[Congressional Record Volume 141, Number 144 (Friday, September 15, 1995)]
[Senate]
[Pages S13656-S13667]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mr. ASHCROFT (for himself, Mr. Abraham, Mr. Bond, Mr. Cochran, 
        Mr. DeWine, Mr. Hatch, Mr. Inhofe, Mr. Kyl, Mr. McCain, Mr. 
        Simpson, Mr. Thurmond, and Mr. Gramm):
  S. 1245. A bill to amend the Juvenile Justice and Delinquency 
Prevention Act of 1974 to identify violent and hard-core juvenile 
offenders and treat them as adults, and for other purposes; to the 
Committee on the Judiciary.


     THE VIOLENT AND HARD-CORE JUVENILE OFFENDER REFORM ACT OF 1995
  Mr. ASHCROFT. Mr. President, along with Senators Abraham, Bond, 
Cochran, DeWine, Hatch, Inhofe, Kyl, McCain, Simpson, and Thurmond, I 
am pleased to introduce the Violent and Hard-Core Juvenile Offender 
Reform Act of 1995. The crime epidemic sweeping across our country--
growing with each passing year--can be attributed, 

[[Page S 13657]]

in significant part, to the steady increase in serious and violent 
crimes committed by juveniles.
  Between 1988 and 1992, juvenile arrests for violent crimes increased 
by 47 percent, while adult violent crime arrests increased by 19 
percent. Specifically, juvenile murders increased 26 percent, forcible 
rapes increased 41 percent, robberies increased 39 percent, and 
aggravated assaults increased 27 percent. These statistics are 
alarming. But in order for Congress to provide a real solution, it must 
first understand the nature of the problem. Until that occurs, 
legislative initiatives coming out of both Houses of Congress will 
continue to miss the mark.
  Just last year, Congress passed the Omnibus Violent Crime Control and 
Law Enforcement Act, a bill intended to control crime. Although the 
bill contained some provisions directed at youth violence, they were 
amendments to the Federal criminal code. The reality is that a very 
small number of juveniles are tried in Federal proceedings. In 1990, 
there were 197 such proceedings; in 1991, 166; in 1992, 109; in 1993, 
64; and in 1994, 92. Therein lies the major weakness in the 1994 crime 
bill. Any amendments strengthening the federal criminal code regarding 
juveniles are limited to those offenders, a minute number, who happen 
to find themselves in federal juvenile proceedings. If the goal is to 
reduce juvenile crime, then fundamental changes must occur at the state 
level. This is because States and local governments handle the vast 
majority of juvenile offenders.
  The problem of juvenile violence is occurring everywhere in the 
United States.
  In Rockland, MA, four teenagers beat a man to death with a baseball 
bat and bottle while he was waiting for his girlfriend. The assault 
followed the death of two men who were shot by a teenager for a leather 
jacket.
  In Jacksonville, FL, when the victim could find only $5 in his pocket 
to appease the two 16 year olds robbing him in 1994, he asked: ``You're 
not going to shoot me over $5, are you?'' They did, and he died.
  In St. Louis, MO, two female college students were out on a weekend 
night when they were abducted by two suspects, ages 16 and 19. The lone 
survivor was raped, shot in the face three times, and abandoned. The 
other, Melissa Aptman, who pleaded with the teenagers not to hurt them, 
was shot and killed. Both suspects had previous criminal records. In 
fact, the 16 year old was on probation at the time of the abduction.
  In Washington, DC, 11 blocks from the Capitol, a 14 year old stopped 
a young man during rush hour who he thought had stolen his jacket a few 
days before. He whipped out a pistol and blazed away. One bullet killed 
a father of two. The teenager got the maximum sentence: 2 years in the 
District of Columbia detention center.
  In Detroit, MI, six teenagers decided to carjack a motorist by 
dragging a tree across a road. When the driver tried to run their 
blockade, one of the thugs shot him dead. The gunman, a 16 year old, 
was sentenced as a juvenile, and, unless the prosecutor's wins an 
appeal, he will go free at 21. The judge was quoted as saying, ``I'm 
not concerned about whether or not this makes anybody safer.''
  Law and order in our neighborhood communities have yielded to crime 
and disorder. For its part, the current juvenile justice system 
reprimands the crime victim for being at the wrong place at the wrong 
time, and then turns around and hugs the young criminal, whispering 
ever so softly into his ear, ``Don't worry, the State will protect 
you.'' The critical question facing us Americans, as asked by the late 
FBI Director J. Edgar Hoover, is: ``Are we to stand idly by while 
fierce young hoodlums--too often and too long harbored under the glossy 
misnomer of juvenile delinquents--roam our streets and desecrate our 
communities?'' We cannot afford to stand idly by, not when the homicide 
rate committed by teens ages 14-17 has more than doubled, increasing 
165 percent from 1985 to 1993; not when juvenile arrests for weapons 
law violations increased 117 percent between 1983 and 1992; not when 
one out of every 13 juveniles reported being a victim of a violent 
crime in 1992; and not when the number of juvenile violent crime 
arrests is expected to double by the year 2010. We must challenge this 
culture of violence and restore the culture of personal responsibility.
  Having examined the juvenile justice system, having analyzed the 
efficacy of different philosophical approaches, having had 
conversations with representatives from school districts, law 
enforcement, and citizens' organizations, I have devised a 
comprehensive approach that will control violent juvenile crime by 
encouraging States to enact sweeping reforms. This legislation provides 
Federal funds to States and local governments to assist them in 
reforming their juvenile justice systems. The bill identifies violent 
and hard-core criminals, imposes stiffer penalties, and deters crimes.
  First, serious, violent, and chronic juvenile offenders would be held 
accountable.
  The juvenile justice system's primary goal is to rehabilitate the 
juvenile offender. Such a system can handle runaways or school truants, 
but is ill-equipped to deal with chronic, serious offenders. Even the 
National Council of Juvenile and Family Court Judges, a membership 
organization for juvenile justice professionals, is hard-pressed to 
admit: Rehabilitation has been remarkably successful for most juvenile 
offenders. It has not been successful for the small number of chronic 
and serious offenders. For them, strict accountability appears 
necessary. Studies have found that a small percentage of juveniles are 
responsible for the vast majority of serious offenses committed by 
juveniles. The bill identifies this group of juvenile offenders.
  Traditionally, the juvenile court judge decides whether to transfer a 
juvenile to adult criminal court. In making this decision, the juvenile 
judge has broad discretion. Thus, the judge is able to abuse his 
discretion. The bill would replace the subjectivity of the juvenile 
court judge with the objectivity of the seriousness of the crime 
committed and the age of the offender. The bill would encourage States 
to prosecute juveniles, age 14 and older, who commit: First, murder; 
second attempted murder; third, forcible rape, fourth, serious drug 
offenses--as defined by Federal law, or fifth, serious offenses while 
armed with a dangerous or deadly weapon, namely, robbery, assault and 
battery. Such a system is not a radical idea. In fact, more than 25 
States legislatively exclude certain serious offenses from the juvenile 
court's jurisdiction. Those States include Delaware, Illinois, Indiana, 
and Maryland. Moreover, the automatic referral of certain serious cases 
to the criminal justice system will free up limited resources in the 
juvenile court system.
   The criminal justice system, not the juvenile justice system, can 
emphasize that adult criminal acts have real consequences. The purpose 
of the criminal justice system is to punish, that is, to hold 
defendants accountable. Studies show repeatedly that punishment reduces 
both frequency and seriousness of offenses by young criminals and is 
most effective when it is consistently imposed for every offense, 
according to University of Southern California psychologist Sarnoff 
Mednick. Therefore, since research studies have confirmed that criminal 
punishment of young offenders will reduce further criminal activity, 
then serious offenders should face adult prosecution.
  In addition, the bill contains what I like to refer to as the 
``three-strikes-and-you're-out'' provision for chronic offenders. It 
provides that juveniles, who have two prior felony adjudications, will 
be subject to transfer to adult criminal court on their third, 
subsequent charge for a felony offense. A 1988 study on the court 
careers of juvenile offenders found that juveniles referred to juvenile 
court for a second time before age 15 are likely to continue their law-
violating behavior. The study further found that juveniles who 
committed a violent offense were the most likely to return to court 
charged with a subsequent violent offense. The legislative proposal 
draws from these findings. The bill seeks to intervene early in the 
lives of the hardened career criminal and places them in the criminal 
justice system.
  Second, States would create and maintain juvenile criminal records.
  The U.S. Supreme Court, in the 1967 landmark decision, In re Gault, 
said: ``The summary procedures of juvenile courts are sometimes 
defended by a statement that it is the law's policy to hide youthful 
errors from the full gaze 

[[Page S 13658]]

of the public and bury them in the graveyard of the forgotten past. 
This claim of secrecy, however, is more rhetoric than reality.'' In 
other words, in rhetoric we are protecting juveniles from the stigma of 
a record but in reality we are coddling criminals. We must divorce the 
rhetoric from reality by lifting the veil of secrecy. The bill 
encourages States to create and maintain records on juveniles, age 14 
and older, for offenses that if committed by an adult would be 
classified as a felony. And, juveniles under age 14 adjudicated 
delinquent of any of the enumerated crimes I mentioned earlier will 
have their conviction recorded and made available to necessary parties. 
The bill would also encourage States to transmit juvenile criminal 
records to the Federal Bureau of Investigation for inclusion in the 
criminal identification database. That way, when young criminals and 
gangs move from State to State, their records will follow them. The 
juvenile records would be made available to law enforcement agencies, 
school officials, and judges.
  Third, juvenile criminal records would be made available to adult 
courts for purposes of adult sentencing.
  According to the 1991 Survey of Inmates in State Correctional 
Facilities, nearly 40 percent of prison inmates had a prior record as a 
juvenile. That is approximately four in 10 prison inmates. The 
significance of this statistical information is illustrated in 
Armstrong Williams' book ``Beyond Blame'' in which he writes about the 
real-life experience of a 29-year-old former drug dealer named ``Brad 
Howard.'' Mr. Williams gives a vivid description of how society suffers 
the consequences when the criminal justice system fails to hold 
criminals accountable:

       Brad, staring at a sentence of thirty to sixty years in 
     prison for violating Federal drug trafficking laws, used his 
     drug money and the help of his parents to hire a good lawyer. 
     He was able to beat the charge. The judge, Brad explains, 
     looked favorably on his story to such an extent that even 
     Brad is surprised that he got off. Obviously, the judge 
     thought that Brad was just another young man who 
     inadvertently ended up on the wrong end of the system--
     probably for lack of real opportunity. In a sense, you can't 
     blame the judge. Brad did not have a criminal record as an 
     adult, since his youthful encounters with the law were hidden 
     from the legal system under rules that prevent juvenile 
     criminal history from being reopened once the person turns 
     eighteen. . . . After the trial was over, Brad returned to 
     the streets.

  This is a typical problem with many State statutes that seal juvenile 
criminal records. Our laws view juveniles through the prism of kids 
gone astray. When in fact those juveniles who commit serious and 
violent crimes are criminals who happen to be young. Young criminals 
know what Brad Howard knew in his former life as a street hustler--that 
they can commit crimes repeatedly as juveniles because their juvenile 
records are kept hidden under the veil of secrecy. These young 
criminals know that when they reach 18 years of age they can begin 
their second career as adult criminals with an unblemished criminal 
record. The time has come to discard the anachronistic idea that 
crimes, no matter how heinous, by juveniles must be kept confidential. 
Under the bill introduced today, the Brad Howards in this nation would 
be held accountable for their criminal acts. The Brad Howards would be 
held accountable in their juvenile years because they would be tried as 
adults for selling illicit drugs. The Brad Howards would be held 
accountable in their adult years because their previous juvenile court 
records would be made available to State and Federal courts at adult 
sentencing. No longer will the Brad Howards of this country be able to 
act like neophytes to the criminal justice system. Our message will be 
clear, cogent, and convincing: Serious acts have serious consequences.
  Fourth, school officials would have access to juvenile criminal 
records.
  This past spring, I received a letter from a seventh grader who wrote 
``Sometimes I wonder what people think crime really is. It's much worse 
than that. My definition is bringing drugs and guns to school so that 
other classmates wake up with the question: Will I be safe today?''
  Following receipt of this letter, I met with school officials to 
discuss school violence. A school teacher recalled an actual incident 
in which a student came to school with an electronic ankle bracelet and 
no one had any knowledge of what that a student had done and, more 
important, no way of finding out.
   Students and teachers spend the greater part of their day at school. 
Students and teachers have a right to a safe, educational environment. 
Yet students are challenged to learn in an environment in which 
chronically violent students roam the halls terrorizing them during 
class exchange periods and after school. Teachers are challenged to 
carry out their duties and responsibilities in a seriously disruptive 
work environment. Under my bill, school officials would have access to 
juvenile criminal records to assist them in looking out for the best 
interests of all students. If schools know the identity of a violent 
juvenile, they can respond to misbehaviors by imposing stricter 
sanctions, assigning particular teachers, or having the student's 
locker near a teacher's doorway entrance so that the teacher can 
monitor his conduct during the changing of class periods. In short, 
this bill would allow schools to take measures to prevent violence.
  Fifth, the sharing of juvenile records would assist law enforcement 
Agencies.
  The bill would assist law enforcement agencies in criminal 
investigations and apprehension. It encourages States to share juvenile 
record information within their subdivisions and with other States. 
While visiting with several law enforcement officers I heard the same 
recurring problem--when police officers arrest juveniles they have no 
idea with whom they are handling because the records are kept 
confidential. This veil of secrecy undermines law enforcement efforts. 
Law enforcement agencies need to know the prior records of individuals 
who are subsequently arrested. Under the bill, if a juvenile is 
arrested, the police will be able to access other state criminal 
history records. With more information, law enforcement officials will 
be able to make more intelligent decisions, like whether to detain or 
release a juvenile arrested for a serious crime.
  Additionally, the interstate sharing of accurate and up-to-date 
records would assist police departments in criminal investigations. For 
example, suppose a young offender is found guilty of burglary in 
Oklahoma. The court sentences him to 7 months in a detention center. 
Following his release, he travels to Texas where he robs an elderly 
lady who upon being accosted refuses to give away her purse. Angered by 
her refusal the young offender stabs her to death. He opens her purse, 
takes the wallet, and flees the crime scene. Assume further there are 
no eyewitnesses to the murder. The police, however, are able to lift 
fingerprints from the purse. If the bill were enacted, the Texas police 
would be able to identify the assailant because the juvenile would have 
been fingerprinted and photographed immediately following his 
conviction for burglary in Oklahoma.
  Sixth, school officials would be able to treat all students equally.
  Consider the case of Morgan versus Chris L.: In May 1992, Chris L. 
was diagnosed as suffering from attention deficit hyperactivity 
disorder. As a result, he was being treated with prescription 
medication. Throughout the 1992-93 academic year, his behavioral 
problems continued. On May 11, 1993, Chris allegedly kicked a water 
pipe in the school lavatory until it burst--a crime against public 
property. The Knox County School District filed a petition in juvenile 
court. Chris' father filed for a due process hearing under the 
Individuals with Disabilities Education Act [IDEA] to review the filing 
of the petition in juvenile court. The hearing officer concluded that 
``[t]he filing of a petition in Juvenile Court shall be considered as 
the initiation of a change in placement and/or a disciplinary action 
commensurate with expulsion or suspension for more than 10 days. * * * 
[B]efore a school files a petition against a child in Juvenile Court, 
it must follow the same procedures as for expulsion or suspension for 
more than 10 days.'' A Federal district court judge upheld the hearing 
officer's conclusion of law. IDEA is a grant funding statute that 
contains special due process procedures for children with disabilities. 
The problem is that the special due process procedures for disabled 
students take several months, and sometimes a year, to complete. 

[[Page S 13659]]

The practical effect of the judge's ruling is that schools, as a matter 
of law, cannot unilaterally refer disabled children to juvenile court 
unless parents consent to the filing of the juvenile court petition. 
The bill makes it clear that those disabled students who commit 
criminal acts on school property are not protected under IDEA's special 
due process procedures.
  Seventh, the Office of Juvenile Justice and Delinquency Prevention 
would provide assistance to States to implement serious habitual 
offender comprehensive action programs.
  The bill would allow State and local governments to use Federal 
funding to implement serious habitual offender comprehensive action 
programs [SHOCAP]. SHOCAP is a multiagency program that is intended to 
improve the effectiveness of jurisdictions in handling serious habitual 
juvenile offenders. The program enlists police, schools, prosecutors, 
probation officers, juvenile courts, family and youth services, 
detention and corrections officials to collaborate more effectively and 
utilize their collective resources to identify serious, violent 
habitual juvenile offenders. SHOCAP targets the top 2 to 3 percent of 
the most serious habitual offenders and puts them under intense 
supervision.
  The Office of Juvenile Justice and Delinquency Prevention, a division 
of the U.S. Department of Justice, conducted five test pilots of 
SHOCAP. Oxnard, CA was of the selected sites. SHOCAP was implemented in 
1983. Four years later, Oxnard's violent crime dropped 38 percent. By 
1989, rape decreased 30 percent; robbery decreased 41 percent; and 
murder decreased 60 percent. The statistics demonstrate that SHOCAP can 
effectively control juvenile crime.
  SHOCAP is also instrumental in apprehending young criminals. Take, 
for example, the murder of the British tourist in Monticello, FL. If 
you recall, four teenagers age 13-16 were charged with murder in the 
1993 slaying of a British tourist at a highway rest stop and attempted 
murder of his companion. The killing occurred while the juveniles were 
riding around in a stolen car. Because 3 of the 4 teenagers were 
serious habitual offenders, they were arrested within a matter of days. 
What is more, the 13-year-old reportedly had more than 50 offenses on 
his record.
  SHOCAP works, and through word of mouth in the law enforcement 
community: 16 States have at least one experienced site implementing 
the SHOCAP process; 150 sites have been reported as implementing SHOCAP 
based on the technical assistance provided by experienced SHOCAP sites; 
5 States (Florida, Virginia, Oklahoma, California, & Illinois); and 3 
States are reportedly considering SHOCAP legislation.
  The bill would make support for SHOCAP available in all 
jurisdictions.


                               Conclusion

  Mr. President, if enacted, the Violent and Hard-Core Juvenile 
Offender Reform Act of 1995 will effectively address the problem of 
juvenile violence.
                                 ______

      By Mr. WARNER:
  S. 1246. A bill to amend titles 5 and 37, United States Code, to 
provide for the continuance of pay and the authority to make certain 
expenditures and obligations during lapses in appropriations; to the 
Committee on Governmental Affairs.


                  the furlough protection act of 1995

 Mr. WARNER. Mr. President, I offer legislation to safeguard 
Federal and military pay in the event of a Government shutdown due to 
an appropriations funding lapse. This bill is titled ``The Furlough 
Protection Act of 1995.''
  Mr. President, during the past several weeks, hundreds of civilian 
and uniformed personnel of the Federal Government have contacted my 
office to express their dismay over prospects of a budgetary train 
wreck and possible employee furloughs.
  While I am a strong supporter of the balanced budget resolution and 
the reconciliation process, I am deeply concerned that the Federal 
employees could potentially be held hostage to the politics of the 
budget process as Congress and the administration work out their 
respective differences in the appropriations process.
  The most recent furlough of Federal employees occurred over the 
Columbus Holiday weekend of 1990. President Bush vetoed a continuing 
resolution to provide stopgap funding for Government operations. This 
action was the result of the President's dissatisfaction with 
congressional progress on the fiscal year 1991 budget.
  After the furlough, several Members of Congress asked the General 
Accounting Office [GAO] to examine the taxpayer costs of the 1990 
Columbus Day weekend shutdown. The GAO's findings were published in a 
1991 report titled, ``Government Shutdown: Permanent Funding Lapse 
Legislation Needed.'' The GAO found that of the 22 executive branch 
agencies surveyed, 7 reported significant shutdown costs totaling about 
$3.4 million.
  The GAO report states that the costs and disruptions of a Government 
shutdown would have been much more severe if the furlough had occurred 
during a normal workweek. Twenty of the twenty-two agencies estimated 
that an average of 506,500 Federal employees would be furloughed daily 
during a funding lapse. The GAO report goes on to state that the total 
cost of such a 3-day workweek shutdown would range from $244.6 to 
$607.3 million. Mr. President, in this time of tight budgetary 
constraints, such irresponsible actions do not make for good public 
policy.
  Our Nation's dedicated civilian and uniformed personnel should not be 
penalized for the inability of Congress and the administration to agree 
on spending priorities. Consequently, I am offering legislation to 
ensure that uniformed and civilian Federal employees will continue to 
be compensated during a funding lapse.
  Mr. President, my intent in offering this legislation is to provide 
some measure of financial reassurance for the hundreds of thousands of 
Federal employees and their families that would be affected by a 
Government shutdown. It is my hope that Congress and the administration 
will work together to resolve our respective differences without 
holding Federal employees hostage to the politics of the budget 
process. In the best of all worlds, Congress and the President will 
agree to a continuing resolution to provide limited funding for 
continued Government operations, however, if an agreement cannot be 
reached and a funding lapse occurs, my legislation will protect our 
Nation's dedicated civilian and uniformed personnel and their families 
from undue financial hardship.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:
                                S. 1246

       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 ``Furlough Protection Act of 
     1995''.

     SEC. 2. CONTINUANCE OF CIVILIAN PAY DURING PERIODS OF LAPSED 
                   APPROPRIATIONS.

       (a) Continuance of Pay.--Subchapter III of chapter 55 of 
     title 5, United States Code, is amended by redesignating 
     section 5527 as section 5528 and inserting after section 5526 
     the following:

     ``Sec. 5527. Continuance of pay during periods of lapsed 
       appropriations

       ``(a) For purposes of this section--
       ``(1) the term `period of lapsed appropriations', when used 
     with respect to an employee, means any period during which 
     appropriations are not available due to the absence of the 
     timely enactment of any Act or joint resolution appropriating 
     funds for the employing agency of the employee;
       ``(2) the term `employee' means an individual employed (or 
     holding office) in or under an agency;
       ``(3) the term `agency' means--
       ``(A) an Executive agency;
       ``(B) the judicial branch;
       ``(C) the Library of Congress;
       ``(D) the Government Printing Office;
       ``(E) the legislative branch (excluding any agency 
     otherwise referred to in this paragraph); and
       ``(F) the government of the District of Columbia;
       ``(4) the term `pay' means--
       ``(A) basic pay;
       ``(B) premium pay;
       ``(C) agency contributions for retirement and life and 
     health insurance; and
       ``(D) any other element of aggregate compensation, 
     including allowances, differentials, bonuses, awards, and 
     other similar cash payments; and
       ``(5) the term `furlough' means the placing of an employee 
     in a temporary status without duties and pay because of lack 
     of work or funds or other nondisciplinary reasons.

[[Page S 13660]]

       ``(b) For any period of lapsed appropriations, there are 
     appropriated, out of any moneys in the Treasury not otherwise 
     appropriated, such sums as may be necessary for the pay of 
     any employee who--
       ``(1) performs service as an employee during the period of 
     lapsed appropriations; or
       ``(2) is prevented from serving during such period by 
     reason of having been furloughed due to a lapse in 
     appropriations.
       ``(c)(1) Notwithstanding section 1341 of title 31, any 
     employee who is furloughed due to a lapse in appropriations 
     shall be paid for the period during which such employee is so 
     furloughed.
       ``(2) For purposes of paragraph (1), the pay payable to an 
     employee for any period during which such employee is 
     furloughed shall be the pay that would have been payable to 
     such employee for such period had such employee not been 
     furloughed.
       ``(d) For purposes of carrying out section 5528 with 
     respect to this section, any reference in section 5528(b) to 
     an agency outside the executive branch shall be construed 
     based on the definition of `agency' under subsection (a).
       ``(e) Expenditures made for any fiscal year pursuant to 
     this section shall be charged to the applicable 
     appropriation, fund, or authorization whenever the regular 
     appropriation bill becomes law.
       ``(f) This section shall take effect on October 1, 1995, 
     and shall terminate on September 30, 1996.''.
       (b) Technical and Conforming Amendments.--(1) The heading 
     for subchapter III of chapter 55 of title 5, United States 
     Code, is amended by striking ``AND ASSIGNMENT'' and inserting 
     ``ASSIGNMENT, AND CONTINUANCE''.
       (2) The table of sections at the beginning of chapter 55 of 
     title 5, United States Code, is amended by striking the item 
     relating to section 5527 and inserting the following:

``5527. Continuance of pay during periods of lapsed appropriations.
``5528. Regulations.''.

       (3) The table of sections at the beginning of chapter 55 of 
     title 5, United States Code, is further amended by striking 
     ``AND ASSIGNMENT'' in the item relating to subchapter III and 
     inserting ``ASSIGNMENT, AND CONTINUANCE''.

     SEC. 3. CONTINUANCE OF MILITARY PAY DURING PERIODS OF LAPSED 
                   APPROPRIATIONS.

       (a) Continuance of Pay.--Chapter 19 of title 37, United 
     States Code, is amended by adding at the end the following:

     ``Sec. 1015. Continuance of pay during periods of lapsed 
       appropriations

       ``(a) For the purposes of this section--
       ``(1) the term `pay', with respect to a member of a 
     uniformed service, means the pay and allowances of such 
     member; and
       ``(2) the term `period of lapsed appropriations', when used 
     with respect to any member, means any period during which 
     appropriations are not available due to the absence of the 
     timely enactment of any Act or joint resolution appropriating 
     funds for the uniformed service of that member.
       ``(b) For any period of lapsed appropriations, there are 
     appropriated, out of any moneys in the Treasury not otherwise 
     appropriated, such sums as may be necessary for the pay of 
     any member serving as a member of a uniformed service during 
     the period of lapsed appropriations.
       ``(c) Expenditures made for any fiscal year pursuant to 
     this section shall be charged to the applicable 
     appropriation, fund, or authorization whenever the regular 
     appropriation bill becomes law.
       ``(d) This section shall take effect on October 1, 1995, 
     and shall terminate on September 30, 1996.''.
       (b) Technical and Conforming Amendment.--The table of 
     sections at the beginning of chapter 19 of title 37, United 
     States Code, is amended by inserting after the item relating 
     to section 1014 the following:

``1015. Continuance of pay during periods of lapsed 
              appropriations.''.
                                 ______

      By Mr. GRASSLEY (for himself, Mr. Kyl, and Mr. Nickles):
  S. 1247. A bill to amend the Internal Revenue Code of 1986 to allow a 
deduction for contributions to a medical savings account by any 
individual who is covered under a catastrophic coverage health plan; to 
the Committee on Finance.


             the family medical savings and investment act

 Mr. GRASSLEY. Mr. President, last year we had a long, 
controversial, debate about health care reform. When the dust had 
settled, a number of things were clear. The American people want health 
care cost containment. They want to choose their own physician. They 
want portable health insurance. They don't want to worry about losing 
their health insurance if they lose or change their jobs. Finally, they 
want more equitable treatment under the tax code. Mr. President, today 
I am introducing a medical savings account [MSA] bill which can help 
achieve each of these goals.
  The basic MSA concept is simple and straightforward, and similar to 
individual retirement accounts: Reduce premium costs by selecting a 
catastrophic, high-deductible policy. Use the premium cost savings to 
establish special medical savings accounts. Pay medical costs below the 
deductible amount from the medical savings account. And provide 
favorable tax treatment of these accounts.
  Wider use of medical savings accounts would reduce health care costs. 
It would do so by reducing administrative costs. Those with MSA's would 
pay most of their low dollar, under $3,000, health care claims from 
these accounts. The administrative cost of such claims would be 
negligible.
  It would do so also by making consumers more selective in the use of 
optional health care services.
  Most importantly, it would cause them to be more selective in 
choosing competing providers. This competition among providers for the 
business of those who hold MSA's should reduce the prices they charge 
for their services.
  It is true, as critics of medical savings accounts have charged, that 
a relatively small percentage of people spend a majority of the health 
care dollars. By implication, since MSA's would pay only for relatively 
low dollar claims, they will not have a major impact on health care 
costs. However, it is the case that substantial sums are spent for 
relatively low dollar claims under $3,000. Thus, wider use of MSA's 
does offer the potential of lower health care costs.
  Second, MSA's put the patient back into the health care equation. 
Patients will make more cost-conscious decisions for routine health 
care expenses. Those who hold medical savings accounts would be able to 
chose their own physicians for routine medical expenses under the 
deductible limit. Since the money they spend for health care up to the 
deductible would be their own, no one else could tell them what 
physician they could see, or what services they could pay for. It 
should also be clearer, in an MSA context, that the money spent for the 
catastrophic health plan is
 the individual consumer's money. Organizations providing health care 
through the catastrophic coverage policy necessarily will have to 
orient themselves toward satisfying the individuals purchasing those 
policies.

  Third, wider use of medical savings accounts would make health care 
coverage more dependable. Individuals with MSA's would no longer have 
to worry about losing insurance when changing jobs or when experiencing 
temporary unemployment. Their MSA's would follow them to their new 
jobs, or would continue to protect them when they become unemployed.
  Fourth, it follows that medical savings accounts should increase 
health care coverage. Fully half of the approximately 40 million 
Americans who are uninsured at any given time are uninsured for 4 
months or less. Only 15 percent are uninsured for more than 2 years. 
For most, these uninsured periods occur between jobs. Widespread use of 
medical savings accounts would reduce the number of uninsured, since 
individuals would be able to pay health expenses during periods of 
unemployment from those accounts.
  Fifth, wider use of medical savings accounts would promote personal 
savings. Since pre-tax moneys are deposited in medical savings 
accounts, there is a strong tax incentive to use them.
  Finally, it would make the tax treatment of health insurance more 
equitable. Currently, the tax system allows employers who pay for 
health insurance for their employees to deduct it from the income on 
which they pay Federal taxes. It permits the employees who receive such 
an employer-provided benefit to exclude its value from their taxable 
income. The better paid the employee and the richer the benefit 
provided by the employer, the bigger the tax benefits to employer and 
employee. In contrast, smaller employers who do not offer health 
insurance and their employees, the self-employed, and the unemployed 
receive no tax benefit. This is manifestly unfair.
  This bill, if enacted, would help to correct that situation. Any 
individual capable of contributing to a medical savings account would 
receive favorable tax treatment. Amounts contributed by individuals to 
an MSA could deduct those contributions from income for Federal tax 
purposes. Or, if their employer contributes to an MSA 

[[Page S 13661]]

on their behalf, the employee can exclude the contributed amount from 
income for Federal tax purposes.
  The medical savings account bill I am introducing today is a revision 
of H.R. 1818, the Family Medical Savings and Investment Act of 1995, 
introduced by Congressman Archer on June 13 of this year.
  This bill would permit individuals to maintain a medical savings 
account. They could do so if they are covered at the same time by a 
catastrophic health plan. Contributions to the medical savings account 
would be excludable from gross income if made by an employer on behalf 
of an employee. They would be tax deductible if made by the individual. 
The total amount that could be excluded or deducted from income would 
be the lesser of the deductible amount under the catastrophic policy, 
or $2,500 for an individual and $5,000 for a family.
  An individual could withdraw from this medical savings account to pay 
for qualified medical expenses. Such withdrawals would be excludable 
from gross income for tax purposes.
  Mr. President, the medical savings account bill I am introducing 
today, if enacted, would achieve a number of the most important health 
care reform goals the American people desire.
  Mr. President, I ask unanimous consent that additional material be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

         The Grassley Family Medical Savings and Investment Act

       How The Grassley Bill Works: It would allow MSAs equal tax 
     treatment with other types of employer-provided health 
     insurance, and it would allow individuals and the self-
     employed the ability to contribute to a Medical Savings 
     Account (with certain restrictions) and receive a 100% 
     deduction for their contribution. The Grassley bill will end 
     the current tax-code discrimination against MSAs by ending 
     the taxation on MSA deposits. Interest build-up in MSAs, 
     however, would be taxed as ordinary income.
       How MSAs Work: MSAs are flexible, and could work like this: 
     an employer would create the option for employees to choose 
     an MSA by purchasing a high-deductible policy. The employer 
     would then deposit funds in the MSA. The amount of the 
     deposit in the MSA under Grassley is limited to the lesser 
     amount of either the deductible amount of the insurance 
     policy, or to $2,500 for an individual, or $5,000 for a 
     family. Below is a chart which explains the changes the 
     Grassley bill makes in current law.

------------------------------------------------------------------------
   Insured                                                              
   premium                 MSA contribution              High-deductible
------------------------------------------------------------------------
Employees      Allows deposits of up to $5,000 for      Retains current 
 with           families and $2,500 for individuals      law: premium   
 Employer-      and excludes deposits from taxes.        costs are 100% 
 Provided                                                excluded from  
 Insurance.                                              taxes.         
Self-Employed  Allows deposits of up to $5,000 for      Retains current 
                families and $2,500 for individuals.     law: 30%       
                100% tax deductible for qualified        deduction for  
                medical expenses.                        self-employed  
                                                         for premium    
                                                         costs.         
Individuals..  Allows deposits of up to $5,000 for      Retains current 
                families and $2,500 for individuals.     law: allows    
                100% tax deductible for qualified        deduction for  
                medical expenses.                        medical        
                                                         expenditures if
                                                         they exceed    
                                                         7.5% of gross  
                                                         income.        
------------------------------------------------------------------------

       Roll Over of Funds: The money in the account is the 
     family's money, and they have complete control over it. The 
     account is portable, and accessible for any medical expense. 
     The funds in the MSA roll over from year to year for future 
     medical expenses or for retirement needs.
       Long-Term Care: The Grassley bill allows individuals and 
     families to pay for long-term care premiums from the account. 
     Over the longer term significant portions of the population 
     will use funds from the MSAs to purchase private insurance 
     for long-term care coverage. This coverage will in turn 
     decrease the demand on the Federal government for such 
     services, as will the savings that build up in MSA over time 
     which can be used for health care and other retirement costs.
       Cost: The House companion bill, Archer-Jacobs, has been 
     scored by the Joint Committee on Taxation as costing $1.8 
     billion over seven years.
       Support for the 10% Penalty on Non-Medical Withdrawals: In 
     addition to taxing these funds as income, the Archer bill 
     imposes a 10 percent penalty for non-medical withdrawals. The 
     Business Coalition strongly supports the 10 percent penalty 
     since we believe it will encourage savings and discourage 
     frivolous consumption. One of the key indirect effects of 
     MSAs will be to increase our nation's abysmally low savings 
     rate, which in turn will help lower interest rates.
       MSAs Have a Strong Appeal to Low-Income Wage Earners: 
     Companies that have MSAs have found MSAs are most popular 
     among lower income employees. Under conventional insurance 
     plans, low-income employees would have to meet their $250 or 
     $500 deductible with after-tax dollars before they could 
     access their insurance. A single mother earning $14,000 or 
     $15,000 a year may find it difficult to meet the deductible 
     when rent, transportation, taxes, grocery bills and other 
     needs for her children are pressing. An MSA allows these low 
     income earners first dollar coverage, permitting them to get 
     medical care when they or their children need it.
       MSAs Enhance Portability: Should an employee change jobs or 
     be laid off or fired, the money in his MSA goes with him. 
     This feature of MSAs allows the individual to continue to pay 
     for his health care premium until he finds another job or is 
     accepted into his new employer's health care plan. Indeed, 
     according to the above cited article in the Journal of 
     American Health Policy, ``forty-one percent of persons losing 
     private health insurance have an uninsured spell that ends 
     within one to three months, and 71 percent have a spell that 
     ends within four months.'' MSAs are a perfect tool to help 
     bridge this gap.
       MSAs Allow Total Freedom of Choice of Doctor: MSAs allow 
     patients to shop around, choose their own doctors, and tailor 
     their health care expenditures to suit their own needs.
       MSAs Encourage Savings for Retirement Care Costs: According 
     to the U.S. Census Bureau, the number of Americans most 
     likely to need long term care (85 years and older) will 
     double in the next 25 years, and the number of Americans over 
     90 will triple. Allowing individuals in their late thirties 
     and early forties to have an MSA in which they could build up 
     two or three decades of savings, would give these individuals 
     the funds to pay for drug therapies, nursing home care, and 
     in-home care.
       MSAs Will Stimulate Administrative Savings: When paying for 
     routine health care costs, the MSA patient has no forms to 
     fill out or claim forms to file. The patient would simply 
     write a check to the provider from his MSA, or the doctor 
     would bill the employer or insurance company, depending on 
     how the MSA patient's plan is administered. In most cases, 
     the doctor receives payment immediately. The patient's 
     insurance company would not have to incur the cost of 
     adjudicating a small, say, $30 claim.
                                                                    ____

Significant Changes to the Archer-Jacobs Bill as Introduced by Senator 
                                Grassley

       The Grassley MSA bill incorporates six significant 
     improvements to the Archer bill.
       FEHBP Employees Are Eligible: The Grassley bill allows 
     federal employees in the Federal Employee Health Benefit Plan 
     (i.e. Hill staff, Senators, and Representatives) to have an 
     MSA. Legislation is needed to make this possible.
       Withdrawal at 59\1/2\ years old: Retirement withdrawal at 
     59\1/2\ years old is provided for in the Grassley bill, and 
     the provision for withdrawal is similar to the current rules 
     for IRAs. This provision was not in the original Archer-
     Jabobs bill because of the uncertainty of how MSAs would be 
     structured for Medicare.
       One Family MSA Per Family: $300 million will be knocked off 
     the official score of the bill by restricting one family to 
     only one $5,000 MSA. The Archer bill as written could have 
     allowed one family a $10,000 MSA.
       Hundreds of Millions of Dollars in Savings from Changes in 
     the treatment of Flexible Spending Accounts (FSAs): Several 
     hundred million dollars will be saved by not allowing the FSA 
     to rollover into an MSA during the first year of this MSA 
     legislation.
       Total Cost Savings for Grassley Bill: With the restriction 
     of one MSA per family, and with the change in the treatment 
     of FSAs in the Grassley bill, the cost of the bill will be 
     $500 million cheaper than the Archer-Jacobs bill. The 
     Grassley bill score will be about $1.8 billion over 7 years.
       New Minimum Deductibles for High Deductible Policies: The 
     minimum high-deductible policy in the Grassley bill is $1,500 
     for individuals, and $3,000 for families, as opposed to 
     $1,800 for individuals and $3,600 for families in the Archer-
     Jacobs bill.
       No spending from the MSA for high-deductible health care 
     premiums: Unless an employee is laid off, MSAs will not be 
     used to pay for health care premiums for working employees. 
     The MSA was never designed to operate as a fund for the high-
     deductible premium, only as a source of funds for medical 
     costs below the deductible level of the high-deductible 
     policy.
       Note: The bill Senator Grassley will introduce in the 
     Senate will include these changes. The above changes to the 
     Archer-Jacobs bill will likely be made to the Archer-Jacobs 
     bill in mark-up since Senator Grassley's office worked 
     closely with the House Ways and Means Committee staff and the 
     Joint Committee on Taxation in making these changes.
                                 ______

      By Mr. WELLSTONE (for himself, Mr. Pressler, Mr. Harkin, Mr. 
        Kerrey, Mr. Conrad, and Mr. Dorgan):
  S. 1248. A bill to amend the Internal Revenue Code of 1986 to allow 
the alcohol fuels credit to be allocated to patrons of a cooperative in 
certain cases; to the Committee on Finance.


                    alcohol fuels credit legislation

 Mr. WELLSTONE. Mr. President, on behalf of myself and Senators 
Pressler, Harkin, Kerrey, Conrad, and Dorgan, I am introducing a bill 
to correct a discrepancy in the Tax Code which acts to discriminate 
against a type of enterprise that Federal policy should actually be 
encouraging: small, cooperatively owned ethanol plants. 

[[Page S 13662]]

The bill would allow these plants to utilize the existing small ethanol 
producers credit by passing the credit through to their owner/members.
  I am confident that it was never the intention of Congress to 
preclude cooperatives from making full use of this credit. Rather, the 
current obstacle facing co-ops is a result of legislative oversight at 
the time the original small producers credit was passed. Farmer-owned 
cooperatives simply were not a prominent part of the ethanol industry 
landscape in 1990, whereas today they certainly are.
  Indeed, I am extremely pleased that Minnesota leads the Nation in 
small, cooperatively owned ethanol plants. We have two already in 
operation, and four more under construction in our State. Still another 
Minnesota cooperative ethanol plant has been so successful that it has 
expanded in our State beyond what the small producers credit considers 
a small plant, and its owner/members have even constructed an 
additional cooperative plant in Nebraska.
  These plants produce a clean fuel which is essential to the 
achievement of Clean Air Act objectives in American cities. They create 
jobs in rural communities. By utilizing agricultural commodity crops, 
they bolster the price of those crops and thus reduce the cost of 
Federal farm programs. And because they are owned by farmers, small 
ethanol-producing cooperatives allow farmers to do what is becoming 
more and more necessary: Move up the food chain and capture the value-
added dollars in processed agricultural products.
  Not only farmers benefit from this retention of value-added 
processing dollars; entire rural communities do. Farmer-owned 
cooperatives help make sure that precious renewable resources 
contribute to the local rural economy and are not merely removed for a 
low price and processed in other locations.
  Mr. President, Congress has recognized the importance of promoting 
the development of domestically produced, renewable clean fuels. In 
addition to the economic and environmental benefits I have mentioned, 
we in Congress also consciously have decided for energy-security 
reasons to promote domestic renewables. The relatively young ethanol 
industry has received needed assistance. That assistance is especially 
justified in view of the decades of assistance and preference that the 
Federal Government has provided
 for the nonrenewable fossil fuels industry, much of whose product 
today is imported.

  The assistance we have provided to the ethanol industry is paying 
off. It is allowing the industry to grow, and it is making the industry 
better. It has helped the ethanol industry become more economically 
efficient and more energy efficient. A study released by the Department 
of Agriculture this summer concludes that ethanol yields nearly 25 
percent more energy than is used in the growing, harvesting, and 
distilling of the corn that is the feed stock for most American ethanol 
plants--plants which convert that corn to a premium liquid fuel. USDA's 
study found that each gallon of domestically produced ethanol displaces 
7 gallons of imported oil. That is a remarkably positive statistic.
  One criticism of Federal support for ethanol is that the industry has 
in its recent history been dominated by a single large corporation. The 
small producer credit and the extension of that credit to cooperatively 
owned plants acts directly to address that concern. In Minnesota, 
cooperatively owned plants are the leading ethanol producers. That 
trend can and should be further encouraged.
  The existing small ethanol producer credit allows ethanol plants 
which produce fewer than 30 million gallons annually to collect a 10-
cent-per-gallon tax credit for the first 15 million gallons of their 
production. Unfortunately, the Internal Revenue Service has judged that 
the way the provision of the Tax Code is currently written, 
cooperatives cannot pass the credit through to their patrons. Thus, a 
co-op which distributes all income to patrons in the form of dividends 
cannot utilize the nonrefundable credit because it lacks taxable income 
to which the credit can be applied. Farmer-owners, who are taxed on 
their share of the cooperative's income, are denied the credit. The 
bill would correct this unintentional negative outcome by explicitly 
authorizing the passthrough of the credit to patrons of a cooperative. 
Those few cooperatively owned ethanol plants which retain income at the 
cooperative level, usually due to the business' relationship to another 
cooperative business, could continue to collect the credit at the 
cooperative level.
  Mr. President, it is no time to stand still regarding Federal policy 
which affects the economic health of our rural communities. This bill 
links positive effects for the rural economy to sound energy and 
environmental policy. It is endorsed by the National Council for Farm 
Cooperatives, the American Farm Bureau Federation, the National Corn 
Growers Association, the National Farmers Union, and the American Corn 
Growers. It has been introduced with bipartisan cosponsorship in the 
House of Representatives, and I hope we can pass it here in the Senate.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:
                                S. 1248

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. ALLOCATION OF ALCOHOL FUELS CREDIT TO PATRONS OF A 
                   COOPERATIVE.

       (a) In General.--Subsection (d) of section 40 of the 
     Internal Revenue Code of 1986 (relating to alcohol used as 
     fuel) is amended by adding at the end the following new 
     paragraph:
       ``(6) Allocation of small ethanol producer credit to 
     patrons of cooperative.--
       ``(A) In general.--In the case of a cooperative 
     organization described in section 1381(a), any portion of the 
     credit determined under subsection (a)(3) for the taxable 
     year may, at the election of the organization made on a 
     timely filed return (including extensions) for such year, be 
     apportioned pro rata among patrons on the basis of the 
     quantity or value of business done with or for such patrons 
     for the taxable year. Such an election, once made, shall be 
     irrevocable for such taxable year.
       ``(B) Treatment of organizations and patrons.--The amount 
     of the credit apportioned to patrons pursuant to subparagraph 
     (A)--
       ``(i) shall not be included in the amount determined under 
     subsection (a) for the taxable year of the organization, and
       ``(ii) shall be included in the amount determined under 
     subsection (a) for the taxable year of each patron in which 
     the patronage dividend for the taxable year referred to in 
     subparagraph (A) is includible in gross income.
       ``(C) Special rule for decreasing credit for taxable 
     year.--If the amount of the credit of a cooperative 
     organization determined under subsection (a)(3) for a taxable 
     year is less than the amount of such credit shown on the 
     cooperative organization's return for such year, an amount 
     equal to the excess of such reduction over the amount not 
     apportioned to the patrons under subparagraph (A) for the 
     taxable year shall be treated as an increase in tax imposed 
     by this chapter on the organization. Any such increase shall 
     not be treated as tax imposed by this chapter for purposes of 
     determining the amount of any credit under this subpart or 
     subpart A, B, E, or G of this part.''
       (b) Technical Amendment.--Section 1388 of such Code 
     (relating to definitions and special rules for cooperative 
     organizations) is amended by adding at the end the following 
     new subsection:
       ``(k) Cross Reference.--

  ``For provisions relating to the apportionment of the alcohol fuels 
credit between cooperative organizations and their patrons, see section 
40(d)(6).''

       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1994.
                                 ______

      By Mr. FRIST:
  S. 1249. A bill to amend the Internal Revenue Code of 1986 to 
establish medical savings accounts, and for other purposes; to the 
Committee on Finance.


                  medical savings accounts legislation

 Mr. FRIST. Mr. President, I introduce legislation aimed at 
controlling skyrocketing health care costs in America today. 
Specifically, this legislation creates medical savings accounts [MSA's] 
which are designed to give individuals another choice in the health 
care market. MSA's also serve to change provider and consumer behavior 
by decreasing the role of third party payors, while increasing 
individual awareness of health care costs.
  Today, there is little, if any, incentive for patients to be cost-
conscious consumers of health care. Imagine if you were required to pay 
only 20 cents of every dollar you spend on food, clothing, consumer 
goods, and transportation. Essentially, imagine that an 

[[Page S 13663]]

80 percent off sign was posted above every product you buy. If this 
were the case, you'd probably eat more, buy more, and own more, 
probably much more than you need. This may sound too good to be true--
but it's exactly what is happening in our health care system today.
  On average, every time a patient in America receives a dollar's worth 
of medical services, 79 cents is paid for by someone else--usually the 
Government or an insurance company. The result is that we grossly 
overconsume medical services. Everyone wants the best--whether it is a 
deluxe hospital room, the latest in nuclear medical imaging, or an MRI 
scan for a headache--and the result is that health care costs are going 
through the roof.
  Medical savings accounts are a solution. MSA's would give individuals 
more choice in the health care market. MSA's would stem rising health 
care costs without decreasing the availability and quality of patient 
care by empowering individuals to purchase medical services directly. 
These personal accounts would encourage patients to make prudent, cost-
conscious decisions about their health care needs, and would force 
hospitals and physicians to compete for patients on the basis of the 
cost and quality of care.
  What are Medical savings accounts? Medical savings accounts are tax-
free, personal accounts which can be used by an individual to pay 
medical bills. Take, for example, the employee of a company: today an 
employer might pay three or four thousand dollars for a medical 
insurance policy with a $500 deductible. The employee has no incentive 
to be cost-conscious. In contrast, with my legislation, if medical 
savings accounts were available, the employer would deposit an amount 
up to $2,500 tax free in the savings account, which would belong to the 
employee. The employee would buy an inexpensive, catastrophic-type 
policy which would cover all medical expenses above $2,500 per year. 
For medical expenses up to the $2,500 annual out-of-pocket cost, the 
employee would use money from the savings account. Any savings account 
money not spent on health care expenses that year would grow in the 
employee's account and would accumulate year to year. The money could 
be used to pay for health care expenses, insurance premiums during 
periods of unemployment, and long-term care expenses.
  Furthermore, as owner of the account, the individual has a strong 
incentive to become a cost-conscious consumer of medical care. He will 
demand quality care at competitive prices. The system will respond with 
better outcome measures and lower unit prices for health care. We will 
potentially save billions of dollars in health care costs because 
individual patients will modify their health care habits to consume 
health care services prudently.
  Medical savings accounts--and this is usually overlooked by policy 
makers in Washington--will change provider behavior as well. Throughout 
much of my practice as a heart and lung transplant surgeon, I would 
perform a transplant, submit the bill, and it was paid--no questions 
asked. However, one day an individual--who was actually paying for his 
transplant from his own pocket--came into my office with a list of five 
or six transplant centers, morbidity data, infection rates, and prices. 
He asked me why I charged what I charged, why my success was different 
than others on his list, and how our program at Vanderbilt differed 
from its competitors. That one individual caused me to totally reassess 
how
 our multiorgan transplant center operated. For the next 2 weeks, each 
of the transplant teams at our facility worked together to determine 
where we could improve the quality of care and become more efficient 
and ultimately lower our prices in a competitive market.

  Because someone else usually pays the bills, many patients forget 
that they are consumers. They don't ask providers to be accountable. If 
one individual empowered because he was responsible for his own health 
care dollars could transform my entire transplant center by asking 
questions, imagine what could happen if we empowered hundreds of 
thousands of individuals across the county similarly.
  Finally, let me describe how my legislation differs from previously 
introduced MSA bills. Previous bills have defined only a catastrophic 
plan by the dollar amount of the deductible. These bills, by their very 
nature, would exclude other types of plan designs which focus on 
significant cost sharing. If our goal is to allow individuals greater 
control of their health care dollars, it makes sense to allow 
individuals a choice of MSA plan options to best meet their unique 
needs. The real value of our U.S. health care market lies in its 
responsiveness and opportunity for innovation. My legislation is 
designed to encourage this innovation. My legislation defines a 
catastrophic health plan as any health plan which has an annual ``out-
of-pocket expense requirement'' which is not less than $2,500. With 
this definition, in addition to traditional indemnity insurers, a broad 
range of coordinated care plans will also be able to offer an MSA plan. 
In turn, competitive market forces will spur innovation to meet the 
needs of the market, and individuals will benefit from a variety of MSA 
plan options to choose from. For example, one individual may choose a 
high deductible plan for which MSA dollars would fund 100 percent of 
the first $2,500 of care. However, another individual may choose a 
different plan requiring 50 percent cost sharing for the first $5,000 
of care. Both plans will encourage cost-conscious behavior.
  Mr. President, I ask that the introduction of my medical savings 
account proposal today be viewed as a fresh start. As I have explained, 
some of my colleagues in the Senate and House have proposed that 
medical savings accounts be linked only to high-deductible, 
catastrophic health policies. I, however, believe that my proposal will 
increase the choices available to individual consumers. This will not 
only increase choices available to individuals, but will reduce the 
potential problem of adverse selection and will promote a level playing 
field in the health care system.
  Mr. President, in closing, we in America are fortunate to have the 
absolute highest quality health care in the world. When the leaders of 
the world become seriously ill, they do not go to Great Britain or 
Canada to seek treatment, they come to the United States. And while 
there are those who would like to stifle our technological advances and 
allow bureaucrats to tell us how much and what kind of health care we 
can receive, the American people have loudly and clearly rejected this 
notion.
  No one can predict what will happen in medicine in the first 50 years 
of the 21st century. Fifty years ago, when my father was a young doctor 
in Tennessee making house calls, he could not have envisioned what 
medical practice today would be like. The technological advances are 
simply mind-boggling. Mr. President, the challenge for us is to 
maintain the highest quality health care in the world and to continue 
to make it available to all Americans. But this can only be done if we 
first change the basic framework through which medical services are 
consumed, and build on a market-based system. I believe my legislation 
which creates the use of medical savings accounts will be a major step 
in that direction.
  I would welcome any suggestions my colleagues or others may have for 
improving this legislation and hope we do not forgo the opportunity to 
establish MSA's this year.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:
                                S. 1249

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. DEDUCTION FOR CONTRIBUTIONS TO MEDICAL SAVINGS 
                   ACCOUNTS.

       (a) In General.--Part VII of subchapter B of chapter 1 
     (relating to additional itemized deductions for individuals) 
     is amended by redesignating section 220 as section 221 and by 
     inserting after section 219 the following new section:

     ``SEC. 220. CONTRIBUTIONS TO MEDICAL SAVINGS ACCOUNTS.

       ``(a) Deduction Allowed.--In the case of an eligible 
     individual, there shall be allowed as a deduction the amounts 
     paid in cash during the taxable year by the individual to a 
     medical savings account for the benefit of--
       ``(1) the eligible individual, or
       ``(2) any spouse or dependent (as defined in section 152) 
     of the eligible individual who is enrolled in the same health 
     plan as the eligible individual but only if the spouse or 
     dependent is also an eligible individual.

[[Page S 13664]]

       ``(b) Limitations.--
       ``(1) Only 1 account per family.--No deduction shall be 
     allowed under subsection (a) for amounts paid to any medical 
     savings account for the benefit of an eligible individual, 
     such individual's spouse, or any dependent (as so defined) of 
     such individual if such individual, spouse, or dependent is a 
     beneficiary of any other medical savings account.
       ``(2) Dollar limitation.--
       ``(A) In general.--The amount allowable as a deduction 
     under subsection (a) with respect to contributions to a 
     medical savings account for the taxable year shall not exceed 
     the lesser of--
       ``(i) $2,500 ($5,000 in the case of a medical savings 
     account established on behalf of more than 1 individual), or
       ``(ii) the catastrophic health plan differential.
       ``(B) Catastrophic health plan differential.--For purposes 
     of subparagraph (A)(ii)--
       ``(i) In general.--The catastrophic health plan 
     differential for any taxable year is equal to the sum of the 
     amounts determined under clause (ii) for each month during 
     the taxable year for which the taxpayer was an eligible 
     individual.
       ``(ii) Monthly differential.--The amount determined under 
     this clause for any month is the excess (if any) of--

       ``(I) the monthly premium determined under clause (iii) for 
     the same class of enrollment as the catastrophic health plan 
     in which the eligible individual is enrolled in, over
       ``(II) the aggregate amount paid for coverage for such 
     month under the catastrophic health plan.

       ``(iii) Monthly premium.--Not later than December 31 of 
     each calendar year, the Secretary shall determine and publish 
     the monthly premium (for each class of enrollment) for 
     coverage under the health benefits plan offered under chapter 
     89 of title 5, United States Code, with the highest 
     enrollment, adjusted for a national population under 65 years 
     of age (as determined by the Secretary) for the following 
     calendar year. The premium shall be determined on the basis 
     of the annual open enrollment period with respect to such 
     following calendar year.
       ``(C) Cost-of-living adjustment.--In the case of a taxable 
     year beginning in a calendar year after 1996, each dollar 
     amount in subparagraph (A)(i) shall be increased by an amount 
     equal to such dollar amount multiplied by the cost-of-living 
     adjustment under section 1(f)(3) for the calendar year in 
     which the taxable year begins, determined by substituting 
     `1995' for `1992' in subparagraph (B) thereof.
       ``(3) Phase-in of deduction.--In the case of taxable years 
     beginning after December 31, 1995, and before January 1, 
     2000, only the following percentages of the deduction 
     allowable under this section (without regard to this 
     paragraph) shall be allowed:

``If the taxable year                                    The applicable
begins in:                                               percentage is:
1996 or 1997.................................................50 percent
1998 or 1999.................................................75 percent

       ``(c) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Eligible individual.--The term `eligible individual' 
     means, with respect to any month, any individual who is not 
     eligible during such month--
       ``(A) to participate in an employer-subsidized health plan 
     maintained by an employer of the individual, the individual's 
     spouse, or any dependent (as defined in section 152) of 
     either, or
       ``(B) to receive any employer contribution to a medical 
     savings account.

     For purposes of subparagraph (B), a self-employed individual 
     (within the meaning of section 401(c)) shall not be treated 
     as his own employer.
       ``(2) Catastrophic health plan.--For purposes of this 
     section--
       ``(A) In general.--The term `catastrophic health plan' 
     means a health plan which--
       ``(i) has an annual out-of-pocket expense requirement per 
     covered individual which is not less than $2,500, and
       ``(ii) has an aggregate annual limit on out-of-pocket 
     expenses for all covered individuals which is not less than 
     $5,000.
       ``(B) Minimum period of plan.--A health plan shall not be 
     treated as a catastrophic health plan unless--
       ``(i) the initial period of coverage under the plan is 24 
     months, and
       ``(ii) coverage under the plan may not be terminated after 
     such initial period without advance notice of at least 1 year 
     unless the individual is enrolling in another catastrophic 
     health plan.

     Clauses (i) and (ii) shall not preclude any termination for 
     cause.
       ``(C) Health plan.--The term `health plan' means any plan 
     or arrangement which provides, or pays the cost of, health 
     benefits. Such term does not include the following, or any 
     combination thereof:
       ``(i) Coverage only for accidental death, dismemberment, 
     dental, or vision.
       ``(ii) Coverage providing wages or payments in lieu of 
     wages for any period during which the employee is absent from 
     work on account of sickness or injury.
       ``(iii) A medicare supplemental policy (as defined in 
     section 1882(g)(1)) or additional health care services under 
     a risk contract under section 1876 for which an individual is 
     charged premiums in addition to premiums under part B of 
     title XVIII.
       ``(iv) Coverage issued as a supplement to liability 
     insurance.
       ``(v) Workers' compensation or similar insurance.
       ``(vi) Automobile medical-payment insurance.
       ``(vii) A long-term care insurance policy, including a 
     nursing home fixed indemnity policy (unless the Secretary 
     determines that such a policy provides sufficiently 
     comprehensive coverage of a benefit so that it should be 
     treated as a health plan).
       ``(viii) An equivalent health care program.
       ``(ix) Any plan or arrangement not described in any 
     preceding subparagraph which provides for benefit payments, 
     on a periodic basis, for a specified disease or illness or 
     period of hospitalization without regard to the costs 
     incurred or services rendered during the period to which the 
     payments relate.
       ``(x) Such other plan or arrangement as the Secretary 
     determines is not a health plan.
       ``(D) Equivalent health care program.--The term `equivalent 
     health care program' means--
       ``(i) part A or part B of the medicare program under title 
     XVIII of the Social Security Act,
       ``(ii) the medicaid program under title XIX of the Social 
     Security Act,
       ``(iii) the health care program for active military 
     personnel under title 10, United States Code,
       ``(iv) the veterans health care program under chapter 17 of 
     title 38, United States Code,
       ``(v) the Civilian Health and Medical Program of the 
     Uniformed Services (CHAMPUS), as defined in section 1073(4) 
     of title 10, United States Code, and
       ``(vi) the Indian health service program under the Indian 
     Health Care Improvement Act (25 U.S.C. 1601 et seq.).
       ``(3) Medical savings account.--The term `medical savings 
     account' has the meaning given such term by section 7705.
       ``(4) Time when contributions deemed made.--A contribution 
     shall be deemed to be made on the last day of the preceding 
     taxable year if the contribution is made on account of such 
     taxable year and is made not later than the time prescribed 
     by law for filing the return for such taxable year (not 
     including extensions thereof).''
       (b) Deduction Allowed Against Gross Income.--Subsection (a) 
     of section 62 (defining adjusted gross income) is amended by 
     inserting after paragraph (15) the following new paragraph:
       ``(16) Medical savings accounts.--The deduction allowed by 
     section 220.''
       (c) Clerical Amendment.--The table of sections for part VII 
     of subchapter B of chapter 1 is amended by striking the last 
     item and inserting the following new items:

``Sec. 220. Contributions to medical savings accounts.
``Sec. 221. Cross reference.''

       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 2. EXCLUSION FROM INCOME OF EMPLOYER CONTRIBUTIONS TO 
                   MEDICAL SAVINGS ACCOUNTS.

       (a) In General.--Section 106 (relating to contributions by 
     employers to accident and health plans) is amended by adding 
     at the end the following new subsection:
       ``(b) Contributions to Medical Savings Accounts.--
       ``(1) Treatment of contributions.--
       ``(A) In general.--Gross income of an employee who is 
     covered by a catastrophic health plan of an employer shall 
     not include any employer contribution to a medical savings 
     account on behalf of the employee or the employee's spouse or 
     dependents (as defined in section 152).
       ``(B) No constructive receipt.--No amount shall be included 
     in the gross income of any employee solely because the 
     employee may choose between the contributions described in 
     subparagraph (A) and employer contributions to a health plan 
     of the employer.
       ``(2) Limitations.--
       ``(A) Only 1 account per family.--No exclusion shall be 
     allowed under paragraph (1) for amounts paid to any medical 
     savings account on behalf of an employee or the employee's 
     spouse or dependents (as so defined) if employee, spouse, or 
     dependent is a beneficiary of any other medical savings 
     account.
       ``(B) Dollar limitation.--The amount which may be excluded 
     under paragraph (1) for any taxable year shall not exceed the 
     lesser of--
       ``(i) $2,500 ($5,000 in the case of a medical savings 
     account established on behalf of more than 1 individual), or
       ``(ii) the sum of the catastrophic health plan 
     differentials for each month during the taxable year.
       ``(3) Catastrophic health plan differential.--For purposes 
     of subparagraph (B)(ii), the catastrophic health plan 
     differential with respect to any employee for any month is 
     the amount by which the cost for the month of the 
     catastrophic health plan in which the employee is enrolled is 
     less than--
       ``(A) the cost of the health plan (for the same class of 
     enrollment) which--
       ``(i) the employee is eligible to enroll in through the 
     employer, and
       ``(ii) has the highest cost of all health plans in which 
     the employee may enroll in through the employer, or
       ``(B) if the employee is not eligible to enroll in any such 
     health plan through the employer or the employer does not 
     offer any such health plan, the monthly premium for the month 
     determined under section 220(b)(2)(B)(iii).

[[Page S 13665]]

       ``(4) Cost-of-living adjustment.--In the case of a taxable 
     year beginning in a calendar year after 1996, each dollar 
     amount in paragraph (2)(B)(i) shall be increased by an amount 
     equal to such dollar amount multiplied by the cost-of-living 
     adjustment under section 1(f)(3) for the calendar year in 
     which the taxable year begins, determined by substituting 
     `1995' for `1992' in subparagraph (B) thereof.
       ``(5) Definitions.--For purposes of this subsection--
       ``(A) Catastrophic health plan.--The term `catastrophic 
     health plan' has the meaning given such term by section 
     220(c)(2).
       ``(B) Medical savings account.--The term `medical savings 
     account' has the meaning given such term by section 7705.''
       (b) Employer Payments Excluded From Employment Base.--
       (1) Social security.--
       (A) Subsection (a) of section 3121 is amended by striking 
     ``or'' at the end of paragraph (20), by striking the period 
     at the end of paragraph (21) and inserting ``; or'', and by 
     inserting after paragraph (21) the following new paragraph:
       ``(22) any payment made to or for the benefit of an 
     employee if at the time of such payment it is reasonable to 
     believe that the employee will be able to exclude such 
     payment from income under section 106(b).''
       (B) Subsection (a) of section 209 of the Social Security 
     Act is amended by striking ``or'' at the end of paragraph 
     (18), by striking the period at the end of paragraph (19) and 
     inserting ``; or'', and by inserting after paragraph (19) the 
     following new paragraph:
       ``(20) any payment made to or for the benefit of an 
     employee if at the time of such payment it is reasonable to 
     believe that the employee will be able to exclude such 
     payment from income under section 106(b) of the Internal 
     Revenue Code of 1986.''
       (2) Railroad retirement.--Subsection (e) of section 3231 is 
     amended by adding at the end the following new paragraph:
       ``(10) medical savings account contributions.--The term 
     `compensation' shall not include any payment made to or for 
     the benefit of an employee if at the time of such payment it 
     is reasonable to believe that the employee will be able to 
     exclude such payment from income under section 106(b).''
       (3) Unemployment.--Subsection (b) of section 3306 is 
     amended by striking ``or'' at the end of paragraph (15), by 
     striking the period at the end of paragraph (16) and 
     inserting ``; or'', and by inserting after paragraph (16) the 
     following new paragraph:
       ``(17) any payment made to or for the benefit of an 
     employee if at the time of such payment it is reasonable to 
     believe that the employee will be able to exclude such 
     payment from income under section 106(b).''
       (4) Withholding.--Subsection (a) of section 3401 is amended 
     by striking ``or'' at the end of paragraph (19), by striking 
     the period at the end of paragraph (20) and inserting ``; 
     or'', and by inserting after paragraph (20) the following new 
     paragraph:
       ``(21) any payment made to or for the benefit of an 
     employee if at the time of such payment it is reasonable to 
     believe that the employee will be able to exclude such 
     payment from income under section 106(b).''
       (c) Conforming Amendment.--Section 106 is amended by 
     striking ``Gross'' and inserting:
       ``(a) General Rule.--Gross''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 3. MEDICAL SAVINGS ACCOUNTS.

       (a) In General.--Chapter 79 is amended by adding at the end 
     the following new section:

     ``SEC. 7705. MEDICAL SAVINGS ACCOUNTS.

       ``(a) General Rule.--The term `medical savings account' 
     means a trust created or organized in the United States for 
     the exclusive benefit of the beneficiaries of the trust, but 
     only if the written governing instrument creating the trust 
     meets the following requirements:
       ``(1) Except in the case of a rollover contribution 
     described in subsection (c)(5), no contribution will be 
     accepted unless--
       ``(A) it is in cash, and
       ``(B) it is made for a period during which the individual 
     on whose behalf it is made is covered under a catastrophic 
     health plan.
       ``(2) Contributions will not be accepted for any taxable 
     year in excess of the amount allowable as a deduction under 
     section 220(b)(2) for such taxable year.
       ``(3) The trustee is a bank (as defined in section 408(n)), 
     insurance company (as defined in section 816), or another 
     person who demonstrates to the satisfaction of the Secretary 
     that the manner in which such person will administer the 
     trust will be consistent with the requirements of this 
     section.
       ``(4) The assets of the trust will not be commingled with 
     other property except in a common trust fund or common 
     investment fund.
       ``(5) No part of the trust assets will be invested in life 
     insurance contracts.
       ``(6) The interest of an individual in the balance in the 
     individual's account is nonforfeitable.
       ``(b) Treatment of Accounts.--
       ``(1) Account treated as grantor trust.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the account beneficiary of a medical savings account shall be 
     treated for purposes of this title as the owner of such 
     account and shall be subject to tax thereon in accordance 
     with subpart E of part I of subchapter J of this chapter 
     (relating to grantors and others treated as substantial 
     owners).
       ``(B) Treatment of capital losses.--With respect to assets 
     held in a medical savings account, any capital loss for a 
     taxable year from the sale or exchange of such an asset shall 
     be allowed only to the extent of capital gains from such 
     assets for such taxable year. Any capital loss which is 
     disallowed under the preceding sentence shall be treated as a 
     capital loss from the sale or exchange of such an asset in 
     the next taxable year.
       ``(2) Account terminates if individual engages in 
     prohibited transaction.--
       ``(A) In general.--If, during any taxable year of the 
     account beneficiary, such beneficiary engages in any 
     transaction prohibited by section 4975 with respect to the 
     account, the account shall cease to be a medical savings 
     account as of the first day of such taxable year.
       ``(B) Account treated as distributing all its assets.--In 
     any case in which any account ceases to be a medical savings 
     account by reason of subparagraph (A) on the first day of any 
     taxable year, subsection (c) shall be applied as if--
       ``(i) there were a distribution on such first day in an 
     amount equal to the fair market value (on such first day) of 
     all assets in the account (on such first day), and
       ``(ii) no portion of such distribution were used to pay 
     qualified medical expenses.
       ``(3) Effect of pledging account as security.--If, during 
     any taxable year, the account beneficiary uses the account or 
     any portion thereof as security for a loan for purposes other 
     than to pay qualified medical expenses, the portion so used 
     is treated as distributed and not used to pay qualified 
     medical expenses.
       ``(c) Treatment of Distributions.--
       ``(1) Amounts used for qualified medical expenses.--Any 
     amount paid or distributed out of a medical savings account 
     which is used exclusively to pay qualified medical expenses 
     of any account beneficiary (or spouse or dependent (as 
     defined in section 152)) of the account shall not be 
     includible in gross income.
       ``(2) Inclusion of amounts not used for qualified medical 
     expenses.--
       ``(A) In general.--Any amount paid or distributed out of a 
     medical savings account which is not used exclusively to pay 
     the qualified medical expenses of the account beneficiary (or 
     spouse or dependent (as so defined)) shall be included in the 
     gross income of such beneficiary to the extent such amount 
     does not exceed the excess of--
       ``(i) the aggregate contributions to such account which 
     were not includible in gross income by reason of section 
     106(b) or which were deductible under section 220, over
       ``(ii) the aggregate prior payments or distributions from 
     such account which were includible in gross income under this 
     paragraph.
       ``(B) Special rules.--For purposes of subparagraph (A)--
       ``(i) all payments and distributions during any taxable 
     year shall be treated as 1 distribution, and
       ``(ii) any distribution of property shall be taken into 
     account at its fair market value on the date of the 
     distribution.
       ``(3) Excess contributions returned before due date of 
     return.--Paragraph (2) shall not apply to the distribution of 
     any contribution paid during a taxable year to a medical 
     savings account to the extent that such contribution exceeds 
     the amount under subsection (a)(2) if--
       ``(A) such distribution is received by the individual on or 
     before the last day prescribed by law (including extensions 
     of time) for filing such individual's return for such taxable 
     year, and
       ``(B) such distribution is accompanied by the amount of net 
     income attributable to such excess contribution.

     Any net income described in subparagraph (B) shall be 
     included in the gross income of the individual for the 
     taxable year in which it is received.
       ``(4) Penalty for distributions not used for qualified 
     medical expenses.--
       ``(A) In general.--The tax imposed by chapter 1 on the 
     account beneficiary for any taxable year in which there is a 
     payment or distribution from a medical savings account of 
     such beneficiary which is includible in gross income under 
     paragraph (2) shall be increased by 10 percent of the amount 
     which is so includible.
       ``(B) Exception for disability or death.--Subparagraph (A) 
     shall not apply if the payment or distribution is made after 
     the account beneficiary becomes disabled within the meaning 
     of section 72(m)(7) or dies.
       ``(5) Rollover contribution.--If any amount paid or 
     distributed from a medical savings account to the account 
     beneficiary (or spouse or dependent (as defined in section 
     152)) is paid into a medical savings account for the benefit 
     of such beneficiary (or spouse or dependent) not later than 
     the 60th day after the day on which the beneficiary (or 
     spouse or dependent) receives the payment or distribution--
       ``(A) paragraph (2) shall not apply to such amount, and
       ``(B) such amount shall be treated as a rollover 
     contribution described in this paragraph.
       ``(6) Coordination with medical expense deduction.--For 
     purposes of section 213, any payment or distribution out of a 
     medical savings account for qualified medical expenses shall 
     not be treated as an expense 

[[Page S 13666]]

     paid for medical care to the extent of the amount of such 
     payment or distribution which is attributable to amounts 
     described in paragraph (2)(A).
       ``(7) Transfer of account incident to divorce.--The 
     transfer of an individual's interest in a medical savings 
     account to an individual's spouse or former spouse under a 
     divorce or separation instrument described in subparagraph 
     (A) of section 71(b)(2) shall not be considered a taxable 
     transfer made by such individual notwithstanding any other 
     provision of this subtitle, and such interest at the time of 
     the transfer shall be treated as a medical savings account of 
     such spouse, and not of such individual. Any such account or 
     annuity shall, for purposes of this subtitle, be treated as 
     maintained for the benefit of the spouse to whom the interest 
     was transferred.
       ``(d) Definitions.--For purposes of this section--
       ``(1) Qualified medical expenses.--
       ``(A) In general.--The term `qualified medical expenses' 
     means any expense for--
       ``(i) medical care (as defined in section 213(d)), or
       ``(ii) qualified long-term care services.
       ``(B) Exception for insurance.--
       ``(i) In general.--Such term shall not include any expense 
     for insurance.
       ``(ii) Exceptions.--Clause (i) shall not apply to any 
     expense for--

       ``(I) coverage under a health plan during a period of 
     continuation coverage described in section 4980B(f)(2)(B),
       ``(II) coverage under a medicare supplemental policy (as 
     defined in section 1882(g)(1) of the Social Security Act), or
       ``(III) payment of premiums under part A or B of title 
     XVIII of the Social Security Act,
       ``(IV) coverage under a policy providing qualified long-
     term care services, or
       ``(V) coverage under a health plan during any period during 
     which an individual is unemployed.

       ``(C) Qualified long-term care services.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `qualified long-term care 
     services' means necessary diagnostic, preventive, 
     therapeutic, rehabilitative, and maintenance (including 
     personal care) services--

       ``(I) which are required by an individual during any period 
     during which such individual is a functionally impaired 
     individual,
       ``(II) which have as their primary purpose the provision of 
     needed assistance with 1 or more activities of daily living 
     which a functionally impaired individual is certified as 
     being unable to perform under clause (ii)(I), and
       ``(III) which are provided pursuant to a continuing plan of 
     care prescribed by a licensed health care practitioner (other 
     than a relative of such individual).

       ``(ii) Functionally impaired individual.--

       ``(I) In general.--The term `functionally impaired 
     individual' means any individual who is certified by a 
     licensed health care practitioner (other than a relative of 
     such individual) as being unable to perform, without 
     substantial assistance from another individual (including 
     assistance involving verbal reminding, physical cueing, or 
     substantial supervision), at least 3 activities of daily 
     living described in clause (iii).
       ``(II) Special rule for home health care services.--In the 
     case of services which are provided during any period during 
     which an individual is residing within the individual's home 
     (whether or not the services are provided within the home), 
     subclause (I) shall be applied by substituting `2' for `3'. 
     For purposes of this subclause, a nursing home or similar 
     facility shall not be treated as a home.

       ``(iii) Activities of daily living.--Each of the following 
     is an activity of daily living:

       ``(I) Eating.
       ``(II) Transferring.
       ``(III) Toileting.
       ``(IV) Dressing.
       ``(V) Bathing.

       ``(D) Licensed health care practitioner.--For purposes of 
     subparagraph (C)--
       ``(i) In general.--The term `licensed health care 
     practitioner' means--

       ``(I) a physician or registered professional nurse,
       ``(II) a qualified community care case manager (as defined 
     in clause (ii)), 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.

       ``(ii) 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;
       ``(III) is not a relative of the individual receiving case 
     management services; and
       ``(IV) meets such requirements as may be prescribed by the 
     Secretary after consultation with the Secretary of Health and 
     Human Services.

       ``(E) Relative.--For purposes of this paragraph, the term 
     `relative' means an individual bearing a relationship to 
     another individual which is described in paragraphs (1) 
     through (8) of section 152(a).
       ``(2) Account beneficiary.--The term `account beneficiary' 
     means the individual for whose benefit the medical savings 
     account is maintained.
       ``(e) Custodial Accounts.--For purposes of this section, a 
     custodial account shall be treated as a trust if--
       ``(1) the assets of such account are held by a bank (as 
     defined in section 408(n)), insurance company (as defined in 
     section 816), or another person who demonstrates to the 
     satisfaction of the Secretary that the manner in which such 
     person will administer the account will be consistent with 
     the requirements of this section, and
       ``(2) the custodial account would, except for the fact that 
     it is not a trust, constitute a medical savings account 
     described in subsection (a).

     For purposes of this title, in the case of a custodial 
     account treated as a trust by reason of the preceding 
     sentence, the custodian of such account shall be treated as 
     the trustee thereof.
       ``(f) Reports.--The trustee of a medical savings account 
     shall make such reports regarding such account to the 
     Secretary and to the individual for whose benefit the account 
     is maintained with respect to contributions, distributions, 
     and such other matters as the Secretary may require under 
     regulations. The reports required by this subsection shall be 
     filed at such time and in such manner and furnished to such 
     individuals at such time and in such manner as may be 
     required by those regulations.''
       (b) Preemption of Certain Conflicting Laws.--
       (1) In general.--Notwithstanding any other provision of 
     law, no Federal or State law shall prohibit a carrier from 
     offering a catastrophic health plan in conjunction with a 
     medical savings account (as defined in section 7705 of the 
     Internal Revenue Code of 1986).
       (2) Definitions.--For purposes of this subsection--
       (A) the term ``carrier'' means any entity licensed or 
     authorized under Federal or State law to offer a health plan,
       (B) the term ``catastrophic health plan'' means a health 
     plan--
       (i) which is described in section 220(c)(2) of the Internal 
     Revenue Code of 1986, or
       (ii) a similar health plan which provides significant cost 
     sharing, and
       (C) the term ``health plan'' has the meaning given such 
     term by section 220(c)(2)(C) of such Code.
       (c) Treatment of Excess Contributions.--Section 4973 
     (relating to tax on excess contributions to individual 
     retirement accounts, certain section 403(b) contracts, and 
     certain individual retirement annuities) is amended--
       (1) by inserting ``MEDICAL SAVINGS ACCOUNTS,'' after 
     ``ACCOUNTS,'' in the heading of such section,
       (2) by striking ``or'' at the end of paragraph (1) of 
     subsection (a),
       (3) by redesignating paragraph (2) of subsection (a) as 
     paragraph (3) and by inserting after paragraph (1) the 
     following:
       ``(2) a medical savings account (within the meaning of 
     section 7705(a)), or'', and
       (4) by adding at the end the following new subsection:
       ``(d) Excess Contributions to Medical Savings Accounts.--
     For purposes of this section, in the case of a medical 
     savings account (within the meaning of section 7705(a)), the 
     term `excess contributions' means the amount by which the 
     amount contributed for the taxable year to the account 
     exceeds the amount which may be contributed to the account 
     under section 7705(a)(2) for such taxable year. For purposes 
     of this subsection, any contribution which is distributed out 
     of the medical savings account in a distribution to which 
     section 7705(c)(3) applies shall be treated as an amount not 
     contributed.''
       (d) Treatment of Prohibited Transactions.--Section 4975 
     (relating to prohibited transactions) is amended--
       (1) by adding at the end of subsection (c) the following 
     new paragraph:
       ``(4) Special rule for medical savings accounts.--An 
     individual for whose benefit a medical savings account 
     (within the meaning of section 7705(a)) is established shall 
     be exempt from the tax imposed by this section with respect 
     to any transaction concerning such account (which would 
     otherwise be taxable under this section) if, with respect to 
     such transaction, the account ceases to be a medical savings 
     account by reason of the application of section 7705(b)(2)(A) 
     to such account.'', and
       (2) by inserting ``or a medical savings account described 
     in section 7705(a)'' in subsection (e)(1) after ``described 
     in section 408(a)''.
       (e) Failure To Provide Reports on Medical Savings 
     Accounts.--Section 6693 (relating to failure to provide 
     reports on individual retirement accounts or annuities) is 
     amended--
       (1) by inserting ``OR ON MEDICAL SAVINGS ACCOUNTS'' after 
     ``ANNUITIES'' in the heading of such section, and
       (2) by adding at the end of subsection (a) the following: 
     ``The person required by section 7705(f) to file a report 
     regarding a medical savings account at the time and in the 
     manner required by such section shall pay a penalty of $50 
     for each failure unless it is shown that such failure is due 
     to reasonable cause.''
       (f) Clerical Amendments.--

[[Page S 13667]]

       (1) The table of sections for chapter 43 is amended by 
     striking the item relating to section 4973 and inserting the 
     following:

``Sec. 4973. Treatment of excess contributions to individual retirement 
              accounts, medical savings accounts, certain 403(b) 
              contracts, and certain individual retirement annuities.''

       (2) The table of sections for subchapter B of chapter 68 is 
     amended by inserting ``or on medical savings accounts'' after 
     ``annuities'' in the item relating to section 6693.

     SEC. 4. SENSE OF THE SENATE REGARDING TAX TREATMENT OF HEALTH 
                   INSURANCE AND LONG-TERM CARE INSURANCE.

       It is the sense of the Senate that--
       (1) there should be tax parity for all health insurance 
     whether provided or purchased by individuals, self-employed, 
     or employers; and
       (2) long-term care services and insurance should be 
     provided tax status similar to medical care services and 
     insurance.
     

                          ____________________