I
103D CONGRESS
2D SESSION
H. R. 150
To amend the Internal Revenue Code of 1986 to improve access to health
care, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 5, 1993
Mr. HASTERT (for himself, Mr. GOSS and Ms. FOWLER) introduced the follow-
ing bill; which was referred jointly to the Committees on Ways and
Means, Energy and Commerce, and the Judiciary
JANUARY 27, 1994
Additional sponsors: Mr. GALLEGLY, Mr. BAKER of Louisiana, Mr. HERGER,
Mr. COX, Mr. SUNDQUIST, Mr. EMERSON, Mr. KYL, Mr. MACHTLEY, Mr.
MCKEON, Mr. LEWIS of Florida, Mr. SENSENBRENNER, Mr. ZELIFF, Mr.
KINGSTON, and Mr. BALLENGER
A BILL
To amend the Internal Revenue Code of 1986 to improve
access to health care, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Health Care Choice and Access Improvement Act of
1993’’.
(b) TABLE OF CONTENTS.—
Sec. 1. Short title and table of contents.
TITLE I—FAMILY HEALTH AND WELLNESS SAVINGS PLAN
Sec. 101. Medical savings accounts.
Sec. 102. Unused amounts in flexible spending accounts transferable to medical
savings accounts.
Sec. 103. Deduction for amounts paid for qualified catastrophic coverage health
plan.
TITLE II—TAX TREATMENT OF LONG-TERM CARE INSURANCE
AND PLANS
Subtitle A—Treatment of Long-Term Care Insurance
Sec. 201. Qualified long-term care insurance treated as accident and health in-
surance for purposes of taxation of life insurance companies.
Sec. 202. Qualified long-term care insurance treated as accident and health in-
surance for purposes of exclusion for benefits received under
such insurance and for employer contributions for such insur-
ance.
Sec. 203. Exclusion from gross income for amounts withdrawn from individual
retirement plans or 401(k) plans for qualified long-term care
insurance.
Sec. 204. Exchange of life insurance policy for qualified long-term care policy
not taxable.
Subtitle B—Employer Funding of Medical Benefits
Sec. 211. Medical benefits for retired employees and their spouses and depend-
ents.
Sec. 212. Treatment of health benefits accounts.
Subtitle C—Reverse Mortgage Insurance for Older Americans
Sec. 221. Maximum amount insured.
Subtitle D—Income Tax Credits
Sec. 231. Refundable credit for custodial care of certain dependents in tax-
payer’s home.
Sec. 232. Credit for expenses for long-term care services provided to certain
independent persons requiring such care.
Subtitle E—Treatment of Accelerated Death Benefits
Sec. 241. Tax treatment of accelerated death benefits under life insurance con-
tracts.
Sec. 242. Tax treatment of companies issuing qualified accelerated death bene-
fit riders.
Subtitle F—Federal National Long-Term Care Reinsurance Corporation
Sec. 251. Authorization for establishment of Corporation.
Sec. 252. Board of directors and officers.
Sec. 253. Purpose and authority of Corporation.
Sec. 254. Capitalization.
Sec. 255. Exemption from state regulation and taxation.
Sec. 256. Audit and annual report.
Sec. 257. Protection of name.
Sec. 258. Termination.
TITLE III—MALPRACTICE LIABILITY REFORM
Sec. 301. Definitions.
Sec. 302. Malpractice liability reform requirements described.
Sec. 303. Waiver of requirements for good cause or for carrying out demonstra-
tion projects.
Sec. 304. Certification of state compliance.
Sec. 305. Incentives through Medicare and Medicaid.
Sec. 306. Applicability of certain provisions to Federal Tort Claims Act.
Sec. 307. Rules of construction.
TITLE IV—WORKING AMERICANS ACCESS TO HEALTH CARE
Subtitle A—Increase in Small Employer Access to Affordable Health
Insurance
Sec. 401. Establishment and enforcement of standards for small employer
health insurance plans.
Sec. 402. Preemption of state benefits mandates for plans that meet consumer
protection standards.
Sec. 403. Requirement for offering of basic, low cost plan (medequity plan).
Sec. 404. Requirements relating to initial writing of policies.
Sec. 405. Requirements relating to renewal.
Sec. 406. Establishment of reinsurance mechanisms for high risk individuals.
Sec. 407. Registration of all health benefit plans required.
Sec. 408. Definitions.
Sec. 409. Preemption from insurance mandates for qualified small employer
purchasing groups.
Subtitle B—Equalization of Tax Benefits for Self-Employed Persons Under
Certain Plans
Sec. 411. Equalization of tax benefits for self-employed persons under certain
plans.
Subtitle C—Managed Care Rights
Sec. 421. Managed care rights.
Subtitle D—Study and Report
Sec. 431. Study and report on impact.
TITLE V—ADMINISTRATIVE COST SAVINGS
Subtitle A—Standardization of Claims Processing
Sec. 501. Adoption of data elements, uniform claims, and uniform electronic
transmission standards.
Sec. 502. Application of standards.
Sec. 503. Periodic review and revision of standards.
Sec. 504. Health benefit plan defined.
Subtitle B—Electronic Medical Data Standards
Sec. 511. Medical data standards for hospitals and other providers.
Sec. 512. Application of electronic data standards to certain hospitals.
Sec. 513. Electronic transmission to Federal agencies.
Sec. 514. Limitation on data requirements where standards in effect.
Sec. 515. Advisory commission.
Subtitle C—Development and Distribution of Comparative Value Information
Sec. 521. State comparative value information programs for health care pur-
chasing.
Sec. 522. Federal implementation.
Sec. 523. Comparative value information concerning Federal programs.
Sec. 524. Development of model systems.
Subtitle D—Additional Standards and Requirements; Research and
Demonstrations
Sec. 531. Standards relating to use of Medicare and Medicaid magnetized
health benefit cards; secondary payor data bank.
Sec. 532. Preemption of State quill pen laws.
Sec. 533. Use of standard identification numbers.
Sec. 534. Coordination of benefit standards.
Sec. 535. Research and demonstrations.
TITLE I—FAMILY HEALTH AND
WELLNESS SAVINGS PLAN
SEC. 101. MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
additional itemized deductions for individuals) is amended
by redesignating section 220 as section 221 and by insert-
ing after section 219 the following new section:
‘‘SEC. 220. MEDICAL SAVINGS ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an eligi-
ble individual, there shall be allowed as a deduction
amounts paid in cash during the taxable year by or on
behalf of such individual to a medical savings account.
‘‘(b) LIMITATION.—
‘‘(1) IN GENERAL.—The amount allowable as a
deduction under subsection (a) to an individual for
the taxable year shall not exceed the excess (if any)
of—
‘‘(A) the lesser of—
‘‘(i) the applicable limit, or
‘‘(ii) the compensation (as defined in
section 219(f)) includible in the individ-
ual’s gross income for the taxable year,
over
‘‘(B) the sum of—
‘‘(i) the value of employer-provided
coverage for the medical expenses of such
individual,
‘‘(ii) the amount paid by the individ-
ual (other than from amounts distributed
from a medical savings account) for cov-
erage under qualified catastrophic coverage
health plan for coverage for such individ-
ual, the spouse of such individual, and de-
pendents (as defined in section 152) of
such individual, plus
‘‘(iii) the aggregate amount contrib-
uted to such account during the taxable
year pursuant to section 125(d)(3).
‘‘(2) APPLICABLE
LIMIT.—For purposes of
paragraph (1), the applicable limit is the sum of—
‘‘(A) $4,800, plus
‘‘(B) $600 for each individual who is a de-
pendent (as defined in section 152) of the indi-
vidual for whose benefit the account is estab-
lished.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) MEDICAL SAVINGS ACCOUNT.—The term
‘medical savings account’ means a trust created or
organized in the United States exclusively for the
purpose of paying the qualified medical expenses of
the individual for whose benefit the trust is estab-
lished, but only if the written governing instrument
creating the trust meets the following requirements:
‘‘(A) No contribution will be accepted un-
less it is in cash and contributions will not be
accepted for any taxable year in excess of the
applicable limit (as defined in subsection
(b)(2)).
‘‘(B) The trustee is a bank (as defined in
section 408(n)) or another person who dem-
onstrates to the satisfaction of the Secretary
that the manner in which such person will ad-
minister the trust will be consistent with the re-
quirements 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.
‘‘(2) ELIGIBLE INDIVIDUAL.—The term ‘eligible
individual’ means any individual if—
‘‘(A) such individual is not covered by any
employer-provided group health plan, or
‘‘(B) such individual is covered by an em-
ployer-provided group health plan which is a
qualified catastrophic coverage health plan and
is not covered by any other health plan.
‘‘(3) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
medical expenses’ means—
‘‘(i) medical expenses, and
‘‘(ii) amounts paid for qualified long-
term care insurance (as defined in section
818(g)).
‘‘(B) MEDICAL
EXPENSES.—The term
‘medical expenses’ means amounts paid by the
individual for whose benefit the account was es-
tablished for medical care (as defined in section
213) of such individual, the spouse of such indi-
vidual, and any dependent (as defined in section
152) of such individual, but only to the extent
such amounts are not compensated for by in-
surance or otherwise.
‘‘(4) QUALIFIED
CATASTROPHIC
COVERAGE
HEALTH
PLAN.—The term ‘qualified catastrophic
coverage health plan’ means any health plan which
is certified by the Secretary of Health and Human
Services as a plan—
‘‘(A) which provides no compensation for
medical expenses not exceeding $3,000 during
any year,
‘‘(B) which requires the individual to pay
15 percent of such individual’s medical expenses
to the extent they exceed $3,000 but not
$9,000 during any year, and
‘‘(C) which provides full reimbursement for
medical expenses exceeding $9,000.
‘‘(5) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—A taxpayer shall be deemed to have made a
contribution on the last day of the preceding taxable
year if the contribution is made on account of such
taxable year and is made not later than the time
prescribed by law for filing the return for such tax-
able year (not including extensions thereof).
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, any amount paid or distrib-
uted out of a medical savings account shall be in-
cluded in the gross income of the individual for
whose benefit such account was established unless
such amount is used exclusively to pay the qualified
medical expenses of such individual.
‘‘(2) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.—Paragraph (1) shall
not apply to the distribution of any contribution paid
during a taxable year to a medical savings account
to the extent that such contribution exceeds the
amount allowable as a deduction under subsection
(a) if—
‘‘(A) such distribution is received on or be-
fore the day prescribed by law (including exten-
sions of time) for filing such individual’s return
for such taxable year,
‘‘(B) no deduction is allowed under sub-
section (a) with respect to such excess contribu-
tion, and
‘‘(C) such distribution is accompanied by
the amount of net income attributable to such
excess contribution.
Any net income described in subparagraph (C) shall
be included in the gross income of the individual for
the taxable year in which it is received.
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) EXEMPTION FROM TAX.—A medical sav-
ings account is exempt from taxation under this sub-
title unless such account has ceased to be an invest-
ment savings account by reason of paragraph (2).
Notwithstanding the preceding sentence, any such
account is subject to the taxes imposed by section
511 (relating to imposition of tax on unrelated busi-
ness income of charitable, etc. organizations).
‘‘(2) LOSS OF EXEMPTION OF ACCOUNT WHERE
INDIVIDUAL
ENGAGES
IN
PROHIBITED
TRANS-
ACTION.—
‘‘(A) IN GENERAL.—If, during any taxable
year of the individual for whose benefit the
medical savings account was established, such
individual engages in any transaction prohibited
by section 4975 with respect to the account, the
account ceases to be a medical savings account
as of the first day of that taxable year.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a medical savings account by
reason of subparagraph (A) on the first day of
any taxable year, paragraph (1) of subsection
(d) applies as if there were a distribution on
such first day in an amount equal to the fair
market value (on such first day) of all assets in
the account (on such first day).
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the individual for
whose benefit a medical savings account was estab-
lished uses the account or any portion thereof as se-
curity for a loan, the portion so used is treated as
distributed to that individual.
‘‘(f) ADDITIONAL TAX ON CERTAIN AMOUNTS IN-
CLUDED IN GROSS INCOME.—
‘‘(1) DISTRIBUTION NOT USED FOR QUALIFIED
MEDICAL EXPENSES.—If a distribution from a medi-
cal savings account is made, and not used to pay the
qualified medical expenses of the individual for
whose benefit the account was established, the tax li-
ability of such individual for the taxable year in
which such distribution is received shall be increased
by an amount equal to 10 percent of the amount of
the distribution which is includible in gross income
for such taxable year.
‘‘(2) DISQUALIFICATION CASES.—If an amount
is includible in the gross income of an individual for
a taxable year under subsection (e), his tax under
this chapter for such taxable year shall be increased
by an amount equal to 10 percent of such amount
includible in his gross income.
‘‘(3) DISABILITY
OR
DEATH
CASES.—Para-
graphs (1) and (2) do not apply if the payment or
distribution is made after the individual for whose
benefit the medical savings account was established
becomes disabled within the meaning of section
72(m)(7) or dies.
‘‘(g) SPECIAL RULES.—
‘‘(1) COMMUNITY PROPERTY LAWS.—This sec-
tion shall be applied without regard to any commu-
nity property laws.
‘‘(2) CUSTODIAL ACCOUNTS.—For purposes of
this section, a custodial account shall be treated as
a trust if—
‘‘(A) the assets of such account are held by
a bank (as defined in section 408(n)) or an-
other person who demonstrates to the satisfac-
tion of the Secretary that the manner in which
he will administer the account will be consistent
with the requirements of this section, and
‘‘(B) the custodial account would, except
for the fact that it is not a trust, constitute a
medical savings account described in subsection
(c).
For purposes of this title, in the case of a custodial
account treated as a trust by reason of the preceding
sentence, the custodian of such account shall be
treated as the trustee thereof.
‘‘(3) DENIAL
OF
DEDUCTIONS.—No amount
paid or distributed from a medical savings account
shall be taken into account in determining the de-
duction provided by section 213.
‘‘(h) INFLATION ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning in a calendar year after 1993, each
applicable dollar amount shall be increased by an
amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment for the
calendar year in which the taxable year begins.
‘‘(2) COST-OF-LIVING ADJUSTMENT.—For pur-
poses of paragraph (1), the cost-of-living adjustment
for any calendar year is the percentage (if any) by
which—
‘‘(A) the deemed average total wages (as
defined in section 209(k) of the Social Security
Act) for the preceding calendar year, exceeds
‘‘(B) the deemed average total wages (as
so defined) for calendar year 1992.
‘‘(3) APPLICABLE DOLLAR AMOUNT.—For pur-
poses of paragraph (1), the term ‘applicable dollar
amount’ means—
‘‘(A) the $4,800 and $600 amounts in sub-
section (b), and
‘‘(B) the $3,000 and $9,000 amounts in
subsection (c)(4).
‘‘(4) ROUNDING.—If any amount as adjusted
under paragraph (1) is not a multiple of $10, such
amount shall be rounded to the nearest multiple of
$10 (or, if such amount is a multiple of $5 and not
of $10, such amount shall be rounded to the next
highest multiple of $10).
‘‘(i) REPORTS.—The trustee of a medical savings ac-
count shall make such reports regarding such account to
the Secretary and to the individual for whose benefit the
account is maintained with respect to contributions, dis-
tributions, and such other matters as the Secretary may
require under regulations. The reports required by this
subsection shall be filed at such time and in such manner
and furnished to such individuals at such time and in such
manner as may be required by those regulations.’’
(b) DEDUCTION ALLOWED
IN ARRIVING
AT AD-
JUSTED GROSS INCOME.—Paragraph (7) of section 62(a)
of such Code (relating to retirement savings) is amend-
ed—
(1) by inserting ‘‘OR MEDICAL EXPENSE’’ after
‘‘RETIREMENT’’ in the heading of such paragraph,
and
(2) by inserting before the period at the end
thereof the following: ‘‘and the deduction allowed by
section 220 (relating to deduction of certain pay-
ments to medical savings accounts)’’.
(c) TAX ON EXCESS CONTRIBUTIONS.—Section 4973
of such Code (relating to tax on excess contributions to
individual retirement accounts, certain section 403(b) con-
tracts, and certain individual retirement annuities) is
amended—
(1) by inserting ‘‘MEDICAL
SAVINGS
AC-
COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of
such section,
(2) by redesignating paragraph (2) of sub-
section (a) as paragraph (3) and by inserting after
paragraph (1) the following:
‘‘(2) a medical savings account (within the
meaning of section 220(c)),’’,
(3) by striking ‘‘or’’ at the end of paragraph
(1) of subsection (a), and
(4) by adding at the end thereof the following
new subsection:
‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS
ACCOUNTS.—For purposes of this section, in the case of
a medical savings account, the term ‘excess contributions’
means the amount by which the amount contributed for
the taxable year to the account exceeds the amount allow-
able as a deduction under section 220 for such taxable
year. For purposes of this subsection, any contribution
which is distributed out of the medical savings account
and a distribution to which section 220(d)(2) applies shall
be treated as an amount not contributed.’’
(d) TAX ON PROHIBITED TRANSACTIONS.—Section
4975 of such Code (relating to prohibited transactions)
is amended—
(1) by adding at the end of subsection (c) the
following new paragraph:
‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC-
COUNTS.—An individual for whose benefit a medical
savings account is established shall be exempt from
the tax imposed by this section with respect to any
transaction concerning such account (which would
otherwise be taxable under this section) if, with re-
spect to such transaction, the account ceases to be
a medical savings account by reason of the applica-
tion of section 220(e)(2)(A) to such account.’’, and
(2) by inserting ‘‘or a medical savings account
described in section 220(c)’’ in subsection (e)(1)
after ‘‘described in section 408(a)’’.
(e) FAILURE TO PROVIDE REPORTS ON MEDICAL
SAVINGS ACCOUNTS.—Section 6693 of such Code (relat-
ing to failure to provide reports on individual retirement
account or annuities) is amended—
(1) by inserting ‘‘OR ON MEDICAL SAVINGS
ACCOUNTS’’ after ‘‘ANNUITIES’’ in the heading of
such section, and
(2) by adding at the end of subsection (a) the
following: ‘‘The person required by section 220(i) to
file a report regarding a medical savings account at
the time and in the manner required by such section
shall pay a penalty of $50 for each failure unless it
is shown that such failure is due to reasonable
cause.’’
(f) CLERICAL AMENDMENTS.—
(1) The table of sections for part VII of sub-
chapter B of chapter 1 of such Code is amended by
striking the item relating to section 220 and insert-
ing the following:
‘‘Sec. 220. Medical savings accounts.
‘‘Sec. 221. Cross reference.’’
(2) The table of sections for chapter 43 of such
Code is amended by striking the item relating to sec-
tion 4973 and inserting the following:
‘‘Sec. 4973. Tax on excess contributions to individual retirement
accounts, medical savings accounts, certain 403(b)
contracts, and certain individual retirement annu-
ities.’’
(3) The table of sections for subchapter B of
chapter 68 of such Code is amended by inserting ‘‘or
on medical savings accounts’’ after ‘‘annuities’’ in
the item relating to section 6693.
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 102. UNUSED AMOUNTS IN FLEXIBLE SPENDING AC-
COUNTS TRANSFERABLE TO MEDICAL SAV-
INGS ACCOUNTS.
(a) IN GENERAL.—Subsection (d) of section 125 of
the Internal Revenue Code of 1986 (relating to cafeteria
plans) is amended by adding at the end thereof the follow-
ing new paragraph:
‘‘(3) UNUSED
AMOUNTS
TRANSFERABLE
TO
MEDICAL SAVINGS ACCOUNTS.—
‘‘(A) IN
GENERAL.—Subsection (a) shall
not fail to apply to a participant in a plan, and
a plan shall not fail to be treated as a cafeteria
plan, solely because under the plan amounts not
paid out as reimbursements under a flexible
spending arrangement for health and disability
for the benefit of an individual are contributed
to a medical savings account (as defined in sec-
tion 220(c)) for the benefit of such individual.
‘‘(B) SPECIAL RULES.—
‘‘(i) TIMING
OF
CONTRIBUTIONS.—
Contributions made under this paragraph
shall be made on the last day of the plan
year of the cafeteria plan.
‘‘(ii) AVAILABILITY REQUIREMENT.—
Subparagraph (A) shall apply only if the
plan is available to at least 80 percent of
the employees of the employer. For pur-
poses of the preceding sentence, there shall
be excluded employees who are excluded
under section 414(q)(8) or who would be
so excluded if ‘30’ were substituted for
‘171⁄2’ in subparagraph (B) thereof.’’
(b) TREATMENT OF AMOUNTS RECEIVED BY QUALI-
FIED CASH OR DEFERRED ARRANGEMENT.—
(1) Paragraph (2) of section 401(k) of such
Code is amended by striking ‘‘and’’ at the end of
subparagraph (C), by striking the period at the end
of subparagraph (D) and inserting ‘‘, and’’, and by
adding at the end thereof the following new subpara-
graph:
‘‘(E) which provides that, with respect to
amounts held by the trust which are attrib-
utable to contributions made to the trust pursu-
ant to section 125(d)(3)—
‘‘(i) an employee’s right to such
amounts is nonforfeitable, and
‘‘(ii) such amounts may be used only
to pay expenses (not compensated for by
insurance or otherwise) for the medical
care (as defined in section 213) of the em-
ployee, the spouse of the employee, or any
dependent (as defined in section 152) of
the employee.’’
(2) Subsection (k) of section 401 of such Code
is amended by adding at the end thereof the follow-
ing new paragraph:
‘‘(11) TREATMENT
OF
AMOUNTS
RECEIVED
FROM
MEDICAL
SAVINGS
ARRANGEMENTS.—Con-
tributions made to a trust by reason of section
125(d)(3) shall not be taken into account under
paragraph (3)(A)(ii), and subsection (l) shall not
apply to such contributions.’’
(c) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 103. DEDUCTION FOR AMOUNTS PAID FOR QUALIFIED
CATASTROPHIC COVERAGE HEALTH PLAN.
(a) IN GENERAL.—Section 213 of the Internal Reve-
nue Code of 1986 (relating to medical, dental, etc., ex-
penses) is amended adding at the end thereof the following
new subsection:
‘‘(g) FULL DEDUCTION FOR AMOUNTS PAID FOR
QUALIFIED
CATASTROPHIC
COVERAGE
HEALTH
PLANS.—In the case of amounts paid for coverage under
a qualified catastrophic coverage health plan (as defined
in section 220(c))—
‘‘(1) subsection (a) shall be applied without re-
gard to the limitation based on adjusted gross in-
come, and
‘‘(2) such amounts shall not be taken into ac-
count in determining whether any other amounts are
allowable as a deduction under this section.’’
(b) TECHNICAL AMENDMENT.—Paragraph (2) of
section 162(l) of such Code is amended by adding at the
end thereof the following new subparagraph:
‘‘(C) 
QUALIFIED
CATASTROPHIC
COV-
ERAGE.—Paragraph (1) shall not apply to any
amount allowed as a deduction under section
213 for amounts paid for coverage under a
qualified catastrophic coverage health plan (as
defined in section 220(c)).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
TITLE II—TAX TREATMENT OF
LONG-TERM 
CARE 
INSUR-
ANCE AND PLANS
Subtitle A—Treatment of Long-
Term Care Insurance
SEC. 201. QUALIFIED LONG-TERM CARE INSURANCE TREAT-
ED AS ACCIDENT AND HEALTH INSURANCE
FOR PURPOSES OF TAXATION OF LIFE INSUR-
ANCE COMPANIES.
(a) IN GENERAL.—Section 818 of the Internal Reve-
nue Code of 1986 (relating to other definitions and special
rules) is amended by adding at the end the following new
subsection:
‘‘(g) QUALIFIED
LONG-TERM
CARE
INSURANCE
TREATED AS ACCIDENT OR HEALTH INSURANCE.—For
purposes of this part—
‘‘(1) IN GENERAL.—Any reference to accident
or health insurance shall be treated as including a
reference to qualified long-term care insurance.
‘‘(2) QUALIFIED
LONG-TERM
CARE
INSUR-
ANCE.—For purposes of this subsection—
‘‘(A) IN
GENERAL.—Subject to subpara-
graphs (B) and (C), the term ‘qualified long-
term care insurance’ means insurance under a
policy or rider, which is issued by a qualified is-
suer, which meets standards at least as strin-
gent as those set forth in the January 1990
Long-Term Care Insurance Model Regulation
of the National Association of Insurance Com-
missioners, and which is certified by the Sec-
retary of Health and Human Services (in ac-
cordance with procedures similar to the proce-
dures prescribed in section 1882 of the Social
Security Act (42 U.S.C. 1385ss) used in the
certification of medicare supplemental policies
(as defined in subsection (g)(1) of such sec-
tion)) to be advertised, marketed, offered, or
designed to provide coverage—
‘‘(i) for not less than 12 consecutive
months for each covered person who has
attained age 50,
‘‘(ii) on an expense incurred, indem-
nity, or prepaid basis,
‘‘(iii) for 1 or more medically nec-
essary, diagnostic services, preventive serv-
ices, therapeutic services, rehabilitation
services, maintenance services, or personal
care services, and
‘‘(iv) provided in a setting other than
an acute care unit of a hospital.
The requirement of clause (iv) shall be met only
if at least 1 of the settings in which such cov-
erage is provided is the patient’s home.
‘‘(B) 
COVERAGE
SPECIFICALLY
EX-
CLUDED.—Such term does not include any in-
surance under any policy or rider which is of-
fered primarily to provide any combination of
the following kinds of coverage:
‘‘(i) Basic Medicare supplement cov-
erage.
‘‘(ii) Basic hospital-based acute care
expense coverage.
‘‘(iii) Basic medical-surgical expense
coverage.
‘‘(iv) Hospital confinement indemnity
coverage.
‘‘(v) Major medical expense coverage.
‘‘(vi) Disability income protection cov-
erage.
‘‘(vii) Accident only coverage.
‘‘(viii) Specified disease coverage.
‘‘(ix) Specified accident coverage.
‘‘(x) Limited benefit health coverage.
‘‘(C) QUALIFIED ISSUER.—For purposes of
subparagraph (A), the term ‘qualified issuer’
means any of the following:
‘‘(i) Private insurance company.
‘‘(ii) Fraternal benefit society.
‘‘(iii) Nonprofit health corporation.
‘‘(iv) Nonprofit hospital corporation.
‘‘(v) Nonprofit medical service cor-
poration.
‘‘(vi) Prepaid health plan.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1992.
SEC. 202. QUALIFIED LONG-TERM CARE INSURANCE TREAT-
ED AS ACCIDENT AND HEALTH INSURANCE
FOR PURPOSES OF EXCLUSION FOR BENE-
FITS RECEIVED UNDER SUCH INSURANCE
AND FOR EMPLOYER CONTRIBUTIONS FOR
SUCH INSURANCE.
(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) SPECIAL
RULES
RELATING
TO
QUALIFIED
LONG-TERM CARE INSURANCE.—For purposes of section
104, this section, and section 106—
‘‘(1) BENEFITS
TREATED
AS
PAYABLE
FOR
SICKNESS, ETC.—Any benefit received through quali-
fied long-term care insurance (as defined in section
818(g)) shall be treated as received for personal in-
juries or sickness.
‘‘(2) EXPENSES FOR WHICH REIMBURSEMENT
PROVIDED UNDER QUALIFIED LONG-TERM CARE IN-
SURANCE
TREATED
AS
INCURRED
FOR
MEDICAL
CARE.—Expenses incurred by a taxpayer for which
reimbursement is paid through qualified long-term
care insurance (as so defined) shall be treated for
purposes of subsection (b) as incurred for medical
care (as defined in section 213(d)).
‘‘(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.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1992.
SEC. 203. EXCLUSION FROM GROSS INCOME FOR AMOUNTS
WITHDRAWN 
FROM 
INDIVIDUAL 
RETIRE-
MENT PLANS OR 401(k) PLANS FOR QUALI-
FIED LONG-TERM CARE INSURANCE.
(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 136 as section 137 and by insert-
ing after section 135 the following new section:
‘‘SEC. 136. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT
ACCOUNTS AND SECTION 401(k) PLANS FOR
QUALIFIED LONG-TERM CARE INSURANCE.
‘‘(a) GENERAL RULE.—The amount includible in the
gross income of an individual for the taxable year by rea-
son of qualified distributions during such taxable year
shall not exceed the excess of—
‘‘(1) the amount which would (but for this sec-
tion) be so includible by reason of such distributions,
over
‘‘(2) the aggregate premiums paid by such indi-
vidual during such taxable year for any policy of
qualified long-term care insurance (as defined in sec-
tion 818(g)) for the benefit of such individual or the
spouse of such individual.
‘‘(b) QUALIFIED DISTRIBUTION.—For purposes of
this section, the term ‘qualified distribution’ means any
distribution to an individual from an individual retirement
account or a section 401(k) plan if such individual has
attained age 591⁄2 on or before the date of the distribution
(and, in the case of a distribution used to pay premiums
for the benefit of the spouse of such individual, such
spouse has attained age 591⁄2 on or before the date of the
distribution).
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) INDIVIDUAL RETIREMENT ACCOUNT.—The
term ‘individual retirement account’ has the mean-
ing given such term by section 408(a).
‘‘(2) SECTION 401(k) PLAN.—The term ‘section
401(k) plan’ means any employer plan which meets
the requirements of section 401(a) and which in-
cludes a qualified cash or deferred arrangement (as
defined in section 401(k)).
‘‘(d) SPECIAL RULES FOR SECTION 401(k) PLANS.—
‘‘(1) WITHDRAWALS
CANNOT
EXCEED
ELEC-
TIVE CONTRIBUTIONS UNDER QUALIFIED CASH OR
DEFERRED ARRANGEMENT.—This section shall not
apply to any distribution from a section 401(k) plan
to the extent the aggregate amount of such distribu-
tions for the use described in subsection (a) exceeds
the aggregate employer contributions made pursuant
to the employee’s election under section 401(k)(2).
‘‘(2) WITHDRAWALS NOT TO CAUSE DISQUALI-
FICATION.—A plan shall not be treated as failing to
satisfy the requirements of section 401, and an ar-
rangement shall not be treated as failing to be a
qualified cash or deferred arrangement (as defined
in section 401(k)(2)), merely because under the plan
or arrangement distributions are permitted which
are excludable from gross income by reason of this
section.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 401(k) of such Code is amended by
adding at the end the following new paragraph:
‘‘(11) CROSS REFERENCE.—
‘‘For provision permitting tax-free withdrawals
for payment of long-term care premiums, see section
136.’’
(2) Section 408(d) of such Code is amended by
adding at the end the following new paragraph:
‘‘(8) CROSS REFERENCE.—
‘‘For provision permitting tax-free withdrawals
from individual retirement accounts for payment of
long-term care premiums, see section 136.’’
(3) The table of sections for such part III is
amended by striking the last item and inserting the
following new items:
‘‘Sec. 136. Distributions from individual retirement accounts and
section 401(k) plans for qualified long-term care in-
surance.
‘‘Sec. 137. Cross references to other Acts.’’
(c) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1992.
SEC. 204. EXCHANGE OF LIFE INSURANCE POLICY FOR
QUALIFIED LONG-TERM CARE POLICY NOT
TAXABLE.
(a) IN GENERAL.—Subsection (a) of section 1035 of
the Internal Revenue Code of 1986 (relating to certain
exchanges of insurance policies) is amended by striking
the period at the end of paragraph (3) and inserting ‘‘;
or’’ and by adding at the end the following new paragraph:
‘‘(4) in the case of an individual who has at-
tained age 591⁄2, a contract of life insurance or a
contract of endowment insurance or an annuity con-
tract for a contract of qualified long-term care insur-
ance (as defined in section 818(g)) for the benefit of
such individual or the spouse of such individual if
such spouse has attained age 591⁄2 on or before the
date of the exchange.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1992.
Subtitle B—Employer Funding of
Medical Benefits
SEC. 211. MEDICAL BENEFITS FOR RETIRED EMPLOYEES
AND THEIR SPOUSES AND DEPENDENTS.
(a) IN GENERAL.—Section 401(h) of the Internal
Revenue Code of 1986 (relating to medical, etc., benefits
for retired employees and their spouses and dependents)
is amended to read as follows:
‘‘(h) RETIREE HEALTH ACCOUNTS.—
‘‘(1) GENERAL RULE.—Under regulations pre-
scribed by the Secretary, a defined benefit plan may
establish and maintain a separate health benefits ac-
count for the payment of medical benefits of retired
employees and their spouses and dependents.
‘‘(2) SEPARATE
ACCOUNTING
REQUIRED.—An
employer establishing a health benefits account shall
maintain separate accounts within the health bene-
fits account for funded reserve accounts established
under section 420A.
‘‘(3) USE OF ASSETS.—Subject to the provi-
sions of part III of this subchapter, the corpus or in-
come of a health benefits account shall not be used
for, or diverted to, any purpose other than providing
medical benefits to retired employees and their
spouses and dependents.
‘‘(4) KEY EMPLOYEES.—
‘‘(A) IN GENERAL.—In the case of an em-
ployee who is a key employee—
‘‘(i) a separate account shall be estab-
lished and maintained for medical benefits
payable to such employee (and the employ-
ee’s spouse or dependents), and
‘‘(ii) medical benefits of such em-
ployee, spouse, or dependents which are at-
tributable to plan years beginning after
March 31, 1984, for which the employee is
a key employee may be payable only from
such account.
‘‘(B) KEY
EMPLOYEE.—For purposes of
subparagraph (A), the term ‘key employee’
means any employee who, at any time during
the plan year or any preceding plan year during
which contributions were made on behalf of
such employee, is or was a key employee (as de-
fined in section 416(i)).
‘‘(5) APPLICABLE RULES.—For rules applicable
to health benefits accounts, see subpart F of this
part (sec. 420A et seq.).’’
(b) CONFORMING AMENDMENT.—Section 415(l)(2)
of such Code (relating to treatment of certain medical ben-
efits) is amended by inserting ‘‘by reason of section
401(h)(4)’’ after ‘‘dependents’’ in subparagraph (B).
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to years beginning after December 31,
1992.
(2) TRANSITION RULE.—In the case of—
(A) a plan other than a defined benefit
plan, or
(B) a defined benefit plan which elects, at
such time and in such manner as the Secretary
of the Treasury or his delegate may prescribe,
to have this paragraph apply,
which on or before the date of the enactment of this
Act established an account to which section 401(h)
of the Internal Revenue Code of 1986 (as in effect
before the amendments made by this section) ap-
plied (and which is in existence on such date), the
amendments made by this section shall not apply to
such account.
SEC. 212. TREATMENT OF HEALTH BENEFITS ACCOUNTS.
(a) IN GENERAL.—Part I of subchapter D of chapter
1 of the Internal Revenue Code of 1986 is amended by
adding at the end the following new subpart:
‘‘Subpart F—Treatment of Health Benefits Accounts
‘‘Sec. 420A. Deduction for employer contributions to health bene-
fits accounts.
‘‘Sec. 420B. Funded reserve account.
‘‘Sec. 420C. Definitions; special rules.
‘‘SEC. 420A. DEDUCTION FOR EMPLOYER CONTRIBUTIONS
TO HEALTH BENEFITS ACCOUNTS.
‘‘(a) GENERAL RULE.—Amounts paid by an em-
ployer to a defined benefit plan which are allocated to a
health benefits account—
‘‘(1) shall not be allowed as a deduction under
this chapter, but
‘‘(2) if they would otherwise be deductible, shall
be allowed as a deduction under this section for the
taxable year in which paid.
‘‘(b) LIMITATION.—The amount of the deduction al-
lowable under subsection (a)(2) for any taxable year shall
not exceed the health benefits account’s qualified cost for
the taxable year.
‘‘(c) QUALIFIED COST.—For purposes of this sec-
tion—
‘‘(1) IN GENERAL.—The term ‘qualified cost’
means, with respect to any taxable year, the sum
of—
‘‘(A) the qualified direct cost for such tax-
able year, plus
‘‘(B) subject to the limitation of section
420B(b), any addition to the funded reserve ac-
count established under section 420B.
‘‘(2) QUALIFIED DIRECT COST.—
‘‘(A) IN
GENERAL.—The term ‘qualified
direct cost’ means, with respect to any taxable
year, the aggregate amount (including adminis-
trative expenses) which would have been allow-
able as a deduction to the employer with re-
spect to the qualified section 401(h) medical
benefits provided through the health benefits
account during the taxable year if—
‘‘(i) such benefits were provided di-
rectly by the employer, and
‘‘(ii) the employer used the cash re-
ceipts and disbursements method of ac-
counting.
‘‘(B) TIME WHEN BENEFITS PROVIDED.—
For purposes of subparagraph (A), a benefit
shall be treated as provided when such benefit
would be includible in the gross income of the
employee if provided directly by the employer
(or would be so includible but for any provision
of this chapter excluding such benefit from
gross income).
‘‘SEC. 420B. FUNDED RESERVE ACCOUNT.
‘‘(a) GENERAL RULE.—For purposes of this subpart
and section 401(h), the term ‘funded reserve account’
means an account within a health benefits account—
‘‘(1) to which contributions paid or accrued to
a defined benefit plan are allocated to provide a re-
serve for the payment of qualified section 401(h)
medical benefits of employees and their spouses and
dependents,
‘‘(2) with respect to which the only contribu-
tions allocated are employer contributions, and
‘‘(3) with respect to which—
‘‘(A) the vesting requirements of sub-
section (c),
‘‘(B) the portability requirements of sub-
section (d), and
‘‘(C) the availability requirements of sub-
section (e),
are met.
‘‘(b) LIMITATION ON ALLOCATION TO ACCOUNT.—
‘‘(1) IN GENERAL.—No amount may be allo-
cated to a funded reserve account (and taken into
account under section 420A(c)(1)(B)) to the extent
such addition results in the amount allocated to such
account exceeding the account limit.
‘‘(2) ACCOUNT LIMIT.—The account limit for
any taxable year is an amount equal to 125 percent
of the termination liability of the account as of the
close of the last plan year ending with or within the
taxable year.
‘‘(3) TERMINATION
LIABILITY.—For purposes
of this section—
‘‘(A) IN GENERAL.—The term ‘termination
liability’ means the present value of the quali-
fied section 401(h) medical benefits—
‘‘(i) which are to be provided to em-
ployees (and their spouses and depend-
ents), and
‘‘(ii) any portion of which is to be pro-
vided through a funded reserve account.
‘‘(B) DETERMINATIONS.—The termination
liability under subparagraph (A) shall be deter-
mined—
‘‘(i) on the basis of actuarial assump-
tions which are used in determining the
full-funding limitation of the plan under
section 412(c)(7),
‘‘(ii) as if the benefits under the plan
commenced at Social Security retirement
age, and
‘‘(iii) by not taking into account any
portion of the maximum annual benefit
under the plan for—
‘‘(I) benefits (other than post-re-
tirement long-term health care bene-
fits) in excess of $1,500, or
‘‘(II) post-retirement long-term
health care benefits in excess of
$1,500.
‘‘(C) ADJUSTMENTS
TO
ACCOUNT.—The
amount in the account shall be adjusted at such
time and in such manner as the Secretary may
prescribe to take into account income, gains,
deductions, or losses which are properly alloca-
ble to amounts in the account.
‘‘(D) ACTUARIAL ADJUSTMENT.—For pur-
poses of determining termination liability, the
benefits provided to any participant under the
plan shall be actuarially adjusted to reflect any
commencement of benefits before or after Social
Security retirement age.
‘‘(E) EMPLOYEE.—For purposes of this
paragraph, the term ‘employee’ does not include
a former employee.
‘‘(F) COST-OF-LIVING
ADJUSTMENT.—In
the case of years beginning after 1995, the
$1,500 amounts in subparagraph (B) shall be
adjusted annually at the same time and in the
same manner as under section 415(d).
‘‘(c) VESTING REQUIREMENTS.—
‘‘(1) IN GENERAL.—The requirements of this
subsection are met if the requirements of either sub-
paragraph (A) or (B) of section 411(a)(2) are met
with respect to the accrued qualified section 401(h)
medical benefits derived from amounts which are al-
located to the funded reserve account.
‘‘(2) UNIFORM RATE OF ACCRUAL OF BENE-
FITS.—
‘‘(A) IN GENERAL.—Except as provided in
this paragraph, a plan shall not be treated as
meeting the requirements of this subsection un-
less the rate at which benefits accrue during a
plan year is the same for all participants.
‘‘(B) SPECIAL RULES FOR CERTAIN INDI-
VIDUALS AGE 55 AND OVER.—A plan shall not
be treated as failing to meet the requirements
of this subsection if the plan provides that an
employee who as of the close of the plan year
in which he attains age 55 has accrued less
than 30 percent of the maximum amount of
benefits which may be accrued under the plan
may accrue benefits during succeeding plan
years at a greater rate than the rate for other
employees (but not in excess of 125 percent of
such other rate).
‘‘(C) MINIMUM HOURS OF SERVICE.—For
purposes of subparagraph (A), an employee
shall not be treated as a participant for any
plan year unless such individual completes more
than 500 hours of service during such year.
‘‘(3) CERTAIN RULES MADE APPLICABLE.—Ex-
cept to the extent inconsistent with the provisions of
this subpart, the rules of section 411 shall apply for
purposes of this subsection.
‘‘(d) PORTABILITY REQUIREMENTS.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the requirements of this subsection are
met if, in accordance with procedures determined by
the Secretary, the plan provides that—
‘‘(A) except as provided in regulations, the
plan shall transfer, within 120 days after an
employee separates from service with the em-
ployer or after the termination of the plan, the
present value of the nonforfeitable accrued
qualified section 401(h) medical benefits of the
employee attributable to amounts which are al-
located to the funded reserve account to—
‘‘(i) a plan which is maintained by an
employer of such employee and which
maintains a health benefits account, or
‘‘(ii) if the employer does not main-
tain a plan described in clause (i), an indi-
vidual retirement account established for
the benefit of such employee, and
‘‘(B) the plan accepts transfers under sub-
paragraph (A) from another plan or individual
retirement account.
‘‘(2) NO TRANSFERS AFTER EMPLOYEE IS DIS-
ABLED OR ATTAINS RETIREMENT AGE.—Except in
the case of a termination of a plan, a plan shall not
meet the requirements of this subsection if it per-
mits the transfer of a benefit after—
‘‘(A) an employee has attained Social Se-
curity retirement age, or
‘‘(B) an employee has become disabled
(within the meaning of section 72(m)(7)).
‘‘(3) INCLUSION
IN
INCOME
WHERE
MORE
THAN 1 ACCOUNT.—
‘‘(A) IN GENERAL.—If—
‘‘(i) an individual is a participant or
beneficiary under 2 or more plans main-
taining a funded reserve account or indi-
vidual retirement account to which assets
were transferred from such a plan, and
‘‘(ii) such individual does not (within
a 
reasonable 
period) 
consolidate 
the
present value of the individual’s nonforfeit-
able accrued benefit in all such plans and
the assets so transferred to all such ac-
counts into 1 such plan or into 1 such ac-
count,
then an amount equal to the sum of the present
value of such benefits and the fair market value
of such assets shall be treated as distributed in
cash to such individual at the close of the plan
year for the plan or account involved and such
distribution shall be included in gross income.
‘‘(B) SPECIAL RULES.—
‘‘(i) EMPLOYEE
MUST
CONSOLIDATE
INTO PLAN OF CURRENT EMPLOYER.—In
the case of an employee who is employed
by an employer maintaining a plan de-
scribed in subparagraph (A)(i), a consoli-
dation satisfies subparagraph (A) only if
such consolidation is into such a plan
maintained by such employer.
‘‘(ii) MORE
THAN
CURRENT
EM-
PLOYER.—If an individual is a participant
in more than 1 plan described in subpara-
graph (A)(i) by reason of being currently
employed by more than 1 employer, such
plans shall be treated as 1 plan for pur-
poses of subparagraph (A).
‘‘(iii) EMPLOYEE WITH NO CURRENT
EMPLOYER
MAINTAINING
PLAN.—In the
case of an employee who is currently not
employed by an employer maintaining a
plan described in subparagraph (A)(i), a
consolidation satisfies subparagraph (A)
only if such consolidation is into—
‘‘(I) a plan described in subpara-
graph (A)(i) maintained by his most
recent employer maintaining such
plan, or
‘‘(II) an individual retirement ac-
count of the individual.
‘‘(C) AMOUNT TRANSFERRED NOT INCLUD-
IBLE IN INCOME.—No amount shall be includ-
ible in gross income by reason of any transfer
which is part of a consolidation required under
this paragraph.
‘‘(e) RETIRED
EMPLOYEES
NOT
COVERED
BY
HEALTH BENEFITS ACCOUNT MAY ELECT COVERAGE.—
‘‘(1) IN GENERAL.—The requirements of this
subsection are met if the plan provides that a former
employee who—
‘‘(A) is in pay status under the plan, but
‘‘(B) is not eligible to receive all or any
portion of qualified section 401(h) medical ben-
efits provided for any period through the fund-
ed reserve account,
is entitled to elect such benefits for himself or his
spouse and dependents. A plan shall not be treated
as failing to meet the requirements of this sub-
section if an employee is required to pay a premium
for such benefits as long as such premium does not
exceed 102 percent of applicable premium for the
period such benefits are provided.
‘‘(2) APPLICABLE PREMIUM.—For purposes of
paragraph (1), the applicable premium for any pe-
riod shall be determined in the same manner as
under section 4980B(f)(4).
‘‘SEC. 420C. DEFINITIONS; SPECIAL RULES.
‘‘(a) QUALIFIED SECTION 401(h) MEDICAL BENE-
FITS.—For purposes of this subpart, the term ‘qualified
section 401(h) medical benefits’ means benefits—
‘‘(1) which are—
‘‘(A) benefits for sickness, accident, hos-
pitalization, and medical expenses of former
employees who are in pay status under the plan
(and their spouse or dependents) after the
former employee—
‘‘(i) has attained Social Security re-
tirement age, or
‘‘(ii) is disabled (within the meaning
of section 72(m)(7)), or
‘‘(B) post-retirement long-term health care
benefits, and
‘‘(2) which are provided through 1 or more of
the following:
‘‘(A) insurance acquired by the plan, or
‘‘(B) self-insurance by the employer or the
plan.
‘‘(b) 
POST-RETIREMENT
LONG-TERM
HEALTH
CARE.—For purposes of this subpart—
‘‘(1) IN GENERAL.—The term ‘post-retirement
long-term health care’ means long-term health care
benefits provided to a former employee (or the
spouse of the former employee) who is in pay status
under the plan after the former employee—
‘‘(A) has attained Social Security retire-
ment age, or
‘‘(B) is disabled (within the meaning of
section 72(m)(7)).
‘‘(2) SPOUSE OF DECEASED EMPLOYEE.—For
purposes of paragraph (1), the spouse of a deceased
employee shall be treated—
‘‘(A) as a former employee, and
‘‘(B) as satisfying the requirements of
paragraph (1) if such spouse was receiving ben-
efits immediately before the death of the em-
ployee.
‘‘(3) LONG-TERM HEALTH CARE BENEFIT.—
‘‘(A) IN GENERAL.—The term ‘long-term
health care benefit’ means a benefit which con-
sists of the providing by a qualified provider in
a qualified facility of necessary diagnostic, pre-
ventive, therapeutic, rehabilitative, and personal
care services, required by a chronically ill indi-
vidual.
‘‘(B) CERTAIN
ITEMS
NOT
INCLUDED.—
The term ‘long-term health care benefits’ does
not include basic medicare supplement cov-
erage, basic hospital expense coverage, basic
medical-surgical expense coverage, hospital con-
finement indemnity coverage, major medical ex-
pense coverage, disability income protection cov-
erage, accident only coverage, specified disease
or specified accident coverage, or limited benefit
health coverage.
‘‘(4) QUALIFIED FACILITY.—The term ‘quali-
fied facility’ means—
‘‘(A) a rehabilitative, hospice, or adult day
care facility, including a hospital, retirement
home, skilled nursing facility (within the mean-
ing of section 1919(a) of the Social Security
Act), or other similar facility determined by the
plan administrator, or
‘‘(B) a home where the chronically ill indi-
vidual resides.
‘‘(5) CHRONICALLY ILL INDIVIDUAL.—The term
‘chronically ill individual’ means an individual whose
disability is such that the individual has been cer-
tified as requiring assistance with daily living (as de-
fined by the plan administrator) for a period of at
least 90 days.
‘‘(6) QUALIFIED PROVIDER.—The term ‘quali-
fied provider’ means a medical practitioner licensed
under State law, registered nurse, licensed vocational
nurse, qualified therapist, or trained home health
aide (or any organization employing such providers),
but does not include a relative or other person who
ordinarily resides in the home where the chronically
ill individual resides.
‘‘(c) HEALTH BENEFITS ACCOUNT.—For purposes of
this subpart, the term ‘health benefits account’ means an
account established and maintained under section 401(h).
‘‘(d) SOCIAL SECURITY RETIREMENT AGE.—For
purposes of this subpart, the term ‘Social Security retire-
ment age’ has the meaning given such term by section
415(b)(8).’’
(b) INDIVIDUAL RETIREMENT ACCOUNTS.—
(1) IN GENERAL.—Section 408 of such Code is
amended by redesignating subsection (p) as sub-
section (q) and by inserting after subsection (o) the
following new subsection:
‘‘(p) SPECIAL RULES FOR FUNDED RESERVE AC-
COUNTS.—
‘‘(1) IN GENERAL.—A trust shall not be treated
as an individual retirement account under subsection
(a) unless the trust instrument provides that the
trust will accept transfers of assets as provided in
section 420B(d)(1).
‘‘(2) ACCOUNTING.—The trustee of an individ-
ual retirement account shall maintain separate ac-
counting for assets transferred to the account under
section 420B(d)(1) (and any income allocable there-
to).’’
(2) PENALTY
FOR
EARLY
DISTRIBUTIONS.—
Section 72(t) of such Code (relating to 10-percent
additional tax on early distributions) is amended by
adding at the end the following new paragraph:
‘‘(6) EARLY DISTRIBUTION OF MEDICAL BENE-
FITS.—If—
‘‘(A) a taxpayer receives a distribution of
amounts transferred to an individual retirement
account under section 420B(d)(1) (or any in-
come or gain allocable thereto), and
‘‘(B) such distribution—
‘‘(i) is made before the individual at-
tains Social Security retirement age (with-
in the meaning of section 415(b)(8)) or be-
comes disabled (within the meaning of sub-
section (m)(7)), or
‘‘(ii) exceeds the amount of qualified
section 401(h) medical expenses of the tax-
payer, his spouse, or dependents for the
taxable year,
then paragraph (1) shall apply to such distribution
or such excess, except that ‘50 percent’ shall be sub-
stituted for ‘10 percent’. Paragraph (2) shall not
apply to a distribution to which this paragraph ap-
plies.’’
(c) EXCISE TAX ON ALLOCATED ASSETS NOT USED
TO
PROVIDE
RETIREE
HEALTH
BENEFITS.—Section
4980 of such Code (relating to tax on reversion of quali-
fied plan assets to employers) is amended by adding at
the end the following new subsection:
‘‘(e) ASSETS ALLOCATED TO RETIREE HEALTH BEN-
EFITS ACCOUNTS.—In the case of a plan which establishes
a health benefits account described in section 401(h), if—
‘‘(1) amounts are allocated to a funded reserve
account under section 420B, and
‘‘(2) any amount in such account is paid or dis-
tributed other than to pay for qualified section
401(h) medical benefits (as defined in section
420C(a)) provided through such account,
the amount so paid or distributed shall be treated as an
employer reversion for purposes of this section, except that
subsection (a) shall be applied by substituting ‘100 per-
cent’ for ‘25 percent’.’’
(d) CONFORMING AMENDMENTS.—
(1) Section 419(e) of such Code (defining wel-
fare benefit fund) is amended by adding at the end
the following new paragraph:
‘‘(5) HEALTH BENEFITS ACCOUNTS.—The term
‘welfare benefits fund’ does not include any health
benefits account established under section 401(h).’’
(2) The table of subparts for part I of sub-
chapter D of chapter 1 of such Code is amended by
adding at the end the following new item:
‘‘Subpart F. Treatment of health benefit accounts.’’
(e) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to contributions after December 31,
1992.
(2) INDIVIDUAL RETIREMENT ACCOUNTS.—The
amendments made by subsection (b) shall apply to
accounts established after December 31, 1992.
Subtitle C—Reverse Mortgage
Insurance for Older Americans
SEC. 221. MAXIMUM AMOUNT INSURED.
Section 255(g) of the National Housing Act (12
U.S.C. 1715z–20(g)) is amended by striking the third sen-
tence and inserting the following new sentence: ‘‘In no
case may the benefits of insurance under this section ex-
ceed the greater of 95 percent of the median 1-family
house price in the United States or 95 percent of the me-
dian 1-family house price in the area, as determined by
the Secretary.’’
Subtitle D—Income Tax Credits
SEC. 231. REFUNDABLE CREDIT FOR CUSTODIAL CARE OF
CERTAIN 
DEPENDENTS 
IN 
TAXPAYER’S
HOME.
(a) IN GENERAL.—Subpart C of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to refundable credits) is amended by redes-
ignating section 35 as section 37 and by inserting after
section 34 the following new section:
‘‘SEC. 35. CREDIT FOR TAXPAYERS WITH CERTAIN PERSONS
REQUIRING 
CUSTODIAL 
CARE 
IN 
THEIR
HOUSEHOLDS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual who maintains a household which includes as a
member one or more qualified persons, there shall be al-
lowed as a credit against the tax imposed by this chapter
for the taxable year an amount equal to $2,000 for each
such person.
‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED PERSON.—The term ‘qualified
person’ means any individual—
‘‘(A) who is a parent, grandparent, de-
pendent (as defined in section 152), or spouse
of the taxpayer,
‘‘(B) who has been certified by a physician
as—
‘‘(i) being unable to perform (without
substantial assistance from another indi-
vidual) at least 2 activities of daily living
(as defined in paragraph (2)), or
‘‘(ii) having a similar level of disabil-
ity due to cognitive impairment, and
‘‘(C) who has as his principal place of
abode for more than half of the taxable year the
home of the taxpayer.
‘‘(2) ACTIVITIES OF DAILY LIVING.—For pur-
poses of paragraph (1), each of the following is an
activity of daily living:
‘‘(A) BATHING.—The overall complex be-
havior of getting water and cleansing the whole
body, including turning on the water for a bath,
shower, or sponge bath, getting to, in, and out
of a tub or shower, and washing and drying
oneself.
‘‘(B) DRESSING.—The overall complex be-
havior of getting clothes from closets and draw-
ers and then getting dressed.
‘‘(C) TOILETING.—The act of going to the
toilet room for bowel and bladder function,
transferring on and off the toilet, cleaning after
elimination, and arranging clothes.
‘‘(D) TRANSFER.—The process of getting
in and out of bed or in and out of a chair or
wheelchair.
‘‘(E) EATING.—The process of getting
food from a plate or its equivalent into the
mouth.
‘‘(3) PHYSICIAN.—The term ‘physician’ means
a doctor of medicine or osteopathy legally authorized
to practice medicine or surgery in the jurisdiction in
which he makes the determination under paragraph
(1).
‘‘(d) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) MAINTAINING A HOUSEHOLD.—An individ-
ual shall be treated as maintaining a household for
any period if over half the cost of maintaining the
household for such period is furnished by such indi-
vidual (or, if such individual is married during such
period, by such individual and his spouse).
‘‘(2) MARRIED COUPLES MUST FILE JOINT RE-
TURN.—If the taxpayer is married at the close of
the taxable year, the credit under subsection (a)
shall be allowed only if the taxpayer and his spouse
file a joint return for the taxable year.
‘‘(3) MARITAL STATUS.—An individual legally
separated from his spouse under a decree of divorce
or separate maintenance shall not be considered as
married.
‘‘(4) CERTAIN
MARRIED
INDIVIDUALS
LIVING
APART.—If—
‘‘(A) an individual who is married and who
files a separate return—
‘‘(i) maintains a household which in-
cludes as a member one or more qualified
persons, and
‘‘(ii) furnishes over half of the cost of
maintaining such household during such
taxable year, and
‘‘(B) during the last 6 months of such tax-
able year such individual’s spouse is not a mem-
ber of such household,
such individual shall not be considered as married.
‘‘(e) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pur-
poses of this section.’’
(b) CLERICAL AMENDMENT.—The table of sections
for subpart C of part IV of subchapter A of chapter 1
of such Code is amended by striking the item relating to
section 35 and inserting the following:
‘‘Sec. 35. Credit for taxpayers with certain persons requiring cus-
todial care in their households.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 232. CREDIT FOR EXPENSES FOR LONG-TERM CARE
SERVICES 
PROVIDED 
TO 
CERTAIN 
INDE-
PENDENT PERSONS REQUIRING SUCH CARE.
(a) GENERAL RULE.—Subpart C of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to refundable credits) is amended by insert-
ing after section 35 the following new section:
‘‘SEC. 36. CREDIT FOR EXPENSES FOR LONG-TERM CARE
SERVICES 
PROVIDED 
TO 
CERTAIN 
INDE-
PENDENT PERSONS REQUIRING SUCH CARE.
‘‘(a) GENERAL RULE.—In the case of an individual,
there shall be allowed as a credit against the tax imposed
by this subtitle for the taxable year an amount equal to
25 percent of the qualified long-term care expenses paid
during such taxable year.
‘‘(b) MAXIMUM CREDIT.—
‘‘(1) IN GENERAL.—The credit allowed by sub-
section (a) for any taxable year shall not exceed
$2,000 with respect to each independent qualified
person.
‘‘(2) PHASEOUT
OF
CREDIT
FOR
TAXPAYERS
WITH INCOMES EXCEEDING 150 PERCENT OF THE
POVERTY LEVEL.—If the adjusted gross income of
the taxpayer for the taxable year exceeds the base
amount, the $2,000 amount in paragraph (1) shall
be reduced (but not below zero) by an amount which
bears the same ratio to $2,000 as—
‘‘(A) the excess of the taxpayer’s adjusted
gross income for the taxable year over the base
amount, bears to
‘‘(B) $10,000.
For purposes of the preceding sentence, the base
amount is 150 percent of the poverty level applicable
to the taxpayer.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) 
QUALIFIED
LONG-TERM
CARE
EX-
PENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
long-term care expenses’ means the amount
paid by the taxpayer during the taxable year for
1 or more medically necessary, diagnostic serv-
ices, preventive services, therapeutic services,
rehabilitation services, maintenance services, or
personal care services which are required by an
independent qualified person and which are pro-
vided in the household referred to in paragraph
(2)(C).
‘‘(B) 
COVERAGE
SPECIFICALLY
EX-
CLUDED.—Such term does not include any com-
bination of the following kinds of coverage:
‘‘(i) Basic Medicare supplement cov-
erage.
‘‘(ii) Basic hospital-based acute care
expense coverage.
‘‘(iii) Basic medical-surgical expense
coverage.
‘‘(iv) Hospital confinement indemnity
coverage.
‘‘(v) Major medical expense coverage.
‘‘(vi) Disability income protection cov-
erage.
‘‘(vii) Accident only coverage.
‘‘(viii) Specified disease coverage.
‘‘(ix) Specified accident coverage.
‘‘(x) Limited benefit health coverage.
‘‘(2) INDEPENDENT QUALIFIED PERSON.—The
term ‘independent qualified person’ means any indi-
vidual—
‘‘(A) who is a parent, grandparent, or de-
pendent (as defined in section 152) of the tax-
payer,
‘‘(B) who has been certified by a physician
as—
‘‘(i) being unable to perform (without
substantial assistance from another indi-
vidual) at least 2 activities of daily living
(as defined in section 35(b)(2)), or
‘‘(ii) having a similar level of disabil-
ity due to cognitive impairment, and
‘‘(C) who maintains a household which is
his principal place of abode for more than half
of the taxable year of the taxpayer.
Such term shall not include any qualified person as
defined in section 35(b).’’
(b) CLERICAL AMENDMENT.—The table of sections
for subpart C of part IV of subchapter A of chapter 1
of such Code is amended by adding at the end the follow-
ing:
‘‘Sec. 36. Credit for expenses for long-term care services provided
to certain independent persons requiring such care.
‘‘Sec. 37. Overpayments of tax.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
Subtitle E—Treatment of
Accelerated Death Benefits
SEC. 241. TAX TREATMENT OF ACCELERATED DEATH BENE-
FITS 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
CERTAIN
ACCELERATED
DEATH BENEFITS.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, any amount paid to an individual under a life
insurance contract on the life of an insured who is
a terminally ill individual or who is permanently con-
fined to a nursing home 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.
‘‘(3) PERMANENTLY CONFINED TO A NURSING
HOME.—For purposes of this subsection, an individ-
ual has been permanently confined to a nursing
home if the individual is presently confined to a
nursing home and 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 the individual remaining in a nursing
home for the rest of his life.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 242. 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 of the
Internal Revenue Code of 1986 (relating to other defini-
tions 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 or addendum on, or other provision
of, a life insurance contract which provides for pay-
ments to an individual on the life of an insured upon
such insured becoming a terminally ill individual (as
defined in section 101(g)(2)) or being permanently
confined to a nursing home (as defined in section
101(g)(3)).’’
(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 accelerated death
benefit 
rider 
(as 
defined 
in 
section
818(g)(2)) or any qualified long-term care
insurance rider which reduces the death
benefit, 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 rider or addendum on, or
other provision of, a life insurance contract permit-
ting the acceleration of death benefits (as described
in section 101(g) of such Code) or for qualified long-
term care insurance (as defined in section 849(b) of
such Code) shall not be treated as a modification or
material change of such contract.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning before,
on, or after December 31, 1992.
Subtitle F—Federal National Long-
Term Care Reinsurance Cor-
poration
SEC. 251. AUTHORIZATION FOR ESTABLISHMENT OF COR-
PORATION.
The Secretary of Health and Human Services (in this
subtitle referred to as the ‘‘Secretary’’) is authorized to
provide, in accordance with this subtitle, for the incorpora-
tion of a corporation to be known as the Federal National
Long-Term Care Reinsurance Corporation (in this subtitle
referred to as the ‘‘Corporation’’), which shall not be an
agency or establishment of the United States Government.
SEC. 252. BOARD OF DIRECTORS AND OFFICERS.
(a) BOARD OF DIRECTORS.—The Corporation shall
have a Board of Directors (in this subtitle referred to as
the ‘‘Board’’) consisting of 9 members, of which—
(1) 3 shall be appointed by the President of the
United States, of which one shall be representative
of entities providing long-term care, one shall be a
representative from an insurer, and one shall be a
representative of consumers of long-term care; and
(2) 6 shall be elected annually by the stockhold-
ers of the Corporation entitled to vote for such mem-
bers.
Within the limitations of law and regulation, the Board
shall determine the general policies which shall govern the
operations of the Corporation, and shall have power to
adopt, amend, and repeal bylaws governing the perform-
ance of the powers and duties granted to or imposed upon
it by law.
(b) INITIAL BOARD.—Notwithstanding subsection
(a), the members described in subsection (a)(1) shall serve
as incorporators and are authorized to assist the Secretary
in taking whatever actions are necessary to incorporate
the Corporation.
(c) TERMS OF OFFICE.—The terms of office of each
member of the Board shall be one year, expiring on the
date of the annual meeting of the stockholders of the Cor-
poration; except that (1) in the case of a vacancy occurring
prior to the expiration of the term of a member, the va-
cancy shall be filled by the President (for members de-
scribed in subsection (a)(1)) or by the remaining members
of the Board (for other members) for the remainder of
such term, and (2) any member may be removed by the
President for good cause. Any vacancy in the Board shall
not affect its power.
(d) CHAIRMAN.—The President shall designate one
of the members described in subsection (a)(1) as the initial
Chairman of the Board. Thereafter, the members of the
Boards shall annually elect one of their number as Chair-
man.
(e) TREATMENT OF MEMBERS.—
(1) The members of the Board shall not by rea-
son of such membership, be deemed to be employees
of the United States Government. Except as pro-
vided in paragraph (2), each member of the Board
shall be entitled to receive the daily equivalent of the
maximum annual rate of basic pay in effect for
grade GS–18 of the General Schedule for each day
(including travel time) during which he is engaged
in the actual performance of duties vested in the
Corporation.
(2) Members of the Board who are full-time of-
ficers or employees of the United States shall receive
no additional pay by reason of their service on the
Board.
(f) OFFICERS.—The Corporation shall have a Presi-
dent and such other executive officers and employees as
may be appointed by the Board at rates of compensation
fixed by the Board, without regard to any provisions of
title 5, United States Code. No such executive officer may
receive any salary or other compensation from any source
other than the Corporation during the period of his em-
ployment by the Corporation.
SEC. 253. PURPOSE AND AUTHORITY OF CORPORATION.
(a) PURPOSE.—The Corporation shall confine its ac-
tivities to providing for the reinsurance of insurance com-
panies for extraordinary loss in the issuance or payment
of benefits for qualified long-term care insurance (as de-
fined in section 848(b) of the Internal Revenue Code of
1986). Except as may be provided by the Secretary in reg-
ulations, the Corporation may not refuse to provide for
such reinsurance for any insurance meeting the require-
ments of such section (other than paragraph (4)(C)(iii)
thereof).
(b) PREMIUMS.—The Corporation shall impose for
such reinsurance reasonable premiums which—
(1) are related to actuarial estimates of the
type and amount of financial risk assumed by the
Corporation, and
(2) in the aggregate (in conjunction with other
income which the Corporation may have) provide for
all the expenses of the Corporation.
(c) NO POLITICAL CONTRIBUTIONS.—The Corpora-
tion shall not contribute or otherwise support any political
party or candidate for elective public office.
(d) GENERAL POWERS.—Except as otherwise specifi-
cally provided in this subtitle, the Corporation and Board
shall have the powers of a corporation and board of direc-
tors in the State in which incorporated.
SEC. 254. CAPITALIZATION.
(a) COMMON STOCK.—The Corporation shall have
common stock, with such par value as the Board estab-
lishes, which shall be vested with all voting rights, each
share being entitled to one vote with rights of cumulative
voting at all elections of directors. The free transferability
of the common stock at all times to any person, firm, cor-
poration, or other entity shall not be restricted, except
that, as to the Corporation, it shall be transferable only
on the books of the Corporation. The Corporation shall
only issue such common stock with the approval of the
Secretary.
(b) DEBT.—
(1) For purposes of carrying out this subtitle,
the Corporation may, with the approval of the Sec-
retary and consistent with section 258, issue obliga-
tions having such maturities and bearing such rate
or rates and having such conditions (including sub-
ordination to other such obligations) as the Board
determines to be appropriate.
(2) The full faith and credit of the United
States is not pledged to the obligations and debts of
the Corporation. The Corporation shall insert appro-
priate language in all of its obligations issued under
this subsection clearly indicating that such obliga-
tions, together with the interest thereon, are not
guaranteed by the United States and do not con-
stitute debt or obligation of the United States or of
any agency or instrumentality thereof. The Corpora-
tion may purchase in the open market any of its ob-
ligations outstanding under this subsection at any
time and at any price.
(3) All obligations, participations, or other in-
struments issued by the Corporation shall be lawful
investments, and may be accepted as security for all
fiduciary, trust, and public funds, the investment or
deposit of which shall be under the authority and
control of the United States or any officer or officers
thereof.
SEC. 255. EXEMPTION FROM STATE REGULATION AND TAX-
ATION.
(a) TAXATION.—The Corporation, including its cap-
ital, reserves, surplus, security holdings, and income, shall
be exempt from all taxation now or hereafter imposed by
any State, district, Commonwealth, county, municipality,
or local taxing authority, except that any real property of
the Corporation shall be subject to such taxation to the
same extent according to its value as other real property
is taxed.
(b) INSURANCE REGULATION.—Except to the extent
specified by the Secretary in regulations, the Corporation
shall not be subject to any regulation under the insurance
laws of any State, district, or Commonwealth.
SEC. 256. AUDIT AND ANNUAL REPORT.
(a) AUDIT.—The Board shall provide for an annual
audit of the operations of the Corporation. Such audit
shall be conducted by a certified public accountant in ac-
cordance with generally accepted auditing principles (as
recognized by the Comptroller General).
(b) ANNUAL REPORT.—The Board shall report annu-
ally to the President and the Congress on the activities
of the Corporation. Such report shall include a presen-
tation of the financial status of the Corporation, as cer-
tified under the audit described in subsection (a).
SEC. 257. PROTECTION OF NAME.
No individual association, partnership, or corpora-
tion, except the Corporation, shall hereafter use the word
‘‘Federal National Long-Term Care Reinsurance Corpora-
tion’’, or any combination of such words, as the name or
a part thereof under which he or it shall do business. Vio-
lations of the foregoing sentence may be enjoined by any
court of general jurisdiction at the suit of the Corporation.
In any such suit, the Corporation may recover any actual
damages flowing from such violations, and, in addition,
shall be entitled to punitive damages (regardless of the
existence or nonexistence of actual damages) of not ex-
ceeding $10,000 for each day during which such violation
is committed or repealed.
SEC. 258. TERMINATION.
The Corporation shall terminate its activities not
later than 10 years after the date of the enactment of this
Act.
TITLE III—MALPRACTICE
LIABILITY REFORM
SEC. 301. DEFINITIONS.
In this title, the following definitions shall apply:
(1) ECONOMIC DAMAGES.—The term ‘‘economic
damages’’ means damages paid to compensate an in-
dividual for medical expenses, lost wages or other in-
come, lost employment, burial expenses, and other
pecuniary losses.
(2) HEALTH
CARE
LIABILITY
ACTION.—The
term ‘‘health care liability action’’ means a civil ac-
tion brought against a health care provider (regard-
less of the theory of liability on which the action is
based) in which a plaintiff alleges an injury caused
by the provision of (or the failure to provide) health
care services, except that such term does not in-
clude—
(A) any action in which a plaintiff alleges
an intentional tort; or
(B) any action in which the plaintiff’s sole
allegation is an allegation of an injury arising
from the use of a medical product.
(3) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means any individual or en-
tity that is engaged in the delivery of health care
services and is required under Federal or State law
to be licensed, certified, or accredited in order to de-
liver such services.
(4) INJURY.—The term ‘‘injury’’ means any ill-
ness, disease, or other harm that is the subject of
a health care liability action.
(5) 
NON-ECONOMIC
DAMAGES.—The 
term
‘‘non-economic damages’’ means any damages paid
to compensate an individual for subjective, non-mon-
etary losses, including pain, suffering, inconvenience,
mental suffering, emotional distress, loss of society
and companionship, loss of consortium, injury to
reputation, and humiliation, but does not include pu-
nitive damages.
(6) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services.
(7) STATE.—The term ‘‘State’’ means each of
the several States, the District of Columbia, the
Commonwealth of Puerto Rico, the Virgin Islands,
Guam, American Samoa, and the Northern Mariana
Islands.
SEC. 302. MALPRACTICE LIABILITY REFORM REQUIRE-
MENTS DESCRIBED.
(a) IN GENERAL.—Subject to section 303, a State
meets the requirements of this section if it has enacted
laws, rules, or regulations relating to the treatment of
health care liability actions that meet the requirements of
subsections (b) through (h), relating to alternative dispute
resolution mechanisms that meet the requirements of sub-
section (i), and relating to quality assurance reform that
meet the requirements of subsection (j).
(b) LIABILITY SEVERAL AND NOT JOINT FOR NON-
ECONOMIC DAMAGES.—
(1) IN
GENERAL.—With respect to non-eco-
nomic damages, the liability of each defendant in a
health care liability action shall be several only and
shall not be joint. Each defendant shall be liable
only for the amount of non-economic losses incurred
by the plaintiff that is in direct proportion to the de-
fendant’s percentage of responsibility for the injury
suffered by the plaintiff (as determined by the trier
of fact pursuant to paragraph (2)).
(2) DETERMINATION OF PERCENTAGE OF RE-
SPONSIBILITY.—The trier of fact shall determine the
extent of each defendant’s responsibility for the non-
economic injury suffered by the plaintiff, and shall
assign a percentage of responsibility for such injury
to each defendant.
(c) LIMITATION ON NON-ECONOMIC DAMAGES.—
(1) IN GENERAL.—The total amount of non-
economic damages that may be awarded to an indi-
vidual and the family members of such individual for
losses resulting from an injury which is the subject
of a health care liability action may not exceed
$250,000, regardless of the number of health care
providers against whom the action is brought or the
number of actions brought with respect to the in-
jury.
(2) 
ADJUSTMENT
FOR
INFLATION.—The
amount referred to in paragraph (1) shall be in-
creased every 3rd year (beginning with the 3rd year
that begins after the date of the enactment of this
Act) in the same manner as amounts are increased
under section 215(i) of the Social Security Act for
base quarters or cost-of-living computation quarters
in such a year.
(d) MANDATORY OFFSETS FOR DAMAGES PAID BY
A COLLATERAL SOURCE.—
(1) IN GENERAL.—The total amount of dam-
ages received by an individual under a health care
liability action shall be reduced (in accordance with
paragraph (2)) by any other payment that has been
or will be made to the individual to compensate the
individual for the injury that was the subject of the
health care liability action, including payment
under—
(A) Federal or State disability or sickness
programs;
(B) Federal, State, or private health insur-
ance programs;
(C) private disability insurance programs;
(D) employer wage continuation programs;
and
(E) any other source of payment intended
to compensate such individual for such injury.
(2) AMOUNT OF REDUCTION.—The amount by
which an award of damages to an individual shall be
reduced under paragraph (1) shall be the total
amount of any payments (other than such award)
that have been made or that will be made to the in-
dividual to compensate the individual for the injury
that was the subject of the action.
(f) TREATMENT OF PAYMENTS FOR FUTURE ECO-
NOMIC LOSSES.—
(1) PROHIBITING
SINGLE
LUMP-SUM
PAY-
MENT.—No health care provider shall be required to
make a single, lump-sum payment for damages for
any economic losses to be incurred after the date on
which judgment is entered in a health care liability
action, but shall be permitted to make periodic pay-
ments of such damages on the basis of projections
of the amount of costs expected to be incurred by
the plaintiff at appropriate intervals (as determined
by the trier of fact).
(2) USE OF ANNUITIES OR TRUSTS.—The court
may require a health care provider to purchase an
annuity or fund a reversionary trust to make peri-
odic payments under paragraph (1) if the court
finds a reasonable basis for concluding that the
health care provider may be unable to or will not
otherwise make the periodic payments.
(3) REQUIREMENT OF PERIODIC PAYMENT AS
FINAL ORDER.—The judgment of the court awarding
periodic payments may not be reopened at any time
to contest, amend, or modify the schedule or amount
of the payments in the absence of fraud or any other
basis under which a party may obtain relief from a
final judgment.
(4) LUMP-SUM PAYMENT UNDER SETTLEMENT
NOT PRECLUDED.—Nothing in this subsection shall
be construed to preclude the parties to a health care
liability action from entering into a settlement pro-
viding for a single, lump-sum payment for damages
described in paragraph (1).
(g) 
LIMITATION
ON
ATTORNEY’S
FEES.—The
amount of attorney’s fees that may be collected by the at-
torney for any party to a health care liability action for
services relating to the action may not exceed—
(1) 33 percent of the first $50,000 awarded to
the party;
(2) 20 percent of the next $100,000 awarded to
the party;
(3) 15 percent of the next $100,000 awarded to
the party; and
(4) 10 percent of any amount in excess of
$250,000 awarded to the party.
(h) SPECIAL PROVISION FOR CERTAIN OBSTETRIC
SERVICES.—
(1) IMPOSITION
OF
HIGHER
STANDARD
OF
PROOF.—In the case of a health care liability action
relating to services provided during labor or the de-
livery of a baby, if the plaintiff was not previously
treated for the pregnancy by the defendant health
care provider a court may not find that the defend-
ant committed malpractice and may not assess dam-
ages against the defendant unless the malpractice is
proven by clear and convincing evidence.
(2) APPLICABILITY TO GROUP PRACTICES OR
AGREEMENTS AMONG PROVIDERS.—For purposes of
paragraph (1), a health care provider shall be con-
sidered to have previously treated an individual for
a pregnancy if the provider is a member of a group
practice whose members previously treated the indi-
vidual for the pregnancy or is providing services to
the individual during labor or the delivery of a baby
pursuant to an agreement with another provider.
(i) ESTABLISHMENT
OF
ALTERNATIVE
DISPUTE
RESOLUTION MECHANISMS.—
(1) IN GENERAL.—Each State shall have in ef-
fect at least one mediation or pretrial screening
panel that meets requirements specified in regula-
tions issued by the Secretary, or shall have in effect
another alternative dispute resolution mechanism
which the Secretary, in consultation with the Attor-
ney General, finds to be equally effective in deterring
the filing of frivolous health care liability actions and
providing fair and expeditious compensation for mer-
itorious health care liability claims.
(2) PROMULGATION
OF
REGULATIONS.—Sub-
ject to paragraph (3), the Secretary, in consultation
with the Administrative Conference of the United
States and the Attorney General, shall promulgate
regulations that specify the Secretary’s criteria for
mediation and pretrial screening panels and for eval-
uating the effectiveness of other alternative dispute
resolution mechanisms under paragraph (1).
(3) TOLLING
OF
STATUTE
OF
LIMITATIONS
DURING ALTERNATIVE PROCEDURES.—Any regula-
tions promulgated by the Secretary pursuant to
paragraph (2) shall include a requirement that a
State may not include any time occurring after a
claim is filed with a mediation or pretrial screening
panel or under any other alternative dispute resolu-
tion mechanism under paragraph (1) for purposes of
determining the applicability of any statute of limi-
tations to a health care liability action arising from
the injury that is the subject of the claim.
(j) QUALITY ASSURANCE REFORM.—
(1) IMPROVING THE PERFORMANCE OF STATE
MEDICAL BOARDS.—(A) The State, through the ap-
propriate health authority, shall collect, analyze and
supply the Secretary with information and data, as
specified in regulations to be promulgated by the
Secretary, on staffing, revenue, disciplinary actions,
expenditures, case-loads of the State Medical Board,
and use of continuing medical education programs in
order to demonstrate that the State medical boards
meet performance criteria established by the Sec-
retary in regulations.
(B) The State, through the appropriate health
authority, shall impose a requirement on the State
Medical Board to require a physician disciplined by
the State Medical Board to take a certain number
of continuing education courses as the board re-
quires, with educational outcome measures required,
in the subject areas in which the board determines
that the physician’s knowledge is deficient.
(2) ALTERNATIVE PROGRAMS.—The Secretary
shall deem a State in compliance with the require-
ments of this section if (instead of complying with
the requirements of paragraph (1)) the State has in
effect a program to reduce the incidence of physician
negligence which the Secretary finds to be at least
as effective in reducing the incidence of negligence
as compliance with the requirements of paragraph
(1), in accordance with criteria established by the
Secretary that may include—
(A) requirements for risk management sys-
tems to be carried out by institutions providing
health care in the State;
(B) quality assurance systems, adminis-
tered by the State or professional bodies, which
review the quality of care rendered by the phy-
sicians of the State; or
(3) State programs for the promulgation of
standards of care in areas of medical practice in
which the risk of negligence is greatest.
SEC. 303. WAIVER OF REQUIREMENTS FOR GOOD CAUSE OR
FOR 
CARRYING 
OUT 
DEMONSTRATION
PROJECTS.
The Secretary may waive any of the requirements of
subsections (b) through (j) of section 302 for good cause
or to the extent necessary to enable a State to carry out
an experimental, demonstration, or pilot project if, in the
judgment of the Secretary, the project is likely to promote
the objectives of this title.
SEC. 304. CERTIFICATION OF STATE COMPLIANCE.
(a) NOTIFICATION.—
(1) IN GENERAL.—Not later than 6 months be-
fore the beginning of each year (beginning with the
first year that begins after the expiration of the 3-
year period beginning on the date of the enactment
of this Act), each State shall submit a notification
to the Secretary, with a certification by the Chief
Executive Officer of the State that, on the date the
notification is submitted, the State has enacted,
adopted, or otherwise has in effect laws, rules, or
regulations that meet the requirements of section
302.
(2) CONTENTS OF NOTIFICATION.—The notifi-
cation shall be accompanied by documentation to
support the certification required by this subsection,
including copies of relevant State statutes, rules,
procedures, regulations, judicial decisions, State con-
stitutional provisions, and opinions of the State At-
torney General, and shall contain such other infor-
mation, be in such form, and be submitted in such
manner, as the Secretary may require.
(b) REVIEW OF NOTIFICATION.—
(1) IN GENERAL.—Within 90 days after receiv-
ing a notification under subsection (a), the Secretary
shall review the notification and determine whether
the notification demonstrates that the State has en-
acted, adopted, or otherwise has in effect laws, rules,
or regulations that meet the requirements of section
302.
(2) APPROVAL OF NOTIFICATION.—If the Sec-
retary determines that the notification makes such
demonstration, the Secretary shall approve the noti-
fication.
(3) NOTICE OF DISAPPROVAL.—If, after review-
ing a State’s notification under subsection (a), the
Secretary determines that the notification does not
make the demonstration required, the Secretary
shall, not later than 15 days after making such de-
termination, provide the State with a written notice
specifying such determination and containing rec-
ommendations for revisions which would cause the
notification of the State to be approved.
(4) REVIEW OF REVISED NOTIFICATIONS.—Not
later than 30 days after receiving a revised notifica-
tion, the Secretary shall review the revised notifica-
tion and determine whether the notification dem-
onstrates that the State has enacted, adopted, or
otherwise has in effect laws, rules, or regulations
that meet the requirements of section 302. If the
Secretary determines that the revised notification
makes such a demonstration, the Secretary shall ap-
prove the revised notification.
(c) NON-COMPLIANCE.—
(1) FAILURE TO SUBMIT NOTIFICATION.—If a
State fails to submit to the Secretary a notification
or revised notification pursuant to this section, the
Secretary shall, not later than 15 days after the pe-
riod provided for submitting notification under this
section, send the State written notice of determina-
tion of non-compliance.
(2) FAILURE TO MEET REQUIREMENTS.—If the
Secretary determines that a revised notification sub-
mitted under subsection (b) does not demonstrate
that the State has enacted, adopted, or otherwise
has in effect laws, rules, or regulations that meet the
requirements of section 302, and disapproves the
State’s revised notification, the Secretary shall, not
later than 15 days after making such determination,
provide the State with written notice of non-compli-
ance, including the determination of the Secretary
and the reasons therefore.
(3) FAILURE TO MEET REQUIREMENTS AFTER
INITIAL APPROVAL.—If, during any time period after
a notification is approved under this section, the
Secretary determines that the State does not have
currently in effect or has ceased enforcing the laws,
rules, or regulations upon which the notification was
approved, the Secretary shall, not later than thirty
days of making such determination provide the State
with written notice of such determination and with-
draw the approval of the notification. Such notice
shall specify the determination of the Secretary and
the reasons therefore.
(d) CONSULTATION WITH ATTORNEY GENERAL.—In
making determinations of compliance or non-compliance
pursuant to this section, the Secretary shall consult with
the Attorney General.
SEC. 305. INCENTIVES THROUGH MEDICARE AND MEDIC-
AID.
(a) MEDICARE INCENTIVES.—
(1) IN GENERAL.—Section 1886 of the Social
Security Act (42 U.S.C. 1395ww) is amended by
adding at the end the following new subsection:
‘‘(j) PAYMENT INCENTIVES TO ENCOURAGE MEDI-
CAL MALPRACTICE LIABILITY REFORM.—
‘‘(1) REDUCTION IN PAYMENTS FOR HOSPITALS
LOCATED
IN
CERTAIN
STATES.—Notwithstanding
any other provision of this title, the Secretary shall
reduce each payment amount otherwise determined
under this section by 1 percent for discharges during
a cost reporting period with respect to hospitals that
are not located in a State which the Secretary cer-
tifies (pursuant to section 304 of the Health Care
Choice and Access Improvement Act of 1992) meets
the requirements of section 302 of the Health Care
Choice and Access Improvement Act of 1992 for the
cost reporting period.
‘‘(2) ADDITIONAL
PAYMENT
FOR
HOSPITALS
LOCATED IN STATES ENACTING REFORMS.—With re-
spect to hospitals that are not subject to a reduction
in payment under paragraph (1), the Secretary shall
make an additional payment for discharges during a
cost reporting period equal to the product of—
‘‘(A) an amount equal to the total of all
amounts that were not paid to hospitals during
the cost reporting period as a result of the re-
ductions made under such paragraph; and
‘‘(B) a percentage equal to the percentage
of all payments under this section during the
year to all hospitals that are not subject to the
reduction described in such paragraph that is
attributable to payments to that hospital.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply with respect to dis-
charges for cost reporting periods beginning on or
after the first day of the first fiscal year that begins
‘‘(A) an amount equal to the total of all
amounts that were not paid to States during the
year as a result of the reductions made under such
paragraph; and
‘‘(B) a percentage equal to the percentage of all
payments under this section during the year to all
States that are not subject to the reduction de-
scribed in such paragraph that is attributable to
payments to that State.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to calendar quarters
beginning on or after the first January 1 that begins
after the expiration of the 3-year period beginning
on the date of the enactment of this Act.
SEC. 306. APPLICABILITY OF CERTAIN PROVISIONS TO FED-
ERAL TORT CLAIMS ACT.
(a) IN GENERAL.—Chapter 171 of title 28, United
States Code, is amended by adding at the end the follow-
ing new section:
‘‘§ 2681. Special rules for health care liability actions
‘‘(a) Notwithstanding any other provision of this
chapter, any action brought against the United States
under this chapter that is a health care liability action
shall be subject to the following:
‘‘(1)(A) With respect to non-economic damages,
the liability of the United States shall be several
only and shall not be joint. The United States shall
be liable only for the amount of non-economic losses
incurred by the plaintiff that is in direct proportion
to the United States’ percentage of responsibility for
the injury suffered by the plaintiff (as determined by
the court pursuant to subparagraph (B)).
‘‘(B) The court shall determine the extent of
each defendant’s responsibility for the non-economic
injury suffered by the plaintiff, and shall assign a
percentage of responsibility for such injury to each
defendant.
‘‘(2)(A) The total amount of non-economic
damages that may be awarded to an individual and
the family members of such individual for losses re-
sulting from an injury which is the subject of the ac-
tion may not exceed $250,000, regardless of the
number of defendants against whom the action is
brought or the number of actions brought with re-
spect to the injury.
‘‘(B) The amount referred to in subparagraph
(A) shall be increased every 3rd year (beginning
with the 3rd year that begins after the date of the
enactment of this Act) in the same manner as
amounts are increased under section 215(i) of the
Social Security Act for base quarters or cost-of-liv-
ing computation quarters in such a year.
‘‘(3)(A) The total amount of damages received
by an individual shall be reduced (in accordance with
subparagraph (B)) by any other payment that has
been or will be made to the individual to compensate
the individual for the injury that was the subject of
the action, including payment under—
‘‘(i) Federal or State disability or sickness
programs;
‘‘(ii) Federal, State, or private health in-
surance programs;
‘‘(iii) private disability insurance programs;
‘‘(iv) employer wage continuation pro-
grams; and
‘‘(v) any other source of payment intended
to compensate such individual for such injury.
‘‘(B) The amount by which an award of dam-
ages to an individual shall be reduced under sub-
paragraph (A) shall be the total amount of any pay-
ments (other than such award) that have been made
or that will be made to the individual to compensate
the individual for the injury that was the subject of
the action.
‘‘(4)(A) The United States may not be required
to make a single, lump-sum payment for damages
for any economic losses to be incurred after the date
on which judgment is entered, but shall be permitted
to make periodic payments of such damages on the
basis of projections of the amount of costs expected
to be incurred by the plaintiff at appropriate inter-
vals (as determined by the court).
‘‘(B) The United States may at its discretion
purchase an annuity or fund a reversionary trust to
make periodic payments under subparagraph (A).
‘‘(C) The judgment of the court awarding peri-
odic payments may not be reopened at any time to
contest, amend, or modify the schedule or amount of
the payments in the absence of fraud or any other
basis under which a party may obtain relief from a
final judgment.
‘‘(D) Nothing in this paragraph shall be con-
strued to preclude the parties to an action from en-
tering into a settlement providing for a single, lump-
sum payment for damages described in subpara-
graph (A).
‘‘(b) In this section, the following definitions shall
apply:
‘‘(1) The term ‘economic damages’ means dam-
ages paid to compensate an individual for medical
expenses, lost wages or other income, lost employ-
ment, burial expenses, and other pecuniary losses.
‘‘(2) The term ‘health care liability action’
means a civil action brought against the United
States (regardless of the theory of liability on which
the action is based) in which a plaintiff alleges an
injury caused by the provision of (or the failure to
provide) health care services, except that such term
does not include—
‘‘(A) any action in which a plaintiff alleges
an intentional tort; or
‘‘(B) any action in which the plaintiff’s
sole allegation is an allegation of an injury aris-
ing from the use of a medical product.
‘‘(3) The term ‘injury’ means any illness, dis-
ease, or other harm that is the subject of a health
care liability action.
‘‘(4) The term ‘non-economic damages’ means
any damages paid to compensate an individual for
subjective, non-monetary losses, including pain, suf-
fering, inconvenience, mental suffering, emotional
distress, loss of society and companionship, loss of
consortium, injury to reputation, and humiliation,
but does not include punitive damages.’’.
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 171 of title 28, United States
Code, is amended by adding at the end the following new
item:
‘‘2681. Special rules for health care liability actions.’’.
(c) EFFECTIVE DATE.—The amendments made by
subsections (a) and (b) shall apply to actions brought
against the United States on or after the date of the en-
actment of this Act.
SEC. 307. RULES OF CONSTRUCTION.
Nothing in this title may be construed to—
(1) waive or affect any defense of sovereign im-
munity asserted by any State under any law or by
the United States;
(2) preempt State choice-of-law rules with re-
spect to claims brought by a foreign nation or a citi-
zen of a foreign nation;
(3) affect the right of any court to transfer
venue, to apply the law of a foreign nation, or to dis-
miss a claim of a foreign nation or of a citizen of
a foreign nation on the ground of inconvenient
forum;
(4) create or vest jurisdiction in the district
courts of the United States over any health care li-
ability action subject to this Act (which is not other-
wise properly in Federal district court); or
(5) prevent any State from enacting, adopting,
or otherwise having in effect more comprehensive or
additional health care liability reforms than those set
forth in this Act.
TITLE IV—WORKING AMERICANS
ACCESS TO HEALTH CARE
Subtitle A—Increase in Small Em-
ployer 
Access 
to 
Affordable
Health Insurance
SEC. 401. ESTABLISHMENT AND ENFORCEMENT OF STAND-
ARDS FOR SMALL EMPLOYER HEALTH INSUR-
ANCE PLANS.
(a) ESTABLISHMENT OF GENERAL STANDARDS.—
(1) ROLE OF NAIC.—The Secretary of Health
and Human Services shall request the National As-
sociation of Insurance Commissioners to develop,
within 1 year after the date of the enactment of this
Act, model regulations that specify standards with
respect to each of the following:
(A) 
The 
requirement, 
under 
section
403(a), that small employer carriers offer
MedEquity plans.
(B) The basic benefits to be included in
MedEquity plans under section 403(b).
(C) The requirements of guaranteed issue
of MedEquity plans under section 403(c).
(D) The requirements of sections 404 and
405(b).
(E) The requirements of subsections (a)
and (c) of section 405.
If the NAIC develops such regulations specifying
such standards within such period, the Secretary
shall review such standards to determine if they
meet such requirements. Such review shall be com-
pleted within 6 months after the date the regulations
are developed. Unless the Secretary determines with-
in such period that the standards do not meet the
requirements, such standards shall serve as the
standards under this section.
(2) CONTINGENCY.—If the NAIC does not de-
velop such model regulations within such period or
the Secretary determines that such regulations do
not meet the requirements described in paragraph
(1), the Secretary shall inform the NAIC of the spe-
cific deficiencies and request the NAIC to develop
such model regulations in conformity with paragraph
(1).
(3) EFFECTIVE DATE.—The standards provided
under this subsection—
(A) shall apply to small employer health
benefit plans offered in a State on or after the
date the standards are implemented in the
State under subsection (b)(1), and
(B) with respect to the requirements re-
ferred to in paragraph (1)(D), shall apply to
small employer health benefit plans renewed on
or after 3 years after the date such standards
are implemented in the State under subsection
(b)(1).
(b) 
APPLICATION
OF
STANDARDS
THROUGH
STATES.—
(1) APPLICATION OF ALL STANDARDS TO NEW
PLANS.—
(A) IN GENERAL.—Each State shall sub-
mit to the Secretary, by the deadline specified
in subparagraph (B), a report on the implemen-
tation and enforcement of the standards estab-
lished under subsection (a) with respect to
small employer health benefit plans offered not
later than such deadline.
(B) DEADLINE FOR REPORT.—
(i) 1 YEAR AFTER STANDARDS ESTAB-
LISHED.—Subject to clause (ii), the dead-
line under this subparagraph is 1 year
after the date standards are established
under subsection (a).
(ii) EXCEPTION FOR LEGISLATION.—
In the case of a State which the Secretary
identifies, in consultation with the NAIC,
as—
(I) requiring State legislation
(other than legislation appropriating
funds) in order for carriers and health
benefit plans offered to small employ-
ers to meet the standards established
under subsection (a), but
(II) having a legislature which is
not scheduled to meet in 1993 in a
legislative session in which such legis-
lation may be considered,
the date specified in this subparagraph is
the first day of the first calendar quarter
beginning after the close of the first legis-
lative session of the State legislature that
begins on or after January 1, 1993. For
purposes of the previous sentence, in the
case of a State that has a 2-year legislative
session, each year of such session shall be
deemed to be a separate regular session of
the State legislature.
(2) APPLICATION OF CONSUMER PROTECTION
TO ALL PLANS.—Each State shall submit to the Sec-
retary, by not later than 4 years after the date
standards are established under subsection (a), a re-
port on the implementation and enforcement of the
standards established under subparagraphs (D) and
(E) subsection (a)(1) with respect to small employer
health benefit plans renewed not later than 4 years
after the date such standards were established.
(3) MORE STRINGENT STATE STANDARDS PER-
MITTED.—A State may implement standards that
are more stringent than the standards established
under subsection (a).
(4) ENFORCEMENT.—If the Secretary deter-
mines that a State has failed to submit a report by
the deadline under paragraph (1) or (2) or finds
that the State no longer is carrying out its respon-
sibility under the respective paragraph, the Sec-
retary shall notify the State and provide the State
a period of 30 days in which to submit such report
or to carry out its responsibilities under the respec-
100
tive paragraph. If, after such 30-day period, the Sec-
retary finds that such a failure has not been cor-
rected, the Secretary shall provide for such mecha-
nism for the implementation and enforcement of the
standards established under subsection (a) in the
State as the Secretary determines to be appropriate.
Such standards shall apply to health benefit plans
offered or renewed on or after 3 months after the
applicable deadlines established under subpara-
graphs (A) through (C) of subsection (a)(3).
SEC. 402. PREEMPTION OF STATE BENEFITS MANDATES
FOR PLANS THAT MEET CONSUMER PROTEC-
TION STANDARDS.
(a) FINDING.—Congress finds that health benefit
plans offered with respect to small employers affect inter-
state commerce.
(b) PREEMPTION.—In the case of a small employer
health benefit plan that meets the standards with respect
to the requirements referred to in subparagraphs (D) and
(E) of section 401(a)(1), no provision of State law shall
apply that requires the offering, as part of the health ben-
efit plan with respect to such an employer, of any services,
category of care, or services of any class or type of pro-
vider.
101
SEC. 403. REQUIREMENT FOR OFFERING OF BASIC, LOW
COST PLAN (MEDEQUITY PLAN).
(a) IN GENERAL.—Each small employer carrier
which makes available in a State any small employer
health benefit plan shall make available to each small em-
ployer in the State a MedEquity plan (as defined in sub-
section (b)).
(b) MEDEQUITY PLAN DEFINED.—
(1) IN GENERAL.—In this title, except as pro-
vided in paragraph (2), the term ‘‘MedEquity plan’’
means a health benefits plan that—
(A) is designed to provide only basic hos-
pital, medical, and surgical benefits, specified
under standards under section 401(a)(1)(B), so
as to make it affordable to small employers;
(B) is guaranteed issue (as described in
subsection (c));
(C) meets the standards established under
subparagraphs (D) and (E) section 401(a)(1)
(relating to the requirements of sections 404
and 405); and
(D) provides for cost-containment in ac-
cordance with the model made applicable under
subsection (d) in the State in which the plan is
issued.
102
(2) SPECIAL
RULES
FOR
HEALTH
MAINTE-
NANCE ORGANIZATIONS.—With respect to a carrier
that is a Federally-qualified health maintenance or-
ganization (as defined in section 1301(a) of the Pub-
lic Health Service Act), the term ‘‘MedEquity plan’’
means a plan of the type described in paragraph (1)
but with benefits that are consistent with the re-
quirements for the plans of such an organization
under title XIII of such Act. With respect to a car-
rier that is not such a Federally-qualified health
maintenance organization but which is recognized
under State law as a health maintenance organiza-
tion, the term ‘‘MedEquity plan’’ means a plan of
the type described in paragraph (1) but with bene-
fits that are consistent with the requirements of
State law for the plans of such an organization.
(3) REVIEW
OF
MINIMUM
BENEFIT
STAND-
ARDS.—The NAIC is requested to periodically review
the standards for minimum benefits described in
paragraph (1)(A). The NAIC is requested to submit
to the Secretary and the Congress its recommenda-
tions on changes that should be made in such stand-
ards.
(c) GUARANTEED ISSUE FOR MEDEQUITY PLANS.—
103
(1) IN GENERAL.—Each MedEquity plan in a
State—
(A) subject to paragraph (2), must accept
every small employer in the State that applies
for coverage under the plan;
(B) subject to paragraphs (2) and (3),
must accept for enrollment every individual who
is a full-time employee (or, in the case of family
enrollment with respect to such an employee,
the employee’s spouse and the employee’s de-
pendents who are under 19 years of age or who
are full-time students and under 21 years of
age) who applies for enrollment on a timely
basis; and
(C) subject to paragraphs (2) and (3), may
not place any restriction on the eligibility of an
individual to enroll, so long as such an individ-
ual is a full-time employee or the employee’s
spouse or dependent described in subparagraph
(B).
(2) SPECIAL
RULES
FOR
HEALTH
MAINTE-
NANCE
ORGANIZATIONS.—In 
the 
case 
of 
a
MedEquity plan offered by a health maintenance or-
ganization, the plan shall—
104
(A) limit the employers that may apply for
coverage to those with eligible individuals resid-
ing in the service area of the plan,
(B) limit the individuals who may be en-
rolled under the plan to those who reside in the
service area of the plan, and
(C) within the service area of the plan,
deny coverage to such employers if the plan
demonstrates that—
(i) it will not have the capacity to de-
liver services adequately to enrollees of any
additional groups because of its obligations
to existing group contract holders and en-
rollees, and
(ii) it is applying this subparagraph
uniformly to all employers without regard
to the health status, claims experience, or
duration of coverage of those employers
and their employees.
(3) EXCEPTION FOR CERTAIN LATE ENROLL-
EES.—
(A) IN GENERAL.—Except as provided in
this paragraph, paragraph (1)(B) shall not
apply to an eligible employee or dependent who
fails to enroll in a health benefit plan during an
105
initial enrollment period, if such period is at
least 30 days long.
(B) EXCEPTION
FOR
THOSE
WITH
PRE-
VIOUS
EMPLOYER
COVERAGE.—Subparagraph
(A) shall not apply to an individual who—
(i) was covered under another em-
ployer health benefit plan at the time of
the individual’s initial enrollment period,
(ii) stated at the time of initial enroll-
ment period that coverage under another
employer health benefit plan was the rea-
son for declining enrollment,
(iii) lost coverage under another em-
ployer health benefit plan as a result of
termination of employment, the termi-
nation of the other plan’s coverage, death
of a spouse, or divorce, and
(iv) requests enrollment within 30
days after termination of coverage under
another employer health benefit plan.
(C) 
EXCEPTION
FOR
OPEN
ENROLL-
MENT.—Subparagraph (A) shall not apply to
an individual who—
(i) is employed by an employer which
offers multiple health benefit plans, and
106
(ii) elects a different plan during an
open enrollment period.
(D) EXCEPTION
FOR
COURT
ORDERS.—
Subparagraph (A) shall not apply to a spouse
or minor child if a court has ordered coverage
be provided for the spouse or child under a cov-
ered employee’s health benefit plan and request
for such coverage is made within 30 days after
issuance of such court order.
(d) COST CONTAINMENT STANDARDS.—
(1) DEVELOPMENT OF MODELS.—
(A) ROLE OF NAIC.—The Secretary shall
request the NAIC to develop, within 1 year
after the date of the enactment of this Act,
models 
for 
cost-containment 
features 
in
MedEquity plans. Such models shall include a
managed care plan (described in paragraph (3))
and any combination of such models the NAIC
finds appropriate. If the NAIC develops such
models within such period, the Secretary shall
review such models to determine if they provide
for effective cost-containment. Such review shall
be completed within 6 months after the date the
models are developed. Unless the Secretary de-
termines within such period that such a model
107
does not provide effective cost-containment,
such remaining models shall serve as the mod-
els under this subsection.
(B) CONTINGENCY.—If the NAIC does not
develop such models within such period or the
Secretary determines that all such models do
not provide for effective cost-containment, the
Secretary shall inform the NAIC of the specific
deficiencies and request the NAIC to develop
such models in conformity with paragraph (1).
(2) SELECTION OF COST-CONTAINMENT MODEL
BY STATE.—By not later than 2 years after the date
of the enactment of this Act, each State shall specify
the cost-containment model (developed under para-
graph (1)) that will be applied under subsection (a)
to MedEquity plans issued in the State.
(3) MANAGED CARE PLAN DEFINED.—For pur-
poses of paragraph (1), the term ‘‘managed care
plan’’ includes (but is not limited to) any plan
that—
(A) arranges with selected providers for
the furnishing of health care services,
(B) provides explicit standards for the se-
lection of such providers,
108
(C) has formal programs for ongoing qual-
ity assurance and utilization review, and
(D) provides significant financial incentives
for beneficiaries to use providers and proce-
dures associated with the plan.
SEC. 404. REQUIREMENTS RELATING TO INITIAL WRITING
OF POLICIES.
(a) LIMITATIONS ON TREATMENT OF PRE-EXISTING
CONDITIONS.—
(1) IN GENERAL.—A carrier may not impose
(or require an employer to impose through a waiting
period for coverage under a health benefit policy or
similar requirement) a limitation or exclusion of ben-
efits under a small employer health benefit plan re-
lating to treatment of a condition based on the fact
that the condition pre-existed the effectiveness of the
policy if—
(A) the condition relates to a condition
that did not exist within 6 months before the
date of coverage under the plan, or
(B) the limitation or exclusion extends over
more than 12 months after the date of coverage
under the plan.
(2) PREVIOUS SATISFACTION OF PRE-EXISTING
CONDITION REQUIREMENT.—
109
(A) IN GENERAL.—In addition, each car-
rier shall waive any period applicable to a pre-
existing condition for similar benefits with re-
spect to an individual to the extent that the in-
dividual was covered for the condition under a
small employer health benefit plan that was in
effect before the date of the enrollment under
the carrier’s plan.
(B) CONTINUOUS COVERAGE REQUIRED.—
Subparagraph (A) shall no longer apply if there
is a continuous period of more than 60 days on
which the individual was not covered under an
employer health benefit plan.
(b) LIMITS ON PREMIUMS.—
(1) LIMIT ON VARIATION OF INDEX RATES BE-
TWEEN BLOCKS OF BUSINESS.—
(A) IN GENERAL.—As a standard under
section 402, the index rate for a rating period
for any block of business of a small employer
carrier may not exceed the index rate for any
other block of business by more than 20 per-
cent.
(B) 
EXCEPTIONS.—Subparagraph 
(A)
shall not apply to a block of business if—
110
(i) the block is one for which the car-
rier does not reject, and never has rejected,
small employers included within the defini-
tion of employers eligible for the block of
business or otherwise eligible employees
and dependents who enroll on a timely
basis, based upon their claim experience or
health status,
(ii) the carrier does not involuntarily
transfer, and never has involuntarily trans-
ferred, a health benefit plan into or out of
the block of business, and
(iii) the block of business is currently
available for purchase.
(2) LIMIT ON VARIATION OF PREMIUM RATES
WITHIN
A
BLOCK
OF
BUSINESS.—For a block of
business of a small employer carrier, as a standard
under section 402 the premium rates charged during
a rating period to small employers with similar de-
mographic or other relevant characteristics (not re-
lating to claims experience, health status, or dura-
tion of coverage) for the same or similar coverage,
or the rates which could be charged to such employ-
ers under the rating system for that block of busi-
111
ness, shall not vary from the index rate by more
than 25 percent of the index rate.
(3) LIMIT
ON
PERMISSIBLE
RATE
VARI-
ATIONS.—Subject to paragraphs (1) and (2), as a
standard under section 402, a carrier may establish
rate variations based on factors such as geography,
demography, and industry and plan design.
(4) LIMIT
ON
TRANSFER
OF
EMPLOYERS
AMONG BLOCKS OF BUSINESS.—As a standard under
section 402, a small employer carrier may not invol-
untarily transfer a small employer into or out of a
block of business. A small employer carrier may not
offer to transfer a small employer into or out of a
block of business unless such offer is made to trans-
fer all small employers in the block of business with-
out regard to demographic characteristics, claim ex-
perience, health status, or duration since issue.
(5) DEFINITIONS.—In this subsection:
(A) BASE
PREMIUM
RATE.—The term
‘‘base premium rate’’ means, for each block of
business for each rating period, the lowest pre-
mium rate charged or which could have been
charged under a rating system for that block of
business by the small employer carrier to small
employers with similar demographic or other
112
relevant characteristics (not relating to claims
experience, health status, or duration of cov-
erage) for health benefit plans with the same or
similar coverage.
(B) BLOCK
OF
BUSINESS.—The term
‘‘block of business’’ means, with respect to a
carrier, all (or a distinct group of) small em-
ployers as shown on the records of the carrier.
(C) RULES FOR ESTABLISHING BLOCKS OF
BUSINESS.—For purposes of subparagraph
(B)—
(i) a carrier may establish, subject to
clause (ii), a distinct group of small em-
ployers on the basis that the applicable
health benefit plans either—
(I) 
are 
marketed 
and 
sold
through individuals and organizations
which are not participating in the
marketing or sale of other distinct
groups of small employers for the car-
rier,
(II) have been acquired from an-
other carrier as a distinct group, or
(III) are provided through an as-
sociation with membership of not less
113
than 100 small employers which has
been formed for purposes other than
obtaining insurance;
(ii) a carrier may not establish more
than 2 groupings under each block of busi-
ness because the carrier uses managed-care
techniques which are expected to produce
substantial variation in health care costs;
and
(iii) notwithstanding clauses (i) and
(ii), a Commissioner of Insurance of a
State may, upon application, approve addi-
tional distinct groups upon a finding that
such approval would enhance the efficiency
and fairness of the small employer market-
place.
(D) INDEX RATE.—The term ‘‘index rate’’
means, with respect to a block of business, the
arithmetic average of the applicable base pre-
mium rate and the corresponding highest pre-
mium rate for the block.
(c) FULL DISCLOSURE OF RATING PRACTICES.—At
the time a carrier offers a health benefit plan to a small
employer, the carrier shall fully disclose to the employer
rating practices for small employer health benefit plans,
114
including rating practices for different industries, popu-
lations, and benefit designs.
(d) ACTUARIAL CERTIFICATION.—Each carrier shall
file annually with the State commissioner of insurance a
written statement by a member of the American Academy
of Actuaries (or other individual acceptable to the commis-
sioner) that, based upon an examination by the individual
which includes a review of the appropriate records and of
the actuarial assumptions of the carrier and methods used
by the carrier in establishing premium rates for applicable
small employer health benefit plans—
(1) the carrier is in compliance with the appli-
cable provisions of this section, and
(2) the rating methods are actuarially sound.
Each carrier shall retain a copy of such statement for ex-
amination at its principal place of business.
(e) REGISTRATION AND REPORTING.—Each carrier
that issues any small employer health benefit plan in a
State shall be registered or licensed with the State com-
missioner of insurance and shall comply with any report-
ing requirements of the commissioner relating to such a
plan.
(f) USE
OF MINIMUM PARTICIPATION REQUIRE-
MENT.—A carrier may condition issuance, or renewal, of
a health benefit plan to a small employer on the enroll-
115
ment of a minimum number (or percentage) of its full-
time employees, in accordance with standards established
to carry out this section. Such standards shall require that
any such conditions be imposed uniformly on employers
of the same size.
SEC. 405. REQUIREMENTS RELATING TO RENEWAL.
(a) RENEWABILITY.—A carrier may not cancel a
small employer health benefit plan or deny renewal of cov-
erage under such a plan other than—
(1) for nonpayment of premiums,
(2) for fraud or other misrepresentation by the
insured,
(3) for noncompliance with plan provisions,
(4) for failure to maintain (in accordance with
standards established under section 404(f)) the
number of enrollees under the plan at the number
(or percentage) required under the plan,
(5) for misuse of a provider network provision,
or
(6) because the carrier is ceasing to provide any
small employer health benefit plan in a State, or, in
the case of a health maintenance organization, in a
geographic area.
(b) LIMITATION ON PREMIUM INCREASES.—A carrier
may not provide for an increase in the premium charged
116
a small employer for a small employer health benefit plan
in a percentage greater than such percentage as shall be
specified in standards referred to in section 401(a)(1)(E).
Such standards shall take into account increases in pre-
miums charged for new coverage of small employers under
the plan.
(c) LIMITATION ON MARKET REENTRY.—If a carrier
terminates the offering of health benefit plans to small
employers in an area, the carrier may not offer such a
health benefit plan to any small employer in the area until
5 years have elapsed since the date of the termination.
SEC. 406. ESTABLISHMENT OF REINSURANCE MECHANISMS
FOR HIGH RISK INDIVIDUALS.
(a) ESTABLISHMENT OF STANDARDS.—
(1) ROLE OF NAIC.—The Secretary shall re-
quest the NAIC to develop, within 1 year after the
date of the enactment of this Act, models for rein-
surance mechanisms (each in this section referred to
as the ‘‘reinsurance mechanism’’) for individuals and
small employers who are enrolled under a small em-
ployer health benefit plan that meets the standards
with respect to the requirements referred to in sub-
paragraphs (D) and (E) of section 401(a)(1) and for
whom a carrier is at risk of incurring high costs
117
under the plan. Such models shall include models
based on each of the following:
(A) A voluntary prospective reinsurance
option.
(B) A retrospective reinsurance option.
(C) An allocation option.
(D) A pooled employee option.
(E) A designated carrier option.
(F) A mandatory reinsurance option.
If the NAIC develops such models within such pe-
riod, the Secretary shall review such models to deter-
mine if they provide for an effective reinsurance
mechanism. Such review shall be completed within 6
months after the date the models are developed. Un-
less the Secretary determines within such period
that such a model is not an effective reinsurance
mechanism, such remaining models shall serve as
the models under this section.
(2) CONTINGENCY.—If the NAIC does not de-
velop such models within such period or the Sec-
retary determines that all such models do not pro-
vide for an effective reinsurance mechanism, the
Secretary shall inform the NAIC of the specific defi-
ciencies and request the NAIC to develop such mod-
els in conformity with paragraph (1).
132
SEC. 502. APPLICATION OF STANDARDS.
(a) IN GENERAL.—If the Secretary determines, at
the end of the 2-year period beginning on the date that
standards are adopted under section 501 with respect to
classes of services, that a significant number of claims for
benefits for such services under health benefit plans are
not being submitted in accordance with such standards,
the Secretary may require, after notice in the Federal
Register of not less than 6 months, that all providers of
such services must submit claims to health benefit plans
in accordance with such standards. The Secretary may
waive the application of such a requirement in such cases
as the Secretary finds that the imposition of the require-
ment would not be economically practicable.
(b) SIGNIFICANT NUMBER.—The Secretary shall
make an affirmative determination described in subsection
(a) for a class of services only if the Secretary finds that
there would be a significant, measurable additional gain
in efficiencies in the health care system that would be ob-
tained by imposing the requirement described in such
paragraph with respect to such services.
(c) APPLICATION OF REQUIREMENT.—
(1) IN GENERAL.—If the Secretary imposes the
requirement under subsection (a)—
(A) in the case of a requirement that im-
poses the standards relating to electronic trans-
133
mission of claims for a class of services, each
health care provider that furnishes such services
for which benefits are payable under a health
benefit plan shall transmit electronically and di-
rectly to the plan on behalf of the beneficiary
involved a claim for such services in accordance
with such standards;
(B) any health benefit plan may reject any
claim subject to the standards adopted under
section 501 but which is not submitted in ac-
cordance with such standards;
(C) it is unlawful for a health benefit plan
(i) to reject any such claim on the basis of the
form in which it is submitted if it is submitted
in accordance with such standards or (ii) to re-
quire, for the purpose of utilization review or as
a condition of providing benefits under the plan,
a provider to transmit medical data elements
that are inconsistent with the standards estab-
lished under section 501(a)(1); and
(D) the Secretary may impose a civil
money penalty on any provider that knowingly
and repeatedly submits claims in violation of
such standards or on any health benefit plan
(other than a health benefit plan described in