Health Insurance Portability and Accountability Act of 1996
PL 104-191 (H.R.3103), enacted 08/21/1996

110 STAT. 1936 
PUBLIC LAW 104-191—AUG. 21, 1996 
Public Law 104-191 
104th Congress 
Aug. 21, 1996 
[H.R. 3103] 
Health Insurance 
Portability and 
Accountability 
Act of 1996. 
42 u s e 201 note. 
An Act 
To amend the Internal Revenue Code of 1986 to improve portability and continuity 
of health insurance coverage in the group and individual markets, to combat 
waste, fraud, and abuse in health insurance and health care delivery, to promote 
the use of medical savings accounts, to improve access to long-term care services 
and coverage, to simplify the administration of health insurance, and for other 
purposes. 
Be it enacted by the Senate and House of Representatives of 
the United States of 
America in Congress assembled, 
SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the "Health Insur-
ance Portability and Accoiintability Act of 1996". 
(b) TABLE OF CONTENTS.—The table of contents of this Act 
is as follows: 
Sec. 1. Short title; table of contents. 
TITLE I—HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY 
Subtitle A—Group Market Rules 
PART 1—PORTABILITY, ACCESS, AND RENEWABILITY REQUIREMENTS 
Sec. 101. Through the Employee Retirement Income Security Act of 1974. 
"PART 7—GROUP HEALTH PLAN PORTABILITY, ACCESS, AND RENEWABILITY 
REQUIREMENTS 
"Sec. 701. Increased portability through limitation on preexisting condition ex-
clusions. 
"Sec. 702. Prohibiting discrimination against individual participants and bene-
ficiaries based on health status. 
"Sec. 703. Guaranteed renewability in multiemployer plans and multiple em-
ployer welfare arrangements. 
"Sec. 704. Preemption; State flexibility; construction. 
"Sec. 705. Special rules relating to group health plans. 
"Sec. 706. Definitions. 
"Sec. 707. Regulations.". 
Sec. 102. Through the Public Health Service Act. 
'TITLE XXVII—ASSURING PORTABILITY, AVAILABILITY, AND 
RENEWABILITY OF HEALTH INSURANCE COVERAGE 
"PART A—GROUP MARKET REFORMS 
"Subpart 1—Portability, Access, and Renewability Requirements 
"Sec. 2701. Increased portability through limitation on preexisting condition 
exclusions. 
"Sec. 2702. Prohibiting discrimination against individual participants and 
beneficiaries based on health status. 
"Subpart 2—Provisions Applicable Only to Health Insurance Issuers 
"Sec. 2711. Guaranteed availability of coverage for employers in the group 
market. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1937 
"Sec. 2712. Guaranteed renewability of coverage for employers in the group 
market. 
"Sec. 2713. Disclosure of information. 
"Subpart 3—Exclusion of Plans; Enforcement; Preemption 
"Sec. 2721. Exclusion of certain plans. 
"Sec. 2722. Enforcement. 
"Sec. 2723. Preemption; State flexibility; construction. 
"PART C—DEFINITIONS; MISCELLANEOUS PROVISIONS 
"Sec. 2791. Definitions. 
"Sec. 2792. Regulations.". 
Sec. 103. Reference to implementation through the Internal Revenue Code of 1986. 
Sec. 104. Assuring coordination. 
Subtitle B—Individual Market Rules 
Sec. 111. Amendment to Public Health Service Act. 
"PART B—INDIVIDUAL MARKET RULES 
"Sec. 2741. Guaranteed availability of individual health insurance coverage to 
certain individuals with prior group coverage. 
"Sec. 2742. Guaranteed renewability of indiviaual health insurance coverage. 
"Sec. 2743. Certification of coverage. 
"Sec. 2744. State flexibility in individual market reforms. 
"Sec. 2745. Enforcement. 
"Sec. 2746. Preemption. 
"Sec. 2747. General exceptions.". 
Subtitle C—General and Miscellaneous Provisions 
Sec. 191. Health coverage availability studies. 
Sec. 192. Report on Medicare reimbursement of telemedicine. 
Sec. 193. Allowing federally-qualified HMOs to offer high deductible plans. 
Sec. 194. Volunteer services provided by health professionals at free clinics. 
Sec. 195. Findings; severability. 
TITLE II—PREVENTING HEALTH CARE FRAUD AND ABUSE; 
ADMINISTRATIVE SIMPLIFICATION; MEDICAL LIABILITY REFORM 
Sec. 200. References in title. 
Subtitle A—Fraud and Abuse Control Program 
Sec. 201. Fraud and abuse control program. 
Sec. 202. Medicare integrity program. 
Sec. 203. Beneficiary incentive programs. 
Sec. 204. Application of certain health antifraud and abuse sanctions to fraud and 
abuse against Federal health care programs. 
Sec. 205. Guidance regarding application of health care fraud and abuse sanctions. 
Subtitle B—Revisions to Current Sanctions for Fraud and Abuse 
Sec. 211. Mandatory exclusion from participation in Medicare and State health 
care programs. 
Sec. 212. Establishment of minimum period of exclusion for certain individuals and 
entities subject to permissive exclusion from Medicare and State health 
care programs. 
Sec. 213. Permissive exclusion of individuals with ownership or control interest in 
sanctioned entities. 
Sec. 214. Sanctions against practitioners and persons for failure to comply with 
statutory obligations. 
Sec. 215. Intermediate sanctions for Medicare health maintenance organizations. 
Sec. 216. Additional exception to anti-kickback penalties for risk-sharing arrange-
ments. 
Sec. 217. Criminal penalty for fraudulent disposition of assets in order to obtain 
medicaid benefits. 
Sec. 218. Effective date. 
Subtitle C—Data Collection 
Sec. 221. Establishment of the health care fraud and abuse data collection 
program. 
Subtitle D—Civil Monetary Penalties 
Sec. 231. Social Security Act civil monetauy penalties. 
110 STAT. 1938 
PUBLIC LAW 104-191—AUG. 21, 1996 
Sec. 232. Penalty for false certification for home health services. 
Subtitle E—Revisions to Criminal Law 
Sec. 241. Definitions relating to Federal health care offense. 
Sec. 242. Health care fraud. 
Sec. 243. Theft or embezzlement. 
Sec. 244. False statements. 
Sec. 245. Obstruction of criminal investigations of health care offenses. 
Sec. 246. Laundering of monetary instruments. 
Sec. 247. Iiyunctive relief relating to health care offenses. 
Sec. 248. Authorized investigative demand procedures. 
Sec. 249. Forfeitures for Federal health care offenses. 
Sec. 250. Relation to ERISA authority. 
Subtitle F—^Administrative Simplification 
Sec. 261. Purpose. 
Sec. 262. Administrative simplification. 
"PART C—ADMINISTRATIVE SIMPLIFICATION 
"Sec. 1171. Definitions. 
"Sec. 1172. General requirements for adoption of standards. 
"Sec. 1173. Standards for information transactions and data elements. 
"Sec. 1174. Timetables for adoption of standards. 
"Sec. 1175. Requirements. 
"Sec. 1176. General penalty for failure to comply with requirements and stand-
ards. 
"Sec. 1177. Wrongful disclosure of individually identifiable health information. 
"Sec. 1178. Effect on State law. 
"Sec. 1179. Processing payment transactions.". 
Sec. 263. Changes in membership and duties of National Committee on Vital and 
Health Statistics. 
Sec. 264. Recommendations with respect to privacy of certain health information. 
Subtitle G—Duplication and Coordination of Medicare-Related Plans 
Sec. 271. Duplication and coordination of Medicare-related plans. 
TITLE III—TAX-RELATED HEALTH PROVISIONS 
Sec. 300. Amendment of 1986 Code. 
Subtitle A—Medical Savings Accounts 
Sec. 301. Medical savings accounts. 
Subtitle B—Increase in Deduction for Health Insurance Costs of Self-Employed 
Individuals 
Sec. 311. Increase in deduction for health insurance costs of self-employed indi-
viduals. 
Subtitle C—Long-Term Care Services and Contracts 
PART I—GENERAL PROVISIONS 
Sec. 321. Treatment of long-term care insurance. 
Sec. 322. Qualified long-term care services treated as medical care. 
Sec. 323. Reporting requirements. 
PART II—CONSUMER PROTECTION PROVISIONS 
Sec. 325. Policy requirements. 
Sec. 326. Requirements for issuers of qualified long-term care insurance contracts. 
Sec. 327. Effective dates. 
Subtitle D—^Treatment of Accelerated Death Benefits 
Sec. 331. Treatment of accelerated death benefits by recipient. 
Sec. 332. Tax treatment of companies issuing qualified accelerated death benefit 
riders. 
Subtitle E—State Insurance Pools 
Sec. 341. Exemption from income tax for State-sponsored organizations providing 
health coverage for high-risk individuals. 
Sec. 342. Exemption from income tax for State-sponsored workmen's compensation 
reinsurance organizations. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1939 
Subtitle F—Organizations Subject to Section 833 
Sec. 351. Organizations subject to section 833. 
Subtitle G—IRA Distributions to the Unemployed 
Sec. 361. Distributions from certain plans may be used without additional tax to 
pay financially devastating medical expenses. 
Subtitle H—Organ and Tissue Donation Information Included With Income Tax 
Refund Payments 
Sec. 371. Organ and tissue donation information included with income tax refund 
payments. 
TITLE IV—APPLICATION AND ENFORCEMENT OF GROUP HEALTH PLAN 
REQUIREMENTS 
Subtitle A—^Application and Enforcement of Group Health Plan Requirements 
Sec. 401. Group health plan portability, access, and renewability requirements. 
Sec. 402. Penalty on failure to meet certain group health plan requirements. 
Subtitle B—Clarification of Certain Continuation Coverage Requirements 
Sec. 421. COBRA clarifications. 
TITLE V—REVENUE OFFSETS 
Sec. 500. Amendment of 1986 Code. 
Subtitle A—Company-Owned Life Insurance 
Sec. 501. Denial of deduction for interest on loans with respect to company-owned 
life insurance. 
Subtitle B—^Treatment of Individuals Who Lose United States Citizenship 
Sec. 511. Revision of income, estate, and gift taxes on individuals who lose United 
States citizenship. 
Sec. 512. Information on individuals losing United States citizenship. 
Sec. 513. Report on tax compliance by United States citizens and residents living 
abroad. 
Subtitle C—Repeal of Financial Institution Transition Rule to Interest Allocation 
Rules 
Sec. 521. Repeal of financial institution transition rule to interest allocation rules. 
TITLE I—HEALTH CARE ACCESS, 
PORTABILITY, AND RENEWABILITY 
Subtitle A—Group Market Rules 
PART 1—PORTABILITY, ACCESS, AND RENEWABILITY REQUIREMENTS 
SEC. 101. THROUGH THE EMPLOYEE RETIREMENT INCOME SECURITY 
ACT OF 1974. 
(a) IN GENERAL.—Subtitle B of title I of the Employee Retire-
ment Income Security Act of 1974 is amended by adding at the 
end the following new part: 
"PART 7—GROUP HEALTH PLAN PORTABILITY, ACCESS, AND 
RENEWABILITY REQUIREMENTS 
"SEC 701. INCREASED PORTABILITY THROUGH LIMITATION ON 
29USC1181. 
PREEXISTING CONDITION EXCLUSIONS. 
"(a) LIMITATION ON PREEXISTING CONDITION EXCLUSION PERIOD; 
CREDITING FOR PERIODS OF PREVIOUS COVERAGE.—Subject to sub-
section (d), a group health plan, and a health insurance issuer 
110 STAT. 1940 
PUBLIC LAW 104-191—AUG. 21, 1996 
offering group health insurance coverage, may, with respect to 
a participant or beneficiary, impose a preexisting condition exclusion 
only if— 
"(1) such exclusion relates to a condition (whether physical 
or mental), regardless of the cause of the condition, for which 
medical advice, diagnosis, care, or treatment was recommended 
or received within the 6-month period ending on the enrollment 
date; 
"(2) such exclusion extends for a period of not more than 
12 months (or 18 months in the case of a late enrollee) after 
the enrollment date; and 
"(3) the period of any such preexisting condition exclusion 
is reduced by the aggregate of the periods of creditable coverage 
(if any, as defined in subsection (c)(1)) applicable to the partici-
pguit or beneficiary as of the enrollment date. 
"(b) DEFINITIONS.—For purposes of this part— 
"(1) PREEXISTING CONDITION EXCLUSION.— 
"(A) IN GENERAL.—The term 'preexisting condition 
exclusion' means, with respect to coverage, a limitation 
or exclusion of benefits relating to a condition based on 
the fact that the condition was present before the date 
of enrollment for such coverage, whether or not any medical 
advice, diagnosis, care, or treatment was recommended 
or received before such date. 
"(B) TREATMENT OF GENETIC INFORMATION.—Genetic 
information shall not be treated as a condition described 
in subsection (a)(1) in the absence of a diagnosis of the 
condition related to such information. 
"(2) 
ENROLLMENT 
DATE.—The term 
'enrollment 
date' 
means, with respect to an individual covered under a group 
health plan or health insurance coverage, the date of enrollment 
of the individual in the plan or coverage or, if earlier, the 
first day of the waiting period for such enrollment. 
"(3) LATE ENROLLEE.—The term 'late enrollee' means, with 
respect to coverage under a group health plan, a participant 
or beneficiary who enrolls under the plan other than during— 
"(A) the first period in which the individual is eligible 
to enroll under the plan, or 
"(B) a special enrollment period under subsection (f). 
"(4) WAITING PERIOD.—The term 'waiting period' means, 
with respect to a group health plan and an individual who 
is a potential participant or beneficiary in the plan, the period 
that must pass with respect to the individual before the individ-
ual is eligible to be covered for benefits under the terms of 
the plan. 
"(c) RULES RELATING TO CREDITING PREVIOUS COVERAGE.— 
"(1) CREDITABLE COVERAGE DEFINED.—For purposes of this 
part, the term 'creditable coverage' means, with respect to 
an individual, coverage of the individual under any of the 
following: 
"(A) A group health plan. 
"(B) Health insurance coverage. 
"(C) Part A or part B of title XVIII of the Social 
Security Act. 
"(D) Title XIX of the Social Security Act, other than 
coverage consisting solely of benefits under section 1928. 
"(E) Chapter 55 of title 10, United States Code. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1941 
"(F) A medical care program of the Indian Health 
Service or of a tribal organization. 
"(G) A State health benefits risk pool. 
"(H) A health plan offered under chapter 89 of title 
5, United States Code. 
"(I) A public health plan (as defined in regulations). 
"(J) A heedth benefit plan under section 5(e) of the 
Peace Corps Act (22 U.S.C. 2504(e)). 
Such term does not include coverage consisting solely of cov-
erage of excepted benefits (as defined in section 706(c)). 
"(2) NOT coinNfTiNG PERIODS BEFORE SIGNIFICANT BREAKS 
IN COVERAGE.— 
"(A) IN GENERAL.—^A period of creditable coverage shall 
not be counted, with respect to enrollment of an individual 
under a group health plan, if, after such period and before 
the enrollment date, there was a 63-day period during 
all of which the individual was not covered under any 
creditable coverage. 
"(B) WAITING PERIOD NOT TREATED AS A BREAK IN COV-
ERAGE.—For purposes of subparagraph (A) and subsection 
(d)(4), any period that an individual is in a waiting period 
for any coverage under a group health plan (or for group 
health insurance coverage) or is in an affiliation period 
(as defined in subsection (g)(2)) shall not be tsiken into 
account in determining the continuous period under 
subparagraph (A). 
"(3) METHOD OF CREDITING COVERAGE.— 
"(A) STANDARD METHOD.—Except as otherwise provided 
under subparagraph (B), for purposes of appljdng sub-
section (a)(3), a group health plan, and a health insurance 
issuer offering group health insursince coverage, shall count 
a period of creditable coverage without regard to the specific 
benefits covered during the period. 
"(B) ELECTION OF ALTERNATIVE METHOD.—A group 
health plan, or a health insurance issuer offering group 
health insurance coverage, may elect to apply subsection 
(a)(3) based on coverage of benefits within each of several 
classes or categories of benefits specified in regulations 
rather than as provided under subparagraph (A). Such 
election shall be made on a uniform basis for all partici-
pants £md beneficiaries. Under such election a group health 
plsin or issuer shall count a period of creditable coverage 
with respect to any class or category of benefits if any 
level of benefits is covered within such class or category. 
"(C) PLAN NOTICE.—In the case of an election with 
respect to a group health plan under subparagraph (B) 
(whether or not health insurance coverage is provided in 
connection with such plan), the plan shall— 
"(i) prominently state in any disclosure statements 
concerning the plan, and state to each enroUee at the 
time of enrollment under the plan, that the plan has 
made such election, and 
"(ii) include in such statements a description of 
the effect of this election. 
"(4) ESTABLISHMENT OF PERIOD.—Periods of creditable cov-
erage with respect to an individusd shall be established through 
110 STAT. 1942 
PUBLIC LAW 104-191—AUG. 21, 1996 
presentation of certifications described in subsection (e) or in 
such other manner as may be specified in regulations. 
"(d) EXCEPTIONS.— 
"(1) EXCLUSION NOT APPLICABLE TO CERTAIN NEWBORNS.— 
Subject to paragr^h (4), a group health plan, and a health 
insurance issuer offering group health insurance coverage, may 
not impose any preexisting condition exclusion in the case 
of an individusd who, as of the last day of the 30-day period 
beginning with the date of birth, is covered under creditable 
coverage. 
"(2) EXCLUSION NOT APPLICABLE TO CERTAIN ADOPTED CHIL-
DREN.—Subject to paragraph (4), a group health plan, and 
a health insurance issuer offering group health insureince cov-
erage, may not impose any preexisting condition exclusion in 
the case of a child who is adopted or placed for adoption 
before attaining 18 years of age and who, as of the last day 
of the 30-day period beginning on the date of the adoption 
or placement for adoption, is covered under creditable coverage. 
The previous sentence shall not apply to coverage before the 
date of such adoption or placement for adoption. 
"(3) EXCLUSION NOT APPLICABLE TO PREGNANCY.—A group 
health plan, and health insurance issuer ofTering group health 
insurance coverage, may not impose any preexisting condition 
exclusion relating to pregnancy as a preexisting condition. 
"(4) LOSS IF BREAK IN COVERAGE.—Paragraphs (1) and (2) 
sh£dl no longer apply to an individual after the end of the 
first 63-day period during all of which the individual was not 
covered under any creditable coverage. 
"(e) CERTIFICATIONS AND DISCLOSURE OF COVERAGE.— 
"(1) REQUIREMENT FOR CERTIFICATION OF PERIOD OF CRED-
ITABLE COVERAGE.— 
"(A) IN GENERAL.—A group health plan, and a health 
insurance issuer offering group health insurance coverage, 
shall provide the certification described in subparagraph 
( B ) -
"(i) at the time an individual ceases to be covered 
under the plan or otherwise becomes covered under 
a COBRA continuation provision, 
"(ii) in the case of an individual becoming covered 
under such a provision, at the time the individual 
ceases to be covered under such provision, and 
"(iii) on the request on behalf of an individual 
made not later than 24 months after the date of ces-
sation of the coverage described in clause (i) or (ii), 
whichever is later. 
The certification under clause (i) may be provided, to the 
extent practicable, at a time consistent with notices 
required under any applicable COBRA continuation provi-
sion. 
"(B) CERTIFICATION.—The certification described in this 
subparagraph is a written certification of— 
"(i) the period of creditable coverage of the individ-
ual under such plan and the coverage (if any) under 
such COBRA continuation provision, and 
"(ii) the waiting period (if any) (and affiliation 
period, if applicable) imposed with respect to the 
individual for any coverage under such plan. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1943 
"(C) ISSUER COMPLIANCE.—TO the extent that medical 
care under a group health plan consists of group health 
insurance coverage, the plan is deemed to have satisfied 
the certification requirement under this paragraph if the 
health insurance issuer offering the coverage provides for 
such certification in accordance with this paragraph. 
"(2) DISCLOSURE OF INFORMATION ON PREVIOUS BENEFITS.— 
In the case of an election described in subsection (c)(3)(B) 
by a group health plan or health insurance issuer, if the plan 
or issuer enrolls an individual for coverage under the plan 
and the individual provides a certification of coverage of the 
individual under paragraph (1)— 
"(A) upon request of such plan or issuer, the entity 
which issued the certification provided by the individual 
shall promptly disclose to such requesting plan or issuer 
information on coverage of classes and categories of health 
benefits available under such entity's plan or coverage, 
and 
"(B) such entity may charge the requesting plan or 
issuer for the reasonable cost of disclosing such information. 
"(3) REGULATIONS.—The Secretary shall establish rules to 
prevent an entit^s failure to provide information under para-
graph (1) or (2) with respect to previous coverage of an individ-
ual from adversely affecting any subsequent coverage of the 
individual under another group health plan or health insurance 
coverage. 
"(f) SPECL\L ENROLLMENT PERIODS.— 
"(1) INDIVIDUALS LOSING OTHER COVERAGE.—A group health 
plan, and a health insurance issuer offering group health insur-
ance coverage in connection with a group health plan, shall 
permit an employee who is eligible, but not enrolled, for cov-
erage under the terms of the plan (or a dependent of such 
an employee if the dependent is eligible, but not enrolled, 
for coverage under such terms) to enroll for coverage under 
the terms of the plan if each of the following conditions is 
met: 
"(A) The employee or dependent was covered under 
a group health plan or had health insurance coverage at 
the time coverage was previously offered to the employee 
or dependent. 
"(B) The employee stated in writing at such time that 
coverage under a group health plan or health insurance 
coverage was the reason for declining enrollment, but only 
if the plan sponsor or issuer (if applicable) required such 
a statement at such time and provided the employee with 
notice of such requirement (and the consequences of such 
requirement) at such time. 
"(C) The employee's or dependent's coverage described 
in subparagraph (A)— 
"(i) was under a COBRA continuation provision 
and the coverage imder such provision was exhausted; 
or 
"(ii) was not under such a provision and either 
the coverage was terminated as a result of loss of 
eligibility for the coverage (including as a result of 
legal separation, divorce, death, termination of employ-
ment, or reduction in the number of hours of employ-
110 STAT. 1944 
PUBLIC LAW 104-191—AUG. 21, 1996 
ment) or employer contributions toward such coverage 
were terminated. 
"(D) Under the terms of the plan, the employee 
requests such enrollment not later than 30 days after the 
date of exhaustion of coverage described in subparagraph 
(C)(i) or termination of coverage or employer contribution 
described in subparagraph (C)(ii). 
"(2) FOR DEPENDENT BENEFICIARIES.— 
"(A) IN GENERAL.—If— 
"(i) a group health plan makes coverage available 
with respect to a dependent of an individual, 
"(ii) the individual is a participant under the plan 
(or has met any waiting period applicable to becoming 
a participant under the plan and is eligible to be 
enrolled luider the plsm but for a failure to enroll 
during a previous enrollment period), £ind 
"(iii) a person becomes such a dependent of the 
individual through marriage, birth, or adoption or 
placement for adoption, 
the group health plan shall provide for a dependent special 
enrollment period described in subparagraph (B) during 
which the person (or, if not otherwise enrolled, the individ-
ual) may be enrolled under the plan as a dependent of 
the individual, and in the case of the birth or adoption 
of a child, the spouse of the individual may be enrolled 
as a dependent of the individual if such spouse is otherwise 
eligible for coverage. 
"(B) 
DEPENDENT SPECIAL ENROLLMENT PERIOD.—A 
dependent special enrollment period under this subpara-
graph shall be a period of not less than 30 days and 
shall begin on the later o
f
— 
"(i) 
the 
date 
dependent 
coverage 
is 
made 
available, or 
"(ii) the date of the marriage, birth, or adoption 
or placement for adoption (as the case may be) 
described in subparagraph (A)(iii). 
"(C) No WAITING PERIOD.—If an individual seeks to 
enroll a dependent during the first 30 days of such a 
dependent special enrollment period, the coverage of the 
dependent shall become effective— 
"(i) in the case of marriage, not later than the 
first day of the first month beginning after the date 
the completed request for enrollment is received; 
"(ii) in the case of a dependent's birth, as of the 
date of such birth; or 
"(iii) in the case of a dependent's adoption or place-
ment for adoption, the date of such adoption or place-
ment for adoption. 
"(g) USE OF AFFILIATION PERIOD BY H M O S AS ALTERNATIVE 
TO PREEXISTING CONDITION EXCLUSION.— 
"(1) IN GENERAL.—In the case of a group health plan that 
offers medical care through health insurance coverage offered 
by a health maintenance organization, the plan may provide 
for an aftiliation period with respect to coverage through the 
organization only if— 
"(A) no preexisting condition exclusion is imposed with 
respect to coverage through the organization, 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1945 
"(B) the period is applied uniformly without regard 
to any health status-related factors, Eind 
"(C) such period does not exceed 2 months (or 3 months 
in the case of a late enroUee). 
"(2) AFFILIATION PERIOD.— 
"(A) DEFINED.—For purposes of this part, the term 
'affiliation period' means a period which, under the terms 
of the health insurance coverage offered by the health 
maintenance organization, must expire before the health 
insurance coverage becomes effective. The organization is 
not required to provide health care services or benefits 
during such period and no premium shall be charged to 
the participant or beneficiary for any coverage during the 
period. 
"(B) BEGINNING.—Such period shall begin on the enroll-
ment date. 
"(C) RUNS CONCURRENTLY WITH WAITING PERIODS.— 
An affiliation period under a plan shall run concurrently 
with any waiting period under the plan. 
"(3) 
ALTERNATIVE 
METHODS.—A 
health 
maintenance 
organization described in paragraph (1) may use alternative 
methods, fi-om those described in such paragraph, to address 
adverse selection as approved by the State insurance commis-
sioner or official or officials designated by the State to enforce 
the requirements of part A of title XXVII of the Public Health 
Service Act for the State involved with respect to such issuer. 
"SEC. 702. PROHIBITING 
DISCRIMINATION 
AGAINST 
INDIVIDUAL 
29 USC1182. 
PARTICIPANTS AND BENEFICIARIES BASED ON HEALTH 
STATUS. 
, 
"(a) IN ELIGIBILITY TO ENROLL.— 
"(1) IN GENERAL.—Subject to paragraph (2), a group health 
plan, and a health insurance issuer offering group health insur-
ance coverage in connection with a group health plan, may 
not establish rules for eligibility (including continued eligibility) 
of any individual to enroll under the terms of the plan based 
on any of the following health status-related factors in relation 
to the individual or a dependent of the individual: 
"(A) Health status. 
"(B) Medical condition (including both physical and 
mental illnesses). 
"(C) Claims experience. 
"(D) Receipt of health care. 
"(E) Medical history. 
"(F) Genetic information. 
"(G) Evidence of insurability (including conditions aris-
ing out of acts of domestic violence). 
"(H) Disability. 
"(2) N o APPLICATION TO BENEFITS OR EXCLUSIONS.—To the 
extent consistent with section 701, paragraph (1) shall not 
be construed— 
"(A) to require a group health plan, or group health 
insurance coverage, to provide particular benefits other 
than those provided under the terms of such plan or cov-
erage, or 
"(B) to prevent such a plan or coverage fi-om establish-
ing Hmitations or restrictions on the amount, level, extent. 
110 STAT. 1946 
PUBLIC LAW 104-191—AUG. 21, 1996 
or nature of the benefits or coverage for similarly situated 
individuals enrolled in the plan or coverage. 
"(3) CONSTRUCTION.—^For purposes of paragraph (1), rules 
for eligibility to enroll under a plan include rules defining 
any applicable waiting periods for such enrollment. 
"(b) IN PREMIUM CONTRIBUTIONS.— 
"(1) IN GENERAL.—A group health plan, and a health insur-
ance issuer offering health insurance coverage in connection 
with a group health plan, may not require any individual 
(as a condition of enrollment or continued enrollment under 
the plan) to pay a premium or contribution which is greater 
than such premium or contribution for a similarly situated 
individual enrolled in the plan on the basis of any health 
status-related factor in relation to the individual or to an 
individual enrolled under the plan as a dependent of the 
individual. 
"(2) CONSTRUCTION.—Nothing in paragraph (1) shall be 
construed— 
"(A) to restrict the amoimt that an employer may be 
charged for coverage under a group health plan; or 
"(B) to prevent a group health plan, and a health 
insurance issuer offering group health insurance coverage, 
from establishing premium discounts or rebates or modify-
ing otherwise applicable copa3nraents or deductibles in 
return for adherence to programs of health promotion and 
disease prevention. 
29 use 1183. 
•«EC. 703. GUARANTEED RENEWABILITY IN MULTIEMPLOYER PLANS 
AND MULTIPLE EMPLOYER WELFARE ARRANGEMENTS. 
"A group health plan which is a multiemployer plan or which 
is a multiple employer welfare arrangement may not deny an 
employer whose employees are covered under such a plan continued 
access to the same or different coverage under the terms of such 
a plan, other than— 
"(1) for nonpayment of contributions; 
"(2) for fraud or other intentional misrepresentation of 
material fact by the employer; 
"(3) for noncompliance with material plan provisions; 
"(4) because the plan is ceasing to offer any coverage in 
a geographic area; 
"(5) in the case of a plan that offers benefits through 
a network plan, there is no longer any individual enrolled 
through the employer who lives, resides, or works in the service 
area of the network plan and the plan applies this paragraph 
uniformly without regard to the claims experience of employers 
or any health status-related factor in relation to such individ-
uals or their dependents; and 
"(6) for failure to meet the terms of an applicable collective 
bargaining agreement, to renew a collective bargaining or other 
agreement requiring or authorizing contributions to the plan, 
or to employ employees covered by sudb an agreement. 
29 use 1191. 
"SEC. 704. PREEMPTION; STATE FLEXIBILITY; CONSTRUCTION. 
"(a) CONTINUED APPUCABILITY OF STATE LAW WITH RESPECT 
TO HEALTH INSURANCE ISSUERS.— 
"(1) IN GENERAL.—Subject to paragraph (2) and except 
as provided in subsection (b), this part shall not be construed 
to supersede any provision of State law which establishes, 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1947 
implements, or continues in effect any standard or requirement 
solely relating to health insurance issuers in connection with 
group health insurance coverage except to the extent that such 
standard or requirement prevents the application of a require-
ment of this part. 
"(2) 
CONTINUED PREEMPTION WITH RESPECT TO GROUP 
HEALTH PLANS.—Nothing in this part shall be construed to 
affect or modify the provisions of section 514 with respect 
to group health plans. 
"(b) SPECIAL RULES IN CASE OF PORTABILITY REQUIREMENTS.— 
"(1) IN GENERAL.—Subject to paragraph (2), the provisions 
of this part relating to health insurance coverage offered by 
a health insurance issuer supersede any provision of State 
law which establishes, implements, or continues in effect a 
standeird or requirement applicable to imposition of a preexist-
ing condition exclusion specifically governed by section 701 
which differs from the standards or requirements specified 
in such section. 
"(2) EXCEPTIONS.—Only in relation to health insurance cov-
erage offered by a health insurance issuer, the provisions of 
this part do not supersede any provision of State law to the 
extent that such provision— 
"(A) substitutes for the reference to '6-month period' 
in section 701(a)(1) a reference to any shorter period of 
time; 
"(B) substitutes for the reference to *12 months' and 
'18 months' in section 701(a)(2) a reference to any shorter 
period of time; 
"(C) substitutes for the references to '63 days' in sec-
tions 701 (c)(2)(A) and (d)(4)(A) a reference to any greater 
number of days; 
"(D) substitutes for the reference to '30-day period' 
in sections 701 (b)(2) and (d)(1) a reference to any greater 
period; 
"(E) prohibits the imposition of any preexisting condi-
tion exclusion in cases not described in section 701(d) or 
expands the exceptions described in such section; 
"(F) requires special enrollment periods in addition 
to those required under section 701(f); or 
"(G) reduces the maximum period permitted in an 
affiliation period under section 701(g)(1)(B). 
"(c) RULES OF CONSTRUCTION.—Nothing in this part shall be 
construed as requiring a group health plan or health insurance 
coverage to provide specific benefits under the terms of such plan 
or coverage. 
"(d) DEFINITIONS.—For purposes of this section— 
"(1) STATE LAW.~The term 'State law' includes all laws, 
decisions, rules, regulations, or other State action having the 
effect of law, of any State. A law of the United States applicable 
only to the District of Columbia shall be treated as a State 
law rather than a law of the United States. 
"(2) STATE.—The term 'State' includes a State, the Northern 
Mariana Islsinds, any political subdivisions of a State or such 
Islands, or any agency or instrumentality of either. 
110 STAT. 1948 
PUBLIC LAW 104-191—AUG. 21, 1996 
29 use 1191a. 
"SEC. 705. SPECIAL RULES RELATING TO GROUP HEALTH PLANS. 
"(a) GENERAL EXCEPTION FOR CERTAIN SMALL GROUP HEALTH 
PLANS.—^The requirements of this part shall not apply to any group 
health plan (and group health insurance coverage offered in connec-
tion with a group health plan) for any plan year if, on the first 
day of such plan year, such plan has less than 2 participants 
who are current employees. 
"(b) EXCEPTION FOR CERTAIN BENEFITS.—^The requirements of 
this part shall not apply to any group health plan (and group 
health insurance coverage) in relation to its provision of excepted 
benefits described in section 706(c)(1). 
"(c) EXCEPTION FOR CERTAIN BENEFITS IF CERTAIN CONDITIONS 
MET.— 
"(1) LIMITED, EXCEPTED BENEFITS.—^The requirements of 
this part shall not apply to any group health plan (and group 
hegJth insurance coverage offered in connection with a group 
health plan) in relation to its provision of excepted benefits 
described in section 706(c)(2) if the benefits— 
"(A) are provided under a separate policy, certificate, 
or contract of insurance; or 
"(B) are otherwise not an integral part of the plan. 
"(2) NONCOORDINATED, EXCEPTED BENEFITS.—^The require-
ments of this part shall not apply to any group health plan 
(and group health insurance coverage offered in connection 
with a group health plan) in relation to its provision of excepted 
benefits described in section 706(c)(3) if all of the following 
conditions are met: 
"(A) The benefits are provided under a separate policy, 
certificate, or contract of insurance. 
"(B) There is no coordination between the provision 
of such benefits and any exclusion of benefits under any 
group health plan maintained by the same plan sponsor. 
"(C) Such benefits are paid with respect to an event 
without regard to whether benefits are provided with 
respect to such an event under any group health plan 
maintained by the same plan sponsor. 
"(3) 
SUPPLEMENTAL EXCEPTED BENEFITS.—^The require-
ments of this part shall not apply to any group health plan 
(and group hesdth insurance coverage) in relation to its provi-
sion of excepted benefits described in section 706(c)(4) if the 
benefits are provided under a separate policy, certificate, or 
contract of insurance. 
"(d) TREATMENT OF PARTNERSHIPS.—^For purposes of this part— 
"(1) TREATMENT AS A GROUP HEALTH PLAN.—Any plan, fund, 
or program which would not be (but for this subsection) an 
employee welfare benefit plan and which is established or main-
tained by a partnership, to the extent that such plan, fund, 
or program provides medical care (including items and services 
paid for as medical care) to present or former partners in 
the partnership or to their dependents (as defined under the 
terms of the plan, fund, or program), directly or through insur-
ance, reimbursement, or otherwise, shall be treated (subject 
to paragraph (2)) as an employee welfare benefit plan which 
is a group health plan. 
(2) EMPLOYER.—^In the case of a group health plan, the 
term 'employer' also includes the partnership in relation to 
any partner. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1949 
"(3) PARTICIPANTS OF GROUP HEALTH PLANS.—In the case 
of a group health plan, the term 'participant' also includes— 
"(A) in connection with a group health plan maintained 
by a partnership, an individual who is a partner in relation 
to the partnership, or 
"(B) in connection with a group health plan maintained 
by a self-employed individual (under which one or more 
employees are participants), the self-employed individual, 
if such individual is, or may become, eligible to receive a benefit 
under the plan or such individual's beneficiaries may be eligible 
to receive any such benefit. 
"SEC. 706. DEFINITIONS. 
29 USC 1191b. 
"(a) GROUP HEALTH PLAN.—For purposes of this part— 
"(1) IN GENERA!^.—^The term 'group health plan' means 
an employee welfare benefit plan to the extent that the plan 
provides medical care (as defined in paragraph (2) and including 
items and services paid for as medical care) to employees or 
their dependents (as defined under the terms of the plan) 
directly or through insurance, reimbursement, or otherwise. 
"(2) 
MEDICAL 
CARE.—^The term 'medical care' means 
amounts paid for— 
"(A) the diagnosis, cure, mitigation, treatment, or 
prevention of disease, or amounts paid for the purpose 
of affecting any structure or function of the body, 
"(B) amounts paid for transportation primarily for and 
essential to medical care referred to in subparagraph (A), 
and 
"(C) amounts paid for insurance covering medical care 
referred to in subparagraphs (A) £ind (B). 
"(b) DEFINITIONS RELATING TO HEALTH INSURANCE.—For pur-
poses of this part— 
"(1) HEALTH 
INSURANCE COVERAGE.—^The term 'health 
insurance coverage' means benefits consisting of medical care 
(provided directly, through insurance or reimbursement, or 
otherwise and including items and services paid for as medical 
care) under any hospital or medical service policy or certificate, 
hospital or medical service plan contract, or health maintenance 
organization contract offered by a health insurance issuer. 
"(2) HEALTH INSURANCE ISSUER.—The term 'health insur-
ance issuer' means an insurance company, insurance service, 
or insurance organization (including a health maintenance 
organization, as defined in paragraph (3)) which is licensed 
to engage in the business of insurance in a State and which 
is subject to State law which regulates insurance (within the 
meaning of section 514(bX2)). Such term does not include a 
group health plan. 
"(3) 
HEALTH 
MAINTENANCE 
ORGANIZATION.—^The 
term 
'health maintenance organization' means— 
"(A) a federally qualified health maintenance organiza-
tion (as defined in section 1301(a) of the Public Health 
Service Act (42 U.S.C. 300e(a))), 
"(B) an organization recognized under State law as 
a health maintenance organization, or 
"(C) a similar organization regulated under State law 
for solvency in the same manner and to the same extent 
as such a health maintenance organization. 
110 STAT. 1950 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(4) GROUP HEALTH INSURANCE COVERAGE.—The term 
'group health insurance coverage' means, in connection with 
a group health plan, health insurance coverage offered in 
connection with such plan. 
"(c) EXCEPTED BENEFITS.—For purposes of this part, the term 
'excepted benefits' mecins benefits under one or more (or any com-
bination thereof) of the following: 
"(1) BENEFITS NOT SUBJECT TO REQUIREMENTS.— 
"(A) Coverage only for accident, or disability income 
insurance, or any combination thereof. 
"(B) Coverage issued as a supplement to liability insur-
£ince. 
"(C) Liability insurance, including general liability 
insurance and automobile liability insursince. 
"(D) Workers' compensation or similar insurance. 
"(E) Automobile medical payment insurance. 
"(F) Credit-only insurance. 
"(G) Coverage for on-site medical clinics. 
"(H) Other similar insurance coverage, specified in 
regulations, under which benefits for medical care are 
secondary or incidental to other insurance benefits. 
"(2) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED 
SEPARATELY.— 
"(A) Limited scope dental or vision benefits. 
"(B) Benefits for long-term care, nursing home care, 
home health care, community-based care, or any combina-
tion thereof. 
"(C) Such other similar, limited benefits as are specified 
in regulations. 
"(3) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED 
AS INDEPENDENT, NONCOORDINATED BENEFITS.— 
"(A) Coverage only for a specified disease or illness. 
"(B) Hospital indemnity or other fixed indemnity insur-
ance. 
"(4) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED 
AS 
SEPARATE 
INSURANCE 
POLICY.—Medicare 
supplemental 
health insurance (as defined under section 1882(g)(1) of the 
Social Security Act), coverage supplemental to the coverage 
provided under chapter 55 of title 10, United States Code, 
and similar supplemental coverage provided to coverage under 
a group health plan. 
"(d) OTHER DEFINITIONS.—For purposes of this part— 
"(1) COBRA CONTINUATION PROVISION.—The term 'COBRA 
continuation provision' means any of the following: 
"(A) Part 6 of this subtitle. 
"(B) Section 4980B of the Internal Revenue Code of 
1986, other than subsection (f)(1) of such section insofar 
as it relates to pediatric vaccines. 
"(C) Title XXII of the Public Health Service Act. 
"(2) HEALTH STATUS-RELATED FACTOR.—The term 'health 
status-related factor' means any of the factors described in 
section 702(a)(1). 
"(3) NETWORK PLAN.—The term 'network plan' means 
health insurance coverage offered by a health insurance issuer 
under which the financing and delivery of medical care (includ-
ing items and services paid for as medical care) are provided. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1951 
in whole or in part, through a defined set of providers under 
contract with the issuer. 
"(4) PLACED FOR ADOPTION.—^The term 'placement', or being 
'placed', for adoption, has the meaning given such term in 
section 609(c)(3)(B). 
"SEC. 707. REGULATIONS. 
29 USC 1191c. 
"The Secretary, consistent with section 104 of the Health Care 
Portability and Accountability Act of 1996, may promulgate such 
regulations as may be necessary or appropriate to carry out the 
provisions of this part. The Secretary may promulgate any interim 
final rules as the Secretary determines are appropriate to carry 
out this part.". 
(b) ENFORCEMENT WITH RESPECT TO HEALTH INSURANCE ISSU-
ERS.—Section 502(b) of such Act (29 U.S.C. 1132(b)) is amended 
by adding at the end the following new paragraph: 
"(3) The Secretary is not authorized to enforce under this part 
any requirement of part 7 against a health insurance issuer offering 
health insurance coverage in connection with a group health plan 
(as defined in section 706(a)(1)). Nothing in this paragraph shall 
affect the authority of the Secretary to issue regulations to carry 
out such part.". 
(c) DISCLOSURE OF INFORMATION TO PARTICIPANTS AND BENE-
FICIARIES.— 
(1) IN GENERAL.—Section 104(b)(1) of such Act (29 U.S.C 
1024(b)(1)) is amended in the matter following subpara-
graph (By— 
(A) by striking "102(a)(1)," and inserting "102(a)(1) 
(other than a material reduction in covered services or 
benefits provided in the case of a group health plan (as 
defined in section 706(a)(1))),"; and 
(B) by adding at the end the following new sentences: 
"If there is a modification or change described in section 
102(a)(1) that is a material reduction in covered services 
or benefits provided under a group health plgin (as defined 
in section 706(a)(1)), a summary description of such modi-
fication or change shall be furnished to participants and 
beneficiaries not later than 60 days after the date of the 
adoption of the modification or change. In the alternative, 
the plan sponsors may provide such description at regular 
intervals of not more than 90 days. The Secretary shall 
' 
issue regulations within 180 days after the date of enact-
ment of the Health Insurance Portability and Accountabil-
ity Act of 1996, providing alternative mechanisms to 
delivery by mail through which group health plans (as 
so defined) may notify participants and beneficiaries of 
material reductions in covered services or benefits.". 
(2) PLAN DESCRIPTION AND SUMMARY.—Section 102(b) of 
such Act (29 U.S.C. 1022(b)) is amended— 
(A) by inserting "in the case of a group health plan 
(as defined in section 706(a)(1)), whether a health insurance 
issuer (as defined in section 706(b)(2)) is responsible for 
the finsincing or administration (including pa5anent of 
claims) of the plan and (if so) the name £ind address of 
such issuer;" ^ter "type of administration of the plan;"; 
and 
110 STAT. 1952 
PUBLIC LAW 104-191—AUG. 21, 1996 
(B) by inserting "including the office at the Department 
of Labor through which participants and beneficiaries may 
seek assistance or information regarding their rights under 
this Act and the Health Insurance Portability and Account-
ability Act of 1996 with respect to health benefits that 
are offered through a group health plan (as defined in 
section 706(a)(1))'' after 'Tbenefits under the plan", 
(d) 
TREATMENT OF HEALTH INSURANCE ISSUERS OFFERING 
HEALTH INSURANCE COVERAGE TO NONCOVERED PLANS.—Section 
4(b) of such Act (29 U.S.C. 1003(b)) is amended by adding at 
the end (after and below psiragraph (5)) the following: 
"The provisions of part 7 of subtitle B shall not apply to a health 
insurance issuer (as defined in section 706(b)(2)) solely by reason 
of health insurance coverage (as defined in section 706(b)(1)) pro-
vided by such issuer in connection with a group health plan (as 
defined in section 706(a)(1)) if the provisions of this title do not 
apply to such group health plan.". 
(e) REPORTING AND ENFORCEMENT WITH RESPECT TO CERTAIN 
ARRANGEMENTS.— 
(1) IN GENERAL.—Section 101 of such Act (29 U.S.C. 1021) 
is amended— 
(A) by redesignating subsection (g) as subsection 
(h), and 
(B) by inserting after subsection (f) the following new 
subsection: 
"(g) REPORTING BY CERTAIN ARRANGEMENTS.—^The Secretary 
may, by regulation, require multiple employer welfare arrangements 
providing benefits consisting of medical care (within the meaning 
of section 706(a)(2)) which are not group health plans to report, 
not more frequently than annually, in such form and such manner 
as the Secretary may require for the purpose of determining the 
extent to which the requirements of part 7 are being carried out 
in connection with such benefits.". 
(2) ENFORCEMENT.— 
(A) IN GENERAL.—Section 502 of such Act (29 U.S.C. 
1132) is amended— 
(i) in subsection (a)(6), by striking "under sub-
section (c)(2) or (i) or (1)" and inserting "under para-
graph (2), (4), or (5) of subsection (c) or under 
subsection (i) or (1)"; and 
(ii) in the last 2 sentences of subsection (c), by 
striking "For purposes of this paragraph" and all that 
follows through "The Secretary and" and inserting the 
following: 
"(5) The Secretary may assess a civil penalty against any person 
of up to $1,000 a day from the date of the person's failure or 
refusal to file the information required to be filed by such person 
with the Secretary under regulations prescribed pursuant to section 
101(g). 
"(6) The Secretary and". 
(B) TECHNICAL AND CONFORMING AMENDMENT.—Sec-
tion 502(c)(1) of such Act (29 U.S.C. 1132(c)(1)) is amended 
by adding at the end the following sentence: "For purposes 
of this p£iragraph, each violation described in subparagraph 
(A) with respect to any single participant, and each viola-
tion described in subparagraph (B) with respect to any 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1953 
single participant or beneficiary, shall be treated as a sepa-
rate violation.". 
(3) COORDINATION.—Section 506 of such Act (29 U.S.C. 
1136) is amended by adding at the end the following new 
subsection: 
"(c) 
COORDINATION OF ENFORCEMENT WITH 
STATES WITH 
RESPECT TO CERTAIN ARRANGEMENTS.—A State may enter into 
an agreement with the Secretary for delegation to the State of 
some or all of the Secretary's authority under sections 502 and 
504 to enforce the requirements under part 7 in connection with 
multiple employer welfare arrangements, providing medical care 
(within the meaning of section 706(a)(2)), which are not group 
health plans.". 
(f) CONFORMING AMENDMENTS.— 
(1) Section 514(b) of such Act (29 U.S.C. 1144(b)) is 
amended by adding at the end the following new paragraph: 
"(9) For additional provisions relating to group health plans, 
see section 704.". 
(2)(A) Part 6 of subtitle B of title I of such Act (29 U.S.C. 
1161 et seq.) is amended by striking the heading and inserting 
the following: 
"PART 6—CONTINUATION COVERAGE AND ADDITIONAL STANDARDS 
FOR GROUP HEALTH PLANS". 
(B) The table of contents in section 1 of such Act is amended 
by striking the item relating to the heading for part 6 of 
subtitle B of title I and inserting the following: 
"PART 6—CONTINUATION COVERAGE AND ADDITIONAL STANDARDS FOR GROUP 
HEALTH PLANS". 
(3) The table of contents in section 1 of such Act (as 
amended by the preceding provisions of this section) is amended 
by inserting after the items relating to part 6 the following 
new items: 
"PART 7—GROUP HEALTH PLAN PORTABILITY, ACCESS, AND RENEWABILITY 
REQUIREMENTS 
"Sec. 701. Increased portability through limitation on preexisting condition exclu-
sions. 
"Sec. 702. Prohibiting discrimination against individual participants and bene-
ficiaries based on health status. 
"Sec. 703. Guaranteed renewability in multiemployer plans and multiple employer 
welfare arrangements. 
"Sec. 704. Preemption; State flexibility; construction. 
"Sec. 705. Special rules relating to group health plans. 
"Sec. 706. Definitions. 
"Sec. 707. Regulations.". 
(g) EFFECTIVE D A T E S . — 
29 use 1181 
(1) IN GENERAL.—Except as provided in this section, this note. 
section (and the amendments made by this section) shall apply 
with respect to group health plans for plan years beginning 
after June 30, 1997. 
(2) DETERMINATION OF CREDITABLE COVERAGE.— 
(A) PERIOD OF COVERAGE.— 
(i) IN GENERAL.—Subject to clause (ii), no period 
before July 1, 1996, shall be taken into account under 
part 7 of subtitle B of title I of the Employee Retire-
ment Income Security Act of 1974 (as added by this 
section) in determining creditable coverage. 
110 STAT. 1954 
PUBLIC LAW 104-191—AUG. 21, 1996 
(ii) SPECIAL RULE FOR CERTAIN PERIODS.—The Sec-
retary of Labor, consistent with section 104, shall pro-
vide for a process whereby individusds who need to 
establish creditable coverage for periods before July 
1, 1996, and who would have such coverage credited 
but for clause (i) may be given credit for creditable 
coverage for such periods through the presentation 
of documents or other means. 
(B) CERTIFICATIONS, ETC.— 
(i) IN GENERAL.—Subject to clauses (ii) and (iii), 
subsection (e) of section 701 of the Employee Retire-
ment Income Security Act of 1974 (as added by this 
section) shall apply to events occurring after Jiuie 30, 
1996. 
(ii) No CERTIFICATION REQUIRED TO BE PROVIDED 
BEFORE JUNE 1, 1997.—In no case is a certification 
required to be provided under such subsection before 
June 1,1997. 
(iii) CERTIFICATION ONLY ON WRITTEN REQUEST FOR 
EVENTS OCCURRING BEFORE OCTOBER 1, 1996.—In the 
case of an event occurring after June 30, 1996, and 
before October 1, 1996, a certification is not required 
to be provided imder such subsection unless an individ-
ual (with respect to whom the certification is otherwise 
required to be made) requests such certification in 
writing. 
(C) TRANSITIONAL RULE.—In the case of an individual 
who seeks to establish creditable coverage for any period 
for which certification is not required because it relates 
to an event occurring before Jrnie 30,1996— 
(i) the individual may present other credible evi-
dence of such coverage in order to establish the period 
of creditable coverage; and 
(ii) a group health plan and a hesdth insurance 
issuer shaU not be subject to any penalty or enforce-
ment action with respect to the plan s or issuer's credit-
ing (or not crediting) such coverage if the plan or 
issuer has sought to comply in good faith with the 
applicable requirements under the amendments made 
by this section. 
(3) 
SPECIAL RULE FOR COLLECTIVE BARGAINING AGREE-
MENTS.—Except as provided in paragraph (2), in the case of 
a group healtii plan maintained pursuant to one or more collec-
tive bargaining agreements between employee representatives 
and one or more employers ratified before the date of the 
enactment of this Act, part 7 of subtitle B of title I of Employee 
Retirement Income Security Act of 1974 (other than section 
701(e) thereof) shall not apply to plan years beginning before 
the later of— 
(A) the date on which the last of the collective bargain-
ing agreements relating to the plan terminates (determined 
without regard to any extension thereof agreed to after 
the date of the enactment of this Act), or 
(B) July 1,1997. 
For purposes of subparagraph (A), any plan amendment made 
pursuant to a collective bargaining agreement relating to the 
plan which amends the plan solely to conform to any require-
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1955 
ment of such part shall not be treated as a termination of 
such collective bargaining agreement. 
(4) TIMELY REGULATIONS.—The Secretary of Labor, consist-
ent with section 104, shall first issue by not later than April 
1, 1997, such regulations as may be necessary to carry out 
the amendments made by this section. 
(5) LIMITATION ON ACTIONS.—NO enforcement action shall 
be taken, pursuant to the amendments made by this section, 
against a group health plan or health insurance issuer with 
respect to a violation of a requirement imposed by such amend-
ments before January 1, 1998, or, if later, the date of issuance 
of regulations referred to in paragraph (4), if the plan or issuer 
has sought to comply in good faith with such requirements. 
SEC. 
1
0
2
. 
THROUGH 
THE PUBLIC 
HEALTH 
SERVICE 
ACT. 
(a) IN GENERAL.—The Public Health Service Act is amended 
by adding at the end the following new title: 
"TITLE XXVII—ASSURING PORTABILITY, 
AVAILABILITY, AND RENEWABILITY 
OF HEALTH INSURANCE COVERAGE 
"PART A—GROUP MARKET REFORMS 
"Subpart 1—Portability, Access, and Renewability Requirements 
"SEC. 2701. INCREASED PORTABILITY THROUGH LIMITATION ON 42USC300gg. 
PREEXISTING CONDITION EXCLUSIONS. 
"(a) LIMITATION ON PREEXISTING CONDITION EXCLUSION PERIOD; 
CREDITING FOR PERIODS OF PREVIOUS COVERAGE.—Subject to sub-
section (d), a group health plan, and a health insurance issuer 
offering group health insursince coverage, may, with respect to 
a participant or beneficiary, impose a preexisting condition exclusion 
only if— 
"(1) such exclusion relates to a condition (whether physical 
or mental), regardless of the cause of the condition, for which 
medical advice, diagnosis, care, or treatment was recommended 
or received within the 6-month period ending on the enrollment 
date; 
"(2) such exclusion extends for a period of not more than 
12 months (or 18 months in the case of a late enrollee) after 
the enrollment date; and 
"(3) the period of any such preexisting condition exclusion 
is reduced by the aggregate of the periods of creditable coverage 
(if any, as defined in subsection (c)(1)) applicable to the partici-
pant or beneficiary as of the enrollment date. 
"(b) DEFINITIONS.—For purposes of this part— 
"(1) PREEXISTING CONDITION EXCLUSION.— 
"(A) IN GENERAL.—The term 'preexisting condition 
exclusion' means, with respect to coverage, a limitation 
or exclusion of benefits relating to a condition based on 
the fact that the condition was present before the date 
of enrollment for such coverage, whether or not any medical 
advice, diagnosis, care, or treatment was recommended 
or received before such date. 
29-194 0-96-8:QL3Pait3 
110 STAT. 1956 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(B) 
TREATMENT OF GENETIC INFORMATION.—Genetic 
information shall not be treated as a condition described 
in subsection (a)(1) in the absence of a diagnosis of the 
condition related to such information. 
"(2) 
ENROLLMENT DATE.—The term 'enrollment 
date' 
means, with respect to an individual covered under a group 
health plan or health insurance coverage, the date of enrollment 
of the individual in the plan or coverage or, if earlier, the 
first day of the waiting period for such enrollment. 
"(3) LATE ENROLLEE.—The term 'late enroUee' means, with 
respect to coverage under a group health plan, a participant 
or beneficiary who enrolls under the plan other than during— 
"(A) the first period in which the individual is eligible 
to enroll under the plan, or 
"(B) a special enrollment period under subsection (f). 
"(4) WAITING PERIOD.—The term 'waiting period' means, 
with respect to a group health plan and an individual who 
is a potential participant or beneficiary in the plan, the period 
that must pass with respect to the individual before the individ-
ual is eligible to be covered for benefits under the terms of 
the plan. 
"(c) RULES RELATING TO CREDITING PREVIOUS COVERAGE.— 
"(1) CREDITABLE COVERAGE DEFINED.—For purposes of this 
title, the term 'creditable coverage' means, with respect to an 
individual, coverage of the individual under any of the following: 
"(A) A group health plan. 
"(B) Health insurance coverage. 
"(C) Part A or part B of title XVIII of the Social 
Security Act. 
"(D) Title XIX of the Social Security Act, other than 
coverage consisting solely of benefits under section 1928. 
"(E) Chapter 55 of title 10, United States Code. 
"(F) A medical care program of the Indian Health 
Service or of a tribal organization. 
"(G) A State health benefits risk pool. 
"(H) A health plan offered under chapter 89 of 
title 5, United States Code. 
"(I) A public health plan (as defined in regulations). 
"(J) A health benefit plan under section 5(e) of the 
Peace Corps Act (22 U.S.C. 2504(e)). 
Such term does not include coverage consisting solely of cov-
erage of excepted benefits (as defined in section 2791(c)). 
"(2) NOT COUNTING PERIODS BEFORE SIGNIFICANT BREAKS 
IN COVERAGE.— 
"(A) IN GENERAL.—^A period of creditable coverage shall 
not be counted, with respect to enrollment of an individual 
under a group health plan, if, after such period and before 
the enrollment date, there was a 63-day period during 
all of which the individual was not covered under any 
creditable coverage. 
"(B) WAITING PERIOD NOT TREATED AS A BREAK IN COV-
ERAGE.—For purposes of subparagraph (A) and subsection 
(d)(4), any period that an individual is in a waiting period 
for any coverage under a group health plan (or for group 
health insurance coverage) or is in an affiliation period 
(as defined in subsection (g)(2)) shall not be taken into 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1957 
account in determining the continuous period under 
subparagraph (A). 
"(3) METHOD OF CREDITING COVERAGE.— 
"(A) STANDARD METHOD.—Except as otherwise provided 
under subp£iragraph (B), for purposes of applying sub-
section (a)(3), a group health plan, and a health insurance 
issuer offering group health insurance coverage, shall count 
a period of creditable coverage without regard to the specific 
benefits covered during the period. 
"(B) ELECTION OF ALTERNATIVE METHOD.—A group 
health plan, or a health insurance issuer offering group 
health insurance, may elect to apply subsection (a)(3) based 
on coverage of benefits within each of several classes or 
categories of benefits specified in regulations rather than 
as provided under subparagraph (A). Such election shall 
be made on a uniform basis for all participants £ind bene-
ficiaries. Under such election a group health pleui or issuer 
shall count a period of creditable coverage with respect 
to any class or category of benefits if any level of benefits 
is covered within such class or category. 
"(C) PLAN NOTICE.—In the case of an election with 
respect to a group health plan under subparagraph (B) 
(whether or not health insurance coverage is provided in 
connection with such plan), the plan shall— 
"(i) prominently state in any disclosure statements 
concerning the plan, and state to each enroUee at the 
time of enrollment under the plan, that the plan has 
made such election, and 
"(ii) include in such statements a description of 
the effect of this election. 
"(D) ISSUER NOTICE.—In the case of an election under 
subparagraph (B) with respect to heedth insurance coverage 
offered by an issuer in the small or large group market, 
the issuer— 
"(i) shall prominently state in any disclosure state-
ments concerning the coverage, and to each employer 
at the time of the offer or sale of the coverage, that 
the issuer has made such election, and 
"(ii) shall include in such statements a description 
of the effect of such election. 
"(4) ESTABLISHMENT OF PERIOD.—Periods of creditable cov-
erage with respect to an individual shall be established through 
presentation of certifications described in subsection (e) or in 
such other maimer as may be specified in regulations. 
"(d) EXCEPTIONS.— 
"(1) EXCLUSION NOT APPLICABLE TO CERTAIN NEWBORNS.— 
Subject to paragraph (4), a group health plan, and a health 
insurance issuer offering group health insurance coverage, may 
not impose any preexisting condition exclusion in the case 
of an individual who,, as of the last day of the 30-day period 
beginning with the date of birth, is covered under creditable 
coverage. 
"(2) EXCLUSION NOT APPLICABLE TO CERTAIN ADOPTED CHIL-
DREN.—Subject to paragraph (4), a group health plan, and 
a health insurance issuer offering group health insurance cov-
erage, may not impose any preexisting condition exclusion in 
the case of a child who is adopted or placed for adoption 
110 STAT. 1958 
PUBLIC LAW 104-191—AUG. 21, 1996 
before attaining 18 years of age and who, as of the last day 
of the 30-day period beginning on the date of the adoption 
or placement for adoption, is covered under creditable coverage. 
The previous sentence shall not apply to coverage before the 
date of such adoption or placement for adoption. 
"(3) EXCLUSION NOT APPLICABLE TO PREGNANCY.—A group 
health plan, and health insurance issuer offering group health 
insurance coverage, may not impose any preexisting condition 
exclusion relating to pregnancy as a preexisting condition. 
"(4) LOSS IF BREAK IN COVERAGE.—Paragraphs (1) and (2) 
shall no longer apply to an individual after the end of the 
first 63-day period during all of which the individual was not 
covered under any creditable coverage. 
"(e) CERTIFICATIONS AND DISCLOSURE OF COVERAGE.— 
"(1) REQUIREMENT FOR CERTIFICATION OF PERIOD OF CRED-
ITABLE COVERAGE.— 
"(A) IN GENERAL.—^A group health plan, and a health 
insur£ince issuer offering group health insurance coverage, 
shall provide the certification described in subparagraph 
( B ) -
"(i) at the time an individual ceases to be covered 
under the plan or otherwise becomes covered under 
a COBRA continuation provision, 
"(ii) in the case of an individual becoming covered 
under such a provision, at the time the individual 
ceases to be covered under such provision, and 
"(iii) on the request on behalf of an individual 
made not later than 24 months after the date of ces-
sation of the coverage described in clause (i) or (ii), 
whichever is later. 
The certification under clause (i) may be provided, to the 
extent practicable, at a time consistent with notices 
required imder any applicable COBRA continuation provi-
sion. 
"(B) CERTIFICATION.—The certification described in this 
subparagraph is a written certification of— 
"(i) the period of creditable coverage of the individ-
ual under such plan and the coverage (if any) under 
such COBRA continuation provision, and 
"(ii) the waiting period (if any) (and aftiliation 
period, if applicable) imposed with respect to the 
individual for any coverage under such plan. 
"(C) ISSUER COMPLIANCE.—To the extent that medical 
care luider a group health plan consists of group health 
insurance coverage, the plan is deemed to have satisfied 
the certification requirement under this paragraph if the 
health insurance issuer offering the coverage provides for 
such certification in accordance with this paragraph. 
"(2) DISCLOSURE OF INFORMATION ON PREVIOUS BENEFITS.— 
In the case of an election described in subsection (c)(3)(B) 
by a group health plan or health insurance issuer, if the plan 
or issuer enrolls an individual for coverage under the plan 
and the individual provides a certification of coverage of the 
individual under peiragraph (1)— 
"(A) upon request of such plan or issuer, the entity 
which issued the certification provided by the individual 
shall promptly disclose to such requesting plan or issuer 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1959 
information on coverage of classes and categories of health 
benefits available under such entit^s plan or coverage, 
and 
"(B) such entity may charge the requesting plan or 
issuer for the reasonable cost of disclosing such information. 
"(3) REGULATIONS.—The Secretary shall estabUsh rules to 
prevent an entity's failure to provide information imder para-
graph (1) or (2) with respect to previous coverage of an individ-
ual from adversely affecting any subsequent coverage of the 
individual under another group health plan or health insurance 
coverage. 
"(f) SPECIAL ENROLLMENT PERIODS.— 
"(1) INDIVIDUALS LOSING OTHER COVERAGE.—A group health 
plan, and a health insurance issuer offering group health insur-
ance coverage in connection with a group heedth plan, shall 
permit an employee who is eligible, but not enrolled, for cov-
erage under the terms of the plan (or a dependent of such 
an employee if the dependent is eligible, but not enrolled, 
for coverage under such terms) to enroll for coverage under 
the terms of the plan if each of the following conditions is 
met: 
"(A) The employee or dependent was covered under 
a group health plan or had health insurance coverage at 
the time coverage was previously offered to the employee 
or dependent. 
"(B) The employee stated in writing at such time that 
coverage under a group health plan or health insurance 
coverage was the reason for declining enrollment, but only 
if the plan sponsor or issuer (if applicable) required such 
a statement at such time £ind provided the employee with 
notice of such requirement (eind the consequences of such 
requirement) at such time. 
"(C) The employee's or dependent's coverage described 
in subparagraph (A)— 
"(i) was under a COBRA continuation provision 
and 
the 
coverage 
under 
such 
provision 
was 
exhausted; or 
"(ii) was not under such a provision and either 
the coverage was terminated as a result of loss of 
eligibility for the coverage (including as a result of 
legal separation, divorce, death, termination of employ-
ment, or reduction in the number of hours of employ-
ment) or employer contributions toward such coverage 
were terminated. 
"(D) Under the terms of the plan, the employee 
requests such enrollment not later than 30 days after the 
date of exhaustion of coverage described in subparagraph 
(C)(i) or termination of coverage or employer contribution 
described in subparagraph (C)(ii). 
"(2) FOR DEPENDENT BENEFICIARIES.— 
"(A) IN GENERAL.—If— 
"(i) a group health plan makes coverage available 
with respect to a dependent of an individual, 
"(ii) the individual is a participant under the plan 
(or has met any waiting period applicable to becoming 
a participant under the plan and is eligible to be 
110 STAT. 1960 
PUBLIC LAW 104-191—AUG. 21, 1996 
enrolled under the plan but for a failure to enroll 
during a previous enrollment period), and 
"(iii) a person becomes such a dependent of the 
individual through marriage, birth, or adoption or 
placement for adoption, 
the group health plan shall provide for a dependent special 
enrollment period described in subparagraph (B) during 
which the person (or, if not otherwise enrolled, the individ-
ual) may be enrolled under the plan as a dependent of 
the individual, and in the case of the birth or adoption 
of a child, the spouse of the individual may be enrolled 
as a dependent of the individual if such spouse is otherwise 
eligible for coverage. 
"(B) 
DEPENDENT SPECIAL ENROLLMENT PERIOD.—A 
dependent special enrollment period under this subpara-
graph shadl be a period of not less than 30 days and 
shall begin on the later o
f
— 
"(i) 
the 
date 
dependent 
coverage 
is 
made 
available, or 
"(ii) the date of the marriage, birth, or adoption 
or placement for adoption (as the case may be) 
described in subparagraph (A)(iii). 
"(C) No WAITING PERIOD.—If an individual seeks to 
enroll a dependent during the first 30 days of such a 
dependent special enrollment period, the coverage of the 
dependent shall become effective— 
"(i) in the case of marriage, not later than the 
first day of the first month beginning after the date 
the completed request for enrollment is received; 
"(ii) in the case of a dependent's birth, as of the 
date of such birth; or 
"(iii) in the case of a dependent's adoption or place-
ment for adoption, the date of such adoption or place-
ment for adoption. 
"(g) USE OF AFFILIATION PERIOD BY H M O S AS ALTERNATIVE 
TO PREEXISTING CONDITION EXCLUSION.— 
"(1) IN GENERAL.—^A health maintenance 
organization 
which offers health insurance coverage in connection with a 
group health plan and which does not impose any preexisting 
condition exclusion allowed under subsection (a) with respect 
to any particular coverage option may impose an affiliation 
period for such coverage option, but only if— 
"(A) such period is applied uniformly without regard 
to any health status-related factors; and 
"(B) such period does not exceed 2 months (or 3 months 
in the case of a late enroUee). 
"(2) AFFILIATION PERIOD.— 
"(A) DEFINED.—For purposes of this title, the term 
'affiliation period' means a period which, under the terms 
of the health insurance coverage offered by the health 
maintenance organization, must expire before the health 
insurance coverage becomes effective. The organization is 
not required to provide health care services or benefits 
during such period and no premium shall be charged to 
the participant or beneficiary for any coverage during the 
period. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1961 
"(B) BEGINNING.—Such period shall begin on the enroll-
ment date. 
"(C) RUNS CONCURRENTLY WITH WAITING PERIODS.— 
An affiliation period under a plan shall run concurrently 
with any waiting period under the plan. 
"(3) 
ALTERNATIVE 
METHODS.—A 
health 
maintenance 
organization described in paragraph (1) may use alternative 
methods, from those described in such paragraph, to address 
adverse selection as approved by the State insurance commis-
sioner or official or officials designated by the State to enforce 
the requirements of this part for the State involved with respect 
to such issuer. 
"SEC. 2702. PROHIBITING 
DISCRIMINATION 
AGAINST 
INDIVIDUAL 
42USC300gg-L 
PARTICIPANTS AND BENEFICIARIES BASED ON HEALTH 
STATUS. 
"(a) IN ELIGIBILITY TO ENROLL.— 
"(1) IN GENERAL.—Subject to paragraph (2), a group health 
plan, and a health insurance issuer offering group health insur-
ance coverage in connection with a group he^th plan, may 
not establish rules for eligibility (including continued eligibility) 
of £iny individual to enroll under the terms of the plan based 
on any of the following health status-related factors in relation 
to the individual or a dependent of the individual: 
"(A) Health status. 
"(B) Medical condition (including both physical and 
mental illnesses). 
"(C) Claims emerience. 
"(D) Receipt of health care. 
"(E) Medical history. 
"(F) Genetic information. 
"(G) Evidence of insurability (including conditions aris-
ing out of acts of domestic violence). 
"(H) Disability. 
"(2) N o APPLICATION TO BENEFITS OR EXCLUSIONS.—To the 
extent consistent with section 701, paragraph (1) shall not 
be construed— 
"(A) to require a group health plan, or group health 
insursince coverage, to provide particular benefits other 
than those provided under the terms of such plan or cov-
erage, or 
"(B) to prevent such a plan or coverage from establish-
ing limitations or restrictions on the amoimt, level, extent, 
or nature of the benefits or coverage for similarly situated 
individuals enrolled in the plan or coverage. 
"(3) CONSTRUCTION.—For purposes of paragraph (1), rules 
for eligibility to enroll under a plan include rules defining 
any applicable waiting periods for such enrollment. 
"(b) IN PREMIUM CONTRIBUTIONS.— 
"(1) IN GENERAL.—A group health plan, and a health insur-
ance issuer offering health insurance coverage in connection 
with a group health plan, may not require any individual 
(as a condition of enrollment or continued enrollment under 
the plan) to pay a premium or contribution which is greater 
than such premium or contribution for a similarly situated 
individual enrolled in the plan on the basis of any health 
status-related factor in relation to the individual or to an 
110 STAT. 1962 
PUBLIC LAW 104-191—AUG. 21, 1996 
individual enrolled under the plan as a dependent of the 
individual. 
"(2) CONSTRUCTION.—Nothing in paragraph (1) shall be 
construed— 
"(A) to restrict the amount t|iat an employer may be 
charged for coverage under a group health plan; or 
"(B) to prevent a group health plan, and a health 
insurance issuer offering group health insurance coverage, 
from establishing premium discounts or rebates or modify-
ing otherwise applicable copayments or deductibles in 
return for adherence to programs of health promotion and 
disease prevention. 
"Subpart 2—Provisions Applicable Only to Health Insurance 
Issuers 
42USC300gg- 
"SEC. 2711. GUARANTEED 
AVAILABILITY 
OF 
COVERAGE 
FOR 
11- 
EMPLOYERS IN THE GROUP MARKET. 
"(a) ISSUANCE OF COVERAGE IN THE SMALL GROUP MARKET.— 
"(1) IN GENERAL.—Subject to subsections (c) through (f), 
each health insurance issuer that offers health insurance cov-
erage in the small group market in a State— 
"(A) must accept every small employer (as defined in 
section 2791(e)(4)) in the State that applies for such cov-
erage; and 
"(B) must accept for enrollment under such coverage 
every eligible individual (as defined in paragraph (2)) who 
applies for enrollment during the period in which the 
individual first becomes eligible to enroll under the terms 
of the group health plan and may not place any restriction 
which is inconsistent with section 2702 on an eligible 
individual being a participant or beneficiary. 
"(2) ELIGIBLE INDIVIDUAL DEFINED.—For purposes of this 
section, the term 'eligible individual' means, with respect to 
a health insurance issuer that offers heedth insurance coverage 
to a small employer in connection with a group health plan 
in the small group market, such £in individual in relation to 
the employer as shall be determined— 
"(A) in accordance with the terms of such plan, 
"(B) as provided by the issuer under rules of the issuer 
which are uniformly applicable in a State to small employ-
ers in the small group market, and 
"(C) in accordance with all applicable State laws 
f
oveming such issuer and such market. 
SSURING ACCESS IN THE LARGE GROUP MARKET.— 
"(1) REPORTS TO HHS.—The Secretary shall request that 
the chief executive officer of each State submit to the Secretary, 
by not later December 31, 2000, and every 3 years thereafter 
a report on— 
"(A) the access of large employers to health insurance 
coverage in the State, and 
"(B) the circumstances for lack of access (if any) of 
large employers (or one or more classes of such employers) 
in the State to such coverage. 
"(2) TRIENNIAL REPORTS TO CONGRESS.—The Secretary, 
based on the reports submitted under paragraph (1) and such 
other information as the Secretary may use, shall prepare 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1963 
£ind submit to Congress, every 3 years, a report describing 
the extent to which large employers (and classes of such employ-
ers) that seek health insurance coverage in the different States 
are able to obtain access to such coverage. Such report shall 
include such recommendations as the Secretary determines to 
be appropriate. 
"(3) GAG REPORT ON LARGE EMPLOYER ACCESS TO HEALTH 
INSURANCE COVERAGE.—The Comptroller General shall provide 
for a study of the extent to which classes of large employers 
in the different States are able to obtain access to health 
insurance coverage Jind the circumstances for lack of access 
(if any) to such coverage. The Comptroller General shall submit 
to Congress a report on such study not later than 18 months 
after the date of the enactment of this title. 
"(c) SPECLVL RULES FOR NETWORK PLANS.— 
"(1) IN GENERAL.—In the case of a health insurance issuer 
that offers health insurance coverage in the small group market 
through a network plan, the issuer may— 
"(A) limit the employers that may apply for such cov-
erage to those with eligible individuals who live, work, 
or reside in the service area for such network plsm; and 
"(B) within the service area of such plein, deny such 
coverage to such employers if the issuer has demonstrated, 
if required, to the applicable State authority that— 
"(i) it will not have the capacity to deliver services 
adequately to enrollees of any additional groups 
because of its obligations to existing group contract 
holders and enrollees, and 
"(ii) it is applying this paragraph uniformly to 
all employers without regard to the claims experience 
of those employers and their employees (and their 
dependents) or any health status-related factor relating 
to such employees and dependents. 
"(2) 180-DAY SUSPENSION UPON DENIAL OF COVERAGE.—^An 
issuer, upon denying health insurance coverage in any service 
area in accordance with paragraph (1)(B), may not offer cov-
erage in the small group market within such service area 
for a period of 180 days after the date such coverage is denied. 
"(d) APPLICATION OF FINANCIAL CAPACITY LIMITS.— 
"(1) IN GENERAL..—A health insurance issuer may deny 
health insureince coverage in the small group market if the 
issuer has demonstrated, if required, to the applicable State 
authority that— 
"(A) it does not have the financial reserves necessary 
to underwrite additional coverage; and 
"(B) it is appl)dng this paragraph imiformly to all 
employers in the small group market in the State consistent 
with applicable State law and without regard to the claims 
experience of those employers and their employees (and 
their dependents) or any health status-related factor relat-
ing to such employees and dependents. 
"(2) 180-DAY SUSPENSION UPON DENIAL OF COVERAGE.—A 
health insurance issuer upon denying health insurance coverage 
in connection with group health plans in accordance with para-
graph (1) in a State may not offer coverage in connection 
with group health plans in the small group market in the 
State for a period of 180 days after the date such coverage 
110 STAT. 1964 
PUBLIC LAW 104-191—AUG. 21, 1996 
is denied or until the issuer has demonstrated to the appUcable 
State authority, if required under appUcable State law, that 
the issuer has sufficient financial reserves to underwrite addi-
tionsd coverage, whichever is later. An applicable State author-
ity may provide for the application of this subsection on a 
service-area-specific basis. 
"(e) EXCEPTION TO REQUIREMENT FOR FAILURE TO MEET CER-
TAIN MINIMUM PARTICIPATION OR CONTRIBUTION RULES.— 
"(1) IN GENERAL.—Subsection (a) shall not be construed 
to preclude a health insurance issuer from 
establishing 
employer contribution rules or group participation rules for 
the offering of health insurance coverage in connection with 
a group health plan in the small group market, as allowed 
under applicable State law. 
"(2) RULES DEFINED.—For purposes of paragraph (1)— 
"(A) the term 'employer contribution rule' means a 
requirement relating to the minimum level or amount of 
employer contribution toward the premium for enrollment 
of participants and beneficiaries; and 
"(B) the term 'group participation rule' means a 
requirement relating to the minimum number of partici-
pants or beneficiaries that must be enrolled in relation 
to a specified percentage or number of eligible individuals 
or employees of an employer. 
"(f) EXCEPTION FOR COVERAGE OFFERED ONLY TO BONA FIDE 
ASSOCIATION MEMBERS.—Subsection (a) shall not apply to health 
insurance coverage offered by a health insurance issuer if such 
coverage is made available in the small group market only through 
one or more bona fide associations (as defined in section 2791(d)(3)). 
42USC300gg- 
"SEC. 2712. GUARANTEED 
RENEWABILITY 
OF 
COVERAGE FOR 
12. 
EMPLOYERS IN THE GROUP MARKET. 
"(a) IN GENERAL.—Except as provided in this section, if a health 
insurance issuer offers hesdth insursince coverage in the small or 
large group market in connection with a group health plan, the 
issuer must renew or continue in force such coverage at the option 
of the plan sponsor of the plan. 
"(b) GENERAL EXCEPTIONS.—^A health insurance issuer may 
nonrenew or discontinue health insurance coverage offered in 
connection with a group health plan in the small or large group 
market based only on one or more of the following: 
"(1) NONPAYMENT OF PREMIUMS.—The plan sponsor has 
failed to pay premiums or contributions in accordance with 
the terms of the health insurance coverage or the issuer has 
not received timely premium payments. 
"(2) FRAUD.—TTie plan sponsor has performed an act or 
practice that constitutes fi-aud or made an intentional misrepre-
sentation of material fact under the terms of the coverage. 
"(3) 
VIOLATION 
OF 
PARTICIPATION 
OR 
CONTRIBUTION 
RULES.—The plan sponsor has failed to comply with a material 
plan provision relating to employer contribution or group 
participation rules, as permitted under section 2711(e) in the 
case of the small group market or pursuant to applicable State 
law in the case of the large group market. 
"(4) TERMINATION OF COVERAGE.—The issuer is ceasing to 
offer coverage in such market in accordance with subsection 
(c) £ind applicable State law. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1965 
"(5) MOVEMENT OUTSIDE SERVICE AREA.—In the case of 
a health insurance issuer that offers health insurance coverage 
in the market through a network plan, there is no longer 
any enroUee in connection with such plan who lives, resides, 
or works in the service area of the issuer (or in the area 
for which the issuer is authorized to do business) and, in 
the case of the small group market, the issuer would deny 
enrollment 
with 
respect 
to 
such 
plan 
under 
section 
2711(c)(1)(A). 
"(6) ASSOCIATION MEMBERSHIP CEASES.—In the case of 
health insurance coverage that is made available in the small 
or large group market (as the case may be) only through one 
or more bona fide associations, the membership of an employer 
in the association (on the basis of which the coverage is pro-
vided) ceases but only if such coverage is terminated under 
this paragraph luiiformly without regard to any health status-
related factor relating to any covered individual. 
"(c) 
REQUIREMENTS FOR 
UNIFORM 
TERMINATION OF 
COV-
ERAGE.— 
"(1) PARTICULAR ':rYPE OF COVERAGE NOT OFFERED.—In any 
case in which an issuer decides to discontinue offering a particu-
lar tj^e of group health insurance coverage offered in the 
small or large group market, coverage of such type may be 
discontinued by the issuer in accordance with applicable State 
law in such market only if— 
"(A) the issuer provides notice to each plan sponsor 
provided coverage of this tj^e in such market (and partici-
pants and beneficiaries covered under such coverage) of 
such discontinuation at least 90 days prior to the date 
of the discontinuation of such coverage; 
"(B) the issuer offers to each plan sponsor provided 
coverage of this type in such market, the option to purchase 
all (or, in the case of the large group market, any) other 
heeJth insurance coverage currently being offered by the 
issuer to a group health plan in such market; and 
"(C) in exercising the option to discontinue coverage 
of this t5rpe and in offering the option of coverage under 
subparagraph (B), the issuer acts uniformly without regard 
to the claims experience of those sponsors or any health 
status-related factor relating to any participants or bene-
ficiaries covered or new participants or beneficiaries who 
may become eligible for such coverage. 
"(2) DISCONTINUANCE OF ALL COVERAGE.— 
"(A) IN GENERAL.—In £iny case in which a health insur-
ance issuer elects to discontinue offering all health insur-
ance coverage in. the small group market or the large 
group market, or both markets, in a State, health insurance 
coverage may be discontinued by the issuer only in accord-
ance with applicable State law and if— 
"(i) the issuer provides notice to the applicable 
State authority and to each plan sponsor (and partici-
pants and beneficiaries covered under such coverage) 
of such discontinuation at least 180 days prior to the 
date of the discontinuation of such coverage; and 
"(ii) all health insurance issued or delivered for 
issuance in the State in such market (or markets) 
are discontinued and coverage under such health insur-
110 STAT. 1966 
PUBLIC LAW 104-191—AUG. 21, 1996 
ance coverage in such market (or markets) is not 
renewed. 
"(B) PROHIBITION ON MARKET REENTRY.—In the case 
of a discontinuation under subparagraph (A) in a market, 
the issuer may not provide for the issuance of any health 
insurance coverage in the market and State involved during 
the 5-year period beginning on the date of the discontinu-
ation of the last health insurance coverage not so renewed. 
"(d) EXCEPTION FOR UNIFORM MODIFICATION OF COVERAGE.— 
At the time of coverage renewal, a health insurance issuer may 
modify the health insurance coverage for a product offered to a 
group health plan— 
"(1) in the large group market; or 
"(2) in the small group market if, for coverage that is 
available in such market other than only through one or more 
bona fide associations, such modification is consistent with 
State law and effective on a uniform basis among group health 
plans with that product. 
"(e) 
APPLICATION TO COVERAGE OFFERED ONLY THROUGH 
ASSOCIATIONS.—In appljdng this section in the case of health insur-
ance coverage that is made available by a health insurance issuer 
in the small or large group market to employers only through 
one or more associations, a reference to 'plan sponsor' is deemed, 
with respect to coverage provided to an employer member of the 
association, to include a reference to such employer. 
42 use SOOgg- 
'^EC. 2713. DISCLOSURE OF INFORMATION. 
^^' 
"(a) DISCLOSURE OF INFORMATION BY HEALTH PLAN ISSUERS.— 
In connection with the offering of any health insurance coverage 
to a small employer, a health insurance issuer— 
"(1) shall make a reasonable disclosure to such employer, 
as part of its solicitation and sales materials, of the availabiUty 
of information described in subsection (b), and 
"(2) upon request of such a small employer, provide such 
information. 
"(b) INFORMATION DESCRIBED.— 
"(1) IN GENERAL.—Subject to paragraph (3), with respect 
to a health insurance issuer offering health insurance coverage 
to a small employer, information described in this subsection 
is information concerning— 
"(A) the provisions of such coverage concerning issuer's 
right to change premium rates and the factors that may 
affect changes in premium rates; 
"(B) the provisions of such coverage relating to renew-
ability of coverage; 
"(C) the provisions of such coverage relating to £Uiy 
preexisting condition exclusion; and 
"(D) the benefits and premiums available under all 
health insurance coverage for which the employer is quali-
fied. 
"(2) FORM OF INFORMATION.—Information xmder this sub-
section shall be provided to small employers in a manner deter-
mined to be understandable by the average small employer, 
and shall be sufficient to reasonably inform smsdl employers 
of their rights and obligations under the health insurance cov-
erage. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1967 
"(3) EXCEPTION.—^An issuer is not required under this sec-
tion to disclose any information that is proprietary and trade 
secret information imder applicable law. 
"Subpart 3—Exclusion of Plans; Enforcement; Preemption 
"SEC. 2721. EXCLUSION OF CERTAIN PLANS. 
42USC300gg-
"(a) EXCEPTION FOR CERTAIN SMALL GROUP HEALTH PLANS.— 
^' 
The requirements of subparts 1 and 2 shall not apply to any 
group health plan (and health insurance coverage offered in connec-
tion with a group health plan) for any plan year if, on the first 
day of such pl£in year, such plan has less than 2 participants 
who are current employees. 
"(b) LIMITATION ON APPLICATION OF PROVISIONS RELATING TO 
GROUP HEALTH PLANS.— 
"(1) IN GENERAL,.—The requirements of subpeirts 1 and 
2 shall apply with respect to group health plans only— 
"(A) subject to paragraph (2), in the case of a plan 
that is a nonfederal governmental plan, and 
"(B) with respect to health insurance coverage offered 
in connection with A group health plan (including such 
a plan that is a church plan or a governmental plan). 
"(2) TREATMENT OF NONFEDERAL GOVERNMENTAL PLANS.— 
"(A) ELECTION TO BE EXCLUDED.—If the plan sponsor 
of a nonfederal governmental plan which is a group health 
plan to which the provisions of subparts 1 and 2 otherwise 
apply makes an election under this subparagraph (in such 
form and manner as the Secretaiy may by regulations 
prescribe), then the requirements of such subparts insofar 
as they apply directly to group health plans (and not merely 
to group health insurance coverage) shall not apply to 
such governmental plans for such period except as provided 
in this paragraph. 
"(B) PERIOD OF ELECTION.—^An election imder subpara-
graph (A) shall apply— 
"(i) for a single specified plan year, or 
"(ii) in the case of a plan provided pursuant to 
a collective bargaining agreement, for the term of such 
agreement. 
An election under clause (i) may be extended through sub-
sequent elections under this paragraph. 
"(C) NOTICE TO ENROLLEES.—Under such an election, 
the plan shall provide for— 
"(i) notice to enrollees (on an annual basis and 
at the time of enrollment under the plan) of the fact 
and consequences of such election, and 
"(ii) certification and disclosure of creditable cov-
erage under the plan with respect to enrollees in 
accordance with section 2701(e). 
"(c) EXCEPTION FOR CERTAIN BENEFITS.—The requirements of 
subpgirts 1 and 2 shall not apply to any group health plan (or 
group health insurance coverage) in relation to its provision of 
excepted benefits described in section 2791(c)(1). 
"(d) EXCEPTION FOR CERTAIN BENEFITS IF CERTAIN CONDITIONS 
MET.— 
"(1) LIMITED, EXCEPTED BENEFITS.—The requirements of 
subparts 1 and 2 shall not apply to any group health plan 
110 STAT. 1968 
PUBLIC LAW 104-191—AUG. 21, 1996 
(and group health insurance coverage offered in connection 
with a group health plein) in relation to its provision of excepted 
benefits described in section 2791(c)(2) if the benefits— 
"(A) are provided under a separate policy, certificate, 
or contract of insurance; or 
"(B) are otherwise not an integral part of the plan. 
"(2) NONCOORDINATED, EXCEPTED BENEFITS.—The require-
ments of subparts 1 and 2 shall not apply to any group health 
plEin (and group health insurance coverage offered in connection 
with a group health plan) in relation to its provision of excepted 
benefits described in section 2791(c)(3) if £dl of the following 
conditions are met: 
"(A) The benefits are provided under a separate policy, 
certificate, or contract of insurance. 
"(B) There is no coordination between the provision 
of such benefits and any exclusion of benefits under any 
group health plan maintained by the same plan sponsor. 
"(C) Such benefits are paid with respect to an event 
without regard to whether benefits are provided with 
respect to such an event under any group health plan 
maintained by the same plan sponsor. 
"(3) 
SUPPLEMENTAL EXCEPTED BENEFITS.—The require-
ments of this p£irt shall not apply to any group health plan 
(£ind group he^th insurance coverage) in relation to its provi-
sion of excepted benefits described in section 27971(c)(4) if 
the benefits are provided under a separate policy, certificate, 
or contract of insurance. 
"(e) TREATMENT OF PARTNERSHIPS.—For purposes of this part— 
"(1) TREATMENT AS A GROUP HEALTH PLAN.—Any plan, fiind, 
or program which would not be (but for this subsection) an 
employee welfare benefit plan and which is established or main-
tained by a partnership, to the extent that such plan, fiind, 
or program provides medical care (including items and services 
paid for as medical care) to present or former psirtners in 
the partnership or to their dependents (as defined under the 
terms of the plan, fund, or program), directly or through insur-
ance, reimbursement, or otherwise, shall be treated (subject 
to paragraph (2)) as an employee welfare benefit plan which 
is a group health plan. 
"(2) EMPLOYER.—In the case of a group health plan, the 
term 'employer' also includes the partnership in relation to 
any partner. 
"(3) PARTICIPANTS OF GROUP HEALTH PLANS.—In the case 
of a group health plan, the term 'participant' also includes— 
"(A) in connection with a group health plan maintained 
by a partnership, an individual who is a partner in relation 
to the partnership, or 
"(B) in connection with a group hegdth plan maintained 
by a self-employed individual (under which one or more 
employees are participants), the self-employed individual, 
if such individual is, or may become, eligible to receive a benefit 
under the plan or such individual's beneficiaries may be eligible 
to receive any such benefit. 
42 use 
"SEC. 2722. ENFORCEMENT. 
^^~ • 
"(a) STATE ENFORCEMENT.— 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1969 
"(1) STATE AUTHORITY.—Subject to section 2723, each State 
may require that health insurance issuers that issue, sell, 
renew, or offer health insurance coverage in the State in the 
small or large group markets meet the requirements of this 
part with respect to such issuers. 
"(2) FAILURE TO IMPLEMENT PROVISIONS.—In the case of 
a determination by the Secretary that a State has failed to 
substantially enforce a provision (or provisions) in this part 
with respect to health insurance issuers in the State, the Sec-
retary shall enforce such provision (or provisions) under sub-
section (b) insofar as they relate to the issuance, sale, renewal, 
and offering of health insurance coverage in connection with 
group health plans in such State. 
"(b) SECRETARIAL ENFORCEMENT AUTHORITY.— 
"(1) LIMITATION.—The provisions of this subsection shall 
apply to enforcement of a provision (or provisions) of this part 
only— 
"(A) as provided under subsection (a)(2); and 
"(B) with respect to group health plans that are non-
Federal governmental plans. 
"(2) IMPOSITION OF PENALTIES.—In the cases described in 
paragraph (1)— 
"(A) IN GENERAL.—Subject to the succeeding provisions 
of this subsection, any non-Federal governmental plan that 
is a group health plan and any health insurance issuer 
that fails to meet a provision of this part applicable to 
such plan or issuer is subject to a civil money penalty 
under this subsection. 
"(B) 
LIABILITY FOR PENALTY.—In the case of a 
failure by— 
"(i) a health insurance issuer, the issuer is liable 
for such penalty, or 
"(ii) a group health plan that is a non-Federal 
governmental plan which is— 
"(I) sponsored by 2 or more employers, the 
plan is liable for such penalty, or 
"(II) not so sponsored, the employer is liable 
for such penalty. 
"(C) AMOUNT OF PENALTY.— 
"(i) IN GENERAL.—The maximum amount of pen-
alty imposed under this paragraph is $100 for each 
day for each individual with respect to which such 
a failure occurs. 
"(ii) CONSIDERATIONS IN IMPOSITION.—In determin-
ing the amount of any penalty to be assessed under 
this paragraph, the Secretary shall take into account 
the previous record of compliance of the entity being 
assessed with the applicable provisions of this part 
and the gravity of the violation, 
"(iii) LIMITATIONS.— 
"(I) PENALTY NOT TO APPLY WHERE FAILURE 
NOT DISCOVERED EXERCISING REASONABLE DILI-
GENCE.—No civil money penalty shall be imposed 
under this paragraph on any failure during any 
period for which it is established to the satisfaction 
of the Secretary that none of the entities against 
whom the penalty would be imposed knew, or 
110 STAT. 1970 
PUBLIC LAW 104-191—AUG. 21, 1996 
exercising reasonable diligence would have known, 
that such failure existed. 
"(ID PENALTY NOT TO APPLY TO FAILURES COR-
RECTED WITHIN 30 DAYS.—No civil money penalty 
shall be imposed under this paragraph on any 
failure if such failure was due to reasonable cause 
and not to willful neglect, and such failure is cor-
rected during the 30-day period beginning on the 
first day any of the entities against whom the 
penalty would be imposed knew, or exercising 
reasonable diligence would have known, that such 
failure existed. 
"(D) ADMINISTRATIVE REVIEW.— 
"(i) 
OPPORTUNITY 
FOR HEARING.—The 
entity 
assessed shall be afforded an opportunity for hearing 
by the Secretary upon request made within 30 days 
after the date of the issuance of a notice of assessment. 
In such hearing the decision shall be made on the 
record pursuant to section 554 of title 5, United States 
Code. If no hearing is requested, the assessment shall 
constitute a final and unappealable order, 
"(ii) 
HEARING 
PROCEDURE.—If 
a 
hearing 
is 
requested, the initial agency decision shall be made 
by an administrative law judge, £ind such decision shall 
become the final order unless the Secretary modifies 
or vacates the decision. Notice of intent to modify 
or vacate the decision of the administrative law judge 
shall be issued to the parties within 30 days after 
the date of the decision of the judge. A final order 
which takes effect under this paragraph shall be 
subject to review only as provided under subparagraph 
(E). 
"(E) JUDICIAL REVIEW.— 
"(i) FILING OF ACTION FOR REVIEW.—Any entity 
against whom an order imposing a civil money penalty 
has been entered after an agency hearing under this 
paragraph may obtain review by the United States 
district court for any district in which such entity 
is located or the United States District Court for the 
District of Columbia by filing a notice of appeal in 
such court within 30 days from the date of such order, 
and simultaneously sending a copy of such notice by 
registered mail to the Secretary. 
"(ii) CERTIFICATION OF ADMINISTRATIVE RECORD.— 
The Secretary shall promptly certify and file in such 
court the record upon which the penalty was imposed, 
"(iii) STANDARD FOR REVIEW.—The findings of the 
Secretary shall be set aside only if found to be unsup-
ported by substantial evidence as provided by section 
706(2)(E) of title 5, United States Code. 
"(iv) APPEAL.—Any final decision, order, or judg-
ment of the district court concerning such review shall 
be subject to appeal as provided in chapter 83 of title 
28 of such Code. 
"(F) FAILURE TO PAY ASSESSMENT; MAINTENANCE OF 
ACTION.— 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1971 
"(i) FAILURE TO PAY ASSESSMENT.—If any entity 
fails to pay an assessment after it has become a final 
and unappealable order, or after the court has entered 
final judgment in favor of the Secretary, the Secretary 
shall refer the matter to the Attorney General who 
shall recover the simount assessed by action in the 
appropriate LTnited States district court. 
"(ii) NONREVIEWABILITY.—In such action the valid-
ity and appropriateness of the final order imposing 
the penalty shall not be subject to review. 
"(G) PAYMENT OF PENALTIES.—Except as otherwise pro-
vided, penalties collected under this paragraph shall be 
paid to the Secretary (or other officer) imposing the penalty 
and shall be available without appropriation and until 
expended for the purpose of enforcing the provisions with 
respect to which the penalty was imposed. 
"SEC. 2723. PREEMPTION; STATE FLEXIBILITY; CONSTRUCTION. 
42 USC 300gg-
23 
"(a) CONTINUED APPLICABILITY OF STATE LAW WITH RESPECT 
TO HEALTH INSURANCE ISSUERS.— 
"(1) IN GENERAL.—Subject to paragraph (2) and except 
as provided in subsection (b), this part and part C insofar 
as it relates to this part shall not be construed to supersede 
any provision of State law which establishes, implements, or 
continues in effect any standard or requirement solely relating 
to health insurance issuers in connection with group health 
insurance coverage except to the extent that such standard 
or requirement prevents the application of a requirement of 
this part. 
"(2) 
CONTINUED PREEMPTION WITH RESPECT TO GROUP 
HEALTH PLANS.—Nothing in this part shall be construed to 
affect or modify the provisions of section 514 of the Employee 
Retirement Income Security Act of 1974 with respect to group 
health plans. 
"(b) SPECIAL RULES IN CASE OF PORTABILITY REQUIREMENTS.— 
"(1) IN GENERAL.—Subject to paragraph (2), the provisions 
of this part relating to health insurance coverage offered by 
a health insurance issuer supersede any provision of State 
law which establishes, implements, or continues in effect a 
standard or requirement applicable to imposition of a preexist-
ing condition exclusion specifically governed by section 701 
which differs fi-om the standards or requirements specified 
in such section. 
"(2) EXCEPTIONS.—Only in relation to health insurance cov-
erage offered by a health insurance issuer, the provisions of 
this part do not supersede any provision of State law to the 
extent that such provision— 
"(i) substitutes for the reference to *6-month period' 
in section 2701(a)(1) a reference to any shorter period of 
time; 
"(ii) substitutes for the reference to *12 months' and 
'18 months' in section 2701(a)(2) a reference to any shorter 
period of time; 
"(iii) substitutes for the references to '63' days in sec-
tions 2701(c)(2)(A) and 2701(d)(4)(A) a reference to any 
greater number of days; 
110 STAT. 1972 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(iv) substitutes for the reference to '30-day period' 
in sections 2701(b)(2) and 2701(d)(1) a reference to any 
greater period; 
"(v) prohibits the imposition of any preexisting condi-
tion exclusion in cases not described in section 2701(d) 
or expands the exceptions described in such section; 
"(vi) requires special enrollment periods in addition 
to those required under section 2701(f); or 
"(vii) reduces the maximum period permitted in £in 
affiliation period under section 2701(g)(1)(B). 
"(c) RULES OF CONSTRUCTION.—Nothing in this part shall be 
construed as requiring a group health plan or health insurance 
coverage to provide specific benefits under the terms of such plan 
or coverage. 
"(d) DEFINITIONS.—For purposes of this section— 
"(1) STATE LAW.—The term 'State law' includes all laws, 
decisions, rules, regulations, or other State action having the 
effect of law, of any State. A law of the United States applicable 
only to the District of Columbia shall be treated as a State 
law rather than a law of the United States. 
"(2) STATE.—The term 'State' includes a State (including 
the Northern Mariana Islands), any political subdivisions of 
a State or such Islands, or any agency or instrumentality 
of either. 
"PART C—DEFINITIONS; MISCELLANEOUS PROVISIONS 
42 use 300gg- 
"SEC. 2791. DEFINITIONS. 
91 
"(a) GROUP HEALTH PLAN.— 
"(1) DEFINITION.—The term 'group health plan' means an 
employee welfare benefit plan (as defined in section 3(1) of 
the Employee Retirement Income Security Act of 1974) to the 
extent that the plan provides medical care (as defined in para-
graph (2)) and including items and services paid for as medical 
care) to employees or their dependents (as defined under the 
terms of the plan) directly or through insurance, reimburse-
ment, or otherwise. 
"(2) 
MEDICAL CARE.—The term 'medical care' means 
amounts paid for— 
"(A) the diagnosis, cure, mitigation, treatment, or 
prevention of disease, or amounts paid for the purpose 
of affecting any structure or function of the body, 
"(B) amounts paid for transportation primarily for and 
essential to medical care referred to in subparagraph (A), 
and 
"(C) amounts psdd for insurance covering medical care 
referred to in subparagraphs (A) and (B). 
"(3) TREATMENT OF CERTAIN PLANS AS GROUP HEALTH PLAN 
FOR NOTICE PROVISION.—A program imder which creditable cov-
erage described in subparagraph (C), (D), (E), or (F) of section 
2701(c)(1) is provided shall be treated as a group health plan 
for purposes of appl5dng section 2701(e). 
"(b) DEFINITIONS RELATING TO HEALTH INSURANCE.— 
"(1) HEALTH INSURANCE COVERAGE.—The term 'health 
insurance coverage' means benefits consisting of medical care 
(provided directly, through insurance or reimbursement, or 
otherwise and including items and services paid for as medicsd 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1973 
care) under any hospital or medical service policy or certificate, 
hospital or medical service plan contract, or health maintenance 
organization contract offered by a health insurance issuer. 
"(2) HEALTH INSURANCE ISSUER.—The term ^health insur-
ance issuer' means an insureince company, insurance service, 
or insurance organization (including a health maintenance 
organization, as defined in paragraph (3)) which is licensed 
to engage in the business of insurance in a State and which 
is subject to State law which regulates insurance (within the 
meaning of section 514(b)(2) of the Employee Retiremient 
Income Security Act of 1974). Such term does not include 
a group health plan. 
"(3) 
HEALTH 
MMNTENANCE 
ORGANIZATION.—The 
term 
*health maintenance organization' means— 
"(A) a Federally qualified health maintenance organiza-
tion (as defined in section 1301(a)), 
"(B) an organization recognized under State law as 
a health maintenance organization, or 
"(C) a similar organization regulated under State law 
for solvency in the same manner and to the same extent 
as such a health maintenance organization. 
"(4) GROUP HEALTH INSURANCE COVERAGE.—The term 
'group health insurance coverage' means, in connection with 
a group health plan, health insurance coverage offered in 
connection with such plan. 
"(5) INDIVIDUAL HEALTH INSURANCE COVERAGE.—The term 
'individual health insurance coverage' means health insurance 
coverage offered to individuals in the individual market, but 
does not include short-term limited duration insurance. 
"(c) EXCEPTED BENEFITS.—For purposes of this title, the term 
'excepted benefits' means benefits under one or more (or any com-
bination thereof) of the following: 
"(1) BENEFITS NOT SUBJECT TO REQUIREMENTS.— 
"(A) Coverage only for accident, or disability income 
insurance, or any combination thereof. 
"(B) Coverage issued as a supplement to liability 
insurance. 
"(C) Liability insurance, including general liability 
insurance and automobile liability insurance. 
"(D) Workers' compensation or similar insurance. 
"(E) Automobile medical payment insurance. 
"(F) Credit-only insurance. 
"(G) Coverage for on-site medical clinics. 
"(H) Other similar insurance coverage, specified in 
regulations, under which benefits for medical care are 
secondary or incidental to other insurance benefits. 
"(2) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED 
SEPARATELY.— 
"(A) Limited scope dental or vision benefits. 
"(B) Benefits for long-term care, nursing home care, 
home health care, community-based care, or any combina-
tion thereof 
"(C) Such other simil£ir, limited benefits as are specified 
in regulations. 
"(3) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED 
AS INDEPENDENT, NONCOORDINATED BENEFITS.— 
"(A) Coverage only for a specified disease or illness. 
110 STAT. 1974 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(B) 
Hospital 
indemnity 
or 
other 
fixed 
indemnity insurance. 
"(4) BENfEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED 
AS SEPARATE INSURANCE POLICY.—Medicare 
supplemental 
health insurance (as defined under section 1882(g)(1) of the 
Social Security Act), coverage supplemental to the coverage 
provided under chapter 55 of title 10, United States Code, 
and similar supplemental coverage provided to coverage under 
a group health plan. 
"(d) OTHER DEFINITIONS.— 
"(1) APPLICABLE STATE AUTHORITY.—The term 'applicable 
State authority* means, with respect to a health insurance 
issuer in a State, the State insurance commissioner or official 
or officials designated by the State to enforce the requirements 
of this title for the State involved with respect to such issuer. 
"(2) BENEFICIARY.—The term 'beneficial has the meaning 
given such term under section 3(8) of the Employee Retirement 
Income Security Act of 1974. 
"(3) BONA FIDE ASSOCIATION.—The term 'bona fide associa-
tion' means, with respect to health insurance coverage offered 
in a State, an association which— 
"(A) has been actively in existence for at least 5 years; 
"(B) has been formed and maintained in good faith 
for purposes other than obtaining insurance; 
"(C) does not condition membership in the association 
on any health status-related factor relating to an individual 
(including an employee of an employer or a dependent 
of an employee); 
"(D) makes health insurance coverage offered through 
the association available to all members regardless of any 
health status-related factor relating to such members (or 
individuals eligible for coverage through a member); 
"(E) does not make health insurance coverage offered 
through the association available other than in connection 
with a member of the association; and 
"(F) meets such additional requirements as may be 
imposed under State law. 
"(4) COBRA CONTINUATION PROVISION.—The term 'COBRA 
continuation provision' means any of the following: 
"(A) Section 4980B of the Internal Revenue Code of 
1986, other than subsection (f)(1) of such section insofar 
as it relates to pediatric vaccines. 
"(B) Part 6 of subtitle B of title I of the Employee 
Retirement Income Security Act of 1974, other than section 
609 of such Act. 
"(C) Title XXII of this Act. 
"(5) EMPLOYEE.—The term 'employee' has the meaning 
given such term under section 3(6) of the Employee Retirement 
Income Security Act of 1974. 
"(6) EMPLOYER.—^The term 'employer' has the meaning 
given such term under section 3(5) of the Employee Retirement 
Income Security Act of 1974, except that such term shall include 
only employers of two or more employees. 
"(7) CHURCH PLAN.—The term 'church plan' has the mean-
ing given such term under section 3(33) of the Employee Retire-
ment Income Security Act of 1974. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1975 
"(8) GOVERNMENI'AL PLAN.—(A) The term 'governmental 
plan' has the meaning given such term under section 3(32) 
of the Employee Retirement Income Security Act of 1974 and 
any Federal governmental plan. 
"(B) FEDERAL GOVERNMENTAL PLAN.—The term 'Federal 
governmental plan' means a governmental plan established 
or maintained for its employees by the Government of the 
United States or by any agency or instrumentality of such 
Government. 
"(C) NON-FEDERAL GOVERNMENTAL PLAN.—The term 'non-
Federal governmental plan' means a governmental plan that 
is not a Federal governmental plan. 
"(9) HEALTH STATUS-RELATED FACTOR.—The term 'health 
status-related factor' means any of the factors described in 
section 2702(a)(1). 
"(10) NETWORK PLAN.—The term 'network plan' means 
health insurance coverage of a health insurance issuer under 
which the financing and delivery of medical care (including 
items and services paid for as medical care) are provided, 
in whole or in part, through a defined set of providers under 
contract with the issuer. 
"(11) PARTICIPANT..—The term 'participant' has the mesuiing 
given such term under section 3(7) of the Employee Retirement 
Income Security Act of 1974. 
"(12) PLACED FOR ADOPTION DEFINED.—The term 'place-
ment', or being 'placed', for adoption, in connection with any 
placement for adoption of a child with any person, means 
the assumption and retention by such person of a legal obliga-
tion for total or partial support of such child in anticipation 
of adoption of such child. The child's placement with such 
person terminates upon the termination of such legal obligation. 
"(13) PLAN SPONSOR.—The term 'plan sponsor' has the 
meaning given such term under section 3(16)(B) of the 
Employee Retirement Income Security Act of 1974. 
"(14) STATE.—The term 'State' means each of the several 
States, the District of Columbia, Puerto Rico, the Virgin Islands, 
Guam, American Samoa, and the Northern Mariana Islands. 
"(e) DEFINITIONS REIJ^^TING TO MARKETS AND SMALL EM-
PLOYERS.—For purposes of this title: 
"(1) INDIVIDUAL MARKET.— 
"(A) IN GENERAL.—The term 'individual market' means 
the market for health insurance coverage offered to individ-
uals other than in connection with a group health plan. 
"(B) TREATMENT OF VERY SMALL GROUPS.— 
"(i) IN GENERAL.—Subject to clause (ii), such terms 
includes coverage offered in connection with a group 
health plan that has fewer than two participants as 
current employees on the first day of the plan year, 
"(ii) STATE EXCEPTION.—Clause (i) shall not apply 
in the case of a State that elects to regulate the cov-
erage described in such clause as coverage in the small 
group market. 
"(2) LARGE EMPLOYER.—The term 'large employer' means, 
in connection with a group health plan with respect to a cal-
endar year and a plan year, an employer who employed an 
average of at least 51 employees on business days during the 
110 STAT. 1976 
PUBLIC LAW 104-191—AUG. 21, 1996 
preceding calendar year and who employs at least 2 employees 
on the first day of the plan year. 
"(3) LARGE GROUP MARKET.—The term 'large group market' 
means the health insurance msirket under which individuals 
obtain health insurance coverage (directly or through any 
arr£uigement) on behalf of themselves (and their dependents) 
through a group health plan maintained by a large employer. 
"(4) SMALL EMPLOYER.—The term 'small employer' means, 
in connection with a group health plan with respect to a cal-
endar year and a plan year, an employer who employed an 
average of at least 2 but not more than 50 employees on 
business days during the preceding calendcir year and who 
employs at least 2 employees on the first day of the plan 
year. 
"(5) SMALL GROUP MARKET.—The term 'small group market' 
means the health insurance market under which individuals 
obtain health insurance coverage (directly or through any 
arrangement) on behalf of themselves (and their dependents) 
through a group heedth plan maintained by a small employer. 
"(6) APPLICATION OF CERTAIN RULES IN DETERMINATION OF 
EMPLOYER SIZE.—For purposes of this subsection— 
"(A) APPLICATION OF AGGREGATION RULE FOR EMPLOY-
ERS.—all persons treated as a single employer under sub-
section (b), (c), (m), or (o) of section 414 of the Internal 
Revenue Code of 1986 shall be treated as 1 employer. 
"(B) 
EMPLOYERS NOT IN EXISTENCE IN PRECEDING 
YEAR.—In the case of an employer which was not in exist-
ence throughout the preceding calendar year, the deter-
mination of whether such employer is a small or large 
employer shall be based on the average number of employ-
ees that it is reasonably expected such employer will 
employ on business days in the current calendar year. 
"(C) PREDECESSORS.—Any reference in this subsection 
to an employer shall include a reference to any predecessor 
of such employer. 
42 use 300gg- 
"SEC. 2792. REGULATIONS. 
92 
"The Secretary, consistent with section 104 of the Health Care 
Portability and Accountability Act of 1996, may promulgate such 
regulations as may be necessary or appropriate to carry out the 
provisions of this title. The Secretary may promulgate any interim 
final rules as the Secretary determines are appropriate to carry 
out this title.". 
(b) APPLICATION OF RULES BY CERTAIN HEALTH MAINTENANCE 
ORGANIZATIONS.—Section 1301 of such Act (42 U.S.C. 300e) is 
amended by adding at the end the following new subsection: 
"(d) An organization that offers health benefits coverage shall 
not be considered as failing to meet the requirements of this section 
notwithstanding that it provides, with respect to coverage offered 
in connection with a group health plan in the small or large group 
market (as defined in section 2791(e)), an sifiiliation period consist-
ent with the provisions of section 2701(g).". 
42 use 300gg 
(c) EFFECTIVE DATE.— 
note. 
(1) IN GENERAL.—Except as provided in this subsection, 
part A of title XXVII of the Public Health Service Act (as 
added by subsection (a)) shall apply with respect to group 
health plans, and health insiu*ance coverage offered in connec-
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1977 
tion with group health plans, for plan years beginning after 
June 30,1997. 
(2) DETERMINATION OF CREDITABLE COVERAGE.— 
(A) PERIOD OF COVERAGE.— 
(i) IN GENERAL.—Subject to clause (ii), no period 
before July 1, 1996, shall be taken into account under 
part A of title XXVII of the PubHc Health Service 
Act (as added by this section) in determining creditable 
coverage. 
(ii) SPECIAL RULE FOR CERTAIN PERIODS.—The Sec-
retary of Health and Human Services, consistent with 
section 104, shall provide for a process whereby individ-
uals who need to establish creditable coverage for peri-
ods before July 1, 1996, £ind who would have such 
coverage credited but for clause (i) may be given credit 
for creditable coverage for such periods through the 
presentation of documents or other means. 
(B) CERTIFICATIONS, ETC.— 
(i) IN GENERAL.—Subject to clauses (ii) and (iii), 
subsection (e) of section 2701 of the Public Health 
Service Act (as added by this section) shall apply to 
events occurring after June 30, 1996. 
(ii) NO CERTIFICATION REQUIRED TO BE PROVIDED 
BEFORE JUNE 1, 1997.—In no case is a certification 
required to be provided under such subsection before 
June 1, 1997. 
(iii) CERTIFICATION ONLY ON WRITTEN REQUEST FOR 
EVENTS OCCURRING BEFORE OCTOBER 1, 1996.—In the 
case of an event occurring after June 30, 1996, and 
before October 1, 1996, a certification is not required 
to be provided under such subsection unless an individ-
ual (with respect to whom the certification is otherwise 
required to be made) requests such certification in 
writing. 
(C) TRANSITIONAL RULE.—In the case of an individual 
who seeks to establish creditable coverage for any period 
for which certification is not required because it relates 
to an event occurring before June 30, 1996— 
(i) the individual may present other credible evi-
dence of such coverage in order to establish the period 
of creditable coverage; and 
(ii) a group health plan and a health insurance 
issuer shall not be subject to any penalty or enforce-
ment action with respect to the plan's or issuer's credit-
ing (or not crediting) such coverage if the plan or 
issuer has sought to comply in good faith with the 
applicable requirements under the amendments made 
by this section. 
(3) 
SPECIAL RULE FOR COLLECTIVE BARGAINING AGREE-
MENTS.—Except as provided in paragraph (2)(B), in the case 
of a group health plan maintained pursuant to 1 or more 
collective bargaining agreements between employee representa-
tives and one or more employers ratified before the date of 
the enactment of this Act, part A of title XXVII of the Public 
Health Service Act (other than section 2701(e) thereof) shall 
not apply to plan years beginning before the later of— 
110 STAT. 1978 
PUBLIC LAW 104-191—AUG. 21, 1996 
(A) the date on which the last of the collective bargain-
ing agreements relating to the plan terminates (determined 
without regard to any extension thereof agreed to after 
the date of the enactment of this Act), or 
(B) July 1, 1997. 
For purposes of subparagraph (A), any plan amendment made 
pursuant to a collective bargaining agreement relating to the 
plan which amends the plan solely to conform to any require-
ment of such part shall not be treated as a termination of 
such collective bargaining agreement. 
(4) TIMELY REGULATIONS.—^The Secretary of Health and 
Human Services, consistent with section 104, shedl first issue 
by not later than April 1, 1997, such regulations as may be 
necessary to carry out the amendments made by this section 
and section 111. 
(5) LIMITATION ON ACTIONS.—^No enforcement action shall 
be taken, pursuant to the amendments made by this section, 
against a group health plan or health insurance issuer with 
respect to a violation of a requirement imposed by such amend-
ments before January 1, 1998, or, if later, the date of issuance 
of regulations referred to in paragraph (4), if the plan or issuer 
has sought to comply in good faith with such requirements, 
(d) MISCELLANEOUS CORRECTION.—Section 2208(1) of the PubUc 
Health Service Act (42 U.S.C. 300bb-8(l)) is amended by striking 
"section 162(i)(2)" and inserting "5000(b)". 
SEC. 103. REFERENCE 
TO 
IMPLEMENTATION 
THROUGH 
THE 
INTERNAL REVENUE CODE OF 1986. 
For provisions amending the Internal Revenue Code of 1986 
to provide for application and enforcement of rules for group health 
plans similar to those provided under the amendments made by 
section 101(a), see section 401. 
42 use 300gg- 
SEC. 104. ASSURING COORDINATION. 
The Secretary of the Treasury, the Secretary of Health and 
Human Services, and the Secretary of Labor shall ensure, through 
the execution of an interagency memorandum of understemding 
among such Secretaries, that— 
(1) regulations, rulings, and interpretations issued by such 
Secretaries relating to the same matter over which two or 
more such Secretaries have responsibility under this subtitle 
(and the amendments made by this subtitle and section 401) 
are administered so as to have the same efiect at all times; 
and 
(2) coordination of policies relating to enforcing the same 
requirements through such Secretaries in order to have a 
coordinated enforcement strategy that avoids duplication of 
enforcement efforts and assigns priorities in enforcement. 
Subtitle B—Individual Market Rules 
SEC. 111. AMENDMENT TO PUBLIC HEALTH SERVICE ACT. 
(a) IN GENERAL.—Title XXVII of the Public Health Service 
Act, as added by section 102(a) of this Act, is amended by inserting 
after part A the following new part: 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1979 
"PART B—INDIVIDUAL MARKET RULES 
"SEC. 2741. GUARANTEED AVAILABILITY OF INDIVIDUAL HEALTH 
42 USC 300GG-
INSURANCE COVERAGE TO CERTAIN INDIVIDUALS WITH 
41. 
PRIOR GROUP COVERAGE. 
"(a) GUARANTEED AVAILABILITY.— 
"(1) IN GENERAL.—Subject to the succeeding subsections 
of this section and section 2744, each health insurance issuer 
that offers health insurance coverage (as defined in section 
2791(b)(1)) in the individual market in a State may not, with 
respect to an eligible individual (as defined in subsection (b)) 
desiring to enroll in individual health insurance coverage— 
"(A) decline to offer such coverage to, or deny enroll-
ment of, such individual; or 
"(B) impose any preexisting condition exclusion (as 
defined in section 2701(b)(1)(A)) with respect to such cov-
erage. 
"(2) SUBSTITUTION BY STATE OF ACCEPTABLE ALTERNATIVE 
MECHANISM.—The requirement of paragraph (1) shall not apply 
to health insurance coverage offered in the individual market 
in a State in which the State is implementing an acceptable 
alternative mechanism under section 2744. 
"(b) ELIGIBLE INDIVIDUAL DEFINED.—In this part, the term 
'eligible individual' means an individual— 
"(1)(A) for whom, as of the date on which the individual 
seeks coverage under this section, the aggregate of the periods 
of creditable coverage (as defined in section 2701(c)) is 18 
or more months and (B) whose most recent prior creditable 
coverage was under a group health plan, governmental plan, 
or church plan (or health insurance coverage offered in connec-
tion with 2iny such plan); 
"(2) who is not eligible for coverage under (A) a group 
health plan, (B) part A or part B of title XVIII of the Social 
Security Act, or (C) a State plan under title XIX of such Act 
(or any successor program), and does not have other health 
insurance coverage; 
"(3) with respect to whom the most recent coverage within 
the coverage period described in paragraph (1)(A) was not 
terminated based on a factor described in paragraph (1) or 
(2) of section 2712(b) (relating to nonpayment of premiums 
or fraud); 
"(4) if the individual had been offered the option of continu-
ation coverage under a COBRA continuation provision or under 
a similar State program, who elected such coverage; and 
"(5) who, if the individual elected such continuation cov-
erage, has exhausted such continuation coverage under such 
provision or program. 
"(c) ALTERNATIVE COVERAGE PERMITTED WHERE NO STATE 
MECHANISM.— 
"(1) IN GENERAL.—In the case of health insurance coverage 
offered in the individual market in a State in which the State 
is not implementing an acceptable alternative mechanism under 
section 2744, the health insurance issuer may elect to limit 
the coverage offered under subsection (a) so long as it offers 
at least two different policy forms of health insurance coverage 
both of which— 
110 STAT. 1980 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(A) are designed for, made generally available to, and 
actively marketed to, and enroll both eligible and other 
individuals by the issuer; and 
"(B) meet the requirement of paragraph (2) or (3), 
as elected by the issuer. 
For purposes of this subsection, policy forms which have dif-
ferent cost-sharing arrangements or different riders shall be 
considered to be different policy forms. 
"(2) CHOICE OF MOST POPULAR POLICY FORMS.—^The require-
ment of this paragraph is met, for health insurance coverage 
policy forms offered by an issuer in the individual market, 
if the issuer offers the policy forms for individual health insur-
ance coverage with the largest, and next to largest, premium 
volume of all such policy forms offered by the issuer in the 
State or applicable marketing or service area (as may be pre-
scribed in regulation) by the issuer in the individual market 
in the period involved. 
"(3) 
CHOICE OF 2 POLICY FORMS WITH REPRESENTATIVE 
COVERAGE.— 
"(A) IN GENERAL.—The requirement of this paragraph 
is met, for health insurance coverage policy forms offered 
by an issuer in the individual market, if the issuer offers 
a lower-level coverage policy form (as defined in subpara-
graph (B)) and a higher-level coverage policy form (as 
defined in subparagraph (O) each of which includes bene-
fits substantially similar to other individual health insur-
ance coverage offered by the issuer in that State and each 
of which is covered under a method described in section 
2744(c)(3)(A) (relating to risk adjustment, risk spreading, 
or financial subsidization). 
"(B) LOWER-LEVEL OF COVERAGE DESCRIBED.—A poHcy 
form is described in this subparagraph if the actuarial 
value of the benefits under the coverage is at least 85 
percent but not greater than 100 percent of a weighted 
average (described in subparagraph (D)). 
"(C) HIGHER-LEVEL OF COVERAGE DESCRIBED.—A policy 
form is described in this subparagraph if— 
"(i) the actuarial value of the benefits under the 
coverage is at least 15 percent greater than the actuar-
ial value of the coverage described in subparagraph 
(B) offered by the issuer in the area involved; and 
"(ii) the actuarial value of the benefits under the 
coverage is at least 100 percent but not greater than 
120 percent of a weighted average (described in 
subparagraph (D)). 
"(D) 
WEIGHTED 
AVERAGE.—For 
purposes 
of 
this 
paragraph, the weighted average described in this subpara-
graph is the average actuarial value of the benefits pro-
vided by all the health insurance coverage issued (as elected 
by the issuer) either by that issuer or by all issuers in 
the State in the individual market during the previous 
year (not including coverage issued under this section), 
weighted by enrollment for the different coverage. 
"(4) ELECTION.—The issuer elections under this subsection 
shall apply uniformly to all eligible individuals in the State 
for that issuer. Such an election shall be effective for policies 
offered during a period of not shorter than 2 years. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1981 
"(5) ASSUMPTIONS.—For purposes of paragraph (3), the 
actuarial value of benefits provided under individual health 
insurance coverage shall be calculated based on a standardized 
population and a set of standardized utilization and cost factors. 
"(d) SPECIAL RULES FOR NETWORK PLANS.— 
"(1) IN GENERAL.—In the case of a health insurance issuer 
that offers health insurance coverage in the individual market 
through a network plan, the issuer may— 
"(A) limit the individuals who may be enrolled under 
such coverage to those who live, reside, or work within 
the service area for such network plan; £ind 
"(B) within the service area of such plan, deny such 
coverage to such individuals if the issuer has demonstrated, 
if required, to the applicable State authority that— 
"(i) it will not have the capacity to deliver services 
adequately to additional individual enrollees because 
of its obligations to existing group contract holders 
and enrollees and individual enrollees, and 
"(ii) it is applying this paragraph uniformly to 
individuals without regard to any health status-related 
factor of such individuals and without regard to 
whether the individuals are eligible individuals. 
"(2) 180-DAY SUSPENSION UPON DENIAL OF COVERAGE.—An 
issuer, upon denjdng health insurance coverage in any service 
area in accordance with paragraph (1)(B), may not offer cov-
erage in the individual market within such service area for 
a period of 180 days after such coverage is denied. 
"(e) APPLICATION OF FINANCIAL CAPACITY LIMITS.— 
"(1) IN GENERAL.—A health insurance issuer may deny 
health insurance coverage in the individual market to an 
eligible individual if the issuer has demonstrated, if required, 
to the applicable State authority that— 
"(A) it does not have the financial reserves necessary 
to underwrite additional coverage; and 
"(B) it is appljdng this paragraph uniformly to all 
individuals in the individual market in the State consistent 
with applicable State law and without regard to any health 
status-related factor of such individuals and without regard 
to whether the individuals are eligible individuals. 
"(2) 180-DAY SUSPENSION UPON DENIAL OF COVERAGE.—An 
issuer upon denjdng individual health insurance coverage in 
any service area in accordance with paragraph (1) may not 
offer such coverage in the individual market within such service 
area for a period of 180 days after the date such coverage 
is denied or until the issuer has demonstrated, if required 
under applicable State law, to the applicable State authority 
that the issuer has sufficient financial reserves to underwrite 
additional coverage, whichever is later. A State may provide 
for the application of this paragraph on a service-area-specific 
basis. 
"(e) MARKET REQUIREMENTS.— 
"(1) IN GENERAL.—The provisions of subsection (a) shall 
not be construed to require that a health insursmce issuer 
offering health insurance coverage only in connection with 
group health plans or through one or more bona fide associa-
tions, or both, offer such health insureince coverage in the 
individual market. 
110 STAT. 1982 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(2) CONVERSION POLICIES.—A health insurance issuer 
offering health insurance coverage in connection with group 
health plans under this title shall not be deemed to be a 
health insurance issuer offering individual health insurance 
coverage solely because such issuer offers a conversion policy. 
"(f) 
CONSTRUCTION.—Nothing in this 
section 
shall be 
construed— 
"(1) to restrict the amount of the premium rates that an 
issuer may charge an individual for health insurance coverage 
provided in the individual market under applicable State law; 
or 
"(2) to prevent a health insurance issuer offering health 
insurance coverage in the individual market from establishing 
premium discoimts or rebates or modifying otherwise applicable 
copayments or deductibles in return for adherence to programs 
of health promotion and disease prevention. 
42USC300gg- 
•«£€. 2742. GUARANTEED RENEWABILnY OF INDIVTOUAL HEALTH 
42. 
INSURANCE COVERAGE. 
"(a) IN GENERAL.—Except as provided in this section, a health 
insurance issuer that provides individual health insurance coverage 
to an individual shall renew or continue in force such coverage 
at the option of the individual. 
"(b) GENERAL EXCEPTIONS.—A health insurance issuer may 
nonrenew or discontinue health insurance coverage of an individual 
in the individual market based only on one or more of the following: 
"(1) NONPAYMENT OF PREMIUMS.—The individual has failed 
to pay premiums or contributions in accordance with the terms 
of the health insurance coverage or the issuer has not received 
timely premium payments. 
"(2) FRAUD.—The individual has performed an act or prac-
tice that constitutes fraud or made an intentional misrepresen-
tation of material fact under the terms of the coverage. 
"(3) TERMINATION OF PLAN.—The issuer is ceasing to offer 
coverage in the individual market in accordance with subsection 
(c) and applicable State law. 
"(4) MOVEMENT OUTSIDE SERVICE AREA.—In the case of 
a health insurance issuer that offers health insurance coverage 
in the market through a network plan, the individual no longer 
resides, lives, or works in the service area (or in an area 
for which the issuer is authorized to do business) but only 
if such coverage is terminated under this paragraph uniformly 
without regEird to any health status-related factor of covered 
individuals. 
"(5) ASSOCIATION MEMBERSHIP CEASES.—In the case of 
health insurance coverage that is made available in the individ-
ual market only through one or more bona fide associations, 
the membership of the individual in the association (on the 
basis of which the coverage is provided) ceases but only if 
such coverage is terminated under this paragraph uniformly 
without regard to any health status-related mctor of covered 
individuals. 
"(c) 
REQUIREMENTS FOR UNIFORM 
TERMINATION OF COV-
ERAGE.— 
"(1) PARTICULAR TYPE OF COVERAGE NOT OFFERED.—In any 
case in which an issuer decides to discontinue offering a particu-
lar type of health insurance coverage offered in the individual 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1983 
market, coverage of such type may be discontinued by the 
issuer only if— 
"(A) the issuer provides notice to each covered individ-
ual provided coverage of this type in such market of such 
discontinuation at least 90 days prior to the date of the 
discontinuation of such coverage; 
"(B) the issuer offers to each individual in the individ-
ual market provided coverage of this t3T)e, the option to 
purchase £iny other individual health insurance coverage 
currently being offered by the issuer for individuals in 
such meirket; and 
"(C) in exercising the option to discontinue coverage 
of this type and in offering the option of coverage under 
subparagraph (B), the issuer acts uniformly without regard 
to any health status-related factor of enrolled individuals 
or individuals who may become eligible for such coverage. 
"(2) DISCONTINUANCE OF ALL COVERAGE.— 
"(A) IN GENERAL.—Subject to subparagraph (C), in any 
case in which a health insurance issuer elects to dis-
continue offering all health insurance coverage in the 
individual market in a State, health insurance coverage 
may be discontinued by the issuer only if— 
"(i) the issuer provides notice to the applicable 
State authority and to each individual of such dis-
continuation at least 180 days prior to the date of 
the expiration of such coverage, and 
"(ii) all health insurance issued or delivered for 
issuance in the State in such market are discontinued 
and coverage under such health insurance coverage 
in such market is not renewed. 
"(B) PROHIBITION ON MARKET REENTRY.—In the case 
of a discontinuation under subparagraph (A) in the individ-
ual market, the issuer may not provide for the issuance 
of £iny health insurance coverage in the market and State 
involved during the 5-year period beginning on the date 
of the discontinuation of the last health insurance coverage 
not so renewed. 
"(d) EXCEPTION FOR UNIFORM MODIFICATION OF COVERAGE.— 
At the time of coverage renewal, a hesdth insurance issuer may 
modify the health insurance coverage for a policy form offered 
to individuals in the individual market so long as such modification 
is consistent with State law and effective on a uniform basis among 
all individuals with that policy form. 
"(e) 
APPLICATION TO COVERAGE OFFERED ONLY THROUGH 
ASSOCIATIONS.—In applying this section in the case of health insur-
ance coverage that is made available by a health insurance issuer 
in the individual market to individuals only through one or more 
associations, a reference to an 'individual' is deemed to include 
a reference to such an association (of which the individual is a 
member). 
"SEC. 2743. CERTIFICATION OF COVERAGE. 
42 USC 300gg-
"The provisions of section 2701(e) shall apply to health insur-
ance coverage offered by a health insurance issuer in the individual 
market in the same manner as it applies to health insurance 
coverage offered by a health insurance issuer in connection with 
a group health plan in the small or large group market. 
110 STAT. 1984 
PUBLIC LAW 104-191—AUG. 21, 1996 
42USC300gg- 
"SEC, 2744. STATE FLEXTOIUTY IN INDIVIDUAL MARKET REFORMS. 
44 
"(a) WAIVER OF REQUIREMENTS WHERE IMPLEMENTATION OF 
ACCEPTABLE ALTERNATIVE MECHANISM.— 
"(1) IN GENERAL.—The requirements of section 2741 shall 
not apply with respect to health insurance coverage offered 
in the individual market in the State so long as a State is 
found to be implementing, in accordance with this section and 
consistent with section 2746(b), an alternative mechanism (in 
this section referred to as an 'acceptable alternative mecha-
nism')— 
"(A) under which all eligible individuals are provided 
a choice of health insurance coverage; 
"(B) under which such coverage does not impose any 
, 
preexisting condition exclusion with respect to such cov-
erage; 
"(C) under which such choice of coverage includes at 
least one policy form of coverage that is comparable to 
comprehensive health insurance coverage offered in the 
individual market in such State or that is comparable 
to a standard option of coverage available under the group 
or individual health insurance laws of such State; and 
"(D) in a State which is implementing— 
"(i) a model act described in subsection (c)(1), 
"(ii) a qualified high risk pool described in sub-
section (c)(2), or 
"(iii) a mechanism described in subsection (c)(3). 
"(2) PERMISSIBLE FORMS OF MECHANISMS.—A private or 
public individual health insurance mechanism (such as a health 
insurance coverage pool or programs, mandatory group conver-
sion policies, guarsinteed issue of one or more plans of individual 
health insurance coverage, or open enrollment by one or more 
health insurance issuers), or combination of such mechsinisms, 
that is designed to provide access to health benefits for individ-
uals in the individual market in the State in accordance with 
this section may constitute an acceptable alternative mecha-
nism. 
"(b) APPLICATION OF ACCEPTABLE ALTERNATIVE MECHANISMS.— 
"(1) PRESUMPTION.— 
"(A) IN GENERAL.—Subject to the succeeding provisions 
of this subsection, a State is presumed to be implementing 
an acceptable alternative mechanism in accordance with 
this section as of July 1, 1997, if, by not later than April 
1,1997, the chief executive officer of a State— 
"(i) notifies the Secretary that the State has 
enacted or intends to enact (by not later than January 
1, 1998, or July 1, 1998, in the case of a State described 
in subparagraph (B)(ii)) any necessary legislation to 
provide for the implementation of a mechanism reason-
ably designed to be an acceptable alternative mecha-
nism as of January 1, 1998, (or, in the case of a 
State described in subparagraph (B)(ii), July 1, 1998); 
and 
"(ii) provides the Secretary with such information 
as the Secretary may require to review the mechanism 
and its implementation (or proposed implementation) 
under this subsection. 
"(B) DELAY PERMITTED FOR CERTAIN STATES.— 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1985 
"(i) EFFECT OF DELAY.—In the case of a State 
described in clause (ii) that provides notice under 
subparagraph (A)(i), for the presumption to continue 
on and after July 1, 1998, the chief executive officer 
of the State by April 1, 1998— 
"(I) must notify the Secretary that the State 
has enacted any necessary legislation to provide 
for the implementation of a mechanism reasonably 
designed to be an acceptable alternative mecha-
nism as of July 1, 1998; and 
"(II) must provide the Secretary with such 
information as the Secretary may require to review 
the mechanism and its implementation (or pro-
posed implementation) under this subsection, 
"(ii) STATES DESCRIBED.—A State described in this 
clause is a State that has a legislature that does not 
meet within the 12-month period beginning on the 
date of enactment of this Act. 
"(C) CONTINUED APPLICATION.—In order for a mecha-
nism to continue to be presumed to be an. acceptable alter-
native mechanism, the State shall provide the Secretary 
every 3 years with information described in subparagraph 
(A)(ii) or (B)(i)(II) (as the case may be). 
"(2) NOTICE.—If the Secretary finds, after review of 
information provided imder paragraph (1) and in consultation 
with the chief executive officer of the State and the insurance 
commissioner or chief insurance regulatory official of the State, 
that such a mechanism is not an acceptable alternative mecha-
nism or is not (or no longer) being implemented, the Secretary— 
"(A) shall notify the State of— 
"(i) such preliminary determination, and 
"(ii) the consequences under paragraph (3) of a 
failure to implement such a mechanism; and 
"(B) shall permit the State a reasonable opportunity 
in which to modify the mechanism (or to adopt another 
mechanism) in a manner so that may be an acceptable 
alternative mechanism or to provide for implementation 
of such a mechanism. 
"(3) FINAL DETERMINATION.—If, after providing notice and 
opportunity under paragraph (2), the Secretary finds that the 
mechanism is not an acceptable alternative mechanism or the 
State is not implementing such a mechanism, the Secretary 
shall notify the State that the State is no longer considered 
to be implementing an. acceptable alternative mechanism and 
that the requirements of section 2741 shall apply to health 
insurance coverage offered in the individual market in the 
State, effective as of a date specified in the notice. 
"(4) LIMITATION ON SECRETARIAL AUTHORITY.—The Sec-
retary shall not make a determination under paragraph (2) 
or (3) on any basis other than the basis that a mechanism 
is not an acceptable alternative mechanism or is not being 
implemented. 
"(5) FUTURE ADOPTION OF MECHANISMS.—If a State, after 
January 1, 1997, submits the notice and information described 
in paragraph (1), unless the Secretary makes a 
finding 
described in paragraph (3) within the 90-day period beginning 
on the date of submission of the notice and information, the 
110 STAT. 1986 
PUBLIC LAW 104-191—AUG. 21, 1996 
mechanism shall be considered to be an acceptable alternative 
mechanism for purposes of this section, effective 90 days after 
the end of such period, subject to the second sentence of para-
graph (1). 
"(c) PROVISION RELATED TO RISK.— 
"(1) ADOPTION OF NAIC MODELS.—The model act referred 
to in subsection (a)(l)(D)(i) is the Small Employer and Individ-
ual Health Insurance Availability Model Act (adopted by the 
National Association of Insurance Commissioners on June 3, 
1996) insofar as it applies to individual health insurance cov-
erage or the Individual Health Insurance Portability Model 
Act (also adopted by such Association on such date). 
"(2) QUALIFIED HIGH RISK POOL.—For purposes of subsection 
(a)(l)(D)(ii), a 'qualified high risk pool' described in this para-
graph is a high risk pool that— 
"(A) provides to aU eligible individusils health insurance 
coverage (or comparable coverage) that does not impose 
any preexisting condition exclusion with respect to such 
coverage for all eligible individuals, and 
"(B) provides for premium rates and covered benefits 
for such coverage consistent with standards included in 
the NAIC Model Health Plan for Uninsurable Individuals 
Act (as in effect as of the date of the enactment of this 
title). 
"(3) 
OTHER 
MECHANISMS.—For purposes of subsection 
(a)(l)(D)(iii), a mechanism described in this paragraph— 
"(A) provides for risk adjustment, risk spreading, or 
a risk spreading mechanism (among issuers or policies 
of an issuer) or otherwise provides for some financial sub-
sidization for eligible individuals, including through assist-
ance to participating issuers; or 
"(B) is a mechsinism under which each eligible individ-
ual is provided a choice of all individual health insurance 
coverage otherwise available. 
42 use 
"SEC. 2761. ENFORCEMENT. 
300gg-61. 
"(a) STATE ENFORCEMENT.— 
"(1) STATE AUTHORITY.—Subject to section 2746, each State 
may require that health insurance issuers that issue, sell, 
renew, or offer health insurance coverage in the State in the 
individual market meet the requirements established under 
this part with respect to such issuers. 
"(2) FAILURE TO IMPLEMENT REQUIREMENTS.—In the case 
of a State that fails to subst£inti2dly enforce the requirements 
set forth in this part with respect to health insurance issuers 
in the State, the Secretary shall enforce the requirements of 
this part xinder subsection (b) insofar as they relate to the 
issuance, sale, renewal, and offering of health insurance cov-
erage in the individual market in such State. 
"(b) SECRETARIAL ENFORCEMENT AUTHORITY.—The Secretary 
shall have the same authority in relation to enforcement of the 
provisions of this part with respect to issuers of health insurance 
coverage in the individual msirket in a State as the Secretary 
has under section 2722(b)(2) in relation to the enforcement of the 
provisions of part A with respect to issuers of health insurance 
coverage in the small group market in the State. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1987 
"SEC. 2762. PREEMPTION. 
"(a) IN GENERAL.—Subject to subsection (b), nothing in this 
part (or part C insofar as it appUes to this part) shall be construed 
to prevent a State from establishing, implementing, or continuing 
in effect standards and requirements unless such standards and 
requirements prevent the application of a requirement of this part. 
"(b) RULES OF CONSTRUCTION.—Nothing in this part (or part 
C insofar as it applies to this part) shall be construed to affect 
or modify the provisions of section 514 of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1144). 
"SEC. 2763. GENERAL EXCEPTIONS. 
"(a) EXCEPTION FOR CERTAIN BENEFITS.—^The requirements of 
this pgirt shall not apply to any health insurance coverage in relation 
to its provision of excepted benefits described in section 2791(c)(1). 
"(b) EXCEPTION FOR CERTAIN BENEFITS IF CERTAIN CONDITIONS 
MET.—The requirements of this part shall not apply to any health 
insurance coverage in relation to its provision of excepted benefits 
described in psiragraph (2), (3), or (4) of section 2791(c) if the 
benefits are provided under a separate policy, certificate, or contract 
of insurance.". 
(b) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in this subsection, 
part B of title XXVII of the PubUc Health Service Act (as 
inserted by subsection (a)) shall apply with respect to health 
insurance coverage offered, sold, issued, renewed, in effect, 
or operated in the individual market after June 30, 1997, 
regardless of when a period of creditable coverage occurs. 
(2) APPLICATION OF CERTIFICATION RULES.—The provisions 
of section 102(d)(2) of this Act shall apply to section 2743 
of the Public Health Service Act in the same manner as it 
applies to section 2701(e) of such Act. 
Subtitle C—General and Miscellaneous 
Provisions 
42 use 
300gg-62. 
42 use 
300gg-63. 
42 use 
300gg-41 note. 
SEC. 191. HEALTH COVERAGE AVAHJVBILrrY STUDIES. 
(a) STUDIES.— 
(1) STUDY ON EFFECTIVENESS OF REFORMS.—The Secretary 
of Health and Humiin Services shall provide for a study on 
the effectiveness of the provisions of this title £ind the various 
State laws, in ensuring the availability of reasonably priced 
health coverage to employers purchasing group coverage and 
individuals purchasing coverage on a non-group basis. 
(2) STUDY ON ACCESS AND CHOICE.—The Secretary also 
shall provide for a study on— 
(A) the extent to which patients have direct access 
to, and choice of, health care providers, including specialty 
providers, within a network plan, as well as the opportunity 
to utilize providers outside of the network plan, imder 
the various t5T)es of coverage offered under the provisions 
of this title; and 
(B) the cost and cost-effectiveness to health insiu-ance 
issuers of providing access to out-of-network providers, and 
the potential impact of providing such access on the cost 
42 use 300gg 
note. 
29-194 O - 96 - 9 : QL 3 Part 3 
110 STAT. 1988 
PUBLIC LAW 104-191—AUG. 21, 1996 
and quality of health insurance coverage offered under 
provisions of this title. 
(3) CONSULTATION.—The studies under this subsection shall 
be conducted in consultation with the Secretary of Labor, rep-
resentatives of State officials, consumers, and other representa-
tives of individuals and entities that have expertise in health 
insurance and employee benefits. 
(b) REPORTS.—Not later than January 1, 2000, the Secretary 
shall submit to the appropriate committees of Congress a report 
on each of the studies under subsection (a). 
SEC. 192. REPORT ON MEDICARE REIMBURSEMENT OF TELEMEDICINE. 
The Health Care Financing Administration shall complete its 
ongoing study of Medicare reimbursement of all telemedicine serv-
ices and submit a report to Congress on Medicare reimbursement 
of telemedicine services by not later than March 1, 1997. The 
report shall— 
(1) utilize data compiled from the current demonstration 
projects already under review and gather data from other 
ongoing telemedicine networks; 
(2) include an analysis of the cost of services provided 
via telemedicine; and 
(3) include a proposal for Medicare reimbursement of such 
services. 
SEC. 193. ALLOWING FEDERALLY-QUALIFIED HMOS TO OFFER HIGH 
DEDUCTIBLE PLANS. 
Section 1301(b) of the PubUc Health Service Act (42 U.S.C. 
300e(b)) is amended by adding at the end the following new para-
graph: 
"(6) A health maintenance organization that otherwise 
meets the requirements of this title may offer a high-deductible 
health plan (as defined in section 220(c)(2) of the Internal 
Revenue Code of 1986).". 
SEC. 194. VOLUNTEER SERVICES PROVIDED BY HEALTH PROFES-
SIONALS AT FREE CLINICS. 
Section 224 of the Public Health Service Act (42 U.S.C. 233) 
is amended by adding at the end the following subsection: 
"(o)(l) For purposes of this section, a free clinic health profes-
sional shall in providing a qualifjdng health service to an individual 
be deemed to be an employee of the Public Health Service for 
a calendar year that begins during a fiscal year for which a transfer 
was made under paragraph (6)(D). The preceding sentence is subject 
to the provisions of this subsection. 
"(2) In providing a health service to an individual, a health 
care practitioner shall for purposes of this subsection be considered 
to be a free clinic health professional if the following conditions 
are met: 
"(A) The service is provided to the individual at a free 
clinic, or through offsite programs or events carried out by 
the free clinic. 
"(B) The free clinic is sponsoring the health care practi-
tioner pursuant to paragraph (5)(C). 
"(C) The service is a qualifying health service (as defined 
in paragraph (4)). 
"(D) Neither the health care practitioner nor the free clinic 
receives any compensation for the service from the individual 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1989 
or from any third-party payor (including reimbursement under 
any insurance policy or health plan, or under any Federal 
or State health benefits program). With respect to compliance 
with such condition: 
"(i) The health care practitioner may receive repayment 
from the free clinic for reasonable expenses incurred by 
the health care practitioner in the provision of the service 
to the individual. 
"(ii) The free clinic may accept voluntary donations 
for the provision of the service by the health care practi-
tioner to the individual. 
"(E) Before the service is provided, the health care practi-
tioner or the free clinic provides written notice to the individual 
of the extent to which the legal liability of the health care 
practitioner is limited pursuant to this subsection (or in the 
case of an emergency, the written notice is provided to the 
individu£il as soon after the emergency as is practicable). If 
the individual is a minor or is otherwise legally incompetent, 
the condition under this subparagraph is that the written notice 
be provided to a legal guardian or other person with legal 
responsibility for the care of the individual. 
"(F) At the time the service is provided, the health care 
practitioner is licensed or certified in accordance with applicable 
law regarding the provision of the service. 
"(3)(A) For purposes of this subsection, the term 'free clinic' 
means a health care facility operated by a nonprofit private entity 
meeting the following requirements: 
"(i) The entity does not, in providing health services 
through the facility, accept reimbursement from any third-
party payor (including reimbursement under any insurance 
policy or health plan, or under any Federal or State hesilth 
benefits program). 
"(ii) The entity, in providing health services through the 
facility, either does not impose charges on the individuals to 
whom the services are provided, or imposes a charge according 
to the ability of the individual involved to pay the charge, 
"(iii) The entity is licensed or certified in accordance with 
applicable law regarding the provision of health services. 
"(B) With respect to compliance with the conditions under 
subparagraph (A), the entity involved may accept voluntary dona-
tions for the provision of services. 
"(4) For purposes of this subsection, the term 'qualifying health 
service' means any medical assistance required or authorized to 
be provided in the program under title XIX of the Social Security 
Act, without regard to whether the medical assistance is included 
in the plan submitted under such program by the State in which 
the health care practitioner involved provides the medical assist-
ance. References in the preceding sentence to such program shall 
as applicable be considered to be references to any successor to 
such program. 
"(5) Subsection (g) (other than paragraphs (3) through (5)) 
and subsections (h), (i), and (1) apply to a health care practitioner 
for purposes of this subsection to the same extent and in the 
same manner as such subsections apply to an officer, governing 
board member, employee, or contractor of an entity described in 
subsection (g)(4), subject to paragraph (6) and subject to the 
following: 
110 STAT. 1990 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(A) The first sentence of paragraph (1) appHes in lieu 
of the first sentence of subsection (g)(1)(A). 
"(B) This subsection may not be construed as deeming 
£iny free cHnic to be an employee of the Public Health Service 
for purposes of this section. 
"(C) With respect to a free clinic, a health care practitioner 
is not a free clinic health professional unless the free clinic 
sponsors the health care practitioner. For purposes of this 
subsection, the free clinic shall be considered to be sponsoring 
the health care practitioner if— 
"(i) with respect to the health care practitioner, the 
free clinic submits to the Secretary ein application meeting 
the requirements of subsection (g)(1)(D); and 
"(ii) the Secretary, pursuant to subsection (g)(1)(E), 
determines that the health care practitioner is deemed 
to be an employee of the Public Health Service. 
"(D) In the case of a health care practitioner who is deter-
mined by the Secretary pursuant to subsection (g)(1)(E) to 
be a fi*ee clinic health professional, this subsection applies 
to the health care practitioner (wdth respect to the free clinic 
sponsoring the health care practitioner pursuant to subpara-
graph (O) for any cause of action arising fi*om an act or 
omission of the health care practitioner occurring on or after 
the date on which the Secretary makes such determination. 
"(E) Subsection (g)(1)(F) applies to a health care practi-
tioner for purposes of this subsection only to the extent that, 
in providing health services to an individual, each of the condi-
tions specified in paragraph (2) is met. 
"(6)(A) For purposes of making payments for judgments against 
the United States (together with related fees and expenses of wit-
nesses) pursuant to this section arising fi*om the acts or omissions 
of fi*ee clinic health professionals, there is authorized to be appro-
priated $10,000,000 for each fiscal year. 
"(B) The Secretary shall establish a fiind for purposes of this 
subsection. Each fiscal year amounts appropriated under subpara-
graph (A) shall be deposited in such fund. 
Reports. 
"(C) Not later than May 1 of each fiscal year, the Attorney 
General, in consultation with the Secretary, shall submit to the 
Congress a report providing an estimate of the amount of claims 
(together with related fees and expenses of witnesses) that, by 
reason of the acts or omissions of free clinic health professionals, 
will be paid pursuant to this section during the calendar year 
that begins in the following fiscal year. Subsection (k)(l)(B) applies 
to the estimate under the preceding sentence regarding fi'ee clinic 
health professionals to the same extent and in the same manner 
as such subsection applies to the estimate under such subsection 
regarding officers, governing board members, employees, and con-
tractors of entities described in subsection (g)(4). 
"(D) Not later than December 31 of each fiscal year, the Sec-
retary shall transfer fi-om the fund under subparagraph (B) to 
the appropriate accounts in the Treasury an amount equal to the 
estimate made under subparagraph (C) for the calendar year begin-
ning in such fiscal year, subject to the extent of amounts in the 
fiind. 
Effective date. 
"(7)(A) This subsection takes effect on the date of the enactment 
of the first appropriations Act that m£ikes an appropriation under 
paragraph (6)(A), except as provided in subparagraph (B)(i). 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1991 
"(B)(i) Effective on the date of the enactment of the Health 
Insurance PortabiUty and AccountabiUty Act of 1996— 
"(I) the Secretary may issue regulations for carrying out 
this subsection, and the Secretary may accept and consider 
applications submitted pursuant to paragraph (5)(C); and 
"(II) reports under paragraph (6)(C) may be submitted to 
the Congress. 
"(ii) For the first fiscal year for which an appropriation is 
made under subparagraph (A) of paragraph (6), if an estimate 
under subparagraph (C) of such paragraph has not been made 
for the calendar year beginning in such fiscal year, the transfer 
under subparagraph (D) of such paragraph shall be made notwith-
standing the lack of the estimate, and the transfer shall be made 
in an amount equal to the amount of such appropriation,". 
SEC. 195. FINDINGS; SEVERABILITY. 
42 USC 300gg 
(a) FINDINGS RELATING TO EXERCISE OF COMMERCE CLAUSE 
AUTHORITY.—Congress finds the following in relation to the provi-
sions of this title: 
(1) Provisions in group health plans and health insurance 
coverage that impose certain preexisting condition exclusions 
impact the ability of employees to seek emplo5mient in inter-
state commerce, thereby impeding such commerce. 
(2) Health insurgmce coverage is commercial in nature and 
is in and affects interstate commerce. 
(3) It is a necessary and proper exercise of Congressional 
authority to impose requirements under this title on group 
health plans and health insurance coverage (including coverage 
offered to individuals previously covered under group health 
plans) in order to promote commerce among the States. 
(4) Congress, however, intends to defer to States, to the 
maximum extent practicable, in canying out such requirements 
with respect to insurers and health maintenance organizations 
that are subject to State regulation, consistent with the provi-
sions of the Employee Retirement Income Security Act of 1974. 
(b) SEVERABILITY.—If any provision of this title or the applica-
tion of such provision to any person or circumstance is held to 
be unconstitutional, the remainder of this title and the application 
of the provisions of such to any person or circumstance shall not 
be affected thereby. 
TITLE II—PREVENTING HEALTH CARE 
FRAUD AND ABUSE; ADMINISTRATIVE 
SIMPLIFICATION 
SEC. 200. REFERENCES IN TITLE. 
Except as otherwise specifically provided, whenever in this 
title an amendment is expressed in terms of an amendment to 
or repeal of a section or other provision, the reference shall be 
considered to be made to that section or other provision of the 
Social Security Act. 
110 STAT. 1992 
PUBLIC LAW 104-191—AUG. 21, 1996 
Subtitle A—Fraud and Abuse Control 
Program 
SEC. 
201. 
FRAUD 
AND 
ABUSE 
CONTROL 
PROGRAM. 
(a) ESTABLISHMENT OF PROGRAM.—Title XI (42 U.S.C. 1301 
et seq.) is amended by inserting after section 1128B the following 
new section: 
"FRAUD AND ABUSE CONTROL PROGRAM 
42 u s e 1320a- 
" S E C 1128C. (a) ESTABLISHMENT OF PROGRAM.— 
7c. 
"(1) IN GENERAL.—Not later than January 1, 1997, the 
Secretary, acting through the Office of the Inspector General 
of the Department of Health and Himian Services, and the 
Attorney General shall establish a program— 
"(A) to coordinate Federal, State, and local law enforce-
ment programs to control fraud and abuse with respect 
to health plans, 
"(B) to conduct investigations, audits, evaluations, and 
inspections relating to the delivery of and payment for 
health care in the United States, 
"(C) to facilitate the enforcement of the provisions of 
sections 1128, 1128A, and 1128B and other statutes 
applicable to health care fraud and abuse, 
"(D) to provide for the modification and establishment 
of safe harbors and to issue advisory opinions and special 
fraud alerts pursuant to section 1128D, and 
"(E) to provide for the reporting and disclosure of cer-
tain final adverse actions against health care providers, 
suppUers, or practitioners pursuant to the data collection 
system established under section 1128E. 
"(2) COORDINATION WITH HEALTH PLANS.—In carrying out 
the program established under paragraph (1), the Secretary 
and the Attorney General shall consult with, and arrange for 
the sharing of data with representatives of health plans. 
"(3) GUIDELINES.— 
"(A) IN GENERAL.—The Secretary and the Attorney 
General shall issue guidelines to carry out the program 
under paragraph (1). The provisions of sections 553, 556, 
and 557 of title 5, United States Code, shall not apply 
in the issuance of such guidelines. 
"(B) INFORMATION GUIDELINES.— 
"(i) IN GENERAL.—Such guidelines shall include 
guidelines relating to the ftmiishing of information 
by health plans, providers, and others to enable the 
Secretary and the Attorney General to carry out the 
program (including coordination with health plans 
under paragraph (2)). 
"(ii) 
CONFIDENTIALITY.—Such 
guidelines 
shall 
include procedures to assure that such information 
is provided and utiUzed in a manner that appropriately 
protects the confidentiality of the information and the 
privacy of individuals receiving health care services 
and items. 
"(iii) 
QUALIFIED 
IMMUNITY 
FOR 
PROVIDING 
INFORMATION.—^The provisions of section 1157(a) (relat-
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1993 
ing to limitation on liability) shall apply to a person 
providing information to the Secretary or the Attorney 
General in conjunction with their performance of duties 
under this section. 
"(4) ENSURING ACCESS TO DOCUMENTATION.—The Inspector 
General of the Department of Health and Human Services 
is authorized to exercise such authority described in paragraphs 
(3) through (9) of section 6 of the Inspector General Act of 
1978 (5 U.S.C. App.) as necessary with respect to the activities 
under the fraud and abuse control program established under 
this subsection. 
"(5) AUTHORITY OF INSPECTOR GENERAL.—Nothing in this 
Act shall be construed to diminish the authority of any Inspec-
tor General, including such authority as provided in the Inspec-
tor General Act of 1978 (5 U.S.C. App.). 
"(b) ADDITIONAL USE OF FUNDS BY INSPECTOR GENERAL.— 
"(1) REIMBURSEMENTS FOR INVESTIGATIONS.—The Inspector 
General of the Department of Health and Human Services 
is authorized to receive and retain for current use reimburse-
ment for the costs of conducting investigations and audits and 
for monitoring compliance plans when such costs are ordered 
by a court, voluntarily agreed to by the payor, or otherwise. 
"(2) CREDITING.—Funds received by the Inspector General 
under paragraph (1) as reimbursement for costs of conducting 
investigations shall be deposited to the credit of the appropria-
tion from which initially paid, or to appropriations for similar 
purposes currently available at the time of deposit, and shall 
remain available for obligation for 1 year from the date of 
the deposit of such funds. 
"(c) HEALTH PLAN DEFINED.—For purposes of this section, the 
term ^health plan' means a plan or program that provides health 
benefits, whether directly, through insurance, or otherwise, and 
includes— 
"(1) a policy of health insurance; 
"(2) a contract of a service benefit organization; and 
"(3) a membership agreement with a health maintenance 
organization or other prepaid health plan.". 
(b) ESTABLISHMENT OF HEALTH CARE FRAUD AND ABUSE CON-
TROL ACCOUNT IN FEDERAL HOSPITAL INSURANCE TRUST FUND.— 
Section 1817 (42 U.S.C. 13951) is amended by adding at the end 
the following new subsection: 
"(k) HEALTH CARE FRAUD AND ABUSE CONTROL ACCOUNT.— 
"(1) ESTABLISHMENT.—There is hereby established in the 
Trust Fimd an expenditure accoimt to be known as the 'Health 
Care Fraud and Abuse Control Account' (in this subsection 
referred to as the 'Accoimt'). 
"(2) APPROPRIATI:D AMOUNTS TO TRUST FUND.— 
"(A) IN GENERAL.—^There are hereby appropriated to 
the Trust Fimd— 
"(i) such gifts and bequests as may be made as 
provided in subparagraph (B); 
"(ii) such amounts as may be deposited in the 
Trust Fimd as provided in sections 242(b) and 249(c) 
of the Health Insurance Portability and Accountability 
Act of 1996, and title XI; and 
"(iii) such amounts as are transferred to the Trust 
Fund under subparagraph (C). 
110 STAT. 1994 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(B) AUTHORIZATION TO ACCEPT GIFTS.—The Trust 
Fund is authorized to accept on behalf of the United States 
money gifts £ind bequests made unconditionsdly to the Trust 
Fund, for the benefit of the Account or any activity financed 
through the Account. 
"(C) TRANSFER OF AMOUNTS.—The Managing Trustee 
shall transfer to the Trust Fund, under rules similar to 
the rules in section 9601 of the Internal Revenue Code 
of 1986, an amount equal to the sum of the following: 
"(i) Criminal fines recovered in cases involving 
a Federal health care offense (as defined in section 
982(a)(6)(B) of title 18, United States Code). 
"(ii) Civil monetary penalties and assessments 
imposed in health care cases, including amounts recov-
ered under titles XI, XVIII, and XIX, and chapter 
38 of title 31, United States Code (except as otherwise 
provided by law). 
"(iii) Amounts resulting fi-om the forfeiture of prop-
erty by reason of a Federal health care offense. 
"(iv) Penalties and damages obtained and other-
wise creditable to miscellaneous receipts of the general 
fund of the Treasury obtained under sections 3729 
through 3733 of title 31, United States Code (known 
as the False Claims Act), in cases involving claims 
related to the provision of health care items and serv-
ices (other than funds awarded to a relator, for restitu-
tion or otherwise authorized by law). 
"(D) APPLICATION.—Nothing in subparagraph (C)(iii) 
shall be construed to limit the availability of recoveries 
and forfeitures obtained under title I of the Employee 
Retirement Income Security Act of 1974 for the purpose 
of providing equitable or remedial relief for employee wel-
fare benefit plans, and for participants and beneficiaries 
under such plans, as authorized under such title. 
"(3) APPROPRIATED AMOUNTS TO ACCOUNT FOR FRAUD AND 
ABUSE 
CONTROL 
PROGRAM, 
ETC.— 
"(A) DEPARTMENTS OF HEALTH AND HUMAN SERVICES 
AND JUSTICE.— 
"(i) IN GENERAL.—There are hereby appropriated 
to the Account from the Trust Fund such sums as 
the Secretary and the Attorney General certify are 
necessary to carry out the purposes described in 
subparagraph (C), to be available without further 
appropriation, in an amount not to exceed— 
"(I) for fiscal year 1997, $104,000,000, 
"(II) for each of the fiscal yesirs 1998 through 
2003, the limit for the preceding fiscal year, 
increased by 15 percent; and 
"(III) for each fiscal year after fiscal year 2003, 
the limit fbr fiscal year 2003. 
"(ii) 
MEDICARE AND MEDICAID ACTIVITIES.—For 
each fiscal year, of the amount appropriated in clause 
(i), the following amounts shall be available only for 
the purposes of the activities of the Office of the Inspec-
tor General of the Department of Health and Human 
Services with respect to the Medicare and medicaid 
programs— 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1995 
"(I) for fiscal year 
1997, not less 
than 
$60,000,000 and not more than $70,000,000; 
"(11) for fiscal year 1998, not less than 
$80,000,000 and not more than $90,000,000; 
"(III) for fiscal year 1999, not less than 
$90,000,000 and not more than $100,000,000; 
"(IV) for fiscal year 2000, not less than 
$110,000,000 and not more than $120,000,000; 
"(V) for fiscal year 2001, not less than 
$120,000,000 and not more than $130,000,000; 
"(VI) for fiscal year 2002, not less than 
$140,000,000 and not more than $150,000,000; and 
"(VII) for each fiscal year after fiscal year 
2002, not less than $150,000,000 and not more 
than $160,000,000. 
"(B) FEDERAL BUREAU OF INVESTIGATION.—^There 
are 
hereby appropriated from the general fund of the United 
States Treasury £ind hereby appropriated to the Account 
for trsinsfer to the Federal Bureau of Investigation to carry 
out the purposes described in subparagraph (C), to be avail-
able without further appropriation— 
"(i) for fiscal year 1997, $47,000,000; 
"(ii) for fiscal year 1998, $56,000,000; 
"(iii) for fiscal year 1999, $66,000,000; 
"(iv) for fiscal year 2000, $76,000,000; 
"(v) for fiscal year 2001, $88,000,000; 
"(vi) for fiscal year 2002, $101,000,000; and 
"(vii) for each fiscal year after fiscal year 2002, 
$114,000,000. 
"(C) USE OF FUNDS.—The purposes described in this 
subparagraph are to cover the costs (including equipment, 
salaries and benefits, and travel and training) of the 
administration and operation of the health care fraud and 
abuse control program established under section 1128C(a), 
including the costs o
f
— 
"(i) prosecuting health care matters (through crimi-
nal, civil, and administrative proceedings); 
"(ii) investigations; 
"(iii) financial and performance audits of health 
care programs and operations; 
"(iv) inspections and other evaluations; and 
"(v) provider and consumer education regarding 
compliance with the provisions of title XI. 
"(4) APPROPRIATED AMOUNTS TO ACCOUNT FOR MEDICARE 
INTEGRITY PROGRAM.— 
"(A) IN GENERAL.—There are hereby appropriated to 
the Account from the Trust Fund for each fiscal year such 
amounts as are necessary to carry out the Medicare Integ-
rity Program under section 1893, subject to subparagraph 
(B) and to be available without further appropriation. 
"(B) AMOUNTS SPECIFIED.—The amount appropriated 
under subparagraph (A) for a fiscsil year is as follows: 
"(i) For fiscal year 1997, such amount shall be 
not less than $430,000,000 and not more 
than 
$440,000,000. 
110 STAT. 1996 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(ii) For fiscal year 1998, such amount shall be 
not less than 
$490,000,000 and not more 
than 
$500,000,000. 
"(iii) For fiscal year 1999, such amount shall be 
not less than $550,000,000 and not more 
than 
$560,000,000. 
"(iv) For fiscal year 2000, such amoimt shall be 
not less than $620,000,000 and not more 
than 
$630,000,000. 
"(v) For fiscal year 2001, such simount shall be 
not less than $670,000,000 and not more 
than 
$680,000,000. 
"(vi) For fiscal year 2002, such amount shall be 
not less than $690,000,000 and not more 
than 
$700,000,000. 
"(vii) For each fiscal year afi;er fiscal year 2002, 
such amount shall be not less than $710,000,000 £ind 
not more than $720,000,000. 
"(5) ANNUAL REPORT.—Not later than January 1, the Sec-
retary and the Attorney General shall submit jointly a report 
to Congress which identifies— 
"(A) the amounts appropriated to the Trust Fund for 
the previous fiscal year under paragraph (2)(A) and the 
source of such amounts; and 
"(B) the amounts appropriated fi'om the Trust Fund 
for such year under paragraph (3) and the justification 
for the expenditure of such amounts. 
"(6) GAG REPORT.—Not later than January 1 of 2000, 2002, 
and 2004, the Comptroller General of the United States shall 
submit a report to Congress which— 
"(A) identifies— 
"(i) the amounts appropriated to the Trust Fund 
for the previous two fiscal years under paragraph (2)(A) 
and the source of such amounts; and 
"(ii) the amounts appropriated fi-om the Trust 
Fund for such fiscal years under paragraph (3) and 
the justification for the expenditure of such amounts; 
"(B) identifies any expenditures from the Trust Fund 
with respect to activities not involving the Medicare pro-
gram under title XVIII; 
"(C) identifies any savings to the Trust Fund, and 
any other savings, resulting fi*om expenditures fi*om the 
Trust Fund; and 
"(D) analyzes such other aspects of the operation of 
the Trust Fund as the Comptroller General of the United 
States considers appropriate.". 
SEC. 202. MEDICARE INTEGRITY PROGRAM. 
(a) ESTABLISHMENT OF MEDICARE INTEGRITY PROGRAM.—Title 
XVIII is amended by adding at the end the following new section: 
"MEDICARE INTEGRITY PROGRAM 
42 use I395ddd. 
"SEC. 1893. (a) ESTABLISHMENT OF PROGRAM.—There is hereby 
established the Medicare Integrity Program (in this section referred 
to as the 'Program') under which the Secretary shall promote the 
integrity of the Medicare program by entering into contracts in 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1997 
accordance with this section with ehgible entities to carry out 
the activities described in subsection (b). 
"(b) ACTIVITIES DESCRIBED.—The activities described in this 
subsection are as follows: 
"(1) Review of activities of providers of services or other 
individuals and entities furnishing items and services for which 
pa3anent may be made under this title (including skilled nurs-
ing facilities and home heedth agencies), including medical and 
utilization review and fraud review (emplo)dng similar stand-
ards, processes, £ind technologies used by private health plans, 
including equipment and software technologies which surpass 
the capability of the equipment and technologies used in the 
review of claims under this title as of the date of the enactment 
of this section). 
"(2) Audit of cost reports. 
"(3) Determinations as to whether pa3anent should not 
be, or should not have been, made under this title by reason 
of section 1862(b), and recovery of payments that should not 
have been made. 
"(4) Education of providers of services, beneficiaries, and 
other persons with respect to pa5mient integrity and benefit 
quality assurance issues. 
"(5) Developing (and periodically updating) a list of items 
of durable medical equipment in accordance with section 
1834(a)(15) which are subject to prior authorization under such 
section. 
"(c) ELIGIBILITY OF ENTITIES.—^An entity is eligible to enter 
into a contract under the Program to carry out any of the activities 
described in subsection (b) if— 
"(1) the entity has demonstrated capability to carry out 
such activities; 
"(2) in carrying out such activities, the entity agrees to 
cooperate with the Inspector General of the Department of 
Health and Human Services, the Attorney General, and other 
law enforcement agencies, as appropriate, in the investigation 
and deterrence of fraud and abuse in relation to this title 
and in other cases arising out of such activities; 
"(3) the entity complies with such conflict of interest stand-
ards as are generally applicable to Federal acquisition £
m
^
d 
procurement; and 
"(4) the entity meets such other requirements as the Sec-
retary may impose. 
In the case of the activity described in subsection (b)(5), an entity 
shall be deemed to be eligible to enter into a contract under the 
Program to carry out the activity if the entity is a carrier with 
a contract in effect under section 1842. 
"(d) PROCESS FOR ENTERING INTO CONTRACTS.—The Secretary Regulations. 
shall enter into contracts under the Program in accordance with 
such procedures as the Secretary shall by regulation establish, 
except that such procedures shall include the following: 
"(1) Procedures for identifying, evaluating, and resolving 
organizational conflicts of interest that are generally applicable 
to Federal acquisition and procurement. 
"(2) Competitive procedures to be used— 
"(A) when entering into new contracts under this 
section; 
110 STAT. 1998 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(B) when entering into contracts that may result in 
the eUmination of responsibihties of an individual fiscal 
intermediary or carrier under section 202(b) of the Health 
Insurance Portability £ind Accountability Act of 1996; and 
"(C) at any other time considered appropriate by the 
Secretary, 
except that the Secretary may continue to contract with entities 
that are carrying out the activities described in this section 
pursuant to agreements under section 1816 or contracts under 
section 1842 in effect on the date of the enactment of this 
section. 
"(3) Procedures under which a contract under this section 
may be renewed without regard to any provision of law requir-
ing competition if the contractor has met or exceeded the 
performance requirements established in the current contract. 
The Secretsiry may enter into such contracts without regard to 
final rules having been promulgated. 
Regulations. 
"(e) LIMITATION ON CONTRACTOR LIABILITY.—The Secretary 
shall by regulation provide for the limitation of a contractor's liabil-
ity for actions taken to carry out a contract under the Program, 
and such regulation shall, to the extent the Secretary finds appro-
priate, employ the same or comparable standards and other sub-
stantive and procedural provisions as are contained in section 
1157.". 
(b) 
ELIMINATION OF F I 
AND CARRIER RESPONSIBILITY FOR 
CARRYING OUT ACTIVITIES SUBJECT TO PROGRAM.— 
(1) RESPONSIBILITIES OF FISCAL INTERMEDIARIES UNDER 
PART A.—Section 1816 (42 U.S.C. 1395h) is amended by adding 
at the end the following new subsection: 
"(1) No agency or organization may carry out (or receive pay-
ment for carrying out) any activity pursuant to £in agreement under 
this section to the extent that the activity is carried out pursuant 
to a contract under the Medicare Integrity Program under 
section 1893.". 
(2) RESPONSIBILITIES OF CARRIERS UNDER PART B.—Section 
1842(c) (42 U.S.C. 1395u(c)) is amended by adding at the end 
the following new paragraph: 
"(6) No carrier may carry out (or receive payment for carrying 
out) any activity pursuant to a contract under this subsection 
to the extent that the activity is carried out pursuant to a contract 
under the Medicare Integrity Program under section 1893. The 
previous sentence shall not apply with respect to the activity 
described in section 1893(b)(5) (relating to prior authorization of 
certain 
items of durable 
medical 
equipment 
under 
section 
1834(a)(15)).". 
42 use 1395b-5. 
SEC. 203. BENEFICIARY INCENTIVE PROGRAMS. 
(a) CLARIFICATION OF REQUIREMENT TO PROVIDE EXPLANATION 
OF MEDICARE BENEFITS.—^The Secretary of Health and Human Serv-
ices (in this section referred to as the "Secretary") shall provide 
an explanation of benefits under the Medicare program under title 
XVIII of the Social Security Act with respect to each item or 
service for which pa5mient may be made under the program which 
is furnished to an individual, without regard to whether or not 
a deductible or coinsurance may be imposed agsiinst the individual 
with respect to the item or service. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 1999 
(b) 
PROGRAM TO 
COLLECT INFORMATION ON 
FRAUD AND 
ABUSE.— 
(1) ESTABLISHMENT OF PROGRAM.—Not later than 3 months 
after the date of the enactment of this Act, the Secretary 
shall establish a program under which the Secretary shall 
encourage individuals to report to the Secretary information 
on individuals and emtities who are engaging in or who have 
engaged in acts or omissions which constitute grounds for the 
imposition of a sanction under section 1128, 1128A, or 1128B 
of the Social Security Act, or who have otherwise engaged 
in fraud and abuse against the Medicare program under title 
XVIII of such act for which there is a sanction provided under 
law. The program shall discourage provision of, and not con-
sider, information which is frivolous or otherwise not relevant 
or material to the imposition of such a sanction. 
(2) PAYMENT OF PORTION OF AMOUNTS COLLECTED.—If an 
individual reports information to the Secretary under the pro-
gram established under paragraph (1) which serves as the 
basis for the collection by the Secretary or the Attorney General 
of any amount of at least $100 (other than any amount paid 
as a penalty under section 1128B of the Social Security Act), 
the Secretary may pay a portion of the amount collected to 
the individual (under procedures similar to those applicable 
under section 7623 of the Internal Revenue Code of 1986 to 
pajmients to individuals providing information on violations 
of such Code). 
(c) 
PROGRAM 
TO 
COLLECT 
INFORMATION 
ON 
PROGRAM 
EFFICIENCY.— 
(1) ESTABLISHMENT OF PROGRAM.—Not later than 3 months 
after the date of the enactment of this Act, the Secretary 
shall establish a program under which the Secretary shall 
encourage individuals to submit to the Secretary suggestions 
on methods to improve the efficiency of the Medicare program. 
(2) 
PAYMENT OF PORTION OF PROGRAM SAVINGS.—If 
an 
individual submits a suggestion to the Secretary under the 
program established under paragraph (1) which is adopted 
by the Secretary and which results in savings to the program, 
the Secretary may make a payment to the individual of such 
amount as the Secretary considers appropriate. 
SEC. 204. 
APPLICATION 
OF 
CERTAIN 
HEALTH 
ANTIFRAUD 
AND 
ABUSE 
SANCTIONS 
TO FRAUD AND ABUSE AGAINST FEDERAL 
HEALTH 
CARE 
PROGRAMS. 
(a) IN GENERAL.—Section 1128B (42 U.S.C. 1320a-7b) is 
amended as follows: 
(1) In the heading, by striking "MEDICARE OR STATE HEALTH 
CARE PROGRAMS" and inserting "FEDERAL HEALTH CARE PRO-
GRAMS". 
(2) In subsection (a)(1), by striking "a program under title 
XVIII or a State health care program (as defined in section 
1128(h))" and inserting "a Federal health care program (as 
defined in subsection (f))". 
(3) In subsection (a)(5), by striking "a program under title 
XVIII or a State health care program" and inserting "a Federal 
health care program". 
(4) In the second sentence of subsection (a)— 
110 STAT. 2000 
PUBLIC LAW 104-191—AUG. 21, 1996 
42 use 1320a-
7b note. 
42 use 1320a-
7d. 
Federal Register, 
publication. 
Federal Register, 
publication. 
(A) by striking "a State plan approved under title 
XIX" and inserting "a Federal nealth care program", and 
(B) by striking "the State may at its option (notwith-
standing any other provision of that title or of such plan)" 
and inserting "the administrator of such program may at 
its option (notwithstanding any other provision of such 
program)". 
(5) In subsection (b), by striking "title XVIII or a State 
health care program" each place it appears and inserting "a 
Federal health care program . 
(6) In subsection (c), by inserting "(as defined in section 
1128(h))" after "a State health care program". 
(7) By adding at the end the following new subsection: 
"(f) For purposes of this section, the term 'Federal health care 
program' means— 
"(1) any plan or progrsim that provides health benefits, 
whether directly, through insurance, or otherwise, which is 
fiinded directly, in whole or in part, by the United States 
Government (other than the health insurance program under 
chapter 89 of title 5, United States Code); or 
"(2) any State health care program, as defined in section 
1128(h).". 
(b) EFFECTIVE DATE.—The amendments made by this section 
shall take effect on January 1, 1997. 
SEC. 205. GUIDANCE REGARDING APPLICATION OF HEALTH CARE 
FRAUD AND ABUSE SANCTIONS. 
Title XI (42 U.S.C. 1301 et seq.), as amended by section 201, 
is amended by inserting after section 1128C the following new 
section: 
"GUIDANCE 
REGARDING 
APPLICATION 
OF 
HEALTH 
CARE 
FRAUD 
AND 
ABUSE 
SANCTIONS 
"SEC. 1128D. (a) SOLICITATION AND PUBLICATION OF MODIFICA-
TIONS TO EXISTING SAFE HARBORS AND NEW SAFE HARBORS.— 
"(1) IN GENERAL.— 
"(A) SOLICITATION OF PROPOSALS FOR SAFE HARBORS.— 
Not later than January 1, 1997, and not less than annually 
thereafter, the Secretary shall publish a notice in the Fed-
eral Register soliciting proposals, which will be accepted 
during a 60-day period, for— 
"(i) modifications to existing safe harbors issued 
pursuant to section 14(a) of the Medicare and Medicaid 
Patient and Program Protection Act of 1987 (42 U.S.C. 
1320a-7b note); 
"(ii) additional safe harbors specifying payment 
practices that shall not be treated as a crimingd offense 
under section 1128B(b) and shall not serve as the 
basis for an exclusion under section 1128(b)(7); 
"(iii) advisory opinions to be issued pursuant to 
subsection (b); and 
"(iv) special fi*aud alerts to be issued pursuant 
to subsection (c). 
"(B) 
PUBLICATION OF PROPOSED MODIFICATIONS AND 
PROPOSED ADDITIONAL SAFE HARBORS.—After considering 
the proposals described in clauses (i) and (ii) of subpara-
graph (A), the Secretary, in consultation with the Attorney 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2001 
General, shall publish in the Federal Register proposed 
modifications to existing safe harbors and proposed addi-
tional safe harbors, if appropriate, with a 60-day comment 
period. After considering any public comments received 
during this period, the Secretary shall issue final rules 
modifying the existing safe harbors and establishing new 
safe harbors, as appropriate. 
"(C) REPORT.—The Inspector General of the Depart-
ment of Health and Human Services (in this section 
referred to as the 'Inspector General') shall, in an annual 
report to Congre;ss or as part of the year-end semisinnual 
report required by section 5 of the Inspector General Act 
of 1978 (5 U.S.C. App.), describe the proposals received 
under clauses (i) and (ii) of subparagraph (A) and explain 
which proposals were included in the publication described 
in subparagraph (B), which proposals were not included 
in that publication, and the reasons for the rejection of 
the proposals that were not included. 
"(2) CRITERIA FOR MODIFYING AND ESTABLISHING SAFE HAR-
BORS.—In modifying and establishing safe harbors under para-
graph (1)(B), the Secretary may consider the extent to which 
providing a safe harbor for the specified payment practice may 
result in any of the following: 
"(A) An increase or decrease in access to health care 
services. 
"(B) An increase or decrease in the quality of health 
care services. 
"(C) An increase or decrease in patient fireedom of 
choice among health care providers. 
"(D) An increase or decrease in competition among 
health care providers. 
"(E) An increase or decrease in the ability of health 
care facilities to provide services in medically underserved 
areas or to medically underserved populations. 
"(F) An increase or decrease in the cost to Federal 
health care programs (as defined in section 1128B(f)). 
"(G) An increase or decrease in the potential overutili-
zation of health care services. 
"(H) The existence or nonexistence of any potential 
financial benefit to a health care professional or provider 
which may vary based on their decisions of— 
"(i) whether to order a health care item or 
service; or 
"(ii) whether to arrange for a referral of health 
care items or services to a particular practitioner or 
provider. 
"(I) Any other factors the Secretary deems appropriate 
in the interest of preventing fraud and abuse in Federal 
health care programs (as so defined). 
"(b) ADVISORY OPINIONS.— 
"(1) ISSUANCE OF ADVISORY OPINIONS.—The Secretary, in 
consultation with the Attorney General, shall issue written 
advisory opinions as provided in this subsection. 
"(2) MATTERS SUBJECT TO ADVISORY OPINIONS.—The Sec-
retary shall issue advisory opinions as to the following matters: 
"(A) What constitutes prohibited remuneration within 
the meaning of section 1128B(b). 
110 STAT. 2002 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(B) Whether an arrangement or proposed arrangement 
satisfies the criteria set forth in section 1128B(bX3) for 
activities which do not result in prohibited remuneration. 
"(C) Whether an arrangement or proposed arrangement 
satisfies the criteria which the Secretary has estabUshed, 
or shall establish by regulation for activities which do 
not result in prohibited remuneration. 
"(D) What constitutes an inducement to reduce or limit 
services to individuals entitled to benefits under title XVIII 
or title XIX within the meaning of section 1128B(b). 
"(E) Whether any activity or proposed activity con-
stitutes grounds for the imposition of a sanction under 
section 1128, 1128A, or 1128B. 
"(3) MATTERS NOT SUBJECT TO ADVISORY OPINIONS.—Such 
advisory opinions shall not address the following matters: 
"(A) Whether the fair market value shall be, or was 
paid or received for any goods, services or property. 
"(B) Whether an individual is a bona fide employee 
within the requirements of section 3121(d)(2) of the 
Internal Revenue Code of 1986. 
"(4) EFFECT OF ADVISORY OPINIONS.— 
"(A) 
BINDING 
AS 
TO 
SECRETARY 
AND 
PARTIES 
INVOLVED.—Each advisory opinion issued by the Secretary 
shall be binding as to the Secretary and the party or 
pgirties requesting the opinion. 
"(B) FAILURE TO SEEK OPINION.—The failure of a party 
to seek an advisory opinion may not be introduced into 
evidence to prove that the party intended to violate the 
provisions of sections 1128, 1128A, or 1128B. 
"(5) REGULATIONS.— 
"(A) IN GENERAL.—Not later than 180 days after the 
date of the enactment of this section, the Secretary shall 
issue regulations to carry out this section. Such regulations 
shall provide for— 
"(i) the procedure to be followed by a party apply-
ing for an advisory opinion; 
"(ii) the procedure to be followed by the Secretary 
in responding to a request for an advisory opinion; 
"(iii) the interval in which the Secretary shall 
respond; 
"(iv) the reasonable fee to be charged to the party 
requesting an advisory opinion; and 
"(v) the manner in which advisory opinions will 
be made available to the public. 
"(B) 
SPECIFIC 
CONTENTS.—Under 
the 
regulations 
promulgated pursuant to subparagraph (A)— 
"(i) the Secretary shedl be required to issue to 
a party requesting an advisory opinion by not later 
than 60 days after the request is received; and 
"(ii) the fee charged to the party requesting an 
advisory opinion shall be equal to the costs incurred 
by the Secretary in responding to the request. 
"(6) APPLICATION OF SUBSECTION.—This subsection shall 
apply to requests for advisory opinions made on or after the 
date which is 6 months after the date of enactment of this 
section and before the date which is 4 years after such date 
of enactment. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2003 
"(c) SPECIAL FRAUD AI^ERTS.— 
"(1) IN GENERAL.— 
"(A) REQUEST FOR SPECIAL FRAUD ALERTS.—Any person 
may present, at any time, a request to the Inspector Gen-
eral for a notice which informs the public of practices 
which the Inspector General considers to be suspect or 
of particular concern under the Medicare program under 
title XVIII or a State health care program, as defined 
in section 1128(h) (in this subsection referred to as a 'spe-
cial fraud alert'). 
"(B) 
ISSUANCE AND PUBLICATION OF SPECIAL FRAUD 
ALERTS.—upon receipt of a request described in subpara-
graph (A), the Inspector General shall investigate the sub-
ject matter of the request to determine whether a special 
fraud alert should be issued. If appropriate, the Inspector 
General shall issue a special fraud alert in response to 
the request. All special fraud alerts issued pursuant to 
this subparagraph shall be published in the Federal Reg-
ister. 
"(2) CRITERIA FOR SPECIAL FRAUD ALERTS.—In determining 
whether to issue a special fraud alert upon a request described 
in paragraph (1), the Inspector General may consider— 
"(A) whether and to what extent the practices that 
would be identified in the special fraud alert may result 
in any of the consequences described in subsection (a)(2); 
and 
"(B) the volume £uid frequency of the conduct that 
would be identified in the special fraud alert.". 
Subtitle B—Revisions to Current Sanctions 
for Fraud and Abuse 
SEC. 211. MANDATORY EXCLUSION FROM PARTICIPATION IN MEDI-
CARE AND STATE HEALTH CARE PROGRAMS. 
(a) INDIVIDUAL CONVICTED OF FELONY RELATING TO HEALTH 
CARE FRAUD.— 
(1) IN GENERAL.—Section 1128(a) (42 U.S.C. 1320a-7(a)) 
is amended by adding at the end the following new paragraph: 
"(3) 
FELONY 
CONVICTION 
RELATING 
TO HEALTH 
CARE 
FRAUD.—^Any individual or entity that has been convicted for 
an offense which occurred after the date of the enactment 
of the Health Insurance Portability and Accountability Act of 
1996, under Federal or State law, in connection with the deliv-
ery of a health care item or service or with respect to any 
act or omission in a health care program (other than those 
specifically described in paragraph (1)) operated by or financed 
in whole or in part by any Federal, State, or local government 
agency, of a criminal offense consisting of a felony relating 
to fraud, theft, embezzlement, breach of fiduciary responsibility, 
or other financial misconduct.". 
(2) CONFORMING AMENDMENT.—Paragraph (1) of section 
1128(b) (42 U.S.C. 1320a-7(b)) is amended to read as follows: 
"(1) CONVICTION RELATING TO FRAUD.—Any individual or 
entity that has been convicted for an offense which occurred 
after the date of the enactment of the Health Insurance Port-
110 STAT. 2004 
PUBLIC LAW 104-191—AUG. 21, 1996 
ability and Accountability Act of 1996, under Federal or State 
law— 
"(A) of a criminal offense consisting of a misdemeanor 
relating to fraud, theft, embezzlement, breach of fiduciary 
responsibility, or other financial misconduct— 
"(i) in connection with the delivery of a health 
care item or service, or 
"(ii) with respect to any act or omission in a health 
care program (other than those specifically described 
in subsection (a)(1)) operated by or financed in whole 
or in part by any Federal, State, or local government 
agency; or 
"(B) of a criminal offense relating to fraud, theft, 
embezzlement, breach of fiduciary responsibility, or other 
financial misconduct with respect to any act or omission 
in a program (other than a health care program) operated 
by or financed in whole or in part by any Federal, State, 
or local government agency.", 
(b) INDIVIDUAL CONVICTED OF FELONY RELATING TO CON-
TROLLED SUBSTANCE.— 
(1) IN GENERAL.—Section 1128(a) (42 U.S.C. 1320a-7(a)), 
as amended by subsection (a), is amended by adding at the 
end the following new paragraph: 
"(4) FELONY CONVICTION RELATING TO CONTROLLED SUB-
STANCE.—^Any individual or entity that has been convicted for 
an offense which occurred after the date of the enactment 
of the Health Insurance Portability and Accountability Act of 
1996, under Federal or State law, of a criminal offense consist-
ing of a felony relating to the unlawful manufacture, distribu-
tion, prescription, or dispensing of a controlled substance.". 
(2) 
CONFORMING 
AMENDMENT.—Section 
1128(b)(3) (42 
U.S.C. 1320a-7(b)(3)) is amended— 
(A) in the heading, by striking "CONVICTION" and 
inserting "MISDEMEANOR CONVICTION"; and 
, 
(B) by striking "criminal offense" and inserting 
"criminal offense consisting of a misdemeanor". 
SEC. 212. ESTABLISHMENT OF MINIMUM PERIOD OF EXCLUSION FOR 
CERTAIN 
INDIVIDUALS AND ENTITIES 
SUBJECT TO 
, 
PERMISSIVE EXCLUSION FROM MEDICARE AND STATE 
HEALTH CARE PROGRAMS. 
Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended by add-
ing at the end the following new subparagraphs: 
"(D) In the case of an exclusion of £m individual or entity 
under paragraph (1), (2), or (3) of subsection (b), the period of 
the exclusion shall be 3 years, unless the Secretary determines 
in accordance with published regulations that a shorter period 
is appropriate because of mitigating circumstances or that a longer 
period is appropriate because of aggravating circumstances. 
"(E) In the case of an exclusion of an individual or entity 
under subsection (b)(4) or (b)(5), the period of the exclusion shall 
not be less than the period during which the individual's or entity's 
license to provide health care is revoked, suspended, or surrendered, 
or the individual or the entity is excluded or suspended from a 
Federal or State health care program. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2005 
"(F) In the case of an exclusion of an individual or entity 
under subsection (b)(6)(B), the period of the exclusion shall be 
not less than 1 year.". 
SEC. 213. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH OWNERSHIP 
OR CONTROL INTEREST IN SANCTIONED ENTITIES. 
Section 1128(b) (42 U.S.C. 1320a-7(b)) is amended by adding 
at the end the following new paragraph: 
"(15) 
INDIVIDUALS CONTROLLING A SANCTIONED ENTITY.— 
(A) Any individual— 
"(i) who has a direct or indirect ownership or control 
interest in a sanctioned entity and who knows or should 
know (as defined in section 1128A(i)(6)) of the action con-
stituting the basis for the conviction or exclusion described 
in subparagraph (B); or 
"(ii) who is an officer or managing employee (as defined 
in section 1126(b)) of such an entity. 
"(B) For purposes of subparagraph (A), the term 'sanctioned 
entity* means an entity— 
"(i) that has been convicted of any offense described 
in subsection (a) or in paragraph (1), (2), or (3) of this 
subsection; or 
"(ii) that has been excluded fi*om psirticipation under 
a program imder title XVIII or under a State health care 
program.". 
SEC. 214. SANCTIONS AGAINST PRACTITIONERS AND PERSONS FOR 
FAILURE TO COMPLY WITH STATUTORY OBLIGATIONS. 
(a) MINIMUM PERIOD OF EXCLUSION FOR PRACTITIONERS AND 
PERSONS FAILING TO MEET STATUTORY OBLIGATIONS.— 
(1) IN GENERAL.—^The second sentence of section 1156(b)(1) 
(42 U.S.C. 1320c-5(b)(l)) is amended by striking "may pre-
scribe)" and inserting "may prescribe, except that such period 
may not be less than 1 year)". 
(2) CONFORMING AMENDMENT.—Section 1156(b)(2) (42 
U.S.C. 1320c-5(b)(2)) is amended by striking "shall remain" 
and inserting "shall (subject to the minimum period specified 
in the second sentence of paragraph (1)) remain". 
(b) REPEAL OF "UNWILLING OR UNABLE" CONDITION FOR IMPOSI-
TION OF SANCTION.—Section 1156(b)(1) (42 U.S.C. 1320c-5(b)(l)) 
is amended— 
(1) in the second sentence, by striking "and determines" 
and all that follows through "such obligations,"; and 
(2) by striking the third sentence. 
SEC. 215. INTERMEDIATE 
SANCTIONS FOR MEDICARE HEALTH 
MAINTENANCE ORGANIZATIONS. 
(a) APPLICATION OF INTERMEDIATE SANCTIONS FOR ANY PRO-
GRAM VIOLATIONS.— 
(1) 
IN 
GENERAL.—Section 
1876(i)(l) 
(42 
U.S.C. 
1395mm(i)(l)) is amended by striking "the Secretary may termi-
nate" and all that follows and inserting "in accordance with 
procedures established under paragraph (9), the Secretsiry may 
at any time terminate any such contract or may impose the 
intermediate SEinctions described in paragraph (6)(B) or (6XC) 
(whichever is applicable) on the eligible organization if the 
Secretary determines that the organization— 
"(A) has failed substantially to carry out the contract; 
110 STAT. 2006 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(B) is carrying out the contract in a manner substeintially 
inconsistent with the efficient and effective administration of 
this section; or 
"(C) no longer substemtially meets the appHcable conditions 
of subsections (b), (c), (e), and (f).". 
(2) OTHER INTERMEDIATE SANCTIONS FOR MISCELLANEOUS 
PROGRAM 
VIOLATIONS.—Section 
1876(i)(6) 
(42 
U.S.C. 
1395mm(i)(6)) is amended by adding at the end the following 
new subparagraph: 
"(C) In the case of an eligible organization for which the Sec-
retary makes a determination under paragraph (1), the basis of 
which is not described in subparagraph (A), the Secretary may 
apply the following intermediate sanctions: 
"(i) Civil money penalties of not more than $25,000 for 
each determination under paragraph (1) if the deficiency that 
is the basis of the determination has directly adversely affected 
(or has the substantial likelihood of adversely affecting) gin 
individual covered under the organization's contract. 
"(ii) Civil money penalties of not more than $10,000 for 
each week beginning after the initiation of procedures by the 
Secretary under paragraph (9) during which the deficiency 
that is the basis of a determination under paragraph (1) exists, 
"(iii) Suspension of enrollment of individuals under this 
section after the date the Secretary notifies the organization 
of a determination under paragraph (1) and until the Secretary 
is satisfied that the deficiency that is the basis for the deter-
mination has been corrected and is not likely to recur.". 
(3) PROCEDURES FOR IMPOSING SANCTIONS.—Section 1876(i) 
(42 U.S.C. 1395mm(i)) is amended by adding at the end the 
following new paragraph: 
"(9) The Secretary may terminate a contract with an eligible 
organization under this section or may impose the intermediate 
sanctions described in paragraph (6) on the organization in accord-
ance with formal investigation and compliance procedures estab-
lished by the Secretary under which— 
"(A) the Secretary first provides the organization with the 
reasonable opportunity to develop and implement a corrective 
action plan to correct the deficiencies that were the basis of 
the Secretary's determination under paragraph (1) and the 
org£inization fails to develop or implement such a plan; 
"(B) in deciding whether to impose sanctions, the Secretary 
considers aggravating factors such as whether an organization 
has a history of deficiencies or has not taken action to correct 
deficiencies the Secretary has brought to the organization's 
attention; 
"(C) there are no unreasonable or unnecessary delays 
between the finding of a deficiency and the imposition of sanc-
tions; and 
"(D) the Secretary provides the organization with reason-
able notice and opportunity for hearing (including the right 
to appeal an initial decision) before imposing any sanction 
or terminating the contract.". 
(4) CONFORMING AMENDMENTS.—Section 1876(i)(6)(B) (42 
U.S.C. 1395mm(i)(6)(B)) is amended by striking the second 
sentence. 
.'i^^-V*-' 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2007 
(b) AGREEMENTS WITH PEER REVIEW ORGANIZATIONS.—Section 
1876(i)(7)(A) (42 U.S.C. 1395mm(i)(7)(A)) is amended by striking 
"an agreement" and inserting "a written agreement". 
(c) EFFECTIVE DATE.—^The amendments made by this section 
shall apply with respect to contract years beginning on or after 
January 1,1997. 
SEC. 216. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PENALTIES 
FOR RISK-SHARING ARRANGEMENTS. 
(a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C. 1320a-
7b(b)(3)) is amended— 
(1) by striking "and" at the end of subparagraph (D); 
(2) by striking the period at the end of subparagraph (E) 
and inserting "; and"; and 
(3) by adding at the end the following new subparagraph: 
"(F) any remuneration between an organization and an 
individual or entity providing items or services, or a combina-
tion thereof, pursuant to a written agreement between the 
organization and the individual or entity if the organization 
is an eligible organization under section 1876 or if the written 
agreement, through a risk-sharing arrangement, places the 
individual or entity at substantial financial risk for the cost 
or utilization of the items or services, or a combination thereof, 
which the individual or entity is obligated to provide.". 
(b) NEGOTIATED RULEMAKING FOR RISK-SHARING EXCEPTION.— 
(1) ESTABLISHMENT.— 
(A) IN GENERAL.—The Secretary of Health and Human 
Services (in this subsection referred to as the "Secretary") 
shall establish, on an expedited basis and using a nego-
tiated rulemaking process under subchapter 3 of chapter 
5 of title 5, United States Code, standards relating to 
the exception for risk-sharing arrangements to the anti-
kickback penalties described in section 1128B(b)(3)(F) of 
the Social Security Act, as added by subsection (a). 
(B) FACTORS TO CONSIDER.—In estabUshing standards 
relating to the exception for risk-sharing arrangements 
to the anti-kickback penalties under subparagraph (A), the 
Secretary— 
(i) shall consult with the Attorney General and 
representatives of the hospital, physician, other health 
practitioner, and health plan communities, and other 
interested parties; and 
(ii) shall take into account— 
(I) the level of risk appropriate to the size 
and type of arrangement; 
(II) the frequency of assessment and distribu-
tion of incentives; 
(III) the level of capital contribution; and 
(IV) the extent to which the risk-sharing 
arrsingement provides incentives to control the cost 
and quality of health care services. 
(2) PUBLICATION OF NOTICE.—In carrying out the rule-
making process under this subsection, the Secretary shall pub-
lish the notice provided for luider section 564(a) of title 5, 
United States Code, by not later than 45 days after the date 
of the enactment of this Act. 
42 u s e 1395mm 
note. 
42 u s e 1320a-
7b note. 
110 STAT. 2008 
PUBLIC LAW 104-191—AUG. 21, 1996 
Federal Register, 
publication. 
42 u s e 1320a-
7b note. 
(3) TARGET DATE FOR PUBLICATION OF RULE.^AS part of 
the notice under paragraph (2), and for purposes of this sub-
section, the "target date for pubhcation" (referred to in section 
564(a)(5) of such title) shall be January 1, 1997. 
(4) ABBREVIATED PERIOD FOR SUBMISSION OF COMMENTS.— 
In appl3dng section 564(c) of such title under this subsection, 
"15 days" shall be substituted for "30 days". 
(5) APPOINTMENT OF NEGOTIATED RULEMAKING COMMITTEE 
AND FACILITATOR.—^The Secretary shall provide for— 
(A) the appointment of a negotiated 
rulemaking 
committee under section 565(a) of such title by not later 
than 30 days after the end of the comment period provided 
for under section 564(c) of such title (as shortened under 
paragraph (4)), and 
(B) the nomination of a facilitator under section 566(c) 
of such title by not later than 10 days after the date 
of appointment of the committee. 
(6) PRELIMINARY COMMITTEE REPORT.—The negotiated rule-
making committee appointed under paragraph (5) shall report 
to the Secretary, by not later than October 1, 1996, regarding 
the committee's progress on achieving a consensus with regard 
to the rulemaking proceeding and whether such consensus is 
likely to occur before one month before the target date for 
publication of the rule. If the committee reports that the 
committee has failed to make significant progress toward such 
consensus or is luilikely to reach such consensus by the target 
date, the Secretary may terminate such process and provide 
for the publication of a rule under this subsection through 
such other methods as the Secretary may provide. 
(7) FINAL COMMITTEE REPORT.—If the committee is 
not 
terminated under paragraph (6), the rulemaking committee 
shall submit a report containing a proposed rule by not later 
than one month before the target publication date. 
(8) INTERIM, FINAL EFFECT.—The Secretary shall publish 
a rule under this subsection in the Federal Register by not 
later than the target publication date. Such rule shall be effec-
tive and final immediately on an interim basis, but is subject 
to change and revision after public notice and opportunity 
for a period (of not less than 60 days) for public comment. 
In connection with such rule, the Secretary shall specify the 
process for the timely review and approval of applications of 
entities to be certified as provider-sponsored organizations 
pursuant to such rules and consistent with this subsection. 
(9) PUBLICATION OF RULE AFTER PUBLIC COMMENT.—The 
Secretary shall provide for consideration of such comments 
and republication of such rule by not later than 1 year after 
the target publication date. 
(c) EFFECTIVE DATE.—The amendments made by subsection 
(a) shall apply to written agreements entered into on or after 
January 1, 1997, without regard to whether regulations have been 
issued to implement such amendments. 
SEC. 217. CRIMINAL PENALTY FOR FRAUDULENT DISPOSITION OF 
ASSETS IN ORDER TO OBTAIN MEDICAID BENEFITS. 
Section 1128B(a) (42 U.S.C. 1320a-7b(a)) is amended— 
(1) by striking "or" at the end of paragraph (4); 
(2) by adding "or" at the end of paragraph (5); and 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2009 
(3) by inserting after paragraph (5) the following new para-
graph: 
"(6) knowingly and willfully disposes of assets (including 
by any transfer in trust) in order for an individual to become 
eligible for medical assistance under a State plan under title 
XIX, if disposing of the assets results in the imposition of 
a period of ineligibility for such assistance under section 
1917(c),". 
SEC. 218. EFFECTIVE DATE. 
Except as otherwise provided, the amendments made by this 
subtitle shall take effect January 1, 1997. 
Subtitle C—^Data Collection 
42 u s e 1320a-7 
note. 
SEC. 221. ESTABLISHMENT OF THE HEALTH CARE FRAUD AND ABUSE 
DATA COLLECTION PROGRAM. 
(a) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.), as amended 
by sections 201 and 205, is amended by inserting after section 
1128D the following new section: 
"HEALTH 
CARE 
FRAUD AND 
ABUSE 
DATA 
COLLECTION 
PROGRAM 
" S E C 1128E. (a) GENERAL PURPOSE.—Not later than January 
1, 1997, the Secretary shall establish a national health care fraud 
and abuse data collection program for the reporting of final adverse 
actions (not including settlements in which no findings of liability 
have been made) against health care providers, suppliers, or 
practitioners as required by subsection (b), with access as set forth 
in subsection (c), and shall maintain a database of the information 
collected imder this section. 
"(b) REPORTING OF INFORMATION.— 
"(1) IN GENERAL.—Each Government agency and health 
plan shall report any final adverse action (not including settle-
ments in which no findings of liability have been made) taken 
against a health care provider, supplier, or practitioner. 
"(2) INFORMATION TO BE REPORTED.—The information to 
be reported under paragraph (1) includes: 
"(A) The name and TIN (as defined in section 
7701(a)(41) of the Internal Revenue Code of 1986) of any 
health care provider, supplier, or practitioner who is the 
subject of a final adverse action. 
"(B) The name (if known) of any health care entity 
with which a health care provider, supplier, or practitioner, 
who is the subject of a final adverse action, is affiliated 
or associated. 
"(C) The nature of the final adverse action and whether 
such action is on appeal. 
"(D) A description of the acts or omissions and injuries 
upon which the final adverse action was based, and such 
other information as the Secretary determines by regula-
tion is required for appropriate interpretation of informa-
tion reported under this section. 
"(3) CONFIDENTIAI^ITY.—In determining what information 
is required, the Secretary shall include procedures to assure 
that the privacy of individuals receiving health care services 
is appropriately protected. 
42 u s e 1320a-
7e. 
110 STAT. 2010 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(4) TIMING AND FORM OF REPORTING.—The information 
required to be reported under this subsection shall be reported 
regularly (but not less often than monthly) and in such form 
and manner as the Secretary prescribes. Such information shall 
first be required to be reported on a date specified by the 
Secretary. 
"(5) TO WHOM REPORTED.—The information required to be 
reported under this subsection shall be reported to the Sec-
retary. 
"(c) DISCLOSURE AND CORRECTION OF INFORMATION.— 
"(1) DISCLOSURE.—With respect to the information about 
final adverse actions (not including settlements in which no 
findings of liability have been made) reported to the Secretary 
under this section with respect to a health care provider, sup-
plier, or practitioner, the Secretary shall, by regulation, provide 
for— 
"(A) disclosure of the information, upon request, to 
the health care provider, supplier, or licensed practitioner, 
and 
"(B) procedures in the case of disputed accuracy of 
the information. 
"(2) CORRECTIONS.—Each Government agency and health 
plan shall report corrections of information already reported 
about any final adverse action taken against a health care 
provider, supplier, or practitioner, in such form and manner 
that the Secretary prescribes by regulation. 
"(d) ACCESS TO REPORTED INFORMATION.— 
"(1) AVAILABILITY.—The information in the database main-
tained under this section shall be available to Federal and 
State government agencies and health plans pursuant to proce-
dures that the Secretary shall provide by regulation. 
"(2) FEES FOR DISCLOSURE.—The Secretary may establish 
or approve reasonable fees for the disclosure of information 
in such database (other than with respect to requests by Federal 
agencies). The amount of such a fee shall be sufficient to 
recover the full costs of operating the database. Such fees 
shall be available to the Secretary or, in the Secretary's discre-
tion to the agency designated under this section to cover such 
costs. 
"(e) PROTECTION FROM LIABILITY FOR REPORTING.—No person 
or entity, including the agency designated by the Secretary in 
subsection (b)(5) shall be held liable in any civil action with respect 
to any report made as required by this section, without knowledge 
of the falsity of the information contained in the report. 
"(f) 
COORDINATION 
WITH 
NATIONAL 
PRACTITIONER 
DATA 
BANK.—The Secretary shall implement this section in such a man-
ner as to avoid duplication with the reporting requirements estab-
lished for the National Practitioner Data Bank under the Health 
Care Quality Improvement Act of 1986 (42 U.S.C. 11101 et seq.). 
"(g) DEFINITIONS AND SPECL\L RULES.—For purposes of this 
section: 
"(1) FINAL ADVERSE ACTION.— 
"(A) IN GENERAL.—The term 'final adverse action' 
includes: 
"(i) Civil judgments against a health care provider, 
supplier, or practitioner in Federal or State court 
related to the delivery of a health care item or service. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2011 
"(ii) Federal or State criminal convictions related 
to the delivery of a health care item or service. 
"(iii) Actions by Federal or State agencies respon-
sible for the licensing and certification of health care 
providers, 
suppliers, 
and 
licensed 
health 
care 
practitioners, including— 
"(I) formal or official actions, such as revoca-
tion or suspension of a license (and the length 
of any such suspension), reprimand, censure or 
probation, 
"(ID any other loss of license or the right to 
apply for, or renew, a license of the provider, sup-
plier, or practitioner, whether by operation of law, 
voluntary surrender, non-renewability, or other-
wise, or 
"(III) any other negative action or finding by 
such Federal or State agency that is publicly avail-
able information. 
"(iv) Exclusion from participation in Federal or 
State health care programs (as defined in sections 
1128B(f) and 1128(h), respectively). 
"(v) Any other adjudicated actions or decisions that 
the Secretary shall establish by regulation. 
"(B) EXCEPTION.—The term does not include any action 
with respect to a malpractice claim. 
"(2) PRACTITIONER.—The terms 'licensed health care practi-
tioner', licensed practitioner', and 'practitioner' mean, with 
respect to a State, an individual who is licensed or otherwise 
authorized by the State to provide health care services (or 
any individual who, without authority holds himself or herself 
out to be so licensed or authorized). 
"(3) GOVERNMENT AGENCY.—The term 'Government agency* 
shall include: 
"(A) The Department of Justice. 
"(B) The Department of Health and Human Services. 
"(C) Any other Federal agency that either administers 
or provides pajonent for the delivery of health care services, 
including, but not limited to the Department of Defense 
and the Veterans' Administration. 
"(D) State law enforcement agencies. 
"(E) State medicaid fi-aud control units. 
"(F) Federal or State agencies responsible for the 
licensing £ind certification of health care providers and 
licensed health care practitioners. 
"(4) HEALTH PLAN.—The term 'health plan' has the meaning 
given such term by section 1128C(c). 
"(5) DETERMINATION OF CONVICTION.—For purposes of para-
graph (1), the existence of a conviction shall be determined 
under paragraph (4) of section 1128(i).". 
(b) IMPROVED PREVENTION IN ISSUANCE OF MEDICARE PROVIDER 
NUMBERS.—Section 1842(r) (42 U.S.C. 1395u(r)) is amended by 
adding at the end the following new sentence: "Under such system, 
the Secretary may impose appropriate fees on such physicians to 
cover the costs of investigation and recertification activities with 
respect to the issuance of the identifiers.". 
110 STAT. 2012 
PUBLIC LAW 104-191—AUG. 21, 1996 
Subtitle D—Civil Monetary Penalties 
SEC. 231. SOCIAL SECURITY ACT CIVIL MONETARY PENALTIES. 
(a) GENERAL CIVIL MONETARY PENALTIES.—Section 1128A (42 
U.S.C. 1320a-7a) is amended as follows: 
(1) In the third sentence of subsection (a), by striking 
"programs under title XVIII" and inserting "Federal health 
care programs (as defined in section 1128B(f)(l)r. 
(2) In subsection (f)— 
(A) by redesignating paragraph (3) as paragraph 
(4); and 
(B) by inserting after paragraph (2) the following new 
paragraph: 
"(3) With respect to amounts recovered arising out of a 
claim under a Federal health care program (as defined in 
section 1128B(f)), the portion of such amounts as is determined 
to have been paid by the program shall be repaid to the pro-
gram, and the portion of such amounts attributable to the 
amounts recovered under this section by reason of the amend-
ments made by the Health Insurance Portability and Account-
ability Act of 1996 (as estimated by the Secretary) shall be 
deposited into the Federal Hospital Insurance iSnist Fund 
pursuant to section 1817(k)(2)(C).". 
(3) In subsection (i)— 
(A) in paragraph (2), by striking "title V, XVIII, XIX, 
or XX of this Act" and inserting "a Federal health care 
program (as defined in section 1128B(JD)", 
(B) in paragraph (4), by striking "a health insurance 
or medical services program under title XVIII or XIX of 
this Act" and inserting "a Federal health care program 
(as so defined)", and 
(C) in paragraph (5), by striking "title V, XVIII, XIX, 
or XX" and inserting "a Federal health care program (as 
so defined)". 
(4) By adding at the end the following new subsection: 
"(m)(l) For purposes of this section, with respect to a Federal 
health care program not contained in this Act, references to the 
Secretary in this section shall be deemed to be references to the 
Secretary or Administrator of the department or agency with juris-
diction over such program and references to the Inspector General 
of the Department of Health and Human Services in this section 
shall be deemed to be references to the Inspector General of the 
applicable department or agency. 
"(2)(A) TTie Secretary and Administrator of the departments 
and agencies referred to in paragraph (1) may include in any 
action pursuant to this section, claims within the jurisdiction of 
other Federal departments or agencies as long as the following 
conditions are satisfied: 
"(i) The case involves primarily claims submitted to the 
Federal health care programs of the department or agency 
initiating the action. 
"(ii) The Secretary or Administrator of the department 
or agency initiating the action gives notice and an opportunity 
to participate in the investigation to the Inspector General 
of the department or agency with primary jurisdiction over 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2013 
the Federal health care programs to which the claims were 
submitted. 
"(B) If the conditions specified in subparagraph (A) £ire fulfilled, 
the Inspector General of the department or agency initiating the 
action is authorized to exercise all powers granted under the Inspec-
tor General Act of 1978 (5 U.S.C. App.) with respect to the claims 
submitted to the other departments or agencies to the same manner 
and extent as provided in that Act with respect to claims submitted 
to such departments or agencies.". 
(b) EXCLUDED INDIVIDUAL RETAINING OWNERSHIP OR CONTROL 
INTEREST IN PARTICIPATING ENTITY.—Section 1128A(a) (42 U.S.C. 
1320a-7a(a)) is amended— 
(1) by striking "or" at the end of paragraph (1)(D); 
(2) by striking ", or" at the end of paragraph (2) and 
inserting a semicolon; 
(3) by striking the semicolon at the end of paragraph (3) 
and inserting "; or ; and 
(4) by inserting after paragraph (3) the following new para-
graph: 
"(4) in the case of a person who is not an organization, 
agency, or other entity, is excluded from participating in a 
program under title XVIII or a State he^th care program 
in accordance with this subsection or under section 1128 and 
who, at the time of a violation of this subsection— 
"(A) retains a direct or indirect ownership or control 
interest in an entity that is participating in a program 
under title XVIII or a State health care program, and 
who knows or should know of the action constituting the 
basis for the exclusion; or 
"(B) is an officer or managing employee (as defined 
in section 1126(b)) of such an entity;". 
(c) MODIFICATIONS OF AMOUNTS OF PENALTIES AND ASSESS-
MENTS.—Section 1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by 
subsection (b), is amended in the matter following paragraph (4)-— 
(1) by striking "$2,000" and inserting "$10,000"; 
(2) by inserting "; in cases imder paragraph (4), $10,000 
for each day the prohibited relationship occurs" after "false 
or misleading information was given"; and 
(3) by striking "twice the amount" and inserting "3 times 
the amount". 
(d) CLARIFICATION OF LEVEL OF KNOWLEDGE REQUIRED FOR 
IMPOSITION OF CIVIL MONETARY PENALTIES.— 
(1) IN GENERAL.—Section 1128A(a) (42 U.S.C. 1320a-7a(a)) 
is amended— 
(A) in paragraphs (1) and (2), by inserting "knowingly^' 
before "presents" each place it appears; and 
(B) in paragraph (3), by striking "gives" and inserting 
"knowingly gives or causes to be given". 
(2) DEFINITION OF STANDARD.—Section 1128A(i) (42 U.S.C. 
1320a-7a(i)), as amended by subsection (h)(2), is amended by 
adding at the end the following new paragraph: 
"(7) The term 'should know' means that a person, with 
respect to information— 
"(A) acts in deliberate ignorance of the truth or falsity 
of the information; or 
"(B) acts in reckless disregard of the truth or falsity 
of the information, 
110 STAT. 2014 
PUBLIC LAW 104-191—AUG. 21, 1996 
and no proof of specific intent to defraud is required.". 
(e) CLAIM FOR ITEM OR SERVICE BASED ON INCORRECT CODING 
OR MEDICALLY UNNECESSARY SERVICES.—Section 1128A(a)(l) (42 
U.S.C. 1320a-7a(a)(l)), as amended by subsection (b), is amended— 
(1) in subparagraph (A) by striking "claimed," and inserting 
"claimed, including any person who engages in a pattern or 
practice of presenting or causing to be presented a claim for 
an item or service that is based on a code that the person 
knows or should know will result in a greater pajonent to 
the person thsm the code the person knows or should know 
is applicable to the item or service actually provided,"; 
(2) in subparagraph (C), by striking "or" at the end; 
(3) in subparagraph (D), by striking the semicolon and 
inserting ", or"; and 
(4) by inserting after subparagraph (D) the following new 
subparagraph: 
"(E) is for a pattern of medical or other items or serv-
ices that a person knows or should know are not medically 
necessary;". 
(f) SANCTIONS AGAINST PRACTITIONERS AND PERSONS FOR FAIL-
URE To COMPLY WITH STATUTORY OBLIGATIONS.—Section 1156(b)(3) 
(42 U.S.C. 1320c-5(b)(3)) is amended by striking "the actual or 
estimated cost" and inserting "up to $10,000 for each instance". 
(g) PROCEDURAL PROVISIONS.—Section 1876(i)(6) (42 U.S.C. 
1395mm(i)(6)), as amended by section 215(a)(2), is amended by 
adding at the end the following new subparagraph: 
"(D) The provisions of section 1128A (other than subsections 
(a) and (b)) shall apply to a civil money penalty under subparagraph 
(B)(i) or (C)(i) in the same manner as such provisions apply to 
a civil money penalty or proceeding under section 1128A(a).". 
(h) PROHIBITION AGAINST OFFERING INDUCEMENTS TO INDIVID-
UALS ENROLLED UNDER PROGRAMS OR PLANS.— 
(1) OFFER OF REMUNERATION.—Section 1128A(a) (42 U.S.C. 
1320a-7a(a)), as amended by subsection (b), is amended— 
(A) by striking "or" at the end of paragraph (3); 
(B) by striking the semicolon at the end of paragraph 
(4) and inserting "; or"; and 
(C) by inserting after paragraph (4) the following new 
paragraph: 
"(5) offers to or transfers remuneration to any individual 
eligible for benefits under title XVIII of this Act, or under 
a State health care program (as defined in section 1128(h)) 
that such person knows or should know is likely to influence 
such individual to order or receive from a particular provider, 
practitioner, or supplier any item or service for which pajinent 
may be made, in whole or in part, under title XVIII, or a 
State health care program (as so defined);". 
(2) REMUNERATION DEFINED.—Section 1128A(i) (42 U.S.C. 
1320a-7a(i)) is amended by adding at the end the following 
new paragraph: 
"(6) The term 'remuneration' includes the waiver of coinsur-
ance and deductible amounts (or any part thereof), and trans-
fers of items or services for free or for other than fair market 
value. The term 'remuneration' does not include— 
"(A) the waiver of coinsurance and deductible amounts 
by a person, if— 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2015 
"(i) the waiver is not offered as part of any 
advertisement or solicitation; 
"(ii) the person does not routinely waive coinsur-
ance or deductible amounts; and 
"(iii) the person— 
"(I) waives the coinsurance and deductible 
amounts after determining in good faith that the 
individual is in financial need; 
"(II) fails to collect coinsurance or deductible 
amounts 
after 
making 
reasonable 
collection 
efforts; or 
"(III) provides for any permissible waiver as 
specified in section 1128B(b)(3) or in regulations 
issued by the Secretary; 
"(B) differentials 
in 
coinsurance 
and 
deductible 
amounts as part of a benefit plan design as long as the 
differentials 
have 
been 
disclosed 
in writing to 
all 
beneficiaries, third party payers, and providers, to whom 
claims are presented and as long as the differentials meet 
the standards as defined in regulations promulgated 
by the Secretary not later than 180 days after the date 
of the enactment of the Health Insurance Portability and 
Accountability Act of 1996; or 
"(C) incentives given to individuals to promote the 
delivery of preventive care as determined by the Secretary 
in regulations so promulgated.". 
(i) EFFECTIVE DATE.—The amendments made by this section 
shall apply to acts or omissions occurring on or after January 
1, 1997. 
SEC. 232. PENALTY FOR FALSE CERTIFICATION FOR HOME HEALTH 
SERVICES. 
(a) IN GENERAL.—Section 1128A(b) (42 U.S.C. 1320a-7a(b)) is 
amended by adding at the end the following new paragraph: 
"(3)(A) Any physician who executes a document described in 
subpgiragraph (B) with respect to an individual knowing that all 
of the requirements referred to in such subparagraph are not met 
with respect to the individual shall be subject to a civil monetary 
penalty of not more than the greater of— 
"(i) $5,000, or 
"(ii) three times the amount of the pa3mients under title 
XVIII for home health services which are made pursuant to 
such certification. 
"(B) A document described in this subparagraph is any docu-
ment that certifies, for purposes of title XVIII, that an individual 
meets the requirements of section 1814(a)(2)(C) or 1835(a)(2)(A) 
in the case of home health services furnished to the individual.". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to certifications made on or Eifter the date of the enact-
ment of this Act. 
42 use 1320a-
7a note. 
42 use 1320a-
7a note. 
110 STAT. 2016 
PUBLIC LAW 104-191—AUG. 21, 1996 
Subtitle E—^Revisions to Criminal Law 
SEC. 241. DEFmrriONS 
RELATING 
TO FEDERAL 
HEALTH 
CARE 
OFFENSE. 
(a) IN GENERAL.—Chapter 1 of title 18, United States Code, 
is amended by adding at the end the following: 
*
*
§ 24. Definitions relating to Federal health care offense 
"(a) As used in this title, the term 'FedergJ health care offense' 
means a violation of, or a criminal conspiracy to violate— 
"(1) section 669,1035, 1347, or 1518 of this title; 
"(2) section 287, 371, 664, 666, 1001, 1027, 1341, 1343, 
or 1954 of this title, if the violation or conspiracy relates to 
a health cEire benefit program. 
"(b) As used in this title, the term ^health care benefit program' 
means any public or private plan or contract, affecting commerce, 
under which any medical benefit, item, or service is provided to 
any individual, and includes any individual or entity who is provid-
ing a medical benefit, item, or service for which payment may 
be made under the plan or contract.". 
(b) CLERICAL AMENDMENT.—The table of sections at the begin-
ning of chapter 2 of title 18, United States Code, is amended 
by inserting after the item relating to section 23 the following 
new item: 
"24. Definitions relating to Federal health care offense.". 
SEC. 242. HEALTH CARE FRAUD. 
(a) OFFENSE.— 
(1) IN GENERAL.—Chapter 63 of title 18, United States 
Code, is amended by adding at the end the following: 
''§ 1347. Health care fraud 
"Whoever knowingly and willfully executes, or attempts to exe-
cute, a scheme or artifice— 
"(1) to defi*aud any health care benefit program; or 
"(2) to obtain, by means of false or fraudulent pretenses, 
representations, or promises, any of the money or property 
owned by, or under the custody or control of, any health c£ire 
benefit program, 
in connection with the delivery of or pajonent for health care bene-
fits, items, or services, shall be fined under this title or imprisoned 
not more than 10 years, or both. If the violation results in serious 
bodily injury (as defined in section 1365 of this title), such person 
shall be fined under this title or imprisoned not more than 20 
years, or both; and if the violation results in death, such person 
shall be fined under this title, or imprisoned for any term of years 
or for life, or both.". 
(2) CLERICAL AMENDMENT.—The table of sections at the 
beginning of chapter 63 of title 18, United States Code, is 
amended by adding at the end the following: 
"1347. Health care fraud.". 
42USC1395i 
(b) CRIMINAL FiNES DEPOSITED IN FEDERAL HOSPITAL INSUR-
note. 
ANCE TRUST FUND.—The Secretary of the Treasury shall deposit 
into the Federal Hospital Insurance Trust Fund pursuant to section 
1817(k)(2)(C) of the Social Security Act (42 U.S.C. 1395i) an amount 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2017 
equal to the criminal fines imposed under section 1347 of title 
18, United States Code (relating to health care fraud). 
SEC. 243. THEFT OR EMBEZZLEMENT. 
(a) IN GENERAL.—Chapter 31 of title 18, United States Code, 
is amended by adding at the end the following: 
'*§ 669. Theft or embezzlement in connection with health care 
"(a) Whoever knowingly and willfully embezzles, steals, or 
otherwise without authority converts to the use of any person 
other th£in the rightful owner, or intentionally misapplies any of 
the moneys, fimds, securities, premiums, credits, property, or other 
assets of a health care benefit program, shall be fined under this 
title or imprisoned not more than 10 years, or both; but if the 
value of such property does not exceed the sum of $100 the defend-
ant shall be fined under this title or imprisoned not more than 
one year, or both. 
"(b) As used in this section, the term liealth care benefit 
program' has the meaning given such term in section 24(b) of 
this title.". 
(b) CLERICAL AMENDMENT.—^The table of sections at the begin-
ning of chapter 31 of title 18, United States Code, is amended 
by adding at the end the following: 
"669. Theft or embezzlement in connection with health care.". 
SEC. 244. FALSE STATEMENTS. 
(a) IN GENERAL.—Chapter 47 of title 18, United States Code, 
is amended by adding at the end the following: 
"§ 1035. False statements relating to health care matters 
"(a) Whoever, in any matter involving a health care benefit 
program, knowingly and willfiiUy— 
"(1) falsifies, conceals, or covers up by any trick, scheme, 
or device a material fact; or 
"(2) makes any materially false, fictitious, or 
fraudulent 
statements or representations, or makes or uses any materially 
false writing or document knowing the same to contain any 
materially false, fictitious, or fraudulent statement or entry, 
in connection with the delivery of or pajonent for health care bene-
fits, items, or services, shall be fined under this title or imprisoned 
not more than 5 years, or both. 
"(b) As used in this section, the term liealth care benefit 
program' has the meaning given such term in section 24(b) of 
this title.". 
(b) CLERICAL AMENDMENT.—The table of sections at the begin-
ning of chapter 47 of title 18, United States Code, is amended 
by adding at the end the following new item: 
"1035. False statements relating to health care matters.". 
SEC. 245. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF HEALTH 
CARE OFFENSES. 
(a) IN GENERAL.—Chapter 73 of title 18, United States Code, 
is amended by adding at the end the following: 
110 STAT. 2018 
PUBLIC LAW 104-191—AUG. 21, 1996 
*'§ 1518. Obstruction of criminal investigations of health care 
offenses 
"(a) Whoever willfully prevents, obstructs, misleads, delays or 
attempts to prevent, obstruct, mislead, or delay the communication 
of information or records relating to a violation of a Federal health 
care offense to a criminal investigator shall be fined under this 
title or imprisoned not more than 5 years, or both. 
"(b) As used in this section the term 'criminal investigator' 
means any individual duly authorized by a department, agency, 
or armed force of the United States to conduct or engage in inves-
tigations for prosecutions for violations of health care offenses.". 
(b) CLERICAL AMENDMENT.—The table of sections at the begin-
ning of chapter 73 of title 18, United States Code, is amended 
by adding at the end the following new item: 
"1518. Obstruction of criminal investigations of health care offenses.". 
SEC. 246. LAUNDERING OF MONETARY INSTRUMENTS. 
Section 1956(c)(7) of title 18, United States Code, is amended 
by adding at the end the following: 
"(F) Any act or activity constituting an offense involv-
ing a Federal health care offense.". 
SEC. 247. INJUNCTIVE RELIEF RELATING TO HEALTH CARE OFFENSES. 
(a) IN GENERAL.—Section 1345(a)(1) of title 18, United States 
Code, is amended— 
(1) by striking "or" at the end of subparagraph (A); 
(2) by inserting "or" at the end of subparagraph (B); and 
(3) by adding at the end the following: 
"(C) committing or about to commit a Federal health care 
offense.". 
(b) FREEZING OF ASSETS.—Section 1345(a)(2) of title 18, United 
States Code, is amended by inserting "or a Federal health care 
offense" after "title)". 
SEC. 248. AUTHORIZED INVESTIGATIVE DEMAND PROCEDURES. 
(a) IN GENERAL.—Chapter 223 of title 18, United States Code, 
is amended by adding after section 3485 the following: 
*
*
§ 3486. Authorized investigative demand procedures 
"(a) AUTHORIZATION.—(1) In any investigation relating to any 
act or activity involving a Federal health care offense, the Attorney 
General or the Attorney General's designee may issue in writing 
£ind cause to be served a subpoena— 
"(A) requiring the production of any records (including any 
books, papers, documents, electronic media, or other objects 
or tangible things), which may be relevant to an authorized 
law enforcement inquiry, that a person or legal entity may 
possess or have care, custody, or control; or 
"(B) requiring a custodian of records to give testimony 
concerning the production and authentication of such records. 
"(2) A subpoena under this subsection shall describe the objects 
required to be produced and prescribe a return date within a 
reasonable period of time within which the objects can be assembled 
and made available. 
"(3) The production of records shall not be required under 
this section at £iny place more than 500 miles distant fi-om the 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2019 
place where the subpoena for the production of such records is 
served. 
"(4) Witnesses summoned under this section shall be paid the 
same fees and mileage that are paid witnesses in the courts of 
the United States. 
"(b) SERVICE.—^A subpoena issued under this section may be 
served by any person who is at least 18 years of age and is 
designated in the subpoena to serve it. Service upon a natural 
person may be made by personal delivery of the subpoena to him. 
Service may be made upon a domestic or foreign corporation or 
upon a partnership or other unincorporated association which is 
subject to suit under a common name, by delivering the subpoena 
to an officer, to a managing or general agent, or to any other 
agent authorized by appointment or by law to receive service of 
process. The affidavit of the person serving the subpoena entered 
on a true copy thereof by the person serving it shall be proof 
of service. 
"(c) ENFORCEMENT.—In the case of contumacy by or refusal 
to obey a subpoena issued to any person, the Attorney General 
may invoke the aid of any court of the United States within the 
jurisdiction of which the investigation is carried on or of which 
the subpoenaed person is an inhabitant, or in which ho carries 
on business or may be found, to compel compliance with the sub-
poena. The court may issue an order requiring the subpoenaed 
person to appear before the Attorney General to produce records, 
if so ordered, or to give testimony concerning the production and 
authentication of such records. Any failure to obey the order of 
the court may be punished by the court as a contempt thereof. 
All process in any such case may be served in any judicial district 
in which such person may be found. 
"(d) IMMUNITY FROM CIVIL LIABILITY.—Notwithstanding any 
Federal, State, or local law, any person, including officers, agents, 
and employees, receiving a summons under this section, who com-
plies in good faith with the summons and thus produces the mate-
rials sought, shall not be liable in any court of any State or the 
United States to any customer or other person for such production 
or for nondisclosure of that production to the customer. 
"(e) LIMITATION ON USE.—(1) Health information about an 
individual that is disclosed under this section may not be used 
in, or disclosed to any person for use in, any administrative, civil, 
or criminal action or investigation directed against the individual 
who is the subject of the information unless the action or investiga-
tion arises out of and is directly related to receipt of health care 
or payment for health care or action involving a fraudulent claim 
related to health; or if authorized by an appropriate order of a 
court of competent jurisdiction, granted after application showing 
good cause therefor. 
"(2) In assessing good cause, the court shall weigh the public 
interest and the need for disclosure against the injury to the patient, 
to the physician-patient relationship, and to the treatment services. 
"(3) Upon the granting of such order, the court, in determining 
the extent to which any disclosure of all or any part of any record 
is necessary, shall impose appropriate safeguards against unauthor-
ized disclosure.". 
(b) CLERICAL AMENDMENT.—The table of sections at the begin-
ning of chapter 223 of title 18, United States Code, is amended 
29-194 O - 96 - 10: QL 3 Part 3 
110 STAT. 2020 
PUBLIC LAW 104-191—AUG. 21, 1996 
by inserting after the item relating to section 3485 the following 
new item: 
"3486. Authorized investigative demand procedures.". 
(c) CONFORMING AMENDMENT.—Section 1510(b)(3)(B) of title 
18, United States Code, is amended by inserting "or a Department 
of Justice subpoena (issued under section 3486 of title 18)," after 
"subpoena". 
SEC. 249. FORFEITURES FOR FEDERAL HEALTH CARE OFFENSES. 
(a) IN GENERAL.—Section 982(a) of title 18, United States Code, 
is amended by adding after paragraph (5) the following new para-
graph: 
"(6) The court, in imposing sentence on a person convicted 
of a Federal health care offense, shall order the person to forfeit 
property, real or personal, that constitutes or is derived, directly 
or indirectly, from gross proceeds traceable to the commission of 
the offense.". 
(b) CONFORMING AMENDMENT.—Section 982(b)(1)(A) of title 18, 
United States Code, is amended by inserting "or (a)(6)" after "(a)(1)". 
42USC1395i 
(c) PROPERTY FORFEITED DEPOSITED IN FEDERAL HOSPITAL 
note. 
INSURANCE TRUST FUND.— 
(1) IN GENERAL.—^After the pajonent of the costs of asset 
forfeiture has been made and after all restoration payments 
(if any) have been made, and notwithstanding any other provi-
sion of law, the Secretary of the Treasury shall deposit into 
the Federal Hospital Insurance Trust Fund pursuant to section 
1817(k)(2)(C) of the Social Security Act, as added by section 
301(b), an amount equal to the net amount realized from the 
forfeiture of property by reason of a Federal health care offense 
pursuant to section 982(a)(6) of title 18, United States Code. 
(2) COSTS OF ASSET FORFEITURE.—For purposes of para-
graph (1), the term "payment of the costs of asset forfeiture" 
means— 
(A) the payment, at the discretion of the Attorney 
General, of any expenses necessary to seize, detain, inven-
tory, safeguard, maintain, advertise, sell, or dispose of prop-
erty under seizure, detention, or forfeited, or of any other 
necessary expenses incident to the seizure, detention, for-
feiture, or disposal of such property, including payment 
for— 
(i) contract services; 
(ii) the emplojonent of outside contractors to oper-
ate and manage properties or provide other specialized 
services necessary to dispose of such properties in an 
effort to maximize the return from such properties; 
and 
(iii) reimbursement of any Federal, State, or local 
agency for any expenditures made to perform the func-
tions described in this subparagraph; 
(B) at the discretion of the Attorney General, the pay-
ment of awards for information or assistance leading to 
a civil or criminal forfeiture involving any Federal agency 
participating in the Health Care Fraud and Abuse Control 
Account; 
(C) the compromise and payment of valid liens and 
mortgages against property that has been forfeited, subject 
to the discretion of the Attorney General to determine 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2021 
the validity of any such hen or mortgage and the amount 
of pa5nnent to be made, and the emplo5anent of attorneys 
and other personnel skilled in State real estate law as 
necessary; 
(D) pajrment authorized in connection with remission 
or mitigation procedures relating to property forfeited; and 
(E) the pa3maent of State and local property taxes on 
forfeited real property that accrued between the date of 
the violation giving rise to the forfeiture and the date 
of the forfeiture order. 
(3) RESTORATION PAYMENT.—^Notwithstanding any other 
provision of law, if the Federal health care offense referred 
to in paragraph (1) resulted in a loss to an employee welfare 
benefit plein within the meaning of section 3(1) of the Employee 
Retirement Income Security Act of 1974, the Secretary of the 
Treasury shall transfer to such employee welfare benefit plan, 
fi*om the amount realized fi*om the forfeiture of property 
referred to in paragraph (1), aa amount equal to such loss. 
For purposes of paragraph (1), the term "restoration payment" 
means the eunount transferred to an employee welfare benefit 
plan pursuant to this paragraph. 
SEC. 250. RELATION TO ERISA AUTHORITY. 
Nothing in this subtitle shall be construed as affecting the 
authority 
of the 
Secretary 
of Labor 
under 
section 
506(b) 
of the Employee Retirement Income Security Act of 1974, including 
the Secretary's authority with respect to violations of title 18, 
United States Code (as amended by this subtitle). 
Subtitle F—^Administrative Simplification 
SEC. 261. PURPOSE. 
It is the purpose of this subtitle to improve the Medicare 
program under title XVIII of the Social Security Act, the medicaid 
program under title XIX of such Act, and the efficiency and effective-
ness of the health care system, by encouraging the development 
of a health information system through the establishment of stand-
ards and requirements for the electronic transmission of certain 
health information. 
SEC. 262. ADMINISTRATIVE SIMPLIFICATION. 
(a) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.) is amended 
by adding at the end the following: 
"PART C—ADMINISTRATIVE SIMPLIFICATION 
29 use 1136 
note. 
42 use 1320d 
note. 
"DEFINITIONS 
"SEC. 1171. For purposes of this pgirt: 
"(1) CODE SET.—The term 'code set' means any set of codes 
used for encoding data elements, such as tables of terms, medi-
cal concepts, medical diagnostic codes, or medical procedure 
codes. 
"(2) HEALTH CAKE CLEARINGHOUSE.—The term liealth care 
clearinghouse' means a public or private entity that processes 
or facilitates the processing of nonstandard data elements of 
health information into standard data elements. 
42 use 1320d. 
110 STAT. 2022 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(3) HEALTH CARE PROVIDER.—The term liealth care pro-
vider' includes a provider of services (as defined in section 
186l(u)), a provider of medical or other health services (as 
defined in section 186l(s)), and any other person furnishing 
health care services or supplies. 
"(4) HEALTH INFORMATION.—The term Tiealth information' 
means any information, whether oral or recorded in any form 
or medium, that— 
"(A) is created or received by a health care provider, 
health plan, public health authority, employer, life insurer, 
school or university, or health care clearinghouse; and 
"(B) relates to the past, present, or future physical 
or mental health or condition of an individual, the provision 
of health care to an individual, or the past, present, or 
future payment for the provision of health care to an 
individual. 
"(5) HEALTH PLAN.—The term Tiealth plan' means an 
individual or group plan that provides, or pays the cost of, 
medical care (as such term is defined in section 2791 of the 
Public Health Service Act). Such term includes the following, 
and any combination thereof: 
"(A) A group health plan (as defined in section 2791(a) 
of the Public Health Service Act), but only if the plan— 
"(i) has 50 or more participants (as defined in 
section 3(7) of the Employee Retirement Income Secu-
rity Act of 1974); or 
"(ii) is administered by an entity other than the 
employer who established and maintains the plan. 
"(B) A health insurance issuer (as defined in section 
2791(b) of the Public Health Service Act). 
"(C) A health maintenance organization (as defined 
in section 2791(b) of the Public Health Service Act). 
"(D) Part A or part B of the Medicare program under 
title XVIII. 
"(E) The medicaid program under title XIX. 
"(F) A Medicare supplemental policy (as defined in 
section 1882(g)(1)). 
"(G) A long-term care policy, including a nursing home 
fixed indemnity policy (unless the Secretary determines 
that such a policy does not provide sufficiently comprehen-
sive coverage of a benefit so that the policy should be 
treated as a health plan). 
"(H) An employee welfare benefit plan or any other 
arrangement which is established or maintsdned for the 
purpose of offering or providing health benefits to the 
employees of 2 or more employers. 
"(I) The health care program for active military person-
nel under title 10, United States Code. 
"(J) The veterans health care program under chapter 
17 of title 38, United States Code. . 
"(K) The Civilian Health and Medical Program of the 
Uniformed Services (CHAMPUS), as defined in section 
1072(4) of title 10, United States Code. 
"(L) The Indian health service program under the 
Indian Health Care Improvement Act (25 U.S.C. 1601 et 
seq.). 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2023 
"(M) The Federal Employees Health Benefit Plan under 
chapter 89 of title 5, United States Code. 
"(6) INDIVIDUALLY IDENTIFIABLE HEALTH INFORMATION.— 
The term 'individually identifiable health information' means 
£Uiy information, including demographic information collected 
firom an individual, tliat— 
"(A) is created or received by a health care provider, 
health plan, employer, or health care clearinghouse; and 
"(B) relates to the past, present, or future physical 
or mental health or condition of an individual, the provision 
of health care to an individual, or the past, present, or 
future pa5mient for the provision of health care to an 
individual, and— 
"(i) identifies the individual; or 
"(ii) with respect to which there is a reasonable 
basis to believe that the information can be used to 
identify the individual. 
"(7) STANDARD.—The term 'standard', when used with ref-
erence to a data element of health information or a transaction 
referred to in section 1173(a)(1), means any such data element 
or transaction 
that 
meets each of the steuidards and 
implementation specifications adopted or established by the 
Secretary with respect to the data element or transaction under 
sections 1172 through 1174. 
"(8) STANDARD SETTING ORGANIZATION.—The term 'standard 
setting organization' means a standard setting organization 
accredited by the ii\merican Nationed Standards Institute, 
including the National Council for Prescription Drug Programs, 
that develops standards for information transactions, data ele-
ments, or any other standard that is necessary to, or will 
facilitate, the implementation of this part. 
"GENERAL REQUIREMENTS FOR ADOPTION OF STANDARDS 
"SEC. 1172. (a) APPLICABILITY.—Any standard adopted under 
42usci320d-i. 
this part shall apply, in whole or in part, to the following persons: 
"(DA health plan. 
"(2) A health care clesuinghouse. 
"(3) A health care provider who transmits any health 
information in electronic form in connection with a transaction 
referred to in section 1173(a)(1). 
"(b) REDUCTION OF COSTS.—Any standard adopted under this 
part shall be consistent with the objective of reducing the adminis-
trative costs of providing and pa5dng for health care. 
"(c) ROLE OF STANDARD SETTING ORGANIZATIONS.— 
"(1) IN GENERAL.—Except as provided in paragraph (2), 
any stemdard adopted under this part shedl be a standard 
that has been developed, adopted, or modified by a standard 
setting organization. 
"(2) SPECIAL RULES.— 
"(A) DIFFERENT STANDARDS.—The Secretary may adopt 
a standard that is different from any standard developed, 
adopted, or modified by a standard setting organization, 
if— 
"(i) the different standard will substantially reduce 
administrative costs to health care providers and 
health pleuis compared to the alternatives; and 
110 STAT. 2024 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(ii) the standard is promulgated in accordance 
with the rulemaking procedures of subchapter III of 
chapter 5 of title 5, United States Code. 
"(B) No STANDARD BY STANDARD SETTING ORGANIZA-
TION.—If no standard setting organization has developed, 
adopted, or modified any standard relating to a standard 
tnat the Secretary is authorized or required to adopt under 
this part— 
"(i) paragraph (1) shall not apply; and 
"(ii) subsection (f) shall apply. 
"(3) CONSULTATION REQUIREMENT.— 
"(A) IN GENERAL.—^A standard may not be adopted 
under this part unless— 
"(i) in the case of a standard that has been devel-
oped, adopted, or modified by a standard setting 
organization, the organization consulted with each of 
the organizations described in subparagraph (B) in 
the course of such development, adoption, or modifica-
tion; and 
"(ii) in the case of any other standard, the Sec-
retary, in complying with the requirements of sub-
section (f), consulted with each of the organizations 
described in subparagraph (B) before adopting the 
standard. 
"(B) ORGANIZATIONS DESCRIBED.—The organizations 
referred to in subparagraph (A) are the following: 
"(i) The National Uniform Billing Committee, 
"(ii) The National Uniform Claim Committee, 
"(iii) The Workgroup for Electronic Data Inter-
change. 
"(iv) The American Dental Association. 
"(d) IMPLEMENTATION SPECIFICATIONS.—^The Secretary shall 
establish specifications for implementing each of the standards 
adopted under this part. 
"(e) PROTECTION OF TRADE SECRETS.—Except as otherwise 
required by law, a standard adopted under this part shall not 
require disclosure of trade secrets or confidential commercial 
information by a person required to comply with this part. 
"(f) ASSISTANCE TO THE SECRETARY.—In complying with the 
requirements of this part, the Secretary shall rely on the rec-
ommendations of the National Committee on Vital and Health 
Statistics established under section 306(k) of the Public Health 
Service Act (42 U.S.C. 242k(k)), and shall consult with appropriate 
Federal Register, 
Federal and State agencies and private organizations. The Secretary 
publication. 
shall publish in the Federal Register any recommendation of the 
National Committee on Vital and Health Statistics regarding the 
adoption of a standard under this part. 
"(g) APPLICATION TO MODIFICATIONS OF STANDARDS.—This sec-
tion snail apply to a modification to a standard (including an 
addition to a standard) adopted under section 1174(b) in the same 
manner as it applies to an initial standard adopted under section 
1174(a). 
"STANDARDS FOR INFORMATION TRANSACTIONS AND DATA ELEMENTS 
42 use 1320d-2. 
" S E C . 1173. (a) 
STANDARDS 
TO 
ENABLE 
ELECTRONIC 
EXCHANGE.— 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2025 
"(1) IN GENERAL.—^The Secretary shall adopt standards for 
transactions, £ind data elements for such transactions, to enable 
health information to be exchanged electronically, that are 
appropriate for— 
"(A) the financial and administrative transactions 
described in paragraph (2); and 
"(B) other financial and administrative transactions 
determined appropriate by the Secretary, consistent with 
the goals of improving the operation of the health care 
system and reducing administrative costs. 
"(2) TRANSACTIONS.—The transactions referred to in para-
graph (1)(A) are transactions with respect to the following: 
"(A) Health claims or equivalent encounter informa-
tion. 
"(B) Health claims attachments. 
"(C) Enrollment and disenroUment in a health plan. 
"(D) Eligibility for a health plan. 
"(E) Health care payment and remittance advice. 
"(F) Health plan premium pajnnents. 
"(G) First report of injury. 
"(H) Health claim status. 
"(I) Referral certification and authorization. 
"(3) 
ACCOMMODATION 
OF 
SPECIFIC 
PROVIDERS.—The 
standards adopted by the Secretary under paragraph (1) shall 
accommodate the needs of different types of health care provid-
ers. 
"(b) UNIQUE HEALTH IDENTIFIERS.— 
"(1) IN GENERAL,.—The Secretary shall adopt standards 
providing for a standard unique health identifier for each 
individual, employer., health plan, and health care provider 
for use in the health care system. In carrying out the preceding 
sentence for each health plan and health care provider, the 
Secretary shall take into account multiple uses for identifiers 
and multiple locations and specialty classifications for health 
care providers. 
"(2) USE OF IDENTIFIERS.—The standards adopted under 
paragraph (1) shall specify the purposes for which a unique 
health identifier may be used. 
"(c) CODE SETS.— 
"(1) IN GENERAl..—The Secretary shall adopt standards 
that— 
"(A) select code sets for appropriate data elements 
for the trginsactions referred to in subsection (a)(1) fi*om 
among the code sets that have been developed by private 
and public entities; or 
"(B) establish code sets for such data elements if no 
code sets for the data elements have been developed. 
"(2) DISTRIBUTION.—The Secretary shall estabUsh efficient 
and low-cost procedures for distribution (including electronic 
distribution) of code sets and modifications made to such code 
sets under section 1174(b). 
"(d) SECURITY STANDARDS FOR HEALTH INFORMATION.— 
"(1) SECURITY STANDARDS.—The Secretary shall adopt secu-
rity standards that— 
"(A) take into account— 
"(i) the technical capabilities of record systems 
used to maintain health information; 
110 STAT. 2026 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(ii) the costs of security measures; 
"(iii) the need for training persons who have access 
to health information; 
"(iv) the value of audit trails in computerized 
record systems; and 
"(v) the needs and capabilities of small health care 
providers and rural health care providers (as such 
providers are defined by the Secretary); and 
"(B) ensure that a health care clearinghouse, if it is 
part of a larger organization, has policies smd security 
procedures which isolate the activities of the health care 
clearinghouse with respect to processing information in 
a manner that prevents luiauthorized access to such 
information by such larger organization. 
"(2) 
SAFEGUARDS.—Each person 
described 
in 
section 
1172(a) who maintains or transmits health information shall 
maintain reasonable and appropriate administrative, technical, 
and physical safeguards— 
"(A) to ensure the integrity and confidentiality of the 
information; 
"(B) to protect against any reasonably anticipated— 
"(i) threats or hazards to the security or integrity 
of the information; and 
"(ii) unauthorized uses or disclosures of the 
information; and 
"(C) otherwise to ensure compliance with this part 
by the officers £ind employees of such person. 
"(e) ELECTRONIC SIGNATURE.— 
"(1) STANDARDS.—The Secretary, in coordination with the 
Secretary of Commerce, shall adopt standards specif3ring proce-
dures for the electronic transmission and authentication of 
signatures with respect to the transactions referred to in sub-
section (a)(1). 
"(2) EFFECT OF COMPLIANCE.—Compliance with the stand-
girds adopted under paragraph (1) shall be deemed to satisfy 
Federal and State statutory requirements for written signatures 
with respect to the transactions referred to in subsection (a)(1). 
"(f) TRANSFER OF INFORMATION AMONG HEALTH PLANS.—The 
Secretary shall adopt standards for transferring among health plans 
appropriate standard data elements needed for the coordination 
of benefits, the sequential processing of claims, and other data 
elements for individuals who have more than one health plan. 
"TIMETABLES FOR ADOPTION OF STANDARDS 
42 use I320d-^. 
"SEC. 1174. (a) INITIAL STANDARDS.—The Secretary shall carry 
out section 1173 not later than 18 months afl;er the date of the 
enactment of the Health Insurance Portability and Accoimtability 
Act of 1996, except that standards relating to clsdms attachments 
shall be adopted not later than 30 months after such date. 
"(b) ADDITIONS AND MODIFICATIONS TO STANDARDS.— 
"(1) IN GENERAL.—Except as provided in paragraph (2), 
the Secretary shall review the standards adopted under section 
1173, and shall adopt modifications to the standards (including 
additions to the standards), as determined appropriate, but 
not more fi'equently than once every 12 months. Any addition 
or modification to a standard shall be completed in a manner 
which minimizes the disruption eind cost of compliance. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2027 
"(2) SPECIAL RULES.— 
"(A) FIRST 12-MONTH PERIOD.—Except with respect to 
additions £ind modifications to code sets under subpara-
graph (B), the Secretary may not adopt any modification 
to a standard adopted under this part during the 12-month 
period beginning on the date the standard is initially 
adopted, unless the Secretary determines that the modifica-
tion is necessarj' in order to permit compliance with the 
standard. 
"(B) ADDITIONS AND MODIFICATIONS TO CODE SETS.— 
"(i) IN GENERAL.—^The Secretary shall ensure that 
procedures exist for the routine maintenance, testing, 
enhancement, and expansion of code sets. 
"(ii) ADDITIONAL RULES.—If a code set is modified 
under this subsection, the modified code set shall 
include instructions on how data elements of health 
information that were encoded prior to the modification 
may be converted or translated so as to preserve the 
informational value of the data elements that existed 
before the modification. Any modification to a code 
set under this subsection shall be implemented in a 
manner that minimizes the disruption and cost of 
compljdng with such modification. 
"REQUIREMENTS 
"SEC. 1175. (a) CONDUCT OF TRANSACTIONS BY PLANS.— 
42 use i320d-4. 
"(1) IN GENERAL.—If a person desires to conduct a trsms-
action referred to in section 1173(a)(1) with a health plan 
as a standard transaction— 
"(A) the health plan may not refuse to conduct such 
transaction as a standard transaction; 
"(B) the insurance plan may not delay such transaction, 
or otherwise adversely affect, or attempt to adversely affect, 
the person or the transaction on the ground that the trems-
action is a standard transaction; and 
"(C) the information transmitted and received in 
connection with the transaction shall be in the form of 
standard data elements of health information. 
"(2) SATISFACTION OF REQUIREMENTS.—A health plan may 
satisfy the requirements under paragraph (1) by— 
"(A) directly transmitting and receiving standard data 
elements of health information; or 
"(B) submitting nonstandard data elements to a health 
care clearinghouse for processing into standard data ele-
ments and transmission by the health care clearinghouse, 
and receiving standard data elements through the health 
care clearinghouse. 
"(3) TIMETABLE FOR COMPLIANCE.—Paragraph (1) shall not 
be construed to require a health plan to comply with any 
standard, implementation specification, or modification to a 
standard or specification adopted or established by the Sec-
retary under sections 1172 through 1174 at any time prior 
to the date on which the plan is required to comply with 
the standard or specification under subsection (b). 
"(b) COMPLIANCE WITH STANDARDS.— 
"(1) INITIAL COMPLL\NCE.— 
110 STAT. 2028 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(A) IN GENERAL.—Not later than 24 months after the 
date on which an initial standard or implementation speci-
fication is adopted or established under sections 1172 and 
1173, each person to whom the standard or implementation 
specification applies shall comply with the standard or 
specification. 
"(B) SPECIAL RULE FOR SMALL HEALTH PLANS.—In the 
case of a small health plan, paragraph (1) shall be applied 
by substituting '36 months' for *24 months'. For purposes 
of this subsection, the Secretary shall determine the plans 
that qualify as small health plans. 
"(2) COMPLL^NCE WITH MODIFIED STANDARDS.—If the Sec-
retary adopts a modification to a standard or implementation 
specification under this part, each person to whom the standard 
or implementation specification applies shall comply with the 
modified standard or implementation specification at such time 
as the Secretary determines appropriate, taking into account 
the time needed to comply due to the nature and extent of 
the modification. The time determined appropriate under the 
preceding sentence may not be earlier than the last day of 
the 180-day period, beginning on the date such modification 
is adopted. The Secretary may extend the time for compliance 
for small health plans, if the Secretary determines that such 
extension is appropriate. 
"(3) CONSTRUCTION.—Nothing in this subsection shall be 
construed to prohibit any person fi-om compljdng with a stand-
ard or specification by— 
"(A) submitting nonstandard data elements to a health 
care clearinghouse for processing into standard data ele-
ments and transmission by the health care clearing-
house; or 
"(B) receiving standard data elements through a health 
care clearinghouse. 
"GENERAL PENALTY FOR FAILURE TO COMPLY WITH REQUIREMENTS 
AND STANDARDS 
42 u s e 1320d-5. 
" S E C . 1176. (a) GENERAL PENALTY.— 
"(1) IN GENERAL.—Except as provided in subsection (b), 
the Secretary shall impose on any person who violates a provi-
sion of this part a penalty of not more than $100 for each 
such violation, except that the total amount imposed on the 
person for all violations of an identical requirement or prohibi-
tion during a calendar year may not exceed $25,000. 
"(2) PROCEDURES.—The provisions of section 1128A (other 
than subsections (a) and (b) and the second sentence of sub-
section (f)) shall apply to the imposition of a civil money penalty 
under this subsection in the same manner as such provisions 
apply to the imposition of a penalty under such section 1128A. 
"(b) LIMITATIONS.— 
"(1) OFFENSES OTHERWISE PUNISHABLE.—A penalty may 
not be imposed under subsection (a) with respect to an act 
if the act constitutes an offense punishable under section 1177. 
"(2) NONCOMPLIANCE NOT DISCOVERED.—A penalty may 
not 
be imposed under subsection (a) with respect to a provision 
of this part if it is established to the satisfaction of the Secretary 
that the person liable for the penalty did not know, and by 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2029 
exercising reasonable diligence would not have known, that 
such person violated the provision. 
"(3) FAILURES DUE TO REASONABLE CAUSE.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), a penalty may not be imposed under subsection 
(a)if— 
"(i) the failure to comply was due to reasonable 
cause and not to willful neglect; and 
"(ii) the failure to comply is corrected during the 
30-day period beginning on the first date the person 
Uable for the penalty knew, or by exercising reasonable 
dihgence would have known, that the failure to comply 
occurred. 
"(B) EXTENSION OF PERIOD.— 
"(i) No PENALTY.—^The period referred to in 
subpar^raph (A)(ii) may be extended as determined 
appropriate by the Secretary based on the nature and 
extent of the failure to comply. 
"(ii) ASSISTANCE.—If the Secretary determines that 
a person failed to comply because the person was 
unable to comply, the Secretary may provide technical 
assistsuice to the person during the period described 
in subpgiragraph (A)(ii). Such assistance shall be pro-
vided in any manner determined appropriate by the 
Secretary. 
"(4) REDUCTION.—In the case of a failure to comply which 
is due to reasonable cause and not to willful neglect, any 
penalty under subsection (a) that is not entirely waived under 
paragraph (3) may be waived to the extent that the payment 
of such penalty would be excessive relative to the compliance 
failure involved. 
"WRONGFUL DISCLOSURE OF INDIVIDUALLY IDENTIFIABLE HEALTH 
INFORMATION 
"SEC. 1177. (a) OFFENSE.—A person who knowingly and in 
42 use i320d-6. 
violation of this part— 
"(1) uses or causes to be used a unique health identifier; 
"(2) obtains individually identifiable health information 
relating to an individual; or 
"(3) discloses individually identifiable health information 
to another person, 
shall be pimished as provided in subsection (b). 
"(b) PENALTIES.—^A person described in subsection (a) shall— 
"(1) be fined not more than $50,000, imprisoned not more 
than 1 year, or both; 
"(2) if the offense is committed under false pretenses, be 
fined not more than $100,000, imprisoned not more than 5 
years, or both; and 
"(3) if the offense is committed with intent to sell, trginsfer, 
or use individually identifiable health information for commer-
cial advantage, personal gain, or malicious harm, be fined not 
more than $250,000, imprisoned not more than 10 years, or 
both. 
"EFFECT ON STATE LAW 
"SEC. 1178. (a) GENERAL E F F E C T . — 
42 use i320d-7. 
110 STAT. 2030 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(1) GENERAL RULE.—Except as provided in paragraph (2), 
a provision or requirement under this part, or a standard 
or implementation specification adopted or estabUshed under 
sections 1172 through 1174, shall supersede any contrary provi-
sion of State law, including a provision of State law that 
requires medicsd or health plan records (including billing 
information) to be maintained or transmitted in written rather 
than electronic form. 
"(2) EXCEPTIONS.—^A provision or requirement under this 
part, or a standard or implementation specification adopted 
or established under sections 1172 through 1174, shall not 
supersede a contrary provision of State law, if the provision 
of State law— 
"(A) is a provision the Secretary determines— 
"(i) is necessary— 
"(I) to prevent fraud and abuse; 
"(II) to ensure appropriate State regulation 
of insurance and health plans; 
"(III) for State reporting on health care deliv-
ery or costs; or 
"(IV) for other purposes; or 
"(ii) addresses controlled substances; or 
"(B) subject to section 264(c)(2) of the Health Insurance 
Portability and Accountability Act of 1996, relates to the 
privacy of individually identifiable health information. 
"(b) PUBLIC HEALTH.—Nothing in this part shall be construed 
to invalidate or limit the authority, power, or procedures established 
under any law providing for the reporting of disease or injury, 
child abuse, birth, or death, public health surveillance, or public 
health investigation or intervention. 
"(c) STATE REGULATORY REPORTING.—Nothing in this part shall 
limit the ability of a State to require a health plan to report, 
or to provide access to, information for management audits, financial 
audits, progrEim monitoring and evaluation, facility licensure or 
certification, or individual licensure or certification. 
"PROCESSING PAYMENT TRANSACTIONS BY FINANCIAL INSTITUTIONS 
42 use l320d-8. 
"SEC. 1179. To the extent that an entity is engaged in activities 
of a financial institution (as defined in section 1101 of the Right 
to Financial Privacy Act of 1978), or is engaged in authorizing, 
processing, clearing, settling, billing, transferring, reconciling, or 
collecting payments, for a financial institution, this part, and any 
standard adopted under this part, shall not apply to the entity 
with respect to such activities, including the following: 
"(1) The use or disclosure of information by the entity 
for authorizing, processing, clearing, settling, billing, transfer-
ring, reconciling or collecting, a payment for, or related to, 
health plan premiums or health CEire, where such payment 
is made by smy means, including a credit, debit, or other 
pajnnent card, an account, check, or electronic funds transfer. 
"(2) The request for, or the use or disclosure of, information 
by the entity with respect to a payment described in para-
graph (1)— 
"(A) for transferring receivables; 
"(B) for auditing; 
"(C) in connection with— 
"(i) a customer dispute; or 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2031 
**(ii) an inquiry from, or to, a customer; 
"(D) in a communication to a customer of the entity 
regarding the customer's transactions, payment card, 
account, check, or electronic funds transfer; 
"(E) for reporting to consumer reporting agencies; or 
"(F) for compljdng with— 
"(i) a civil or criminal subpoena; or 
"(ii) a Federal or State law regulating the entity.", 
(b) CONFORMING AMENDMENTS.— 
(1) 
REQUIREMENT FOR MEDICARE PROVIDERS.—Section 
1866(a)(1) (42 U.S.C. 1395cc(a)(l)) is amended— 
(A) by striking "and" at the end of subparagraph (P); 
(B) by striking the period at the end of subparagraph 
(Q) and inserting "; and"; and 
(C) by inserting immediately after subparagraph (Q) 
the following new subparagraph: 
"(R) to contract only with a health care clearinghouse (as 
defined in section 1171) that meets each standard and 
implementation specification adopted or established under part 
C of title XI on or after the date on which the health care 
clearinghouse is required to comply with the standard or speci-
fication.". 
(2) TITLE HEADING.—Title XI (42 U.S.C. 1301 et seq.) is 
amended by striking the title heading and inserting the 
following: 
"TITLE XI—GENERAL PROVISIONS, PEER REVIEW, AND 
ADMINISTRATIVE SIMPLIFICATION". 
SEC. 263. CHANGES IN MEMBERSHIP AND DUTIES OF NATIONAL 
COMMITTEE ON VITAL AND HEALTH STATISTICS. 
Section 306(k) of the PubHc Health Service Act (42 U.S.C. 
242k(k)) is amended— 
(1) in paragraph (1), by striking "16" and inserting "18"; 
(2) by amending paragraph (2) to read as follows: 
"(2) The members of the Committee shall be appointed from 
among persons who have distinguished themselves in the fields 
of health statistics, electronic interchange of health care informa-
tion, privacy and security of electronic information, population-
based public health, purchasing or financing heeJth care services, 
integrated computerized health information systems, health services 
research, consumer interests in health information, health data 
standards, epidemiology, and the provision of health services. Mem-
bers of the Committee shall be appointed for terms of 4 years."; 
(3) by redesignating paragraphs (3) through (5) as para-
graphs (4) through (6), respectively, and inserting after para-
graph (2) the following: 
"(3) Of the members of the Committee— 
"(A) 1 shall be appointed, not later than 60 days after 
the date of the enactment of the Health Insurance Portability 
and Accountability Act of 1996, by the Speaker of the House 
of Representatives after consultation with the Minority Leader 
of the House of Representatives; 
"(B) 1 shall be appointed, not later thein 60 days after 
the date of the enactment of the Health Insurance Portability 
and Accountability Act of 1996, by the President pro tempore 
110 STAT. 2032 
PUBLIC LAW 104-191—AUG. 21, 1996 
of the Senate sifter consultation with the Minority Leader of 
the Senate; and 
"(C) 16 shall be appointed by the Secretary."; 
(4) by amending paragraph (5) (as so redesignated) to read 
as follows: 
"(5) The Committee— 
"(A) shall assist and advise the Secretary— 
"(i) to delineate statistical problems bearing on health 
and health services which are of national or international 
interest; 
"(ii) to stimulate studies of such problems by other 
organizations £ind agencies whenever possible or to make 
investigations of such problems through subcommittees; 
"(iii) to determine, approve, and revise the terms, 
definitions, classifications, and guidelines for assessing 
health status smd health services, their distribution and 
costs, for use (I) within the Department of Health and 
Human Services, (II) by all programs administered or 
funded by the Secretary, including the Federal-State-local 
cooperative health statistics system referred to in sub-
section (e), and (III) to the extent possible as determined 
by the head of the agency involved, by the Department 
of Veterans Affairs, the Department of Defense, and other 
Federal agencies concerned with health and health services; 
"(iv) with respect to the design of and approval of 
hesdth statistical and health information systems concerned 
with the collection, processing, and tabulation of health 
statistics within the Department of Health and Human 
Services, with respect to the Cooperative Health Statistics 
System established under subsection (e), and with respect 
to the standardized means for the collection of health 
information and statistics to be established by the Sec-
retary under subsection (j)(l); 
"(v) to review and comment on findings and proposals 
developed by other organizations and agencies and to make 
recommendations for their adoption or implementation by 
local, State, national, or international agencies; 
"(vi) to cooperate with national committees of other 
countries and with the World Health Organization and 
other national agencies in the studies of problems of mutual 
interest; 
Reports. 
"(vii) to issue an annual report on the state of the 
Nation's health, its health services, their costs and distribu-
tions, and to msike proposals for improvement of the 
Nation's health statistics and health information systems; 
and 
"(viii) in compljdng with the requirements imposed on 
the Secretgiry under part C of title XI of the Social Security 
Act; 
"(B) shall study the issues related to the adoption of uni-
form data standards for patient medical record information 
and the electronic exchange of such information; 
Reports. 
"(C) shall report to the Secretary not later than 4 years 
after the date of the enactment of the Health Insurance Port-
ability and Accountability Act of 1996 recommendations and 
legislative 
proposals 
for 
such 
standards 
and 
electronic 
exchange; and 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2033 
"(D) shall be responsible generally for advising the Sec-
retary and the Congress on the status of the implementation 
of part C of title XI of the Social Security Act."; and 
(5) by adding at the end the following: 
"(7) Not later than 1 year after the date of the enactment Reports. 
of the Health Insurance Portability and Accountability Act of 1996, 
and annually thereafter, the Committee shall submit to the Con-
gress, and make public, a report regarding the implementation 
of part C of title XI of the Social Security Act. Such report shall 
address the following subjects, to the extent that the Committee 
determines appropriate: 
"(A) The extent to which persons required to comply with 
part C of title XI of the Social Security Act are cooperating 
in implementing the standards adopted under such part. 
"(B) The extent to which such entities are meeting the 
security standards adopted under such part and the types 
of penalties assessed for noncompliance with such standards. 
"(C) Whether the Federal and State Governments are 
receiving information of sufficient quality to meet their respon-
sibilities under such part. 
"(D) Any problems that exist with respect to implementa-
tion of such part. 
"(E) The extent to which timetables under such part are 
being met.". 
SEC. 264. RECOMMENDATIONS WITH RESPECT TO PRIVACY OF CER- 42 USC 1320d-2 
TAIN HEALTH INFORMATION. 
note. 
(a) IN GENERAL.—Not later than the date that is 12 months 
after the date of the enactment of this Act, the Secretary of 
Health and Human Services shall submit to the Committee on 
Labor and Human Resources and the Committee on Finance of 
the Senate and the Committee on Commerce and the Committee 
on Ways and Means of the House of Representatives detailed 
recommendations on standards with respect to the privacy of 
individually identifiable health information. 
(b) SUBJECTS FOR RECOMMENDATIONS.—The recommendations 
under subsection (a) shall address at least the following: 
(1) The rights that an individual who is a subject of individ-
ually identifiable health information should have. 
(2) The procedures that should be established for the exer-
cise of such rights. 
(3) The uses and disclosures of such information that should 
be authorized or required. 
(c) REGULATIONS.— 
(1) IN GENERAL.—If legislation governing standards with Regulations, 
respect to the privacy of individually identifiable health 
information transmitted in connection with the transactions 
described in section 1173(a) of the Social Security Act (as added 
by section 262) is not enacted by the date that is 36 months 
after the date of the enactment of this Act, the Secretary 
of Health and Human Services shall promulgate final regula-
tions containing such standards not later than the date that 
is 42 months after the date of the enactment of this Act. 
Such regulations shall address at least the subjects described 
in subsection (b). 
(2) PREEMPTION.—A regulation promulgated under para-
graph (1) shall not supercede a contrary provision of State 
110 STAT. 2034 
PUBLIC LAW 104-191—AUG. 21, 1996 
law, if the provision of State law imposes requirements, stand-
eirds, or implementation specifications that are more stringent 
than the requirements, standards, or implementation specifica-
tions imposed under the regulation. 
(d) CONSULTATION.—In carrjdng out this section, the Secretary 
of Health and Human Services shall consult with— 
(1) the National Committee on Vital and Health Statistics 
established under section 306(k) of the Public Health Service 
Act (42 U.S.C. 242k(k)); and 
(2) the Attorney General. 
Subtitle G—Duplication and Coordination 
of Medicare-Related Plans 
SEC. 271. DUPLICATION AND COORDINATION OF MEDICARE-RELATED 
PLANS. 
(a) TREATMENT OF CERTAIN HEALTH INSURANCE POLICIES AS 
NONDUPLICATIVE.—Section 1882(d)(3)(A) (42 U.S.C. 1395ss(d)(3)(A)) 
is amended— 
(1) in clause (iii), by striking "clause (i)" and inserting 
"clause (i)(II)"; and 
(2) by adding at the end the following: 
"(iv) For purposes of this subparagraph, a health insurance 
policy (other thsin a Medicare supplemental policy) providing for 
benefits which are payable to or on behalf of an individual without 
regard to other health benefit coverage of such individual is not 
considered to 'duplicate' any health benefits under this title, under 
title XIX, or under a health insurance policy, and subclauses (I) 
and (III) of clause (i) do not apply to such a policy. 
"(v) For purposes of this subparagraph, a health insurance 
policy (or a rider to an insurance contract which is not a health 
insureince policy) is not considered to 'duplicate' health benefits 
! 
under this title or under another health insurance policy if it— 
1 
"(I) provides health care benefits only for long-term care, 
' 
nursing home care, home health care, or commxinity-based care, 
or £iny combination thereof, 
I 
"(II) coordinates against or excludes items and services 
available or paid for under this title or under another health 
insurance policy, and 
"(III) for policies sold or issued on or after the end of 
the 90-day period beginning on the date of enactment of the 
Health Insursuice Portability and Accountability Act of 1996 
discloses such coordination or exclusion in the policjr's outline 
of coverage. 
For purposes of this clause, the terms 'coordinates' and 'coordination' 
mean, with respect to a policy in relation to health benefits under 
this title or under another health insurance policy, that the policy 
under its terms is secondary to, or excludes from pa3anent, items 
and services to the extent available or paid for under this title 
or under another health insurance policy. 
"(vi)(I) An individual entitled to benefits under part A or 
enrolled under part B of this title who is applying for a health 
insurance policy (other than a policy described in subclause (III)) 
shall be furnished a disclosure statement described in clause (vii) 
for the tj^e of policy being applied for. Such statement shall be 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2035 
furnished as a part of (or together with) the appHcation for such 
pohcy. 
"(II) Whoever issues or sells a health insurance policy (other 
than a policy described in subclause (III)) to an individual described 
in subclause (I) and fails to furnish the appropriate disclosure 
statement as required under such subclause shall be fined under 
title 18, United States Code, or imprisoned not more than 5 years, 
or both, and, in addition to or in lieu of such a criminal penalty, 
is subject to a civil money penalty of not to exceed $25,000 (or 
$15,000 in the case of a person other than the issuer of the policy) 
for each such violation. 
"(Ill) A policy described in this subclause (to which subclauses 
(I) and (II) do not apply) is a Medicare supplemental policy or 
a health insursuice policy identified under 60 Federal Register 30880 
(Jime 12, 1995) as a policy not required to have a disclosure state-
ment. 
"(IV) Any reference in this section to the revised NAIC model 
regulation (referred to in subsection (m)(l)(A)) is deemed a reference 
to such regulation as revised by section 171(m)(2) of the Social 
Security Act Amendments of 1994 (Public Law 103-432) and as 
modified by substituting, for the disclosure required under section 
16D(2), disclosure under subclause (I) of an appropriate disclosure 
statement under clause (vii). 
"(vii) The disclosure statement described in this clause for 
a type of policy is the statement specified under subparagraph 
(D) of this paragraph (as in effect before the date of the enactment 
of the Health Insurance Portability and Accountability Act of 1996) 
for that type of policy, as revised as follows: 
"(I) In each statement, amend the second line to read 
as follows: 
THIS IS NOT MEDICARE SUPPLEMENT INSURANCE'. 
"(II) In each statement, strike the third line and insert 
the following: 'Some health care services paid for by Medi-
care may also trigger the payment of benefits under 
this policy.'. 
"(Ill) In each statement not described in subclause (V), 
strike the boldface matter that begins 'This insurance' and 
all that follows up to the next paragraph that begins 'Medi-
care'. 
"(IV) In each statement not described in subclause (V), 
insert before the boxed matter (that states 'Before You Buy 
This Insurance') the following: 'This policy must pay bene-
fits without regard to other health benefit coverage to 
which you may be entitled under Medicare or other 
insurance.'. 
"(V) In a statement relating to policies providing both nurs-
ing home and non-institutional coverage, to policies providing 
nursing home benefits only, or policies providing home care 
benefits only, amend the sentence that begins 'Federal law' 
to read as follows: 'Federal law requires us to inform you 
V 
that in certain situations this insurance may pay for some 
care also covered by Medicare.'. 
"(viii)(I) Subject to subclause (II), nothing in this subparagraph 
shall restrict or preclude a State's ability to regulate health insur-
110 STAT. 2036 
PUBLIC LAW 104-191—AUG. 21, 1996 
42 u s e 1395SS 
note. 
42 u s e 1395SS 
note. 
ance policies, including any health insurance policy that is described 
in clause (iv), (v), or (viXIII). 
"(11) A State may not declare or specify, in statute, regulation, 
or otherwise, that a health insurance policy (other than a Medicare 
supplemental policy) or rider to an insurance contract which is 
not a health insurance policy, that is described in clause (iv), 
(v), or (vi)(III) and that is sold, issued, or renewed to an individual 
entitled to benefits imder part A or enrolled imder part B 'dupli-
cates' health benefits under this title or luider a Medicare supple-
mental policy.". 
(b) CONFORMING AMENDMENTS.—Section 1882(d)(3) (42 U.S.C. 
1395ss(d)(3)) is amended— 
(1) in subparagraph (C)— 
(A) by striking "with respect to (i)" and inserting "with 
respect to", and 
(B) by striking ", (ii) the sale" and all that follows 
up to the period at the end; and 
(2) by striking subparagraph (D). 
(c) TRANSITIONAL PROVISION.— 
(1) No PENALTIES.—Subject to paragraph (3), no criminal 
or civil money penalty may be imposed under 
section 
1882(d)(3)(A) of the Social Security Act for any act or omission 
that occurred during the transition period (as defined in para-
graph (4)) and that relates to any health insurgince policy 
that is described in clause (iv) or (v) of such section (as amended 
by subsection (a)). 
(2) LIMITATION ON LEGAL ACTION.—Subject to paragraph 
(3), no legal action shall be brought or continued in any Federal 
or State court insofar as such action— 
(A) includes a cause of action which arose, or which 
is based on or evidenced by any act or omission which 
occurred, during the transition period; and 
(B) relates to the application of section 1882(d)(3)(A) 
of the Social Security Act to any act or omission with 
respect to the sale, issuance, or renewal of £iny health 
insurance policy that is described in clause (iv) or (v) of 
such section (as amended by subsection (a)). 
(3) DISCLOSURE CONDITION.—In the case of a pohcy 
described in clause (iv) of section 1882(d)(3)(A) of the Social 
Security Act that is sold or issued on or after the effective 
date of statements under section 171(d)(3)(C) of the Social 
Security Act Amendments of 1994 and before the end of the 
30-day period beginning on the date of the enactment of this 
Act, paragraphs (1) and (2) shall only apply if disclosure was 
made in accordance with section 1882(d)(3)(C)(ii) of the Social 
Security Act (as in effect before the date of the enactment 
of this Act). 
(4) TRANSITION PERIOD.—In this subsection, the term 
"transition period" means the period beginning on November 
5, 1991, and ending on the date of the enactment of this 
Act. 
(d) EFFECTIVE DATE.—(1) Except as provided in this subsection, 
the amendment made by subsection (a) shall be effective as if 
included in the enactment of section 4354 of the Omnibus Budget 
Reconciliation Act of 1990. 
'•j^-vS" 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2037 
(2)(A) Clause (vi) of section 1882(d)(3)(A) of the Social Security 
Act, as added by subsection (a), shall only apply to individuals 
appl3dng for— 
(i) 
a 
health 
insurance 
policy 
described 
in 
section 
1882(d)(3)(A)(iv) of such Act (as added by subsection (a)), after 
the date of the enactment of this Act, or 
(ii) another health insurance policy after the end of the 
30-day period beginning on the date of the enactment of this 
Act. 
(B) A seller or issuer of a health insurance policy may sub-
stitute, for the disclosure statement described in clause (vii) of 
such section, the statement specified under section 1882(d)(3)(D) 
of the Social Security Act (as in effect before the date of the 
enactment of this Act), without the revision specified in such clause. 
TITLE III—TAX-RELATED HEALTH 
PROVISIONS 
SEC. 300. 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 provision, the reference shall 
be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986. 
Subtitle A—^Medical Savings Accounts 
SEC. 301. MEDICAL SAVINGS ACCOUNTS. 
(a) IN GENERAL.—Part VII of subchapter B of chapter 1 (relating 
to additional itemized deductions for individuals) is amended by 
redesignating section 220 as section 221 and by inserting after 
section 219 the following new section: 
"SEC. 220. MEDICAL SAVINGS ACCOUNTS. 
"(a) DEDUCTION ALLOWED.—In the case of an individual who 
is an eligible individual for any month during the taxable year, 
there shall be allowed as a deduction for the taxable year an 
amount equal to the aggregate amount paid in cash during such 
taxable year by such individual to a medical savings account of 
such individual. 
"(b) LIMITATIONS.— 
"(1) IN GENERAL.—The amoimt allowable as a deduction 
under subsection (a) to an individual for the taxable year shall 
not exceed the sum of the monthly limitations for months 
during such taxable year that the individual is an eligible 
individual. 
"(2) MONTHLY LIMITATION.—The monthly limitation for any 
month is the £imount equal to Vi2 of— 
"(A) in the case of an individual who has self-only 
coverage under the high deductible health plan as of the 
first day of such month, 65 percent of the annual deductible 
under such coverage, and 
"(B) in the case of an individual who has family cov-
erage under the high deductible health plan as of the 
110 STAT. 2038 
PUBLIC LAW 104-191—AUG. 21, 1996 
first day of such month, 75 percent of the annual deductible 
under such coverage. 
"(3) SPECIAL RULE FOR MARRIED INDIVIDUALS.—In the case 
of individusds who are married to each other, if either spouse 
has family coverage— 
"(A) both spouses shall be treated as having only such 
family coverage (and if such spouses each have family 
coverage under different plans, as having the family cov-
erage with the lowest annual deductible), and 
"(B) the limitation under paragraph (1) (after the 
application of subparagraph (A) of this peiragraph) shall 
be divided equally between them unless they agree on 
a different division. 
"(4) DEDUCTION NOT TO EXCEED COMPENSATION.— 
"(A) EMPLOYEES.—The deduction allowed under sub-
section (a) for contributions as an eligible individual 
described in subclause (I) of subsection (c)(l)(A)(iii) shall 
not exceed such individual's wages, salaries, tips, and other 
employee compensation which are attributable to such 
individual's emplo3anent by the employer referred to in 
such subclause. 
"(B) 
SELF-EMPLOYED 
INDIVIDUALS.—The 
deduction 
allowed under subsection (a) for contributions as an eligible 
individual 
described in subclause (II) of subsection 
(c)(l)(A)(iii) shall not exceed such individual's earned 
income (as defined in section 401(c)(1)) derived by the 
taxpayer fi'om the trade or business with respect to which 
the high deductible health plan is established. 
"(C) COMMUNITY PROPERTY LAWS NOT TO APPLY.—The 
limitations under this pEiragraph shall be determined with-
out regard to community property laws. 
"(5) COORDINATION WITH EXCLUSION FOR EMPLOYER CON-
TRIBUTIONS.—No deduction shall be allowed under this section 
for 2iny amount psdd for any taxable year to a medical savings 
account of an individual if— 
"(A) any amount is contributed to any medical savings 
account of such individual for such year which is excludable 
fi*om gross income under section 106(b), or 
"(B) if such individual's spouse is covered under the 
high deductible health plan covering such individual, any 
amount is contributed for such year to any medical savings 
account of such spouse which is so excludable. 
"(6) DENIAL OF DEDUCTION TO DEPENDENTS.—No deduction 
shsJl be allowed under this section to any individual with 
respect to whom a deduction imder section 151 is allowable 
to another taxpayer for a taxable year beginning in the csdendar 
year in which such individual's taxable year begins. 
"(c) DEFINITIONS.—For purposes of this section— 
"(1) ELIGIBLE INDIVIDUAL.— 
"(A) IN GENERAL.—The term 'eligible individual' means, 
with respect to any month, any individual if— 
"(i) such individual is covered under a high deduct-
ible health plan as of the 1st day of such month, 
"(ii) such individual is not, while covered under 
a high deductible health plan, covered under any 
health plan— 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2039 
"(I) which is not a high deductible health plan, 
and 
"(11) which provides coverage for any benefit 
which is covered under the high deductible health 
plEin, and 
"(iii)(I) the high deductible health plan covering 
such individual is established and maintained by 
the employer of such individual or of the spouse of 
such individual and such employer is a small employer, 
or 
"(II) such individual is an employee (within the 
meaning of section 401(c)(1)) or the spouse of such 
an employee and the high deductible health plan cover-
ing such individual is not established or maintained 
by any employer of such individual or spouse. 
"(B) CERTAIN COVERAGE DISREGARDED.—Subparagraph 
(A)(ii) shall be applied without regard to— 
"(i) coverage for any benefit provided by permitted 
insurance, and 
"(ii) coverage (whether through insursince or other-
wise) for accidents, disability, dental care, vision care, 
or long-term care. 
"(C) CONTINUED ELIGIBILITY OF EMPLOYEE AND SPOUSE 
ESTABLISHING MEDICAL SAVINGS ACCOUNTS.—If, while an 
employer is a small employer— 
"(i) any amount is contributed to a medical savings 
account of an individual who is an employee of such 
employer or the spouse of such an employee, and 
"(ii) such amount is excludable from gross income 
under section 106(b) or allowable as a deduction imder 
this section, 
such individual shall not cease to meet the requirement 
of subparagraph (A)(iii)(I) by reason of such employer ceas-
ing to be a small employer so long as such employee contin-
ues to be an employee of such employer. 
"(D) LIMITATIONS ON ELIGIBILITY.— 
Tor limitations on number of taxpayers who are eligible to have 
medical savings accounts, see subsection (i). 
"(2) HIGH DEDUCTIBLE HEALTH PLAN.— 
"(A) IN GENERAL.—The term liigh deductible health 
plan' means a health plan— 
"(i) in the case of self-only coverage, which has 
an annual deductible which is not less than $1,500 
and not more than $2,250, 
"(ii) in the case of family coverage, which has 
an annual deductible which is not less than $3,000 
and not more than $4,500, and 
"(iii) the annual out-of-pocket expenses required 
to be paid under the plan (other than for premiums) 
for covered benefits does not exceed— 
"(I) $3,000 for self-only coverage, and 
"(II) $5,500 for family coverage. 
"(B) SPECL\L RULES.— 
"(i) EXCLUSION OF CERTAIN PLANS.—Such term does 
\ 
not include a health plan if substantially all of its 
coverage is coverage described in paragraph (1)(B). 
110 STAT. 2040 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(ii) SAFE HARBOR FOR ABSENCE OF PREVENTIVE 
CARE DEDUCTIBLE.—^A plan shall not fail to be treated 
as a high deductible health plan by reason of failing 
to have a deductible for preventive care if the absence 
of a deductible for such care is required by State law. 
"(3) PERMITTED INSURANCE.—^The term 'permitted insur-
ance' means— 
"(A) Medicare supplemental insurance, 
"(B) insurance if substantially all of the coverage pro-
vided under such insurance relates to— 
"(i) liabilities incurred under workers' compensa-
tion laws, 
"(ii) tort KabiUties, 
"(iii) Uabilities relating to ownership or use of prop-
erty, or 
"(iv) such other similar liabilities as the Secretary 
may specify by regulations, 
"(C) insurance for a specified disease or illness, and 
"(D) insurance paying a fixed £unount per day (or other 
period) of hospitalization. 
"(4) SMALL EMPLOYER.— 
"(A) IN GENERAL.—The term 'small employer' means, 
with respect to any calendar year, £iny employer if such 
employer employed an average of 50 or fewer employees 
on business days during either of the 2 preceding calendar 
years. For purposes of the preceding sentence, a preceding 
calendar year may be taken into accomit only if the 
employer was in existence throughout such year. 
"(B) 
EMPLOYERS NOT IN EXISTENCE IN PRECEDING 
YEAR.—^In the case of an employer which was not in exist-
ence throughout the 1st preceding calendar year, the deter-
mination under subparagraph (A) shall be based on the 
average number of employees that it is reasonably expected 
such employer will employ on business days in the current 
calendar year. 
"(C) CERTAIN GROWING EMPLOYERS RETAIN TREATMENT 
AS SMALL EMPLOYER.—The term 'small employer' includes, 
with respect to any calendar year, smy employer if— 
"(i) such employer met the requirement of subpara-
graph (A) (determined without regard to subparagraph 
(B)) for any preceding calendar year after 1996, 
"(ii) any amoimt was contributed to the medical 
savings account of any employee of such employer with 
respect to coverage of such employee luider a high 
deductible heedth plan of such employer during such 
preceding calendar year and such amount was exclud-
able fi*om gross income under section 106(b) or allow-
able as a deduction under this section, emd 
"(iii) such employer employed an average of 200 
or fewer employees on business days during each 
preceding calendar year after 1996. 
"(D) SPECIAL RULES.— 
"(i) CONTROLLED GROUPS.—For purposes of this 
paragraph, all persons treated as a single employer 
under subsection (b), (c), (m), or (o) of section 414 
shall be treated as 1 employer. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2041 
"(ii) PREDECESSORS.—Any reference in this para-
graph to an employer shall include a reference to any 
predecessor of such employer. 
"(5) FAMILY COVERAGE.—The term 'family coverage' 
means any coverage other than self-only coverage. 
"(d) 
MEDICAL 
SAVINGS 
ACCOUNT.—For 
purposes 
of this 
section— 
"(1) MEDICAL SAVINGS ACCOUNT.—The term 'medical sav-
ings account' means a trust created or organized in the United 
States exclusively for the purpose of pajdng the qualified medi-
cal expenses of the account holder, but only if the written 
governing instrument creating the trust meets the following 
requirements: 
"(A) Except in the case of a rollover contribution 
described in subsection (f)(5), no contribution will be 
accepted— 
"(i) unless it is in cash, or 
"(ii) to the extent such contribution, when added 
to previous contributions to the trust for the calendar 
year, exceeds 75 percent of the highest annual limit 
deductible permitted under subsection (c)(2)(A)(ii) for 
such calendar year. 
"(B) The trustee is a bank (as defined in section 408(n)), 
an insurance company (as defined in section 816), or 
another person who demonstrates to the satisfaction of 
the Secretary that the manner in which such person will 
administer the trust will be consistent with the require-
ments of this section. 
"(C) No part of the trust assets will be invested in 
life insurance contracts. 
"(D) The assets of the trust will not be commingled 
with other property except in a common trust fund or 
common investment fund. 
"(E) The interest of an individual in the balance in 
his account is nonforfeitable. 
"(2) QUALIFIED MEDICAL EXPENSES.— 
"(A) 
IN GENERAL.—The 
term 
'qualified 
medical 
expenses' means, with respect to an accoiuit holder, 
amounts paid by such holder for medical care (as defined 
in section 213(d)) for such individual, the spouse of such 
individual, and any dependent (as defined in section 152) 
of such individual, but only to the extent such amounts 
are not compensated for by insurance or otherwise. 
"(B) HEALTH INSURANCE MAY NOT BE PURCHASED FROM 
ACCOUNT.— 
"(i) IN GENERAL.—Subparagraph (A) shall not 
apply to any payment for insurance. 
"(ii) EXCEPTIONS.—Clause (i) shall not apply to 
any expense for coverage under— 
"(I) a health plan during any period of continu-
ation coverage required under any Federal law, 
"(II) a qualified long-term care insurance con-
tract (as defined in section 7702B(b)), or 
"(III) a health plan during a period in which 
the individual is receiving unemplo3mient com-
pensation under any Federal or State law. 
110 STAT. 2042 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(C) MEDICAL EXPENSES OF INDIVIDUALS WHO ARE NOT 
ELIGIBLE INDIVIDUALS.—Subparagraph (A) shall apply to 
an amount paid by an account holder for medical care 
of an individual who is not an eligible individual for the 
month in which the expense for such care is incurred 
only if no amount is contributed (other than a rollover 
contribution) to any medical savings account of such 
account holder for the taxable year which includes such 
month. This subparagraph shall not apply to any expense 
for coverage described in subclause (I) or (III) of subpara-
graph (B)(ii). 
"(3) ACCOUNT HOLDER.—The term 'account holder' means 
the individual on whose behalf the medical savings account 
was established. 
"(4) CERTAIN RULES TO APPLY.—Rules similar to the follow-
ing rules shall apply for purposes of this section: 
"(A) Section 219(d)(2) (relating to no deduction for roll-
overs). 
"(B) Section 219(f)(3) (relating to time when contribu-
tions deemed made). 
"(C) Except as provided in section 106(b), section 
219(f)(5) (relating to employer payments). 
"(D) Section 408(g) (relating to community property 
laws). 
"(E) Section 408(h) (relating to custodial accounts). 
"(e) TAX TREATMENT OF ACCOUNTS.— 
"(1) IN GENERAL,—A medical savings account is exempt 
from taxation under this subtitle unless such account has 
ceased to be a medical savings account. Notwithstsmding the 
preceding sentence, any such account is subject to the taxes 
imposed by section 511 (relating to imposition of tax on unre-
lated business income of charitable, etc. organizations). 
"(2) ACCOUNT TERMINATIONS.—Rules similar to the niles 
of paragraphs (2) and (4) of section 408(e) shall apply to medical 
savings accounts, and any amount treated as distributed under 
such rules shall be treated as not used to pay qualified medical 
expenses. 
"(f) TAX TREATMENT OF DISTRIBUTIONS.— 
"(1) AMOUNTS USED FOR QUALIFIED MEDICAL EXPENSES.— 
Any amount psdd or distributed out of a medical savings account 
which is used exclusively to pay qualified medical expenses 
of any account holder shall not be includible in gross income. 
"(2) INCLUSION OF AMOUNTS NOT USED FOR QUALIFIED MEDI-
CAL EXPENSES.—^Any amount paid or distributed out of a medi-
cal savings account which is not used exclusively to pay the 
qualified medical expenses of the account holder shsdl be 
included in the gross income of such holder. 
"(3) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE 
OF RETURN.— 
"(A) IN GENERAL.—If any excess contribution is contrib-
uted for a taxable year to any medical savings account 
of an individual, paragraph (2) shall not apply to distribu-
tions from the medical savings accounts of such individual 
(to the extent such distributions do not exceed the aggre-
gate excess contributions to all such accounts of such 
individual for such year) if— 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2043 
"(i) such distribution is received by the individual 
on or before the last day prescribed by law (including 
extensions of time) for filing such individual's return 
for such taxable year, and 
"(ii) such distribution is accompanied by the 
amount of net income attributable to such excess con-
tribution. 
Any net income described in clause (ii) shall be included 
in the gross income of the individual for the taxable year 
in which it is received. 
I 
"(B) EXCESS CONTRIBUTION.—For purposes of subpara^ 
graph (A), the term 'excess contribution' means any con|-
tribution (other than a rollover contribution) which is nei^ 
ther excludable from gross income luider section 106(b|) 
nor deductible under this section. 
"(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT USED FO^I 
QUALIFIED MEDICAL EXPENSES.— 
"(A) IN GENERAL.—The tax imposed by this chapter 
on the account holder for any taxable year in which there 
is a pajnnent or distribution from a medical savings account 
of such holder which is includible in gross income under 
paragraph (2) shall be increased by 15 percent of the 
amount which is so includible. 
"(B) EXCEPTION FOR DISABILITY OR DEATH.—Subpara-
graph (A) shall not apply if the pa)nnent or distribution 
is made after the account holder becomes disabled within 
the meaning of section 72(m)(7) or dies. 
"(C) EXCEPTION FOR DISTRIBUTIONS AFTER MEDICARE 
ELIGIBILITY.—Subparagraph (A) shall not apply to any pay-
ment or distribution after the date on which the account 
holder attains the age specified in section 1811 of the 
Social Security Act. 
"(5) ROLLOVER CONTRIBUTION.—An amount is described in 
this paragraph as a rollover contribution if it meets the require-
ments of subparagraphs (A) and (B). 
"(A) IN GENERAL.—Paragraph (2) shall not apply to 
any amount paid or distributed from a medical savings 
account to the account holder to the extent the amount 
received is paid into a medical savings account for the 
benefit of such holder not later than the 60th day after 
the day on which the holder receives the payment or dis-
tribution. 
"(B) LIMITATION.—This paragraph shall not apply to 
any amount described in subparagraph (A) received by 
an individual from a medical savings account if, at any 
time during the 1-year period ending on the day of such 
receipt, 
such individual 
received any other 
amount 
described in subparagraph (A) from a medical savings 
account which was not includible in the individual's gross 
income because of the application of this paragraph. 
"(6) COORDINATION WITH MEDICAL EXPENSE DEDUCTION.— 
For purposes of determining the amount of the deduction imder 
section 213, any payment or distribution out of a medical sav-
ings account for qualified medical expenses shall not be treated 
as an expense paid for medical care. 
"(7) TRANSFER OF ACCOUNT INCIDENT TO DIVORCE.—The 
transfer of an individual's interest in a medical savings account 
110 STAT. 2044 
PUBLIC LAW 104-191—AUG. 21, 1996 
to an individual's spouse or former spouse under a divorce 
or separation instrument described in subparagraph (A) of sec-
tion 71(b)(2) shall not be considered a taxable transfer made 
by such individual notwithstanding any other provision of this 
subtitle, and such interest shall, after such transfer, be treated 
as a medical savings account with respect to which such spouse 
is the account holder. 
"(8) TREATMENT AFTER DEATH OF ACCOUNT HOLDER.— 
"(A) 
TREATMENT 
IF 
DESIGNATED 
BENEFICIARY 
IS 
SPOUSE.—If the account holder's surviving spouse acquires 
such holder's interest in a medical savings account by 
reason of being the designated beneficisiry of such account 
at the death of the account holder, such medical savings 
account shall be treated as if the spouse were the account 
holder. 
"(B) OTHER CASES.— 
"(i) IN GENERAL.—If, by reason of the death of 
the account holder, any person acquires the account 
holder's interest in a medical savings account in a 
case to which subparagraph (A) does not apply— 
"(I) such account shall cease to be a medical 
savings account as of the date of death, and 
"(II) an amoimt equal to the fair market value 
of the assets in such account on such date shall 
be includible if such person is not the estate of 
such holder, in such person's gross income for the 
taxable year which includes such date, or if such 
person is the estate of such holder, in such holder's 
gross income for the last taxable year of such 
holder. 
"(ii) SPECIAL RULES.— 
"(I) REDUCTION OF INCLUSION FOR PRE-DEATH 
EXPENSES.—The amount includible in gross income 
under clause (i) by any person (other than the 
estate) shall be reduced by the amount of qualified 
medical expenses which were incurred by the 
decedent before the date of the decedent's death 
and paid by such person within 1 year after such 
date. 
"(II) 
DEDUCTION 
FOR 
ESTATE 
TAXES.—An 
appropriate deduction shall be allowed under sec-
tion 691(c) to any person (other than the decedent 
or the decedent's spouse) with respect to amounts 
included in gross income under clause (i) by such 
person. 
"(g) CosT-OF-LiviNG ADJUSTMENT.—In the case of any taxable 
year beginning in a calendar year after 1998, each dollar amount 
in subsection (c)(2) shall be increased by an amount equal to— 
"(1) such dollar amount, multiplied by 
"(2) the cost-of-living adjustment determined under section 
1(f)(3) for the calendar year in which such taxable year begins 
by substituting 'calendar year 1997' for 'calendar year 1992' 
in subparagraph (B) thereof. 
If any increase imder the preceding sentence is not a multiple 
of $50, such increase shall be rounded to the nearest multiple 
of $50. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2045 
"(h) REPORTS.—^The Secretary may require the trustee of a 
medical savings account to msike such reports regarding such 
account to the Secretary and to the account holder with respect 
to contributions, distributions, and such other matters as the Sec-
retary determines appropriate. The reports required by this sub-
section shall be filed at such time and in such manner and furnished 
to such individuals at such time and in such manner as may 
be required by the Secretary. 
"(i) LIMITATION ON NUMBER OF TAXPAYERS HAVING MEDICAL 
SAVINGS ACCOUNTS.— 
"(1) IN GENERAL.—Except as provided in paragraph (5), 
no individual shall be treated as an eligible individual for 
£uiy taxable year beginning after the cut-off year unless— 
"(A) such individual was an active MSA participant 
for any taxable year ending on or before the close of the 
cut-off year, or 
"(B) such individual first became an active MSA partici-
pant for a taxable year ending after the cut-off year by 
reason of coverage under a high deductible health plan 
of an MSA-participating employer. 
"(2) CUT-OFF YEAR.—For purposes of paragraph (1), the 
term 'cut-off year' means the earlier of— 
"(A) calendar year 2000, or 
"(B) the first calendar year before 2000 for which the 
Secretary determines under subsection (j) that the numeri-
cal limitation for such year has been exceeded. 
"(3) ACTIVE MSA PARTICIPANT.—For purposes of this sub-
section— 
"(A) IN GENERAL.—The term 'active MSA participant' 
means, with respect to any taxable year, any individual 
who is the accoimt holder of any medical savings account 
into which any contribution was made which was exclud-
able fi-om gross income under section 106(b), or allowable 
as a deduction under this section, for such taxable year. 
"(B) SPECIAL RULE FOR CUT-OFF YEARS BEFORE 2000.— 
In the case of a cut-off year before 2000— 
"(i) an individual shall not be treated as an eligible 
individual for any month of such year or an active 
MSA participant under paragraph (1)(A) unless such 
individual is, on or before the cut-off date, covered 
under a high deductible health plan, and 
"(ii) an employer shall not be treated as an MSA-
participating employer imless the employer, on or 
before the cut-off date, offered coverage under a high 
deductible health plan to any employee. 
"(C) 
CUT-OFF 
DATE.—For 
purposes 
of 
subpara-
graph (B)— 
"(i) IN GENERAL.—Except as otherwise provided 
in this subparagraph, the cut-off date is October 1 
of the cut-off year. 
"(ii) EMPLOYEES WITH ENROLLMENT PERIODS AFTER 
OCTOBER 1.—In the case of an individual described 
in subclause (I) of subsection (c)(l)(A)(iii), if the regu-
larly scheduled enrollment period for health plans of 
the individual's employer occurs during the last 3 
months of the cut-off year, the cut-off date is December 
31 of the cut-off yesir. 
110 STAT. 2046 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(iii) SELF-EMPLOYED INDIVIDUALS.—In the case of 
an individual described in subclause (II) of subsection 
(c)(lXA)(iii), the cut-off date is November 1 of the cut-
off year. 
"(iv) SPECIAL RULES FOR 1997.—If 1997 is a cut-
off year by reason of subsection (j)(l)( A)— 
"(I) each of the cut-off dates under clauses 
(i) and (iii) shall be 1 month earlier than the 
date determined without regard to this clause, and 
"(11) clause (ii) shall be applied by substituting 
'4 months' for '3 months'. 
"(4) MSA-PARTICIPATING EMPLOYER.—For purposes of this 
subsection, the term 'MSA-participating employer' means any 
small employer if— 
"(A) such employer made any contribution to the medi-
cal savings accoimt of any employee during the cut-off 
year or any preceding calendar year which was excludable 
from gross income under section 106(b), or 
"(B) at least 20 percent of the employees of such 
employer who are eligible individuals for any month of 
the cut-off year by reason of coverage under a high deduct-
ible health plsin of such employer each made a contribution 
of at least $100 to their medical savings accoimts for any 
taxable year ending with or within the cut-off year which 
was allowable as a deduction under this section, 
"(5) ADDITIONAL ELIGIBILITY AFTER CUT-OFF YEAR.—If the 
Secretary determines under subsection (j)(2)(A) that 
the 
numerical limit for the calendar year following a cut-off year 
described in paragraph (2)(B) has not been exceeded— 
"(A) this subsection shall not apply to any otherwise 
eligible individual who is covered under a high deductible 
health plan during the first 6 months of the second calendar 
year following the cut-off year (and such individual shall 
be treated as an active MSA participant for purposes of 
this subsection if a contribution is made to any medical 
savings account with respect to such coverage), and 
"(B) any employer who offers coverage under a high 
deductible health plan to any employee during such 6-
month period shall be treated as an MSA-participating 
employer for purposes of this subsection if the requirements 
of paragraph (4) are met with respect to such coverage. 
For purposes of this paragraph, subsection (j)(2)(A) shall be 
applied for 1998 by substituting 750,000' for '600,000'. 
"0") DETERMINATION OF WHETHER NUMERICAL LIMITS ARE 
EXCEEDED.— 
"(1) 
DETERMINATION OF WHETHER LIMIT EXCEEDED FOR 
1997.—^The numerical limitation for 1997 is exceeded if, based 
on the reports required under paragraph (4), the number of 
medical savings accounts established as o
f
— 
"(A) April 30, 1997, exceeds 375,000, or 
"(B) June 30, 1997, exceeds 525,000. 
"(2) DETERMINATION OF WHETHER LIMIT EXCEEDED FOR 1998 
OR 1999.— 
"(A) IN GENERAL.—The numerical limitation for 1998 
or 1999 is exceeded if the sum of— 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2047 
"(i) the number of MSA returns filed on or before 
April 15 of such calendar year for taxable years ending 
with or within the preceding calendar year, plus 
"(ii) the Secretary's estimate (determined on the 
basis of the returns described in clause (i)) of the 
number of MSA returns for such taxable years which 
will be filed after such date, 
exceeds 600,000 (750,000 in the case of 1999). For purposes 
of the preceding sentence, the term 'MSA return' means 
any return on which any exclusion is claimed imder section 
106(b) or any deduction is claimed iinder this section. 
"(B) ALTERNATIVE COMPUTATION OF LIMITATION,—The 
numerical limitation for 1998 or 1999 is also exceeded 
if the sum of— 
"(i) 90 percent of the sum determined under 
subparagraph (A) for such calendar year, plus 
"(ii) the product of 2.5 and the number of medical 
savings accounts established during the portion of such 
year preceding July 1 (based on the reports required 
under paragraph (4)) for taxable years beginning in 
such year, 
exceeds 750,000. 
"(3) 
PREVIOUSLY UNINSURED INDIVIDUALS NOT INCLUDED 
IN DETERMINATION.— 
"(A) IN GENERAL.—The determination of whether any 
calendar year is a cut-off year shall be made by not count-
ing the medical savings account of any previously unin-
sured individual. 
"(B) PREVIOUSLY UNINSURED INDIVIDUAL.—For pur-
poses of this subsection, the term 'previously uninsured 
individual' means, with respect to any medical savings 
account, any individual who had no health plan coverage 
(other than coverage referred to in subsection (c)(1)(B)) 
at 2Uiy time during the 6-month period before the date 
such individual's coverage under the high deductible health 
plan commences. 
"(4) REPORTING BY MSA TRUSTEES.— 
"(A) IN GENERAL.—Not later than August 1 of 1997, 
1998, and 1999, each person who is the trustee of a medical 
savings account established before July 1 of such calendar 
year shall make a report to the Secretary (in such form 
and manner as the Secretary shall specify) which speci-
fies— 
"(i) the number of medical savings accounts estab-
lished before such July 1 (for taxable years beginning 
in such calendar year) of which such person is the 
trustee, 
"(ii) the name and TIN of the account holder of 
each such account, and 
"(iii) the number of such accounts which are 
accounts of prtiviously uninsured individuals. 
"(B) ADDITIONAL REPORT FOR 1997.—Not later than 
June 1, 1997, each person who is the trustee of a medical 
savings account established before May 1, 1997, shall make 
an additional report described in subparagraph (A) but 
only with respect to accounts established before May 1, 
1997. 
110 STAT. 2048 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(C) PENALTY FOR FAILURE TO FILE REPORT.—^The pen-
alty provided in section 6693(a) shsdl apply to any report 
required by this paragraph, except that— 
"(i) such section shall be applied by substituting 
'$25' for '$50', and 
"(ii) the maximiun penalty imposed on any trustee 
shall not exceed $5,000. 
"(D) AGGREGATION OF ACCOUNTS.^TO the extent prac-
ticable, in determining the number of medical savings 
accounts on the basis of the reports under this paragraph, 
all medical savings accounts of an individual shall be 
treated as 1 accoimt and all accoiuits of individuals who 
are married to each other shall be treated as 1 account. 
"(5) DATE OF MAKING DETERMINATIONS.—^Any determination 
under this subsection that a calendar year is a cut-off year 
shall be made by the Secretary and shall be published not 
later than October 1 of such year.". 
(b) 
DEDUCTION 
ALLOWED 
WHETHER 
OR NOT INDIVIDUAL 
ITEMIZES OTHER DEDUCTIONS.—Subsection (a) of section 62 is 
amended by inserting after paragraph (15) the following new para-
graph: 
"(16) MEDICAL SAVINGS ACCOUNTS.—The deduction allowed 
by section 220.". 
(c) EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO MEDICAL 
SAVINGS ACCOUNTS.— 
(1) EXCLUSION FROM INCOME TAX.—The text of section 106 
(relating to contributions by employer to accident £ind health 
plans) is amended to read as follows: 
"(a) GENERAL RULE.—Except as otherwise provided in this sec-
tion, gross income of an employee does not include employer-pro-
vided coverage under an accident or health plan. 
"(b) CONTRIBUTIONS TO MEDICAL SAVINGS ACCOUNTS.— 
"(1) IN GENERAL.—In the case of an employee who is em 
eligible individual, amoimts contributed by such employee's 
employer to any medical savings account of such employee 
shall be treated as employer-provided coverage for medical 
expenses under an accident or health plan to the extent such 
amoimts do not exceed the limitation under section 220(b)(1) 
(determined without regard to this subsection) which is 
applicable to such employee for such taxable year. 
"(2) No CONSTRUCTIVE RECEIPT.—No amoimt shall be 
included in the gross income of any employee solely because 
the employee may choose between the contributions referred 
to in paragraph (1) and employer contributions to another 
health plan of the employer. 
"(3) SPECIAL RULE FOR DEDUCTION OF EMPLOYER CONTRIBU-
TIONS.—^Any employer contribution to a medical 
savings 
account, if otherwise allowable as a deduction under this chap-
ter, shall be allowed only for the taxable year in which paid. 
"(4) EMPLOYER MSA CONTRIBUTIONS REQUIRED TO BE SHOWN 
ON RETURN.—Every individual required to file a return under 
section 6012 for the teixable year shall include on such return 
the aggregate amount contributed by employers to the medical 
savings accoiuits of such individual or such individual's spouse 
for such taxable year. 
"(5) MSA CONTRIBUTIONS NOT PART OF COBRA COVERAGE.— 
Paragraph (1) shall not apply for purposes of section 4980B. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2049 
"(6) DEFINITIONS.—For purposes of this subsection, the 
terms 'eHgible individual' and 'medical savings account' have 
the respective meanings given to such terms by section 220. 
"(7) CROSS REFERENCE.— 
'^or penalty on failure by employer to make comparable con-
tributions to the medical savings accounts of comparable employ-
ees, see section 4980E.''. 
(2) EXCLUSION FROM EMPLOYMENT TAXES.— 
(A) RAILROAD RETIREMENT TAX.—Subsection (e) of sec-
tion 3231 is amended by adding at the end the following 
new paragraph: 
"(10) 
MEDICAL 
SAVINGS ACCOUNT 
CONTRIBUTIONS.—The 
term 'compensation' shall not include any payment made to 
or for the benefit of an employee if at the time of such payment 
it is reasonable to believe that the employee will be able to 
exclude such payment from income under section 106(b).". 
(B) UNEMPLOYMENT TAX.—Subsection (b) of section 
3306 is amended by striking "or" at the end of paragraph 
(15), by striking the period at the end of paragraph (16) 
and inserting "; or", and by inserting after paragraph (16) 
the following new paragraph: 
"(17) any pa3mient made to or for the benefit of an employee 
if at the time of such payment it is reasonable to believe 
that the employee will be able to exclude such pajmient from 
income under section 106(b).". 
(C) WITHHOLDING TAX.—Subsection (a) of section 3401 
is amended by striking "or" at the end of paragraph (19), 
by striking the period at the end of paragraph (20) and 
inserting "; or", and by inserting after paragraph (20) the 
following new paragraph: 
"(21) any payment made to or for the benefit of an employee 
if at the time of such payment it is reasonable to believe 
that the employee will be able to exclude such pajonent from 
income under section 106(b)." 
(3) EMPLOYER CONTRIBUTIONS REQUIRED TO BE SHOWN ON 
w-2.—Subsection (a) of section 6051 is amended by striking 
"and" at the end of paragraph (9), by striking the period at 
the end of paragraph (10) and inserting ", £ind", and by inserting 
after paragraph (10) the following new paragraph: 
"(11) the amount contributed to any medical savings 
/ account (as defined in section 220(d)) of such employee or 
such employee's spouse.". 
(4) PENALTY FOR FAILURE OF EMPLOYER TO MAKE COM-
PARABLE M
S
A CONTRIBUTIONS.— 
(A) IN GENERAL.—Chapter 43 is amended by adding 
after section 4980D the following new section: 
"SEC. 4980E. FAILURE 
OF EMPLOYER 
TO MAKE 
COMPARABLE 
MEDICAL SAVINGS ACCOUNT CONTRIBUTIONS. 
"(a) GENERAL RULE.—In the case of an employer who makes 
a contribution to the medical savings account of any employee 
with respect to coverage under a high deductible health plan of 
the employer during a calendar year, there is hereby imposed 
a tax on the failure of such employer to meet the requirements 
of subsection (d) for such calendar year. 
"(b) AMOUNT OF TAX.—The amount of the tax imposed by 
subsection (a) on any failure for any calendar year is the amount 
110 STAT. 2050 
PUBLIC LAW 104-191—AUG. 21, 1996 
equal to 35 percent of the aggregate amount contributed by the 
employer to medical savings accounts of employees for taxable 
years of such employees ending with or within such calendar year. 
"(c) WAIVER BY SECRETARY.—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 imposed by subsection (a) to 
the extent that the pajonent of such tax would be excessive relative 
to the failure involved. 
"(d) EMPLOYER REQUIRED TO MAKE COMPARABLE MSA 
CON-
TRIBUTIONS FOR ALL PARTICIPATING EMPLOYEES.— 
"(1) IN GENERAL.—An employer meets the requirements 
of this subsection for any calendar year if the employer makes 
available comparable contributions to the medical savings 
accounts of all comparable participating employees for each 
coverage period during such calendar year. 
"(2) COMPARABLE CONTRIBUTIONS.— 
"(A) IN GENERAL.—For purposes of paragraph (1), the 
term 'comparable contributions' means contributions— 
"(i) which are the same amount, or 
"(ii) which are the same percentage of the annual 
deductible limit under the high deductible health plan 
covering the employees. 
"(B) 
PART-YEAR 
EMPLOYEES.—In the 
case of an 
employee who is employed by the employer for only a 
portion of the calendar year, a contribution to the medical 
savings account of such employee shall be treated as com-
parable if it is an amount which bears the same ratio 
to the comparable amount (determined without regard to 
this subparagraph) as such portion bears to the entire 
calendar year. 
"(3) COMPARABLE PARTICIPATING EMPLOYEES.—For purposes 
of paragraph (1), the term 'comparable participating employees' 
means all employees— 
"(A) who are eligible individuals covered under any 
high deductible health plan of the employer, and 
"(B) who have the same category of coverage. 
For purposes of subparagraph (B), the categories of coverage 
are self-only and family coverage. 
"(4) PART-TIME EMPLOYEES.— 
"(A) IN GENERAL.—Paragraph (3) shall be applied sepa-
rately with respect to part-time employees and other 
employees. 
"(B) PART-TIME EMPLOYEE.—For purposes of subpara-
graph (A), the term 'part-time employee' means any 
employee who is customarily employed for fewer than 30 
hours per week. 
"(e) CONTROLLED GROUPS.—For purposes of this section, all 
persons treated as a single employer under subsection (b), (c), 
(m), or (o) of section 414 shall be treated as 1 employer. 
"(f) DEFINITIONS.—Terms used in this section which are also 
used in section 220 have the respective meanings given such terms 
in section 220.". 
(B) CLERICAL AMENDMENT.—The table of sections for 
chapter 43 is amended by adding after the item relating 
to section 4980D the following new item: 
"Sec. 4980E. Failure of employer to make comparable medical savings account con-
tributions.". 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2051 
(d) MEDICAL SAVINGS ACCOUNT CONTRIBUTIONS NOT AVAILABLE 
UNDER CAFETERIA PLANS,—Subsection (f) of section 125 of such 
Code is amended by inserting "106(b)," before "117". 
(e) TAX ON EXCESS CONTRIBUTIONS.—Section 4973 (relating 
to tax on excess contributions to individual retirement accounts, 
certain section 403(b) contracts, and certain individusd retirement 
annuities) is amended— 
(1) by inserting "MEDICAL SAVINGS ACCOUNTS," after 
"ACCOUNTS," in the heading of such section, 
(2) by striking "or" at the end of paragraph (1) of sub-
section (a), 
(3) by redesignating paragraph (2) of subsection (a) as 
paragraph (3) and by inserting after paragraph (1) the follow-
ing: 
"(2) a medical savings account (within the meaning of sec-
tion 220(d)), or", and 
(4) Iby adding at the end the following new subsection: 
"(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS ACCOUNTS.— 
For purposes of this section, in the case of medical savings accounts 
(within the meaning of section 220(d)), the term 'excess contribu-
tions' means the sum of— 
"(1) the aggregate amount contributed for the taxable year 
to the accounts (other than rollover contributions described 
in section 220(f)(5)) which is neither excludable from gross 
income under section 106(b) nor allowable as a deduction under 
section 220 for such year, and 
"(2) the amount determined under this subsection for the 
preceding taxable year, reduced by the sum o
f
— 
"(A) the distributions out of the accounts which were 
included in gross income under section 220(f)(2), and 
"(B) the excess (if any) of— 
"(i) the maximum amount allowable as a deduction 
under section 220(b)(1) (determined without regard to 
section 106(b)) for the taxable year, over 
"(ii) the amount contributed to the accounts for 
the taxable year. 
For purposes of this subsection, any contribution which is distrib-
uted out of the medical savings account in a distribution to which 
section 220(f)(3) applies shall be treated as an amount not contrib-
uted.". 
if) 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 ACCOUNTS.—An 
individual for whose benefit a medical savings account (within 
the me£uiing 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 otherwise be tax-
able under this section) if, with respect to such transaction, 
the account ceases to be a medical savings account by reason 
of the application of section 220(e)(2) to such account.". 
(2) Paragraph (1) of section 4975(e) is amended to read 
as follows: 
"(1) PLAN.—For purposes of this section, the term 'plein' 
means— 
29-194 O - 96 - 11: QL 3 Part 3 
110 STAT. 2052 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(A) a trust described in section 401(a) which forms 
a part of a plan, or a plan described in section 403(a), 
which trust or plan is exempt from tax under section 501(a), 
"(B) an individual retirement account described in sec-
tion 408(a), 
"(C) an individual retirement einnuity described in sec-
tion 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 subparagraph of this paragraph.", 
(g) 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. 
"(2) PROVISIONS.—The provisions referred to in this para-
graph are— 
"(A) subsections (i) and (1) of section 408 (relating 
to individual retirement plans), and 
"(B) section 220(h) (relating to medical 
savings 
accounts).", 
(h) EXCEPTION FROM CAPITALIZATION OF POLICY ACQUISITION 
EXPENSES.—Subparagraph (B) of section 848(e)(1) (defining speci-
fied 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)).". 
(i) 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.". 
26 use 62 note. 
(j) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 1996. 
26 u s e 220 note. 
(k) MONITORING OF PARTICIPATION IN MEDICAL 
SAVINGS 
ACCOUNTS.—The Secretary of the Treasury or his delegate shall— 
(1) during 1997, 1998, 1999, and 2000, regularly evaluate 
the number of individuals who are maintaining medical savings 
accounts and the reduction in revenues to the United States 
by reason of such accounts, and 
(2) provide such reports of such evaluations to Congress 
as such Secretary determines appropriate. 
26 u s e 220 note. 
(1) STUDY OF EFFECTS OF MEDICAL SAVINGS ACCOUNTS ON 
SMALL GROUP MARKET.—The Comptroller General of the United 
States shall enter into a contract with an organization with exper-
tise in health economics, health insurance markets, and actuarial 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2053 
science to conduct a comprehensive study regarding the effects 
of medical savings accounts in the small group market on— 
(1) selection, including adverse selection, 
(2) health costs, including any impact on premiums of 
individuals with comprehensive coverage, 
(3) use of preventive care, 
(4) consumer choice, 
(5) the scope of coverage of high deductible plans purchased 
in conjunction with such accounts, and 
(6) other relevant items. 
A report on the results of the study conducted under this subsection Reports. 
shall be submitted to the Congress no later than January 1, 1999. 
Subtitle B—Inc|rease in Deduction for 
Health Insurance Costs of Self-Employed 
Individuals 
SEC. 311. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS 
OF SELF-EMPLOYED INDIVIDUALS. 
(a) IN GENERAL.—Paragraph (1) of section 162(1) is amended 
to read as follows: 
"(1) ALLOWANCE OF DEDUCTION.— 
"(A) IN GENERAL.—In the case of an individual who 
is an employee within the meeining 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 con-
stitutes medical care for the taxpayer, his spouse, and 
dependents. 
"(B) 
APPLICABLE 
PERCENTAGE.—For 
purposes 
of 
subparagraph (A), the applicable percentage shall be deter-
mined under the following table: 
'Tor taxable years beginning 
The applicable percentage is— 
in calendar year— 
1997 
40 percent 
1998 through 2002 
45 percent 
2003 
50 percent 
2004 
60 percent 
2005 
70 percent 
2006 or thereafter 
80 percent.". 
(b) EXCLUSION FOR AMOUNTS RECEIVED UNDER CERTAIN SELF-
INSURED PLANS.—Paragraph (3) of section 104(a) is amended by 
inserting "(or through an arrangement having the effect of accident 
or health insurance)" after "health insurance". 
(c) EFFECTIVE DATE.—The amendments made by this section 
26 use 104 note. 
shall apply to taxable years beginning after December 31, 1996. 
110 STAT. 2054 
PUBLIC LAW 104-191—AUG. 21, 1996 
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 definitions) is 
amended by inserting after section 7702A the following new section: 
"SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE INSUR-
ANCE. 
"(a) IN GENERAL.—For purposes of this title— 
"(1) a qualified long-term care insurance contract shall 
be treated as an accident and health insurance contract, 
"(2) amounts (other than policyholder dividends, as defined 
in section 808, or premium refunds) received under a qualified 
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 coverage under 
a qualified long-term care insureince contract shall be treated 
as an accident and health plan with respect to such coverage, 
"(4) except as provided in subsection (e)(3), amounts paid 
for a qualified long-term care insurance contract providing the 
benefits described in subsection (b)(2)(A) shall be treated as 
payments 
made 
for 
insurance 
for 
purposes 
of 
section 
213(d)(1)(D), and 
"(5) a qualified long-term care insurance contract shall 
be treated as a guaranteed renewable contract subject to the 
rules of section 816(e). 
"(b) QUALIFIED LONG-TERM CARE INSURANCE CONTRACT.—For 
purposes of this title— 
"(1) IN GENERAL.—The term 'qualified long-term care insur-
ance contract' means any insurance contract if— 
"(A) the only insurance protection provided under such 
contract is coverage of qualified long-term care services, 
"(B) such contract does not pay or reimburse 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 c£in be— 
"(i) paid, assigned, or pledged as coUatersd for a 
loan, or 
"(ii) borrowed, 
other than as provided in subparagraph (E) or paragraph 
(2)(C), 
"(E) all refunds of premiums, and all policyholder divi-
dends 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 
(g). 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2055 
"(2) SPECIAL RULE:S.— 
"(A) PER DIEM, ETC. PAYMENTS PERMITTED.—A contract 
shall not fail to be described 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 MEDICARE.— 
"(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 construed or 
applied so as to prohibit the offering of a qualified 
long-term care insurance contract on the basis that 
the contract coordinates its benefits with those pro-
vided 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 exceed the aggregate premiums paid under 
the contract. Any refund on a complete surrender or can-
cellation of the contract shall be includible in gross income 
to the extent that any deduction or exclusion was allowable 
with respect 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, preventive, therapeutic, 
curing, treating, mitigating, and rehabilitative services, and 
maintenance or personal care services, which— 
"(A) are required by a chronically ill individual, and 
"(B) are provided pursuant to a plan of care prescribed 
by a licensed health care practitioner. 
"(2) CHRONICALLY ILL INDIVIDUAL.— 
"(A) IN GENERAL.—The term 'chronically ill individual' 
means any individual who has been certified by a licensed 
health care practitioner as— 
"(i) being unable to perform (without substantial 
assistance from another individual) 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 similar (as deter-
mined under regulations prescribed by the Secretary 
in consultation with the Secretary of Health and 
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 otherwise meet-
ing 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 requirements. 
"(B) ACTIVITIES OF DAILY LIVING.—For purposes of 
subparagraph (A), each of the following is an activity of 
daily living: 
110 STAT. 2056 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(i) Eating, 
"(ii) Toileting, 
"(iii) Transferring, 
"(iv) Bathing. 
"(v) Dressing, 
"(vi) Continence. 
A contract shall not be treated as a qualified long-term 
care insurance contract unless the determination of 
whether an individual is a chronically ill individual takes 
into account at least 5 of such activities. 
"(3) MAINTENANCE OR PERSONAL CARE SERVICES.—The term 
'maintenance or personal care services' 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 cognitive impair-
ment). 
"(4) LICENSED HEALTH CARE PRACTITIONER.—The term 
licensed health care practitioner' means any physician (as 
defined in section 1861(r)(l) of the Social Security Act) and 
any registered professional nurse, licensed social worker, or 
other individual who meets such requirements as may be pre-
scribed by the Secretary. 
"(d) AGGREGATE PAYMENTS IN EXCESS OF LIMITS.— 
"(1) IN GENERAL.—If the aggregate of— 
"(A) the periodic payments received for any period 
under all qualified long-term care insurance contracts 
which are treated as made for qualified long-term care 
services for £in insured, and 
"(B) the periodic payments received for such period 
which are treated under section 101(g) as paid by reason 
of the death of such insured, 
exceeds the per diem limitation for such period, such excess 
shall be includible in gross income without regard to section 
72. A payment shall not be taken into account under subpara-
graph (B) if the insured is a terminally ill individual (as defined 
in section 101(g)) at the time the payment is received. 
"(2) PER DIEM LIMITATION.—For purposes of paragraph (1), 
the per diem limitation for any period is an amount equal 
to the excess (if any) o
f
— 
"(A) the greater o
f
— 
"(i) the dollar amount in effect for such period 
under peu-agraph (4), or 
"(ii) the costs incurred for qualified long-term C
£
U
"
e 
services provided for the insured for such period, over 
"(B) the aggregate payments received as reimburse-
ments (through insurance or otherwise) for qualified long-
term care services provided for the insured during such 
period. 
"(3) AGGREGATION RULES.—For purposes of this sub-
section-^ 
"(A) all persons receiving periodic pajmaents described 
in paragraph (1) with respect to the same insured shall 
be treated as 1 person, and 
"(B) the per diem limitation determined under para-
graph (2) shall be allocated first to the insured and any 
remaining limitation shall be allocated among the other 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2057 
such persons in such manner as the Secretary shall pre-
scribe. 
"(4) 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). 
"(5) INFLATION ADJUSTMENT.—In the case of a calendar 
year after 1997, the dollar amount contained in paragraph 
(4) shall be increased at the same time and in the same manner 
as amounts are increased pursuant to section 213(d)(10). 
"(6) PERIODIC PAYMENTS.—For purposes of this subsection, 
the term 'periodic pa3anent' means any payment (whether on 
a periodic basis or otherwise) made without regard to the 
extent of the costs incurred by the payee for qualified long-
term care services. 
"(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— 
"(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 limitation with respect to a life insur-
ance contract, as of any date— 
"(A) by the sum of any charges (but not premium 
payments) against the life insurance contract's cash surren-
der value (within the meaning of section 7702(f)(2)(A)) for 
such coverage made to that date under the contract, less 
"(B) any such charges the imposition of which reduces 
the premiums paid for the contract (within the meaning 
of section 7702(f)(1)). 
"(3) APPLICATION OF SECTION 213.—NO deduction shall be 
allowed under section 213(a) for charges against the life insur-
ance contract's cash surrender value described in paragraph 
(2), unless such charges sire 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 and benefits under 
a life insurance contract that are in addition to the terms 
and benefits under the contract without regard to long-term 
care insurance coverage. 
"(f) TREATMENT OF CERTAIN STATE-MAINTAINED PLANS.— 
"(1) IN GENERAL.~If— 
"(A) an individual receives coverage for qualified long-
term care services under a State long-term care plan, and 
"(B) the terms of such plan would satisfy the require-
ments of subsection (b) were such plan an insurance con-
tract, 
such plan shall be treated as a qualified long-term c£ire insur-
ance contract for purposes of this title. 
"(2) STATE LONG-TERM CARE PLAN.—For purposes of para-
graph (1), the term 'State long-term care plan' means any 
plan— 
"(A) which is established and maintained by a State 
or an instrumentality of a State, 
110 STAT. 2058 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(B) which provides coverage only for qualified long-
term care services, and 
"(C) under which such coverage is provided only to— 
"(i) employees and former employees of a State 
(or any political subdivision or instrumentality of a 
State), 
"(ii) the spouses of such employees, and 
"(iii) individuals bearing a relationship to such 
employees or spouses which is described in any of 
paragraphs (1) through (8) of section 152(a).". 
(b) RESERVE METHOD.—Clause (iii) of section 807(d)(3)(A) is 
amended by inserting "(other than a qualified long-term care insur-
ance contract, as defined in section 7702B(b))" after "insurance 
contract". 
(c) LONG-TERM CARE INSURANCE NOT PERMITTED UNDER CAFE-
TERIA PLANS OR FLEXIBLE SPENDING ARRANGEMENTS.— 
(1) CAFETERIA PLANS.—Section 125(f) is amended by adding 
at the end the following new sentence: "Such term shall not 
include any product which is advertised, marketed, or offered 
as long-term care insurance.". 
(2) 
FLEXIBLE 
SPENDING 
ARRANGEMENTS.—Section 
106 
(relating to contributions by employer to accident and health 
plans), as amended by section 301(c), is amended by adding 
at the end the following new subsection: 
"(c) 
INCLUSION OF LONG-TERM CARE 
BENEFITS PROVIDED 
THROUGH FLEXIBLE SPENDING ARRANGEMENTS.— 
"(1) IN GENERAL.—Effective on and after January 1, 1997, 
gross income of an employee shall include 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 
progrsim which provides employees with coverage 
under 
which— 
"(A) specified incurred expenses may be reimbursed 
(subject to reimbursement maximums and other reasonable 
conditions), and 
"(B) the maximum amount of reimbursement which 
is reasonably available to a participant for such coverage 
is less than 500 percent of the value of such coverage. 
In the case of an insured plan, the maximum amount reason-
ably available shall be determined on the basis of the underly-
ing coverage." 
(d) CONTINUATION COVERAGE RULES NOT TO APPLY.— 
(1) Paragraph (2) of section 4980B(g) is amended by adding 
at the end the following new sentence: "Such term shall not 
include any plan substantially all of the coverage under which 
is for qualified long-term care services (as defined in section 
7702B(c))." 
(2) Paragraph (1) of section 607 of the Employee Retirement 
29 use 1167. 
Income Security Act of 1974 is amended by adding at the 
end the following new sentence: "Such term shall not include 
any plan substantially all of the coverage under which is for 
qualified long-term care services (as defined in section 7702B(c) 
of such Code)." 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2059 
(3) Paragraph (1) of section 2208 of the Pubhc Health 
Service Act is amended by adding at the end the following 
new sentence: "Such term shall not include any plan substan-
tially all of the coverage under which is for qualified long-
term care services (as defined in section 7702B(c) of such 
Code)." 
(e) 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.". 
(f) EFFECTIVE DATES.— 
(1) GENERAL EFFECTIVE DATE.— 
(A) IN GENERAL.—Except as provided in subparagraph 
(B), the amendments made by this section shall apply 
to contracts issued after December 31,1996. 
(B) RESERVE METHOD.—^The amendment made by sub-
section (b) shall apply to contracts issued after December 
31, 1997. 
(2) CONTINUATION OF EXISTING POLICIES.—In the case of 
any contract issued before January 1, 1997, which met the 
long-term care insurance requirements of the State in which 
the contract was sitused at the time the contract was issued— 
(A) such contract shall be treated for purposes 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 purposes as qualified 
long-term care services (as defined in section 7702B(c) of 
such Code). 
In the case of an individual who is covered on December 31, 
1996, under a State long-term care plan (as defined in section 
7702B(f)(2) of such (Dode), the terms of such plan on such 
date shall be treated for purposes of the preceding sentence 
as a contract issued on such date which met the long-term 
care insurance requirements of such State. 
(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 
defined in section 7702B(D) of such Code), no gain or loss 
shall be recognized on the exchange. If, in addition to a qualified 
long-term care insurance contract, money or other property 
is received in the exchange, then £iny gain shall be recognized 
to the extent of the sum of the money and the fair market 
value of the other property received. For puiposes of this para-
graph, the cancellation of a contract providing for long-term 
care insurance coverage and reinvestment of the cancellation 
proceeds in a qualified long-term care insurance contract within 
60 days thereafter shall be treated as an exchange. 
(4) ISSUANCE OF CERTAIN RIDERS PERMITTED.—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 quali-
fied long-term care insurance contract under section 7702B, 
and 
42 use 300bb-8. 
26 use 1702B 
note. 
110 STAT. 2060 
PUBLIC LAW 104-191—AUG. 21, 1996 
(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. 
(5) APPLICATION OF PER DIEM LIMITATION TO EXISTING CON-
TRACTS.—^The amount of per diem payments made under a 
contract issued on or before July 31, 1996, with respect to 
an insured which are excludable from gross income by reason 
of section 7702B of the Internal Revenue Code of 1986 (as 
added by this section) shall not be reduced under subsection 
(d)(2)(B) thereof by reason of reimbursements received under 
a contract issued on or before such date. The preceding sentence 
shall cease to apply as of the date (after July 31, 1996) such 
contract is exchanged or there is any contract modification 
which results in an increase in the amount of such per diem 
pa5anents or the amount of such reimbursements. 
26 use 7702B 
(g) LONG-TERM CARE STUDY REQUEST.—The Chairman of the 
°ote. 
Committee on Ways and Means of the House of Representatives 
and the Chairmsm of the Committee on Finance of the Senate 
shall jointly request the National Association of Insurance Commis-
sioners, in consultation with representatives of the insurance indus-
try and consumer organizations, to formulate, develop, and conduct 
a study to determine the marketing and other effects of per diem 
Reports. 
limits on certain types of long-term care policies. If the National 
Association of Insurance Commissioners agrees to the study request, 
the National Association of Insurance Commissioners shall report 
the results of its study to such committees not later than 2 years 
after accepting the request. 
SEC. 322. QUALIFIED LONG-TERM CARE SERVICES TREATED AS MEDI-
CAL CARE. 
(a) GENERAL RULE.—^Paragraph (1) of section 213(d) (defining 
medical care) is amended by striking "or" at the end of subpara-
graph (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 inserting before the period 
"or for any qualified long-term care insurance contract (as 
defined in section 7702B(b))". 
(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 eligible long-term care 
premiums (as defined in paragraph (10)) shall be taken into 
account under subparagraph (D)." 
(B) Paragraph (2) of section 162(1) is amended by adding 
at the end the following new subparagraph: 
"(C) LONG-TERM CARE PREMIUMS.—In the case of a 
qualified long-term care insurance contract (as defined in 
section 7702B(b)), only eligible long-term care premiums 
(as defined in section 213(d)(10)) shall be taken into account 
under paragraph (1)." 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2061 
(C) Subsection (d) of section 213 is amended by adding 
at the end the following new paragraphs: 
"(10) ELIGIBLE LONG-TERM CARE PREMIUMS.— 
"(A) IN GENERAL.—For purposes of this section, the 
term 'eligible long-term care premiums' means the amount 
paid during a taxable year for any qualified long-term 
care insur£ince contract (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 increase deter-
mined under the preceding sentence is not a multiple 
of $10, such increase shall be rounded to the nearest 
multiple of $10. 
"(ii) 
MEDICAL 
CARE 
COST 
ADJUST-
MENT.—For purposes of clause (i), the medical 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 defined 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 Secre-
tary of Health and Human Services, prescribe an 
adjustment which the Secretary determines is more 
appropriate for purposes of this paragraph than the 
adjustment described in the preceding sentence, and 
the adjustment so prescribed shall apply in lieu of 
the adjustment described in the preceding sentence. 
"(11) 
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 individual shall be treated as not paid for medical care 
if such service is provided— 
"(A) by the spouse of the individual or by a relative 
(directly or through a partnership, corporation, or other 
entity) unless the service is provided by a licensed profes-
sional with respect to such service, 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 individual which is 
described in any of paragraphs (1) through (8) of section 152(a). 
# 
110 STAT. 2062 
PUBLIC LAW 104-191—AUG. 21, 1996 
This paragraph shall not apply for purposes of section 105(b) 
with respect to reimbursements through insurance.". 
(3) Paragraph (6) of section 213(d) is amended— 
(A) by striking "subparagraphs (A) and (B)" and insert-
ing "subparagraphs (A), (B), and (C)", and 
(B) by striking "paragraph (1)(C)" in subparagraph (A) 
and inserting "paragraph (1)(D)". 
(4) Paragraph (7) of section 213(d) is amended by striking 
"subparagraphs (A) and (B)" and inserting "subparagraphs (A), 
(B), and (C)". 
26 use 162 note. 
(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 subchapter 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, according to the forms 
or regulations prescribed by the Secretary, setting forth— 
"(1) the aggregate amount of such benefits psdd by such 
person to any individual during £my calendar year, 
"(2) whether or not such benefits are paid in whole or 
in part on a per diem or other periodic basis without regard 
to the expenses incurred during the period to which the pay-
ments relate, 
"(3) the name, address, and TIN of such individual, and 
"(4) the name, address, and TIN of the chronically ill or 
terminally ill individual on account of whose condition such 
benefits are paid. 
"(b) STATEMENTS TO BE FURNISHED TO PERSONS WITH RESPECT 
T
O 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 showing— 
"(1) the name of the person making the pa5mients, 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 sentence shall 
be furnished to the individual on or before January 31 of the 
year following the calendar year for which the return under sub-
section (a) was required to be made. 
"(c) LONG-TERM CARE BENEFITS.—For purposes of this section, 
the term 'long-term care benefit' means— 
"(1) any payment under a product which is advertised, 
marketed, or offered as long-term care insurance, and 
"(2) any payment which is excludable fi*om gross income 
by reason of section 101(g).". 
(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 inserting after clause (viii) the follow-
ing new clause: 
"(ix) section 6050Q (relating to certain long-term 
care benefits),". 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2063 
(2) Paragraph (2) of section 6724(d) is amended by 
redesignating subparagraphs (Q) through (T) as subparagraphs 
(R) through (U), respectively, and by inserting after subpara-
graph (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 26USC6050Q 
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: 
"(g) CONSUMER PROTECTION PROVISIONS.— 
"(1) IN GENERAL.—The requirements of this subsection are 
met with respect to any contract if the contract meets— 
"(A) the requirements of the model regulation and 
model Act described in paragraph (2), 
"(B) the disclosure requirement of paragraph (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 contract if such contract 
meets— 
"(i) MODEL REGULATION.—The following require-
ments of the model regulation: 
"(I) Section 7A (relating to guaranteed renewal 
or noncancellability), and the requirements of 
section 6B of the model Act relating to such section 
7A. 
"(II) Section 7B (relating to prohibitions on 
limitations and exclusions). 
"(Ill) Section 7C (relating to extension of bene-
fits). 
"(IV) Section 7D (relating to continuation or 
conversion of coverage). 
"(V) Section 7E (relating to discontinuance and 
replacement of policies). 
"(VI) Section 8 (relating to unintentional 
lapse). 
"(VII) Section 9 (relating to disclosure), other 
than section 9F thereof. 
"(VIII) Section 10 (relating to prohibitions 
against post-claims underwriting). 
"(IX) Section 11 (relating to minimum stand-
ards). 
"(X) Section 12 (relating to requirement to 
offer inflation protection), except that any require-
ment for a signature on a rejection of inflation 
110 STAT. 2064 
PUBLIC LAW 104-191—AUG. 21, 1996 
protection shall permit the signature to be on an 
application or on a separate form. 
"(XI) Section 23 (relating to prohibition against 
preexisting conditions £ind probationary periods in 
replacement policies or certificates), 
"(ii) MODEL ACT.—The following requirements of 
the model Act: 
"(I) Section 6C (relating to preexisting condi-
tions). 
"(II) Section 6D (relating to prior hospitaliza-
tion). 
"(B) DEFINITIONS.—For purposes of this paragraph— 
"(i) MODEL PROVISIONS.—The terms 'model regula-
tion' and 'model Act' mean the long-term care insur-
ance model regulation, and the long-term care insur-
ance 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 under clause (i) or (ii) 
of subparagraph (A) shall be treated as including any 
other provision of such regulation or Act necessary 
to implement the provision. 
"(iii) DETERMINATION.—For purposes of this section 
and section 4980C, the determination of whether any 
requirement of a model regulation or the model Act 
has been met shall be made by the Secretary. 
"(3) DISCLOSURE REQUIREMENT.—The requirement of this 
paragraph is met with respect to any contract if such contract 
meets the requirements of section 4980C(d). 
"(4) NONFORFEITURE REQUIREMENTS.— 
"(A) IN GENERAL.—The requirements of this paragraph 
are met with respect to any level premium contract, 
if the issuer of such contract offers to the policyholder, 
including any group policyholder, a nonforfeiture provision 
meeting the requirements of subparagraph (B). 
"(B) REQUIREMENTS OF PROVISION.—The nonforfeiture 
provision required under subparagraph (A) shall meet the 
following requirements: 
"(i) The nonforfeiture provision shall be appro-
priately captioned. 
"(ii) The nonforfeiture provision shall provide for 
a benefit available in the event of a default in the 
payment of any premiums and the amount of the bene-
fit 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 premium paying contracts approved by the 
Secretary for the same contract form. 
"(iii) The nonforfeiture provision shall provide at 
least one of the following: 
"(I) Reduced paid-up insurance. 
"(II) Extended term insurance. 
"(Ill) Shortened benefit period. 
"(IV) Other similar offerings approved by the 
Secretary. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2065 
"(5) CROSS REFERENCE.— 
T o r coordination of the requirements of this subsection with 
State requirements, see section 4980C(f).''. 
SEC. 326. REQUIREMENTS FOR ISSUERS OF QUALIFIED LONG-TERM 
CARE INSURANCE CONTRACTS. 
(a) IN GENERAL.—Chapter 43 is amended by adding at the 
end the following new section: 
"SEC. 4980C. REQUIREMENTS FOR ISSUERS OF QUALIFIED LONG-TERM 
CARE INSURANCE CONTRACTS. 
"(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 subsection (b). 
"(b) AMOUNT.— 
"(1) IN GENERAL.—The amount of the tax imposed by sub-
section (a) shall be $100 per insured for each day any require-
ment of subsection (c) or (d) is not met with respect to each 
qualified long-term care insurance contract. 
"(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 imposed by subsection (a) to the 
extent that pajnnent 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.— 
"(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 require-
ments), 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 waiting 
period or because of any applicable preexisting condi-
tion. 
"(iii) Section 20 (relating to filing requirements 
for marketing). 
"(iv) Section 21 (relating to standards for market-
ing), including inaccurate completion of medical his-
tories, other than sections 21C(1) and 21C(6) thereof, 
except that— 
"(I) in addition to such requirements, no per-
son shall, in selling or offering to sell a qualified 
long-term care insurance contract, misrepresent 
a material fact; and 
"(II) no such requirements shall include a 
requirement to inquire or identify whether a 
prospective applicant or enroUee for long-term care 
insurance has accident and sickness insurance. 
"(v) Section 22 (relating to appropriateness of 
recommended purchase). 
"(vi) Section 24 (relating to standard format outline 
of coverage). 
110 STAT. 2066 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(vii) Section 25 (relating to requirement to deliver 
shopper's guide). 
"(B) MODEL ACT.—The following requirements 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 applica-
tions and any refund shall be made within 30 days 
of the return or denial. 
"(ii) Section 6G (relating to outline of coverage), 
"(iii) Section 6H (relating to requirements for cer-
tificates under group plans). 
"(iv) Section 61 (relating to policy summary), 
"(v) Section 6J (relating to monthly reports on 
accelerated death benefits). 
"(vi) Section 7 (relating to incontestability period). 
"(C) DEFINITIONS.—For purposes of this paragraph, the 
terms 'model regulation' and 'model Act' have the meanings 
given such terms by section 7702B(g)(2)(B). 
"(2) DELIVERY OF POLICY.—If an application for a qualified 
long-term care insurance contract (or for a certificate under 
such a contract for a group) is approved, the issuer shall deliver 
to the applicant (or policyholder or certificateholder) the con-
tract (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 qualified long-term care insurance contract 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 
"(B) make available all information directly relating 
to such denial. 
"(d) DISCLOSURE.—The requirements of this subsection are met 
if the issuer of a long-term care insurance policy discloses in such 
policy and in the outline of coverage required under subsection 
(c)(l)(B)(ii) that the policy is intended to be a qualified long-term 
care insurance contract under section 7702B(b). 
"(e) 
QUALIFIED 
LONG-TERM 
CARE 
INSURANCE 
CONTRACT 
DEFINED.—For purposes of this section, the term 'qualified long-
term care insurance contract' has the meaning given such term 
by section 7702B. 
"(f) COORDINATION WITH STATE REQUIREMENTS.—If a State 
imposes any requirement which is more stringent than the analo-
gous requirement imposed by this section or section 7702B(g), the 
requirement imposed by this section or section 7702B(g) shall be 
treated as met if the more stringent State requirement is met.", 
(b) CONFORMING AMENDMENT.—The table of sections for chapter 
43 is amended by adding at the end the following new item: 
"Sec. 4980C. Requirements for issuers of qualified long-term care insurance con-
tracts.". 
26 u s e 4980C 
SEC. 327. EFFECTIVE DATES. 
(a) IN GENERAL.—The provisions of, and amendments made 
by, this part shall apply to contracts issued after December 31, 
1996. The provisions of section 321(f) (relating to transition rule) 
shall apply to such contracts. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2067 
(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 bene-
fits) is amended by adding at the end the following new subsection: 
"(g) TREATMENT OF CERTAIN ACCELERATED DEATH BENEFITS.— 
"(1) IN GENERAL.—For purposes of this section, the follow-
ing amounts shall be treated as an amount paid by reason 
of the death of an insured: 
"(A) Any amount received under a life insurance con-
tract on the life of an insured who is a terminally ill 
individual. 
"(B) Any amount received under a life insurance con-
tract on the life of an insured who is a chronically ill 
individual. 
"(2) TREATMENT OF VIATICAL SETTLEMENTS.— 
"(A) IN GENERAL.—If any portion of the death benefit 
under a life insurance contract on the life of an insured 
described in paragraph (1) is sold or assigned to a viatical 
settlement provider, the amount paid for the sale or assign-
ment of such portion shall be treated as an amount paid 
under the life insurance contract by reason of the death 
of such insured. 
"(B) VIATICAL SETTLEMENT PROVIDER.— 
"(i) IN GENERAL.—The term Viatical settlement 
provider' means any person regularly engaged in the 
trade or business of purchasing, or taking assignments 
of, life insurance contracts on the lives of insureds 
described in paragraph (1) if— 
"(I) such person is licensed for such purposes 
(with respect to insureds described in the same 
subparagraph of paragraph (1) as the insured) in 
the State in which the insured resides, or 
"(II) in the case of an insured who resides 
in a State not requiring the licensing of such per-
sons for such purposes with respect to such 
insured, such person meets the requirements of 
clause (ii) or (iii), whichever applies to such 
insured. 
"(ii) TERMINALLY ILL INSUREDS.—A person meets 
the requirements of this clause with respect to an 
insured who is a terminally ill individual if such 
person— 
"(I) meets the requirements of sections 8 and 
9 of the Viatical Settlements Model Act of the 
National Association of Insurance Commissioners, 
and 
"(II) meets the requirements of the Model 
Regulations of the National Association of Insur-
ance Commissioners (relating to standards for 
evaluation of reasonable pa3anents) in determining 
110 STAT. 2068 
PUBLIC LAW 104-191—AUG. 21, 1996 
amounts paid by such person in connection with 
such purchases or assignments. 
"(iii) CHRONICALLY ILL INSUREDS.—A person meets 
the requirements of this clause with respect to an 
insured who is a chronically ill individual if such 
person— 
"(I) meets requirements similar to the require-
ments referred to in clause (ii)(I), and 
"(11) meets the standards (if any) of the 
National Association of Insurance Commissioners 
for evaluating the reasonableness of amounts paid 
by such person in connection with such purchases 
or assignments with respect to chronically ill 
individuals. 
"(3) SPECIAL RULES FOR CHRONICALLY ILL INSUREDS.—In 
the case of an insured who is a chronically ill individual— 
"(A) IN GENERAL.—Paragraphs (1) and (2) shall not 
apply to any payment received for any period unless— 
"(i) such payment is for costs incurred by the payee 
(not compensated for by insurance or otherwise) for 
qualified long-term care services provided for the 
insured for such period, and 
"(ii) the terms of the contract giving rise to such 
pajnnent satisfy— 
"(I) the requirements of section 7702B(b)(l)(B), 
and 
"(II) the requirements (if any) applicable under 
subparagraph (B). 
For purposes of the preceding sentence, the rule of section 
7702B(b)(2)(B) shall apply. 
"(B) 
OTHER 
REQUIREMENTS.—The 
requirements 
applicable under this subparagraph are— 
"(i) those requirements of section 7702B(g) and 
section 4980C which the Secretary specifies as appl3dng 
to such a purchase, assignment, or other arrangement, 
"(ii) standards adopted by the National Association 
of Insurance Commissioners which specifically apply 
to chronically ill individuals (and, if such standards 
are adopted, the analogous requirements specified 
under clause (i) shall cease to apply), and 
"(iii) standards adopted by the State in which the 
policyholder resides (and if such standards are adopted, 
the analogous requirements specified under clause (i) 
and (subject to section 4980C(f)) standards under 
clause (ii), shall cease to apply). 
"(C) PER DIEM PAYMENTS.—A payment shall not fail 
to be described in subparagraph (A) by reason of being 
made on a per diem or other periodic basis without regard 
to the expenses incurred during the period to which the 
payment relates. 
"(D) LIMITATION ON EXCLUSION FOR PERIODIC PAY-
MENTS.— 
Tor limitation on amount of periodic payments which are 
treated as described in paragraph (1), see section 7702B(d).''. 
"(4) DEFINITIONS.—For purposes of this subsection— 
"(A) TERMINALLY ILL INDIVIDUAL.—^The term 'termi-
nally ill individual' means an individual who has been 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2069 
certified by a physician as having an illness or physical 
condition which can reasonably be expected to result in 
death in 24 months or less after the date of the certification. 
"(B) CHRONICALLY ILL INDIVIDUAL.—The term 'chron-
ically ill individual' has the meaning given such term by 
section 7702B(c)(2); except that such term shall not include 
a terminally ill individual. 
"(C) QUALIFIED LONG-TERM CARE SERVICES.—The term 
'qualified long-term care services' has the meaning given 
such term by section 7702B(c). 
"(D) PHYSICIAN.—The term 'physician' has the meaning 
given to such term by section 1861(r)(l) of the Social Secu-
rity Act (42 U.S.C. 1395x(r)(l)). 
"(5) EXCEPTION FOR BUSINESS-RELATED POLICIES.—This sub-
section shall not apply in the case of any amount paid to 
any taxpayer other than the insured if such taxpayer has 
an insurable interest with respect to the life of the insured 
by reason of the insured being a director, officer, or employee 
of the taxpayer or by reason of the insured being financially 
interested in any trade or business carried on by the taxpayer.", 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
26 use loi note. 
shall apply to amounts received after December 31, 1996. 
SEC. 332. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED 
ACCELERATED DEATH BENEFir RIDERS. 
(a) QUALIFIED ACCELERATED DEATH BENEFIT RIDERS TREATED 
AS LIFE INSURANCE.—Section 818 (relating to other definitions and 
special rules) is amended by adding at the end the following new 
subsection: 
"(g) QUALIFIED ACCELERATED DEATH BENEFIT RIDERS TREATED 
AS LIFE INSURANCE.—For purposes of this part— 
"(1) IN GENERAL.—^Atiy reference to a life insurance contract 
shall be treated as including a reference to a qualified acceler-
ated death benefit rider on such contract. 
"(2) QUALIFIED ACCELERATED DEATH BENEFIT RIDERS.—For 
purposes of this subsection, the term 'qualified accelerated 
death benefit rider' means any rider on a life insurance contract 
if the only pajnnents under the rider are pa5nnents meeting 
the requirements of section 101(g). 
"(3) EXCEPTION FOR LONG-TERM CARE RIDERS.—Paragraph 
(1) shall not apply to any rider which is treated as a long-
term care insurance contract under section 7702B.". 
(b) EFFECTIVE DATE.— 
26 use 8i8 note. 
(1) IN GENERAL.—^The amendment made by this section 
shall take effect on January 1,1997. 
(2) 
ISSUANCE OF RIDER NOT TREATED AS MATERIAL 
CHANGE.—For purposes of appljdng sections 101(f), 7702, and 
7702A of the Internal Revenue Code of 1986 to any contract— 
(A) the issuance of a qualified accelerated death benefit 
rider (as defined in section 818(g) of such Code (as added 
by this Act)), and 
(B) the addition of any provision required to conform 
an accelerated death benefit rider to the requirements of 
such section 818(g), 
shall not be treated as a modification or material change of 
such contract. 
110 STAT. 2070 
PUBLIC LAW 104-191—AUG. 21, 1996 
Subtitle E—State Insurance Pools 
SEC. 341. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED 
ORGANIZATIONS PROVIDING HEALTH COVERAGE FOR 
HIGH-RISK INDIVIDUALS. 
(a) IN GENERAL.—Subsection (c) of section 501 (relating to 
list of exempt organizations) is amended by adding at the end 
the following new paragraph: 
"(26) Any membership organization if— 
"(A) such organization is established by a State exclu-
sively to provide coverage for medical care (as defined 
in section 213(d)) on a not-for-profit basis to individuals 
described in subparagraph (B) through— 
"(i) insurance issued by the organization, or 
"(ii) a health maintensmce organization under an 
arrangement with the organization, 
"(B) the only individuals receiving such coverage 
through the organization are individuals— 
"(i) who are residents of such State, and 
"(ii) who, by reason of the existence or history 
of a medical condition— 
"(I) are unable to acquire medical care cov-
erage for such condition through insurance or from 
a health maintengmce organization, or 
"(II) are able to acquire such coverage only 
at a rate which is substantially in excess of the 
rate for such coverage through the membership 
organization, 
"(C) the composition of the membership in such 
organization is specified by such State, and 
"(D) no part of the net earnings of the organization 
inures to the benefit of any private shareholder or indi-
vidual.". 
26 use 501 note. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to taxable years beginning after December 31, 1996. 
SEC. 342. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED 
WORKMEN'S COMPENSATION REINSURANCE ORGANIZA-
TIONS. 
(a) IN GENERAL.—Subsection (c) of section 501 (relating to 
list of exempt organizations), as amended by section 341, is amended 
by adding at the end the following new paragraph: 
"(27) Any membership organization if— 
"(A) such organization is established before June 1, 
1996, by a State exclusively to reimburse its members 
for losses arising under workmen's compensation acts, 
"(B) such State requires that the membership of such 
organization consist o
f
— 
"(i) all persons who issue insurance covering work-
men's compensation losses in such State, and 
"(ii) all persons and governmental entities who 
self-insure against such losses, and 
"(C) such organization 
operates 
as 
a 
non-profit 
organization by— 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2071 
"(i) returning surplus income to its members or 
workmen's compensation policyholders on a periodic 
basis, and 
"(ii) reducing initial premiums in anticipation of 
investment income.", 
(b) EFFECTIVE DATE.—^The amendment made by this section 26 use 50i note, 
shall apply to taxable years ending after the date of the enactment 
of this Act. 
Subtitle F—Organizations Subject to 
Section 833 
SEC. 351. ORGANIZATIONS SUBJECT TO SECTION 833. 
(a) IN GENERAL.—Section 833(c) (relating to organization to 
which section applies) is amended by adding at the end the following 
new paragraph: 
"(4) TREATMENT AS EXISTING BLUE CROSS OR BLUE SHIELD 
ORGANIZATION.— 
"(A) IN GENERAL.—Paragraph (2) shall be applied to 
an organization described in subparagraph (B) as if it were 
a Blue Cross or Blue Shield organization. 
"(B) APPLICABLE ORGANIZATION.—An organization is 
described in this subparagraph if it— 
"(i) is organized under, and governed by. State 
laws which are specifically and exclusively applicable 
to not-for-profit health insurance or health service type 
organizations, and 
"(ii) is not a Blue Cross or Blue Shield organization 
or health maintenance organization.". 
(b) EFFECTIVE DATE.—^The amendment made by this section 
26 USC 833 note, 
shall apply to taxable years ending after December 31,1996. 
Subtitle G—IRA Distributions to the 
Unemployed 
SEC. 361. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITH-
OUT ADDITIONAL TAX TO PAY FINANCIAIXY DEVASTATING 
MEDICAL EXPENSES. 
(a) IN GENERAL.—Section 72(tX3)(A) is amended by striking 
"(B),". 
(b) DISTRIBUTIONS FOR PAYMENT OF HEALTH INSURANCE PRE-
MIUMS OF CERTAIN UNEMPLOYED INDIVIDUALS.—^Paragraph (2) of 
section 72(t) is amended by adding at the end the following new 
subparagraph: 
"(D) DISTRIBUTIONS TO UNEMPLOYED INDIVIDUALS FOR 
HEALTH INSURANCE PREMIUMS.— 
"(i) IN GENERAL.—^Distributions from an individusd 
retirement plan to an individual after separation from 
employment— 
"(I) if such individual has received unemploy-
ment compensation for 12 consecutive weeks under 
any Federal or State unemployment compensation 
law by reason of such separation. 
110 STAT. 2072 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(11) if such distributions are made during any 
taxable year during which such unemployment 
compensation is paid or the succeeding taxable 
yeeir, and 
"(III) to the extent such distributions do not 
exceed the amount paid during the taxable year 
for insurance described in section 213(d)(1)(D) with 
respect to the individual and the individual's 
spouse and dependents (as defined in section 152). 
"(ii) 
DISTRIBUTIONS 
AFTER 
REEMPLOYMENT.— 
Clause (i) shall not apply to any distribution made 
after the individual has been employed for at least 
60 days after the separation from employment to which 
clause (i) applies, 
"(iii) SELF-EMPLOYED INDIVIDUALS.—To the extent 
provided in regulations, a self-employed individual 
shall be treated as meeting the requirements of clause 
(i)(I) if, under Federal or State law, the individual 
would have received unemployment compensation but 
for the fact the individual was self-employed.", 
(c) CONFORMING AMENDMENT.—Subparagraph (B) of section 
72(t)(2) is amended by striking "or (C)" and inserting ", (C), or 
(D)". 
26 use 72 note. 
(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply to distributions after December 31, 1996. 
Subtitle H—Organ and Tissue Donation 
Information Included With Income Tax 
Refund Payments 
26 use 6042 
SEC. 371. ORGAN AND TISSUE DONATION INFORMATION INCLUDED 
note. 
WITH INCOME TAXREFUND PAYMENTS. 
(a) IN GENERAL.—The Secretary of the Treasury shall, to the 
extent practicable, include with the mailing of any payment of 
a refund of individual income tax made during the period beginning 
on February 1, 1997, £ind ending on June 30, 1997, a copy of 
the document described in subsection (b). 
(b) TEXT OF DOCUMENT.—The Secretary of the Treasury shall, 
after consultation with the Secretary of Health and Human Services 
and organizations promoting organ and tissue (including eye) dona-
tion, prepare a document suitable for inclusion with individual 
income tax refund payments which— 
(1) encourages organ and tissue donation; 
(2) includes a detachable 
organ and tissue 
donor 
card; and 
(3) urges recipients to— 
(A) sign the organ and tissue donor card; 
(B) discuss organ and tissue donation with family mem-
bers and tell family members about the recipient's desire 
to be an organ and tissue donor if the occasion arises; 
and 
(C) encourage family members to request or authorize 
organ and tissue donation if the occasion arises. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2073 
TITLE IV—APPLICATION AND ENFORCE-
MENT 
OF 
GROUP 
HEALTH 
PLAN 
REQUIREMENTS 
Subtitle A—^Application and Enforcement 
of Group Health Plan Requirements 
SEC. 401. GROUP HEALTH PLAN PORTABmiTY, ACCESS, AND RENEW-
ABILITY REQUIREMENTS. 
(a) IN GENERAL.—^The Internal Revenue Code of 1986 is 
amended by adding at the end the following new subtitle: 
"Subtitle K—Group Health Plan 
Port-
ability, 
Access, 
and 
Renewability 
Requirements 
"Chapter 100. Group health plan portability, access, and renewability requirements. 
"CHAPTER 100—GROUP HEALTH PLAN PORTABILITY, 
ACCESS, AND RENEWABILITY REQUIREMENTS 
"Sec. 9801. Increased portability through limitation on preexisting condition exclu-
sions. 
"Sec. 9802. Prohibiting discrimination against individual participants and bene-
ficiaries based on health status. 
"Sec. 9803. Guaranteed renewability in multiemployer plans emd certain multiple 
employer welfare arrangements. 
"Sec. 9804. General exceptions. 
"Sec. 9805. Definitions. 
"Sec. 9806. Regulations. 
"SEC. 9801. INCREASED PORTABILITY THROUGH LIMITATION ON 
PREEXISTING CONDITION EXCLUSIONS. 
"(a) LIMITATION ON PREEXISTING CONDITION EXCLUSION PERIOD; 
CREDITING FOR PERIODS OF PREVIOUS COVERAGE.—Subject to sub-
section (d), a group health plan may, with respect to a participant 
or beneficiary, impose a preexisting condition exclusion only if— 
"(1) such exclusion relates to a condition (whether physical 
or mental), regardless of the cause of the condition, for which 
medical advice, diagnosis, care, or treatment was recommended 
or received within the 6-month period ending on the enrollment 
date; 
"(2) such exclusion extends for a period of not more than 
12 months (or 18 months in the case of a late enroUee) after 
the enrollment date; and 
"(3) the period of any such preexisting condition exclusion 
is reduced by the length of the aggregate of the periods of 
creditable coverage (if £iny) applicable to the participant or 
beneficiary as of the enrollment date. 
"(b) DEFINITIONS.—For purposes of this section— 
"(1) PREEXISTING CONDITION EXCLUSION.— 
"(A) IN GENERAL.—The term 'preexisting condition 
exclusion' means, with respect to coverage, a limitation 
or exclusion of benefits relating to a condition based on 
110 STAT. 2074 
PUBLIC LAW 104-191—AUG. 21, 1996 
the fact that the condition was present before the date 
of enrollment for such coverage, whether or not any medical 
advice, diagnosis, care, or treatment was recommended 
or received before such date. 
"(B) TREATMENT OF GENETIC INFORMATION.—For pur-
poses of this section, genetic information shall not be 
treated as a condition described in subsection (a)(1) in 
the absence of a diagnosis of the condition related to such 
information. 
"(2) 
ENROLLMENT DATE.—The term 
'enrollment 
date' 
means, with respect to an individual covered under a group 
health plan, the date of enrollment of the individual in the 
plan or, if earlier, the first day of the waiting period for such 
enrollment. 
"(3) LATE ENROLLEE.—The term 'late enrollee' means, with 
respect to coverage under a group health plan, a participant 
or beneficiary who enrolls under the plan other than during— 
"(A) the first period in which the individual is eligible 
to enroll under the plan, or 
"(B) a special enrollment period under subsection (f). 
"(4) WAITING PERIOD.—The term 'waiting period' means, 
with respect to a group health plan and an individual who 
is a potential participant or beneficiary in the plan, the period 
that must pass with respect to the individual before the individ-
ual is eligible to be covered for benefits under the terms of 
the plan. 
"(c) RULES RELATING TO CREDITING PREVIOUS COVERAGE.— 
"(1) CREDITABLE COVERAGE DEFINED.—For purposes of this 
part, the term 'creditable coverage' means, with respect to 
an individual, coverage of the individual under any of the 
following: 
"(A) A group health plan. 
"(B) Health insurance coverage. 
"(C) Part A or part B of title XVIII of the Social 
Security Act. 
"(D) Title XIX of the Social Security Act, other than 
coverage consisting solely of benefits under section 1928. 
"(E) Chapter 55 of title 10, United States Code. 
"(F) A medical care program of the Indian Health 
Service or of a tribal organization. 
"(G) A State health benefits risk pool. 
"(H) A health plan offered under chapter 89 of title 
5, United States Code. 
"(I) A public health plan (as defined in regulations). 
"(J) A health benefit plan under section 5(e) of the 
Peace Corps Act (22 U.S.C. 2504(e)). 
Such term does not include coverage consisting solely of cov-
erage of excepted benefits (as defined in section 9805(c)). 
"(2) NOT COUNTING PERIODS BEFORE SIGNIFICANT BREAKS 
IN COVERAGE.— 
"(A) IN GENERAL.—^A period of creditable coverage shall 
not be counted, with respect to enrollment of an individual 
under a group health plan, if, after such period and before 
the enrollment date, there was a 63-day period during 
all of which the individual was not covered under any 
creditable coverage. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2075 
"(B) WAITING PERIOD NOT TREATED AS A BREAK IN 
COVERAGE.—For purposes of subparagraph (A) and sub-
section (d)(4), any period that an individual is in a waiting 
period for any coverage under a group health plan or is 
in an affiliation period shall not be teiken into account 
in determining the continuous period under subpara-
graph (A). 
"(C) AFFILIATION PERIOD.— 
"(i) IN GENERAL.—For purposes of this section, the 
term 'affiliation period' means a period which, under 
the terms of the health insurance coverage offered 
by the health maintenance organization, must expire 
before the health insurance coverage becomes effective. 
During such an affiliation period, the organization is 
not required to provide health care services or benefits 
and no premium shall be charged to the participant 
or beneficiary. 
"(ii) BEGINNING.—Such period shall begin on the 
enrollment date. 
"(iii) RUNS CONCURRENTLY WITH WAITING PERI-
ODS.—^Any such affiliation period shall run concur-
rently with any waiting period under the plan. 
"(3) METHOD OF CREDITING COVERAGE.— 
"(A) STANDARD METHOD.—Except as otherwise provided 
under subparagraph (B), for purposes of applying sub-
section (a)(3), a group health plan shall count a period 
of creditable coverage without regard to the specific benefits 
for which coverage is offered during the period. 
"(B) ELECTION OF ALTERNATIVE METHOD.—A group 
health plan may elect to apply subsection (a)(3) based 
on coverage of any benefits within each of several classes 
or categories of benefits specified in regulations rather 
than as provided under subparagraph (A). Such election 
shall be made on a uniform basis for all participants and 
beneficiaries. Under such election a group health plan shall 
count a period of creditable coverage with respect to any 
class or category of benefits if any level of benefits is 
covered within such class or category. 
"(C) PLAN NOTICE.—In the case of an election with 
respect to a group health plan under subparagraph (B), 
the plan shall— 
"(i) prominently state in any disclosure statements 
concerning the plan, and state to each enrollee at the 
time of enrollment under the plan, that the plan has 
made such election, and 
"(ii) include in such statements a description of 
the effect of this election. 
"(4) ESTABLISHMENT OF PERIOD.—Periods of creditable cov-
erage with respect to an individual shall be established through 
presentation of certifications described in subsection (e) or in 
such other manner as may be specified in regulations. 
"(d) EXCEPTIONS.— 
"(1) EXCLUSION NOT APPLICABLE TO CERTAIN NEWBORNS.— 
Subject to paragraph (4), a group health plan may not impose 
any preexisting condition exclusion in the case of an individual 
who, as of the last day of the 30-day period beginning with 
the date of birth, is covered under creditable coverage. 
110 STAT. 2076 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(2) EXCLUSION NOT APPLICABLE TO CERTAIN ADOPTED CHIL-
DREN.—Subject to paragraph (4), a group health plan may 
not impose any preexisting condition exclusion in the case 
of a child who is adopted or placed for adoption before attaining 
18 years of age and who, as of the last day of the 30-day 
period beginning on the date of the adoption or placement 
for adoption, is covered under creditable coverage. The previous 
sentence shall not apply to coverage before the date of such 
adoption or placement for adoption. 
"(3) EXCLUSION NOT APPLICABLE TO PREGNANCY.—For pur-
poses of this section, a group health plan may not impose 
any preexisting condition exclusion relating to pregnancy as 
a preexisting condition. 
"(4) Loss IF BREAK IN COVERAGE.—Paragraphs (1) and (2) 
shall no longer apply to an individual after the end of the 
first 63-day period during all of which the individual was not 
covered under any creditable coverage. 
"(e) CERTIFICATIONS AND DISCLOSURE OF COVERAGE.— 
"(1) 
REQUIREMENT 
FOR CERTIFICATION 
OF 
PERIOD 
OF 
CREDITABLE COVERAGE.— 
"(A) IN GENERAL.—^A group health plan shall provide 
the certification described in subparagraph (B)— 
"(i) at the time an individual ceases to be covered 
under the plan or otherwise becomes covered under 
a COBRA continuation provision, 
"(ii) in the case of an individual becoming covered 
under such a provision, at the time the individual 
ceases to be covered under such provision, and 
"(iii) on the request on behalf of an individual 
made not later than 24 months after the date of ces-
sation of the coverage described in clause (i) or (ii), 
whichever is later. 
The certification under clause (i) may be provided, to the 
extent practicable, at a time consistent with notices 
required 
under 
any 
applicable 
COBRA 
continuation 
provision. 
"(B) CERTIFICATION.—The certification described in this 
subparagraph is a written certification of— 
"(i) the period of creditable coverage of the individ-
ual under such plan and the coverage under such 
COBRA continuation provision, and 
"(ii) the waiting period (if any) (and affiliation 
period, if applicable) imposed with respect to the 
individual for any coverage under such plan. 
"(C) ISSUER COMPLIANCE.—TO the extent that medical 
care under a group health plan consists of health insurance 
coverage offered in connection with the plan, the plan 
is deemed to have satisfied the certification requirement 
under this paragraph if the issuer provides for such certifi-
cation in accordance with this paragraph. 
"(2) DISCLOSURE OF INFORMATION ON PREVIOUS BENEFITS.— 
"(A) IN GENERAL.—In the case of an election described 
in subsection (c)(3)(B) by a group health plsm, if the plan 
enrolls an individual for coverage under the plan and the 
individual provides a certification of coverage of the individ-
ual under paragraph (1)— 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2077 
"(i) upon request of such plan, the entity which 
issued the certification provided by the individual shall 
promptly disclose to such requesting plan information 
on coverage of classes and categories of health benefits 
available under such entity's plan, and 
"(ii) such entity may charge the requesting plan 
or issuer for the reasonable cost of disclosing such 
information. 
"(3) REGULATIONS—The Secretary shall establish rules to 
prevent an entitj^s failure to provide information under para-
graph (1) or (2) with respect to previous coverage of an individ-
ual fi*om adversely affecting any subsequent coverage of the 
individual under another group health plan or health insurance 
coverage. 
"(f) SPECIAL ENROLLMENT PERIODS.— 
"(1) INDIVIDUALS LOSING OTHER COVERAGE.—^A group health 
plsin shall permit an employee who is eligible, but not enrolled, 
for coverage under the terms of the plan (or a dependent 
of such an employee if the dependent is eligible, but not 
enrolled, for coverage under such terms) to enroll for coverage 
under the terms of the plan if each of the following conditions 
is met: 
"(A) The employee or dependent was covered under 
a group health plan or had health insurance coverage at 
the time coverage was previously offered to the employee 
or individual. 
"(B) The employee stated in writing at such time that 
coverage under a group health plan or health insurance 
coverage was the reason for declining enrollment, but only 
if the plan sponsor (or the health insurance issuer offering 
health insurance coverage in connection with the plsm) 
required such a statement at such time and provided the 
employee with notice of such requirement (and the con-
sequences of such requirement) at such time. 
"(C) The employee's or dependent's coverage described 
in subparagraph (A)— 
"(i) was under a COBRA continuation provi-
sion £ind the coverage under such provision was 
exhausted; or 
"(ii) was not under such a provision and either 
the coverage was terminated as a result of loss of 
eligibility for the coverage (including as a result of 
legal separation, divorce, death, termination of employ-
ment, or reduction in the number of hours of employ-
ment) or employer contributions toward such coverage 
were terminated. 
"(D) Under the terms of the plan, the employee 
requests such enrollment not later than 30 days after the 
date of exhaustion of coverage described in subparagraph 
(C)(i) or termination of coverage or employer contribution 
described in subparagraph (C)(ii). 
"(2) FOR DEPENDENT BENEFICIARIES.— 
"(A) IN GENERAL.—If— 
"(i) a group health plan makes coverage available 
with respect to a dependent of an individual, 
"(ii) the individual is a participant under the plan 
(or has met any waiting period applicable to becoming 
110 STAT. 2078 
PUBLIC LAW 104-191—AUG. 21, 1996 
a participant under the plan and is eligible to be 
enrolled under the plan but for a failure to enroll 
during a previous enrollment period), and 
"(iii) a person becomes such a dependent of the 
individual through marriage, birth, or adoption or 
placement for adoption, 
the group health plan shall provide for a dependent special 
enrollment period described in subparagraph (B) during 
which the person (or, if not otherwise enrolled, the individ-
ual) may be enrolled under the plan as a dependent of 
the individual, and in the case of the birth or adoption 
of a child, the spouse of the individual may be enrolled 
as a dependent of the individual if such spouse is otherwise 
eligible for coverage. 
"(B) DEPENDENT SPECIAL ENROLLMENT PERIOD.—The 
dependent special enrollment period under this subpara-
graph shall be a period of not less than 30 days and 
shall begin on the later o
f
— 
"(i) the date dependent coverage is made avail-
able, or 
"(ii) the date of the marriage, birth, or adoption 
or placement for adoption (as the case may be) 
described in subparagraph (A)(iii). 
"(C) No WAITING PERIOD.—If an individual seeks cov-
erage of a dependent during the first 30 days of such 
a dependent special enrollment period, the coverage of the 
dependent shall become effective— 
"(i) in the case of marriage, not later than the 
first day of the first month beginning after the date 
the completed request for enrollment is received; 
"(ii) in the case of a dependent's birth, as of the 
date of such birth; or 
"(iii) in the case of a dependent's adoption or place-
ment for adoption, the date of such adoption or 
placement for adoption. 
«SEC. 9802. PROHIBITING DISCRIMINATION AGAINST INDIVIDUAL 
PARTICIPANTS AND BENEFICIARIES BASED ON HEALTH 
STATUS. 
"(a) IN ELIGIBILITY TO ENROLL.— 
"(1) IN GENERAL.—Subject to paragraph (2), a group health 
plan may not establish rules for eligibility (including continued 
eligibility) of any individual to enroll under the terms of the 
plan based on any of the following factors in relation to the 
individual or a dependent of the individual: 
"(A) Health status. 
"(B) Medical condition (including both physical and 
mental illnesses). 
"(C) Claims experience. 
"(D) Receipt of health care. 
"(E) Medical history. 
"(F) Genetic information. 
"(G) Evidence of insurability (including conditions aris-
ing out of acts of domestic violence). 
"(H) Disability. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2079 
"(2) No APPLICATION TO BENEFITS OR EXCLUSIONS.—To the 
extent consistent with section 9801, paragraph (1) shall not 
be construed— 
"(A) to require a group health plan to provide particular 
benefits (or benefits with respect to a specific procedure, 
treatment, or service) other than those provided under 
the terms of such plan; or 
"(B) to prevent such a plan fi-om establishing limita-
tions or restrictions on the amount, level, extent, or nature 
of the benefits or coverage for similarly situated individuals 
enrolled in the plan or coverage. 
"(3) CONSTRUCTION.—For purposes of paragraph (1), rules 
for eligibility to enroll under a plan include rules defining 
any applicable waiting periods for such enrollment. 
"(b) IN PREMIUM CONTRIBUTIONS.— 
"(1) IN GENERAL,—^A group health plan may not require 
any individual (as a condition of enrollment or continued enroll-
ment under the plan) to pay a premium or contribution which 
is greater than such premium or contribution for a similarly 
situated individual enrolled in the plan on the basis of any 
factor described in subsection (a)(1) in relation to the individual 
or to an individual enrolled under the plan as a dependent 
of the individual. 
"(2) CONSTRUCTION.—Nothing in paragraph (1) shall be 
construed— 
"(A) to restrict the amount that an employer may be 
charged for coverage imder a group health plan; or 
"(B) to prevent a group health plan from establishing 
premium discounts or rebates or modifying otherwise 
applicable copajnnents or deductibles in return for adher-
ence to programs of health promotion and disease preven-
tion. 
"SEC. 9803. GUARANTEED RENEWABILITY IN MULTIEMPLOYER PLANS 
AND 
CERTAIN 
MULTIPLE 
EMPLOYER 
WELFARE 
ARRANGEMENTS. 
"(a) IN GENERAL,—^A group health plan which is a multiem-
ployer plan (as defined in section 414(f)) or which is a multiple 
employer welfare arrangement may not deny an employer continued 
access to the same or different coverage under such plan, other 
than— 
"(1) for nonpajonent of contributions; 
"(2) for fraud or other intentional misrepresentation of 
material fact by the employer; 
"(3) for noncompliEince with material plan provisions; 
"(4) because the plan is ceasing to offer any coverage in 
a geographic area; 
"(5) in the case of a plan that offers benefits through 
a network plan, because there is no longer any individual 
enrolled through the employer who lives, resides, or works 
in the service area of the network plan and the plan applies 
this paragraph uniformly without regard to the claims experi-
ence of employers or a factor described in section 9802(a)(1) 
in relation to such individuals or their dependents; or 
"(6) for failure to meet the terms of an applicable collective 
bargaining agreement, to renew a collective bargaining or other 
110 STAT. 2080 
PUBLIC LAW 104-191—AUG. 21, 1996 
agreement requiring or authorizing contributions to the plan, 
or to employ employees covered by such an agreement. 
"(b) MULTIPLE EMPLOYER WELFARE ARRANGEMENT.—For pur-
poses of subsection (a), the term 'multiple employer welfare arrange-
ment' has the meaning given such term by section 3(40) of the 
Employee Retirement Income Security Act of 1974, as in effect 
on the date of the enactment of this section. 
"SEC. 9804. GENERAL EXCEPTIONS. 
"(a) EXCEPTION FOR CERTAIN PLANS.—The requirements of this 
chapter shall not apply to— 
"(1) any governmental plan, and 
"(2) any group health plan for any plan year if, on the 
first day of such plan year, such plan has less than 2 partici-
pants who are current employees. 
"(b) EXCEPTION FOR CERTAIN BENEFITS.—The requirements of 
this chapter shall not apply to any group health plan in relation 
to its provision of excepted benefits described in section 9805(c)(1). 
"(c) EXCEPTION FOR CERTAIN BENEFITS IF CERTAIN CONDITIONS 
MET.— 
"(1) LIMITED, EXCEPTED BENEFITS.—The requirements of 
this chapter shall not apply to any group health plan in relation 
to its provision of excepted benefits described in section 
9805(c)(2) if the benefits— 
"(A) are provided under a separate policy, certificate, 
or contract of insurance; or 
"(B) are otherwise not an integral part of the plan. 
"(2) NONCOORDINATED, EXCEPTED BENEFITS.—The require-
ments of this chapter shall not apply to any group health 
plan in relation to its provision of excepted benefits described 
in section 9805(c)(3) if all of the following conditions are met: 
"(A) The benefits are provided under a separate policy, 
certificate, or contract of insurance. 
"(B) There is no coordination between the provision 
of such benefits and any exclusion of benefits under any 
group health plan maintained by the same plan sponsor. 
(C) Such benefits are paid with respect to an event 
without regard to whether benefits are provided with 
respect to such an event under any group health plan 
maintained by the same plan sponsor. 
"(3) 
SUPPLEMENTAL EXCEPTED BENEFITS.—The require-
ments of this chapter shall not apply to any group health 
plan in relation to its provision of excepted benefits described 
in section 9805(c)(4) if the benefits are provided under a sepa-
rate policy, certificate, or contract of insurance. 
"SEC. 9805. DEFINITIONS. 
"(a) GROUP HEALTH PLAN.—For purposes of this chapter, the 
term 'group health plan' has the meaning given to such term 
by section 5000(b)(1). 
"(b) DEFINITIONS RELATING TO HEALTH INSURANCE.—For pur-
poses of this chapter— 
"(1) HEALTH INSURANCE COVERAGE .— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the term liealth insurance coverage' means benefits 
consisting of medical care (provided directly, through insur-
ance or reimbursement, or otherwise) under any hospital 
or medical service policy or certificate, hospital or medical 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2081 
service plan contract, or health maintenance organization 
contract offered by a health insurance issuer. 
"(B) No APPLICATION TO CERTAIN EXCEPTED BENEFITS.— 
In applying subparagraph (A), excepted benefits described 
in subsection (c)(1) shall not be treated as benefits consist-
ing of medical care. 
"(2) HEALTH INSURANCE ISSUER.—The term 'health insur-
ance issuer' means an insurance company, insurance service, 
or insurance organization (including a health maintenance 
organization, as defined in paragraph (3)) which is licensed 
to engage in the business of insurance in a State and which 
is subject to State law which regulates insurance (within the 
meaning of section 514(b)(2) of the Employee Retirement 
Income Security Act of 1974, as in effect on the date of the 
enactment of this section). Such term does not include a group 
health plan. 
"(3) 
HEALTH 
MAINTENANCE 
ORGANIZATION.—The 
term 
liealth maintenance orgEinization' means— 
"(A) a federally qualified health maintenance organiza-
tion (as defined in section 1301(a) of the Public Health 
Service Act (42 U.S.C. 300e(a))), 
"(B) an organization recognized under State law as 
a health maintenance organization, or 
"(C) a similar organization regulated under State law 
for solvency in the same manner and to the same extent 
as such a health maintenance organization. 
"(c) EXCEPTED BENEFITS.—For purposes of this chapter, the 
term 'excepted benefits' means benefits under one or more (or 
any combination thereof) of the following: 
"(1) BENEFITS NOT SUBJECT TO REQUIREMENTS.— 
"(A) Coverage only for accident, or disability income 
insurance, or any combination thereof. 
"(B) Coverage issued as a supplement to liability in-
surance. 
"(C) Liability insurance, including general liability 
insurance and automobile liability insurance. 
"(D) Workers' compensation or similar insurance. 
"(E) Automobile medical payment insurance. 
"(F) Credit-only insurance. 
"(G) Coverage for on-site medical clinics. 
"(H) Other similar insurance coverage, specified in 
regulations, under which benefits for medical care are 
secondary or incidental to other insurance benefits. 
"(2) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED 
SEPARATELY.— 
"(A) Limited scope dental or vision benefits. 
"(B) Benefits for long-term care, nursing home care, 
home health care, community-based care, or any combina-
tion thereof. 
"(C) Such other similar, limited benefits as are specified 
in regulations. 
"(3) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED 
AS INDEPENDENT, NONCOORDINATED BENEFITS.— 
"(A) Coverage only for a specified disease or illness. 
"(B) Hospital indemnity or other fixed indemnity in-
surance. 
110 STAT. 2082 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(4) BENEFITS NOT SUBJECT TO REQUIREMENTS IF OFFERED 
AS SEPARATE INSURANCE POLICY.—Medicare 
supplemental 
health insurance (as defined under section 1882(g)(1) of the 
Social Security Act), coverage supplemental to the coverage 
provided under chapter 55 of title 10, United States Code, 
and similar supplemental coverage provided to coverage under 
a group health plan. 
"(d) OTHER DEFINITIONS.—For purposes of this chapter— 
"(1) COBRA cdNTiNUATiON PROVISION.—The term 'COBRA 
continuation provision' means any of the following: 
"(A) Section 4980B, other than subsection (f)(1) thereof 
insofar as it relates to pediatric vaccines. 
"(B) Part 6 of subtitle B of title I of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1161 
et seq.), other than section 609 of such Act. 
"(C) Title XXII of the Public Health Service Act. 
"(2) GOVERNMENTAL PLAN.—The term 'governmental plan' 
has the meaning given such term by section 414(d). 
"(3) MEDICAL CARE.—The term 'medical care' has the mean-
ing given such term by section 213(d) determined without 
regard to— 
"(A) paragraph (1)(C) thereof, and 
"(B) so much of paragraph (1)(D) thereof as relates 
to qualified long-term care insurance. 
"(4) NETWORK PLAN.—The term 'network plan' means 
health insurance coverage of a health insurance issuer under 
which the financing and delivery of medical care are provided, 
in whole or in part, through a defined set of providers under 
contract with the issuer. 
"(5) PLACED FOR ADOPTION DEFINED.—The term 'placement', 
or being 'placed', for adoption, in connection with any placement 
for adoption of a child with any person, means the assumption 
and retention by such person of a legal obligation for total 
or partial support of such child in anticipation of adoption 
of such child. The child's placement with such person termi-
nates upon the termination of such legal obligation. 
"SEC. 9806. REGULATIONS. 
"The Secretary, consistent with section 104 of the Health Care 
Portability and Accountability Act of 1996, may promulgate such 
regulations as may be necessary or appropriate to carry out the 
provisions of this chapter. The Secretary may promulgate any 
interim final rules as the Secretary determines are appropriate 
to carry out this chapter.". 
(b) CLERICAL AMENDMENT.—The table of subtitles of such Code 
is amended by adding at the end the following new item: 
"Subtitle K. Group health plan portability, access, and renewability requirements.". 
26 use 9801 
(c) EFFECTIVE DATE .— 
note. 
(1) IN GENERAL.—The amendments made by this section 
shall apply to plan years beginning after June 30, 1997. 
(2) DETERMINATION OF CREDITABLE COVERAGE.— 
(A) PERIOD OF COVERAGE.— 
(i) IN GENERAL.—Subject to clause (ii), no period 
before July 1, 1996, shall be taken into account under 
chapter 100 of the Internal Revenue Code of 1986 
(as added by this section) in determining creditable 
coverage. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2083 
(ii) SPECIAL RULE FOR CERTAIN PERIODS.—The Sec-
retsiry of the Treasury, consistent with section 104, 
shall provide for a process whereby individuals who 
need to establish creditable coverage for periods before 
July 1, 1996, and who would have such coverage cred-
ited but for clause (i) may be given credit for creditable 
coverage for such periods through the presentation 
of documents or othermeans. 
(B) CERTIFICATIONS, ETC.— 
(i) IN GENERAL.—Subject to clauses (ii) and (iii), 
subsection (e) of section 9801 of the Internal Revenue 
Code of 1986 (as added by this section) shall apply 
to events occurring after June 30, 1996. 
(ii) No CERTIFICATION REQUIRED TO BE PROVIDED 
BEFORE JUNE 1, 1997.—In no case is a certification 
required to be provided under such subsection before 
June 1,1997. 
(iii) CERTIFICATION ONLY ON WRITTEN REQUEST FOR 
EVENTS OCCURRING BEFORE OCTOBER 1, 1996.—In the 
case of £in event occurring after June 30, 1996, and 
before October 1, 1996, a certification is not required 
to be provided under such subsection unless an individ-
ual (with respect to whom the certification is otherwise 
required to be made) requests such certification in 
writing. 
(C) TRANSITIONAL RULE.—In the case of an individual 
who seeks to establish creditable coverage for any period 
for which certification is not required because it relates 
to an event occurring before June 30, 1996— 
(i) the individual may present other credible evi-
dence of such coverage in order to establish the period 
of creditable coverage; and 
(ii) a group health plan and a health insurance 
issuer shall not be subject to any penalty or enforce-
ment action with respect to the plan's or issuer's credit-
ing (or not crediting) such coverage if the plan or 
issuer has sought to comply in good faith with the 
applicable requirements under the amendments made 
by this section. 
(3) 
SPECIAL RULE FOR COLLECTIVE BARGAINING AGREE-
MENTS.—Except as provided in paragraph (2), in the case of 
a group health plan maintained pursuant to 1 or more collective 
bargaining agreements between employee representatives and 
one or more employers ratified before the date of the enactment 
of this Act, the amendments made by this section shall not 
apply to plan years beginning before the later of— 
\ 
(A) the date on which the last of the collective bargain-
ing agreements relating to the plan terminates (determined 
without regard to any extension thereof agreed to after 
the date of the enactment of this Act), or 
(B) July 1, 1997. 
For purposes of subparagraph (A), any plan amendment made 
pursuant to a collective bargaining agreement relating to the 
plan which amends the plan solely to conform to any require-
ment added by this section shall not be treated as a termination 
of such collective bargaining agreement. 
29-194 O - 96 - 12 : QL 3 Part 3 
110 STAT. 2084 
PUBLIC LAW 104-191—AUG. 21, 1996 
(4) TIMELY REGULATIONS.—The Secretary of the Treasury, 
consistent with section 104, shall first issue by not later than 
April 1, 1997, such regulations as may be necessary to carry 
out the amendments made by this section. 
(5) LIMITATION ON ACTIONS.—No enforcement action shall 
be taken, pursuant to the amendments made by this section, 
against a group health plan or health insurance issuer with 
respect to a violation of a requirement imposed by such amend-
ments before January 1, 1998, or, if later, the date of issuance 
of regulations referred to in paragraph (4), if the plan or issuer 
has sought to comply in good faith with such requirements. 
SEC. 402. PENALTY ON FAILURE TO MEET CERTAIN GROUP HEALTH 
PLAN REQUIREMENTS. 
(a) IN GENERAL.—Chapter 43 of the Internal Revenue Code 
of 1986 (relating to qualified pension, etc., plans) is amended by 
adding after section 4980C the following new section: 
"SEC. 4980D. FAILURE TO MEET CERTAIN GROUP HEALTH PLAN 
REQUIREMENTS. 
"(a) GENERAL RULE.—There is hereby imposed a tax on any 
failure of a group health plan to meet the requirements of chapter 
100 (relating to group health plan portability, access, and renewabil-
ity requirements). 
"(b) AMOUNT OF TAX.— 
"(1) IN GENERAL.—The amount of the tax imposed by sub-
section (a) on any failure shall be $100 for each day in the 
noncompliance period with respect to each individual to whom 
such failure relates. 
"(2) NONCOMPLIANCE PERIOD.—For purposes of this section, 
the term 'noncompliance period' means, with respect to any 
failure, the period— 
"(A) beginning on the date 
such 
failure 
first 
occurs, and 
"(B) ending on the date such failure is corrected. 
"(3) MINIMUM TAX FOR NONCOMPLIANCE PERIOD WHERE 
FAILURE DISCOVERED AFTER NOTICE OF EXAMINATION.—Notwith-
st£inding paragraphs (1) and (2) of subsection (c)— 
"(A) IN GENERAL.—In the case of 1 or more failures 
with respect to an individual— 
"(i) which are not corrected before the date a notice 
of examination of income teix liability is sent to the 
employer, and 
"(ii) which occurred or continued during the period 
under examination, 
the amount of tax imposed by subsection (a) by reason 
of such failures with respect to such individual shall not 
be less than the lesser of $2,500 or the amount of tax 
which would be imposed by subsection (a) without regard 
to such paragraphs. 
"(B) HIGHER MINIMUM TAX WHERE VIOLATIONS ARE 
MORE THAN DE MINIMIS.—To the extent violations for which 
any person is liable under subsection (e) for any year 
are more than de minimis, subparagraph (A) shall be 
applied by substituting '$15,000' for '$2,500' with respect 
to such person. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2085 
"(C) EXCEPTION FOR CHURCH PLANS.—This paragraph 
shall not apply to any failure under a church plan (as 
defined in section 414(e)). 
"(c) LIMITATIONS ON AMOUNT OF TAX.— 
"(1) TAX NOT TO APPLY WHERE FAILURE NOT DISCOVERED 
EXERCISING REASONABLE DILIGENCE.—NO tax shall be imposed 
by subsection (a) on any failure during any period for which 
it is established to the satisfaction of the Secretary that the 
person otherwise liable for such tax did not know, and exercis-
ing reasonable diligence would not have known, that such fail-
ure existed. 
"(2) TAX NOT TO APPLY TO FAILURES CORRECTED WITHIN 
CERTAIN PERIODS.—No tax shall be imposed by subsection (a) 
on any failure if— 
"(A) such failure was due to reasonable cause and 
not to willful neglect, and 
"(B)(i) in the case of a plan other than a church plan 
(as defined in section 414(e)), such failure is corrected 
during the 30-day period beginning on the first date the 
person otherwise liable for such tax knew, or exercising 
reasonable diligence would have known, that such failure 
existed, and 
"(ii) in the case of a church plan (as so defined), such 
failure is corrected before the close of the correction period 
(determined under the rules of section 414(e)(4)(C)). 
"(3) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.— 
In the case of failures which are due to reasonable cause 
and not to willful neglect— 
"(A) SINGLE EMPLOYER PLANS.— 
"(i) IN GENERAL.—In the case of failures with 
respect to plans other than specified multiple employer 
health plans, the tax imposed by subsection (a) for 
failures during the taxable year of the employer shall 
not exceed the amount equal to the lesser of— 
"(I) 10 percent of the aggregate amount paid 
or incurred by the employer (or predecessor 
employer) during the preceding taxable year for 
group health plans, or 
"(II) $500,000. 
"(ii) TAXABLE YEARS IN THE CASE OF CERTAIN CON-
TROLLED GROUPS.—For purposes of this subparagraph, 
if not all persons who are treated as a single employer 
for purposes of this section have the same taxable 
year, the taxable years taken into account shall be 
determined under principles similar to the principles 
of section 1561. 
"(B) SPECIFIED MULTIPLE EMPLOYER HEALTH PLANS.— 
"(i) IN GENERAL.—In the case of failures with 
respect to a specified multiple employer health plan, 
the tax imposed by subsection (a) for failures during 
the taxable year of the trust forming part of such 
plan shall not exceed the amount equal to the 
lesser of— 
"(I) 10 percent of the amount paid or incurred 
by such trust during such taxable year to provide 
medical care (as defined in section 9805(d)(3)) 
110 STAT. 2086 
PUBLIC LAW 104-191—AUG. 21, 1996 
directly or through insurance, reimbursement, or 
otherwise, or 
"(II) $500,000. 
For purposes of the preceding sentence, all plans of 
which the same trust forms a part shall be treated 
as one plan. 
"(ii) SPECIAL RULE FOR EMPLOYERS REQUIRED TO 
PAY TAX.—If an employer is assessed a tax imposed 
by subsection (a) by reason of a failure with respect 
to a specified multiple employer health plan, the limit 
shall be determined under subparagraph (A) (and not 
under this subparagraph) and as if such plan were 
not a specified multiple employer health plan. 
"(4) WAIVER BY SECRETARY.—In the case of a failure which 
is due to reasonable cause and not to willful neglect, the Sec-
retary may waive part or all of the tax imposed by subsection 
(a) to the extent that the payment of such tax would be exces-
sive relative to the failure involved. 
"(d) TAX NOT TO APPLY TO CERTAIN INSURED SMALL EMPLOYER 
PLANS.— 
"(1) IN GENERAL.—In the case of a group health plan of 
a small employer which provides health insurance coverage 
solely through a contract with a health insurance issuer, no 
tax shsdl be imposed by this section on the employer on any 
failure which is solely because of the health insurance coverage 
offered by such issuer. 
"(2) SMALL EMPLOYER.— 
"(A) IN GENERAL.—For purposes of paragraph (1), the 
term 'small employer' means, with respect to a calendar 
year and a plan year, an employer who employed an aver-
age of at least 2 but not more than 50 employees on 
business days during the preceding calendar year and who 
employs at least 2 employees on the first day of the plan 
year. For purposes of the preceding sentence, all persons 
treated as a single employer under subsection (b), (c), (m), 
or (o) of section 414 shall be treated as one employer. 
"(B) 
EMPLOYERS NOT IN EXISTENCE IN PRECEDING 
YEAR.—In the case of an employer which was not in exist-
ence throughout the preceding calendar year, the deter-
mination of whether such employer is a small employer 
shall be based on the average number of employees that 
it is reasonably expected such employer will employ on 
business days in the current calendar year. 
"(C) PREDECESSORS.—Any reference in this paragraph 
to an employer shall include a reference to any predecessor 
of such employer. 
"(3) 
HEALTH INSURANCE COVERAGE; HEALTH INSURANCE 
ISSUER.—For purposes of paragraph (1), the terms *health insur-
ance coverage' and liealth insurance issuer' have the respective 
meanings given such terms by section 9805. 
^^ 
"(e) LL\BILITY FOR TAX.—The following shall be liable for the 
tax imposed by subsection (a) on a failure: 
"(1) Except as otherwise provided in this subsection, the 
employer. 
"(2) In the case of a multiemployer plan, the plan. 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2087 
"(3) In the case of a failure under section 9803 (relating 
to guaranteed renewability) with respect to a plan described 
in subsection (f)(2)(B), the plan. 
"(f) DEFINITIONS.—For purposes of this section— 
"(1) GROUP HEALTH PLAN.—The term 'group health plan' 
has the meaning given such term by section 9805(a). 
"(2) 
SPECIFIED MULTIPLE EMPLOYER HEALTH PLAN.—The 
term 'specified multiple employer health plan' means a group 
health plan which is— 
"(A) any multiemployer plan, or 
"(B) any multiple employer welfare arrangement (as 
defined in section 3(40) of the Employee Retirement Income 
Security Act of 1974, as in effect on the date of the enact-
ment of this section). 
"(3) CORRECTION.—A failure of a group health plan shall 
be treated as corrected if— 
"(A) such failure is retroactively undone to the extent 
possible, and 
"(B) the person to whom the failure relates is placed 
in a finemcial position which is as good as such person 
would have been in had such failure not occurred.". 
(b) CLERICAL AMENDMENT.—The table of sections for chapter 
43 of such Code is amended by adding after the item relating 
to section 4980C the following new item: 
"Sec. 4980D. Failure to meet certain group health plan requirements.". 
(c) EFFECTIVE DATE.—The amendments made by this section 26USC4980D 
shall apply to failures under chapter 100 of the Internal Revenue "^ote. 
Code of 1986 (as added by section 401 of this Act). 
Subtitle B—Clarification of Certain 
Continuation Coverage Requirements 
SEC. 421. COBRA CLARIFICATIONS. 
(a) PUBLIC HEALTH SERVICE ACT.— 
(1) PERIOD OF COVERAGE.—Section 2202(2) of the PubUc 
Health Service Act (42 U.S.C. 300bb-2(2)) is amended— 
(A) in subparagraph (A)— 
(i) by transferring the sentence 
immediately 
preceding clause (iv) so as to appear immediately fol-
lowing such clause (iv); and 
(ii) in the last sentence (as so transferred)— 
(I) by striking "an individual" £ind inserting 
"a qualified beneficiary"; 
(II) by striking "at the time of a qualifying 
event described in section 2203(2)" and inserting 
"at any time during the first 60 days of continu-
ation coverage under this title"; 
(III) by striking "with respect to such event,"; 
and 
(IV) by inserting "(with respect to all qualified 
beneficiaries)" after "29 months"; 
(B) in subparagraph (D)(i), by inserting before ", or" 
the following: "(other than such an exclusion or limitation 
which does not apply to (or is satisfied by) such beneficiary 
by reason of chapter 100 of the Internal Revenue Code 
110 STAT. 2088 
PUBLIC LAW 104-191—AUG. 21, 1996 
of 1986, part 7 of subtitle B of title I of the Employee 
Retirement Income Security Act of 1974, or title XXVII 
of this Act)"; and 
(C) in subparagraph (E), by striking "at the time of 
a qualifying event described in section 2203(2)" and insert-
ing "at any time during the first 60 days of continuation 
coverage under this title". 
(2) NOTICES.—Section 2206(3) of the Pubhc Health Service 
Act (42 U.S.C. 300bb-6(3)) is amended by striking "at the 
time of a qualifying event described in section 2203(2)" and 
inserting "at any time during the first 60 days of continuation 
coverage under this title". 
(3) BIRTH OR ADOPTION OF A CHILD.—Section 2208(3)(A) 
of the Pubhc Health Service Act (42 U.S.C. 300bb-8(3)(A)) 
is amended by adding at the end thereof the following new 
flush sentence: 
"Such term shall also include a child who is born to or placed 
for adoption with the covered employee during the period of 
continuation coverage under this title.". 
(b) EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.— 
(1) PERIOD OF COVERAGE.—Section 602(2) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1162(2)) 
is amended— 
(A) in the last sentence of subparagraph (A)— 
(i) by striking "an individual" and inserting "a 
qualified beneficiary"; 
(ii) by striking "at the time of a qualifying event 
described in section 603(2)" and inserting "at any time 
during the first 60 days of continuation coverage under 
this part"; 
(iii) by striking "with respect to such event"; and 
(iv) by inserting "(with respect to all qualified bene-
ficiaries)" after "29 months"; 
(B) in subparagraph (D)(i), by inserting before ", or" 
the following: "(other than such an exclusion or limitation 
which does not apply to (or is satisfied by) such beneficiary 
by reason of chapter 100 of the Internal Revenue Code 
of 1986, part 7 of this subtitle, or title XXVII of the Public 
Health Service Act)"; and 
(C) in subparagraph (E), by striking "at the time of 
a qualifying event described in section 603(2)" and inserting 
"at any time during the first 60 days of continuation cov-
erage under this part". 
(2) NOTICES.—Section 606(a)(3) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1166(a)(3)) is amended 
by striking "at the time of a qualifying event described in 
section 603(2)" and inserting "at any time during the first 
60 days of continuation coverage under this part". 
(3) BIRTH OR ADOPTION OF A CHILD.—Section 607(3)(A) of 
the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1167(3)) is amended by adding at the end thereof the 
following new flush sentence: 
"Such term shall also include a child who is bom to or placed 
for adoption with the covered employee during the period of 
continuation coverage under this part.". 
(c) INTERNAL REVENUE CODE OF 1986.— 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2089 
(1) PERIOD OF COVERAGE.—Section 4980B(D(2)(B) of the 
Internal Revenue Code of 1986 is amended— 
(A) in the last sentence of clause (i)— 
(i) by striking "at the time of a qualifying event 
described in paragraph (3)(B)" and inserting "at any 
time during the first 60 days of continuation coverage 
under this section"; 
(ii) by striking "with respect to such event"; and 
(iii) by inserting "(with respect to all qualified 
beneficiaries)" after "29 months"; 
(B) in clause (iv)(I), by inserting before ", or" the follow-
ing: "(other than such an exclusion or limitation which 
does not apply to (or is satisfied by) such beneficiary by 
reason of chapter 100 of this title, part 7 of subtitle B 
of title I of the Employee Retirement Income Security 
Act of 1974, or title XXVII of the Public Health Service 
Act)"; and 
(C) in clause (v), by striking "at the time of a qualifying 
event described in paragraph (3)(B)" and inserting "at any 
time during the first 60 days of continuation coverage 
under this section". 
(2) 
NOTICES.—Section 
4980B(f)(6)(C) of the Internal 
Revenue Code of 1986 is amended by striking "at the time 
of a qualifying event described in paragraph (3)(B)" £ind insert-
ing "at any time during the first 60 days of continuation cov-
erage under this section". 
(3) BIRTH OR ADOPTION OF A CHILD.—Section 4980B(g)(l)(A) 
of the Internal Revenue Code of 1986 is amended by adding 
at the end thereof the following new flush sentence: 
"Such term shall also include a child who is born 
to or placed for adoption with the covered employee 
during the period of continuation coverage under this 
section.". 
(d) EFFECTIVE DATE.—The amendments made by this section 
shall become effective on January 1, 1997, regardless of whether 
the qualifying event occurred before, on, or after such date. 
(e) NOTIFICATION OF CHANGES.—Not later than November 1, 
1996, each group health plan (covered under title XXII of the 
Public Health Service Act, part 6 of subtitle B of title I of the 
Employee Retirement Income Security Act of 1974, and section 
4980B(f) of the Internal Revenue Code of 1986) shall notify each 
qualified beneficiary who has elected continuation coverage under 
such title, part or section of the amendments made by this section. 
26 use 4980B 
note. 
26 use 4980B 
note. 
TITLE V—REVENUE OFFSETS 
SEC. 500. 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 provision, the reference shall 
be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986. 
110 STAT. 2090 
PUBLIC LAW 104-191—AUG. 21, 1996 
Subtitle A—Company-Owned Life 
Insurance 
SEC. 501. DENIAL OF DEDUCTION FOR INTEREST ON LOANS WITH 
RESPECT TO COMPANY-OWNED LIFE INSURANCE. 
(a) IN GENERAL.—Paragraph (4) of section 264(a) is amended— 
(1) by inserting ", or any endowment or annuity contracts 
owned by the taxpayer covering any individual," after "the 
life of any individual", and 
(2) by striking all that follows "carried on by the taxpayer" 
and inserting a period. 
(b) EXCEPTION FOR CONTRACTS RELATING TO KEY PERSONS; 
PERMISSIBLE INTEREST RATES.—Section 264 is amended— 
(1) by striking "Any" in subsection (a)(4) and inserting 
"Except as provided in subsection (d), any", and 
(2) by adding at the end the following new subsection: 
"(d) SPECIAL RULES FOR APPLICATION OF SUBSECTION (a)(4).— 
"(1) EXCEPTION FOR KEY PERSONS.—Subsection (a)(4) shall 
not apply to any interest paid or accrued on any indebtedness 
with respect to policies or contracts covering an individual 
who is a key person to the extent that the aggregate amount 
of such indebtedness with respect to policies and contracts 
covering such individual does not exceed $50,000. 
"(2) INTEREST RATE CAP ON KEY PERSONS AND PRE-I986 
CONTRACTS.— 
"(A) IN GENERAL.—No deduction shall be allowed by 
reason of paragraph (1) or the last sentence of subsection 
(a) with respect to interest paid or accrued for any month 
beginning after December 31, 1995, to the extent the 
amount of such interest exceeds the amount which would 
have been determined if the applicable rate of interest 
were used for such month. 
"(B) APPLICABLE RATE OF INTEREST.—For purposes of 
subparagraph (A)— 
"(i) IN GENERAL.—The applicable rate of interest 
for any month is the rate of interest described as 
Moody's Corporate Bond Yield Average-Monthly Aver-
age Corporates as published by Mood^s Investors 
Service, Inc., or any successor thereto, for such month, 
"(ii) PRE-1986 CONTRACTS.—In the case of indebted-
ness on a contract purchased on or before June 20, 
1986— 
"(I) which is a contract providing a fixed rate 
of interest, the applicable rate of interest for any 
month shall be the Moody's rate described in 
clause (i) for the month in which the contract 
was purchased, or 
"(II) which is a contract providing a variable 
rate of interest, the applicable rate of interest for 
any month in an applicable period shall be such 
Moody's rate for the third month preceding the 
first month in such period. 
For purposes of subclause (II), the taxpayer shall elect 
an applicable period for such contract on its return 
of tax imposed by this chapter for its first taxable 
year ending on or after October 13, 1995. Such 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2091 
applicable period shall be for any number of months 
(not greater thsin 12) specified in the election £ind 
may not be changed by the taxpayer without the con-
sent of the Secretary. 
"(3) KEY PERSON.—For purposes of paragraph (1), the term 
Tcey person' means an officer or 20-percent owner, except that 
the number of individuals who may be treated as key persons 
with respect to any taxpayer shall not exceed the greater of— 
"(A) 5 individuals, or 
"(B) the lesser of 5 percent of the total officers and 
employees of the taxpayer or 20 individuals. 
"(4) 20-PERCENT OWNER.—For purposes of this subsection, 
the term '20-percent owner' meems— 
"(A) if the taxpayer is a corporation, any person who 
owns directly 20 percent or more of the outstanding stock 
of the corporation or stock possessing 20 percent or more 
of the total combined voting power of all stock of the 
corporation, or 
"(B) if the taxpayer is not a corporation, any person 
who owns 20 "percent or more of the capital or profits 
interest in the employer. 
"(5) AGGREGATION RULES.— 
"(A) IN GENERAL.—For purposes of paragraph (4)(A) 
and appljdng the $50,000 limitation in paragraph (1)— 
"(i) all members of a controlled group shall be 
treated as one taxpayer, and 
"(ii) such limitation shall be allocated among the 
members of such group in such manner as the Sec-
retary may prescribe. 
"(B) CONTROLLED GROUP.—For purposes of this para-
graph, all persons treated as a single employer under sub-
section (a) or (b) of section 52 or subsection (m) or (o) 
of section 414 shall be treated as members of a controlled 
group.". 
(c) EFFECTIVE DATES.— 
26 use 264 note. 
(1) IN GENERAL.—The amendments made by this section 
shall apply to interest paid or accrued after October 13, 1995. 
(2) TRANSITION RULE FOR EXISTING INDEBTEDNESS.— 
(A) IN GENERAL.—In the case of— 
(i) indebtedness 
incurred 
before 
January 
1, 
1996, or 
(ii) indebtedness incurred before January 1, 1997 
with respect to any contract or policy entered into 
in 1994 or 1995, 
the amendments made by this section shall not apply to 
qualified interest paid or accrued on such indebtedness 
after October 13, 1995, eind before Jginuary 1,1999. 
(B) QUALIFIED INTEREST.—For purposes of subpara-
graph (A), the qualified interest with respect to any indebt-
edness for £iny month is the amount of interest (otherwise 
deductible) which would be paid or accrued for such month 
on such indebtedness if— 
(i) in the case of any interest paid or accrued 
after December 31, 1995, indebtedness with respect 
to no more than 20,000 insured individuals were tgJcen 
into account, and 
110 STAT. 2092 
PUBLIC LAW 104-191—AUG. 21, 1996 
(ii) the lesser of the following rates of interest 
were used for such month: 
(I) The rate of interest specified under the 
terms of the indebtedness as in effect on October 
13, 1995 (and without regard to modification of 
such terms after such date). 
(II) The applicable percentage of the rate of 
interest described as Moody's Corporate Bond 
Yield Average-Monthly Average Corporates as pub-
lished by Moody's Investors Service, Inc., or any 
successor thereto, for such month. 
For purposes of clause (i), all persons treated as a single 
employer under subsection (a) or (b) of section 52 of the 
Internal Revenue Code of 1986 or subsection (m) or (o) 
of section 414 of such Code shall be treated as 1 person. 
Subclause (II) of clause (ii) shall not apply to any month 
before January 1, 1996. 
(C) APPLICABLE PERCENTAGE.—For purposes of sub-
paragraph (B), the applicable percentage is as follows: 
For calendar yean 
The percentile is: 
1996 
100 percent 
1997 
90 percent 
1998 
80 percent. 
(3) SPECIAL RULE FOR GRANDFATHERED CONTRACTS.—This 
section shall not apply to any contract purchased on or before 
June 20, 1986, except that section 264(d)(2) of the Internal 
Revenue Code of 1986 shall apply to interest paid or accrued 
after October 13, 1995. 
26 u s e 264 note. 
(d) SPREAD OF INCOME INCLUSION ON SURRENDER, ETC. OF 
CONTRACTS.— 
(1) IN GENERAL.—If any amount is received under £iny 
life insurance policy or endowment or Einnuity contract 
described in paragraph (4) of section 264(a) of the Internal 
Revenue Code of 1986— 
(A) on the complete surrender, redemption, or maturity 
of such policy or contract during calendar year 1996, 1997, 
or 1998, or 
(B) in full discharge during any such calendar year 
of the obligation under the policy or contract which is 
in the nature of a refund of the consideration paid for 
the policy or contract, 
then (in lieu of any other inclusion in gross income) such 
amount shall be includible in gross income ratably over the 
4-t2ixable year period beginning with the taxable year such 
amount would (but for this paragraph) be includible. The 
preceding sentence shall only apply to the extent the amount 
is includible in gross income for the taxable year in which 
the event described in subparagraph (A) or (B) occurs. 
(2) SPECIAL RULES FOR APPLYING SECTION 264.—A contract 
shall not be treated as— 
(A) failing to meet the requirement of section 264(c)(1) 
of the Internal Revenue Code of 1986, or 
(B) a single premium contract under section 264(b)(1) 
of such Code, 
solely by reason of an occurrence described in subparagraph 
(A) or (B) of paragraph (1) of this subsection or solely by 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2093 
reason of no additional premiums being received under the 
contract by reason of a lapse occurring after October 13, 1995. 
(3) SPECIAL RULE FOR DEFERRED ACQUISITION COSTS.—In 
the case of the occurrence of any event described in subpara-
graph (A) or (B) of paragraph (1) of this subsection with respect 
to any policy or contract— 
(A) section 848 of the Internal Revenue Code of 1986 
shall not apply to the unamortized balance (if any) of 
the specified policy acquisition expenses attributable to 
such policy or contract immediately before the insurance 
compan^s taxable year in which such event occurs, and 
(B) there shall be allowed as a deduction to such com-
pany for such taxable year under chapter 1 of such Code 
an amount equal to such unamortized balance. 
Subtitle B—Treatment of Individuals Who 
Lose United States Citizenship 
SEC. 511. REVISION OF INCOME, ESTATE, AND GIFT TAXES ON 
INDIVIDUALS WHO LOSE UNITED STATES CITIZENSHIP. 
(a) IN GENERAL.—Subsection (a) of section 877 is amended 
to read as follows: 
"(a) TREATMENT OF EXII'ATRIATES.— 
"(1) IN GENERAL.—Every nonresident alien individual who, 
within the 10-year period immediately preceding the close of 
the taxable year, lost United States citizenship, unless such 
loss did not have for one of its principal purposes the avoidance 
of taxes under this subtitle or subtitle B, shall be taxable 
for such taxable year in the msinner provided in subsection 
(b) if the tax imposed pursuant to such subsection exceeds 
the tax which, without regard to this section, is imposed pursu-
ant to section 871. 
"(2) CERTAIN INDIVIDUALS TREATED AS HAVING TAX AVOID-
ANCE PURPOSE.—For purposes of paragraph (1), an individual 
shall be treated as having a principal purpose to avoid such 
taxes if— 
"(A) the average annual net income tax (as defined 
in section 38(c)(1)) of such individual for the period of 
5 taxable years ending before the date of the loss of United 
States citizenship is greater than $100,000, or 
"(B) the net worth of the individual as of such date 
is $500,000 or more. 
In the case of the loss of United States citizenship in any 
calendar year after 1996, such $100,000 and $500,000 amounts 
shall be increased by an amount equal to such dollar amount 
multiplied by the cost-of-living adjustment determined under 
section 1(f)(3) for such calendar year by substituting '1994' 
for '1992' in subparagraph (B) thereof. Any increase under 
the preceding sentence shall be rounded to the nearest multiple 
of $1,000.". 
(b) EXCEPTIONS.— 
(1) IN GENERAL.—Section 877 is amended by striking sub-
section (d), by redesignating subsection (c) as subsection (d), 
and by inserting after subsection (b) the following new sub-
section: 
"(c) TAX AVOIDANCE NOT PRESUMED IN CERTAIN CASES.— 
110 STAT. 2094 
PUBLIC LAW 104-191—AUG. 21, 1996 
"(1) IN GENERAL.—Subsection (a)(2) shall not apply to an 
individual if— 
"(A) such individual is described in a subparagraph 
of paragraph (2) of this subsection, and 
"(B) within the 1-year period beginning on the date 
of the loss of United States citizenship, such individual 
submits a ruling request for the Secretary's determination 
as to whether such loss has for one of its principal purposes 
the avoidance of taxes under this subtitle or subtitle B. 
"(2) INDIVIDUALS DESCRIBED.— 
"(A) 
DUAL 
CITIZENSHIP, 
ETC.—An 
individual 
is 
described in this subparagraph if— 
"(i) the individual became at birth a citizen 
of the United States and a citizen of another country 
and continues to be a citizen of such other country, 
or 
"(ii) the individual becomes (not later than the 
close of a reasonable period after loss of United States 
citizenship) a citizen of the country in which— 
"(I) such individual was born, 
"(II) if such individual is married, such indi-
vidual's spouse was born, or 
"(III) either of such individual's parents were 
bom. 
"(B) LONG-TERM FOREIGN RESIDENTS.—An individual 
is described in this subparagraph if, for each year in the 
10-year period ending on the date of loss of United States 
citizenship, the individual was present in the United States 
for 30 days or less. The rule of section 7701(b)(3)(D)(ii) 
shall apply for purposes of this subparagraph. 
"(C) 
RENUNCIATION UPON REACHING AGE OF MAJOR-
ITY.—^An individual is described in this subparagraph if 
the individual's loss of United States citizenship occurs 
before such individual attains age I8V2. 
"(D) 
INDIVIDUALS 
SPECIFIED 
IN 
REGULATIONS.—An 
individual is described in this subparagraph if the indi-
vidual is described in a category of individuals prescribed 
by regulation by the Secretary.". 
(2) TECHNICAL AMENDMENT.—Paragraph (1) of section 
877(b) of such Code is £imended by striking "subsection (c)" 
and inserting "subsection (d)". 
(c) TREATMENT OF PROPERTY DISPOSED OF IN NONRECOGNITION 
TRANSACTIONS; TREATMENT OF DISTRIBUTIONS FROM CERTAIN CON-
TROLLED FOREIGN CORPORATIONS.—Subsection (d) of section 877, 
as redesignated by subsection (b), is amended to read as follows: 
"(d) SPECIAL RULES FOR SOURCE, ETC.—For purposes of sub-
section (b)— 
"(1) SOURCE RULES.—^The following items of gross income 
shall be treated as income from sources within the United 
States: 
"(A) SALE OF PROPERTY.—Gains on the sale or exchange 
of property (other than stock or debt obligations) located 
in the United States. 
"(B) STOCK OR DEBT OBLIGATIONS.—Gains on the sale 
or exchange of stock issued by a domestic corporation or 
debt obligations of United States persons or of the United 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2095 
States, a State or political subdivision thereof, or the Dis-
trict of Columbia. 
"(C) 
INCOME OR GAIN DERIVED FROM CONTROLLED 
FOREIGN CORPORATION.—^Any income or gain derived from 
stock in a foreign corporation but only— 
"(i) if the individual losing United States citizen-
ship owned (within the meaning of section 958(a)), 
or is considered as owning (by applying the ownership 
rules of section 958(b)), at any time during the 2-
year period ending on the date of the loss of United 
States citizenship, more than 50 percent of— 
"(I) the total combined voting power of all 
classes of stock entitled to vote of such corpora-
tion, or 
"(II) the total value of the stock of such cor-
poration, Eind 
"(ii) to the extent such income or gain does not 
exceed the earnings and profits attributable to such 
stock which were earned or accumulated before the 
loss of citizenship and during periods that the owner-
ship requirements of clause (i) are met. 
"(2) GAIN RECOGNITION ON CERTAIN EXCHANGES.— 
"(A) IN GENERAL.—In the case of any exchange of prop-
erty to which this paragraph applies, notwithstanding any 
other provision of this title, such property shall be treated 
as sold for its iiair market value on the date of such 
exchange, and any gain shall be recognized for the taxable 
year which includes such date. 
"(B) EXCHANGES TO WHICH PARAGRAPH APPLIES.—This 
paragraph shall apply to any exchange during the 10-
year period described in subsection (a) if— 
"(i) gain would not (but for this paragraph) be 
recognized on such exchange in whole or in part for 
purposes of this subtitle, 
"(ii) income derived from such property was from 
sources within the United States (or, if no income 
was so derived, would have been from such sources), 
and 
"(iii) income derived from the property acquired 
in the exchange would be from sources outside the 
United States. 
"(C) EXCEPTION.—Subparagraph (A) shall not apply 
if the individual enters into an agreement with the Sec-
retary which specifies that any income or gain derived 
from the property acquired in the exchange (or any other 
property which has a basis determined in whole or part 
by reference to such property) during such 10-year period 
shall be treated as from sources within the United States. 
If the property transferred in the exchange is disposed 
of by the person acquiring such property, such agreement 
shall terminate and any gain which was not recognized 
by reason of such agreement shall be recognized as of 
the date of such disposition. 
"(D) SECRETARY MAY EXTEND PERIOD.—To the extent 
provided in regulations prescribed by the 
Secretary, 
subparagraph (B) shall be applied by substituting the 15-
110 STAT. 2096 
PUBLIC LAW 104-191—AUG. 21, 1996 
year period beginning 5 years before the loss of United 
States citizenship for the 10-year period referred to therein. 
"(E) SECRETARY MAY REQUIRE RECOGNITION OF GAIN 
IN CERTAIN CASES.—To the extent provided in regulations 
prescribed by the Secretary— 
"(i) the removal of appreciated tangible personal 
property from the United States, and 
"(ii) any other occurrence which (without recogni-
tion of gain) results in a change in the source of the 
income or gain from property from sources within the 
United States to sources outside the United States, 
shall be treated as an exchange to which this paragraph 
applies. 
"(3) SUBSTANTIAL DIMINISHING OF RISKS OF OWNERSHIP.— 
For purposes of determining whether this section applies to 
any gain on the sale or exchange of any property, the running 
of the 10-year period described in subsection (a) shall be 
suspended for any period during which the individual's risk 
of loss with respect to the property is substantially diminished 
b y -
"(A) the holding of a put with respect to such property 
(or similar property), 
"(B) the holding by another person of a right to acquire 
the property, or 
"(C) a short sale or any other transaction. 
"(4) TREATMENT OF PROPERTY CONTRIBUTED TO CONTROLLED 
FOREIGN CORPORATIONS.— 
"(A) IN GENERAL.—If— 
"(i) an individual losing United States citizenship 
contributes property to any corporation which, at the 
time of the contribution, is described in subparagraph 
(B), and 
"(ii) income derived from such property was from 
sources within the United States (or, if no income 
was so derived, would have been from such sources), 
during the 10-year period referred to in subsection (a), 
any income or gain on such property (or any other property 
which has a basis determined in whole or part by reference 
to such property) received or accrued by the corporation 
shall be treated as received or accrued directly by such 
individual and not by such corporation. The preceding sen-
tence shall not apply to the extent the property has been 
treated under subparagraph (C) as having been sold by 
such corporation. 
"(B) 
CORPORATION 
DESCRIBED.—A 
corporation 
is 
described in this subparagraph with respect to an individ-
ual if, were such individual a United States citizen— 
"(i) such corporation would be a controlled foreign 
corporation (as defined in 957), and 
"(ii) such individual would be a United States 
shareholder (as defined in section 951(b)) with respect 
to such corporation. 
"(C) DISPOSITION OF STOCK IN CORPORATION.—If stock 
in the corporation referred to in subparagraph (A) (or any 
other stock which has a basis determined in whole or 
part by reference to such stock) is disposed of during the 
10-year period referred to in subsection (a) and while the 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2097 
property referred to in subparagraph (A) is held by such 
corporation, a pro rata share of such property (determined 
on the basis of the value of such stock) shall be treated 
as sold by the corporation immediately before such disposi-
tion. 
"(D) ANTI-ABUSE RULES.—The Secretary shall prescribe 
such regulations as may be necessary to prevent the avoid-
ance of the purposes of this paragraph, including where— 
"(i) the property is sold to the corporation, and 
"(ii) the property taken 
into account 
under 
subparagraph (A) is sold by the corporation. 
"(E) INFORMATION REPORTING.—The Secretary shall 
require such information reporting as is necessary to carry 
out the purposes of this paragraph.". 
(d) CREDIT FOR FOREIGN TAXES IMPOSED ON UNITED STATES 
SOURCE INCOME.— 
(1) Subsection (b) of section 877 is amended by adding 
at the end the following new sentence: "The tax imposed solely 
by reason of this section shall be reduced (but not below zero) 
by the amount of any income, war profits, and excess profits 
taxes (within the meaning of section 903) paid to any foreign 
country or possession of the United States on any income 
of the taxpayer on which tax is imposed solely by reason of 
this section." 
(2) Subsection (a) of section 877, as amended by subsection 
(a), is amended by inserting "(after any reduction in such 
tax under the last sentence of such subsection)" after "such 
subsection". 
(e) COMPARABLE ESTATE AND GIFT TAX TREATMENT.— 
(1) ESTATE TAX.— 
(A) IN GENERAL.—Subsection (a) of section 2107 is 
amended to read as follows: 
"(a) TREATMENT OF EXPATRIATES.— 
"(1) RATE OF TAX.—^A tax computed in accordance with 
the table contained in section 2001 is hereby imposed on the 
transfer of the taxable estate, determined as provided in section 
2106, of every decedent nonresident not a citizen of the United 
States if, within the 10-year period ending with the date of 
death, such decedent lost United States citizenship, unless 
such loss did not have for one of its principal purposes the 
avoidance of taxes under this subtitle or subtitle A. 
"(2) 
CERTAIN 
INDIVIDUALS 
TREATED 
AS 
HAVING TAX 
AVOIDANCE PURPOSE.— 
"(A) IN GENERAL.—For purposes of paragraph (1), £in 
individual shall be treated as having a principal purpose 
to avoid such taxes if such individual is so treated under 
section 877(a)(2). 
"(B) EXCEPTION.—Subparagraph (A) shall not apply 
to a decedent meeting the requirements of section 
877(c)(1).". 
(B) CREDIT FOR FOREIGN DEATH TAXES.—Subsection (c) 
of section 2107 is amended by redesignating paragraph 
(2) as paragraph (3) and by inserting after paragraph (1) 
the following new paragraph: 
"(2) CREDIT FOR FOREIGN DEATH TAXES.— 
"(A) IN GENERAL.—The tax imposed by subsection (a) 
shall be credited with the amount of any estate, inherit-
110 STAT. 2098 
PUBLIC LAW 104-191—AUG. 21, 1996 
ance, legacy, or succession taxes actually paid to any foreign 
country in respect of any property which is included in 
the gross estate solely by reason of subsection (b). 
"(B) LIMITATION ON CREDIT.—The credit allowed by 
subparagraph (A) for such taxes paid to a foreign country 
shall not exceed the lesser o
f
— 
"(i) the amount which bears the same ratio to 
the amount of such taxes actually paid to such foreign 
country in respect of property included in the gross 
estate as the value of the property included in the 
gross estate solely by reason of subsection (b) bears 
to the value of all property subjected to such taxes 
by such foreign country, or 
"(ii) such property's proportionate share of the 
excess o
f
— 
"(I) the tax imposed by subsection (a), over 
"(II) the tax which would be imposed by section 
2101 but for this section. 
"(C) PROPORTIONATE SHARE.—For purposes of subpara-
graph (B), a property's proportionate share is the percent-
age of the value of the property which is included in the 
gross estate solely by reason of subsection (b) bears to 
the total value of the gross estate.". 
(C) EXPANSION OF INCLUSION IN GROSS ESTATE OF 
STOCK OF FOREIGN CORPORATIONS.—Paragraph (2) of section 
2107(b) is amended by striking "more than 50 per-
cent of" and all that follows and inserting "more than 
50 percent o
f
— 
"(A) the total combined voting power of all classes 
of stock entitled to vote of such corporation, or 
"(B) the total value of the stock of such corporation,". 
(2) GIFT TAX.— 
(A) IN GENERAL.—Paragraph (3) of section 2501(a) is 
amended to read as follows: 
"(3) EXCEPTION.— 
"(A) CERTAIN INDIVIDUALS.—Paragraph (2) shall not 
apply in the case of a donor who, within the 10-year period 
ending with the date of transfer, lost United States citizen-
ship, unless such loss did not have for one of its principal 
purposes the avoidance of taxes under this subtitle or sub-
title A. 
"(B) CERTAIN INDIVIDUALS TREATED AS HAVING TAX 
AVOIDANCE PURPOSE.—For purposes of subparagraph (A), 
an individual shall be treated as having a principal purpose 
to avoid such taxes if such individual is so treated under 
section 877(a)(2). 
"(C) EXCEPTION FOR CERTAIN INDIVIDUALS.—Subpara-
graph (B) shall not apply to a decedent meeting the require-
ments of section 877(c)(1). 
"(D) 
CREDIT FOR FOREIGN 
GIFT 
TAXES.—The 
tax 
imposed by this section solely by reason of this paragraph 
shall be credited with the amount of any gift tax actually 
paid to any foreign country in respect of any gift which 
is taxable under this section solely by reason of this para-
graph.". 
(f) COMPARABLE TREATMENT OF LAWFUL PERMANENT RESIDENTS 
WHO CEASE TO BE TAXED AS RESIDENTS.— 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2099 
(1) IN GENERAL.—Section 877 is amended by redesignating 
subsection (e) as subsection (f) and by inserting after subsection 
(d) the following new subsection: 
"(e) 
COMPARABLE TREATMENT OF LAWFUL PERMANENT RESI-
DENTS WHO CEASE TO BE TAXED AS RESIDENTS.— 
"(1) IN GENERAL.—^Any long-term resident of the United 
States who— 
"(A) ceases to be a lawful permanent resident of 
the 
United 
States 
(within 
the 
meaning 
of 
section 
7701(b)(6)), or 
"(B) commences to be treated as a resident of a foreign 
country under the provisions of a tax treaty between the 
United States and the foreign country and who does not 
waive the benefits of such treaty applicable to residents 
of the foreign country, 
shall be treated for purposes of this section and sections 2107, 
2501, and 6039F in the same manner as if such resident were 
a citizen of the United States who lost United States citizenship 
on the date of such cessation or commencement. 
"(2) LONG-TERM RESIDENT.—For purposes of this subsection, 
the term 'long-term resident' means any individual (other than 
a citizen of the United States) who is a lawful permanent 
resident of the United States in at least 8 taxable years during 
the period of 15 taxable years ending with the taxable year 
during which the event described in subparagraph (A) or (B) 
of paragraph (1) occurs. For purposes of the preceding sentence, 
an individual shall not be treated as a lawful permanent resi-
dent for any taxable year if such individual is treated as a 
resident of a foreign country for the taxable year under the 
provisions of a tax treaty between the United States and the 
foreign country and does not waive the benefits of such treaty 
applicable to residents of the foreign country. 
"(3) SPECIAL RULES.— 
"(A) EXCEPTIONS NOT TO APPLY.—Subsection (c) shall 
not apply to an individual who is treated as provided 
in paragraph (1). 
"(B) STEP-UP IN BASIS.—Solely for purposes of deter-
mining any tax imposed by reason of this subsection, prop-
erty which was held by the long-term resident on the 
date the individual first became a resident of the United 
States shall be treated as having a basis on such date 
of not less than the fair market value of such property 
on such date. The preceding sentence shall not apply if 
the individual elects not to have such sentence apply. Such 
an election, once made, shall be irrevocable. 
"(4) AUTHORITY TO EXEMPT INDIVIDUALS.—This subsection 
shall not apply to an individual who is described in a category 
of individuals prescribed by regulation by the Secretary. 
"(5) REGULATIONS.—The Secretary shall prescribe such 
regulations as may be appropriate to carry out this subsection, 
including regulations pro/iding for the application of this sub-
section in cases where an alien individual becomes a resident 
of the United States during the 10-year period after being 
treated as provided in paragraph (1).". 
(2) CONFORMING AMENDMENTS.— 
(A) Section 2107 is amended by striking subsection 
(d), by redesignating subsection (e) as subsection (d), and 
110 STAT. 2100 
PUBLIC LAW 104-191—AUG. 21, 1996 
by inserting after subsection (d) (as so redesignated) the 
following new subsection: 
"(e) CROSS REFERENCE.— 
"For comparable treatment of long-term lawful permanent residents who 
ceased to be taxed as residents, see section 877(e).". 
(B) Paragraph (3) of section 2501(a) (as amended by 
subsection (e)) is amended by adding at the end the follow-
ing new subparagraph: 
"(E) CROSS REFERENCE.— 
Tor comparable treatment of long-term lawful permanent residents who 
ceased to be taxed as residents, see section 877(e).". 
26 use 877 note. 
(g) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by this section 
shall apply to— 
(A) individuals losing United States citizenship (within 
the meaning of section 877 of the Internal Revenue Code 
of 1986) on or after February 6, 1995, and 
(B) long-term residents of the United States with 
respect to whom an event described in subparagraph (A) 
or (B) of section 877(e)(1) of such Code occurs on or after 
February 6, 1995. 
(2) RULING REQUESTS.—In no event shall the 1-year period 
referred to in section 877(c)(1)(B) of such Code, as amended 
by this section, expire before the date which is 90 days after 
the date of the enactment of this Act. 
(3) SPECIAL RULE.— 
(A) IN GENERAL.—In the case of an individual who 
performed an act of expatriation specified in paragraph 
(1), (2), (3), or (4) of section 349(a) of the Immigration 
and Nationality Act (8 U.S.C. 1481(a)(l)-(4)) before Feb-
ruary 6, 1995, but who did not, on or before such date, 
furnish to the United States Department of State a signed 
statement of voluntary relinquishment of United States 
nationality confirming the performance of such act, the 
amendments made by this section and section 512 shall 
apply to such individual except that the 10-year period 
described in section 877(a) of such Code shall not expire 
before the end of the 10-year period beginning on the 
date such statement is so fiimished. 
(B) EXCEPTION.—Subparagraph (A) shall not apply if 
the individual establishes to the satisfaction of the Sec-
retary of the Treasury that such loss of United States 
citizenship occurred before February 6, 1994. 
SEC. 512. INFORMATION ON INDIVIDUALS LOSING UNITED STATES 
CITIZENSHIP. 
(a) IN GENERAL.—Subpart A of part III of subchapter A of 
chapter 61 is amended by inserting after section 6039E the following 
new section: 
"SEC, 6039F. INFORMATION ON INDIVIDUALS LOSING UNITED STATES 
CITIZENSHIP. 
"(a) IN GENERAL.—Notwithstanding any other provision of law, 
any individual who loses United 
States 
citizenship 
(within 
the meaning of section 877(a)) shall provide a statement which 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2101 
includes the information described in subsection (b). Such statement 
shall be— 
"(1) provided not later than the earliest date of any act 
referred to in subsection (c), and 
"(2) provided to the person or court referred to in subsection 
(c) with respect to such act. 
"(b) 
INFORMATION TO BE PROVIDED.—Information required 
under subsection (a) shall include— 
"(1) the taxpayer's TIN, 
"(2) the mailing address of such individual's principal for-
eign residence, 
"(3) the foreign country in which such individual is residing, 
"(4) the foreign country of which such individual is a citizen, 
"(5) in the case of an individual having a net worth of 
at least the dollar amount applicable under section 877(a)(2)(B), 
information detailing the assets £ind liabilities of such individ-
ual, and 
"(6) such other information as the Secretary may prescribe. 
"(c) ACTS DESCRIBED.—For purposes of this section, the acts 
referred to in this subsection are— 
"(1) the individual's renunciation of his United States 
nationality before a diplomatic or consular officer of the United 
States pursuant to paragraph (5) of section 349(a) of the 
Immigration and Nationality Act (8 U.S.C. 1481(a)(5)), 
"(2) the individual's furnishing to the United States Depart-
ment of State a signed statement of voluntary relinquishment 
of United States nationality confirming the performance of 
an act of expatriation specified in paragraph (1), (2), (3), or 
(4) of section 349(a) of the Immigration and Nationality Act 
(8 U.S.C. 1481(a)(l)-(4)), 
"(3) the issuance by the United States Department of State 
of a certificate of loss of nationality to the individual, or 
"(4) the cancellation by a court of the United States of 
a naturalized citizen's certificate of naturalization. 
"(d) PENALTY.—Any individual failing to provide a statement 
required under subsection (a) shall be subject to a penalty for 
each year (of the 10-year period beginning on the date of loss 
of United States citizenship) during any portion of which such 
failure continues in an amount equal to the greater o
f
— 
"(1) 5 percent of the teix required to be paid under section 
877 for the taxable year ending during such year, or 
"(2) $1,000, 
unless it is shown that such failure is due to reasonable cause 
and not to willful neglect. 
"(e) INFORMATION TO BE PROVIDED TO SECRETARY.—Notwith-
standing any other provision of law— 
"(1) any Federal agency or court which collects (or is 
required to collect) the statement under subsection (a) shall 
provide to the Secretary— 
"(A) a copy of anjrsuch statement, and 
"(B) the name (and any other identifying information) 
of any individual refusing to comply with the provisions 
of subsection (a), 
"(2) the Secretary of State shall provide to the Secretary 
a copy of each certificate as to the loss of American nationality 
under section 358 of the Immigration and Nationality Act which 
is approved by the Secretary of State, and 
110 STAT. 2102 
PUBLIC LAW 104-191—AUG. 21, 1996 
26 u s e 6039F 
note. 
"(3) the Federal agency primarily responsible for admin-
istering the immigration laws shall provide to the Secretary 
the name of each lawful permanent resident of the United 
States (within the meaning of section 7701(b)(6)) whose status 
as such has been revoked or has been administratively or 
judicially determined to have been abandoned. 
Notwithstanding any other provision of law, not later than 30 
days after the close of each calendar quarter, the Secretary shall 
publish in the Federal Register the name of each individual losing 
United States citizenship (within the meaning of section 877(a)) 
with respect to whom the Secretary receives information under 
the preceding sentence during such quarter. 
"(f) REPORTING BY LONG-TERM LAWFUL PERMANENT RESIDENTS 
WHO 
CEASE TO BE TAXED AS RESIDENTS.—In lieu of applying the 
last sentence of subsection (a), any individual who is required 
to provide a statement under this section by reason of section 
877(e)(1) shall provide such statement with the return of tax 
imposed by chapter 1 for the taxable year during which the event 
described in such section occurs. 
"(g) EXEMPTION.—The Secretary may by regulations exempt 
any class of individuals from the requirements of this section if 
he determines that applying this section to such individuals is 
not necessary to carry out the purposes of this section.". 
(b) CLERICAL AMENDMENT.—The table of sections for such sub-
part A is amended by inserting after the item relating to section 
6039E the following new item: 
"Sec. 6039F. Information on individuals losing United States citizenship.", 
(c) EFFECTIVE DATE,—The amendments made by this section 
shall apply to— 
(1) individuals losing United States citizenship (within the 
meaning of section 877 of the Internal Revenue Code of 1986) 
on or after February 6, 1995, and 
(2) long-term residents of the United States with respect 
to whom an event described in subparagraph (A) or (B) of 
section 877(e)(1) of such Code occurs on or after such date. 
In no event shall any statement required by such amendments 
be due before the 90th day after the date of the enactment of 
this Act. 
SEC. 513. REPORT ON TAX COMPLIANCE BY UNITED STATES CITIZENS 
AND RESIDENTS LIVING ABROAD. 
Not later than 90 days after the date of the enactment of 
this Act, the Secretary of the Treasury shall prepare and submit 
to the Committee on Ways and Means of the House of Representa-
tives and the Committee on Finance of the Senate a report— 
(1) describing the compliance with subtitle A of the Internal 
Revenue Code of 1986 by citizens and lawful permanent resi-
dents of the United States (within the meaning of section 
7701(b)(6) of such Code) residing outside the United States, 
and 
(2) recommending measures to improve such compliance 
(including improved coordination between executive branch 
agencies). 
PUBLIC LAW 104-191—AUG. 21, 1996 
110 STAT. 2103 
Subtitle C—Repeal of Financial Institution 
Transition Rule to Interest Allocation 
Rules 
SEC. 521. REPEAL OF FINANCIAL INSTITUTION TRANSITION RULE TO 
INTEREST ALLOCATION RULES. 
(a) IN GENERAL.—^Paragraph (5) of section 1215(c) of the Tax 
Reform Act of 1986 (Public Law 99-514, 100 Stat. 2548) is hereby 
26 USC 864 note, 
repealed. 
(b) EFFECTIVE DATE.— 
26 use 864 note. 
(1) IN GENERAL.—^The amendment made by this section 
shall apply to taxable years beginning after December 31, 1995. 
(2) SPECIAL RULE.—In the case of the first taxable year 
beginning after December 31, 1995, the pre-effective date por-
tion of the interest expense of the corporation referred to in 
such paragraph (5) of such section 1215(c) for such taxable 
year shall be allocated and apportioned without regard to such 
amendment. For purposes of the preceding sentence, the pre-
effective date portion is the amount which bears the same 
ratio to the interest expense for such taxable year as the 
number of days during such taxable year before the date of 
the enactment of this Act bears to 366. 
Approved August 21, 1996. 
LEGISLATIVE HISTORY—H.R. 3103 (S. 1028) (S. 1698): 
HOUSE REPORTS: Nos. 104-496, Pt. 1 (Comm. on Ways and Means) and 104-736 
(Comm. of Conference). 
SENATE REPORTS: No. 104-156 accompanying S. 1028 (Comm. on Labor and 
Human Resources). 
CONGRESSIONAL RECORD, Vol. 142 (1996): 
Mar. 28, considered and passed House. 
Apr. 18, 23, considered and passed Senate, amended, in lieu of S. 1028. 
Aug. 1, House agreed to conference report. 
Aug. 2, Senate agreed to conference report. 
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 32 (1996): 
Aug. 21, Presidential remarks and statement.