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‘‘(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 application
of a deductible or coinsurance amount,
‘‘(C) such contract is guaranteed renewable,
‘‘(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 benefits,
and
‘‘(F) such contract meets the requirements of
subsection (f).
‘‘(2) SPECIAL RULES.—
‘‘(A) PER
DIEM, 
ETC. 
PAYMENTS
PER-
MITTED.—A contract shall not fail to be de-
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scribed in subparagraph (A) or (B) of paragraph
(1) 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 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 offer-
ing of a qualified long-term care insurance
contract on the basis that the contract co-
ordinates 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 surrender
or cancellation of the contract, which cannot ex-
ceed the aggregate premiums paid under the con-
tract. Any refund on a complete surrender or
cancellation of the contract shall be includible in
gross income to the extent that any deduction or
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exclusion was allowable with respect to the pre-
miums.
‘‘(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 individ-
ual) 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 im-
pairment, or
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‘‘(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 preceding
sentence unless within the preceding 12-month
period a licensed health care practitioner has
certified that such individual meets such require-
ments.
‘‘(B) ACTIVITIES
OF
DAILY
LIVING.—For
purposes of subparagraph (A), each of the follow-
ing 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-
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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 PRACTITIONER.—
The term ‘licensed health care practitioner’ means
any physician (as defined in section 1861(r)(1) of the
Social Security Act) and any registered professional
nurse, licensed social worker, or other individual who
meets such requirements as may be prescribed by the
Secretary.
‘‘(d) 
SPECIAL
RULES
FOR
TREATMENT
OF
INSUREDS.—
‘‘(1) AGGREGATE PAYMENTS IN EXCESS OF LIM-
ITS.—
‘‘(A) IN GENERAL.—If the aggregate amount
of periodic payments under all qualified long-
term care insurance contracts with respect to an
insured for any period exceed the dollar amount
in effect for such period under subparagraph (C),
such excess payments shall be treated as made
for qualified long-term care services only to the
extent of the costs incurred by the payee (not oth-
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erwise compensated for by insurance or other-
wise) for qualified long-term care services pro-
vided during such period for such insured.
‘‘(B) PERIODIC
PAYMENTS.—For purposes
of subparagraph (A), the term ‘periodic pay-
ment’ means any payment (whether on a peri-
odic basis or otherwise) made without regard to
the extent of the costs incurred by the payee for
qualified long-term care services.
‘‘(C) DOLLAR AMOUNT.—The dollar amount
in effect under this paragraph shall be $175 per
day (or the equivalent amount in the case of
payments on another periodic basis).
‘‘(D) INFLATION ADJUSTMENT.—In the case
of a calendar year after 1996, the dollar amount
contained in subparagraph (C) shall be increased
at the same time and in the same manner as
amounts are increased pursuant to section
213(d)(11).
‘‘(e) 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 con-
tract—
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‘‘(1) IN GENERAL.—This section shall apply as
if the portion of the contract providing such coverage
is a separate contract.
‘‘(2) APPLICATION OF 7702.—Section 7702(c)(2)
(relating to the guideline premium limitation) shall
be applied by increasing the guideline premium limi-
tation 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 qualified long-
term care insurance contract under subsection (b).
‘‘(4) PORTION DEFINED.—For purposes of this
subsection, the term ‘portion’ means only the terms
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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 qualified
long-term care insurance contract.’’
(b) RESERVE
METHOD.—Clause (iii) of section
807(d)(3)(A) is amended by inserting ‘‘(other than a quali-
fied 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 sen-
tence: ‘‘Such term shall not include any long-term
care insurance contract (as defined in section
4980C).’’
(2) FLEXIBLE SPENDING ARRANGEMENTS.—The
text of section 106 (relating to contributions by em-
ployer 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.
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‘‘(b) INCLUSION OF LONG-TERM CARE BENEFITS PRO-
VIDED THROUGH FLEXIBLE SPENDING ARRANGEMENTS.—
‘‘(1) IN GENERAL.—Effective on and after Janu-
ary 1, 1996, 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 ar-
rangement is a benefit program which provides em-
ployees with coverage under which—
‘‘(A) specified incurred expenses may be re-
imbursed (subject to reimbursement maximums
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:
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‘‘(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 qualified long-term care insur-
ance contract (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 TREAT-
ED 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 individual 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 respect
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)
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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 relating
to section 7702A the following new item:
‘‘Sec. 7702B. Treatment of qualified 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, 1995.
(2) CONTINUATION OF EXISTING POLICIES.—In
the case of any contract issued before January 1,
1996, which met the long-term care insurance require-
ments of the State in which the contract was sitused
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
qualified 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 de-
fined in section 7702B(c) of such Code).
(3) EXCHANGES
OF
EXISTING
POLICIES.—If,
after the date of enactment of this Act and before Jan-
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uary 1, 1997, a contract providing for long-term care
insurance coverage is exchanged solely for a qualified
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 quali-
fied 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
property 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 qualified long-term care insur-
ance contract within 60 days thereafter shall be treat-
ed 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 qualified 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,
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shall not be treated as a modification or material
change of such contract.
SEC. 11042. 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 subpara-
graph (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 ‘‘sub-
paragraphs (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 qualified long-term care insurance
contract (as defined in section 7702B(b)), only eligi-
ble long-term care premiums (as defined in para-
graph (11)) shall be taken into account under sub-
paragraph (D).’’
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(B) Subsection (d) of section 213 is amended by
adding at the end the following new paragraph:
‘‘(11) ELIGIBLE LONG-TERM CARE PREMIUMS.—
‘‘(A) IN
GENERAL.—For purposes of this
section, the term ‘eligible long-term care pre-
miums’ means the amount paid during a taxable
year for any qualified long-term care insurance
contract (as defined in section 7702B(b)) cover-
ing 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 1996, 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 increase
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shall be rounded to the nearest multiple of
$10.
‘‘(ii) MEDICAL
CARE
COST
ADJUST-
MENT.—For purposes of clause (i), the med-
ical care cost adjustment for any calendar
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 1995.
The Secretary shall, in consultation with
the Secretary of Health and Human Serv-
ices, prescribe an adjustment which the Sec-
retary determines is more appropriate for
purposes of this paragraph than the adjust-
ment described in the preceding sentence,
and the adjustment so prescribed shall
apply in lieu of the adjustment described in
the preceding sentence.’’
(3) Paragraph (6) of section 213(d) is amend-
ed—
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(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 Decem-
ber 31, 1995.
SEC. 11043. CERTAIN EXCHANGES OF LIFE INSURANCE CON-
TRACTS FOR QUALIFIED LONG-TERM CARE
INSURANCE CONTRACTS NOT TAXABLE.
(a) IN GENERAL.—Subsection (a) of section 1035 (re-
lating 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 fol-
lowing new paragraph:
‘‘(4) a contract of life insurance or an endow-
ment or annuity contract for a qualified long-term
care insurance contract (as defined in section
7702B(b)).’’
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(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
SEC. 11044. EXCEPTION FROM PENALTY TAX FOR AMOUNTS
WITHDRAWN FROM CERTAIN RETIREMENT
PLANS FOR QUALIFIED LONG-TERM CARE IN-
SURANCE.
(a) IN GENERAL.—Paragraph (2) of section 72(t) is
amended by adding at the end the following new subpara-
graph:
‘‘(F) PREMIUMS
FOR
QUALIFIED
LONG-
TERM CARE INSURANCE CONTRACTS.—Distribu-
tions to an individual from an individual retire-
ment plan, or from amounts attributable to em-
ployer contributions made pursuant to elective
deferrals described in subparagraph (A) or (C) of
section 402(g)(3), to the extent such distributions
do not exceed the premiums for a qualified long-
term care insurance contract (as defined in sec-
tion 7702B(b)) for such individual or the spouse
of such individual. In applying subparagraph
(B), such premiums shall be treated as amounts
not paid for medical care.’’
(b) DISTRIBUTIONS
PERMITTED
FROM
CERTAIN
PLANS TO PAY LONG-TERM CARE PREMIUMS.—
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(1) Section 401(k)(2)(B)(i) is amended by strik-
ing ‘‘or’’ at the end of subclause (III), by striking
‘‘and’’ at the end of subclause (IV) and inserting
‘‘or’’, and by inserting after subclause (IV) the follow-
ing 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 individ-
ual 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 inserting
‘‘or’’, and by inserting after clause (iii) the following
new clause:
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‘‘(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’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to payments and distributions after De-
cember 31, 1995.
SEC. 11045. REPORTING REQUIREMENTS.
(a) IN GENERAL.—Subpart B of part III of subchapter
A of chapter 61, as amended by section 11004, is amended
by adding at the end the following new section:
‘‘SEC. 6050R. CERTAIN LONG-TERM CARE BENEFITS.
‘‘(a) REQUIREMENT OF REPORTING.—Any person who
pays long-term care benefits shall make a return, according
to the forms or regulations prescribed by the Secretary, set-
ting forth—
‘‘(1) the aggregate amount of such benefits paid
by such person to any individual during any cal-
endar year, and
‘‘(2) the name, address, and TIN of such individ-
ual.
‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS
WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—
Every person required to make a return under subsection
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(a) shall furnish to each individual whose name is required
to be set forth in such return a written statement showing—
‘‘(1) the name of the person making the pay-
ments, and
‘‘(2) the aggregate amount of long-term care ben-
efits 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 Janu-
ary 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’ means any
amount paid under a long-term care insurance policy
(within the meaning of section 4980C(e)).’’.
(b) PENALTIES.—
(1) Subparagraph (B) of section 6724(d)(1), as
amended by section 11004, is amended by redesignat-
ing clauses (x) through (xv) as clauses (xi) through
(xvi), respectively, and by inserting after clause (ix)
the following new clause:
‘‘(x) section 6050R (relating to certain
long-term care benefits),’’.
(2) Paragraph (2) of section 6724(d), as amend-
ed by section 11004, is amended by redesignating sub-