[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.