[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3103 Enrolled Bill (ENR)]
H.R.3103
One Hundred Fourth Congress
of the
United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Wednesday,
the third day of January, one thousand nine hundred and ninety-six
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 Insurance
Portability and Accountability Act of 1996''.
(b) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY
Subtitle A--Group Market Rules
Part 1--Portability, Access, and Renewability Requirements
Sec. 101. Through the Employee Retirement Income Security Act of 1974.
``Part 7--Group Health Plan Portability, Access, and Renewability
Requirements
``Sec. 701. Increased portability through limitation on preexisting
condition exclusions.
``Sec. 702. Prohibiting discrimination against individual
participants and beneficiaries based on health status.
``Sec. 703. Guaranteed renewability in multiemployer plans and
multiple employer welfare arrangements.
``Sec. 704. Preemption; State flexibility; construction.
``Sec. 705. Special rules relating to group health plans.
``Sec. 706. Definitions.
``Sec. 707. Regulations.''.
Sec. 102. Through the Public Health Service Act.
``TITLE XXVII--ASSURING PORTABILITY, AVAILABILITY, AND RENEWABILITY OF
HEALTH INSURANCE COVERAGE
``Part A--Group Market Reforms
``Subpart 1--Portability, Access, and Renewability Requirements
``Sec. 2701. Increased portability through limitation on preexisting
condition exclusions.
``Sec. 2702. Prohibiting discrimination against individual
participants and beneficiaries based on health status.
``Subpart 2--Provisions Applicable Only to Health Insurance Issuers
``Sec. 2711. Guaranteed availability of coverage for employers in
the group market.
``Sec. 2712. Guaranteed renewability of coverage for employers in
the group market.
``Sec. 2713. Disclosure of information.
``Subpart 3--Exclusion of Plans; Enforcement; Preemption
``Sec. 2721. Exclusion of certain plans.
``Sec. 2722. Enforcement.
``Sec. 2723. Preemption; State flexibility; construction.
``Part C--Definitions; Miscellaneous Provisions
``Sec. 2791. Definitions.
``Sec. 2792. Regulations.''.
Sec. 103. Reference to implementation through the Internal Revenue Code
of 1986.
Sec. 104. Assuring coordination.
Subtitle B--Individual Market Rules
Sec. 111. Amendment to Public Health Service Act.
``Part B--Individual Market Rules
``Sec. 2741. Guaranteed availability of individual health insurance
coverage to certain individuals with prior group coverage.
``Sec. 2742. Guaranteed renewability of individual health insurance
coverage.
``Sec. 2743. Certification of coverage.
``Sec. 2744. State flexibility in individual market reforms.
``Sec. 2745. Enforcement.
``Sec. 2746. Preemption.
``Sec. 2747. General exceptions.''.
Subtitle C--General and Miscellaneous Provisions
Sec. 191. Health coverage availability studies.
Sec. 192. Report on Medicare reimbursement of telemedicine.
Sec. 193. Allowing federally-qualified HMOs to offer high deductible
plans.
Sec. 194. Volunteer services provided by health professionals at free
clinics.
Sec. 195. Findings; severability.
TITLE II--PREVENTING HEALTH CARE FRAUD AND ABUSE; ADMINISTRATIVE
SIMPLIFICATION; MEDICAL LIABILITY REFORM
Sec. 200. References in title.
Subtitle A--Fraud and Abuse Control Program
Sec. 201. Fraud and abuse control program.
Sec. 202. Medicare integrity program.
Sec. 203. Beneficiary incentive programs.
Sec. 204. Application of certain health antifraud and abuse sanctions to
fraud and abuse against Federal health care programs.
Sec. 205. Guidance regarding application of health care fraud and abuse
sanctions.
Subtitle B--Revisions to Current Sanctions for Fraud and Abuse
Sec. 211. Mandatory exclusion from participation in Medicare and State
health care programs.
Sec. 212. Establishment of minimum period of exclusion for certain
individuals and entities subject to permissive exclusion from
Medicare and State health care programs.
Sec. 213. Permissive exclusion of individuals with ownership or control
interest in sanctioned entities.
Sec. 214. Sanctions against practitioners and persons for failure to
comply with statutory obligations.
Sec. 215. Intermediate sanctions for Medicare health maintenance
organizations.
Sec. 216. Additional exception to anti-kickback penalties for risk-
sharing 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. 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. 261. Purpose.
Sec. 262. Administrative simplification.
``Part C--Administrative Simplification
``Sec. 1171. Definitions.
``Sec. 1172. General requirements for adoption of standards.
``Sec. 1173. Standards for information transactions and data
elements.
``Sec. 1174. Timetables for adoption of standards.
``Sec. 1175. Requirements.
``Sec. 1176. General penalty for failure to comply with requirements
and standards.
``Sec. 1177. Wrongful disclosure of individually identifiable health
information.
``Sec. 1178. Effect on State law.
``Sec. 1179. Processing payment transactions.''.
Sec. 263. Changes in membership and duties of National Committee on
Vital and Health Statistics.
Sec. 264. Recommendations with respect to privacy of certain health
information.
Subtitle G--Duplication and Coordination of Medicare-Related Plans
Sec. 271. Duplication and coordination of Medicare-related plans.
TITLE III--TAX-RELATED HEALTH PROVISIONS
Sec. 300. Amendment of 1986 Code.
Subtitle A--Medical Savings Accounts
Sec. 301. Medical savings accounts.
Subtitle B--Increase in Deduction for Health Insurance Costs of Self-
Employed Individuals
Sec. 311. Increase in deduction for health insurance costs of self-
employed indi- viduals.
Subtitle C--Long-Term Care Services and Contracts
Part I--General Provisions
Sec. 321. Treatment of long-term care insurance.
Sec. 322. Qualified long-term care services treated as medical care.
Sec. 323. Reporting requirements.
Part II--Consumer Protection Provisions
Sec. 325. Policy requirements.
Sec. 326. Requirements for issuers of qualified long-term care insurance
contracts.
Sec. 327. Effective dates.
Subtitle D--Treatment of Accelerated Death Benefits
Sec. 331. Treatment of accelerated death benefits by recipient.
Sec. 332. Tax treatment of companies issuing qualified accelerated death
benefit riders.
Subtitle E--State Insurance Pools
Sec. 341. Exemption from income tax for State-sponsored organizations
providing health coverage for high-risk individuals.
Sec. 342. Exemption from income tax for State-sponsored workmen's
compensation reinsurance organizations.
Subtitle F--Organizations Subject to Section 833
Sec. 351. Organizations subject to section 833.
Subtitle G--IRA Distributions to the Unemployed
Sec. 361. Distributions from certain plans may be used without
additional tax to pay financially devastating medical
expenses.
Subtitle H--Organ and Tissue Donation Information Included With Income
Tax Refund Payments
Sec. 371. Organ and tissue donation information included with income tax
refund payments.
TITLE IV--APPLICATION AND ENFORCEMENT OF GROUP HEALTH PLAN REQUIREMENTS
Subtitle A--Application and Enforcement of Group Health Plan
Requirements
Sec. 401. Group health plan portability, access, and renewability
requirements.
Sec. 402. Penalty on failure to meet certain group health plan
requirements.
Subtitle B--Clarification of Certain Continuation Coverage Requirements
Sec. 421. COBRA clarifications.
TITLE V--REVENUE OFFSETS
Sec. 500. Amendment of 1986 Code.
Subtitle A--Company-Owned Life Insurance
Sec. 501. Denial of deduction for interest on loans with respect to
company-owned life insurance.
Subtitle B--Treatment of Individuals Who Lose United States Citizenship
Sec. 511. Revision of income, estate, and gift taxes on individuals who
lose United States citizenship.
Sec. 512. Information on individuals losing United States citizenship.
Sec. 513. Report on tax compliance by United States citizens and
residents living abroad.
Subtitle C--Repeal of Financial Institution Transition Rule to Interest
Allocation Rules
Sec. 521. Repeal of financial institution transition rule to interest
allocation rules.
TITLE I--HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY
Subtitle A--Group Market Rules
Part 1--Portability, Access, and Renewability Requirements
SEC. 101. THROUGH THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.
(a) In General.--Subtitle B of title I of the Employee Retirement
Income Security Act of 1974 is amended by adding at the end the
following new part:
``Part 7--Group Health Plan Portability, Access, and Renewability
Requirements
``SEC. 701. INCREASED PORTABILITY THROUGH LIMITATION ON PREEXISTING
CONDITION EXCLUSIONS.
``(a) Limitation on Preexisting Condition Exclusion Period;
Crediting for Periods of Previous Coverage.--Subject to subsection (d),
a group health plan, and a health insurance issuer offering group
health insurance coverage, may, with respect to a participant or
beneficiary, impose a preexisting condition exclusion only if--
``(1) such exclusion relates to a condition (whether physical
or mental), regardless of the cause of the condition, for which
medical advice, diagnosis, care, or treatment was recommended or
received within the 6-month period ending on the enrollment date;
``(2) such exclusion extends for a period of not more than 12
months (or 18 months in the case of a late enrollee) after the
enrollment date; and
``(3) the period of any such preexisting condition exclusion is
reduced by the aggregate of the periods of creditable coverage (if
any, as defined in subsection (c)(1)) applicable to the participant
or beneficiary as of the enrollment date.
``(b) Definitions.--For purposes of this part--
``(1) Preexisting condition exclusion.--
``(A) In general.--The term `preexisting condition
exclusion' means, with respect to coverage, a limitation or
exclusion of benefits relating to a condition based on the fact
that the condition was present before the date of enrollment
for such coverage, whether or not any medical advice,
diagnosis, care, or treatment was recommended or received
before such date.
``(B) Treatment of genetic information.--Genetic
information shall not be treated as a condition described in
subsection (a)(1) in the absence of a diagnosis of the
condition related to such information.
``(2) Enrollment date.--The term `enrollment date' means, with
respect to an individual covered under a group health plan or
health insurance coverage, the date of enrollment of the individual
in the plan or coverage or, if earlier, the first day of the
waiting period for such enrollment.
``(3) Late enrollee.--The term `late enrollee' means, with
respect to coverage under a group health plan, a participant or
beneficiary who enrolls under the plan other than during--
``(A) the first period in which the individual is eligible
to enroll under the plan, or
``(B) a special enrollment period under subsection (f).
``(4) Waiting period.--The term `waiting period' means, with
respect to a group health plan and an individual who is a potential
participant or beneficiary in the plan, the period that must pass
with respect to the individual before the individual is eligible to
be covered for benefits under the terms of the plan.
``(c) Rules Relating to Crediting Previous Coverage.--
``(1) Creditable coverage defined.--For purposes of this part,
the term `creditable coverage' means, with respect to an
individual, coverage of the individual under any of the following:
``(A) A group health plan.
``(B) Health insurance coverage.
``(C) Part A or part B of title XVIII of the Social
Security Act.
``(D) Title XIX of the Social Security Act, other than
coverage consisting solely of benefits under section 1928.
``(E) Chapter 55 of title 10, United States Code.
``(F) A medical care program of the Indian Health Service
or of a tribal organization.
``(G) A State health benefits risk pool.
``(H) A health plan offered under chapter 89 of title 5,
United States Code.
``(I) A public health plan (as defined in regulations).
``(J) A health benefit plan under section 5(e) of the Peace
Corps Act (22 U.S.C. 2504(e)).
Such term does not include coverage consisting solely of coverage
of excepted benefits (as defined in section 706(c)).
``(2) Not counting periods before significant breaks in
coverage.--
``(A) In general.--A period of creditable coverage shall
not be counted, with respect to enrollment of an individual
under a group health plan, if, after such period and before the
enrollment date, there was a 63-day period during all of which
the individual was not covered under any creditable coverage.
``(B) Waiting period not treated as a break in coverage.--
For purposes of subparagraph (A) and subsection (d)(4), any
period that an individual is in a waiting period for any
coverage under a group health plan (or for group health
insurance coverage) or is in an affiliation period (as defined
in subsection (g)(2)) shall not be taken into account in
determining the continuous period under subparagraph (A).
``(3) Method of crediting coverage.--
``(A) Standard method.--Except as otherwise provided under
subparagraph (B), for purposes of applying subsection (a)(3), a
group health plan, and a health insurance issuer offering group
health insurance coverage, shall count a period of creditable
coverage without regard to the specific benefits covered during
the period.
``(B) Election of alternative method.--A group health plan,
or a health insurance issuer offering group health insurance
coverage, may elect to apply subsection (a)(3) based on
coverage of benefits within each of several classes or
categories of benefits specified in regulations rather than as
provided under subparagraph (A). Such election shall be made on
a uniform basis for all participants and beneficiaries. Under
such election a group health plan or issuer shall count a
period of creditable coverage with respect to any class or
category of benefits if any level of benefits is covered within
such class or category.
``(C) Plan notice.--In the case of an election with respect
to a group health plan under subparagraph (B) (whether or not
health insurance coverage is provided in connection with such
plan), the plan shall--
``(i) prominently state in any disclosure statements
concerning the plan, and state to each enrollee at the time
of enrollment under the plan, that the plan has made such
election, and
``(ii) include in such statements a description of the
effect of this election.
``(4) Establishment of period.--Periods of creditable coverage
with respect to an individual shall be established through
presentation of certifications described in subsection (e) or in
such other manner as may be specified in regulations.
``(d) Exceptions.--
``(1) Exclusion not applicable to certain newborns.--Subject to
paragraph (4), a group health plan, and a health insurance issuer
offering group health insurance coverage, may not impose any
preexisting condition exclusion in the case of an individual who,
as of the last day of the 30-day period beginning with the date of
birth, is covered under creditable coverage.
``(2) Exclusion not applicable to certain adopted children.--
Subject to paragraph (4), a group health plan, and a health
insurance issuer offering group health insurance coverage, may not
impose any preexisting condition exclusion in the case of a child
who is adopted or placed for adoption before attaining 18 years of
age and who, as of the last day of the 30-day period beginning on
the date of the adoption or placement for adoption, is covered
under creditable coverage. The previous sentence shall not apply to
coverage before the date of such adoption or placement for
adoption.
``(3) Exclusion not applicable to pregnancy.--A group health
plan, and health insurance issuer offering group health insurance
coverage, may not impose any preexisting condition exclusion
relating to pregnancy as a preexisting condition.
``(4) Loss if break in coverage.--Paragraphs (1) and (2) shall
no longer apply to an individual after the end of the first 63-day
period during all of which the individual was not covered under any
creditable coverage.
``(e) Certifications and Disclosure of Coverage.--
``(1) Requirement for certification of period of creditable
coverage.--
``(A) In general.--A group health plan, and a health
insurance issuer offering group health insurancecoverage, shall
provide the certification described in subparagraph (B)--
``(i) at the time an individual ceases to be covered
under the plan or otherwise becomes covered under a COBRA
continuation provision,
``(ii) in the case of an individual becoming covered
under such a provision, at the time the individual ceases
to be covered under such provision, and
``(iii) on the request on behalf of an individual made
not later than 24 months after the date of cessation of the
coverage described in clause (i) or (ii), whichever is
later.
The certification under clause (i) may be provided, to the
extent practicable, at a time consistent with notices required
under any applicable COBRA continuation provision.
``(B) Certification.--The certification described in this
subparagraph is a written certification of--
``(i) the period of creditable coverage of the
individual under such plan and the coverage (if any) under
such COBRA continuation provision, and
``(ii) the waiting period (if any) (and affiliation
period, if applicable) imposed with respect to the
individual for any coverage under such plan.
``(C) Issuer compliance.--To the extent that medical care
under a group health plan consists of group health insurance
coverage, the plan is deemed to have satisfied the
certification requirement under this paragraph if the health
insurance issuer offering the coverage provides for such
certification in accordance with this paragraph.
``(2) Disclosure of information on previous benefits.--In the
case of an election described in subsection (c)(3)(B) by a group
health plan or health insurance issuer, if the plan or issuer
enrolls an individual for coverage under the plan and the
individual provides a certification of coverage of the individual
under paragraph (1)--
``(A) upon request of such plan or issuer, the entity which
issued the certification provided by the individual shall
promptly disclose to such requesting plan or issuer information
on coverage of classes and categories of health benefits
available under such entity's plan or coverage, and
``(B) such entity may charge the requesting plan or issuer
for the reasonable cost of disclosing such information.
``(3) Regulations.--The Secretary shall establish rules to
prevent an entity's failure to provide information under paragraph
(1) or (2) with respect to previous coverage of an individual from
adversely affecting any subsequent coverage of the individual under
another group health plan or health insurance coverage.
``(f) Special Enrollment Periods.--
``(1) Individuals losing other coverage.--A group health plan,
and a health insurance issuer offering group health insurance
coverage in connection with a group health plan, shall permit an
employee who is eligible, but not enrolled, for coverage under the
terms of the plan (or a dependent of such an employee if the
dependent is eligible, but not enrolled, for coverage under such
terms) to enroll for coverage under the terms of the plan if each
of the following conditions is met:
``(A) The employee or dependent was covered under a group
health plan or had health insurance coverage at the time
coverage was previously offered to the employee or dependent.
``(B) The employee stated in writing at such time that
coverage under a group health plan or health insurance coverage
was the reason for declining enrollment, but only if the plan
sponsor or issuer (if applicable) required such a statement at
such time and provided the employee with notice of such
requirement (and the consequences of such requirement) at such
time.
``(C) The employee's or dependent's coverage described in
subparagraph (A)--
``(i) was under a COBRA continuation provision and the
coverage under such provision was exhausted; or
``(ii) was not under such a provision and either the
coverage was terminated as a result of loss of eligibility
for the coverage (including as a result of legal
separation, divorce, death, termination of employment, or
reduction in the number of hours of employment) or employer
contributions toward such coverage were terminated.
``(D) Under the terms of the plan, the employee requests
such enrollment not later than 30 days after the date of
exhaustion of coverage described in subparagraph (C)(i) or
termination of coverage or employer contribution described in
subparagraph (C)(ii).
``(2) For dependent beneficiaries.--
``(A) In general.--If--
``(i) a group health plan makes coverage available with
respect to a dependent of an individual,
``(ii) the individual is a participant under the plan
(or has met any waiting period applicable to becoming a
participant under the plan and is eligible to be enrolled
under the plan but for a failure to enroll during a
previous enrollment period), and
``(iii) a person becomes such a dependent of the
individual through marriage, birth, or adoption or
placement for adoption,
the group health plan shall provide for a dependent special
enrollment period described in subparagraph (B) during which
the person (or, if not otherwise enrolled, the individual) may
be enrolled under the plan as a dependent of the individual,
and in the case of the birth or adoption of a child, the spouse
of the individual may be enrolled as a dependent of the
individual if such spouse is otherwise eligible for coverage.
``(B) Dependent special enrollment period.--A dependent
special enrollment period under this subparagraph shall be a
period of not less than 30 days and shall begin on the later
of--
``(i) the date dependent coverage is made available, or
``(ii) the date of the marriage, birth, or adoption or
placement for adoption (as the case may be) described in
subparagraph (A)(iii).
``(C) No waiting period.--If an individual seeks to enroll
a dependent during the first 30 days of such a dependent
special enrollment period, the coverage of the dependent shall
become effective--
``(i) in the case of marriage, not later than the first
day of the first month beginning after the date the
completed request for enrollment is received;
``(ii) in the case of a dependent's birth, as of the
date of such birth; or
``(iii) in the case of a dependent's adoption or
placement for adoption, the date of such adoption or
placement for adoption.
``(g) Use of Affiliation Period by HMOs as Alternative to
Preexisting Condition Exclusion.--
``(1) In general.--In the case of a group health plan that
offers medical care through health insurance coverage offered by a
health maintenance organization, the plan may provide for an
affiliation period with respect to coverage through the
organization only if--
``(A) no preexisting condition exclusion is imposed with
respect to coverage through the organization,
``(B) the period is applied uniformly without regard to any
health status-related factors, and
``(C) such period does not exceed 2 months (or 3 months in
the case of a late enrollee).
``(2) Affiliation period.--
``(A) Defined.--For purposes of this part, the term
`affiliation period' means a period which, under the terms of
the health insurance coverage offered by the health maintenance
organization, must expire before the health insurance coverage
becomes effective. The organization is not required to provide
health care services or benefits during such period and no
premium shall be charged to the participant or beneficiary for
any coverage during the period.
``(B) Beginning.--Such period shall begin on the enrollment
date.
``(C) Runs concurrently with waiting periods.--An
affiliation period under a plan shall run concurrently with any
waiting period under the plan.
``(3) Alternative methods.--A health maintenance organization
described in paragraph (1) may use alternative methods, from those
described in such paragraph, to address adverse selection as
approved by the State insurance commissioner or official or
officials designated by the State to enforce the requirements of
part A of title XXVII of the Public Health Service Act for the
State involved with respect to such issuer.
``SEC. 702. PROHIBITING DISCRIMINATION AGAINST INDIVIDUAL PARTICIPANTS
AND BENEFICIARIES BASED ON HEALTH STATUS.
``(a) In Eligibility To Enroll.--
``(1) In general.--Subject to paragraph (2), a group health
plan, and a health insurance issuer offering group health insurance
coverage in connection with a group health plan, may not establish
rules for eligibility (including continued eligibility) of any
individual to enroll under the terms of the plan based on any of
the following health status-related factors in relation to the
individual or a dependent of the individual:
``(A) Health status.
``(B) Medical condition (including both physical and mental
illnesses).
``(C) Claims experience.
``(D) Receipt of health care.
``(E) Medical history.
``(F) Genetic information.
``(G) Evidence of insurability (including conditions
arising out of acts of domestic violence).
``(H) Disability.
``(2) No application to benefits or exclusions.--To the extent
consistent with section 701, paragraph (1) shall not be construed--
``(A) to require a group health plan, or group health
insurance coverage, to provide particular benefits other than
those provided under the terms of such plan or coverage, or
``(B) to prevent such a plan or coverage from establishing
limitations or restrictions on the amount, level, extent, or
nature of the benefits or coverage for similarly situated
individuals enrolled in the plan or coverage.
``(3) Construction.--For purposes of paragraph (1), rules for
eligibility to enroll under a plan include rules defining any
applicable waiting periods for such enrollment.
``(b) In Premium Contributions.--
``(1) In general.--A group health plan, and a health insurance
issuer offering health insurance coverage in connection with a
group health plan, may not require any individual (as a condition
of enrollment or continued enrollment under the plan) to pay a
premium or contribution which is greater than such premium or
contribution for a similarly situated individual enrolled in the
plan on the basis of any health status-related factor in relation
to the individual or to an individual enrolled under the plan as a
dependent of the individual.
``(2) Construction.--Nothing in paragraph (1) shall be
construed--
``(A) to restrict the amount that an employer may be
charged for coverage under a group health plan; or
``(B) to prevent a group health plan, and a health
insurance issuer offering group health insurance coverage, from
establishing premium discounts or rebates or modifying
otherwise applicable copayments or deductibles in return for
adherence to programs of health promotion and disease
prevention.
``SEC. 703. GUARANTEED RENEWABILITY IN MULTIEMPLOYER PLANS AND MULTIPLE
EMPLOYER WELFARE ARRANGEMENTS.
``A group health plan which is a multiemployer plan or which is a
multiple employer welfare arrangement may not deny an employer whose
employees are covered under such a plan continued access to the same or
different coverage under the terms of such a plan, other than--
``(1) for nonpayment of contributions;
``(2) for fraud or other intentional misrepresentation of
material fact by the employer;
``(3) for noncompliance with material plan provisions;
``(4) because the plan is ceasing to offer any coverage in a
geographic area;
``(5) in the case of a plan that offers benefits through a
network plan, there is no longer any individual enrolled through
the employer who lives, resides, or works in the service area of
the network plan and the plan applies this paragraph uniformly
without regard to the claims experience of employers or any health
status-related factor in relation to such individuals or their
dependents; and
``(6) for failure to meet the terms of an applicable collective
bargaining agreement, to renew a collective bargaining or other
agreement requiring or authorizing contributions to the plan, or to
employ employees covered by such an agreement.
``SEC. 704. PREEMPTION; STATE FLEXIBILITY; CONSTRUCTION.
``(a) Continued Applicability of State Law With Respect to Health
Insurance Issuers.--
``(1) In General.--Subject to paragraph (2) and except as
provided in subsection (b), this part shall not be construed to
supersede any provision of State law which establishes, implements,
or continues in effect any standard or requirement solely relating
to health insurance issuers in connection with group health
insurance coverage except to the extent that such standard or
requirement prevents the application of a requirement of this part.
``(2) Continued preemption with respect to group health
plans.--Nothing in this part shall be construed to affect or modify
the provisions of section 514 with respect to group health plans.
``(b) Special Rules in Case of Portability Requirements.--
``(1) In general.--Subject to paragraph (2), the provisions of
this part relating to health insurance coverage offered by a health
insurance issuer supersede any provision of State law which
establishes, implements, or continues in effect a standard or
requirement applicable to imposition of a preexisting condition
exclusion specifically governed by section 701 which differs from
the standards or requirements specified in such section.
``(2) Exceptions.--Only in relation to health insurance
coverage offered by a health insurance issuer, the provisions of
this part do not supersede any provision of State law to the extent
that such provision--
``(A) substitutes for the reference to `6-month period' in
section 701(a)(1) a reference to any shorter period of time;
``(B) substitutes for the reference to `12 months' and `18
months' in section 701(a)(2) a reference to any shorter period
of time;
``(C) substitutes for the references to `63 days' in
sections 701 (c)(2)(A) and (d)(4)(A) a reference to any greater
number of days;
``(D) substitutes for the reference to `30-day period' in
sections 701 (b)(2) and (d)(1) a reference to any greater
period;
``(E) prohibits the imposition of any preexisting condition
exclusion in cases not described in section 701(d) or expands
the exceptions described in such section;
``(F) requires special enrollment periods in addition to
those required under section 701(f); or
``(G) reduces the maximum period permitted in an
affiliation period under section 701(g)(1)(B).
``(c) Rules of Construction.--Nothing in this part shall be
construed as requiring a group health plan or health insurance coverage
to provide specific benefits under the terms of such plan or coverage.
``(d) Definitions.--For purposes of this section--
``(1) State law.--The term `State law' includes all laws,
decisions, rules, regulations, or other State action having the
effect of law, of any State. A law of the United States applicable
only to the District of Columbia shall be treated as a State law
rather than a law of the United States.
``(2) State.--The term `State' includes a State, the Northern
Mariana Islands, any political subdivisions of a State or such
Islands, or any agency or instrumentality of either.
``SEC. 705. SPECIAL RULES RELATING TO GROUP HEALTH PLANS.
``(a) General Exception for Certain Small Group Health Plans.--The
requirements of this part shall not apply to any group health plan (and
group health insurance coverage offered in connection with a group
health plan) for any plan year if, on the first day of such plan year,
such plan has less than 2 participants who are current employees.
``(b) Exception for Certain Benefits.--The requirements of this
part shall not apply to any group health plan (and group health
insurance coverage) in relation to its provision of excepted benefits
described in section 706(c)(1).
``(c) Exception for Certain Benefits if Certain Conditions Met.--
``(1) Limited, excepted benefits.--The requirements of this
part shall not apply to any group health plan (and group health
insurance coverage offered in connection with a group health plan)
in relation to its provision of excepted benefits described in
section 706(c)(2) if the benefits--
``(A) are provided under a separate policy, certificate, or
contract of insurance; or
``(B) are otherwise not an integral part of the plan.
``(2) Noncoordinated, excepted benefits.--The requirements of
this part shall not apply to any group health plan (and group
health insurance coverage offered in connection with a group health
plan) in relation to its provision of excepted benefits described
in section 706(c)(3) if all of the following conditions are met:
``(A) The benefits are provided under a separate policy,
certificate, or contract of insurance.
``(B) There is no coordination between the provision of
such benefits and any exclusion of benefits under any group
health plan maintained by the same plan sponsor.
``(C) Such benefits are paid with respect to an event
without regard to whether benefits are provided with respect to
such an event under any group health plan maintained by the
same plan sponsor.
``(3) Supplemental excepted benefits.--The requirements of this
part shall not apply to any group health plan (and group health
insurance coverage) in relation to its provision of excepted
benefits described in section 706(c)(4) if the benefits are
provided under a separate policy, certificate, or contract of
insurance.
``(d) Treatment of Partnerships.--For purposes of this part--
``(1) Treatment as a group health plan.--Any plan, fund, or
program which would not be (but for this subsection) an employee
welfare benefit plan and which is established or maintained by a
partnership, to the extent that such plan, fund, or program
provides medical care (including items and services paid for as
medical care) to present or former partners in the partnership or
to their dependents (as defined under the terms of the plan, fund,
or program), directly or through insurance, reimbursement, or
otherwise, shall be treated (subject to paragraph (2)) as an
employee welfare benefit plan which is a group health plan.
``(2) Employer.--In the case of a group health plan, the term
`employer' also includes the partnership in relation to any
partner.
``(3) Participants of group health plans.--In the case of a
group health plan, the term `participant' also includes--
``(A) in connection with a group health plan maintained by
a partnership, an individual who is a partner in relation to
the partnership, or
``(B) in connection with a group health plan maintained by
a self-employed individual (under which one or more employees
are participants), the self-employed individual,
if such individual is, or may become, eligible to receive a benefit
under the plan or such individual's beneficiaries may be eligible
to receive any such benefit.
``SEC. 706. DEFINITIONS.
``(a) Group Health Plan.--For purposes of this part--
``(1) In general.--The term `group health plan' means an
employee welfare benefit plan to the extent that the plan provides
medical care (as defined in paragraph (2) and including items and
services paid for as medical care) to employees or their dependents
(as defined under the terms of the plan) directly or through
insurance, reimbursement, or otherwise.
``(2) Medical care.--The term `medical care' means amounts paid
for--
``(A) the diagnosis, cure, mitigation, treatment, or
prevention of disease, or amounts paid for the purpose of
affecting any structure or function of the body,
``(B) amounts paid for transportation primarily for and
essential to medical care referred to in subparagraph (A), and
``(C) amounts paid for insurance covering medical care
referred to in subparagraphs (A) and (B).
``(b) Definitions Relating to Health Insurance.--For purposes of
this part--
``(1) Health insurance coverage.--The term `health insurance
coverage' means benefits consisting of medical care (provided
directly, through insurance or reimbursement, or otherwise and
including items and services paid for as medical care) under any
hospital or medical service policy or certificate, hospital or
medical service plan contract, or health maintenance organization
contract offered by a health insurance issuer.
``(2) Health insurance issuer.--The term `health insurance
issuer' means an insurance company, insurance service, or insurance
organization (including a health maintenance organization, as
defined in paragraph (3)) which is licensed to engage in the
business of insurance in a State and which is subject to State law
which regulates insurance (within the meaning of section
514(b)(2)). Such term does not include a group health plan.
``(3) Health maintenance organization.--The term `health
maintenance organization' means--
``(A) a federally qualified health maintenance 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.
``(4) Group health insurance coverage.--The term `group health
insurance coverage' means, in connection with a group health plan,
health insurance coverage offered in connection with such plan.
``(c) Excepted Benefits.--For purposes of this part, the term
`excepted benefits' means benefits under one or more (or any
combination thereof) of the following:
``(1) Benefits not subject to requirements.--
``(A) Coverage only for accident, or disability income
insurance, or any combination thereof.
``(B) Coverage issued as a supplement to liability
insurance.
``(C) Liability insurance, including general liability
insurance and automobile liability insurance.
``(D) Workers' compensation or similar insurance.
``(E) Automobile medical payment insurance.
``(F) Credit-only insurance.
``(G) Coverage for on-site medical clinics.
``(H) Other similar insurance coverage, specified in
regulations, under which benefits for medical care are
secondary or incidental to other insurance benefits.
``(2) Benefits not subject to requirements if offered
separately.--
``(A) Limited scope dental or vision benefits.
``(B) Benefits for long-term care, nursing home care, home
health care, community-based care, or any combination thereof.
``(C) Such other similar, limited benefits as are specified
in regulations.
``(3) Benefits not subject to requirements if offered as
independent, noncoordinated benefits.--
``(A) Coverage only for a specified disease or illness.
``(B) Hospital indemnity or other fixed indemnity
insurance.
``(4) Benefits not subject to requirements if offered as
separate insurance policy.--Medicare supplemental health insurance
(as defined under section 1882(g)(1) of the Social Security Act),
coverage supplemental to the coverage provided under chapter 55 of
title 10, United States Code, and similar supplemental coverage
provided to coverage under a group health plan.
``(d) Other Definitions.--For purposes of this part--
``(1) COBRA continuation provision.--The term `COBRA
continuation provision' means any of the following:
``(A) Part 6 of this subtitle.
``(B) Section 4980B of the Internal Revenue Code of 1986,
other than subsection (f)(1) of such section insofar as it
relates to pediatric vaccines.
``(C) Title XXII of the Public Health Service Act.
``(2) Health status-related factor.--The term `health status-
related factor' means any of the factors described in section
702(a)(1).
``(3) Network plan.--The term `network plan' means health
insurance coverage offered by a health insurance issuer under which
the financing and delivery of medical care (including items and
services paid for as medical care) are provided, in whole or in
part, through a defined set of providers under contract with the
issuer.
``(4) Placed for adoption.--The term `placement', or being
`placed', for adoption, has the meaning given such term in section
609(c)(3)(B).
``SEC. 707. REGULATIONS.
``The Secretary, consistent with section 104 of the Health Care
Portability and Accountability Act of 1996, may promulgate such
regulations as may be necessary or appropriate to carry out the
provisions of this part. The Secretary may promulgate any interim final
rules as the Secretary determines are appropriate to carry out this
part.''.
(b) Enforcement With Respect to Health Insurance Issuers.--Section
502(b) of such Act (29 U.S.C. 1132(b)) is amended by adding at the end
the following new paragraph:
``(3) The Secretary is not authorized to enforce under this part
any requirement of part 7 against a health insurance issuer offering
health insurance coverage in connection with a group health plan (as
defined in section 706(a)(1)). Nothing in this paragraph shall affect
the authority of the Secretary to issue regulations to carry out such
part.''.
(c) Disclosure of Information to Participants and Beneficiaries.--
(1) In general.--Section 104(b)(1) of such Act (29 U.S.C.
1024(b)(1)) is amended in the matter following subpara- graph (B)--
(A) by striking ``102(a)(1),'' and inserting ``102(a)(1)
(other than a material reduction in covered services or
benefits provided in the case of a group health plan (as
defined in section 706(a)(1))),''; and
(B) by adding at the end the following new sentences: ``If
there is a modification or change described in section
102(a)(1) that is a material reduction in covered services or
benefits provided under a group health plan (as defined in
section 706(a)(1)), a summary description of such modification
or change shall be furnished to participants and beneficiaries
not later than 60 days after the date of the adoption of the
modification or change. In the alternative, the plan sponsors
may provide such description at regular intervals of not more
than 90 days. The Secretary shall issue regulations within 180
days after the date of enactment of the Health Insurance
Portability and Accountability Act of 1996, providing
alternative mechanisms to delivery by mail through which group
health plans (as so defined) may notify participants and
beneficiaries of material reductions in covered services or
benefits.''.
(2) Plan description and summary.--Section 102(b) of such Act
(29 U.S.C. 1022(b)) is amended--
(A) by inserting ``in the case of a group health plan (as
defined in section 706(a)(1)), whether a health insurance
issuer (as defined in section 706(b)(2)) is responsible for the
financing or administration (including payment of claims) of
the plan and (if so) the name and address of such issuer;''
after ``type of administration of the plan;''; and
(B) by inserting ``including the office at the Department
of Labor through which participants and beneficiaries may seek
assistance or information regarding their rights under this Act
and the Health Insurance Portability and Accountability Act of
1996 with respect to health benefits that are offered through a
group health plan (as defined in section 706(a)(1))'' after
``benefits under the plan''.
(d) Treatment of Health Insurance Issuers Offering Health Insurance
Coverage to Noncovered Plans.--Section 4(b) of such Act (29 U.S.C.
1003(b)) is amended by adding at the end (after and below paragraph
(5)) the following:
``The provisions of part 7 of subtitle B shall not apply to a health
insurance issuer (as defined in section 706(b)(2)) solely by reason of
health insurance coverage (as defined in section 706(b)(1)) provided by
such issuer in connection with a group health plan (as defined in
section 706(a)(1)) if the provisions of this title do not apply to such
group health plan.''.
(e) Reporting and Enforcement With Respect to Certain
Arrangements.--
(1) In general.--Section 101 of such Act (29 U.S.C. 1021) is
amended--
(A) by redesignating subsection (g) as subsection (h), and
(B) by inserting after subsection (f) the following new
subsection:
``(g) Reporting by Certain Arrangements.--The Secretary may, by
regulation, require multiple employer welfare arrangements providing
benefits consisting of medical care (within the meaning of section
706(a)(2)) which are not group health plans to report, not more
frequently than annually, in such form and such manner as the Secretary
may require for the purpose of determining the extent to which the
requirements of part 7 are being carried out in connection with such
benefits.''.
(2) Enforcement.--
(A) In general.--Section 502 of such Act (29 U.S.C. 1132)
is amended--
(i) in subsection (a)(6), by striking ``under
subsection (c)(2) or (i) or (l)'' and inserting ``under
paragraph (2), (4), or (5) of subsection (c) or under
subsection (i) or (l)''; and
(ii) in the last 2 sentences of subsection (c), by
striking ``For purposes of this paragraph'' and all that
follows through ``The Secretary and'' and inserting the
following:
``(5) The Secretary may assess a civil penalty against any person
of up to $1,000 a day from the date of the person's failure or refusal
to file the information required to be filed by such person with the
Secretary under regulations prescribed pursuant to section 101(g).
``(6) The Secretary and''.
(B) Technical and conforming amendment.--Section 502(c)(1)
of such Act (29 U.S.C. 1132(c)(1)) is amended by adding at the
end the following sentence: ``For purposes of this paragraph,
each violation described in subparagraph (A) with respect to
any single participant, and each violation described in
subparagraph (B) with respect to any single participant or
beneficiary, shall be treated as a separate violation.''.
(3) Coordination.--Section 506 of such Act (29 U.S.C. 1136) is
amended by adding at the end the following new subsection:
``(c) Coordination of Enforcement With States With Respect to
Certain Arrangements.--A State may enter into an agreement with the
Secretary for delegation to the State of some or all of the Secretary's
authority under sections 502 and 504 to enforce the requirements under
part 7 in connection with multiple employer welfare arrangements,
providing medical care (within the meaning of section 706(a)(2)), which
are not group health plans.''.
(f) Conforming Amendments.--
(1) Section 514(b) of such Act (29 U.S.C. 1144(b)) is amended
by adding at the end the following new paragraph:
``(9) For additional provisions relating to group health plans, see
section 704.''.
(2)(A) Part 6 of subtitle B of title I of such Act (29 U.S.C.
1161 et seq.) is amended by striking the heading and inserting the
following:
``Part 6--Continuation Coverage and Additional Standards for Group
Health Plans''.
(B) The table of contents in section 1 of such Act is amended
by striking the item relating to the heading for part 6 of subtitle
B of title I and inserting the following:
``Part 6--Continuation Coverage and Additional Standards for Group
Health Plans''.
(3) The table of contents in section 1 of such Act (as amended
by the preceding provisions of this section) is amended by
inserting after the items relating to part 6 the following new
items:
``Part 7--Group Health Plan Portability, Access, and Renewability
Requirements
``Sec. 701. Increased portability through limitation on preexisting
condition exclusions.
``Sec. 702. Prohibiting discrimination against individual participants
and beneficiaries based on health status.
``Sec. 703. Guaranteed renewability in multiemployer plans and multiple
employer welfare arrangements.
``Sec. 704. Preemption; State flexibility; construction.
``Sec. 705. Special rules relating to group health plans.
``Sec. 706. Definitions.
``Sec. 707. Regulations.''.
(g) Effective Dates.--
(1) In general.--Except as provided in this section, this
section (and the amendments made by this section) shall apply with
respect to group health plans for plan years beginning after June
30, 1997.
(2) Determination of creditable coverage.--
(A) Period of coverage.--
(i) In general.--Subject to clause (ii), no period
before July 1, 1996, shall be taken into account under part
7 of subtitle B of title I of the Employee Retirement
Income Security Act of 1974 (as added by this section) in
determining creditable coverage.
(ii) Special rule for certain periods.--The Secretary
of Labor, consistent with section 104, shall provide for a
process whereby individuals who need to establish
creditable coverage for periods before July 1, 1996, and
who would have such coverage credited but for clause (i)
may be given credit for creditable coverage for such
periods through the presentation of documents or other
means.
(B) Certifications, etc.--
(i) In general.--Subject to clauses (ii) and (iii),
subsection (e) of section 701 of the Employee Retirement
Income Security Act of 1974 (as added by this section)
shall apply to events occurring after June 30, 1996.
(ii) No certification required to be provided before
june 1, 1997.--In no case is a certification required to be
provided under such subsection before June 1, 1997.
(iii) Certification only on written request for events
occurring before october 1, 1996.--In the case of an event
occurring after June 30, 1996, and before October 1, 1996,
a certification is not required to be provided under such
subsection unless an individual (with respect to whom the
certification is otherwise required to be made) requests
such certification in writing.
(C) Transitional rule.--In the case of an individual who
seeks to establish creditable coverage for any period for which
certification is not required because it relates to an event
occurring before June 30, 1996--
(i) the individual may present other credible evidence
of such coverage in order to establish the period of
creditable coverage; and
(ii) a group health plan and a health insurance issuer
shall not be subject to any penalty or enforcement action
with respect to the plan's or issuer's crediting (or not
crediting) such coverage if the plan or issuer has sought
to comply in good faith with the applicable requirements
under the amendments made by this section.
(3) Special rule for collective bargaining agreements.--Except
as provided in paragraph (2), in the case of a group health plan
maintained pursuant to one or more collective bargaining agreements
between employee representatives and one or more employers ratified
before the date of the enactment of this Act, part 7 of subtitle B
of title I of Employee Retirement Income Security Act of 1974
(other than section 701(e) thereof) shall not apply to plan years
beginning before the later of--
(A) the date on which the last of the collective bargaining
agreements relating to the plan terminates (determined without
regard to any extension thereof agreed to after the date of the
enactment of this Act), or
(B) July 1, 1997.
For purposes of subparagraph (A), any plan amendment made pursuant
to a collective bargaining agreement relating to the plan which
amends the plan solely to conform to any requirement of such part
shall not be treated as a termination of such collective bargaining
agreement.
(4) Timely regulations.--The Secretary of Labor, consistent
with section 104, shall first issue by not later than April 1,
1997, such regulations as may be necessary to carry out the
amendments made by this section.
(5) Limitation on actions.--No enforcement action shall be
taken, pursuant to the amendments made by this section, against a
group health plan or health insurance issuer with respect to a
violation of a requirement imposed by such amendments before
January 1, 1998, or, if later, the date of issuance of regulations
referred to in paragraph (4), if the plan or issuer has sought to
comply in good faith with such requirements.
SEC. 102. THROUGH THE PUBLIC HEALTH SERVICE ACT.
(a) In General.--The Public Health Service Act is amended by adding
at the end the following new title:
``TITLE XXVII--ASSURING PORTABILITY, AVAILABILITY, AND RENEWABILITY OF
HEALTH INSURANCE COVERAGE
``Part A--Group Market Reforms
``Subpart 1--Portability, Access, and Renewability Requirements
``SEC. 2701. INCREASED PORTABILITY THROUGH LIMITATION ON PREEXISTING
CONDITION EXCLUSIONS.
``(a) Limitation on Preexisting Condition Exclusion Period;
Crediting for Periods of Previous Coverage.--Subject to subsection (d),
a group health plan, and a health insurance issuer offering group
health insurance coverage, may, with respect to a participant or
beneficiary, impose a preexisting condition exclusion only if--
``(1) such exclusion relates to a condition (whether physical
or mental), regardless of the cause of the condition, for which
medical advice, diagnosis, care, or treatment was recommended or
received within the 6-month period ending on the enrollment date;
``(2) such exclusion extends for a period of not more than 12
months (or 18 months in the case of a late enrollee) after the
enrollment date; and
``(3) the period of any such preexisting condition exclusion is
reduced by the aggregate of the periods of creditable coverage (if
any, as defined in subsection (c)(1)) applicable to the participant
or beneficiary as of the enrollment date.
``(b) Definitions.--For purposes of this part--
``(1) Preexisting condition exclusion.--
``(A) In general.--The term `preexisting condition
exclusion' means, with respect to coverage, a limitation or
exclusion of benefits relating to a condition based on the fact
that the condition was present before the date of enrollment
for such coverage, whether or not any medical advice,
diagnosis, care, or treatment was recommended or received
before such date.
``(B) Treatment of genetic information.--Genetic
information shall not be treated as a condition described in
subsection (a)(1) in the absence of a diagnosis of the
condition related to such information.
``(2) Enrollment date.--The term `enrollment date' means, with
respect to an individual covered under a group health plan or
health insurance coverage, the date of enrollment of the individual
in the plan or coverage or, if earlier, the first day of the
waiting period for such enrollment.
``(3) Late enrollee.--The term `late enrollee' means, with
respect to coverage under a group health plan, a participant or
beneficiary who enrolls under the plan other than during--
``(A) the first period in which the individual is eligible
to enroll under the plan, or
``(B) a special enrollment period under subsection (f).
``(4) Waiting period.--The term `waiting period' means, with
respect to a group health plan and an individual who is a potential
participant or beneficiary in the plan, the period that must pass
with respect to the individual before the individual is eligible to
be covered for benefits under the terms of the plan.
``(c) Rules Relating to Crediting Previous Coverage.--
``(1) Creditable coverage defined.--For purposes of this title,
the term `creditable coverage' means, with respect to an
individual, coverage of the individual under any of the following:
``(A) A group health plan.
``(B) Health insurance coverage.
``(C) Part A or part B of title XVIII of the Social
Security Act.
``(D) Title XIX of the Social Security Act, other than
coverage consisting solely of benefits under section 1928.
``(E) Chapter 55 of title 10, United States Code.
``(F) A medical care program of the Indian Health Service
or of a tribal organization.
``(G) A State health benefits risk pool.
``(H) A health plan offered under chapter 89 of title 5,
United States Code.
``(I) A public health plan (as defined in regulations).
``(J) A health benefit plan under section 5(e) of the Peace
Corps Act (22 U.S.C. 2504(e)).
Such term does not include coverage consisting solely of coverage
of excepted benefits (as defined in section 2791(c)).
``(2) Not counting periods before significant breaks in
coverage.--
``(A) In general.--A period of creditable coverage shall
not be counted, with respect to enrollment of an individual
under a group health plan, if, after such period and before the
enrollment date, there was a 63-day period during all of which
the individual was not covered under any creditable coverage.
``(B) Waiting period not treated as a break in coverage.--
For purposes of subparagraph (A) and subsection (d)(4), any
period that an individual is in a waiting period for any
coverage under a group health plan (or for group health
insurance coverage) or is in an affiliation period (as defined
in subsection (g)(2)) shall not be taken into account in
determining the continuous period under subparagraph (A).
``(3) Method of crediting coverage.--
``(A) Standard method.--Except as otherwise provided under
subparagraph (B), for purposes of applying subsection (a)(3), a
group health plan, and a health insurance issuer offering group
health insurance coverage, shall count a period of creditable
coverage without regard to the specific benefits covered during
the period.
``(B) Election of alternative method.--A group health plan,
or a health insurance issuer offering group health insurance,
may elect to apply subsection (a)(3) based on coverage of
benefits within each of several classes or categories of
benefits specified in regulations rather than as provided under
subparagraph (A). Such election shall be made on a uniform
basis for all participants and beneficiaries. Under such
election a group health plan or issuer shall count a period of
creditable coverage with respect to any class or category of
benefits if any level of benefits is covered within such class
or category.
``(C) Plan notice.--In the case of an election with respect
to a group health plan under subparagraph (B) (whether or not
health insurance coverage is provided in connection with such
plan), the plan shall--
``(i) prominently state in any disclosure statements
concerning the plan, and state to each enrollee at the time
of enrollment under the plan, that the plan has made such
election, and
``(ii) include in such statements a description of the
effect of this election.
``(D) Issuer notice.--In the case of an election under
subparagraph (B) with respect to health insurance coverage
offered by an issuer in the small or large group market, the
issuer--
``(i) shall prominently state in any disclosure
statements concerning the coverage, and to each employer at
the time of the offer or sale of the coverage, that the
issuer has made such election, and
``(ii) shall include in such statements a description
of the effect of such election.
``(4) Establishment of period.--Periods of creditable coverage
with respect to an individual shall be established through
presentation of certifications described in subsection (e) or in
such other manner as may be specified in regulations.
``(d) Exceptions.--
``(1) Exclusion not applicable to certain newborns.--Subject to
paragraph (4), a group health plan, and a health insurance issuer
offering group health insurance coverage, may not impose any
preexisting condition exclusion in the case of an individual who,
as of the last day of the 30-day period beginning with the date of
birth, is covered under creditable coverage.
``(2) Exclusion not applicable to certain adopted children.--
Subject to paragraph (4), a group health plan, and a health
insurance issuer offering group health insurance coverage, may not
impose any preexisting condition exclusion in the case of a child
who is adopted or placed for adoption before attaining 18 years of
age and who, as of the last day of the 30-day period beginning on
the date of the adoption or placement for adoption, is covered
under creditable coverage. The previous sentence shall not apply to
coverage before the date of such adoption or placement for
adoption.
``(3) Exclusion not applicable to pregnancy.--A group health
plan, and health insurance issuer offering group health insurance
coverage, may not impose any preexisting condition exclusion
relating to pregnancy as a preexisting condition.
``(4) Loss if break in coverage.--Paragraphs (1) and (2) shall
no longer apply to an individual after the end of the first 63-day
period during all of which the individual was not covered under any
creditable coverage.
``(e) Certifications and Disclosure of Coverage.--
``(1) Requirement for certification of period of creditable
coverage.--
``(A) In general.--A group health plan, and a health
insurance issuer offering group health insurance coverage,
shall provide the certification described in subparagraph (B)--
``(i) at the time an individual ceases to be covered
under the plan or otherwise becomes covered under a COBRA
continuation provision,
``(ii) in the case of an individual becoming covered
under such a provision, at the time the individual ceases
to be covered under such provision, and
``(iii) on the request on behalf of an individual made
not later than 24 months after the date of cessation of the
coverage described in clause (i) or (ii), whichever is
later.
The certification under clause (i) may be provided, to the
extent practicable, at a time consistent with notices required
under any applicable COBRA continuation provision.
``(B) Certification.--The certification described in this
subparagraph is a written certification of--
``(i) the period of creditable coverage of the
individual under such plan and the coverage (if any) under
such COBRA continuation provision, and
``(ii) the waiting period (if any) (and affiliation
period, if applicable) imposed with respect to the
individual for any coverage under such plan.
``(C) Issuer compliance.--To the extent that medical care
under a group health plan consists of group health insurance
coverage, the plan is deemed to have satisfied the
certification requirement under this paragraph if the health
insurance issuer offering the coverage provides for such
certification in accordance with this paragraph.
``(2) Disclosure of information on previous benefits.--In the
case of an election described in subsection (c)(3)(B) by a group
health plan or health insurance issuer, if the plan or issuer
enrolls an individual for coverage under the plan and the
individual provides a certification of coverage of the individual
under paragraph (1)--
``(A) upon request of such plan or issuer, the entity which
issued the certification provided by the individual shall
promptly disclose to such requesting plan or issuer information
on coverage of classes and categories of health benefits
available under such entity's plan or coverage, and
``(B) such entity may charge the requesting plan or issuer
for the reasonable cost of disclosing such information.
``(3) Regulations.--The Secretary shall establish rules to
prevent an entity's failure to provide information under paragraph
(1) or (2) with respect to previous coverage of an individual from
adversely affecting any subsequent coverage of the individual under
another group health plan or health insurance coverage.
``(f) Special Enrollment Periods.--
``(1) Individuals losing other coverage.--A group health plan,
and a health insurance issuer offering group health insurance
coverage in connection with a group health plan, shall permit an
employee who is eligible, but not enrolled, for coverage under the
terms of the plan (or a dependent of such an employee if the
dependent is eligible, but not enrolled, for coverage under such
terms) to enroll for coverage under the terms of the plan if each
of the following conditions is met:
``(A) The employee or dependent was covered under a group
health plan or had health insurance coverage at the time
coverage was previously offered to the employee or dependent.
``(B) The employee stated in writing at such time that
coverage under a group health plan or health insurance coverage
was the reason for declining enrollment, but only if the plan
sponsor or issuer (if applicable) required such a statement at
such time and provided the employee with notice of such
requirement (and the consequences of such requirement) at such
time.
``(C) The employee's or dependent's coverage described in
subparagraph (A)--
``(i) was under a COBRA continuation provision and the
coverage under such provision was exhausted; or
``(ii) was not under such a provision and either the
coverage was terminated as a result of loss of eligibility
for the coverage (including as a result of legal
separation, divorce, death, termination of employment, or
reduction in the number of hours of employment) or employer
contributions toward such coverage were terminated.
``(D) Under the terms of the plan, the employee requests
such enrollment not later than 30 days after the date of
exhaustion of coverage described in subparagraph (C)(i) or
termination of coverage or employer contribution described in
subparagraph (C)(ii).
``(2) For dependent beneficiaries.--
``(A) In general.--If--
``(i) a group health plan makes coverage available with
respect to a dependent of an individual,
``(ii) the individual is a participant under the plan
(or has met any waiting period applicable to becoming a
participant under the plan and is eligible to be enrolled
under the plan but for a failure to enroll during a
previous enrollment period), and
``(iii) a person becomes such a dependent of the
individual through marriage, birth, or adoption or
placement for adoption,
the group health plan shall provide for a dependent special
enrollment period described in subparagraph (B) during which
the person (or, if not otherwise enrolled, the individual) may
be enrolled under the plan as a dependent of the individual,
and in the case of the birth or adoption of a child, the spouse
of the individual may be enrolled as a dependent of the
individual if such spouse is otherwise eligible for coverage.
``(B) Dependent special enrollment period.--A dependent
special enrollment period under this subparagraph shall be a
period of not less than 30 days and shall begin on the later
of--
``(i) the date dependent coverage is made available, or
``(ii) the date of the marriage, birth, or adoption or
placement for adoption (as the case may be) described in
subparagraph (A)(iii).
``(C) No waiting period.--If an individual seeks to enroll
a dependent during the first 30 days of such a dependent
special enrollment period, the coverage of the dependent shall
become effective--
``(i) in the case of marriage, not later than the first
day of the first month beginning after the date the
completed request for enrollment is received;
``(ii) in the case of a dependent's birth, as of the
date of such birth; or
``(iii) in the case of a dependent's adoption or
placement for adoption, the date of such adoption or
placement for adoption.
``(g) Use of Affiliation Period by HMOs as Alternative to
Preexisting Condition Exclusion.--
``(1) In general.--A health maintenance organization which
offers health insurance coverage in connection with a group health
plan and which does not impose any preexisting condition exclusion
allowed under subsection (a) with respect to any particular
coverage option may impose an affiliation period for such coverage
option, but only if--
``(A) such period is applied uniformly without regard to
any health status-related factors; and
``(B) such period does not exceed 2 months (or 3 months in
the case of a late enrollee).
``(2) Affiliation period.--
``(A) Defined.--For purposes of this title, the term
`affiliation period' means a period which, under the terms of
the health insurance coverage offered by the health maintenance
organization, must expire before the health insurance coverage
becomes effective. The organization is not required to provide
health care services or benefits during such period and no
premium shall be charged to the participant or beneficiary for
any coverage during the period.
``(B) Beginning.--Such period shall begin on the enrollment
date.
``(C) Runs concurrently with waiting periods.--An
affiliation period under a plan shall run concurrently with any
waiting period under the plan.
``(3) Alternative methods.--A health maintenance organization
described in paragraph (1) may use alternative methods, from those
described in such paragraph, to address adverse selection as
approved by the State insurance commissioner or official or
officials designated by the State to enforce the requirements of
this part for the State involved with respect to such issuer.
``SEC. 2702. PROHIBITING DISCRIMINATION AGAINST INDIVIDUAL PARTICIPANTS
AND BENEFICIARIES BASED ON HEALTH STATUS.
``(a) In Eligibility To Enroll.--
``(1) In general.--Subject to paragraph (2), a group health
plan, and a health insurance issuer offering group health insurance
coverage in connection with a group health plan, may not establish
rules for eligibility (including continued eligibility) of any
individual to enroll under the terms of the plan based on any of
the following health status-related factors in relation to the
individual or a dependent of the individual:
``(A) Health status.
``(B) Medical condition (including both physical and mental
illnesses).
``(C) Claims experience.
``(D) Receipt of health care.
``(E) Medical history.
``(F) Genetic information.
``(G) Evidence of insurability (including conditions
arising out of acts of domestic violence).
``(H) Disability.
``(2) No application to benefits or exclusions.--To the extent
consistent with section 701, paragraph (1) shall not be construed--
``(A) to require a group health plan, or group health
insurance coverage, to provide particular benefits other than
those provided under the terms of such plan or coverage, or
``(B) to prevent such a plan or coverage from establishing
limitations or restrictions on the amount, level, extent, or
nature of the benefits or coverage for similarly situated
individuals enrolled in the plan or coverage.
``(3) Construction.--For purposes of paragraph (1), rules for
eligibility to enroll under a plan include rules defining any
applicable waiting periods for such enrollment.
``(b) In Premium Contributions.--
``(1) In general.--A group health plan, and a health insurance
issuer offering health insurance coverage in connection with a
group health plan, may not require any individual (as a condition
of enrollment or continued enrollment under the plan) to pay a
premium or contribution which is greater than such premium or
contribution for a similarly situated individual enrolled in the
plan on the basis of any health status-related factor in relation
to the individual or to an individual enrolled under the plan as a
dependent of the individual.
``(2) Construction.--Nothing in paragraph (1) shall be
construed--
``(A) to restrict the amount that an employer may be
charged for coverage under a group health plan; or
``(B) to prevent a group health plan, and a health
insurance issuer offering group health insurance coverage, from
establishing premium discounts or rebates or modifying
otherwise applicable copayments or deductibles in return for
adherence to programs of health promotion and disease
prevention.
``Subpart 2--Provisions Applicable Only to Health Insurance Issuers
``SEC. 2711. GUARANTEED AVAILABILITY OF COVERAGE FOR EMPLOYERS IN THE
GROUP MARKET.
``(a) Issuance of Coverage in the Small Group Market.--
``(1) In general.--Subject to subsections (c) through (f), each
health insurance issuer that offers health insurance coverage in
the small group market in a State--
``(A) must accept every small employer (as defined in
section 2791(e)(4)) in the State that applies for such
coverage; and
``(B) must accept for enrollment under such coverage every
eligible individual (as defined in paragraph (2)) who applies
for enrollment during the period in which the individual first
becomes eligible to enroll under the terms of the group health
plan and may not place any restriction which is inconsistent
with section 2702 on an eligible individual being a participant
or beneficiary.
``(2) Eligible individual defined.--For purposes of this
section, the term `eligible individual' means, with respect to a
health insurance issuer that offers health insurance coverage to a
small employer in connection with a group health plan 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 issuer under rules of the issuer
which are uniformly applicable in a State to small employers in
the small group market, and
``(C) in accordance with all applicable State laws
governing such issuer and such market.
``(b) Assuring Access in the Large Group Market.--
``(1) Reports to hhs.--The Secretary shall request that the
chief executive officer of each State submit to the Secretary, by
not later December 31, 2000, and every 3 years thereafter a report
on--
``(A) the access of large employers to health insurance
coverage in the State, and
``(B) the circumstances for lack of access (if any) of
large employers (or one or more classes of such employers) in
the State to such coverage.
``(2) Triennial reports to congress.--The Secretary, based on
the reports submitted under paragraph (1) and such other
information as the Secretary may use, shall prepare and submit to
Congress, every 3 years, a report describing the extent to which
large employers (and classes of such employers) that seek health
insurance coverage in the different States are able to obtain
access to such coverage. Such report shall include such
recommendations as the Secretary determines to be appropriate.
``(3) GAO report on large employer access to health insurance
coverage.--The Comptroller General shall provide for a study of the
extent to which classes of large employers in the different States
are able to obtain access to health insurance coverage and the
circumstances for lack of access (if any) to such coverage. The
Comptroller General shall submit to Congress a report on such study
not later than 18 months after the date of the enactment of this
title.
``(c) Special Rules for Network Plans.--
``(1) In general.--In the case of a health insurance issuer
that offers health insurance coverage in the small group market
through a network plan, the issuer may--
``(A) limit the employers that may apply for such coverage
to those with eligible individuals who live, work, or reside in
the service area for such network plan; and
``(B) within the service area of such plan, deny such
coverage to such employers if the issuer has demonstrated, if
required, to the applicable State authority that--
``(i) it will not have the capacity to deliver services
adequately to enrollees of any additional groups because of
its obligations to existing group contract holders and
enrollees, and
``(ii) it is applying this paragraph uniformly to all
employers without regard to the claims experience of those
employers and their employees (and their dependents) or any
health status-related factor relating to such employees and
dependents.
``(2) 180-day suspension upon denial of coverage.--An issuer,
upon denying health insurance coverage in any service area in
accordance with paragraph (1)(B), may not offer coverage in the
small group market within such service area for a period of 180
days after the date such coverage is denied.
``(d) Application of Financial Capacity Limits.--
``(1) In general.--A health insurance issuer may deny health
insurance coverage in the small group market if the issuer has
demonstrated, if required, to the applicable State authority that--
``(A) it does not have the financial reserves necessary to
underwrite additional coverage; and
``(B) it is applying this paragraph uniformly to all
employers in the small group market in the State consistent
with applicable State law and without regard to the claims
experience of those employers and their employees (and their
dependents) or any health status-related factor relating to
such employees and dependents.
``(2) 180-day suspension upon denial of coverage.--A health
insurance issuer upon denying health insurance coverage in
connection with group health plans in accordance with paragraph (1)
in a State may not offer coverage in connection with group health
plans in the small group market in the State for a period of 180
days after the date such coverage is denied or until the issuer has
demonstrated to the applicable State authority, if required under
applicable State law, that the issuer has sufficient financial
reserves to underwrite additional coverage, whichever is later. An
applicable State authority may provide for the application of this
subsection on a service-area-specific basis.
``(e) Exception to Requirement for Failure To Meet Certain Minimum
Participation or Contribution Rules.--
``(1) In general.--Subsection (a) shall not be construed to
preclude a health insurance issuer from establishing employer
contribution rules or group participation rules for the offering of
health insurance coverage in connectionwith a group health plan in
the small group market, as allowed under applicable State law.
``(2) Rules defined.--For purposes of paragraph (1)--
``(A) the term `employer contribution rule' means a
requirement relating to the minimum level or amount of employer
contribution toward the premium for enrollment of participants
and beneficiaries; and
``(B) the term `group participation rule' means a
requirement relating to the minimum number of participants or
beneficiaries that must be enrolled in relation to a specified
percentage or number of eligible individuals or employees of an
employer.
``(f) Exception for Coverage Offered Only to Bona Fide Association
Members.--Subsection (a) shall not apply to health insurance coverage
offered by a health insurance issuer if such coverage is made available
in the small group market only through one or more bona fide
associations (as defined in section 2791(d)(3)).
``SEC. 2712. GUARANTEED RENEWABILITY OF COVERAGE FOR EMPLOYERS IN THE
GROUP MARKET.
``(a) In General.--Except as provided in this section, if a health
insurance issuer offers health insurance coverage in the small or large
group market in connection with a group health plan, the issuer must
renew or continue in force such coverage at the option of the plan
sponsor of the plan.
``(b) General Exceptions.--A health insurance issuer may nonrenew
or discontinue health insurance coverage offered in connection with a
group health plan in the small or large group market based only on one
or more of the following:
``(1) Nonpayment of premiums.--The plan sponsor has failed to
pay premiums or contributions in accordance with the terms of the
health insurance coverage or the issuer has not received timely
premium payments.
``(2) Fraud.--The plan sponsor 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 of participation or contribution rules.--The
plan sponsor has failed to comply with a material plan provision
relating to employer contribution or group participation rules, as
permitted under section 2711(e) in the case of the small group
market or pursuant to applicable State law in the case of the large
group market.
``(4) Termination of coverage.--The issuer is ceasing to offer
coverage in such market in accordance with subsection (c) and
applicable State law.
``(5) Movement outside service area.--In the case of a health
insurance issuer that offers health insurance coverage in the
market through a network plan, there is no longer any enrollee in
connection with such plan who lives, resides, or works in the
service area of the issuer (or in the area for which the issuer is
authorized to do business) and, in the case of the small group
market, the issuer would deny enrollment with respect to such plan
under section 2711(c)(1)(A).
``(6) Association membership ceases.--In the case of health
insurance coverage that is made available in the small or large
group market (as the case may be) only through one or more bona
fide associations, the membership of an employer in the association
(on the basis of which the coverage is provided) ceases but only if
such coverage is terminated under this paragraph uniformly without
regard to any health status-related factor relating to any covered
individual.
``(c) Requirements for Uniform Termination of Coverage.--
``(1) Particular type of coverage not offered.--In any case in
which an issuer decides to discontinue offering a particular type
of group health insurance coverage offered in the small or large
group market, coverage of such type may be discontinued by the
issuer in accordance with applicable State law in such market only
if--
``(A) the issuer provides notice to each plan sponsor
provided coverage of this 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 issuer offers to each plan sponsor provided
coverage of this type in such market, the option to purchase
all (or, in the case of the large group market, any) other
health insurance coverage currently being offered by the issuer
to a group health plan in such market; and
``(C) in exercising the option to discontinue coverage of
this type and in offering the option of coverage under
subparagraph (B), the issuer acts uniformly without regard to
the claims experience of those sponsors or any health status-
related factor relating to any participants or beneficiaries
covered or new participants or beneficiaries who may become
eligible for such coverage.
``(2) Discontinuance of all coverage.--
``(A) In general.--In any case in which a health insurance
issuer 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 issuer only in accordance with applicable
State law and if--
``(i) the issuer provides notice to the applicable
State authority and to each plan sponsor (and participants
and beneficiaries covered under such coverage) of such
discontinuation at least 180 days prior to the date of the
discontinuation of such coverage; and
``(ii) all health insurance issued or delivered for
issuance in the State in such market (or markets) are
discontinued and coverage under such health 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 a market, the issuer
may not provide for the issuance of any health insurance
coverage in the market and State involved during the 5-year
period beginning on the date of the discontinuation of the last
health insurance coverage not so renewed.
``(d) Exception for Uniform Modification of Coverage.--At the time
of coverage renewal, a health insurance issuer may modify the health
insurance coverage for a product offered to a group health plan--
``(1) in the large group market; or
``(2) in the small group market if, for coverage that is
available in such market other than only through one or more bona
fide associations, such modification is consistent with State law
and effective on a uniform basis among group health plans with that
product.
``(e) Application to Coverage Offered Only Through Associations.--
In applying this section in the case of health insurance coverage that
is made available by a health insurance issuer in the small or large
group market to employers only through one or more associations, a
reference to `plan sponsor' is deemed, with respect to coverage
provided to an employer member of the association, to include a
reference to such employer.
``SEC. 2713. DISCLOSURE OF INFORMATION.
``(a) Disclosure of Information by Health Plan Issuers.--In
connection with the offering of any health insurance coverage to a
small employer, a health insurance issuer--
``(1) shall make a reasonable disclosure to such employer, as
part of its solicitation and sales materials, of the availability
of information described in subsection (b), and
``(2) upon request of such a small employer, provide such
information.
``(b) Information Described.--
``(1) In general.--Subject to paragraph (3), with respect to a
health insurance issuer offering health insurance coverage to a
small employer, information described in this subsection is
information concerning--
``(A) the provisions of such coverage concerning issuer's
right to change premium rates and the factors that may affect
changes in premium rates;
``(B) the provisions of such coverage relating to
renewability of coverage;
``(C) the provisions of such coverage relating to any
preexisting condition exclusion; and
``(D) the benefits and premiums available under all health
insurance coverage for which the employer is qualified.
``(2) Form of information.--Information under this subsection
shall be provided to small employers in a manner determined to be
understandable by the average small employer, and shall be
sufficient to reasonably inform small employers of their rights and
obligations under the health insurance coverage.
``(3) Exception.--An issuer is not required under this section
to disclose any information that is proprietary and trade secret
information under applicable law.
``Subpart 3--Exclusion of Plans; Enforcement; Preemption
``SEC. 2721. EXCLUSION OF CERTAIN PLANS.
``(a) Exception for Certain Small Group Health Plans.--The
requirements of subparts 1 and 2 shall not apply to any group health
plan (and health insurance coverage offered in connection with a group
health plan) for any plan year if, on the first day of such plan year,
such plan has less than 2 participants who are current employees.
``(b) Limitation on Application of Provisions Relating to Group
Health Plans.--
``(1) In general.--The requirements of subparts 1 and 2 shall
apply with respect to group health plans only--
``(A) subject to paragraph (2), in the case of a plan that
is a nonfederal governmental plan, and
``(B) with respect to health insurance coverage offered in
connection with a group health plan (including such a plan that
is a church plan or a governmental plan).
``(2) Treatment of nonfederal governmental plans.--
``(A) Election to be excluded.--If the plan sponsor of a
nonfederal governmental plan which is a group health plan to
which the provisions of subparts 1 and 2 otherwise apply makes
an election under this subparagraph (in such form and manner as
the Secretary may by regulations prescribe), then the
requirements of such subparts insofar as they apply directly to
group health plans (and not merely to group health insurance
coverage) shall not apply to such governmental plans for such
period except as provided in this paragraph.
``(B) Period of election.--An election under subparagraph
(A) shall apply--
``(i) for a single specified plan year, or
``(ii) in the case of a plan provided pursuant to a
collective bargaining agreement, for the term of such
agreement.
An election under clause (i) may be extended through subsequent
elections under this paragraph.
``(C) Notice to enrollees.--Under such an election, the
plan shall provide for--
``(i) notice to enrollees (on an annual basis and at
the time of enrollment under the plan) of the fact and
consequences of such election, and
``(ii) certification and disclosure of creditable
coverage under the plan with respect to enrollees in
accordance with section 2701(e).
``(c) Exception for Certain Benefits.--The requirements of subparts
1 and 2 shall not apply to any group health plan (or group health
insurance coverage) in relation to its provision of excepted benefits
described in section 2791(c)(1).
``(d) Exception for Certain Benefits If Certain Conditions Met.--
``(1) Limited, excepted benefits.--The requirements of subparts
1 and 2 shall not apply to any group health plan (and group health
insurance coverage offered in connection with a group health plan)
in relation to its provision of excepted benefits described in
section 2791(c)(2) if the benefits--
``(A) are provided under a separate policy, certificate, or
contract of insurance; or
``(B) are otherwise not an integral part of the plan.
``(2) Noncoordinated, excepted benefits.--The requirements of
subparts 1 and 2 shall not apply to any group health plan (and
group health insurance coverage offered in connection with a group
health plan) in relation to its provision of excepted benefits
described in section 2791(c)(3) if all of the following conditions
are met:
``(A) The benefits are provided under a separate policy,
certificate, or contract of insurance.
``(B) There is no coordination between the provision of
such benefits and any exclusion of benefits under any group
health plan maintained by the same plan sponsor.
``(C) Such benefits are paid with respect to an event
without regard to whether benefits are provided with respect to
such an event under any group health plan maintained by the
same plan sponsor.
``(3) Supplemental excepted benefits.--The requirements of this
part shall not apply to any group health plan (and group health
insurance coverage) in relation to its provision of excepted
benefits described in section 27971(c)(4) if the benefits are
provided under a separate policy, certificate, or contract of
insurance.
``(e) Treatment of Partnerships.--For purposes of this part--
``(1) Treatment as a group health plan.--Any plan, fund, or
program which would not be (but for this subsection) 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 (including items and services paid for as
medical care) to present or former partners in the partnership or
to their dependents (as defined under the terms of the plan, fund,
or program), directly or through insurance, reimbursement, or
otherwise, shall be treated (subject to paragraph (2)) as an
employee welfare benefit plan which is a group health plan.
``(2) Employer.--In the case of a group health plan, the term
`employer' also includes the partnership in relation to any
partner.
``(3) Participants of group health plans.--In the case of a
group health plan, the term `participant' also includes--
``(A) in connection with a group health plan maintained by
a partnership, an individual who is a partner in relation to
the partnership, or
``(B) in connection with a group health plan maintained by
a self-employed individual (under which one or more employees
are participants), the self-employed individual,
if such individual is, or may become, eligible to receive a benefit
under the plan or such individual's beneficiaries may be eligible
to receive any such benefit.
``SEC. 2722. ENFORCEMENT.
``(a) State Enforcement.--
``(1) State authority.--Subject to section 2723, each State may
require that health insurance issuers that issue, sell, renew, or
offer health insurance coverage in the State in the small or large
group markets meet the requirements of this part with respect to
such issuers.
``(2) Failure to implement provisions.--In the case of a
determination by the Secretary that a State has failed to
substantially enforce a provision (or provisions) in this part with
respect to health insurance issuers in the State, the Secretary
shall enforce such provision (or provisions) under subsection (b)
insofar as they relate to the issuance, sale, renewal, and offering
of health insurance coverage in connection with group health plans
in such State.
``(b) Secretarial Enforcement Authority.--
``(1) Limitation.--The provisions of this subsection shall
apply to enforcement of a provision (or provisions) of this part
only--
``(A) as provided under subsection (a)(2); and
``(B) with respect to group health plans that are non-
Federal governmental plans.
``(2) Imposition of penalties.--In the cases described in
paragraph (1)--
``(A) In general.--Subject to the succeeding provisions of
this subsection, any non-Federal governmental plan that is a
group health plan and any health insurance issuer that fails to
meet a provision of this part applicable to such plan or issuer
is subject to a civil money penalty under this subsection.
``(B) Liability for penalty.--In the case of a failure by--
``(i) a health insurance issuer, the issuer is liable
for such penalty, or
``(ii) a group health plan that is a non-Federal
governmental plan which is--
``(I) sponsored by 2 or more employers, the plan is
liable for such penalty, or
``(II) not so sponsored, the employer is liable for
such penalty.
``(C) Amount of penalty.--
``(i) In general.--The maximum amount of 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 shall take into account the
previous record of compliance of the entity being assessed
with the applicable provisions of this part and the gravity
of the violation.
``(iii) Limitations.--
``(I) Penalty not to apply where failure not
discovered exercising reasonable 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 entities 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
entities against whom the penalty would be imposed
knew, or exercising reasonable diligence would have
known, that such failure existed.
``(D) Administrative review.--
``(i) Opportunity for hearing.--The entity assessed
shall be afforded an opportunity for hearing by the
Secretary upon request made within 30 days after the date
of the issuance of a notice of assessment. In such hearing
the decision shall be made on the record pursuant to
section 554 of title 5, United States Code. If no hearing
is requested, the assessment shall constitute a final and
unappealable order.
``(ii) Hearing procedure.--If a hearing is requested,
the initial agency decision shall be made by an
administrative law judge, 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 (E).
``(E) Judicial review.--
``(i) Filing of action for review.--Any entity against
whom an order imposing a civil money penalty has been
entered after an agency hearing under this paragraph may
obtain review by the United States district court for any
district in which such entity is located or the United
States District Court for the District of Columbia by
filing a notice of appeal in such court within 30 days from
the date of such order, and simultaneously sending a copy
of such notice by registered mail to the Secretary.
``(ii) Certification of administrative record.--The
Secretary shall promptly certify and file in such court the
record upon which the penalty was imposed.
``(iii) Standard for review.--The findings of the
Secretary shall be set aside only if found to be
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 the district court concerning such review shall be
subject to appeal as provided in chapter 83 of title 28 of
such Code.
``(F) Failure to pay assessment; maintenance of action.--
``(i) Failure to pay assessment.--If any entity fails
to pay an assessment after it has become a final and
unappealable order, or after the court has entered final
judgment in favor of the Secretary, the Secretary shall
refer the matter to the Attorney General who shall recover
the 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.
``SEC. 2723. PREEMPTION; STATE FLEXIBILITY; CONSTRUCTION.
``(a) Continued Applicability of State Law With Respect to Health
Insurance Issuers.--
``(1) In General.--Subject to paragraph (2) and except as
provided in subsection (b), this part and part C insofar as it
relates to this part shall not be construed to supersede any
provision of State law which establishes, implements, or continues
in effect any standard or requirement solely relating to health
insurance issuers in connection with group health insurance
coverage except to the extent that such standard or requirement
prevents the application of a requirement of this part.
``(2) Continued preemption with respect to group health
plans.--Nothing in this part shall be construed to affect or modify
the provisions of section 514 of the Employee Retirement Income
Security Act of 1974 with respect to group health plans.
``(b) Special Rules in Case of Portability Requirements.--
``(1) In general.--Subject to paragraph (2), the provisions of
this part relating to health insurance coverage offered by a health
insurance issuer supersede any provision of State law which
establishes, implements, or continues in effect a standard or
requirement applicable to imposition of a preexisting condition
exclusion specifically governed by section 701 which differs from
the standards or requirements specified in such section.
``(2) Exceptions.--Only in relation to health insurance
coverage offered by a health insurance issuer, the provisions of
this part do not supersede any provision of State law to the extent
that such provision--
``(i) substitutes for the reference to `6-month period' in
section 2701(a)(1) a reference to any shorter period of time;
``(ii) substitutes for the reference to `12 months' and `18
months' in section 2701(a)(2) a reference to any shorter period
of time;
``(iii) substitutes for the references to `63' days in
sections 2701(c)(2)(A) and 2701(d)(4)(A) a reference to any
greater number of days;
``(iv) substitutes for the reference to `30-day period' in
sections 2701(b)(2) and 2701(d)(1) a reference to any greater
period;
``(v) prohibits the imposition of any preexisting condition
exclusion in cases not described in section 2701(d) or expands
the exceptions described in such section;
``(vi) requires special enrollment periods in addition to
those required under section 2701(f); or
``(vii) reduces the maximum period permitted in an
affiliation period under section 2701(g)(1)(B).
``(c) Rules of Construction.--Nothing in this part shall be
construed as requiring a group health plan or health insurance coverage
to provide specific benefits under the terms of such plan or coverage.
``(d) Definitions.--For purposes of this section--
``(1) State law.--The term `State law' includes all laws,
decisions, rules, regulations, or other State action having the
effect of law, of any State. A law of the United States applicable
only to the District of Columbia shall be treated as a State law
rather than a law of the United States.
``(2) State.--The term `State' includes a State (including the
Northern Mariana Islands), any political subdivisions of a State or
such Islands, or any agency or instrumentality of either.
``Part C--Definitions; Miscellaneous Provisions
``SEC. 2791. DEFINITIONS.
``(a) Group Health Plan.--
``(1) Definition.--The term `group health plan' means an
employee welfare benefit plan (as defined in section 3(1) of the
Employee Retirement Income Security Act of 1974) to the extent that
the plan provides medical care (as defined in paragraph (2)) and
including items and services paid for as medical care) to employees
or their dependents (as defined under the terms of the plan)
directly or through insurance, reimbursement, or otherwise.
``(2) Medical care.--The term `medical care' means amounts paid
for--
``(A) the diagnosis, cure, mitigation, treatment, or
prevention of disease, or amounts paid for the purpose of
affecting any structure or function of the body,
``(B) amounts paid for transportation primarily for and
essential to medical care referred to in subparagraph (A), and
``(C) amounts paid for insurance covering medical care
referred to in subparagraphs (A) and (B).
``(3) Treatment of certain plans as group health plan for
notice provision.--A program under which creditable coverage
described in subparagraph (C), (D), (E), or (F) of section
2701(c)(1) is provided shall be treated as a group health plan for
purposes of applying section 2701(e).
``(b) Definitions Relating to Health Insurance.--
``(1) Health insurance coverage.--The term `health insurance
coverage' means benefits consisting of medical care (provided
directly, through insurance or reimbursement, or otherwise and
including items and services paid for as medical care) under any
hospital or medical service policy or certificate, hospital or
medical service plan contract, or health maintenance organization
contract offered by a health insurance issuer.
``(2) Health insurance issuer.--The term `health insurance
issuer' means an insurance company, insurance service, or insurance
organization (including a health maintenance organization, as
defined in paragraph (3)) which is licensed to engage in the
business of insurance in a State and which is subject to State law
which regulates insurance (within the meaning of section 514(b)(2)
of the Employee Retirement Income Security Act of 1974). Such term
does not include a group health plan.
``(3) Health maintenance organization.--The term `health
maintenance organization' means--
``(A) a Federally qualified health maintenance organization
(as defined in section 1301(a)),
``(B) an organization recognized under State law as a
health maintenance organization, or
``(C) a similar organization regulated under State law for
solvency in the same manner and to the same extent as such a
health maintenance organization.
``(4) Group health insurance coverage.--The term `group health
insurance coverage' means, in connection with a group health plan,
health insurance coverage offered in connection with such plan.
``(5) Individual health insurance coverage.--The term
`individual health insurance coverage' means health insurance
coverage offered to individuals in the individual market, but does
not include short-term limited duration insurance.
``(c) Excepted Benefits.--For purposes of this title, the term
`excepted benefits' means benefits under one or more (or any
combination thereof) of the following:
``(1) Benefits not subject to requirements.--
``(A) Coverage only for accident, or disability income
insurance, or any combination thereof.
``(B) Coverage issued as a supplement to liability
insurance.
``(C) Liability insurance, including general liability
insurance and automobile liability insurance.
``(D) Workers' compensation or similar insurance.
``(E) Automobile medical payment insurance.
``(F) Credit-only insurance.
``(G) Coverage for on-site medical clinics.
``(H) Other similar insurance coverage, specified in
regulations, under which benefits for medical care are
secondary or incidental to other insurance benefits.
``(2) Benefits not subject to requirements if offered
separately.--
``(A) Limited scope dental or vision benefits.
``(B) Benefits for long-term care, nursing home care, home
health care, community-based care, or any combination thereof.
``(C) Such other similar, limited benefits as are specified
in regulations.
``(3) Benefits not subject to requirements if offered as
independent, noncoordinated benefits.--
``(A) Coverage only for a specified disease or illness.
``(B) Hospital indemnity or other fixed indemnity
insurance.
``(4) Benefits not subject to requirements if offered as
separate insurance policy.--Medicare supplemental health insurance
(as defined under section 1882(g)(1) of the Social Security Act),
coverage supplemental to the coverage provided under chapter 55 of
title 10, United States Code, and similar supplemental coverage
provided to coverage under a group health plan.
``(d) Other Definitions.--
``(1) Applicable state authority.--The term `applicable State
authority' means, with respect to a health insurance issuer in a
State, the State insurance commissioner or official or officials
designated by the State to enforce the requirements of this title
for the State involved with respect to such issuer.
``(2) Beneficiary.--The term `beneficiary' has the meaning
given such term under section 3(8) of the Employee Retirement
Income Security Act of 1974.
``(3) Bona fide association.--The term `bona fide association'
means, with respect to health insurance coverage offered in a
State, an association which--
``(A) has been actively in existence for at least 5 years;
``(B) has been formed and maintained in good faith for
purposes other than obtaining insurance;
``(C) does not condition membership in the association on
any health status-related factor relating to an individual
(including an employee of an employer or a dependent of an
employee);
``(D) makes health insurance coverage offered through the
association available to all members regardless of any health
status-related factor relating to such members (or individuals
eligible for coverage through a member);
``(E) does not make health insurance coverage offered
through the association available other than in connection with
a member of the association; and
``(F) meets such additional requirements as may be imposed
under State law.
``(4) COBRA continuation provision.--The term `COBRA
continuation provision' means any of the following:
``(A) Section 4980B of the Internal Revenue Code of 1986,
other than subsection (f)(1) of such section insofar as it
relates to pediatric vaccines.
``(B) Part 6 of subtitle B of title I of the Employee
Retirement Income Security Act of 1974, other than section 609
of such Act.
``(C) Title XXII of this Act.
``(5) Employee.--The term `employee' has the meaning given such
term under section 3(6) of the Employee Retirement Income Security
Act of 1974.
``(6) Employer.--The term `employer' has the meaning given such
term under section 3(5) of the Employee Retirement Income Security
Act of 1974, except that such term shall include only employers of
two or more employees.
``(7) Church plan.--The term `church plan' has the meaning
given such term under section 3(33) of the Employee Retirement
Income Security Act of 1974.
``(8) Governmental plan.--(A) The term `governmental plan' has
the meaning given such term under section 3(32) of the Employee
Retirement Income Security Act of 1974 and any Federal governmental
plan.
``(B) Federal governmental plan.--The term `Federal
governmental plan' means a governmental plan established or
maintained for its employees by the Government of the United States
or by any agency or instrumentality of such Government.
``(C) Non-Federal governmental plan.--The term `non-Federal
governmental plan' means a governmental plan that is not a Federal
governmental plan.
``(9) Health status-related factor.--The term `health status-
related factor' means any of the factors described in section
2702(a)(1).
``(10) Network plan.--The term `network plan' means health
insurance coverage of a health insurance issuer under which the
financing and delivery of medical care (including items and
services paid for as medical care) are provided, in whole or in
part, through a defined set of providers under contract with the
issuer.
``(11) Participant.--The term `participant' has the meaning
given such term under section 3(7) of the Employee Retirement
Income Security Act of 1974.
``(12) Placed for adoption defined.--The term `placement', or
being `placed', for adoption, in connection with any placement for
adoption of a child with any person, means the assumption and
retention by such person of a legal obligation for total or partial
support of such child in anticipation of adoption of such child.
The child's placement with such person terminates upon the
termination of such legal obligation.
``(13) Plan sponsor.--The term `plan sponsor' has the meaning
given such term under section 3(16)(B) of the Employee Retirement
Income Security Act of 1974.
``(14) State.--The term `State' means each of the several
States, the District of Columbia, Puerto Rico, the Virgin Islands,
Guam, American Samoa, and the Northern Mariana Islands.
``(e) Definitions Relating to Markets and Small Em- ployers.--For
purposes of this title:
``(1) Individual market.--
``(A) In general.--The term `individual market' means the
market for health insurance coverage offered to individuals
other than in connection with a group health plan.
``(B) Treatment of very small groups.--
``(i) In general.--Subject to clause (ii), such terms
includes coverage offered in connection with a group health
plan that has fewer than two participants as current
employees on the first day of the plan year.
``(ii) State exception.--Clause (i) shall not apply in
the case of a State that elects to regulate the coverage
described in such clause as coverage in the small group
market.
``(2) Large employer.--The term `large employer' means, in
connection with a group health plan with respect to a calendar year
and a plan year, an employer who employed an average of at least 51
employees on businessdays during the preceding calendar year and
who employs at least 2 employees on the first day of the plan year.
``(3) Large group market.--The term `large group market' means
the health insurance market under which individuals obtain health
insurance coverage (directly or through any arrangement) on behalf
of themselves (and their dependents) through a group health plan
maintained by a large employer.
``(4) Small employer.--The term `small employer' means, in
connection with a group health plan with respect to a calendar year
and a plan year, an employer who employed an average of at least 2
but not more than 50 employees on business days during the
preceding calendar year and who employs at least 2 employees on the
first day of the plan year.
``(5) Small group market.--The term `small group market' means
the health insurance market under which individuals obtain health
insurance coverage (directly or through any arrangement) on behalf
of themselves (and their dependents) through a group health plan
maintained by a small employer.
``(6) Application of certain rules in determination of employer
size.--For purposes of this subsection--
``(A) Application of aggregation rule for employers.--all
persons treated as a single employer under subsection (b), (c),
(m), or (o) of section 414 of the Internal Revenue Code of 1986
shall be treated as 1 employer.
``(B) Employers not in existence in preceding year.--In the
case of an employer which was not in existence throughout the
preceding calendar year, the determination of whether such
employer is a small or large employer shall be based on the
average number of employees that it is reasonably expected such
employer will employ on business days in the current calendar
year.
``(C) Predecessors.--Any reference in this subsection to an
employer shall include a reference to any predecessor of such
employer.
``SEC. 2792. REGULATIONS.
``The Secretary, consistent with section 104 of the Health Care
Portability and Accountability Act of 1996, may promulgate such
regulations as may be necessary or appropriate to carry out the
provisions of this title. The Secretary may promulgate any interim
final rules as the Secretary determines are appropriate to carry out
this title.''.
(b) Application of Rules by Certain Health Maintenance
Organizations.--Section 1301 of such Act (42 U.S.C. 300e) is amended by
adding at the end the following new subsection:
``(d) An organization that offers health benefits coverage shall
not be considered as failing to meet the requirements of this section
notwithstanding that it provides, with respect to coverage offered in
connection with a group health plan in the small or large group market
(as defined in section 2791(e)), an affiliation period consistent with
the provisions of section 2701(g).''.
(c) Effective Date.--
(1) In general.--Except as provided in this subsection, part A
of title XXVII of the Public Health Service Act (as added by
subsection (a)) shall apply with respect to group health plans, and
health insurance coverage offered in connection with group health
plans, for plan years beginning after June 30, 1997.
(2) Determination of creditable coverage.--
(A) Period of coverage.--
(i) In general.--Subject to clause (ii), no period
before July 1, 1996, shall be taken into account under part
A of title XXVII of the Public Health Service Act (as added
by this section) in determining creditable coverage.
(ii) Special rule for certain periods.--The Secretary
of Health and Human Services, consistent with section 104,
shall provide for a process whereby individuals who need to
establish creditable coverage for periods before July 1,
1996, and who would have such coverage credited but for
clause (i) may be given credit for creditable coverage for
such periods through the presentation of documents or other
means.
(B) Certifications, etc.--
(i) In general.--Subject to clauses (ii) and (iii),
subsection (e) of section 2701 of the Public Health Service
Act (as added by this section) shall apply to events
occurring after June 30, 1996.
(ii) No certification required to be provided before
june 1, 1997.--In no case is a certification required to be
provided under such subsection before June 1, 1997.
(iii) Certification only on written request for events
occurring before october 1, 1996.--In the case of an event
occurring after June 30, 1996, and before October 1, 1996,
a certification is not required to be provided under such
subsection unless an individual (with respect to whom the
certification is otherwise required to be made) requests
such certification in writing.
(C) Transitional rule.--In the case of an individual who
seeks to establish creditable coverage for any period for which
certification is not required because it relates to an event
occurring before June 30, 1996--
(i) the individual may present other credible evidence
of such coverage in order to establish the period of
creditable coverage; and
(ii) a group health plan and a health insurance issuer
shall not be subject to any penalty or enforcement action
with respect to the plan's or issuer's crediting (or not
crediting) such coverage if the plan or issuer has sought
to comply in good faith with the applicable requirements
under the amendments made by this section.
(3) Special rule for collective bargaining agreements.--Except
as provided in paragraph (2)(B), in the case of a group health plan
maintained pursuant to 1 or more collective bargaining agreements
between employee representatives and one or more employers ratified
before the date of the enactment of this Act, part A of title XXVII
of the Public Health Service Act (other than section 2701(e)
thereof) shall not apply to plan years beginning before the later
of--
(A) the date on which the last of the collective bargaining
agreements relating to the plan terminates (determined without
regard to any extension thereof agreed to after the date of the
enactment of this Act), or
(B) July 1, 1997.
For purposes of subparagraph (A), any plan amendment made pursuant
to a collective bargaining agreement relating to the plan which
amends the plan solely to conform to any requirement of such part
shall not be treated as a termination of such collective bargaining
agreement.
(4) Timely regulations.--The Secretary of Health and Human
Services, consistent with section 104, shall first issue by not
later than April 1, 1997, such regulations as may be necessary to
carry out the amendments made by this section and section 111.
(5) Limitation on actions.--No enforcement action shall be
taken, pursuant to the amendments made by this section, against a
group health plan or health insurance issuer with respect to a
violation of a requirement imposed by such amendments before
January 1, 1998, or, if later, the date of issuance of regulations
referred to in paragraph (4), if the plan or issuer has sought to
comply in good faith with such requirements.
(d) Miscellaneous Correction.--Section 2208(1) of the Public Health
Service Act (42 U.S.C. 300bb-8(1)) is amended by striking ``section
162(i)(2)'' and inserting ``5000(b)''.
SEC. 103. REFERENCE TO IMPLEMENTATION THROUGH THE INTERNAL REVENUE
CODE OF 1986.
For provisions amending the Internal Revenue Code of 1986 to
provide for application and enforcement of rules for group health plans
similar to those provided under the amendments made by section 101(a),
see section 401.
SEC. 104. ASSURING COORDINATION.
The Secretary of the Treasury, the Secretary of Health and Human
Services, and the Secretary of Labor shall ensure, through the
execution of an interagency memorandum of understanding among such
Secretaries, that--
(1) regulations, rulings, and interpretations issued by such
Secretaries relating to the same matter over which two or more such
Secretaries have responsibility under this subtitle (and the
amendments made by this subtitle and section 401) are administered
so as to have the same effect at all times; and
(2) coordination of policies relating to enforcing the same
requirements through such Secretaries in order to have a
coordinated enforcement strategy that avoids duplication of
enforcement efforts and assigns priorities in enforcement.
Subtitle B--Individual Market Rules
SEC. 111. AMENDMENT TO PUBLIC HEALTH SERVICE ACT.
(a) In General.--Title XXVII of the Public Health Service Act, as
added by section 102(a) of this Act, is amended by inserting after part
A the following new part:
``Part B--Individual Market Rules
``SEC. 2741. GUARANTEED AVAILABILITY OF INDIVIDUAL HEALTH INSURANCE
COVERAGE TO CERTAIN INDIVIDUALS WITH PRIOR GROUP COVERAGE.
``(a) Guaranteed Availability.--
``(1) In general.--Subject to the succeeding subsections of
this section and section 2744, each health insurance issuer that
offers health insurance coverage (as defined in section 2791(b)(1))
in the individual market in a State may not, with respect to an
eligible individual (as defined in subsection (b)) desiring to
enroll in individual health insurance coverage--
``(A) decline to offer such coverage to, or deny enrollment
of, such individual; or
``(B) impose any preexisting condition exclusion (as
defined in section 2701(b)(1)(A)) with respect to such
coverage.
``(2) Substitution by state of acceptable alternative
mechanism.--The requirement of paragraph (1) shall not apply to
health insurance coverage offered in the individual market in a
State in which the State is implementing an acceptable alternative
mechanism under section 2744.
``(b) Eligible Individual Defined.--In this part, the term
`eligible individual' means an individual--
``(1)(A) for whom, as of the date on which the individual seeks
coverage under this section, the aggregate of the periods of
creditable coverage (as defined in section 2701(c)) is 18 or more
months and (B) whose most recent prior creditable coverage was
under a group health plan, governmental plan, or church plan (or
health insurance coverage offered in connection with any such
plan);
``(2) who is not eligible for coverage under (A) a group health
plan, (B) part A or part B of title XVIII of the Social Security
Act, or (C) a State plan under title XIX of such Act (or any
successor program), and does not have other health insurance
coverage;
``(3) with respect to whom the most recent coverage within the
coverage period described in paragraph (1)(A) was not terminated
based on a factor described in paragraph (1) or (2) of section
2712(b) (relating to nonpayment of premiums or fraud);
``(4) if the individual had been offered the option of
continuation coverage under a COBRA continuation provision or under
a similar State program, who elected such coverage; and
``(5) who, if the individual elected such continuation
coverage, has exhausted such continuation coverage under such
provision or program.
``(c) Alternative Coverage Permitted Where No State Mechanism.--
``(1) In general.--In the case of health insurance coverage
offered in the individual market in a State in which the State is
not implementing an acceptable alternative mechanism under section
2744, the health insurance issuer may elect to limit the coverage
offered under subsection (a) so long as it offers at least two
different policy forms of health insurance coverage both of which--
``(A) are designed for, made generally available to, and
actively marketed to, and enroll both eligible and other
individuals by the issuer; and
``(B) meet the requirement of paragraph (2) or (3), as
elected by the issuer.
For purposes of this subsection, policy forms which have different
cost-sharing arrangements or different riders shall be considered
to be different policy forms.
``(2) Choice of most popular policy forms.--The requirement of
this paragraph is met, for health insurance coverage policy forms
offered by an issuer in the individual market, if the issuer offers
the policy forms for individual health insurance coverage with the
largest, and next tolargest, premium volume of all such policy
forms offered by the issuer in the State or applicable marketing or
service area (as may be prescribed in regulation) by the issuer in the
individual market in the period involved.
``(3) Choice of 2 policy forms with representative coverage.--
``(A) In general.--The requirement of this paragraph is
met, for health insurance coverage policy forms offered by an
issuer in the individual market, if the issuer offers a lower-
level coverage policy form (as defined in subparagraph (B)) and
a higher-level coverage policy form (as defined in subparagraph
(C)) each of which includes benefits substantially similar to
other individual health insurance coverage offered by the
issuer in that State and each of which is covered under a
method described in section 2744(c)(3)(A) (relating to risk
adjustment, risk spreading, or financial subsidization).
``(B) Lower-level of coverage described.--A policy form is
described in this subparagraph if the actuarial value of the
benefits under the coverage is at least 85 percent but not
greater than 100 percent of a weighted average (described in
subparagraph (D)).
``(C) Higher-level of coverage described.--A policy form is
described in this subparagraph if--
``(i) the actuarial value of the benefits under the
coverage is at least 15 percent greater than the actuarial
value of the coverage described in subparagraph (B) offered
by the issuer in the area involved; and
``(ii) the actuarial value of the benefits under the
coverage is at least 100 percent but not greater than 120
percent of a weighted average (described in subparagraph
(D)).
``(D) Weighted average.--For purposes of this paragraph,
the weighted average described in this subparagraph is the
average actuarial value of the benefits provided by all the
health insurance coverage issued (as elected by the issuer)
either by that issuer or by all issuers in the State in the
individual market during the previous year (not including
coverage issued under this section), weighted by enrollment for
the different coverage.
``(4) Election.--The issuer elections under this subsection
shall apply uniformly to all eligible individuals in the State for
that issuer. Such an election shall be effective for policies
offered during a period of not shorter than 2 years.
``(5) Assumptions.--For purposes of paragraph (3), the
actuarial value of benefits provided under individual health
insurance coverage shall be calculated based on a standardized
population and a set of standardized utilization and cost factors.
``(d) Special Rules for Network Plans.--
``(1) In general.--In the case of a health insurance issuer
that offers health insurance coverage in the individual market
through a network plan, the issuer may--
``(A) limit the individuals who may be enrolled under such
coverage to those who live, reside, or work within the service
area for such network plan; and
``(B) within the service area of such plan, deny such
coverage to such individuals if the issuer has demonstrated, if
required, to the applicable State authority that--
``(i) it will not have the capacity to deliver services
adequately to additional individual enrollees because of
its obligations to existing group contract holders and
enrollees and individual enrollees, and
``(ii) it is applying this paragraph uniformly to
individuals without regard to any health status-related
factor of such individuals and without regard to whether
the individuals are eligible individuals.
``(2) 180-day suspension upon denial of coverage.--An issuer,
upon denying health insurance coverage in any service area in
accordance with paragraph (1)(B), may not offer coverage in the
individual market within such service area for a period of 180 days
after such coverage is denied.
``(e) Application of Financial Capacity Limits.--
``(1) In general.--A health insurance issuer may deny health
insurance coverage in the individual market to an eligible
individual if the issuer has demonstrated, if required, to the
applicable State authority that--
``(A) it does not have the financial reserves necessary to
underwrite additional coverage; and
``(B) it is applying this paragraph uniformly to all
individuals in the individual market in the State consistent
with applicable State law and without regard to any health
status-related factor of such individuals and without regard to
whether the individuals are eligible individuals.
``(2) 180-day suspension upon denial of coverage.--An issuer
upon denying individual health insurance coverage in any service
area in accordance with paragraph (1) may not offer such coverage
in the individual market within such service area for a period of
180 days after the date such coverage is denied or until the issuer
has demonstrated, if required under applicable State law, to the
applicable State authority that the issuer has sufficient financial
reserves to underwrite additional coverage, whichever is later. A
State may provide for the application of this paragraph on a
service-area-specific basis.
``(e) Market Requirements.--
``(1) In general.--The provisions of subsection (a) shall not
be construed to require that a health insurance issuer offering
health insurance coverage only in connection with group health
plans or through one or more bona fide associations, or both, offer
such health insurance coverage in the individual market.
``(2) Conversion policies.--A health insurance issuer offering
health insurance coverage in connection with group health plans
under this title shall not be deemed to be a health insurance
issuer offering individual health insurance coverage solely because
such issuer offers a conversion policy.
``(f) Construction.--Nothing in this section shall be construed--
``(1) to restrict the amount of the premium rates that an
issuer may charge an individual for health insurance coverage
provided in the individual market under applicable State law; or
``(2) to prevent a health insurance issuer offering health
insurance coverage in the individual market from establishing
premium discounts or rebates or modifying otherwise applicable
copayments or deductibles in return for adherence to programs of
health promotion and disease prevention.
``SEC. 2742. GUARANTEED RENEWABILITY OF INDIVIDUAL HEALTH INSURANCE
COVERAGE.
``(a) In General.--Except as provided in this section, a health
insurance issuer that provides individual health insurance coverage to
an individual shall renew or continue in force such coverage at the
option of the individual.
``(b) General Exceptions.--A health insurance issuer may nonrenew
or discontinue health insurance coverage of an individual in the
individual market based only on one or more of the following:
``(1) Nonpayment of premiums.--The individual has failed to pay
premiums or contributions in accordance with the terms of the
health insurance coverage or the issuer has not received timely
premium payments.
``(2) Fraud.--The individual has performed an act or practice
that constitutes fraud or made an intentional misrepresentation of
material fact under the terms of the coverage.
``(3) Termination of plan.--The issuer is ceasing to offer
coverage in the individual market in accordance with subsection (c)
and applicable State law.
``(4) Movement outside service area.--In the case of a health
insurance issuer that offers health insurance coverage in the
market through a network plan, the individual no longer resides,
lives, or works in the service area (or in an area for which the
issuer is authorized to do business) but only if such coverage is
terminated under this paragraph uniformly without regard to any
health status-related factor of covered individuals.
``(5) Association membership ceases.--In the case of health
insurance coverage that is made available in the individual market
only through one or more bona fide associations, the membership of
the individual in the association (on the basis of which the
coverage is provided) ceases but only if such coverage is
terminated under this paragraph uniformly without regard to any
health status-related factor of covered individuals.
``(c) Requirements for Uniform Termination of Coverage.--
``(1) Particular type of coverage not offered.--In any case in
which an issuer decides to discontinue offering a particular type
of health insurance coverage offered in the individual market,
coverage of such type may be discontinued by the issuer only if--
``(A) the issuer provides notice to each covered individual
provided coverage of this type in such market of such
discontinuation at least 90 days prior to the date of the
discontinuation of such coverage;
``(B) the issuer offers to each individual in the
individual market provided coverage of this type, the option to
purchase any other individual health insurance coverage
currently being offered by the issuer for individuals in such
market; and
``(C) in exercising the option to discontinue coverage of
this type and in offering the option of coverage under
subparagraph (B), the issuer acts uniformly without regard to
any health status-related factor of enrolled individuals or
individuals who may become eligible for such coverage.
``(2) Discontinuance of all coverage.--
``(A) In general.--Subject to subparagraph (C), in any case
in which a health insurance issuer elects to discontinue
offering all health insurance coverage in the individual market
in a State, health insurance coverage may be discontinued by
the issuer only if--
``(i) the issuer provides notice to the applicable
State authority and to each individual of such
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 are discontinued and
coverage under such health insurance coverage in such
market is not renewed.
``(B) Prohibition on market reentry.--In the case of a
discontinuation under subparagraph (A) in the individual
market, the issuer may not provide for the issuance of any
health insurance coverage in the market and State involved
during the 5-year period beginning on the date of the
discontinuation of the last health insurance coverage not so
renewed.
``(d) Exception for Uniform Modification of Coverage.--At the time
of coverage renewal, a health insurance issuer may modify the health
insurance coverage for a policy form offered to individuals in the
individual market so long as such modification is consistent with State
law and effective on a uniform basis among all individuals with that
policy form.
``(e) Application to Coverage Offered Only Through Associations.--
In applying this section in the case of health insurance coverage that
is made available by a health insurance issuer in the individual market
to individuals only through one or more associations, a reference to an
`individual' is deemed to include a reference to such an association
(of which the individual is a member).
``SEC. 2743. CERTIFICATION OF COVERAGE.
``The provisions of section 2701(e) shall apply to health insurance
coverage offered by a health insurance issuer in the individual market
in the same manner as it applies to health insurance coverage offered
by a health insurance issuer in connection with a group health plan in
the small or large group market.
``SEC. 2744. STATE FLEXIBILITY IN INDIVIDUAL MARKET REFORMS.
``(a) Waiver of Requirements Where Implementation of Acceptable
Alternative Mechanism.--
``(1) In general.--The requirements of section 2741 shall not
apply with respect to health insurance coverage offered in the
individual market in the State so long as a State is found to be
implementing, in accordance with this section and consistent with
section 2746(b), an alternative mechanism (in this section referred
to as an `acceptable alternative mechanism')--
``(A) under which all eligible individuals are provided a
choice of health insurance coverage;
``(B) under which such coverage does not impose any
preexisting condition exclusion with respect to such coverage;
``(C) under which such choice of coverage includes at least
one policy form of coverage that is comparable to comprehensive
health insurance coverage offered in the individual market in
such State or that is comparable to a standard option of
coverage available under the group or individual health
insurance laws of such State; and
``(D) in a State which is implementing--
``(i) a model act described in subsection (c)(1),
``(ii) a qualified high risk pool described in
subsection (c)(2), or
``(iii) a mechanism described in subsection (c)(3).
``(2) Permissible Forms of mechanisms.--A private or public
individual health insurance mechanism (such as a health insurance
coverage pool or programs, mandatory group conversion policies,
guaranteed issue of one or more plans of individual health
insurance coverage, or open enrollment by one or more health
insurance issuers), or combination of such mechanisms, that is
designed to provide access to health benefits for individuals in
the individual market in the State in accordance with this section
may constitute an acceptable alternative mechanism.
``(b) Application of Acceptable Alternative Mechanisms.--
``(1) Presumption.--
``(A) In general.--Subject to the succeeding provisions of
this subsection, a State is presumed to be implementing an
acceptable alternative mechanism in accordance with this
section as of July 1, 1997, if, by not later than April 1,
1997, the chief executive officer of a State--
``(i) notifies the Secretary that the State has enacted
or intends to enact (by not later than January 1, 1998, or
July 1, 1998, in the case of a State described in
subparagraph (B)(ii)) any necessary legislation to provide
for the implementation of a mechanism reasonably designed
to be an acceptable alternative mechanism as of January 1,
1998, (or, in the case of a State described in subparagraph
(B)(ii), July 1, 1998); and
``(ii) provides the Secretary with such information as
the Secretary may require to review the mechanism and its
implementation (or proposed implementation) under this
subsection.
``(B) Delay permitted for certain states.--
``(i) Effect of delay.--In the case of a State
described in clause (ii) that provides notice under
subparagraph (A)(i), for the presumption to continue on and
after July 1, 1998, the chief executive officer of the
State by April 1, 1998--
``(I) must notify the Secretary that the State has
enacted any necessary legislation to provide for the
implementation of a mechanism reasonably designed to be
an acceptable alternative mechanism as of July 1, 1998;
and
``(II) must provide the Secretary with such
information as the Secretary may require to review the
mechanism and its implementation (or proposed
implementation) under this subsection.
``(ii) States described.--A State described in this
clause is a State that has a legislature that does not meet
within the 12-month period beginning on the date of
enactment of this Act.
``(C) Continued application.--In order for a mechanism to
continue to be presumed to be an acceptable alternative
mechanism, the State shall provide the Secretary every 3 years
with information described in subparagraph (A)(ii) or
(B)(i)(II) (as the case may be).
``(2) Notice.--If the Secretary finds, after review of
information provided under paragraph (1) and in consultation with
the chief executive officer of the State and the insurance
commissioner or chief insurance regulatory official of the State,
that such a mechanism is not an acceptable alternative mechanism or
is not (or no longer) being implemented, the Secretary--
``(A) shall notify the State of--
``(i) such preliminary determination, and
``(ii) the consequences under paragraph (3) of a
failure to implement such a mechanism; and
``(B) shall permit the State a reasonable opportunity in
which to modify the mechanism (or to adopt another mechanism)
in a manner so that may be an acceptable alternative mechanism
or to provide for implementation of such a mechanism.
``(3) Final determination.--If, after providing notice and
opportunity under paragraph (2), the Secretary finds that the
mechanism is not an acceptable alternative mechanism or the State
is not implementing such a mechanism, the Secretary shall notify
the State that the State is no longer considered to be implementing
an acceptable alternative mechanism and that the requirements of
section 2741 shall apply to health insurance coverage offered in
the individual market in the State, effective as of a date
specified in the notice.
``(4) Limitation on secretarial authority.--The Secretary shall
not make a determination under paragraph (2) or (3) on any basis
other than the basis that a mechanism is not an acceptable
alternative mechanism or is not being implemented.
``(5) Future adoption of mechanisms.--If a State, after January
1, 1997, submits the notice and information described in paragraph
(1), unless the Secretary makes a finding described in paragraph
(3) within the 90-day period beginning on the date of submission of
the notice and information, the mechanism shall be considered to be
an acceptable alternative mechanism for purposes of this section,
effective 90 days after the end of such period, subject to the
second sentence of paragraph (1).
``(c) Provision Related to Risk.--
``(1) Adoption of naic models.--The model act referred to in
subsection (a)(1)(D)(i) is the Small Employer and Individual Health
Insurance Availability Model Act (adopted by the National
Association of Insurance Commissioners on June 3, 1996) insofar as
it applies to individual health insurance coverage or the
Individual Health Insurance Portability Model Act (also adopted by
such Association on such date).
``(2) Qualified high risk pool.--For purposes of subsection
(a)(1)(D)(ii), a `qualified high risk pool' described in this
paragraph is a high risk pool that--
``(A) provides to all eligible individuals health insurance
coverage (or comparable coverage) that does not impose any
preexisting condition exclusion with respect to such coverage
for all eligible individuals, and
``(B) provides for premium rates and covered benefits for
such coverage consistent with standards included in the NAIC
Model Health Plan for Uninsurable Individuals Act (as in effect
as of the date of the enactment of this title).
``(3) Other mechanisms.--For purposes of subsection
(a)(1)(D)(iii), a mechanism described in this paragraph--
``(A) provides for risk adjustment, risk spreading, or a
risk spreading mechanism (among issuers or policies of an
issuer) or otherwise provides for some financial subsidization
for eligible individuals, including through assistance to
participating issuers; or
``(B) is a mechanism under which each eligible individual
is provided a choice of all individual health insurance
coverage otherwise available.
``SEC. 2745. ENFORCEMENT.
``(a) State Enforcement.--
``(1) State authority.--Subject to section 2746, each State may
require that health insurance issuers that issue, sell, renew, or
offer health insurance coverage in the State in the individual
market meet the requirements established under this part with
respect to such issuers.
``(2) Failure to implement requirements.--In the case of a
State that fails to substantially enforce the requirements set
forth in this part with respect to health insurance issuers in the
State, the Secretary shall enforce the requirements of this part
under subsection (b) insofar as they relate to the issuance, sale,
renewal, and offering of health insurance coverage in the
individual market in such State.
``(b) Secretarial Enforcement Authority.--The Secretary shall have
the same authority in relation to enforcement of the provisions of this
part with respect to issuers of health insurance coverage in the
individual market in a State as the Secretary has under section
2722(b)(2) in relation to the enforcement of the provisions of part A
with respect to issuers of health insurance coverage in the small group
market in the State.
``SEC. 2746. PREEMPTION.
``(a) In General.--Subject to subsection (b), nothing in this part
(or part C insofar as it applies to this part) shall be construed to
prevent a State from establishing, implementing, or continuing in
effect standards and requirements unless such standards and
requirements prevent the application of a requirement of this part.
``(b) Rules of Construction.--Nothing in this part (or part C
insofar as it applies to this part) shall be construed to affect or
modify the provisions of section 514 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1144).
``SEC. 2747. GENERAL EXCEPTIONS.
``(a) Exception for Certain Benefits.--The requirements of this
part shall not apply to any health insurance coverage in relation to
its provision of excepted benefits described in section 2791(c)(1).
``(b) Exception for Certain Benefits If Certain Conditions Met.--
The requirements of this part shall not apply to any health insurance
coverage in relation to its provision of excepted benefits described in
paragraph (2), (3), or (4) of section 2791(c) if the benefits are
provided under a separate policy, certificate, or contract of
insurance.''.
(b) Effective Date.--
(1) In general.--Except as provided in this subsection, part B
of title XXVII of the Public Health Service Act (as inserted by
subsection (a)) shall apply with respect to health insurance
coverage offered, sold, issued, renewed, in effect, or operated in
the individual market after June 30, 1997, regardless of when a
period of creditable coverage occurs.
(2) Application of certification rules.--The provisions of
section 102(d)(2) of this Act shall apply to section 2743 of the
Public Health Service Act in the same manner as it applies to
section 2701(e) of such Act.
Subtitle C--General and Miscellaneous Provisions
SEC. 191. HEALTH COVERAGE AVAILABILITY STUDIES.
(a) Studies.--
(1) Study on effectiveness of reforms.--The Secretary of Health
and Human Services shall provide for a study on the effectiveness
of the provisions of this title and the various State laws, in
ensuring the availability of reasonably priced health coverage to
employers purchasing group coverage and individuals purchasing
coverage on a non-group basis.
(2) Study on access and choice.--The Secretary also shall
provide for a study on--
(A) the extent to which patients have direct access to, and
choice of, health care providers, including specialty
providers, within a network plan, as well as the opportunity to
utilize providers outside of the network plan, under the
various types of coverage offered under the provisions of this
title; and
(B) the cost and cost-effectiveness to health insurance
issuers of providing access to out-of-network providers, and
the potential impact of providing such access on the cost and
quality of health insurance coverage offered under provisions
of this title.
(3) Consultation.--The studies under this subsection shall be
conducted in consultation with the Secretary of Labor,
representatives of State officials, consumers, and other
representatives of individuals and entities that have expertise in
health insurance and employee benefits.
(b) Reports.--Not later than January 1, 2000, the Secretary shall
submit to the appropriate committees of Congress a report on each of
the studies under subsection (a).
SEC. 192. REPORT ON MEDICARE REIMBURSEMENT OF TELEMEDICINE.
The Health Care Financing Administration shall complete its ongoing
study of Medicare reimbursement of all telemedicine services and submit
a report to Congress on Medicare reimbursement of telemedicine services
by not later than March 1, 1997. The report shall--
(1) utilize data compiled from the current demonstration
projects already under review and gather data from other ongoing
telemedicine networks;
(2) include an analysis of the cost of services provided via
telemedicine; and
(3) include a proposal for Medicare reimbursement of such
services.
SEC. 193. ALLOWING FEDERALLY-QUALIFIED HMOS TO OFFER HIGH
DEDUCTIBLE PLANS.
Section 1301(b) of the Public Health Service Act (42 U.S.C.
300e(b)) is amended by adding at the end the following new paragraph:
``(6) A health maintenance organization that otherwise meets
the requirements of this title may offer a high-deductible health
plan (as defined in section 220(c)(2) of the Internal Revenue Code
of 1986).''.
SEC. 194. VOLUNTEER SERVICES PROVIDED BY HEALTH PROFESSIONALS AT
FREE CLINICS.
Section 224 of the Public Health Service Act (42 U.S.C. 233) is
amended by adding at the end the following subsection:
``(o)(1) For purposes of this section, a free clinic health
professional shall in providing a qualifying health service to an
individual be deemed to be an employee of the Public Health Service for
a calendar year that begins during a fiscal year for which a transfer
was made under paragraph (6)(D). The preceding sentence is subject to
the provisions of this subsection.
``(2) In providing a health service to an individual, a health care
practitioner shall for purposes of this subsection be considered to be
a free clinic health professional if the following conditions are met:
``(A) The service is provided to the individual at a free
clinic, or through offsite programs or events carried out by the
free clinic.
``(B) The free clinic is sponsoring the health care
practitioner pursuant to paragraph (5)(C).
``(C) The service is a qualifying health service (as defined in
paragraph (4)).
``(D) Neither the health care practitioner nor the free clinic
receives any compensation for the service from the individual or
from any third-party payor (including reimbursement under any
insurance policy or health plan, or under any Federal or State
health benefits program). With respect to compliance with such
condition:
``(i) The health care practitioner may receive repayment
from the free clinic for reasonable expenses incurred by the
health care practitioner in the provision of the service to the
individual.
``(ii) The free clinic may accept voluntary donations for
the provision of the service by the health care practitioner to
the individual.
``(E) Before the service is provided, the health care
practitioner or the free clinic provides written notice to the
individual of the extent to which the legal liability of the health
care practitioner is limited pursuant to this subsection (or in the
case of an emergency, the written notice is provided to the
individual as soon after the emergency as is practicable). If the
individual is a minor or is otherwise legally incompetent, the
condition under this subparagraph is that the written notice be
provided to a legal guardian or other person with legal
responsibility for the care of the individual.
``(F) At the time the service is provided, the health care
practitioner is licensed or certified in accordance with applicable
law regarding the provision of the service.
``(3)(A) For purposes of this subsection, the term `free clinic'
means a health care facility operated by a nonprofit private entity
meeting the following requirements:
``(i) The entity does not, in providing health services through
the facility, accept reimbursement from any third-party payor
(including reimbursement under any insurance policy or health plan,
or under any Federal or State health benefits program).
``(ii) The entity, in providing health services through the
facility, either does not impose charges on the individuals to whom
the services are provided, or imposes a charge according to the
ability of the individual involved to pay the charge.
``(iii) The entity is licensed or certified in accordance with
applicable law regarding the provision of health services.
``(B) With respect to compliance with the conditions under
subparagraph (A), the entity involved may accept voluntary donations
for the provision of services.
``(4) For purposes of this subsection, the term `qualifying health
service' means any medical assistance required or authorized to be
provided in the program under title XIX of the Social Security Act,
without regard to whether the medical assistance is included in the
plan submitted under such program by the State in which the health care
practitioner involved provides the medical assistance. References in
the preceding sentence to such program shall as applicable be
considered to be references to any successor to such program.
``(5) Subsection (g) (other than paragraphs (3) through (5)) and
subsections (h), (i), and (l) apply to a health care practitioner for
purposes of this subsection to the same extent and in the same manner
as such subsections apply to an officer, governing board member,
employee, or contractor of an entity described in subsection (g)(4),
subject to paragraph (6) and subject to the following:
``(A) The first sentence of paragraph (1) applies in lieu of
the first sentence of subsection (g)(1)(A).
``(B) This subsection may not be construed as deeming any free
clinic to be an employee of the Public Health Service for purposes
of this section.
``(C) With respect to a free clinic, a health care practitioner
is not a free clinic health professional unless the free clinic
sponsors the health care practitioner. For purposes of this
subsection, the free clinic shall be considered to be sponsoring
the health care practitioner if--
``(i) with respect to the health care practitioner, the
free clinic submits to the Secretary an application meeting the
requirements of subsection (g)(1)(D); and
``(ii) the Secretary, pursuant to subsection (g)(1)(E),
determines that the health care practitioner is deemed to be an
employee of the Public Health Service.
``(D) In the case of a health care practitioner who is
determined by the Secretary pursuant to subsection (g)(1)(E) to be
a free clinic health professional, this subsection applies to the
health care practitioner (with respect to the free clinic
sponsoring the health care practitioner pursuant to subparagraph
(C)) for any cause of action arising from an act or omission of the
health care practitioneroccurring on or after the date on which the
Secretary makes such determination.
``(E) Subsection (g)(1)(F) applies to a health care
practitioner for purposes of this subsection only to the extent
that, in providing health services to an individual, each of the
conditions specified in paragraph (2) is met.
``(6)(A) For purposes of making payments for judgments against the
United States (together with related fees and expenses of witnesses)
pursuant to this section arising from the acts or omissions of free
clinic health professionals, there is authorized to be appropriated
$10,000,000 for each fiscal year.
``(B) The Secretary shall establish a fund for purposes of this
subsection. Each fiscal year amounts appropriated under subparagraph
(A) shall be deposited in such fund.
``(C) Not later than May 1 of each fiscal year, the Attorney
General, in consultation with the Secretary, shall submit to the
Congress a report providing an estimate of the amount of claims
(together with related fees and expenses of witnesses) that, by reason
of the acts or omissions of free clinic health professionals, will be
paid pursuant to this section during the calendar year that begins in
the following fiscal year. Subsection (k)(1)(B) applies to the estimate
under the preceding sentence regarding free clinic health professionals
to the same extent and in the same manner as such subsection applies to
the estimate under such subsection regarding officers, governing board
members, employees, and contractors of entities described in subsection
(g)(4).
``(D) Not later than December 31 of each fiscal year, the Secretary
shall transfer from the fund under subparagraph (B) to the appropriate
accounts in the Treasury an amount equal to the estimate made under
subparagraph (C) for the calendar year beginning in such fiscal year,
subject to the extent of amounts in the fund.
``(7)(A) This subsection takes effect on the date of the enactment
of the first appropriations Act that makes an appropriation under
paragraph (6)(A), except as provided in subparagraph (B)(i).
``(B)(i) Effective on the date of the enactment of the Health
Insurance Portability and Accountability Act of 1996--
``(I) the Secretary may issue regulations for carrying out this
subsection, and the Secretary may accept and consider applications
submitted pursuant to paragraph (5)(C); and
``(II) reports under paragraph (6)(C) may be submitted to the
Congress.
``(ii) For the first fiscal year for which an appropriation is made
under subparagraph (A) of paragraph (6), if an estimate under
subparagraph (C) of such paragraph has not been made for the calendar
year beginning in such fiscal year, the transfer under subparagraph (D)
of such paragraph shall be made notwithstanding the lack of the
estimate, and the transfer shall be made in an amount equal to the
amount of such appropriation.''.
SEC. 195. FINDINGS; SEVERABILITY.
(a) 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 preexisting condition exclusions
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.
(b) Severability.--If any provision of this title or the
application of such provision to any person or circumstance is held to
be unconstitutional, the remainder of this title and the application of
the provisions of such to any person or circumstance shall not be
affected thereby.
TITLE II--PREVENTING HEALTH CARE FRAUD AND ABUSE; ADMINISTRATIVE
SIMPLIFICATION
SEC. 200. REFERENCES IN TITLE.
Except as otherwise specifically provided, whenever in this title
an amendment is expressed in terms of an amendment to or repeal of a
section or other provision, the reference shall be considered to be
made to that section or other provision of the Social Security Act.
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 Insurance Portability and Accountability 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).
``(D) Application.--Nothing in subparagraph (C)(iii) shall
be construed to limit the availability of recoveries and
forfeitures obtained under title I of the Employee Retirement
Income Security Act of 1974 for the purpose of providing
equitable or remedial relief for employee welfare benefit
plans, and for participants and beneficiaries under such plans,
as authorized under such title.
``(3) Appropriated amounts to account for fraud and abuse
control program, etc.--
``(A) Departments of health and human services and
justice.--
``(i) In general.--There are hereby appropriated to the
Account from the Trust Fund such sums as the Secretary and
the Attorney General certify are necessary to carry out the
purposes described in subparagraph (C), to be available
without further appropriation, in an amount not to exceed--
``(I) for fiscal year 1997, $104,000,000,
``(II) for each of the fiscal 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.--Not later than January 1, the Secretary
and the Attorney General shall submit jointly a report to Congress
which identifies--
``(A) the amounts appropriated to the Trust Fund for the
previous fiscal year under paragraph (2)(A) and the source of
such amounts; and
``(B) the amounts appropriated from the Trust Fund for such
year under paragraph (3) and the justification for the
expenditure of such amounts.
``(6) GAO report.--Not later than January 1 of 2000, 2002, and
2004, the Comptroller General of the United States shall submit a
report to Congress which--
``(A) identifies--
``(i) the amounts appropriated to the Trust Fund for
the previous two fiscal years under paragraph (2)(A) and
the source of such amounts; and
``(ii) the amounts appropriated from the Trust Fund for
such fiscal years under paragraph (3) and the justification
for the expenditure of such amounts;
``(B) identifies any expenditures from the Trust Fund with
respect to activities not involving the Medicare program under
title XVIII;
``(C) identifies any savings to the Trust Fund, and any
other savings, resulting from expenditures from the Trust Fund;
and
``(D) analyzes such other aspects of the operation of the
Trust Fund as the Comptroller General of the United States
considers appropriate.''.
SEC. 202. MEDICARE INTEGRITY PROGRAM.
(a) Establishment of Medicare Integrity Program.--Title XVIII is
amended by adding at the end the following new section:
``Medicare integrity program
``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 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, and other law enforcement
agencies, as appropriate, in the investigation and deterrence of
fraud and abuse in relation to this title and in other cases
arising out of such activities;
``(3) the entity complies with such conflict of interest
standards as are generally applicable to Federal acquisition and
procurement; 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) Procedures for identifying, evaluating, and resolving
organizational conflicts of interest that are generally applicable
to Federal acquisition and procurement.
``(2) Competitive procedures to be used--
``(A) when entering into new contracts under this section;
``(B) when entering into contracts that may result in the
elimination of responsibilities of an individual fiscal
intermediary or carrier under section 202(b) of the Health
Insurance Portability and Accountability Act of 1996; and
``(C) at any other time considered appropriate by the
Secretary,
except that the Secretary may continue to contract with entities
that are carrying out the activities described in this section
pursuant to agreements under section 1816 or contracts under
section 1842 in effect on the date of the enactment of this
section.
``(3) Procedures under which a contract under this section may
be renewed without regard to any provision of law requiring
competition if the contractor has met or exceeded the performance
requirements established in the current contract.
The Secretary may enter into such contracts without regard to final
rules having been promulgated.
``(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 in or who have engaged in acts or
omissions which constitute grounds for the imposition of a sanction
under section 1128, 1128A, or 1128B of the Social Security Act, or
who have otherwise engaged in fraud and abuse against the Medicare
program under title XVIII of such act for which there is a sanction
provided under law. The program shall discourage provision of, and
not 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 ANTIFRAUD AND ABUSE SANCTIONS
TO FRAUD AND ABUSE AGAINST FEDERAL HEALTH CARE PROGRAMS.
(a) In General.--Section 1128B (42 U.S.C. 1320a-7b) is amended as
follows:
(1) In the heading, by striking ``Medicare or state health care
programs'' and inserting ``federal health care 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 (as
defined in subsection (f))''.
(3) In subsection (a)(5), by striking ``a program under title
XVIII or a State health care program'' and inserting ``a Federal
health care program''.
(4) In the second sentence of subsection (a)--
(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, in
consultation with the Attorney General, 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 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 issue to a
party requesting an advisory opinion by not later than 60
days after the request is received; and
``(ii) the fee charged to the party requesting an
advisory opinion shall be equal to the costs incurred by
the Secretary in responding to the request.
``(6) Application of subsection.--This subsection shall apply
to requests for advisory opinions made on or after the date which
is 6 months after the date of enactment of this section and before
the date which is 4 years after such date of enactment.
``(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 under title XVIII 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 for an offense which
occurred after the date of the enactment of the Health Insurance
Portability and Accountability Act of 1996, under Federal or State
law, in connection with the 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 for an offense which occurred after the
date of the enactment of the Health Insurance Portability and
Accountability Act of 1996, under Federal or State law--
``(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 for an offense which
occurred after the date of the enactment of the Health Insurance
Portability and Accountability Act of 1996, under Federal or State
law, of a criminal offense 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,
1997.
SEC. 216. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PENALTIES FOR RISK-
SHARING ARRANGEMENTS.
(a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is
amended--
(1) by striking ``and'' at the end of subparagraph (D);
(2) by striking the period at the end of subparagraph (E) and
inserting ``; and''; and
(3) by adding at the end the following new subparagraph:
``(F) any remuneration between an organization and an
individual or entity providing items or services, or a 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,
through a risk-sharing arrangement, places the individual or entity
at substantial financial risk for the cost or utilization of the
items or services, or a combination thereof, which the individual
or entity is obligated to provide.''.
(b) Negotiated Rulemaking for Risk-Sharing Exception.--
(1) Establishment.--
(A) In general.--The Secretary of Health and Human Services
(in this subsection referred to as the ``Secretary'') shall
establish, on an expedited basis and using a negotiated
rulemaking process under subchapter 3 of chapter 5 of title 5,
United States Code, standards relating to the exception for
risk-sharing arrangements to the anti-kickback penalties
described in section 1128B(b)(3)(F) of the Social Security Act,
as added by subsection (a).
(B) Factors to consider.--In establishing standards
relating to the exception for risk-sharing arrangements to the
anti-kickback penalties under subparagraph (A), the Secretary--
(i) shall consult with the Attorney General and
representatives of the hospital, physician, other health
practitioner, and health plan communities, and other
interested parties; and
(ii) shall take into account--
(I) the level of risk appropriate to the size and
type of arrangement;
(II) the frequency of assessment and distribution
of incentives;
(III) the level of capital contribution; and
(IV) the extent to which the risk-sharing
arrangement provides incentives to control the cost and
quality of health care services.
(2) Publication of notice.--In carrying out the rulemaking
process under this subsection, the Secretary shall publish the
notice provided for under section 564(a) of title 5, United States
Code, by not later than 45 days after the date of the enactment of
this Act.
(3) Target date for publication of rule.--As part of the notice
under paragraph (2), and for purposes of this subsection, the
``target date for publication'' (referred to in section 564(a)(5)
of such title) shall be January 1, 1997.
(4) Abbreviated period for submission of comments.--In applying
section 564(c) of such title under this subsection, ``15 days''
shall be substituted for ``30 days''.
(5) Appointment of negotiated rulemaking committee and
facilitator.--The Secretary shall provide for--
(A) the appointment of a negotiated rulemaking committee
under section 565(a) of such title by not later than 30 days
after the end of the comment period provided for under section
564(c) of such title (as shortened under paragraph (4)), and
(B) the nomination of a facilitator under section 566(c) of
such title by not later than 10 days after the date of
appointment of the committee.
(6) Preliminary committee report.--The negotiated rulemaking
committee appointed under paragraph (5) shall report to the
Secretary, by not later than October 1, 1996, regarding the
committee's progress on achieving a consensus with regard to the
rulemaking proceeding and whether such consensus is likely to occur
before one month before the target date for publication of the
rule. If the committee reports that the committee has failed to
make significant progress toward such consensus or is unlikely to
reach such consensus by the target date, the Secretary may
terminate such process and provide for the publication of a rule
under this subsection through such other methods as the Secretary
may provide.
(7) Final committee report.--If the committee is not terminated
under paragraph (6), the rulemaking committee shall submit a report
containing a proposed rule by not later than one month before the
target publication date.
(8) Interim, final effect.--The Secretary shall publish a rule
under this subsection in the Federal Register by not later than the
target publication date. Such rule shall be effective and final
immediately on an interim basis, but is subject to change and
revision after public notice and opportunity for a period (of not
less than 60 days) for public comment. In connection with such
rule, the Secretary shall specify the process for the timely review
and approval of applications of entities to be certified as
provider-sponsored organizations pursuant to such rules and
consistent with this subsection.
(9) Publication of rule after public comment.--The Secretary
shall provide for consideration of such comments and republication
of such rule by not later than 1 year after the target publication
date.
(c) Effective Date.--The amendments made by subsection (a) shall
apply to written agreements entered into on or after January 1, 1997,
without regard to whether regulations have been issued to implement
such amendments.
SEC. 217. CRIMINAL PENALTY FOR FRAUDULENT DISPOSITION OF ASSETS IN
ORDER TO OBTAIN MEDICAID BENEFITS.
Section 1128B(a) (42 U.S.C. 1320a-7b(a)) is amended--
(1) by striking ``or'' at the end of paragraph (4);
(2) by adding ``or'' at the end of paragraph (5); and
(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), and
shall maintain a database of the information collected under this
section.
``(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, who is
the subject of a final adverse action, is affiliated or
associated.
``(C) The nature of the final adverse action and whether
such action is on appeal.
``(D) A description of the acts or omissions and injuries
upon which the final adverse action was based, and such other
information as the Secretary determines by 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 with respect to 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 the database maintained
under this section 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 such
database (other than with respect to requests by Federal agencies).
The amount of such a fee shall be sufficient to recover the full
costs of operating the database. Such fees shall be available to
the Secretary or, in the Secretary's 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) Coordination With National Practitioner Data Bank.--The
Secretary shall implement this section in such a manner as to avoid
duplication with the reporting requirements established for the
National Practitioner Data Bank under the Health Care Quality
Improvement Act of 1986 (42 U.S.C. 11101 et seq.).
``(g) Definitions and 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 (as defined in sections 1128B(f) and
1128(h), respectively).
``(v) Any other adjudicated actions or decisions that
the Secretary shall establish by regulation.
``(B) Exception.--The term does not include any action with
respect to a malpractice claim.
``(2) Practitioner.--The terms `licensed health care
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
Insurance Portability and Accountability 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 (5 U.S.C. App.) with respect to the
claims submitted to the other departments or agencies to the same
manner and extent as provided in that Act with respect to claims
submitted to such departments or agencies.''.
(b) Excluded Individual Retaining Ownership or Control Interest in
Participating Entity.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is
amended--
(1) by striking ``or'' at the end of paragraph (1)(D);
(2) by striking ``, or'' at the end of paragraph (2) and
inserting a semicolon;
(3) by striking the semicolon at the end of paragraph (3) and
inserting ``; or''; and
(4) by inserting after paragraph (3) the following new
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) Clarification of Level of Knowledge Required for Imposition of
Civil Monetary Penalties.--
(1) In general.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is
amended--
(A) in paragraphs (1) and (2), by inserting ``knowingly''
before ``presents'' each place it appears; and
(B) in paragraph (3), by striking ``gives'' and inserting
``knowingly gives or causes to be given''.
(2) Definition of standard.--Section 1128A(i) (42 U.S.C. 1320a-
7a(i)), as amended by subsection (h)(2), is amended by adding at
the end the following new paragraph:
``(7) The term `should know' means that a person, with respect
to information--
``(A) acts in deliberate ignorance of the truth or falsity
of the information; or
``(B) acts in reckless disregard of the truth or falsity of
the information,
and no proof of specific intent to defraud is required.''.
(e) Claim for Item or Service Based on Incorrect Coding or
Medically Unnecessary Services.--Section 1128A(a)(1) (42 U.S.C. 1320a-
7a(a)(1)), as amended by subsection (b), is amended--
(1) in subparagraph (A) by striking ``claimed,'' and inserting
``claimed, including any person who engages in a pattern or
practice of presenting or causing to be presented a claim for an
item or service that is based on a code that the person knows or
should know will result in a greater 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;
(3) in subparagraph (D), by striking the semicolon and
inserting ``, or''; and
(4) by inserting after subparagraph (D) the following new
subparagraph:
``(E) is for a pattern of medical or other items or
services that a person knows or should know are not medically
necessary;''.
(f) 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''.
(g) Procedural Provisions.--Section 1876(i)(6) (42 U.S.C.
1395mm(i)(6)), as amended by section 215(a)(2), is amended by adding at
the end the following new subparagraph:
``(D) The provisions of section 1128A (other than subsections (a)
and (b)) shall apply to a civil money penalty under subparagraph (B)(i)
or (C)(i) in the same manner as such provisions apply to a civil money
penalty or proceeding under section 1128A(a).''.
(h) Prohibition Against Offering Inducements to 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
(C) by inserting after paragraph (4) the following new
paragraph:
``(5) offers to or transfers remuneration to any individual
eligible for benefits under title XVIII of this Act, or under a
State health care program (as defined in section 1128(h)) that such
person knows or should know is likely to influence such individual
to order or receive from a particular provider, practitioner, or
supplier any item or service for which 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 Insurance
Portability and Accountability Act of 1996; or
``(C) incentives given to individuals to promote the
delivery of preventive care as determined by the Secretary in
regulations so promulgated.''.
(i) Effective Date.--The amendments made by this section shall
apply to acts or omissions occurring on or after January 1, 1997.
SEC. 232. PENALTY FOR FALSE CERTIFICATION FOR HOME HEALTH SERVICES.
(a) In General.--Section 1128A(b) (42 U.S.C. 1320a-7a(b)) is
amended by adding at the end the following new paragraph:
``(3)(A) Any physician who executes a document described in
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;
``(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 and willfully 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 knowingly and willfully embezzles, steals, or
otherwise without authority 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 24(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 and willfully--
``(1) falsifies, conceals, or covers up by any trick, scheme,
or device a material fact; or
``(2) makes any materially false, fictitious, or fraudulent
statements or representations, or makes or uses any materially
false writing or document knowing the same to contain any
materially false, fictitious, or fraudulent statement or entry,
in connection with the delivery of or 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 24(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.--(1) In any investigation relating to any act
or activity involving a Federal health care offense, the Attorney
General or the Attorney General's designee may issue in writing and
cause to be served a subpoena--
``(A) requiring the production of any records (including any
books, papers, documents, electronic media, or other objects or
tangible things), which may be relevant to an authorized law
enforcement inquiry, that a person or legal entity may possess or
have care, custody, or control; or
``(B) requiring a custodian of records to give testimony
concerning the production and authentication of such records.
``(2) A subpoena under this subsection shall describe the objects
required to be produced and prescribe a return date within a reasonable
period of time within which the objects can be assembled and made
available.
``(3) The production of records shall not be required under this
section at any place more than 500 miles distant from the place where
the subpoena for the production of such records is served.
``(4) Witnesses summoned under this section shall be paid the same
fees and mileage that are paid witnesses in the courts of the United
States.
``(b) Service.--A subpoena issued under this section may be served
by any person who is at least 18 years of age and is designated in the
subpoena to serve it. Service upon a natural person may be made by
personal delivery of the subpoena to him. Service may be made upon a
domestic or foreign corporation or upon a partnership or other
unincorporated association which is subject to suit under a common
name, by delivering the subpoena to an officer, to a managing or
general agent, or to any other agent authorized by appointment or by
law to receive service of process. The affidavit of the person serving
the subpoena entered on a true copy thereof by the person serving it
shall be proof of service.
``(c) Enforcement.--In the case of contumacy by or refusal to obey
a subpoena issued to any person, the Attorney General may invoke the
aid of any court of the United States within the jurisdiction of which
the investigation is carried on or of which the subpoenaed person is an
inhabitant, or in which 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 concerning the
production and authentication of such records. Any failure to obey the
order of the court may be punished by the court as a contempt thereof.
All process in any such case may be served in any judicial district in
which such person may be found.
``(d) Immunity From Civil Liability.--Notwithstanding any Federal,
State, or local law, any person, including officers, agents, and
employees, receiving a summons under this section, who 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 after all restoration payments (if
any) have 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.
(3) Restoration payment.--Notwithstanding any other provision
of law, if the Federal health care offense referred to in paragraph
(1) resulted in a loss to an employee welfare benefit plan within
the meaning of section 3(1) of the Employee Retirement Income
Security Act of 1974, the Secretary of the Treasury shall transfer
to such employee welfare benefit plan, from the amount realized
from the forfeiture of property referred to in paragraph (1), an
amount equal to such loss. For purposes of paragraph (1), the term
``restoration payment'' means the amount transferred to an employee
welfare benefit plan pursuant to this paragraph.
SEC. 250. RELATION TO ERISA AUTHORITY.
Nothing in this subtitle shall be construed as affecting the
authority of the Secretary of Labor under section 506(b) of the
Employee Retirement Income Security Act of 1974, including the
Secretary's authority with respect to violations of title 18, United
States Code (as amended by this subtitle).
Subtitle F--Administrative Simplification
SEC. 261. PURPOSE.
It is the purpose of this subtitle to improve the Medicare program
under title XVIII of the Social Security Act, the medicaid program
under title XIX of such Act, and the efficiency and 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. 262. ADMINISTRATIVE SIMPLIFICATION.
(a) In General.--Title XI (42 U.S.C. 1301 et seq.) is amended by
adding at the end the following:
``Part C--Administrative Simplification
``definitions
``Sec. 1171. For purposes of this part:
``(1) 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.
``(2) Health care clearinghouse.--The term `health care
clearinghouse' means a public or private entity that processes or
facilitates the processing of nonstandard data elements of health
information into standard data elements.
``(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 health care clearinghouse; and
``(B) relates to the past, present, or future physical or
mental health or condition of an individual, the provision of
health care to an individual, or the past, present, or future
payment for the provision of health care to an individual.
``(5) Health plan.--The term `health plan' means an individual
or group plan that provides, or pays the cost of, medical care (as
such term is defined in section 2791 of the Public Health Service
Act). Such term includes the following, and any combination
thereof:
``(A) A group health plan (as defined in section 2791(a) of
the Public Health Service Act), but only if the plan--
``(i) has 50 or more participants (as defined in
section 3(7) of the Employee Retirement Income Security Act
of 1974); or
``(ii) is administered by an entity other than the
employer who established and maintains the plan.
``(B) A health insurance issuer (as defined in section
2791(b) of the Public Health Service Act).
``(C) A health maintenance organization (as defined in
section 2791(b) of the Public Health Service Act).
``(D) Part A or part B of the Medicare program under title
XVIII.
``(E) The medicaid program under title XIX.
``(F) A Medicare supplemental policy (as defined in section
1882(g)(1)).
``(G) A long-term care policy, including a nursing home
fixed indemnity policy (unless the Secretary determines that
such a policy does not provide sufficiently comprehensive
coverage of a benefit so that the policy should be treated as a
health plan).
``(H) An employee welfare benefit plan or any other
arrangement which is established or maintained for the purpose
of offering or providing health benefits to the employees of 2
or more employers.
``(I) The health care program for active military personnel
under title 10, United States Code.
``(J) The veterans health care program under chapter 17 of
title 38, United States Code.
``(K) The Civilian Health and Medical Program of the
Uniformed Services (CHAMPUS), as defined in section 1072(4) of
title 10, United States Code.
``(L) The Indian health service program under the Indian
Health Care Improvement Act (25 U.S.C. 1601 et seq.).
``(M) The Federal Employees Health Benefit Plan under
chapter 89 of title 5, United States Code.
``(6) Individually identifiable health information.--The term
`individually identifiable health information' means any
information, including demographic information collected from an
individual, that--
``(A) is created or received by a health care provider,
health plan, employer, or health care clearinghouse; and
``(B) relates to the past, present, or future physical or
mental health or condition of an individual, the provision of
health care to an individual, or the past, present, or future
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 health care 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.
``(3) Consultation requirement.--
``(A) In general.--A standard may not be adopted under this
part unless--
``(i) in the case of a standard that has been
developed, adopted, or modified by a standard setting
organization, the organization consulted with each of the
organizations described in subparagraph (B) in the course
of such development, adoption, or modification; and
``(ii) in the case of any other standard, the
Secretary, in complying with the requirements of subsection
(f), consulted with each of the organizations described in
subparagraph (B) before adopting the standard.
``(B) Organizations described.--The organizations referred
to in subparagraph (A) are the following:
``(i) The National Uniform Billing Committee.
``(ii) The National Uniform Claim Committee.
``(iii) The Workgroup for Electronic Data Interchange.
``(iv) The American Dental Association.
``(d) Implementation Specifications.--The Secretary shall establish
specifications for implementing each of the standards adopted under
this part.
``(e) Protection of Trade Secrets.--Except as otherwise required by
law, a standard adopted under this part shall not require disclosure of
trade secrets or confidential commercial information by a person
required to comply with this part.
``(f) Assistance to the Secretary.--In complying with the
requirements of this part, the Secretary shall rely on the
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 transactions with respect to the following:
``(A) Health claims or equivalent encounter information.
``(B) Health claims attachments.
``(C) Enrollment and disenrollment in a health plan.
``(D) Eligibility for a health plan.
``(E) Health care payment and remittance advice.
``(F) Health plan premium payments.
``(G) First report of injury.
``(H) Health claim status.
``(I) Referral certification and authorization.
``(3) Accommodation of specific providers.--The standards
adopted by the Secretary under paragraph (1) shall accommodate the
needs of different types of health care 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
paragraph (1) shall specify the purposes for which a unique health
identifier may be used.
``(c) Code Sets.--
``(1) In general.--The Secretary shall adopt standards that--
``(A) select code sets for appropriate data elements for
the 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 health care clearinghouse, if it is
part of a larger organization, has policies and security
procedures which isolate the activities of the health care
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) Electronic Signature.--
``(1) 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).
``(2) Effect of compliance.--Compliance with the standards
adopted under paragraph (1) shall be deemed to satisfy Federal and
State statutory requirements for written signatures with respect to
the transactions referred to in subsection (a)(1).
``(f) Transfer of Information Among Health Plans.--The Secretary
shall adopt standards for transferring among health plans appropriate
standard data elements needed for the coordination of benefits, the
sequential processing of claims, and other data elements for
individuals who have more than one health plan.
``timetables for adoption of standards
``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 Insurance Portability and Accountability 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 12 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 health care
clearinghouse for processing into standard data elements and
transmission by the health care clearinghouse, and receiving
standard data elements through the health care clearinghouse.
``(3) Timetable for compliance.--Paragraph (1) shall not be
construed to require a health plan to comply with any standard,
implementation specification, or modification to a standard or
specification adopted or established by the 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.
``(3) Construction.--Nothing in this subsection shall be
construed to prohibit any person from complying with a standard or
specification by--
``(A) submitting nonstandard data elements to a health care
clearinghouse for processing into standard data elements and
transmission by the health care clearing- house; or
``(B) receiving standard data elements through a health
care clearinghouse.
``general penalty for failure to comply with requirements and
standards
``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, be 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) is a provision the Secretary determines--
``(i) is necessary--
``(I) to prevent fraud and abuse;
``(II) to ensure appropriate State regulation of
insurance and health plans;
``(III) for State reporting on health care delivery
or costs; or
``(IV) for other purposes; or
``(ii) addresses controlled substances; or
``(B) subject to section 264(c)(2) of the Health Insurance
Portability and Accountability Act of 1996, relates to the
privacy of individually identifiable health information.
``(b) Public Health.--Nothing in this part shall be construed to
invalidate or limit the authority, power, or procedures established
under any law providing for the reporting of disease or injury, child
abuse, birth, or death, public health surveillance, or public health
investigation or intervention.
``(c) State Regulatory Reporting.--Nothing in this part shall limit
the ability of a State to require a health plan to report, or to
provide access to, information for management audits, financial audits,
program monitoring and evaluation, facility licensure or certification,
or individual licensure or certification.
``processing payment transactions by financial institutions
``Sec. 1179. To the extent that an entity is engaged in activities
of a financial institution (as defined in section 1101 of the Right to
Financial Privacy Act of 1978), or is engaged in authorizing,
processing, clearing, settling, billing, transferring, reconciling, or
collecting payments, for a financial institution, this part, and any
standard adopted under this part, shall not apply to the entity with
respect to such activities, including the following:
``(1) The use or disclosure of information by the entity for
authorizing, processing, clearing, settling, billing, transferring,
reconciling or collecting, a payment for, or related to, health
plan premiums or health care, where such payment is made by any
means, including a credit, debit, or other payment card, an
account, check, or electronic funds transfer.
``(2) The request for, or the use or disclosure of, information
by the entity with respect to a payment described in para- graph
(1)--
``(A) for transferring receivables;
``(B) for auditing;
``(C) in connection with--
``(i) a customer dispute; or
``(ii) an inquiry from, or to, a customer;
``(D) in a communication to a customer of the entity
regarding the customer's transactions, payment card, account,
check, or electronic funds transfer;
``(E) for reporting to consumer reporting agencies; or
``(F) for complying with--
``(i) a civil or criminal subpoena; or
``(ii) a Federal or State law regulating the entity.''.
(b) Conforming Amendments.--
(1) Requirement for medicare providers.--Section 1866(a)(1) (42
U.S.C. 1395cc(a)(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 health care clearinghouse (as
defined in section 1171) that meets each standard and
implementation specification adopted or established under part C of
title XI on or after the date on which the health care
clearinghouse is required to comply with the standard or
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. 263. 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 Insurance Portability and
Accountability Act of 1996, by the Speaker of the House of
Representatives after consultation with the Minority Leader of the
House of Representatives;
``(B) 1 shall be appointed, not later than 60 days after the
date of the enactment of the Health Insurance Portability and
Accountability 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 Insurance Portability
and Accountability 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 Insurance Portability and Accountability Act of 1996, and
annually thereafter, the Committee shall submit to the Congress, and
make public, a report regarding the implementation of part C of title
XI of the Social Security Act. Such report shall address the following
subjects, to the extent that the Committee determines appropriate:
``(A) The extent to which persons required to comply with part
C of title XI of the Social Security Act are cooperating in
implementing the standards adopted under such part.
``(B) The extent to which such entities are meeting the
security standards adopted under such part and the types of
penalties assessed for noncompliance with such standards.
``(C) Whether the Federal and State Governments are receiving
information of sufficient quality to meet their responsibilities
under such part.
``(D) Any problems that exist with respect to implementation of
such part.
``(E) The extent to which timetables under such part are being
met.''.
SEC. 264. RECOMMENDATIONS WITH RESPECT TO PRIVACY OF CERTAIN HEALTH
INFORMATION.
(a) In General.--Not later than the date that is 12 months after
the date of the enactment of this Act, the Secretary of Health and
Human Services shall submit to the Committee on Labor and Human
Resources and the Committee on Finance of the Senate and the Committee
on Commerce and the Committee on Ways and Means of the House of
Representatives detailed recommendations on standards with respect to
the privacy of individually identifiable health information.
(b) Subjects for Recommendations.--The recommendations under
subsection (a) shall address at least the following:
(1) The rights that an individual who is a subject of
individually identifiable health information should have.
(2) The procedures that should be established for the exercise
of such rights.
(3) The uses and disclosures of such information that should be
authorized or required.
(c) Regulations.--
(1) In general.--If legislation governing standards with
respect to the privacy of individually identifiable health
information transmitted in connection with the transactions
described in section 1173(a) of the Social Security Act (as added
by section 262) is not enacted by the date that is 36 months after
the date of the enactment of this Act, the Secretary of Health and
Human Services shall promulgate final regulations containing such
standards not later than the date that is 42 months after the date
of the enactment of this Act. Such regulations shall address at
least the subjects described in subsection (b).
(2) Preemption.--A regulation promulgated under paragraph (1)
shall not supercede a contrary provision of State law, if the
provision of State law imposes requirements, standards, or
implementation specifications that are more stringent than the
requirements, standards, or implementation specifications imposed
under the regulation.
(d) Consultation.--In carrying out this section, the Secretary of
Health and Human Services shall consult with--
(1) the National Committee on Vital and Health Statistics
established under section 306(k) of the Public Health Service Act
(42 U.S.C. 242k(k)); and
(2) the Attorney General.
Subtitle G--Duplication and Coordination of Medicare-Related Plans
SEC. 271. DUPLICATION AND COORDINATION OF MEDICARE-RELATED PLANS.
(a) Treatment of Certain Health Insurance Policies as
Nonduplicative.--Section 1882(d)(3)(A) (42 U.S.C. 1395ss(d)(3)(A)) is
amended--
(1) in clause (iii), by striking ``clause (i)'' and inserting
``clause (i)(II)''; and
(2) by adding at the end the following:
``(iv) For purposes of this subparagraph, a health insurance policy
(other than a Medicare supplemental policy) providing for benefits
which are payable to or on behalf of an individual without regard to
other health benefit coverage of such individual is not considered to
`duplicate' any health benefits under this title, under title XIX, or
under a health insurance policy, and subclauses (I) and (III) of clause
(i) do not apply to such a policy.
``(v) For purposes of this subparagraph, a health insurance policy
(or a rider to an insurance contract which is not a health insurance
policy) is not considered to `duplicate' health benefits under this
title or under another health insurance policy if it--
``(I) provides health care benefits only for long-term care,
nursing home care, home health care, or community-based care, or
any combination thereof,
``(II) coordinates against or excludes items and services
available or paid for under this title or under another health
insurance policy, and
``(III) for policies sold or issued on or after the end of the
90-day period beginning on the date of enactment of the Health
Insurance Portability and Accountability Act of 1996 discloses such
coordination or exclusion in the policy's outline of coverage.
For purposes of this clause, the terms `coordinates' and `coordination'
mean, with respect to a policy in relation to health benefits under
this title or under another health insurance policy, that the policy
under its terms is secondary to, or excludes from payment, items and
services to the extent available or paid for under this title or under
another health insurance policy.
``(vi)(I) An individual entitled to benefits under part A or
enrolled under part B of this title who is applying for a health
insurance policy (other than a policy described in subclause (III))
shall be furnished a disclosure statement described in clause (vii) for
the type of policy being applied for. Such statement shall be furnished
as a part of (or together with) the application for such policy.
``(II) Whoever issues or sells a health insurance policy (other
than a policy described in subclause (III)) to an individual described
in subclause (I) and fails to furnish the appropriate disclosure
statement as required under such subclause shall be fined under title
18, United States Code, or imprisoned not more than 5 years, or both,
and, in addition to or in lieu of such a criminal penalty, is subject
to a civil money penalty of not to exceed $25,000 (or $15,000 in the
case of a person other than the issuer of the policy) for each such
violation.
``(III) A policy described in this subclause (to which subclauses
(I) and (II) do not apply) is a Medicare supplemental policy or a
health insurance policy identified under 60 Federal Register 30880
(June 12, 1995) as a policy not required to have a disclosure
statement.
``(IV) Any reference in this section to the revised NAIC model
regulation (referred to in subsection (m)(1)(A)) is deemed a reference
to such regulation as revised by section 171(m)(2) of the Social
Security Act Amendments of 1994 (Public Law 103-432) and as modified by
substituting, for the disclosure required under section 16D(2),
disclosure under subclause (I) of an appropriate disclosure statement
under clause (vii).
``(vii) The disclosure statement described in this clause for a
type of policy is the statement specified under subparagraph (D) of
this paragraph (as in effect before the date of the enactment of the
Health Insurance Portability and Accountability Act of 1996) for that
type of policy, as revised as follows:
``(I) In each statement, amend the second line to read as
follows:
`THIS IS NOT MEDICARE SUPPLEMENT INSURANCE'.
``(II) In each statement, strike the third line and insert the
following: `Some health care services paid for by Medicare may also
trigger the payment of benefits under this policy.'.
``(III) In each statement not described in subclause (V),
strike the boldface matter that begins `This insurance' and all
that follows up to the next paragraph that begins `Medicare'.
``(IV) In each statement not described in subclause (V), insert
before the boxed matter (that states `Before You Buy This
Insurance') the following: `This policy must pay benefits without
regard to other health benefit coverage to which you may be
entitled under Medicare or other insurance.'.
``(V) In a statement relating to policies providing both
nursing home and non-institutional coverage, to policies providing
nursing home benefits only, or policies providing home care
benefits only, amend the sentence that begins `Federal law' to read
as follows: `Federal law requires us to inform you that in certain
situations this insurance may pay for some care also covered by
Medicare.'.
``(viii)(I) Subject to subclause (II), nothing in this subparagraph
shall restrict or preclude a State's ability to regulate health
insurance policies, including any health insurance policy that is
described in clause (iv), (v), or (vi)(III).
``(II) A State may not declare or specify, in statute, regulation,
or otherwise, that a health insurance policy (other than a Medicare
supplemental policy) or rider to an insurance contract which is not a
health insurance policy, that is described in clause (iv), (v), or
(vi)(III) and that is sold, issued, or renewed to an individual
entitled to benefits under part A or enrolled under part B `duplicates'
health benefits under this title or under a Medicare supplemental
policy.''.
(b) Conforming Amendments.--Section 1882(d)(3) (42 U.S.C.
1395ss(d)(3)) is amended--
(1) in subparagraph (C)--
(A) by striking ``with respect to (i)'' and inserting
``with respect to'', and
(B) by striking ``, (ii) the sale'' and all that follows up
to the period at the end; and
(2) by striking subparagraph (D).
(c) Transitional Provision.--
(1) No penalties.--Subject to paragraph (3), no criminal or
civil money penalty may be imposed under section 1882(d)(3)(A) of
the Social Security Act for any act or omission that occurred
during the transition period (as defined in paragraph (4)) and that
relates to any health insurance policy that is described in clause
(iv) or (v) of such section (as amended by subsection (a)).
(2) Limitation on legal action.--Subject to paragraph (3), no
legal action shall be brought or continued in any Federal or State
court insofar as such action--
(A) includes a cause of action which arose, or which is
based on or evidenced by any act or omission which occurred,
during the transition period; and
(B) relates to the application of section 1882(d)(3)(A) of
the Social Security Act to any act or omission with respect to
the sale, issuance, or renewal of any health insurance policy
that is described in clause (iv) or (v) of such section (as
amended by subsection (a)).
(3) Disclosure condition.--In the case of a policy described in
clause (iv) of section 1882(d)(3)(A) of the Social Security Act
that is sold or issued on or after the effective date of statements
under section 171(d)(3)(C) of the Social Security Act Amendments of
1994 and before the end of the 30-day period beginning on the date
of the enactment of this Act, paragraphs (1) and (2) shall only
apply if disclosure was made in accordance with section
1882(d)(3)(C)(ii) of the Social Security Act (as in effect before
the date of the enactment of this Act).
(4) Transition period.--In this subsection, the term
``transition period'' means the period beginning on November 5,
1991, and ending on the date of the enactment of this Act.
(d) Effective Date.--(1) Except as provided in this subsection, the
amendment made by subsection (a) shall be effective as if included in
the enactment of section 4354 of the Omnibus Budget Reconciliation Act
of 1990.
(2)(A) Clause (vi) of section 1882(d)(3)(A) of the Social Security
Act, as added by subsection (a), shall only apply to individuals
applying for--
(i) a health insurance policy described in section
1882(d)(3)(A)(iv) of such Act (as added by subsection (a)), after
the date of the enactment of this Act, or
(ii) another health insurance policy after the end of the 30-
day period beginning on the date of the enactment of this Act.
(B) A seller or issuer of a health insurance policy may substitute,
for the disclosure statement described in clause (vii) of such section,
the statement specified under section 1882(d)(3)(D) of the Social
Security Act (as in effect before the date of the enactment of this
Act), without the revision specified in such clause.
TITLE III--TAX-RELATED HEALTH PROVISIONS
SEC. 300. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in this title an
amendment or repeal is expressed in terms of an amendment to, or repeal
of, a section or other provision, the reference shall be considered to
be made to a section or other provision of the Internal Revenue Code of
1986.
Subtitle A--Medical Savings Accounts
SEC. 301. MEDICAL SAVINGS ACCOUNTS.
(a) In General.--Part VII of subchapter B of chapter 1 (relating to
additional itemized deductions for individuals) is amended by
redesignating section 220 as section 221 and by inserting after section
219 the following new section:
``SEC. 220. MEDICAL SAVINGS ACCOUNTS.
``(a) Deduction Allowed.--In the case of an individual who is an
eligible individual for any month during the taxable year, there shall
be allowed as a deduction for the taxable year an amount equal to the
aggregate amount paid in cash during such taxable year by such
individual to a medical savings account of such individual.
``(b) Limitations.--
``(1) In general.--The amount allowable as a deduction under
subsection (a) to an individual for the taxable year shall not
exceed the sum of the monthly limitations for months during such
taxable year that the individual is an eligible individual.
``(2) Monthly limitation.--The monthly limitation for any month
is the amount equal to \1/12\ of--
``(A) in the case of an individual who has self-only
coverage under the high deductible health plan as of the first
day of such month, 65 percent of the annual deductible under
such coverage, and
``(B) in the case of an individual who has family coverage
under the high deductible health plan as of the first day of
such month, 75 percent of the annual deductible under such
coverage.
``(3) Special rule for married individuals.--In the case of
individuals who are married to each other, if either spouse has
family coverage--
``(A) both spouses shall be treated as having only such
family coverage (and if such spouses each have family coverage
under different plans, as having the family coverage with the
lowest annual deductible), and
``(B) the limitation under paragraph (1) (after the
application of subparagraph (A) of this paragraph) shall be
divided equally between them unless they agree on a different
division.
``(4) Deduction not to exceed compensation.--
``(A) Employees.--The deduction allowed under subsection
(a) for contributions as an eligible individual described in
subclause (I) of subsection (c)(1)(A)(iii) shall not exceed
such individual's wages, salaries, tips, and other employee
compensation which are attributable to such individual's
employment by the employer referred to in such subclause.
``(B) Self-employed individuals.--The deduction allowed
under subsection (a) for contributions as an eligible
individual described in subclause (II) of subsection
(c)(1)(A)(iii) shall not exceed such individual's earned income
(as defined in section 401(c)(1)) derived by the taxpayer from
the trade or business with respect to which the high deductible
health plan is established.
``(C) Community property laws not to apply.--The
limitations under this paragraph shall be determined without
regard to community property laws.
``(5) 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 contributed to any medical savings
account of such individual for such year which is excludable
from gross income under section 106(b), or
``(B) if such individual's spouse is covered under the high
deductible health plan covering such individual, any amount is
contributed for such year to any medical savings account of
such spouse which is so excludable.
``(6) Denial of deduction to dependents.--No deduction 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 if--
``(i) such individual is covered under a high
deductible health plan as of the 1st day of such month,
``(ii) such individual is not, while covered under a
high deductible health plan, covered under any health
plan--
``(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,
and
``(iii)(I) the high deductible health plan covering
such individual is established and maintained by the
employer of such individual or of the spouse of such
individual and such employer is a small employer, or
``(II) such individual is an employee (within the
meaning of section 401(c)(1)) or the spouse of such an
employee and the high deductible health plan covering such
individual is not established or maintained by any employer
of such individual or spouse.
``(B) Certain coverage disregarded.--Subparagraph (A)(ii)
shall be applied without regard to--
``(i) coverage for any benefit provided by permitted
insurance, and
``(ii) coverage (whether through insurance or
otherwise) for accidents, disability, dental care, vision
care, or long-term care.
``(C) Continued eligibility of employee and spouse
establishing medical savings accounts.--If, while an employer
is a small employer--
``(i) any amount is contributed to a medical savings
account of an individual who is an employee of such
employer or the spouse of such an employee, and
``(ii) such amount is excludable from gross income
under section 106(b) or allowable as a deduction under this
section,
such individual shall not cease to meet the requirement of
subparagraph (A)(iii)(I) by reason of such employer ceasing to
be a small employer so long as such employee continues to be an
employee of such employer.
``(D) Limitations on eligibility.--
``For limitations on number of taxpayers who are eligible to
have medical savings accounts, see subsection (i).
``(2) High deductible health plan.--
``(A) In general.--The term `high deductible health plan'
means a health plan--
``(i) in the case of self-only coverage, which has an
annual deductible which is not less than $1,500 and not
more than $2,250,
``(ii) in the case of family coverage, which has an
annual deductible which is not less than $3,000 and not
more than $4,500, and
``(iii) the annual out-of-pocket expenses required to
be paid under the plan (other than for premiums) for
covered benefits does not exceed--
``(I) $3,000 for self-only coverage, and
``(II) $5,500 for family coverage.
``(B) Special rules.--
``(i) Exclusion of certain plans.--Such term does not
include a health plan if substantially all of its coverage
is coverage described in paragraph (1)(B).
``(ii) Safe harbor for absence of preventive care
deductible.--A plan shall not fail to be treated as a high
deductible health plan by reason of failing to have a
deductible for preventive care if the absence of a
deductible for such care is required by State law.
``(3) Permitted insurance.--The term `permitted 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.
``(4) Small employer.--
``(A) In general.--The term `small employer' means, with
respect to any calendar year, any employer if such employer
employed an average of 50 or fewer employees on business days
during either of the 2 preceding calendar years. For purposes
of the preceding sentence, a preceding calendar year may be
taken into account only if the employer was in existence
throughout such year.
``(B) Employers not in existence in preceding year.--In the
case of an employer which was not in existence throughout the
1st preceding calendar year, the determination under
subparagraph (A) shall be based on the average number of
employees that it is reasonably expected such employer will
employ on business days in the current calendar year.
``(C) Certain growing employers retain treatment as small
employer.--The term `small employer' includes, with respect to
any calendar year, any employer if--
``(i) such employer met the requirement of subparagraph
(A) (determined without regard to subparagraph (B)) for any
preceding calendar year after 1996,
``(ii) any amount was contributed to the medical
savings account of any employee of such employer with
respect to coverage of such employee under a high
deductible health plan of such employer during such
preceding calendar year and such amount was excludable from
gross income under section 106(b) or allowable as a
deduction under this section, and
``(iii) such employer employed an average of 200 or
fewer employees on business days during each preceding
calendar year after 1996.
``(D) Special rules.--
``(i) Controlled groups.--For purposes of this
paragraph, all persons treated as a single employer under
subsection (b), (c), (m), or (o) of section 414 shall be
treated as 1 employer.
``(ii) Predecessors.--Any reference in this paragraph
to an employer shall include a reference to any predecessor
of such employer.
``(5) Family coverage.--The term `family coverage' means
any coverage other than self-only coverage.
``(d) Medical Savings Account.--For purposes of this section--
``(1) Medical savings account.--The term `medical 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 75 percent of the highest annual limit deductible
permitted under subsection (c)(2)(A)(ii) for such calendar
year.
``(B) The trustee is a bank (as defined in section 408(n)),
an insurance company (as defined in section 816), or another
person who demonstrates to the satisfaction of the Secretary
that the manner in which such person will administer the trust
will be consistent with the 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.
``(C) Medical expenses of individuals who are not eligible
individuals.--Subparagraph (A) shall apply to an amount paid by
an account holder for medical care of an individual who is not
an eligible individual for the month in which the expense for
such care is incurred only if no amount is contributed (other
than a rollover contribution) to any medical savings account of
such account holder for the taxable year which includes such
month. This subparagraph shall not apply to any expense for
coverage described in subclause (I) or (III) of subparagraph
(B)(ii).
``(3) Account holder.--The term `account holder' means the
individual on whose behalf the medical savings account was
established.
``(4) Certain rules to apply.--Rules similar to the 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. 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.--Any amount
paid or distributed out of a medical savings account which is used
exclusively to pay qualified medical expenses of any account holder
shall not be includible in gross income.
``(2) Inclusion of amounts not used for qualified medical
expenses.--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 shall be included in the gross
income of such holder.
``(3) Excess contributions returned before due date of
return.--
``(A) In general.--If any excess contribution is
contributed for a taxable year to any medical savings account
of an individual, paragraph (2) shall not apply to
distributions from the medical savings accounts of such
individual (to the extent such distributions do not exceed the
aggregate excess contributions to all such accounts of such
individual for such year) if--
``(i) such distribution is received by the individual
on or before the last day prescribed by law (including
extensions of time) for filing such individual's return for
such taxable year, and
``(ii) such distribution is accompanied by the amount
of net income attributable to such excess contribution.
Any net income described in clause (ii) shall be included in
the gross income of the individual for the taxable year in
which it is received.
``(B) Excess contribution.--For purposes of subparagraph
(A), the term `excess contribution' means any contribution
(other than a rollover contribution) which is neither
excludable from gross income under section 106(b) nor
deductible under this section.
``(4) Additional tax on 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 15 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 medicare
eligibility.--Subparagraph (A) shall not apply to any payment
or distribution after the date on which the account holder
attains the age specified in section 1811 of the Social
Security Act.
``(5) Rollover contribution.--An amount is described in this
paragraph as a rollover contribution if it meets the 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 such spouse is the account
holder.
``(8) Treatment after death of account holder.--
``(A) Treatment if designated beneficiary is spouse.--If
the account holder's surviving spouse acquires such holder's
interest in a medical savings account by reason of being the
designated beneficiary of such account at the death of the
account holder, such medical savings account shall be treated
as if the spouse were the account holder.
``(B) Other cases.--
``(i) In general.--If, by reason of the death of the
account holder, any person acquires the account holder's
interest in a medical savings account in a case to which
subparagraph (A) does not apply--
``(I) such account shall cease to be a medical
savings account as of the date of death, and
``(II) an 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.
``(ii) Special rules.--
``(I) Reduction of inclusion for pre-death
expenses.--The amount includible in gross income under
clause (i) by any person (other than the estate) shall
be reduced by the amount of qualified medical expenses
which were incurred by the decedent before the date of
the decedent's death and paid by such person within 1
year after such date.
``(II) Deduction for estate taxes.--An appropriate
deduction shall be allowed under section 691(c) to any
person (other than the decedent or the decedent's
spouse) with respect to amounts included in gross
income under clause (i) by such person.
``(g) Cost-of-Living Adjustment.--In the case of any taxable year
beginning in a calendar year after 1998, each dollar amount in
subsection (c)(2) shall be increased by an amount equal to--
``(1) such dollar amount, multiplied by
``(2) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which such taxable year begins by
substituting `calendar year 1997' for `calendar year 1992' in
subparagraph (B) thereof.
If any increase under the preceding sentence is not a multiple of $50,
such increase shall be rounded to the nearest multiple of $50.
``(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 the Secretary.
``(i) Limitation on Number of Taxpayers Having Medical Savings
Accounts.--
``(1) In general.--Except as provided in paragraph (5), no
individual shall be treated as an eligible individual for any
taxable year beginning after the cut-off year unless--
``(A) such individual was an active MSA participant for any
taxable year ending on or before the close of the cut-off year,
or
``(B) such individual first became an active MSA
participant for a taxable year ending after the cut-off year by
reason of coverage under a high deductible health plan of an
MSA-participating employer.
``(2) Cut-off year.--For purposes of paragraph (1), the term
`cut-off year' means the earlier of--
``(A) calendar year 2000, or
``(B) the first calendar year before 2000 for which the
Secretary determines under subsection (j) that the numerical
limitation for such year has been exceeded.
``(3) Active msa participant.--For purposes of this
subsection--
``(A) In general.--The term `active MSA participant' means,
with respect to any taxable year, any individual who is the
account holder of any medical savings account into which any
contribution was made which was excludable from gross income
under section 106(b), or allowable as a deduction under this
section, for such taxable year.
``(B) Special rule for cut-off years before 2000.--In the
case of a cut-off year before 2000--
``(i) an individual shall not be treated as an eligible
individual for any month of such year or an active MSA
participant under paragraph (1)(A) unless such individual
is, on or before the cut-off date, covered under a high
deductible health plan, and
``(ii) an employer shall not be treated as an MSA-
participating employer unless the employer, on or before
the cut-off date, offered coverage under a high deductible
health plan to any employee.
``(C) Cut-off date.--For purposes of subpara- graph (B)--
``(i) In general.--Except as otherwise provided in this
subparagraph, the cut-off date is October 1 of the cut-off
year.
``(ii) Employees with enrollment periods after october
1.--In the case of an individual described in subclause (I)
of subsection (c)(1)(A)(iii), if the regularly scheduled
enrollment period for health plans of the individual's
employer occurs during the last 3 months of the cut-off
year, the cut-off date is December 31 of the cut-off year.
``(iii) Self-employed individuals.--In the case of an
individual described in subclause (II) of subsection
(c)(1)(A)(iii), the cut-off date is November 1 of the cut-
off year.
``(iv) Special rules for 1997.--If 1997 is a cut-off
year by reason of subsection (j)(1)(A)--
``(I) each of the cut-off dates under clauses (i)
and (iii) shall be 1 month earlier than the date
determined without regard to this clause, and
``(II) clause (ii) shall be applied by substituting
`4 months' for `3 months'.
``(4) MSA-participating employer.--For purposes of this
subsection, the term `MSA-participating employer' means any small
employer if--
``(A) such employer made any contribution to the medical
savings account of any employee during the cut-off year or any
preceding calendar year which was excludable from gross income
under section 106(b), or
``(B) at least 20 percent of the employees of such employer
who are eligible individuals for any month of the cut-off year
by reason of coverage under a high deductible health plan of
such employer each made a contribution of at least $100 to
their medical savings accounts for any taxable year ending with
or within the cut-off year which was allowable as a deduction
under this section.
``(5) Additional eligibility after cut-off year.--If the
Secretary determines under subsection (j)(2)(A) that the numerical
limit for the calendar year following a cut-off year described in
paragraph (2)(B) has not been exceeded--
``(A) this subsection shall not apply to any otherwise
eligible individual who is covered under a high deductible
health plan during the first 6 months of the second calendar
year following the cut-off year (and such individual shall be
treated as an active MSA participant for purposes of this
subsection if a contribution is made to any medical savings
account with respect to such coverage), and
``(B) any employer who offers coverage under a high
deductible health plan to any employee during such 6-month
period shall be treated as an MSA-participating employer for
purposes of this subsection if the requirements of paragraph
(4) are met with respect to such coverage.
For purposes of this paragraph, subsection (j)(2)(A) shall be
applied for 1998 by substituting `750,000' for `600,000'.
``(j) Determination of Whether Numerical Limits Are Exceeded.--
``(1) Determination of whether limit exceeded for 1997.--The
numerical limitation for 1997 is exceeded if, based on the reports
required under paragraph (4), the number of medical savings
accounts established as of--
``(A) April 30, 1997, exceeds 375,000, or
``(B) June 30, 1997, exceeds 525,000.
``(2) Determination of whether limit exceeded for 1998 or
1999.--
``(A) In general.--The numerical limitation for 1998 or
1999 is exceeded if the sum of--
``(i) the number of MSA returns filed on or before
April 15 of such calendar year for taxable years ending
with or within the preceding calendar year, plus
``(ii) the Secretary's estimate (determined on the
basis of the returns described in clause (i)) of the number
of MSA returns for such taxable years which will be filed
after such date,
exceeds 600,000 (750,000 in the case of 1999). For purposes of
the preceding sentence, the term `MSA return' means any return
on which any exclusion is claimed under section 106(b) or any
deduction is claimed under this section.
``(B) Alternative computation of limitation.--The numerical
limitation for 1998 or 1999 is also exceeded if the sum of--
``(i) 90 percent of the sum determined under
subparagraph (A) for such calendar year, plus
``(ii) the product of 2.5 and the number of medical
savings accounts established during the portion of such
year preceding July 1 (based on the reports required under
paragraph (4)) for taxable years beginning in such year,
exceeds 750,000.
``(3) Previously uninsured individuals not included in
determination.--
``(A) In general.--The determination of whether any
calendar year is a cut-off year shall be made by not counting
the medical savings account of any previously uninsured
individual.
``(B) Previously uninsured individual.--For purposes of
this subsection, the term `previously uninsured individual'
means, with respect to any medical savings account, any
individual who had no health plan coverage (other than coverage
referred to in subsection (c)(1)(B)) at any time during the 6-
month period before the date such individual's coverage under
the high deductible health plan commences.
``(4) Reporting by msa trustees.--
``(A) In general.--Not later than August 1 of 1997, 1998,
and 1999, each person who is the trustee of a medical savings
account established before July 1 of such calendar year shall
make a report to the Secretary (in such form and manner as the
Secretary shall specify) which specifies--
``(i) the number of medical savings accounts
established before such July 1 (for taxable years beginning
in such calendar year) of which such person is the trustee,
``(ii) the name and TIN of the account holder of each
such account, and
``(iii) the number of such accounts which are accounts
of previously uninsured individuals.
``(B) Additional report for 1997.--Not later than June 1,
1997, each person who is the trustee of a medical savings
account established before May 1, 1997, shall make an
additional report described in subparagraph (A) but only with
respect to accounts established before May 1, 1997.
``(C) Penalty for failure to file report.--The penalty
provided in section 6693(a) shall apply to any report required
by this paragraph, except that--
``(i) such section shall be applied by substituting
`$25' for `$50', and
``(ii) the maximum penalty imposed on any trustee shall
not exceed $5,000.
``(D) Aggregation of accounts.--To the extent practicable,
in determining the number of medical savings accounts on the
basis of the reports under this paragraph, all medical savings
accounts of an individual shall be treated as 1 account and all
accounts of individuals who are married to each other shall be
treated as 1 account.
``(5) Date of making determinations.--Any determination under
this subsection that a calendar year is a cut-off year shall be
made by the Secretary and shall be published not later than October
1 of such year.''.
(b) Deduction Allowed Whether or Not Individual Itemizes Other
Deductions.--Subsection (a) of section 62 is amended by inserting after
paragraph (15) the following new 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, amounts contributed by such employee's
employer to any medical savings account of such employee shall be
treated as employer-provided coverage for medical expenses under an
accident or health plan to the extent such amounts do not exceed
the limitation under section 220(b)(1) (determined without regard
to this subsection) which is applicable to such employee for such
taxable year.
``(2) No constructive receipt.--No 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.
``(3) 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.
``(4) Employer msa contributions required to be shown on
return.--Every individual required to file a return under section
6012 for the taxable year shall include on such return the
aggregate amount contributed by employers to the medical savings
accounts of such individual or such individual's spouse for such
taxable year.
``(5) MSA contributions not part of cobra coverage.--Paragraph
(1) shall not apply for purposes of section 4980B.
``(6) 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.
``(7) Cross reference.--
``For penalty on failure by employer to make comparable
contributions to the medical savings accounts of comparable
employees, see section 4980E.''.
(2) Exclusion from employment taxes.--
(A) 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).''.
(B) Unemployment tax.--Subsection (b) of section 3306 is
amended by striking ``or'' at the end of paragraph (15), by
striking the period at the end of paragraph (16) and inserting
``; or'', and by inserting after paragraph (16) the following
new paragraph:
``(17) any 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) 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).''
(3) Employer contributions required to be shown on w-2.--
Subsection (a) of section 6051 is amended by striking ``and'' at
the end of paragraph (9), by striking the period at the end of
paragraph (10) and inserting ``, and'', and by inserting after
paragraph (10) the following new paragraph:
``(11) the amount contributed to any medical savings account
(as defined in section 220(d)) of such employee or such employee's
spouse.''.
(4) Penalty for failure of employer to make comparable msa
contributions.--
(A) In general.--Chapter 43 is amended by adding after
section 4980D the following new section:
``SEC. 4980E. FAILURE OF EMPLOYER TO MAKE COMPARABLE MEDICAL SAVINGS
ACCOUNT CONTRIBUTIONS.
``(a) General Rule.--In the case of an employer who makes a
contribution to the medical savings account of any employee with
respect to coverage under a high deductible health plan of the employer
during a calendar year, there is hereby imposed a tax on the failure of
such employer to meet the requirements of subsection (d) for such
calendar year.
``(b) Amount of Tax.--The amount of the tax imposed by subsection
(a) on any failure for any calendar year is the amount equal to 35
percent of the aggregate amount contributed by the employer to medical
savings accounts of employees for taxable years of such employees
ending with or within such calendar year.
``(c) Waiver by Secretary.--In the case of a failure which is due
to reasonable cause and not to willful neglect, the Secretary may waive
part or all of the tax imposed by subsection (a) to the extent that the
payment of such tax would be excessive relative to the failure
involved.
``(d) Employer Required To Make Comparable MSA Contributions for
All Participating Employees.--
``(1) In general.--An employer meets the requirements of this
subsection for any calendar year if the employer makes available
comparable contributions to the medical savings accounts of all
comparable participating employees for each coverage period during
such calendar year.
``(2) Comparable contributions.--
``(A) In general.--For purposes of paragraph (1), the term
`comparable contributions' means contributions--
``(i) which are the same amount, or
``(ii) which are the same percentage of the annual
deductible limit under the high deductible health plan
covering the employees.
``(B) Part-year employees.--In the case of an employee who
is employed by the employer for only a portion of the calendar
year, a contribution to the medical savings account of such
employee shall be treated as comparable if it is an amount
which bears the same ratio to the comparable amount (determined
without regard to this subparagraph) as such portion bears to
the entire calendar year.
``(3) Comparable participating employees.--For purposes of
paragraph (1), the term `comparable participating employees' means
all employees--
``(A) who are eligible individuals covered under any high
deductible health plan of the employer, and
``(B) who have the same category of coverage.
For purposes of subparagraph (B), the categories of coverage are
self-only and family coverage.
``(4) Part-time employees.--
``(A) In general.--Paragraph (3) shall be applied
separately with respect to part-time employees and other
employees.
``(B) Part-time employee.--For purposes of subparagraph
(A), the term `part-time employee' means any employee who is
customarily employed for fewer than 30 hours per week.
``(e) Controlled Groups.--For purposes of this section, all persons
treated as a single employer under subsection (b), (c), (m), or (o) of
section 414 shall be treated as 1 employer.
``(f) Definitions.--Terms used in this section which are also used
in section 220 have the respective meanings given such terms in section
220.''.
(B) Clerical amendment.--The table of sections for chapter
43 is amended by adding after the item relating to section
4980D the following new item:
``Sec. 4980E. Failure of employer to make comparable medical savings
account contributions.''.
(d) Medical Savings Account Contributions Not Available Under
Cafeteria Plans.--Subsection (f) of section 125 of such Code is amended
by inserting ``106(b),'' before ``117''.
(e) Tax on Excess Contributions.--Section 4973 (relating to tax on
excess contributions to individual retirement accounts, certain section
403(b) contracts, and certain 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 sub-
section (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 medical savings accounts
(within the meaning of section 220(d)), the term `excess contributions'
means the sum of--
``(1) the aggregate amount contributed for the taxable year to
the accounts (other than rollover contributions described in
section 220(f)(5)) which is neither excludable from gross income
under section 106(b) nor allowable as a deduction under section 220
for such year, and
``(2) the amount determined under this subsection for the
preceding taxable year, reduced by the sum of--
``(A) the distributions out of the accounts which were
included in gross income under section 220(f)(2), and
``(B) the excess (if any) of--
``(i) the maximum amount allowable as a deduction under
section 220(b)(1) (determined without regard to section
106(b)) for the taxable year, over
``(ii) the amount contributed to the accounts for the
taxable year.
For purposes of this subsection, any contribution which is 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.''.
(f) 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.''.
(g) Failure To Provide Reports on Medical Savings Accounts.--
(1) Subsection (a) of section 6693 (relating to failure to
provide reports on individual retirement accounts or annuities) is
amended to read as follows:
``(a) Reports.--
``(1) In general.--If a person required to file a report under
a provision referred to in paragraph (2) fails to file such report
at the time and in the manner required by such provision, such
person shall pay a penalty of $50 for each failure unless it is
shown that such failure is due to reasonable cause.
``(2) Provisions.--The provisions referred to in this 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).''.
(h) 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)).''.
(i) Clerical Amendment.--The table of sections for part VII of
subchapter B of chapter 1 is amended by striking the last item and
inserting the following:
``Sec. 220. Medical savings accounts.
``Sec. 221. Cross reference.''.
(j) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1996.
(k) Monitoring of Participation in Medical Savings Accounts.--The
Secretary of the Treasury or his delegate shall--
(1) during 1997, 1998, 1999, and 2000, regularly evaluate the
number of individuals who are maintaining medical savings accounts
and the reduction in revenues to the United States by reason of
such accounts, and
(2) provide such reports of such evaluations to Congress as
such Secretary determines appropriate.
(l) Study of Effects of Medical Savings Accounts on Small Group
Market.--The Comptroller General of the United States shall enter into
a contract with an organization with expertise in health economics,
health insurance markets, and actuarial science to conduct a
comprehensive study regarding the effects of medical savings accounts
in the small group market on--
(1) selection, including adverse selection,
(2) health costs, including any impact on premiums of
individuals with comprehensive coverage,
(3) use of preventive care,
(4) consumer choice,
(5) the scope of coverage of high deductible plans purchased in
conjunction with such accounts, and
(6) other relevant items.
A report on the results of the study conducted under this subsection
shall be submitted to the Congress no later than January 1, 1999.
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 in calendar year--
The applicable percentage is--
1997....................................
40 percent
1998 through 2002.......................
45 percent
2003....................................
50 percent
2004....................................
60 percent
2005....................................
70 percent
2006 or thereafter......................
80 percent.''.
(b) Exclusion for Amounts Received Under Certain Self-Insured
Plans.--Paragraph (3) of section 104(a) is amended by inserting ``(or
through an arrangement having the effect of accident or health
insurance)'' after ``health insurance''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1996.
Subtitle C--Long-Term Care Services and Contracts
PART I--GENERAL PROVISIONS
SEC. 321. TREATMENT OF LONG-TERM CARE INSURANCE.
(a) General Rule.--Chapter 79 (relating to definitions) is amended
by inserting after section 7702A the following new section:
``SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE 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
(g).
``(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 under regulations prescribed by the Secretary in
consultation with the Secretary of Health and Human
Services) to the level of disability described in clause
(i), or
``(iii) requiring substantial supervision to protect
such individual from threats to health and safety due to
severe cognitive impairment.
Such term shall not include any individual otherwise 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.
A contract shall not be treated as a qualified long-term care
insurance contract unless the determination of whether an
individual is a chronically ill individual takes into account
at least 5 of such activities.
``(3) Maintenance or personal care services.--The term
`maintenance or personal care services' means any care the primary
purpose of which is the provision of needed assistance with any of
the disabilities as a result of which the individual is a
chronically ill individual (including the protection from threats
to health and safety due to severe cognitive 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 of--
``(A) the periodic payments received for any period under
all qualified long-term care insurance contracts which are
treated as made for qualified long-term care services for an
insured, and
``(B) the periodic payments received for such period which
are treated under section 101(g) as paid by reason of the death
of such insured,
exceeds the per diem limitation for such period, such excess shall
be includible in gross income without regard to section 72. A
payment shall not be taken into account under subparagraph (B) if
the insured is a terminally ill individual (as defined in section
101(g)) at the time the payment is received.
``(2) Per diem limitation.--For purposes of paragraph (1), the
per diem limitation for any period is an amount equal to the excess
(if any) of--
``(A) the greater of--
``(i) the dollar amount in effect for such period under
paragraph (4), or
``(ii) the costs incurred for qualified long-term care
services provided for the insured for such period, over
``(B) the aggregate payments received as reimbursements
(through insurance or otherwise) for qualified long-term care
services provided for the insured during such period.
``(3) Aggregation rules.--For purposes of this subsection--
``(A) all persons receiving periodic payments described in
paragraph (1) with respect to the same insured shall be treated
as 1 person, and
``(B) the per diem limitation determined under paragraph
(2) shall be allocated first to the insured and any remaining
limitation shall be allocated among the other such persons in
such manner as the Secretary shall prescribe.
``(4) Dollar amount.--The dollar amount in effect under this
subsection shall be $175 per day (or the equivalent amount in the
case of payments on another periodic basis).
``(5) Inflation adjustment.--In the case of a calendar year
after 1997, the dollar amount contained in paragraph (4) shall be
increased at the same time and in the same manner as amounts are
increased pursuant to section 213(d)(10).
``(6) Periodic payments.--For purposes of this subsection, the
term `periodic 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.
``(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 long-term care insurance
coverage.
``(f) Treatment of Certain State-Maintained Plans.--
``(1) In general.--If--
``(A) an individual receives coverage for qualified long-
term care services under a State long-term care plan, and
``(B) the terms of such plan would satisfy the requirements
of subsection (b) were such plan an insurance contract,
such plan shall be treated as a qualified long-term care insurance
contract for purposes of this title.
``(2) State long-term care plan.--For purposes of paragraph
(1), the term `State long-term care plan' means any plan--
``(A) which is established and maintained by a State or an
instrumentality of a State,
``(B) which provides coverage only for qualified long-term
care services, and
``(C) under which such coverage is provided only to--
``(i) employees and former employees of a State (or any
political subdivision or instrumentality of a State),
``(ii) the spouses of such employees, and
``(iii) individuals bearing a relationship to such
employees or spouses which is described in any of
paragraphs (1) through (8) of section 152(a).''.
(b) Reserve Method.--Clause (iii) of section 807(d)(3)(A) is
amended by inserting ``(other than a qualified long-term care insurance
contract, as defined in section 7702B(b))'' after ``insurance
contract''.
(c) 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 product which is advertised, marketed, or offered as long-term
care insurance.''.
(2) Flexible spending arrangements.--Section 106 (relating to
contributions by employer to accident and health plans), as amended
by section 301(c), is amended by adding at the end the following
new subsection:
``(c) Inclusion of Long-Term Care Benefits Provided Through
Flexible Spending Arrangements.--
``(1) In general.--Effective on and after January 1, 1997,
gross income of an employee shall include employer-provided
coverage for qualified long-term care services (as defined in
section 7702B(c)) to the extent that such coverage is provided
through a flexible spending or similar arrangement.
``(2) Flexible spending arrangement.--For purposes of this
subsection, a flexible spending arrangement is a benefit 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.''
(d) Continuation Coverage Rules Not To Apply.--
(1) Paragraph (2) of section 4980B(g) is amended by adding at
the end the following new sentence: ``Such term shall not include
any plan substantially all of the coverage under which is for
qualified long-term care services (as defined in section
7702B(c)).''
(2) Paragraph (1) of section 607 of the Employee Retirement
Income Security Act of 1974 is amended by adding at the end the
following new sentence: ``Such term shall not include any plan
substantially all of the coverage under which is for qualified
long-term care services (as defined in section 7702B(c) of such
Code).''
(3) Paragraph (1) of section 2208 of the Public Health Service
Act is amended by adding at the end the following new sentence:
``Such term shall not include any plan substantially all of the
coverage under which is for qualified long-term care services (as
defined in section 7702B(c) of such Code).''
(e) Clerical Amendment.--The table of sections for chapter 79 is
amended by inserting after the item relating to section 7702A the
following new item:
``Sec. 7702B. Treatment of qualified long-term care insurance.''.
(f) Effective Dates.--
(1) General effective date.--
(A) In general.--Except as provided in subparagraph (B),
the amendments made by this section shall apply to contracts
issued after December 31, 1996.
(B) Reserve method.--The amendment made by subsection (b)
shall apply to contracts issued after December 31, 1997.
(2) Continuation of existing policies.--In the case of any
contract issued before January 1, 1997, which met the long-term
care insurance requirements of the State in which the contract was
sitused at the time the contract was issued--
(A) such contract shall be treated for purposes of the
Internal Revenue Code of 1986 as a qualified long-term care
insurance contract (as defined in section 7702B(b) of such
Code), and
(B) services provided under, or reimbursed by, such
contract shall be treated for such purposes as qualified long-
term care services (as defined in section 7702B(c) of such
Code).
In the case of an individual who is covered on December 31, 1996,
under a State long-term care plan (as defined in section
7702B(f)(2) of such Code), the terms of such plan on such date
shall be treated for purposes of the preceding sentence as a
contract issued on such date which met the long-term care insurance
requirements of such State.
(3) Exchanges of existing policies.--If, after the date of
enactment of this Act and before January 1, 1998, a contract
providing for long-term care insurance coverage is exchanged solely
for a qualified long-term care insurancecontract (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.
(5) Application of per diem limitation to existing contracts.--
The amount of per diem payments made under a contract issued on or
before July 31, 1996, with respect to an insured which are
excludable from gross income by reason of section 7702B of the
Internal Revenue Code of 1986 (as added by this section) shall not
be reduced under subsection (d)(2)(B) thereof by reason of
reimbursements received under a contract issued on or before such
date. The preceding sentence shall cease to apply as of the date
(after July 31, 1996) such contract is exchanged or there is any
contract modification which results in an increase in the amount of
such per diem payments or the amount of such reimbursements.
(g) Long-Term Care Study Request.--The Chairman of the Committee on
Ways and Means of the House of Representatives and the Chairman of the
Committee on Finance of the Senate shall jointly request the National
Association of Insurance Commissioners, in consultation with
representatives of the insurance industry and consumer organizations,
to formulate, develop, and conduct a study to determine the marketing
and other effects of per diem limits on certain types of long-term care
policies. If the National Association of Insurance Commissioners agrees
to the study request, the National Association of Insurance
Commissioners shall report the results of its study to such committees
not later than 2 years after accepting the request.
SEC. 322. QUALIFIED LONG-TERM CARE SERVICES TREATED AS 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) Paragraph (2) of section 162(l) is amended by adding at the
end the following new subparagraph:
``(C) Long-term care premiums.--In the case of a qualified
long-term care insurance contract (as defined in section
7702B(b)), only eligible long-term care premiums (as defined in
section 213(d)(10)) shall be taken into account under paragraph
(1).''
(C) Subsection (d) of section 213 is amended by adding at the
end the following new paragraphs:
``(10) Eligible long-term care premiums.--
``(A) In general.--For purposes of this section, the term
`eligible long-term care premiums' means the amount paid during
a taxable year for any qualified long-term care 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 than 50.......
375
More than 50 but not more than 60.......
750
More than 60 but not more than 70.......
2,000
More than 70............................
2,500 .
``(B) Indexing.--
``(i) In general.--In the case of any taxable year
beginning in a calendar year after 1997, each dollar amount
contained in subparagraph (A) shall be increased by the
medical care cost adjustment of such amount for such
calendar year. If any increase 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 adjust- ment.--For purposes of
clause (i), the medical care cost adjustment for any
calendar year is the percentage (if any) by which--
``(I) the medical care component of the Consumer
Price Index (as defined in section 1(f)(5)) for August
of the preceding calendar year, exceeds
``(II) such component for August of 1996.
The Secretary shall, in consultation with the Secre- tary
of Health and Human Services, prescribe an adjustment which
the Secretary determines is more appropriate for purposes
of this paragraph than the adjustment described in the
preceding sentence, and the adjustment so prescribed shall
apply in lieu of the adjustment described in the preceding
sentence.
``(11) Certain payments to relatives treated as not paid for
medical care.--An amount paid for a qualified long-term care
service (as defined in section 7702B(c)) provided to an individual
shall be treated as not paid for medical care if such service is
provided--
``(A) by the spouse of the individual or by a relative
(directly or through a partnership, corporation, or other
entity) unless the service is provided by a licensed
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.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1996.
SEC. 323. REPORTING REQUIREMENTS.
(a) In General.--Subpart B of part III of subchapter A of chapter
61 is amended by adding at the end the following new section:
``SEC. 6050Q. CERTAIN LONG-TERM CARE BENEFITS.
``(a) Requirement of Reporting.--Any person who pays long-term care
benefits shall make a return, according to the forms or regulations
prescribed by the Secretary, setting forth--
``(1) the aggregate amount of such benefits paid by such person
to any individual during any calendar year,
``(2) whether or not such benefits are paid in whole or in part
on a per diem or other periodic basis without regard to the
expenses incurred during the period to which the payments relate,
``(3) the name, address, and TIN of such individual, and
``(4) the name, address, and TIN of the chronically ill or
terminally ill individual on account of whose condition such
benefits are paid.
``(b) Statements To Be Furnished to Persons With Respect 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 payment under a product which is advertised,
marketed, or offered as long-term care insurance, and
``(2) any payment which is 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:
``(g) Consumer Protection Provisions.--
``(1) In general.--The requirements of this subsection are met
with respect to any contract if the contract meets--
``(A) the requirements of the model regulation and model
Act described in paragraph (2),
``(B) the disclosure requirement of paragraph (3), and
``(C) the requirements relating to nonforfeitability under
paragraph (4).
``(2) Requirements of model regulation and act.--
``(A) In general.--The requirements of this paragraph are
met with respect to any contract if such contract meets--
``(i) Model regulation.--The following 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 insur- ance 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 contract if such contract
meets the requirements of section 4980C(d).
``(4) Nonforfeiture requirements.--
``(A) In general.--The requirements of this paragraph are
met with respect to any level premium contract, if the issuer
of such contract offers to the policyholder, including any
group policyholder, a nonforfeiture provision meeting the
requirements of subparagraph (B).
``(B) Requirements of provision.--The nonforfeiture
provision required under subparagraph (A) shall meet the
following requirements:
``(i) The nonforfeiture provision shall be
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 contracts approved by the Secretary for the same
contract form.
``(iii) The nonforfeiture provision shall provide at
least one of the following:
``(I) Reduced paid-up insurance.
``(II) Extended term insurance.
``(III) Shortened benefit period.
``(IV) Other similar offerings approved by the
Secretary.
``(5) Cross reference.--
``For coordination of the requirements of this subsection with
State requirements, see section 4980C(f).''.
SEC. 326. REQUIREMENTS FOR ISSUERS OF QUALIFIED LONG-TERM CARE
INSURANCE CONTRACTS.
(a) In General.--Chapter 43 is amended by adding at the end the
following new section:
``SEC. 4980C. REQUIREMENTS FOR ISSUERS OF QUALIFIED LONG-TERM CARE
INSURANCE CONTRACTS.
``(a) General Rule.--There is hereby imposed on any person failing
to meet the requirements of subsection (c) or (d) a tax in the amount
determined under subsection (b).
``(b) Amount.--
``(1) In general.--The amount of the tax imposed by subsection
(a) shall be $100 per insured for each day any requirement of
subsection (c) or (d) is not met with respect to each qualified
long-term care insurance contract.
``(2) Waiver.--In the case of a failure which is due to
reasonable cause and not to willful neglect, the Secretary may
waive part or all of the tax imposed by subsection (a) to the
extent that 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 qualified long-
term care insurance contract, misrepresent a material
fact; and
``(II) no such requirements shall include a
requirement to inquire or identify whether a
prospective applicant or 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(g)(2)(B).
``(2) Delivery of policy.--If an application for a qualified
long-term care insurance contract (or for a certificate under such
a contract for a group) is approved, the issuer shall deliver to
the applicant (or policyholder or certificateholder) the contract
(or certificate) of insurance not later than 30 days after the date
of the approval.
``(3) Information on denials of claims.--If a claim under a
qualified long-term care insurance contract is denied, the issuer
shall, within 60 days of the date of a written request by the
policyholder or certificateholder (or representative)--
``(A) provide a written explanation of the reasons for the
denial, and
``(B) make available all information directly relating to
such denial.
``(d) Disclosure.--The requirements of this subsection are met if
the issuer of a long-term care insurance policy discloses in such
policy and in the outline of coverage required under subsection
(c)(1)(B)(ii) that the policy is intended to be a qualified long-term
care insurance contract under section 7702B(b).
``(e) Qualified Long-Term Care Insurance Contract Defined.--For
purposes of this section, the term `qualified long-term care insurance
contract' has the meaning given such term by section 7702B.
``(f) Coordination With State Requirements.--If a State imposes any
requirement which is more stringent than the analogous requirement
imposed by this section or section 7702B(g), the requirement imposed by
this section or section 7702B(g) shall be treated as met if the more
stringent State requirement is met.''.
(b) Conforming Amendment.--The table of sections for chapter 43 is
amended by adding at the end the following new item:
``Sec. 4980C. Requirements for issuers of qualified long-term care
insurance contracts.''.
SEC. 327. EFFECTIVE DATES.
(a) In General.--The provisions of, and amendments made by, this
part shall apply to contracts issued after December 31, 1996. The
provisions of section 321(f) (relating to transition rule) shall apply
to such contracts.
(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.
``(2) Treatment of viatical settlements.--
``(A) In general.--If any portion of the death benefit
under a life insurance contract on the life of an insured
described in paragraph (1) is sold or assigned to a viatical
settlement provider, the amount paid for the sale or assignment
of such portion shall be treated as an amount paid under the
life insurance contract by reason of the death of such insured.
``(B) Viatical settlement provider.--
``(i) In general.--The term `viatical settlement
provider' means any person regularly engaged in the trade
or business of purchasing, or taking assignments of, life
insurance contracts on the lives of insureds described in
paragraph (1) if--
``(I) such person is licensed for such purposes
(with respect to insureds described in the same
subparagraph of paragraph (1) as the insured) in the
State in which the insured resides, or
``(II) in the case of an insured who resides in a
State not requiring the licensing of such persons for
such purposes with respect to such insured, such person
meets the requirements of clause (ii) or (iii),
whichever applies to such insured.
``(ii) Terminally ill insureds.--A person meets the
requirements of this clause with respect to an insured who
is a terminally ill individual if such person--
``(I) meets the requirements of sections 8 and 9 of
the Viatical Settlements Model Act of the National
Association of Insurance Commissioners, and
``(II) meets the requirements of the Model
Regulations of the National Association of Insurance
Commissioners (relating to standards for evaluation of
reasonable payments) in determining amounts paid by
such person in connection with such purchases or
assignments.
``(iii) Chronically ill insureds.--A person meets the
requirements of this clause with respect to an insured who
is a chronically ill individual if such person--
``(I) meets requirements similar to the
requirements referred to in clause (ii)(I), and
``(II) meets the standards (if any) of the National
Association of Insurance Commissioners for evaluating
the reasonableness of amounts paid by such person in
connection with such purchases or assignments with
respect to chronically ill individuals.
``(3) Special rules for chronically ill insureds.--In the case
of an insured who is a chronically ill individual--
``(A) In general.--Paragraphs (1) and (2) shall not apply
to any payment received for any period unless--
``(i) such payment is for costs incurred by the payee
(not compensated for by insurance or otherwise) for
qualified long-term care services provided for the insured
for such period, and
``(ii) the terms of the contract giving rise to such
payment satisfy--
``(I) the requirements of section 7702B(b)(1)(B),
and
``(II) the requirements (if any) applicable under
subparagraph (B).
For purposes of the preceding sentence, the rule of section
7702B(b)(2)(B) shall apply.
``(B) Other requirements.--The requirements applicable
under this subparagraph are--
``(i) those requirements of section 7702B(g) and
section 4980C which the Secretary specifies as applying to
such a purchase, assignment, or other arrangement,
``(ii) standards adopted by the National Association of
Insurance Commissioners which specifically apply to
chronically ill individuals (and, if such standards are
adopted, the analogous requirements specified under clause
(i) shall cease to apply), and
``(iii) standards adopted by the State in which the
policyholder resides (and if such standards are adopted,
the analogous requirements specified under clause (i) and
(subject to section 4980C(f)) standards under clause (ii),
shall cease to apply).
``(C) Per diem payments.--A payment shall not fail to be
described in subparagraph (A) by reason of being made on a per
diem or other periodic basis without regard to the expenses
incurred during the period to which the payment relates.
``(D) Limitation on exclusion for periodic payments.--
``For limitation on amount of periodic payments which are
treated as described in paragraph (1), see section 7702B(d).''.
``(4) Definitions.--For purposes of this subsection--
``(A) Terminally ill individual.--The term `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) Chronically ill individual.--The term `chronically
ill individual' has the meaning given such term by section
7702B(c)(2); except that such term shall not include a
terminally ill individual.
``(C) Qualified long-term care services.--The term
`qualified long-term care services' has the meaning given such
term by section 7702B(c).
``(D) Physician.--The term `physician' has the meaning
given to such term by section 1861(r)(1) of the Social Security
Act (42 U.S.C. 1395x(r)(1)).
``(5) 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--State Insurance Pools
SEC. 341. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED
ORGANIZATIONS PROVIDING HEALTH COVERAGE FOR HIGH-RISK
INDIVIDUALS.
(a) In General.--Subsection (c) of section 501 (relating to list of
exempt organizations) is amended by adding at the end the following new
paragraph:
``(26) Any membership organization if--
``(A) such organization is established by a State
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--
``(I) are unable to acquire medical care coverage
for such condition through insurance or from a health
maintenance organization, or
``(II) are able to acquire such coverage only at a
rate which is substantially in excess of the rate for
such coverage through the membership organization,
``(C) the composition of the membership in such
organization is specified by such State, and
``(D) no part of the net earnings of the organization
inures to the benefit of any private shareholder or indi-
vidual.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1996.
SEC. 342. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED WORKMEN'S
COMPENSATION REINSURANCE ORGANIZATIONS.
(a) In General.--Subsection (c) of section 501 (relating to list of
exempt organizations), as amended by section 341, is amended by adding
at the end the following new paragraph:
``(27) Any membership organization if--
``(A) such organization is established before June 1, 1996,
by a State exclusively to reimburse its members for losses
arising under workmen's compensation acts,
``(B) such State requires that the membership of such
organization consist of--
``(i) all persons who issue insurance covering
workmen's compensation losses in such State, and
``(ii) all persons and governmental entities who self-
insure against such losses, and
``(C) such organization operates as a non-profit
organization by--
``(i) returning surplus income to its members or
workmen's compensation policyholders on a periodic basis,
and
``(ii) reducing initial premiums in anticipation of
investment income.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years ending after the date of the enactment of this Act.
Subtitle F--Organizations Subject to Section 833
SEC. 351. ORGANIZATIONS SUBJECT TO SECTION 833.
(a) In General.--Section 833(c) (relating to organization to which
section applies) is amended by adding at the end the following new
paragraph:
``(4) Treatment as existing blue cross or blue shield
organization.--
``(A) In general.--Paragraph (2) shall be applied to an
organization described in subparagraph (B) as if it were a Blue
Cross or Blue Shield organization.
``(B) Applicable organization.--An organization is
described in this subparagraph if it--
``(i) is organized under, and governed by, State laws
which are specifically and exclusively applicable to not-
for-profit health insurance or health service type
organizations, and
``(ii) is not a Blue Cross or Blue Shield organization
or health maintenance organization.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years ending after December 31, 1996.
Subtitle G--IRA Distributions to the Unemployed
SEC. 361. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT
ADDITIONAL TAX TO PAY FINANCIALLY DEVASTATING MEDICAL EXPENSES.
(a) In General.--Section 72(t)(3)(A) is amended by striking
``(B),''.
(b) Distributions for Payment of Health Insurance Premiums of
Certain Unemployed Individuals.--Paragraph (2) of section 72(t) is
amended by adding at the end the following new subparagraph:
``(D) Distributions to unemployed individuals for health
insurance premiums.--
``(i) In general.--Distributions from an individual
retirement plan to an individual after separation from
employment--
``(I) if such individual has received unemployment
compensation for 12 consecutive weeks under any Federal
or State unemployment compensation law by reason of
such separation,
``(II) if such distributions are made during any
taxable year during which such unemployment
compensation is paid or the succeeding taxable year,
and
``(III) to the extent such distributions do not
exceed the amount paid during the taxable year for
insurance described in section 213(d)(1)(D) with
respect to the individual and the individual's spouse
and dependents (as defined in section 152).
``(ii) Distributions after reemployment.--Clause (i)
shall not apply to any distribution made after the
individual has been employed for at least 60 days after the
separation from employment to which clause (i) applies.
``(iii) Self-employed individuals.--To the extent
provided in regulations, a self-employed individual shall
be treated as meeting the requirements of clause (i)(I) if,
under Federal or State law, the individual would have
received unemployment compensation but for the fact the
individual was self-employed.''.
(c) Conforming Amendment.--Subparagraph (B) of section 72(t)(2) is
amended by striking ``or (C)'' and inserting ``, (C), or (D)''.
(d) Effective Date.--The amendments made by this section shall
apply to distributions after December 31, 1996.
Subtitle H--Organ and Tissue Donation Information Included With Income
Tax Refund Payments
SEC. 371. ORGAN AND TISSUE DONATION INFORMATION INCLUDED WITH INCOME
TAX REFUND PAYMENTS.
(a) In General.--The Secretary of the Treasury shall, to the extent
practicable, include with the mailing of any payment of a refund of
individual income tax made during the period beginning on February 1,
1997, and ending on June 30, 1997, a copy of the document described in
subsection (b).
(b) Text of Document.--The Secretary of the Treasury shall, after
consultation with the Secretary of Health and Human Services and
organizations promoting organ and tissue (including eye) donation,
prepare a document suitable for inclusion with individual income tax
refund payments which--
(1) encourages organ and tissue donation;
(2) includes a detachable organ and tissue donor card; and
(3) urges recipients to--
(A) sign the organ and tissue donor card;
(B) discuss organ and tissue donation with family members
and tell family members about the recipient's desire to be an
organ and tissue donor if the occasion arises; and
(C) encourage family members to request or authorize organ
and tissue donation if the occasion arises.
TITLE IV--APPLICATION AND ENFORCEMENT OF GROUP HEALTH PLAN REQUIREMENTS
Subtitle A--Application and Enforcement of Group Health Plan
Requirements
SEC. 401. GROUP HEALTH PLAN PORTABILITY, ACCESS, AND RENEWABILITY
REQUIREMENTS.
(a) In General.--The Internal Revenue Code of 1986 is amended by
adding at the end the following new subtitle:
``Subtitle K--Group Health Plan Portability, Access, and Renewability
Requirements
``Chapter 100. Group health plan portability, access, and renewability
requirements.
``CHAPTER 100--GROUP HEALTH PLAN PORTABILITY, ACCESS, AND RENEWABILITY
REQUIREMENTS
``Sec. 9801. Increased portability through limitation on preexisting
condition exclusions.
``Sec. 9802. Prohibiting discrimination against individual participants
and beneficiaries based on health status.
``Sec. 9803. Guaranteed renewability in multiemployer plans and certain
multiple employer welfare arrangements.
``Sec. 9804. General exceptions.
``Sec. 9805. Definitions.
``Sec. 9806. Regulations.
``SEC. 9801. INCREASED PORTABILITY THROUGH LIMITATION ON PREEXISTING
CONDITION EXCLUSIONS.
``(a) Limitation on Preexisting Condition Exclusion Period;
Crediting for Periods of Previous Coverage.--Subject to subsection (d),
a group health plan may, with respect to a participant or beneficiary,
impose a preexisting condition exclusion only if--
``(1) such exclusion relates to a condition (whether physical
or mental), regardless of the cause of the condition, for which
medical advice, diagnosis, care, or treatment was recommended or
received within the 6-month period ending on the enrollment date;
``(2) such exclusion extends for a period of not more than 12
months (or 18 months in the case of a late enrollee) after the
enrollment date; and
``(3) the period of any such preexisting condition exclusion is
reduced by the length of the aggregate of the periods of creditable
coverage (if any) applicable to the participant or beneficiary as
of the enrollment date.
``(b) Definitions.--For purposes of this section--
``(1) Preexisting condition exclusion.--
``(A) In general.--The term `preexisting condition
exclusion' means, with respect to coverage, a limitation or
exclusion of benefits relating to a condition based on the fact
that the condition was present before the date of enrollment
for such coverage, whether or not any medical advice,
diagnosis, care, or treatment was recommended or received
before such date.
``(B) Treatment of genetic information.--For purposes of
this section, genetic information shall not be treated as a
condition described in subsection (a)(1) in the absence of a
diagnosis of the condition related to such information.
``(2) Enrollment date.--The term `enrollment date' means, with
respect to an individual covered under a group health plan, the
date of enrollment of the individual in the plan or, if earlier,
the first day of the waiting period for such enrollment.
``(3) Late enrollee.--The term `late enrollee' means, with
respect to coverage under a group health plan, a participant or
beneficiary who enrolls under the plan other than during--
``(A) the first period in which the individual is eligible
to enroll under the plan, or
``(B) a special enrollment period under subsection (f).
``(4) Waiting period.--The term `waiting period' means, with
respect to a group health plan and an individual who is a potential
participant or beneficiary in the plan, the period that must pass
with respect to the individual before the individual is eligible to
be covered for benefits under the terms of the plan.
``(c) Rules Relating to Crediting Previous Coverage.--
``(1) Creditable coverage defined.--For purposes of this part,
the term `creditable coverage' means, with respect to an
individual, coverage of the individual under any of the following:
``(A) A group health plan.
``(B) Health insurance coverage.
``(C) Part A or part B of title XVIII of the Social
Security Act.
``(D) Title XIX of the Social Security Act, other than
coverage consisting solely of benefits under section 1928.
``(E) Chapter 55 of title 10, United States Code.
``(F) A medical care program of the Indian Health Service
or of a tribal organization.
``(G) A State health benefits risk pool.
``(H) A health plan offered under chapter 89 of title 5,
United States Code.
``(I) A public health plan (as defined in regulations).
``(J) A health benefit plan under section 5(e) of the Peace
Corps Act (22 U.S.C. 2504(e)).
Such term does not include coverage consisting solely of coverage
of excepted benefits (as defined in section 9805(c)).
``(2) Not counting periods before significant breaks in
coverage.--
``(A) In general.--A period of creditable coverage shall
not be counted, with respect to enrollment of an individual
under a group health plan, if, after such period and before the
enrollment date, there was a 63-day period during all of which
the individual was not covered under any creditable coverage.
``(B) Waiting period not treated as a break in coverage.--
For purposes of subparagraph (A) and subsection (d)(4), any
period that an individual is in a waiting period for any
coverage under a group health plan or is in an affiliation
period shall not be taken into account in determining the
continuous period under subpara- graph (A).
``(C) Affiliation period.--
``(i) In general.--For purposes of this section, the
term `affiliation period' means a period which, under the
terms of the health insurance coverage offered by the
health maintenance organization, must expire before the
health insurance coverage becomes effective. During such an
affiliation period, the organization is not required to
provide health care services or benefits and no premium
shall be charged to the participant or beneficiary.
``(ii) Beginning.--Such period shall begin on the
enrollment date.
``(iii) Runs concurrently with waiting periods.--Any
such affiliation period shall run concurrently with any
waiting period under the plan.
``(3) Method of crediting coverage.--
``(A) Standard method.--Except as otherwise provided under
subparagraph (B), for purposes of applying subsection (a)(3), a
group health plan shall count a period of creditable coverage
without regard to the specific benefits for which coverage is
offered during the period.
``(B) Election of alternative method.--A group health plan
may elect to apply subsection (a)(3) based on coverage of any
benefits within each of several classes or categories of
benefits specified in regulations rather than as provided under
subparagraph (A). Such election shall be made on a uniform
basis for all participants and beneficiaries. Under such
election a group health plan shall count a period of creditable
coverage with respect to any class or category of benefits if
any level of benefits is covered within such class or category.
``(C) Plan notice.--In the case of an election with respect
to a group health plan under subparagraph (B), the plan shall--
``(i) prominently state in any disclosure statements
concerning the plan, and state to each enrollee at the time
of enrollment under the plan, that the plan has made such
election, and
``(ii) include in such statements a description of the
effect of this election.
``(4) Establishment of period.--Periods of creditable coverage
with respect to an individual shall be established through
presentation of certifications described in subsection (e) or in
such other manner as may be specified in regulations.
``(d) Exceptions.--
``(1) Exclusion not applicable to certain newborns.--Subject to
paragraph (4), a group health plan may not impose any preexisting
condition exclusion in the case of an individual who, as of the
last day of the 30-day period beginning with the date of birth, is
covered under creditable coverage.
``(2) Exclusion not applicable to certain adopted children.--
Subject to paragraph (4), a group health plan may not impose any
preexisting condition exclusion in the case of a child who is
adopted or placed for adoption before attaining 18 years of age and
who, as of the last day of the 30-day period beginning on the date
of the adoption or placement for adoption, is covered under
creditable coverage. The previous sentence shall not apply to
coverage before the date of such adoption or placement for
adoption.
``(3) Exclusion not applicable to pregnancy.--For purposes of
this section, a group health plan may not impose any preexisting
condition exclusion relating to pregnancy as a preexisting
condition.
``(4) Loss if break in coverage.--Paragraphs (1) and (2) shall
no longer apply to an individual after the end of the first 63-day
period during all of which the individual was not covered under any
creditable coverage.
``(e) Certifications and Disclosure of Coverage.--
``(1) Requirement for certification of period of creditable
coverage.--
``(A) In general.--A group health plan shall provide the
certification described in subparagraph (B)--
``(i) at the time an individual ceases to be covered
under the plan or otherwise becomes covered under a COBRA
continuation provision,
``(ii) in the case of an individual becoming covered
under such a provision, at the time the individual ceases
to be covered under such provision, and
``(iii) on the request on behalf of an individual made
not later than 24 months after the date of cessation of the
coverage described in clause (i) or (ii), whichever is
later.
The certification under clause (i) may be provided, to the
extent practicable, at a time consistent with notices required
under any applicable COBRA continuation provision.
``(B) Certification.--The certification described in this
subparagraph is a written certification of--
``(i) the period of creditable coverage of the
individual under such plan and the coverage under such
COBRA continuation provision, and
``(ii) the waiting period (if any) (and affiliation
period, if applicable) imposed with respect to the
individual for any coverage under such plan.
``(C) Issuer compliance.--To the extent that medical care
under a group health plan consists of health insurance coverage
offered in connection with the plan, the plan is deemed to have
satisfied the certification requirement under this paragraph if
the issuer provides for such certification in accordance with
this paragraph.
``(2) Disclosure of information on previous benefits.--
``(A) In general.--In the case of an election described in
subsection (c)(3)(B) by a group health plan, if the plan
enrolls an individual for coverage under the plan and the
individual provides a certification of coverage of the
individual under paragraph (1)--
``(i) upon request of such plan, the entity which
issued the certification provided by the individual shall
promptly disclose to such requesting plan information on
coverage of classes and categories of health benefits
available under such entity's plan, and
``(ii) such entity may charge the requesting plan or
issuer for the reasonable cost of disclosing such
information.
``(3) Regulations.--The Secretary shall establish rules to
prevent an entity's failure to provide information under paragraph
(1) or (2) with respect to previous coverage of an individual from
adversely affecting any subsequent coverage of the individual under
another group health plan or health insurance coverage.
``(f) Special Enrollment Periods.--
``(1) Individuals losing other coverage.--A group health plan
shall permit an employee who is eligible, but not enrolled, for
coverage under the terms of the plan (or a dependent of such an
employee if the dependent is eligible, but not enrolled, for
coverage under such terms) to enroll for coverage under the terms
of the plan if each of the following conditions is met:
``(A) The employee or dependent was covered under a group
health plan or had health insurance coverage at the time
coverage was previously offered to the employee or individual.
``(B) The employee stated in writing at such time that
coverage under a group health plan or health insurance coverage
was the reason for declining enrollment, but only if the plan
sponsor (or the health insurance issuer offering health
insurance coverage in connection with the plan) required such a
statement at such time and provided the employee with notice of
such requirement (and the consequences of such requirement) at
such time.
``(C) The employee's or dependent's coverage described in
subparagraph (A)--
``(i) was under a COBRA continuation provi- sion and
the coverage under such provision was exhausted; or
``(ii) was not under such a provision and either the
coverage was terminated as a result of loss of eligibility
for the coverage (including as a result of legal
separation, divorce, death, termination of employment, or
reduction in the number of hours of employment) or employer
contributions toward such coverage were terminated.
``(D) Under the terms of the plan, the employee requests
such enrollment not later than 30 days after the date of
exhaustion of coverage described in subparagraph (C)(i) or
termination of coverage or employer contribution described in
subparagraph (C)(ii).
``(2) For dependent beneficiaries.--
``(A) In general.--If--
``(i) a group health plan makes coverage available with
respect to a dependent of an individual,
``(ii) the individual is a participant under the plan
(or has met any waiting period applicable to becoming a
participant under the plan and is eligible to be enrolled
under the plan but for a failure to enroll during a
previous enrollment period), and
``(iii) a person becomes such a dependent of the
individual through marriage, birth, or adoption or
placement for adoption,
the group health plan shall provide for a dependent special
enrollment period described in subparagraph (B) during which
the person (or, if not otherwise enrolled, the individual) may
be enrolled under the plan as a dependent of the individual,
and in the case of the birth or adoption of a child, the spouse
of the individual may be enrolled as a dependent of the
individual if such spouse is otherwise eligible for coverage.
``(B) Dependent special enrollment period.--The dependent
special enrollment period under this subparagraph shall be a
period of not less than 30 days and shall begin on the later
of--
``(i) the date dependent coverage is made avail- able,
or
``(ii) the date of the marriage, birth, or adoption or
placement for adoption (as the case may be) described in
subparagraph (A)(iii).
``(C) No waiting period.--If an individual seeks coverage
of a dependent during the first 30 days of such a dependent
special enrollment period, the coverage of the dependent shall
become effective--
``(i) in the case of marriage, not later than the first
day of the first month beginning after the date the
completed request for enrollment is received;
``(ii) in the case of a dependent's birth, as of the
date of such birth; or
``(iii) in the case of a dependent's adoption or
placement for adoption, the date of such adoption or
placement for adoption.
``SEC. 9802. PROHIBITING DISCRIMINATION AGAINST INDIVIDUAL PARTICIPANTS
AND BENEFICIARIES BASED ON HEALTH STATUS.
``(a) In Eligibility to Enroll.--
``(1) In general.--Subject to paragraph (2), a group health
plan may not establish rules for eligibility (including continued
eligibility) of any individual to enroll under the terms of the
plan based on any of the following factors in relation to the
individual or a dependent of the individual:
``(A) Health status.
``(B) Medical condition (including both physical and mental
illnesses).
``(C) Claims experience.
``(D) Receipt of health care.
``(E) Medical history.
``(F) Genetic information.
``(G) Evidence of insurability (including conditions
arising out of acts of domestic violence).
``(H) Disability.
``(2) No application to benefits or exclusions.--To the extent
consistent with section 9801, paragraph (1) shall not be
construed--
``(A) to require a group health plan to provide particular
benefits (or benefits with respect to a specific procedure,
treatment, or service) other than those provided under the
terms of such plan; or
``(B) to prevent such a plan from establishing limitations
or restrictions on the amount, level, extent, or nature of the
benefits or coverage for similarly situated individuals
enrolled in the plan or coverage.
``(3) Construction.--For purposes of paragraph (1), rules for
eligibility to enroll under a plan include rules defining any
applicable waiting periods for such enrollment.
``(b) In Premium Contributions.--
``(1) In general.--A group health plan may not require any
individual (as a condition of enrollment or continued enrollment
under the plan) to pay a premium or contribution which is greater
than such premium or contribution for a similarly situated
individual enrolled in the plan on the basis of any factor
described in subsection (a)(1) in relation to the individual or to
an individual enrolled under the plan as a dependent of the
individual.
``(2) Construction.--Nothing in paragraph (1) shall be
construed--
``(A) to restrict the amount that an employer may be
charged for coverage under a group health plan; or
``(B) to prevent a group health plan from establishing
premium discounts or rebates or modifying otherwise applicable
copayments or deductibles in return for adherence to programs
of health promotion and disease prevention.
``SEC. 9803. GUARANTEED RENEWABILITY IN MULTIEMPLOYER PLANS AND CERTAIN
MULTIPLE EMPLOYER WELFARE ARRANGEMENTS.
``(a) In General.--A group health plan which is a multiemployer
plan (as defined in section 414(f)) or which is a multiple employer
welfare arrangement may not deny an employer continued access to the
same or different coverage under such plan, other than--
``(1) for nonpayment of contributions;
``(2) for fraud or other intentional misrepresentation of
material fact by the employer;
``(3) for noncompliance with material plan provisions;
``(4) because the plan is ceasing to offer any coverage in a
geographic area;
``(5) in the case of a plan that offers benefits through a
network plan, because there is no longer any individual enrolled
through the employer who lives, resides, or works in the service
area of the network plan and the plan applies this paragraph
uniformly without regard to the claims experience of employers or a
factor described in section 9802(a)(1) in relation to such
individuals or their dependents; or
``(6) for failure to meet the terms of an applicable collective
bargaining agreement, to renew a collective bargaining or other
agreement requiring or authorizing contributions to the plan, or to
employ employees covered by such an agreement.
``(b) Multiple Employer Welfare Arrangement.--For purposes of
subsection (a), the term `multiple employer welfare arrangement' has
the meaning given such term by section 3(40) of the Employee Retirement
Income Security Act of 1974, as in effect on the date of the enactment
of this section.
``SEC. 9804. GENERAL EXCEPTIONS.
``(a) Exception for Certain Plans.--The requirements of this
chapter shall not apply to--
``(1) any governmental plan, and
``(2) any group health plan for any plan year if, on the first
day of such plan year, such plan has less than 2 participants who
are current employees.
``(b) Exception for Certain Benefits.--The requirements of this
chapter shall not apply to any group health plan in relation to its
provision of excepted benefits described in section 9805(c)(1).
``(c) Exception for Certain Benefits if Certain Conditions Met.--
``(1) Limited, excepted benefits.--The requirements of this
chapter shall not apply to any group health plan in relation to its
provision of excepted benefits described in section 9805(c)(2) if
the benefits--
``(A) are provided under a separate policy, certificate, or
contract of insurance; or
``(B) are otherwise not an integral part of the plan.
``(2) Noncoordinated, excepted benefits.--The requirements of
this chapter shall not apply to any group health plan in relation
to its provision of excepted benefits described in section
9805(c)(3) if all of the following conditions are met:
``(A) The benefits are provided under a separate policy,
certificate, or contract of insurance.
``(B) There is no coordination between the provision of
such benefits and any exclusion of benefits under any group
health plan maintained by the same plan sponsor.
``(C) Such benefits are paid with respect to an event
without regard to whether benefits are provided with respect to
such an event under any group health plan maintained by the
same plan sponsor.
``(3) Supplemental excepted benefits.--The requirements of this
chapter shall not apply to any group health plan in relation to its
provision of excepted benefits described in section 9805(c)(4) if
the benefits are provided under a separate policy, certificate, or
contract of insurance.
``SEC. 9805. DEFINITIONS.
``(a) Group Health Plan.--For purposes of this chapter, the term
`group health plan' has the meaning given to such term by section
5000(b)(1).
``(b) Definitions Relating to Health Insurance.--For purposes of
this chapter--
``(1) 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 contract offered
by a health insurance issuer.
``(B) No application to certain excepted benefits.--In
applying subparagraph (A), excepted benefits described in
subsection (c)(1) shall not be treated as benefits consisting
of medical care.
``(2) Health insurance issuer.--The term `health insurance
issuer' means an insurance company, insurance service, or insurance
organization (including a health maintenance organization, as
defined in paragraph (3)) which is licensed to engage in the
business of insurance in a State and which is subject to State law
which regulates insurance (within the meaning of section 514(b)(2)
of the Employee Retirement Income Security Act of 1974, as in
effect on the date of the enactment of this section). Such term
does not include a group health plan.
``(3) Health maintenance organization.--The term `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.
``(c) Excepted Benefits.--For purposes of this chapter, the term
`excepted benefits' means benefits under one or more (or any
combination thereof) of the following:
``(1) Benefits not subject to requirements.--
``(A) Coverage only for accident, or disability income
insurance, or any combination thereof.
``(B) Coverage issued as a supplement to liability in-
surance.
``(C) Liability insurance, including general liability
insurance and automobile liability insurance.
``(D) Workers' compensation or similar insurance.
``(E) Automobile medical payment insurance.
``(F) Credit-only insurance.
``(G) Coverage for on-site medical clinics.
``(H) Other similar insurance coverage, specified in
regulations, under which benefits for medical care are
secondary or incidental to other insurance benefits.
``(2) Benefits not subject to requirements if offered
separately.--
``(A) Limited scope dental or vision benefits.
``(B) Benefits for long-term care, nursing home care, home
health care, community-based care, or any combination thereof.
``(C) Such other similar, limited benefits as are specified
in regulations.
``(3) Benefits not subject to requirements if offered as
independent, noncoordinated benefits.--
``(A) Coverage only for a specified disease or illness.
``(B) Hospital indemnity or other fixed indemnity in-
surance.
``(4) Benefits not subject to requirements if offered as
separate insurance policy.--Medicare supplemental health insurance
(as defined under section 1882(g)(1) of the Social Security Act),
coverage supplemental to the coverage provided under chapter 55 of
title 10, United States Code, and similar supplemental coverage
provided to coverage under a group health plan.
``(d) Other Definitions.--For purposes of this chapter--
``(1) COBRA continuation provision.--The term `COBRA
continuation provision' means any of the following:
``(A) Section 4980B, other than subsection (f)(1) thereof
insofar as it relates to pediatric vaccines.
``(B) Part 6 of subtitle B of title I of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1161 et
seq.), other than section 609 of such Act.
``(C) Title XXII of the Public Health Service Act.
``(2) Governmental plan.--The term `governmental plan' has the
meaning given such term by section 414(d).
``(3) Medical care.--The term `medical care' has the meaning
given such term by section 213(d) determined without regard to--
``(A) paragraph (1)(C) thereof, and
``(B) so much of paragraph (1)(D) thereof as relates to
qualified long-term care insurance.
``(4) Network plan.--The term `network plan' means health
insurance coverage of a health insurance issuer under which the
financing and delivery of medical care are provided, in whole or in
part, through a defined set of providers under contract with the
issuer.
``(5) Placed for adoption defined.--The term `placement', or
being `placed', for adoption, in connection with any placement for
adoption of a child with any person, means the assumption and
retention by such person of a legal obligation for total or partial
support of such child in anticipation of adoption of such child.
The child's placement with such person terminates upon the
termination of such legal obligation.
``SEC. 9806. REGULATIONS.
``The Secretary, consistent with section 104 of the Health Care
Portability and Accountability Act of 1996, may promulgate such
regulations as may be necessary or appropriate to carry out the
provisions of this chapter. The Secretary may promulgate any interim
final rules as the Secretary determines are appropriate to carry out
this chapter.''.
(b) Clerical Amendment.--The table of subtitles of such Code is
amended by adding at the end the following new item:
``Subtitle K. Group health plan portability, access, and renewability
requirements.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to plan years beginning after June 30, 1997.
(2) Determination of creditable coverage.--
(A) Period of coverage.--
(i) In general.--Subject to clause (ii), no period
before July 1, 1996, shall be taken into account under
chapter 100 of the Internal Revenue Code of 1986 (as added
by this section) in determining creditable coverage.
(ii) Special rule for certain periods.--The Secretary
of the Treasury, consistent with section 104, shall provide
for a process whereby individuals who need to establish
creditable coverage for periods before July 1, 1996, and
who would have such coverage credited but for clause (i)
may be given credit for creditable coverage for such
periods through the presentation of documents or other
means.
(B) Certifications, etc.--
(i) In general.--Subject to clauses (ii) and (iii),
subsection (e) of section 9801 of the Internal Revenue Code
of 1986 (as added by this section) shall apply to events
occurring after June 30, 1996.
(ii) No certification required to be provided before
june 1, 1997.--In no case is a certification required to be
provided under such subsection before June 1, 1997.
(iii) Certification only on written request for events
occurring before october 1, 1996.--In the case of an event
occurring after June 30, 1996, and before October 1, 1996,
a certification is not required to be provided under such
subsection unless an individual (with respect to whom the
certification is otherwise required to be made) requests
such certification in writing.
(C) Transitional rule.--In the case of an individual who
seeks to establish creditable coverage for any period for which
certification is not required because it relates to an event
occurring before June 30, 1996--
(i) the individual may present other credible evidence
of such coverage in order to establish the period of
creditable coverage; and
(ii) a group health plan and a health insurance issuer
shall not be subject to any penalty or enforcement action
with respect to the plan's or issuer's crediting (or not
crediting) such coverage if the plan or issuer has sought
to comply in good faith with the applicable requirements
under the amendments made by this section.
(3) Special rule for collective bargaining agreements.--Except
as provided in paragraph (2), in the case of a group health plan
maintained pursuant to 1 or more collective bargaining agreements
between employee representatives and one or more employers ratified
before the date of the enactment of this Act, the amendments made
by this section shall not apply to plan years beginning before the
later of--
(A) the date on which the last of the collective bargaining
agreements relating to the plan terminates (determined without
regard to any extension thereof agreed to after the date of the
enactment of this Act), or
(B) July 1, 1997.
For purposes of subparagraph (A), any plan amendment made pursuant
to a collective bargaining agreement relating to the plan which
amends the plan solely to conform to any requirement added by this
section shall not be treated as a termination of such collective
bargaining agreement.
(4) Timely regulations.--The Secretary of the Treasury,
consistent with section 104, shall first issue by not later than
April 1, 1997, such regulations as may be necessary to carry out
the amendments made by this section.
(5) Limitation on actions.--No enforcement action shall be
taken, pursuant to the amendments made by this section, against a
group health plan or health insurance issuer with respect to a
violation of a requirement imposed by such amendments before
January 1, 1998, or, if later, the date of issuance of regulations
referred to in paragraph (4), if the plan or issuer has sought to
comply in good faith with such requirements.
SEC. 402. PENALTY ON FAILURE TO MEET CERTAIN GROUP HEALTH PLAN
REQUIREMENTS.
(a) In General.--Chapter 43 of the Internal Revenue Code of 1986
(relating to qualified pension, etc., plans) is amended by adding after
section 4980C the following new section:
``SEC. 4980D. FAILURE TO MEET CERTAIN GROUP HEALTH PLAN REQUIREMENTS.
``(a) General Rule.--There is hereby imposed a tax on any failure
of a group health plan to meet the requirements of chapter 100
(relating to group health plan portability, access, and renewability
requirements).
``(b) Amount of Tax.--
``(1) In general.--The amount of the tax imposed by subsection
(a) on any failure shall be $100 for each day in the noncompliance
period with respect to each individual to whom such failure
relates.
``(2) Noncompliance period.--For purposes of this section, the
term `noncompliance period' means, with respect to any failure, the
period--
``(A) beginning on the date such failure first occurs, and
``(B) ending on the date such failure is corrected.
``(3) Minimum tax for noncompliance period where failure
discovered after notice of examination.--Notwithstanding paragraphs
(1) and (2) of subsection (c)--
``(A) In general.--In the case of 1 or more failures with
respect to an individual--
``(i) which are not corrected before the date a notice
of examination of income tax liability is sent to the
employer, and
``(ii) which occurred or continued during the period
under examination,
the amount of tax imposed by subsection (a) by reason of such
failures with respect to such individual shall not be less than
the lesser of $2,500 or the amount of tax which would be
imposed by subsection (a) without regard to such paragraphs.
``(B) Higher minimum tax where violations are more than de
minimis.--To the extent violations for which any person is
liable under subsection (e) for any year are more than de
minimis, subparagraph (A) shall be applied by substituting
`$15,000' for `$2,500' with respect to such person.
``(C) Exception for church plans.--This paragraph shall not
apply to any failure under a church plan (as defined in section
414(e)).
``(c) Limitations on Amount of Tax.--
``(1) Tax not to apply where failure not discovered exercising
reasonable diligence.--No tax shall be imposed by subsection (a) on
any failure during any period for which it is established to the
satisfaction of the Secretary that the person otherwise liable for
such tax did not know, and exercising reasonable diligence would
not have known, that such failure existed.
``(2) Tax not to apply to failures corrected within certain
periods.--No tax shall be imposed by subsection (a) on any failure
if--
``(A) such failure was due to reasonable cause and not to
willful neglect, and
``(B)(i) in the case of a plan other than a church plan (as
defined in section 414(e)), such failure is corrected during
the 30-day period beginning on the first date the person
otherwise liable for such tax knew, or exercising reasonable
diligence would have known, that such failure existed, and
``(ii) in the case of a church plan (as so defined), such
failure is corrected before the close of the correction period
(determined under the rules of section 414(e)(4)(C)).
``(3) Overall limitation for unintentional failures.--In the
case of failures which are due to reasonable cause and not to
willful neglect--
``(A) Single employer plans.--
``(i) In general.--In the case of failures with respect
to plans other than specified multiple employer health
plans, the tax imposed by subsection (a) for failures
during the taxable year of the employer shall not exceed
the amount equal to the lesser of--
``(I) 10 percent of the aggregate amount paid or
incurred by the employer (or predecessor employer)
during the preceding taxable year for group health
plans, or
``(II) $500,000.
``(ii) Taxable years in the case of certain controlled
groups.--For purposes of this subparagraph, if not all
persons who are treated as a single employer for purposes
of this section have the same taxable year, the taxable
years taken into account shall be determined under
principles similar to the principles of section 1561.
``(B) Specified multiple employer health plans.--
``(i) In general.--In the case of failures with respect
to a specified multiple employer health plan, the tax
imposed by subsection (a) for failures during the taxable
year of the trust forming part of such plan shall not
exceed the amount equal to the lesser of--
``(I) 10 percent of the amount paid or incurred by
such trust during such taxable year to provide medical
care (as defined in section 9805(d)(3)) directly or
through insurance, reimbursement, or otherwise, or
``(II) $500,000.
For purposes of the preceding sentence, all plans of which
the same trust forms a part shall be treated as one plan.
``(ii) Special rule for employers required to pay
tax.--If an employer is assessed a tax imposed by
subsection (a) by reason of a failure with respect to a
specified multiple employer health plan, the limit shall be
determined under subparagraph (A) (and not under this
subparagraph) and as if such plan were not a specified
multiple employer health plan.
``(4) Waiver by secretary.--In the case of a failure which is
due to reasonable cause and not to willful neglect, the Secretary
may waive part or all of the tax imposed by subsection (a) to the
extent that the payment of such tax would be excessive relative to
the failure involved.
``(d) Tax Not To Apply to Certain Insured Small Employer Plans.--
``(1) In general.--In the case of a group health plan of a
small employer which provides health insurance coverage solely
through a contract with a health insurance issuer, no tax shall be
imposed by this section on the employer on any failure which is
solely because of the health insurance coverage offered by such
issuer.
``(2) Small employer.--
``(A) In general.--For purposes of paragraph (1), the term
`small employer' means, with respect to a calendar year and a
plan year, an employer who employed an average of at least 2
but not more than 50 employees on business days during the
preceding calendar year and who employs at least 2 employees on
the first day of the plan year. For purposes of the preceding
sentence, all persons treated as a single employer under
subsection (b), (c), (m), or (o) of section 414 shall be
treated as one employer.
``(B) Employers not in existence in preceding year.--In the
case of an employer which was not in existence throughout the
preceding calendar year, the determination of whether such
employer is a small employer shall be based on the average
number of employees that it is reasonably expected such
employer will employ on business days in the current calendar
year.
``(C) Predecessors.--Any reference in this paragraph to an
employer shall include a reference to any predecessor of such
employer.
``(3) Health insurance coverage; health insurance issuer.--For
purposes of paragraph (1), the terms `health insurance coverage'
and `health insurance issuer' have the respective meanings given
such terms by section 9805.
``(e) Liability for Tax.--The following shall be liable for the tax
imposed by subsection (a) on a failure:
``(1) Except as otherwise provided in this subsection, the
employer.
``(2) In the case of a multiemployer plan, the plan.
``(3) In the case of a failure under section 9803 (relating to
guaranteed renewability) with respect to a plan described in
subsection (f)(2)(B), the plan.
``(f) Definitions.--For purposes of this section--
``(1) Group health plan.--The term `group health plan' has the
meaning given such term by section 9805(a).
``(2) Specified multiple employer health plan.--The term
`specified multiple employer health plan' means a group health plan
which is--
``(A) any multiemployer plan, or
``(B) any multiple employer welfare arrangement (as defined
in section 3(40) of the Employee Retirement Income Security Act
of 1974, as in effect on the date of the enactment of this
section).
``(3) Correction.--A failure of a group health plan shall be
treated as corrected if--
``(A) such failure is retroactively undone to the extent
possible, and
``(B) the person to whom the failure relates is placed in a
financial position which is as good as such person would have
been in had such failure not occurred.''.
(b) Clerical Amendment.--The table of sections for chapter 43 of
such Code is amended by adding after the item relating to section 4980C
the following new item:
``Sec. 4980D. Failure to meet certain group health plan requirements.''.
(c) Effective Date.--The amendments made by this section shall
apply to failures under chapter 100 of the Internal Revenue Code of
1986 (as added by section 401 of this Act).
Subtitle B--Clarification of Certain Continuation Coverage Requirements
SEC. 421. COBRA CLARIFICATIONS.
(a) Public Health Service Act.--
(1) Period of coverage.--Section 2202(2) of the Public Health
Service Act (42 U.S.C. 300bb-2(2)) is amended--
(A) in subparagraph (A)--
(i) by transferring the sentence immediately preceding
clause (iv) so as to appear immediately following such
clause (iv); and
(ii) in the last sentence (as so transferred)--
(I) by striking ``an individual'' and inserting ``a
qualified beneficiary'';
(II) by striking ``at the time of a qualifying
event described in section 2203(2)'' and inserting ``at
any time during the first 60 days of continuation
coverage under this title'';
(III) by striking ``with respect to such event,'';
and
(IV) by inserting ``(with respect to all qualified
beneficiaries)'' after ``29 months'';
(B) in subparagraph (D)(i), by inserting before ``, or''
the following: ``(other than such an exclusion or limitation
which does not apply to (or is satisfied by) such beneficiary
by reason of chapter 100 of the Internal Revenue Code of 1986,
part 7 of subtitle B of title I of the Employee Retirement
Income Security Act of 1974, or title XXVII of this Act)''; and
(C) in subparagraph (E), by striking ``at the time of a
qualifying event described in section 2203(2)'' and inserting
``at any time during the first 60 days of continuation coverage
under this title''.
(2) Notices.--Section 2206(3) of the Public Health Service Act
(42 U.S.C. 300bb-6(3)) is amended by striking ``at the time of a
qualifying event described in section 2203(2)'' and inserting ``at
any time during the first 60 days of continuation coverage under
this title''.
(3) Birth or adoption of a child.--Section 2208(3)(A) of the
Public Health Service Act (42 U.S.C. 300bb-8(3)(A)) is amended by
adding at the end thereof the following new flush sentence:
``Such term shall also include a child who is born to or placed for
adoption with the covered employee during the period of
continuation coverage under this title.''.
(b) Employee Retirement Income Security Act of 1974.--
(1) Period of coverage.--Section 602(2) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1162(2)) is
amended--
(A) in the last sentence of subparagraph (A)--
(i) by striking ``an individual'' and inserting ``a
qualified beneficiary'';
(ii) by striking ``at the time of a qualifying event
described in section 603(2)'' and inserting ``at any time
during the first 60 days of continuation coverage under
this part'';
(iii) by striking ``with respect to such event''; and
(iv) by inserting ``(with respect to all qualified
beneficiaries)'' after ``29 months'';
(B) in subparagraph (D)(i), by inserting before ``, or''
the following: ``(other than such an exclusion or limitation
which does not apply to (or is satisfied by) such beneficiary
by reason of chapter 100 of the Internal Revenue Code of 1986,
part 7 of this subtitle, or title XXVII of the Public Health
Service Act)''; and
(C) in subparagraph (E), by striking ``at the time of a
qualifying event described in section 603(2)'' and inserting
``at any time during the first 60 days of continuation coverage
under this part''.
(2) Notices.--Section 606(a)(3) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1166(a)(3)) is amended by
striking ``at the time of a qualifying event described in section
603(2)'' and inserting ``at any time during the first 60 days of
continuation coverage under this part''.
(3) Birth or adoption of a child.--Section 607(3)(A) of the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1167(3))
is amended by adding at the end thereof the following new flush
sentence:
``Such term shall also include a child who is born to or placed for
adoption with the covered employee during the period of
continuation coverage under this part.''.
(c) Internal Revenue Code of 1986.--
(1) Period of coverage.--Section 4980B(f)(2)(B) of the Internal
Revenue Code of 1986 is amended--
(A) in the last sentence of clause (i)--
(i) by striking ``at the time of a qualifying event
described in paragraph (3)(B)'' and inserting ``at any time
during the first 60 days of continuation coverage under
this section'';
(ii) by striking ``with respect to such event''; and
(iii) by inserting ``(with respect to all qualified
beneficiaries)'' after ``29 months'';
(B) in clause (iv)(I), by inserting before ``, or'' the
following: ``(other than such an exclusion or limitation which
does not apply to (or is satisfied by) such beneficiary by
reason of chapter 100 of this title, part 7 of subtitle B of
title I of the Employee Retirement Income Security Act of 1974,
or title XXVII of the Public Health Service Act)''; and
(C) in clause (v), by striking ``at the time of a
qualifying event described in paragraph (3)(B)'' and inserting
``at any time during the first 60 days of continuation coverage
under this section''.
(2) Notices.--Section 4980B(f)(6)(C) of the Internal Revenue
Code of 1986 is amended by striking ``at the time of a qualifying
event described in paragraph (3)(B)'' and inserting ``at any time
during the first 60 days of continuation coverage under this
section''.
(3) Birth or adoption of a child.--Section 4980B(g)(1)(A) of
the Internal Revenue Code of 1986 is amended by adding at the end
thereof the following new flush sentence:
``Such term shall also include a child who is born to or
placed for adoption with the covered employee during the
period of continuation coverage under this section.''.
(d) Effective Date.--The amendments made by this section shall
become effective on January 1, 1997, regardless of whether the
qualifying event occurred before, on, or after such date.
(e) Notification of Changes.--Not later than November 1, 1996, each
group health plan (covered under title XXII of the Public Health
Service Act, part 6 of subtitle B of title I of the Employee Retirement
Income Security Act of 1974, and section 4980B(f) of the Internal
Revenue Code of 1986) shall notify each qualified beneficiary who has
elected continuation coverage under such title, part or section of the
amendments made by this section.
TITLE V--REVENUE OFFSETS
SEC. 500. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in this title an
amendment or repeal is expressed in terms of an amendment to, or repeal
of, a section or other provision, the reference shall be considered to
be made to a section or other provision of the Internal Revenue Code of
1986.
Subtitle A--Company-Owned Life Insurance
SEC. 501. DENIAL OF DEDUCTION FOR INTEREST ON LOANS WITH RESPECT TO
COMPANY-OWNED LIFE INSURANCE.
(a) In General.--Paragraph (4) of section 264(a) is amended--
(1) by inserting ``, or any endowment or annuity contracts
owned by the taxpayer covering any individual,'' after ``the life
of any individual'', and
(2) by striking all that follows ``carried on by the taxpayer''
and inserting a period.
(b) Exception for Contracts Relating to Key Persons; Permissible
Interest Rates.--Section 264 is amended--
(1) by striking ``Any'' in subsection (a)(4) and inserting
``Except as provided in subsection (d), any'', and
(2) by adding at the end the following new subsection:
``(d) Special Rules For Application of Subsection (a)(4).--
``(1) Exception for key persons.--Subsection (a)(4) shall not
apply to any interest paid or accrued on any indebtedness with
respect to policies or contracts covering an individual who is a
key person to the extent that the aggregate amount of such
indebtedness with respect to policies and contracts covering such
individual does not exceed $50,000.
``(2) Interest rate cap on key persons and pre-1986
contracts.--
``(A) In general.--No deduction shall be allowed by reason
of paragraph (1) or the last sentence of subsection (a) with
respect to interest paid or accrued for any month beginning
after December 31, 1995, to the extent the amount of such
interest exceeds the amount which would have been determined if
the applicable rate of interest were used for such month.
``(B) Applicable rate of interest.--For purposes of
subparagraph (A)--
``(i) In general.--The applicable rate of interest for
any month is the rate of interest described as Moody's
Corporate Bond Yield Average-Monthly Average Corporates as
published by Moody's Investors Service, Inc., or any
successor thereto, for such month.
``(ii) Pre-1986 contracts.--In the case of indebtedness
on a contract purchased on or before June 20, 1986--
``(I) which is a contract providing a fixed rate of
interest, the applicable rate of interest for any month
shall be the Moody's rate described in clause (i) for
the month in which the contract was purchased, or
``(II) which is a contract providing a variable
rate of interest, the applicable rate of interest for
any month in an applicable period shall be such Moody's
rate for the third month preceding the first month in
such period.
For purposes of subclause (II), the taxpayer shall elect an
applicable period for such contract on its return of tax
imposed by this chapter for its first taxable year ending
on or after October 13, 1995. Such applicable period shall
be for any number of months (not greater than 12) specified
in the election and may not be changed by the taxpayer
without the consent of the Secretary.
``(3) Key person.--For purposes of paragraph (1), the term `key
person' means an officer or 20-percent owner, except that the
number of individuals who may be treated as key persons with
respect to any taxpayer shall not exceed the greater of--
``(A) 5 individuals, or
``(B) the lesser of 5 percent of the total officers and
employees of the taxpayer or 20 individuals.
``(4) 20-percent owner.--For purposes of this subsection, the
term `20-percent owner' means--
``(A) if the taxpayer is a corporation, any person who owns
directly 20 percent or more of the outstanding stock of the
corporation or stock possessing 20 percent or more of the total
combined voting power of all stock of the corporation, or
``(B) if the taxpayer is not a corporation, any person who
owns 20 percent or more of the capital or profits interest in
the employer.
``(5) Aggregation rules.--
``(A) In general.--For purposes of paragraph (4)(A) and
applying the $50,000 limitation in paragraph (1)--
``(i) all members of a controlled group shall be
treated as one taxpayer, and
``(ii) such limitation shall be allocated among the
members of such group in such manner as the Secretary may
prescribe.
``(B) Controlled group.--For purposes of this paragraph,
all persons treated as a single employer under subsection (a)
or (b) of section 52 or subsection (m) or (o) of section 414
shall be treated as members of a controlled group.''.
(c) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to interest paid or accrued after October 13, 1995.
(2) Transition rule for existing indebtedness.--
(A) In general.--In the case of--
(i) indebtedness incurred before January 1, 1996, or
(ii) indebtedness incurred before January 1, 1997 with
respect to any contract or policy entered into in 1994 or
1995,
the amendments made by this section shall not apply to
qualified interest paid or accrued on such indebtedness after
October 13, 1995, and before January 1, 1999.
(B) Qualified interest.--For purposes of subparagraph (A),
the qualified interest with respect to any indebtedness for any
month is the amount of interest (otherwise deductible) which
would be paid or accrued for such month on such indebtedness
if--
(i) in the case of any interest paid or accrued after
December 31, 1995, indebtedness with respect to no more
than 20,000 insured individuals were taken into account,
and
(ii) the lesser of the following rates of interest were
used for such month:
(I) The rate of interest specified under the terms
of the indebtedness as in effect on October 13, 1995
(and without regard to modification of such terms after
such date).
(II) The applicable percentage of the rate of
interest described as Moody's Corporate Bond Yield
Average-Monthly Average Corporates as published by
Moody's Investors Service, Inc., or any successor
thereto, for such month.
For purposes of clause (i), all persons treated as a single
employer under subsection (a) or (b) of section 52 of the
Internal Revenue Code of 1986 or subsection (m) or (o) of
section 414 of such Code shall be treated as 1 person.
Subclause (II) of clause (ii) shall not apply to any month
before January 1, 1996.
(C) Applicable percentage.--For purposes of sub- paragraph
(B), the applicable percentage is as follows:
For calendar year:
The percentage is:
1996............................................
100 percent
1997............................................
90 percent
1998............................................
80 percent.
(3) Special rule for grandfathered contracts.--This section
shall not apply to any contract purchased on or before June 20,
1986, except that section 264(d)(2) of the Internal Revenue Code of
1986 shall apply to interest paid or accrued after October 13,
1995.
(d) Spread of Income Inclusion on Surrender, Etc. of Contracts.--
(1) In general.--If any amount is received under any life
insurance policy or endowment or annuity contract described in
paragraph (4) of section 264(a) of the Internal Revenue Code of
1986--
(A) on the complete surrender, redemption, or maturity of
such policy or contract during calendar year 1996, 1997, or
1998, or
(B) in full discharge during any such calendar year of the
obligation under the policy or contract which is in the nature
of a refund of the consideration paid for the policy or
contract,
then (in lieu of any other inclusion in gross income) such amount
shall be includible in gross income ratably over the 4-taxable year
period beginning with the taxable year such amount would (but for
this paragraph) be includible. The preceding sentence shall only
apply to the extent the amount is includible in gross income for
the taxable year in which the event described in subparagraph (A)
or (B) occurs.
(2) Special rules for applying section 264.--A contract shall
not be treated as--
(A) failing to meet the requirement of section 264(c)(1) of
the Internal Revenue Code of 1986, or
(B) a single premium contract under section 264(b)(1) of
such Code,
solely by reason of an occurrence described in subparagraph (A) or
(B) of paragraph (1) of this subsection or solely by reason of no
additional premiums being received under the contract by reason of
a lapse occurring after October 13, 1995.
(3) Special rule for deferred acquisition costs.--In the case
of the occurrence of any event described in subparagraph (A) or (B)
of paragraph (1) of this subsection with respect to any policy or
contract--
(A) section 848 of the Internal Revenue Code of 1986 shall
not apply to the unamortized balance (if any) of the specified
policy acquisition expenses attributable to such policy or
contract immediately before the insurance company's taxable
year in which such event occurs, and
(B) there shall be allowed as a deduction to such company
for such taxable year under chapter 1 of such Code an amount
equal to such unamortized balance.
Subtitle B--Treatment of Individuals Who Lose United States Citizenship
SEC. 511. REVISION OF INCOME, ESTATE, AND GIFT TAXES ON INDIVIDUALS
WHO LOSE UNITED STATES CITIZENSHIP.
(a) In General.--Subsection (a) of section 877 is amended to read
as follows:
``(a) Treatment of 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 one 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 one of its principal purposes the avoidance
of taxes under this subtitle or subtitle B.
``(2) Individuals described.--
``(A) Dual citizenship, etc.--An individual is described in
this subparagraph if--
``(i) the individual became at birth a citizen of the
United States and a citizen of another country and
continues to be a citizen of such other country, or
``(ii) the individual becomes (not later than the close
of a reasonable period after loss of United States
citizenship) a citizen of the country in which--
``(I) such individual was born,
``(II) if such individual is married, such indi-
vidual's spouse was born, or
``(III) either of such individual's parents were
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 indi- vidual is
described in a category of individuals prescribed by regulation
by the Secretary.''.
(2) Technical amendment.--Paragraph (1) of section 877(b) of
such Code is 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 corpora-
tion, 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.
``(4) Treatment of property contributed to controlled foreign
corporations.--
``(A) In general.--If--
``(i) an individual losing United States citizenship
contributes property to any corporation which, at the time
of the contribution, is described in subparagraph (B), and
``(ii) income derived from such property was from
sources within the United States (or, if no income was so
derived, would have been from such sources),
during the 10-year period referred to in subsection (a), any
income or gain on such property (or any other property which
has a basis determined in whole or part by reference to such
property) received or accrued by the corporation shall be
treated as received or accrued directly by such individual and
not by such corporation. The preceding sentence shall not apply
to the extent the property has been treated under subparagraph
(C) as having been sold by such corporation.
``(B) Corporation described.--A corporation is described in
this subparagraph with respect to an individual if, were such
individual a United States citizen--
``(i) such corporation would be a controlled foreign
corporation (as defined in 957), and
``(ii) such individual would be a United States
shareholder (as defined in section 951(b)) with respect to
such corporation.
``(C) Disposition of stock in corporation.--If stock in the
corporation referred to in subparagraph (A) (or any other stock
which has a basis determined in whole or part by reference to
such stock) is disposed of during the 10-year period referred
to in subsection (a) and while the property referred to in
subparagraph (A) is held by such corporation, a pro rata share
of such property (determined on the basis of the value of such
stock) shall be treated as sold by the corporation immediately
before such disposition.
``(D) Anti-abuse rules.--The Secretary shall prescribe such
regulations as may be necessary to prevent the avoidance of the
purposes of this paragraph, including where--
``(i) the property is sold to the corporation, and
``(ii) the property taken into account under
subparagraph (A) is sold by the corporation.
``(E) Information reporting.--The Secretary shall require
such information reporting as is necessary to carry out the
purposes of this paragraph.''.
(d) Credit for Foreign Taxes Imposed on United States Source
Income.--
(1) Subsection (b) of section 877 is amended by adding at the
end the following new sentence: ``The tax imposed solely by reason
of this section shall be reduced (but not below zero) by the amount
of any income, war profits, and excess profits taxes (within the
meaning of section 903) paid to any foreign country or possession
of the United States on any income of the taxpayer on which tax is
imposed solely by reason of this section.''
(2) Subsection (a) of section 877, as amended by subsection
(a), is amended by inserting ``(after any reduction in such tax
under the last sentence of such subsection)'' after ``such
subsection''.
(e) Comparable Estate and Gift Tax Treatment.--
(1) Estate tax.--
(A) In general.--Subsection (a) of section 2107 is amended
to read as follows:
``(a) Treatment of Expatriates.--
``(1) Rate of tax.--A tax computed in accordance with the table
contained in section 2001 is hereby imposedon the transfer of the
taxable estate, determined as provided in section 2106, of every
decedent nonresident not a citizen of the United States if, within the
10-year period ending with the date of death, such decedent lost United
States citizenship, unless such loss did not have for one of its
principal purposes the avoidance of taxes under this subtitle or
subtitle A.
``(2) Certain individuals treated as having tax avoidance
purpose.--
``(A) In general.--For purposes of paragraph (1), 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 per- cent 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 one 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 aprincipal 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) Ruling requests.--In no event shall the 1-year period
referred to in section 877(c)(1)(B) of such Code, as amended by
this section, expire before the date which is 90 days after the
date of the enactment of this Act.
(3) Special rule.--
(A) In general.--In the case of an individual who performed
an act of expatriation specified in paragraph (1), (2), (3), or
(4) of section 349(a) of the Immigration and Nationality Act (8
U.S.C. 1481(a)(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 512 shall apply to such individual except that the
10-year period described in section 877(a) of such Code shall
not expire before the end of the 10-year period beginning on
the date such statement is so furnished.
(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. 512. INFORMATION ON INDIVIDUALS LOSING UNITED STATES
CITIZENSHIP.
(a) In General.--Subpart A of part III of subchapter A of chapter
61 is amended by inserting after section 6039E the following new
section:
``SEC. 6039F. INFORMATION ON INDIVIDUALS LOSING UNITED STATES
CITIZENSHIP.
``(a) In General.--Notwithstanding any other provision of law, any
individual who loses United States citizenship (within the meaning of
section 877(a)) shall provide a statement which 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. 513. REPORT ON TAX COMPLIANCE BY UNITED STATES CITIZENS AND
RESIDENTS LIVING ABROAD.
Not later than 90 days after the date of the enactment of this Act,
the Secretary of the Treasury shall prepare and submit to the Committee
on Ways and Means of the House of 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).
Subtitle C--Repeal of Financial Institution Transition Rule to Interest
Allocation Rules
SEC. 521. REPEAL OF FINANCIAL INSTITUTION TRANSITION RULE TO
INTEREST ALLOCATION RULES.
(a) In General.--Paragraph (5) of section 1215(c) of the Tax Reform
Act of 1986 (Public Law 99-514, 100 Stat. 2548) is hereby repealed.
(b) Effective Date.--
(1) In general.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1995.
(2) Special rule.--In the case of the first taxable year
beginning after December 31, 1995, the pre-effective date portion
of the interest expense of the corporation referred to in such
paragraph (5) of such section 1215(c) for such taxable year shall
be allocated and apportioned without regard to such amendment. For
purposes of the preceding sentence, the pre-effective date portion
is the amount which bears the same ratio to the interest expense
for such taxable year as the number of days during such taxable
year before the date of the enactment of this Act bears to 366.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.