170
(3) 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(d)), or’’, and
(4) by adding at the end the following new sub-
section:
‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS
ACCOUNTS.—For purposes of this section, in the case of
a medical savings account (within the meaning of section
220(d)), the term ‘excess contributions’ means the sum
of—
‘‘(1) the amount by which the amount contrib-
uted for the taxable year to the account exceeds the
amount which may be contributed to the account
under section 220(d)(1)(B)(ii) for such taxable year,
and
‘‘(2) the amount determined under this sub-
section for the preceding taxable year, reduced by
the sum of distributions out of the account included
in gross income under section 220(f) (2) or (3) and
the excess (if any) of the maximum amount allow-
able as a deduction under section 220 for the tax-
able year over the amount contributed.
171
For purposes of this subsection, any contribution which
is distributed out of the medical savings account in a dis-
tribution to which section 220(f)(3) applies shall be treat-
ed as an amount not contributed.’’
(g) TAX ON PROHIBITED TRANSACTIONS.—
(1) Section 4975 (relating to tax on prohibited
transactions) is amended 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 (within the meaning of section
220(d)) is established shall be exempt from the tax
imposed by this section with respect to any trans-
action concerning such account (which would other-
wise be taxable under this section) if, with respect
to such transaction, the account ceases to be a medi-
cal savings account by reason of the application of
section 220(e)(2) to such account.’’
(2) Paragraph (1) of section 4975(e) is amend-
ed to read as follows:
‘‘(1) PLAN.—For purposes of this section, the
term ‘plan’ means—
‘‘(A) a trust described in section 401(a)
which forms a part of a plan, or a plan de-
172
scribed in section 403(a), which trust or plan is
exempt from tax under section 501(a),
‘‘(B) an individual retirement account de-
scribed in section 408(a),
‘‘(C) an individual retirement annuity de-
scribed in section 408(b),
‘‘(D) a medical savings account described
in section 220(d), or
‘‘(E) a trust, plan, account, or annuity
which, at any time, has been determined by the
Secretary to be described in any preceding sub-
paragraph of this paragraph.’’
(h) FAILURE TO PROVIDE REPORTS ON MEDICAL
SAVINGS ACCOUNTS.—
(1) Subsection (a) of section 6693 (relating to
failure to provide reports on individual retirement
accounts or annuities) is amended to read as follows:
‘‘(a) REPORTS.—
‘‘(1) IN GENERAL.—If a person required to file
a report under a provision referred to in paragraph
(2) fails to file such report at the time and in the
manner required by such provision, such person
shall pay a penalty of $50 for each failure unless it
is shown that such failure is due to reasonable
cause.
173
‘‘(2) PROVISIONS.—The provisions referred to
in this paragraph are—
‘‘(A) subsections (i) and (l) of section 408
(relating to individual retirement plans), and
‘‘(B) section 220(h) (relating to medical
savings accounts).’’
(i) EXCEPTION FROM CAPITALIZATION OF POLICY
ACQUISITION EXPENSES.—Subparagraph (B) of section
848(e)(1) (defining specified insurance contract) is
amended by striking ‘‘and’’ at the end of clause (ii), by
striking the period at the end of clause (iii) and inserting
‘‘, and’’, and by adding at the end the following new
clause:
‘‘(iv) any contract which is a medical
savings account (as defined in section
220(d)).’’.
(j) CLERICAL AMENDMENT.—The table of sections
for part VII of subchapter B of chapter 1 is amended by
striking the last item and inserting the following:
‘‘Sec. 220. Medical savings accounts.
‘‘Sec. 221. Cross reference.’’
(k) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
174
Subtitle B—Increase in Deduction
for Health Insurance Costs of
Self-Employed Individuals
SEC. 311. INCREASE IN DEDUCTION FOR HEALTH INSUR-
ANCE COSTS OF SELF-EMPLOYED INDIVID-
UALS.
(a) IN GENERAL.—Paragraph (1) of section 162(l)
is amended to read as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is an employee within the meaning
of section 401(c)(1), there shall be allowed as
a deduction under this section an amount equal
to the applicable percentage of the amount paid
during the taxable year for insurance which
constitutes medical care for the taxpayer, his
spouse, and dependents.
‘‘(B) 
APPLICABLE
PERCENTAGE.—For
purposes of subparagraph (A), the applicable
percentage shall be determined under the fol-
lowing table:
‘‘For taxable years beginning in
The applicable
calendar year—
percentage is—
1998, 1999, or 2000 .........................................................
35 percent
2001 or 2002 ....................................................................
40 percent
2003 or thereafter .............................................................
50 percent.’’
175
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1997.
Subtitle C—Long-Term Care
Services and Contracts
PART I—GENERAL PROVISIONS
SEC. 321. 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 QUALIFIED LONG-TERM CARE
INSURANCE.
‘‘(a) IN GENERAL.—For purposes of this title—
‘‘(1) a qualified long-term care insurance con-
tract shall be treated as an accident and health in-
surance contract,
‘‘(2) amounts (other than policyholder divi-
dends, as defined in section 808, or premium re-
funds) received under a qualified long-term care in-
surance contract shall be treated as amounts re-
ceived for personal injuries and sickness and shall be
treated as reimbursement for expenses actually in-
curred for medical care (as defined in section
213(d)),
177
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) 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-
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-
178
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 qualified long-term care insur-
ance contract on the basis that the con-
tract coordinates 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.
179
‘‘(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,
‘‘(ii) having a level of disability simi-
lar (as determined by the Secretary in con-
sultation with the Secretary of Health and
180
Human Services) to the level of disability
described in clause (i), or
‘‘(iii) requiring substantial supervision
to protect such individual from threats to
health and safety due to severe cognitive
impairment.
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.
181
‘‘(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) AGGREGATE PAYMENTS IN EXCESS OF LIM-
ITS.—
‘‘(1) 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 exceeds the dollar amount in effect for
such period under paragraph (3), such excess pay-
ments shall be treated as made for qualified long-
term care services only to the extent of the costs in-
curred by the payee (not otherwise compensated for
182
by insurance or otherwise) for qualified long-term
care services provided during such period for such
insured.
‘‘(2) PERIODIC
PAYMENTS.—For purposes of
paragraph (1), the term ‘periodic payment’ means
any payment (whether on a periodic basis or other-
wise) made without regard to the extent of the costs
incurred by the payee for qualified long-term care
services.
‘‘(3) DOLLAR AMOUNT.—The dollar amount in
effect under this subsection shall be $175 per day
(or the equivalent amount in the case of payments
on another periodic basis).
‘‘(4) INFLATION ADJUSTMENT.—In the case of
a calendar year after 1997, the dollar amount con-
tained in paragraph (3) shall be increased at the
same time and in the same manner as amounts are
increased pursuant to section 213(d)(10).
‘‘(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 or as part of a
life insurance contract—
183
‘‘(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 qualified long-term care insurance contract under
subsection (b).
184
‘‘(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 quali-
fied long-term care insurance contract.’’
(b) 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
4980C).’’
(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.—
185
‘‘(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.’’
(c) 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
186
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)).’’
(d) 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 qualified long-term care insurance.’’.
(e) 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
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
defined in section 7702B(c) of such Code).
187
(3) EXCHANGES
OF
EXISTING
POLICIES.—If,
after the date of enactment of this Act and before
January 1, 1998, a contract providing for long-term
care insurance coverage is exchanged solely for a
qualified long-term care insurance contract (as de-
fined in section 7702B(b) of such Code), no gain or
loss shall be recognized on the exchange. If, in addi-
tion to a qualified 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 reinvest-
ment of the cancellation proceeds in a qualified long-
term care insurance contract within 60 days there-
after 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 qualified long-term care insurance contract
under section 7702B, and
188
(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. 322. PREMIUMS FOR QUALIFIED LONG-TERM CARE IN-
SURANCE TREATED AS PAYMENT FOR MEDI-
CAL 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 striking the pe-
riod at the end of subparagraph (C) and inserting ‘‘, or’’,
and by adding at the end the following new subparagraph:
‘‘(D) for eligible long-term care pre-
miums.’’
(b) ELIGIBLE LONG-TERM CARE PREMIUMS.—Sub-
section (d) of section 213 is amended by adding at the
end the following new paragraph:
‘‘(10) 
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 qualified long-term care insur-
ance contract (as defined in section 7702B(b))
189
covering an individual, to the extent such
amount does not exceed the limitation deter-
mined 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-
190
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.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 323. 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—
191
‘‘(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’ means any
amount paid under a long-term care insurance policy
(within the meaning of section 4980C(e)).’’.
(b) PENALTIES.—
192
(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.
PART II—CONSUMER PROTECTION PROVISIONS
SEC. 325. POLICY REQUIREMENTS.
Section 7702B (as added by section 321) is amended
by adding at the end the following new subsection:
‘‘(f) CONSUMER PROTECTION PROVISIONS.—
193
‘‘(1) IN GENERAL.—The requirements of this
subsection are met with respect to any contract if
any long-term care insurance policy issued under the
contract meets—
‘‘(A) the requirements of the model regula-
tion and model Act described in paragraph (2),
‘‘(B) the disclosure requirement of para-
graph (3), and
‘‘(C) 
the 
requirements 
relating 
to
nonforfeitability under paragraph (4).
‘‘(2) REQUIREMENTS OF MODEL REGULATION
AND ACT.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met with respect to any pol-
icy if such policy meets—
‘‘(i) MODEL
REGULATION.—The fol-
lowing requirements of the model regula-
tion:
‘‘(I) Section 7A (relating to guar-
anteed renewal or noncancellability),
and the requirements of section 6B of
the model Act relating to such section
7A.
194
‘‘(II) Section 7B (relating to pro-
hibitions on limitations and exclu-
sions).
‘‘(III) Section 7C (relating to ex-
tension of benefits).
‘‘(IV) Section 7D (relating to
continuation or conversion of cov-
erage).
‘‘(V) Section 7E (relating to dis-
continuance and replacement of poli-
cies).
‘‘(VI) Section 8 (relating to unin-
tentional lapse).
‘‘(VII) Section 9 (relating to dis-
closure), other than section 9F there-
of.
‘‘(VIII) Section 10 (relating to
prohibitions against post-claims un-
derwriting).
‘‘(IX) Section 11 (relating to
minimum standards).
‘‘(X) Section 12 (relating to re-
quirement to offer inflation protec-
tion), except that any requirement for
a signature on a rejection of inflation
195
protection shall permit the signature
to be on an application or on a sepa-
rate form.
‘‘(XI) Section 23 (relating to pro-
hibition against preexisting conditions
and probationary periods in replace-
ment policies or certificates).
‘‘(ii) MODEL ACT.—The following re-
quirements of the model Act:
‘‘(I) Section 6C (relating to pre-
existing conditions).
‘‘(II) Section 6D (relating to
prior hospitalization).
‘‘(B) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) MODEL PROVISIONS.—The terms
‘model regulation’ and ‘model Act’ mean
the long-term care insurance model regula-
tion, and the long-term care insurance
model Act, respectively, promulgated by
the National Association of Insurance
Commissioners (as adopted as of January
1993).
‘‘(ii) COORDINATION.—Any provision
of the model regulation or model Act listed
196
under clause (i) or (ii) of subparagraph
(A) shall be treated as including any other
provision of such regulation or Act nec-
essary to implement the provision.
‘‘(iii) 
DETERMINATION.—For 
pur-
poses of this section and section 4980C,
the determination of whether any require-
ment of a model regulation or the model
Act has been met shall be made by the
Secretary.
‘‘(3) DISCLOSURE
REQUIREMENT.—The re-
quirement of this paragraph is met with respect to
any policy if such policy meets the requirements of
section 4980C(d)(1).
‘‘(4) NONFORFEITURE REQUIREMENTS.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met with respect to any level
premium long-term care insurance policy, if the
issuer of such policy offers to the policyholder,
including 
any 
group 
policyholder, 
a
nonforfeiture provision meeting the require-
ments of subparagraph (B).
‘‘(B) REQUIREMENTS OF PROVISION.—The
nonforfeiture provision required under subpara-
197
graph (A) shall meet the following require-
ments:
‘‘(i) The nonforfeiture provision shall
be appropriately captioned.
‘‘(ii) The nonforfeiture provision shall
provide for a benefit available in the event
of a default in the payment of any pre-
miums and the amount of the benefit may
be adjusted subsequent to being initially
granted only as necessary to reflect
changes in claims, persistency, and interest
as reflected in changes in rates for pre-
mium paying policies approved by the Sec-
retary for the same policy form.
‘‘(iii) The nonforfeiture provision shall
provide at least one of the following:
‘‘(I) Reduced paid-up insurance.
‘‘(II) Extended term insurance.
‘‘(III) Shortened benefit period.
‘‘(IV) Other similar offerings ap-
proved by the Secretary.
‘‘(5) LONG-TERM CARE INSURANCE POLICY DE-
FINED.—For purposes of this subsection, the term
‘long-term care insurance policy’ has the meaning
given such term by section 4980C(e).’’.
198
SEC. 326. REQUIREMENTS FOR ISSUERS OF LONG-TERM
CARE INSURANCE POLICIES.
(a) IN GENERAL.—Chapter 43 is amended by adding
at the end the following new section:
‘‘SEC. 4980C. REQUIREMENTS FOR ISSUERS OF LONG-TERM
CARE INSURANCE POLICIES.
‘‘(a) GENERAL RULE.—There is hereby imposed on
any person failing to meet the requirements of subsection
(c) or (d) a tax in the amount determined under sub-
section (b).
‘‘(b) AMOUNT.—
‘‘(1) IN GENERAL.—The amount of the tax im-
posed by subsection (a) shall be $100 per policy for
each day any requirements of subsection (c) or (d)
are not met with respect to each long-term care in-
surance policy.
‘‘(2) WAIVER.—In the case of a failure which is
due to reasonable cause and not to willful neglect,
the Secretary may waive part or all of the tax im-
posed by subsection (a) to the extent that payment
of the tax would be excessive relative to the failure
involved.
‘‘(c) RESPONSIBILITIES.—The requirements of this
subsection are as follows:
‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.—
199
‘‘(A) MODEL REGULATION.—The following
requirements of the model regulation must be
met:
‘‘(i) Section 13 (relating to application
forms and replacement coverage).
‘‘(ii) Section 14 (relating to reporting
requirements), except that the issuer shall
also report at least annually the number of
claims denied during the reporting period
for each class of business (expressed as a
percentage of claims denied), other than
claims denied for failure to meet the wait-
ing period or because of any applicable
preexisting condition.
‘‘(iii) Section 20 (relating to filing re-
quirements for marketing).
‘‘(iv) Section 21 (relating to standards
for marketing), including inaccurate com-
pletion of medical histories, other than sec-
tions 21C(1) and 21C(6) thereof, except
that—
‘‘(I) in addition to such require-
ments, no person shall, in selling or
offering to sell a long-term care insur-
200
ance policy, misrepresent a material
fact; and
‘‘(II) no such requirements shall
include a requirement to inquire or
identify whether a prospective appli-
cant or enrollee for long-term care in-
surance has accident and sickness in-
surance.
‘‘(v) Section 22 (relating to appro-
priateness of recommended purchase).
‘‘(vi) Section 24 (relating to standard
format outline of coverage).
‘‘(vii) Section 25 (relating to require-
ment to deliver shopper’s guide).
‘‘(B) MODEL ACT.—The following require-
ments of the model Act must be met:
‘‘(i) Section 6F (relating to right to
return), except that such section shall also
apply to denials of applications and any re-
fund shall be made within 30 days of the
return or denial.
‘‘(ii) Section 6G (relating to outline of
coverage).
‘‘(iii) Section 6H (relating to require-
ments for certificates under group plans).
201
‘‘(iv) Section 6I (relating to policy
summary).
‘‘(v) Section 6J (relating to monthly
reports on accelerated death benefits).
‘‘(vi) Section 7 (relating to incontest-
ability period).
‘‘(C) DEFINITIONS.—For purposes of this
paragraph, the terms ‘model regulation’ and
‘model Act’ have the meanings given such terms
by section 7702B(f)(2)(B).
‘‘(2) DELIVERY OF POLICY.—If an application
for a long-term care insurance policy (or for a cer-
tificate under a group long-term care insurance pol-
icy) is approved, the issuer shall deliver to the appli-
cant (or policyholder or certificateholder) 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
certificateholder (or representative)—
‘‘(A) provide a written explanation of the
reasons for the denial, and
202
‘‘(B) make available all information di-
rectly relating to such denial.
‘‘(d) DISCLOSURE.—The requirements of this sub-
section are met if the issuer of a long-term care insurance
policy discloses in such policy and in the outline of cov-
erage required under subsection (c)(1)(B)(ii) that the pol-
icy is intended to be a qualified long-term care insurance
contract under section 7702B(b).
‘‘(e) LONG-TERM CARE INSURANCE POLICY DE-
FINED.—For purposes of this section, the term ‘long-term
care insurance policy’ means any product which is adver-
tised, marketed, or offered as long-term care insurance.’’.
(b) CONFORMING AMENDMENT.—The table of sec-
tions for chapter 43 is amended by adding at the end the
following new item:
‘‘Sec. 4980C. Requirements for issuers of long-term care insur-
ance policies.’’.
SEC. 327. COORDINATION WITH STATE REQUIREMENTS.
Nothing in this part shall prevent a State from estab-
lishing, implementing, or continuing in effect standards
related to the protection of policyholders of long-term care
insurance policies (as defined in section 4980C(e) of the
Internal Revenue Code of 1986), if such standards are not
in conflict with or inconsistent with the standards estab-
lished under such Code.
203
SEC. 328. EFFECTIVE DATES.
(a) IN GENERAL.—The provisions of, and amend-
ments made by, this part shall apply to contracts issued
after December 31, 1996. The provisions of section 321(g)
(relating to transition rule) shall apply to such contracts.
(b) ISSUERS.—The amendments made by section 326
shall apply to actions taken after December 31, 1996.
Subtitle D—Treatment of
Accelerated Death Benefits
SEC. 331. TREATMENT OF ACCELERATED DEATH BENEFITS
BY RECIPIENT.
(a) IN GENERAL.—Section 101 (relating to certain
death benefits) is amended by adding at the end the fol-
lowing new subsection:
‘‘(g) TREATMENT
OF
CERTAIN
ACCELERATED
DEATH BENEFITS.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the following amounts shall be treated as an
amount paid by reason of the death of an insured:
‘‘(A) Any amount received under a life in-
surance contract on the life of an insured who
is a terminally ill individual.
‘‘(B) Any amount received under a life in-
surance contract on the life of an insured who
is a chronically ill individual (as determined in
such manner as the Secretary may prescribe)