and
(B) include the documentation prepared by
the group under section 107(b)(4).
(9) ADMINISTRATION.—
(A) STATE AGENCY.—The plan shall des-
ignate a State agency or agencies to administer
(or to supervise the administration of) the plan.
(B) ADMINISTRATIVE
EXPENDITURES.—
Effective beginning with fiscal year 2003, the
plan shall contain assurances that not more
than 10 percent of expenditures under the plan
for all quarters in any fiscal year shall be for
administrative costs.
(C) COORDINATION.—The plan shall speci-
fy how the plan—
(i) will be integrated with the State
medicaid plan, titles V and XX of the So-
cial Security Act, programs under the
Older Americans Act of 1965, programs
under the Developmental Disabilities As-
sistance and Bill of Rights Act, the Indi-
viduals with Disabilities Education Act, the
Rehabilitation Act of 1973, and any other
Federal or State programs that provide
services or assistance targeted to individ-
uals with disabilities, and
(ii) will be coordinated with health
plans.
(10) REPORTS
AND
INFORMATION
TO
SEC-
RETARY; AUDITS.—The plan shall provide that the
State will furnish to the Secretary—
(A) such reports, and will cooperate with
such audits, as the Secretary determines are
needed concerning the State’s administration of
its plan under this subtitle, including the proc-
essing of claims under the plan, and
(B) such data and information as the Sec-
retary may require in order to carry out the
Secretary’s responsibilities.
(11) USE OF STATE FUNDS FOR MATCHING.—
The plan shall provide assurances that Federal
funds will not be used to provide for the State share
of expenditures under this subtitle.
(b) APPROVAL OF PLANS.—The Secretary shall ap-
prove a plan submitted by a State if the Secretary deter-
mines that the plan—
(1) was developed by the State after consulta-
tion with individuals with disabilities and representa-
tives of groups of such individuals, and
(2) meets the requirements of subsection (a).
The approval of such a plan shall take effect as of the
first day of the first fiscal year beginning after the date
of such approval (except that any approval made before
January 1, 1996, shall be effective as of January 1, 1996).
In order to budget funds allotted under this subtitle, the
Secretary may establish a deadline for the submission of
such a plan before the beginning of a fiscal year as a con-
dition of its approval effective with that fiscal year.
(c) MONITORING.—The Secretary shall monitor the
compliance of State plans with the eligibility requirements
of section 103 and may monitor the compliance of such
plans with other requirements of this subtitle.
(d) REGULATIONS.—The Secretary shall issue such
regulations as may be appropriate to carry out this sub-
title on a timely basis.
SEC. 103. INDIVIDUALS WITH DISABILITIES AND NEEDY IN-
DIVIDUAL DEFINED.
(a) IN GENERAL.—In this subtitle, for purposes of
both home and community-based services and institutional
services, the term ‘‘individual with disabilities’’ means any
individual within one or more of the following 4 categories
of individuals:
(1) INDIVIDUALS REQUIRING HELP WITH AC-
TIVITIES OF DAILY LIVING.—An individual of any
age who—
(A) requires hands-on or standby assist-
ance, supervision, or cueing (as defined in regu-
lations) to perform—
(i) with respect to home and commu-
nity-based services, two or more activities
of daily living (as defined in subsection
(c)), or
(ii) with respect to institutional serv-
ices, three or more activities of daily living;
and
(B) is expected to require such assistance,
supervision, or cueing over a period of at least
120 days.
(2) INDIVIDUALS WITH SEVERE COGNITIVE OR
MENTAL IMPAIRMENT.—An individual of any age—
(A) whose score, on a standard mental sta-
tus protocol (or protocols) appropriate for
measuring the individual’s particular condition
specified by the Secretary, indicates either se-
vere cognitive impairment or severe mental im-
pairment, or both;
(B) who—
(i) requires hands-on or standby as-
sistance, supervision, or cueing with one or
more activities of daily living,
(ii) requires hands-on or standby as-
sistance, supervision, or cueing with at
least such instrumental activity (or activi-
ties) of daily living related to cognitive or
mental impairment as the Secretary speci-
fies, or
(iii) displays symptoms of one or more
serious behavioral problems (that is on a
list of such problems specified by the Sec-
retary) which create a need for supervision
to prevent harm to self or others; and
(C) is expected to meet the requirements of
subparagraphs (A) and (B) over a period of at
least 100 days.
(3) INDIVIDUALS WITH SEVERE OR PROFOUND
MENTAL RETARDATION.—An individual of any age
who has severe or profound mental retardation (as
determined according to a protocol specified by the
Secretary).
(4) SEVERELY DISABLED CHILDREN.—An indi-
vidual under 6 years of age who—
(A) has a severe disability or chronic medi-
cal condition,
(B) but for receiving personal assistance
services or any of the services described in sec-
tion 104(d)(1), would require institutionaliza-
tion in a hospital, nursing facility, or intermedi-
ate care facility for the mentally retarded, and
(C) is expected to have such disability or
condition and require such services over a pe-
riod of at least 100 days.
(b) DETERMINATION OF DISABILITY.—
(1) IN GENERAL.—The determination of wheth-
er an individual is an individual with disabilities
shall be made, by persons or entities specified under
the State plan, using a uniform protocol consisting
of an initial screening and assessment specified by
the Secretary. A State may collect additional infor-
mation, at the time of obtaining information to
make such determination, in order to provide for the
assessment and plan described in section 104(b) or
for other purposes. The State shall establish a fair
hearing process for appeals of such determinations.
(2) PERIODIC REASSESSMENT.—The determina-
tion that an individual is an individual with disabil-
ities shall be considered to be effective under the
State plan for a period of not more than 12 months
(or for such longer period in such cases as a signifi-
cant change in an individual’s condition that may af-
fect such determination is unlikely). A reassessment
shall be made if there is a significant change in an
individual’s condition that may affect such deter-
mination.
(c) ACTIVITY OF DAILY LIVING DEFINED.—In this
subtitle, the term ‘‘activity of daily living’’ means any of
the following: eating, toileting, dressing, bathing, and
transferring.
(d) NEEDY INDIVIDUAL DEFINED; DETERMINATION
OF INCOME AND RESOURCES.—
(1) NEEDY
INDIVIDUAL
DEFINED.—In this
title, the term ‘‘needy individual’’ means an individ-
ual—
(A) whose income (as determined under
paragraph (2)) is less than 200 percent of the
official poverty line (as defined by the Office of
Management and Budget, and revised annually
in accordance with section 673(2) of the Omni-
bus Budget Reconciliation Act of 1981) applica-
ble to a family of the size involved, and
(B) whose resources (as determined under
paragraph (3)(A)) are less than the amount
specified by the State consistent with paragraph
(3)(B).
(2) DETERMINATION OF INCOME.—
(A) IN GENERAL.—The State plan shall
specify the methodology to be used to determine
the income of an individual with disabilities for
purposes of paragraph (1) and section 105 (re-
lating to cost sharing).
(B) STANDARDS.—Such methodology shall
be consistent with standards specified by the
Secretary. Such standards shall be consistent
with the methodology generally used by States
as of the date of the enactment of this Act and
shall—
(i) provide for taking into account ex-
penses incurred for medical care or other
types of remedial care recognized under
State law, and
(ii) be consistent with the provisions
of section 105(a) and the rules provided
under section 1924 of the Social Security
Act (with respect to institutionalized
spouses).
(3) DETERMINATION OF RESOURCES.—
(A) METHODLOGY.—
(i) IN
GENERAL.—The State plan
shall specify the methodology to be used to
determine the resources of an individual
with disabilities for purposes of paragraph
(1) and section 105 (relating to cost shar-
ing).
(ii) STANDARDS.—Such methodology
shall be consistent with standards and
methodology specified by the Secretary.
Such standards and methodology shall—
(I) be based on the methodology
used under the supplemental security
income program, and
(II) take into account the provi-
sions of section 105(a) and the rules
provided under section 1924 of the
Social Security Act (with respect to
institutionalized spouses).
(B) RESOURCE LEVEL.—
(i) IN GENERAL.—The resource level
specified in this subparagraph is—
(I) $5,000 for an individual who
has no spouse with whom the individ-
ual is living, and
(II) $7,500 for an individual who
has a spouse with whom the individual
is living.
(ii) ADJUSTMENT.—A State may in-
crease either or both of the levels specified
under clause (i) to up to $12,000.
(4) SPECIAL
RULE
FOR
CURRENT
MEDICAID
BENEFICIARIES.—In the case of an individual who
as of January 1, 1996, was receiving medical assist-
ance for long-term care services under a State plan
under title XIX of the Social Security Act, the indi-
vidual shall be deemed to be a needy individual so
long as the individual would have been eligible to re-
ceive such assistance under such plan (as in effect
on such date), but for section 1931 of such Act (as
added by section 121(a)).
(5) APPLICATION
OF
TRANSFER
OF
ASSET
RULES.—Except as specifically provided, the State
shall apply rules similar to the rules described in
section 1917(c) of the Social Security Act with re-
spect to the disposal of assets for less than fair mar-
ket value.
SEC. 104. LONG-TERM CARE SERVICES COVERED UNDER
STATE PLAN.
(a) SPECIFICATION.—
(1) IN
GENERAL.—Subject to the succeeding
provisions of this section, the State plan under this
subtitle shall specify—
(A) the long-term care services available
under the plan to individuals with disabilities
(or to such categories of such individuals), and
(B) any limits with respect to such serv-
ices.
(2) FLEXIBILITY
IN
MEETING
INDIVIDUAL
NEEDS.—The services shall be specified in a manner
that permits sufficient flexibility for providers to
meet the needs of individuals with disabilities in a
cost effective manner consistent with the individual-
ized plan of care. Subject to subsection (e)(1)(B),
such services may be delivered in an individual’s
home, a range of community residential arrange-
ments, or outside the home.
(b) REQUIREMENT FOR NEEDS ASSESSMENT AND
PLAN OF CARE.—
(1) IN GENERAL.—The State plan shall provide
for long-term care services to an individual with dis-
abilities only if—
(A) a comprehensive assessment of the in-
dividual’s need for long-term care services (re-
gardless of whether all needed services are
available under the plan) has been made by a
care manager (who meets qualifications speci-
fied in the State plan),
(B) an individualized plan of care based on
such assessment is developed by such manager,
and
(C) such services are provided consistent
with such plan of care.
(2) INVOLVEMENT OF INDIVIDUALS.—The indi-
vidualized plan of care under paragraph (1)(B) for
an individual with disabilities shall—
(A) be developed by the care manager who
performed the comprehensive assessment,
(B) be developed and implemented in close
consultation with the individual and the individ-
ual’s family,
(C) be approved by the individual (or the
individual’s representative), and
(D) be reviewed and updated not less often
than every 6 months.
(3) PLAN OF CARE.—The plan of care under
paragraph (1)(B) shall—
(A) specify which services specified under
the individual plan will be provided under the
State plan under this subtitle,
(B) identify (to the extent possible) how
the individual will be provided any services
specified under the plan of care and not pro-
vided under the State plan, and
(C) specify how the provision of services to
the individual under the plan will be coordi-
nated with the provision of other health care
services to the individual.
The State shall make reasonable efforts to identify
and arrange for services described in subparagraph
(B). Nothing in this subsection shall be construed as
requiring a State (under the State plan or other-
wise) to provide all the services specified in such a
plan.
(c) LONG-TERM CARE SERVICES DEFINED.—
(1) IN GENERAL.—In this title, the term ‘‘long-
term care services’’ means—
(A) home and community-based services
(as defined in subsection (d)), and
(B) institutional services (as defined in
section (e)).
(2) SECONDARY
PAYER
TO
MEDICARE
AND
OTHER HEALTH PLANS.—A State plan may not pro-
vide for coverage of any items and services to the ex-
tent coverage is provided for the individual under a
health plan or the medicare program.
(d) HOME AND COMMUNITY-BASED SERVICES.—
(1) IN
GENERAL.—In this subtitle, the term
‘‘home and community-based services’’—
(A) includes, for all categories of individ-
uals with disabilities, both agency-administered
and consumer-directed personal assistance serv-
ices (as defined in paragraph (3)); and
(B) subject to paragraph (4), includes any
(or all) of the following:
(i) Case management.
(ii) Homemaker and chore assistance.
(iii) Home modifications.
(iv) Respite services.
(v) Assistive devices.
(vi) Adult day services.
(vii) Habilitation and rehabilitation.
(viii) Supported employment.
(ix) Home health services.
(x) Hospice services.
(xi) Care or assisted services provided
in an assisted living facility, continuing
care retirement community or other resi-
dential care facility, excluding room and
board.
(xii) Any other care or assistive serv-
ices (approved by the Secretary) that the
State determines will help individuals with
disabilities to remain in their homes and
communities.
(2) CRITERIA FOR SELECTION OF SERVICES.—
The State plan shall specify—
(A) the methods and standards used to se-
lect the types, and the amount, duration, and
scope, of home and community-based services
described in paragraph (1)(B) to be covered
under the plan and to be available to each cat-
egory of individuals with disabilities, and
(B) how the types, and the amount, dura-
tion, and scope, of such services specified meet
the needs of individuals within each of the 4
categories of individuals with disabilities.
(3) PERSONAL ASSISTANCE SERVICES.—
(A) IN
GENERAL.—In this section, the
term ‘‘personal assistance services’’ means
those services specified under the State plan as
personal assistance services and shall include at
least hands-on and standby assistance, super-
vision, and cueing with activities of daily living,
whether agency-administered or consumer-di-
rected (as defined in subparagraph (B)).
(B) 
CONSUMER-DIRECTED; 
AGENCY-AD-
MINISTERED.—In this subtitle:
(i) The term ‘‘consumer-directed’’
means, with reference to personal assist-
ance services or the provider of such serv-
ices, services that are provided by an indi-
vidual who is selected and managed (and,
at the individual’s option, trained) by the
individual receiving the services.
(ii) The term ‘‘agency-administered’’
means, with respect to such services, serv-
ices that are not consumer-directed.
(4) EXCLUSIONS AND LIMITATIONS.—
(A) IN GENERAL.—A State plan may not
provide for coverage as home and community-
based services of—
(i) room and board, or
(ii) services furnished in a hospital,
nursing facility, intermediate care facility
for the mentally retarded, or other institu-
tional setting specified by the Secretary.
(B) TAKING
INTO
ACCOUNT
INFORMAL
CARE.—A State plan may take into account, in
determining the amount and array of home and
community-based services made available to
covered individuals with disabilities, the avail-
ability of informal care.
(e) INSTITUTIONAL SERVICES DEFINED.—In this
subtitle, the term ‘‘institutional services’’ means services
furnished in a nursing facility, intermediate care facility
for the mentally retarded, or any other institutional facil-
ity (at the approval of the Secretary) that the State deter-
mines will assist individuals with disabilities.
(f) PAYMENT FOR SERVICES.—A State plan may pro-
vide for the use of—
(1) vouchers,
(2) capitation payments to health plans, and
(3) payment to providers,
to pay for covered services.
SEC. 105. COST SHARING.
(a) HOME
AND COMMUNITY-BASED SERVICES.—
With respect to home and community-based services pro-
vided under the State plan—
(1) NO OR NOMINAL COST SHARING FOR POOR-
EST.—The State plan may not impose any cost shar-
ing (other than nominal cost sharing) for individuals
with income (as determined under section 103(d)(2))
less than 100 percent of the official poverty line (re-
ferred to in section 103(d)(1)(A)) applicable to a
family of the size involved.
(2) SLIDING
SCALE
FOR
REMAINDER.—The
State plan shall impose cost sharing in the form of
coinsurance (based on the amount paid under the
State plan for a service)—
(A) at a rate of 5 percent for individuals
with disabilities with income not less than 100
percent, and less than 150 percent, of such offi-
cial poverty line (as so applied); and
(B) at a rate of 10 percent for such indi-
viduals with income not less than 150 percent,
and less than 200 percent, of such official pov-
erty line (as so applied).
(b) INSTITUTIONAL SERVICES.—
(1) IN GENERAL.—With respect to institutional
services provided under the State plan, the cost
sharing shall be the amount of income, other than
the allowances provided under paragraph (2).
(2) ALLOWANCES.—The allowances under this
paragraph are as follows:
(A) PERSONAL
NEEDS
ALLOWANCE.—A
personal needs allowance of $66 per month for
an institutionalized individual and $132 per
month for an institutionalized couple (if both
are aged, blind, or disabled, and their incomes
are considered available to each other in deter-
mining eligibility).
(B) COMMUNITY SPOUSE ALLOWANCE.—In
the case of an individual with a community
spouse (as defined in section 1924 of the Social
Security Act), an amount of income equivalent
to the amount of income that would be pro-
tected under section 1924 of the Social Security
Act (determined without regard to subsection
(d)(1)(A) thereof).
(3) RULES FOR DETERMINATION OF INCOME OF
INSTITUTIONALIZED
SPOUSES.—In determining in-
come of an institutionalized spouse for purposes of
this subsection, the State shall apply rules similar to
the rules described in section 1924 of the Social Se-
curity Act consistent with paragraph (2).
(4) 
INSTITUTIONALIZED
AND
COMMUNITY
SPOUSE
DEFINED.—In this subsection, the terms
‘‘institutionalized spouse’’ and ‘‘community spouse’’
have the meanings given such terms in section
1924(h) of the Social Security Act.
SEC. 106. QUALITY ASSURANCE AND SAFEGUARDS.
(a) QUALITY ASSURANCE.—The State plan shall
specify how the State will ensure and monitor the quality
of services (including both home and community-based
services and institutional services), including—
(1) safeguarding the health and safety of indi-
viduals with disabilities,
(2) the minimum standards for agency provid-
ers and how such standards will be enforced,
(3) the minimum competency requirements for
agency provider employees who provide direct serv-
ices under this subtitle and how the competency of
such employees will be enforced,
(4) obtaining meaningful consumer input, in-
cluding consumer surveys that measure the extent to
which participants receive the services described in
the plan of care and participant satisfaction with
such services,
(5) participation in quality assurance activities,
and
(6) specifying the role of the long-term care om-
budsman (under the Older Americans Act of 1965),
the Protection and Advocacy Agency (under the De-
velopmental Disabilities Assistance and Bill of
Rights Act), and the State advocacy agency for the
mentally ill (under the Protection and Advocacy for
Mentally Ill Individuals Act of 1986) in assuring
quality of services and protecting the rights of indi-
viduals with disabilities.
(b) SAFEGUARDS.—
(1) CONFIDENTIALITY.—The State plan shall
provide safeguards which restrict the use or disclo-
sure of information concerning applicants and bene-
ficiaries to purposes directly connected with the ad-
ministration of the plan (including performance re-
views under section 2602).
(2) SAFEGUARDS AGAINST ABUSE.—The State
plans shall provide safeguards against physical, emo-
tional, or financial abuse or exploitation (specifically
including appropriate safeguards in cases where pay-
ment for program benefits is made by cash pay-
ments or vouchers given directly to individuals with
disabilities).
SEC. 107. ADVISORY GROUPS.
(a) FEDERAL ADVISORY GROUP.—
(1) ESTABLISHMENT.—The Secretary shall es-
tablish an advisory group, to advise the Secretary
and States on all aspects of the program under this
subtitle.
(2) COMPOSITION.—The group shall be com-
posed of individuals with disabilities and their rep-
resentatives, providers, Federal and State officials,
and local community implementing agencies. A ma-
jority of its members shall be individuals with dis-
abilities and their representatives.
(b) STATE ADVISORY GROUPS.—
(1) IN GENERAL.—Each State plan shall pro-
vide for the establishment and maintenance of an
advisory group to advise the State on all aspects of
the State plan under this subtitle.
(2) COMPOSITION.—Members of each advisory
group shall be appointed by the Governor (or other
chief executive officer of the State) and shall include
individuals with disabilities and their representa-
tives, providers, State officials, and local community
implementing agencies. A majority of its members
shall be individuals with disabilities and their rep-
resentatives.
(3) SELECTION
OF
MEMBERS.—Each State
shall establish a process whereby all residents of the
State, including individuals with disabilities and
their representatives, shall be given the opportunity
to nominate members to the advisory group.
(4) PARTICULAR
CONCERNS.—Each advisory
group shall—
(A) before the State plan is developed, ad-
vise the State on guiding principles and values,
policy directions, and specific components of the
plan,
(B) meet regularly with State officials in-
volved in developing the plan, during the devel-
opment phase, to review and comment on all as-
pects of the plan,
(C) participate in the public hearings to
help assure that public comments are addressed
to the extent practicable,
(D) document any differences between the
group’s recommendations and the plan,
(E) document specifically the degree to
which the plan is consumer-directed, and
(F) meet regularly with officials of the des-
ignated State agency (or agencies) to provide
advice on all aspects of implementation and
evaluation of the plan.
SEC. 108. PAYMENTS TO STATES.
(a) IN GENERAL.—Subject to section 102(a)(9)(B)
(relating to limitation on payment for administrative
costs), the Secretary, in accordance with the Cash Man-
agement Improvement Act, shall authorize payment to
each State with a plan approved under this subtitle, for
each quarter (beginning on or after January 1, 1996),
from its allotment under section 109(b), an amount equal
to—
(1) the Federal matching percentage (as de-
fined in subsection (b)) of the amount demonstrated
by State claims to have been expended during the
quarter for long-term care services under the plan
for individuals with disabilities; plus
(2) an amount equal to 90 percent of the
amount expended during the quarter under the plan
for activities (including preliminary screening) relat-
ing to determination of eligibility and performance
of needs assessment; plus
(3) an amount equal to 90 percent (or, begin-
ning with quarters in fiscal year 2003, 75 percent)
of the amount expended during the quarter for the
design, development, and installation of mechanical
claims processing systems and for information re-
trieval; plus
(4) an amount equal to 50 percent of the re-
mainder of the amounts expended during the quar-
ter as found necessary by the Secretary for the prop-
er and efficient administration of the State plan.
(b) FEDERAL MATCHING PERCENTAGE.—
(1) STATES
AND
THE
DISTRICT
OF
COLUM-
BIA.—
(A) IN GENERAL.—In subsection (a), ex-
cept as provided in paragraph (3), the term
‘‘Federal matching percentage’’ means, for each
of the 50 States and the District of Columbia,
100 percent reduced by the product of the
budget neutrality percentage (as defined in sub-
paragraph (B)) and the ratio of—
(i)(I) for each of the 50 States, the
total taxable resources ratio (as defined in
subparagraph (C)) of the State, or
(II) for the District of Columbia, the
per capita income ratio (as defined in sub-
paragraph (D)), to—
(ii) the disabled population in poverty
ratio (as defined in subparagraph (E)) of
the State or District.
(B) BUDGET
NEUTRALITY
PERCENTAGE
DEFINED.—For purposes of this subsection, the
term ‘‘budget neutrality percentage’’ means a
percentage estimated by the Secretary with the
advice of the General Accounting Office that,
when applied under subparagraph (A), would
result (taking into account paragraph (2)) in an
amount of aggregate payments under this title
for the fiscal year involved equal to the total
Federal budget amount under section 109(a).
(C) TOTAL
TAXABLE
RESOURCES
RATIO
DEFINED.—For purposes of this subsection, the
term ‘‘total taxable resources ratio’’ means—
(i) an amount equal to the most re-
cent 3-year average of the total taxable re-
sources of the State, as determined by the
Secretary of the Treasury, divided by
(ii) an amount equal to the sum of the
3-year averages determined under clause
(i) for each of the 50 States.
(D) PER
CAPITA
INCOME
RATIO
DE-
FINED.—For purposes of this subsection, the
term ‘‘per capita income ratio’’ means—
(i) an amount equal to the most re-
cent 3-year average of the total personal
income of the District of Columbia, as de-
termined in accordance with the provisions
of section 1101(a)(8)(B) of the Social Se-
curity Act, divided by
(ii) an amount equal to the total per-
sonal income of the continental United
States (including Alaska) and Hawaii, as
determined under section 1101(a)(8)(B) of
such Act.
(E) DISABLED POPULATION IN POVERTY
RATIO
DEFINED.—For purposes of this sub-
section, the term ‘‘disabled population in pov-
erty ratio’’ means—
(i) an amount equal to the 3-year-av-
erage of the number of individuals with
disabilities in the State (or the District of
Columbia) whose family income is below
200 percent of the income official poverty
line (as defined by the Office of Manage-
ment and Budget and revised annually in
accordance with section 673(2) of the Om-
nibus Budget Reconciliation Act of 1981),
divided by
(ii) an amount equal to the sum of the
averages determined under clause (i) for
the 50 States.
(2) TERRITORIES.—The Federal matching per-
centage for Puerto Rico, the Virgin Islands, Guam,
the Northern Mariana Islands, and American Samoa
shall be 40 percent.
(3) PERMISSIBLE RANGE.—The Federal match-
ing percentage shall in no case be less than 40 per-
cent or more than 75 percent.
(c) PAYMENTS ON ESTIMATES WITH RETROSPEC-
TIVE ADJUSTMENTS.—The method of computing and
making payments under this section shall be as follows:
(1) The Secretary shall, prior to the beginning
of each quarter, estimate the amount to be paid to
the State under subsection (a) for such quarter,
based on a report filed by the State containing its
estimate of the total sum to be expended in such
quarter, and such other information as the Secretary
may find necessary.
(2) From the allotment available therefore, the
Secretary shall provide for payment of the amount
so estimated, reduced or increased, as the case may
be, by any sum (not previously adjusted under this
section) by which the Secretary finds that the esti-
mate of the amount to be paid the State for any
prior period under this section was greater or less
than the amount which should have been paid.
(d) APPLICATION OF RULES REGARDING LIMITA-
TIONS ON PROVIDER-RELATED DONATIONS AND HEALTH
CARE
RELATED
TAXES.—The provisions of section
1903(w) of the Social Security Act shall apply to pay-
ments to States under this section in the same manner
as they apply to payments to States under section 1903(a)
of such Act .
SEC. 109. TOTAL FEDERAL BUDGET; ALLOTMENTS TO
STATES.
(a) TOTAL FEDERAL BUDGET.—
(1) FISCAL YEAR 1996—Subject to paragraph
(5)(C), for purposes of this subtitle, the total Fed-
eral budget for State plans under this subtitle for
fiscal year 1996 is $46.74 billion.
(2) SUBSEQUENT
FISCAL
YEARS.—For pur-
poses of this subtitle, the total Federal budget for
State plans under this subtitle for each fiscal year
after fiscal year 1996 is the total Federal budget
under this subsection for the preceding fiscal year
multiplied by—
(A) a factor (described in paragraph (3))
reflecting the change in the CPI for the fiscal
year, and
(B) a factor (described in paragraph (4))
reflecting the change in the number of individ-
uals with disabilities for the fiscal year.
(3) CPI INCREASE FACTOR.—For purposes of
paragraph (2)(A), the factor described in this para-
graph for a fiscal year is the ratio of—
(A) the annual average index of the
consumer price index for the preceding fiscal
year, to—
(B) such index, as so measured, for the
second preceding fiscal year.
(4) DISABLED POPULATION FACTOR.—For pur-
poses of paragraph (2)(B), the factor described in
this paragraph for a fiscal year is 100 percent plus
(or minus) the percentage increase (or decrease)
change in the disabled population of the United
States (as determined for purposes of the most re-
cent update under subsection (b)(3)(D)).
(5) ADDITIONAL
FUNDS
DUE
TO
MEDICAID
OFFSETS.—
(A) IN
GENERAL.—Each participating
State must provide the Secretary with informa-
tion concerning offsets and reductions in the
medicaid program resulting from long-term care
services provided individuals with disabilities
under this subtitle, that would have been paid
for such individuals under the State medicaid
plan but for the provision of similar services
under the program under this subtitle. At the
time a State first submits its plan under this
title and before each subsequent fiscal year
(through fiscal year 2003), the State also must
provide the Secretary with such budgetary in-
formation (for each fiscal year through fiscal
year 2003), as the Secretary determines to be
necessary to carry out this paragraph.
(B) REPORTS.—Each State with a pro-
gram under this subtitle shall submit such re-
ports to the Secretary as the Secretary may re-
quire in order to monitor compliance with sub-
paragraph (A).
(C) ADJUSTMENTS
TO
FEDERAL
BUDG-
ET.—
(i) IN GENERAL.—For each fiscal year
(beginning with fiscal year 1996 and end-
ing with fiscal year 2003) and based on a
review of information submitted under sub-
paragraph (A), the Secretary shall deter-
mine the amount by which the total Fed-
eral budget under subsection (a) will in-
crease. The amount of such increase for a
fiscal year shall be limited to the reduction
in Federal expenditures of medical assist-
ance (as determined by Secretary) that
would have been made under title XIX of
the Social Security Act for home and com-
munity based services for disabled individ-
uals but for the provision of similar serv-
ices under the program under this subtitle.
(ii) ANNUAL PUBLICATION.—The Sec-
retary shall publish before the beginning of
such fiscal year, the revised total Federal
budget under this subsection for such fis-
cal year (and succeeding fiscal years before
fiscal year 2003).
(D) NO DUPLICATE PAYMENT.—No pay-
ment may be made to a State under this section
for any services to the extent that the State re-
ceived payment for such services under section
1903(a) of the Social Security Act.
(E) CONSTRUCTION.—Nothing in this sub-
section shall be construed as requiring States to
determine eligibility for medical assistance
under the State medicaid plan on behalf of indi-
viduals receiving assistance under this subtitle.
(b) ALLOTMENTS TO STATES.—
(1) IN GENERAL.—The Secretary shall allot to
each State for each fiscal year an amount that bears
the same ratio to the total Federal budget for the
fiscal year (specified under paragraph (1) or (2) of
subsection (a)) as the State allotment factor (under
paragraph (2) for the State for the fiscal year) bears
to the sum of such factors for all States for that fis-
cal year.
(2) STATE ALLOTMENT FACTOR.—
(A) IN GENERAL.—For each State for each
fiscal year, the Secretary shall compute a State
allotment factor equal to the sum of—
(i) the base allotment factor (specified
in subparagraph (B)), and
(ii) the low income allotment factor
(specified in subparagraph (C)),
for the State for the fiscal year.
(B) BASE ALLOTMENT FACTOR.—The base
allotment factor, specified in this subparagraph,
for a State for a fiscal year is equal to the
product of the following:
(i) NUMBER
OF
INDIVIDUALS
WITH
DISABILITIES.—The number of individuals
with disabilities in the State (determined
under paragraph (3)) for the fiscal year.
(ii) 80 PERCENT OF THE NATIONAL
PER CAPITA BUDGET.—80 percent of the
national average per capita budget amount
(determined under paragraph (4)) for the
fiscal year.
(iii) WAGE
ADJUSTMENT
FACTOR.—
The wage adjustment factor (determined
under paragraph (5)) for the State for the
fiscal year.
(iv) FEDERAL MATCHING RATE.—The
Federal matching rate (determined under
section 108(b)) for the fiscal year.
(C) LOW INCOME ALLOTMENT FACTOR.—
The low income allotment factor, specified in
this subparagraph, for a State for a fiscal year
is equal to the product of the following:
(i) NUMBER
OF
INDIVIDUALS
WITH
DISABILITIES.—The number of individuals
with disabilities in the State (determined
under paragraph (3)) for the fiscal year.
(ii) 10 PERCENT OF THE NATIONAL
PER CAPITA BUDGET.—10 percent of the
national average per capita budget amount
(determined under paragraph (4)) for the
fiscal year.
(iii) WAGE
ADJUSTMENT
FACTOR.—
The wage adjustment factor (determined
under paragraph (5)) for the State for the
fiscal year.
(iv) FEDERAL MATCHING RATE.—The
Federal matching rate (determined under
section 108(b)) for the fiscal year.
(v) LOW INCOME INDEX.—The low in-
come index (determined under paragraph
(6)) for the State for the preceding fiscal
year.
(3) NUMBER OF INDIVIDUALS WITH DISABIL-
ITIES.—The number of individuals with disabilities
in a State for a fiscal year shall be determined as
follows:
(A) BASE.—The Secretary shall determine
the number of individuals in the State by age,
sex, and income category, based on the 1990
decennial census, adjusted (as appropriate) by
the March 1994 current population survey.
(B) DISABILITY
PREVALENCE
LEVEL
BY
POPULATION CATEGORY.—The Secretary shall
determine, for each such age, sex, and income
category, the national average proportion of the
population of such category that represents in-
dividuals with disabilities. The Secretary may
conduct periodic surveys in order to determine
such proportions.
(C) BASE
DISABLED
POPULATION
IN
A
STATE.—The number of individuals with dis-
abilities in a State in 1994 is equal to the sum
of the products, for such each age, sex, and in-
come category, of—
(i) the population of individuals in the
State in the category (determined under
subparagraph (A)), and
(ii) the national average proportion
for such category (determined under sub-
paragraph (B)).
(D) UPDATE.—The Secretary shall deter-
mine the number of individuals with disabilities
in a State in a fiscal year equal to the number
determined under subparagraph (C) for the
State increased (or decreased) by the percent-
age increase (or decrease) in the disabled popu-
lation of the State as determined under the cur-
rent population survey from 1994 to the year
before the fiscal year involved.
(4) NATIONAL PER CAPITA BUDGET AMOUNT.—
The national average per capita budget amount, for
a fiscal year, is—
(A) the total Federal budget specified
under subsection (a) for the fiscal year; divided
by
(B) the sum, for the fiscal year, of the
numbers of individuals with disabilities (deter-
mined under paragraph (3)) for all the States
for the fiscal year.
(5) WAGE
ADJUSTMENT
FACTOR.—The wage
adjustment factor, for a State for a fiscal year, is
equal to the ratio of—
(A) the average hourly wages for service
workers (other than household or protective
services) in the State, to
(B) the national average hourly wages for
service workers (other than household or protec-
tive services).
The hourly wages shall be determined under this
paragraph based on data from the most recent de-
cennial census for which such data are available.
(6) LOW
INCOME
INDEX.—The low income
index for each State for a fiscal year is the ratio, de-
termined for the preceding fiscal year, of—
(A) the percentage of the State’s popu-
lation that has income below 200 percent of the
poverty level, to
(B) the percentage of the population of the
United States that has income below 200 per-
cent of the poverty level.
Such percentages shall be based on data from the
most recent decennial census for which such data
are available, adjusted by data from the most recent
current population survey as determined appropriate
by the Secretary.
(c) STATE ENTITLEMENT.—This subtitle constitutes
budget authority in advance of appropriations Acts, and
represents the obligation of the Federal Government to
provide for the payment to States of amounts described
in subsection (a).
Subtitle B—Increase in SSI
Personal Needs Allowance
SEC. 111. INCREASE IN SSI PERSONAL NEEDS ALLOWANCE.
(a) IN GENERAL.—Section 1611(e)(1)(B) of the So-
cial Security Act (42 U.S.C. 1382(e)(1)(B)) is amended—
(1) in clauses (i) and (ii)(I), by striking ‘‘$360’’
and inserting ‘‘$800’’; and
(2) in clause (iii), by striking ‘‘$720’’ and in-
serting ‘‘$1,600’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply with respect to months begin-
ning with January 1996.
Subtitle C—Repeal of Coverage
Under the Medicaid Program of
Long-Term Care Services
SEC. 121. REPEAL OF COVERAGE UNDER THE MEDICAID
PROGRAM OF LONG-TERM CARE SERVICES
COVERED UNDER STATE PLAN.
(a) IN GENERAL.—Title XIX of the Social Security
Act is amended by redesignating section 1931 as section
1932 and by inserting after section 1930 the following new
section:
‘‘TREATMENT OF LONG-TERM CARE SERVICES COVERED
UNDER STATE PROGRAMS FOR NEEDY INDIVIDUALS
WITH DISABILITIES
‘‘SEC. 1931. (a) NO COVERAGE OF SERVICES RE-
QUIRED.—Notwithstanding any other provision of this
title, the State plan under this title is not required to pro-
vide medical assistance consisting of payment for any
long-term care services for needy individuals with disabil-
ities for which coverage is provided under a State plan
under subtitle A of title I of the Comprehensive Long-
Term Care Act of 1994.
‘‘(b) DEFINITIONS.—In this section—
‘‘(1) the term ‘needy individual with a disabil-
ity’ means an individual with a disability (as defined
in section 103(a) of the Comprehensive Long-Term
Care Act of 1994) who is a needy individual (as de-
fined in section 103(d) of such Act); and
‘‘(2) the term ‘long-term care services’ has the
meaning given such term in section 104(c) of the
Comprehensive Long-Term Care Act of 1994.’’.
(b) NO FEDERAL FINANCIAL PARTICIPATION.—Sec-
tion 1903(i) of the Social Security Act (42 U.S.C.
1396b(i)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(14),
(2) by striking the period at the end of para-
graph (15) and inserting ‘‘; or’’, and
(3) by inserting after paragraph (15) the fol-
lowing new paragraph:
‘‘(16) with respect to long-term care services
(as defined in section 1931(b)(2)) for needy individ-
uals 
with 
disabilities 
(as 
defined 
in 
section
1931(b)(1)) for which coverage is provided under a
State plan under subtitle A of title I of the Com-
prehensive Long-Term Care Act of 1994.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to services furnished
in a State on or after January 1, 1996.
TITLE II—TAX TREATMENT OF
LONG-TERM 
CARE 
INSUR-
ANCE AND SERVICES
SEC. 201. 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 provi-
sion, the reference shall be considered to be made to a
section or other provision of the Internal Revenue Code
of 1986.
SEC. 202. QUALIFIED LONG-TERM CARE SERVICES TREAT-
ED AS MEDICAL CARE.
(a) GENERAL RULE.—Paragraph (1) of section
213(d) (defining medical care) is amended by striking
‘‘or’’ at the end of subparagraph (B), by redesignating
subparagraph (C) as subparagraph (D), and by inserting
after subparagraph (B) the following new subparagraph:
‘‘(C) for qualified long-term care services
(as defined in subsection (g)), or’’.
(b) ADJUSTED GROSS INCOME THRESHOLD NOT TO
APPLY TO AMOUNTS PAID FOR LONG-TERM CARE.—Sub-
section (a) of section 213 (relating to medical, dental, etc.,
expenses) is amended to read as follows:
‘‘(a) ALLOWANCE OF DEDUCTION.—There shall be
allowed as a deduction the following amounts, not com-
pensated for by insurance or otherwise—
‘‘(1) the amount by which the amount of the
expenses paid during the taxable year (reduced by
any amount deductible under paragraph (2)) for
medical care of the taxpayer, his spouse, or a de-
pendent exceeds 7.5 percent of adjusted gross in-
come, and
‘‘(2) the amounts paid during the taxable year
for—
‘‘(A) a qualified long-term care insurance
policy which constitutes medical care for the
taxpayer, his spouse, or a dependent, and
‘‘(B) for qualified long-term care services
for the taxpayer, his spouse, or a dependent.
For purposes of this subsection, the term ‘dependent’ has
the meaning given such term by section 152.’’
(c) QUALIFIED LONG-TERM CARE SERVICES DE-
FINED.—Section 213 (relating to the deduction for medi-
cal, dental, etc., expenses) is amended by adding at the
end thereof the following new subsection:
‘‘(g) QUALIFIED LONG-TERM CARE SERVICES.—For
purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified long-
term care services’ means necessary diagnostic, cur-
ing, mitigating, treating, preventive, therapeutic, and
rehabilitative services, and maintenance and per-
sonal care services (whether performed in a residen-
tial or nonresidential setting) which—
‘‘(A) are required by an individual during
any period the individual is an incapacitated in-
dividual (as defined in paragraph (2)),
‘‘(B) have as their primary purpose—
‘‘(i) the provision of needed assistance
with 1 or more activities of daily living (as
defined in paragraph (3)), or
‘‘(ii) protection from threats to health
and safety due to severe cognitive impair-
ment, and
‘‘(C) are provided pursuant to a continuing
plan of care prescribed by a licensed profes-
sional (as defined in paragraph (4)).
‘‘(2) INCAPACITATED
INDIVIDUAL.—The term
‘incapacitated individual’ means any individual
who—
‘‘(A) is unable to perform, without sub-
stantial assistance from another individual (in-
cluding assistance involving cueing or substan-
tial supervision), at least 2 activities of daily
living selected under paragraph (3)(B), or
‘‘(B) has severe cognitive impairment as
defined by the Secretary in consultation with
the Secretary of Health and Human Services.
Such term shall not include any individual otherwise
meeting the requirements of the preceding sentence
unless a licensed professional within the preceding
12-month period has certified that such individual
meets such requirements.
‘‘(3) ACTIVITIES OF DAILY LIVING.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), each of the following is an activity
of daily living:
‘‘(i) Eating.
‘‘(ii) Toileting.
‘‘(iii) Transferring.
‘‘(iv) Bathing.
‘‘(v) Dressing.
‘‘(vi) Continence.
‘‘(B) SELECTION
OF
ACTIVITIES
OF
DAILY LIVING.—The insurance company issuing
a long-term care insurance policy shall select 5
of the 6 activities of daily living which shall be
included within the policy.
‘‘(4) LICENSED PROFESSIONAL.—The term ‘li-
censed professional’ means—
‘‘(A) a physician or registered professional
nurse, or
‘‘(B) any other individual who meets such
requirements as may be prescribed by the Sec-
retary after consultation with the Secretary of
Health and Human Services.
‘‘(5) CERTAIN SERVICES NOT INCLUDED.—The
term ‘qualified long-term care services’ shall not in-
clude any services provided to an individual—
‘‘(A) by a relative (directly or through a
partnership, corporation, or other entity) unless
the relative is a licensed professional with re-
spect to such services, or
‘‘(B) by a corporation or partnership which
is related (within the meaning of section 267(b)
or 707(b)) to the individual.
For purposes of this paragraph, the term ‘relative’
means an individual bearing a relationship to the in-
dividual which is described in paragraphs (1)
through (8) of section 152(a).’’
(d) TECHNICAL AMENDMENTS.—
(1) Subparagraph (D) of section 213(d)(1) (as
redesignated by subsection (a)) is amended to read
as follows:
‘‘(D) for insurance (including amounts
paid as premiums under part B of title XVIII
of the Social Security Act, relating to supple-
mentary medical insurance for the aged) cover-
ing medical care referred to in—
‘‘(i) subparagraphs (A) and (B), or
‘‘(ii) subparagraph (C), but only if
such insurance is provided under a quali-
fied long-term care insurance policy (as de-
fined in section 7702B(b)) and the amount
paid for such insurance is not disallowed
under section 7702B(d)(4).’’
(2) Paragraph (6) of section 213(d) is amend-
ed—
(A) by striking ‘‘subparagraphs (A) and
(B)’’ and inserting ‘‘subparagraph (A), (B),
and (C)’’, and
(B) by striking ‘‘paragraph (1)(C)’’ in sub-
paragraph 
(A) 
and 
inserting 
‘‘paragraph
(1)(D)’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 203. TREATMENT OF LONG-TERM CARE INSURANCE.
(a) GENERAL RULE.—Chapter 79 (relating to defini-
tions) is amended by inserting after section 7702A the fol-
lowing new section:
‘‘SEC. 7702B. TREATMENT OF LONG-TERM CARE INSUR-
ANCE.
‘‘(a) IN GENERAL.—For purposes of this title—
‘‘(1) a qualified long-term care insurance policy
(as defined in subsection (b)) shall be treated as an
accident and health insurance contract,
‘‘(2) amounts (other than policyholder dividends
(as defined in section 808) or premium refunds) re-
ceived under a qualified long-term care insurance
policy shall be treated as amounts received for per-
sonal injuries and sickness and shall be treated as
reimbursement for expenses actually incurred for
medical care (as defined in section 213(d)),
‘‘(3) any plan of an employer providing cov-
erage under a qualified long-term care insurance pol-
icy shall be treated as an accident and health plan
with respect to such coverage,
‘‘(4) amounts paid for a qualified long-term
care insurance policy providing the benefits de-
scribed in subsection (b)(6)(B) shall be treated as
payments made for insurance for purposes of section
213(d)(1)(D), and
‘‘(5) a qualified long-term care insurance policy
shall be treated as a guaranteed renewable contract
subject to the rules of section 816(e).
‘‘(b) QUALIFIED LONG-TERM CARE INSURANCE POL-
ICY.—For purposes of this title—
‘‘(1) IN GENERAL.—The term ‘qualified long-
term care insurance policy’ means any long-term
care insurance policy (as defined in section 302(9)
of the Comprehensive Long-Term Care Reform Act
of 1994) that—
‘‘(A) satisfies the requirements of title III
of such Act,
‘‘(B) limits benefits under such policy to
individuals who are certified by a licensed pro-
fessional (as defined in section 213(g)(4)) with-
in the preceding 12-month period as being un-
able to perform, without substantial assistance
from another individual (including assistance
involving cueing or substantial supervision), 2
or more activities of daily living (of those se-
lected under section 213(g)(3)(B)), or who have
a severe cognitive impairment (as defined in
section 213(g)(2)(B)), and
‘‘(C) satisfies the requirements of para-
graphs (2), (3), (4), (5), and (6).
‘‘(2) PREMIUM REQUIREMENTS.—The require-
ments of this paragraph are met with respect to a
policy if such policy provides that premium pay-
ments 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 expect-
ancy of the insured. A policy shall not be treated as
failing to meet the requirements of the preceding
sentence solely by reason of a provision in the policy
providing for a waiver of premiums if the insured
becomes an individual certified in accordance with
paragraph (1)(B).
‘‘(3) PROHIBITION OF CASH VALUE.—The re-
quirements of this paragraph are met if the policy
does not provide for a cash value or other money
that can be paid, assigned, pledged as collateral for
a loan, or borrowed, other than as provided in para-
graph (4).
‘‘(4) REFUNDS
OF
PREMIUMS
AND
DIVI-
DENDS.—The requirements of this paragraph are
met with respect to a policy if such policy provides
that—
‘‘(A) policyholder dividends are required to
be applied as a reduction in future premiums
or, to the extent permitted under paragraph
(6), to increase benefits described in subsection
(a)(2), and
‘‘(B) refunds of premiums upon a partial
surrender or a partial cancellation are required
to be applied as a reduction in future pre-
miums, and
‘‘(C) any refund on the death of the in-
sured, or on a complete surrender or cancella-
tion of the policy, cannot exceed the aggregate
premiums paid under the contract.
Any refund on a complete surrender or cancellation
of the policy shall be includible in gross income to
the extent that any deduction or exclusion was allow-
able with respect to the premiums.
‘‘(5) COORDINATION
WITH
OTHER
ENTITLE-
MENTS.—The requirements of this paragraph are
met with respect to a policy if such policy does not
cover expenses incurred to the extent that such ex-
penses are covered under the health coverage de-
scribed in section 322 of the Comprehensive Long-
Term Care Reform Act of 1994.
‘‘(6) MAXIMUM BENEFIT.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met if the benefits payable
under the policy for any period (whether on a
periodic basis or otherwise) shall not exceed the
dollar amount in effect for such period.
‘‘(B) 
NONREIMBURSEMENT
PAYMENTS
PERMITTED.—Benefits shall include all pay-
ments described in subsection (a)(2) to or on
behalf of an insured individual without regard
to the expenses incurred during the period to
which the payments relate. For purposes of sec-
tion 213(a), such payments shall be treated as
compensation for expenses paid for medical
care.
‘‘(C) 
DOLLAR
AMOUNT.—The 
dollar
amount in effect under this paragraph shall be
$150 per day (or the equivalent amount within
the calendar year in the case of payments on
other than a per diem basis).
‘‘(D) 
ADJUSTMENTS
FOR
INCREASED
COSTS.—
‘‘(i) IN GENERAL.—In the case of any
calendar year after 1996, the dollar
amount in effect under subparagraph (C)
for any period or portion thereof occurring
during such calendar 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 product of the amount
referred to in subclause (I) multiplied
by the cost-of-living adjustment for
the calendar year of the amount
under subclause (I).
‘‘(ii) COST-OF-LIVING ADJUSTMENT.—
For purposes of clause (i), the cost-of-liv-
ing adjustment for any calendar year is the
percentage (if any) by which the cost index
under clause (iii) for the preceding cal-
endar year exceeds such index for the sec-
ond preceding calendar year.
‘‘(iii) 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.
‘‘(iv) SPECIAL RULE FOR CALENDAR
YEAR
1997.—Notwithstanding clause (ii),
for purposes of clause (i), the cost-of-living
adjustment for calendar year 1997 is the
sum of 11⁄2 percent plus the percentage by
which the CPI for calendar year 1996 (as
defined in section 1(f)(4)) exceeds the CPI
for calendar year 1995 (as so defined).
‘‘(E) PERIOD.—For purposes of this para-
graph, a period begins on the date that an indi-
vidual has a condition which would qualify for
certification under subsection (b)(1)(B) and
ends on the earlier of the date upon which—
‘‘(i) such individual has not been so
certified within the preceding 12-months,
or
‘‘(ii) the individual’s condition ceases
to be such as to qualify for certification
under subsection (b)(1)(B).
‘‘(F) AGGREGATION RULE.—For purposes
of this paragraph, all policies issued with re-
spect to the same insured shall be treated as
one policy.
‘‘(c) TREATMENT OF LONG-TERM CARE INSURANCE
POLICIES.—For purposes of this title, any amount re-
ceived or coverage provided under a long-term care insur-
ance policy that is not a qualified long-term care insurance
policy shall not be treated as an amount received for per-
sonal injuries or sickness or provided under an accident
and health plan and shall not be treated as excludible from
gross income under any provision of this title.
‘‘(d) TREATMENT OF COVERAGE PROVIDED AS PART
OF A LIFE INSURANCE CONTRACT.—Except as otherwise
provided in regulations prescribed by the Secretary, in the
case of any long-term care insurance coverage (whether
or not qualified) provided by rider on a life insurance con-
tract—
‘‘(1) IN GENERAL.—This section shall apply as
if the portion of the contract providing such cov-
erage is a separate contract or policy.
‘‘(2) PREMIUMS AND CHARGES FOR LONG-TERM
CARE COVERAGE.—Premium payments for coverage
under a long-term care insurance policy and charges
against the life insurance contract’s cash surrender
value (within the meaning of section 7702(f)(2)(A))
for such coverage shall be treated as premiums for
purposes of subsection (b)(2).
‘‘(3) 
APPLICATION
OF
7702.—Section
7702(c)(2) (relating to the guideline premium limi-
tation) shall be applied by increasing the guideline
premium limitation with respect to a life insurance
contract, as of any date—
‘‘(A) by the sum of any charges (but not
premium payments) described in paragraph (2)
made to that date under the contract, less
‘‘(B) any such charges the imposition of
which reduces the premiums paid for the con-
tract 
(within 
the 
meaning 
of 
section
7702(f)(1)).
‘‘(4) APPLICATION OF SECTION 213.—No deduc-
tion shall be allowed under section 213(a) for
charges against the life insurance contract’s cash
surrender value described in paragraph (2), unless
such charges are includible in income as a result of
the application of section 72(e)(10) and the coverage
provided by the rider is a qualified long-term care
insurance policy under subsection (b).
For purposes of this subsection, the term ‘portion’ means
only the terms and benefits under a life insurance contract
that are in addition to the terms and benefits under the
contract without regard to the coverage under a long-term
care insurance policy.
‘‘(e) PROHIBITION OF DISCRIMINATION.—
‘‘(1) IN GENERAL.—Notwithstanding subsection
(a)(3), any plan of an employer providing coverage
under a qualified long-term care insurance policy
shall qualify as an accident and health plan with re-
spect to such coverage only if—
‘‘(A) the plan allows all employees, except
as provided in paragraph (2), to participate,
and
‘‘(B) the benefits provided under the plan
are identical for all employees that choose to
participate.
‘‘(2) EXCLUSION
OF
CERTAIN
EMPLOYEES.—
For purposes of paragraph (1), there may be ex-
cluded from consideration—
‘‘(A) employees who have not completed 3
years of service;
‘‘(B) employees who have not attained age
25;
‘‘(C) part-time or seasonal employees; and
‘‘(D) employees who are nonresident aliens
and who receive no earned income (within the
meaning of section 911(d)(2)) from the em-
ployer which constitutes income from sources
within the United States (within the meaning of
section 861(a)(3)).
‘‘(f) 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 long-term care
insurance coverage under a life insurance contract and to
provide for the proper allocation of amounts between the
long-term care and life insurance portions of a 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.’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to policies issued after De-
cember 31, 1995. Solely for purposes of the preced-
ing sentence, a policy issued prior to January 1,
1996, that satisfies the requirements of a qualified
long-term care insurance policy as set forth in sec-
tion 7702B(b) or the requirements of model laws
and regulations of the National Association of Insur-
ance Commissioners (relating to long-term care in-
surance policies) as of the date the policy was is-
sued, shall, on and after January 1, 1996, be treat-
ed as being issued after December 31, 1995.
(2) TRANSITION RULE.—If, after the date of
enactment of this Act and before January 1, 1996,
a policy providing for long-term care insurance cov-
erage is exchanged solely for a qualified long-term
care insurance policy (as defined in section
7702B(b)), no gain or loss shall be recognized on
the exchange. If, in addition to a qualified long-term
care insurance policy, money or other property is re-
ceived in the exchange, then any gain shall be recog-
nized to the extent of the sum of the money and the
fair market value of the other property received. For
purposes of this paragraph, the cancellation of a pol-
icy providing for long-term care insurance coverage
and reinvestment of the cancellation proceeds in a
qualified long-term care insurance policy within 60
days thereafter shall be treated as an exchange.
(3) ISSUANCE
OF
CERTAIN
RIDERS
PER-
MITTED.—For purposes of determining whether sec-
tion 7702 or 7702A of the Internal Revenue Code
of 1986 applies to any contract, the issuance, wheth-
er before, on, or after December 31, 1995, of a rider
on a life insurance contract providing long-term care
insurance coverage shall not be treated as a modi-
fication or material change of such contract.
SEC. 204. TAX TREATMENT OF ACCELERATED DEATH BENE-
FITS UNDER LIFE INSURANCE CONTRACTS.
(a) GENERAL RULE.—Section 101 (relating to cer-
tain death benefits) is amended by adding at the end
thereof the following new subsection:
‘‘(g) TREATMENT
OF
CERTAIN
ACCELERATED
DEATH BENEFITS.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, any amount distributed to an individual under
a life insurance contract on the life of an insured
who is a terminally ill individual (as defined in para-
graph (3)) shall be treated as an amount paid by
reason of the death of such insured.
‘‘(2) NECESSARY CONDITIONS.—
‘‘(A) Paragraph (1) shall not apply to any
distribution unless—
‘‘(i) the distribution is not less than
the present value (determined under sub-
paragraph (B)) of the reduction in the
death benefit otherwise payable in the
event of the death of the insured, and
‘‘(ii) the percentage derived from di-
viding the cash surrender value of the con-
tract, if any, immediately after the dis-
tribution by the cash surrender value of
the contract immediately before the dis-
tribution is equal to or greater than the
percentage derived by dividing the death
benefit immediately after the distribution
by the death benefit immediately before the
distribution.
‘‘(B) The present value of the reduction in
the death benefit occurring on the distribution
must be determined by—
‘‘(i) using as the discount rate a rate
not to exceed the highest rate set forth in
subparagraph (C), and
‘‘(ii) assuming that the death benefit
(or the portion thereof) would have been
paid at the end of a period that is no more
than the insured’s life expectancy from the
date of the distribution or 12 months,
whichever is shorter.
‘‘(C) RATES.—The rates set forth in this
subparagraph are the following:
‘‘(i) the 90-day Treasury bill yield,
‘‘(ii) the rate described as Moody’s
Corporate Bond Yield Average-Monthly
Average 
Corporates 
as 
published 
by
Moody’s Investors Service, Inc., or any
successor thereto for the calendar month
ending 2 months before the date on which
the rate is determined,
‘‘(iii) the rate used to compute the
cash surrender values under the contract
during the applicable period plus 1 percent
per annum, and
‘‘(iv) the maximum permissible inter-
est rate applicable to policy loans under
the contract.
‘‘(3) TERMINALLY ILL INDIVIDUAL.—For pur-
poses of this subsection, the term ‘terminally ill indi-
vidual’ means an individual who the insurer has de-
termined, after receipt of an acceptable certification
by a licensed physician, has an illness or physical
condition which can reasonably be expected to result
in death within 12 months of the date of certifi-
cation.
‘‘(4) APPLICATION OF SECTION 72(e)(10).—For
purposes of section 72(e)(10) (relating to the treat-
ment of modified endowment contracts), section
72(e)(4)(A)(i) shall not apply to distributions de-
scribed in paragraph (1).’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1994.
SEC. 205. TAX TREATMENT OF COMPANIES ISSUING QUALI-
FIED ACCELERATED DEATH BENEFIT RID-
ERS.
(a) QUALIFIED ACCELERATED DEATH BENEFIT RID-
ERS TREATED AS LIFE INSURANCE.—Section 818 (relat-
ing to other definitions and special rules) is amended by
adding at the end thereof 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 in-
surance contract shall be treated as including a ref-
erence to a qualified accelerated death benefit rider
on such contract.
‘‘(2) QUALIFIED ACCELERATED DEATH BENE-
FIT RIDERS.—For purposes of this subsection, the
term ‘qualified accelerated death benefit rider’
means any rider on a life insurance contract which
provides for a distribution to an individual upon the
insured becoming a terminally ill individual (as de-
fined in section 101(g)(3)).’’
(b) DEFINITIONS OF LIFE INSURANCE AND MODI-
FIED ENDOWMENT CONTRACTS.—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:
‘‘(v) any qualified accelerated death
benefit rider (as defined in section 818(g)),
or’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to contracts issued after De-
cember 31, 1994.
(2) TRANSITIONAL RULE.—For purposes of de-
termining whether section 7702 or 7702A of the In-
ternal Revenue Code of 1986 applies to any con-
tract, the issuance, whether before, on, or after De-
cember 31, 1994, of a rider on a life insurance con-
tract permitting the acceleration of death benefits
(as described in section 101(g) of such Code) shall
not be treated as a modification or material change
of such contract.
SEC. 206. EXCLUSION FROM GROSS INCOME FOR AMOUNTS
WITHDRAWN FROM CERTAIN PLANS TO PAY
QUALIFIED LONG-TERM CARE INSURANCE
PREMIUMS.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
items specifically excluded from gross income) is amended
by redesignating section 137 as section 138 and by insert-
ing after section 136 the following new section:
‘‘SEC. 137. AMOUNTS WITHDRAWN FROM CERTAIN PLANS
TO PAY QUALIFIED LONG-TERM CARE INSUR-
ANCE PREMIUMS.
‘‘The gross income of an individual shall not include
any distribution from an individual retirement plan, or
from amounts attributable to employer contributions made
pursuant to elective deferrals described in subparagraph
(A) 
or 
(C) 
of 
section 
402(g)(3) 
or 
section
501(c)(18)(D)(iii), if—
‘‘(1) such individual has attained age 591⁄2 be-
fore the date of such distribution, and
‘‘(2) such distribution is used by such individual
(before the close of the 60th day after the day on
which such distribution is received) to pay premiums
on any qualified long-term care insurance policy (as
defined in section 7702B) covering such individual
or the spouse of such individual.’’
(b) CLERICAL AMENDMENT.—The table of sections
for such part III is amended by striking the last item and
inserting the following new items:
‘‘Sec. 137. Amounts withdrawn from certain plans to pay quali-
fied long-term care insurance premiums.
‘‘Sec. 138. Cross references to other Acts.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions after December 31,
1994, in taxable years ending after such date.
SEC. 207. NONRECOGNITION OF GAIN ON SALE OF PRIN-
CIPAL RESIDENCE TO EXTENT PROCEEDS
USED FOR ENTRANCE INTO CONTINUING
CARE RETIREMENT COMMUNITY.
(a) IN GENERAL.—Section 1034 of the Internal Rev-
enue Code of 1986 (relating to rollover of gain of sale of
principal residence) is amended by redesignating sub-
section (l) as subsection (m) and by inserting after sub-
section (k) the following new subsection:
‘‘(l) NONRECOGNITION OF GAIN IF NEW RESIDENCE
IS QUALIFIED CONTINUING CARE RETIREMENT COMMU-
NITY.—
‘‘(1) IN GENERAL.—Gross income shall not in-
clude gain from the sale of the principal residence
of the taxpayer if—
‘‘(A) the taxpayer attained age 55 before
the date of such sale, and
‘‘(B) within the 2-year period beginning on
such date, the taxpayer has as his principal res-
idence a qualified continuing care retirement
community.
‘‘(2) LIMITATION.—The amount excluded from
gross income under paragraph (1) shall not exceed
the amount paid by the taxpayer during such 2-year
period to such retirement community as an entrance
fee in order for the taxpayer or his spouse (or both)
to reside in such community.
‘‘(3) RECAPTURE IN CERTAIN CASES.—If the
taxpayer ceases to have as his principal residence
(other than by reason of death) a qualified continu-
ing care retirement community at any time during
the 2-year period beginning on the date such com-
munity began being the taxpayer’s principal resi-
dence, the amount excluded from gross income
under paragraph (1) shall be included in the tax-
payer’s gross income (as long-term capital gain) for
the taxable year in which such cessation occurs.
‘‘(4) SPECIAL RULES FOR MARRIED INDIVID-
UALS.—In the case of a husband and wife who file
a joint return for the taxable year which includes the
date of the sale of the old residence—
‘‘(A) the age requirement of paragraph
(1)(A) shall be treated as met if either spouse
meets such requirement, and
‘‘(B) paragraph (3) shall be applied by
taking into account one-half of the gain with re-
spect to each spouse if such spouses do not file
a joint return for the taxable year in which the
cessation referred to in paragraph (3) occurs.
‘‘(5) QUALIFIED
CONTINUING
CARE
RETIRE-
MENT
COMMUNITY.—For purposes of this sub-
section, the term ‘qualified continuing care retire-
ment community’ has the meaning given such term
by section 7872(g).’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to old residences sold after Decem-
ber 31, 1994.
TITLE III—LONG-TERM CARE
INSURANCE REFORM
Subtitle A—General Provisions
SEC. 301. FEDERAL REGULATIONS; PRIOR APPLICATION OR
CERTAIN REQUIREMENTS.
(a) IN GENERAL.—The Secretary, with the advice
and assistance of the National Association of Insurance
Commissioners, as appropriate, shall promulgate regula-
tions as necessary to implement the provisions of this title,
in accordance with the timetable specified in subsection
(b).
(b) TIMETABLE
FOR PUBLICATION
OF REGULA-
TIONS.—
(1) FEDERAL REGISTER NOTICE.—Within 120
days after the date of the enactment of this Act, the
Secretary shall publish in the Federal Register a no-
tice setting forth the projected timetable for promul-
gation of regulations required under this title. Such
timetable shall indicate which regulations are pro-
posed to be published by the end of the first, second,
and third years after the date of the enactment of
this Act.
(2) FINAL DEADLINE.—All regulations required
under this title shall be published by the end of the
third year after the date of the enactment of this
Act.
(3) REVISION
OF
REGULATIONS.—The Sec-
retary may periodically revise and update the regula-
tions published under this title. However, any such
revisions shall not become effective until States have
been provided an adequate period of time in which
to implement such revisions.
(4) CONGRESSIONAL DISAPPROVAL.—A regula-
tion, or revision or update of a regulation, under this
section shall take effect unless—
(A) the regulation, revision, or update is
submitted to Congress, and
(B) a joint resolution or Act disapproving
such regulation, revision, or update is enacted
before the end of the 60-day period beginning
on the date on which such regulation, revision,
or update is submitted.
(c) PROVISIONS EFFECTIVE WITHOUT REGARD TO
PROMULGATION OF REGULATIONS.—
(1) IN GENERAL.—Notwithstanding any other
provision of this title, insurers shall be required, not
later than 6 months after the enactment of this Act,
regardless of whether final implementing regulations
have been promulgated by the Secretary, to comply
with the following provisions of this title:
(A) Section 321(c) (standard outline of
coverage);
(B) Section 321(d) (reporting to State in-
surance commissioners);
(C) Section 322(b) (preexisting condition
exclusions);
(D) Section 322(c) (limiting conditions on
benefits);
(E) Section 322(d) (inflation protection);
(F) Section 324 (sales practices);
(G) Section 325 (continuation, renewal, re-
placement, conversion, and cancellation of poli-
cies); and
(H) Section 326 (payment of benefits).
(2) INTERIM REQUIREMENTS.—Before the ef-
fective date of applicable regulations promulgated by
the Secretary implementing requirements of this title
as specified below, such requirements will be consid-
ered to be met—
(A) in the case of section 321(c) (requiring
a standard outline of coverage), if the long-term
care insurance policy meets the requirements of
section 6.G.(2) of the NAIC Model Act and of
section 24 of the NAIC Model Regulation;
(B) in the case of section 321(d) (requiring
reporting to the State insurance commissioner),
if the insurer meets the requirements of section
14 of the NAIC Model Regulation;
(C) in the case of section 322(c)(1) (gen-
eral requirements concerning limiting conditions
on benefits), if such policy meets the require-
ments of section 6.D. of the NAIC Model Act;
(D) in the case of section 322(c)(2) (limit-
ing conditions on home health care or commu-
nity-based services) if such policy meets the re-
quirements of section 11 of the NAIC Model
Regulations;
(E) in the case of section 322(d) (concern-
ing inflation protection), if the insurer meets
the requirements of section 12 of the NAIC
Model Regulation;
(F) in the case of section 324(b) (concern-
ing applications for the purchase of insurance),
if the insurer meets the requirements of section
10 of the NAIC Model Regulation;
(G) in the case of section 324(g) (concern-
ing sales through employers or membership or-
ganizations), if the insurer and the membership
organization meet the requirements of section
21.C. of the NAIC Model Regulation;
(H) in the case of section 324(h) (concern-
ing interstate sales of group policies), if the in-
surer and the policy meet the requirements of
section 5 of the NAIC Model Act; and
(I) in the case of section 325(f) (concern-
ing continuation, renewal, replacement, and
conversion of policies), if the insurer and the
policy meet the requirements of section 7 of the
NAIC Model Regulation.
SEC. 302. DEFINITIONS.
For purposes of this title:
(1) ACTIVITY OF DAILY LIVING.—The term ‘‘ac-
tivity of daily living’’ means any of the following:
eating, toileting, dressing, bathing, transferring, and
continence.
(2) ADULT DAY CARE.—The term ‘‘adult day
care’’ means a program providing social and health-
related services during the day to six or more adults
with disabilities (or such smaller number as the Sec-
retary may specify in regulations) in a community
group setting outside the home.
(3) 
CERTIFICATE.—The 
term 
‘‘certificate’’
means a document issued to an individual as evi-
dence of such individual’s coverage under a group
insurance policy.
(4) CONTINUING
CARE
RETIREMENT
COMMU-
NITY.—The term ‘‘continuing care retirement com-
munity’’ means a residential community operated by
a private entity that enters into contractual agree-
ments with residents under which such entity guar-
antees, in consideration for residents’ purchase of or
periodic payment for membership in the community,
to provide for such residents’ future long-term care
needs.
(5) DESIGNATED REPRESENTATIVE.—The term
‘‘designated representative’’ means the person (if
any) designated by an insured individual (or, if such
individual is incapacitated, pursuant to an appro-
priate administrative or judicial procedure) to com-
municate with the insurer on behalf of such individ-
ual in the event of such individual’s incapacitation.
(6) HOME
HEALTH
CARE.—The term ‘‘home
health care’’ means medical and nonmedical services
including such services as homemaker services, as-
sistance with activities of daily living, and respite
care provided to individuals in their residences.
(7) INSURED INDIVIDUAL.—The term ‘‘insured
individual’’ means, with respect to a long-term care
insurance policy, any individual who has coverage of
benefits under such policy.
(8) INSURER.—The term ‘‘insurer’’ means any
person that offers or sells an individual or group
long-term care insurance policy under which such
person is at risk for all or part of the cost of bene-
fits under the policy, and includes any agent of such
person.
(9) LONG-TERM
CARE
INSURANCE
POLICY.—
The term ‘‘long-term care insurance policy’’ has the
meaning given that term in section 4 of the NAIC
Model Act, except that the last sentence of such sec-
tion shall not apply.
(10) NAIC.—The term ‘‘NAIC’’ means the Na-
tional Association of Insurance Commissioners.
(11) NAIC MODEL
ACT.—The term ‘‘NAIC
Model Act’’ means the Long-Term Care Insurance
Model Act published by the NAIC, as amended
through January 1993.
(12) 
NAIC 
model 
regulation.—The 
term
‘‘NAIC Model Regulation’’ means the Long-Term
Care Insurance Model Regulation published by the
NAIC, as amended through January 1993.
(13) NURSING FACILITY.—The term ‘‘nursing
facility’’ means a facility licensed by the State to
provide to residents—
(A) skilled nursing care and related serv-
ices for residents who require medical or nurs-
ing care;
(B) rehabilitation services for the rehabili-
tation of injured, disabled, or sick individuals,
or
(C) on a regular basis, health-related care
and services to individuals who because of their
mental or physical condition require care and
services (above the level of room and board)
which can be made available to them only
through institutional facilities.
(14) POLICYHOLDER.—The term ‘‘policyholder’’
means the entity which is the holder of record of a
group long-term care insurance policy.
(15) RESIDENTIAL CARE FACILITY.—The term
‘‘residential care facility’’ means a facility (including
a nursing facility) that—
(A) provides to residents medical or per-
sonal care services (including at a minimum as-
sistance with activities of daily living) in a set-
ting other than an individual or single-family
home, and
(B) does not provide services of a higher
level than can be provided by a nursing facility.
(16) RESPITE CARE.—The term ‘‘respite care’’
means the temporary provision of care (including as-
sistance with activities of daily living) to an individ-
ual, in the individual’s home or another setting in
the community, for the purpose of affording such in-
dividual’s unpaid caregiver a respite from the re-
sponsibilities of such care.
(17) STATE INSURANCE COMMISSIONER.—The
term ‘‘State insurance commissioner’’ means the
State official bearing such title, or, in the case of a
jurisdiction where such title is not used, the State
official with primary responsibility for the regulation
of insurance.
Subtitle B—Federal Standards and
Requirements
SEC. 321. REQUIREMENTS TO FACILITATE UNDERSTAND-
ING AND COMPARISON OF BENEFITS.
(a) IN GENERAL.—The Secretary, after considering
(where appropriate) recommendations of the NAIC, shall
promulgate regulations designed to standardize formats
and terminology used in long-term care insurance policies,
to require insurers to provide to customers and bene-
ficiaries information on the range of public and private
long-term care coverage available, and to establish such
other requirements as may be appropriate to promote
consumer understanding and facilitate comparison of ben-
efits, which shall include at a minimum the requirements
specified in this section.
(b) UNIFORM
TERMS, DEFINITIONS, AND
FOR-
MATS.—Insurers shall be required to use, in long-term
care insurance policies, uniform terminology, definitions of
terms, and formats, in accordance with regulations pro-
mulgated by the Secretary, after considering recommenda-
tions of the NAIC.
(c) STANDARD OUTLINE OF COVERAGE.—
(1) IN GENERAL.—Insurers shall be required to
develop for each long-term care insurance policy of-
fered or sold, to include as a part of each such pol-
icy, and to make available to each potential pur-
chaser and furnish to each insured individual and
policyholder, an outline of coverage under such pol-
icy that—
(A) includes the elements specified in para-
graph (2),
(B) is in a uniform format (as prescribed
by the Secretary on the basis of recommenda-
tions by the NAIC),
(C) accurately and clearly reflects the con-
tents of the policy, and
(D) is updated periodically on such time-
table as may be required by the Secretary (or
more frequently as necessary to reflect signifi-
cant changes in outlined information).
(2) CONTENTS
OF
OUTLINE.—The outline of
coverage for each long-term care insurance policy
shall include at least the following:
(A) BENEFITS.—A description of—
(i) the principal benefits covered, in-
cluding the extent of—
(I) benefits for services furnished
in residential care facilities, and
(II) other benefits,
(ii) the principal exclusions from and
limitations on coverage,
(iii) the terms and conditions, if any,
upon which the insured individual may ob-
tain upgraded benefits, and
(iv) the threshold conditions for enti-
tlement to receive benefits.
(B) CONTINUATION, RENEWAL, AND CON-
VERSION.—A statement of the terms under
which a policy may be—
(i) returned (and premium refunded)
during an initial examination period,
(ii) continued in force or renewed,
(iii) converted to an individual policy
(in the case of coverage under a group pol-
icy),
(C) CANCELLATION.—A statement of the
circumstances in which a policy may be termi-
nated, and the refund or nonforfeitures benefits
(if any) applicable in each such circumstance,
including—
(i) death of the insured individual,
(ii) nonpayment of premiums,
(iii) election by the insured individual
not to renew,
(iv) any other circumstance.
(D) PREMIUM.—A statement of—
(i) the total annual premium,
(ii) any reservation by the insurer of
a right to change premiums,
(iii) any expected premium increases
associated with automatic or optional bene-
fit increases (including inflation protec-
tion), and
(iv) any circumstances under which
payment of premium is waived.
(E) 
DECLARATION
CONCERNING
SUM-
MARY.—A statement, in bold face type on the
face of the document in language understand-
able to the average individual, that the outline
of coverage is a summary only, not a contract
of insurance, and that the policy contains the
contractual provisions that govern.
(F) COST/VALUE COMPARISON.—
(i) A comparison of benefits, over a
period of at least 20 years, for policies
with and without inflation protection.
(ii) A declaration as to whether the
amount of benefits will increase over time,
and, if so, a statement of the type and
amount of, any limitations on, and any
premium increases for, such benefit in-
creases.
(G) TAX TREATMENT.—A statement of the
Federal income tax treatment of premiums and
benefits under the policy, as determined by the
Secretary of the Treasury.
(H) OTHER.—Such other information as
the Secretary may require.
(d) REPORTING
TO STATE INSURANCE COMMIS-
SIONER.—Each insurer shall be required to report at least
annually, to the State insurance commissioner of each
State in which any long-term care insurance policy of the
insurer is sold, such information, in such format, as the
Secretary may specify with respect to each such policy,
including—
(1) the standard outline of coverage required
pursuant to subsection (c);
(2) lapse rates and replacement rates for such
policies (including, by percentage, the reasons for
the lapse);
(3) the ratio of premiums collected to benefits
paid;
(4) reserves;
(5) written materials used in sale or promotion
of such policy; and
(6) any other information the Secretary may re-
quire.
SEC. 322. REQUIREMENTS RELATING TO COVERAGE.
(a) IN GENERAL.—The Secretary, after considering
(where appropriate) recommendations of the NAIC, shall
promulgate regulations establishing requirements with re-
spect to the terms of and benefits under long-term care
insurance policies, which shall include at a minimum the
requirements specified in this section.
(b) LIMITATIONS ON PREEXISTING CONDITION EX-
CLUSIONS.—
(1) INITIAL POLICIES.—A long-term care insur-
ance policy may not exclude or limit coverage for
any service or benefit, the need for which is the re-
sult of a medical condition or disability because an
insured individual received medical treatment for, or
was diagnosed as having, such condition before the
issuance of the policy, unless—
(A) the insurer, prior to issuance of the
policy, determines and documents (with evi-
dence including written evidence that such con-
dition has been treated or diagnosed by a quali-
fied health care professional) that the insured
individual had such condition during the 6-
month period (or such longer period as the Sec-
retary may specify) ending on the effective date
of the policy; and
(B) the need or such service or benefit be-
gins within 6 months (or such longer period as
the Secretary may specify) following the effec-
tive date of the policy.
(2) REPLACEMENT POLICIES.—Solely for pur-
poses of the requirements of paragraph (1), with re-
spect to an insured individual, the effective date of
a long-term care insurance policy issued to replace
a previous policy, with respect to benefits which are
the same as or substantially equivalent to benefits
under such previous policy, shall be considered to be
the effective date of such previous policy with re-
spect to such individual.
(c) LIMITING CONDITIONS ON BENEFITS.—
(1) IN GENERAL.—A long-term care insurance
policy may not—
(A) condition eligibility for benefits for a
type of service on the need for or receipt of any
other type of service (such as prior hospitaliza-
tion or institutionalization, or a higher level of
care than the care for which benefits are cov-
ered);
(B) condition eligibility for any benefit
(where the need for such benefit has been es-
tablished by an independent assessment of im-
pairment) on any particular medical diagnosis
(including any acute condition) or on one of a
group of diagnoses;
(C) condition eligibility for benefits fur-
nished by licensed or certified providers on com-
pliance by such providers with conditions not
required under Federal or State law; or
(D) condition coverage of any service on
provision of such service by a provider, or in a
setting, providing a higher level of care than
that required by an insured individual.
(2) HOME CARE OR COMMUNITY-BASED SERV-
ICES.—A long-term care insurance policy that pro-
vides benefits for any home care or community-based
services—
(A) may not limit such benefits to services
provided by registered nurses or licensed prac-
tical nurses;
(B) may not limit such benefits to services
furnished by persons or entities participating in
programs under titles XVIII and XIX of the
Social Security Act and in part 1 of this title;
and
(C) must provide, at a minimum, benefits
for personal assistance with activities of daily
living, home health care, adult day care, and
respite care.
(3) NURSING FACILITY SERVICES.—A long-term
care insurance policy that provides benefits for any
nursing facility services—
(A) must provide benefits for such services
provided by all types of nursing facilities li-
censed by the State, and
(B) may provide benefits for care in other
residential facilities.
(4) PROHIBITION OF DISCRIMINATION BY DIAG-
NOSIS.—A long-term care insurance policy may not
provide for treatment of any of the following medical
conditions different from the treatment of any other
medical condition for purposes of determining
whether threshold conditions for the receipt of bene-
fits have been met, or the amount of benefits under
the policy:
(A) Alzheimer’s disease or any other pro-
gressive degenerative dementia of an organic or-
igin.
(B) Any organic or inorganic mental ill-
ness.
(C) Mental retardation or any other cog-
nitive or mental impairment.
(D) HIV infection or AIDS.
(d) INFLATION PROTECTION.—
(1) REQUIREMENT TO OFFER.—An insurer of-
fering for sale any long-term care insurance policy
shall be required to afford the purchaser the option
to obtain coverage under such policy (upon payment
of increased premiums) of annual increases in bene-
fits at rates in accordance with paragraph (2).
(2) RATE INCREASE IN BENEFITS.—For pur-
poses of paragraph (1), the benefits under a policy
for each year shall be increased by a percentage of
the full value of benefits under the policy for the
previous year, which shall be not less than 5 percent
of such value.
(3) REQUIREMENT OF WRITTEN REJECTION.—
Inflation protection in accordance with paragraph
(1) may be excluded from the coverage under a pol-
icy only if the insured individual (or, if different, the
person responsible for payment of premiums) has re-
jected in writing the option to obtain such coverage.
SEC. 323. REQUIREMENTS RELATING TO PREMIUMS.
(a) IN GENERAL.—The Secretary, after considering
(where appropriate) recommendations of the NAIC, shall
promulgate regulations establishing requirements applica-
ble to premiums for long-term care insurance policies,
which shall include at a minimum the requirements speci-
fied in this section.
(b) LIMITATIONS ON RATES AND INCREASES.—The
Secretary, after considering recommendations of the
NAIC, may establish by regulation such standards and re-
quirements as may be determined appropriate with respect
to—
(1) mandatory or optional State procedures for
review and approval of premium rates and rate in-
creases or decreases; and
(2) the factors to be taken into consideration by
an insurer in proposing, and by a State in approving
or disapproving, premium rates and increases.
SEC. 324. REQUIREMENTS RELATING TO SALES PRACTICES.
(a) IN GENERAL.—The Secretary, after considering
(where appropriate) recommendations of the NAIC, shall
promulgate regulations establishing requirements applica-
ble to the sale or offering for sale of long-term care insur-
ance policies, which shall include at a minimum the re-
quirements specified in this section.
(b) APPLICATIONS.—Any insurer that offers any
long-term care insurance policy (including any group pol-
icy) shall be required to meet such requirements with re-
spect to the content, format, and use of application forms
for long-term care insurance as the Secretary may require
by regulation.
(c) AGENT TRAINING AND CERTIFICATION.—An in-
surer may not sell or offer for sale a long-term care insur-
ance policy through an agent who does not comply with
minimum standards with respect to training and certifi-
cation established by the Secretary after consideration of
recommendations by the NAIC.
(d) PROHIBITED SALES PRACTICES.—The following
practices by insurers shall be prohibited with respect to
the sale or offer for sale of long-term care insurance poli-
cies:
(1) FALSE
AND
MISLEADING
REPRESENTA-
TIONS.—Making any statement or representation—
(A) which the insurer knows or should
know is false or misleading (including the inac-
curate, incomplete, or misleading comparison of
long-term care insurance policies or insurers),
and
(B) which is intended, or would be likely,
to induce any person to purchase, retain, termi-
nate, forfeit, permit to lapse, pledge, assign,
borrow against, convert, or effect a change with
respect to, any long-term care insurance policy.
(2) INACCURATE
COMPLETION
OF
MEDICAL
HISTORY.—Making or causing to be made (by any
means including failure to inquire about or to record
information relating to preexisting conditions) state-
ments or omissions, in records detailing the medical
history of an applicant for insurance, which the in-
surer knows or should know render such records
false, incomplete, or misleading in any way material
to such applicant’s eligibility for or coverage under
a long-term care insurance policy.
(3) 
UNDUE
PRESSURE.—Employing 
force,
fright, threat, or other undue pressure, whether ex-
plicit or implicit, which is intended, or would be like-
ly, to induce the purchase of a long-term care insur-
ance policy.
(4) COLD LEAD ADVERTISING.—Using, directly
or indirectly, any method of contacting consumers
(including any method designed to induce consumers
to contact the insurer or agent) for the purpose of
inducing the purchase of long-term care insurance
(regardless of whether such purpose is the sole or
primary purpose of the contact) without conspicu-
ously disclosing such purpose.
(e) PROHIBITION ON SALE OF DUPLICATE BENE-
FITS.—An insurer or agent may not sell or issue to an
individual a long-term care insurance policy that the in-
surer or agent knows or should know provides for coverage
that duplicates coverage already provided in another long-
term care insurance policy held by such individual (unless
the policy is intended to replace such other policy.
(f) SALES THROUGH EMPLOYERS OR MEMBERSHIP
ORGANIZATIONS.—
(1) REQUIREMENTS
CONCERNING
SUCH
AR-
RANGEMENTS.—In any case where an employer, or-
ganization, association, or other entity (referred to
as a ‘‘membership entity’’) endorses a long-term
care insurance policy to, or such policy is marketed
or sold through such membership entity to, employ-
ees, members, or other individuals affiliated with
such membership entity, the insurer offering such
policy shall not permit its marketing or sale through
such entity unless the requirements of this sub-
section are met.
(2) DISCLOSURE AND INFORMATION REQUIRE-
MENTS.—A membership entity that endorses a long-
term care insurance policy, or through which such
policy is sold, to individuals affiliated with such en-
tity, shall—
(A) disclose prominently, in a form and
manner designed to ensure that each such indi-
vidual who receives information concerning any
such policy through such entity is aware of and
understands such disclosure—
(i) the manner in which the insurer
and policy were selected;
(ii) the extent (if any) to which a per-
son independent of the insurer with exper-
tise in long-term care insurance analyzed
the advantages and disadvantages of such
policy from the standpoint of such individ-
uals (including such matters as the merits
of the policy compared to other available
benefit packages, and the financial stability
of the insurer), and the results of any such
analysis;
(iii) any organizational or financial
ties between the entity (or a related entity)
and the insurer (or a related entity);
(iv) the nature of compensation ar-
rangements (if any) and the amount of
100
compensation (including all fees, commis-
sions, and other forms of financial sup-
port) for the endorsement or sale of such
policy (which amount may be stated as a
percental of the total annual premiums
earned); and
(B) make available to such individuals, ei-
ther directly or through referrals, appropriate
counseling to assist such individuals to make
educated and informed decisions concerning the
purchase of such policies.
SEC. 325. CONTINUATION, RENEWAL, REPLACEMENT, CON-
VERSION, AND CANCELLATION OF POLICIES.
(a) IN GENERAL.—The Secretary, after considering
(where appropriate) recommendations of the NAIC, shall
promulgate regulations establishing requirements applica-
ble to the renewal, replacement, conversion, and cancella-
tion of long-term care insurance policies, which shall in-
clude at a minimum the requirements specified in this sec-
tion.
(b) INSURED’S RIGHT TO CANCEL DURING EXAM-
INATION PERIOD.—Each individual insured (or, if dif-
ferent, each individual liable for payment of premiums)
under a long-term care insurance policy shall have the un-
conditional right to return the policy within 30 days after
101
the date of its issuance and delivery, and to obtain a full
refund of any premium paid.
(c) INSURER’S RIGHT TO CANCEL (OR DENY BENE-
FITS) BASED ON FRAUD OR NONDISCLOSURE.—An in-
surer shall have the right to cancel a long-term care insur-
ance policy, or to refuse to pay a claim for benefits, based
on evidence that the insured falsely represented or failed
to disclose information material to the determination of
eligibility to purchase such insurance, but only if—
(1) the insurer presents written documentation,
developed at the time the insured applied for such
insurance, of the insurer’s request for the informa-
tion thus withheld or misrepresented, and the in-
sured individual’s response to such request;
(2) the insurer presents medical records or
other evidence showing that the insured individual
knew or should have known that such response was
false, incomplete, or misleading;
(3) notice of cancellation is furnished to the in-
sured individual before the date 3 years after the ef-
fective date of the policy (or such earlier date as the
Secretary may specify in regulations); and
(4) the insured individual is afforded the oppor-
tunity to review and refute the evidence presented by
the insurer pursuant to paragraphs (1) and (2).
102
(d) 
INSURER’S
RIGHT
TO
CANCEL
FOR
NONPAYMENT OF PREMIUMS.—
(1) IN GENERAL.—Insurers shall have the right
to cancel long-term care insurance policies for
nonpayment of premiums, subject to the provisions
of this subsection and subsection (e) (relating to
nonforfeiture).
(2) NOTICE AND ACKNOWLEDGEMENT.—
(A) IN GENERAL.—The insurer may not
cancel coverage of an insured individual until—
(i) the insurer, not earlier than the
date when such payment is 30 days past
due, has given written notice to the insured
individual (by registered letter or the
equivalent) of such intent, and
(ii) 30 days have elapsed since the in-
surer obtained written acknowledgment of
receipt of such notice from the insured in-
dividual (or the designated representative,
at the insured individual’s option or in the
case of an insured individual determined to
be incapacitated in accordance with para-
graph (4)).
(B) 
ADDITIONAL
REQUIREMENT
FOR
GROUP POLICIES.—In the case of a group long-
103
term care insurance policy, the notice and ac-
knowledgement requirements of subparagraph
(A) apply with respect to the policyholder and
to each insured individual.
(3) REINSTATEMENT OF COVERAGE OF INCA-
PACITATED INDIVIDUALS.—In any case where the
coverage of an individual under a long-term care in-
surance policy has been canceled pursuant to para-
graph (2), the insurer shall be required to reinstate
full coverage of such individual under such policy,
retroactive to the effective date of cancellation, if the
insurer receives from such individual (or the des-
ignated representative of such individual), within 5
months after such date—
(A) evidence of a determination of such in-
dividual’s incapacitation in accordance with
paragraph (4) (whether made before or after
such date), and
(B) payment of all premiums due and past
due, and all charges for late payment.
(4) DETERMINATION OF INCAPACITATION.—For
purposes of this subsection, the term ‘‘determination
of incapacitation’’ means a determination by a quali-
fied health professional (in accordance with such re-
quirements as the Secretary may specify), that an
104
insured individual has suffered a cognitive impair-
ment which could reasonably be expected to render
the individual permanently unable to deal with busi-
ness or financial matters. The standard used to
make such determination shall not be more stringent
than the threshold conditions for the receipt of cov-
ered benefits.
(5) DESIGNATION OF REPRESENTATIVE.—The
insurer shall be required to notify the insured indi-
vidual, at the time of sale or issuance of a long-term
care insurance policy, of the individual’s right to
designate a representative for purposes of commu-
nication with the insurer concerning premium pay-
ments in the event the insured individual cannot be
located or is incapacitated.
(e) NONFORFEITURE.—
(1) IN GENERAL.—The Secretary, after consid-
eration of recommendations by the NAIC, shall by
regulation require appropriate nonforfeiture benefits
to be offered with respect to each long-term care in-
surance policy that lapses for any reason (including
nonpayment of premiums, cancellation, or failure to
renew, but excluding lapses due to death) after re-
maining in effect beyond a specified minimum
period.
105
(2) NONFORFEITURE
BENEFITS.—The stand-
ards established under this subsection shall require
that the amount or percentage of any such
nonforfeiture benefits shall increase proportionally
with the amount of premiums paid by a policyholder,
but shall not be required to exceed the asset share
remaining in the policy.
(f) CONTINUATION, RENEWAL, REPLACEMENT, AND
CONVERSION OF POLICIES.—
(1) IN GENERAL.—Insurers shall not be per-
mitted to cancel, or refuse to renew (or replace with
a substantial equivalent), any long-term care insur-
ance policy for any reason other than for fraud or
material misrepresentation (as provided in sub-
section (c)) or for nonpayment of premium (as pro-
vided in subsection (d)).
(2) DURATION AND RENEWAL OF POLICIES.—
Each long-term care insurance policy shall contain a
provision that clearly states—
(A) the duration of the policy,
(B) the right of the insured individual (or
policyholder) to renewal (or to replacement with
a substantial equivalent),
106
(C) the date by which, and the manner in
which, the option to renew must be exercised,
and
(D) any applicable restrictions or limita-
tions (which may not be inconsistent with the
requirements of this title).
(3) REPLACEMENT OF POLICIES.—
(A) IN GENERAL.—Except as provided in
subparagraph (B), an insurer shall not be per-
mitted to sell any long-term care insurance pol-
icy as a replacement for another such policy un-
less coverage under such replacement policy is
available to an individual insured for benefits
covered under the previous policy to the same
extent as under such previous policy (including
every individual insured under a group policy)
on the date of termination of such previous pol-
icy, without exclusions or limitations that did
not apply under such previous policy.
(B) INSURED’S OPTION TO REDUCE COV-
ERAGE.—In any case where an insured individ-
ual covered under a long-term care insurance
policy knowingly and voluntarily elects to sub-
stitute for such policy a policy that provides less
107
coverage, substitute policy shall be considered a
replacement policy for purposes of this title.
(3) CONTINUATION AND CONVERSION RIGHTS
WITH RESPECT TO GROUP POLICIES.—
(A) IN
GENERAL.—Insurers shall be re-
quired to include in each group long-term care
insurance policy, a provision affording to each
insured individual, when such policy would oth-
erwise terminate, the opportunity (at the insur-
er’s option, subject to approval of the State in-
surance commissioner) either to continue or to
convert coverage under such policy in accord-
ance with this paragraph.
(B) RIGHTS OF RELATED INDIVIDUALS.—
In the case of any insured individual whose eli-
gibility for coverage under a group policy is
based on relationship to another individual, the
insurer shall be required to continue such cov-
erage upon termination of the relationship due
to divorce or death.
(C) CONTINUATION
OF
COVERAGE.—A
group policy shall be considered to meet the re-
quirements of this paragraph with respect to
rights of an insured individual to continuation
of coverage if coverage of the same (or substan-
108
tially equivalent) benefits for such individual
under such policy is maintained, subject only to
timely payment of premiums.
(D) CONVERSION OF COVERAGE.—A group
policy shall be considered to meet the require-
ments of this paragraph with respect to conver-
sion if it entitles each individual who has been
continuously covered under the policy for at
least 6 months before the date of the termi-
nation to issuance of a replacement policy pro-
viding benefits identical to, substantially equiva-
lent to, or in excess of, the benefits under such
terminated group policy—
(i) without requiring evidence of in-
surability with respect to benefits covered
under such previous policy, and
(ii) at premium rates no higher than
would apply if the insured individual had
initially obtained coverage under such re-
placement policy on the date such insured
individual initially obtained coverage under
such group policy.
(4) TREATMENT
OF
SUBSTANTIAL
EQUIVA-
LENCE.—
109
(A) UNDER SECRETARY’S GUIDELINES.—
The Secretary, after considering recommenda-
tions by the NAIC, shall develop guidelines for
comparing long-term care insurance policies for
the purpose of determining whether benefits
under such policies are substantially equivalent.
(B) BEFORE
EFFECTIVE
DATE
OF
SEC-
RETARY’S
GUIDELINES.—During the period
prior to the effective date of guidelines pub-
lished by the Secretary under this paragraph,
insurers shall comply with standards for deter-
minations of substantial equivalence established
by State insurance commissioners.
(5) 
ADDITIONAL
REQUIREMENTS.—Insurers
shall comply with such other requirements relating
to continuation, renewal, replacement, and conver-
sion of long-term care insurance policies as the Sec-
retary may establish.
SEC. 326. REQUIREMENTS RELATING TO PAYMENT OF BEN-
EFITS.
(a) IN GENERAL.—The Secretary, after considering
(where appropriate) recommendations of the NAIC, shall
promulgate regulations establishing requirements with re-
spect to claims for and payment of benefits under long-
110
term care insurance policies, which shall include at a mini-
mum the requirements specified in this section.
(b) STANDARDS RELATING TO THRESHOLD CONDI-
TIONS
FOR RECEIPT
OF COVERED BENEFITS.—Each
long-term care insurance policy shall meet the following
requirements with respect to identification of, and deter-
mination of whether an insured individual meets, the
threshold conditions for receipt of benefits covered under
such policy:
(1) DECLARATION
OF
THRESHOLD
CONDI-
TIONS.—
(A) IN GENERAL.—The policy shall specify
the level (or levels) of functional or cognitive
mental impairment (or combination of impair-
ments) required as a threshold condition of en-
titlement to receive benefits under the policy
(which threshold condition or conditions shall
be consistent with any regulations promulgated
by the Secretary pursuant to subsection (B)).
(B) SECRETARIAL RESPONSIBILITY.—The
Secretary (after considering the views of the
NAIC on current practices of insurers concern-
ing, and the appropriateness of standardizing,
threshold conditions) may promulgate such reg-
ulations as the Secretary finds appropriate es-
111
tablishing standardized thresholds to be used
under such policies as preconditions for varying
levels of benefits.
(2) 
INDEPENDENT
PROFESSIONAL
ASSESS-
MENT.—The policy shall provide for a procedure for
determining whether the threshold conditions speci-
fied under paragraph (1) have been met with respect
to an insured individual which—
(A) applies such uniform assessment
standards, procedures, and formats as the Sec-
retary may specify, after consideration of rec-
ommendations by the NAIC;
(B) permits an initial evaluation (or, if the
initial evaluation was performed by a qualified
independent assessor selected by the insurer, a
reevaluation) to be made by a qualified inde-
pendent assessor selected by the insured indi-
vidual (or designated representative) as to
whether the threshold conditions for receipt of
benefits have been met;
(C) permits the insurer the option to ob-
tain a reevaluation by a qualified independent
assessor selected and reimbursed by the insurer;
112
(D) provides that the insurer will consider
that the threshold conditions have been met in
any case where—
(i) the assessment under subpara-
graph (B) concluded that such conditions
had been met, and the insurer declined the
option under subparagraph (C), or
(ii) assessments under both subpara-
graphs (B) and (C) concluded that such
conditions had been met; and
(E) provides for final resolution of the
question by a State agency or other impartial
third party in any case where assessments
under subparagraphs (B) and (C) reach incon-
sistent conclusions.
(3) QUALIFIED INDEPENDENT ASSESSOR.—For
purposes of paragraph (2), the term ‘‘qualified inde-
pendent assessor’’ means a licensed or certified pro-
fessional, as appropriate, who—
(A) meets such standards with respect to
professional qualifications as may be established
by the Secretary, after consulting with the Sec-
retary of the Treasury, and
(B) has no significant or controlling finan-
cial interest in, is not an employee of, and does
113
not derive more than 5 percent of gross income
from, the insurer (or any provider of services
for which benefits are available under the policy
and in which the insurer has a significant or
controlling financial interest).
(c) REQUIREMENTS RELATING TO CLAIMS FOR BEN-
EFITS.—Insurers shall be required—
(1) to promptly pay or deny claims for benefits
submitted by (or on behalf of) insured individuals
who have been determined pursuant to subsection
(b) to meet the threshold conditions for payment of
benefits;
(2) to provide an explanation in writing of the
reasons for payment, partial payment, or denial of
each such claim; and
(3) to provide an administrative procedure
under which an insured individual may appeal the
denial of any claim.
Subtitle C—Enforcement
SEC. 341. STATE PROGRAMS FOR ENFORCEMENT OF
STANDARDS.
(a) REQUIREMENT FOR STATE PROGRAMS IMPLE-
MENTING FEDERAL STANDARDS.—In order for a State to
be eligible for grants under this subtitle, the State must
have in effect a program (including such laws and proce-
114
dures as may be necessary) for the regulation of long-term
care insurance which the Secretary has determined—
(1) includes the elements required under this
title, and
(2) is designed to ensure the compliance of
long-term care insurance policies sold in the State,
and insurers offering such policies and their agents,
with the requirements established pursuant to sub-
title B.
(b) ACTIVITIES UNDER STATE PROGRAM.—A State
program approved under this subtitle shall provide for the
following procedures and activities:
(1) MONITORING
OF
INSURERS
AND
POLI-
CIES.—Procedures for ongoing monitoring of the
compliance of insurers doing business in the State,
and of long-term care insurance policies sold in the
State, with requirements under this subtitle, includ-
ing at least the following:
(A) 
POLICY
REVIEW
AND
CERTIFI-
CATION.—A program for review and certifi-
cation (and annual recertification) of each such
policy sold in the State.
(B) REPORTING BY INSURERS.—Require-
ments of annual reporting by insurers selling or
servicing long-term care insurance policies in
115
the State, in such form and containing such in-
formation as the State may require to deter-
mine whether the insurer (and policies) are in
compliance with requirements under this sub-
title.
(C) DATA
COLLECTION.—Procedures for
collection, from insurers, service providers, in-
sured individuals, and others, of information re-
quired by the State for purposes of carrying out
its responsibilities under this subtitle (including
authority to compel compliance of insurers with
requests for such information).
(D) MARKETING OVERSIGHT.—Procedures
for monitoring (through sampling or other ap-
propriate procedures) the sales practices of in-
surers and agents, including review of market-
ing literature.
(E) OVERSIGHT
OF
ADMINISTRATION
OF
BENEFITS.—Procedures 
for 
monitoring
(through sampling or other appropriate proce-
dures) insurers’ administration of benefits, in-
cluding monitoring of—
(i) determinations of insured individ-
uals’ eligibility to receive benefits, and
(ii) disposition of claims for payment.
116
(2) CONSUMER COMPLAINTS AND DISPUTE RES-
OLUTION.—Administrative procedures for the inves-
tigation and resolution of complaints by consumers,
and disputes between consumers and insurers, with
respect to long-term care insurance, including—
(A) procedures for the filing, investigation,
and adjudication of consumer complaints with
respect to the compliance of insurers and poli-
cies with requirements under this subtitle, or
other requirements under State law; and
(B) procedures for resolution of disputes
between insured individuals and insurers con-
cerning eligibility for, or the amount of, benefits
payable under such policies, and other issues
with respect to the rights and responsibilities of
insurers and insured individuals under such
policies.
(3) TECHNICAL
ASSISTANCE
TO
INSURERS.—
Provision of technical assistance to insurers to help
them to understand and comply with the require-
ments of this subtitle, and other State laws, concern-
ing long-term care insurance policies and business
practices.
(c) STATE ENFORCEMENT AUTHORITIES.—A State
program meeting the requirements of this subtitle shall
117
ensure that the State insurance commissioner (or other
appropriate official or agency) has the following authority
with respect to long-term care insurers and policies:
(1) PROHIBITION OF SALE.—Authority to pro-
hibit the sale, or offering for sale, of any long-term
care insurance policy that fails to comply with all
applicable requirements under this subtitle.
(2) PLANS
OF
CORRECTION.—Authority, in
cases where the business practices of an insurer are
determined not to comply with requirements under
this subtitle, to require the insurer to develop, sub-
mit for State approval, and implement a plan of cor-
rection which must be fulfilled within the shortest
period possible (not to exceed a year) as a condition
of continuing to do business in the State.
(3) CORRECTIVE ACTION ORDERS.—Authority,
in cases where an insurer is determined to have
failed to comply with requirements of this subtitle,
or with the terms of a policy, with respect to a
consumer or insured individual, to direct the insurer
(subject to appropriate due process) to eliminate
such noncompliance within 30 days.
(4) CIVIL MONEY PENALTIES.—Authority to as-
sess civil money penalties, in amounts for each viola-
118
tive act up to the greater of $10,000 or three times
the amount of any commission involved—
(A) for violations of subsections (d) (con-
cerning prohibited sales practices) and (e) (pro-
hibition on sale of duplicate benefits) of section
324,
(B) for such other violative acts as the
Secretary may specify in regulations, and
(C) in such other cases as the State finds
appropriate.
(5) OTHER AUTHORITIES.—Such other authori-
ties as the State finds necessary or appropriate to
enforce requirements under this subtitle.
(d) RECORDS, REPORTS, AND AUDITS.—As a condi-
tion of approval of its program under this subtitle, a State
must agree to maintain such records, make such reports
(including expenditure reports), and cooperate with such
audits, as the Secretary finds necessary to determine the
compliance of such State program (and insurers and poli-
cies regulated under such program) with the requirements
of this subtitle.
(e) SECRETARIAL RESPONSIBILITY FOR APPROVAL
OF STATE PROGRAMS.—The Secretary shall approve a
State program meeting the requirements of this subtitle.
119
SEC. 
342. 
AUTHORIZATION 
OF 
APPROPRIATIONS 
FOR
STATE PROGRAMS.
There are authorized to be appropriated $10,000,000
for fiscal year 1996, $10,000,000 for fiscal year 1997,
$7,500,000 for fiscal year 1998, and $5,000,000 for fiscal
year 1999 and each succeeding fiscal year, for grants to
States with programs meeting the requirements of this
subtitle, to remain available until expended.
SEC. 343. ALLOTMENTS TO STATES.
The allotment for any fiscal year to a State with a
program approved under this subtitle shall be an amount
determined by the Secretary, taking into account the num-
bers of long-term care insurance policies sold, and of elder-
ly individuals residing, in the State, and such other factors
as the Secretary finds appropriate.
SEC. 344. PAYMENTS TO STATES.
(a) IN GENERAL.—Each State with a program ap-
proved under this subtitle shall be entitled to payment
under this subtitle for each fiscal year in an amount equal
to its allotment for such fiscal year, for expenditure by
such State for up to 50 percent of the cost of activities
under such program.
(b) STATE SHARE OF PROGRAM EXPENDITURES.—
No Federal funds from any source may be used as any
part of the non-Federal share of expenditures under the
State program under this subtitle.
120
(c) TRANSFER AND DEPOSIT REQUIREMENTS.—The
Secretary shall make payments under this section in ac-
cordance with section 6503 of title 31, United States
Code.
SEC. 345. FEDERAL OVERSIGHT OF STATE ENFORCEMENT.
(a) IN GENERAL.—The Secretary shall periodically
review State regulatory programs approved under section
341 to determine whether they continue to comply with
the requirements of this subtitle.
(b) NOTICE OF DETERMINATION OF NONCOMPLI-
ANCE.—The Secretary shall promptly notify the State of
a determination that a State program fails to comply with
this subtitle, specifying the requirement or requirements
not met and the elements of the State program requiring
correction.
(c) OPPORTUNITY FOR CORRECTION.—
(1) IN GENERAL.—The Secretary shall afford a
State notified of noncompliance pursuant to sub-
section (b) a reasonable opportunity to eliminate
such noncompliance.
(2) CORRECTION PLANS.—In a case where sub-
stantial corrections are needed to eliminate non-
compliance of a State program, the Secretary may—
(A) permit the State a reasonable time
after the date of the notice pursuant to sub-
121
section (b) to develop and obtain the Sec-
retary’s approval of a correction plan, and
(B) permit the State a reasonable time
after the date of approval of such plan to elimi-
nate the noncompliance.
(d) WITHDRAWAL OF PROGRAM APPROVAL.—In the
case of a State that fails to eliminate noncompliance with
requirements under this subtitle by the date specified by
the Secretary pursuant to subsection (c), the Secretary
shall withdraw the approval of the State program pursu-
ant to section 341(e).
Subtitle D—Recommendations for
Consumer Education Program
SEC. 
361. 
RECOMMENDATIONS 
FOR 
CONSUMER 
EDU-
CATION PROGRAM.
(a) DESIGN.—
(1) IN GENERAL.—The Secretary shall design
programs for educating consumers concerning long-
term care and long-term care insurance.
(2) GOALS.—The programs shall be designed to
achieve the goals of increasing consumers’ under-
standing and awareness of options available to them
with respect to long-term care insurance (and alter-
natives, such as public long-term care programs), in-
cluding—
122
(A) the risk of needing long-term care;
(B) the costs associated with long-term
care services;
(C) the lack of long-term care coverage
under the Medicare program, Medicare supple-
mental (Medigap) policies, and standard private
health insurance;
(D) the limitations on (and conditions of
eligibility for) long-term care coverage under
State programs;
(E) the availability, and variations in cov-
erage and cost, of private long-term care insur-
ance;
(F) features common to many private long-
term care insurance policies; and
(G) pitfalls to avoid when purchasing a
long-term care insurance policy.
(3) ACTIVITIES.—The program may include—
(A) improving coordination of the activities
of State agencies and private entities;
(B) collecting, analyzing, publishing, and
disseminating information,
(C) conducting or sponsoring of consumer
education, outreach, and information programs,
and