[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3381 Introduced in House (IH)]
104th CONGRESS
2d Session
H. R. 3381
To amend the Internal Revenue Code of 1986 and the Social Security Act
to provide tax incentives for the purchase of long-term care insurance
and to establish consumer protection standards for such insurance.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
May 1, 1996
Mr. Durbin introduced the following bill; which was referred to the
Committee on Ways and Means, and in addition to the Committee on
Commerce, for a period to be subsequently determined by the Speaker, in
each case for consideration of such provisions as fall within the
jurisdiction of the committee concerned
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 and the Social Security Act
to provide tax incentives for the purchase of long-term care insurance
and to establish consumer protection standards for such insurance.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Long-Term Care Insurance Incentives
and Consumer Protection Act of 1996''.
TITLE I--TAX-RELATED PROVISIONS
SEC. 100. 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.
SEC. 101. 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) the State in which such contract is issued
has a regulatory program approved by the Secretary of
Health and Human Services under title XXI of the Social
Security Act and such contract is certified under such
program.
``(2) Special rules.--
``(A) Per diem, etc. payments permitted.--A
contract shall not fail to be described in subparagraph
(A) or (B) of paragraph (1) by reason of payments being
made on a per diem or other periodic basis without
regard to the expenses incurred during the period to
which the payments relate.
``(B) Special rules relating to medicare.--
``(i) Paragraph (1)(B) shall not apply to
expenses which are reimbursable under title
XVIII of the Social Security Act only as a
secondary payor.
``(ii) No provision of law shall be
construed or applied so as to prohibit the
offering of a qualified long-term care
insurance contract on the basis that the
contract coordinates its benefits with those
provided under such title.
``(C) Refunds of premiums.--Paragraph (1)(E) shall
not apply to any refund on the death of the insured, or
on a complete surrender or cancellation of the
contract, which cannot exceed the aggregate premiums
paid under the contract. Any refund on a complete
surrender or cancellation of the contract shall be
includible in gross income to the extent that any
deduction or exclusion was allowable with respect to
the premiums.
``(c) Qualified Long-Term Care Services.--For purposes of this
section--
``(1) In general.--The term `qualified long-term care
services' means necessary diagnostic, preventive, therapeutic,
curing, treating, mitigating, and rehabilitative services, and
maintenance or personal care services, which--
``(A) are required by a chronically ill individual,
and
``(B) are provided pursuant to a plan of care
prescribed by a licensed health care practitioner.
``(2) Chronically ill individual.--
``(A) In general.--The term `chronically ill
individual' means any individual who has been certified
by a licensed health care practitioner as--
``(i) being unable to perform (without
substantial assistance from another individual)
at least 2 activities of daily living for a
period of at least 90 days due to a loss of
functional capacity,
``(ii) having a level of disability similar
(as determined by the Secretary in consultation
with the Secretary of Health and Human
Services) to the level of disability described
in clause (i), or
``(iii) requiring substantial supervision
to protect such individual from threats to
health and safety due to severe cognitive
impairment.
Such term shall not include any individual otherwise
meeting the requirements of the preceding sentence
unless within the preceding 12-month period a licensed
health care practitioner has certified that such
individual meets such requirements.
``(B) Activities of daily living.--For purposes of
subparagraph (A), each of the following is an activity
of daily living:
``(i) Eating.
``(ii) Toileting.
``(iii) Transferring.
``(iv) Bathing.
``(v) Dressing.
``(vi) Continence.
Nothing in this section shall be construed to require a
contract to take into account all of the preceding
activities of daily living.
``(3) Maintenance or personal care services.--The term
`maintenance or personal care services' means any care the
primary purpose of which is the provision of needed assistance
with any of the disabilities as a result of which the
individual is a chronically ill individual (including the
protection from threats to health and safety due to severe
cognitive impairment).
``(4) Licensed health care practitioner.--The term
`licensed health care practitioner' means any physician (as
defined in section 1861(r)(1) of the Social Security Act) and
any registered professional nurse, licensed social worker, or
other individual who meets such requirements as may be
prescribed by the Secretary.
``(d) Aggregate Payments in Excess of Limits.--
``(1) In general.--If the aggregate amount of periodic
payments under all qualified long-term care insurance contracts
with respect to an insured for any period exceeds the dollar
amount in effect for such period under paragraph (3), such
excess payments shall be treated as made for qualified long-
term care services only to the extent of the costs incurred by
the payee (not otherwise compensated for by insurance or
otherwise) for qualified long-term care services provided during such
period for such insured.
``(2) Periodic payments.--For purposes of paragraph (1),
the term `periodic payment' means any payment (whether on a
periodic basis or otherwise) made without regard to the extent
of the costs incurred by the payee for qualified long-term care
services.
``(3) Dollar amount.--The dollar amount in effect under
this subsection shall be $175 per day (or the equivalent amount
in the case of payments on another periodic basis).
``(4) Inflation adjustment.--In the case of a calendar year
after 1997, the dollar amount contained in paragraph (3) shall
be increased at the same time and in the same manner as amounts
are increased pursuant to section 213(d)(10).
``(e) Treatment of Coverage Provided as Part of a Life Insurance
Contract.--Except as otherwise provided in regulations prescribed by
the Secretary, in the case of any long-term care insurance coverage
(whether or not qualified) provided by a rider on 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 Section 7702.--Section 7702(c)(2)
(relating to the guideline premium limitation) shall be applied
by increasing the guideline premium limitation with respect to
a life insurance contract, as of any date--
``(A) by the sum of any charges (but not premium
payments) against the life insurance contract's cash
surrender value (within the meaning of section
7702(f)(2)(A)) for such coverage made to that date
under the contract, less
``(B) any such charges the imposition of which
reduces the premiums paid for the contract (within the
meaning of section 7702(f)(1)).
``(3) Application of section 213.--No deduction shall be
allowed under section 213(a) for charges against the life
insurance contract's cash surrender value described in
paragraph (2), unless such charges are includible in income as
a result of the application of section 72(e)(10) and the rider
is a qualified long-term care insurance contract under
subsection (b).
``(4) Portion defined.--For purposes of this subsection,
the term `portion' means only the terms and benefits under a
life insurance contract that are in addition to the terms and
benefits under the contract without regard to the coverage
under a qualified long-term care insurance contract.''
(b) Long-Term Care Insurance Not Permitted Under Cafeteria Plans or
Flexible Spending Arrangements.--
(1) Cafeteria plans.--Section 125(f) is amended by adding
at the end the following new sentence: ``Such term shall not
include any product which is advertised, marketed, or offered
as long-term care insurance.''
(2) Flexible spending arrangements.--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 provided in subsection (b), gross
income of an employee does not include employer-provided coverage under
an accident or health plan.
``(b) Inclusion of Long-Term Care Benefits Provided Through
Flexible Spending Arrangements.--
``(1) In general.--Effective on and after January 1, 1997,
gross income of an employee shall include employer-provided
coverage for qualified long-term care services (as defined in
section 7702B(c)) to the extent that such coverage is provided
through a flexible spending or similar arrangement.
``(2) Flexible spending arrangement.--For purposes of this
subsection, a flexible spending arrangement is a benefit
program which provides employees with coverage under which--
``(A) specified incurred expenses may be reimbursed
(subject to reimbursement maximums and other reasonable
conditions), and
``(B) the maximum amount of reimbursement which is
reasonably available to a participant for such coverage
is less than 500 percent of the value of such coverage.
In the case of an insured plan, the maximum amount reasonably
available shall be determined on the basis of the underlying
coverage.''
(c) Continuation Coverage Excise Tax Not To Apply.--Subsection (f)
of section 4980B is amended by adding at the end the following new
paragraph:
``(9) Continuation of long-term care coverage not
required.--A group health plan shall not be treated as failing
to meet the requirements of this subsection solely by reason of
failing to provide coverage under any qualified long-term care
insurance contract (as defined in section 7702B(b)).''
(d) Clerical Amendment.--The table of sections for chapter 79 is
amended by inserting after the item relating to section 7702A the
following new item:
``Sec. 7702B. Treatment of qualified
long-term care insurance.''.
(e) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to contracts issued after December 31, 1996.
(2) Continuation of existing policies.--In the case of any
contract issued before January 1, 1997, which met the long-term
care insurance requirements of the State in which the contract
was sitused at the time the contract was issued--
(A) such contract shall be treated for purposes of
the Internal Revenue Code of 1986 as a qualified long-
term care insurance contract (as defined in section
7702B(b) of such Code), and
(B) services provided under, or reimbursed by, such
contract shall be treated for such purposes as
qualified long-term care services (as defined in
section 7702B(c) of such Code).
(3) Exchanges of existing policies.--If, after the date of
enactment of this Act and before January 1, 1998, a contract
providing for long-term care insurance coverage is exchanged
solely for a qualified long-term care insurance contract (as
defined in section 7702B(b) of such Code), no gain or loss
shall be recognized on the exchange. If, in addition to a
qualified long-term care insurance contract, money or other
property is received in the exchange, then any gain shall be
recognized to the extent of the sum of the money and the fair
market value of the other property received. For purposes of
this paragraph, the cancellation of a contract providing for
long-term care insurance coverage and reinvestment of the
cancellation proceeds in a qualified long-term care insurance
contract within 60 days thereafter shall be treated as an
exchange.
(4) Issuance of certain riders permitted.--For purposes of
applying sections 101(f), 7702, and 7702A of the Internal
Revenue Code of 1986 to any contract--
(A) the issuance of a rider which is treated as a
qualified long-term care insurance contract under
section 7702B, and
(B) the addition of any provision required to
conform any other long-term care rider to be so
treated,
shall not be treated as a modification or material change of
such contract.
SEC. 102. 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) Deduction for Premiums Allowed Without Regard to Adjusted Gross
Income Threshold.--Subsection (a) of section 213 is amended to read as
follows:
``(a) Allowance of Deduction.--There shall be allowed as a
deduction the following amounts not compensated for by insurance or
otherwise--
``(1) the amount by which the expenses paid during the
taxable year (reduced by the amount deductible under paragraph
(2)) for medical care of the taxpayer, his spouse, and
dependents (as defined in section 152) exceeds 7.5 percent of
adjusted gross income, and
``(2) the amount of the eligible long-term care premiums
paid during the taxable year.''
(c) Technical Amendments.--
(1) Subparagraph (D) of section 213(d)(1) (as redesignated
by subsection (a)) is amended by inserting before the period
``or for any qualified long-term care insurance contract (as
defined in section 7702B(b))''.
(2)(A) Paragraph (1) of section 213(d) is amended by adding
at the end the following new flush sentence:
``In the case of a qualified long-term care insurance contract
(as defined in section 7702B(b)), only eligible long-term care
premiums (as defined in paragraph (10)) shall be taken into
account under subparagraph (D).''
(B) Subsection (d) of section 213 is amended by adding at
the end the following new paragraphs:
``(10) Eligible long-term care premiums.--
``(A) In general.--For purposes of this section,
the term `eligible long-term care premiums' means the
amount paid during a taxable year for any qualified
long-term care insurance contract (as defined in
section 7702B(b)) covering an individual, to the extent
such amount does not exceed the limitation determined
under the following table:
``In the case of an individual
with an attained age before the
The limitation
close of the taxable year of:
is:
40 or less............... $ 200
More than 40 but not more 375
than 50.
More than 50 but not more 750
than 60.
More than 60 but not more 2,000
than 70.
More than 70............. 2,500.
``(B) Indexing.--
``(i) In general.--In the case of any
taxable year beginning in a calendar year after
1997, each dollar amount contained in
subparagraph (A) shall be increased by the
medical care cost adjustment of such amount for
such calendar year. If any increase determined
under the preceding sentence is not a multiple
of $10, such increase shall be rounded to the
nearest multiple of $10.
``(ii) Medical care cost adjustment.--For
purposes of clause (i), the medical care cost
adjustment for any calendar year is the
percentage (if any) by which--
``(I) the medical care component of
the Consumer Price Index (as defined in
section 1(f)(5)) for August of the
preceding calendar year, exceeds
``(II) such component for August of
1996.
The Secretary shall, in consultation with the
Secretary of Health and Human Services,
prescribe an adjustment which the Secretary
determines is more appropriate for purposes of
this paragraph than the adjustment described in
the preceding sentence, and the adjustment so
prescribed shall apply in lieu of the
adjustment described in the preceding sentence.
``(11) Certain payments to relatives treated as not paid
for medical care.--An amount paid for a qualified long-term
care service (as defined in section 7702B(c)) provided to an
individual shall be treated as not paid for medical care if
such service is provided--
``(A) by the spouse of the individual or by a
relative (directly or through a partnership,
corporation, or other entity) unless the service is
provided by a licensed professional with respect to
such service, or
``(B) by a corporation or partnership which is
related (within the meaning of section 267(b) or
707(b)) to the individual.
For purposes of this paragraph, the term `relative' means an
individual bearing a relationship to the individual which is
described in any of paragraphs (1) through (8) of section
152(a). This paragraph shall not apply for purposes of section
105(b) with respect to reimbursements through insurance.''
(3) Paragraph (6) of section 213(d) is amended--
(A) by striking ``subparagraphs (A) and (B)'' and
inserting ``subparagraphs (A), (B), and (C)'', and
(B) by striking ``paragraph (1)(C)'' in
subparagraph (A) and inserting ``paragraph (1)(D)''.
(4) Paragraph (7) of section 213(d) is amended by striking
``subparagraphs (A) and (B)'' and inserting ``subparagraphs
(A), (B), and (C)''.
(d) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1996.
(2) Deduction for long-term care services.--Amounts paid
for qualified long-term care services (as defined in section
7702B(c) of the Internal Revenue Code of 1986, as added by this
Act) furnished in any taxable year beginning before January 1,
1997, shall not be taken into account under section 213 of the
Internal Revenue Code of 1986.
SEC. 103. CERTAIN EXCHANGES OF LIFE INSURANCE CONTRACTS FOR QUALIFIED
LONG-TERM CARE INSURANCE CONTRACTS NOT TAXABLE.
(a) In General.--Subsection (a) of section 1035 (relating to
certain exchanges of insurance contracts) is amended by striking the
period at the end of paragraph (3) and inserting ``; or'', and by
adding at the end the following new paragraph:
``(4) a contract of life insurance or an endowment or
annuity contract for a qualified long-term care insurance
contract (as defined in section 7702B(b)).''
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1996.
SEC. 104. EXCEPTION FROM PENALTY TAX FOR AMOUNTS WITHDRAWN FROM CERTAIN
RETIREMENT PLANS FOR QUALIFIED LONG-TERM CARE INSURANCE.
(a) In General.--Paragraph (2) of section 72(t) is amended by
adding at the end the following new subparagraph:
``(F) Premiums for qualified long-term care
insurance contracts.--Distributions to an individual
from an individual retirement plan, or from amounts
attributable to employer contributions made pursuant to
elective deferrals described in subparagraph (A) or (C)
of section 402(g)(3), to the extent such distributions
do not exceed the premiums for a qualified long-term
care insurance contract (as defined in section
7702B(b)) for such individual or the spouse of such
individual. In applying subparagraph (B), such premiums
shall be treated as amounts not paid for medical
care.''
(b) Distributions Permitted From Certain Plans To Pay Long-term
Care Premiums.--
(1) Section 401(k)(2)(B)(i) is amended by striking ``or''
at the end of subclause (III), by striking ``and'' at the end
of subclause (IV) and inserting ``or'', and by inserting after
subclause (IV) the following new subclause:
``(V) the date distributions for
premiums for a long-term care insurance
contract (as defined in section
7702B(b)) for coverage of such
individual or the spouse of such
individual are made, and''.
(2) Section 403(b)(11) is amended by striking ``or'' at the
end of subparagraph (A), by striking the period at the end of
subparagraph (B) and inserting ``, or'', and by inserting after
subparagraph (B) the following new subparagraph:
``(C) for the payment of premiums for a long-term
care insurance contract (as defined in section
7702B(b)) for coverage of the employee or the spouse of
the employee.''
(3) Subparagraph (A) of section 457(d)(1) is amended by
striking ``or'' at the end of clause (ii), by striking ``and''
at the end of clause (iii) and inserting ``or'', and by
inserting after clause (iii) the following new clause:
``(iv) the date distributions for premiums
for a long-term care insurance contract (as
defined in section 7702B(b)) for coverage of
such individual or the spouse of such
individual are made, and''.
(c) Effective Date.--The amendments made by this section shall
apply to payments and distributions after December 31, 1996.
SEC. 105. REPORTING REQUIREMENTS.
(a) In General.--Subpart B of part III of subchapter A of chapter
61 is amended by adding at the end the following new section:
``SEC. 6050Q. CERTAIN LONG-TERM CARE BENEFITS.
``(a) Requirement of Reporting.--Any person who pays long-term care
benefits shall make a return, according to the forms or regulations
prescribed by the Secretary, setting forth--
``(1) the aggregate amount of such benefits paid by such
person to any individual during any calendar year, and
``(2) the name, address, and TIN of such individual.
``(b) Statements To Be Furnished to Persons With Respect to Whom
Information Is Required.--Every person required to make a return under
subsection (a) shall furnish to each individual whose name is required
to be set forth in such return a written statement showing--
``(1) the name of the person making the payments, and
``(2) the aggregate amount of long-term care benefits paid
to the individual which are required to be shown on such
return.
The written statement required under the preceding sentence shall be
furnished to the individual on or before January 31 of the year
following the calendar year for which the return under subsection (a)
was required to be made.
``(c) Long-Term Care Benefits.--For purposes of this section, the
term `long-term care benefit' means--
``(1) any amount paid under any product which is
advertised, marketed, or offered as long-term care insurance,
and
``(2) payments which are excludable from gross income by
reason of section 101(g).''.
(b) Penalties.--
(1) Subparagraph (B) of section 6724(d)(1) is amended by
redesignating clauses (ix) through (xiv) as clauses (x) through
(xv), respectively, and by inserting after clause (viii) the
following new clause:
``(ix) section 6050Q (relating to certain
long-term care benefits),''.
(2) Paragraph (2) of section 6724(d) is amended by
redesignating subparagraphs (Q) through (T) as subparagraphs
(R) through (U), respectively, and by inserting after
subparagraph (P) the following new subparagraph:
``(Q) section 6050Q(b) (relating to certain long-
term care benefits),''.
(c) Clerical Amendment.--The table of sections for subpart B of
part III of subchapter A of chapter 61 is amended by adding at the end
the following new item:
``Sec. 6050Q. Certain long-term care
benefits.''
(d) Effective Date.--The amendments made by this section shall
apply to benefits paid after December 31, 1996.
TITLE II--FEDERAL STANDARDS FOR PRIVATE LONG-TERM CARE INSURANCE
CONTRACTS
SEC. 201. FEDERAL STANDARDS FOR PRIVATE LONG-TERM CARE INSURANCE
CONTRACTS.
(a) In General.--The Social Security Act is amended by adding at
the end the following:
``TITLE XXI--FEDERAL STANDARDS FOR PRIVATE LONG-TERM CARE INSURANCE
CONTRACTS
``SEC. 2101. REQUIREMENTS FOR STATE ENFORCEMENT PROGRAMS.
``(a) In General.--The Secretary shall review, approve, and
periodically reapprove State programs that certify long-term care
insurance contracts as meeting the Federal standards established under
this title. The Secretary may not approve or reapprove such a program
unless it meets the requirements of this section.
``(b) General Requirement.--In order to be approved, a State
program must include such laws and procedures as may be necessary to
ensure the compliance of long-term care insurance contracts certified
by the State, and insurers issuing such contracts and their agents,
with the Federal requirements established under this title.
``(c) Specific Activities Under State Program.--In order to be
approved, a State program shall provide for the following procedures
and activities:
``(1) Monitoring of insurers and contracts.--Procedures for
ongoing monitoring of the compliance of insurers doing business
in the State, and of long-term care insurance contracts issued
in the State, with requirements under this title.
``(2) Contract review and certification.--Procedures for
review and certification (and annual recertification) of each
such contract sold in the State.
``(3) Consumer complaints and dispute resolution.--
Administrative procedures for the investigation and resolution
of complaints by consumers, and disputes between consumers and
insurers, with respect to long-term care insurance, including
procedures for the filing, investigation, and adjudication of
consumer complaints with respect to the compliance of insurers
and contracts with requirements under this title, or other
requirements under State law.
``SEC. 2102. REQUIREMENTS TO FACILITATE UNDERSTANDING AND COMPARISON OF
BENEFITS.
``(a) In General.--The Secretary, in consultation with the National
Association of Insurance Commissioners (in this title referred to as
the `NAIC'), shall promulgate regulations designed to standardize
formats and terminology used in long-term care insurance contracts, to
require insurers to provide to customers and beneficiaries information
on the range of public and private long-term care coverage available,
and to establish such other requirements as may be appropriate to
promote consumer understanding and facilitate comparison of benefits,
which shall include at a minimum the requirements specified in this
section.
``(b) Uniform Terms, Definitions, and Formats.--Insurers shall be
required to use, in long-term care insurance contracts, uniform
terminology, definitions of terms, and formats, in accordance with
regulations promulgated by the Secretary.
``(c) Standard Outline of Coverage.--
``(1) In general.--Insurers shall be required to develop
for each long-term care insurance contract offered or sold, to
include as a part of each such contract, and to make available
to each potential purchaser and furnish to each insured
individual and contractholder, an outline of coverage under
such contract that--
``(A) includes the elements specified in paragraph
(2),
``(B) is in a uniform format,
``(C) accurately and clearly reflects the contents
of the contract, and
``(D) is updated periodically on such timetable as
may be required by the Secretary (or more frequently as
necessary to reflect significant changes in outlined
information).
``(2) Contents of outline.--The outline of coverage for
each long-term care insurance contract shall include at least
the following:
``(A) Benefits.--A description of--
``(i) the principal benefits covered,
including the extent of--
``(I) benefits for services
furnished in residential care
facilities, and
``(II) other benefits,
``(ii) the principal exclusions from and
limitations on coverage,
``(iii) the terms and conditions, if any,
upon which the insured individual may obtain
upgraded benefits, and
``(iv) the threshold conditions for
entitlement to receive benefits.
``(B) Cancellation.--A statement of the
circumstances in which a contract may be terminated,
and the refund or nonforfeitures benefits (if any)
applicable in each such circumstance, including--
``(i) death of the insured individual,
``(ii) nonpayment of premiums,
``(iii) election by the insured individual
not to renew,
``(iv) any other circumstance.
``(C) Premium.--A statement of--
``(i) the total annual premium, and the
portion of such premium attributable to each
covered benefit,
``(ii) any reservation by the insurer of a
right to change premiums,
``(iii) any limit on annual premium
increases,
``(iv) any expected premium increases
associated with automatic or optional benefit
increases (including inflation protection), and
``(v) any circumstances under which payment
of premium is waived.
``(D) Cost/value comparison.--
``(i) Information on average costs (and
variation in such costs) for nursing facility
care (and such other care as the Secretary may
specify) in the United States, information on
the value of benefits relative to such costs,
and a statement that this national average
varies by geographic region.
``(ii) A comparison of benefits, over a
period of at least 20 years, for contracts with
and without inflation protection.
``(iii) A declaration as to whether the
amount of benefits will increase over time,
and, if so, a statement of the type and amount
of, any limitations on, and any premium
increases for, such benefit increases.
``SEC. 2103. LIMITING CONDITIONS ON BENEFITS.
``(a) In General.--A long-term care insurance contract may not--
``(1) condition eligibility for benefits for a type of
service on the need for or receipt of any other type of service
(such as prior hospitalization or institutionalization, or a
higher level of care than the care for which benefits are
covered);
``(2) condition eligibility for any benefit (where the need
for such benefit has been established by an independent
assessment of impairment) on any particular medical diagnosis
(including any acute condition) or on one of a group of
diagnoses;
``(3) condition eligibility for benefits furnished by
licensed or certified providers on compliance by such providers
with conditions not required under Federal or State law; or
``(4) condition coverage of any service on provision of
such service by a provider, or in a setting, providing a higher
level of care than that required by an insured individual.
``(b) Home Care or Community-Based Services.--A long-term care
insurance contract that provides benefits for any home care or
community-based services provided in a setting other than a residential
care facility--
``(1) may not limit such benefits to services provided by
registered nurses or licensed practical nurses;
``(2) may not limit such benefits to services furnished by
persons or entities participating in programs under titles
XVIII and XIX of this Act; and
``(3) must provide, at a minimum, benefits for personal
assistance with activities of daily living, home health care,
adult day care, and respite care.
``(c) Nursing Facility Services.--A long-term care insurance
contract that provides benefits for any nursing facility services--
``(1) must provide benefits for such services provided by
all types of nursing facilities licensed by the State, and
``(2) may provide benefits for care in other residential
facilities.
``(d) Prohibition on Discrimination by Diagnosis.--A long-term care
insurance contract may not provide for treatment of--
``(1) Alzheimer's disease or any other progressive
degenerative dementia of an organic origin,
``(2) any organic or inorganic mental illness,
``(3) mental retardation or any other cognitive or mental
impairment, or
``(4) HIV infection or AIDS,
different from the treatment of any other medical condition for
purposes of determining whether threshold conditions for the
receipt of benefits have been met, or the amount of benefits
under the contract.
``SEC. 2104. INFLATION PROTECTION.
``(a) In General.--The Secretary, after consultation with NAIC,
shall promulgate regulations establishing requirements with respect to
inflation protection, which shall include at a minimum the requirements
specified in this section.
``(b) Requirement to Offer.--An insurer offering for sale any long-
term care insurance contract shall be required to afford the purchaser
the option to obtain coverage under such contract (upon payment of
increased premiums) of annual increases in benefits at rates in
accordance with subsection (c).
``(c) Rate Increase in Benefits.--For purposes of subsection (b),
the benefits under a contract for each year shall be increased by a
percentage of the full value of benefits under the contract for the
previous year, which shall be not less than 5 percent of such value (or
such other rate of increase as may be determined by the Secretary to be
adequate to offset increases in the costs of long-term care services
for which coverage is provided under the contract).
``(d) Requirement of Written Rejection.--Inflation protection in
accordance with subsection (b) may be excluded from the coverage under
a contract only if the insured individual (or, if different, the person
responsible for payment of premiums) has rejected in writing the option
to obtain such coverage.
``SEC. 2105. NONFORFEITURE BENEFITS.
``(a) In General.--The Secretary, after consultation with NAIC,
shall promulgate regulations establishing requirements with respect to
nonforfeiture benefits, which shall include at a minimum the
requirements specified in this section.
``(b) Requirement.--Each long-term care insurance contract that
lapses for any reason (including nonpayment of premiums, cancellation,
or failure to renew, but excluding lapses due to death) after remaining
in effect beyond a specified minimum period shall provide for
appropriate nonforfeiture benefits.
``(c) Nonforfeiture Benefits.--The standards established under this
section shall require that the amount or percentage of nonforfeiture
benefits shall increase proportionally with the amount of premiums paid
by a contractholder.
``SEC. 2106. CONTINUATION, RENEWAL, REPLACEMENT, CONVERSION, AND
CANCELLATION OF CONTRACTS.
``(a) In General.--The Secretary, in consultation with NAIC, shall
promulgate regulations establishing requirements applicable to the
renewal, replacement, conversion, and cancellation of long-term care
insurance contracts, which shall include at a minimum the requirements
specified in this section.
``(b) Insured's Right To Cancel During Examination Period.--Each
individual insured (or, if different, each individual liable for
payment of premiums) under a long-term care insurance contract shall
have the unconditional right to return the contract within 30 days
after the date of its issuance and delivery, and to obtain a full
refund of any premium paid.
``(c) Continuation, Renewal, Replacement, and Conversion of
Contracts.--
``(1) In general.--Insurers shall not be permitted to
cancel, or refuse to renew (or replace with a substantial
equivalent), any long-term care insurance contract for any
reason other than for fraud or material misrepresentation or
for nonpayment of premium.
``(2) Continuation and conversion rights with respect to
group contracts.--
``(A) In general.--Insurers shall be required to
include in each group long-term care insurance
contract, a provision affording to each insured
individual, when such contract would otherwise
terminate, the opportunity (at the insurer's option,
subject to approval of the State insurance
commissioner) either to continue or to convert coverage
under such contract in accordance with this paragraph.
``(B) Rights of related individuals.--In the case
of any insured individual whose eligibility for
coverage under a group contract is based on
relationship to another individual, the insurer shall
be required to continue such coverage upon termination
of the relationship due to divorce or death.
``(C) Continuation of coverage.--A group contract
shall be considered to meet the requirements of this
paragraph with respect to rights of an insured
individual to continuation of coverage if coverage of
the same (or substantially equivalent) benefits for
such individual under such contract is maintained,
subject only to timely payment of premiums.
``(D) Conversion of coverage.--A group contract
shall be considered to meet the requirements of this
paragraph with respect to conversion if it entitles
each individual who has been continuously covered under
the contract for at least 6 months before the date of
the termination to issuance of a replacement contract
providing benefits identical to, substantially
equivalent to, or in excess of, the benefits under such
terminated group contract--
``(i) without requiring evidence of
insurability with respect to benefits covered
under such previous contract, and
``(ii) at premium rates no higher than
would apply if the insured individual had
initially obtained coverage under such
replacement contract on the date such insured
individual initially obtained coverage under
such group contract.
``SEC. 2107. DEFINITIONS.
``For purposes of this title:
``(1) Activity of daily living.--The term `activity of
daily living' means any of the following: eating, toileting,
dressing, bathing, transferring, and continence.
``(2) Adult day care.--The term `adult day care' means a
program providing social and health-related services during the
day to six or more adults with disabilities (or such smaller
number as the Secretary may specify in regulations) in a
community group setting outside the home.
``(3) Contractholder.--The term `contractholder' means the
entity which is the holder of record of a group long-term care
insurance contract.
``(4) Home health care.--The term `home health care' means
medical and nonmedical services including such services as
homemaker services, assistance with activities of daily living,
and respite care provided to individuals in their residences.
``(5) Insured individual.--The term `insured individual'
means, with respect to a long-term care insurance contract, any
individual who has coverage of benefits under such contract.
``(6) Insurer.--The term `insurer' means any person that
offers or sells an individual or group long-term care insurance
contract under which such person is at risk for all or part of
the cost of benefits under the contract, and includes any agent
of such person.
``(7) Long-term care insurance contract.--The term `long-
term care insurance contract' has the meaning given such term
in section 7702B(b) of the Internal Revenue Code of 1986
(without regard to paragraph (1)(F) of such section).
``(8) Nursing facility.--The term `nursing facility' means
a facility licensed by the State to provide to residents--
``(A) skilled nursing care and related services for
residents who require medical or nursing care;
``(B) rehabilitation services for the
rehabilitation of injured, disabled, or sick
individuals, or
``(C) on a regular basis, health-related care and
services to individuals who because of their mental or
physical condition require care and services (above the
level of room and board) which can be made available to
them only through institutional facilities.
``(9) Residential care facility.--The term `residential
care facility' means a facility (including a nursing facility)
that--
``(A) provides to residents medical or personal
care services (including at a minimum assistance with
activities of daily living) in a setting other than an
individual or single-family home, and
``(B) does not provide services of a higher level
than can be provided by a nursing facility.
``(10) Respite care.--The term `respite care' means the
temporary provision of care (including assistance with
activities of daily living) to an individual, in the
individual's home or another setting in the community, for the
purpose of affording such individual's unpaid caregiver a
respite from the responsibilities of such care.
``(11) State insurance commissioner.--The term `State
insurance commissioner' means the State official bearing such
title, or, in the case of a jurisdiction where such title is
not used, the State official with primary responsibility for
the regulation of insurance.''.
(b) Definition of State.--Section 1101(a)(1) of the Social Security
Act (42 U.S.C. 1301(a)(1)) is amended by adding at the end ``Such term
when used in title XXI includes only the several States and the
District of Columbia.''.
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