[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 423 Introduced in Senate (IS)]







104th CONGRESS
  1st Session
                                 S. 423

 To amend the Internal Revenue Code of 1986 to provide improved access 
 to quality long-term care services, to create incentives for greater 
 private sector participation and personal responsibility in financing 
                 such services, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

            February 15 (legislative day, January 30), 1995

   Mr. Cohen introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to provide improved access 
 to quality long-term care services, to create incentives for greater 
 private sector participation and personal responsibility in financing 
                 such services, 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 ``Private Long-Term 
Care Family Protection Act of 1995''.
    (b) Table of Contents.--The table of contents is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. Amendment of 1986 Code.
           TITLE I--TAX TREATMENT OF LONG-TERM CARE INSURANCE

Sec. 101. Qualified long-term care services treated as medical care.
Sec. 102. Treatment of long-term care insurance.
Sec. 103. Treatment of qualified long-term care plans.
Sec. 104. Tax reserves for qualified long-term care insurance policies.
Sec. 105. Tax treatment of accelerated death benefits under life 
                            insurance contracts.
Sec. 106. Tax treatment of companies issuing qualified accelerated 
                            death benefit riders.
            TITLE II--STANDARDS FOR LONG-TERM CARE INSURANCE

Sec. 201. National Long-Term Care Insurance Advisory Council.
Sec. 202. Additional requirements for issuers of long-term care 
                            insurance policies.
Sec. 203. Coordination with State requirements.
Sec. 204. Uniform language and definitions.
  TITLE III--INCENTIVES TO ENCOURAGE THE PURCHASE OF PRIVATE INSURANCE

Sec. 301. Public information and education program.
Sec. 302. Assets or resources disregarded under the medicaid program.
Sec. 303. Distributions from individual retirement accounts for the 
                            purchase of long-term care insurance 
                            coverage.
                        TITLE IV--EFFECTIVE DATE

Sec. 401. Effective date of tax provisions.

SEC. 2. AMENDMENT OF 1986 CODE.

    Except as otherwise expressly provided, whenever in this Act 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.

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

SEC. 101. 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 striking subparagraph (C), and by inserting after subparagraph 
(B) the following new subparagraphs:
                    ``(C) for qualified long-term care services (as 
                defined in subsection (f)),
                    ``(D) for insurance covering medical care referred 
                to in--
                            ``(i) subparagraphs (A) and (B), or
                            ``(ii) subparagraph (C), but only if such 
                        insurance is provided under a qualified long-
                        term care insurance policy (as defined in 
                        section 7702B(b)) and the deduction under this 
                        section for amounts paid for such insurance is 
                        not disallowed under section 7702B(d)(4), or
                    ``(E) for premiums under part B of title XVIII of 
                the Social Security Act, relating to supplementary 
                medical insurance for the aged.''.
    (b) Qualified Long-Term Care Services Defined.--Section 213 
(relating to the deduction for medical, dental, etc., expenses) is 
amended by adding at the end the following new subsection:
    ``(f) Qualified Long-Term Care Services.--For purposes of this 
section--
            ``(1) In general.--The term `qualified long-term care 
        services' means necessary diagnostic, curing, mitigating, 
        treating, preventive, therapeutic, and rehabilitative services, 
        and maintenance and personal care services (whether performed 
        in a residential or nonresidential setting), which--
                    ``(A) are required by an individual during any 
                period the individual is an incapacitated individual 
                (as defined in paragraph (2)),
                    ``(B) have as their primary purpose--
                            ``(i) the provision of needed assistance 
                        with 1 or more activities of daily living (as 
                        defined in paragraph (3)), or
                            ``(ii) protection from threats to health 
                        and safety due to severe cognitive impairment, 
                        and
                    ``(C) are provided pursuant to a continuing plan of 
                care prescribed by a licensed professional (as defined 
                in paragraph (4)).
            ``(2) Incapacitated individual.--The term `incapacitated 
        individual' means any individual who has been certified by a 
        licensed professional as--
                    ``(A) being unable to perform, without substantial 
                assistance from another individual, at least 2 
                activities of daily living (as defined in paragraph 
                (3)),
                    ``(B) having moderate cognitive impairment as 
                defined by the Secretary in consultation with the 
                Secretary of Health and Human Services, or
                    ``(C) 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 subparagraph (A).
            ``(3) Activities of daily living.--
                    ``(A) In general.--Each of the following is an 
                activity of daily living:
                            ``(i) Eating.
                            ``(ii) Toileting.
                            ``(iii) Transferring.
                            ``(iv) Bathing.
                            ``(v) Dressing.
                            ``(vi) Continence.
                    ``(B) Definitions.--For purposes of this paragraph:
                            ``(i) Eating.--The term `eating' means the 
                        process of getting food from a plate or its 
                        equivalent into the mouth.
                            ``(ii) Toileting.--The term `toileting' 
                        means the act of going to the toilet room for 
                        bowel and bladder function, transferring on and 
                        off of the toilet, cleaning oneself after 
                        elimination, and arranging clothes.
                            ``(iii) Transferring.--The term 
                        `transferring' means the process of getting in 
                        and out of bed or in and out of a chair or 
                        wheelchair.
                            ``(iv) Bathing.--The term `bathing' means 
                        the overall complex behavior of using water for 
                        cleansing the whole body, including cleansing 
                        as part of a bath, shower, or sponge bath, 
                        getting to, in, and out of a tub or shower, and 
                        washing and drying oneself.
                            ``(v) Dressing.--The term `dressing' means 
                        the overall complex behavior of getting clothes 
                        from closets and drawers and then getting 
                        dressed.
                            ``(vi) Continence.--The term `continence' 
                        means the ability to voluntarily control bowel 
                        and bladder function and to maintain a 
                        reasonable level of personal hygiene.
            ``(4) Licensed professional.--
                    ``(A) In general.--The term `licensed professional' 
                means--
                            ``(i) a physician or registered 
                        professional nurse,
                            ``(ii) a qualified community care case 
                        manager (as defined in subparagraph (B)), or
                            ``(iii) any other individual who meets such 
                        requirements as may be prescribed by the 
                        Secretary after consultation with the Secretary 
                        of Health and Human Services.
                    ``(B) Qualified community care case manager.--The 
                term `qualified community care case manager' means an 
                individual or entity which--
                            ``(i) has experience or has been trained in 
                        providing case management services and in 
preparing individual care plans,
                            ``(ii) has experience in assessing 
                        individuals to determine their functional and 
                        cognitive impairment, and
                            ``(iii) meets such requirements as may be 
                        prescribed by the Secretary after consultation 
                        with the Secretary of Health and Human 
                        Services.
            ``(5) Certain services not included.--The term `qualified 
        long-term care services' shall not include any services 
        provided to an individual--
                    ``(A) by a relative (directly or through a 
                partnership, corporation, or other entity) unless the 
                relative is a licensed professional with respect to 
                such services, 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 paragraphs (1) through (8) of section 152(a).''.
    (c) Technical Amendments.--Paragraph (6) of section 213(d) is 
amended--
            (1) by striking ``subparagraphs (A) and (B)'' and inserting 
        ``subparagraphs (A), (B), and (C)'', and
            (2) by striking ``paragraph (1)(C) applies'' in 
        subparagraph (A) and inserting ``subparagraphs (C) and (D) of 
        paragraph (1) apply''.

SEC. 102. 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 LONG-TERM CARE INSURANCE.

    ``(a) In General.--For purposes of this title--
            ``(1) a qualified long-term care insurance policy (as 
        defined in subsection (b)) shall be treated as an accident and 
        health insurance contract,
            ``(2) any plan of an employer providing coverage under a 
        qualified long-term care insurance policy shall be treated as 
        an accident and health plan with respect to such coverage,
            ``(3) amounts (other than policyholder dividends (as 
        defined in section 808) or premium refunds) received under a 
        qualified long-term care insurance policy (including 
        nonreimbursement payments described in subsection (b)(6)) shall 
        be treated--
                    ``(A) as amounts received for personal injuries and 
                sickness, and
                    ``(B) as amounts received for the permanent loss of 
                a function of the body and as amounts computed with 
                reference to the nature of injury under section 105(c) 
                to the extent that such amounts do not exceed the 
                dollar amount in effect under subsection (f) for the 
                taxable year,
            ``(4) amounts paid for a qualified long-term care insurance 
        policy described in subsection (b)(11) shall be treated as 
        payments made for insurance for purposes of section 
        213(d)(1)(D), and
            ``(5) a qualified long-term care insurance policy shall be 
        treated as a guaranteed renewable contract subject to the rules 
        of section 816(e).
    ``(b) Qualified Long-Term Care Insurance Policy.--For purposes of 
this title--
            ``(1) In general.--The term `qualified long-term care 
        insurance policy' means any long-term care insurance policy (as 
        defined in paragraph (10)) that--
                    ``(A) limits benefits under such policy to 
                incapacitated individuals (as defined in section 
                213(f)(2)), and
                    ``(B) satisfies the requirements of paragraphs (2) 
                through (9).
            ``(2) Premium requirements.--The requirements of this 
        paragraph are met with respect to a long-term care insurance 
        policy if such policy provides that premium payments may not be 
        made earlier than the date such payments would have been made 
        if the policy provided for level annual payments over the life 
        expectancy of the insured or 20 years, whichever is shorter. A 
        policy shall not be treated as failing to meet the requirements 
        of the preceding sentence solely by reason of a provision in 
        the policy providing for a waiver of premiums if the insured 
        becomes an incapacitated individual (as defined in section 
        213(f)(2)).
            ``(3) Prohibition of cash value.--The requirements of this 
        paragraph are met with respect to a long-term care insurance 
        policy if such policy does not provide for a cash value or 
        other money that can be paid, assigned, pledged as collateral 
        for a loan, or borrowed, other than as provided in paragraph 
        (4).
            ``(4) Refunds of premiums and dividends.--The requirements 
        of this paragraph are met with respect to a long-term care 
        insurance policy if such policy provides that--
                    ``(A) policyholder dividends are required to be 
                applied as a reduction in future premiums or to 
                increase benefits described in subsection (a)(2),
                    ``(B) refunds of premiums upon a partial surrender 
                or a partial cancellation are required to be applied as 
                a reduction in future premiums, and
                    ``(C) any refund on the death of the insured, or on 
                a complete surrender or cancellation of the policy, 
                cannot exceed the aggregate premiums paid under the 
                policy.
        Any refund on a complete surrender or cancellation of the 
        policy shall be includable in gross income to the extent that 
        any deduction or exclusion was allowable with respect to the 
        premiums.
            ``(5) Coordination with other entitlements.--The 
        requirements of this paragraph are met with respect to a long-
        term care insurance policy if such policy does not cover 
        expenses incurred to the extent that such expenses are also 
        covered under title XVIII of the Social Security Act. For 
        purposes of this paragraph, a long-term care insurance policy 
        which coordinates expenses incurred under such policy with 
        expenses incurred under title XVIII of such Act shall not be 
        considered to duplicate such expenses.
            ``(6) Requirements of model regulation and act.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to a long-term care 
                insurance policy if such policy meets--
                            ``(i) Model regulation.--The following 
                        requirements of the model regulation:
                                    ``(I) Section 7A (relating to 
                                guaranteed renewal or 
                                noncancellability), and the 
                                requirements of section 6B of the model 
                                Act relating to such section 7A.
                                    ``(II) Section 7B (relating to 
                                prohibitions on limitations and 
                                exclusions).
                                    ``(III) Section 7C (relating to 
                                extension of benefits).
                                    ``(IV) Section 7D (relating to 
                                continuation or conversion of 
                                coverage).
                                    ``(V) Section 7E (relating to 
                                discontinuance and replacement of 
                                policies).
                                    ``(VI) Section 8 (relating to 
                                unintentional lapse).
                                    ``(VII) Section 9 (relating to 
                                disclosure), other than section 9F 
                                thereof.
                                    ``(VIII) Section 10 (relating to 
                                prohibitions against post-claims 
                                underwriting).
                                    ``(IX) Section 11 (relating to 
                                minimum standards).
                                    ``(X) Section 12 (relating to 
                                requirement to offer inflation 
                                protection), except that any 
                                requirement for a signature on a 
                                rejection of inflation protection shall 
                                permit the signature to be on an 
                                application or on a separate form.
                                    ``(XI) Section 23 (relating to 
                                prohibition against preexisting 
                                conditions and probationary periods in 
                                replacement policies or certificates).
                            ``(ii) Model act.--The following 
                        requirements of the model Act:
                                    ``(I) Section 6C (relating to 
                                preexisting conditions).
                                    ``(II) Section 6D (relating to 
                                prior hospitalization).
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Model provisions.--The terms `model 
                        regulation' and `model Act' mean the long-term 
                        care insurance model regulation, and the long-
                        term care insurance model Act, respectively, 
                        promulgated by the National Association of 
                        Insurance Commissioners (as adopted in January 
                        of 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.
            ``(7) Tax disclosure requirement.--The requirement of this 
        paragraph is met with respect to a long-term care insurance 
        policy if such policy meets the requirements of section 
        4980C(d)(1).
            ``(8) Nonforfeiture requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to a long-term care 
                insurance policy, if the issuer of such policy offers 
                to the policyholder, including any group policyholder, 
                a nonforfeiture provision meeting the requirements 
                specified in subparagraph (B).
                    ``(B) Requirements of provision.--The requirements 
                specified in this subparagraph are as follows:
                            ``(i) The nonforfeiture provision shall be 
                        appropriately captioned.
                            ``(ii) The nonforfeiture provision shall 
                        provide for a benefit available in the event of 
                        a default in the payment of any premiums and 
                        the amount of the benefit may be adjusted 
                        subsequent to being initially granted only as 
                        necessary to reflect changes in claims, 
                        persistency, and interest as reflected in 
                        changes in rates for premium paying policies 
                        approved by the Secretary for the same policy 
                        form.
                            ``(iii) The nonforfeiture provision shall 
                        provide at least 1 of the following:
                                    ``(I) Reduced paid-up insurance.
                                    ``(II) Extended term insurance.
                                    ``(III) Shortened benefit period.
                                    ``(IV) Other similar offerings 
                                approved by the Secretary.
            ``(9) Rate stabilization.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to a long-term care 
                insurance policy, including any group master policy, 
                if--
                            ``(i) such policy contains the minimum rate 
                        guarantees specified in subparagraph (B), and
                            ``(ii) the issuer of such policy meets the 
                        requirements specified in subparagraph (C).
                    ``(B) Minimum rate guarantees.--The minimum rate 
                guarantees specified in this subparagraph are as 
                follows:
                            ``(i) Rates under the policy shall be 
                        guaranteed for a period of at least 3 years 
                        from the date of issue of the policy.
                            ``(ii) After the expiration of the 3-year 
                        period required under clause (i), any rate 
                        increase shall be guaranteed for a period of at 
                        least 2 years from the effective date of such 
                        rate increase.
                            ``(iii) In the case of any individual age 
                        75 or older who has maintained coverage under a 
                        long-term care insurance policy for 10 years, 
                        rate increases under such policy shall not 
                        exceed 10 percent in any 12-month period.
                    ``(C) Increases in premiums.--The requirements 
                specified in this subparagraph are as follows:
                            ``(i) In general.--If an issuer of a long-
                        term care insurance policy, including any group 
                        master policy, plans to increase the premium 
                        rates for a policy, such issuer shall, at least 
                        90 days before the effective date of the rate 
                        increase, offer to each individual policyholder 
                        under such policy the option to remain insured 
                        under the policy at a reduced level of benefits 
                        that maintains the premium rate at the rate in 
                        effect on the day before the effective date of 
                        the rate increase.
                            ``(ii) Increases of more than 50 percent.--
                        If an issuer of a long-term care insurance 
                        policy, including any group master policy, 
                        increases premium rates for a policy by more 
                        than 50 percent in any 3-year period--
                                    ``(I) in the case of an individual 
                                long-term care insurance policy, the 
                                issuer shall discontinue issuing all 
                                individual long-term care policies in 
                                any State in which the issuer issues 
                                such policy for a period of 2 years 
                                from the effective date of such premium 
                                increase, and
                                    ``(II) in the case of a group 
                                master long-term care insurance policy, 
                                the issuer shall discontinue issuing 
                                all group master long-term care 
                                insurance policies in any State in 
                                which the issuer issues such policy for 
                                a period of 2 years from the effective 
                                date of such premium increase.
                        This clause shall apply to any issuer of long-
                        term care insurance policies or any other 
                        person that purchases or otherwise acquires any 
                        long-term care insurance policies from another 
                        issuer or person.
                    ``(D) Modifications or waivers of requirements.--
                The Secretary may modify or waive any of the 
                requirements under this paragraph if--
                            ``(i) such requirements will adversely 
                        affect an issuer's solvency,
                            ``(ii) such modification or waiver is 
                        required for the issuer to meet other State or 
                        Federal requirements,
                            ``(iii) medical developments, new disabling 
                        diseases, changes in long-term care delivery, 
                        or a new method of financing long-term care 
                        will result in changes to mortality and 
                        morbidity patterns or assumptions,
                            ``(iv) judicial interpretation of a 
                        policy's benefit features results in unintended 
                        claim liabilities, or
                            ``(v) in the case of a purchase or other 
                        acquisition of long-term care insurance 
                        policies of an issuer or other person, the 
                        continued sale of other long-term care 
                        insurance policies by the purchasing issuer or 
                        person is in the best interests of individual 
                        consumers.
            ``(10) Long-term care insurance policy defined.--
                    ``(A) In general.--For purposes of this section, 
                the term `long-term care insurance policy' means any 
                product which is advertised, marketed, or offered as 
                long-term care insurance (as defined in subparagraph 
                (B)).
                    ``(B) Long-term care insurance.--
                            ``(i) In general.--The term `long-term care 
                        insurance' means any insurance policy or 
                        rider--
                                    ``(I) advertised, marketed, 
                                offered, or designed to provide 
                                coverage for not less than 12 
                                consecutive months for each covered 
                                person on an expense incurred, 
                                indemnity, prepaid or other basis for 1 
                                or more necessary or medically 
                                necessary diagnostic, preventive, 
                                therapeutic, rehabilitative, 
                                maintenance, or personal care services 
                                provided in a setting other than an 
                                acute care unit of a hospital, and
                                    ``(II) issued by insurers, 
                                fraternal benefit societies, nonprofit 
                                health, hospital, and medical service 
                                corporations, prepaid health plans, 
                                health maintenance organizations or any 
                                similar organization to the extent such 
                                organizations are otherwise authorized 
                                to issue life or health insurance.
                Such term includes group and individual annuities and 
                life insurance policies or riders which provide 
                directly or which supplement long-term care insurance 
                and includes a policy or rider which provides for 
                payment of benefits based on cognitive impairment or 
                the loss of functional capacity.
                            ``(ii) Exclusions.--The term `long-term 
                        care insurance' shall not include--
                                    ``(I) any insurance policy which is 
                                offered primarily to provide basic 
                                coverage to supplement coverage under 
                                the medicare program under title XVIII 
                                of the Social Security Act, basic 
                                hospital expense coverage, basic 
                                medical-surgical expense coverage, 
                                hospital confinement coverage, major 
                                medical expense coverage, disability 
                                income or related asset-protection 
                                coverage, accident only coverage, 
                                specified disease or specified accident 
                                coverage, or limited benefit health 
                                coverage, or
                                    ``(II) life insurance policies--
                                            ``(aa) which accelerate the 
                                        death benefit specifically for 
                                        1 or more of the qualifying 
                                        events of terminal illness or 
                                        medical conditions requiring 
                                        extraordinary medical 
                                        intervention or permanent 
                                        institutional confinement,
                                            ``(bb) which provide the 
                                        option of a lump-sum payment 
                                        for such benefits, and
                                            ``(cc) under which neither 
                                        such benefits nor the 
                                        eligibility for the benefits is 
                                        conditioned upon the receipt of 
                                        long-term care.
            ``(11) Nonreimbursement payments permitted.--For purposes 
        of subsection (a)(4), a policy is described in this paragraph 
        if, under the policy, payments are made to (or on behalf of) an 
        insured individual on a per diem or other periodic basis 
        without regard to the expenses incurred or services rendered 
        during the period to which the payments relate.
    ``(c) Treatment of Long-Term Care Insurance Policies.--For purposes 
of this title, any amount received or coverage provided under a long-
term care insurance policy that is not a qualified long-term care 
insurance policy shall not be treated as an amount received for 
personal injuries or sickness or provided under an accident and health 
plan and shall not be treated as excludable from gross income under any 
provision of this title.
    ``(d) Treatment of Coverage Provided as Part of a Life Insurance 
Contract.--Except as otherwise provided in regulations, in the case of 
any long-term care insurance coverage provided by rider on a life 
insurance contract, the following rules shall apply:
            ``(1) In general.--This section shall apply as if the 
        portion of the contract providing such coverage is a separate 
        contract or policy.
            ``(2) Premiums and charges for long-term care coverage.--
        Premium payments for long-term care insurance policy coverage 
        and charges against the life insurance contract's cash 
        surrender value (within the meaning of section 7702(f)(2)(A)) 
        for such coverage, shall be treated as premiums for purposes of 
        subsection (b)(2).
            ``(3) Application of 7702.--Section 7702(c)(2) (relating to 
        the guideline premium limitation) shall be applied by 
        increasing, as of any date, the guideline premium limitation 
        with respect to a life insurance contract by an amount equal 
        to--
                    ``(A) the sum of any charges (but not premium 
                payments) described in paragraph (2) made to that date 
                under the contract, reduced by
                    ``(B) any such charges the imposition of which 
                reduces the premiums paid for the contract (within the 
                meaning of section 7702(f)(1)).
            ``(4) 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 includable in income as 
        a result of the application of section 72(e)(10) and the 
        coverage provided by the rider is a qualified long-term care 
        insurance policy under subsection (b).
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 policy.
    ``(e) Employer Plans Not Treated as Deferred Compensation Plans.--
For purposes of this title, a plan of an employer providing coverage 
under a qualified long-term care insurance policy shall not be treated 
as a plan which provides for deferred compensation by reason of 
providing such coverage.
    ``(f) Dollar Amount for Purposes of Gross Income Exclusion.--
            ``(1) Dollar amount.--
                    ``(A) In general.--The dollar amount in effect 
                under this subsection shall be $200 per day.
                    ``(B) Inflation adjustments.--In the case of any 
                taxable year beginning in a calendar year after 1996, 
                the dollar amount contained in subparagraph (A) shall 
                be increased by an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        by substituting `calendar year 1995' for 
                        `calendar year 1992' in subparagraph (B) 
                        thereof.
            ``(2) Aggregation rule.--For purposes of this subsection, 
        all policies issued with respect to the same taxpayer shall be 
        treated as 1 policy.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the requirements of this section, 
including regulations to prevent the avoidance of this section by 
providing long-term care insurance coverage under a life insurance 
contract and to provide for the proper allocation of amounts between 
the long-term care and life insurance portions of a contract.''.
    (b) 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 long-term care 
                                        insurance.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to policies issued after December 31, 1995. Solely for 
        purposes of the preceding sentence, a policy issued prior to 
        January 1, 1996, that satisfies the requirements of a qualified 
        long-term care insurance policy as set forth in section 
        7702B(b) of the Internal Revenue Code of 1986 (as added by this 
        section) shall, on and after January 1, 1996, be treated as 
        having been issued after December 31, 1995.
            (2) Transition rule.--If, after the date of enactment of 
        this Act and before January 1, 1996, a policy providing for 
        long-term care insurance coverage is exchanged solely for a 
        qualified long-term care insurance policy (as defined in such 
        section 7702B(b)), no gain or loss shall be recognized on the 
        exchange. If, in addition to a qualified long-term care 
        insurance policy, 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 policy providing for long-term care insurance 
        coverage and reinvestment of the cancellation proceeds in a 
        qualified long-term care insurance policy within 60 days 
        thereafter shall be treated as an exchange.
            (3) Issuance of certain riders permitted.--For purposes of 
        determining whether section 7702 or 7702A of the Internal 
        Revenue Code of 1986 applies to any contract, the issuance, 
        whether before, on, or after December 31, 1995, of a rider on a 
        life insurance contract providing long-term care insurance 
        coverage shall not be treated as a modification or material 
        change of such contract.

SEC. 103. TREATMENT OF QUALIFIED LONG-TERM CARE PLANS.

    (a) Exclusion From COBRA Continuation Requirements.--Subparagraph 
(A) of section 4980B(f)(2) (defining continuation coverage) is amended 
by adding at the end the following new sentence: ``The coverage shall 
not include coverage for qualified long-term care services (as defined 
in section 213(f)).''.
    (b) Benefits Included in Cafeteria Plans.--Section 125(f) (defining 
qualified benefits) is amended by adding at the end the following new 
sentence: ``Such term includes coverage under a qualified long-term 
care insurance policy (as defined in section 7702B(b)) which is 
includible in gross income only because it exceeds the dollar 
limitation of section 105(c)(2).''.

SEC. 104. TAX RESERVES FOR QUALIFIED LONG-TERM CARE INSURANCE POLICIES.

    (a) In General.--Subparagraph (A) of section 807(d)(3) (relating to 
tax reserve methods) is amended by redesignating clause (iv) as clause 
(v) and by inserting after clause (iii) the following new clause:
                            ``(iv) Qualified long-term care insurance 
                        policies.--In the case of any qualified long-
                        term care insurance policy (as defined in 
                        section 7702B(b)), a 1 year full preliminary 
                        term method, as prescribed by the National 
                        Association of Insurance Commissioners.''.
    (b) Conforming Amendments.--Section 807(d)(3)(A) (relating to tax 
reserve methods), is amended--
            (1) in clause (v), as redesignated by subsection (a), by 
        striking ``or (iii)'' each place it appears and inserting 
        ``(iii), or (iv)''; and
            (2) in clause (iii), by inserting ``(other than a qualified 
        long-term care insurance policy)'' after ``insurance 
        contract''.

SEC. 105. TAX TREATMENT OF ACCELERATED DEATH BENEFITS UNDER LIFE 
              INSURANCE CONTRACTS.

    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, any amount 
        distributed to an individual under a life insurance contract on 
        the life of an insured who is a terminally ill individual (as 
        defined in paragraph (3)) shall be treated as an amount paid by 
        reason of the death of such insured.
            ``(2) Necessary conditions.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any distribution unless--
                            ``(i) the distribution is not less than the 
                        present value (determined under subparagraph 
                        (B)) of the reduction in the death benefit 
                        otherwise payable in the event of the death of 
                        the insured, and
                            ``(ii) the percentage derived by dividing 
                        the cash surrender value of the contract, if 
                        any, immediately after the distribution by the 
                        cash surrender value of the contract 
                        immediately before the distribution is equal to 
                        or greater than the percentage derived by 
                        dividing the death benefit immediately after 
                        the distribution by the death benefit 
                        immediately before the distribution.
                    ``(B) Reduction value.--The present value of the 
                reduction in the death benefit occurring by reason of 
                the distribution shall be determined by--
                            ``(i) using as the discount rate a rate not 
                        in excess of the highest rate set forth in 
                        subparagraph (C), and
                            ``(ii) assuming that the death benefit (or 
                        the portion thereof) would have been paid at 
                        the end of a period that is no more than the 
                        insured's life expectancy from the date of the 
                        distribution or 12 months, whichever is 
                        shorter.
                    ``(C) Rates.--The rates set forth in this 
                subparagraph are the following:
                            ``(i) the 90-day Treasury bill yield,
                            ``(ii) the rate described as Moody's 
                        Corporate Bond Yield Average-Monthly Average 
                        Corporates as published by Moody's Investors 
                        Service, Inc., or any successor thereto, for 
                        the calendar month ending 2 months before the 
                        date on which the rate is determined,
                            ``(iii) the rate used to compute the cash 
                        surrender values under the contract during the 
                        applicable period plus 1 percent per annum, and
                            ``(iv) the maximum permissible interest 
                        rate applicable to policy loans under the 
                        contract.
            ``(3) Terminally ill individual.--For purposes of this 
        subsection, the term `terminally ill individual' means an 
        individual who, as determined by the insurer on the basis of an 
        acceptable certification by a licensed physician, has an 
        illness or physical condition which can reasonably be expected 
        to result in death within 12 months of the date of 
        certification.
            ``(4) Application of section 72(e)(10).--For purposes of 
        section 72(e)(10) (relating to the treatment of modified 
        endowment contracts), section 72(e)(4)(A)(i) shall not apply to 
        distributions described in paragraph (1).''.

SEC. 106. 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 which provides for a distribution to an individual 
        upon the insured becoming a terminally ill individual (as 
        defined in section 101(g)(3)).''.
    (b) Definitions of Life Insurance and Modified Endowment 
Contracts.--Paragraph (5)(A) of section 7702(f) (defining qualified 
additional benefits) is amended by striking ``or'' at the end of clause 
(iv), by redesignating clause (v) as clause (vi), and by inserting 
after clause (iv) the following new clause:
                            ``(v) any qualified accelerated death 
                        benefit rider (as defined in section 818(g)), 
                        or''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to contracts issued after December 31, 1995.
            (2) Transitional rule.--For purposes of determining whether 
        section 7702 or 7702A of the Internal Revenue Code of 1986 
        applies to any contract, the issuance, whether before, on, or 
        after December 31, 1995, of a rider on a life insurance 
        contract permitting the acceleration of death benefits (as 
        described in section 101(g) of such Code (as added by section 
        105)) shall not be treated as a modification or material change 
        of such contract.

            TITLE II--STANDARDS FOR LONG-TERM CARE INSURANCE

SEC. 201. NATIONAL LONG-TERM CARE INSURANCE ADVISORY COUNCIL.

    (a) In General.--Congress shall appoint an advisory board to be 
known as the National Long-Term Care Insurance Advisory Council 
(hereafter referred to in this title as the ``Advisory Council'').
    (b) Membership.--The Advisory Council shall consist of 5 members, 
each of whom has substantial expertise in matters relating to the 
provision and regulation of long-term care insurance or long-term care 
financing and delivery systems.
    (c) Duties.--The Advisory Council shall--
            (1) provide advice, recommendations on the implementation 
        of standards for long-term care insurance, and assistance to 
        Congress on matters relating to long-term care insurance as 
        specified in this section and as otherwise required by the 
        Secretary of Health and Human Services;
            (2) collect, analyze, and disseminate information relating 
        to long-term care insurance in order to increase the 
        understanding of insurers, providers, consumers, and regulatory 
        bodies of the issues relating to, and to facilitate 
        improvements in, such insurance;
            (3) develop educational models to inform the public on the 
        risks of incurring long-term care expenses and private 
        financing options available to them; and
            (4) monitor the development of the long-term care insurance 
        market and advise Congress concerning the need for statutory 
        changes.
    (d) Administration.--In order to carry out its responsibilities 
under this section, the Advisory Council is authorized to--
            (1) consult individuals and public and private entities 
        with experience and expertise in matters relating to long-term 
        care insurance;
            (2) conduct meetings and hold hearings;
            (3) conduct research (either directly or under grant or 
        contract);
            (4) collect, analyze, publish, and disseminate data and 
        information (either directly or under grant or contract); and
            (5) develop model formats and procedures for insurance 
        products, and develop proposed standards, rules and procedures 
        for regulatory programs, as appropriate.
    (e) Authorization of Appropriations.--There are authorized to be 
appropriated, for activities of the Advisory Council, $1,500,000 for 
fiscal year 1996, and each subsequent year.

SEC. 202. ADDITIONAL REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE 
              INSURANCE POLICIES.

    (a) In General.--Chapter 43 is amended by adding at the end the 
following new section:

``SEC. 4980C. FAILURE TO MEET REQUIREMENTS FOR QUALIFIED LONG-TERM CARE 
              INSURANCE POLICIES.

    ``(a) General Rule.--There is hereby imposed on the issuer of any 
qualified long-term care insurance policy with respect to which any 
requirement of subsection (c) or (d) is not met a tax in the amount 
determined under subsection (b).
    ``(b) Amount of Tax.--
            ``(1) In general.--
                    ``(A) Per policy.--The amount of the tax imposed by 
                subsection (a) shall be $100 per policy for each day 
                any requirement of subsection (c) or (d) is not met 
                with respect to the policy.
                    ``(B) Limitations.--
                            ``(i) Per carrier.--The amount of the tax 
                        imposed under subparagraph (A) against any 
                        insurance carrier, association, or any 
                        subsidiary thereof, shall not exceed $25,000 
                        per policy.
                            ``(ii) Per agent.--The amount of the tax 
                        imposed under subparagraph (A) against 
                        insurance agent or broker shall not exceed 
                        $15,000 per policy.
            ``(2) Waiver.--In the case of a failure which is due to 
        reasonable cause and not to willful neglect, the Secretary may 
        waive part or all of the tax imposed by subsection (a) to the 
        extent that payment of the tax would be excessive relative to 
        the failure involved.
    ``(c) Additional Responsibilities.--The requirements of this 
subsection with respect to any qualified long-term care insurance 
policy are as follows:
            ``(1) Requirements of model provisions.--
                    ``(A) Model regulation.--The following requirements 
                of the model regulation shall 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 (expended 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 policy, 
                                misrepresent a material fact; and
                                    ``(II) no such requirements shall 
                                include a requirement to inquire or 
                                identify whether a prospective 
                                applicant or enrollee for qualified 
                                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(b)(6)(B).
            ``(2) Delivery of policy.--If an application for a 
        qualified long-term care insurance policy (or for a certificate 
        under a group qualified long-term care insurance policy) is 
        approved, the issuer shall deliver to the applicant (or 
        policyholder or certificate-holder) the policy (or certificate) 
        of insurance not later than 30 days after the date of the 
        approval.
            ``(3) Information on denials of claims.--If a claim under a 
        qualified long-term care insurance policy is denied, the issuer 
        shall, within 60 days of the date of a written request by the 
        policyholder or certificate-holder (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 with 
respect to any qualified long-term care insurance policy if the 
following statement is prominently displayed on the front page of the 
policy and in the outline of coverage required under subsection 
(c)(1)(B)(ii):
            ```This is a federally qualified long-term care insurance 
        contract. The policy meets all the Federal consumer protection 
        standards necessary to receive favorable tax treatment under 
        section 7702B(b) of the Internal Revenue Code of 1986.'.
    ``(e) Qualified Long-Term Care Insurance Policy Defined.--For 
purposes of this section, the term `qualified long-term care insurance 
policy' has the meaning given such term by section 7702B(b).''.
    (b) Conforming Amendment.--The table of sections for chapter 43 is 
amended by adding at the end the following new item:

                              ``Sec. 4980C. Failure to meet 
                                        requirements for long-term care 
                                        insurance policies.''.

SEC. 203. COORDINATION WITH STATE REQUIREMENTS.

    Nothing in this title shall be construed as preventing a State from 
applying standards that provide greater protection of policyholders of 
qualified long-term care insurance policies (as defined in section 
7702B(b) of the Internal Revenue Code of 1986 (as added by section 
102)).

SEC. 204. UNIFORM LANGUAGE AND DEFINITIONS.

    (a) In General.--Not later than June 30, 1996, the Advisory Council 
shall promulgate standards for the use of uniform language and 
definitions in qualified long-term care insurance policies (as defined 
in section 7702B(b) of the Internal Revenue Code of 1986 (as added by 
section 102)).
    (b) Variations.--Standards under subsection (a) may permit the use 
of nonuniform language to the extent required to take into account 
differences among States in the licensing of nursing facilities and 
other providers of long-term care.

  TITLE III--INCENTIVES TO ENCOURAGE THE PURCHASE OF PRIVATE INSURANCE

SEC. 301. PUBLIC INFORMATION AND EDUCATION PROGRAM.

    (a) In General.--The Secretary of Health and Human Services shall 
establish a program designed to educate individuals regarding--
            (1) the risk of incurring catastrophic long-term care 
        costs;
            (2) the coverage or lack of coverage of such costs through 
        Federal programs;
            (3) the importance of planning for such costs; and
            (4) the benefits of securing long-term care insurance 
        coverage.
    (b) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary to carry out the purposes of 
this section.

SEC. 302. ASSETS OR RESOURCES DISREGARDED UNDER THE MEDICAID PROGRAM.

    (a) Medicaid Estate Recoveries.--
            (1) In general.--Section 1917(b) of the Social Security Act 
        (42 U.S.C. 1396p(b)) is amended--
                    (A) in paragraph (1), by striking subparagraph (C);
                    (B) in paragraph (3), by striking ``(other than 
                paragraph (1)(C))''; and
                    (C) in paragraph (4)(B), by striking ``(and shall 
                include, in the case of an individual to whom paragraph 
                (1)(C)(i) applies)''.
            (2) Effective date.--Section 1917(b) of the Social Security 
        Act (42 U.S.C. 1396p(b)) shall be applied and administered as 
        if the provisions stricken by paragraph (1) had not been 
        enacted.
    (b) Reporting Requirements for Certain Asset Protection Programs.--
Section 1902 of the Social Security Act (42 U.S.C. 1396a) is amended by 
adding at the end the following new subsection:
    ``(aa)(1) The Secretary shall not approve any State plan amendment 
providing for an asset protection program (as described in paragraph 
(2)) unless the State requires all insurers participating in such 
program to submit reports to the State and the Secretary at such times, 
and containing such information, as the Secretary determines 
appropriate. The information included in the reports required to be 
submitted under the preceding sentence shall be submitted in accordance 
with the data standards established by the Secretary under paragraph 
(3).
    ``(2) An asset protection program described in this paragraph is a 
program under which an individual's assets and resources are 
disregarded for purposes of the program under this title--
            ``(A) to the extent that payments are made under a 
        qualified long-term care insurance policy (as defined in 
        section 7702B(b) of the Internal Revenue Code of 1986); or
            ``(B) because an individual has received (or is entitled to 
        receive) benefits under a qualified long-term care insurance 
        policy (as defined in section 7702B(b) of such Code).
    ``(3)(A) Not later than 90 days after the date of the enactment of 
the Private Long-Term Care Family Protection Act of 1995, the Secretary 
shall select data standards for the information required to be included 
in reports submitted in accordance with paragraph (1). Such data 
standards shall be selected from the data standards included in the 
Long-Term Care Insurance Uniform Data Set developed by the University 
of Maryland Center on Aging and Laguna Research Associates, and used by 
the States of California, Connecticut, Indiana, and New York for 
reports submitted by insurers under the asset protection programs 
conducted by such States.
    ``(B) The Secretary shall modify the standards selected under 
subparagraph (A) as the Secretary determines appropriate.''.

SEC. 303. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS FOR THE 
              PURCHASE OF LONG-TERM CARE INSURANCE COVERAGE.

    (a) Exclusion From Gross Income for Certain Individuals.--
Subsection (d) of section 408 (relating to tax treatment of 
distributions from individual retirement accounts) is amended by adding 
at the end the following new paragraph:
            ``(8) Distributions to purchase long-term care insurance.--
        Paragraph (1) shall not apply to any amount paid or distributed 
        out of an individual retirement account or individual 
        retirement annuity to the individual for whose benefit the 
        account or annuity is maintained if--
                    ``(A) the individual has attained age 59\1/2\ by 
                the date of the payment or distribution, and
                    ``(B) the entire amount received (including money 
                and any other property) is used within 90 days to 
                purchase a qualified long-term care insurance policy 
                (as defined in section 7702B(b)) for the benefit of the 
individual or the spouse of the individual (if the spouse has attained 
age 59\1/2\ by the date of the payment or distribution).''.
    (b) No Penalty for Distributions.--
            (1) In general.--Subparagraph (B) of section 72(t)(2) 
        (relating to distributions from qualified retirement plans not 
        subject to 10 percent additional tax) is amended to read as 
        follows:
                    ``(B) Medical expenses.--
                            ``(i) In general.--Distributions made to 
                        the employee (other than distributions 
                        described in clause (ii) or subparagraph (A) or 
                        (C)) to the extent such distributions do not 
                        exceed the amount allowable as a deduction 
                        under section 213 to the employee for amounts 
                        paid during the taxable year for medical care 
                        (determined without regard to whether the 
                        employee itemizes deductions for such taxable 
                        year).
                            ``(ii) Certain distributions to purchase 
                        long-term care insurance.--Distributions made 
                        to the taxpayer out of an individual retirement 
                        plan if the entire amount received (including 
                        money and any other property) is used within 90 
                        days to purchase a qualified long-term care 
                        insurance policy (as defined in section 
                        7702B(b)) for the benefit of the individual or 
                        the spouse of the individual.''.
            (2) Conforming amendment.--Subparagraph (A) of section 
        72(t)(3) is amended by striking ``(B)'' and inserting 
        ``(B)(i)''.
    (c) Deduction for Expenses To Purchase a Qualified Long-Term Care 
Insurance Policy.--
            (1) In general.--Paragraph (8) of section 408(d) (relating 
        to distributions from individual retirement accounts to 
        purchase long-term care insurance), as added by subsection (a), 
        is amended by adding at the end the following new subparagraph:
                    ``(D) Application of section 213.--No deduction 
                shall be allowed under section 213(a) for expenses 
                incurred to purchase a qualified long-term care 
                insurance policy (as defined in section 7702B(b)) using 
                amounts paid or distributed out of an individual 
                retirement account or individual retirement annuity in 
                accordance with this paragraph.''.
            (2) Conforming amendment.--Clause (ii) of section 
        213(d)(1)(D) (relating to definition of medical care), as added 
        by section 101(a), is amended by striking ``section 
        7702(d)(4)'' and inserting ``section 408(d)(8)(D) or section 
        7702(d)(4)''.

                        TITLE IV--EFFECTIVE DATE

SEC. 401. EFFECTIVE DATE OF TAX PROVISIONS.

    Except as otherwise provided in this Act, the amendments made by 
this Act to the Internal Revenue Code of 1986 shall apply to taxable 
years beginning after December 31, 1995.
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