I
104TH CONGRESS
1ST SESSION
H. R. 1457
To amend the Internal Revenue Code of 1986 and the Social Security Act
to provide tax benefits with respect to long-term care insurance contracts
that satisfy certain requirements.
IN THE HOUSE OF REPRESENTATIVES
APRIL 6, 1995
Mr. STARK (for himself and Mr. KLECZKA) introduced the following bill;
which was referred to the Committee on Ways and Means, and in addi-
tion to the Committee on Commerce, for a period to be subsequently de-
termined by the Speaker, in each case for consideration of such provisions
as fall within the jurisdiction of the committee concerned
A BILL
To amend the Internal Revenue Code of 1986 and the Social
Security Act to provide tax benefits with respect to long-
term care insurance contracts that satisfy certain re-
quirements.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
TITLE I—TAX TREATMENT OF
LONG-TERM 
CARE 
INSUR-
ANCE AND SERVICES
SECTION 101. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in
this title an amendment or repeal is expressed in terms
of an amendment to, or repeal of, a section or other provi-
sion, the reference shall be considered to be made to a
section or other provision of the Internal Revenue Code
of 1986.
SEC. 102. TREATMENT OF LONG-TERM CARE INSURANCE.
(a) GENERAL RULE.—Chapter 79 (relating to defini-
tions) is amended by inserting after section 7702A the fol-
lowing new section:
‘‘SEC. 7702B. TREATMENT OF LONG-TERM CARE INSUR-
ANCE.
‘‘(a) IN GENERAL.—For purposes of this title—
‘‘(1) a long-term care insurance contract shall
be treated as an accident and health insurance con-
tract,
‘‘(2) amounts (other than policyholder divi-
dends, as defined in section 808, or premium re-
funds) received under a long-term care insurance
contract shall be treated as amounts received for
personal injuries and sickness and shall be treated
as reimbursement for expenses actually incurred for
medical care (as defined in section 213(d)),
‘‘(3) any plan of an employer providing cov-
erage under a long-term care insurance contract
shall be treated as an accident and health plan with
respect to such coverage,
‘‘(4) except as provided in subsection (d)(3),
amounts paid for a long-term care insurance con-
tract providing the benefits described in subsection
(b)(2)(A) shall be treated as payments made for in-
surance for purposes of section 213(d)(1)(D), and
‘‘(5) a long-term care insurance contract shall
be treated as a guaranteed renewable contract sub-
ject to the rules of section 816(e).
‘‘(b) LONG-TERM CARE INSURANCE CONTRACT.—
For purposes of this title—
‘‘(1) IN GENERAL.—The term ‘long-term care
insurance contract’ means any insurance contract
if—
‘‘(A) the only insurance protection pro-
vided under such contract is coverage of quali-
fied long-term care services,
‘‘(B) such contract does not pay or reim-
burse expenses incurred for services or items to
the extent that such expenses are reimbursable
under title XVIII of the Social Security Act or
would be so reimbursable but for the applica-
tion of a deductible or coinsurance amount,
‘‘(C) such contract is guaranteed renew-
able,
‘‘(D) such contract does not provide for a
cash surrender value or other money that can
be—
‘‘(i) paid, assigned, or pledged as col-
lateral for a loan, or
‘‘(ii) borrowed,
other than as provided in subparagraph (E) or
paragraph (2)(C),
‘‘(E) all refunds of premiums, and all pol-
icyholder dividends or similar amounts, under
such contract are to be applied as a reduction
in future premiums or to increase future bene-
fits, and
‘‘(F) the State in which such contract is is-
sued has a regulatory program approved by the
Secretary of Health and Human Services under
title XXI of the Social Security Act and such
contract is certified under such program.
‘‘(2) SPECIAL RULES.—
‘‘(A) PER
DIEM, ETC. PAYMENTS
PER-
MITTED.—A contract shall not fail to be de-
scribed in subparagraph (A) or (B) of para-
graph (1) by reason of payments being made on
a per diem or other periodic basis without re-
gard to the expenses incurred during the period
to which the payments relate.
‘‘(B) SPECIAL RULES RELATING TO MEDI-
CARE.—
‘‘(i) Paragraph (1)(B) shall not apply
to expenses which are reimbursable under
title XVIII of the Social Security Act only
as a secondary payor.
‘‘(ii) No provision of law shall be con-
strued or applied so as to prohibit the of-
fering of a long-term care insurance con-
tract on the basis that the contract coordi-
nates its benefits with those provided
under such title.
‘‘(C) REFUNDS OF PREMIUMS.—Paragraph
(1)(E) shall not apply to any refund on the
death of the insured, or on a complete surren-
der or cancellation of the contract, which can-
not exceed the aggregate premiums paid under
the contract. Any refund on a complete surren-
der or cancellation of the contract shall be in-
cludible in gross income to the extent that any
deduction or exclusion was allowable with re-
spect to the premiums.
‘‘(c) QUALIFIED LONG-TERM CARE SERVICES.—For
purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified long-
term care services’ means necessary diagnostic, pre-
ventive, therapeutic, curing, treating, mitigating, and
rehabilitative services, and maintenance or personal
care services, which—
‘‘(A) are required by a chronically ill indi-
vidual, and
‘‘(B) are provided pursuant to a plan of
care prescribed by a licensed health care practi-
tioner.
‘‘(2) CHRONICALLY ILL INDIVIDUAL.—
‘‘(A) IN GENERAL.—The term ‘chronically
ill individual’ means any individual who has
been certified by a licensed health care practi-
tioner as—
‘‘(i) being unable to perform (without
substantial assistance from another indi-
vidual) at least 2 activities of daily living
for a period of at least 90 days due to a
loss of functional capacity or to cognitive
impairment, or
‘‘(ii) having a level of disability simi-
lar (as determined by the Secretary in con-
sultation with the Secretary of Health and
Human Services) to the level of disability
described in clause (i).
Such term shall not include any individual oth-
erwise meeting the requirements of the preced-
ing sentence unless within the preceding 12-
month period a licensed health care practitioner
has certified that such individual meets such re-
quirements.
‘‘(B) ACTIVITIES OF DAILY LIVING.—For
purposes of subparagraph (A), each of the fol-
lowing is an activity of daily living:
‘‘(i) Eating.
‘‘(ii) Toileting.
‘‘(iii) Transferring.
‘‘(iv) Bathing.
‘‘(v) Dressing.
‘‘(vi) Continence.
Nothing in this section shall be construed to re-
quire a contract to take into account all of the
preceding activities of daily living.
‘‘(3) MAINTENANCE OR PERSONAL CARE SERV-
ICES.—The term ‘maintenance or personal care serv-
ices’ means any care the primary purpose of which
is the provision of needed assistance with any of the
disabilities as a result of which the individual is a
chronically ill individual (including the protection
from threats to health and safety due to severe cog-
nitive impairment).
‘‘(4) 
LICENSED
HEALTH
CARE
PRACTI-
TIONER.—The term ‘licensed health care practi-
tioner’ means any physician (as defined in section
1861(r)(1) of the Social Security Act) and any reg-
istered professional nurse, licensed social worker, or
other individual who meets such requirements as
may be prescribed by the Secretary.
‘‘(d) TREATMENT OF COVERAGE PROVIDED AS PART
OF A LIFE INSURANCE CONTRACT.—Except as otherwise
provided in regulations prescribed by the Secretary, in the
case of any long-term care insurance coverage (whether
or not qualified) provided by a rider on a life insurance
contract—
‘‘(1) IN GENERAL.—This section shall apply as
if the portion of the contract providing such cov-
erage is a separate contract.
‘‘(2) 
APPLICATION
OF
7702.—Section
7702(c)(2) (relating to the guideline premium limi-
tation) shall be applied by increasing the guideline
premium limitation with respect to a life insurance
contract, as of any date—
‘‘(A) by the sum of any charges (but not
premium payments) against the life insurance
contract’s cash surrender value (within the
meaning of section 7702(f)(2)(A)) for such cov-
erage made to that date under the contract, less
‘‘(B) any such charges the imposition of
which reduces the premiums paid for the con-
tract 
(within 
the 
meaning 
of 
section
7702(f)(1)).
‘‘(3) APPLICATION OF SECTION 213.—No deduc-
tion shall be allowed under section 213(a) for
charges against the life insurance contract’s cash
surrender value described in paragraph (2), unless
such charges are includible in income as a result of
the application of section 72(e)(10) and the rider is
a long-term care insurance contract under sub-
section (b).
‘‘(4) PORTION DEFINED.—For purposes of this
subsection, the term ‘portion’ means only the terms
and benefits under a life insurance contract that are
in addition to the terms and benefits under the con-
tract without regard to the coverage under a long-
term care insurance contract.’’
(b) RESERVE
METHOD.—Clause (iii) of section
807(d)(3)(A) is amended by inserting ‘‘(other than a long-
term care insurance contract, as defined in section
7702B(b))’’ after ‘‘insurance contract’’.
(c) LONG-TERM CARE INSURANCE NOT PERMITTED
UNDER CAFETERIA PLANS OR FLEXIBLE SPENDING AR-
RANGEMENTS.—
(1) CAFETERIA
PLANS.—Section 125(f) is
amended by adding at the end the following new
sentence: ‘‘Such term shall not include any long-
term care insurance contract (as defined in section
7702B(b)).’’
(2) FLEXIBLE
SPENDING
ARRANGEMENTS.—
The text of section 106 (relating to contributions by
employer to accident and health plans) is amended
to read as follows:
‘‘(a) GENERAL RULE.—Except as provided in sub-
section (b), gross income of an employee does not include
employer-provided coverage under an accident or health
plan.
‘‘(b) INCLUSION OF LONG-TERM CARE BENEFITS
PROVIDED THROUGH FLEXIBLE SPENDING ARRANGE-
MENTS.—
‘‘(1) IN GENERAL.—Effective on and after Jan-
uary 1, 1997, gross income of an employee shall in-
clude employer-provided coverage for qualified long-
term care services (as defined in section 7702B(c))
to the extent that such coverage is provided through
a flexible spending or similar arrangement.
‘‘(2) FLEXIBLE
SPENDING
ARRANGEMENT.—
For purposes of this subsection, a flexible spending
arrangement is a benefit program which provides
employees with coverage under which—
‘‘(A) specified incurred expenses may be
reimbursed (subject to reimbursement maxi-
mums and other reasonable conditions), and
‘‘(B) the maximum amount of reimburse-
ment which is reasonably available to a partici-
pant for such coverage is less than 500 percent
of the value of such coverage.
In the case of an insured plan, the maximum
amount reasonably available shall be determined on
the basis of the underlying coverage.’’
(d) CONTINUATION COVERAGE EXCISE TAX NOT TO
APPLY.—Subsection (f) of section 4980B is amended by
adding at the end the following new paragraph:
‘‘(9) CONTINUATION OF LONG-TERM CARE COV-
ERAGE NOT REQUIRED.—A group health plan shall
not be treated as failing to meet the requirements of
this subsection solely by reason of failing to provide
coverage under any long-term care insurance con-
tract (as defined in section 7702B(b)).’’
(e) AMOUNTS PAID TO RELATIVES TREATED AS NOT
PAID FOR MEDICAL CARE.—Section 213(d) is amended
by adding at the end the following new paragraph:
‘‘(10) CERTAIN
PAYMENTS
TO
RELATIVES
TREATED AS NOT PAID FOR MEDICAL CARE.—An
amount paid for a qualified long-term care service
(as defined in section 7702B(c)) provided to an indi-
vidual shall be treated as not paid for medical care
if such service is provided—
‘‘(A) by a relative (directly or through a
partnership, corporation, or other entity) unless
the relative is a licensed professional with re-
spect to such services, or
‘‘(B) by a corporation or partnership which
is related (within the meaning of section 267(b)
or 707(b)) to the individual.
For purposes of this paragraph, the term ‘relative’
means an individual bearing a relationship to the in-
dividual which is described in any of paragraphs (1)
through (8) of section 152(a). This paragraph shall
not apply for purposes of section 105(b) with respect
to reimbursements through insurance.’’
(f) CLERICAL AMENDMENT.—The table of sections
for chapter 79 is amended by inserting after the item re-
lating to section 7702A the following new item:
‘‘Sec. 7702B. Treatment of long-term care insurance.’’.
(g) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to contracts issued after De-
cember 31, 1996.
(2) CONTINUATION OF EXISTING POLICIES.—In
the case of any contract issued before January 1,
1997, which met the long-term care insurance re-
quirements of the State in which the contract was
issued at the time the contract was issued—
(A) such contract shall be treated for pur-
poses of the Internal Revenue Code of 1986 as
a long-term care insurance contract (as defined
in section 7702B(b) of such Code), and
(B) services provided under, or reimbursed
by, such contract shall be treated for such pur-
poses as qualified long-term care services (as
defined in section 7702B(c) of such Code).
(3) EXCHANGES
OF
EXISTING
POLICIES.—If,
after the date of enactment of this Act and before
January 1, 1997, a contract providing for long-term
care insurance coverage is exchanged solely for a
long-term care insurance contract (as defined in sec-
tion 7702B(b) of such Code), no gain or loss shall
be recognized on the exchange. If, in addition to a
long-term care insurance contract, money or other
property is received in the exchange, then any gain
shall be recognized to the extent of the sum of the
money and the fair market value of the other prop-
erty received. For purposes of this paragraph, the
cancellation of a contract providing for long-term
care insurance coverage and reinvestment of the can-
cellation proceeds in a long-term care insurance con-
tract within 60 days thereafter shall be treated as
an exchange.
(4) ISSUANCE
OF
CERTAIN
RIDERS
PER-
MITTED.—For purposes of applying sections 101(f),
7702, and 7702A of the Internal Revenue Code of
1986 to any contract—
(A) the issuance of a rider which is treated
as a long-term care insurance contract under
section 7702B, and
(B) the addition of any provision required
to conform any other long-term care rider to be
so treated,
shall not be treated as a modification or material
change of such contract.
SEC. 103. QUALIFIED LONG-TERM CARE SERVICES TREAT-
ED AS MEDICAL CARE.
(a) GENERAL RULE.—Paragraph (1) of section
213(d) (defining medical care) is amended by striking
‘‘or’’ at the end of subparagraph (B), by redesignating
subparagraph (C) as subparagraph (D), and by inserting
after subparagraph (B) the following new subparagraph:
‘‘(C) for qualified long-term care services
(as defined in section 7702B(c)), or’’.
(b) TECHNICAL AMENDMENTS.—
(1) Subparagraph (D) of section 213(d)(1) (as
redesignated by subsection (a)) is amended by strik-
ing ‘‘subparagraphs (A) and (B)’’ and inserting
‘‘subparagraphs (A), (B), and (C)’’.
(2)(A) Paragraph (1) of section 213(d) is
amended by adding at the end the following new
flush sentence:
‘‘In the case of a long-term care insurance contract
(as defined in section 7702B(b)), only eligible long-
term care premiums (as defined in paragraph (11))
shall be taken into account under subparagraph
(D).’’
(B) Subsection (d) of section 213 is amended
by adding at the end the following new paragraph:
‘‘(11) 
ELIGIBLE
LONG-TERM
CARE
PRE-
MIUMS.—
‘‘(A) IN GENERAL.—For purposes of this
section, the term ‘eligible long-term care pre-
miums’ means the amount paid during a tax-
able year for any long-term care insurance con-
tract (as defined in section 7702B(b)) covering
an individual, to the extent such amount does
not exceed the limitation determined under the
following table:
‘‘In the case of an individual
with an attained age before the
The limitation
close of the taxable year of:
is:
40 or less ...................................................................
$
200
More than 40 but not more than 50 .........................
375
More than 50 but not more than 60 .........................
750
More than 60 but not more than 70 .........................
2,000
More than 70 .............................................................
2,500.
‘‘(B) INDEXING.—
‘‘(i) IN GENERAL.—In the case of any
taxable year beginning in a calendar year
after 1997, each dollar amount contained
in subparagraph (A) shall be increased by
the medical care cost adjustment of such
amount for such calendar year. If any in-
crease determined under the preceding sen-
tence is not a multiple of $10, such in-
crease shall be rounded to the nearest mul-
tiple of $10.
‘‘(ii) MEDICAL
CARE
COST
ADJUST-
MENT.—For purposes of clause (i), the
medical care cost adjustment for any cal-
endar year is the percentage (if any) by
which—
‘‘(I) the medical care component
of the Consumer Price Index (as de-
fined in section 1(f)(5)) for August of
the preceding calendar year, exceeds
‘‘(II) such component for August
of 1996.
The Secretary shall, in consultation with
the Secretary of Health and Human Serv-
ices, prescribe an adjustment which the
Secretary determines is more appropriate
for purposes of this paragraph than the
adjustment described in the preceding sen-
tence, and the adjustment so prescribed
shall apply in lieu of the adjustment de-
scribed in the preceding sentence.’’
(3) Paragraph (6) of section 213(d) is amend-
ed—
(A) by striking ‘‘subparagraphs (A) and
(B)’’ and inserting ‘‘subparagraphs (A), (B),
and (C)’’, and
(B) by striking ‘‘paragraph (1)(C)’’ in sub-
paragraph 
(A) 
and 
inserting 
‘‘paragraph
(1)(D)’’.
(4) Paragraph (7) of section 213(d) is amended
by striking ‘‘subparagraphs (A) and (B)’’ and insert-
ing ‘‘subparagraphs (A), (B), and (C)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 104. CERTAIN EXCHANGES OF LIFE INSURANCE CON-
TRACTS FOR LONG-TERM CARE INSURANCE
CONTRACTS NOT TAXABLE.
(a) IN GENERAL.—Subsection (a) of section 1035
(relating to certain exchanges of insurance contracts) 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) a contract of life insurance or an endow-
ment or annuity contract for a long-term care insur-
ance contract (as defined in section 7702B(b)).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 105. EXCLUSION FROM GROSS INCOME FOR AMOUNTS
WITHDRAWN FROM CERTAIN RETIREMENT
PLANS FOR LONG-TERM CARE INSURANCE.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 (relating to items specifically excluded from gross
income) is amended by redesignating section 137 as sec-
tion 138 and by inserting after section 136 the following
new section:
‘‘SEC. 137. DISTRIBUTIONS FROM CERTAIN RETIREMENT
PLANS FOR LONG-TERM CARE INSURANCE.
‘‘(a) GENERAL RULE.—The amount which would
(but for this section) be includible in the gross income of
an individual for the taxable year by reason of eligible dis-
tributions during the taxable year shall be reduced (but
not below zero) by the aggregate premiums paid by such
individual during such taxable year for any long-term care
insurance contract (as defined in section 7702B(b)) for
coverage of such individual or the spouse of such individ-
ual.
‘‘(b) ELIGIBLE DISTRIBUTION.—For purposes of this
section, the term ‘eligible distribution’ means any distribu-
tion or payment to an individual from—
‘‘(1) an individual retirement plan of such indi-
vidual,
‘‘(2) amounts attributable to employer contribu-
tions made pursuant to elective deferrals described
in subparagraph (A) or (C) of section 402(g)(3) or
section 501(c)(18)(D)(iii), or
‘‘(3) amounts deferred under section 457(a).’’
(b) CONFORMING AMENDMENTS.—
(1) Section 401(k)(2)(B)(i) is amended by
striking ‘‘or’’ at the end of subclause (III), by strik-
ing ‘‘and’’ at the end of subclause (IV) and inserting
‘‘or’’, and by inserting after subclause (IV) the fol-
lowing new subclause:
‘‘(V) the date distributions for
premiums for a long-term care insur-
ance contract (as defined in section
7702B(b)) for coverage of such indi-
vidual or the spouse of such individual
are made, and’’.
(2) Section 403(b)(11) is amended by striking
‘‘or’’ at the end of subparagraph (A), by striking the
period at the end of subparagraph (B) and inserting
‘‘, or’’, and by inserting after subparagraph (B) the
following new subparagraph:
‘‘(C) for the payment of premiums for a
long-term care insurance contract (as defined in
section 7702B(b)) for coverage of the employee
or the spouse of the employee.’’
(3) Subparagraph (A) of section 457(d)(1) is
amended by striking ‘‘or’’ at the end of clause (ii),
by striking ‘‘and’’ at the end of clause (iii) and in-
serting ‘‘or’’, and by inserting after clause (iii) the
following new clause:
‘‘(iv) the date distributions for pre-
miums for a long-term care insurance con-
tract (as defined in section 7702B(b)) for
coverage of such individual or the spouse
of such individual are made, and’’.
(4) The table of sections for part III of sub-
chapter B of chapter 1 is amended by striking the
last item and inserting the following new items:
‘‘Sec. 137. Distributions from certain retirement plans for long-
term care insurance.
‘‘Sec. 138. Cross references to other Acts.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to payments and distributions after
December 31, 1996.
‘‘(2) LONG-TERM CARE BENEFITS.—The term
‘long-term care benefits’ means payments and other
benefits under long-term care insurance contracts
(as defined in section 7702B(b)) to the extent ex-
cludable from gross income by reason of section
7702B(a)(2).
‘‘(3) EXCLUSION AMOUNT.—
‘‘(A) IN GENERAL.—In the case of long-
term care benefits received by the taxpayer dur-
ing the taxable year by reason of the taxpayer
being a chronically ill individual, the term ‘ex-
clusion amount’ means the aggregate of $200
for each day during such year on which the in-
dividual is a chronically ill individual. In the
case of individuals who are married to each
other and who are both chronically ill individ-
uals, the preceding sentence shall be applied
separately with respect to each spouse.
‘‘(B) OTHER TAXPAYERS.—In the case of
long-term care benefits received during the tax-
able year by a taxpayer by reason of another in-
dividual being a chronically ill individual, the
term ‘exclusion amount’ means so much of such
other individual’s exclusion amount (for such
other individual’s taxable year which begins in
the calendar year in which the taxpayer’s tax-
able year begins) as is allocated by such other
individual to the taxpayer. Such an allocation
shall be made at the time and in the manner
prescribed by the Secretary; and once made,
shall be irrevocable.
‘‘(d) CHRONICALLY ILL INDIVIDUAL.—For purposes
of this section, the term ‘chronically ill individual’ has the
meaning given to such term by section 7702B(c)(2).
‘‘(e) TERMINALLY ILL INDIVIDUAL.—For purposes
of this section:
‘‘(1) TERMINALLY ILL INDIVIDUAL.—The term
‘terminally ill individual’ means an individual who
has been certified by a physician as having an illness
or physical condition which can reasonably be ex-
pected to result in death in 24 months or less after
the date of the certification.
‘‘(2) PHYSICIAN.—The term ‘physician’ has the
meaning given to such term by section 1861(r)(1) of
the Social Security Act (42 U.S.C. 1395x(r)(1)).
‘‘(f) INFLATION ADJUSTMENT
OF $200 BENEFIT
LIMIT.—In the case of a calendar year after 1996, the
$200 amount contained in subsection (c)(3)(A) shall be
increased at the same time and in the same manner as
amounts are increased pursuant to section 213(d)(11).’’
(b) CLERICAL AMENDMENT.—The table of sections
for such part II is amended by adding at the end the fol-
lowing new item:
‘‘Sec. 91. Excess long-term care benefits.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 107. REPORTING REQUIREMENTS.
(a) IN GENERAL.—Subpart B of part III of sub-
chapter A of chapter 61 is amended by adding at the end
the following new section:
‘‘SEC. 6050Q. CERTAIN LONG-TERM CARE BENEFITS.
‘‘(a) REQUIREMENT
OF REPORTING.—Any person
who pays long-term care benefits shall make a return, ac-
cording to the forms or regulations prescribed by the Sec-
retary, setting forth—
‘‘(1) the aggregate amount of such benefits
paid by such person to any individual during any
calendar year, and
‘‘(2) the name, address, and TIN of such indi-
vidual.
‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS
WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—
Every person required to make a return under subsection
(a) shall furnish to each individual whose name is required
to be set forth in such return a written statement show-
ing—
‘‘(1) the name of the person making the pay-
ments, and
‘‘(2) the aggregate amount of long-term care
benefits paid to the individual which are required to
be shown on such return.
The written statement required under the preceding sen-
tence shall be furnished to the individual on or before Jan-
uary 31 of the year following the calendar year for which
the return under subsection (a) was required to be made.
‘‘(c) LONG-TERM CARE BENEFITS.—For purposes of
this section, the term ‘long-term care benefit’ has the
meaning given such term by section 91(c).’’
(b) PENALTIES.—
(1) Subparagraph (B) of section 6724(d)(1) is
amended by redesignating clauses (ix) through (xiv)
as clauses (x) through (xv), respectively, and by in-
serting after clause (viii) the following new clause:
‘‘(ix) section 6050Q (relating to cer-
tain long-term care benefits),’’.
(2) Paragraph (2) of section 6724(d) is amend-
ed by redesignating subparagraphs (Q) through (T)
as subparagraphs (R) through (U), respectively, and
by inserting after subparagraph (P) the following
new subparagraph:
‘‘(Q) section 6050Q(b) (relating to certain
long-term care benefits),’’.
(c) CLERICAL AMENDMENT.—The table of sections
for subpart B of part III of subchapter A of chapter 61
is amended by adding at the end the following new item:
‘‘Sec. 6050Q. Certain long-term care benefits.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to benefits paid after December
31, 1996.
TITLE II—FEDERAL STANDARDS
FOR 
PRIVATE 
LONG-TERM
CARE 
INSURANCE 
CON-
TRACTS
SEC. 201. FEDERAL STANDARDS FOR PRIVATE LONG-TERM
CARE INSURANCE CONTRACTS.
(a) IN GENERAL.—The Social Security Act is amend-
ed by adding at the end the following:
‘‘TITLE XXI—FEDERAL STANDARDS FOR PRI-
VATE LONG-TERM CARE INSURANCE CON-
TRACTS
‘‘SEC. 2101. REQUIREMENTS FOR STATE ENFORCEMENT
PROGRAMS.
‘‘(a) IN GENERAL.—The Secretary shall review, ap-
prove, and periodically reapprove State programs that cer-
tify long-term care insurance contracts as meeting the
Federal standards established under this title. The Sec-
retary may not approve or reapprove such a program un-
less it meets the requirements of this section.
‘‘(b) GENERAL REQUIREMENT.—In order to be ap-
proved, a State program must include such laws and pro-
cedures as may be necessary to ensure the compliance of
long-term care insurance contracts certified by the State,
and insurers issuing such contracts and their agents, with
the Federal requirements established under this title.
‘‘(c) SPECIFIC
ACTIVITIES UNDER
STATE
PRO-
GRAM.—In order to be approved, a State program shall
provide for the following procedures and activities:
‘‘(1) MONITORING
OF
INSURERS
AND
CON-
TRACTS.—Procedures for ongoing monitoring of the
compliance of insurers doing business in the State,
and of long-term care insurance contracts issued in
the State, with requirements under this title.
‘‘(2) 
CONTRACT
REVIEW
AND
CERTIFI-
CATION.—Procedures for review and certification
(and annual recertification) of each such contract
sold in the State.
‘‘(3) CONSUMER
COMPLAINTS
AND
DISPUTE
RESOLUTION.—Administrative procedures for the in-
vestigation and resolution of complaints by consum-
ers, and disputes between consumers and insurers,
with respect to long-term care insurance, including
procedures for the filing, investigation, and adjudica-
tion of consumer complaints with respect to the com-
pliance of insurers and contracts with requirements
under this title, or other requirements under State
law.
‘‘SEC. 2102. REQUIREMENTS TO FACILITATE UNDERSTAND-
ING AND COMPARISON OF BENEFITS.
‘‘(a) IN GENERAL.—The Secretary, in consultation
with the National Association of Insurance Commissioners
(in this title referred to as the ‘NAIC’), shall promulgate
regulations designed to standardize formats and terminol-
ogy used in long-term care insurance contracts, to require
insurers to provide to customers and beneficiaries infor-
mation on the range of public and private long-term care
coverage available, and to establish such other require-
ments as may be appropriate to promote consumer under-
standing and facilitate comparison of benefits, which shall
include at a minimum the requirements specified in this
section.
‘‘(b) UNIFORM TERMS, DEFINITIONS, AND FOR-
MATS.—Insurers shall be required to use, in long-term
care insurance contracts, uniform terminology, definitions
of terms, and formats, in accordance with regulations pro-
mulgated by the Secretary.
‘‘(c) STANDARD OUTLINE OF COVERAGE.—
‘‘(1) IN GENERAL.—Insurers shall be required
to develop for each long-term care insurance con-
tract offered or sold, to include as a part of each
such contract, and to make available to each poten-
tial purchaser and furnish to each insured individual
and contractholder, an outline of coverage under
such contract that—
‘‘(A) includes the elements specified in
paragraph (2),
‘‘(B) is in a uniform format,
‘‘(C) accurately and clearly reflects the
contents of the contract, and
‘‘(D) is updated periodically on such time-
table as may be required by the Secretary (or
more frequently as necessary to reflect signifi-
cant changes in outlined information).
‘‘(2) CONTENTS OF OUTLINE.—The outline of
coverage for each long-term care insurance contract
shall include at least the following:
‘‘(A) BENEFITS.—A description of—
‘‘(i) the principal benefits covered, in-
cluding the extent of—
‘‘(I) benefits for services fur-
nished in residential care facilities,
and
‘‘(II) other benefits,
‘‘(ii) the principal exclusions from and
limitations on coverage,
‘‘(iii) the terms and conditions, if any,
upon which the insured individual may ob-
tain upgraded benefits, and
‘‘(iv) the threshold conditions for enti-
tlement to receive benefits.
‘‘(B) CANCELLATION.—A statement of the
circumstances in which a contract may be ter-
minated, and the refund or nonforfeitures bene-
fits (if any) applicable in each such cir-
cumstance, including—
‘‘(i) death of the insured individual,
‘‘(ii) nonpayment of premiums,
‘‘(iii) election by the insured individ-
ual not to renew,
‘‘(iv) any other circumstance.
‘‘(C) PREMIUM.—A statement of—
‘‘(i) the total annual premium, and
the portion of such premium attributable
to each covered benefit,
‘‘(ii) any reservation by the insurer of
a right to change premiums,
‘‘(iii) any limit on annual premium in-
creases,
‘‘(iv) any expected premium increases
associated with automatic or optional bene-
fit increases (including inflation protec-
tion), and
‘‘(v) any circumstances under which
payment of premium is waived.
‘‘(D) COST/VALUE COMPARISON.—
‘‘(i) Information on average costs
(and variation in such costs) for nursing
facility care (and such other care as the
Secretary may specify) in the United
States, information on the value of benefits
relative to such costs, and a statement that
this national average varies by geographic
region.
‘‘(ii) A comparison of benefits, over a
period of at least 20 years, for contracts
with and without inflation protection.
‘‘(iii) A declaration as to whether the
amount of benefits will increase over time,
and, if so, a statement of the type and
amount of, any limitations on, and any
premium increases for, such benefit in-
creases.
‘‘SEC. 2103. LIMITING CONDITIONS ON BENEFITS.
‘‘(a) IN GENERAL.—A long-term care insurance con-
tract may not—
‘‘(1) condition eligibility for benefits for a type
of service on the need for or receipt of any other
type of service (such as prior hospitalization or insti-
tutionalization, or a higher level of care than the
care for which benefits are covered);
‘‘(2) condition eligibility for any benefit (where
the need for such benefit has been established by an
independent assessment of impairment) on any par-
ticular medical diagnosis (including any acute condi-
tion) or on one of a group of diagnoses;
‘‘(3) condition eligibility for benefits furnished
by licensed or certified providers on compliance by
such providers with conditions not required under
Federal or State law; or
‘‘(4) condition coverage of any service on provi-
sion of such service by a provider, or in a setting,
providing a higher level of care than that required
by an insured individual.
‘‘(b) HOME CARE
OR COMMUNITY-BASED SERV-
ICES.—A long-term care insurance contract that provides
benefits for any home care or community-based services
provided in a setting other than a residential care facil-
ity—
‘‘(1) may not limit such benefits to services pro-
vided by registered nurses or licensed practical
nurses;
‘‘(2) may not limit such benefits to services fur-
nished by persons or entities participating in pro-
grams under titles XVIII and XIX of this Act; and
‘‘(3) must provide, at a minimum, benefits for
personal assistance with activities of daily living,
home health care, adult day care, and respite care.
‘‘(c) NURSING FACILITY SERVICES.—A long-term
care insurance contract that provides benefits for any
nursing facility services—
‘‘(1) must provide benefits for such services
provided by all types of nursing facilities licensed by
the State, and
‘‘(2) may provide benefits for care in other resi-
dential facilities.
‘‘(d) PROHIBITION ON DISCRIMINATION BY DIAG-
NOSIS.—A long-term care insurance contract may not pro-
vide for treatment of—
‘‘(1) Alzheimer’s disease or any other progres-
sive degenerative dementia of an organic origin,
‘‘(2) any organic or inorganic mental illness,
‘‘(3) mental retardation or any other cognitive
or mental impairment, or
‘‘(4) HIV infection or AIDS,
different from the treatment of any other medical
condition for purposes of determining whether
threshold conditions for the receipt of benefits have
been met, or the amount of benefits under the con-
tract.
‘‘SEC. 2104. INFLATION PROTECTION.
‘‘(a) IN GENERAL.—The Secretary, after consulta-
tion with NAIC, shall promulgate regulations establishing
requirements with respect to inflation protection, which
shall include at a minimum the requirements specified in
this section.
‘‘(b) REQUIREMENT TO OFFER.—An insurer offering
for sale any long-term care insurance contract shall be re-
quired to afford the purchaser the option to obtain cov-
erage under such contract (upon payment of increased
premiums) of annual increases in benefits at rates in ac-
cordance with subsection (c).
‘‘(c) RATE INCREASE IN BENEFITS.—For purposes
of subsection (b), the benefits under a contract for each
year shall be increased by a percentage of the full value
of benefits under the contract for the previous year, which
shall be not less than 5 percent of such value (or such
other rate of increase as may be determined by the Sec-
retary to be adequate to offset increases in the costs of
long-term care services for which coverage is provided
under the contract).
‘‘(d) REQUIREMENT OF WRITTEN REJECTION.—In-
flation protection in accordance with subsection (b) may
be excluded from the coverage under a contract only if
the insured individual (or, if different, the person respon-
sible for payment of premiums) has rejected in writing the
option to obtain such coverage.
‘‘SEC. 2105. NONFORFEITURE BENEFITS.
‘‘(a) IN GENERAL.—The Secretary, after consulta-
tion with NAIC, shall promulgate regulations establishing
requirements with respect to nonforfeiture benefits, which
shall include at a minimum the requirements specified in
this section.
‘‘(b) REQUIREMENT.—Each long-term care insurance
contract that lapses for any reason (including nonpayment
of premiums, cancellation, or failure to renew, but exclud-
ing lapses due to death) after remaining in effect beyond
a specified minimum period shall provide for appropriate
nonforfeiture benefits.
‘‘(c) NONFORFEITURE BENEFITS.—The standards
established under this section shall require that the
amount or percentage of nonforfeiture benefits shall in-
crease proportionally with the amount of premiums paid
by a contractholder.
‘‘SEC. 2106. CONTINUATION, RENEWAL, REPLACEMENT,
CONVERSION, AND CANCELLATION OF CON-
TRACTS.
‘‘(a) IN GENERAL.—The Secretary, in consultation
with NAIC, shall promulgate regulations establishing re-
quirements applicable to the renewal, replacement, conver-
sion, and cancellation of long-term care insurance con-
tracts, which shall include at a minimum the requirements
specified in this section.
‘‘(b) INSURED’S RIGHT TO CANCEL DURING EXAM-
INATION PERIOD.—Each individual insured (or, if dif-
ferent, each individual liable for payment of premiums)
under a long-term care insurance contract shall have the
unconditional right to return the contract within 30 days
after the date of its issuance and delivery, and to obtain
a full refund of any premium paid.
‘‘(c) CONTINUATION, RENEWAL, REPLACEMENT, AND
CONVERSION OF CONTRACTS.—
‘‘(1) IN GENERAL.—Insurers shall not be per-
mitted to cancel, or refuse to renew (or replace with
a substantial equivalent), any long-term care insur-
ance contract for any reason other than for fraud or
material misrepresentation or for nonpayment of
premium.
‘‘(2) CONTINUATION AND CONVERSION RIGHTS
WITH RESPECT TO GROUP CONTRACTS.—
‘‘(A) IN GENERAL.—Insurers shall be re-
quired to include in each group long-term care
insurance contract, a provision affording to
each insured individual, when such contract
would otherwise terminate, the opportunity (at
the insurer’s option, subject to approval of the
State insurance commissioner) either to con-
tinue or to convert coverage under such con-
tract in accordance with this paragraph.
‘‘(B) RIGHTS OF RELATED INDIVIDUALS.—
In the case of any insured individual whose eli-
gibility for coverage under a group contract is
based on relationship to another individual, the
insurer shall be required to continue such cov-
erage upon termination of the relationship due
to divorce or death.
‘‘(C) CONTINUATION
OF
COVERAGE.—A
group contract shall be considered to meet the
requirements of this paragraph with respect to
rights of an insured individual to continuation
of coverage if coverage of the same (or substan-
tially equivalent) benefits for such individual
under such contract is maintained, subject only
to timely payment of premiums.
‘‘(D) 
CONVERSION
OF
COVERAGE.—A
group contract shall be considered to meet the
requirements of this paragraph with respect to
conversion if it entitles each individual who has
been continuously covered under the contract
for at least 6 months before the date of the ter-
mination to issuance of a replacement contract
providing benefits identical to, substantially
equivalent to, or in excess of, the benefits under
such terminated group contract—
‘‘(i) without requiring evidence of in-
surability with respect to benefits covered
under such previous contract, and
‘‘(ii) at premium rates no higher than
would apply if the insured individual had
initially obtained coverage under such re-
placement contract on the date such in-
sured individual initially obtained coverage
under such group contract.
‘‘SEC. 2107. DEFINITIONS.
‘‘For purposes of this title:
‘‘(1) ACTIVITY
OF
DAILY
LIVING.—The term
‘activity of daily living’ means any of the following:
eating, toileting, dressing, bathing, and transferring.
‘‘(2) ADULT DAY CARE.—The term ‘adult day
care’ means a program providing social and health-
related services during the day to six or more adults
with disabilities (or such smaller number as the Sec-
retary may specify in regulations) in a community
group setting outside the home.
‘‘(3) CONTRACTHOLDER—The term ‘contract-
holder’ means the entity which is the holder of
record of a group long-term care insurance contract.
‘‘(4) HOME HEALTH CARE.—The term ‘home
health care’ means medical and nonmedical services
including such services as homemaker services, as-
sistance with activities of daily living, and respite
care provided to individuals in their residences.
‘‘(5) INSURED INDIVIDUAL.—The term ‘insured
individual’ means, with respect to a long-term care
insurance contract, any individual who has coverage
of benefits under such contract.
‘‘(6) INSURER.—The term ‘insurer’ means any
person that offers or sells an individual or group
long-term care insurance contract under which such
person is at risk for all or part of the cost of bene-
fits under the contract, and includes any agent of
such person.
‘‘(7) 
LONG-TERM
CARE
INSURANCE
CON-
TRACT.—The term ‘long-term care insurance con-
tract has the meaning given such term in section
7702B(b) of the Internal Revenue Code of 1986
(without regard to paragraph (1)(F) of such sec-
tion).
‘‘(8) NURSING
FACILITY.—The term ‘nursing
facility’ means a facility licensed by the State to pro-
vide to residents—
‘‘(A) skilled nursing care and related serv-
ices for residents who require medical or nurs-
ing care;
‘‘(B) rehabilitation services for the reha-
bilitation of injured, disabled, or sick individ-
uals, or
‘‘(C) on a regular basis, health-related care
and services to individuals who because of their
mental or physical condition require care and
services (above the level of room and board)
which can be made available to them only
through institutional facilities.
‘‘(9) RESIDENTIAL CARE FACILITY.—The term
‘residential care facility’ means a facility (including
a nursing facility) that—
‘‘(A) provides to residents medical or per-
sonal care services (including at a minimum as-
sistance with activities of daily living) in a set-
ting other than an individual or single-family
home, and
‘‘(B) does not provide services of a higher
level than can be provided by a nursing facility.
‘‘(10) RESPITE CARE.—The term ‘respite care’
means the temporary provision of care (including as-
sistance with activities of daily living) to an individ-
ual, in the individual’s home or another setting in
the community, for the purpose of affording such in-
dividual’s unpaid caregiver a respite from the re-
sponsibilities of such care.
‘‘(11) STATE INSURANCE COMMISSIONER.—The
term ‘State insurance commissioner’ means the
State official bearing such title, or, in the case of a
jurisdiction where such title is not used, the State
official with primary responsibility for the regulation
of insurance.’’.
(b) DEFINITION OF STATE.—Section 1101(a)(1) of
the Social Security Act (42 U.S.C. 1301(a)(1)) is amend-
ed by adding at the end ‘‘Such term when used in title
XXI includes only the several States and the District of
Columbia.’’.
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