Security Act (as added by subsection (a)), before the effec-
tive date specified by section 208(b), shall have the option
of continuing to receive payments in accordance with such
exception for not more than 12 months after such date.
SEC. 204. PHYSICIAN VISITS AND CONSULTATIONS FOR
MEDICARE PATIENTS IN SKILLED NURSING
FACILITIES.
Section 1848(b) of the Social Security Act (42 U.S.C.
1395w–4(b)) is amended by—
(1) redesignating paragraphs (2) and (3) as
paragraphs (3) and (4), respectively; and
(2) inserting after paragraph (1) the following
new paragraph:
‘‘(2) TREATMENT
OF
PHYSICIAN
VISITS
TO
SUBACUTE CARE PATIENT IN A SKILLED NURSING
FACILITY.—Before January 1 of each year (begin-
ning in 1996 and regardless of the issuance of final
regulations), the Secretary shall establish by regula-
tion, fee schedules that establish amounts for physi-
cian visits to a subacute care patient in a skilled
nursing facility that shall be the same as if the phy-
sician visited such subacute care patient in a hos-
pital.’’
SEC. 205. COVERAGE OF RESPIRATORY THERAPY SERVICES
IN SKILLED NURSING FACILITIES UNDER
THE MEDICARE PROGRAM.
(a) Section 1861(h)(3) of the Social Security Act (42
U.S.C. 1395x(h)) is amended by inserting ‘‘respiratory,’’
after ‘‘occupational,’’.
(b) Section 1861(v)(5)(A) of the Social Security Act
(42 U.S.C. 1395x(v)(5)(A)) is amended by inserting
‘‘(other than respiratory therapy services)’’ after ‘‘other
therapy services’’.
SEC. 206. DRGS APPROPRIATE FOR SUBACUTE CARE IN
SKILLED NURSING FACILITIES.
(a) Not later than October 1, 1995, the Secretary
shall review the provision of subacute care by skilled nurs-
ing facilities and determine which hospital DRGs are ap-
propriate for skilled nursing facilities that provide such
care, and the appropriate hospitalizations and co-pay-
ments for such DRGs.
(b) Not later than October 1, 1996, the Secretary
shall publish a list of applicable DRGs with appropriate
hospitalizations and co-payments, and rebase medicare
payments for such groups to reflect the lower cost of such
care provided in skilled nursing facilities.
SEC. 207. SUBACUTE CARE SERVICES UNDER TITLE XIX.
(a) It is sense of the Congress that States are encour-
aged to develop payment methodologies under section
1901(a)(13) of the Social Security Act (42 U.S.C.
1396a(a)(13)), for nursing facilities which provide
subacute care to medicaid patients.
(b) It is the sense of the Congress that Federal fund-
ing should be available for nursing facilities which provide
subacute care to medicaid patients.
SEC. 208. EFFECTIVE DATE.
(a) Except as otherwise provided under this title and
subsection (b), the provisions of, and the amendments
made by, this title shall be effective January 1, 1996.
(b) Subacute classifications established under the
provisions of, and amendments made by, this title shall
be effective not later than October 1, 1996.
TITLE III—LONG-TERM CARE
TAX CLARIFICATION
SEC. 301. SHORT TITLE.
This title may be cited as the ‘‘Private Long-Term
Care Insurance Incentive Amendments of 1994’’.
SEC. 302. TREATMENT OF LONG-TERM CARE INSURANCE
OR PLANS.
(a) Chapter 79 of the Internal Revenue Code of 1986
(relating to definitions) is amended by inserting after sec-
tion 7702A the following new section:
‘‘SEC. 7702B. TREATMENT OF LONG-TERM CARE INSURANCE
OR PLANS.
‘‘(a) GENERAL RULE.—For purposes of this title—
‘‘(1) a qualified long-term care insurance con-
tract shall be treated as an accident or health insur-
ance contract,
‘‘(2) any plan of an employer providing cov-
erage of qualified long-term care services shall be
treated as an accident or health plan with respect to
such services,
‘‘(3) amounts received under such a contract or
plan with respect to qualified long-term care serv-
ices, including payments described in subsection
(b)(2)(A), shall be treated—
‘‘(A) as amounts received for personal in-
juries or sickness, and
‘‘(B) for purposes of section 105(c), as
amounts received for the permanent loss of a
function of the body, and as amounts computed
with reference to the nature of the injury, and
‘‘(4) payments described in subsection (b)(2)(A)
shall be treated as payments made with respect to
qualified long-term care services.
Paragraph (3)(B) shall not apply in the case of amounts
attributable to (and not in excess of) deductions allowed
under section 213 (relating to medical etc., expenses) for
any prior taxable year and also shall not apply for pur-
poses of section 105(f).
‘‘(b) QUALIFIED
LONG-TERM
CARE
INSURANCE
CONTRACT.—
‘‘(1) IN GENERAL.—For purposes of this title,
the term ‘qualified long-term care insurance con-
tract’ means any insurance contract if—
‘‘(A) the only insurance protection pro-
vided under such contract is coverage of quali-
fied long-term care services and benefits inci-
dental to such coverage,
‘‘(B) such contract or coverage is guaran-
teed renewable, or in the case of a group certifi-
cate, provides the insured individual with a
basis for continuation or conversion of coverage,
‘‘(C) such contract does not have any cash
surrender value, and
‘‘(D) 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.
‘‘(2) SPECIAL RULES.—
‘‘(A) PER
DIEM, ETC. PAYMENTS
PER-
MITTED.—A contract shall not fail to be treated
as described in paragraph (1)(A) by reason of
payments being made on a per diem or other
periodic basis without regard to the expenses
incurred during the period to which the pay-
ments relate.
‘‘(B) REFUNDS
OF
PREMIUMS.—Para-
graph (1)(D) shall not apply to any refund of
premiums on surrender, cancellation of the con-
tract, or death of the policyholder.
‘‘(3) TREATMENT OF COVERAGE PROVIDED AS
PART OF A LIFE INSURANCE CONTRACT.—Except as
provided in regulations, in the case of coverage of
qualified long-term care services provided as part of
a life insurance contract—
‘‘(A) APPLICATION OF GENERAL REQUIRE-
MENTS.—The requirements of this section shall
apply as if the portion of the contract providing
such coverage was a separate contract.
‘‘(B) 
PREMIUMS
AND
CHARGES
FOR
QUALIFIED LONG-TERM CARE COVERAGE.—Pre-
miums for coverage of qualified long-term care
services and charges against the life insurance
contract’s cash surrender value (within the
meaning of section 7702(f)(2)(A)) for such cov-
erage shall be treated as premiums for the
qualified long-term care insurance contract.
‘‘(C) APPLICATION
OF
SECTION
7702.—
Subsection (c)(2) of section 7702 (relating to
the guideline premium limitation) shall be ap-
plied by increasing the guideline premium limi-
tation with respect to the life insurance con-
tract, as of any date—
‘‘(i) by the sum of any charges (but
not premiums) described in subparagraph
(B) made to that date under the contract,
less
‘‘(ii) any such charges the imposition
of which reduces the premiums paid for
the contract (within the meaning of section
7702(f)(1)).
‘‘(D) 
APPLICATION
OF
SECTION
72(e)(4)(B).—Subsection (e)(4)(B) of section 72
(relating to certain amounts retained by the in-
surer) shall be applied as including charges de-
scribed in subparagraph (B).
‘‘(E) APPLICANT.—No deduction shall be
allowed under subsection (a) of section 213 for
premiums and charges described in subpara-
graph (B).
For purposes of this paragraph, the term ‘portion’ means
only the terms and benefits under a life insurance contract
(whether provided by a rider or addendum on, or other
provision of, such contract) that are in addition to the
terms and benefits under the contract without regard to
the coverage of qualified long-term care services and bene-
fits incidental to such coverage.
‘‘(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, and rehabilitative services, and
maintenance or personal care services, which—
‘‘(A) are required by an ill individual in a
qualified facility, and
‘‘(B) are provided pursuant to a plan of
care prescribed by a licensed health care practi-
tioner, or
‘‘(C) are required by law or regulation.
‘‘(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)(I) being unable to perform (with-
out substantial assistance from another in-
dividual) at least two activities of daily liv-
ing (as defined in subparagraph (B)), due
to a loss of functional capacity, 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 subclause (I), or
‘‘(ii) having a similar level of disabil-
ity due to cognitive impairment.
‘‘(B) ACTIVITIES OF DAILY LIVING.—For
purposes of subparagraph (A), each of the fol-
lowing is an activity of daily living:
‘‘(i) BATHING.—The overall complex
behavior of getting water and cleansing the
whole body, including on the water for a
bath, shower, or sponge bath, getting to,
in, and out of a tub or shower, and wash-
ing and drying oneself.
‘‘(ii) DRESSING.—The overall complex
behavior of getting clothes form closets
and drawers and then getting dressed.
‘‘(iii) 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.
‘‘(iv) TRANSFER.—The process of get-
ting in and out of bed or in and out of a
chair or wheelchair.
‘‘(v) EATING.—The process of getting
food from a plate or its equivalent into the
mouth.
‘‘(vi) CONTINENCE.—The ability to
voluntarily control bowel and bladder func-
tion and to maintain a reasonable level of
personal hygiene.
‘‘(vii) STATE REQUIRED.—Any other
activity of daily living as required by state
law or regulation which is not preempted
by federal law or regulation.
‘‘(C) NUMBER
OF
ACTIVITIES
OF
DAILY
LIVING.—A qualified long-term care insurance
contract may utilize fewer than the number of
activities of daily living in paragraph (B).
‘‘(D) DETERMINATION OF ADDITIONAL AC-
TIVITIES OF DAILY LIVING.—For purposes of
subparagraph (A), the Secretary, in consulta-
tion with the Secretary of Health and Human
Services, may determine by regulation that ad-
ditional activities constitute activities of daily
living. If the Secretary identifies additional ac-
tivities of daily living, the Secretary may also
increase the required number of activities of
daily living that an individual must be unable to
perform to satisfy the definition of ‘chronically
ill individual’ when a contract utilizes activities
of daily living other than those specified in sub-
paragraph (B). Regardless of regulations issued
by the Secretary, long-term care contracts shall
not fail to meet the requirements of this para-
graph if such contracts utilize the activities of
daily living specified in subparagraph (B).
‘‘(3) QUALIFIED FACILITY.—The term ‘quali-
fied facility’ means—
‘‘(A) a nursing, rehabilitative, hospice serv-
ice, or adult day care facility (including a hos-
pital, retirement home, nursing home, skilled
nursing facility, intermediate care facility, or
similar institution)—
‘‘(i) which is licensed under State law,
or
‘‘(ii) which is a certified facility for
purposes of title XVIII or XIX of the So-
cial Security Act, or
‘‘(B) an individual’s home or other facility
under a plan of treatment developed by a li-
censed health care practitioner.
‘‘(4) MAINTENANCE OF PERSONAL CARE SERV-
ICES.—The term ‘maintenance or personal care serv-
ices’ means any care the primary purpose of which
is to provide needed assistance with any of the ac-
tivities of daily living described in paragraph (2)(B).
Such term may include such services as adult day
care, homemaker and chore services, hospice serv-
ices, respite care, and services required by law or
regulation.
‘‘(5) 
LICENSED
HEALTH
CARE
PRACTI-
TIONER.—The term ‘licensed health care practi-
tioner’ means any physician (as defined in section
1861(r) 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) SPECIAL RULES.—
‘‘(1) CONTINUATION RULES NOT TO APPLY.—
The health care continuation rules contained in sec-
cant (or policyholder or certificate-holder) the policy
(or certificate) of insurance not later than 30 days
after the date of the approval.
‘‘(3) INFORMATION ON DENIALS OF CLAIMS.—
If a claim under a long-term care insurance policy
is denied, the issuer shall, within 60 days of the date
of a written request by the policyholder or certifi-
cate-holder (or representative)—
‘‘(A) provide a written explanation of the
reasons for the denial, and
‘‘(B) make available all information di-
rectly relating to such denial except in cases
where such issuer would be prohibited from pro-
viding information regarding claims denial
under confidentiality statues or other state or
Federal laws.
‘‘(d) DISCLOSURE.—The requirements of this sub-
section are met if either of the following statements,
whichever is applicable, is prominently displayed on the
front page of any long-term care insurance policy and in
the outline of coverage required under subsection
(c)(1)(B)(ii):
‘‘(1) A statement that: ‘This policy is intended
to be a qualified long-term care insurance contract