[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3103 Engrossed in House (EH)]
2d Session
H. R. 3103
_______________________________________________________________________
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.
104th CONGRESS
2d Session
H. R. 3103
_______________________________________________________________________
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 Coverage
Availability and Affordability 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--IMPROVED AVAILABILITY AND PORTABILITY OF HEALTH INSURANCE
COVERAGE
Subtitle A--Coverage Under Group Health Plans
Sec. 101. Portability of coverage for previously covered individuals.
Sec. 102. Limitation on preexisting condition exclusions; no
application to certain newborns, adopted
children, and pregnancy.
Sec. 103. Prohibiting exclusions based on health status and providing
for enrollment periods.
Sec. 104. Enforcement.
Subtitle B--Certain Requirements for Insurers and HMOs in the Group and
Individual Markets
Part 1--Availability of Group Health Insurance Coverage
Sec. 131. Guaranteed availability of general coverage in the small
group market.
Sec. 132. Guaranteed renewability of group coverage.
Part 2--Availability of Individual Health Insurance Coverage
Sec. 141. Guaranteed availability of individual health insurance
coverage to certain individuals with prior
group coverage.
Sec. 142. Guaranteed renewability of individual health insurance
coverage.
Part 3--Enforcement
Sec. 151. Incorporation of provisions for State enforcement with
Federal fallback authority.
Subtitle C--Affordable and Available Health Coverage Through Multiple
Employer Pooling Arrangements
Sec. 161. Clarification of duty of the Secretary of Labor to implement
provisions of current law providing for
exemptions and solvency standards for
multiple employer health plans.
``Part 7--Rules Governing Regulation of Multiple Employer Health Plans
``Sec. 701. Definitions.
``Sec. 702. Clarification of duty of the Secretary to implement
provisions of current law providing for
exemptions and solvency standards for
multiple employer health plans.
``Sec. 703. Requirements relating to sponsors, boards of
trustees, and plan operations.
``Sec. 704. Other requirements for exemption.
``Sec. 705. Maintenance of reserves.
``Sec. 706. Notice requirements for voluntary termination.
``Sec. 707. Corrective actions and mandatory termination.
``Sec. 708. Additional rules regarding State authority.
Sec. 162. Affordable and available fully insured health coverage
through voluntary health insurance
associations.
Sec. 163. State authority fully applicable to self-insured multiple
employer welfare arrangements providing
medical care which are not exempted under
new part 7.
Sec. 164. Clarification of treatment of single employer arrangements.
Sec. 165. Clarification of treatment of certain collectively bargained
arrangements.
Sec. 166. Treatment of church plans.
Sec. 167. Enforcement provisions relating to multiple employer welfare
arrangements.
Sec. 168. Cooperation between Federal and State authorities.
Sec. 169. Filing and disclosure requirements for multiple employer
welfare arrangements offering health
benefits.
Sec. 170. Single annual filing for all participating employers.
Sec. 171. Effective date; transitional rule.
Subtitle D--Definitions; General Provisions
Sec. 191. Definitions; scope of coverage.
Sec. 192. State flexibility to provide greater protection.
Sec. 193. Effective date.
Sec. 194. Rule of construction.
Sec. 195. Findings relating to exercise of commerce clause authority.
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 anti-fraud 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
discounting and managed care arrangements.
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 monetary penalties.
Sec. 232. Clarification of level of intent required for imposition of
sanctions.
Sec. 233. 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. Injunctive 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. 251. Purpose.
Sec. 252. 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 standards.
``Sec. 1177. Wrongful disclosure of individually identifiable
health information.
``Sec. 1178. Effect on State law.
Sec. 253. Changes in membership and duties of National Committee on
Vital and Health Statistics.
Subtitle G--Duplication and Coordination of Medicare-Related Plans
Sec. 261. Duplication and coordination of medicare-related plans.
Subtitle H--Medical Liability Reform
Part 1--General Provisions
Sec. 271. Federal reform of health care liability actions.
Sec. 272. Definitions.
Sec. 273. Effective date.
Part 2--Uniform Standards for Health Care Liability Actions
Sec. 281. Statute of limitations.
Sec. 282. Calculation and payment of damages.
Sec. 283. Alternative dispute resolution.
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 individuals.
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 long-term care insurance
policies.
Sec. 327. Coordination with State requirements.
Sec. 328. 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--High-Risk Pools
Sec. 341. Exemption from income tax for State-sponsored organizations
providing health coverage for high-risk
individuals.
Subtitle F--Organizations Subject to Section 833
Sec. 351. Organizations subject to section 833.
TITLE IV--REVENUE OFFSETS
Sec. 400. Amendment of 1986 Code.
Subtitle A--Repeal of Bad Debt Reserve Method for Thrift Savings
Associations
Sec. 401. Repeal of bad debt reserve method for thrift savings
associations.
Subtitle B--Reform of the Earned Income Credit
Sec. 411. Earned income credit denied to individuals not authorized to
be employed in the United States.
Subtitle C--Treatment of Individuals Who Lose United States Citizenship
Sec. 421. Revision of income, estate, and gift taxes on individuals who
lose United States citizenship.
Sec. 422. Information on individuals losing United States citizenship.
Sec. 423. Report on tax compliance by United States citizens and
residents living abroad.
TITLE I--IMPROVED AVAILABILITY AND PORTABILITY OF HEALTH INSURANCE
COVERAGE
Subtitle A--Coverage Under Group Health Plans
SEC. 101. PORTABILITY OF COVERAGE FOR PREVIOUSLY COVERED INDIVIDUALS.
(a) Crediting Periods of Previous Coverage Toward Preexisting
Condition Restrictions.--Subject to the succeeding provisions of this
section, a group health plan, and an insurer or health maintenance
organization offering health insurance coverage in connection with a
group health plan, shall provide that any preexisting condition
limitation period (as defined in subsection (b)(2)) is reduced by the
length of the aggregate period of qualified prior coverage (if any, as
defined in subsection (b)(3)) applicable to the participant or
beneficiary as of the date of commencement of coverage under the plan.
(b) Definitions and Other Provisions Relating to Preexisting
Conditions.--
(1) Preexisting condition.--
(A) In general.--For purposes of this subtitle,
subject to subparagraph (B), the term ``preexisting
condition'' means a condition, 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 day before--
(i) the effective date of the coverage of
such participant or beneficiary, or
(ii) the earliest date upon which such
coverage could have been effective if there
were no waiting period applicable,
whichever is earlier.
(B) Treatment of genetic information.--For purposes
of this section, genetic information shall not be
considered to be a preexisting condition, so long as
treatment of the condition to which the information is
applicable has not been sought during the 6-month
period described in subparagraph (A).
(2) Preexisting condition limitation period.--For purposes
of this subtitle, the term ``preexisting condition limitation
period'' means, with respect to coverage of an individual under
a group health plan or under health insurance coverage, the
period during which benefits with respect to treatment of a
condition of such individual are not provided based on the fact
that the condition is a preexisting condition.
(3) Aggregate period of qualified prior coverage.--
(A) In general.--For purposes of this section, the
term ``aggregate period of qualified prior coverage''
means, with respect to commencement of coverage of an
individual under a group health plan or health
insurance coverage offered in connection with a group
health plan, the aggregate of the qualified coverage
periods (as defined in subparagraph (B)) of such
individual occurring before the date of such
commencement. Such period shall be treated as zero if
there is more than a 60-day break in coverage under a
group health plan (or health insurance coverage offered
in connection with such a plan) between the date the
most recent qualified coverage period ends and the date
of such commencement.
(B) Qualified coverage period.--
(i) In general.--For purposes of this
paragraph, subject to subsection (c), the term
``qualified coverage period'' means, with
respect to an individual, any period of
coverage of the individual under a group health
plan, health insurance coverage, under title
XVIII or XIX of the Social Security Act,
coverage under the TRICARE program under
chapter 55 of title 10, United States Code, a
program of the Indian Health Service, and State
health insurance coverage or risk pool, and
includes coverage under a health plan offered
under chapter 89 of title 5, United States
Code.
(ii) Disregarding periods before breaks in
coverage.--Such term does not include any
period occurring before any 60-day break in
coverage described in subparagraph (A).
(C) Waiting period not treated as a break in
coverage.--For purposes of subparagraphs (A) and (B),
any period that is in a waiting period for any coverage
under a group health plan (or for health insurance
coverage offered in connection with a group health
plan) shall not be considered to be a break in coverage
described in subparagraph (B)(ii).
(D) Establishment of period.--A qualified coverage
period with respect to an individual shall be
established through presentation of certifications
described in subsection (c) or in such other manner as
may be specified in regulations to carry out this
title.
(c) Certifications of Coverage; Conforming Coverage.--
(1) In general.--The plan administrator of a group health
plan, or the insurer or HMO offering health insurance coverage
in connection with a group health plan, shall, on request made
on behalf of an individual covered (or previously covered
within the previous 18 months) under the plan or coverage,
provide for a certification of the period of coverage of the
individual under such plan or coverage and of the waiting
period (if any) imposed with respect to the individual for any
coverage under the plan.
(2) Standard method.--Subject to paragraph (3), a group
health plan, or insurer or HMO offering health insurance
coverage in connection with a group health plan, shall
determine qualified coverage periods under subsection (b)(3)(B)
by including all periods described in such subsection, without
regard to the specific benefits offered during such a period.
(3) Alternative method.--Such a plan, insurer, or HMO may
elect to make such determination on a benefit-specific basis
for all participants and beneficiaries and not to include as a
qualified coverage period with respect to a specific benefit
coverage during a previous period unless such previous coverage
for that benefit was included at the end of the most recent
period of coverage. In the case of such an election--
(A) the plan, insurer, or HMO shall prominently
state in any disclosure statements concerning the plan
or coverage and to each enrollee at the time of
enrollment under the plan (or at the time the health
insurance coverage is offered for sale in the group
health market) that the plan or coverage has made such
election and shall include a description of the effect
of this election; and
(B) upon the request of the plan, insurer, or HMO,
the entity providing a certification under paragraph
(1)--
(i) shall promptly disclose to the
requesting plan, insurer, or HMO the plan
statement (insofar as it relates to health
benefits under the plan) or other detailed
benefit information on the benefits available
under the previous plan or coverage, and
(ii) may charge for the reasonable cost of
providing such information.
SEC. 102. LIMITATION ON PREEXISTING CONDITION EXCLUSIONS; NO
APPLICATION TO CERTAIN NEWBORNS, ADOPTED CHILDREN, AND
PREGNANCY.
(a) Limitation of Period.--
(1) In general.--Subject to the succeeding provisions of
this section, a group health plan, and an insurer or HMO
offering health insurance coverage in connection with a group
health plan, shall provide that any preexisting condition
limitation period (as defined in section 101(b)(2)) does not
exceed 12 months, counting from the effective date of coverage.
(2) Extension of period in the case of late enrollment.--In
the case of a participant or beneficiary whose initial coverage
commences after the date the participant or beneficiary first
becomes eligible for coverage under the group health plan, the
reference in paragraph (1) to ``12 months'' is deemed a
reference to ``18 months''.
(b) Exclusion Not Applicable to Certain Newborns and Certain
Adoptions.--
(1) In general.--Subject to paragraph (2), a group health
plan, and an insurer or HMO offering health insurance coverage
in connection with a group health plan, may not provide any
limitation on benefits based on the existence of a preexisting
condition in the case of--
(A) an individual who within the 30-day period
beginning with the date of birth, or
(B) an adopted child or a child placed for adoption
beginning at the time of adoption or placement if the
individual, within the 30-day period beginning on the
date of adoption or placement,
becomes covered under a group health plan or otherwise becomes
covered under health insurance coverage (or covered for medical
assistance under title XIX of the Social Security Act).
(2) Loss if break in coverage.--Paragraph (1) shall no
longer apply to an individual if the individual does not have
any coverage described in section 101(b)(3)(B)(i) for a
continuous period of 60 days, not counting in such period any
days that are in a waiting period for any coverage under a
group health plan.
(3) Placed for adoption defined.--In this subsection and
section 103(e), 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 terminates upon the
termination of such legal obligation.
(c) Exclusion Not Applicable to Pregnancy.--For purposes of this
section, pregnancy shall not be treated as a preexisting condition.
(d) Eligibility Period Imposed by Health Maintenance Organizations
as Alternative to Preexisting Condition Limitation.--A health
maintenance organization which offers health insurance coverage in
connection with a group health plan and which does not use the
preexisting condition limitations allowed under this section and
section 101 with respect to any particular coverage option may impose
an eligibility period for such coverage option, but only if such period
does not exceed--
(1) 60 days, in the case of a participant or beneficiary
whose initial coverage commences at the time such participant
or beneficiary first becomes eligible for coverage under the
plan, or
(2) 90 days, in the case of a participant or beneficiary
whose initial coverage commences after the date on which such
participant or beneficiary first becomes eligible for coverage.
Such an HMO may use alternative methods, from those described in the
previous sentence, to address adverse selection as approved by the
applicable State authority. For purposes of this subsection, the term
``eligibility 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. Any such eligibility period shall be treated for purposes of
this subtitle as a waiting period under the plan and shall run
concurrently with any other applicable waiting period under the plan.
SEC. 103. PROHIBITING EXCLUSIONS BASED ON HEALTH STATUS AND PROVIDING
FOR ENROLLMENT PERIODS.
(a) Prohibition of Exclusion of Participants or Beneficiaries Based
on Health Status.--
(1) In general.--A group health plan, and an insurer or HMO
offering health insurance coverage in connection with a group
health plan, may not exclude an employee or his or her
beneficiary from being (or continuing to be) enrolled as a
participant or beneficiary under the terms of such plan or
coverage based on health status (as defined in section
191(c)(6)).
(2) Construction.--Nothing in this subsection shall be
construed as preventing the establishment of preexisting
condition limitations and restrictions to the extent consistent
with the provisions of this subtitle.
(b) Prohibition of Discrimination in Premium Contributions of
Individual Participants or Beneficiaries Based on Health Status.--
(1) In general.--A group health plan, and an insurer or HMO
offering health insurance coverage in connection with a group
health plan, may not require a participant or beneficiary to
pay a premium or contribution which is greater than such
premium or contribution for a similarly situated participant or
beneficiary solely on the basis of the health status of the
participant or beneficiary.
(2) Construction.--Nothing in this subsection is intended--
(A) to effect the premium rates an insurer or HMO
may charge an employer for health insurance coverage
provided in connection a group health plan,
(B) to prevent a group health plan (or insurer or
HMO in health insurance coverage offered in connection
with such a plan) from establishing premium discounts
or modifying otherwise applicable copayments or
deductibles in return for adherence to programs of
health promotion and disease prevention, or
(C) to prevent such a plan, insurer, or HMO from
varying the premiums or contributions required of
participants or beneficiaries based on factors (such as
scope of benefits, geographic area of residence, or
wage levels) that are not directly related to health
status.
(c) Enrollment of Eligible Individuals Who Lose Other Coverage.--A
group health plan shall permit an uncovered employee who is otherwise
eligible for coverage under the terms of the plan (or an uncovered
dependent, as defined under the terms of the plan, of such an employee,
if family coverage is available) to enroll for coverage under the plan
under at least one benefit option if each of the following conditions
is met:
(1) 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.
(2) 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.
(3) The employee or dependent lost coverage under a group
health plan or health insurance coverage (as a result of loss
of eligibility for the coverage, termination of employment, or
reduction in the number of hours of employment).
(4) The employee requests such enrollment within 30 days
after the date of termination of such coverage.
(d) Dependent Beneficiaries.--
(1) In general.--If a group health plan makes family
coverage available, the plan may not require, as a condition of
coverage of an individual as a dependent (as defined under the
terms of the plan) of a participant in the plan, a waiting
period applicable to the coverage of a dependent who--
(A) is a newborn,
(B) is an adopted child or child placed for
adoption (within the meaning of section 102(b)(3)), at
the time of adoption or placement, or
(C) is a spouse, at the time of marriage,
if the participant has met any waiting period applicable to
that participant.
(2) Timely enrollment.--
(A) In general.--Enrollment of a participant's
beneficiary described in paragraph (1) shall be
considered to be timely if a request for enrollment is
made within 30 days of the date family coverage is
first made available or, in the case described in--
(i) paragraph (1)(A), within 30 days of the
date of the birth,
(ii) paragraph (1)(B), within 30 days of
the date of the adoption or placement for
adoption, or
(iii) paragraph (1)(C), within 30 days of
the date of the marriage with such a
beneficiary who is the spouse of the
participant,
if family coverage is available as of such date.
(B) Coverage.--If available coverage includes
family coverage and enrollment is made under such
coverage on a timely basis under subparagraph (A), the
coverage shall become effective not later than the
first day of the first month beginning 15 days after
the date the completed request for enrollment is
received.
(e) Multiemployer Plans, Multiple Employer Health Plans, and
Multiple Employer Welfare Arrangements.--A group health plan which is a
multi-employer plan, a multiple employer health plan (as defined in
section 701(4) of the Employee Retirement Income Security Act of 1974),
or a multiple employer welfare arrangement (to the extent to which
benefits under the arrangement consist of medical care) may not deny an
employer whose employees are covered under such a plan or arrangement
continued access to the same or different coverage under the terms of
such a plan or arrangement, 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 or arrangement
provisions,
(4) because the plan or arrangement is ceasing to offer any
coverage in a geographic area,
(5) 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
such an agreement,
(6) in the case of a plan or arrangement to which
subparagraph (C), (D), or (E) of section 3(40) of the Employee
Retirement Income Security Act of 1974 applies, to the extent
necessary to meet the requirements of such subparagraph, or
(7) in the case of a multiple employer health plan (as
defined in section 701(4) of such Act), for failure to meet the
requirements under part 7 of subtitle B of title I of such Act
for exemption under section 514(b)(6)(B) of such Act.
SEC. 104. ENFORCEMENT.
(a) Enforcement Through COBRA Provisions in Internal Revenue
Code.--
(1) Application of cobra sanctions.--Subsection (a) of
section 4980B of the Internal Revenue Code of 1986 is amended
by striking ``the requirements of'' and all that follows and
inserting ``the requirements of--
``(1) subsection (f) with respect to any qualified
beneficiary, or
``(2) subject to subsection (h)--
``(A) section 101 or 102 of the Health Coverage
Availability and Affordability Act of 1996 with respect
to any individual covered under the group health plan,
or
``(B) section 103 (other than subsection (e)) of
such Act with respect to any individual.''.
(2) Notice requirement.--Section 4980B(f)(6)(A) of such
Code is amended by inserting before the period the following:
``and subtitle A of title I of the Health Coverage Availability
and Affordability Act of 1996''.
(3) Special rules.--Section 4980B of such Code is amended
by adding at the end the following:
``(h) Special Rules.--For purposes of applying this section in the
case of requirements described in subsection (a)(2) relating to section
101, section 102, or section 103 (other than subsection (e)) of the
Health Coverage Availability and Affordability Act of 1996--
``(1) In general.--
``(A) Definition of group health plan.--The term
`group health plan' has the meaning given such term in
section 191(a) of the Health Coverage Availability and
Affordability Act of 1996.
``(B) Qualified beneficiary.--Subsections (b), (c),
and (e) shall be applied by substituting the term
`individual' for the term `qualified beneficiary' each
place it appears.
``(C) Noncompliance period.--Clause (ii) of
subsection (b)(2)(B) and the second sentence of
subsection (b)(2) shall not apply.
``(D) Limitation on tax.--Subparagraph (B) of
subsection (c)(3) shall not apply.
``(E) Liability for tax.--Paragraph (2) of
subsection (e) shall not apply.
``(2) Deferral to state regulation.--No tax shall be
imposed by this section on any failure to meet the requirements
of such section by any entity which offers health insurance
coverage and which is an insurer or health maintenance
organization (as defined in section 191(c) of the Health
Coverage Availability and Affordability Act of 1996) regulated
by a State unless the Secretary of Health and Human Services
has made the determination described in section 104(c)(2) of
such Act with respect to such State, section, and entity.
``(3) Limitation for insured plans.--In the case of a group
health plan of a small employer (as defined in section 191 of
the Health Coverage Availability and Affordability Act of 1996)
that provides health care benefits solely through a contract
with an insurer or health maintenance organization (as defined
in such section), no tax shall be imposed by this section upon
the employer on a failure to meet such requirements if the
failure is solely because of the product offered by the insurer
or organization under such contract.
``(4) Limitation on imposition of tax.--In no case shall a
tax be imposed by this section for a failure to meet such a
requirement if--
``(A) a civil money penalty has been imposed by the
Secretary of Labor under part 5 of subtitle A of title
I of the Employee Retirement Income Security Act of
1974 with respect to such failure, or
``(B) a civil money penalty has been imposed by the
Secretary of Health and Human Services under section
104(c) of the Health Coverage Availability and
Affordability Act of 1996 with respect to such
failure.''.
(b) Enforcement Through ERISA Sanctions for Certain Group Health
Plans.--
(1) In general.--Subject to the succeeding provisions of
this subsection, sections 101 through 103 of this subtitle (and
subtitle D insofar as it is applicable to such sections) shall
be deemed to be provisions of title I of the Employee
Retirement Income Security Act of 1974 for purposes of applying
such title.
(2) Federal enforcement only if no enforcement through
state.--The Secretary of Labor shall enforce each section
referred to in paragraph (1) with respect to any entity which
is an insurer or health maintenance organization regulated by a
State only if the Secretary of Labor determines that such State
has not provided for enforcement of State laws which govern the
same matters as are governed by such section and which require
compliance by such entity with at least the same requirements
as those provided under such section.
(3) Limitations on liability.--
(A) No application where failure not discovered
exercising reasonable diligence.--No liability shall be
imposed under this subsection on the basis of any
failure during any period for which it is established
to the satisfaction of the Secretary of Labor that none
of the persons against whom the liability would be
imposed knew, or exercising reasonable diligence would
have known, that such failure existed.
(B) No application where failure corrected within
30 days.--No liability shall be imposed under this
subsection on the basis of any failure if such failure
was due to reasonable cause and not to willful neglect,
and such failure is corrected during the 30-day period
beginning on the first day any of the persons against
whom the liability would be imposed knew, or exercising
reasonable diligence would have known, that such
failure existed.
(4) Avoiding duplication of certain penalties.--In no case
shall a civil money penalty be imposed under the authority
provided under paragraph (1) for a violation of this subtitle
for which an excise tax has been imposed under section 4980B of
the Internal Revenue Code of 1986 or a civil money penalty
imposed under subsection (c).
(c) Enforcement Through Civil Money Penalties.--
(1) Imposition.--
(A) In general.--Subject to the succeeding
provisions of this subsection, any group health plan,
insurer, or organization that fails to meet a
requirement of this subtitle (other than section
103(e)) is subject to a civil money penalty under this
section.
(B) Liability for penalty.--Rules similar to the
rules described in section 4980B(e) of the Internal
Revenue Code of 1986 for liability for a tax imposed
under section 4980B(a) of such Code shall apply to
liability for a penalty imposed under subparagraph (A).
(C) Amount of penalty.--
(i) In general.--The maximum amount of
penalty 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
determining the amount of any penalty to be
assessed under this paragraph, the Secretary of
Health and Human Services shall take into
account the previous record of compliance of
the person being assessed with the applicable
requirements of this subtitle, the gravity of
the violation, and the overall limitations for
unintentional failures provided under section
4980B(c)(4) of the Internal Revenue Code of
1986.
(iii) Limitations.--
(I) Penalty not to apply where
failure not discovered exercising
reasonable diligence.--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 persons against whom the
penalty would be imposed knew, or
exercising reasonable diligence would
have known, that such failure existed.
(II) Penalty not to apply to
failures corrected 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 corrected during the
30-day period beginning on the first
day any of the persons 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 person
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, and 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 (D).
(E) Judicial review.--
(i) Filing of action for review.--Any
person 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 person 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 be 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 unsupported by substantial evidence as
provided by section 706(2)(E) of title 5,
United States Code.
(iv) Appeal.--Any final decision, order, or
judgment of such 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.--
(i) Failure to pay assessment.--If any
person 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 amount assessed by action in the
appropriate United States district court.
(ii) Nonreviewability.--In such action the
validity and appropriateness of the final order
imposing the penalty shall not be subject to
review.
(G) Payment of penalties.--Except as otherwise
provided, 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.
(2) Federal enforcement only if no enforcement through
state.--Paragraph (1) shall apply to enforcement of the
requirements of section 101, 102, or 103 (other than section
103(e)) with respect to any entity which offers health
insurance coverage and which is an insurer or HMO regulated by
a State only if the Secretary of Health and Human Services has
determined that such State has not provided for enforcement of
State laws which govern the same matters as are governed by
such section and which require compliance by such entity with
at least the same requirements as those provided under such
section.
(3) Nonduplication of sanctions.--In no case shall a civil
money penalty be imposed under this subsection for a violation
of this subtitle for which an excise tax has been imposed under
section 4980B of the Internal Revenue Code of 1986 or for which
a civil money penalty has been imposed under the authority
provided under subsection (b).
(d) Coordination in Administration.--The Secretaries of the
Treasury, Labor, and Health and Human Services shall issue regulations
that are nonduplicative to carry out this subtitle. Such regulations
shall be issued in a manner that assures coordination and
nonduplication in their activities under this subtitle.
Subtitle B--Certain Requirements for Insurers and HMOs in the Group and
Individual Markets
PART 1--AVAILABILITY OF GROUP HEALTH INSURANCE COVERAGE
SEC. 131. GUARANTEED AVAILABILITY OF GENERAL COVERAGE IN THE SMALL
GROUP MARKET.
(a) Issuance of Coverage.--
(1) In general.--Subject to the succeeding subsections of
this section, each insurer or HMO that offers health insurance
coverage in the small group market in a State--
(A) must accept every small employer in the State
that applies for such coverage; and
(B) must accept for enrollment under such coverage
every eligible individual (as defined in paragraph (2))
who applies for enrollment during the initial period in
which the individual first becomes eligible for
coverage under the group health plan and may not place
any restriction which is inconsistent with section
103(a) on an individual being a participant or
beneficiary so long as such individual is an eligible
individual.
(2) Eligible individual defined.--In this section, the term
``eligible individual'' means, with respect to an insurer or
HMO that offers health insurance coverage to any small employer in the
small group market, such an individual in relation to the employer as
shall be determined--
(A) in accordance with the terms of such plan,
(B) as provided by the insurer or HMO under rules
of the insurer or HMO which are uniformly applicable,
and
(C) in accordance with all applicable State laws
governing such insurer or HMO.
(b) Special Rules for Network Plans and HMOs.--
(1) In general.--In the case of an insurer that offers
health insurance coverage in the small group market through a
network plan and in the case of an HMO that offers health
insurance coverage in connection with such a plan, the insurer
or HMO may--
(A) limit the employers that may apply for such
coverage to those with eligible individuals whose place
of employment or residence is in the service area for
such plan or HMO;
(B) limit the individuals who may be enrolled under
such coverage to those whose place of residence or
employment is within the service area for such plan or
HMO; and
(C) within the service area of such plan or HMO,
deny such coverage to such employers if the insurer or
HMO demonstrates 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 beneficiaries) or
the health status of such employees and
beneficiaries.
(2) 180-day suspension upon denial of coverage.--An insurer
or HMO, upon denying health insurance coverage in any service
area in accordance with paragraph (1)(C), may not offer
coverage in the small group market within such service area for
a period of 180 days after such coverage is denied.
(c) Special Rule for Financial Capacity Limits.--
(1) In general.--An insurer or HMO may deny health
insurance coverage in the small group market if the insurer or
HMO demonstrates to the applicable State authority that--
(A) it does not have the financial reserves
necessary to underwrite additional coverage, and
(B) it is applying this paragraph uniformly to all
employers without regard to the claims experience or
duration of coverage of those employers and their
employees (and their beneficiaries) or the health
status of such employees and beneficiaries.
(2) 180-day suspension upon denial of coverage.--An insurer
or HMO upon denying health insurance coverage in connection
with group health plans in any service area in accordance with
paragraph (1) may not offer coverage in connection with group
health plans in the small group market within such service area
for a period of 180 days after such coverage is denied.
(d) Exception to Requirement for Issuance of Coverage by Reason of
Failure by Plan To Meet Certain Minimum Participation or Contribution
Rules.--
(1) In general.--Subsection (a) shall not apply in the case
of any group health plan with respect to which--
(A) participation rules of an insurer or HMO which
are described in paragraph (2) are not met, or
(B) contribution rules of an insurer or HMO which
are described in paragraph (3) are not met.
(2) Participation rules.--For purposes of paragraph (1)(A),
participation rules (if any) of an insurer or HMO shall be
treated as met with respect to a group health plan only if such
rules are uniformly applicable and in accordance with
applicable State law and the number or percentage of eligible
individuals who, under the plan, are participants or beneficiaries
equals or exceeds a level which is determined in accordance with such
rules.
(3) Contribution rules.--For purposes of paragraph (1)(B),
contribution rules (if any) of an insurer or HMO shall be
treated as met with respect to a group health plan only if such
rules are in accordance with applicable State law.
SEC. 132. GUARANTEED RENEWABILITY OF GROUP COVERAGE.
(a) In General.--Except as provided in this section, if an insurer
or health maintenance organization offers health insurance coverage in
the small or large group market, the insurer or organization must renew
or continue in force such coverage at the option of the employer.
(b) General Exceptions.--An insurer or organization may nonrenew or
discontinue health insurance coverage offered an employer based only on
one or more of the following:
(1) Nonpayment of premiums.--The employer has failed to pay
premiums or contributions in accordance with the terms of the
health insurance coverage or the insurer or organization has
not received timely premium payments.
(2) Fraud.--The employer has performed an act or practice
that constitutes fraud or made an intentional misrepresentation
of material fact under the terms of the coverage.
(3) Violation with participation or contribution rules.--
The employer has failed to comply with a material plan
provision relating to participation or contribution rules in
accordance with section 131(d).
(4) Termination of plan.--Subject to subsection (c), the
insurer or organization is ceasing to offer coverage in the
small or large group market in a State (or, in the case of a
network plan or HMO, in a geographic area).
(5) Movement outside service area.--The employer has
changed the place of employment in such manner that employees
and dependents reside and are employed outside the service area
of the insurer or organization or outside the area for which
the insurer or organization is authorized to do business.
Paragraph (5) shall apply to an insurer or HMO only if it is applied
uniformly without regard to the claims experience of employers and
their employees (and their beneficiaries) or the health status of such
employees and beneficiaries.
(c) Exceptions for Uniform Termination of Coverage.--
(1) Particular type of coverage not offered.--In any case
in which a insurer or HMO decides to discontinue offering a
particular type of health insurance coverage in the small or
large group market, coverage of such type may be discontinued
by the insurer or organization only if--
(A) the insurer or organization provides notice to
each employer provided coverage of this type in such
market (and participants 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 insurer or organization offers to each
employer in the small employer or large employer market
provided coverage of this type, the option to purchase
any other health insurance coverage currently being
offered by the insurer or organization for employers in
such market; and
(C) in exercising the option to discontinue
coverage of this type and in offering one or more
replacement coverage, the insurer or organization acts
uniformly without regard to the health status or
insurability of participants or beneficiaries covered
or new participants or beneficiaries who may become
eligible for such coverage.
(2) Discontinuance of all coverage.--
(A) In general.--Subject to subparagraph (C), in
any case in which an insurer or HMO elects to
discontinue offering all health insurance 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 insurer or organization only
if--
(i) the insurer or organization provides
notice to the applicable State authority and to
each employer (and participants and
beneficiaries covered under such coverage) of
such discontinuation 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 (or markets) are discontinued and
coverage under such health insurance coverage
in such market (or markets) is not renewed.
(B) Prohibition on market reentry.--In the case of
a discontinuation under subparagraph (A) in one or both
markets, the insurer or organization 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 discontinuation of the
last health insurance coverage not so renewed.
(d) Exception for Uniform Modification of Coverage.--At the time of
coverage renewal, an insurer or HMO may modify the coverage offered to
a group health plan in the group health market so long as such
modification is effective on a uniform basis among group health plans
with that type of coverage.
PART 2--AVAILABILITY OF INDIVIDUAL HEALTH INSURANCE COVERAGE
SEC. 141. GUARANTEED AVAILABILITY OF INDIVIDUAL HEALTH INSURANCE
COVERAGE TO CERTAIN INDIVIDUALS WITH PRIOR GROUP
COVERAGE.
(a) Goals.--The goals of this section are--
(1) to guarantee that any qualifying individual (as defined
in subsection (b)(1)) is able to obtain qualifying coverage (as
defined in subsection (b)(2)); and
(2) to assure that qualifying individuals obtaining such
coverage receive credit for their prior coverage toward the new
coverage's preexisting condition exclusion period (if any) in a
manner consistent with subsection (b)(3).
(b) Qualifying Individual and Health Insurance Coverage Defined.--
In this section--
(1) Qualifying individual.--The term ``qualifying
individual'' means an individual--
(A)(i) for whom, as of the date on which the
individual seeks coverage under this section, the
aggregate of the qualified coverage periods (as defined
in section 101(b)(3)(B)) is 18 or more months and (ii)
whose most recent prior coverage was under a group
health plan, governmental plan, or church plan (or
health insurance coverage offered in connection with
any such plan);
(B) who is not eligible for coverage under (i) a
group health plan, (ii) part A or part B of title XVIII
of the Social Security Act, or (iii) a State plan under
title XIX of such Act (or any successor program), and
does not have individual health insurance coverage;
(C) with respect to whom the most recent coverage
within the coverage period described in subparagraph
(A)(i) was not terminated based on a factor described
in paragraph (1) or (2) of section 132(b);
(D) if the individual had been offered the option
of continuation coverage under a COBRA continuation
provision or under a similar State program, who elected
such coverage; and
(E) who, if the individual elected such
continuation coverage, has exhausted such continuation
coverage.
In applying subparagraph (A)(i), the reference in section
101(b)(3)(B)(ii) to a 60-day break in coverage is deemed a
reference to a 60-day break in any coverage described in
section 101(b)(3)(B)(i).
(2) Qualifying coverage.--
(A) In general.--The term ``qualifying coverage''
means, with respect to an insurer or HMO in relation to
an qualifying individual, individual health insurance
coverage for which the actuarial value of the benefits
is not less than--
(i) the weighted average actuarial value of
the benefits provided by all the individual
health insurance coverage issued by the insurer
or HMO in the State during the previous year
(not including coverage issued under this
section), or
(ii) the weighted average of the actuarial
value of the benefits provided by all the
individual health insurance coverage issued by
all insurers and HMOs in the State during the
previous year (not including coverage issued
under this section),
as elected by the plan or by the State under subsection
(c)(1).
(B) Assumptions.--For purposes of subparagraph (A),
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.
(3) Crediting for previous coverage.--Crediting is
consistent with this paragraph only if any preexisting
condition exclusion period is reduced at least to the extent
such a period would be reduced if the coverage under this
section were under a group health plan to which section 101(a)
applies. In carrying out this subsection, provisions similar to
the provisions of section 101(c) shall apply.
(c) Optional State Establishment of Mechanisms To Achieve Goals of
Guaranteeing Availability of Coverage.--
(1) In general.--Any State may establish, to the extent of
the State's authority, public or private mechanisms reasonably
designed to meet the goals specified in subsection (a). If a
State implements such a mechanism by the deadline specified in
paragraph (4), the State may elect to have such mechanisms
apply instead of having subsection (d)(3) apply in the State.
An election under this paragraph shall be by notice from the
chief executive officer of the State to the Secretary of Health
and Human Services on a timely basis consistent with the
deadlines specified in paragraph (4). In establishing what is
qualifying coverage under such a mechanism under this
subsection, a State may exercise the election described in
subsection (b)(2)(A) with respect to each insurer or HMO in the
State (or on a collective basis after exercising such election
for each such insurer or HMO).
(2) Types of mechanisms.--State mechanisms under this
subsection may include one or more (or a combination) of the
following:
(A) Health insurance coverage pools or programs
authorized or established by the State.
(B) Mandatory group conversion policies.
(C) Guaranteed issue of one or more plans of
individual health insurance coverage to qualifying
individuals.
(D) Open enrollment by one or more insurers or
HMOs.
The mechanisms described in the previous sentence are not an
exclusive list of the mechanisms (or combinations of
mechanisms) that may be used under this subsection.
(3) Safe harbor for benefits under current risk pools.--In
the case of a State that has a health insurance coverage pool
or risk pool in effect on March 12, 1996, and that implements
the mechanism described in paragraph (2)(A), the benefits under
such mechanism (or benefits the actuarial value of which is not
less than the actuarial value of such current benefits, using
the assumptions described in subsection (b)(2)(B)) are deemed,
for purposes of this section, to constitute qualified coverage.
(4) Deadline for state implementation.--
(A) In general.--Subject to subparagraph (B), the
deadline under this paragraph is July 1, 1997.
(B) Extension to permit legislation.--The deadline
under this paragraph is July 1, 1998, in the case of a
State the legislature of which does not have a regular
legislative session at any time between January 1,
1997, and June 30, 1997.
(C) Construction.--Nothing in this section shall be
construed as preventing a State from--
(i) implementing guaranteed availability
mechanisms before the deadline,
(ii) continuing in effect mechanisms that
are in effect before the date of the enactment
of this Act,
(iii) offering guaranteed availability of
coverage that is not qualifying coverage, or
(iv) offering guaranteed availability of
coverage to individuals who are not qualifying
individuals.
(d) Fallback Provisions.--
(1) No state election.--If a State has not provided notice
to the Secretary of an election on a timely basis under
subsection (c), the Secretary shall notify the State that
paragraph (3) will be applied in the State.
(2) Preliminary determination after state election.--If--
(A) a State has provided notice of an election on a
timely basis under subsection (c), and
(B) the Secretary finds, after 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 (for which
notice was provided) is not reasonably designed to meet
the goals specified in subsection (a),
the Secretary shall notify the State of such preliminary
determination, of the consequences under paragraph (3) of a
failure to implement such a mechanism, and permit the State a
reasonable opportunity in which to modify the mechanism (or to
adopt another mechanism) that is reasonably designed to meet
the goals specified in subsection (a). The Secretary shall not
make such a determination on any basis other than the basis
described in subparagraph (B). If, after providing such notice
and opportunity, the Secretary finds that the State has not
implemented such a mechanism, the Secretary shall notify the
State that paragraph (3) will be applied in the State.
(3) Description of fallback mechanism.--As provided under
paragraphs (1) and (2) and subject to paragraph (5), each
insurer or HMO in the State involved that issues individual
health insurance coverage--
(A) shall offer qualifying health insurance
coverage, in which qualifying individuals obtaining
such coverage receive credit for their prior coverage
toward the new coverage's preexisting condition
exclusion period (if any) in a manner consistent with
subsection (b)(3), to each qualifying individual in the
State, and
(B) may not decline to issue such coverage to such
an individual based on health status (except as
permitted under paragraph (4)).
(4) Application of network and capacity limits.--Under
regulations, the provisions of subsections (b) and (c) of
section 131 shall apply to an individual in the individual
health insurance market under this subsection in the same
manner as they apply under section 131 to an employer in the
small group market.
(5) Termination of fallback mechanism.--The provisions of
this subsection shall cease to apply to a State if the
Secretary finds that a State has implemented a mechanism that
is reasonably designed to meet the goals specified in
subsection (a), and until the Secretary finds that such
mechanism is no longer being implemented.
(e) Construction.--
(1) Premiums.--Nothing in this section shall be construed
to affect the determination of an insurer or HMO as to the
amount of the premium payable under an individual health
insurance coverage under applicable state law.
(2) Market requirements.--
(A) In general.--The provisions of subsection (a)
shall not be construed to require that an insurer or
HMO offering health insurance coverage only in
connection with a group health plan or an association
offer individual health insurance coverage.
(B) Conversion policies.--An insurer or HMO
offering health insurance coverage in connection with a
group health plan under subtitle A shall not be deemed
to be an insurer or HMO offering an individual health
insurance coverage solely because such insurer or HMO
offers a conversion policy.
(3) Disregard of association coverage.--An insurer or HMO
that offers health insurance coverage only in connection with a
group health plan or in connection with individuals based on
affiliation with one or more bona fide associations is not
considered, for purposes of this subtitle, to be offering
individual health insurance coverage.
(4) Marketing of plans.--Nothing in this section shall be
construed to prevent a State from requiring insurer or HMOs
offering individual health insurance coverage to actively
market such coverage.
SEC. 142. GUARANTEED RENEWABILITY OF INDIVIDUAL HEALTH INSURANCE
COVERAGE.
(a) Guaranteed Renewability.--Subject to the succeeding provisions
of this section, an insurer or HMO that provides individual health
insurance coverage to an individual shall renew or continue such
coverage at the option of the individual.
(b) Nonrenewal Permitted in Certain Cases.--An insurer or HMO may
nonrenew or discontinue individual health insurance coverage of an
individual only based on one or more of the following:
(1) Nonpayment.--The individual fails to pay payment of
premiums or contributions in accordance with the terms of the
coverage or the insurer or organization has not failed to
receive timely premium payments.
(2) Fraud.--The individual has performed an act or practice
that constitutes fraud or made an intentional misrepresentation
of material fact under the terms of the coverage.
(3) Termination of coverage.--Subject to subsection (c),
the insurer or HMO is ceasing to offer health insurance
coverage in the individual market in a State (or, in the case
of a network plan or HMO, in a geographic area).
(4) Movement outside service area.--The individual has
changed residence and resides outside the service area of the
insurer or organization or outside the area for which the
insurer or organization is authorized to do business.
Paragraph (4) shall apply to an insurer or HMO only if it is applied
uniformly without regard to the claims experience of employers and
their employees (and their beneficiaries) or the health status of such
employees and beneficiaries.
(c) Termination of Individual Coverage.--The provisions of section
132(c) shall apply to this section in the same manner as they apply
under section 132, except that any reference to an employer or market
is deemed a reference to the covered individual or the individual
market, respectively.
(d) Exception for Uniform Modification of Coverage.--The provisions
of section 132(d) shall apply to individual health insurance coverage
in the individual market under this section in the same manner as it
applies to health insurance coverage offered in connection with a group
health plan in the group market under such section.
PART 3--ENFORCEMENT
SEC. 151. INCORPORATION OF PROVISIONS FOR STATE ENFORCEMENT WITH
FEDERAL FALLBACK AUTHORITY.
The provisions of paragraphs (1) and (2) of section 104(c) shall
apply to enforcement of requirements in each section in part 1 or part
2 with respect to insurers and HMOs regulated by a State in the same
manner as such provisions apply to enforcement of requirements in
section 101, 102, or 103 with respect to insurers and HMOs regulated by
a State.
Subtitle C--Affordable and Available Health Coverage Through Multiple
Employer Pooling Arrangements
SEC. 161. CLARIFICATION OF DUTY OF THE SECRETARY OF LABOR TO IMPLEMENT
PROVISIONS OF CURRENT LAW PROVIDING FOR EXEMPTIONS AND
SOLVENCY STANDARDS FOR MULTIPLE EMPLOYER HEALTH PLANS.
(a) Rules Governing Regulation of Multiple Employer Health Plans.--
Subtitle B of title I of the Employee Retirement Income Security Act of
1974 (as amended by the preceding provisions of this title) is amended
by inserting after part 6 the following new part:
``PART 7--RULES GOVERNING REGULATION OF MULTIPLE EMPLOYER HEALTH PLANS
``SEC. 701. DEFINITIONS.
``For purposes of this part--
``(1) Fully insured.--A particular benefit under a group
health plan or a multiple employer welfare arrangement is
`fully insured' if such benefit (irrespective of any recourse
available against other parties) is provided by an insurer or a
health maintenance organization in a manner so that such
benefit constitutes insurance regulated by the law of a State
(within the meaning of section 514(b)(2)(A)).
``(2) Insurer.--The term `insurer' means an insurance
company, insurance service, or insurance organization 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)(A)).
``(3) Health maintenance organization.--The terms `health
maintenance organization' means--
``(A) a Federally qualified health maintenance
organization (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,
if it is subject to State law which regulates insurance (within
the meaning of section 514(b)(2)(A)).
``(4) Multiple employer health plan.--The term `multiple
employer health plan' means a multiple employer welfare
arrangement which provides medical care and which is or has
been exempt under section 514(b)(6)(B).
``(5) Participating employer.--The term `participating
employer' means, in connection with a multiple employer welfare
arrangement, any employer if any of its employees, or any of
the individuals who are dependents (as defined under the terms
of the arrangement) of its employees, are or were covered under
such arrangement in connection with the employment of the
employees.
``(6) Sponsor.--The term `sponsor' means, in connection
with a multiple employer welfare arrangement, the association
or other entity which establishes or maintains the arrangement.
``(7) State insurance commissioner.--The term `State
insurance commissioner' means the insurance commissioner (or
similar official) of a State.
``SEC. 702. CLARIFICATION OF DUTY OF THE SECRETARY TO IMPLEMENT
PROVISIONS OF CURRENT LAW PROVIDING FOR EXEMPTIONS AND
SOLVENCY STANDARDS FOR MULTIPLE EMPLOYER HEALTH PLANS.
``(a) Treatment as Employee Welfare Benefit Plan Which Is a Group
Health Plan.--
``(1) In general.--A multiple employer welfare
arrangement--
``(A) under which the benefits consist solely of
medical care (disregarding such incidental benefits as
the Secretary shall specify by regulation), and
``(B) under which some or all benefits are not
fully insured,
shall be treated for purposes of subtitle A and the other parts
of this title as an employee welfare benefit plan which is a
group health plan if the arrangement is exempt under section
514(b)(6)(B) in accordance with this part.
``(2) Exception.--In the case of a multiple employer
welfare arrangement which would be described in section
3(40)(A)(i) but solely for the failure to meet the requirements
of section 3(40)(C)(ii), paragraph (1) shall apply with respect
to such arrangement, but only with respect to benefits provided
thereunder which constitute medical care.
``(b) Treatment Under Preemption Rules.--
``(1) In general.--The Secretary shall prescribe
regulations described in section 514(b)(6)(B)(i), applicable to
multiple employer welfare arrangements described in
subparagraphs (A) and (B) of subsection (a)(1), providing a
procedure for granting exemptions from section 514(b)(6)(A)(ii)
with respect to such arrangements. Under such regulations, any
such arrangement treated under subsection (a) as an employee
welfare benefit plan shall be deemed to be an arrangement
described in section 514(b)(6)(B)(ii).
``(2) Standards.--Under the procedure prescribed pursuant
to paragraph (1), the Secretary shall grant an arrangement
described in subsection (a) an exemption described in
subsection (a) only if the Secretary finds that--
``(A) such exemption--
``(i) is administratively feasible,
``(ii) is not adverse to the interests of
the individuals covered under the arrangement,
and
``(iii) is protective of the rights and
benefits of the individuals covered under the
arrangement,
``(B) the application for the exemption meets the
requirements of paragraph (3), and
``(C) the requirements of sections 703 and 704 are
met with respect to the arrangement.
``(3) Information to be included in application for
exemption.--An application for an exemption described in
subsection (a) meets the requirements of this paragraph only if
it includes, in a manner and form prescribed in regulations of
the Secretary, at least the following information:
``(A) Identifying information.--The names and
addresses of--
``(i) the sponsor, and
``(ii) the members of the board of trustees
of the arrangement.
``(B) States in which arrangement intends to do
business.--The States in which individuals covered
under the arrangement are to be located and the number
of such individuals expected to be located in each such
State.
``(C) Bonding requirements.--Evidence provided by
the board of trustees that the bonding requirements of
section 412 will be met as of the date of the
application or (if later) commencement of operations.
``(D) Plan documents.--A copy of the documents
governing the arrangement (including any bylaws and
trust agreements), the summary plan description, and
other material describing the benefits and coverage
that will be provided to individuals covered under the arrangement.
``(E) Agreements with service providers.--A copy of
any agreements between the arrangement and contract
administrators and other service providers.
``(F) Funding report.--A report setting forth
information determined as of a date within the 120-day
period ending with the date of the application,
including the following:
``(i) Reserves.--A statement, certified by
the board of trustees of the arrangement, and a
statement of actuarial opinion, signed by a
qualified actuary, that all applicable
requirements of section 705 are or will be met
in accordance with regulations which the
Secretary shall prescribe.
``(ii) Adequacy of contribution rates.--A
statement of actuarial opinion, signed by a
qualified actuary, which sets forth a
description of the extent to which contribution
rates are adequate to provide for the payment
of all obligations and the maintenance of
required reserves under the arrangement for the
12-month period beginning with such date within
such 120-day period, taking into account the
expected coverage and experience of the
arrangement. If the contribution rates are not
fully adequate, the statement of actuarial
opinion shall indicate the extent to which the
rates are inadequate and the changes needed to
ensure adequacy.
``(iii) Current and projected value of
assets and liabilities.--A statement of
actuarial opinion signed by a qualified
actuary, which sets forth the current value of
the assets and liabilities accumulated under
the arrangement and a projection of the assets,
liabilities, income, and expenses of the
arrangement for the 12-month period referred to
in clause (ii). The income statement shall
identify separately the arrangement's
administrative expenses and claims.
``(iv) Costs of coverage to be charged and
other expenses.--A statement of the costs of
coverage to be charged, including an
itemization of amounts for administration,
reserves, and other expenses associated with
the operation of the arrangement.
``(v) Other information.--Any other
information which may be prescribed in
regulations of the Secretary as necessary to
carry out the purposes of this part.
``(4) Filing fee.--Under the procedure prescribed pursuant
to paragraph (1), a multiple employer welfare arrangement shall
pay to the Secretary at the time of filing an application for
an exemption referred to in subsection (a) a filing fee in the
amount of $5,000, which shall be available, to the extent
provided in appropriation Acts, to the Secretary for the sole
purpose of administering the exemption procedures applicable
with respect to such arrangement.
``(5) Class exemption treatment for existing large
arrangements.--Under the procedure prescribed pursuant to
paragraph (1), if--
``(A) at the time of application for an exemption
under section 514(b)(6)(B) with respect to an
arrangement which has been in existence as of the date
of the enactment of the Health Coverage Availability
and Affordability Act of 1996 for at least 3 years,
either (A) the arrangement covers at least 1,000
participants and beneficiaries, or (B) with respect to
the arrangement there are at least 2,000 employees of
eligible participating employers,
``(B) a complete application for the exemption with
respect to the arrangement has been filed and is
pending, and
``(C) the application meets such requirements (if
any) as the Secretary may provide with respect to class
exemptions under this subsection,
the exemption shall be treated as having been granted with
respect to the arrangement unless and until the Secretary
provides appropriate notice that the exemption has been denied.
``(c) Filing Notice of Exemption With States.--An exemption granted
under section 514(b)(6)(B) to a multiple employer welfare arrangement
shall not be effective unless written notice of such exemption is filed
with the State insurance commissioner of each State in which at least 5
percent of the individuals covered under the arrangement are located.
For purposes of this subsection, an individual shall be considered to
be located in the State in which a known address of such individual is
located or in which such individual is employed. The Secretary may by
regulation provide in specified cases for the application of the
preceding sentence with lesser percentages in lieu of such 5 percent
amount.
``(d) Notice of Material Changes.--In the case of any multiple
employer welfare arrangement exempt under section 514(b)(6)(B),
descriptions of material changes in any information which was required
to be submitted with the application for the exemption under this part
shall be filed in such form and manner as shall be prescribed in
regulations of the Secretary. The Secretary may require by regulation
prior notice of material changes with respect to specified matters
which might serve as the basis for suspension or revocation of the
exemption.
``(e) Reporting Requirements.--Under regulations of the Secretary,
the requirements of sections 102, 103, and 104 shall apply with respect
to any multiple employer welfare arrangement which is or has been
exempt under section 514(b)(6)(B) in the same manner and to the same
extent as such requirements apply to employee welfare benefit plans,
irrespective of whether such exemption continues in effect. The annual
report required under section 103 for any plan year in the case of any
such multiple employer welfare arrangement shall also include
information described in subsection (b)(3)(F) with respect to the plan
year and, notwithstanding section 104(a)(1)(A), shall be filed not
later than 90 days after the close of the plan year.
``(f) Engagement of Qualified Actuary.--The board of trustees of
each multiple employer welfare arrangement which is or has been exempt
under section 514(b)(6)(B) shall engage, on behalf of all covered
individuals, a qualified actuary who shall be responsible for the
preparation of the materials comprising information necessary to be
submitted by a qualified actuary under this part. The qualified actuary
shall utilize such assumptions and techniques as are necessary to
enable such actuary to form an opinion as to whether the contents of
the matters reported under this part--
``(1) are in the aggregate reasonably related to the
experience of the arrangement and to reasonable expectations,
and
``(2) represent such actuary's best estimate of anticipated
experience under the arrangement.
The opinion by the qualified actuary shall be made with respect to, and
shall be made a part of, the annual report.
``SEC. 703. REQUIREMENTS RELATING TO SPONSORS, BOARDS OF TRUSTEES, AND
PLAN OPERATIONS.
``(a) In General.--A complete application for an exemption under
section 514(b)(6)(B) shall include information which the Secretary
determines to be complete and accurate and sufficient to demonstrate
that the following requirements are met with respect to the
arrangement:
``(1) Sponsor.--The sponsor is, and has been (together with
its immediate predecessor, if any) for a continuous period of
not less than 5 years before the date of the application,
organized and maintained in good faith, with a constitution and
bylaws specifically stating its purpose and providing for
periodic meetings on at least an annual basis, as a trade
association, an industry association, a professional
association, or a chamber of commerce (or similar business
group, including a corporation or similar organization that
operates on a cooperative basis (within the meaning of section
1381 of the Internal Revenue Code of 1986)), for substantial
purposes other than that of obtaining or providing medical care
(within the meaning of section 607(1)), and the applicant
demonstrates to the satisfaction of the Secretary that the
sponsor is established as a permanent entity which receives the
active support of its members and collects dues or
contributions from its members on a periodic basis, without
conditioning such dues or contributions on the basis of the
health status of the employees of such members or the
dependents of such employees or on the basis of participation
in a group health plan. Any sponsor consisting of an
association of entities meeting the preceding requirements of
this paragraph shall be treated as meeting the requirements of
this paragraph.
``(2) Board of trustees.--The arrangement is operated,
pursuant to a trust agreement, by a board of trustees which has
complete fiscal control over the arrangement and which is
responsible for all operations of the arrangement, and the
board of trustees has in effect rules of operation and
financial controls, based on a 3-year plan of operation,
adequate to carry out the terms of the arrangement and to meet
all requirements of this title applicable to the arrangement.
The members of the board of trustees are individuals selected
from individuals who are the owners, officers, directors, or
employees of the participating employers or who are partners in
the participating employers and actively participate in the
business. No such member is an owner, officer, director, or
employee of, or partner in, a contract administrator or other
service provider to the arrangement, except that officers or
employees of a sponsor which is a service provider (other than
a contract administrator) to the arrangement may be members of
the board if they constitute not more than 25 percent of the
membership of the board and they do not provide services to
the arrangement other than on behalf of the sponsor. The board has sole
authority to approve applications for participation in the arrangement
and to contract with a service provider to administer the day-to-day
affairs of the arrangement.
``(3) Covered persons.--The instruments governing the
arrangement include a written instrument which provides that,
effective upon becoming an arrangement exempt under section
514(b)(6)(B)--
``(A) all participating employers must be members
or affiliated members of the sponsor, except that, in
the case of a sponsor which is a professional
association or other individual-based association, if
at least one of the officers, directors, or employees
of an employer, or at least one of the individuals who
are partners in an employer and who actively
participates in the business, is a member or affiliated
member of the sponsor, participating employers may also
include such employer,
``(B) all individuals thereafter commencing
coverage under the arrangement must be--
``(i) active or retired owners (including
self-employed individuals), officers,
directors, or employees of, or partners in,
participating employers, or
``(ii) the beneficiaries of individuals
described in clause (i), and
``(C) no participating employer may provide health
insurance coverage in the individual market for any
employee not covered under the arrangement which is
similar to the coverage contemporaneously provided to
employees of the employer under the arrangement, if
such exclusion of the employee from coverage under the
arrangement is based in whole or in part on the health
status of the employee and such employee would, but for
such exclusion on such basis, be eligible for coverage
under the arrangement.
``(4) Inclusion of eligible employers and employees.--No
employer described in paragraph (3) is excluded as a
participating employer (except to the extent that requirements
of the type referred to in section 131(d)(2) of the Health
Coverage Availability and Affordability Act of 1996 are not
met) and the requirements of section 103 of such Act (as
referred to in section 104(b)(1) of such Act) are met.
``(5) Restriction on variations of premium rates.--Premium
rates under the arrangement with respect to any particular
employer do not vary on the basis of the claims experience of
such employer alone.
``(b) Treatment of Franchise Networks.--In the case of a multiple
employer welfare arrangement which is established and maintained by a
franchisor for a franchise network consisting of its franchisees, the
requirements of subsection (a)(1) shall not apply with respect to such
network in any case in which such requirements would be met if the
franchisor were deemed to be the sponsor referred to in subsection
(a)(1), such network were deemed to be an association described in
subsection (a)(1), and each franchisee were deemed to be a member (of
the association and the sponsor) referred to in subsection (a)(1).
``(c) Certain Collectively Bargained Arrangements.--In the case of
a multiple employer welfare arrangement in existence on March 6, 1996,
which would be described in section 3(40)(A)(i) but solely for the
failure to meet the requirements of section 3(40)(C)(ii) or (to the
extent provided in regulations of the Secretary) solely for the failure
to meet the requirements of subparagraph (D) or (F) of section 3(40)--
``(1) subsection (a)(1) shall not apply, and
``(2) the joint board of trustees shall be considered the
board of trustees required under subsection (a)(2).
``(d) Certain Arrangements Not Meeting Single Employer
Requirement.--
``(1) In general.--In any case in which the majority of the
employees covered under a multiple employer welfare arrangement
are employees of a single employer (within the meaning of
clauses (i) and (ii) of section 3(40)(B)), if all other
employees covered under the arrangement are employed by
employers who are related to such single employer--
``(A) subsection (a)(1) shall not apply if the
sponsor of the arrangement is the person who would be
the plan sponsor if the related employers were
disregarded in determining whether the requirements of
section 3(40)(B) are met, and
``(B) subsection (a)(2) shall be treated as
satisfied if the board of trustees is the named
fiduciary in connection with the arrangement.
``(2) Related employers.--For purposes of paragraph (1),
employers are `related' if there is among all such employers a
common ownership interest or a substantial commonality of
business operations based on common suppliers or customers.
``SEC. 704. OTHER REQUIREMENTS FOR EXEMPTION.
``A multiple employer welfare arrangement exempt under section
514(b)(6)(B) shall meet the following requirements:
``(1) Contents of governing instruments.--The instruments
governing the arrangement include a written instrument, meeting
the requirements of an instrument required under section
402(a)(1), which--
``(A) provides that the board of trustees serves as
the named fiduciary required for plans under section
402(a)(1) and serves in the capacity of a plan
administrator (referred to in section 3(16)(A)),
``(B) provides that the sponsor of the arrangement
is to serve as plan sponsor (referred to in section
3(16)(B)), and
``(C) incorporates the requirements of section 705.
``(2) Contribution rates.--The contribution rates referred
to in section 702(b)(3)(F)(ii) are adequate.
``(3) Regulatory requirements.--Such other requirements as
the Secretary may prescribe by regulation as necessary to carry
out the purposes of this part.
``SEC. 705. MAINTENANCE OF RESERVES.
``(a) In General.--Each multiple employer welfare arrangement which
is or has been exempt under section 514(b)(6)(B) and under which
benefits are not fully insured shall establish and maintain reserves,
consisting of--
``(1) a reserve sufficient for unearned contributions,
``(2) a reserve sufficient for benefit liabilities which
have been incurred, which have not been satisfied, and for
which risk of loss has not yet been transferred, and for
expected administrative costs with respect to such benefit
liabilities, and
``(3) a reserve, in an amount recommended by the qualified
actuary, for any other obligations of the arrangement.
``(b) Minimum Amount for Certain Reserves.--The total of the
reserves described in subsection (a)(2) shall not be less than an
amount equal to the greater of--
``(1) 25 percent of expected incurred claims and expenses
for the plan year, or
``(2) $400,000.
``(c) Required Margin.--In determining the amounts of reserves
required under this section in connection with any multiple employer
welfare arrangement, the qualified actuary shall include a margin for
error and other fluctuations taking into account the specific
circumstances of such arrangement.
``(d) Additional Requirements.--The Secretary may provide such
additional requirements relating to reserves and excess/stop loss
coverage as the Secretary considers appropriate. Such requirements may
be provided, by regulation or otherwise, with respect to any
arrangement or any class of arrangements.
``(e) Adjustments for Excess/Stop Loss Coverage.--The Secretary may
provide for adjustments to the levels of reserves otherwise required
under subsections (a) and (b) with respect to any arrangement or class
of arrangements to take into account excess/stop loss coverage provided
with respect to such arrangement or arrangements.
``(f) Alternative Means of Compliance.--The Secretary may permit an
arrangement to substitute, for all or part of the requirements of this
section, such security, guarantee, hold-harmless arrangement, or other
financial arrangement as the Secretary determines to be adequate to
enable the arrangement to fully meet all its financial obligations on a
timely basis. The Secretary may take into account, for purposes of this
subsection, evidence provided by the arrangement or sponsor which
demonstrates an assumption of liability with respect to the
arrangement. Such evidence may be in the form of a contract of
indemnification, lien, bonding, insurance, letter of credit, recourse
under applicable terms of the arrangement in the form of assessments of
participating employers, security, or other financial arrangement.
``SEC. 706. NOTICE REQUIREMENTS FOR VOLUNTARY TERMINATION.
``Except as provided in section 707(b), a multiple employer welfare
arrangement which is or has been exempt under section 514(b)(6)(B) may
terminate only if the board of trustees--
``(1) not less than 60 days before the proposed termination
date, provides to the participants and beneficiaries a written
notice of intent to terminate stating that such termination is
intended and the proposed termination date,
``(2) develops a plan for winding up the affairs of the
arrangement in connection with such termination in a manner
which will result in timely payment of all benefits for which
the arrangement is obligated, and
``(3) submits such plan in writing to the Secretary.
Actions required under this paragraph shall be taken in such form and
manner as may be prescribed in regulations of the Secretary.
``SEC. 707. CORRECTIVE ACTIONS AND MANDATORY TERMINATION.
``(a) Actions To Avoid Depletion of Reserves.--A multiple employer
welfare arrangement which is or has been exempt under section
514(b)(6)(B) shall continue to meet the requirements of section 705,
irrespective of whether such exemption continues in effect. The board
of trustees of such arrangement shall determine quarterly whether the
requirements of section 705 are met. In any case in which the committee
determines that there is reason to believe that there is or will be a
failure to meet such requirements, or the Secretary makes such a
determination and so notifies the committee, the committee shall
immediately notify the qualified actuary engaged by the arrangement,
and such actuary shall, not later than the end of the next following
month, make such recommendations to the committee for corrective action
as the actuary determines necessary to ensure compliance with section
705. Not later than 10 days after receiving from the actuary
recommendations for corrective actions, the committee shall notify the
Secretary (in such form and manner as the Secretary may prescribe by
regulation) of such recommendations of the actuary for corrective
action, together with a description of the actions (if any) that the
committee has taken or plans to take in response to such
recommendations. The committee shall thereafter report to the
Secretary, in such form and frequency as the Secretary may specify to
the committee, regarding corrective action taken by the committee until
the requirements of section 705 are met.
``(b) Mandatory Termination.--In any case in which--
``(1) the Secretary has been notified under subsection (a)
of a failure of a multiple employer welfare arrangement which
is or has been exempt under section 514(b)(6)(B) to meet the
requirements of section 705 and has not been notified by the
board of trustees of the arrangement that corrective action has
restored compliance with such requirements, and
``(2) the Secretary determines that the continuing failure
to meet the requirements of section 705 can be reasonably
expected to result in a continuing failure to pay benefits for
which the arrangement is obligated,
the board of trustees of the arrangement shall, at the direction of the
Secretary, terminate the arrangement and, in the course of the
termination, take such actions as the Secretary may require, including
recovering for the arrangement any liability under section 705(f), as
necessary to ensure that the affairs of the arrangement will be, to the
maximum extent possible, wound up in a manner which will result in
timely provision of all benefits for which the arrangement is
obligated.
``SEC. 708. ADDITIONAL RULES REGARDING STATE AUTHORITY.
``(a) Exclusion of Arrangements From the Small Group Market in any
State Upon State's Certification of Guaranteed Access to Health
Insurance Coverage in Such State.--
``(1) In general.--If a State certifies to the Secretary
that such State provides to its residents guaranteed access to
health insurance coverage, during the period for which such
certification is in effect, the law of such State may regulate
any health care coverage provided in the small group market in
such State (or prohibit the provision of such coverage) by a
multiple employer welfare arrangement which is otherwise exempt
under section 514(b)(6)(B) and whose sponsor is described in
section 703(a)(1), notwithstanding such exemption. Any such
certification shall be in effect for such period, not greater
than 3 years, as is designated in such certification. Such
certification shall apply with respect to such arrangements as
are identified, individually or by class, in the certification.
``(2) Guaranteed access.--For purposes of this subsection,
the certification by a State that such State provides
`guaranteed access' to health insurance coverage to the
residents of such State means--
``(A) certification that the number of residents of
such State who are covered by a group health plan or
otherwise have health insurance coverage exceeds 90
percent of the total number of the residents of such
State, or
``(B) certification that--
``(i) the small group market in such State
provides guaranteed issue for employees with
respect to at least one option of health
insurance coverage offered by insurers and
health maintenance organizations in such
market, and
``(ii) the State has implemented rating
reforms in the small group market in such State
which are designed to make health insurance
coverage more affordable.
``(b) Exceptions.--
``(1) Certain multistate associations.--Subsection (a)
shall not apply in the case of a multiple employer welfare
arrangement operating in any State which has made a
certification under subsection (a)(2)(B) if--
``(A) in the application for the exemption under
section 514(b)(6)(B), the sponsor of such arrangement
demonstrates to the Secretary (in such form and manner
as shall be prescribed in regulations of the Secretary)
that--
``(i) such sponsor operates in the majority
of the 50 States and in at least 2 of the
regions of the United States, and
``(ii) the arrangement covers, or is to
cover (in the case of a newly established
arrangement), at least 7,500 participants and
beneficiaries, and
``(B) at the time of such application, the
arrangement does not have pending against it any
enforcement action by the State.
``(2) Existing arrangements.--Subsection (a) shall not
apply with respect to an arrangement operating in any State
if--
``(A) such arrangement was operating in such State
as of March 6, 1996, and
``(B) at the time of the application for the
exemption under section 514(b)(6), the arrangement does
not have pending against it any enforcement action by
the State.
``(3) Limitations.--Paragraphs (1) and (2) shall not apply
in the case of any State which has made a certification under
subsection (a) and which, as of January 1, 1996, had enacted a
law that either--
``(A) provided guaranteed issue of individual
health insurance coverage offered by insurers and
health maintenance organizations in the individual
market using pure community rating and did not provide
for any transition period (after the effective date of
the guaranteed issue requirement) in the implementation
of pure community rating; or
``(B) required insurers offering health insurance
coverage in connection with group health plans to
reimburse insurers offering individual health insurance
coverage for losses resulting from those insurers
offering individual health insurance coverage on an
open enrollment basis.
Regulations under this part may provide for an exemption from
the applicability of paragraph (1) in the case of certain
arrangements that are limited to a single industry.
``(c) Assessment Authority With Respect to New Arrangements.--
``(1) In general.--Notwithstanding section 514, a State may
impose by law a premium tax on multiple employer welfare
arrangements which are otherwise exempt under section
514(b)(6)(B) and the sponsor of which is described in section
703(a)(1)--
``(A) in the case of an arrangement established
after March 6, 1996, and
``(B) in the case of an arrangement in existence as
of March 6, 1996, if the arrangement commenced
operations in such State after March 6, 1996.
``(2) Premium tax.--For purposes of this subsection, the
term `premium tax' imposed by a State on a multiple employer
welfare arrangement means any tax imposed by such State if--
``(A) such tax is computed by applying a rate to
the amount of premiums or contributions received by the
arrangement from participating employers located in
such State with respect to individuals covered under
the arrangement who are residents of such State,
``(B) the rate of such tax does not exceed the rate
of any tax imposed by such State on premiums or
contributions received by insurers or health
maintenance organizations for health insurance coverage
offered in such State in connection with a group health
plan,
``(C) such tax is otherwise nondiscriminatory, and
``(D) the amount of any such tax assessed on the
arrangement is reduced by the amount of any tax or
assessment imposed by the State on premiums or
contributions received by insurers or health
maintenance organizations for health insurance coverage
(or other insurance related to the provision of medical
care under the arrangement) provided by such insurers
or health maintenance organizations in such State to
such arrangement.
``(d) Definitions.--For purposes of this section--
``(1) Small group market.--The term `small group market'
means the health insurance coverage market under which
individuals obtain health insurance coverage (directly or
through any arrangement) on behalf of themselves (and their
dependents) on the basis of employment or other relationship
with respect to a small employer.
``(2) Small employer.--The term `small employer' means, in
connection with a group health plan with respect to a calandar
year, an employer who employs at least 2 but fewer than 51
employees on a typical business day in the year. For purposes
of this paragraph, 2 or more trades or businesses, whether or
not incorporated, shall be deemed a single employer if such
trades or businesses are within the same control group (within
the meaning of section 3(40)(B)(ii)).
``(3) Region.--The term `region' means any of the following
regions:
``(A) The East Region, consisting of the States of
Maine, New Hampshire, Vermont, New York, Massachusetts,
Rhode Island, Connecticut, New Jersey, Pennsylvania,
Delaware, Maryland, West Virginia, and Ohio, and the
District of Columbia.
``(B) The Southeast Region, consisting of the
States of Texas, Arkansas, Louisiana, Mississippi,
Alabama, Georgia, Florida, South Carolina, North
Carolina, Virginia, and Tennessee.
``(C) The Midwest Region, consisting of the States
of Montana, South Dakota, North Dakota, Nebraska,
Kansas, Oklahoma, Minnesota, Iowa, Missouri, Wisconsin,
Michigan, Illinois, and Indiana.
``(D) The West Region, consisting of the States of
Oregon, Washington, Idaho, Nevada, California, New
Mexico, Arizona, Nebraska, Wyoming, Hawaii, Alaska,
Colorado, and Utah.''.
(b) Conforming Amendments to Preemption Rules.--
(1) Section 514(b)(6)(A)(i) of such Act (29 U.S.C.
1144(b)(6)(A)(i)) is amended by striking ``is fully insured''
and inserting ``under which all benefits are fully insured'',
and by inserting ``and which is not described in section
702(a)(1)'' after ``subparagraph (B)''.
(2) Section 514(b)(6)(B) of such Act (29 U.S.C.
1144(b)(6)(B)) is amended--
(A) by inserting ``(i)'' after ``(B)'';
(B) by striking ``which are not fully insured'' and
inserting ``under which any benefit is not fully
insured''; and
(C) by striking ``Any such exemption'' and
inserting:
``(ii) Subject to part 7, any exemption under clause (i)''.
(c) Conforming Amendment to Definition of Plan Sponsor.--Section
3(16)(B) of such Act (29 U.S.C. 1002(16)(B)) is amended by adding at
the end the following new sentence: ``Such term also includes the
sponsor (as defined in section 701(6)) of a multiple employer welfare
arrangement which is or has been a multiple employer health plan (as
defined in section 701(4)).''.
(d) Definitions.--
(1) Group health plan.--Section 3 of such Act (29 U.S.C.
1002) is amended by adding at the end the following new
paragraph:
``(42) Except as otherwise provided in this title, the term `group
health plan' means an employee welfare benefit plan to the extent that
the plan provides medical care (within the meaning of section 607(1))
to employees or their dependents (as defined under the terms of the
plan) directly or through insurance, reimbursement, or otherwise.''.
(2) Inclusion of certain partners and self-employed
sponsors in definition of participant.--Section 3(7) of such
Act (29 U.S.C. 1002(7)) is amended--
(A) by inserting ``(A)'' after ``(7)''; and
(B) by adding at the end the following new
paragraph:
``(B) In the case of a group health plan, such term includes--
``(i) in connection with a group health plan maintained by
a partnership, an individual who is a partner in relation to
the partnership, or
``(ii) 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.''.
(3) Health insurance coverage.--Section 3 of such Act (as
amended by paragraph (1)) is amended further by adding at the
end the following new paragraph:
``(43)(A) Except as provided in subparagraph (B), the term `health
insurance coverage' means benefits consisting of medical care (provided
directly, through insurance or reimbursement, or otherwise) under any
hospital or medical service policy or certificate, hospital or medical
service plan contract, or health maintenance organization group
contract offered by an insurer or a health maintenance organization.
``(B) Such term does not include coverage under any separate
policy, certificate, or contract only for one or more of any of the
following:
``(i) Coverage for accident, credit-only, vision,
disability income, long-term care, nursing home care,
community-based care dental, on-site medical clinics, or
employee assistance programs, or any combination thereof.
``(ii) Medicare supplemental health insurance (within the
meaning of section 1882(g)(1) of the Social Security Act (42
U.S.C. 1395ss(g)(1))) and similar supplemental coverage
provided under a group health plan.
``(iii) Coverage issued as a supplement to liability
insurance.
``(iv) Liability insurance, including general liability
insurance and automobile liability insurance.
``(v) Workers' compensation or similar insurance.
``(vi) Automobile medical-payment insurance.
``(vii) Coverage for a specified disease or illness.
``(viii) Hospital or fixed indemnity insurance.
``(ix) Short-term limited duration insurance.
``(x) Such other coverage, comparable to that described in
previous clauses, as may be specified in regulations.''.
(4) Medical care.--Section 607(1) of such Act (29 U.S.C.
1167(1)) is amended--
(A) by striking ``The term'' and inserting the
following:
``(A) In general.--The term'';
(B) by striking ``(as defined'' and all that
follows through ``1986)''; and
(C) by adding at the end the following new
subparagraph:
``(B) Medical care.--For purposes of this
paragraph, the term `medical care' means--
``(i) amounts paid for, or items or
services in the form of, the diagnosis, cure,
mitigation, treatment, or prevention of
disease, or amounts paid for, or items or
services provided for, the purpose of affecting
any structure or function of the body,
``(ii) amounts paid for, or services in the
form of, transportation primarily for and
essential to medical care referred to in clause
(i), and
``(iii) amounts paid for insurance covering
medical care referred to in clauses (i) and
(ii).''.
(5) Other definitions.--Section 514 of such Act is further
amended by adding at the end the following new subsection:
``(e) For purposes of this section, the terms `fully insured',
`health maintenance organization', and `insurer' have the meanings
given such terms in section 701.''.
(e) Clerical Amendment.--The table of contents in section 1 of the
Employee Retirement Income Security Act of 1974 (as amended by section
102(g)) is amended by inserting after the item relating to section 609
the following new items:
``Part 7--Rules Governing Regulation of Multiple Employer Health Plans
``Sec. 701. Definitions.
``Sec. 702. Clarification of duty of the Secretary to implement
provisions of current law provising for
exemptions and solvency standards for
multiple employer health plans.
``Sec. 703. Requirements relating to sponsors, boards of trustees, and
plan operations.
``Sec. 704. Other requirements for exemption.
``Sec. 705. Maintenance of reserves.
``Sec. 706. Notice requirements for voluntary termination.
``Sec. 707. Corrective actions and mandatory termination.
``Sec. 708. Additional rules regarding State authority.''.
SEC. 162. AFFORDABLE AND AVAILABLE FULLY INSURED HEALTH COVERAGE
THROUGH VOLUNTARY HEALTH INSURANCE ASSOCIATIONS.
Section 514 of the Employee Retirement Income Security Act of 1974
is amended--
(1) by redesignating subsections (d) as subsection (e); and
(2) by inserting after subsection (c) the following new
subsection:
``(d)(1) The provisions of this title shall supercede any and all
State laws which regulate insurance insofar as they may now or
hereafter--
``(A) preclude an insurer or health maintenance
organization from offering health insurance coverage under
voluntary health insurance associations,
``(B) preclude an insurer or health maintenance
organization from setting premium rates under a voluntary
health insurance association based on the claims experience of
the voluntary health insurance association (without varying the
premium rates of any particular employer on the basis of the
claims experience of such employer alone), or
``(C) require--
``(i) health insurance coverage in connection with
a voluntary health insurance association to include
specific items or services consisting of medical care,
or
``(ii) an insurer or health maintenance
organization offering health insurance coverage in
connection with a voluntary health insurance
association to include in such health insurance
coverage specific items or services consisting of medical care,
except to the extent that such State laws prohibit an exclusion
for a specific disease in such health insurance coverage.
Subparagraph (C) shall apply only with respect to items and services
which shall be specified in a list which shall be prescribed in
regulations of the Secretary.
``(2)(A) If a State certifies to the Secretary that such State
provides to its residents guaranteed access to health insurance
coverage, during the period for which such certification is in effect,
the law of such State may regulate any health insurance coverage
provided in the small group market in such State (or prohibit the
provision of such coverage) by a voluntary health insurance
association. Any such certification shall be in effect for such period,
not greater than 3 years, as is designated in such certification.
``(B) For purposes of this paragraph, the certification by a State
that such State provides `guaranteed access' to health insurance
coverage to the residents of such State means--
``(i) certification that the number of residents of such
State who are covered by a group health plan or otherwise have
health insurance coverage exceeds 90 percent of the total
number of the residents of such State, or
``(ii) certification that--
``(I) the small group market in such State provides
guaranteed issue for employees with respect to at least
one option of health insurance coverage offered by
insurers and health maintenance organizations in such
market, and
``(II) the State has implemented rating reforms in
the small group market in such State which are designed
to make health insurance coverage more affordable.
``(3)(A) Paragraph (2) shall not apply in the case of any voluntary
health insurance association with respect to any State if the qualified
association demonstrates to the Secretary (in such form and manner as
shall be prescribed in regulations of the Secretary) that--
``(i) such qualified association operates in the majority
of the 50 States and in at least 2 of the regions of the United
States,
``(ii) the arrangement covers, or is to cover (in the case
of a newly established arrangement), at least 7,500
participants and beneficiaries, and
``(iii) under the terms of the arrangement, either--
``(I) the qualified association does not exclude
from membership any small employer in the State, or
``(II) the arrangement accepts every small employer
in the State that applies for coverage.
``(B)(i) Subject to clause (ii), paragraph (2) shall not apply with
respect to a voluntary health insurance association operating in any
State if such association was operating in such State as of March 6,
1996.
``(ii) Clause (i) shall apply in the case of an arrangement in
connection with any State only if the qualified association
demonstrates to the Secretary (in such form and manner as shall be
prescribed in regulations of the Secretary) either--
``(I) that the qualified association does not exclude from
membership any small employer in the State, or
``(II) that the arrangement accepts every small employer in
such State that applies for coverage.
``(C) Subparagraphs (A) and (B) shall not apply in the case of any
State which has made a certification under paragraph (2) and which, as
of January 1, 1996, had enacted a law that either--
``(i) provided guaranteed issue of individual health
insurance coverage offered by insurers and health maintenance
organizations in the individual market using pure community
rating and did not provide for any transition period (after the
effective date of the guaranteed issue requirement) in the
implementation of pure community rating; or
``(ii) required insurers offering health insurance coverage
in connection with group health plans to reimburse insurers
offering individual health insurance coverage for losses
resulting from those insurers offering individual health
insurance coverage on an open enrollment basis.
``(5) For purposes of this subsection--
``(A) The term `voluntary health insurance association'
means a multiple employer welfare arrangement--
``(i) under which benefits include medical care
(within the meaning of section 607(1)),
``(ii) under which all benefits consisting of such
medical care are fully insured,
``(iii) which is maintained by a qualified
association,
``(iv) under which no employer is excluded as a
participating employer (except to the extent that
requirements of the type referred to in section
131(d)(2) of the Health Coverage Availability and
Affordability Act of 1996 are not met), the
requirements of section 103 of such Act (as referred to
in section 104(b)(1) of such Act) are met, and all
health insurance coverage options are aggressively
marketed to eligible employees and their dependents,
and
``(v) under which, with respect to the operations
of the arrangement in any State, the health insurance
coverage is provided by an insurer or health
maintenance organization to which the laws of such
State applies.
``(B) The term `qualified association' means an association
with respect to which the following requirements are met:
``(i) The sponsor of the association is, and has
been (together with its immediate predecessor, if any)
for a continuous period of not less than 5 years,
organized and maintained in good faith, with a
constitution and bylaws specifically stating its
purpose, as a trade association, an industry
association, a professional association, or a chamber
of commerce (or similar business group), for
substantial purposes other than that of obtaining or
providing medical care (within the meaning of section
607(1)).
``(ii) The sponsor of the association is
established as a permanent entity which receives the
active support of its members.
``(iii) The constitution and bylaws of the
association provide for periodic meetings on at least
an annual basis.
``(iv) The association collects dues or
contributions from its members on a periodic basis,
without conditioning such dues or contributions on the
basis of the health status of the employees of such
members or the dependents of such employees or on the
basis of participation in a group health plan or
voluntary health insurance association.
Such term includes a group of qualified associations, as
defined in the preceding provisions of this clause.
``(C) The term `small group market' means the health
insurance coverage market under which individuals obtain health
insurance coverage (directly or through any arrangement) on
behalf of themselves (and their dependents) on the basis of
employment or other relationship with respect to a small
employer.
``(D) The term `small employer' means, in connection with a
group health plan with respect to a calandar year, an employer
who employs at least 2 but fewer than 51 employees on a typical
business day in the year. For purposes of this paragraph, 2 or
more trades or businesses, whether or not incorporated, shall
be deemed a single employer if such trades or businesses are
within the same control group (within the meaning of section
3(40)(B)(ii)).
``(E) The term `region' means any of the following regions:
``(i) The East Region, consisting of the States of
Maine, New Hampshire, Vermont, New York, Massachusetts,
Rhode Island, Connecticut, New Jersey, Pennsylvania,
Delaware, Maryland, West Virginia, and Ohio and the
District of Columbia.
``(ii) The Southeast Region, consisting of the
States of Texas, Arkansas, Louisiana, Mississippi,
Alabama, Georgia, Florida, South Carolina, North
Carolina, Virginia, and Tennessee.
``(iii) The Midwest Region, consisting of the
States of Montana, South Dakota, North Dakota,
Nebraska, Kansas, Oklahoma, Minnesota, Iowa, Missouri,
Wisconsin, Michigan, Illinois, and Indiana.
``(iv) The West Region, consisting of the States of
Oregon, Washington, Idaho, Nevada, California, New
Mexico, Arizona, Nebraska, Wyoming, Hawaii, Alaska,
Colorado, and Utah.''.
SEC. 163. STATE AUTHORITY FULLY APPLICABLE TO SELF-INSURED MULTIPLE
EMPLOYER WELFARE ARRANGEMENTS PROVIDING MEDICAL CARE
WHICH ARE NOT EXEMPTED UNDER NEW PART 7.
(a) In General.--Section 514(b)(6)(A)(ii) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1144(b)(6)(A)(ii)) is
amended by inserting before the period the following: ``, except that,
in any such case, if the arrangement provides medical care (within the
meaning of section 607(1)), such a law of any State may apply without
limitation under this title''.
(b) Cross-Reference.--Section 514(b)(6) of such Act (29 U.S.C.
1144(b)(6)) (as amended by section 301) is amended by adding at the end
the following new subparagraph:
``(G) For additional rules relating to exemption from subparagraph
(A)(ii) of multiple employer health plans, see part 7.''.
SEC. 164. CLARIFICATION OF TREATMENT OF SINGLE EMPLOYER ARRANGEMENTS.
Section 3(40)(B) of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1002(40)(B)) is amended--
(1) in clause (i), by inserting ``for any plan year of any
such plan, or any fiscal year of any such other arrangement,''
after ``single employer'', and by inserting ``during such year
or at any time during the preceding 1-year period'' after
``control group'';
(2) in clause (iii)--
(A) by striking ``common control shall not be based
on an interest of less than 25 percent'' and inserting
``an interest of greater than 25 percent may not be
required as the minimum interest necessary for common
control''; and
(B) by striking ``similar to'' and inserting
``consistent and coextensive with'';
(3) by redesignating clauses (iv) and (v) as clauses (v)
and (vi), respectively; and
(4) by inserting after clause (iii) the following new
clause:
``(iv) in determining, after the application of clause (i),
whether benefits are provided to employees of two or more
employers, the arrangement shall be treated as having only 1
participating employer if, after the application of clause (i),
the number of individuals who are employees and former
employees of any one participating employer and who are covered
under the arrangement is greater than 75 percent of the
aggregate number of all individuals who are employees or former
employees of participating employers and who are covered under
the arrangement,''.
SEC. 165. CLARIFICATION OF TREATMENT OF CERTAIN COLLECTIVELY BARGAINED
ARRANGEMENTS.
(a) In General.--Section 3(40)(A)(i) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1002(40)(A)(i)) is amended to
read as follows:
``(i)(I) under or pursuant to one or more collective
bargaining agreements which are reached pursuant to collective
bargaining described in section 8(d) of the National Labor
Relations Act (29 U.S.C. 158(d)) or paragraph Fourth of section
2 of the Railway Labor Act (45 U.S.C. 152, paragraph Fourth) or
which are reached pursuant to labor-management negotiations
under similar provisions of State public employee relations
laws, and (II) in accordance with subparagraphs (C), (D), and
(E),''.
(b) Limitations.--Section 3(40) of such Act (29 U.S.C. 1002(40)) is
amended by adding at the end the following new subparagraphs:
``(C) A plan or other arrangement is established or maintained in
accordance with this subparagraph only if the following requirements
are met:
``(i) The plan or other arrangement, and the employee
organization or any other entity sponsoring the plan or other
arrangement, do not--
``(I) utilize the services of any licensed
insurance agent or broker for soliciting or enrolling
employers or individuals as participating employers or
covered individuals under the plan or other
arrangement, or
``(II) pay a commission or any other type of
compensation to a person, other than a full time
employee of the employee organization (or a member of
the organization to the extent provided in regulations
of the Secretary), that is related either to the volume
or number of employers or individuals solicited or
enrolled as participating employers or covered
individuals under the plan or other arrangement, or to
the dollar amount or size of the contributions made by
participating employers or covered individuals to the
plan or other arrangement,
except to the extent that the services used by the plan,
arrangement, organization, or other entity consist solely of
preparation of documents necessary for compliance with the
reporting and disclosure requirements of part 1 or
administrative, investment, or consulting services unrelated to
solicitation or enrollment of covered individuals.
``(ii) As of the end of the preceding plan year, the number
of covered individuals under the plan or other arrangement who
are identified to the plan or arrangement and who are neither--
``(I) employed within a bargaining unit covered by
any of the collective bargaining agreements with a
participating employer (nor covered on the basis of an
individual's employment in such a bargaining unit), nor
``(II) present employees (or former employees who
were covered while employed) of the sponsoring employee
organization, of an employer who is or was a party to
any of the collective bargaining agreements, or of the
plan or other arrangement or a related plan or
arrangement (nor covered on the basis of such present
or former employment),
does not exceed 15 percent of the total number of individuals
who are covered under the plan or arrangement and who are
present or former employees who are or were covered under the
plan or arrangement pursuant to a collective bargaining
agreement with a participating employer. The requirements of
the preceding provisions of this clause shall be treated as
satisfied if, as of the end of the preceding plan year, such
covered individuals are comprised solely of individuals who
were covered individuals under the plan or other arrangement as
of the date of the enactment of the Health Coverage
Availability and Affordability Act 1996 and, as of the end of
the preceding plan year, the number of such covered individuals
does not exceed 25 percent of the total number of present and
former employees enrolled under the plan or other arrangement.
``(iii) The employee organization or other entity
sponsoring the plan or other arrangement certifies to the
Secretary each year, in a form and manner which shall be
prescribed in regulations of the Secretary that the plan or
other arrangement meets the requirements of clauses (i) and
(ii).
``(D) A plan or arrangement is established or maintained in
accordance with this subparagraph only if--
``(i) all of the benefits provided under the plan or
arrangement are fully insured (as defined in section 701(2)),
or
``(ii)(I) the plan or arrangement is a multiemployer plan,
and
``(II) the requirements of clause (B) of the proviso to
clause (5) of section 302(c) of the Labor Management Relations
Act, 1947 (29 U.S.C. 186(c)) are met with respect to such plan
or other arrangement.
``(E) A plan or arrangement is established or maintained in
accordance with this subparagraph only if--
``(i) the plan or arrangement is in effect as of the date
of the enactment of the Health Coverage Availability and
Affordability Act of 1996, or
``(ii) the employee organization or other entity sponsoring
the plan or arrangement--
``(I) has been in existence for at least 3 years or
is affiliated with another employee organization which
has been in existence for at least 3 years, or
``(II) demonstrates to the satisfaction of the
Secretary that the requirements of subparagraphs (C)
and (D) are met with respect to the plan or other
arrangement.''.
(c) Conforming Amendments to Definitions of Participant and
Beneficiary.--Section 3(7) of such Act (29 U.S.C. 1002(7)) is amended
by adding at the end the following new sentence: ``Such term includes
an individual who is a covered individual described in paragraph
(40)(C)(ii).''.
SEC. 166. TREATMENT OF CHURCH PLANS.
(a) Special Rules for Church Plans.--
(1) In general.--Part 7 of subtitle B of title I of such
Act (as added and amended by the preceding provisions of this
Act) is amended by adding at the end the following new section:
``SEC. 709. SPECIAL RULES FOR CHURCH PLANS.
``(a) Election for Church Plans.--
``(1) In general.--Notwithstanding section 4(b)(2), if the
church or convention or association of churches which maintains
a church plan covered under this section makes an election with
respect to such plan under this subsection (in such form and
manner as the Secretary may by regulations prescribe), then,
subject to this section, the provisions of this part (and other
provisions of this title to the extent that they apply to group
health plans which are multiple employer welfare arrangements)
shall apply to such church plan, with respect to benefits
provided under such plan consisting of medical care, as if--
``(A) section 4(b)(2) did not contain an exclusion
for church plans, and
``(B) such plan were an arrangement eligible to
apply for an exemption under this part.
``(2) Election irrevocable.--An election under this
subsection with respect to any church plan shall be binding
with respect to such plan, and, once made, shall be
irrevocable.
``(b) Covered Church Plans.--A church plan is covered under this
section if such plan provides benefits which include medical care and
some or all of such benefits are not fully insured.
``(c) Sponsor and Board of Trustees.--For purposes of this part, in
the case of a church plan to which this part applies pursuant to an
election under subsection (a), in treating such plan as if it were a
multiple employer welfare arrangement under this part--
``(1) the church, convention or association of churches, or
other organization described in section 3(33)(C)(i) which is
the entity maintaining the plan shall be treated as the sponsor
referred to in section 703(a)(1), and the requirements of
section 703(a)(1) shall not apply, and
``(2) the board of trustees, board of directors, or other
similar governing body of such sponsor shall be treated as the
board of trustees referred to in section 703(a)(2), and the
requirements of section 703(a)(2) shall be deemed satisfied with
respect to the board of trustees.
``(d) Deemed Satisfaction of Trust Requirements.--The requirements
of section 403 shall not be treated as not satisfied with respect to a
church plan to which this part applies pursuant to an election under
subsection (a) solely because assets of the plan are held by an
organization described in section 3(33)(C)(i), if--
``(1) such organization is incorporated separately from the
church or convention or association of churches involved, and
``(2) such assets with respect to medical care are
separately accounted for.
``(e) Deemed Satisfaction of Exclusive Benefit Requirements.--The
requirements of section 404 shall not be treated as not satisfied with
respect to a church plan to which this part applies pursuant to an
election under subsection (a) solely because assets of the plan which
are in excess of reserves required for exemption under section
514(b)(6)(B) are held in a fund in which such assets are pooled with
assets of other church plans, if the assets held by such fund may not,
under the terms of the plan and the terms governing such fund, be used
for, or diverted to, any purpose other than for the exclusive benefit
of the participants and beneficiaries of the church plans whose assets
are pooled in such fund.
``(f) Inapplicability of Certain Provisions.--
``(1) Prohibited transactions.--Section 406 shall not apply
to a church plan by reason of an election under subsection (a).
``(2) Continuation coverage.--Section 601 shall not apply
to a church plan by reason of an election under subsection
(a).''.
(b) Conforming Amendments.--
(1) Section 4(b)(2) of such Act (29 U.S.C. 1003(b)(2)) is
amended by inserting before the semicolon the following: ``,
except with respect to provisions made applicable under any
election made under section 704(a) of this Act''.
(2) Section 514 of such Act (29 U.S.C. 1144) is amended--
(A) in subsection (a), by inserting ``(including a
church plan which is not exempt under section 4(b)(2)
by reason of an election under section 704)'' before
the period in the first sentence; and
(B) in subsection (b)(2)(B), by inserting ``and
including a church plan which is not exempt under
section 4(b)(2) by reason of an election under section
704'' after ``death benefits''.
(c) Clerical Amendment.--The table of contents in section 1 of such
Act (as amended by the preceding provisions of this title) is further
amended by inserting after the item relating to section 703 the
following new item:
``Sec. 709. Special rules for church plans.''.
SEC. 167. ENFORCEMENT PROVISIONS RELATING TO MULTIPLE EMPLOYER WELFARE
ARRANGEMENTS.
(a) Enforcement of Filing Requirements.--Section 502 of the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1132) (as
amended by sections 102(c)) is further amended--
(1) in subsection (a)(6), by striking ``paragraph (2) or
(5)'' and inserting ``paragraph (2), (5), or (6)''; and
(2) by adding at the end of subsection (c) the following
new paragraph:
``(6) The Secretary may assess a civil penalty against any person
of up to $1,000 a day from the date of such person's failure or refusal
to file the information required to be filed with the Secretary under
section 101(g).''.
(b) Actions by States in Federal Court.--Section 502(a) of such Act
(29 U.S.C. 1132(a)) is amended--
(1) in paragraph (8), by striking ``or'' at the end;
(2) in paragraph (9), by striking the period and inserting
``, or''; and
(3) by adding at the end the following:
``(10) by a State official having authority under the law
of such State to enforce the laws of such State regulating
insurance, to enjoin any act or practice which violates any
requirement under part 7 for an exemption under section
514(b)(6)(B) which such State has the power to enforce pursuant
to section 506(c)(1).''.
(c) Criminal Penalties for Certain Willful Misrepresentations.--
Section 501 of such Act (29 U.S.C. 1131) is amended--
(1) by inserting ``(a)'' after ``Sec. 501.''; and
(2) by adding at the end the following new subsection:
``(b) Any person who, either willfully or with willful blindness,
falsely represents, to any employee, any employee's beneficiary, any
employer, the Secretary, or any State, an arrangement established or
maintained for the purpose of offering or providing any benefit
described in section 3(1) to employees or their beneficiaries as--
``(1) being a multiple employer welfare arrangement to
which an exemption has been granted under section 514(b)(6)(B),
``(2) having been established or maintained under or
pursuant to one or more collective bargaining agreements which
are reached pursuant to collective bargaining described in
section 8(d) of the National Labor Relations Act (29 U.S.C.
158(d)) or paragraph Fourth of section 2 of the Railway Labor
Act (45 U.S.C. 152, paragraph Fourth) or which are reached
pursuant to labor-management negotiations under similar
provisions of State public employee relations laws, or
``(3) being a plan or arrangement with respect to which the
requirements of subparagraph (C), (D), or (E) of section 3(40)
are met,
shall, upon conviction, be imprisoned not more than five years, be
fined under title 18, United States Code, or both.''.
(d) Cessation of Activities in Absence of Effective State
Regulation unless Standards under ERISA Exemption Are Met.--Section 502
of such Act (29 U.S.C. 1132) is amended by adding at the end the
following new subsection:
``(n)(1) Subject to paragraph (2), upon application by the
Secretary showing the operation, promotion, or marketing of a multiple
employer welfare arrangement providing benefits consisting of medical
care (within the meaning of section 607(1)) that--
``(A) is not licensed, registered, or otherwise approved
under the insurance laws of the States in which the arrangement
offers or provides benefits, and
``(B) if there is in effect with respect to such
arrangement an exemption under section 514(b)(6)(B), is not
operating in accordance with the requirements under part 7 for
such an exemption,
a district court of the United States shall enter an order requiring
that the arrangement cease activities.
``(2) Paragraph (1) shall not apply in the case of a multiple
employer welfare arrangement if the arrangement shows that--
``(A) all benefits under it referred to in paragraph (1)
are fully insured, within the meaning of section 701(1), and
``(B) with respect to each State in which the arrangement
offers or provides benefits, the arrangement is operating in
accordance with applicable State insurance laws that are not
superseded under section 514.
``(3) The court may grant such additional equitable relief,
including any relief available under this title, as it deems necessary
to protect the interests of the public and of persons having claims for
benefits against the arrangement.''.
(e) Responsibility for Claims Procedure.--Section 503 of such Act
(29 U.S.C. 1133) is amended by adding at the end (after and below
paragraph (2)) the following new sentence: ``The terms of each multiple
employer health plan (within the meaning of section 701(4)) shall
require the board of trustees or the named fiduciary (as applicable) to
ensure that the requirements of this section are met in connection with
claims filed under the plan.''.
SEC. 168. COOPERATION BETWEEN FEDERAL AND STATE AUTHORITIES.
Section 506 of the Employee Retirement Income Security Act of 1974
(29 U.S.C. 1136) is amended by adding at the end the following new
subsection:
``(c) State Authority With Respect to Multiple Employer Welfare
Arrangements.--
``(1) State enforcement.--
``(A) Agreements with states.--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 section 514(d) or the requirements under part 7
for an exemption under section 514(b)(6)(B). The
Secretary shall enter into the agreement if the
Secretary determines that the delegation provided for
therein would not result in a lower level or quality of
enforcement of the provisions of this title.
``(B) Delegations.--Any department, agency, or
instrumentality of a State to which authority is
delegated pursuant to an agreement entered into under
this paragraph may, if authorized under State law and
to the extent consistent with such agreement, exercise
the powers of the Secretary under this title which
relate to such authority.
``(C) Concurrent authority of the secretary.--If
the Secretary delegates authority to a State in an
agreement entered into under subparagraph (A), the
Secretary may continue to exercise such authority
concurrently with the State.
``(D) Recognition of primary domicile state.--In
entering into any agreement with a State under
subparagraph (A), the Secretary shall ensure that, as a
result of such agreement and all other agreements
entered into under subparagraph (A), only one State
will be recognized, with respect to any particular
multiple employer welfare arrangement, as the primary
domicile State to which authority has been delegated
pursuant to such agreements.
``(2) Assistance to states.--The Secretary shall--
``(A) provide enforcement assistance to the States
with respect to multiple employer welfare arrangements,
including, but not limited to, coordinating Federal and
State efforts through the establishment of cooperative
agreements with appropriate State agencies under which
the Pension and Welfare Benefits Administration keeps
the States informed of the status of its cases and
makes available to the States information obtained by
it,
``(B) provide continuing technical assistance to
the States with respect to issues involving multiple
employer welfare arrangements and this Act,
``(C) make readily available to the States timely
and complete responses to requests for advisory
opinions on issues described in subparagraph (B), and
``(D) distribute copies of all advisory opinions
described in subparagraph (C) to the State insurance
commissioner of each State.''.
SEC. 169. FILING AND DISCLOSURE REQUIREMENTS FOR MULTIPLE EMPLOYER
WELFARE ARRANGEMENTS OFFERING HEALTH BENEFITS.
(a) In General.--Section 101 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1021) is amended--
(1) by redesignating subsection (g) as subsection (i); and
(2) by inserting after subsection (f) the following new
subsections:
``(g) Registration of Multiple Employer Welfare Arrangements.--(1)
Each multiple employer welfare arrangement shall file with the
Secretary a registration statement described in paragraph (2) within 60
days before commencing operations (in the case of an arrangement
commencing operations on or after January 1, 1997) and no later than
February 15 of each year (in the case of an arrangement in operation
since the beginning of such year), unless, as of the date by which such
filing otherwise must be made, such arrangement provides no benefits
consisting of medical care (within the meaning of section 607(1)).
``(2) Each registration statement--
``(A) shall be filed in such form, and contain such
information concerning the multiple employer welfare
arrangement and any persons involved in its operation
(including whether coverage under the arrangement is fully
insured), as shall be provided in regulations which shall be
prescribed by the Secretary, and
``(B) if any benefits under the arrangement consisting of
medical care (within the meaning of section 607(1)) are not
fully insured, shall contain a certification that copies of
such registration statement have been transmitted by certified
mail to--
``(i) in the case of an arrangement which is a
multiple employer health plan (as defined in section
701(4)), the State insurance commissioner of the
domicile State of such arrangement, or
``(ii) in the case of an arrangement which is not a
multiple employer health plan, the State insurance
commissioner of each State in which the arrangement is
located.
``(3) The person or persons responsible for filing the annual
registration statement are--
``(A) the trustee or trustees so designated by the terms of
the instrument under which the multiple employer welfare
arrangement is established or maintained, or
``(B) in the case of a multiple employer welfare
arrangement for which the trustee or trustees cannot be
identified, or upon the failure of the trustee or trustees of
an arrangement to file, the person or persons actually
responsible for the acquisition, disposition, control, or
management of the cash or property of the arrangement,
irrespective of whether such acquisition, disposition, control,
or management is exercised directly by such person or persons
or through an agent designated by such person or persons.
``(4) Any agreement entered into under section 506(c) with a State
as the primary domicile State with respect to any multiple employer
welfare arrangement shall provide for simultaneous filings of reports
required under this subsection with the Secretary and with the State
insurance commissioner of such State.
``(5) For purposes of this subsection, the term `domicile State'
means, in connection with a multiple employer welfare arrangement, the
State in which, according to the application for an exemption under
this 514(b)(6)(B), most individuals to be covered under the arrangement
are located, except that, in any case in which information contained in
the latest annual report of the arrangement filed under this part
indicates that most individuals covered under the arrangement are
located in a different State, such term means such different State.
``(6) The Secretary may exempt from the requirements of this
subsection such class of multiple employer welfare arrangements as the
Secretary deems appropriate.
``(h) Filing Requirements for Multiple Employer Welfare
Arrangements.--
``(1) In general.--A multiple employer welfare arrangement
which provides benefits consisting of medical care (within the
meaning of section 607(1)) shall issue to each participating
employer--
``(A) a document equivalent to the summary plan
description required of plans under this part,
``(B) information describing the contribution rates
applicable to participating employers, and
``(C) a statement indicating--
``(i) that the arrangement is not a
licensed insurer under the laws of any State,
``(ii) the extent to which any benefits
under the arrangement are fully insured,
``(iii) if any benefits under the
arrangement are not fully insured, whether the
arrangement has been granted an exemption under
section 514(b)(6)(B) (or whether such an
exemption has ceased to be effective).
``(2) Time for disclosure.--Such information shall be
issued to employers within such reasonable period of time
before becoming participating employers as may be prescribed in
regulations of the Secretary.''.
(b) Effective Dates.--Section 101(g) of the Employee Retirement
Income Security Act of 1974 (added by subsection (a)) shall take effect
on the date of the enactment of this Act. Section 101(h) of such Act
(added by subsection (a)) shall take effect as provided in section 171.
SEC. 170. SINGLE ANNUAL FILING FOR ALL PARTICIPATING EMPLOYERS.
(a) In General.--Section 110 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1030) is amended by adding at the end
the following new subsection:
``(c) The Secretary shall prescribe by regulation or otherwise an
alternative method providing for the filing of a single annual report
(as referred to in section 104(a)(1)(A)) with respect to all employers
who are participating employers under a multiple employer welfare
arrangement under which all coverage consists of medical care (within
the meaning of section 607(1)) and is fully insured (as defined in
section 701(1)).''.
(b) Effective Date.--The amendment made by subsection (a) shall
take effect on the date of the enactment of this Act. The Secretary of
Labor shall prescribe the alternative method referred to in section
110(c) of the Employee Retirement Income Security Act of 1974, as added
by such amendment, within 90 days after the date of the enactment of
this Act.
SEC. 171. EFFECTIVE DATE; TRANSITIONAL RULE.
(a) Effective Date.--Except as otherwise provided in section
170(b), the amendments made by this subtitle shall take effect January
1, 1998. The Secretary shall issue all regulations necessary to carry
out the amendments made by this subtitle before January 1, 1998.
(b) Transitional Rule.--
(1) In general.--If the sponsor of a multiple employer
welfare arrangement which, as of the effective date specified
in subsection (a), provides benefits consisting of medical care
(within the meaning of section 607(1) of the Employee
Retirement Income Security Act of 1974) files with the
Secretary of Labor an application for an exemption under
section 514(b)(6)(B) of such Act within 180 days after such
date and the Secretary has not, as of 90 days after receipt of
such application, found such application to be materially
deficient, then section 514(b)(6)(A) of such Act (29 U.S.C.
1144(b)(6)(A)) shall not apply with respect to such arrangement
during the period following such date and ending on the earlier
of--
(A) the date on which the Secretary denies the
application under the amendments made by this title or
determines, in the Secretary's sole discretion, that
such exclusion from coverage under the provisions of
such section 514(b)(6)(A) of such arrangement would be
detrimental to the interests of individuals covered
under such arrangement, or
(B) 18 months after such effective date.
(2) No pending state action.--Subparagraph (A) shall apply
in the case of an arrangement only if, at the time of the
application for the exemption under section 514(b)(6)(B), the
arrangement does not have pending against it an enforcement
action by a State.
Subtitle D--Definitions; General Provisions
SEC. 191. DEFINITIONS; SCOPE OF COVERAGE.
(a) Group Health Plan.--
(1) Definition.--Subject to the succeeding provisions of
this subsection and subsection (d)(1), the term ``group health
plan'' means an employee welfare benefit plan to the extent
that the plan provides medical care (as defined in subsection (c)(9))
to employees or their dependents (as defined under the terms of the
plan) directly or through insurance, reimbursement, or otherwise, and
includes a group health plan (within the meaning of section 5000(b)(1)
of the Internal Revenue Code of 1986).
(2) Limitation of requirements to plans with 2 or more
employee participants.--The requirements of subtitle A and part
1 of subtitle B shall apply in the case of a group health plan
for any plan year, or for health insurance coverage offered in
connection with a group health plan for a year, only if the
group health plan has two or more participants as current
employees on the first day of the plan year.
(3) Exclusion of plans with limited coverage.--An employee
welfare benefit plan shall be treated as a group health plan
under this title only with respect to medical care which is
provided under the plan and which does not consist of coverage
excluded from the definition of health insurance coverage under
subsection (c)(4)(B).
(4) Treatment of church plans.--
(A) Exclusion.--The requirements of this title
insofar as they apply to group health plans shall not
apply to church plans.
(B) Optional disregard in determining period of
coverage.--For purposes of applying section
101(b)(3)(B)(i), a group health plan may elect to
disregard periods of coverage of an individual under a
church plan that, pursuant to subparagraph (A), is not
subject to the requirements of this title.
(5) Treatment of governmental plans.--
(A) Election to be excluded.--If the plan sponsor
of a governmental plan which is a group health plan to
which the provisions of this subtitle otherwise apply
makes an election under this paragraph for any
specified period (in such form and manner as the
Secretary of Health and Human Services may by
regulations prescribe), then the requirements of this
title insofar as they apply to group health plans shall
not apply to such governmental plans for such period.
(B) Optional disregard in determining period of
coverage if election made.--For purposes of applying
section 101(b)(3)(B)(i), a group health plan may elect
to disregard periods of coverage of an individual under
a governmental plan that, under an election under
subparagraph (A), is not subject to the requirements of
this title.
(6) Treatment of medicaid plan as group health plan.--A
State plan under title XIX of the Social Security Act shall be
treated as a group health plan for purposes of applying section
101(c)(1), unless the State elects not to be so treated.
(7) Treatment of medicare and indian health service
programs as group health plan.--Title XVIII of the Social
Security Act and a program of the Indian Health Service shall
be treated as a group health plan for purposes of applying
section 101(c)(1).
(b) Incorporation of Certain Definitions in Employee Retirement
Income Security Act of 1974.--Except as provided in this section, the
terms ``beneficiary'', ``church plan'', ``employee'', ``employee
welfare benefit plan'', ``employer'', ``governmental plan'',
``multiemployer plan'', ``multiple employer welfare arrangement'',
``participant'', ``plan sponsor'', and ``State'' have the meanings
given such terms in section 3 of the Employee Retirement Income
Security Act of 1974.
(c) Other Definitions.--For purposes of this title:
(1) Applicable state authority.--The term ``applicable
State authority'' means, with respect to an insurer or health
maintenance organization 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 insurer or organization.
(2) Bona fide association.--The term ``bona fide
association'' means 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 health status,
(D) makes health insurance coverage offered through
the association available to all members regardless of
health status,
(E) does not make health insurance coverage offered
through the association available to any individual who
is not a member (or dependent of a member) of the
association at the time the coverage is initially
issued,
(F) does not impose preexisting condition
exclusions except in a manner consistent with the
requirements of sections 101 and 102 as they relate to
group health plans, and
(G) provides for renewal and continuation of health
insurance coverage in a manner consistent with the
requirements of section 132 as they relate to the
renewal and continuation in force of coverage in a
group market.
(3) 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 (29 U.S.C. 1161
et seq.), other than section 609.
(C) Title XXII of the Public Health Service Act.
(4) Health insurance coverage.--
(A) In general.--Except as provided in subparagraph
(B), the term ``health insurance coverage'' means
benefits consisting of medical care (provided directly,
through insurance or reimbursement, or otherwise) under
any hospital or medical service policy or certificate,
hospital or medical service plan contract, or health
maintenance organization group contract offered by an
insurer or a health maintenance organization.
(B) Exception.--Such term does not include coverage
under any separate policy, certificate, or contract
only for one or more of any of the following:
(i) Coverage for accident, credit-only,
vision, disability income, long-term care,
nursing home care, community-based care dental,
on-site medical clinics, or employee assistance
programs, or any combination thereof.
(ii) Medicare supplemental health insurance
(within the meaning of section 1882(g)(1) of
the Social Security Act (42 U.S.C.
1395ss(g)(1))) and similar supplemental
coverage provided under a group health plan.
(iii) Coverage issued as a supplement to
liability insurance.
(iv) Liability insurance, including general
liability insurance and automobile liability
insurance.
(v) Workers' compensation or similar
insurance.
(vi) Automobile medical-payment insurance.
(vii) Coverage for a specified disease or
illness.
(viii) Hospital or fixed indemnity
insurance.
(ix) Short-term limited duration insurance.
(x) Such other coverage, comparable to that
described in previous clauses, as may be
specified in regulations prescribed under this
title.
(5) Health maintenance organization; hmo.--The terms
``health maintenance organization'' and ``HMO'' mean--
(A) a Federally qualified health maintenance
organization (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,
if (other than for purposes of part 2 of subtitle B) it 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).
(6) Health status.--The term ``health status'' includes,
with respect to an individual, medical condition, claims
experience, receipt of health care, medical history, genetic
information, evidence of insurability (including conditions
arising out of acts of domestic violence), or disability.
(7) Individual health insurance coverage.--The term
``individual health insurance coverage'' means health insurance
coverage offered to individuals if the coverage is not offered
in connection with a group health plan (other than such a plan
that has fewer than two participants as current employees on
the first day of the plan year).
(8) Insurer.--The term ``insurer'' means an insurance
company, insurance service, or insurance organization which is
licensed to engage in the business of insurance in a State and
which (except for purposes of part 2 of subtitle B) is subject
to State law which regulates insurance (within the meaning of
section 514(b)(2)(A) of the Employee Retirement Income Security
Act of 1974).
(9) Medical care.--The term ``medical care'' means--
(A) amounts paid for, or items or services in the
form of, the diagnosis, cure, mitigation, treatment, or
prevention of disease, or amounts paid for, or items or
services provided for, the purpose of affecting any
structure or function of the body,
(B) amounts paid for, or services in the form of,
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) and (B).
(10) Network plan.--The term ``network plan'' means, with
respect to health insurance coverage, an arrangement of an
insurer or a health maintenance organization 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 insurer or health maintenance organization.
(11) 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 minimum
period that must pass with respect to the individual before the
individual is eligible to be covered for benefits under the
plan.
(d) Treatment of Partnerships.--
(1) Treatment as a group health plan.--Any plan, fund, or
program which would not be (but for this paragraph) an employee
welfare benefit plan and which is established or maintained by
a partnership, to the extent that such plan, fund, or program
provides 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 insurance,
reimbursement, or otherwise, shall be treated (subject to
paragraph (1)) as an employee welfare benefit plan which is a
group health plan.
(2) Treatment of partnership and partners and employer and
participants.--In the case of a group health plan--
(A) the term ``employer'' includes the partnership
in relation to any partner; and
(B) the term ``participant'' includes--
(i) in connection with a group health plan
maintained by a partnership, an individual who
is a partner in relation to the partnership, or
(ii) 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.
(e) Definitions Relating to Markets and Small Employers.--As used
in this title:
(1) Individual market.--The term ``individual market''
means the market for health insurance coverage offered to
individuals and not to employers or in connection with a group
health plan and does not include the market for such coverage
issued only by an insurer or HMO that makes such coverage
available only on the basis of affiliation with a bona fide
association (as defined in subsection (c)(2)).
(2) Large group market.--The term ``large group market''
means the market for health insurance coverage offered to
employers (other than small employers) on behalf of their
employees (and their dependents) and does not include health
insurance coverage available solely in connection with a bona
fide association (as defined in subsection (c)(2)).
(3) Small employer.--The term ``small employer'' means, in
connection with a group health plan with respect to a calendar
year, an employer who employs at least 2 but fewer than 51
employees on a typical business day in the year. All persons
treated as a single employer under subsection (a) or (b) of
section 52 of the Internal Revenue Code of 1986 shall be
treated as a single employer for purposes of this title.
(4) 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) on
the basis of employment or other relationship with respect to a
small employer and does not include health insurance coverage
available solely in connection with a bona fide association (as
defined in subsection (c)(2)).
SEC. 192. STATE FLEXIBILITY TO PROVIDE GREATER PROTECTION.
(a) State Flexibility To Provide Greater Protection.--Subject to
subsection (b), nothing in this subtitle or subtitle A or B shall be
construed to preempt State laws--
(1) that relate to matters not specifically addressed in
such subtitles; or
(2) that require insurers or HMOs--
(A) to impose a limitation or exclusion of benefits
relating to the treatment of a preexisting condition
for a period that is shorter than the applicable period
provided for under such subtitles;
(B) to allow individuals, participants, and
beneficiaries to be considered to be in a period of
previous qualifying coverage if such individual,
participant, or beneficiary experiences a lapse in
coverage that is greater than the 60-day periods
provided for under sections 101(b)(3)(A),
101(b)(3)(B)(ii), and 102(b)(2); or
(C) in defining pre-existing condition, to have a
look-back period that is shorter than the 6-month
period described in section 101(b)(1)(A).
(b) No Override of ERISA Preemption.--Except as provided
specifically in subtitle C, nothing in this Act 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. 193. EFFECTIVE DATE.
(a) In General.--Except as otherwise provided for in this title,
the provisions of this title shall apply with respect to--
(1) group health plans, and health insurance coverage
offered in connection with group health plans, for plan years
beginning on or after January 1, 1998, and
(2) individual health insurance coverage issued, renewed,
in effect, or operated on or after July 1, 1998.
(b) Consideration of Previous Coverage.--The Secretaries of Health
and Human Services, Treasury, and Labor shall jointly establish rules
regarding the treatment (in determining qualified coverage periods
under sections 102(b) and 141(b)) of coverage before the applicable
effective date specified in subsection (a).
(c) Timely Issuance of Regulations.--The Secretaries of Health and
Human Services, the Treasury, and Labor shall issue such regulations on
a timely basis as may be required to carry out this title.
SEC. 194. RULE OF CONSTRUCTION.
Nothing in this title or any amendment made thereby may be
construed to require (or to authorize any regulation that requires) the
coverage of any specific procedure, treatment, or service under a group
health plan or health insurance coverage.
SEC. 195. FINDINGS RELATING TO EXERCISE OF COMMERCE CLAUSE AUTHORITY.
Congress finds the following in relation to the provisions of this
title:
(1) Provisions in group health plans and health insurance
coverage that impose certain pre-existing conditions impact the
ability of employees to seek employment in interstate commerce,
thereby impeding such commerce.
(2) Health insurance 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 carrying out such requirements
with respect to insurers and health maintenance organizations
that are subject to State regulation, consistent with the
provisions of the Employee Retirement Income Security Act of
1974.
TITLE II--PREVENTING HEALTH CARE FRAUD AND ABUSE; ADMINISTRATIVE
SIMPLIFICATION; MEDICAL LIABILITY REFORM
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.
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
``Sec. 1128C. (a) Establishment of Program.--
``(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 Human Services, and the
Attorney General shall establish a program--
``(A) to coordinate Federal, State, and local law
enforcement 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 certain final adverse actions against health care
providers, suppliers, 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 furnishing
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 utilized 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)
(relating 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 Inspector
General, including such authority as provided in the Inspector
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 reimbursement
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
appropriation 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 Control Account in
Federal Hospital Insurance Trust Fund.--Section 1817 (42 U.S.C. 1395i)
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 Fund an expenditure account to be known as the `Health
Care Fraud and Abuse Control Account' (in this subsection
referred to as the `Account').
``(2) Appropriated amounts to trust fund.--
``(A) In general.--There are hereby appropriated to
the Trust Fund--
``(i) such gifts and bequests as may be
made as provided in subparagraph (B);
``(ii) such amounts as may be deposited in
the Trust Fund as provided in sections 242(b)
and 249(c) of the Health Coverage Availability
and Affordability Act of 1996, and title XI;
and
``(iii) such amounts as are transferred to
the Trust Fund under subparagraph (C).
``(B) Authorization to accept gifts.--The Trust
Fund is authorized to accept on behalf of the United
States money gifts and bequests made unconditionally 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 recovered under titles XI,
XVIII, and XIX, and chapter 38 of title 31,
United States Code (except as otherwise
provided by law).
``(iii) Amounts resulting from the
forfeiture of property by reason of a Federal
health care offense.
``(iv) Penalties and damages obtained and
otherwise 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 services
(other than funds awarded to a relator, for
restitution or otherwise authorized by law).
``(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 years
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 for 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
Inspector General of the Department of Health
and Human Services with respect to the medicare
and medicaid programs--
``(I) for fiscal year 1997, not
less than $60,000,000 and not more than
$70,000,000;
``(II) 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 and hereby appropriated to the Account
for transfer to the Federal Bureau of Investigation to
carry out the purposes described in subparagraph (C),
to be available 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 of--
``(i) prosecuting health care matters
(through criminal, 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
Integrity 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 fiscal 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.
``(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 amount
shall be not less than $620,000,000 and not
more than $630,000,000.
``(v) For fiscal year 2001, such amount
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 after fiscal
year 2002, such amount shall be not less than
$710,000,000 and not more than $720,000,000.
``(5) Annual report.--The Secretary and the Attorney
General shall submit jointly an annual report to Congress on
the amount of revenue which is generated and disbursed, and the
justification for such disbursements, by the Account in each
fiscal year.''.
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
``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 accordance with
this section with eligible private 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 payment may be made under this title (including
skilled nursing facilities and home health agencies), including
medical and utilization review and fraud review (employing
similar standards, processes, and 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 payment 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 payment 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 of the United
States, 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 demonstrates to the Secretary that the
entity's financial holdings, interests, or relationships will
not interfere with its ability to perform the functions to be
required by the contract in an effective and impartial manner;
and
``(4) the entity meets such other requirements as the
Secretary 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 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) The Secretary shall determine the appropriate number
of separate contracts which are necessary to carry out the
Program and the appropriate times at which the Secretary shall
enter into such contracts.
``(2)(A) Except as provided in subparagraph (B), the
provisions of section 1153(e)(1) shall apply to contracts and
contracting authority under this section.
``(B) Competitive procedures must be used when entering
into new contracts under this section, or at any other time
considered appropriate by the Secretary, except that the
Secretary may 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) A contract under this section may be renewed without
regard to any provision of law requiring competition if the
contractor has met or exceeded the performance requirements
established in the current contract.
``(e) Limitation on Contractor Liability.--The Secretary shall by
regulation provide for the limitation of a contractor's liability for
actions taken to carry out a contract under the Program, and such
regulation shall, to the extent the Secretary finds appropriate, employ
the same or comparable standards and other substantive and procedural
provisions as are contained in section 1157.''.
(b) Elimination of FI 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:
``(l) No agency or organization may carry out (or receive payment
for carrying out) any activity pursuant to an 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)).''.
SEC. 203. BENEFICIARY INCENTIVE PROGRAMS.
(a) Clarification of Requirement to Provide Explanation of Medicare
Benefits.--The Secretary of Health and Human Services (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 payment 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
against the individual with respect to the item or service.
(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 entities who are engaging or who have engaged
in acts or omissions which constitute grounds for the
imposition of a sanction under section 1128, section 1128A, or
section 1128B of the Social Security Act, or who have otherwise
engaged in fraud and abuse against the medicare program for
which there is a sanction provided under law. The program shall
discourage provision of, and not consider, 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
program 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
payments 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 ANTI-FRAUD 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 programs''.
(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''.
(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)--
(A) by striking ``a State plan approved under title
XIX'' and inserting ``a Federal health care program'',
and
(B) by striking ``the State may at its option
(notwithstanding 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 program that provides health benefits,
whether directly, through insurance, or otherwise, which is
funded 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 Modifications 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 Federal 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 criminal 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 fraud 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
subparagraph (A), the Secretary, in consultation with
the Attorney General, shall publish in the Federal
Register proposed modifications to existing safe
harbors and proposed additional 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
Department of Health and Human Services (in this
section referred to as the `Inspector General') shall,
in an annual report to Congress or as part of the year-
end semiannual 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
harbors.--In modifying and establishing safe harbors under
paragraph (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 freedom 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
overutilization 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 shall
issue written advisory opinions as provided in this subsection.
``(2) Matters subject to advisory opinions.--The Secretary
shall issue advisory opinions as to the following matters:
``(A) What constitutes prohibited remuneration
within the meaning of section 1128B(b).
``(B) Whether an arrangement or proposed
arrangement satisfies the criteria set forth in section
1128B(b)(3) for activities which do not result in
prohibited remuneration.
``(C) Whether an arrangement or proposed
arrangement satisfies the criteria which the Secretary
has established, 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 or title XXI within the
meaning of section 1128B(b).
``(E) Whether any activity or proposed activity
constitutes 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 parties 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 applying 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 shall be required to
respond to a party requesting an advisory
opinion by not later than 30 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.
``(c) Special Fraud Alerts.--
``(1) In general.--
``(A) Request for special fraud alerts.--Any person
may present, at any time, a request to the Inspector
General 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 or a State health care program, as defined in
section 1128(h) (in this subsection referred to as a
`special fraud alert').
``(B) Issuance and publication of special fraud
alerts.--Upon receipt of a request described in
subparagraph (A), the Inspector General shall
investigate the subject 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
Register.
``(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 and 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 MEDICARE 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 after the date of
the enactment of the Health Coverage Availability and
Affordability Act of 1996, under Federal or State law, in
connection with the delivery 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 after the date of the enactment
of the Health Coverage Availability and Affordability 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 Controlled
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 substance.--
Any individual or entity that has been convicted after the date
of the enactment of the Health Coverage Availability and
Affordability Act of 1996, under Federal or State law, of a
criminal offense consisting of a felony relating to the
unlawful manufacture, distribution, 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 adding
at the end the following new subparagraphs:
``(D) In the case of an exclusion of an 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.
``(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 constituting 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 from participation
under a program under 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)(1)) is amended by striking ``may
prescribe)'' 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 Imposition of
Sanction.--Section 1156(b)(1) (42 U.S.C. 1320c-5(b)(1)) 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 Program
Violations.--
(1) In general.--Section 1876(i)(1) (42 U.S.C.
1395mm(i)(1)) is amended by striking ``the Secretary may
terminate'' and all that follows and inserting ``in accordance
with procedures established under paragraph (9), the Secretary
may at any time terminate any such contract or may impose the
intermediate sanctions described in paragraph (6)(B) or (6)(C)
(whichever is applicable) on the eligible organization if the
Secretary determines that the organization--
``(A) has failed substantially to carry out the contract;
``(B) is carrying out the contract in a manner
substantially inconsistent with the efficient and effective
administration of this section; or
``(C) no longer substantially meets the applicable
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
Secretary 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) an 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
determination 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 accordance
with formal investigation and compliance procedures established 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 organization 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
sanctions; and
``(D) the Secretary provides the organization with
reasonable 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.
(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,
1996.
SEC. 216. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PENALTIES FOR
DISCOUNTING AND MANAGED CARE 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
combination 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 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, whether through a
withhold, capitation, incentive pool, per diem payment, or any
other similar risk arrangement which places the individual or
entity at substantial financial risk.''.
(b) Effective Date.--The amendments made by this section shall
apply to written agreements entered into on or after January 1, 1997.
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
(3) by inserting after paragraph (5) the following new
paragraph:
``(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
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
``Sec. 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).
``(b) Reporting of Information.--
``(1) In general.--Each Government agency and health plan
shall report any final adverse action (not including
settlements 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 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 regulation is required for appropriate
interpretation of information reported under this
section.
``(3) Confidentiality.--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.
``(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
Secretary.
``(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 respecting a health care provider, supplier,
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 this database shall
be available to Federal and State government agencies and
health plans pursuant to procedures 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
this 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
discretion 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) Definitions and Special 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.
``(ii) Federal or State criminal
convictions related to the delivery of a health
care item or service.
``(iii) Actions by Federal or State
agencies responsible for the licensing and
certification of health care providers,
suppliers, and licensed health care
practitioners, including--
``(I) formal or official actions,
such as revocation or suspension of a
license (and the length of any such
suspension), reprimand, censure or
probation,
``(II) any other loss of license or
the right to apply for, or renew, a
license of the provider, supplier, or
practitioner, whether by operation of
law, voluntary surrender, non-
renewability, or otherwise, or
``(III) any other negative action
or finding by such Federal or State
agency that is publicly available
information.
``(iv) Exclusion from participation in
Federal or State health care programs.
``(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
practitioner', `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 payment 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 fraud control units.
``(F) Federal or State agencies responsible for the
licensing and 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
paragraph (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.''.
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)(1))''.
(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
program, and the portion of such amounts attributable to the
amounts recovered under this section by reason of the
amendments made by the Health Coverage Availability and
Affordability Act of 1996 (as estimated by the Secretary) shall
be deposited into the Federal Hospital Insurance Trust 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(f))'',
(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)(1) 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
jurisdiction 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) The 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 the
Federal health care programs to which the claims were
submitted.
``(B) If the conditions specified in subparagraph (A) are
fulfilled, the Inspector General of the department or agency initiating
the action is authorized to exercise all powers granted under the
Inspector General Act of 1978 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
paragraph:
``(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 health 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 Assessments.--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 under 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) Claim for Item or Service Based on Incorrect Coding or
Medically Unnecessary Services.--Section 1128A(a)(1) (42 U.S.C. 1320a-
7a(a)(1)) 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 payment to
the person than 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; and
(3) by inserting after subparagraph (D) the following new
subparagraph:
``(E) is for a medical or other item or service
that a person knows or should know is not medically
necessary; or''.
(e) Sanctions Against Practitioners and Persons for Failure 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''.
(f) 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).''.
(g) Prohibition Against Offering Inducements to Individuals
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
(D) 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 payment
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
coinsurance and deductible amounts (or any part thereof), and
transfers 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--
``(i) the waiver is not offered as part of
any advertisement or solicitation;
``(ii) the person does not routinely waive
coinsurance 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
Coverage Availability and Affordability 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.''.
(h) Effective Date.--The amendments made by this section shall take
effect January 1, 1997.
SEC. 232. CLARIFICATION OF LEVEL OF INTENT REQUIRED FOR IMPOSITION OF
SANCTIONS.
(a) 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 section 231(g)(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,
and no proof of specific intent to defraud is required.''.
(b) Effective Date.--The amendments made by this section shall
apply to acts or omissions occurring on or after January 1, 1997.
SEC. 233. 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
subparagraph (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 payments under title
XVIII for home health services which are made pursuant to such
certification.
``(B) A document described in this subparagraph is any document
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 after the date of the enactment of
this Act.
Subtitle E--Revisions to Criminal Law
SEC. 241. DEFINITIONS 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:
``Sec. 24. Definitions relating to Federal health care offense
``(a) As used in this title, the term `Federal health care offense'
means a violation of, or a criminal conspiracy to violate--
``(1) section 669, 1035, 1347, or 1518 of this title; or
``(2) section 287, 371, 664, 666, 1001, 1027, 1341, 1343,
or 1954 of this title, if the violation or conspiracy relates
to a health care 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 providing 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 beginning 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:
``Sec. 1347. Health care fraud
``Whoever knowingly executes, or attempts to execute, a scheme or
artifice--
``(1) to defraud 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 care
benefit program,
in connection with the delivery of or payment for health care benefits,
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.''.
(b) Criminal Fines Deposited in Federal Hospital Insurance 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 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:
``Sec. 669. Theft or embezzlement in connection with health care
``(a) Whoever embezzles, steals, or otherwise without authority
knowingly converts to the use of any person other than the rightful
owner, or intentionally misapplies any of the moneys, funds,
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 defendant shall be fined under this title or
imprisoned not more than one year, or both.
``(b) As used in this section, the term `health care benefit
program' has the meaning given such term in section 1347(b) of this
title.''.
(b) Clerical Amendment.--The table of sections at the beginning 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:
``Sec. 1035. False statements relating to health care matters
``(a) Whoever, in any matter involving a health care benefit
program, knowingly--
``(1) falsifies, conceals, or covers up by any trick,
scheme, or device a material fact; or
``(2) makes any false, fictitious, or fraudulent statements
or representations, or makes or uses any false writing or
document knowing the same to contain any false, fictitious, or
fraudulent statement or entry,
in connection with the delivery of or payment for health care benefits,
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 `health care benefit
program' has the meaning given such term in section 1347(b) of this
title.''.
(b) Clerical Amendment.--The table of sections at the beginning 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:
``Sec. 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 investigations for
prosecutions for violations of health care offenses.''.
(b) Clerical Amendment.--The table of sections at the beginning 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
involving 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:
``Sec. 3486. Authorized investigative demand procedures
``(a) Authorization.--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 and cause to be
served a subpoena 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. A subpoena 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.
``(b) Service.--A subpoena issued under this section may be served
by any person 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 he carries on business or may be found, to
compel compliance with the subpoena. 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 touching the
matter under investigation. 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 complies in good
faith with the summons and thus produces the materials 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 investigation
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 unauthorized
disclosure.''.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 223 of title 18, United States Code, is amended 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 paragraph:
``(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)''.
(c) Property Forfeited Deposited in Federal Hospital Insurance
Trust Fund.--
(1) In general.--After the payment of the costs of asset
forfeiture has been made, and notwithstanding any other
provision 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 paragraph
(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,
inventory, safeguard, maintain, advertise, sell, or
dispose of property under seizure, detention, or
forfeited, or of any other necessary expenses incident
to the seizure, detention, forfeiture, or disposal of
such property, including payment for--
(i) contract services;
(ii) the employment of outside contractors
to operate 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 functions described in this
subparagraph;
(B) at the discretion of the Attorney General, the
payment 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 the validity of any such lien or mortgage and
the amount of payment to be made, and the employment of
attorneys and other personnel skilled in State real
estate law as necessary;
(D) payment authorized in connection with remission
or mitigation procedures relating to property
forfeited; and
(E) the payment 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.
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. 251. 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 effectiveness of
the health care system, by encouraging the development of a health
information system through the establishment of standards and
requirements for the electronic transmission of certain health
information.
SEC. 252. 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
``definitions
``Sec. 1171. For purposes of this part:
``(1) Clearinghouse.--The term `clearinghouse' means a
public or private entity that processes or facilitates the
processing of nonstandard data elements of health information
into standard data elements.
``(2) Code set.--The term `code set' means any set of codes
used for encoding data elements, such as tables of terms,
medical concepts, medical diagnostic codes, or medical
procedure codes.
``(3) Health care provider.--The term `health care
provider' includes a provider of services (as defined in
section 1861(u)), a provider of medical or other health
services (as defined in section 1861(s)), and any other person
furnishing health care services or supplies.
``(4) Health information.--The term `health 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
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 `health plan' means a plan
which provides, or pays the cost of, health benefits. Such term
includes the following, and any combination thereof:
``(A) Part A or part B of the medicare program
under title XVIII.
``(B) The medicaid program under title XIX.
``(C) A medicare supplemental policy (as defined in
section 1882(g)(1)).
``(D) A long-term care policy, including a nursing
home fixed indemnity policy (unless the Secretary
determines that such a policy does not provide
sufficiently comprehensive coverage of a benefit so
that the policy should be treated as a health plan).
``(E) Health benefits of an employee welfare
benefit plan, as defined in section 3(1) of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1002(1)), but only to the extent the plan is
established or maintained for the purpose of providing
health benefits and has 50 or more participants (as
defined in section 3(7) of such Act).
``(F) An employee welfare benefit plan or any other
arrangement which is established or maintained for the
purpose of offering or providing health benefits to the
employees of 2 or more employers.
``(G) The health care program for active military
personnel under title 10, United States Code.
``(H) The veterans health care program under
chapter 17 of title 38, United States Code.
``(I) The Civilian Health and Medical Program of
the Uniformed Services (CHAMPUS), as defined in section
1073(4) of title 10, United States Code.
``(J) The Indian health service program under the
Indian Health Care Improvement Act (25 U.S.C. 1601 et
seq.).
``(K) 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 any
information, including demographic information collected from
an individual, that--
``(A) is created or received by a health care
provider, health plan, employer, or 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, 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
reference 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 standards
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 American National Standards Institute,
including the National Council for Prescription Drug Programs,
that develops standards for information transactions, data
elements, 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 this
part shall apply, in whole or in part, to the following persons:
``(1) A health plan.
``(2) A clearinghouse.
``(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 administrative
costs of providing and paying for health care.
``(c) Role of Standard Setting Organizations.--
``(1) In general.--Except as provided in paragraph (2), any
standard adopted under this part shall 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 plans compared
to the alternatives; and
``(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
organization.--If no standard setting organization has
developed, adopted, or modified any standard relating
to a standard that the Secretary is authorized or
required to adopt under this part--
``(i) paragraph (1) shall not apply; and
``(ii) subsection (f) shall apply.
``(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
recommendations 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 and State agencies and private organizations. The Secretary
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 section
shall 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
``Sec. 1173. (a) Standards to Enable Electronic Exchange.--
``(1) In general.--The Secretary shall adopt standards for
transactions, and 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
paragraph (1)(A) are the following:
``(A) Claims (including coordination of benefits)
or equivalent encounter information.
``(B) Claims attachments.
``(C) Enrollment and disenrollment.
``(D) Eligibility.
``(E) Health care payment and remittance advice.
``(F) Premium payments.
``(G) First report of injury.
``(H) Claims 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 providers.
``(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
paragraphs (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 transactions referred to in subsection
(a)(1) from 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 establish
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
security standards that--
``(A) take into account--
``(i) the technical capabilities of record
systems used to maintain health information;
``(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 clearinghouse, if it is part of
a larger organization, has policies and security
procedures which isolate the activities of the
clearinghouse with respect to processing information in
a manner that prevents unauthorized 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 and employees of such person.
``(e) Privacy Standards for Health Information.--The Secretary
shall adopt standards with respect to the privacy of individually
identifiable health information transmitted in connection with the
transactions referred to in subsection (a)(1). Such standards shall
include standards concerning at least the following:
``(1) The rights of an individual who is a subject of such
information.
``(2) The procedures to be established for the exercise of
such rights.
``(3) The uses and disclosures of such information that are
authorized or required.
``(f) Electronic Signature.--
``(1) In general.--
``(A) Standards.--The Secretary, in coordination
with the Secretary of Commerce, shall adopt standards
specifying procedures for the electronic transmission
and authentication of signatures with respect to the
transactions referred to in subsection (a)(1).
``(B) Effect of compliance.--Compliance with the
standards adopted under subparagraph (A) shall be
deemed to satisfy Federal and State statutory
requirements for written signatures with respect to the
transactions referred to in subsection (a)(1).
``(2) Payments for services and premiums.--Nothing in this
part shall be construed to prohibit payment for health care
services or insurance plan premiums by debit, credit, payment
card or numbers, or other electronic means.
``(g) 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
``Sec. 1174. (a) Initial Standards.--The Secretary shall carry out
section 1173 not later than 18 months after the date of the enactment
of the Health Coverage Availability and Affordability Act of 1996,
except that standards relating to claims 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 frequently than once every 6 months. Any addition or
modification to a standard shall be completed in a manner which
minimizes the disruption and cost of compliance.
``(2) Special rules.--
``(A) First 12-month period.--Except with respect
to additions and modifications to code sets under
subparagraph (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 modification is necessary 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
complying with such modification.
``requirements
``Sec. 1175. (a) Conduct of Transactions by Plans.--
``(1) In general.--If a person desires to conduct a
transaction 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 transaction 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
clearinghouse for processing into standard data
elements and transmission by the clearinghouse, and
receiving standard data elements through the
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 Secretary 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 compliance.--
``(A) In general.--Not later than 24 months after
the date on which an initial standard or implementation
specification 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) Compliance With modified standards.--If the Secretary
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.
``general penalty for failure to comply with requirements and standards
``Sec. 1176. (a) General Penalty.--
``(1) In general.--Except as provided in subsection (b),
the Secretary shall impose on any person who violates a
provision 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
prohibition 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
subsection (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 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 liable for the penalty knew, or
by exercising reasonable diligence would have
known, that the failure to comply occurred.
``(B) Extension of period.--
``(i) No penalty.--The period referred to
in subparagraph (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 assistance to
the person during the period described in
subparagraph (A)(ii). Such assistance shall be
provided 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 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 punished 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,
transfer, or use individually identifiable health information
for commercial advantage, personal gain, or malicious harm,
fined not more than $250,000, imprisoned not more than 10
years, or both.
``effect on state law
``Sec. 1178. (a) General Effect.--
``(1) General rule.--Except as provided in paragraph (2), a
provision or requirement under this part, or a standard or
implementation specification adopted or established under
sections 1172 through 1174, shall supersede any contrary
provision of State law, including a provision of State law that
requires medical 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) imposes requirements, standards, or
implementation specifications that are more stringent
than the requirements, standards, or implementation
specifications under this part with respect to the
privacy of individually identifiable health
information; or
``(B) is a provision the Secretary determines--
``(i) is necessary to prevent fraud and
abuse, or for other purposes; or
``(ii) addresses controlled substances.
``(b) Public Health Reporting.--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.''.
(b) Conforming Amendments.--
(1) Requirement for medicare providers.--Section 1866(a)(1)
(42 U.S.C. 1395cc(a)(1)) 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 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 clearinghouse is required to
comply with the standard or specification.''.
(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. 253. CHANGES IN MEMBERSHIP AND DUTIES OF NATIONAL COMMITTEE ON
VITAL AND HEALTH STATISTICS.
Section 306(k) of the Public 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 information, privacy
and security of electronic information, population-based public health,
purchasing or financing health 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. Members of the Committee shall be
appointed for terms of 4 years.'';
(3) by redesignating paragraphs (3) through (5) as
paragraphs (4) through (6), respectively, and inserting after
paragraph (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 Coverage Availability
and Affordability 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 than 60 days after
the date of the enactment of the Health Coverage Availability
and Affordability Act of 1996, by the President pro tempore of
the Senate after 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 and 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 and 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 subsection (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 health 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 Secretary under subsection (j)(1);
``(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;
``(vii) to issue an annual report on the state of
the Nation's health, its health services, their costs
and distributions, and to make proposals for
improvement of the Nation's health statistics and
health information systems; and
``(viii) in complying with the requirements imposed
on the Secretary under part C of title XI of the Social
Security Act;
``(B) shall study the issues related to the adoption of
uniform data standards for patient medical record information
and the electronic exchange of such information;
``(C) shall report to the Secretary not later than 4 years
after the date of the enactment of the Health Coverage
Availability and Affordability Act of 1996 recommendations and
legislative proposals for such standards and electronic
exchange; and
``(D) shall be responsible generally for advising the
Secretary 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 of the
Health Coverage Availability and Affordability Act of 1996, and
annually thereafter, the Committee shall submit to the Congress, and
make public, a report regarding--
``(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
privacy and 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
responsibilities under such part;
``(D) any problems that exist with respect to
implementation of such part; and
``(E) the extent to which timetables under such part are
being met.''.
Subtitle G--Duplication and Coordination of Medicare-Related Plans
SEC. 261. DUPLICATION AND COORDINATION OF MEDICARE-RELATED PLANS.
(a) Treatment of Certain Health Insurance Policies as
Nonduplicative.--Effective as if included in the enactment of section
4354 of the Omnibus Budget Reconciliation Act of 1990, 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
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) does not apply to such a policy.
``(v)(I) For purposes of this subparagraph, a health insurance
policy (or a rider to an insurance contract which is not a health
insurance policy), providing benefits for long-term care, nursing home
care, home health care, or community-based care and that coordinates
against or excludes items and services available or paid for under this
title and (for policies sold or issued on or after 90 days after the
date of enactment of this clause) that discloses such coordination or
exclusion in the policy's outline of coverage, is not considered to
`duplicate' health benefits under this title.
``(II) For purposes of this subparagraph, a health insurance policy
(which may be a contract with a health maintenance organization) that
is a replacement product for another health insurance policy that is
being terminated by the issuer, that is being provided to an individual
entitled to benefits under part A on the basis of section 226(b), and
that coordinates against or excludes items and services available or
paid for under this title is not considered to `duplicate' health
benefits under this title.
``(III) For purposes of this clause, the terms `coordinates' and
`coordination' mean, with respect to a policy in relation to health
benefits under this title, that the policy under its terms is secondary
to, or excludes from payment, items and services to the extent
available or paid for under this title.
``(vi) Notwithstanding any other provision of law, no criminal or
civil penalty may be imposed at any time under this subparagraph and no
legal action may be brought or continued at any time in any Federal or
State court if the penalty or action is based on an act or omission
that occurred after November 5, 1991, and before the date of the
enactment of this clause, and relates to the sale, issuance, or renewal
of any health insurance policy or rider during such period, if such
policy or rider meets the nonduplication requirements of clause (iv) or
(v).
``(vii) A State may not impose, in the case of the sale, issuance,
or renewal of a health insurance policy (other than a medicare
supplemental policy) or rider to an insurance contract which is not a
health insurance policy, that meets the nonduplication requirements of
this section pursuant to clause (iv) or (v) to an individual entitled
to benefits under part A or enrolled under part B, any requirement
relating to any duplication (or nonduplication) of health benefits
under such policy or rider with health benefits to which the individual
is otherwise entitled to under this title.''.
(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).
Subtitle H--Medical Liability Reform
PART 1--GENERAL PROVISIONS
SEC. 271. FEDERAL REFORM OF HEALTH CARE LIABILITY ACTIONS.
(a) Applicability.--This subtitle shall apply with respect to any
health care liability action brought in any State or Federal court,
except that this subtitle shall not apply to--
(1) an action for damages arising from a vaccine-related
injury or death to the extent that title XXI of the Public
Health Service Act applies to the action, or
(2) an action under the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1001 et seq.).
(b) Preemption.--This subtitle shall preempt any State law to the
extent such law is inconsistent with the limitations contained in this
subtitle. This subtitle shall not preempt any State law that provides
for defenses or places limitations on a person's liability in addition
to those contained in this subtitle or otherwise imposes greater
restrictions than those provided in this subtitle.
(c) Effect on Sovereign Immunity and Choice of Law or Venue.--
Nothing in subsection (b) shall be construed to--
(1) waive or affect any defense of sovereign immunity
asserted by any State under any provision of law;
(2) waive or affect any defense of sovereign immunity
asserted by the United States;
(3) affect the applicability of any provision of the
Foreign Sovereign Immunities Act of 1976;
(4) preempt State choice-of-law rules with respect to
claims brought by a foreign nation or a citizen of a foreign
nation; or
(5) affect the right of any court to transfer venue or to
apply the law of a foreign nation or to dismiss a claim of a
foreign nation or of a citizen of a foreign nation on the
ground of inconvenient forum.
(d) Amount in Controversy.--In an action to which this subtitle
applies and which is brought under section 1332 of title 28, United
States Code, the amount of noneconomic damages or punitive damages, and
attorneys' fees or costs, shall not be included in determining whether
the matter in controversy exceeds the sum or value of $50,000.
(e) Federal Court Jurisdiction Not Established on Federal Question
Grounds.--Nothing in this subtitle shall be construed to establish any
jurisdiction in the district courts of the United States over health
care liability actions on the basis of section 1331 or 1337 of title
28, United States Code.
SEC. 272. DEFINITIONS.
As used in this subtitle:
(1) Actual damages.--The term ``actual damages'' means
damages awarded to pay for economic loss.
(2) Alternative dispute resolution system; adr.--The term
``alternative dispute resolution system'' or ``ADR'' means a
system established under Federal or State law that provides for
the resolution of health care liability claims in a manner
other than through health care liability actions.
(3) Claimant.--The term ``claimant'' means any person who
brings a health care liability action and any person on whose
behalf such an action is brought. If such action is brought
through or on behalf of an estate, the term includes the
claimant's decedent. If such action is brought through or on
behalf of a minor or incompetent, the term includes the
claimant's legal guardian.
(4) Clear and convincing evidence.--The term ``clear and
convincing evidence'' is that measure or degree of proof that
will produce in the mind of the trier of fact a firm belief or
conviction as to the truth of the allegations sought to be
established. Such measure or degree of proof is more than that
required under preponderance of the evidence but less than that
required for proof beyond a reasonable doubt.
(5) Collateral source payments.--The term ``collateral
source payments'' means any amount paid or reasonably likely to
be paid in the future to or on behalf of a claimant, or any
service, product, or other benefit provided or reasonably
likely to be provided in the future to or on behalf of a
claimant, as a result of an injury or wrongful death, pursuant
to--
(A) any State or Federal health, sickness, income-
disability, accident or workers' compensation Act;
(B) any health, sickness, income-disability, or
accident insurance that provides health benefits or
income-disability coverage;
(C) any contract or agreement of any group,
organization, partnership, or corporation to provide,
pay for, or reimburse the cost of medical, hospital,
dental, or income disability benefits; and
(D) any other publicly or privately funded program.
(6) Drug.--The term ``drug'' has the meaning given such
term in section 201(g)(1) of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 321(g)(1)).
(7) Economic loss.--The term ``economic loss'' means any
pecuniary loss resulting from injury (including the loss of
earnings or other benefits related to employment, medical
expense loss, replacement services loss, loss due to death,
burial costs, and loss of business or employment
opportunities), to the extent recovery for such loss is allowed
under applicable State law.
(8) Harm.--The term ``harm'' means any legally cognizable
wrong or injury for which punitive damages may be imposed.
(9) Health benefit plan.--The term ``health benefit plan''
means--
(A) a hospital or medical expense incurred policy
or certificate,
(B) a hospital or medical service plan contract,
(C) a health maintenance subscriber contract,
(D) a multiple employer welfare arrangement or
employee benefit plan (as defined under the Employee
Retirement Income Security Act of 1974), or
(E) a MedicarePlus product (offered under part C of
title XVIII of the Social Security Act),
that provides benefits with respect to health care services.
(10) Health care liability action.--The term ``health care
liability action'' means a civil action brought in a State or
Federal court against a health care provider, an entity which
is obligated to provide or pay for health benefits under any
health benefit plan (including any person or entity acting
under a contract or arrangement to provide or administer any
health benefit), or the manufacturer, distributor, supplier,
marketer, promoter, or seller of a medical product, in which
the claimant alleges a claim (including third party claims,
cross claims, counter claims, or distribution claims) based
upon the provision of (or the failure to provide or pay for)
health care services or the use of a medical product,
regardless of the theory of liability on which the claim is
based or the number of plaintiffs, defendants, or causes of
action.
(11) Health care liability claim.--The term ``health care
liability claim'' means a claim in which the claimant alleges
that injury was caused by the provision of (or the failure to
provide) health care services.
(12) Health care provider.--The term ``health care
provider'' means any person that is engaged in the delivery of
health care services in a State and that is required by the
laws or regulations of the State to be licensed or certified by
the State to engage in the delivery of such services in the
State.
(13) Health care service.--The term ``health care service''
means any service for which payment may be made under a health
benefit plan including services related to the delivery or
administration of such service.
(14) Medical device.--The term ``medical device'' has the
meaning given such term in section 201(h) of the Federal Food,
Drug, and Cosmetic Act (21 U.S.C. 321(h)).
(15) Noneconomic damages.--The term ``noneconomic damages''
means damages paid to an individual for pain and suffering,
inconvenience, emotional distress, mental anguish, loss of
consortium, injury to reputation, humiliation, and other
nonpecuniary losses.
(16) Person.--The term ``person'' means any individual,
corporation, company, association, firm, partnership, society,
joint stock company, or any other entity, including any
governmental entity.
(17) Product seller.--The term ``product seller'' means a
person who, in the course of a business conducted for that
purpose, sells, distributes, rents, leases, prepares, blends,
packages, labels a product, is otherwise involved in placing a
product in the stream of commerce, or installs, repairs, or
maintains the harm-causing aspect of a product. The term does
not include--
(A) a seller or lessor of real property;
(B) a provider of professional services in any case
in which the sale or use of a product is incidental to
the transaction and the essence of the transaction is
the furnishing of judgment, skill, or services; or
(C) any person who--
(i) acts in only a financial capacity with
respect to the sale of a product; or
(ii) leases a product under a lease
arrangement in which the selection, possession,
maintenance, and operation of the product are
controlled by a person other than the lessor.
(18) Punitive damages.--The term ``punitive damages'' means
damages awarded against any person not to compensate for actual
injury suffered, but to punish or deter such person or others
from engaging in similar behavior in the future.
(19) State.--The term ``State'' means each of the several
States, the District of Columbia, Puerto Rico, the Virgin
Islands, Guam, American Samoa, the Northern Mariana Islands,
and any other territory or possession of the United States.
SEC. 273. EFFECTIVE DATE.
This subtitle will apply to any health care liability action
brought in a Federal or State court and to any health care liability
claim subject to an alternative dispute resolution system, that is
initiated on or after the date of enactment of this subtitle, except
that any health care liability claim or action arising from an injury
occurring prior to the date of enactment of this subtitle shall be
governed by the applicable statute of limitations provisions in effect
at the time the injury occurred.
PART 2--UNIFORM STANDARDS FOR HEALTH CARE LIABILITY ACTIONS
SEC. 281. STATUTE OF LIMITATIONS.
A health care liability action may not be brought after the
expiration of the 2-year period that begins on the date on which the
alleged injury that is the subject of the action was discovered or
should reasonably have been discovered, but in no case after the
expiration of the 5-year period that begins on the date the alleged
injury occurred.
SEC. 282. CALCULATION AND PAYMENT OF DAMAGES.
(a) Treatment of Noneconomic Damages.--
(1) Limitation on noneconomic damages.--The total amount of
noneconomic damages that may be awarded to a claimant for
losses resulting from the injury which is the subject of a
health care liability action may not exceed $250,000,
regardless of the number of parties against whom the action is
brought or the number of actions brought with respect to the
injury.
(2) Joint and several liability.--In any health care
liability action brought in State or Federal court, a defendant
shall be liable only for the amount of noneconomic damages
attributable to such defendant in direct proportion to such
defendant's share of fault or responsibility for the claimant's
actual damages, as determined by the trier of fact. In all such
cases, the liability of a defendant for noneconomic damages
shall be several and not joint.
(b) Treatment of Punitive Damages.--
(1) General rule.--Punitive damages may, to the extent
permitted by applicable State law, be awarded in any health
care liability action for harm in any Federal or State court
against a defendant if the claimant establishes by clear and
convincing evidence that the harm suffered was the result of
conduct--
(A) specifically intended to cause harm, or
(B) conduct manifesting a conscious, flagrant
indifference to the rights or safety of others.
(2) Proportional awards.--The amount of punitive damages
that may be awarded in any health care liability action subject
to this subtitle shall not exceed 3 times the amount of damages
awarded to the claimant for economic loss, or $250,000,
whichever is greater. This paragraph shall be applied by the
court and shall not be disclosed to the jury.
(3) Applicability.--This subsection shall apply to any
health care liability action brought in any Federal or State
court on any theory where punitive damages are sought. This
subsection does not create a cause of action for punitive
damages. This subsection does not preempt or supersede any
State or Federal law to the extent that such law would further
limit the award of punitive damages.
(4) Bifurcation.--At the request of any party, the trier of
fact shall consider in a separate proceeding whether punitive
damages are to be awarded and the amount of such award. If a
separate proceeding is requested, evidence relevant only to the
claim of punitive damages, as determined by applicable State
law, shall be inadmissible in any proceeding to determine
whether actual damages are to be awarded.
(5) Drugs and devices.--
(A) In general.--(i) Punitive damages shall not be
awarded against a manufacturer or product seller of a
drug or medical device which caused the claimant's harm
where--
(I) such drug or device was subject to
premarket approval by the Food and Drug
Administration with respect to the safety of
the formulation or performance of the aspect of
such drug or device which caused the claimant's
harm, or the adequacy of the packaging or
labeling of such drug or device which caused
the harm, and such drug, device, packaging, or
labeling was approved by the Food and Drug
Administration; or
(II) the drug is generally recognized as
safe and effective pursuant to conditions
established by the Food and Drug Administration
and applicable regulations, including packaging
and labeling regulations.
(ii) Clause (i) shall not apply in any case in
which the defendant, before or after premarket approval
of a drug or device--
(I) intentionally and wrongfully withheld
from or misrepresented to the Food and Drug
Administration information concerning such drug
or device required to be submitted under the
Federal Food, Drug, and Cosmetic Act (21 U.S.C.
301 et seq.) or section 351 of the Public
Health Service Act (42 U.S.C. 262) that is
material and relevant to the harm suffered by
the claimant, or
(II) made an illegal payment to an official
or employee of the Food and Drug Administration
for the purpose of securing or maintaining
approval of such drug or device.
(B) Packaging.--In a health care liability action
for harm which is alleged to relate to the adequacy of
the packaging or labeling of a drug which is required
to have tamper-resistant packaging under regulations of
the Secretary of Health and Human Services (including
labeling regulations related to such packaging), the
manufacturer or product seller of the drug shall not be
held liable for punitive damages unless such packaging
or labeling is found by the court by clear and
convincing evidence to be substantially out of
compliance with such regulations.
(c) Periodic Payments for Future Losses.--
(1) General rule.--In any health care liability action in
which the damages awarded for future economic and noneconomic
loss exceeds $50,000, a person shall not be required to pay
such damages in a single, lump-sum payment, but shall be
permitted to make such payments periodically based on when the
damages are found likely to occur, as such payments are
determined by the court.
(2) Finality of judgment.--The judgment of the court
awarding periodic payments under this subsection may not, in
the absence of fraud, be reopened at any time to contest,
amend, or modify the schedule or amount of the payments.
(3) Lump-sum settlements.--This subsection shall not be
construed to preclude a settlement providing for a single,
lump-sum payment.
(d) Treatment of Collateral Source Payments.--
(1) Introduction into evidence.--In any health care
liability action, any defendant may introduce evidence of
collateral source payments. If any defendant elects to
introduce such evidence, the claimant may introduce evidence of
any amount paid or contributed or reasonably likely to be paid
or contributed in the future by or on behalf of the claimant to
secure the right to such collateral source payments.
(2) No subrogation.--No provider of collateral source
payments shall recover any amount against the claimant or
receive any lien or credit against the claimant's recovery or
be equitably or legally subrogated the right of the claimant in
a health care liability action.
(3) Application to settlements.--This subsection shall
apply to an action that is settled as well as an action that is
resolved by a fact finder.
SEC. 283. ALTERNATIVE DISPUTE RESOLUTION.
Any ADR used to resolve a health care liability action or claim
shall contain provisions relating to statute of limitations, non-
economic damages, joint and several liability, punitive damages,
collateral source rule, and periodic payments which are identical to
the provisions relating to such matters in this subtitle.
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.--Except as otherwise provided in this
subsection, the amount allowable as a deduction under
subsection (a) to an individual for the taxable year shall not
exceed--
``(A) except as provided in subparagraph (B), the
lesser of--
``(i) $2,000, or
``(ii) the annual deductible limit for any
individual covered under the high deductible
health plan, or
``(B) in the case of a high deductible health plan
covering the taxpayer and any other eligible individual
who is the spouse or any dependent (as defined in
section 152) of the taxpayer, the lesser of--
``(i) $4,000, or
``(ii) the annual limit under the plan on
the aggregate amount of deductibles required to
be paid by all individuals.
The preceding sentence shall not apply if the spouse of such
individual is covered under any other high deductible health
plan.
``(2) Special rule for married individuals.--
``(A) In general.--This subsection shall be applied
separately for each married individual.
``(B) Special rule.--If individuals who are married
to each other are covered under the same high
deductible health plan, then the amounts applicable
under paragraph (1)(B) shall be divided equally between
them unless they agree on a different division.
``(3) Coordination with exclusion for employer
contributions.--No deduction shall be allowed under this
section for any amount paid for any taxable year to a medical
savings account of an individual if--
``(A) any amount is paid to any medical savings
account of such individual which is excludable from
gross income under section 106(b) for such year, or
``(B) in a case described in paragraph (2)(B), any
amount is paid to any medical savings account of either
spouse which is so excludable for such year.
``(4) Proration of limitation.--
``(A) In general.--The limitation under paragraph
(1) shall be the sum of the monthly limitations for
months during the taxable year that the individual is
an eligible individual if--
``(i) such individual is not an eligible
individual for all months of the taxable year,
``(ii) the deductible under the high
deductible health plan covering such individual
is not the same throughout such taxable year,
or
``(iii) such limitation is determined under
paragraph (1)(B) for some but not all months
during such taxable year.
``(B) Monthly limitation.--The monthly limitation
for any month shall be an amount equal to \1/12\ of the
limitation which would (but for this paragraph and
paragraph (3)) be determined under paragraph (1) if the
facts and circumstances as of the first day of such
month that such individual is covered under a high
deductible health plan were true for the entire taxable
year.
``(5) Denial of deduction to dependents.--No deduction
shall be allowed under this section to any individual with
respect to whom a deduction under section 151 is allowable to
another taxpayer for a taxable year beginning in the calendar
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--
``(i) who is covered under a high
deductible health plan as of the 1st day of
such month, and
``(ii) who is not, while covered under a
high deductible health plan, covered under any
health plan--
``(I) which is not a high
deductible health plan, and
``(II) which provides coverage for
any benefit which is covered under the
high deductible health plan.
``(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 insurance
or otherwise) for accidents, disability, dental
care, vision care, or long-term care.
``(2) High deductible health plan.--The term `high
deductible health plan' means a health plan which--
``(A) has an annual deductible limit for each
individual covered by the plan which is not less than
$1,500, and
``(B) has an annual limit on the aggregate amount
of deductibles required to be paid with respect to all
individuals covered by the plan which is not less than
$3,000.
Such term does not include a health plan if substantially all
of its coverage is coverage described in paragraph (1)(B). 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 insurance'
means--
``(A) Medicare supplemental insurance,
``(B) insurance if substantially all of the
coverage provided under such insurance relates to--
``(i) liabilities incurred under workers'
compensation laws,
``(ii) tort liabilities,
``(iii) liabilities relating to ownership
or use of property, 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 amount per day (or
other period) of hospitalization.
``(d) Medical Savings Account.--For purposes of this section--
``(1) Medical savings account.--The term `medical savings
account' means a trust created or organized in the United
States exclusively for the purpose of paying the qualified
medical 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 $4,000.
``(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 requirements 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 account 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 continuation coverage
required under any Federal law,
``(II) a qualified long-term care
insurance contract (as defined in
section 7702B(b)), or
``(III) a health plan during a
period in which the individual is
receiving unemployment compensation
under any Federal or State law.
``(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
following rules shall apply for purposes of this section:
``(A) Section 219(d)(2) (relating to no deduction
for rollovers).
``(B) Section 219(f)(3) (relating to time when
contributions 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 by reason of paragraph (2) or (3).
Notwithstanding the preceding sentence, any such account is
subject to the taxes imposed by section 511 (relating to
imposition of tax on unrelated business income of charitable,
etc. organizations).
``(2) Account terminations.--Rules similar to the rules 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.--
``(A) In general.--Any amount paid or distributed
out of a medical savings account which is used
exclusively to pay qualified medical expenses of any
account holder (or any spouse or dependent of the
holder) shall not be includible in gross income.
``(B) Treatment after death of account holder.--
``(i) Treatment if holder is spouse.--If,
after the death of the account holder, the
account holder's interest is payable to (or for
the benefit of) the holder's spouse, the
medical savings account shall be treated as if
the spouse were the account holder.
``(ii) Treatment if designated holder is
not spouse.--In the case of an account holder's
interest in a medical savings account which is
payable to (or for the benefit of) any person
other than such holder's spouse upon the death
of such holder--
``(I) such account shall cease to
be a medical savings account as of the
date of death, and
``(II) an amount 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.
``(2) Inclusion of amounts not used for qualified medical
expenses.--
``(A) In general.--Any amount paid or distributed
out of a medical savings account which is not used
exclusively to pay the qualified medical expenses of
the account holder or of the spouse or dependents of
such holder shall be included in the gross income of
such holder.
``(B) Special rules.--For purposes of subparagraph
(A)--
``(i) all medical savings accounts of the
account holder shall be treated as 1 account,
``(ii) all payments and distributions
during any taxable year shall be treated as 1
distribution, and
``(iii) any distribution of property shall
be taken into account at its fair market value
on the date of the distribution.
``(3) Excess contributions returned before due date of
return.--If the aggregate contributions (other than rollover
contributions) for a taxable year to the medical savings
accounts of an individual exceed the amount allowable as a
deduction under this section for such contributions, paragraph
(2) shall not apply to distributions from such accounts (in an
amount not greater than such excess) if--
``(A) 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
``(B) such distribution is accompanied by the
amount of net income attributable to such excess
contribution.
Any net income described in subparagraph (B) shall be included
in the gross income of the individual for the taxable year in
which it is received.
``(4) Penalty for distributions not used for 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 payment or distribution from a medical
savings account of such holder which is includible in
gross income under paragraph (2) shall be increased by
10 percent of the amount which is so includible.
``(B) Exception for disability or death.--
Subparagraph (A) shall not apply if the payment 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 age 59\1/
2\.--Subparagraph (A) shall not apply to any payment or
distribution after the date on which the account holder
attains age 59\1/2\.
``(5) Rollover contribution.--An amount is described in
this paragraph as a rollover contribution if it meets the
requirements 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 distribution.
``(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 under
section 213, any payment or distribution out of a medical
savings 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 to an individual's spouse or former spouse under a
divorce or separation instrument described in subparagraph (A)
of section 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 the
spouse is the account holder.
``(g) Cost-of-Living Adjustment.--
``(1) In general.--In the case of any taxable year
beginning in a calendar year after 1997, each dollar amount in
subsection (b)(1), (c)(2), or (d)(1)(A) shall be increased by
an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the medical care cost adjustment for such
calendar year.
If any increase under the preceding sentence is not a multiple
of $50, such increase shall be rounded to the nearest multiple
of $50.
``(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 1996.
``(h) Reports.--The Secretary may require the trustee of a medical
savings account to make such reports regarding such account to the
Secretary and to the account holder with respect to contributions,
distributions, and such other matters as the Secretary determines
appropriate. The reports required by this subsection 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 those regulations.''
(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 paragraph:
``(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 and health
plans) is amended to read as follows:
``(a) General Rule.--Except as otherwise provided in this section,
gross income of an employee does not include employer-provided coverage
under an accident or health plan.
``(b) Contributions to Medical Savings Accounts.--
``(1) In general.--In the case of an employee who is an
eligible individual, gross income does not include amounts
contributed by such employee's employer to any medical savings
account of such employee.
``(2) Coordination with deduction limitation.--The amount
excluded from the gross income of an employee under this
subsection for any taxable year shall 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.
``(3) No constructive receipt.--No amount 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.
``(4) Special rule for deduction of employer
contributions.--Any employer contribution to a medical savings
account, if otherwise allowable as a deduction under this
chapter, shall be allowed only for the taxable year in which
paid.
``(5) Definitions.--For purposes of this subsection, the
terms `eligible individual' and `medical savings account' have
the respective meanings given to such terms by section 220.''
(2) Exclusion from employment taxes.--
(A) Social security taxes.--
(i) Subsection (a) of section 3121 is
amended by striking ``or'' at the end of
paragraph (20), by striking the period at the
end of paragraph (21) and inserting ``; or'',
and by inserting after paragraph (21) the
following new paragraph:
``(22) 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).''
(ii) Subsection (a) of section 209 of the
Social Security Act is amended by striking
``or'' at the end of paragraph (17), by
striking the period at the end of paragraph
(18) and inserting ``; or'', and by inserting
after paragraph (18) the following new
paragraph:
``(19) 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) of the Internal Revenue Code
of 1986.''
(B) Railroad retirement tax.--Subsection (e) of
section 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).''
(C) 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 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).''
(D) 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 payment
from income under section 106(b).''
(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) Exclusion of Medical Savings Accounts From Estate Tax.--Part IV
of subchapter A of chapter 11 is amended by adding at the end the
following new section:
``SEC. 2057. MEDICAL SAVINGS ACCOUNTS.
``For purposes of the tax imposed by section 2001, the value of the
taxable estate shall be determined by deducting from the value of the
gross estate an amount equal to the value of any medical savings
account (as defined in section 220(d)) included in the gross estate.''
(f) Tax on Excess Contributions.--Section 4973 (relating to tax on
excess contributions to individual retirement accounts, certain section
403(b) contracts, and certain individual 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
subsection (a),
(3) by redesignating paragraph (2) of subsection (a) as
paragraph (3) and by inserting after paragraph (1) the
following:
``(2) a medical savings account (within the meaning of
section 220(d)), or'', and
(4) by adding at the end the following new subsection:
``(d) Excess Contributions to Medical Savings Accounts.--For
purposes of this section, in the case of a medical savings accounts
(within the meaning of section 220(d)), the term `excess contributions'
means the sum of--
``(1) the amount by which the amount contributed for the
taxable year to the accounts (other than rollover contributions
described in section 220(f)(5)) exceeds the amount allowable as
a deduction under section 220 for such contributions, and
``(2) the amount determined under this subsection for the
preceding taxable year, reduced by the sum of distributions out
of the account included in gross income under section 220(f)
(2) or (3) and the excess (if any) of the maximum amount
allowable as a deduction under section 220 for the taxable year
over the amount contributed to the accounts.
For purposes of this subsection, any contribution which is distributed
out of the medical savings account in a distribution to which section
220(f)(3) applies shall be treated as an amount not contributed.''
(g) Tax on Prohibited Transactions.--
(1) Section 4975 (relating to tax on prohibited
transactions) is amended by adding at the end of subsection (c)
the following new paragraph:
``(4) Special rule for medical savings accounts.--An
individual for whose benefit a medical savings account (within
the meaning of section 220(d)) is established shall be exempt
from the tax imposed by this section with respect to any
transaction concerning such account (which would otherwise be
taxable 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 `plan'
means--
``(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
section 408(a),
``(C) an individual retirement annuity described in
section 408(b),
``(D) a medical savings account described in
section 220(d), or
``(E) a trust, plan, account, or annuity which, at
any time, has been determined by the Secretary to be
described in any preceding subparagraph of this
paragraph.''
(h) Failure To Provide Reports on Medical Savings Accounts.--
(1) Subsection (a) of section 6693 (relating to failure to
provide reports on individual retirement accounts or annuities)
is amended to read as follows:
``(a) Reports.--
``(1) In general.--If a person required to file a report
under a provision referred to in paragraph (2) fails to file
such report at the time and in the manner required by such
provision, such person shall pay a penalty of $50 for each
failure unless it is shown that such failure is due to
reasonable cause.
``(2) Provisions.--The provisions referred to in this
paragraph are--
``(A) subsections (i) and (l) of section 408
(relating to individual retirement plans), and
``(B) section 220(h) (relating to medical savings
accounts).''
(i) Exception From Capitalization of Policy Acquisition Expenses.--
Subparagraph (B) of section 848(e)(1) (defining specified insurance
contract) is amended by striking ``and'' at the end of clause (ii), by
striking the period at the end of clause (iii) and inserting ``, and'',
and by adding at the end the following new clause:
``(iv) any contract which is a medical
savings account (as defined in section
220(d)).''.
(j) Clerical Amendments.--
(1) 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.''.
(2) The table of sections for part IV of subchapter A of
chapter 11 is amended by adding at the end the following new
item:
``Sec. 2057. Medical savings accounts.''.
(k) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1996.
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 INDIVIDUALS.
(a) In General.--Paragraph (1) of section 162(l) is amended to read
as follows:
``(1) Allowance of deduction.--
``(A) In general.--In the case of an individual who
is an employee within the meaning of section 401(c)(1),
there shall be allowed as a deduction under this
section an amount equal to the applicable percentage of
the amount paid during the taxable year for insurance
which constitutes medical care for the taxpayer, his
spouse, and dependents.
``(B) Applicable percentage.--For purposes of
subparagraph (A), the applicable percentage shall be
determined under the following table:
``For taxable years beginning
The applicable
in calendar year--
percentage is--
1998..................... 35 percent
1999, 2000, or 2001...... 40 percent
2002..................... 45 percent
2003 or thereafter....... 50 percent.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1997.
Subtitle C--Long-Term Care Services and Contracts
PART I--GENERAL PROVISIONS
SEC. 321. TREATMENT OF LONG-TERM CARE INSURANCE.
(a) General Rule.--Chapter 79 (relating to definitions) is amended
by inserting after section 7702A the following new section:
``SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE INSURANCE.
``(a) In General.--For purposes of this title--
``(1) a qualified long-term care insurance 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 insurance 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
insurance 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 can be--
``(i) paid, assigned, or pledged as
collateral 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
dividends or similar amounts, under such contract are
to be applied as a reduction in future premiums or to
increase future benefits, and
``(F) such contract meets the requirements of
subsection (f).
``(2) Special rules.--
``(A) Per diem, etc. payments 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 provided under such title.
``(C) Refunds of premiums.--Paragraph (1)(E) shall
not apply to any refund on the death of the insured, or
on a complete surrender or cancellation of the
contract, which cannot exceed the aggregate premiums
paid under the contract. Any refund on a complete
surrender or cancellation 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 determined 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
meeting the requirements of the preceding sentence
unless within the preceding 12-month period a licensed
health care practitioner has certified that such
individual meets such requirements.
``(B) Activities of daily living.--For purposes of
subparagraph (A), each of the following is an activity
of daily living:
``(i) Eating.
``(ii) Toileting.
``(iii) Transferring.
``(iv) Bathing.
``(v) Dressing.
``(vi) Continence.
Nothing in this section shall be construed to require a
contract to take into account all of the preceding
activities of daily living.
``(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 impairment).
``(4) Licensed health care practitioner.--The term
`licensed health care practitioner' means any physician (as
defined in section 1861(r)(1) of the Social Security Act) and
any registered professional nurse, licensed social worker, or
other individual who meets such requirements as may be
prescribed by the Secretary.
``(d) Aggregate Payments in Excess of Limits.--
``(1) In general.--If the aggregate amount of periodic
payments under all qualified long-term care insurance contracts
with respect to an insured for any period exceeds the dollar
amount in effect for such period under paragraph (3), such
excess payments shall be treated as made for qualified long-
term care services only to the extent of the costs incurred by
the payee (not otherwise compensated for by insurance or
otherwise) for qualified long-term care services provided during such
period for such insured.
``(2) Periodic payments.--For purposes of paragraph (1),
the term `periodic payment' means any payment (whether on a
periodic basis or otherwise) made without regard to the extent
of the costs incurred by the payee for qualified long-term care
services.
``(3) Dollar amount.--The dollar amount in effect under
this subsection shall be $175 per day (or the equivalent amount
in the case of payments on another periodic basis).
``(4) Inflation adjustment.--In the case of a calendar year
after 1997, the dollar amount contained in paragraph (3) shall
be increased at the same time and in the same manner as amounts
are increased pursuant to section 213(d)(10).
``(e) Treatment of Coverage Provided as Part of a Life Insurance
Contract.--Except as otherwise provided in regulations prescribed by
the Secretary, in the case of any long-term care insurance coverage
(whether or not qualified) provided by a rider on or as part of a life
insurance contract--
``(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 insurance contract, as of any date--
``(A) by the sum of any charges (but not premium
payments) against the life insurance contract's cash
surrender value (within the meaning of section
7702(f)(2)(A)) for such 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
insurance contract's cash surrender value described in
paragraph (2), unless such charges are includible in income as
a result of the application of section 72(e)(10) and the rider
is a qualified long-term care insurance contract under
subsection (b).
``(4) Portion defined.--For purposes of this subsection,
the term `portion' means only the terms and benefits under a
life insurance contract that are in addition to the terms and
benefits under the contract without regard to the coverage
under a qualified long-term care insurance contract.''
(b) Long-Term Care Insurance Not Permitted Under Cafeteria 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 long-term care insurance contract (as defined in
section 4980C).''
(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
program 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 reasonably
available shall be determined on the basis of the underlying
coverage.''
(c) Continuation Coverage Excise Tax Not To Apply.--Subsection (f)
of section 4980B is amended by adding at the end the following new
paragraph:
``(9) Continuation of long-term care coverage not
required.--A group health plan shall not be treated as failing
to meet the requirements of this subsection solely by reason of
failing to provide coverage under any qualified long-term care
insurance contract (as defined in section 7702B(b)).''
(d) 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.''.
(e) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to contracts issued after December 31, 1996.
(2) Continuation of existing policies.--In the case of any
contract issued before January 1, 1997, which met the long-term
care insurance 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).
(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(b) 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 any gain shall be
recognized to the extent of the sum of the money and the fair
market value of the other property received. For purposes of
this paragraph, the cancellation of a contract providing for
long-term care insurance coverage and reinvestment of the
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
qualified long-term care insurance contract under
section 7702B, and
(B) the addition of any provision required to
conform any other long-term care rider to be so
treated,
shall not be treated as a modification or material change of
such contract.
SEC. 322. QUALIFIED LONG-TERM CARE SERVICES TREATED AS MEDICAL CARE.
(a) General Rule.--Paragraph (1) of section 213(d) (defining
medical care) is amended by striking ``or'' at the end of subparagraph
(B), by redesignating subparagraph (C) as subparagraph (D), and by
inserting after 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) 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 insurance 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 375
than 50.
More than 50 but not more 750
than 60.
More than 60 but not more 2,000
than 70.
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 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
1996.
The Secretary shall, in consultation with the
Secretary 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 professional 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). 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
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) is amended by striking
``subparagraphs (A) and (B)'' and inserting ``subparagraphs
(A), (B), and (C)''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1996.
(2) Deduction for long-term care services.--Amounts paid
for qualified long-term care services (as defined in section
7702B(c) of the Internal Revenue Code of 1986, as added by this
Act) furnished in any taxable year beginning before January 1,
1998, shall not be taken into account under section 213 of the
Internal Revenue Code of 1986.
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 paid by such
person to any individual during any calendar year, and
``(2) the name, address, and TIN of such individual.
``(b) Statements To Be Furnished to Persons With Respect to Whom
Information Is Required.--Every person required to make a return under
subsection (a) shall furnish to each individual whose name is required
to be set forth in such return a written statement showing--
``(1) the name of the person making the payments, 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 subsection (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 amount paid under a long-term care insurance
policy (within the meaning of section 4980C(e)), and
``(2) payments which are excludable from 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
following new clause:
``(ix) section 6050Q (relating to certain
long-term care benefits),''.
(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
subparagraph (P) the following new subparagraph:
``(Q) section 6050Q(b) (relating to certain long-
term care benefits),''.
(c) Clerical Amendment.--The table of sections for subpart B of
part III of subchapter A of chapter 61 is amended by adding at the end
the following new item:
``Sec. 6050Q. Certain long-term care
benefits.''.
(d) Effective Date.--The amendments made by this section shall
apply to benefits paid after December 31, 1996.
PART II--CONSUMER PROTECTION PROVISIONS
SEC. 325. POLICY REQUIREMENTS.
Section 7702B (as added by section 321) is amended by adding at the
end the following new subsection:
``(f) Consumer Protection Provisions.--
``(1) In general.--The requirements of this subsection are
met with respect to any contract if any long-term care
insurance policy issued under the contract meets--
``(A) the requirements of the model 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 policy if such
policy meets--
``(i) Model regulation.--The following
requirements 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).
``(III) Section 7C (relating to
extension of benefits).
``(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 standards).
``(X) Section 12 (relating to
requirement to offer inflation
protection), except that any
requirement for a signature on a
rejection of inflation protection shall
permit the signature to be on an
application or on a separate form.
``(XI) Section 23 (relating to
prohibition against preexisting
conditions and probationary periods in
replacement policies or certificates).
``(ii) Model act.--The following
requirements of the model Act:
``(I) Section 6C (relating to
preexisting conditions).
``(II) Section 6D (relating to
prior hospitalization).
``(B) Definitions.--For purposes of this
paragraph--
``(i) Model provisions.--The terms `model
regulation' and `model Act' mean the long-term
care insurance model regulation, and the long-
term care insurance model Act, respectively,
promulgated by the National Association of
Insurance Commissioners (as adopted as of
January 1993).
``(ii) Coordination.--Any provision of the
model regulation or model Act listed 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 policy if such policy
meets the requirements of section 4980C(d)(1).
``(4) Nonforfeiture requirements.--
``(A) In general.--The requirements of this
paragraph are met with respect to any level premium
long-term care insurance policy, if the issuer of such
policy offers to the policyholder, including any group
policyholder, a nonforfeiture provision meeting the
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
appropriately 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 benefit may be adjusted
subsequent to being initially granted only as
necessary to reflect changes in claims,
persistency, and interest as reflected in
changes in rates for premium paying policies
approved by the Secretary for the same policy
form.
``(iii) The nonforfeiture provision shall
provide at least one of the following:
``(I) Reduced paid-up insurance.
``(II) Extended term insurance.
``(III) Shortened benefit period.
``(IV) Other similar offerings
approved by the Secretary.
``(5) Long-term care insurance policy defined.--For
purposes of this subsection, the term `long-term care insurance
policy' has the meaning given such term by section 4980C(e).''.
SEC. 326. REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE INSURANCE
POLICIES.
(a) In General.--Chapter 43 is amended by adding at the end the
following new section:
``SEC. 4980C. REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE INSURANCE
POLICIES.
``(a) General Rule.--There is hereby imposed on any person failing
to meet the requirements of subsection (c) or (d) a tax in the amount
determined under subsection (b).
``(b) Amount.--
``(1) In general.--The amount of the tax imposed by
subsection (a) shall be $100 per policy for each day any
requirements of subsection (c) or (d) are not met with respect
to each long-term care insurance policy.
``(2) Waiver.--In the case of a failure which is due to
reasonable cause and not to willful neglect, the Secretary may
waive part or all of the tax imposed by subsection (a) to the
extent that payment of the tax would be excessive relative to
the failure involved.
``(c) Responsibilities.--The requirements of this subsection are as
follows:
``(1) Requirements of model provisions.--
``(A) Model regulation.--The following requirements
of the model regulation must be met:
``(i) Section 13 (relating to application
forms and replacement coverage).
``(ii) Section 14 (relating to reporting
requirements), except that the issuer shall
also report at least annually the number of
claims denied during the reporting period for
each class of business (expressed as a
percentage of claims denied), other than claims
denied for failure to meet the waiting period
or because of any applicable preexisting
condition.
``(iii) Section 20 (relating to filing
requirements for marketing).
``(iv) Section 21 (relating to standards
for marketing), including inaccurate completion
of medical histories, other than sections
21C(1) and 21C(6) thereof, except that--
``(I) in addition to such
requirements, no person shall, in
selling or offering to sell a long-term
care insurance policy, misrepresent a
material fact; and
``(II) no such requirements shall
include a requirement to inquire or
identify whether a prospective
applicant or enrollee 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).
``(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 applications 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 certificates under group
plans).
``(iv) Section 6I (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(f)(2)(B).
``(2) Delivery of policy.--If an application for a long-
term care insurance policy (or for a certificate under a group
long-term care insurance policy) is approved, the issuer shall
deliver to the applicant (or policyholder or certificateholder)
the policy (or certificate) of insurance not later than 30 days
after the date of the approval.
``(3) Information on denials of claims.--If a claim under a
long-term care insurance policy is denied, the issuer shall,
within 60 days of the date of a written request by the
policyholder or certificateholder (or representative)--
``(A) provide a written explanation of the reasons
for the denial, and
``(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)(1)(B)(ii) that the policy is intended to be a qualified long-term
care insurance contract under section 7702B(b).
``(e) Long-Term Care Insurance Policy Defined.--For purposes of
this section, the term `long-term care insurance policy' means any
product which is advertised, marketed, or offered as long-term care
insurance.''.
(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
long-term care insurance
policies.''.
SEC. 327. COORDINATION WITH STATE REQUIREMENTS.
Nothing in this part shall prevent a State from establishing,
implementing, or continuing in effect standards related to the
protection of policyholders of long-term care insurance policies (as
defined in section 4980C(e) of the Internal Revenue Code of 1986), if
such standards are not in conflict with or inconsistent with the
standards established under such Code.
SEC. 328. 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(g) (relating to transition rule) shall apply
to such contracts.
(b) Issuers.--The amendments made by section 326 shall apply to
actions taken after December 31, 1996.
Subtitle D--Treatment of Accelerated Death Benefits
SEC. 331. TREATMENT OF ACCELERATED DEATH BENEFITS BY RECIPIENT.
(a) In General.--Section 101 (relating to certain death benefits)
is amended by adding at the end the following new subsection:
``(g) Treatment of Certain Accelerated Death Benefits.--
``(1) In general.--For purposes of this section, the
following amounts shall be treated as an amount paid by reason
of the death of an insured:
``(A) Any amount received under a life insurance
contract on the life of an insured who is a terminally
ill individual.
``(B) Any amount received under a life insurance
contract on the life of an insured who is a chronically
ill individual (as defined in section 7702B(c)(2)) but
only if such amount is received under a rider or other
provision of such contract which is treated as a
qualified long-term care insurance contract under
section 7702B and such amount is treated under section
7702B (after the application of subsection (d) thereof)
as a payment for qualified long-term care services (as
defined in such section).
``(2) Treatment of viatical settlements.--
``(A) In general.--In the case of a life insurance
contract on the life of an insured described in
paragraph (1), if--
``(i) any portion of such contract is sold
to any viatical settlement provider, or
``(ii) any portion of the death benefit is
assigned to such a provider,
the amount paid for such sale or assignment shall be
treated as an amount paid under the life insurance
contract by reason of the death of such insured.
``(B) Viatical settlement provider.--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 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 persons for such purposes--
``(I) such person 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 Insurance Commissioners
(relating to standards for evaluation
of reasonable payments) in determining
amounts paid by such person in
connection with such purchases or
assignments.
``(3) Definitions.--For purposes of this subsection--
``(A) Terminally ill individual.--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 24 months or less after the date of
the certification.
``(B) Physician.--The term `physician' has the
meaning given to such term by section 1861(r)(1) of the
Social Security Act (42 U.S.C. 1395x(r)(1)).
``(4) Exception for business-related policies.--This
subsection 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) shall
apply to amounts received after December 31, 1996.
SEC. 332. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED ACCELERATED
DEATH BENEFIT 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.--Any reference to a life insurance
contract shall be treated as including a reference to a
qualified accelerated 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 payments under the rider are payments
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.--
(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 applying 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.
Subtitle E--High-Risk 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
exclusively 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 maintenance 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, are unable to
acquire medical care coverage for such
condition through insurance or from a health
maintenance organization or 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 individual.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1996.
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 shall apply
to taxable years ending after December 31, 1996.
TITLE IV--REVENUE OFFSETS
SEC. 400. 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--Repeal of Bad Debt Reserve Method for Thrift Savings
Associations
SEC. 401. REPEAL OF BAD DEBT RESERVE METHOD FOR THRIFT SAVINGS
ASSOCIATIONS.
(a) In General.--Section 593 (relating to reserves for losses on
loans) is amended by adding at the end the following new subsections:
``(f) Termination of Reserve Method.--Subsections (a), (b), (c),
and (d) shall not apply to any taxable year beginning after December
31, 1995.
``(g) 6-Year Spread of Adjustments.--
``(1) In general.--In the case of any taxpayer who is
required by reason of subsection (f) to change its method of
computing reserves for bad debts--
``(A) such change shall be treated as a change in a
method of accounting,
``(B) such change shall be treated as initiated by
the taxpayer and as having been made with the consent
of the Secretary, and
``(C) the net amount of the adjustments required to
be taken into account by the taxpayer under section
481(a)--
``(i) shall be determined by taking into
account only applicable excess reserves, and
``(ii) as so determined, shall be taken
into account ratably over the 6-taxable year
period beginning with the first taxable year
beginning after December 31, 1995.
``(2) Applicable excess reserves.--
``(A) In general.--For purposes of paragraph (1),
the term `applicable excess reserves' means the excess
(if any) of--
``(i) the balance of the reserves described
in subsection (c)(1) (other than the
supplemental reserve) as of the close of the
taxpayer's last taxable year beginning before
December 31, 1995, over
``(ii) the lesser of--
``(I) the balance of such reserves
as of the close of the taxpayer's last
taxable year beginning before January
1, 1988, or
``(II) the balance of the reserves
described in subclause (I), reduced in
the same manner as under section
585(b)(2)(B)(ii) on the basis of the
taxable years described in clause (i)
and this clause.
``(B) Special rule for thrifts which become small
banks.--In the case of a bank (as defined in section
581) which was not a large bank (as defined in section
585(c)(2)) for its first taxable year beginning after
December 31, 1995--
``(i) the balance taken into account under
subparagraph (A)(ii) shall not be less than the
amount which would be the balance of such
reserves as of the close of its last taxable
year beginning before such date if the
additions to such reserves for all taxable
years had been determined under section
585(b)(2)(A), and
``(ii) the opening balance of the reserve
for bad debts as of the beginning of such first
taxable year shall be the balance taken into
account under subparagraph (A)(ii) (determined
after the application of clause (i) of this
subparagraph).
The preceding sentence shall not apply for purposes of
paragraphs (5) and (6) or subsection (e)(1).
``(3) Recapture of pre-1988 reserves where taxpayer ceases
to be bank.--If, during any taxable year beginning after
December 31, 1995, a taxpayer to which paragraph (1) applied is
not a bank (as defined in section 581), paragraph (1) shall
apply to the reserves described in paragraph (2)(A)(ii) and the
supplemental reserve; except that such reserves shall be taken
into account ratably over the 6-taxable year period beginning
with such taxable year.
``(4) Suspension of recapture if residential loan
requirement met.--
``(A) In general.--In the case of a bank which
meets the residential loan requirement of subparagraph
(B) for the first taxable year beginning after December
31, 1995, or for the following taxable year--
``(i) no adjustment shall be taken into
account under paragraph (1) for such taxable
year, and
``(ii) such taxable year shall be
disregarded in determining--
``(I) whether any other taxable
year is a taxable year for which an
adjustment is required to be taken into
account under paragraph (1), and
``(II) the amount of such
adjustment.
``(B) Residential loan requirement.--A taxpayer
meets the residential loan requirement of this
subparagraph for any taxable year if the principal
amount of the residential loans made by the taxpayer
during such year is not less than the base amount for
such year.
``(C) Residential loan.--For purposes of this
paragraph, the term `residential loan' means any loan
described in clause (v) of section 7701(a)(19)(C) but
only if such loan is incurred in acquiring,
constructing, or improving the property described in
such clause.
``(D) Base amount.--For purposes of subparagraph
(B), the base amount is the average of the principal
amounts of the residential loans made by the taxpayer
during the 6 most recent taxable years beginning on or
before December 31, 1995. At the election of the
taxpayer who made such loans during each of such 6
taxable years, the preceding sentence shall be applied
without regard to the taxable year in which such
principal amount was the highest and the taxable year
in such principal amount was the lowest. Such an
election may be made only for the first taxable year
beginning after such date, and, if made for such
taxable year, shall apply to the succeeding taxable
year unless revoked with the consent of the Secretary.
``(E) Controlled groups.--In the case of a taxpayer
which is a member of any controlled group of
corporations described in section 1563(a)(1),
subparagraph (B) shall be applied with respect to such
group.
``(5) Continued application of fresh start under section
585 transitional rules.--In the case of a taxpayer to which
paragraph (1) applied and which was not a large bank (as
defined in section 585(c)(2)) for its first taxable year
beginning after December 31, 1995:
``(A) In general.--For purposes of determining the
net amount of adjustments referred to in section
585(c)(3)(A)(iii), there shall be taken into account
only the excess (if any) of the reserve for bad debts
as of the close of the last taxable year before the
disqualification year over the balance taken into
account by such taxpayer under paragraph (2)(A)(ii) of
this subsection.
``(B) Treatment under elective cut-off method.--For
purposes of applying section 585(c)(4)--
``(i) the balance of the reserve taken into
account under subparagraph (B) thereof shall be
reduced by the balance taken into account by
such taxpayer under paragraph (2)(A)(ii) of
this subsection, and
``(ii) no amount shall be includible in
gross income by reason of such reduction.
``(6) Suspended reserve included as section 381(c) items.--
The balance taken into account by a taxpayer under paragraph
(2)(A)(ii) of this subsection and the supplemental reserve
shall be treated as items described in section 381(c).
``(7) Conversions to credit unions.--In the case of a
taxpayer to which paragraph (1) applied which becomes a credit
union described in section 501(c) and exempt from taxation
under section 501(a)--
``(A) any amount required to be included in the
gross income of the credit union by reason of this
subsection shall be treated as derived from an
unrelated trade or business (as defined in section
513), and
``(B) for purposes of paragraph (3), the credit
union shall not be treated as if it were a bank.
``(8) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out this subsection
and subsection (e), including regulations providing for the
application of such subsections in the case of acquisitions,
mergers, spin-offs, and other reorganizations.''.
(b) Conforming Amendments.--
(1) Subsection (d) of section 50 is amended by adding at
the end the following new sentence:
``Paragraphs (1)(A), (2)(A), and (4) of the section 46(e) referred to
in paragraph (1) of this subsection shall not apply to any taxable year
beginning after December 31, 1995.''
(2) Subsection (e) of section 52 is amended by striking
paragraph (1) and by redesignating paragraphs (2) and (3) as
paragraphs (1) and (2), respectively.
(3) Subsection (a) of section 57 is amended by striking
paragraph (4).
(4) Section 246 is amended by striking subsection (f).
(5) Clause (i) of section 291(e)(1)(B) is amended by
striking ``or to which section 593 applies''.
(6) Subparagraph (A) of section 585(a)(2) is amended by
striking ``other than an organization to which section 593
applies''.
(7)(A) The material preceding subparagraph (A) of section
593(e)(1) is amended by striking ``by a domestic building and
loan association or an institution that is treated as a mutual
savings bank under section 591(b)'' and inserting ``by a
taxpayer having a balance described in subsection
(g)(2)(A)(ii)''.
(B) Subparagraph (B) of section 593(e)(1) is amended to
read as follows:
``(B) then out of the balance taken into account
under subsection (g)(2)(A)(ii) (properly adjusted for
amounts charged against such reserves for taxable years
beginning after December 31, 1987),''.
(C) Paragraph (1) of section 593(e) is amended by adding at
the end the following new sentence: ``This paragraph shall not
apply to any distribution of all of the stock of a bank (as
defined in section 581) to another corporation if, immediately
after the distribution, such bank and such other corporation
are members of the same affiliated group (as defined in section
1504) and the provisions of section 5(e) of the Federal Deposit
Insurance Act (as in effect on December 31, 1995) or similar
provisions are in effect.''
(8) Section 595 is hereby repealed.
(9) Section 596 is hereby repealed.
(10) Subsection (a) of section 860E is amended--
(A) by striking ``Except as provided in paragraph
(2), the'' in paragraph (1) and inserting ``The'',
(B) by striking paragraphs (2) and (4) and
redesignating paragraphs (3) and (5) as paragraphs (2)
and (3), respectively, and
(C) by striking in paragraph (2) (as so
redesignated) all that follows ``subsection'' and
inserting a period.
(11) Paragraph (3) of section 992(d) is amended by striking
``or 593''.
(12) Section 1038 is amended by striking subsection (f).
(13) Clause (ii) of section 1042(c)(4)(B) is amended by
striking ``or 593''.
(14) Subsection (c) of section 1277 is amended by striking
``or to which section 593 applies''.
(15) Subparagraph (B) of section 1361(b)(2) is amended by
striking ``or to which section 593 applies''.
(16) The table of sections for part II of subchapter H of
chapter 1 is amended by striking the items relating to sections
595 and 596.
(c) Effective Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
taxable years beginning after December 31, 1995.
(2) Subsection (b)(7).--The amendments made by subsection
(b)(7) shall not apply to any distribution with respect to
preferred stock if--
(A) such stock is outstanding at all times after
October 31, 1995, and before the distribution, and
(B) such distribution is made before the date which
is 1 year after the date of the enactment of this Act
(or, in the case of stock which may be redeemed, if
later, the date which is 30 days after the earliest
date that such stock may be redeemed).
(3) Subsection (b)(8).--The amendment made by subsection
(b)(8) shall apply to property acquired in taxable years
beginning after December 31, 1995.
(4) Subsection (b)(10).--The amendments made by subsection
(b)(10) shall not apply to any residual interest held by a
taxpayer if such interest has been held by such taxpayer at all
times after October 31, 1995.
Subtitle B--Reform of the Earned Income Credit
SEC. 411. EARNED INCOME CREDIT DENIED TO INDIVIDUALS NOT AUTHORIZED TO
BE EMPLOYED IN THE UNITED STATES.
(a) In General.--Section 32(c)(1) (relating to individuals eligible
to claim the earned income credit) is amended by adding at the end the
following new subparagraph:
``(F) Identification number requirement.--The term
`eligible individual' does not include any individual
who does not include on the return of tax for the
taxable year--
``(i) such individual's taxpayer
identification number, and
``(ii) if the individual is married (within
the meaning of section 7703), the taxpayer
identification number of such individual's
spouse.''.
(b) Special Identification Number.--Section 32 is amended by adding
at the end the following new subsection:
``(l) Identification Numbers.--Solely for purposes of subsections
(c)(1)(F) and (c)(3)(D), a taxpayer identification number means a
social security number issued to an individual by the Social Security
Administration (other than a social security number issued pursuant to
clause (II) (or that portion of clause (III) that relates to clause
(II)) of section 205(c)(2)(B)(i) of the Social Security Act).''.
(c) Extension of Procedures Applicable to Mathematical or Clerical
Errors.--Section 6213(g)(2) (relating to the definition of mathematical
or clerical errors) is amended by striking ``and'' at the end of
subparagraph (D), by striking the period at the end of subparagraph (E)
and inserting a comma, and by inserting after subparagraph (E) the
following new subparagraphs:
``(F) an omission of a correct taxpayer
identification number required under section 32
(relating to the earned income credit) to be included
on a return, and
``(G) an entry on a return claiming the credit
under section 32 with respect to net earnings from
self-employment described in section 32(c)(2)(A) to the
extent the tax imposed by section 1401 (relating to
self-employment tax) on such net earnings has not been
paid.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1995.
Subtitle C--Treatment of Individuals Who Lose United States Citizenship
SEC. 421. 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 Expatriates.--
``(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 1 of its principal purposes the avoidance
of taxes under this subtitle or subtitle B, shall be taxable
for such taxable year in the manner provided in subsection (b)
if the tax imposed pursuant to such subsection exceeds the tax
which, without regard to this section, is imposed pursuant to
section 871.
``(2) Certain individuals treated as having tax avoidance
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
subsection (d), by redesignating subsection (c) as subsection
(d), and by inserting after subsection (b) the following new
subsection:
``(c) Tax Avoidance Not Presumed in Certain Cases.--
``(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 1 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 individual's spouse was
born, or
``(III) either of such individual's
parents were born.
``(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 majority.--
An individual is described in this subparagraph if the
individual's loss of United States citizenship occurs
before such individual attains age 18\1/2\.
``(D) Individuals specified in regulations.--An
individual is described in this subparagraph if the
individual 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 amended by striking ``subsection (c)'' and
inserting ``subsection (d)''.
(c) Treatment of Property Disposed of in Nonrecognition
Transactions; Treatment of Distributions From Certain Controlled
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 subsection
(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 States, a State or political subdivision
thereof, or the District 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 citizenship 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 corporation, or
``(II) the total value of the stock
of such corporation, and
``(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 ownership requirements
of clause (i) are met.
``(2) Gain recognition on certain exchanges.--
``(A) In general.--In the case of any exchange of
property to which this paragraph applies,
notwithstanding any other provision of this title, such
property shall be treated as sold for its fair 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
Secretary 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-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
recognition 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
by--
``(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.''.
(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 1 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),
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).
``(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,
inheritance, 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 of--
``(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 of--
``(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
subparagraph (B), a property's proportionate share is
the percentage 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 percent
of'' and all that follows and inserting ``more than 50
percent of--
``(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 citizenship, unless such loss did not have for 1
of its principal purposes the avoidance of taxes under
this subtitle or subtitle 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.--
Subparagraph (B) shall not apply to a decedent meeting
the requirements 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 paragraph.''.
(f) Comparable Treatment of Lawful Permanent Residents Who Cease To
Be Taxed as Residents.--
(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 Residents 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 resident 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
determining any tax imposed by reason of this
subsection, property 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 providing for the application of this
subsection 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 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
following new subparagraph:
``(E) Cross reference.--
``For comparable treatment of long-term
lawful permanent residents who ceased to be taxed as residents, see
section 877(e).''.
(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) 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)(1)-
(4)) before February 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 11349 shall apply to such
individual except that--
(i) 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 furnished, and
(ii) the 1-year period referred to in
section 877(c) of such Code, as amended by this
section, shall not expire before the date which
is 1 year after the date of the enactment of
this Act.
(B) Exception.--Subparagraph (A) shall not apply if
the individual establishes to the satisfaction of the
Secretary of the Treasury that such loss of United
States citizenship occurred before February 6, 1994.
SEC. 422. 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 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
foreign 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 and liabilities of such
individual, 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
Department 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)(1)-(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 of--
``(1) 5 percent of the tax 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.--Notwithstanding 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 any such 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
``(3) the Federal agency primarily responsible for
administering 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 subpart 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. 423. 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 Representatives 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
residents 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).
Passed the House of Representatives March 28, 1996.
Attest:
Clerk.