‘‘(2) EXPENSES FOR WHICH REIMBURSEMENT
PROVIDED UNDER QUALIFIED LONG-TERM CARE IN-
SURANCE
TREATED
AS
INCURRED
FOR
MEDICAL
CARE OR FUNCTIONAL LOSS.—Expenses incurred by
an individual to the extent of benefits paid under
qualified long-term care insurance (as defined in sec-
tion 818(g)) shall be treated for purposes of sub-
section (b) as incurred for medical care (as defined
in section 213(d)) and for purposes of subsection (c)
as payment for the permanent loss or loss of use of
a member or function of the body or the permanent
disfigurement of the taxpayer, his spouse, any de-
pendent of the taxpayer, or any parent of the tax-
payer of his spouse.
‘‘(3) REFERENCES TO ACCIDENT AND HEALTH
PLANS.—Any reference to an accident or health plan
shall be treated as including a reference to a plan
providing qualified long-term care insurance (as de-
fined in section 818(g)).’’
(b) CURRENT DEDUCTION
FOR EMPLOYER PRE-
MIUMS FOR LONG-TERM CARE POLICIES.—Subparagraph
(B) of section 404(b)(2) of such Code (relating to plans
providing certain deferred benefits) is amended by striking
‘‘or’’ at the end of clause (i), by striking the period at
the end of clause (ii) and inserting ‘‘, or’’, and by adding
at the end thereof the following new clause:
‘‘(iii) any benefit provided under a
policy of qualified long-term care insurance
(as defined in section 818(g)) through the
payment (in whole or in part) of premiums
by an employer pursuant to a plan for its
active or retired employees, but only if any
refund of premiums is applied to reduce
the future costs of the plan or increase
benefits under the plan.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1994.
SEC. 203. EARLY DISTRIBUTION PENALTY TAX NOT TO
APPLY 
TO 
AMOUNTS 
WITHDRAWN 
FROM
QUALIFIED PLANS, INDIVIDUAL RETIREMENT
PLANS, ETC. FOR QUALIFIED LONG-TERM IN-
SURANCE.
(a) IN GENERAL.—Paragraph (1) of section 72(t) of
the Internal Revenue Code of 1986 (relating to 10-percent
additional tax on early distributions from qualified retire-
ment plans) is amended by adding at the end thereof the
following new subparagraph:
‘‘(D) 
DISTRIBUTIONS
FOR
QUALIFIED
LONG-TERM CARE INSURANCE PREMIUMS.—Any
distribution to the extent used during the tax-
able year to pay premiums for any policy of
qualified long-term care insurance (as defined
in section 818(g)) or to pay for services de-
scribed in section 818(g)(2)(A)(iii) (relating to
services provided under long-term care insur-
ance) for the benefit of the payee or distributee,
the spouse of the payee or distributee, any de-
pendent of the payee or distributee, or any par-
ent of the payee or distributee or such spouse.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1994.
SEC. 204. DEDUCTION OF EXPENSES RELATING TO QUALI-
FIED LONG-TERM CARE.
(a) IN GENERAL.—Paragraph (1) of section 213(d)
of the Internal Revenue Code of 1986 (relating to the defi-
nition of medical care) is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(B), and
(2) by redesignating subparagraph (C) as sub-
paragraph (D) and by inserting after subparagraph
(B) the following new subparagraph:
‘‘(C) for those services described in section
818(g)(2)(A)(iii) (relating to services provided
under qualified long-term care insurance), or’’.
(b) DEDUCTION FOR LONG-TERM CARE EXPENSES
FOR PARENT OR GRANDPARENT.—Section 213 of such
Code (relating to deduction for medical expenses) is
amended by adding at the end the following new sub-
section:
‘‘(g) SPECIAL RULE FOR CERTAIN LONG-TERM CARE
EXPENSES.—For purposes of subsection (a), the term ‘de-
pendent’ shall include any parent or grandparent of the
taxpayer for whom the taxpayer has expenses for long-
term care services described in section 818(g)(2)(A)(iii),
but only to the extent of such expenses.’’
(c) TECHNICAL AMENDMENTS.—
(1) Subparagraph (D) of section 213(d)(1) of
such Code, as redesignated by subsection (a), is
amended by striking ‘‘subparagraphs (A) and (B)’’
and inserting ‘‘subparagraphs (A), (B), and (C)’’.
(2) Paragraph (6) of section 213(d) of such
Code is amended—
(A) by striking ‘‘subparagraphs (A) and
(B)’’ and inserting ‘‘subparagraphs (A), (B),
and (C)’’, and
(B) by striking ‘‘paragraph (1)(C)’’ and in-
serting ‘‘paragraph (1)(D)’’.
(3) Paragraph (7) of section 213(d) of such
Code is amended by striking ‘‘subparagraphs (A)
and (B)’’ and inserting ‘‘subparagraphs (A), (B),
and (C)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1994.
SEC. 205. TREATMENT OF PREFUNDED LONG-TERM CARE
BENEFITS.
(a) IN GENERAL.—
(1) Paragraph (2) of section 419A(c) of the In-
ternal Revenue Code of 1986 (relating to additional
reserve for post-retirement medical and life insur-
ance benefits) is amended by striking ‘‘or’’ at the
end of subparagraph (A), by striking the period at
the end of subparagraph (B) and inserting ‘‘, or’’,
and by adding at the end thereof the following new
subparagraph:
‘‘(C) post-retirement long-term care bene-
fits (as defined in section 818(g)) to be pro-
vided to covered employees.’’
(2) The paragraph heading for such paragraph
(2) is amended by inserting ‘‘, LONG-TERM CARE,’’
after ‘‘MEDICAL’’.
(b) RESERVE
FOR LONG-TERM CARE BENEFITS
MUST BE NONDISCRIMINATORY.—
(1) Paragraph (1) of section 419A(e) of such
Code (relating to special limitations on reserves for
medical benefits or life insurance benefits provided
to retired employees) is amended by inserting ‘‘,
long-term care benefits,’’ after ‘‘medical benefits’’
each place it appears.
(2) The subsection heading for section 419A(e)
of such Code is amended by inserting ‘‘, LONG-TERM
CARE BENEFITS,’’ after ‘‘MEDICAL BENEFITS’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1994.
SEC. 206. QUALIFIED LONG-TERM CARE INSURANCE PER-
MITTED TO BE OFFERED IN CAFETERIA
PLANS.
(a) IN GENERAL.—Paragraph (2) of section 125(c)
of the Internal Revenue Code of 1986 (relating to the ex-
clusion of deferred compensation) is amended by adding
at the end thereof the following new subparagraph:
‘‘(D) EXCEPTION
FOR
LONG-TERM
CARE
INSURANCE.—For purposes of subparagraph
(A), a plan shall not be treated as providing de-
ferred compensation by reason of providing
qualified long-term care insurance (as defined
in section 818(g)) if—
‘‘(i) the employee may not surrender
such insurance for cash, and
‘‘(ii) the terms of the plan permits,
the employee may elect to continue the in-
surance upon cessation of participation in
the plan.’’
(b) LONG-TERM CARE INSURANCE INCLUDED
AS
QUALIFIED BENEFIT.—Paragraph (2) of section 125(e)
of such Code (defining qualified benefits) is amended by
striking ‘‘and’’ at the end of subparagraph (A), by striking
the period at the end of subparagraph (B) and inserting
‘‘, and’’, and by adding at the end thereof the following
new subparagraph:
‘‘(C) qualified long-term care insurance (as
defined in section 818(g)).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1994.
Subtitle B—Payments under Life
Insurance Contracts to Termi-
nally Ill Individuals
SEC. 211. TAX TREATMENT OF PAYMENTS TO TERMINALLY
ILL INDIVIDUALS UNDER LIFE INSURANCE
CONTRACTS.
(a) GENERAL RULE.—Section 101 of the Internal
Revenue Code of 1986 (relating to certain death benefits)
is amended by adding at the end thereof the following
new subsection:
‘‘(g) TREATMENT
OF AMOUNTS PAID
TO TERMI-
NALLY ILL INDIVIDUALS.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, any amount paid under a life insurance con-
tract to an insured who is a terminally ill individual
shall be treated as an amount paid by reason of the
death of such insured.
‘‘(2) TERMINALLY ILL INDIVIDUAL.—For pur-
poses of this subsection, the term ‘terminally ill indi-
vidual’ means an individual who has been certified
by a physician, licensed under State law, as having
an illness or physical condition which can reasonably
be expected to result in death in 12 months or less.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1994.
SEC. 212. TAX TREATMENT OF COMPANIES ISSUING QUALI-
FIED TERMINAL ILLNESS RIDERS.
(a) QUALIFIED TERMINAL ILLNESS RIDER TREATED
AS LIFE INSURANCE.—Section 818 of the Internal Reve-
nue Code of 1986 (relating to other definitions and special
rules), as amended by section 201(a), is further amended
by adding at the end thereof the following new subsection:
‘‘(h) QUALIFIED TERMINAL ILLNESS RIDER TREAT-
ED AS LIFE INSURANCE.—For purposes of this part:
‘‘(1) IN GENERAL.—Any reference to life insur-
ance shall be treated as including a reference to a
qualified terminal illness rider.
‘‘(2) QUALIFIED TERMINAL ILLNESS RIDER.—
For purposes of this subsection, the term ‘qualified
terminal illness rider’ means any rider on a life in-
surance contract which provides for payments to an
insured upon such insured becoming a terminally ill
individual (as defined in section 101(g)(2)).’’
(b) DEFINITIONS OF LIFE INSURANCE AND MODI-
FIED ENDOWMENT CONTRACTS.—
(1) RIDER
TREATED
AS
QUALIFIED
ADDI-
TIONAL
BENEFIT.—Paragraph (5)(A) of section
7702(f) of such Code 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 terminal illness
rider (as defined in section 818(h)(2)),
or’’.
(2) TRANSITIONAL RULE.—For purposes of ap-
plying section 7702 or 7702A of the Internal Reve-
nue Code of 1986 to any contract (or determining
whether either such section applies to such con-
tract), the issuance of a qualified terminal illness
rider (as defined in section 818(h)(2) of such Code)
with respect to any contract shall not be treated as
a modification or material change of such contract.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1994.