[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2816 Introduced in House (IH)]

103d CONGRESS
  1st Session
                                H. R. 2816

    To amend the Internal Revenue Code of 1986 with respect to the 
treatment of long-term care insurance policies, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 30, 1993

Mrs. Johnson of Connecticut (for herself, Mr. Goss, Mr. Bilirakis, and 
   Mr. Sundquist) introduced the following bill; which was referred 
  jointly to the Committees on Ways and Means and Energy and Commerce

_______________________________________________________________________

                                 A BILL


 
    To amend the Internal Revenue Code of 1986 with respect to the 
treatment of long-term care insurance policies, 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) In General.--This Act may be cited as the ``Long-Term Care 
Security Act of 1993''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Section 1. Short title; table of contents.
           TITLE I--TAX TREATMENT OF LONG-TERM CARE INSURANCE

Sec. 101. Treatment of long-term care insurance or plans.
Sec. 102. Exclusion for benefits provided under long-term care 
                            insurance; inclusion of employer-provided 
                            coverage.
Sec. 103. Qualified long-term services treated as medical care.
Sec. 104. Certain exchanges of life insurance contracts for long-term 
                            care insurance contracts not taxable.
Sec. 105. Exclusion from gross income for amounts withdrawn from 
                            individual retirement plans or 401(k) plans 
                            for long-term care insurance.
Sec. 106. Tax treatment of accelerated death benefits under life 
                            insurance contracts.
Sec. 107. Effective date.
TITLE II--PROTECTION OF ASSETS UNDER MEDICAID THROUGH USE OF QUALIFIED 
                        LONG-TERM CARE INSURANCE

Sec. 201. Protection of assets through use of qualified long-term care 
                            insurance.

           TITLE I--TAX TREATMENT OF LONG-TERM CARE INSURANCE

SEC. 101. TREATMENT OF LONG-TERM CARE INSURANCE OR PLANS.

    (a) General Rule.--Subpart E of part I of subchapter L of chapter 1 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 818 the following new section:

``SEC. 818A. TREATMENT OF LONG-TERM CARE INSURANCE OR PLANS.

    ``(a) General Rule.--For purposes of this part, a long-term care 
insurance contract shall be treated as an accident or health insurance 
contract.
    ``(b) Long-Term Care Insurance Contract.--
            ``(1) In general.--For purposes of this part, the term 
        `long-term care insurance contract' means any insurance 
        contract issued if--
                    ``(A) the only insurance protection provided under 
                such contract is coverage of qualified long-term care 
                services and benefits incidental to such coverage,
                    ``(B) the maximum benefit under the policy for 
                expenses incurred for any day does not exceed $200,
                    ``(C) such contract does not cover 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,
                    ``(D) such contract is guaranteed renewable,
                    ``(E) such contract does not have any cash 
                surrender value, and
                    ``(F) all refunds of premiums, and all policyholder 
                dividends or similar amounts, under such contract are 
                to be applied as a reduction in future premiums or to 
                increase future benefits.
            ``(2) Special rules.--
                    ``(A) Per diem, etc. payments permitted.--A 
                contract shall not fail to be treated as described in 
                paragraph (1)(A) by reason of payments being made on a 
                per diem or other periodic basis without regard to the 
                expenses incurred during the period to which the 
                payments relate.
                    ``(B) Contract may cover medicare reimbursable 
                expenses where medicare is secondary payor.--Paragraph 
                (1)(C) shall not apply to expenses which are 
                reimbursable under title XVIII of the Social Security 
                Act only as a secondary payor.
                    ``(C) Refunds of premiums.--Paragraph (1)(F) shall 
                not apply to any refund of premiums on surrender or 
                cancellation of the contract.
    ``(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, 
        and rehabilitative services, and maintenance or personal care 
        services, which--
                    ``(A) are required by a chronically ill individual 
                in a qualified facility, 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)(I) being unable to perform (without 
                        substantial assistance from another individual) 
                        at least 2 activities of daily living (as 
                        defined in subparagraph (B)) for a period of at 
                        least 90 days due to a loss of functional 
                        capacity, or
                            ``(II) having a level of disability similar 
                        (as determined by the Secretary in consultation 
                        with the Secretary of Health and Human 
                        Services) to the level of disability described 
                        in subclause (I), or
                            ``(ii) having a similar level of disability 
                        due to cognitive impairment.
                    ``(B) Activities of daily living.--For purposes of 
                subparagraph (A), each of the following is an activity 
                of daily living:
                            ``(i) Mobility.--The process of walking or 
                        wheeling on a level surface which may include 
                        the use of an assistive device such as a cane, 
                        walker, wheelchair, or brace.
                            ``(ii) Dressing.--The overall complex 
                        behavior of getting clothes from closets and 
                        drawers and then getting dressed.
                            ``(iii) Toileting.--The act of going to the 
                        toilet room for bowel and bladder function, 
                        transferring on and off the toilet, cleaning 
                        after elimination, and arranging clothes or the 
                        ability to voluntarily control bowel and 
                        bladder function, or in the event of 
                        incontinence, the ability to maintain a 
                        reasonable level of personal hygiene.
                            ``(iv) Transfer.--The process of getting in 
                        and out of bed or in and out of a chair or 
                        wheelchair.
                            ``(v) Eating.--The process of getting food 
                        from a plate or its equivalent into the mouth.
            ``(3) Qualified facility.--The term `qualified facility' 
        means--
                    ``(A) a nursing, rehabilitative, hospice, or adult 
                day care facility (including a hospital, retirement 
                home, nursing home, skilled nursing facility, 
                intermediate care facility, or similar institution)--
                            ``(i) which is licensed under State law, or
                            ``(ii) which is a certified facility for 
                        purposes of title XVIII or XIX of the Social 
                        Security Act, or
                    ``(B) an individual's home if a licensed health 
                care practitioner certifies that without home care the 
                individual would have to be cared for in a facility 
                described in subparagraph (A).
            ``(4) Maintenance or personal care services.--The term 
        `maintenance or personal care services' means any care the 
        primary purpose of which is to provide needed assistance with 
        any of the activities of daily living described in paragraph 
        (2)(B).
            ``(5) Licensed health care practitioner.--The term 
        `licensed health care practitioner' means any physician (as 
        defined in section 1861(r) of the Social Security Act) and any 
        registered professional nurse, licensed social worker, or other 
        individual who meets such requirements as may be prescribed by 
        the Secretary.
    ``(d) Continuation Coverage Excise Tax Not To Apply.--This section 
shall not apply in determining whether section 4980B (relating to 
failure to satisfy continuation coverage requirements of group health 
plans) applies.
    ``(e) Inflation Adjustment of $200 Benefit Limit.--
            ``(1) In general.--In the case of a calendar year after 
        1994, the $200 amount contained in subsection (b)(1)(B) shall 
        be increased for such calendar year by the medical care cost 
        adjustment for such calendar year. If any increase determined 
        under the preceding sentence is not a multiple of $10, such 
        increase shall be rounded to the nearest multiple of $10.
            ``(2) Medical care cost adjustment.--For purposes of 
        paragraph (1), the medical care cost adjustment for any 
        calendar year is the percentage (if any) by which--
                    ``(A) the medical care component of the Consumer 
                Price Index (as defined in section 1(f)(5)) for August 
                of the preceding calendar year, exceeds
                    ``(B) such component for August of 1993.''
    (b) Clerical Amendment.--The table of sections for such subpart E 
is amended by inserting after the item relating to section 818 the 
following new item:

                              ``Sec. 818A. Treatment of long-term care 
                                        insurance or plans.''

SEC. 102. EXCLUSION FOR BENEFITS PROVIDED UNDER LONG-TERM CARE 
              INSURANCE; INCLUSION OF EMPLOYER-PROVIDED COVERAGE.

    (a) In General.--Subsection (a) of section 104 of the Internal 
Revenue Code of 1986 (relating to compensation for injuries or 
sickness) is amended by striking ``and'' at the end of paragraph (4), 
by striking the period at the end of paragraph (5) and inserting ``, 
and'', and by inserting after paragraph (4) the following new 
paragraph:
            ``(6) benefits under a long-term care insurance contract 
        (as defined in section 818A(b)).''
    (b) Inclusion of Employer-Provided Coverage.--Section 106 of such 
Code (relating to contributions by employer to accident and health 
plans) is amended by adding at the end thereof the following sentence: 
``The preceding sentence shall not apply to any plan providing coverage 
for long-term care services.''

SEC. 103. QUALIFIED LONG-TERM SERVICES TREATED AS MEDICAL CARE.

    (a) General Rule.--Paragraph (1) of section 213(d) of the Internal 
Revenue Code of 1986 (defining medical care) is amended by striking 
``or'' at the end of subparagraph (B), by redesignating subparagraph 
(C) as subparagraph (D), and by inserting after subparagraph (B) the 
following new subparagraph:
                    ``(C) for qualified long-term care services (as 
                defined in section 818A(c)), or''.
    (b) Deduction for Long-Term Care Expenses for Parent or 
Grandparent.--Section 213 of such Code (relating to deduction for 
medical expenses) is amended by adding at the end the following new 
subsection:
    ``(g) Special Rule for Certain Long-Term Care Expenses.--For 
purposes of subsection (a), the term `dependent' shall include any 
parent or grandparent of the taxpayer for whom the taxpayer has 
expenses for long-term care services described in section 818A(c), but 
only to the extent of such expenses.''
    (c) Technical Amendments.--
            (1) Subparagraph (D) of section 213(d)(1) of such Code (as 
        redesignated by subsection (a)) is amended by striking 
        ``subparagraphs (A) and (B)'' and inserting ``subparagraphs 
        (A), (B), and (C)''.
            (2)(A) Paragraph (1) of section 213(d) of such Code is 
        amended by adding at the end thereof the following new flush 
        sentence:
        ``In the case of a long-term care insurance contract (as 
        defined in section 818A), only eligible long-term care premiums 
        (as defined in paragraph (10)) shall be taken into account 
        under subparagraph (D).''
            (B) Subsection (d) of section 213 is amended by adding at 
        the end the following new paragraph:
            ``(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 long-term 
                care insurance contract (as defined in section 818A) 
                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....         1,600    
                More than 70.........................        2,000.    
                    ``(B) Indexing.--
                            ``(i) In general.--In the case of any 
                        taxable year beginning in a calendar year after 
                        1993, each dollar amount contained in paragraph 
                        (1) shall be increased by the medical care cost 
                        adjustment of such amount for such calendar 
                        year. If any increase determined 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 adjustment.--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 
                                1991.''
            (3) Paragraph (6) of section 213(d) of such Code is 
        amended--
                    (A) by striking ``subparagraphs (A) and (B)'' and 
                inserting ``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) of such Code is amended 
        by striking ``subparagraphs (A) and (B)'' and inserting 
        ``subparagraphs (A), (B), and (C)''.

SEC. 104. CERTAIN EXCHANGES OF LIFE INSURANCE CONTRACTS FOR LONG-TERM 
              CARE INSURANCE CONTRACTS NOT TAXABLE.

    Subsection (a) of section 1035 of the Internal Revenue Code of 1986 
(relating to certain exchanges of insurance contracts) is amended by 
striking the period at the end of paragraph (3) and inserting ``; or'', 
and by adding at the end thereof the following new paragraph:
            ``(4) a contract of life insurance or an endowment or 
        annuity contract for a long-term care insurance contract (as 
        defined in section 818A).''

SEC. 105. EXCLUSION FROM GROSS INCOME FOR AMOUNTS WITHDRAWN FROM 
              INDIVIDUAL RETIREMENT PLANS OR 401(k) PLANS FOR LONG-TERM 
              CARE INSURANCE.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically excluded 
from gross income) is amended by redesignating section 137 as section 
138 and by inserting after section 136 the following new section:

``SEC. 137. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS AND 
              SECTION 401(k) PLANS FOR LONG-TERM CARE INSURANCE.

    ``(a) General Rule.--The amount includible in the gross income of 
an individual for the taxable year by reason of qualified distributions 
during such taxable year shall not exceed the excess of--
            ``(1) the amount which would (but for this section) be so 
        includible by reason of such distributions, over
            ``(2) the aggregate premiums paid by such individual during 
        such taxable year for any long-term care insurance contract (as 
        defined in section 818A) for the benefit of such individual or 
        the spouse of such individual.
    ``(b) Qualified Distribution.--For purposes of this section, the 
term `qualified distribution' means any distribution to an individual 
from an individual retirement account or a section 401(k) plan if such 
individual has attained age 59\1/2\ on or before the date of the 
distribution (and, in the case of a distribution used to pay premiums 
for the benefit of the spouse of such individual, such spouse has 
attained age 59\1/2\ on or before the date of the distribution).
    ``(c) Definitions.--For purposes of this section--
            ``(1) Individual retirement account.--The term `individual 
        retirement account' has the meaning given such term by section 
        408(a).
            ``(2) Section 401(k) plan.--The term `section 401(k) plan' 
        means any employer plan which meets the requirements of section 
        401(a) and which includes a qualified cash or deferred 
        arrangement (as defined in section 401(k)).
    ``(d) Special Rules for Section 401(k) Plans.--
            ``(1) Withdrawals cannot exceed elective contributions 
        under qualified cash or deferred arrangement.--This section 
        shall not apply to any distribution from a section 401(k) plan 
        to the extent the aggregate amount of such distributions for 
        the use described in subsection (a) exceeds the aggregate 
        employer contributions made pursuant to the employee's election 
        under section 401(k)(2).
            ``(2) Withdrawals not to cause disqualification.--A plan 
        shall not be treated as failing to satisfy the requirements of 
        section 401, and an arrangement shall not be treated as failing 
        to be a qualified cash or deferred arrangement (as defined in 
        section 401(k)(2)), merely because under the plan or 
        arrangement distributions are permitted which are excludable 
        from gross income by reason of this section.''
    (b) Conforming Amendments.--
            (1) Section 401(k) of such Code is amended by adding at the 
        end the following new paragraph:
            ``(11) Cross reference.--

                                ``For provision permitting tax-free 
withdrawals for payment of long-term care premiums, see section 137.''
            (2) Section 408(d) of such Code is amended by adding at the 
        end the following new paragraph:
            ``(8) Cross reference.--

                                ``For provision permitting tax-free 
withdrawals from individual retirement accounts for payment of long-
term care premiums, see section 137.''
            (3) The table of sections for such part III is amended by 
        striking the last item and inserting the following new items:

                              ``Sec. 137. Distributions from individual 
                                        retirement accounts and section 
                                        401(k) plans for long-term care 
                                        insurance.
                              ``Sec. 138. Cross references to other 
                                        Acts.''

SEC. 106. TAX TREATMENT OF ACCELERATED DEATH BENEFITS UNDER LIFE 
              INSURANCE CONTRACTS.

    Section 101 of the Internal Revenue Code of 1986 (relating to 
certain death benefits) is amended by adding at the end thereof the 
following new subsection:
    ``(g) Treatment of Certain Accelerated Death Benefits.--
            ``(1) In general.--For purposes of this section, any amount 
        paid or advanced to an individual under a life insurance 
        contract on the life of an insured--
                    ``(A) who is a terminally ill individual, or
                    ``(B) who is a chronically ill individual (as 
                defined in section 818A(c)(2)) who is confined to a 
                qualified facility (as defined in section 
                818A(c)(3)(A)),
        shall be treated as an amount paid by reason of the death of 
        such insured.
            ``(2) Terminally ill individual.--For purposes of this 
        subsection, the term `terminally ill individual' means an 
        individual who has been certified by a physician as having an 
        illness or physical condition which can reasonably be expected 
        to result in death in 12 months or less.
            ``(3) Physician.--For purposes of this subsection, the term 
        `physician' has the meaning given to such term by section 
        213(d)(4).''

SEC. 107. EFFECTIVE DATE.

    The amendments made by this title shall apply to taxable years 
beginning after December 31, 1993.

TITLE II--PROTECTION OF ASSETS UNDER MEDICAID THROUGH USE OF QUALIFIED 
                        LONG-TERM CARE INSURANCE

SEC. 201. PROTECTION OF ASSETS THROUGH USE OF QUALIFIED LONG-TERM CARE 
              INSURANCE.

    (a) In General.--Title XIX of the Social Security Act is amended by 
adding at the end the following new section:

``special rules for asset disregard in the case of qualified long-term 
                        care insurance contracts

    ``Sec. 1931. (a) In General.--Each State plan under this title, as 
a condition for the receipt of payment under section 1903(a) with 
respect to long-term care services (as defined in subsection (c)(1)), 
shall provide that in determining the eligibility of an individual for 
medical assistance under the plan with respect to such services there 
shall be disregarded some or all of the individual's assets which are 
attributable (as determined under subsection (c)(2)) to coverage under 
a qualified long-term care insurance contract (as defined in subsection 
(b)).
    ``(b) Qualified Long-Term Care Insurance Contract Defined.--In this 
section, the term `qualified long-term care insurance contract' means, 
with respect to a State, a long-term care insurance contract (as 
defined in section 818A(b) of the Internal Revenue Code of 1986) 
which--
            ``(1) provides such protection against the costs of 
        receiving long-term care services as the State may require by 
        law;
            ``(2) provides that benefits under the contract shall be 
        paid without regard to eligibility for medical assistance under 
        this title; and
            ``(3) meets such other requirements (such as requirements 
        relating to premiums, disclosure, minimum benefits, rights of 
        conversion, and standards for claims processing) as the State 
        may determine to be appropriate.
    ``(c) Other Definitions.--In this section:
            ``(1) Long-term care services.--The term `long-term care 
        services' means nursing facility services, home health care 
        services, and home and community-based services, and includes 
        such other similar items and services described in section 
        1905(a) as a State may specify.
            ``(2) Attribution rules.--An individual's assets are 
        considered to be `attributable' to a qualified long-term care 
        insurance contract to the extent specified under the State 
        plan. Such a plan shall provide for at least one of the 
        following:
                    ``(A) All assets are considered attributable if the 
                insurance contract provides coverage for at least a 
                specified period of coverage (of not less than 3 years 
                and of not more than 6 years) for long-term care 
                services.
                    ``(B) An amount of assets, up to the dollar 
                limitation on benefits for long-term care services 
                under the contract, is considered attributable to the 
                contract.''.
    (b) Conforming Amendment.--Section 1902(a)(17)(A) of such Act (42 
U.S.C. 1396a(a)(17)(A)) is amended by inserting ``and section 1931'' 
after ``objectives of this title''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply (except as provided under paragraph (2)) to payments to 
        States under title XIX of the Social Security Act for calendar 
        quarters beginning on or after one year after the date of the 
        enactment of this Act, without regard to whether regulations to 
        implement such amendment are promulgated by such date.
            (2) Delay permitted if state legislation required.--In the 
        case of a State plan for medical assistance under title XIX of 
        the Social Security Act which the Secretary of Health and Human 
        Services determines requires State legislation (other than 
        legislation authorizing or appropriating funds) in order for 
        the plan to meet the additional requirements imposed by the 
        amendments made by this section, the State plan shall not be 
        regarded as failing to comply with the requirements of such 
        title solely on the basis of its failure to meet these 
        additional requirements before the first day of the first 
        calendar quarter beginning after the close of the first regular 
        session of the State legislature that begins after the date of 
        the enactment of this Act. For purposes of the previous 
        sentence, in the case of a State that has a 2-year legislative 
        session, each year of such session shall be deemed to be a 
        separate regular session of the State legislature.

                           TITLE III--STUDIES

SEC. 301. FEASIBILITY OF ENCOURAGING HEALTH CARE PROVIDERS TO DONATE 
              SERVICES TO HOMEBOUND PATIENTS.

    The Comptroller General of the United States shall conduct a study 
on the feasibility of encouraging health care providers to donate their 
services to homebound patients. Such study shall include an examination 
of the effects of qualifying such services as a charitable 
contribution.

SEC. 302. FEASIBILITY OF TAX CREDIT FOR HEADS OF HOUSEHOLDS WHO CARE 
              FOR ELDERLY FAMILY MEMBERS IN THEIR HOMES.

    The Comptroller General of the United States shall conduct a study 
on the feasibility of providing heads of households who care for 
elderly family members in their homes with a tax credit. Such study 
shall estimate the cost of such a tax credit which would apply to 
expenses incurred in the custodial care of such an elderly family 
member to the extent such expenses exceed 5 percent of adjusted gross 
income.

                                 <all>

HR 2816 IH----2
HR 2816 IH----3