109
‘‘(d) PROTECTIONS AGAINST FRAUD
AND BENE-
FICIARY PROTECTIONS.—
‘‘(1) INSPECTION AND AUDIT.—Each contract
under this section shall provide that the Secretary,
or any person or organization designated by the Sec-
retary—
‘‘(A) shall have the right to inspect or oth-
erwise evaluate (i) the quality, appropriateness,
and timeliness of services performed under the
contract and (ii) the facilities of the organiza-
tion when there is reasonable evidence of some
need for such inspection, and
‘‘(B) shall have the right to audit and in-
spect 
any 
books 
and 
records 
of 
the
MedicarePlus organization that pertain (i) to
the ability of the organization to bear the risk
of potential financial losses, or (ii) to services
performed or determinations of amounts pay-
able under the contract.
‘‘(2) ENROLLEE NOTICE AT TIME OF TERMI-
NATION.—Each contract under this section shall re-
quire the organization to provide (and pay for) writ-
ten notice in advance of the contract’s termination,
as well as a description of alternatives for obtaining
110
benefits under this title, to each individual enrolled
with the organization under this part.
‘‘(3) DISCLOSURE.—
‘‘(A) IN
GENERAL.—Each MedicarePlus
organization shall, in accordance with regula-
tions of the Secretary, report to the Secretary
financial information which shall include the
following:
‘‘(i) Such information as the Sec-
retary may require demonstrating that the
organization has a fiscally sound operation.
‘‘(ii) A copy of the report, if any, filed
with the Health Care Financing Adminis-
tration containing the information required
to be reported under section 1124 by dis-
closing entities.
‘‘(iii) A description of transactions, as
specified by the Secretary, between the or-
ganization and a party in interest. Such
transactions shall include—
‘‘(I) any sale or exchange, or
leasing of any property between the
organization and a party in interest;
‘‘(II) any furnishing for consider-
ation of goods, services (including
111
management services), or facilities be-
tween the organization and a party in
interest, but not including salaries
paid to employees for services pro-
vided in the normal course of their
employment and health services pro-
vided to members by hospitals and
other providers and by staff, medical
group (or groups), individual practice
association (or associations), or any
combination thereof; and
‘‘(III) any lending of money or
other extension of credit between an
organization and a party in interest.
The Secretary may require that information re-
ported respecting an organization which con-
trols, is controlled by, or is under common con-
trol with, another entity be in the form of a
consolidated financial statement for the organi-
zation and such entity.
‘‘(B) PARTY IN INTEREST DEFINED.—For
the purposes of this paragraph, the term ‘party
in interest’ means—
‘‘(i) any director, officer, partner, or
employee responsible for management or
112
administration of a MedicarePlus organiza-
tion, any person who is directly or indi-
rectly the beneficial owner of more than 5
percent of the equity of the organization,
any person who is the beneficial owner of
a mortgage, deed of trust, note, or other
interest secured by, and valuing more than
5 percent of the organization, and, in the
case of a MedicarePlus organization orga-
nized as a nonprofit corporation, an incor-
porator or member of such corporation
under applicable State corporation law;
‘‘(ii) any entity in which a person de-
scribed in clause (i)—
‘‘(I) is an officer or director;
‘‘(II) is a partner (if such entity
is organized as a partnership);
‘‘(III) has directly or indirectly a
beneficial interest of more than 5 per-
cent of the equity; or
‘‘(IV) has a mortgage, deed of
trust, note, or other interest valuing
more than 5 percent of the assets of
such entity;
113
‘‘(iii) any person directly or indirectly
controlling, controlled by, or under com-
mon control with an organization; and
‘‘(iv) any spouse, child, or parent of
an individual described in clause (i).
‘‘(C) ACCESS
TO
INFORMATION.—Each
MedicarePlus organization shall make the infor-
mation reported pursuant to subparagraph (A)
available to its enrollees upon reasonable re-
quest.
‘‘(4) LOAN INFORMATION.—The contract shall
require the organization to notify the Secretary of
loans and other special financial arrangements which
are made between the organization and subcontrac-
tors, affiliates, and related parties.
‘‘(e) ADDITIONAL CONTRACT TERMS.—The contract
shall contain such other terms and conditions not incon-
sistent with this part (including requiring the organization
to provide the Secretary with such information) as the
Secretary may find necessary and appropriate.
‘‘(f) INTERMEDIATE SANCTIONS.—
‘‘(1) IN GENERAL.—If the Secretary determines
that a MedicarePlus organization with a contract
under this section—
114
‘‘(A) fails substantially to provide medi-
cally necessary items and services that are re-
quired (under law or under the contract) to be
provided to an individual covered under the con-
tract, if the failure has adversely affected (or
has substantial likelihood of adversely affecting)
the individual;
‘‘(B) imposes premiums on individuals en-
rolled under this part in excess of the premiums
permitted;
‘‘(C) acts to expel or to refuse to re-enroll
an individual in violation of the provisions of
this part;
‘‘(D) engages in any practice that would
reasonably be expected to have the effect of de-
nying or discouraging enrollment (except as
permitted by this part) by eligible individuals
with the organization whose medical condition
or history indicates a need for substantial fu-
ture medical services;
‘‘(E) misrepresents or falsifies information
that is furnished—
‘‘(i) to the Secretary under this part,
or
116
excess amount charged in violation of such
paragraph (and the excess amount charged
shall be deducted from the penalty and returned
to the individual concerned), and plus, with re-
spect to a determination under paragraph
(1)(D), $15,000 for each individual not enrolled
as a result of the practice involved,
‘‘(B) suspension of enrollment of individ-
uals under this part after the date the Sec-
retary notifies the organization of a determina-
tion under paragraph (1) and until the Sec-
retary is satisfied that the basis for such deter-
mination has been corrected and is not likely to
recur, or
‘‘(C) suspension of payment to the organi-
zation under this part for individuals enrolled
after the date the Secretary notifies the organi-
zation of a determination under paragraph (1)
and until the Secretary is satisfied that the
basis for such determination has been corrected
and is not likely to recur.
‘‘(3) OTHER
INTERMEDIATE
SANCTIONS.—In
the case of a MedicarePlus organization for which
the Secretary makes a determination under sub-
section (c)(2) the basis of which is not described in
117
paragraph (1), the Secretary may apply the follow-
ing intermediate sanctions:
‘‘(A) civil money penalties of not more
than $25,000 for each determination under
subsection (c)(2) if the deficiency that is the
basis of the determination has directly adversely
affected (or has the substantial likelihood of ad-
versely affecting) an individual covered under
the organization’s contract;
‘‘(B) civil money penalties of not more
than $10,000 for each week beginning after the
initiation of procedures by the Secretary under
subsection (h) during which the deficiency that
is the basis of a determination under subsection
(c)(2) exists; and
‘‘(C) suspension of enrollment of individ-
uals under this part after the date the Sec-
retary notifies the organization of a determina-
tion under subsection (c)(2) and until the Sec-
retary is satisfied that the deficiency that is the
basis for the determination has been corrected
and is not likely to recur.
‘‘(4) 
PROCEDURES
FOR
IMPOSING
SANC-
TIONS.—The provisions of section 1128A (other
than subsections (a) and (b)) shall apply to a civil
118
money penalty under paragraph (1) or (2) in the
same manner as they apply to a civil money penalty
or proceeding under section 1128A(a).
‘‘(g) PROCEDURES FOR IMPOSING SANCTIONS.—The
Secretary may terminate a contract with a MedicarePlus
organization under this section or may impose the inter-
mediate sanctions described in subsection (f) on the orga-
nization in accordance with formal investigation and com-
pliance procedures established by the Secretary under
which—
‘‘(1) the Secretary provides the organization
with the opportunity to develop and implement a
corrective action plan to correct the deficiencies that
were the basis of the Secretary’s determination
under subsection (c)(2);
‘‘(2) the Secretary shall impose more severe
sanctions on organizations that have a history of de-
ficiencies or that have not taken steps to correct de-
ficiencies the Secretary has brought to their atten-
tion;
‘‘(3) there are no unreasonable or unnecessary
delays between the finding of a deficiency and the
imposition of sanctions; and
‘‘(4) the Secretary provides the organization
with reasonable notice and opportunity for hearing
119
(including the right to appeal an initial decision) be-
fore imposing any sanction or terminating the con-
tract.’’.
(b) CONFORMING REFERENCES TO PREVIOUS PART
C.—Any reference in law (in effect before the date of the
enactment of this Act) to part C of title XVIII of the So-
cial Security Act is deemed a reference to part D of such
title (as in effect after such date).
(c) USE
OF INTERIM, FINAL REGULATIONS.—In
order to carry out the amendment made by subsection (a)
in a timely manner, the Secretary of Health and Human
Services may promulgate regulations that take effect on
an interim basis, after notice and pending opportunity for
public comment.
(d) ADVANCE DIRECTIVES.—Section 1866(f) (42
U.S.C. 1395cc(f)) is amended—
(1) in paragraph (1)—
(A) 
by 
inserting 
‘‘1853(g),’’ 
after
‘‘1833(s),’’, and
(B) by inserting ‘‘, MedicarePlus organiza-
tion,’’ after ‘‘provider of services’’, and
(2) by adding at the end the following new
paragraph:
120
‘‘(4) Nothing in this subsection shall be construed to
require the provision of information regarding assisted
suicide, euthanasia, or mercy killing.’’.
(e) 
CONFORMING
AMENDMENT.—Section
1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) is amended
by inserting before the semicolon at the end the following:
‘‘and in the case of hospitals to accept as payment in full
for inpatient hospital services that are emergency services
(as defined in section 1853(b)(4)) that are covered under
this title and are furnished to any individual enrolled
under part C with a MedicarePlus organization which does
not have a contract establishing payment amounts for
services furnished to members of the organization the
amounts that would be made as a payment in full under
this title if the individuals were not so enrolled’’.
SEC. 15003. DUPLICATION AND COORDINATION OF MEDI-
CARE-RELATED PRODUCTS.
(a) TREATMENT OF CERTAIN HEALTH INSURANCE
POLICIES AS NONDUPLICATIVE.—
(1) IN GENERAL.—Effective as if included in
the enactment of section 4354 of the Omnibus
Budget 
Reconciliation 
Act 
of 
1990, 
section
1882(d)(3)(A) (42 U.S.C. 1395ss(d)(3)(A)) is
amended—
121
(A) by amending clause (i) to read as fol-
lows:
‘‘(i) It is unlawful for a person to sell or issue to an
individual entitled to benefits under part A or enrolled
under part B of this title or electing a MedicarePlus prod-
uct under section 1805—
‘‘(I) a health insurance policy (other than a
medicare supplemental policy) with knowledge that
the policy duplicates health benefits to which the in-
dividual is otherwise entitled under this title or title
XIX,
‘‘(II) in the case of an individual not electing a
MedicarePlus product, a medicare supplemental pol-
icy with knowledge that the individual is entitled to
benefits under another medicare supplemental policy,
or
‘‘(III) in the case of an individual electing a
MedicarePlus product, a medicare supplemental pol-
icy with knowledge that the policy duplicates health
benefits to which the individual is otherwise entitled
under this title or under another medicare supple-
mental policy.’’;
(B) in clause (iii), by striking ‘‘clause (i)’’
and inserting ‘‘clause (i)(II)’’; and
122
(C) by adding at the end the following new
clauses:
‘‘(iv) For purposes of this subparagraph a health in-
surance policy shall be considered to ‘duplicate’ benefits
under this title only when, under its terms, the policy pro-
vides specific reimbursement for identical items and serv-
ices to the extent paid for under this title, and a health
insurance policy providing for benefits which are payable
to or on behalf of an individual without regard to other
health benefit coverage of such individual is not considered
to ‘duplicate’ any health benefits under this title.
‘‘(v) For purposes of this subparagraph, a health in-
surance policy (or a rider to an insurance contract which
is not a health insurance policy), including a policy (such
as a long-term care insurance contract described in section
7702B(b) of the Internal Revenue Code of 1986, as added
by the Contract with America Tax Relief Act of 1995
(H.R. 1215)) providing benefits for long-term care, nurs-
ing home care, home health care, or community-based
care, that coordinates against or excludes items and serv-
ices available or paid for under this title and (for policies
sold or issued after January 1, 1996) that discloses such
coordination or exclusion in the policy’s outline of cov-
erage, is not considered to ‘duplicate’ health benefits
under this title. For purposes of this clause, the terms ‘co-
123
ordinates’ and ‘coordination’ mean, with respect to a pol-
icy in relation to health benefits under this title, that the
policy under its terms is secondary to, or excludes from
payment, items and services to the extent available or paid
for under this title.
‘‘(vi) Notwithstanding any other provision of law, no
criminal or civil penalty may be imposed at any time under
this subparagraph and no legal action may be brought or
continued at any time in any Federal or State court if
the penalty or action is based on an act or omission that
occurred after November 5, 1991, and before the date of
the enactment of this clause, and relates to the sale, issu-
ance, or renewal of any health insurance policy during
such period, if such policy meets the requirements of
clause (iv) or (v).
‘‘(vii) A State may not impose, with respect to the
sale or issuance of a policy (or rider) that meets the re-
quirements of this title pursuant to clause (iv) or (v) to
an individual entitled to benefits under part A or enrolled
under part B or enrolled under a MedicarePlus product
under part C, any requirement based on the premise that
such a policy or rider duplicates health benefits to which
the individual is otherwise entitled under this title.’’.
(2) 
CONFORMING
AMENDMENTS.—Section
1882(d)(3) (42 U.S.C. 1395ss(d)(3)) is amended—
124
(A) in subparagraph (B), by inserting
‘‘(including any MedicarePlus product)’’ after
‘‘health insurance policies’’;
(B) in subparagraph (C)—
(i) by striking ‘‘with respect to (i)’’
and inserting ‘‘with respect to’’, and
(ii) by striking ‘‘, (ii) the sale’’ and all
that follows up to the period at the end;
and
(C) by striking subparagraph (D).
(3) MEDICAREPLUS PRODUCTS NOT TREATED
AS MEDICARE SUPPLEMENTARY POLICIES.—Section
1882(g) (42 U.S.C. 1395ss(g)) is amended by in-
serting ‘‘a MedicarePlus product or’’ after ‘‘and does
not include’’
(4) REPORT ON DUPLICATION AND COORDINA-
TION OF HEALTH INSURANCE POLICIES THAT ARE
NOT
MEDICARE
SUPPLEMENTAL
POLICIES.—Not
later than 3 years after the date of the enactment
of this Act, the Secretary of Health and Human
Services shall prepare and submit to Congress a re-
port on the advisability and feasibility of restricting
the sale to medicare beneficiaries of health insurance
policies that duplicate (within the meaning of section
1882(d)(3)(A) of the Social Security Act) other
125
health insurance policies that such a beneficiary may
have. In preparing such report, the Secretary shall
seek the advice of the National Association of Insur-
ance Commissioners and shall take into account the
standards established under section 1807 of the So-
cial Security Act for the electronic coordination of
benefits.
(b) ADDITIONAL RULES RELATING TO INDIVIDUALS
ENROLLED
IN
MEDICAREPLUS
PRODUCTS.—Section
1882 (42 U.S.C. 1395ss) is further amended by adding
at the end the following new subsection:
‘‘(u)(1) Notwithstanding the previous provisions of
this section, the following provisions shall not apply to a
health insurance policy (other than a medicare supple-
mental policy) provided to an individual who has elected
the MedicarePlus option under section 1805:
‘‘(A) Subsections (o)(1), (o)(2), (p)(1)(A)(i),
(p)(2), (p)(3), (p)(8), and (p)(9) (insofar as they re-
late to limitations on benefits or groups of benefits
that may be offered).
‘‘(B) Subsection (r) (relating to loss-ratios).
‘‘(2)(A) It is unlawful for a person to sell or issue
a policy described in subparagraph (B) to an individual
with knowledge that the individual has in effect under sec-
126
tion 1805 an election of a high deductible/medisave prod-
uct.
‘‘(B) A policy described in this subparagraph is a
health insurance policy that provides for coverage of ex-
penses that are otherwise required to be counted toward
meeting the annual deductible amount provided under the
high deductible/medisave product.’’.
SEC. 15004. TRANSITIONAL RULES FOR CURRENT MEDI-
CARE HMO PROGRAM.
(a) TRANSITION FROM CURRENT CONTRACTS.—
(1) LIMITATION ON NEW CONTRACTS.—
(A) NO
NEW
RISK-SHARING
CONTRACTS
AFTER
NEW
STANDARDS
ESTABLISHED.—The
Secretary of Health and Human Services (in
this section referred to as the ‘‘Secretary’’)
shall not enter into any risk-sharing contract
under section 1876 of the Social Security Act
with an eligible organization for any contract
year beginning on or after the date standards
for MedicarePlus organizations and products
are first established under section 1856(a) of
such Act with respect to MedicarePlus organi-
zations that are insurers or health maintenance
organizations unless such a contract had been
127
in effect under section 1876 of such Act for the
organization for the previous contract year.
(B) NO NEW COST REIMBURSEMENT CON-
TRACTS.—The Secretary shall not enter into
any cost reimbursement contract under section
1876 of the Social Security Act beginning for
any contract year beginning on or after the
date of the enactment of this Act.
(2) TERMINATION OF CURRENT CONTRACTS.—
(A) RISK-SHARING CONTRACTS.—Notwith-
standing any other provision of law, the Sec-
retary shall not extend or continue any risk-
sharing contract with an eligible organization
under section 1876 of the Social Security Act
(for which a contract was entered into consist-
ent with paragraph (1)(A)) for any contract
year beginning on or after 1 year after the date
standards described in paragraph (1)(A) are es-
tablished.
(B) COST REIMBURSEMENT CONTRACTS.—
The Secretary shall not extend or continue any
reasonable cost reimbursement contract with an
eligible organization under section 1876 of the
Social Security Act for any contract year begin-
ning on or after January 1, 1998.
129
manner as possible and may (to the extent nec-
essary) provide for retroactive adjustment in pay-
ments made not in accordance with such rates.
(2) COST
CONTRACTS.—Notwithstanding any
other provision of law, the Secretary shall provide
that payment amounts under cost reimbursement
contracts under section 1876(a) of the Social Secu-
rity Act shall take into account adjustments in pay-
ment amounts made in parts A and B of title XVIII
of such Act pursuant to the amendments made by
this title.
(c) ELIMINATION OF 50:50 RULE.—
(1) IN
GENERAL.—Section 1876 (42 U.S.C.
1395mm) is amended by striking subsection (f).
(2) CONFORMING AMENDMENTS.—Section 1876
is further amended—
(A) in subsection (c)(3)(A)(i), by striking
‘‘would result in failure to meet the require-
ments of subsection (f) or’’, and
(B) in subsection (i)(1)(C), by striking
‘‘(e), and (f)’’ and inserting ‘‘and (e)’’.
(3) EFFECTIVE DATE.—The amendments made
by this section shall apply to contract years begin-
ning on or after January 1, 1996.
130
PART 2—SPECIAL RULES FOR MEDICAREPLUS
MEDICAL SAVINGS ACCOUNTS
SEC. 15011. MEDICAREPLUS MSA’S.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
amounts specifically excluded from gross income) is
amended by redesignating section 137 as section 138 and
by inserting after section 136 the following new section:
‘‘SEC. 137. MEDICAREPLUS MSA’S.
‘‘(a) EXCLUSION.—Gross income shall not include
any payment to the MedicarePlus MSA of an individual
by the Secretary of Health and Human Services under
section 1855(f)(1)(B) of the Social Security Act.
‘‘(b) MEDICAREPLUS MSA.—For purposes of this
section—
‘‘(1) 
MEDICAREPLUS
MSA.—The 
term
‘MedicarePlus MSA’ means a trust created or orga-
nized in the United States exclusively for the pur-
pose of paying the qualified medical expenses of the
account holder, but only if the written governing in-
strument creating the trust meets the following re-
quirements:
‘‘(A) Except in the case of a trustee-to-
trustee transfer described in subsection (d)(4),
no contribution will be accepted unless it is
made by the Secretary of Health and Human
131
Services under section 1855(f)(1)(B) of the So-
cial Security Act.
‘‘(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as de-
fined in section 816), or another person who
demonstrates to the satisfaction of the Sec-
retary that the manner in which such person
will administer the trust will be consistent with
the requirements of this section.
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts.
‘‘(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(E) The interest of an individual in the
balance in his account is nonforfeitable.
‘‘(F) Trustee-to-trustee transfers described
in subsection (d)(4) may be made to and from
the trust.
‘‘(2) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
medical expenses’ means, with respect to an ac-
count holder, amounts paid by such holder—
132
‘‘(i) for medical care (as defined in
section 213(d)) for the account holder, but
only to the extent such amounts are not
compensated for by insurance or otherwise,
or
‘‘(ii) for long-term care insurance for
the account holder.
‘‘(B) HEALTH
INSURANCE
MAY
NOT
BE
PURCHASED
FROM
ACCOUNT.—Subparagraph
(A)(i) shall not apply to any payment for insur-
ance.
‘‘(3) ACCOUNT
HOLDER.—The term ‘account
holder’ means the individual on whose behalf the
MedicarePlus MSA is maintained.
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar
to the rules of subsections (g) and (h) of section 408
shall apply for purposes of this section.
‘‘(c) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—A MedicarePlus MSA is ex-
empt from taxation under this subtitle unless such
MSA has ceased to be a MedicarePlus MSA by rea-
son of paragraph (2). Notwithstanding the preceding
sentence, any such MSA is subject to the taxes im-
posed by section 511 (relating to imposition of tax
133
on unrelated business income of charitable, etc. or-
ganizations).
‘‘(2) ACCOUNT ASSETS TREATED AS DISTRIB-
UTED IN THE CASE OF PROHIBITED TRANSACTIONS
OR ACCOUNT PLEDGED AS SECURITY FOR LOAN.—
Rules similar to the rules of paragraphs (2) and (4)
of section 408(e) shall apply to MedicarePlus
MSA’s, and any amount treated as distributed under
such rules shall be treated as not used to pay quali-
fied medical expenses.
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION OF AMOUNTS NOT USED FOR
QUALIFIED MEDICAL EXPENSES.—No amount shall
be included in the gross income of the account hold-
er by reason of a payment or distribution from a
MedicarePlus MSA which is used exclusively to pay
the qualified medical expenses of the account holder.
Any 
amount 
paid 
or 
distributed 
from 
a
MedicarePlus MSA which is not so used shall be in-
cluded in the gross income of such holder.
‘‘(2) PENALTY FOR DISTRIBUTIONS NOT USED
FOR
QUALIFIED
MEDICAL
EXPENSES
IF
MINIMUM
BALANCE NOT MAINTAINED.—
‘‘(A) IN GENERAL.—The tax imposed by
this chapter for any taxable year in which there
134
is 
a 
payment 
or 
distribution 
from 
a
MedicarePlus MSA which is not used exclu-
sively to pay the qualified medical expenses of
the account holder shall be increased by 50 per-
cent of the excess (if any) of—
‘‘(i) the amount of such payment or
distribution, over
‘‘(ii) the excess (if any) of—
‘‘(I) the fair market value of the
assets in the MedicarePlus MSA as of
the close of the calendar year preced-
ing the calendar year in which the
taxable year begins, over
‘‘(II) an amount equal to 60 per-
cent of the deductible under the high
deductible/medisave product covering
the account holder as of January 1 of
the calendar year in which the taxable
year begins.
‘‘(B) 
EXCEPTIONS.—Subparagraph 
(A)
shall not apply if the payment or distribution is
made on or after the date the account holder—
‘‘(i) becomes disabled within the
meaning of section 72(m)(7), or
‘‘(ii) dies.
136
ment or distribution out of a MedicarePlus MSA for
qualified medical expenses shall not be treated as an
expense paid for medical care.
‘‘(e) TREATMENT OF ACCOUNT AFTER DEATH OF
ACCOUNT HOLDER.—
‘‘(1) TREATMENT IF DESIGNATED BENEFICIARY
IS SPOUSE.—
‘‘(A) IN GENERAL.—In the case of an ac-
count holder’s interest in a MedicarePlus MSA
which is payable to (or for the benefit of) such
holder’s spouse upon the death of such holder,
such MedicarePlus MSA shall be treated as a
MedicarePlus MSA of such spouse as of the
date of such death.
‘‘(B) SPECIAL RULES IF SPOUSE NOT MED-
ICARE ELIGIBLE.—If, as of the date of such
death, such spouse is not entitled to benefits
under title XVIII of the Social Security Act,
then after the date of such death—
‘‘(i) the Secretary of Health and
Human Services may not make any pay-
ments to such MedicarePlus MSA, other
than payments attributable to periods be-
fore such date,
137
‘‘(ii) in applying subsection (b)(2)
with respect to such MedicarePlus MSA,
references to the account holder shall be
treated as including references to any de-
pendent (as defined in section 152) of such
spouse and any subsequent spouse of such
spouse, and
‘‘(iii) in lieu of applying subsection
(d)(2), the rules of section 220(f)(2) shall
apply.
‘‘(2) TREATMENT IF DESIGNATED BENEFICIARY
IS NOT SPOUSE.—In the case of an account holder’s
interest in a MedicarePlus MSA which is payable to
(or for the benefit of) any person other than such
holder’s spouse upon the death of such holder—
‘‘(A) such account shall cease to be a
MedicarePlus MSA as of the date of death, and
‘‘(B) an amount equal to the fair market
value of the assets in such account on such date
shall be includible—
‘‘(i) if such person is not the estate of
such holder, in such person’s gross income
for the taxable year which includes such
date, or
138
‘‘(ii) if such person is the estate of
such holder, in such holder’s gross income
for last taxable year of such holder.
‘‘(f) REPORTS.—
‘‘(1) 
IN
GENERAL.—The 
trustee 
of 
a
MedicarePlus MSA shall make such reports regard-
ing such account to the Secretary and to the account
holder with respect to—
‘‘(A) the fair market value of the assets in
such MedicarePlus MSA as of the close of each
calendar year, and
‘‘(B) contributions, distributions, and other
matters,
as the Secretary may require by regulations.
‘‘(2) TIME AND MANNER OF REPORTS.—The re-
ports required by this subsection—
‘‘(A) shall be filed at such time and in
such manner as the Secretary prescribes in
such regulations, and
‘‘(B) shall be furnished to the account
holder—
‘‘(i) not later than January 31 of the
calendar year following the calendar year
to which such reports relate, and
139
‘‘(ii) in such manner as the Secretary
prescribes in such regulations.’’
(b) EXCLUSION OF MEDICAREPLUS MSA’S FROM
ESTATE TAX.—Part IV of subchapter A of chapter 11 of
such Code is amended by adding at the end the following
new section:
‘‘SEC. 2057. MEDICAREPLUS MSA’S.
‘‘For purposes of the tax imposed by section 2001,
the value of the taxable estate shall be determined by de-
ducting from the value of the gross estate an amount
equal to the value of any MedicarePlus MSA (as defined
in section 137(b)) included in the gross estate.’’
(c) TAX ON PROHIBITED TRANSACTIONS.—
(1) Section 4975 of such Code (relating to tax
on prohibited transactions) is amended by adding at
the end of subsection (c) the following new para-
graph:
‘‘(4) 
SPECIAL
RULE
FOR
MEDICAREPLUS
MSA’S.—An 
individual 
for 
whose 
benefit 
a
MedicarePlus MSA (within the meaning of section
137(b)) is established shall be exempt from the tax
imposed by this section with respect to any trans-
action concerning such account (which would other-
wise be taxable under this section) if, with respect
to such transaction, the account ceases to be a
140
MedicarePlus MSA by reason of the application of
section 137(c)(2) to such account.’’
(2) Paragraph (1) of section 4975(e) of such
Code is amended to read as follows:
‘‘(1) PLAN.—For purposes of this section, the
term ‘plan’ means—
‘‘(A) a trust described in section 401(a)
which forms a part of a plan, or a plan de-
scribed in section 403(a), which trust or plan is
exempt from tax under section 501(a),
‘‘(B) an individual retirement account de-
scribed in section 408(a),
‘‘(C) an individual retirement annuity de-
scribed in section 408(b),
‘‘(D) a medical savings account described
in section 220(d),
‘‘(E) a MedicarePlus MSA described in
section 137(b), or
‘‘(F) a trust, plan, account, or annuity
which, at any time, has been determined by the
Secretary to be described in any preceding sub-
paragraph of this paragraph.’’
(d) 
FAILURE
TO
PROVIDE
REPORTS
ON
MEDICAREPLUS MSA’S.—
141
(1) Subsection (a) of section 6693 of such Code
(relating to failure to provide reports on individual
retirement accounts or annuities) is amended to read
as follows:
‘‘(a) REPORTS.—
‘‘(1) IN GENERAL.—If a person required to file
a report under a provision referred to in paragraph
(2) fails to file such report at the time and in the
manner required by such provision, such person
shall pay a penalty of $50 for each failure unless it
is shown that such failure is due to reasonable
cause.
‘‘(2) PROVISIONS.—The provisions referred to
in this paragraph are—
‘‘(A) subsections (i) and (l) of section 408
(relating to individual retirement plans),
‘‘(B) section 220(h) (relating to medical
savings accounts), and
‘‘(C) 
section 
137(f) 
(relating 
to
MedicarePlus MSA’s).’’
(2) The section heading for section 6693 of
such Code is amended to read as follows:
142
‘‘SEC. 6693. FAILURE TO FILE REPORTS ON INDIVIDUAL RE-
TIREMENT PLANS AND CERTAIN OTHER TAX-
FAVORED ACCOUNTS; PENALTIES RELATING
TO 
DESIGNATED 
NONDEDUCTIBLE 
CON-
TRIBUTIONS.’’
(e) CLERICAL AMENDMENTS.—
(1) The table of sections for part III of sub-
chapter B of chapter 1 of such Code is amended by
striking the last item and inserting the following:
‘‘Sec. 137. MedicarePlus MSA’s.
‘‘Sec. 138. Cross references to other Acts.’’
(2) The table of sections for part 1 of sub-
chapter B of chapter 68 of such Code is amended
by striking the item relating to section 6693 and in-
serting the following new item:
‘‘Sec. 6693. Failure to file reports on individual retirement plans
and certain other tax-favored accounts; penalties re-
lating to designated nondeductible contributions.’’
(3) The table of sections for part IV of sub-
chapter A of chapter 11 of such Code is amended by
adding at the end the following new item:
‘‘Sec. 2057. MedicarePlus MSA’s.’’
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
143
SEC. 15012. CERTAIN REBATES EXCLUDED FROM GROSS
INCOME.
(a) IN GENERAL.—Section 105 of the Internal Reve-
nue Code of 1986 (relating to amounts received under ac-
cident and health plans) is amended by adding at the end
the following new subsection:
‘‘(j) CERTAIN REBATES UNDER SOCIAL SECURITY
ACT.—Gross income does not include any rebate received
under section 1852(e)(1)(A) of the Social Security Act
during the taxable year.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to amounts received after the
date of the enactment of this Act.
PART 3—SPECIAL ANTITRUST RULE FOR
PROVIDER SERVICE NETWORKS
SEC. 15021. APPLICATION OF ANTITRUST RULE OF REASON
TO PROVIDER SERVICE NETWORKS.
(a) RULE OF REASON STANDARD.—In any action
under the antitrust laws, or under any State law similar
to the antitrust laws—
(1) the conduct of a provider service network in
negotiating, making, or performing a contract (in-
cluding the establishment and modification of a fee
schedule and the development of a panel of physi-
cians), to the extent such contract is for the purpose
144
of providing health care services to individuals under
the terms of a MedicarePlus PSO product, and
(2) the conduct of any member of such network
for the purpose of providing such health care serv-
ices under such contract to such extent,
shall not be deemed illegal per se. Such conduct shall be
judged on the basis of its reasonableness, taking into ac-
count all relevant factors affecting competition, including
the effects on competition in properly defined markets.
(b) DEFINITIONS.—For purposes of subsection (a):
(1) ANTITRUST
LAWS.—The term ‘‘antitrust
laws’’ has the meaning given it in subsection (a) of
the first section of the Clayton Act (15 U.S.C. 12),
except that such term includes section 5 of the Fed-
eral Trade Commission Act (15 U.S.C. 45) to the
extent that such section 5 applies to unfair methods
of competition.
(2) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means any individual or en-
tity that is engaged in the delivery of health care
services in a State and that is required by State law
or regulation to be licensed or certified by the State
to engage in the delivery of such services in the
State.
145
(3) HEALTH CARE SERVICE.—The term ‘‘health
care service’’ means any service for which payment
may be made under a MedicarePlus PSO product in-
cluding services related to the delivery or adminis-
tration of such service.
(4) 
MEDICAREPLUS
PROGRAM.—The 
term
‘‘MedicarePlus program’’ means the program under
part C of title XVIII of the Social Security Act.
(5) MEDICAREPLUS PSO PRODUCT.—The term
‘‘MedicarePlus PSO product’’ means a MedicarePlus
product offered by a provider-sponsored organization
under part C of title XVIII of the Social Security
Act.
(6) PROVIDER SERVICE NETWORK.—The term
‘‘provider service network’’ means an organization
that—
(A) is organized by, operated by, and com-
posed of members who are health care providers
and for purposes that include providing health
care services,
(B) is funded in part by capital contribu-
tions made by the members of such organiza-
tion,
(C) with respect to each contract made by
such organization for the purpose of providing