[Congressional Record Volume 142, Number 53 (Tuesday, April 23, 1996)]
[Senate]
[Pages S3836-S3864]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      HEALTH INSURANCE REFORM ACT

  The Senate continued with the consideration of the bill.
  The PRESIDING OFFICER. Under the previous order, the Senate will now 
vote on H.R. 3103. The yeas and nays have been ordered.
  The clerk will call the roll.
  The legislative clerk called the roll.
  The result was announced--yeas 100, nays 0, as follows:

                      [Rollcall Vote No. 78 Leg.]

                               YEAS--100

     Abraham
     Akaka
     Ashcroft
     Baucus
     Bennett
     Biden
     Bingaman
     Bond
     Boxer
     Bradley
     Breaux
     Brown
     Bryan
     Bumpers
     Burns
     Byrd
     Campbell
     Chafee
     Coats
     Cochran
     Cohen
     Conrad
     Coverdell
     Craig
     D'Amato
     Daschle
     DeWine
     Dodd
     Dole
     Domenici
     Dorgan
     Exon
     Faircloth
     Feingold
     Feinstein
     Ford
     Frist
     Glenn
     Gorton
     Graham
     Gramm
     Grams
     Grassley
     Gregg
     Harkin
     Hatch
     Hatfield
     Heflin
     Helms
     Hollings
     Hutchison
     Inhofe
     Inouye
     Jeffords
     Johnston
     Kassebaum
     Kempthorne
     Kennedy
     Kerrey
     Kerry
     Kohl
     Kyl
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lott
     Lugar
     Mack
     McCain
     McConnell
     Mikulski
     Moseley-Braun
     Moynihan
     Murkowski
     Murray
     Nickles
     Nunn
     Pell
     Pressler
     Pryor
     Reid
     Robb
     Rockefeller
     Roth
     Santorum
     Sarbanes
     Shelby
     Simon
     Simpson
     Smith
     Snowe
     Specter
     Stevens
     Thomas
     Thompson
     Thurmond
     Warner
     Wellstone
     Wyden
  So the bill (H.R. 3103), as amended, was passed, as follows:
       Resolved, That the bill from the House of Representatives 
     (H.R. 3103) entitled ``An Act to amend the Internal Revenue 
     Code of 1986 to improve portability and continuity of health 
     insurance coverage in the group and individual markets, to 
     combat waste, fraud, and abuse in health insurance and health 
     care delivery, to promote the use of medical savings 
     accounts, to improve access to long-term care services and 
     coverage, to simplify the administration of health insurance, 
     and for other purposes'', do pass with the following 
     amendment:
       Strike out all after the enacting clause and insert:

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Health 
     Insurance Reform Act of 1996''.
       (b) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. Definitions.

       TITLE I--HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY

                     Subtitle A--Group Market Rules

Sec. 101. Guaranteed availability of health coverage.
Sec. 102. Guaranteed renewability of health coverage.
Sec. 103. Portability of health coverage and limitation on preexisting 
              condition exclusions.
Sec. 104. Special enrollment periods.
Sec. 105. Disclosure of information.

                  Subtitle B--Individual Market Rules

Sec. 110. Individual health plan portability.
Sec. 111. Guaranteed renewability of individual health coverage.
Sec. 112. State flexibility in individual market reforms.
Sec. 113. Definition.

                    Subtitle C--COBRA Clarifications

Sec. 121. COBRA clarifications.

        Subtitle D--Private Health Plan Purchasing Cooperatives

Sec. 131. Private health plan purchasing cooperatives.

           TITLE II--APPLICATION AND ENFORCEMENT OF STANDARDS

Sec. 201. Applicability.
Sec. 202. Enforcement of standards.

[[Page S3837]]

                  TITLE III--MISCELLANEOUS PROVISIONS

Sec. 301. HMOs allowed to offer plans with deductibles to individuals 
              with medical savings accounts.
Sec. 302. Health coverage availability study.
Sec. 303. Reimbursement of telemedicine.
Sec. 304. Sense of the Committee concerning medicare.
Sec. 305. Parity for mental health services.
Sec. 306. Waiver of foreign country residence requirement with respect 
              to international medical graduates.
Sec. 307. Organ and tissue donation information included with income 
              tax refund payments.
Sec. 308. Sense of the Senate regarding adequate health care coverage 
              for all children and pregnant women.
Sec. 309. Sense of the Senate regarding available treatments.
Sec. 310. Medical volunteers.
Sec. 311. Effective date.
Sec. 312. Severability.

                TITLE IV--TAX-RELATED HEALTH PROVISIONS

Sec. 400. Short title; amendment of 1986 Code.

 Subtitle A--Increase in Deduction for Health Insurance Costs of Self-
                          Employed Individuals

Sec. 401. Increase in self-employed individuals' deduction for health 
              insurance costs.

                 Subtitle B--Long-Term Care Provisions

            Chapter 1--Long-Term Care Services and Contracts


                     SUBCHAPTER A--GENERAL PROVISIONS

Sec. 411. Treatment of long-term care insurance.
Sec. 412. Qualified long-term care services treated as medical care.
Sec. 413. Certain exchanges of life insurance contracts for qualified 
              long-term care insurance contracts not taxable.
Sec. 414. Exception from penalty tax for amounts withdrawn from certain 
              retirement plans for qualified long-term care insurance.
Sec. 415. Reporting requirements.


               SUBCHAPTER B--CONSUMER PROTECTION PROVISIONS

Sec. 421. Policy requirements.
Sec. 422. Requirements for issuers of long-term care insurance 
              policies.
Sec. 423. Coordination with State requirements.
Sec. 424. Effective dates.

           Chapter 2--Treatment Of Accelerated Death Benefits

Sec. 431. Treatment of accelerated death benefits by recipient.
Sec. 432. Tax treatment of companies issuing qualified accelerated 
              death benefit riders.

                      Subtitle C--High-Risk Pools

Sec. 451. Exemption from income tax for State-sponsored organizations 
              providing health coverage for high-risk individuals.

               Subtitle D--Penalty-Free IRA Distributions

Sec. 461. Distributions from certain plans may be used without penalty 
              to pay financially devastating medical expenses.

                      Subtitle E--Revenue Offsets

           Chapter 1--Treatment Of Individuals Who Expatriate

Sec. 471. Revision of tax rules on expatriation.
Sec. 472. Information on individuals expatriating.
Sec. 473. Report on tax compliance by United States citizens and 
              residents living abroad.

                   Chapter 2--Company-Owned Insurance

Sec. 495. Denial of deduction for interest on loans with respect to 
              company-owned insurance.

            TITLE V--HEALTH CARE FRAUD AND ABUSE PREVENTION

Sec. 500. Amendments.

              Subtitle A--Fraud and Abuse Control Program

Sec. 501. Fraud and abuse control program.
Sec. 502. Medicare integrity program.
Sec. 503. Beneficiary incentive programs.
Sec. 504. Application of certain health anti-fraud and abuse sanctions 
              to fraud and abuse against Federal health care programs.
Sec. 505. Guidance regarding application of health care fraud and abuse 
              sanctions.

     Subtitle B--Revisions to Current Sanctions for Fraud and Abuse

Sec. 511. Mandatory exclusion from participation in medicare and State 
              health care programs.
Sec. 512. Establishment of minimum period of exclusion for certain 
              individuals and entities subject to permissive exclusion 
              from medicare and State health care programs.
Sec. 513. Permissive exclusion of individuals with ownership or control 
              interest in sanctioned entities.
Sec. 514. Sanctions against practitioners and persons for failure to 
              comply with statutory obligations.
Sec. 515. Intermediate sanctions for medicare health maintenance 
              organizations.
Sec. 516. Additional exceptions to anti-kickback penalties for risk-
              sharing arrangements.
Sec. 517. Effective date.

        Subtitle C--Data Collection and Miscellaneous Provisions

Sec. 521. Establishment of the health care fraud and abuse data 
              collection program.

                  Subtitle D--Civil Monetary Penalties

Sec. 531. Social Security Act civil monetary penalties.

                 Subtitle E--Amendments to Criminal Law

Sec. 541. Health care fraud.
Sec. 542. Forfeitures for Federal health care offenses.
Sec. 543. Injunctive relief relating to Federal health care offenses.
Sec. 544. False statements.
Sec. 545. Obstruction of criminal investigations of Federal health care 
              offenses.
Sec. 546. Theft or embezzlement.
Sec. 547. Laundering of monetary instruments.
Sec. 548. Authorized investigative demand procedures.

          TITLE VI--INTERNAL REVENUE CODE AND OTHER PROVISIONS

Sec. 600. References.

                Subtitle A--Foreign Trust Tax Compliance

Sec. 601. Improved information reporting on foreign trusts.
Sec. 602. Modifications of rules relating to foreign trusts having one 
              or more United States beneficiaries.
Sec. 603. Foreign persons not to be treated as owners under grantor 
              trust rules.
Sec. 604. Information reporting regarding foreign gifts.
Sec. 605. Modification of rules relating to foreign trusts which are 
              not grantor trusts.
Sec. 606. Residence of estates and trusts, etc.

   Subtitle B--Repeal of Bad Debt Reserve Method for Thrift Savings 
                              Associations

Sec. 611. Repeal of bad debt reserve method for Thrift Savings 
              Associations.

                      Subtitle C--Other Provisions

Sec. 621. Extension of medicare secondary payor provisions.
Sec. 622. Annual adjustment factors for operating costs only; restraint 
              on rent increases.
Sec. 623. Foreclosure avoidance and borrower assistance.

     SEC. 2. DEFINITIONS.

       As used in this Act:
       (1) Beneficiary.--The term ``beneficiary'' has the meaning 
     given such term under section 3(8) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1002(8)).
       (2) Employee.--The term ``employee'' has the meaning given 
     such term under section 3(6) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1002(6)).
       (3) Employer.--The term ``employer'' has the meaning given 
     such term under section 3(5) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1002(5)), except that 
     such term shall include only employers of two or more 
     employees.
       (4) Employee health benefit plan.--
       (A) In general.--The term ``employee health benefit plan'' 
     means any employee welfare benefit plan, governmental plan, 
     or church plan (as defined under paragraphs (1), (32), and 
     (33) of section 3 of the Employee Retirement Income Security 
     Act of 1974 (29 U.S.C. 1002 (1), (32), and (33))), or any 
     health benefit plan under section 5(e) of the Peace Corps Act 
     (22 U.S.C. 2504(e)), that provides or pays for health 
     benefits (such as provider and hospital benefits) for 
     participants and beneficiaries whether--
       (i) directly;
       (ii) through a group health plan offered by a health plan 
     issuer as defined in paragraph (8); or
       (iii) otherwise.
       (B) Rule of construction.--An employee health benefit plan 
     shall not be construed to be a group health plan, an 
     individual health plan, or a health plan issuer.
       (C) Arrangements not included.--Such term does not include 
     the following, or any combination thereof:
       (i) Coverage only for accident, or disability income 
     insurance, or any combination thereof.
       (ii) Medicare supplemental health insurance (as defined 
     under section 1882(g)(1) of the Social Security Act).
       (iii) Coverage issued as a supplement to liability 
     insurance.
       (iv) Liability insurance, including general liability 
     insurance and automobile liability insurance.
       (v) Workers compensation or similar insurance.
       (vi) Automobile medical payment insurance.
       (vii) Coverage for a specified disease or illness.
       (viii) Hospital or fixed indemnity insurance.
       (ix) Short-term limited duration insurance.
       (x) Credit-only, dental-only, or vision-only insurance.
       (xi) A health insurance policy providing benefits only for 
     long-term care, nursing home care, home health care, 
     community-based care, or any combination thereof.
       (5) Family.--
       (A) In general.--The term ``family'' means an individual, 
     the individual's spouse, and the child of the individual (if 
     any).
       (B) Child.--For purposes of subparagraph (A), the term 
     ``child'' means any individual who is a child within the 
     meaning of section 151(c)(3) of the Internal Revenue Code of 
     1986.
       (6) Group health plan.--
       (A) In general.--The term ``group health plan'' means any 
     contract, policy, certificate or other arrangement offered by 
     a health plan issuer to a group purchaser that provides or 
     pays for health benefits (such as provider and hospital 
     benefits) in connection with an employee health benefit plan.
       (B) Arrangements not included.--Such term does not include 
     the following, or any combination thereof:
       (i) Coverage only for accident, or disability income 
     insurance, or any combination thereof.
       (ii) Medicare supplemental health insurance (as defined 
     under section 1882(g)(1) of the Social Security Act).

[[Page S3838]]

       (iii) Coverage issued as a supplement to liability 
     insurance.
       (iv) Liability insurance, including general liability 
     insurance and automobile liability insurance.
       (v) Workers compensation or similar insurance.
       (vi) Automobile medical payment insurance.
       (vii) Coverage for a specified disease or illness.
       (viii) Hospital or fixed indemnity insurance.
       (ix) Short-term limited duration insurance.
       (x) Credit-only, dental-only, or vision-only insurance.
       (xi) A health insurance policy providing benefits only for 
     long-term care, nursing home care, home health care, 
     community-based care, or any combination thereof.
       (7) Group purchaser.--The term ``group purchaser'' means 
     any person (as defined under paragraph (9) of section 3 of 
     the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1002(9)) or entity that purchases or pays for health 
     benefits (such as provider or hospital benefits) on behalf of 
     two or more participants or beneficiaries in connection with 
     an employee health benefit plan. A health plan purchasing 
     cooperative established under section 131 shall not be 
     considered to be a group purchaser.
       (8) Health plan issuer.--The term ``health plan issuer'' 
     means any entity that is licensed (prior to or after the date 
     of enactment of this Act) by a State to offer a group health 
     plan or an individual health plan.
       (9) Participant.--The term ``participant'' has the meaning 
     given such term under section 3(7) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1002(7)).
       (10) Plan sponsor.--The term ``plan sponsor'' has the 
     meaning given such term under section 3(16)(B) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1002(16)(B)).
       (11) Secretary.--The term ``Secretary'', unless 
     specifically provided otherwise, means the Secretary of 
     Labor.
       (12) State.--The term ``State'' means each of the several 
     States, the District of Columbia, Puerto Rico, the United 
     States Virgin Islands, Guam, American Samoa, and the 
     Commonwealth of the Northern Mariana Islands.
       TITLE I--HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY
                     Subtitle A--Group Market Rules

     SEC. 101. GUARANTEED AVAILABILITY OF HEALTH COVERAGE.

       (a) In General.--
       (1) Nondiscrimination.--Except as provided in subsection 
     (b), section 102 and section 103--
       (A) a health plan issuer offering a group health plan may 
     not decline to offer whole group coverage to a group 
     purchaser desiring to purchase such coverage; and
       (B) an employee health benefit plan or a health plan issuer 
     offering a group health plan may establish, under the terms 
     of such plan, eligibility, enrollment, or premium 
     contribution requirements for individual participants or 
     beneficiaries, except that such requirements shall not be 
     based on health status, medical condition, claims experience, 
     receipt of health care, medical history, evidence of 
     insurability (including conditions arising out of acts of 
     domestic violence), genetic information, or disability.
       (2) Health promotion and disease prevention.--Nothing in 
     this subsection shall prevent an employee health benefit plan 
     or a health plan issuer from establishing premium discounts 
     or modifying otherwise applicable copayments or deductibles 
     in return for adherence to programs of health promotion and 
     disease prevention.
       (b) Application of Capacity Limits.--
       (1) In general.--Subject to paragraph (2), a health plan 
     issuer offering a group health plan may cease offering 
     coverage to group purchasers under the plan if--
       (A) the health plan issuer ceases to offer coverage to any 
     additional group purchasers; and
       (B) the health plan issuer can demonstrate to the 
     applicable certifying authority (as defined in section 
     202(d)), if required, that its financial or provider capacity 
     to serve previously covered participants and beneficiaries 
     (and additional participants and beneficiaries who will be 
     expected to enroll because of their affiliation with a group 
     purchaser or such previously covered participants or 
     beneficiaries) will be impaired if the health plan issuer is 
     required to offer coverage to additional group purchasers.

     Such health plan issuer shall be prohibited from offering 
     coverage after a cessation in offering coverage under this 
     paragraph for a 6-month period or until the health plan 
     issuer can demonstrate to the applicable certifying authority 
     (as defined in section 202(d)) that the health plan issuer 
     has adequate capacity, whichever is later.
       (2) First-come-first-served.--A health plan issuer offering 
     a group health plan is only eligible to exercise the 
     limitations provided for in paragraph (1) if the health plan 
     issuer offers coverage to group purchasers under such plan on 
     a first-come-first-served basis or other basis established by 
     a State to ensure a fair opportunity to enroll in the plan 
     and avoid risk selection.
       (c) Construction.--
       (1) Marketing of group health plans.--Nothing in this 
     section shall be construed to prevent a State from requiring 
     health plan issuers offering group health plans to actively 
     market such plans.
       (2) Involuntary offering of group health plans.--Nothing in 
     this section shall be construed to require a health plan 
     issuer to involuntarily offer group health plans in a 
     particular market or to require a health plan issuer to 
     involuntarily issue a group health plan to a group health 
     plan purchaser in a particular market if the group health 
     plan was specifically designed for a different market. For 
     the purposes of this paragraph, the term ``market'' means 
     either the large employer market or the small employer market 
     (as defined under applicable State law, or if not so defined, 
     an employer with more than one employee and not more than 50 
     employees).

     SEC. 102. GUARANTEED RENEWABILITY OF HEALTH COVERAGE.

       (a) In General.--
       (1) Group purchaser.--Subject to subsections (b) and (c), a 
     group health plan shall be renewed or continued in force by a 
     health plan issuer at the option of the group purchaser, 
     except that the requirement of this subparagraph shall not 
     apply in the case of--
       (A) the nonpayment of premiums or contributions by the 
     group purchaser in accordance with the terms of the group 
     health plan or where the health plan issuer has not received 
     timely premium payments;
       (B) fraud or misrepresentation of material fact on the part 
     of the group purchaser;
       (C) the termination of the group health plan in accordance 
     with subsection (b); or
       (D) the failure of the group purchaser to meet contribution 
     or participation requirements in accordance with paragraph 
     (3).
       (2) Participant.--Subject to subsections (b) and (c), 
     coverage under an employee health benefit plan or group 
     health plan shall be renewed or continued in force, if the 
     group purchaser elects to continue to provide coverage under 
     such plan, at the option of the participant (or beneficiary 
     where such right exists under the terms of the plan or under 
     applicable law), except that the requirement of this 
     paragraph shall not apply in the case of--
       (A) the nonpayment of premiums or contributions by the 
     participant or beneficiary in accordance with the terms of 
     the employee health benefit plan or group health plan or 
     where such plan has not received timely premium payments;
       (B) fraud or misrepresentation of material fact on the part 
     of the participant or beneficiary relating to an application 
     for coverage or claim for benefits;
       (C) the termination of the employee health benefit plan or 
     group health plan;
       (D) loss of eligibility for continuation coverage as 
     described in part 6 of subtitle B of title I of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1161 et 
     seq.); or
       (E) failure of a participant or beneficiary to meet 
     requirements for eligibility for coverage under an employee 
     health benefit plan or group health plan that are not 
     prohibited by this Act.
       (3) Rules of Construction.--Nothing in this subsection, nor 
     in section 101(a), shall be construed to--
       (A) preclude a health plan issuer from establishing 
     employer contribution rules or group participation rules for 
     group health plans as allowed under applicable State law;
       (B) preclude a plan defined in section 3(37) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1102(37)) from establishing employer contribution rules or 
     group participation rules; or
       (C) permit individuals to decline coverage under an 
     employee health benefit plan if such right is not otherwise 
     available under such plan.
       (b) Termination of Group Health Plans.--
       (1) Particular type of group health plan not offered.--In 
     any case in which a health plan issuer decides to discontinue 
     offering a particular type of group health plan, a group 
     health plan of such type may be discontinued by the health 
     plan issuer only if--
       (A) the health plan issuer provides notice to each group 
     purchaser covered under a group health plan of this type (and 
     participants and beneficiaries covered under such group 
     health plan) of such discontinuation at least 90 days prior 
     to the date of the discontinuation of such plan;
       (B) the health plan issuer offers to each group purchaser 
     covered under a group health plan of this type, the option to 
     purchase any other group health plan currently being offered 
     by the health plan issuer; and
       (C) in exercising the option to discontinue a group health 
     plan of this type and in offering one or more replacement 
     plans, the health plan issuer acts uniformly without regard 
     to the health status or insurability of participants or 
     beneficiaries covered under the group health plan, or new 
     participants or beneficiaries who may become eligible for 
     coverage under the group health plan.
       (2) Discontinuance of all group health plans.--
       (A) In general.--In any case in which a health plan issuer 
     elects to discontinue offering all group health plans in a 
     State, a group health plan may be discontinued by the health 
     plan issuer only if--
       (i) the health plan issuer provides notice to the 
     applicable certifying authority (as defined in section 
     202(d)) and to each group purchaser (and participants and 
     beneficiaries covered under such group health plan) of such 
     discontinuation at least 180 days prior to the date of the 
     expiration of such plan; and
       (ii) all group health plans issued or delivered for 
     issuance in the State are discontinued and coverage under 
     such plans is not renewed.
       (B) Application of provisions.--The provisions of this 
     paragraph and paragraph (3) may be applied separately by a 
     health plan issuer--
       (i) to all group health plans offered to small employers 
     (as defined under applicable State law, or if not so defined, 
     an employer with not more than 50 employees); or
       (ii) to all other group health plans offered by the health 
     plan issuer in the State.
       (3) Prohibition on market reentry.--In the case of a 
     discontinuation under paragraph (2), the health plan issuer 
     may not provide for the issuance of any group health plan in 
     the market sector (as described in paragraph (2)(B)) in which 
     issuance of such group health plan was discontinued in the 
     State involved during the 5-year period beginning on the date 
     of the discontinuation of the last group health plan not so 
     renewed.

[[Page S3839]]

       (c) Treatment of Network Plans.--
       (1) Geographic limitations.--A network plan (as defined in 
     paragraph (2)) may deny continued participation under such 
     plan to participants or beneficiaries who neither live, 
     reside, nor work in an area in which such network plan is 
     offered, but only if such denial is applied uniformly, 
     without regard to health status or the insurability of 
     particular participants or beneficiaries.
       (2) Network plan.--As used in paragraph (1), the term 
     ``network plan'' means an employee health benefit plan or a 
     group health plan that arranges for the financing and 
     delivery of health care services to participants or 
     beneficiaries covered under such plan, in whole or in part, 
     through arrangements with providers.
       (d) COBRA Coverage.--Nothing in subsection (a)(2)(E) or 
     subsection (c) shall be construed to affect any right to 
     COBRA continuation coverage as described in part 6 of 
     subtitle B of title I of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1161 et seq.).

     SEC. 103. PORTABILITY OF HEALTH COVERAGE AND LIMITATION ON 
                   PREEXISTING CONDITION EXCLUSIONS.

       (a) In General.--An employee health benefit plan or a 
     health plan issuer offering a group health plan may, with 
     respect to a participant or beneficiary, impose a limitation 
     or exclusion of benefits, otherwise available under the terms 
     of the plan only if--
       (1) such limitation or exclusion is a limitation or 
     exclusion of benefits relating to the treatment of a 
     preexisting condition; and
       (2) such limitation or exclusion extends for a period of 
     not more than 12 months after the date of enrollment in the 
     plan.
       (b) Crediting of Previous Qualifying Coverage.--
       (1) In general.--Subject to paragraph (4), an employee 
     health benefit plan or a health plan issuer offering a group 
     health plan shall provide that if a participant or 
     beneficiary is in a period of previous qualifying coverage as 
     of the date of enrollment under such plan, any period of 
     exclusion or limitation of coverage with respect to a 
     preexisting condition shall be reduced by 1 month for each 
     month in which the participant or beneficiary was in the 
     period of previous qualifying coverage. With respect to a 
     participant or beneficiary described in subsection (e)(2)(A) 
     who maintains continuous coverage, no limitation or exclusion 
     of benefits relating to treatment of a preexisting condition 
     may be applied to a child within the child's first 12 months 
     of life or within 12 months after the placement of a child 
     for adoption.
       (2) Discharge of duty.--An employee health benefit plan 
     shall provide documentation of coverage to participants and 
     beneficiaries whose coverage is terminated under the plan. 
     Pursuant to regulations promulgated by the Secretary, the 
     duty of an employee health benefit plan to verify previous 
     qualifying coverage with respect to a participant or 
     beneficiary is effectively discharged when such employee 
     health benefit plan provides documentation to a participant 
     or beneficiary that includes the following information:
       (A) the dates that the participant or beneficiary was 
     covered under the plan; and
       (B) the benefits and cost-sharing arrangement available to 
     the participant or beneficiary under such plan.

     An employee health benefit plan shall retain the 
     documentation provided to a participant or beneficiary under 
     subparagraphs (A) and (B) for at least the 12-month period 
     following the date on which the participant or beneficiary 
     ceases to be covered under the plan. Upon request, an 
     employee health benefit plan shall provide a second copy of 
     such documentation to such participant or beneficiary within 
     the 12-month period following the date of such ineligibility.
       (3) Definitions.--As used in this section:
       (A) Previous qualifying coverage.--The term ``previous 
     qualifying coverage'' means the period beginning on the 
     date--
       (i) a participant or beneficiary is enrolled under an 
     employee health benefit plan or a group health plan, and 
     ending on the date the participant or beneficiary is not so 
     enrolled; or
       (ii) an individual is enrolled under an individual health 
     plan (as defined in section 113) or under a public or private 
     health plan established under Federal or State law, and 
     ending on the date the individual is not so enrolled;

     for a continuous period of more than 30 days (without regard 
     to any waiting period).
       (B) Limitation or exclusion of benefits relating to 
     treatment of a preexisting condition.--The term ``limitation 
     or exclusion of benefits relating to treatment of a 
     preexisting condition'' means a limitation or exclusion of 
     benefits imposed on an individual based on a preexisting 
     condition of such individual.
       (4) Effect of previous coverage.--An employee health 
     benefit plan or a health plan issuer offering a group health 
     plan may impose a limitation or exclusion of benefits 
     relating to the treatment of a preexisting condition, subject 
     to the limits in subsection (a), only to the extent that such 
     service or benefit was not previously covered under the group 
     health plan, employee health benefit plan, or individual 
     health plan in which the participant or beneficiary was 
     enrolled immediately prior to enrollment in the plan 
     involved.
       (c) Late Enrollees.--Except as provided in section 104, 
     with respect to a participant or beneficiary enrolling in an 
     employee health benefit plan or a group health plan during a 
     time that is other than the first opportunity to enroll 
     during an enrollment period of at least 30 days, coverage 
     with respect to benefits or services relating to the 
     treatment of a preexisting condition in accordance with 
     subsections (a) and (b) may be excluded, except the period of 
     such exclusion may not exceed 18 months beginning on the date 
     of coverage under the plan.
       (d) Affiliation Periods.--With respect to a participant or 
     beneficiary who would otherwise be eligible to receive 
     benefits under an employee health benefit plan or a group 
     health plan but for the operation of a preexisting condition 
     limitation or exclusion, if such plan does not utilize a 
     limitation or exclusion of benefits relating to the treatment 
     of a preexisting condition, such plan may impose an 
     affiliation period on such participant or beneficiary not to 
     exceed 60 days (or in the case of a late participant or 
     beneficiary described in subsection (c), 90 days) from the 
     date on which the participant or beneficiary would otherwise 
     be eligible to receive benefits under the plan. An employee 
     health benefit plan or a health plan issuer offering a group 
     health plan may also use alternative methods to address 
     adverse selection as approved by the applicable certifying 
     authority (as defined in section 202(d)). During such an 
     affiliation period, the plan may not be required to provide 
     health care services or benefits and no premium shall be 
     charged to the participant or beneficiary.
       (e)  Preexisting Condition.--
       (1) In general.--For purposes of this section, the term 
     ``preexisting condition'' means a condition, regardless of 
     the cause of the condition, for which medical advice, 
     diagnosis, care, or treatment was recommended or received 
     within the 6-month period ending on the day before the 
     effective date of the coverage (without regard to any waiting 
     period).
       (2) Birth, adoption and pregnancy excluded.--The term 
     ``preexisting condition'' does not apply to--
       (A) an individual who, within 30 days of the date of the 
     birth or placement for adoption of a child (as determined 
     under section 609(c)(3)(B) of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1169(c)(3)(B)), was covered 
     under the plan; or
       (B) pregnancy.
       (f) State Flexibility.--Nothing in this section shall be 
     construed to preempt State laws that--
       (1) require health plan issuers to impose a limitation or 
     exclusion of benefits relating to the treatment of a 
     preexisting condition for periods that are shorter than those 
     provided for under this section; or
       (2) allow individuals, participants, and beneficiaries to 
     be considered to be in a period of previous qualifying 
     coverage if such individual, participant, or beneficiary 
     experiences a lapse in coverage that is greater than the 30-
     day period provided for under subsection (b)(3); or
       (3) require health plan issuers to have a lookback period 
     that is shorter than the period described in subsection 
     (e)(1);

     unless such laws are preempted by section 514 of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1144).

     SEC. 104. SPECIAL ENROLLMENT PERIODS.

       In the case of a participant, beneficiary or family member 
     who--
       (1) through marriage, separation, divorce, death, birth or 
     placement of a child for adoption, experiences a change in 
     family composition affecting eligibility under a group health 
     plan, individual health plan, or employee health benefit 
     plan;
       (2) experiences a change in employment status, as described 
     in section 603(2) of the Employee Retirement Income Security 
     Act of 1974 (29 U.S.C. 1163(2)), that causes the loss of 
     eligibility for coverage, other than COBRA continuation 
     coverage under a group health plan, individual health plan, 
     or employee health benefit plan; or
       (3) experiences a loss of eligibility under a group health 
     plan, individual health plan, or employee health benefit plan 
     because of a change in the employment status of a family 
     member;

     each employee health benefit plan and each group health plan 
     shall provide for a special enrollment period extending for a 
     reasonable time after such event that would permit the 
     participant to change the individual or family basis of 
     coverage or to enroll in the plan if coverage would have been 
     available to such individual, participant, or beneficiary but 
     for failure to enroll during a previous enrollment period. 
     Such a special enrollment period shall ensure that a child 
     born or placed for adoption shall be deemed to be covered 
     under the plan as of the date of such birth or placement for 
     adoption if such child is enrolled within 30 days of the date 
     of such birth or placement for adoption.

     SEC. 105. DISCLOSURE OF INFORMATION.

       (a) Disclosure of Information by Health Plan Issuers.--
       (1) In general.--In connection with the offering of any 
     group health plan to a small employer (as defined under 
     applicable State law, or if not so defined, an employer with 
     not more than 50 employees), a health plan issuer shall make 
     a reasonable disclosure to such employer, as part of its 
     solicitation and sales materials, of--
       (A) the provisions of such group health plan concerning the 
     health plan issuer's right to change premium rates and the 
     factors that may affect changes in premium rates;
       (B) the provisions of such group health plan relating to 
     renewability of coverage;
       (C) the provisions of such group health plan relating to 
     any preexisting condition provision; and
       (D) descriptive information about the benefits and premiums 
     available under all group health plans for which the employer 
     is qualified.

     Information shall be provided to small employers under this 
     paragraph in a manner determined to be understandable by the 
     average small employer, and shall be sufficiently accurate 
     and comprehensive to reasonably inform small employers, 
     participants and beneficiaries of their

[[Page S3840]]

     rights and obligations under the group health plan.
       (2) Exception.--With respect to the requirement of 
     paragraph (1), any information that is proprietary and trade 
     secret information under applicable law shall not be subject 
     to the disclosure requirements of such paragraph.
       (3) Construction.--Nothing in this subsection shall be 
     construed to preempt State reporting and disclosure 
     requirements to the extent that such requirements are not 
     preempted under section 514 of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1144).
       (b) Disclosure of Information to Participants and 
     Beneficiaries.--
       (1) In general.--Section 104(b)(1) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1024(b)(1)) 
     is amended in the matter following subparagraph (B)--
       (A) by striking ``102(a)(1),'' and inserting ``102(a)(1) 
     that is not a material reduction in covered services or 
     benefits provided,''; and
       (B) by adding at the end thereof the following new 
     sentences: ``If there is a modification or change described 
     in section 102(a)(1) that is a material reduction in covered 
     services or benefits provided, a summary description of such 
     modification or change shall be furnished to participants not 
     later than 60 days after the date of the adoption of the 
     modification or change. In the alternative, the plan sponsors 
     may provide such description at regular intervals of not more 
     than 90 days. The Secretary shall issue regulations within 
     180 days after the date of enactment of the Health Insurance 
     Reform Act of 1996, providing alternative mechanisms to 
     delivery by mail through which employee health benefit plans 
     may notify participants of material reductions in covered 
     services or benefits.''.
       (2) Plan description and summary.--Section 102(b) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1022(b)) is amended--
       (A) by inserting ``including the office or title of the 
     individual who is responsible for approving or denying claims 
     for coverage of benefits'' after ``type of administration of 
     the plan'';
       (B) by inserting ``including the name of the organization 
     responsible for financing claims'' after ``source of 
     financing of the plan''; and
       (C) by inserting ``including the office, contact, or title 
     of the individual at the Department of Labor through which 
     participants may seek assistance or information regarding 
     their rights under this Act and the Health Insurance Reform 
     Act of 1996 with respect to health benefits that are not 
     offered through a group health plan.'' after ``benefits under 
     the plan''.
                  Subtitle B--Individual Market Rules

     SEC. 110. INDIVIDUAL HEALTH PLAN PORTABILITY.

       (a) Limitation on Requirements.--
       (1) In general.--Except as provided in subsections (c) and 
     (d), a health plan issuer described in paragraph (3) may not, 
     with respect to an eligible individual (described in 
     subsection (b)) desiring to enroll in an individual health 
     plan--
       (A) decline to offer coverage to, or deny enrollment of, 
     such individual; or
       (B) impose a limitation or exclusion of benefits, otherwise 
     available under such plan, for which coverage was available 
     under the group health plan or employee health benefit plan 
     in which the individual was previously enrolled.
       (2) Health promotion and disease prevention.--Nothing in 
     this subsection shall be construed to prevent a health plan 
     issuer offering an individual health plan from establishing 
     premium discounts or modifying otherwise applicable 
     copayments or deductibles in return for adherence to programs 
     of health promotion or disease prevention.
       (3) Health plan issuer.--A health plan issuer described in 
     this paragraph is a health plan issuer that issues or renews 
     individual health plans.
       (4) Premiums.--Nothing in this subsection shall be 
     construed to affect the determination of a health plan issuer 
     as to the amount of the premium payable under an individual 
     health plan under applicable State law.
       (b) Definition of Eligible Individual.--As used in 
     subsection (a)(1), the term ``eligible individual'' means an 
     individual who--
       (1) was a participant or beneficiary enrolled under one or 
     more group health plans or employee health benefit plans for 
     not less than 18 months (without a lapse of more than 30 
     days) immediately prior to the date on which such individual 
     applies for enrollment in the individual health plan;
       (2) is not eligible for coverage under a group health plan 
     or an employee health benefit plan;
       (3) has not had coverage terminated under a group health 
     plan or employee health benefit plan for failure to make 
     required premium payments or contributions, or for fraud or 
     misrepresentation of material fact; and
       (4) has, if applicable, elected coverage and exhausted the 
     maximum period of coverage as described in section 602(2)(A) 
     of the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1162(2)(A)) or under a State program providing an 
     extension of such coverage.
       (c) Application of Capacity Limits.--
       (1) In general.--Subject to paragraph (2), a health plan 
     issuer offering coverage to individuals under an individual 
     health plan may cease enrolling individuals under the plan 
     if--
       (A) the health plan issuer ceases to enroll any new 
     individuals; and
       (B) the health plan issuer can demonstrate to the 
     applicable certifying authority (as defined in section 
     202(d)), if required, that its financial or provider capacity 
     to serve previously covered individuals will be impaired if 
     the health plan issuer is required to enroll additional 
     individuals.

     Such a health plan issuer shall be prohibited from offering 
     coverage after a cessation in offering coverage under this 
     paragraph for a 6-month period or until the health plan 
     issuer can demonstrate to the applicable certifying authority 
     (as defined in section 202(d)) that the health plan issuer 
     has adequate capacity, whichever is later.
       (2) First-come-first-served.--A health plan issuer offering 
     coverage to individuals under an individual health plan is 
     only eligible to exercise the limitations provided for in 
     paragraph (1) if the health plan issuer provides for 
     enrollment of individuals under such plan on a first-come-
     first-served basis or other basis established by a State to 
     ensure a fair opportunity to enroll in the plan and avoid 
     risk selection.
       (d) Market Requirements.--
       (1) In general.--The provisions of subsection (a) shall not 
     be construed to require that a health plan issuer offering 
     group health plans to group purchasers offer individual 
     health plans to individuals.
       (2) Conversion policies.--A health plan issuer offering 
     group health plans to group purchasers under this Act shall 
     not be deemed to be a health plan issuer offering an 
     individual health plan solely because such health plan issuer 
     offers a conversion policy.
       (3) Marketing of plans.--Nothing in this section shall be 
     construed to prevent a State from requiring health plan 
     issuers offering coverage to individuals under an individual 
     health plan to actively market such plan.
       (4) Construction.--Nothing in this Act shall be construed 
     to require that a State replace or dissolve high risk pools 
     or other similar State mechanisms which are designed to 
     provide individuals in such State with access to health 
     benefits.

     SEC. 111. GUARANTEED RENEWABILITY OF INDIVIDUAL HEALTH 
                   COVERAGE.

       (a) In General.--Subject to subsections (b) and (c), 
     coverage for individuals under an individual health plan 
     shall be renewed or continued in force by a health plan 
     issuer at the option of the individual, except that the 
     requirement of this subsection shall not apply in the case 
     of--
       (1) the nonpayment of premiums or contributions by the 
     individual in accordance with the terms of the individual 
     health plan or where the health plan issuer has not received 
     timely premium payments;
       (2) fraud or misrepresentation of material fact on the part 
     of the individual; or
       (3) the termination of the individual health plan in 
     accordance with subsection (b).
       (b) Termination of Individual Health Plans.--
       (1) Particular type of individual health plan not 
     offered.--In any case in which a health plan issuer decides 
     to discontinue offering a particular type of individual 
     health plan to individuals, an individual health plan may be 
     discontinued by the health plan issuer only if--
       (A) the health plan issuer provides notice to each 
     individual covered under the plan of such discontinuation at 
     least 90 days prior to the date of the expiration of the 
     plan;
       (B) the health plan issuer offers to each individual 
     covered under the plan the option to purchase any other 
     individual health plan currently being offered by the health 
     plan issuer to individuals; and
       (C) in exercising the option to discontinue the individual 
     health plan and in offering one or more replacement plans, 
     the health plan issuer acts uniformly without regard to the 
     health status or insurability of particular individuals.
       (2) Discontinuance of all individual health plans.--In any 
     case in which a health plan issuer elects to discontinue all 
     individual health plans in a State, an individual health plan 
     may be discontinued by the health plan issuer only if--
       (A) the health plan issuer provides notice to the 
     applicable certifying authority (as defined in section 
     202(d)) and to each individual covered under the plan of such 
     discontinuation at least 180 days prior to the date of the 
     discontinuation of the plan; and
       (B) all individual health plans issued or delivered for 
     issuance in the State are discontinued and coverage under 
     such plans is not renewed.
       (3) Prohibition on market reentry.--In the case of a 
     discontinuation under paragraph (2), the health plan issuer 
     may not provide for the issuance of any individual health 
     plan in the State involved during the 5-year period beginning 
     on the date of the discontinuation of the last plan not so 
     renewed.
       (c) Treatment of Network Plans.--
       (1) Geographic limitations.--A health plan issuer which 
     offers a network plan (as defined in paragraph (2)) may deny 
     continued participation under the plan to individuals who 
     neither live, reside, nor work in an area in which the 
     individual health plan is offered, but only if such denial is 
     applied uniformly, without regard to health status or the 
     insurability of particular individuals.
       (2) Network plan.--As used in paragraph (1), the term 
     ``network plan'' means an individual health plan that 
     arranges for the financing and delivery of health care 
     services to individuals covered under such health plan, in 
     whole or in part, through arrangements with providers.

     SEC. 112. STATE FLEXIBILITY IN INDIVIDUAL MARKET REFORMS.

       (a) Adoption of Alternative Mechanisms.--
       (1) In general.--A State, in accordance with this section, 
     may adopt alternative mechanisms (public or private) that are 
     designed to provide access to affordable health benefits for 
     individuals meeting the requirements of sections 110(b) and 
     111 (such as mechanisms providing for guaranteed issue, open 
     enrollment by one or more health plan issuers, high-risk 
     pools, mandatory conversion policies, or any combination 
     thereof).
       (2) Procedure for state election.--If, not later than 6 
     months after the date of enactment

[[Page S3841]]

     of this Act, the Governor of a State notifies the Secretary 
     of Health and Human Services that--
       (A) the State has adopted an alternative mechanism that 
     achieves the goals of sections 110 and 111; or
       (B) the State intends to implement an alternative mechanism 
     that is designed to achieve the goals of sections 110 and 
     111;

     such State alternative mechanism shall, except as provided in 
     paragraphs (3) and (4), apply in lieu of the standards 
     described in sections 110 and 111.
       (3) Nonapplication of mechanism.--A State alternative 
     mechanism adopted under paragraph (1) shall be presumed to 
     achieve the goals of sections 110 and 111 and shall apply in 
     lieu of such sections, unless the Secretary of Health and 
     Human Services, in consultation with the Governor and 
     Insurance Commissioner or chief insurance regulatory official 
     of the State, finds that the State alternative mechanism 
     fails to--
       (A) offer coverage to those individuals who meet the 
     requirements of sections 110(b) and 111;
       (B) prohibit a limitation or exclusion of benefits relating 
     to treatment of a preexisting condition that was covered 
     under the previous group health plan or employee health 
     benefit plan of an individual who meets the requirements of 
     sections 110(b) and 111;
       (C) offer individuals who meet the requirements of sections 
     110(b) and 111 a choice of individual health plans, including 
     at least one plan comparable to comprehensive plans offered 
     in the individual market in such State or a plan comparable 
     to a standard option plan available under the group or 
     individual health insurance laws of such State; or
       (D) except as provided in paragraph (4), implement a risk 
     spreading mechanism, cross subsidy mechanism, risk adjustment 
     mechanism, rating limitation or other mechanism (such as 
     mechanisms described in the NAIC Model Health Plan for 
     Uninsurable Individuals Act) designed to reduce the variation 
     among the cost of such plans and other individual health 
     plans offered by the carrier or available in such State.
       (4) Choice of plans.--The Secretary of Health and Human 
     Services shall waive the requirement in subparagraph (D) of 
     paragraph (3) with respect to a State if individuals who meet 
     the requirements of sections 110(b) and 111 in such State are 
     provided with a choice of all individual health plans 
     otherwise available in the individual market.
       (5) Future adoption of mechanisms.--With respect to a State 
     that implements an alternative mechanism under paragraph (1) 
     after the period referred to in paragraph (2)--
       (A) the State shall provide notice to the Secretary that 
     such alternative mechanism achieves the goals of sections 110 
     and 111;
       (B) the State alternative mechanism shall apply in lieu of 
     sections 110 and 111;
       (C) except as provided in subsections (d) and (e), the 
     Secretary may make a determination as provided for in 
     paragraph (3); and
       (D) the procedures described in subsection (c) shall apply.
       (b) Timeframe for Secretarial Determination.--
       (1) In general.--With respect to a State election under 
     subsection (a)(2)(B), the Secretary of Health and Human 
     Services shall not make a determination under subsection 
     (a)(3) until the expiration of the 12-month period beginning 
     on the date on which such notification is made, or until 
     January 1, 1998, whichever is later.
       (2) Rule applicable to certain states.--With respect to a 
     State that makes an election under subsection (a)(2)(B) and 
     that has a legislature that does not meet within the 12-month 
     period beginning on the date of enactment of this Act, the 
     Secretary of Health and Human Services shall not make a 
     determination under subsection (a) prior to January 1, 1999.
       (c) Notice to State.--If the Secretary of Health and Human 
     Services determines that a State alternative mechanism fails 
     to meet the criteria described in subsection (a)(3), or that 
     such mechanism is no longer being implemented, the Secretary 
     of Health and Human Services shall notify the Governor of 
     such State of such preliminary determination and permit the 
     State a reasonable opportunity in which to modify the 
     alternative mechanism or to adopt another mechanism that is 
     designed to meet the goals of sections 110 and 111. If, after 
     an opportunity to modify such State alternative mechanism, 
     the mechanism fails to meet the criteria described in 
     subsection (a)(3), the Secretary shall notify the Governor of 
     such State that sections 110 and 111 shall apply in the 
     State.
       (d) Adoption of NAIC Model.--If, not later than 9 months 
     after the date of enactment of this Act--
       (1) the National Association of Insurance Commissioners 
     (hereafter referred to as the ``NAIC''), through a process 
     which the Secretary of Health and Human Services determines 
     has included consultation with representatives of the 
     insurance industry and consumer groups, has adopted a model 
     act or acts including provisions addressing portability from 
     a group health plan or employee health benefit plan into the 
     individual health insurance market; and
       (2) the Secretary of Health and Human Services determines, 
     within 30 days of the adoption of such NAIC model act or 
     acts, that such act or acts comply with the goals of sections 
     110 and 111;

     a State that elects to adopt such model act or acts shall be 
     deemed to have met the requirements of sections 110 and 111 
     and shall not be subject to a determination under subsection 
     (a)(3).
       (e) State High Risk Pools Deemed in Compliance.--If the 
     Governor of a State notifies the Secretary of Health and 
     Human Services in a timeframe consistent with either 
     subsection (a)(2) or (a)(5) that such State has a high risk 
     pool open to those individuals meeting the requirements of 
     sections 110(b) and 111, that limits preexisting condition 
     waiting periods consistent with section 110(a)(1)(B) and that 
     with respect to premium rates and covered benefits is 
     consistent with standards included in the NAIC Model Health 
     Plan for Uninsurable Individuals Act, such State high risk 
     pool shall be deemed to have met the requirements of sections 
     110 and 111 and shall not be subject to a determination under 
     subsection (a)(3).

     SEC. 113. DEFINITION.

       (a) In General.--As used in this title, the term 
     ``individual health plan'' means any contract, policy, 
     certificate or other arrangement offered to individuals by a 
     health plan issuer that provides or pays for health benefits 
     (such as provider and hospital benefits) and that is not a 
     group health plan under section 2(6).
       (b) Arrangements Not Included.--Such term does not include 
     the following, or any combination thereof:
       (1) Coverage only for accident, or disability income 
     insurance, or any combination thereof.
       (2) Medicare supplemental health insurance (as defined 
     under section 1882(g)(1) of the Social Security Act).
       (3) Coverage issued as a supplement to liability insurance.
       (4) Liability insurance, including general liability 
     insurance and automobile liability insurance.
       (5) Workers' compensation or similar insurance.
       (6) Automobile medical payment insurance.
       (7) Coverage for a specified disease or illness.
       (8) Hospital or fixed indemnity insurance.
       (9) Short-term limited duration insurance.
       (10) Credit-only, dental-only, or vision-only insurance.
       (11) A health insurance policy providing benefits only for 
     long-term care, nursing home care, home health care, 
     community-based care, or any combination thereof.
                    Subtitle C--COBRA Clarifications

     SEC. 121. COBRA CLARIFICATIONS.

       (a) Public Health Service Act.--
       (1) Period of coverage.--Section 2202(2) of the Public 
     Health Service Act (42 U.S.C. 300bb-2(2)) is amended--
       (A) in subparagraph (A)--
       (i) by transferring the sentence immediately preceding 
     clause (iv) so as to appear immediately following such clause 
     (iv); and
       (ii) in the last sentence (as so transferred)--

       (I) by inserting ``, or a beneficiary-family member of the 
     individual,'' after ``an individual''; and
       (II) by striking ``at the time of a qualifying event 
     described in section 2203(2)'' and inserting ``at any time 
     during the initial 18-month period of continuing coverage 
     under this title'';

       (B) in subparagraph (D)(i), by inserting before ``, or'' 
     the following: ``, except that the exclusion or limitation 
     contained in this clause shall not be considered to apply to 
     a plan under which a preexisting condition or exclusion does 
     not apply to an individual otherwise eligible for 
     continuation coverage under this section because of the 
     provision of the Health Insurance Reform Act of 1996''; and
       (C) in subparagraph (E), by striking ``at the time of a 
     qualifying event described in section 2203(2)'' and inserting 
     ``at any time during the initial 18-month period of 
     continuing coverage under this title''.
       (2) Notices.--Section 2206(3) of the Public Health Service 
     Act (42 U.S.C. 300bb-6(3)) is amended by striking ``at the 
     time of a qualifying event described in section 2203(2)'' and 
     inserting ``at any time during the initial 18-month period of 
     continuing coverage under this title''.
       (3) Birth or adoption of a child.--Section 2208(3)(A) of 
     the Public Health Service Act (42 U.S.C. 300bb-8(3)(A)) is 
     amended by adding at the end thereof the following new flush 
     sentence:

     ``Such term shall also include a child who is born to or 
     placed for adoption with the covered employee during the 
     period of continued coverage under this title.''.
       (b) Employee Retirement Income Security Act of 1974.--
       (1) Period of coverage.--Section 602(2) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1162(2)) is 
     amended--
       (A) in the last sentence of subparagraph (A)--
       (i) by inserting ``, or a beneficiary-family member of the 
     individual,'' after ``an individual''; and
       (ii) by striking ``at the time of a qualifying event 
     described in section 603(2)'' and inserting ``at any time 
     during the initial 18-month period of continuing coverage 
     under this part'';
       (B) in subparagraph (D)(i), by inserting before ``, or'' 
     the following: ``, except that the exclusion or limitation 
     contained in this clause shall not be considered to apply to 
     a plan under which a preexisting condition or exclusion does 
     not apply to an individual otherwise eligible for 
     continuation coverage under this section because of the 
     provision of the Health Insurance Reform Act of 1996''; and
       (C) in subparagraph (E), by striking ``at the time of a 
     qualifying event described in section 603(2)'' and inserting 
     ``at any time during the initial 18-month period of 
     continuing coverage under this part''.
       (2) Notices.--Section 606(3) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1166(3)) is amended by 
     striking ``at the time of a qualifying event described in 
     section 603(2)'' and inserting ``at any time during the 
     initial 18-month period of continuing coverage under this 
     part''.
       (3) Birth or adoption of a child.--Section 607(3)(A) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1167(3)) is amended by adding at the end thereof the 
     following new flush sentence:

     ``Such term shall also include a child who is born to or 
     placed for adoption with the covered

[[Page S3842]]

     employee during the period of continued coverage under this 
     part.''.
       (c) Internal Revenue Code of 1986.--
       (1) Period of coverage.--Section 4980B(f)(2)(B) of the 
     Internal Revenue Code of 1986 is amended--
       (A) in the last sentence of clause (i) by striking ``at the 
     time of a qualifying event described in paragraph (3)(B)'' 
     and inserting ``at any time during the initial 18-month 
     period of continuing coverage under this section'';
       (B) in clause (iv)(I), by inserting before ``, or'' the 
     following: ``, except that the exclusion or limitation 
     contained in this subclause shall not be considered to apply 
     to a plan under which a preexisting condition or exclusion 
     does not apply to an individual otherwise eligible for 
     continuation coverage under this subsection because of the 
     provision of the Health Insurance Reform Act of 1995''; and
       (C) in clause (v), by striking ``at the time of a 
     qualifying event described in paragraph (3)(B)'' and 
     inserting ``at any time during the initial 18-month period of 
     continuing coverage under this section''.
       (2) Notices.--Section 4980B(f)(6)(C) of the Internal 
     Revenue Code of 1986 is amended by striking ``at the time of 
     a qualifying event described in paragraph (3)(B)'' and 
     inserting ``at any time during the initial 18-month period of 
     continuing coverage under this section''.
       (3) Birth or adoption of a child.--Section 4980B(g)(1)(A) 
     of the Internal Revenue Code of 1986 is amended by adding at 
     the end thereof the following new flush sentence:

     ``Such term shall also include a child who is born to or 
     placed for adoption with the covered employee during the 
     period of continued coverage under this section.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to qualifying events occurring on or after the 
     date of the enactment of this Act for plan years beginning 
     after December 31, 1997.
       (e) Notification of Changes.--Not later than 60 days prior 
     to the date on which this section becomes effective, each 
     group health plan (covered under title XXII of the Public 
     Health Service Act, part 6 of subtitle B of title I of the 
     Employee Retirement Income Security Act of 1974, and section 
     4980B(f) of the Internal Revenue Code of 1986) shall notify 
     each qualified beneficiary who has elected continuation 
     coverage under such title, part or section of the amendments 
     made by this section.
        Subtitle D--Private Health Plan Purchasing Cooperatives

     SEC. 131. PRIVATE HEALTH PLAN PURCHASING COOPERATIVES.

       (a) Definition.--As used in this Act, the term ``health 
     plan purchasing cooperative'' means a group of employees or a 
     group of individuals and employers that, on a voluntary basis 
     and in accordance with this section, form a cooperative for 
     the purpose of purchasing individual health plans or group 
     health plans offered by health plan issuers.
       (b) Certification.--
       (1) Requirement.--If a group described in subsection (a), 
     desires to form a health plan purchasing cooperative in 
     accordance with this section and such group appropriately 
     notifies the State and the Secretary of such desire, the 
     State, upon a determination that such group meets the 
     requirements of this section, shall certify the group as a 
     health plan purchasing cooperative. The State shall make a 
     determination of whether such group meets the requirements of 
     this section in a timely fashion and shall oversee the 
     operations of such cooperative in order to ensure continued 
     compliance with the requirements of this section. Each such 
     cooperative shall also be registered with the Secretary.
       (2) State refusal to certify.--
       (A) In general.--If a State fails to implement a program 
     for certifying health plan purchasing cooperatives in 
     accordance with the standards under this Act, the Secretary 
     shall certify and oversee the operations of such cooperatives 
     in such State.
       (B) Exception.--The Secretary shall not certify a health 
     plan purchasing cooperative described in this section if, 
     upon the submission of an application by the State to the 
     Secretary, the Secretary determines that under a State law in 
     effect on the date of enactment of this Act, all small 
     employers have a means readily available that ensures--
       (i) that individuals and employees have a choice of 
     multiple, unaffiliated health plan issuers;
       (ii) that health plan coverage is subject to State premium 
     rating requirements that are not based on the factors 
     described in subsection (f)(3) and that contains a mandatory 
     minimum loss ratio; and
       (iii) that comparative health plan materials are 
     disseminated consistent with subsection (e)(1)(D);

     and that otherwise meets the objectives of this Act.
       (3) Interstate cooperatives.--For purposes of this section, 
     a health plan purchasing cooperative operating in more than 
     one State shall be certified by the State in which the 
     cooperative is domiciled. States may enter into cooperative 
     agreements for the purpose of overseeing the operation of 
     such cooperatives. For purposes of this subsection, a 
     cooperative shall be considered to be domiciled in the State 
     in which most of the members of the cooperative reside.
       (c) Board of Directors.--
       (1) In general.--Each health plan purchasing cooperative 
     shall be governed by a Board of Directors that shall be 
     responsible for ensuring the performance of the duties of the 
     cooperative under this section. The Board shall be composed 
     of a broad cross-section of representatives of employers, 
     employees, and individuals participating in the cooperative.
       (2) Limitation on compensation.--A health plan purchasing 
     cooperative may not provide compensation to members of the 
     Board of Directors. The cooperative may provide 
     reimbursements to such members for the reasonable and 
     necessary expenses incurred by the members in the performance 
     of their duties as members of the Board.
       (d) Membership and Marketing Area.--
       (1) Membership.--A health plan purchasing cooperative may 
     establish limits on the maximum size of employers who may 
     become members of the cooperative, and may determine whether 
     to permit individuals to become members. Upon the 
     establishment of such membership requirements, the 
     cooperative shall, except as provided in subparagraph (B), 
     accept all employers (or individuals) residing within the 
     area served by the cooperative who meet such requirements as 
     members on a first come, first-served basis, or on another 
     basis established by the State to ensure equitable access to 
     the cooperative.
       (2) Marketing area.--A State may establish rules regarding 
     the geographic area that must be served by health plan 
     purchasing cooperatives to ensure that cooperatives do not 
     discriminate on the basis of the health status or 
     insurability of the populations that reside in the area 
     served. A State may not use such rules to arbitrarily limit 
     the number of health plan purchasing cooperatives.
       (e) Duties and Responsibilities.--
       (1) In general.--A health plan purchasing cooperative 
     shall--
       (A) objectively evaluate potential health plan issuers and 
     enter into agreements with multiple, unaffiliated health plan 
     issuers, except that the requirement of this subparagraph 
     shall not apply in regions (such as remote or frontier areas) 
     in which compliance with such requirement is not possible;
       (B) enter into agreements with employers and individuals 
     who become members of the cooperative;
       (C) participate in any program of risk-adjustment or 
     reinsurance, or any similar program, that is established by 
     the State;
       (D) prepare and disseminate comparative health plan 
     materials (including information about cost, quality, 
     benefits, and other information concerning group health plans 
     and individual health plans offered through the cooperative);
       (E) broadly solicit and actively market to all eligible 
     employers and individuals residing within the service area; 
     and
       (F) act as an ombudsman for group health plan or individual 
     health plan enrollees.
       (2) Permissible activities.--A health plan purchasing 
     cooperative may perform such other functions as necessary to 
     further the purposes of this Act, including--
       (A) collecting and distributing premiums and performing 
     other administrative functions;
       (B) collecting and analyzing surveys of enrollee 
     satisfaction;
       (C) charging membership fee to enrollees (such fees may not 
     be based on health status) and charging participation fees to 
     health plan issuers;
       (D) cooperating with (or accepting as members) employers 
     who provide health benefits directly to participants and 
     beneficiaries only for the purpose of negotiating with 
     providers; and
       (E) negotiating with health care providers and health plan 
     issuers.
       (f) Limitations on Cooperative Activities.--A health plan 
     purchasing cooperative shall not--
       (1) perform any activity relating to the licensing of 
     health plan issuers;
       (2) assume financial risk directly or indirectly on behalf 
     of members of a health plan purchasing cooperative relating 
     to any group health plan or individual health plan;
       (3) establish eligibility, enrollment, or premium 
     contribution requirements for individual participants or 
     beneficiaries based on health status, medical condition, 
     claims experience, receipt of health care, medical history, 
     evidence of insurability, genetic information, or disability;
       (4) operate on a for-profit or other basis where the legal 
     structure of the cooperative permits profits to be made and 
     not returned to the members of the cooperative, except that a 
     for-profit health plan purchasing cooperative may be formed 
     by a nonprofit organization or organizations--
       (A) in which membership in such organization is not based 
     on health status, medical condition, claims experience, 
     receipt of health care, medical history, evidence of 
     insurability, genetic information, or disability; and
       (B) that accepts as members all employers or individuals on 
     a first-come, first-served basis, subject to any established 
     limit on the maximum size of an employer that may become a 
     member; or
       (5) perform any other activities that conflict or are 
     inconsistent with the performance of its duties under this 
     Act.
       (g) Conflict of Interest.--
       (1) Prohibition.--No individual, partnership, or 
     corporation shall serve on the board of a health plan 
     purchasing cooperative, be employed by such a cooperative, 
     receive compensation from such a cooperative, or initiate or 
     finance such a cooperative if such individual, partnership, 
     or corporation--
       (A) fails to discharge the duties and responsibilities of 
     such individual, partnership or corporation in a manner that 
     is solely in the interest of the members of the cooperative; 
     or
       (B) derives personal benefit (other than in the form of 
     ordinary compensation received) from the sale of, or has a 
     financial interest in, health plans, services or products 
     sold by or distributed through that cooperative.
       (2) Contracts with third parties.--Nothing in paragraph (1) 
     shall be construed to prohibit the board of directors of a 
     health plan purchasing cooperative, or its officers, at the 
     initiative

[[Page S3843]]

     and under this direction of the board, from contracting with 
     third parties to provide administrative, marketing, 
     consultive, or other services to the cooperative.
       (h) Limited Preemption of Certain State Laws.--
       (1) In general.--With respect to a health plan purchasing 
     cooperative that meets the requirements of this section, 
     State fictitious group laws shall be preempted.
       (2) Health plan issuers.--
       (A) Rating.--Except as provided in subparagraph (B), a 
     health plan issuer offering a group health plan or individual 
     health plan through a health plan purchasing cooperative that 
     meets the requirements of this section shall comply with all 
     State rating requirements that would otherwise apply if the 
     health plan were offered outside of the cooperative.
       (B) Exception.--A State shall permit a health plan issuer 
     to reduce premium rates negotiated with a health plan 
     purchasing cooperative that meets the requirements of this 
     section to reflect savings derived from administrative costs, 
     marketing costs, profit margins, economies of scale, or other 
     factors, except that any such reduction in premium rates may 
     not be based on the health status, demographic factors, 
     industry type, duration, or other indicators of health risk 
     of the members of the cooperative.
       (C) Benefits.--Except as provided in subparagraph (D), a 
     health plan issuer offering a group health plan or individual 
     health plan through a health plan purchasing cooperative 
     shall comply with all State mandated benefit laws that 
     require the offering of any services, category of care, or 
     services of any class or type of provider.
       (D) Exception.--In those States that have enacted laws 
     authorizing the issuance of alternative benefit plans to 
     small employers, health plan issuers may offer such 
     alternative benefit plans through a health plan purchasing 
     cooperative that meets the requirements of this section.
       (i) Rules of Construction.--Nothing in this section shall 
     be construed to--
       (1) require that a State organize, operate, or otherwise 
     create health plan purchasing cooperatives;
       (2) otherwise require the establishment of health plan 
     purchasing cooperatives;
       (3) require individuals, plan sponsors, or employers to 
     purchase group health plans or individual health plans 
     through a health plan purchasing cooperative;
       (4) preempt a State from requiring licensure for 
     individuals who are involved in directly supplying advice or 
     selling health plans on behalf of a purchasing cooperative;
       (5) require that a health plan purchasing cooperative be 
     the only type of purchasing arrangement permitted to operate 
     in a State;
       (6) confer authority upon a State that the State would not 
     otherwise have to regulate health plan issuers or employee 
     health benefits plans;
       (7) confer authority upon a State (or the Federal 
     Government) that the State (or Federal Government) would not 
     otherwise have to regulate group purchasing arrangements, 
     coalitions, association plans, or other similar entities that 
     do not desire to become a health plan purchasing cooperative 
     in accordance with this section; or
       (8) except as specifically provided otherwise in this 
     subsection, prevent the application of State laws and 
     regulations otherwise applicable to health plan issuers 
     offering group health plans or individual health plans 
     through a health plan purchasing cooperative.
       (j) Application of ERISA.--For purposes of enforcement 
     only, the requirements of parts 4 and 5 of subtitle B of 
     title I of the Employee Retirement Income Security Act of 
     1974 (29 U.S.C. 1101) shall apply to a health plan purchasing 
     cooperative as if such plan were an employee welfare benefit 
     plan.
           TITLE II--APPLICATION AND ENFORCEMENT OF STANDARDS

     SEC. 201. APPLICABILITY.

       (a) Construction.--
       (1) Enforcement.--
       (A) In general.--A requirement or standard imposed under 
     this Act on a group health plan or individual health plan 
     offered by a health plan issuer shall be deemed to be a 
     requirement or standard imposed on the health plan issuer. 
     Such requirements or standards shall be enforced by the State 
     insurance commissioner for the State involved or the official 
     or officials designated by the State to enforce the 
     requirements of this Act. In the case of a group health plan 
     offered by a health plan issuer in connection with an 
     employee health benefit plan, the requirements or standards 
     imposed under this Act shall be enforced with respect to the 
     health plan issuer by the State insurance commissioner for 
     the State involved or the official or officials designated by 
     the State to enforce the requirements of this Act.
       (B) Limitation.--Except as provided in subsection (c), the 
     Secretary shall not enforce the requirements or standards of 
     this Act as they relate to health plan issuers, group health 
     plans, or individual health plans. In no case shall a State 
     enforce the requirements or standards of this Act as they 
     relate to employee health benefit plans.
       (2) Preemption of state law.--Nothing in this Act shall be 
     construed to prevent a State from establishing, implementing, 
     or continuing in effect standards and requirements--
       (A) not prescribed in this Act; or
       (B) related to the issuance, renewal, or portability of 
     health insurance or the establishment or operation of group 
     purchasing arrangements, that are consistent with, and are 
     not in direct conflict with, this Act and provide greater 
     protection or benefit to participants, beneficiaries or 
     individuals.
       (b) Rule of Construction.--Nothing in this Act shall be 
     construed to affect or modify the provisions of section 514 
     of the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1144).
       (c) Continuation.--Nothing in this Act shall be construed 
     as requiring a group health plan or an employee health 
     benefit plan to provide benefits to a particular participant 
     or beneficiary, to all participants or beneficiaries, or to 
     any class or group of participants or beneficiaries, in 
     excess of or other than those provided under the terms of 
     such plan.

     SEC. 202. ENFORCEMENT OF STANDARDS.

       (a) Health Plan Issuers.--Each State shall require that 
     each group health plan and individual health plan issued, 
     sold, renewed, offered for sale or operated in such State by 
     a health plan issuer meet the standards established under 
     this Act pursuant to an enforcement plan filed by the State 
     with the Secretary. A State shall submit such information as 
     required by the Secretary demonstrating effective 
     implementation of the State enforcement plan.
       (b) Employee Health Benefit Plans.--With respect to 
     employee health benefit plans, the Secretary shall enforce 
     the reform standards established under this Act in the same 
     manner as provided for under sections 502, 504, 506, and 510 
     of the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1132, 1134, 1136, and 1140). The civil penalties 
     contained in paragraphs (1) and (2) of section 502(c) of such 
     Act (29 U.S.C. 1132(c)(1) and (2)) shall apply to any 
     information required by the Secretary to be disclosed and 
     reported under this section.
       (c) Failure to Implement Plan.--In the case of the failure 
     of a State to substantially enforce the standards and 
     requirements set forth in this Act with respect to group 
     health plans and individual health plans as provided for 
     under the State enforcement plan filed under subsection (a), 
     the Secretary, in consultation with the Secretary of Health 
     and Human Services, shall implement an enforcement plan 
     meeting the standards of this Act in such State. In the case 
     of a State that fails to substantially enforce the standards 
     and requirements set forth in this Act, each health plan 
     issuer operating in such State shall be subject to civil 
     enforcement as provided for under sections 502, 504, 506, and 
     510 of the Employee Retirement Income Security Act of 1974 
     (29 U.S.C. 1132, 1134, 1136, and 1140). The civil penalties 
     contained in paragraphs (1) and (2) of section 502(c) of such 
     Act (29 U.S.C. 1132(c)(1) and (2)) shall apply to any 
     information required by the Secretary to be disclosed and 
     reported under this section.
       (d) Applicable Certifying Authority.--As used in this 
     title, the term ``applicable certifying authority'' means, 
     with respect to--
       (1) health plan issuers, the State insurance commissioner 
     or official or officials designated by the State to enforce 
     the requirements of this Act for the State involved; and
       (2) an employee health benefit plan, the Secretary.
       (e) Regulations.--The Secretary may promulgate such 
     regulations as may be necessary or appropriate to carry out 
     this Act.
       (f) Technical Amendment.--Section 508 of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1138) is 
     amended by inserting ``and under the Health Insurance Reform 
     Act of 1996'' before the period.
                  TITLE III--MISCELLANEOUS PROVISIONS

     SEC. 301. HMOS ALLOWED TO OFFER PLANS WITH DEDUCTIBLES TO 
                   INDIVIDUALS WITH MEDICAL SAVINGS ACCOUNTS.

       (a) In General.--Section 1301(b) of the Public Health 
     Service Act (42 U.S.C. 300e(b)) is amended by adding at the 
     end the following new paragraph:
       ``(6)(A) If a member certifies that a medical savings 
     account has been established for the benefit of such member, 
     a health maintenance organization may, at the request of such 
     member reduce the basic health services payment otherwise 
     determined under paragraph (1) by requiring the payment of a 
     deductible by the member for basic health services.
       ``(B) For purposes of this paragraph, the term `medical 
     savings account' means an account which, by its terms, allows 
     the deposit of funds and the use of such funds and income 
     derived from the investment of such funds for the payment of 
     the deductible described in subparagraph (A).''.
       (b) Medical Savings Accounts.--It is the sense of the 
     Committee on Labor and Human Resources of the Senate that the 
     establishment of medical savings accounts, including those 
     defined in section 1301(b)(6)(B) of the Public Health Service 
     Act (42 U.S.C. 300e(b)(6)(B)), should be encouraged as part 
     of any health insurance reform legislation passed by the 
     Senate through the use of tax incentives relating to 
     contributions to, the income growth of, and the qualified use 
     of, such accounts.
       (c) Sense of the Senate.--It is the sense of the Senate 
     that the Congress should take measures to further the 
     purposes of this Act, including any necessary changes to the 
     Internal Revenue Code of 1986 to encourage groups and 
     individuals to obtain health coverage, and to promote access, 
     equity, portability, affordability, and security of health 
     benefits.

     SEC. 302. HEALTH COVERAGE AVAILABILITY STUDY.

       (a) In General.--The Secretary of Health and Human 
     Services, in consultation with the Secretary, representatives 
     of State officials, consumers, and other representatives of 
     individuals and entities that have expertise in health 
     insurance and employee benefits, shall conduct a three-part 
     study, and prepare and submit reports, in accordance with 
     this section.
       (b) Evaluation of Availability.--Not later than January 1, 
     1998, the Secretary of Health and Human Services shall 
     prepare and submit to the appropriate committees of Congress 
     a report, concerning--

[[Page S3844]]

       (1) an evaluation, based on the experience of States, 
     expert opinions, and such additional data as may be 
     available, of the various mechanisms used to ensure the 
     availability of reasonably priced health coverage to 
     employers purchasing group coverage and to individuals 
     purchasing coverage on a non-group basis; and
       (2) whether standards that limit the variation in premiums 
     will further the purposes of this Act.
       (c) Evaluation of Effectiveness.--Not later than January 1, 
     1999, the Secretary of Health and Human Services shall 
     prepare and submit to the appropriate committees of Congress 
     a report, concerning the effectiveness of the provisions of 
     this Act and the various State laws, in ensuring the 
     availability of reasonably priced health coverage to 
     employers purchasing group coverage and individuals 
     purchasing coverage on a non-group basis.
       (d) Evaluation of Access and Choice.--Not later than June 
     1, 1998, the Secretary of Health and Human Services shall 
     prepare and submit to the appropriate committees of Congress 
     a report concerning--
       (1) an evaluation of the extent to which patients have 
     direct access to, and choice of, health care provider, 
     including specialty providers, within a network of providers, 
     as well as the opportunity to utilize providers outside of 
     the network, under the various types of coverage offered 
     under the provisions of this Act;
       (2) an evaluation of the cost to the insurer of providing 
     out-of-network access to providers, and the feasibility of 
     providing out-of-network access in all health plans offered 
     under provisions of this Act; and
       (3) an evaluation of the percent of premium dollar utilized 
     for medical care and administration of the various types of 
     coverage offered, including coverage which permits out-of-
     network access and choice of provider, under provisions of 
     this Act.

     SEC. 303. REIMBURSEMENT OF TELEMEDICINE.

       The Health Care Financing Administration is directed to 
     complete their ongoing study of reimbursement of all 
     telemedicine services and submit a report to Congress with a 
     proposal for reimbursement of fee-for-service medicine by 
     March 1, 1997. The report shall utilize data compiled from 
     the current demonstration projects already under review and 
     gather data from other ongoing telemedicine networks. This 
     report shall include an analysis of the cost of services 
     provided via telemedicine.

     SEC. 304. SENSE OF THE COMMITTEE CONCERNING MEDICARE.

       (a) Findings.--The Committee on Labor and Human Resources 
     of the Senate finds that the Public Trustees of Medicare 
     concluded in their 1995 Annual Report that--
       (1) the Medicare program is clearly unsustainable in its 
     present form;
       (2) ``the Hospital Insurance Trust Fund, which pays 
     inpatient hospital expenses, will be able to pay benefits for 
     only about 7 years and is severely out of financial balance 
     in the long range''; and
       (3) the Public Trustees ``strongly recommend that the 
     crisis presented by the financial condition of the Medicare 
     trust fund be urgently addressed on a comprehensive basis, 
     including a review of the programs's financing methods, 
     benefit provisions, and delivery mechanisms''.
       (b) Sense of the Committee.--It is the Sense of the 
     Committee on Labor and Human Resources of the Senate that the 
     Senate should take measures necessary to reform the Medicare 
     program, to provide increased choice for seniors, and to 
     respond to the findings of the Public Trustees by protecting 
     the short-term solvency and long-term sustainability of the 
     Medicare program.

     SEC. 305. PARITY FOR MENTAL HEALTH SERVICES.

       (a) Prohibition.--An employee health benefit plan, or a 
     health plan issuer offering a group health plan or an 
     individual health plan, shall not impose treatment 
     limitations or financial requirements on the coverage of 
     mental health services if similar limitations or requirements 
     are not imposed on coverage for services for other 
     conditions.
       (b) Rule of Construction.--Nothing in subsection (a) shall 
     be construed as prohibiting an employee health benefit plan, 
     or a health plan issuer offering a group health plan or an 
     individual health plan, from requiring preadmission screening 
     prior to the authorization of services covered under the plan 
     or from applying other limitations that restrict coverage for 
     mental health services to those services that are medically 
     necessary.

     SEC. 306. WAIVER OF FOREIGN COUNTRY RESIDENCE REQUIREMENT 
                   WITH RESPECT TO INTERNATIONAL MEDICAL 
                   GRADUATES.

       (a) Extension of Waiver Program.--Section 220(c) of the 
     Immigration and Nationality Technical Corrections Act of 1994 
     (8 U.S.C. 1182 note) is amended by striking ``June 1, 1996'' 
     and inserting ``June 1, 2002''.
       (b) Conditions on Federally Requested Waivers.--Section 
     212(e) of the Immigration and Nationality Act (8 U.S.C. 
     1184(e)) is amended by inserting after ``except that in the 
     case of a waiver requested by a State Department of Public 
     Health or its equivalent'' the following: ``or in the case of 
     a waiver requested by an interested United States Government 
     agency on behalf of an alien described in clause (iii)''.
       (c) Restrictions on Federally Requested Waivers.--Section 
     214(k) (8 U.S.C. 1184(k)) is amended to read as follows:
       ``(k)(1) In the case of a request by an interested State 
     agency or by an interested United States Government agency 
     for a waiver of the two-year foreign residence requirement 
     under section 212(e) with respect to an alien described in 
     clause (iii) of that section, the Attorney General shall not 
     grant such waiver unless--
       ``(A) in the case of an alien who is otherwise 
     contractually obligated to return to a foreign country, the 
     government of such country furnishes the Director of the 
     United States Information Agency with a statement in writing 
     that it has no objection to such waiver; and
       ``(B)(i) in the case of a request by an interested State 
     agency--
       ``(I) the alien demonstrates a bona fide offer of full-time 
     employment, agrees to begin employment with the health 
     facility or organization named in the waiver application 
     within 90 days of receiving such waiver, and agrees to work 
     for a total of not less than three years (unless the Attorney 
     General determines that extenuating circumstances exist, such 
     as closure of the facility or hardship to the alien would 
     justify a lesser period of time); and
       ``(II) the alien's employment continues to benefit the 
     public interest; or
       ``(ii) in the case of a request by an interested United 
     States Government agency--
       ``(I) the alien demonstrates a bona fide offer of full-time 
     employment that has been found to be in the public interest, 
     agrees to begin employment with the health facility or 
     organization named in the waiver application within 90 days 
     of receiving such waiver, and agrees to work for a total of 
     not less than three years (unless the Attorney General 
     determines that extenuating circumstances exist, such as 
     closure of the facility or hardship to the alien would 
     justify a lesser period of time); and
       ``(II) the alien's employment continues to benefit the 
     public interest;
       ``(C) in the case of a request by an interested State 
     agency, the alien agrees to practice medicine in accordance 
     with paragraph (2) for a total of not less than three years 
     only in the geographic area or areas which are designated by 
     the Secretary of Health and Human Services as having a 
     shortage of health care professionals; and
       ``(D) in the case of a request by an interested State 
     agency, the grant of such a waiver would not cause the number 
     of waivers allotted for that State for that fiscal year to 
     exceed 20.
       ``(2)(A) Notwithstanding section 248(2) the Attorney 
     General may change the status of an alien that qualifies 
     under this subsection and section 212(e) to that of an alien 
     described in section 101(a)(15)(H)(i)(b).
       ``(B) No person who has obtained a change of status under 
     subparagraph (A) and who has failed to fulfill the terms of 
     the contract with the health facility or organization named 
     in the waiver application shall be eligible to apply for an 
     immigrant visa, for permanent residence, or for any other 
     change of nonimmigrant status until it is established that 
     such person has resided and been physically present in the 
     country of his nationality or his last residence for an 
     aggregate of at least two years following departure from the 
     United States.
       ``(3) Notwithstanding any other provisions of this 
     subsection, the two-year foreign residence requirement under 
     section 212(e) shall apply with respect to an alien in clause 
     (iii) of that section who has not otherwise been accorded 
     status under section 101(a)(27)(H)--
       ``(A) in the case of a request by an interested State 
     agency, if at any time the alien practices medicine in an 
     area other than an area described in paragraph (1)(C); and
       ``(B) in the case of a request by an interested United 
     States Government agency, if at any time the alien engages in 
     employment for a health facility or organization not named in 
     the waiver application.''.

     SEC. 307. ORGAN AND TISSUE DONATION INFORMATION INCLUDED WITH 
                   INCOME TAX REFUND PAYMENTS.

       (a) In General.--The Secretary of the Treasury shall 
     include with any payment of a refund of individual income tax 
     made during the period beginning on February 1, 1997, and 
     ending on June 30, 1997, a copy of the document described in 
     subsection (b).
       (b) Text of Document.--The Secretary of the Treasury shall, 
     after consultation with the Secretary of Health and Human 
     Services and organizations promoting organ and tissue 
     (including eye) donation, prepare a document suitable for 
     inclusion with individual income tax refund payments which--
       (1) encourages organ and tissue donation;
       (2) includes a detachable organ and tissue donor card; and
       (3) urges recipients to--
       (A) sign the organ and tissue donor card;
       (B) discuss organ and tissue donation with family members 
     and tell family members about the recipient's desire to be an 
     organ and tissue donor if the occasion arises; and
       (C) encourage family members to request or authorize organ 
     and tissue donation if the occasion arises.

     SEC. 308. SENSE OF THE SENATE REGARDING ADEQUATE HEALTH CARE 
                   COVERAGE FOR ALL CHILDREN AND PREGNANT WOMEN.

       (a) Findings.--The Senate finds the following:
       (1) The health care coverage of mothers and children in the 
     United States is unacceptable, with more than 9,300,000 
     children and 500,000 expectant mothers having no health 
     insurance.
       (2) Among industrial nations, the United States ranks 1st 
     in wealth but 18th in infant mortality, and 14th among such 
     nations in maternal mortality.
       (3) 22 percent of pregnant women do not have prenatal care 
     in the first trimester, and 22 percent of all poor children 
     are uninsured, despite the medicaid program under title XIX 
     of the Social Security Act.
       (4) Of the 1,100,000 net increase in uninsured persons from 
     1992 to 1993, 84 percent or 922,500 were children.
       (5) Since 1987, the number of children covered by 
     employment based health insurance has decreased, and many 
     children lack health insurance despite the relative 
     affordability of providing insurance for children.

[[Page S3845]]

       (6) Health care coverage for children is relatively 
     inexpensive and in 1993 the medicaid program spent an average 
     of $1,012 per child compared to $8,220 per elderly adult.
       (7) Uninsured children are generally children of lower 
     income workers, who are less likely than higher income 
     workers to have health insurance for their families because 
     they are less likely to work for a firm that offers 
     insurance, and if such insurance is offered, it is often too 
     costly for lower income workers to purchase.
       (8) In 1993, 61 percent of uninsured children were in 
     families with at least one parent working full time for the 
     entire year the child was uninsured, and about 57 percent of 
     uninsured children had a family income at or below 150 
     percent of the Federal poverty level.
       (9) If Congress eliminates the Federal guarantee of 
     medicaid, an estimated 4,900,000 children may lose their 
     guarantee of health care coverage, and those same children 
     may be added to the currently projected 12,600,000 children 
     who will be uninsured by the year 2002.
       (10) Studies have shown that uninsured children are less 
     likely than insured children to receive needed health and 
     preventive care, which can affect their health status 
     adversely throughout their lives, with such children less 
     likely to have routine doctor visits, receive care for 
     injuries, and have a regular source of medical care.
       (11) The families of uninsured children are more likely to 
     take the children to an emergency room than to a private 
     physician or health maintenance organization.
       (12) Children without health insurance are less likely to 
     be appropriately immunized or receive other preventive care 
     for childhood illnesses.
       (13) Ensuring the health of children clearly increases 
     their chances to become productive members of society and 
     averts more serious or more expensive health conditions later 
     in life, and ensuring that all pregnant women receive 
     competent prenatal care also saves social costs.
       (14) Although the United States has made great improvements 
     in health care coverage through the medicaid program, it is 
     still the only developed nation that does not ensure that all 
     of its children and pregnant women have health care coverage.
       (15) The United States should not accept a status quo in 
     which children in many neighborhoods are more likely to have 
     access to drugs and guns than to doctors, or accept a status 
     quo in which health care is ensured for all prisoners but not 
     for all children.
       (b) Sense of the Senate.--It is the sense of the Senate 
     that the issue of adequate health care for our mothers and 
     children is important to the future of the United States, and 
     in consideration of the importance of such issue, the Senate 
     should pass health care legislation that will ensure health 
     care coverage for all of the United States's pregnant women 
     and children.

     SEC. 309. SENSE OF THE SENATE REGARDING AVAILABLE TREATMENTS.

       It is the sense of the Senate that the Senate finds that 
     patients deserve to know the full range of treatments 
     available to them and Congress should thoughtfully examine 
     these issues to ensure that all patients get the care they 
     deserve.

     SEC. 310. MEDICAL VOLUNTEERS.

       (a) Short Title.--This title may be cited as the ``Medical 
     Volunteer Act''.
       (b) Tort Claim Immunity.--
       (1) General rule.--A health care professional who provides 
     a health care service to a medically underserved person 
     without receiving compensation for such health care service, 
     shall be regarded, for purposes of any medical malpractice 
     claim that may arise in connection with the provision of such 
     service, as an employee of the Federal Government for 
     purposes of the Federal tort claims provisions in title 28, 
     United States Code.
       (2) Compensation.--For purposes of paragraph (1), a health 
     care professional shall be deemed to have provided a health 
     care service without compensation only if, prior to 
     furnishing a health care service, the health care 
     professional--
       (A) agrees to furnish the health care service without 
     charge to any person, including any health insurance plan or 
     program under which the recipient is covered; and
       (B) provides the recipient of the health care service with 
     adequate notice (as determined by the Secretary) of the 
     limited liability of the health care professional with 
     respect to the service.
       (c) Preemption.--The provisions of this section shall 
     preempt any State law to the extent that such law is 
     inconsistent with such provisions. The provisions of this 
     section shall not preempt any State law that provides greater 
     incentives or protections to a health care professional 
     rendering a health care service.
       (d) Definitions.--For purposes of this section:
       (1) Health care professional.--The term ``health care 
     professional'' means a person who, at the time the person 
     provides a health care service, is licensed or certified by 
     the appropriate authorities for practice in a State to 
     furnish health care services.
       (2) Health care service.--The term ``health care service'' 
     means any medical assistance to the extent it is included in 
     the plan submitted under title XIX of the Social Security Act 
     for the State in which the service was provided.
       (3) Medically underserved person.--The term ``medically 
     underserved person'' means a person who resides in--
       (A) a medically underserved area as defined for purposes of 
     determining a medically underserved population under section 
     330 of the Public Health Service Act (42 U.S.C. 254c); or
       (B) a health professional shortage area as defined in 
     section 332 of such Act (42 U.S.C. 254e);

     and who receives care in a health care facility substantially 
     comparable to any of those designated in the Federally 
     Supported Health Centers Assistance Act (42 U.S.C. 233 et 
     seq.), as shall be determined in regulations promulgated by 
     the Secretary.
       (4) Secretary.--The term ``Secretary'' means the Secretary 
     of the Department of Health and Human Services.

     SEC. 311. EFFECTIVE DATE.

       Except as otherwise provided for in this Act, the 
     provisions of this Act shall apply as follows:
       (1) With respect to group health plans, such provisions 
     shall apply to plans offered, sold, issued, renewed, in 
     effect, or operated on or after January 1, 1997.
       (2) With respect to individual health plans, such 
     provisions shall apply to plans offered, sold, issued, 
     renewed, in effect, or operated on or after the date that is 
     6 months after the date of enactment of this Act, or January 
     1, 1997, whichever is later.
       (3) With respect to employee health benefit plans, such 
     provisions shall apply to such plans on the first day of the 
     first plan year beginning on or after January 1, 1997.

     SEC. 312. SEVERABILITY.

       If any provision of this Act or the application of such 
     provision to any person or circumstance is held to be 
     unconstitutional, the remainder of this Act and the 
     application of the provisions of such to any person or 
     circumstance shall not be affected thereby.
                TITLE IV--TAX-RELATED HEALTH PROVISIONS

     SEC. 400. SHORT TITLE; AMENDMENT OF 1986 CODE.

       (a) Short Title.--This title may be cited as the ``Health 
     Insurance and Long-Term Care Affordability Act of 1996''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this title an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
 Subtitle A--Increase in Deduction for Health Insurance Costs of Self-
                          Employed Individuals

     SEC. 401. INCREASE IN SELF-EMPLOYED INDIVIDUALS' DEDUCTION 
                   FOR HEALTH INSURANCE COSTS.

       (a) In General.--Section 162(l) (relating to special rules 
     for health insurance costs of self-employed individuals) is 
     amended--
       (1) by striking ``30 percent'' in paragraph (1) and 
     inserting ``the applicable percentage'', and
       (2) by adding at the end the following new paragraph:
       ``(6) Applicable percentage.--For purposes of this 
     subsection, the term `applicable percentage' means the 
     percentage determined in accordance with the following table:

``In the case of taxable years beginning iThe applicable percentage is:
  1997..........................................................35 ....

  1998..........................................................40 ....

  1999..........................................................45 ....

  2000..........................................................50 ....

  2001..........................................................55 ....

  2002..........................................................60 ....

  2003..........................................................65 ....

  2004..........................................................70 ....

  2005..........................................................75 ....

  2006 and thereafter........................................80.''.....

       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1996.
                 Subtitle B--Long-Term Care Provisions

            CHAPTER 1--LONG-TERM CARE SERVICES AND CONTRACTS

                    Subchapter A--General Provisions

     SEC. 411. TREATMENT OF LONG-TERM CARE INSURANCE.

       (a) General Rule.--Chapter 79 (relating to definitions) is 
     amended by inserting after section 7702A the following new 
     section:

     ``SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE 
                   INSURANCE.

       ``(a) In General.--For purposes of this title--
       ``(1) a qualified long-term care insurance contract shall 
     be treated as an accident and health insurance contract,
       ``(2) amounts (other than policyholder dividends, as 
     defined in section 808, or premium refunds) received under a 
     qualified long-term care insurance contract shall be treated 
     as amounts received for personal injuries and sickness and 
     shall be treated as reimbursement for expenses actually 
     incurred for medical care (as defined in section 213(d)),
       ``(3) any plan of an employer providing coverage under a 
     qualified long-term care insurance contract shall be treated 
     as an accident and health plan with respect to such coverage,
       ``(4) except as provided in subsection (e)(3), amounts paid 
     for a qualified long-term care insurance contract providing 
     the benefits described in subsection (b)(2)(A) shall be 
     treated as payments made for insurance for purposes of 
     section 213(d)(1)(D), and
       ``(5) a qualified long-term care insurance contract shall 
     be treated as a guaranteed renewable contract subject to the 
     rules of section 816(e).
       ``(b) Qualified Long-Term Care Insurance Contract.--For 
     purposes of this title--
       ``(1) In general.--The term `qualified long-term care 
     insurance contract' means any insurance contract if--
       ``(A) the only insurance protection provided under such 
     contract is coverage of qualified long-term care services,
       ``(B) such contract does not pay or reimburse expenses 
     incurred for services or items to the extent that such 
     expenses are reimbursable under title XVIII of the Social 
     Security Act or would be so reimbursable but for the 
     application of a deductible or coinsurance amount,

[[Page S3846]]

       ``(C) such contract is guaranteed renewable,
       ``(D) such contract does not provide for a cash surrender 
     value or other money that can be--
       ``(i) paid, assigned, or pledged as collateral for a loan, 
     or
       ``(ii) borrowed,
     other than as provided in subparagraph (E) or paragraph 
     (2)(C), and
       ``(E) all refunds of premiums, and all policyholder 
     dividends or similar amounts, under such contract are to be 
     applied as a reduction in future premiums or to increase 
     future benefits.
       ``(2) Special rules.--
       ``(A) Per diem, etc. payments permitted.--A contract shall 
     not fail to be described in subparagraph (A) or (B) of 
     paragraph (1) by reason of payments being made on a per diem 
     or other periodic basis without regard to the expenses 
     incurred during the period to which the payments relate.
       ``(B) Special rules relating to medicare.--
       ``(i) Paragraph (1)(B) shall not apply to expenses which 
     are reimbursable under title XVIII of the Social Security Act 
     only as a secondary payor.
       ``(ii) No provision of law shall be construed or applied so 
     as to prohibit the offering of a qualified long-term care 
     insurance contract on the basis that the contract coordinates 
     its benefits with those provided under such title.
       ``(C) Refunds of premiums.--Paragraph (1)(E) shall not 
     apply to any refund on the death of the insured, or on a 
     complete surrender or cancellation of the contract, which 
     cannot exceed the aggregate premiums paid under the contract. 
     Any refund on a complete surrender or cancellation of the 
     contract shall be includible in gross income to the extent 
     that any deduction or exclusion was allowable with respect to 
     the premiums.
       ``(c) Qualified Long-Term Care Services.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified long-term care 
     services' means necessary diagnostic, preventive, 
     therapeutic, curing, treating, mitigating, and rehabilitative 
     services, and maintenance or personal care services, which--
       ``(A) are required by a chronically ill individual, and
       ``(B) are provided pursuant to a plan of care prescribed by 
     a licensed health care practitioner.
       ``(2) Chronically ill individual.--
       ``(A) In general.--The term `chronically ill individual' 
     means any individual who has been certified by a licensed 
     health care practitioner as--
       ``(i) being unable to perform (without substantial 
     assistance from another individual) at least 2 activities of 
     daily living for a period of at least 90 days due to a loss 
     of functional capacity,
       ``(ii) having a level of disability similar (as determined 
     by the Secretary in consultation with the Secretary of Health 
     and Human Services) to the level of disability described in 
     clause (i), or
       ``(iii) requiring substantial supervision to protect such 
     individual from threats to health and safety due to severe 
     cognitive impairment.
     Such term shall not include any individual otherwise meeting 
     the requirements of the preceding sentence unless within the 
     preceding 12-month period a licensed health care practitioner 
     has certified that such individual meets such requirements.
       ``(B) Activities of daily living.--For purposes of 
     subparagraph (A), each of the following is an activity of 
     daily living:
       ``(i) Eating.
       ``(ii) Toileting.
       ``(iii) Transferring.
       ``(iv) Bathing.
       ``(v) Dressing.
       ``(vi) Continence.

     Nothing in this section shall be construed to require a 
     contract to take into account all of the preceding activities 
     of daily living.
       ``(3) Maintenance or personal care services.--The term 
     `maintenance or personal care services' means any care the 
     primary purpose of which is the provision of needed 
     assistance with any of the disabilities as a result of which 
     the individual is a chronically ill individual (including the 
     protection from threats to health and safety due to severe 
     cognitive impairment).
       ``(4) Licensed health care practitioner.--The term 
     `licensed health care practitioner' means any physician (as 
     defined in section 1861(r)(1) of the Social Security Act (42 
     U.S.C. 1395x(r)(1)) and any registered professional nurse, 
     licensed social worker, or other individual who meets such 
     requirements as may be prescribed by the Secretary.
       ``(d) Aggregate Payments in Excess of Limits.--
       ``(1) In general.--If the aggregate amount of periodic 
     payments under all qualified long-term care insurance 
     contracts with respect to an insured for any period exceeds 
     the dollar amount in effect for such period under paragraph 
     (3), such excess payments shall be treated as made for 
     qualified long-term care services only to the extent of the 
     costs incurred by the payee (not otherwise compensated for by 
     insurance or otherwise) for qualified long-term care services 
     provided during such period for such insured.
       ``(2) Periodic payments.--For purposes of paragraph (1), 
     the term `periodic payment' means any payment (whether on a 
     periodic basis or otherwise) made without regard to the 
     extent of the costs incurred by the payee for qualified long-
     term care services.
       ``(3) Dollar amount.--The dollar amount in effect under 
     this subsection shall be $175 per day (or the equivalent 
     amount in the case of payments on another periodic basis).
       ``(4) Inflation adjustment.--In the case of a calendar year 
     after 1997, the dollar amount contained in paragraph (3) 
     shall be increased at the same time and in the same manner as 
     amounts are increased pursuant to section 213(d)(11).
       ``(e) Treatment of Coverage Provided as Part of a Life 
     Insurance Contract.--Except as otherwise provided in 
     regulations prescribed by the Secretary, in the case of any 
     long-term care insurance coverage (whether or not qualified) 
     provided by a rider on or as a part of a life insurance 
     contract--
       ``(1) In general.--This section shall apply as if the 
     portion of the contract providing such coverage is a separate 
     contract.
       ``(2) Application of 7702.--Section 7702(c)(2) (relating to 
     the guideline premium limitation) shall be applied by 
     increasing the guideline premium limitation with respect to a 
     life insurance contract, as of any date--
       ``(A) by the sum of any charges (but not premium payments) 
     against the life insurance contract's cash surrender value 
     (within the meaning of section 7702(f)(2)(A)) for such 
     coverage made to that date under the contract, less
       ``(B) any such charges the imposition of which reduces the 
     premiums paid for the contract (within the meaning of section 
     7702(f)(1)).
       ``(3) Application of section 213.--No deduction shall be 
     allowed under section 213(a) for charges against the life 
     insurance contract's cash surrender value described in 
     paragraph (2), unless such charges are includible in income 
     as a result of the application of section 72(e)(10) and the 
     rider is a qualified long-term care insurance contract under 
     subsection (b).
       ``(4) Portion defined.--For purposes of this subsection, 
     the term `portion' means only the terms and benefits under a 
     life insurance contract that are in addition to the terms and 
     benefits under the contract without regard to the coverage 
     under a qualified long-term care insurance contract.''.
       (b) Reserve Method.--Clause (iii) of section 807(d)(3)(A) 
     is amended by inserting ``(other than a qualified long-term 
     care insurance contract, as defined in section 7702B(b))'' 
     after ``insurance contract''.
       (c) Long-Term Care Insurance Not Permitted Under Cafeteria 
     Plans or Flexible Spending Arrangements.--
       (1) Cafeteria plans.--Section 125(f) is amended by adding 
     at the end the following new sentence: ``Such term shall not 
     include any long-term care insurance contract (as defined in 
     section 4980C).''.
       (2) Flexible spending arrangements.--The text of section 
     106 (relating to contributions by employer to accident and 
     health plans) is amended to read as follows:
       ``(a) General Rule.--Except as otherwise provided in this 
     section, gross income of an employee does not include 
     employer-provided coverage under an accident or health plan.
       ``(b) Inclusion of Long-Term Care Benefits Provided Through 
     Flexible Spending Arrangements.--
       ``(1) In general.--Effective on and after January 1, 1997, 
     gross income of an employee shall include employer-provided 
     coverage for qualified long-term care services (as defined in 
     section 7702B(c)) to the extent that such coverage is 
     provided through a flexible spending or similar arrangement.
       ``(2) Flexible spending arrangement.--For purposes of this 
     subsection, a flexible spending arrangement is a benefit 
     program which provides employees with coverage under which--
       ``(A) specified incurred expenses may be reimbursed 
     (subject to reimbursement maximums and other reasonable 
     conditions), and
       ``(B) the maximum amount of reimbursement which is 
     reasonably available to a participant for such coverage is 
     less than 500 percent of the value of such coverage.

     In the case of an insured plan, the maximum amount reasonably 
     available shall be determined on the basis of the underlying 
     coverage.''.
       (d) Continuation Coverage Excise Tax Not To Apply.--
     Subsection (f) of section 4980B is amended by adding at the 
     end the following new paragraph:
       ``(9) Continuation of long-term care coverage not 
     required.--A group health plan shall not be treated as 
     failing to meet the requirements of this subsection solely by 
     reason of failing to provide coverage under any qualified 
     long-term care insurance contract (as defined in section 
     7702B(b)).''.
       (e) Amounts Paid to Spouse or Relatives Treated as Not Paid 
     for Medical Care.--Section 213(d) is amended by adding at the 
     end the following new paragraph:
       ``(10) Certain payments to spouse or relatives treated as 
     not paid for medical care.--An amount paid for a qualified 
     long-term care service (as defined in section 7702B(c)) 
     provided to an individual shall be treated as not paid for 
     medical care if such service is provided--
       ``(A) by the spouse of the individual or a relative 
     (directly or through a partnership, corporation, or other 
     entity) unless the spouse or relative is a licensed 
     professional with respect to such services, or
       ``(B) by a corporation or partnership which is related 
     (within the meaning of section 267(b) or 707(b)) to the 
     individual.

     For purposes of this paragraph, the term `relative' means an 
     individual bearing a relationship to the individual which is 
     described in any of paragraphs (1) through (8) of section 
     152(a). This paragraph shall not apply for purposes of 
     section 105(b) with respect to reimbursements through 
     insurance.''.
       (f) Clerical Amendment.--The table of sections for chapter 
     79 is amended by inserting after the item relating to section 
     7702A the following new item:

``Sec. 7702B. Treatment of qualified long-term care insurance.''.

       (g) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to contracts issued after December 31, 1996.
       (2) Continuation of existing policies.--In the case of any 
     contract issued before January 1, 1997, which met the long-
     term care insurance

[[Page S3847]]

     requirements of the State in which the contract was issued at 
     the time the contract was issued--
       (A) such contract shall be treated for purposes of the 
     Internal Revenue Code of 1986 as a qualified long-term care 
     insurance contract (as defined in section 7702B(b) of such 
     Code), and
       (B) services provided under, or reimbursed by, such 
     contract shall be treated for such purposes as qualified 
     long-term care services (as defined in section 7702B(c) of 
     such Code).
       (3) Exchanges of existing policies.--If, after the date of 
     enactment of this Act and before January 1, 1998, a contract 
     providing for long-term care insurance coverage is exchanged 
     solely for a qualified long-term care insurance contract (as 
     defined in section 7702B(b) of such Code), no gain or loss 
     shall be recognized on the exchange. If, in addition to a 
     qualified long-term care insurance contract, money or other 
     property is received in the exchange, then any gain shall be 
     recognized to the extent of the sum of the money and the fair 
     market value of the other property received. For purposes of 
     this paragraph, the cancellation of a contract providing for 
     long-term care insurance coverage and reinvestment of the 
     cancellation proceeds in a qualified long-term care insurance 
     contract within 60 days thereafter shall be treated as an 
     exchange.
       (4) Issuance of certain riders permitted.--For purposes of 
     applying sections 101(f), 7702, and 7702A of the Internal 
     Revenue Code of 1986 to any contract--
       (A) the issuance of a rider which is treated as a qualified 
     long-term care insurance contract under section 7702B, and
       (B) the addition of any provision required to conform any 
     other long-term care rider to be so treated,

     shall not be treated as a modification or material change of 
     such contract.

     SEC. 412. QUALIFIED LONG-TERM CARE SERVICES TREATED AS 
                   MEDICAL CARE.

       (a) General Rule.--Paragraph (1) of section 213(d) 
     (defining medical care) is amended by striking ``or'' at the 
     end of subparagraph (B), by redesignating subparagraph (C) as 
     subparagraph (D), and by inserting after subparagraph (B) the 
     following new subparagraph:
       ``(C) for qualified long-term care services (as defined in 
     section 7702B(c)), or''.
       (b) Technical Amendments.--
       (1) Subparagraph (D) of section 213(d)(1) (as redesignated 
     by subsection (a)) is amended by striking ``subparagraphs (A) 
     and (B)'' and inserting ``subparagraphs (A), (B), and (C)''.
       (2)(A) Paragraph (1) of section 213(d) is amended by adding 
     at the end the following new flush sentence:

     ``In the case of a qualified long-term care insurance 
     contract (as defined in section 7702B(b)), only eligible 
     long-term care premiums (as defined in paragraph (11)) shall 
     be taken into account under subparagraph (D).''.
       (B) Subsection (d) of section 213 is amended by adding at 
     the end the following new paragraph:
       ``(11) Eligible long-term care premiums.--
       ``(A) In general.--For purposes of this section, the term 
     `eligible long-term care premiums' means the amount paid 
     during a taxable year for any qualified long-term care 
     insurance contract (as defined in section 7702B(b)) covering 
     an individual, to the extent such amount does not exceed the 
     limitation determined under the following table:

  ``In the case of an individual with an attained age before the close 
  of the taxable year of:                                The limitation
                                                                is:    
40 or less......................................................$200   
More than 40 but not more than 50................................375   
More than 50 but not more than 60................................750   
More than 60 but not more than 70..............................2,000   
More than 70...................................................2,500.  

       ``(B) Indexing.--
       ``(i) In general.--In the case of any taxable year 
     beginning in a calendar year after 1997, each dollar amount 
     contained in subparagraph (A) shall be increased by the 
     medical care cost adjustment of such amount for such calendar 
     year. If any increase determined under the preceding sentence 
     is not a multiple of $10, such increase shall be rounded to 
     the nearest multiple of $10.
       ``(ii) Medical care cost adjustment.--For purposes of 
     clause (i), the medical care cost adjustment for any calendar 
     year is the percentage (if any) by which--

       ``(I) the medical care component of the Consumer Price 
     Index (as defined in section 1(f)(5)) for August of the 
     preceding calendar year, exceeds
       ``(II) such component for August of 1996.

     The Secretary shall, in consultation with the Secretary of 
     Health and Human Services, prescribe an adjustment which the 
     Secretary determines is more appropriate for purposes of this 
     paragraph than the adjustment described in the preceding 
     sentence, and the adjustment so prescribed shall apply in 
     lieu of the adjustment described in the preceding 
     sentence.''.
       (3) Paragraph (6) of section 213(d) is amended--
       (A) by striking ``subparagraphs (A) and (B)'' and inserting 
     ``subparagraphs (A), (B), and (C)'', and
       (B) by striking ``paragraph (1)(C)'' in subparagraph (A) 
     and inserting ``paragraph (1)(D)''.
       (4) Paragraph (7) of section 213(d) is amended by striking 
     ``subparagraphs (A) and (B)'' and inserting ``subparagraphs 
     (A), (B), and (C)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1996.

     SEC. 413. CERTAIN EXCHANGES OF LIFE INSURANCE CONTRACTS FOR 
                   QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS 
                   NOT TAXABLE.

       (a) In General.--Subsection (a) of section 1035 (relating 
     to certain exchanges of insurance contracts) is amended by 
     striking the period at the end of paragraph (3) and inserting 
     ``; or'', and by adding at the end the following new 
     paragraph:
       ``(4) a contract of life insurance or an endowment or 
     annuity contract for a qualified long-term care insurance 
     contract (as defined in section 7702B(b)).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 414. EXCEPTION FROM PENALTY TAX FOR AMOUNTS WITHDRAWN 
                   FROM CERTAIN RETIREMENT PLANS FOR QUALIFIED 
                   LONG-TERM CARE INSURANCE.

       (a) In General.--Paragraph (2) of section 72(t) is amended 
     by adding at the end the following new subparagraph:
       ``(D) Premiums for qualified long-term care insurance 
     contracts.--Distributions to an individual from an individual 
     retirement plan, or from amounts attributable to employer 
     contributions made pursuant to elective deferrals described 
     in subparagraph (A) or (C) of section 402(g)(3), to the 
     extent such distributions do not exceed the premiums for a 
     qualified long-term care insurance contract (as defined in 
     section 7702B(b)) for such individual or the spouse of such 
     individual. In applying subparagraph (B), such premiums shall 
     be treated as amounts not paid for medical care.''.
       (b) Distributions Permitted From Certain Plans To Pay Long-
     term Care Premiums.--
       (1) Section 401(k)(2)(B)(i) is amended by striking ``or'' 
     at the end of subclause (III), by striking ``and'' at the end 
     of subclause (IV) and inserting ``or'', and by inserting 
     after subclause (IV) the following new subclause:

       ``(V) the date distributions for premiums for a long-term 
     care insurance contract (as defined in section 7702B(b)) for 
     coverage of such individual or the spouse of such individual 
     are made, and''.

       (2) Section 403(b)(11) is amended by striking ``or'' at the 
     end of subparagraph (A), by striking the period at the end of 
     subparagraph (B) and inserting ``, or'', and by inserting 
     after subparagraph (B) the following new subparagraph:
       ``(C) for the payment of premiums for a long-term care 
     insurance contract (as defined in section 7702B(b)) for 
     coverage of the employee or the spouse of the employee.''.
       (3) Subparagraph (A) of section 457(d)(1) is amended by 
     striking ``or'' at the end of clause (ii), by striking 
     ``and'' at the end of clause (iii) and inserting ``or'', and 
     by inserting after clause (iii) the following new clause:
       ``(iv) the date distributions for premiums for a long-term 
     care insurance contract (as defined in section 7702B(b)) for 
     coverage of such individual or the spouse of such individual 
     are made, and''.
       (c) Conforming Amendment.--Section 72t(2)(B) is amended by 
     striking ``subparagraph (A) or (C))'' and inserting 
     ``subparagraph (A), (C), or (D))''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to payments and distributions after December 31, 
     1996.

     SEC. 415. REPORTING REQUIREMENTS.

       (a) In General.--Subpart B of part III of subchapter A of 
     chapter 61 is amended by adding at the end the following new 
     section:

     ``SEC. 6050Q. CERTAIN LONG-TERM CARE BENEFITS.

       ``(a) Requirement of Reporting.--Any person who pays long-
     term care benefits shall make a return, according to the 
     forms or regulations prescribed by the Secretary, setting 
     forth--
       ``(1) the aggregate amount of such benefits paid by such 
     person to any individual during any calendar year, and
       ``(2) the name, address, and TIN of such individual.
       ``(b) Statements To Be Furnished to Persons With Respect to 
     Whom Information Is Required.--Every person required to make 
     a return under subsection (a) shall furnish to each 
     individual whose name is required to be set forth in such 
     return a written statement showing--
       ``(1) the name of the person making the payments, and
       ``(2) the aggregate amount of long-term care benefits paid 
     to the individual which are required to be shown on such 
     return.

     The written statement required under the preceding sentence 
     shall be furnished to the individual on or before January 31 
     of the year following the calendar year for which the return 
     under subsection (a) was required to be made.
       ``(c) Long-Term Care Benefits.--For purposes of this 
     section, the term `long-term care benefit' means any amount 
     paid under a long-term care insurance policy (within the 
     meaning of section 4980C(e)).''.
       (b) Penalties.--
       (1) Subparagraph (B) of section 6724(d)(1) is amended by 
     redesignating clauses (ix) through (xiv) as clauses (x) 
     through (xv), respectively, and by inserting after clause 
     (viii) the following new clause:
       ``(ix) section 6050Q (relating to certain long-term care 
     benefits),''.
       (2) Paragraph (2) of section 6724(d) is amended by 
     redesignating subparagraphs (Q) through (T) as subparagraphs 
     (R) through (U), respectively, and by inserting after 
     subparagraph (P) the following new subparagraph:

[[Page S3848]]

       ``(Q) section 6050Q(b) (relating to certain long-term care 
     benefits),''.
       (c) Clerical Amendment.--The table of sections for subpart 
     B of part III of subchapter A of chapter 61 is amended by 
     adding at the end the following new item:

``Sec. 6050Q. Certain long-term care benefits.''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to benefits paid after December 31, 1996.

              Subchapter B--Consumer Protection Provisions

     SEC. 421. POLICY REQUIREMENTS.

       Section 7702B (as added by section 411) is amended by 
     adding at the end the following new subsection:
       ``(f) Consumer Protection Provisions.--
       ``(1) In general.--The requirements of this subsection are 
     met with respect to any contract if any long-term care 
     insurance policy issued under the contract meets--
       ``(A) the requirements of the model regulation and model 
     Act described in paragraph (2),
       ``(B) the disclosure requirement of paragraph (3), and
       ``(C) the requirements relating to nonforfeitability under 
     paragraph (4).
       ``(2) Requirements of model regulation and act.--
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to any policy if such policy meets--
       ``(i) Model regulation.--The following requirements of the 
     model regulation:

       ``(I) Section 7A (relating to guaranteed renewal or 
     noncancellability), and the requirements of section 6B of the 
     model Act relating to such section 7A.
       ``(II) Section 7B (relating to prohibitions on limitations 
     and exclusions).
       ``(III) Section 7C (relating to extension of benefits).
       ``(IV) Section 7D (relating to continuation or conversion 
     of coverage).
       ``(V) Section 7E (relating to discontinuance and 
     replacement of policies).
       ``(VI) Section 8 (relating to unintentional lapse).
       ``(VII) Section 9 (relating to disclosure), other than 
     section 9F thereof.
       ``(VIII) Section 10 (relating to prohibitions against post-
     claims underwriting).
       ``(IX) Section 11 (relating to minimum standards).
       ``(X) Section 12 (relating to requirement to offer 
     inflation protection), except that any requirement for a 
     signature on a rejection of inflation protection shall permit 
     the signature to be on an application or on a separate form.
       ``(XI) Section 23 (relating to prohibition against 
     preexisting conditions and probationary periods in 
     replacement policies or certificates).

       ``(ii) Model act.--The following requirements of the model 
     Act:

       ``(I) Section 6C (relating to preexisting conditions).
       ``(II) Section 6D (relating to prior hospitalization).

       ``(B) Definitions.--For purposes of this paragraph--
       ``(i) Model provisions.--The terms `model regulation' and 
     `model Act' mean the long-term care insurance model 
     regulation, and the long-term care insurance model Act, 
     respectively, promulgated by the National Association of 
     Insurance Commissioners (as adopted as of January 1993).
       ``(ii) Coordination.--Any provision of the model regulation 
     or model Act listed under clause (i) or (ii) of subparagraph 
     (A) shall be treated as including any other provision of such 
     regulation or Act necessary to implement the provision.
       ``(3) Disclosure requirement.--The requirement of this 
     paragraph is met with respect to any policy if such policy 
     meets the requirements of section 4980C(d)(1).
       ``(4) Nonforfeiture requirements.--
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to any level premium long-term care 
     insurance policy, if the issuer of such policy offers to the 
     policyholder, including any group policyholder, a 
     nonforfeiture provision meeting the requirements of 
     subparagraph (B).
       ``(B) Requirements of provision.--The nonforfeiture 
     provision required under subparagraph (A) shall meet the 
     following requirements:
       ``(i) The nonforfeiture provision shall be appropriately 
     captioned.
       ``(ii) The nonforfeiture provision shall provide for a 
     benefit available in the event of a default in the payment of 
     any premiums and the amount of the benefit may be adjusted 
     subsequent to being initially granted only as necessary to 
     reflect changes in claims, persistency, and interest as 
     reflected in changes in rates for premium paying policies 
     approved by the appropriate State regulatory authority for 
     the same policy form.
       ``(iii) The nonforfeiture provision shall provide at least 
     one of the following:

       ``(I) Reduced paid-up insurance.
       ``(II) Extended term insurance.
       ``(III) Shortened benefit period.
       ``(IV) Other similar offerings approved by the Secretary.

       ``(5) Long-term care insurance policy defined.--For 
     purposes of this subsection, the term `long-term care 
     insurance policy' has the meaning given such term by section 
     4980C(e).''.

     SEC. 422. REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE 
                   INSURANCE POLICIES.

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

     ``SEC. 4980C. REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE 
                   INSURANCE POLICIES.

       ``(a) General Rule.--There is hereby imposed on any person 
     failing to meet the requirements of subsection (c) or (d) a 
     tax in the amount determined under subsection (b).
       ``(b) Amount.--
       ``(1) In general.--The amount of the tax imposed by 
     subsection (a) shall be $100 per policy for each day any 
     requirements of subsection (c) or (d) are not met with 
     respect to each long-term care insurance policy.
       ``(2) Waiver.--In the case of a failure which is due to 
     reasonable cause and not to willful neglect, the Secretary 
     may waive part or all of the tax imposed by subsection (a) to 
     the extent that payment of the tax would be excessive 
     relative to the failure involved.
       ``(c) Responsibilities.--The requirements of this 
     subsection are as follows:
       ``(1) Requirements of model provisions.--
       ``(A) Model regulation.--The following requirements of the 
     model regulation must be met:
       ``(i) Section 13 (relating to application forms and 
     replacement coverage).
       ``(ii) Section 14 (relating to reporting requirements), 
     except that the issuer shall also report at least annually 
     the number of claims denied during the reporting period for 
     each class of business (expressed as a percentage of claims 
     denied), other than claims denied for failure to meet the 
     waiting period or because of any applicable preexisting 
     condition.
       ``(iii) Section 20 (relating to filing requirements for 
     marketing).
       ``(iv) Section 21 (relating to standards for marketing), 
     including inaccurate completion of medical histories, other 
     than sections 21C(1) and 21C(6) thereof, except that--

       ``(I) in addition to such requirements, no person shall, in 
     selling or offering to sell a long-term care insurance 
     policy, misrepresent a material fact; and
       ``(II) no such requirements shall include a requirement to 
     inquire or identify whether a prospective applicant or 
     enrollee for long-term care insurance has accident and 
     sickness insurance.

       ``(v) Section 22 (relating to appropriateness of 
     recommended purchase).
       ``(vi) Section 24 (relating to standard format outline of 
     coverage).
       ``(vii) Section 25 (relating to requirement to deliver 
     shopper's guide).
       ``(B) Model act.--The following requirements of the model 
     Act must be met:
       ``(i) Section 6F (relating to right to return), except that 
     such section shall also apply to denials of applications and 
     any refund shall be made within 30 days of the return or 
     denial.
       ``(ii) Section 6G (relating to outline of coverage).
       ``(iii) Section 6H (relating to requirements for 
     certificates under group plans).
       ``(iv) Section 6I (relating to policy summary).
       ``(v) Section 6J (relating to monthly reports on 
     accelerated death benefits).
       ``(vi) Section 7 (relating to incontestability period).
       ``(C) Definitions.--For purposes of this paragraph, the 
     terms `model regulation' and `model Act' have the meanings 
     given such terms by section 7702B(f)(2)(B).
       ``(2) Delivery of policy.--If an application for a long-
     term care insurance policy (or for a certificate under a 
     group long-term care insurance policy) is approved, the 
     issuer shall deliver to the applicant (or policyholder or 
     certificateholder) the policy (or certificate) of insurance 
     not later than 30 days after the date of the approval.
       ``(3) Information on denials of claims.--If a claim under a 
     long-term care insurance policy is denied, the issuer shall, 
     within 60 days of the date of a written request by the 
     policyholder or certificateholder (or representative)--
       ``(A) provide a written explanation of the reasons for the 
     denial, and
       ``(B) make available all information directly relating to 
     such denial.
       ``(d) Disclosure.--The requirements of this subsection are 
     met if the issuer of a long-term care insurance policy 
     discloses in such policy and in the outline of coverage 
     required under subsection (c)(1)(B)(ii) that the policy is 
     intended to be a qualified long-term care insurance contract 
     under section 7702B(b).
       ``(e) Long-Term Care Insurance Policy Defined.--For 
     purposes of this section, the term `long-term care insurance 
     policy' means any product which is advertised, marketed, or 
     offered as long-term care insurance.''.
       (b) Conforming Amendment.--The table of sections for 
     chapter 43 is amended by adding at the end the following new 
     item:

``Sec. 4980C. Requirements for issuers of long-term care insurance 
              policies.''.

     SEC. 423. COORDINATION WITH STATE REQUIREMENTS.

       Nothing in this subchapter shall prevent a State from 
     establishing, implementing, or continuing in effect standards 
     related to the protection of policyholders of long-term care 
     insurance policies (as defined in section 4980C(e) of the 
     Internal Revenue Code of 1986), if such standards are not in 
     conflict with or inconsistent with the standards established 
     under such Code.

     SEC. 424. EFFECTIVE DATES.

       (a) In General.--The provisions of, and amendments made by, 
     this subchapter shall apply to contracts issued after 
     December 31, 1996. The provisions of section 411(g) of this 
     Act (relating to transition rule) shall apply to such 
     contracts.
       (b) Issuers.--The amendments made by section 422 shall 
     apply to actions taken after December 31, 1996.

           CHAPTER 2--TREATMENT OF ACCELERATED DEATH BENEFITS

     SEC. 431. TREATMENT OF ACCELERATED DEATH BENEFITS BY 
                   RECIPIENT.

       (a) In General.--Section 101 (relating to certain death 
     benefits) is amended by adding at the end the following new 
     subsection:
       ``(g) Treatment of Certain Accelerated Death Benefits.--
       ``(1) In general.--For purposes of this section, the 
     following amounts shall be treated as

[[Page S3849]]

     an amount paid by reason of the death of an insured:
       ``(A) Any amount received under a life insurance contract 
     on the life of an insured who is a terminally ill individual.
       ``(B) Any amount received under a life insurance contract 
     on the life of an insured who is a chronically ill individual 
     (as defined in section 7702B(c)(2)) but only if such amount 
     is received under a rider or other provision of such contract 
     which is treated as a qualified long-term care insurance 
     contract under section 7702B.
       ``(2) Treatment of viatical settlements.--
       ``(A) In general.--In the case of a life insurance contract 
     on the life of an insured described in paragraph (1), if--
       ``(i) any portion of such contract is sold to any viatical 
     settlement provider, or
       ``(ii) any portion of the death benefit is assigned to such 
     a provider,

     the amount paid for such sale or assignment shall be treated 
     as an amount paid under the life insurance contract by reason 
     of the death of such insured.
       ``(B) Viatical settlement provider.--The term `viatical 
     settlement provider' means any person regularly engaged in 
     the trade or business of purchasing, or taking assignments 
     of, life insurance contracts on the lives of insureds 
     described in paragraph (1) if--
       ``(i) such person is licensed for such purposes in the 
     State in which the insured resides, or
       ``(ii) in the case of an insured who resides in a State not 
     requiring the licensing of such persons for such purposes--

       ``(I) such person meets the requirements of sections 8 and 
     9 of the Viatical Settlements Model Act of the National 
     Association of Insurance Commissioners, and
       ``(II) meets the requirements of the Model Regulations of 
     the National Association of Insurance Commissioners (relating 
     to standards for evaluation of reasonable payments) in 
     determining amounts paid by such person in connection with 
     such purchases or assignments.

       ``(3) Definitions.--For purposes of this subsection--
       ``(A) Terminally ill individual.--The term `terminally ill 
     individual' means an individual who has been certified by a 
     physician as having an illness or physical condition which 
     can reasonably be expected to result in death in 24 months or 
     less after the date of the certification.
       ``(B) Physician.--The term `physician' has the meaning 
     given to such term by section 1861(r)(1) of the Social 
     Security Act (42 U.S.C. 1395x(r)(1)).
       ``(4) Exception for business-related policies.--This 
     subsection shall not apply in the case of any amount paid to 
     any taxpayer other than the insured if such taxpayer has an 
     insurable interest with respect to the life of the insured by 
     reason of the insured being a director, officer, or employee 
     of the taxpayer or by reason of the insured being financially 
     interested in any trade or business carried on by the 
     taxpayer.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to amounts received after December 31, 1996.

     SEC. 432. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED 
                   ACCELERATED DEATH BENEFIT RIDERS.

       (a) Qualified Accelerated Death Benefit Riders Treated as 
     Life Insurance.--Section 818 (relating to other definitions 
     and special rules) is amended by adding at the end the 
     following new subsection:
       ``(g) Qualified Accelerated Death Benefit Riders Treated as 
     Life Insurance.--For purposes of this part--
       ``(1) In general.--Any reference to a life insurance 
     contract shall be treated as including a reference to a 
     qualified accelerated death benefit rider on such contract.
       ``(2) Qualified accelerated death benefit riders.--For 
     purposes of this subsection, the term `qualified accelerated 
     death benefit rider' means any rider on a life insurance 
     contract if the only payments under the rider are payments 
     meeting the requirements of section 101(g).
       ``(3) Exception for long-term care riders.--Paragraph (1) 
     shall not apply to any rider which is treated as a long-term 
     care insurance contract under section 7702B.''.
       (b) Effective Date.--
       (1) In general.--The amendment made by this section shall 
     take effect on January 1, 1997.
       (2) Issuance of rider not treated as material change.--For 
     purposes of applying sections 101(f), 7702, and 7702A of the 
     Internal Revenue Code of 1986 to any contract--
       (A) the issuance of a qualified accelerated death benefit 
     rider (as defined in section 818(g) of such Code (as added by 
     this Act)), and
       (B) the addition of any provision required to conform an 
     accelerated death benefit rider to the requirements of such 
     section 818(g),

     shall not be treated as a modification or material change of 
     such contract.
                      Subtitle C--High-Risk Pools

     SEC. 451. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED 
                   ORGANIZATIONS PROVIDING HEALTH COVERAGE FOR 
                   HIGH-RISK INDIVIDUALS.

       (a) In General.--Subsection (c) of section 501 (relating to 
     list of exempt organizations) is amended by adding at the end 
     the following new paragraph:
       ``(26) Any membership organization if--
       ``(A) such organization is established by a State 
     exclusively to provide coverage for medical care (as defined 
     in section 213(d)) on a not-for-profit basis to individuals 
     described in subparagraph (B) through--
       ``(i) insurance issued by the organization, or
       ``(ii) a health maintenance organization under an 
     arrangement with the organization,
       ``(B) the only individuals receiving such coverage through 
     the organization are individuals--
       ``(i) who are residents of such State, and
       ``(ii) who, by reason of the existence or history of a 
     medical condition, are unable to acquire medical care 
     coverage for such condition through insurance or from a 
     health maintenance organization or are able to acquire such 
     coverage only at a rate which is substantially in excess of 
     the rate for such coverage through the membership 
     organization,
       ``(C) the composition of the membership in such 
     organization is specified by such State, and
       ``(D) no part of the net earnings of the organization 
     inures to the benefit of any private shareholder or 
     individual.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1996.
               Subtitle D--Penalty-Free IRA Distributions

     SEC. 461. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED 
                   WITHOUT PENALTY TO PAY FINANCIALLY DEVASTATING 
                   MEDICAL EXPENSES.

       (a) In General.--Section 72(t)(3)(A) is amended by striking 
     ``(B),''.
       (b) Penalty-Free Distributions for Payment of Health 
     Insurance Premiums of Certain Unemployed Individuals.--
     Paragraph (2) of section 72(t), as amended by section 414, is 
     amended by adding at the end the following new subparagraph:
       ``(E) Distributions to unemployed individuals for health 
     insurance premiums.--Distributions from an individual 
     retirement plan to an individual after separation from 
     employment--
       ``(i) if such individual has received unemployment 
     compensation for 12 consecutive weeks under any Federal or 
     State unemployment compensation law by reason of such 
     separation,
       ``(ii) if such distributions are made during any taxable 
     year during which such unemployment compensation is paid or 
     the succeeding taxable year, and
       ``(iii) to the extent such distributions do not exceed the 
     amount paid during the taxable year for insurance described 
     in section 213(d)(1)(D) with respect to the individual and 
     the individual's spouse and dependents (as defined in section 
     152).

     To the extent provided in regulations, a self-employed 
     individual shall be treated as meeting the requirements of 
     clause (i) if, under Federal or State law, the individual 
     would have received unemployment compensation but for the 
     fact the individual was self-employed.''.
       (c) Conforming Amendment.--Subparagraph (B) of section 
     72(t)(2), as amended by section 414, is amended by striking 
     ``or (D)'' and inserting ``, (D), or (E)''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1996.
                      Subtitle E--Revenue Offsets

           CHAPTER 1--TREATMENT OF INDIVIDUALS WHO EXPATRIATE

     SEC. 471. REVISION OF TAX RULES ON EXPATRIATION.

       (a) In General.--Subpart A of part II of subchapter N of 
     chapter 1 is amended by inserting after section 877 the 
     following new section:

     ``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

       ``(a) General Rules.--For purposes of this subtitle--
       ``(1) Mark to market.--Except as provided in subsection 
     (f), all property of a covered expatriate to which this 
     section applies shall be treated as sold on the expatriation 
     date for its fair market value.
       ``(2) Recognition of gain or loss.--In the case of any sale 
     under paragraph (1)--
       ``(A) notwithstanding any other provision of this title, 
     any gain arising from such sale shall be taken into account 
     for the taxable year of the sale unless such gain is excluded 
     from gross income under part III of subchapter B, and
       ``(B) any loss arising from such sale shall be taken into 
     account for the taxable year of the sale to the extent 
     otherwise provided by this title, except that section 1091 
     shall not apply (and section 1092 shall apply) to any such 
     loss.
       ``(3) Exclusion for certain gain.--The amount which would 
     (but for this paragraph) be includible in the gross income of 
     any individual by reason of this section shall be reduced 
     (but not below zero) by $600,000. For purposes of this 
     paragraph, allocable expatriation gain taken into account 
     under subsection (f)(2) shall be treated in the same manner 
     as an amount required to be includible in gross income.
       ``(4) Election to continue to be taxed as united states 
     citizen.--
       ``(A) In general.--If an expatriate elects the application 
     of this paragraph--
       ``(i) this section (other than this paragraph) shall not 
     apply to the expatriate, but
       ``(ii) the expatriate shall be subject to tax under this 
     title, with respect to property to which this section would 
     apply but for such election, in the same manner as if the 
     individual were a United States citizen.
       ``(B) Limitation on amount of estate, gift, and generation-
     skipping transfer taxes.--The aggregate amount of taxes 
     imposed under subtitle B with respect to any transfer of 
     property by reason of an election under subparagraph (A) 
     shall not exceed the amount of income tax which would be due 
     if the property were sold for its fair market value 
     immediately before the time of the transfer or death (taking 
     into account the rules of paragraph (2)).
       ``(C) Requirements.--Subparagraph (A) shall not apply to an 
     individual unless the individual--
       ``(i) provides security for payment of tax in such form and 
     manner, and in such amount, as the Secretary may require,
       ``(ii) consents to the waiver of any right of the 
     individual under any treaty of the United States which would 
     preclude assessment or collection

[[Page S3850]]

     of any tax which may be imposed by reason of this paragraph, 
     and
       ``(iii) complies with such other requirements as the 
     Secretary may prescribe.
       ``(D) Election.--An election under subparagraph (A) shall 
     apply to all property to which this section would apply but 
     for the election and, once made, shall be irrevocable. Such 
     election shall also apply to property the basis of which is 
     determined in whole or in part by reference to the property 
     with respect to which the election was made.
       ``(b) Election To Defer Tax.--
       ``(1) In general.--If the taxpayer elects the application 
     of this subsection with respect to any property--
       ``(A) no amount shall be required to be included in gross 
     income under subsection (a)(1) with respect to the gain from 
     such property for the taxable year of the sale, but
       ``(B) the taxpayer's tax for the taxable year in which such 
     property is disposed of shall be increased by the deferred 
     tax amount with respect to the property.

     Except to the extent provided in regulations, subparagraph 
     (B) shall apply to a disposition whether or not gain or loss 
     is recognized in whole or in part on the disposition.
       ``(2) Deferred tax amount.--
       ``(A) In general.--For purposes of paragraph (1), the term 
     `deferred tax amount' means, with respect to any property, an 
     amount equal to the sum of--
       ``(i) the difference between the amount of tax paid for the 
     taxable year described in paragraph (1)(A) and the amount 
     which would have been paid for such taxable year if the 
     election under paragraph (1) had not applied to such 
     property, plus
       ``(ii) an amount of interest on the amount described in 
     clause (i) determined for the period--

       ``(I) beginning on the 91st day after the expatriation 
     date, and
       ``(II) ending on the due date for the taxable year 
     described in paragraph (1)(B),

     by using the rates and method applicable under section 6621 
     for underpayments of tax for such period.

     For purposes of clause (ii), the due date is the date 
     prescribed by law (determined without regard to extension) 
     for filing the return of the tax imposed by this chapter for 
     the taxable year.
       ``(B) Allocation of losses.--For purposes of subparagraph 
     (A), any losses described in subsection (a)(2)(B) shall be 
     allocated ratably among the gains described in subsection 
     (a)(2)(A).
       ``(3) Security.--
       ``(A) In general.--No election may be made under paragraph 
     (1) with respect to any property unless adequate security is 
     provided with respect to such property.
       ``(B) Adequate security.--For purposes of subparagraph (A), 
     security with respect to any property shall be treated as 
     adequate security if--
       ``(i) it is a bond in an amount equal to the deferred tax 
     amount under paragraph (2)(A) for the property, or
       ``(ii) the taxpayer otherwise establishes to the 
     satisfaction of the Secretary that the security is adequate.
       ``(4) Waiver of certain rights.--No election may be made 
     under paragraph (1) unless the taxpayer consents to the 
     waiver of any right under any treaty of the United States 
     which would preclude assessment or collection of any tax 
     imposed by reason of this section.
       ``(5) Dispositions.--For purposes of this subsection, a 
     taxpayer making an election under this subsection with 
     respect to any property shall be treated as having disposed 
     of such property--
       ``(A) immediately before death if such property is held at 
     such time, and
       ``(B) at any time the security provided with respect to the 
     property fails to meet the requirements of paragraph (3) and 
     the taxpayer does not correct such failure within the time 
     specified by the Secretary.
       ``(6) Elections.--An election under paragraph (1) shall 
     only apply to property described in the election and, once 
     made, is irrevocable. An election may be under paragraph (1) 
     with respect to an interest in a trust with respect to which 
     gain is required to be recognized under subsection (f)(1).
       ``(c) Covered Expatriate.--For purposes of this section--
       ``(1) In general.--The term `covered expatriate' means an 
     expatriate--
       ``(A) whose average annual net income tax (as defined in 
     section 38(c)(1)) for the period of 5 taxable years ending 
     before the expatriation date is greater than $100,000, or
       ``(B) whose net worth as of such date is $500,000 or more.

     If the expatriation date is after 1996, such $100,000 and 
     $500,000 amounts shall be increased by an amount equal to 
     such dollar amount multiplied by the cost-of-living 
     adjustment determined under section 1(f)(3) for such calendar 
     year by substituting `1995' for `1992' in subparagraph (B) 
     thereof. Any increase under the preceding sentence shall be 
     rounded to the nearest multiple of $1,000.
       ``(2) Exceptions.--An individual shall not be treated as a 
     covered expatriate if--
       ``(A) the individual--
       ``(i) became at birth a citizen of the United States and a 
     citizen of another country and, as of the expatriation date, 
     continues to be a citizen of, and is taxed as a resident of, 
     such other country, and
       ``(ii) has been a resident of the United States (as defined 
     in section 7701(b)(1)(A)(ii)) for not more than 8 taxable 
     years during the 15-taxable year period ending with the 
     taxable year during which the expatriation date occurs, or
       ``(B)(i) the individual's relinquishment of United States 
     citizenship occurs before such individual attains age 18\1/
     2\, and
       ``(ii) the individual has been a resident of the United 
     States (as so defined) for not more than 5 taxable years 
     before the date of relinquishment.
       ``(d) Property to Which Section Applies.--For purposes of 
     this section--
       ``(1) In general.--Except as otherwise provided by the 
     Secretary, this section shall apply to--
       ``(A) any interest in property held by a covered expatriate 
     on the expatriation date the gain from which would be 
     includible in the gross income of the expatriate if such 
     interest had been sold for its fair market value on such date 
     in a transaction in which gain is recognized in whole or in 
     part, and
       ``(B) any other interest in a trust to which subsection (f) 
     applies.
       ``(2) Exceptions.--This section shall not apply to the 
     following property:
       ``(A) United states real property interests.--Any United 
     States real property interest (as defined in section 
     897(c)(1)), other than stock of a United States real property 
     holding corporation which does not, on the expatriation date, 
     meet the requirements of section 897(c)(2).
       ``(B) Interest in certain retirement plans.--
       ``(i) In general.--Any interest in a qualified retirement 
     plan (as defined in section 4974(c)), other than any interest 
     attributable to contributions which are in excess of any 
     limitation or which violate any condition for tax-favored 
     treatment.
       ``(ii) Foreign pension plans.--

       ``(I) In general.--Under regulations prescribed by the 
     Secretary, interests in foreign pension plans or similar 
     retirement arrangements or programs.
       ``(II) Limitation.--The value of property which is treated 
     as not sold by reason of this subparagraph shall not exceed 
     $500,000.

       ``(e) Definitions.--For purposes of this section--
       ``(1) Expatriate.--The term `expatriate' means--
       ``(A) any United States citizen who relinquishes his 
     citizenship, or
       ``(B) any long-term resident of the United States who--
       ``(i) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(ii) commences to be treated as a resident of a foreign 
     country under the provisions of a tax treaty between the 
     United States and the foreign country and who does not waive 
     the benefits of such treaty applicable to residents of the 
     foreign country.
       ``(2) Expatriation date.--The term `expatriation date' 
     means--
       ``(A) the date an individual relinquishes United States 
     citizenship, or
       ``(B) in the case of a long-term resident of the United 
     States, the date of the event described in clause (i) or (ii) 
     of paragraph (1)(B).
       ``(3) Relinquishment of citizenship.--A citizen shall be 
     treated as relinquishing his United States citizenship on the 
     earliest of--
       ``(A) the date the individual renounces his United States 
     nationality before a diplomatic or consular officer of the 
     United States pursuant to paragraph (5) of section 349(a) of 
     the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
       ``(B) the date the individual furnishes to the United 
     States Department of State a signed statement of voluntary 
     relinquishment of United States nationality confirming the 
     performance of an act of expatriation specified in paragraph 
     (1), (2), (3), or (4) of section 349(a) of the Immigration 
     and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
       ``(C) the date the United States Department of State issues 
     to the individual a certificate of loss of nationality, or
       ``(D) the date a court of the United States cancels a 
     naturalized citizen's certificate of naturalization.

     Subparagraph (A) or (B) shall not apply to any individual 
     unless the renunciation or voluntary relinquishment is 
     subsequently approved by the issuance to the individual of a 
     certificate of loss of nationality by the United States 
     Department of State.
       ``(4) Long-term resident.--
       ``(A) In general.--The term `long-term resident' means any 
     individual (other than a citizen of the United States) who is 
     a lawful permanent resident of the United States in at least 
     8 taxable years during the period of 15 taxable years ending 
     with the taxable year during which the expatriation date 
     occurs. For purposes of the preceding sentence, an individual 
     shall not be treated as a lawful permanent resident for any 
     taxable year if such individual is treated as a resident of a 
     foreign country for the taxable year under the provisions of 
     a tax treaty between the United States and the foreign 
     country and does not waive the benefits of such treaty 
     applicable to residents of the foreign country.
       ``(B) Special rule.--For purposes of subparagraph (A), 
     there shall not be taken into account--
       ``(i) any taxable year during which any prior sale is 
     treated under subsection (a)(1) as occurring, or
       ``(ii) any taxable year prior to the taxable year referred 
     to in clause (i).
       ``(f) Special Rules Applicable to Beneficiaries' Interests 
     in Trust.--
       ``(1) In general.--Except as provided in paragraph (2), if 
     an individual is determined under paragraph (3) to hold an 
     interest in a trust--
       ``(A) the individual shall not be treated as having sold 
     such interest,
       ``(B) such interest shall be treated as a separate share in 
     the trust, and
       ``(C)(i) such separate share shall be treated as a separate 
     trust consisting of the assets allocable to such share,

[[Page S3851]]

       ``(ii) the separate trust shall be treated as having sold 
     its assets immediately before the expatriation date for their 
     fair market value and as having distributed all of its assets 
     to the individual as of such time, and
       ``(iii) the individual shall be treated as having 
     recontributed the assets to the separate trust.
     Subsection (a)(2) shall apply to any income, gain, or loss of 
     the individual arising from a distribution described in 
     subparagraph (C)(ii).
       ``(2) Special rules for interests in qualified trusts.--
       ``(A) In general.--If the trust interest described in 
     paragraph (1) is an interest in a qualified trust--
       ``(i) paragraph (1) and subsection (a) shall not apply, and
       ``(ii) in addition to any other tax imposed by this title, 
     there is hereby imposed on each distribution with respect to 
     such interest a tax in the amount determined under 
     subparagraph (B).
       ``(B) Amount of tax.--The amount of tax under subparagraph 
     (A)(ii) shall be equal to the lesser of--
       ``(i) the highest rate of tax imposed by section 1(e) for 
     the taxable year in which the expatriation date occurs, 
     multiplied by the amount of the distribution, or
       ``(ii) the balance in the deferred tax account immediately 
     before the distribution determined without regard to any 
     increases under subparagraph (C)(ii) after the 30th day 
     preceding the distribution.
       ``(C) Deferred tax account.--For purposes of subparagraph 
     (B)(ii)--
       ``(i) Opening balance.--The opening balance in a deferred 
     tax account with respect to any trust interest is an amount 
     equal to the tax which would have been imposed on the 
     allocable expatriation gain with respect to the trust 
     interest if such gain had been included in gross income under 
     subsection (a).
       ``(ii) Increase for interest.--The balance in the deferred 
     tax account shall be increased by the amount of interest 
     determined (on the balance in the account at the time the 
     interest accrues), for periods after the 90th day after the 
     expatriation date, by using the rates and method applicable 
     under section 6621 for underpayments of tax for such periods.
       ``(iii) Decrease for taxes previously paid.--The balance in 
     the tax deferred account shall be reduced--

       ``(I) by the amount of taxes imposed by subparagraph (A) on 
     any distribution to the person holding the trust interest, 
     and
       ``(II) in the case of a person holding a nonvested 
     interest, to the extent provided in regulations, by the 
     amount of taxes imposed by subparagraph (A) on distributions 
     from the trust with respect to nonvested interests not held 
     by such person.

       ``(D) Allocable expatriation gain.--For purposes of this 
     paragraph, the allocable expatriation gain with respect to 
     any beneficiary's interest in a trust is the amount of gain 
     which would be allocable to such beneficiary's vested and 
     nonvested interests in the trust if the beneficiary held 
     directly all assets allocable to such interests.
       ``(E) Tax deducted and withheld.--
       ``(i) In general.--The tax imposed by subparagraph (A)(ii) 
     shall be deducted and withheld by the trustees from the 
     distribution to which it relates.
       ``(ii) Exception where failure to waive treaty rights.--If 
     an amount may not be deducted and withheld under clause (i) 
     by reason of the distributee failing to waive any treaty 
     right with respect to such distribution--

       ``(I) the tax imposed by subparagraph (A)(ii) shall be 
     imposed on the trust and each trustee shall be personally 
     liable for the amount of such tax, and
       ``(II) any other beneficiary of the trust shall be entitled 
     to recover from the distributee the amount of such tax 
     imposed on the other beneficiary.

       ``(F) Disposition.--If a trust ceases to be a qualified 
     trust at any time, a covered expatriate disposes of an 
     interest in a qualified trust, or a covered expatriate 
     holding an interest in a qualified trust dies, then, in lieu 
     of the tax imposed by subparagraph (A)(ii), there is hereby 
     imposed a tax equal to the lesser of--
       ``(i) the tax determined under paragraph (1) as if the 
     expatriation date were the date of such cessation, 
     disposition, or death, whichever is applicable, or
       ``(ii) the balance in the tax deferred account immediately 
     before such date.

     Such tax shall be imposed on the trust and each trustee shall 
     be personally liable for the amount of such tax and any other 
     beneficiary of the trust shall be entitled to recover from 
     the covered expatriate or the estate the amount of such tax 
     imposed on the other beneficiary.
       ``(G) Definitions and special rule.--For purposes of this 
     paragraph--
       ``(i) Qualified trust.--The term `qualified trust' means a 
     trust--

       ``(I) which is organized under, and governed by, the laws 
     of the United States or a State, and
       ``(II) with respect to which the trust instrument requires 
     that at least 1 trustee of the trust be an individual citizen 
     of the United States or a domestic corporation.

       ``(ii) Vested interest.--The term `vested interest' means 
     any interest which, as of the expatriation date, is vested in 
     the beneficiary.
       ``(iii) Nonvested interest.--The term `nonvested interest' 
     means, with respect to any beneficiary, any interest in a 
     trust which is not a vested interest. Such interest shall be 
     determined by assuming the maximum exercise of discretion in 
     favor of the beneficiary and the occurrence of all 
     contingencies in favor of the beneficiary.
       ``(iv) Adjustments.--The Secretary may provide for such 
     adjustments to the bases of assets in a trust or a deferred 
     tax account, and the timing of such adjustments, in order to 
     ensure that gain is taxed only once.
       ``(3) Determination of beneficiaries' interest in trust.--
       ``(A) Determinations under paragraph (1).--For purposes of 
     paragraph (1), a beneficiary's interest in a trust shall be 
     based upon all relevant facts and circumstances, including 
     the terms of the trust instrument and any letter of wishes or 
     similar document, historical patterns of trust distributions, 
     and the existence of and functions performed by a trust 
     protector or any similar advisor.
       ``(B) Other determinations.--For purposes of this section--
       ``(i) Constructive ownership.--If a beneficiary of a trust 
     is a corporation, partnership, trust, or estate, the 
     shareholders, partners, or beneficiaries shall be deemed to 
     be the trust beneficiaries for purposes of this section.
       ``(ii) Taxpayer return position.--A taxpayer shall clearly 
     indicate on its income tax return--

       ``(I) the methodology used to determine that taxpayer's 
     trust interest under this section, and
       ``(II) if the taxpayer knows (or has reason to know) that 
     any other beneficiary of such trust is using a different 
     methodology to determine such beneficiary's trust interest 
     under this section.

       ``(g) Termination of Deferrals, Etc.--On the date any 
     property held by an individual is treated as sold under 
     subsection (a), notwithstanding any other provision of this 
     title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate, and
       ``(2) any extension of time for payment of tax shall cease 
     to apply and the unpaid portion of such tax shall be due and 
     payable at the time and in the manner prescribed by the 
     Secretary.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Coordination With Estate and Gift Taxes.--If 
     subsection (a) applies to property held by an individual for 
     any taxable year and--
       ``(1) such property is includible in the gross estate of 
     such individual solely by reason of section 2107, or
       ``(2) section 2501 applies to a transfer of such property 
     by such individual solely by reason of section 2501(a)(3),

     then there shall be allowed as a credit against the 
     additional tax imposed by section 2101 or 2501, whichever is 
     applicable, solely by reason of section 2107 or 2501(a)(3) an 
     amount equal to the increase in the tax imposed by this 
     chapter for such taxable year by reason of this section.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section, including regulations--
       ``(1) to prevent double taxation by ensuring that--
       ``(A) appropriate adjustments are made to basis to reflect 
     gain recognized by reason of subsection (a) and the exclusion 
     provided by subsection (a)(3), and
       ``(B) any gain by reason of a deemed sale under subsection 
     (a) of an interest in a corporation, partnership, trust, or 
     estate is reduced to reflect that portion of such gain which 
     is attributable to an interest in a trust which a 
     shareholder, partner, or beneficiary is treated as holding 
     directly under subsection (f)(3)(B)(i), and
       ``(2) which provide for the proper allocation of the 
     exclusion under subsection (a)(3) to property to which this 
     section applies.
       ``(k) Cross Reference.--

  ``For income tax treatment of individuals who terminate United States 
citizenship, see section 7701(a)(47).''.

       (b) Inclusion in Income of Gifts and Inheritances From 
     Covered Expatriates.--Section 102 (relating to gifts, etc. 
     not included in gross income) is amended by adding at the end 
     the following new subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
     Subsection (a) shall not exclude from gross income the value 
     of any property acquired by gift, bequest, devise, or 
     inheritance from a covered expatriate after the expatriation 
     date. For purposes of this subsection, any term used in this 
     subsection which is also used in section 877A shall have the 
     same meaning as when used in section 877A.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(47) Termination of united states citizenship.--An 
     individual shall not cease to be treated as a United States 
     citizen before the date on which the individual's citizenship 
     is treated as relinquished under section 877A(e)(3).''.
       (d) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     individual who relinquishes (within the meaning of section 
     877A(e)(3)) United States citizenship on or after February 6, 
     1995.''.

[[Page S3852]]

       (2) Section 2107(c) is amended by adding at the end the 
     following new paragraph:
       ``(3) Cross reference.--For credit against the tax imposed 
     by subsection (a) for expatriation tax, see section 
     877A(i).''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new flush sentence:
     ``For credit against the tax imposed under this section by 
     reason of this paragraph, see section 877A(i).''.
       (4) Paragraph (10) of section 7701(b) is amended by adding 
     at the end the following new sentence: ``This paragraph shall 
     not apply to any long-term resident of the United States who 
     is an expatriate (as defined in section 877A(e)(1)).''.
       (e) Clerical Amendment.--The table of sections for subpart 
     A of part II of subchapter N of chapter 1 is amended by 
     inserting after the item relating to section 877 the 
     following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.

       (f) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendments made by this section shall apply to expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after February 
     6, 1995.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to amounts received from expatriates (as so defined) whose 
     expatriation date (as so defined) occurs on and after 
     February 6, 1995.
       (3) Special rules relating to certain acts occurring before 
     february 6, 1995.--In the case of an individual who took an 
     act of expatriation specified in paragraph (1), (2), (3), or 
     (4) of section 349(a) of the Immigration and Nationality Act 
     (8 U.S.C. 1481(a) (1)-(4)) before February 6, 1995, but whose 
     expatriation date (as so defined) occurs after February 6, 
     1995--
       (A) the amendment made by subsection (c) shall not apply,
       (B) the amendment made by subsection (d)(1) shall not apply 
     for any period prior to the expatriation date, and
       (C) the other amendments made by this section shall apply 
     as of the expatriation date.
       (4) Due date for tentative tax.--The due date under section 
     877A(h)(2) of such Code shall in no event occur before the 
     90th day after the date of the enactment of this Act.

     SEC. 472. INFORMATION ON INDIVIDUALS EXPATRIATING.

       (a) In General.--Subpart A of part III of subchapter A of 
     chapter 61 is amended by inserting after section 6039E the 
     following new section:

     ``SEC. 6039F. INFORMATION ON INDIVIDUALS EXPATRIATING.

       ``(a) Requirement.--
       ``(1) In general.--Notwithstanding any other provision of 
     law, any expatriate (within the meaning of section 
     877A(e)(1)) shall provide a statement which includes the 
     information described in subsection (b).
       ``(2) Timing.--
       ``(A) Citizens.--In the case of an expatriate described in 
     section 877(e)(1)(A), such statement shall be--
       ``(i) provided not later than the expatriation date (within 
     the meaning of section 877A(e)(2)), and
       ``(ii) provided to the person or court referred to in 
     section 877A(e)(3).
       ``(B) Noncitizens.--In the case of an expatriate described 
     in section 877A(e)(1)(B), such statement shall be provided to 
     the Secretary with the return of tax imposed by chapter 1 for 
     the taxable year during which the event described in such 
     section occurs.
       ``(b) Information To Be Provided.--Information required 
     under subsection (a) shall include--
       ``(1) the taxpayer's TIN,
       ``(2) the mailing address of such individual's principal 
     foreign residence,
       ``(3) the foreign country in which such individual is 
     residing,
       ``(4) the foreign country of which such individual is a 
     citizen,
       ``(5) in the case of an individual having a net worth of at 
     least the dollar amount applicable under section 
     877A(c)(1)(B), information detailing the assets and 
     liabilities of such individual, and
       ``(6) such other information as the Secretary may 
     prescribe.
       ``(c) Penalty.--Any individual failing to provide a 
     statement required under subsection (a) shall be subject to a 
     penalty for each year during any portion of which such 
     failure continues in an amount equal to the greater of--
       ``(1) 5 percent of the additional tax required to be paid 
     under section 877A for such year, or
       ``(2) $1,000,

     unless it is shown that such failure is due to reasonable 
     cause and not to willful neglect.
       ``(d) Information To Be Provided to Secretary.--
     Notwithstanding any other provision of law--
       ``(1) any Federal agency or court which collects (or is 
     required to collect) the statement under subsection (a) shall 
     provide to the Secretary--
       ``(A) a copy of any such statement, and
       ``(B) the name (and any other identifying information) of 
     any individual refusing to comply with the provisions of 
     subsection (a),
       ``(2) the Secretary of State shall provide to the Secretary 
     a copy of each certificate as to the loss of American 
     nationality under section 358 of the Immigration and 
     Nationality Act which is approved by the Secretary of State, 
     and
       ``(3) the Federal agency primarily responsible for 
     administering the immigration laws shall provide to the 
     Secretary the name of each lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)) 
     whose status as such has been revoked or has been 
     administratively or judicially determined to have been 
     abandoned.

     Notwithstanding any other provision of law, not later than 30 
     days after the close of each calendar quarter, the Secretary 
     shall publish in the Federal Register the name of each 
     individual relinquishing United States citizenship (within 
     the meaning of section 877A(e)(3)) with respect to whom the 
     Secretary receives information under the preceding sentence 
     during such quarter.
       ``(e) Exemption.--The Secretary may by regulations exempt 
     any class of individuals from the requirements of this 
     section if the Secretary determines that applying this 
     section to such individuals is not necessary to carry out the 
     purposes of this section.''.
       (b) Clerical Amendment.--The table of sections for such 
     subpart A is amended by inserting after the item relating to 
     section 6039E the following new item:

``Sec. 6039F. Information on individuals expatriating.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to individuals to whom section 877A of the 
     Internal Revenue Code of 1986 applies and whose expatriation 
     date (as defined in section 877A(e)(2)) occurs on or after 
     February 6, 1995, except that no statement shall be required 
     by such amendments before the 90th day after the date of the 
     enactment of this Act.

     SEC. 473. REPORT ON TAX COMPLIANCE BY UNITED STATES CITIZENS 
                   AND RESIDENTS LIVING ABROAD.

       Not later than 90 days after the date of the enactment of 
     this Act, the Secretary of the Treasury shall prepare and 
     submit to the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate a 
     report--
       (1) describing the compliance with subtitle A of the 
     Internal Revenue Code of 1986 by citizens and lawful 
     permanent residents of the United States (within the meaning 
     of section 7701(b)(6) of such Code) residing outside the 
     United States, and
       (2) recommending measures to improve such compliance 
     (including improved coordination between executive branch 
     agencies).

                   CHAPTER 2--COMPANY-OWNED INSURANCE

     SEC. 495. DENIAL OF DEDUCTION FOR INTEREST ON LOANS WITH 
                   RESPECT TO COMPANY-OWNED INSURANCE.

       (a) In General.--Paragraph (4) of section 264(a) is 
     amended--
       (1) by inserting ``, or any endowment or annuity contracts 
     owned by the taxpayer covering any individual,'' after ``the 
     life of any individual'', and
       (2) by striking all that follows ``carried on by the 
     taxpayer'' and inserting a period.
       (b) Exception for Contracts Relating to Key Persons; 
     Permissible Interest Rates.--Section 264 is amended--
       (1) by striking ``Any'' in subsection (a)(4) and inserting 
     ``Except as provided in subsection (d), any'', and
       (2) by adding at the end the following new subsection:
       ``(d) Special Rules For Application of Subsection (a)(4).--
       ``(1) Exception for key persons.--Subsection (a)(4) shall 
     not apply to any interest paid or accrued on any indebtedness 
     with respect to policies or contracts covering an individual 
     who is a key person to the extent that the aggregate amount 
     of such indebtedness with respect to policies and contracts 
     covering such individual does not exceed $50,000.
       ``(2) Interest rate cap on key persons and pre-1986 
     contracts.--
       ``(A) In general.--No deduction shall be allowed by reason 
     of paragraph (1) or the last sentence of subsection (a) with 
     respect to interest paid or accrued for any month to the 
     extent the amount of such interest exceeds the amount which 
     would have been determined if the applicable rate of interest 
     were used for such month.
       ``(B) Applicable rate of interest.--For purposes of 
     subparagraph (A)--
       ``(i) In general.--The applicable rate of interest for any 
     month is the rate of interest described as Moody's Corporate 
     Bond Yield Average-Monthly Average Corporates as published by 
     Moody's Investors Service, Inc., or any successor thereto, 
     for such month.
       ``(ii) Pre-1986 contract.--In the case of indebtedness on a 
     contract to which the last sentence of subsection (a) 
     applies--

       ``(I) which is a contract providing a fixed rate of 
     interest, the applicable rate of interest for any month shall 
     be the Moody's rate described in clause (i) for the month in 
     which the contract was purchased, or
       ``(II) which is a contract providing a variable rate of 
     interest, the applicable rate of interest for any month in an 
     applicable period shall be such Moody's rate for the last 
     month preceding such period.

     For purposes of subclause (II), the taxpayer shall elect an 
     applicable period for such contract on its return of tax 
     imposed by this chapter for its first taxable year ending on 
     or after October 13, 1995. Such applicable period shall be 
     for any number of months (not greater than 12) specified in 
     the election and may not be changed by the taxpayer without 
     the consent of the Secretary.
       ``(3) Key person.--For purposes of paragraph (1), the term 
     `key person' means an officer or 20-percent owner, except 
     that the number of individuals who may be treated as key 
     persons with respect to any taxpayer shall not exceed the 
     greater of--
       ``(A) 5 individuals, or
       ``(B) the lesser of 5 percent of the total officers and 
     employees of the taxpayer or 10 individuals.
       ``(4) 20-percent owner.--For purposes of this subsection, 
     the term `20-percent owner' means--

[[Page S3853]]

       ``(A) if the taxpayer is a corporation, any person who owns 
     directly 20 percent or more of the outstanding stock of the 
     corporation or stock possessing 20 percent or more of the 
     total combined voting power of all stock of the corporation, 
     or
       ``(B) if the taxpayer is not a corporation, any person who 
     owns 20 percent or more of the capital or profits interest in 
     the employer.
       ``(5) Aggregation rules.--
       ``(A) In general.--For purposes of paragraph (4)(A) and 
     applying the $50,000 limitation in paragraph (1)--
       ``(i) all members of a controlled group shall be treated as 
     1 taxpayer, and
       ``(ii) such limitation shall be allocated among the members 
     of such group in such manner as the Secretary may prescribe.
       ``(B) Controlled group.--For purposes of this paragraph, 
     all persons treated as a single employer under subsection (a) 
     or (b) of section 52 or subsection (m) or (o) of section 414 
     shall be treated as members of a controlled group.''.
       (c) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to interest paid or accrued after December 31, 1995.
       (2) Transition rule for existing indebtedness.--
       (A) In general.--In the case of--
       (i) indebtedness incurred before January 1, 1996, or
       (ii) indebtedness incurred before January 1, 1997 with 
     respect to any contract or policy entered into in 1994 or 
     1995,

     the amendments made by this section shall not apply to 
     qualified interest paid or accrued on such indebtedness after 
     October 13, 1995, and before January 1, 1999.
       (B) Qualified interest.--For purposes of subparagraph (A), 
     the qualified interest with respect to any indebtedness for 
     any month is the amount of interest which would be paid or 
     accrued for such month on such indebtedness if--
       (i) in the case of any interest paid or accrued after 
     December 31, 1995, indebtedness with respect to no more than 
     20,000 insured individuals were taken into account, and
       (ii) the lesser of the following rates of interest were 
     used for such month:

       (I) The rate of interest specified under the terms of the 
     indebtedness as in effect on October 13, 1995 (and without 
     regard to modification of such terms after such date).
       (II) The applicable percentage rate of interest described 
     as Moody's Corporate Bond Yield Average-Monthly Average 
     Corporates as published by Moody's Investors Service, Inc., 
     or any successor thereto, for such month.

     For purposes of clause (i), all persons treated as a single 
     employer under subsection (a) or (b) of section 52 of the 
     Internal Revenue Code of 1986 or subsection (m) or (o) of 
     section 414 of such Code shall be treated as one person.
       (C) Applicable percentage.--For purposes of subparagraph 
     (B), the applicable percentage is as follows:

                                                     The percentage is:
    1995...................................................100 percent 
    1996....................................................90 percent 
    1997....................................................80 percent 
    1998....................................................70 percent.

       (3) Special rule for grandfathered contracts.--This section 
     shall not apply to any contract purchased on or before June 
     20, 1986, except that section 264(d)(2) of the Internal 
     Revenue Code of 1986 shall apply to interest paid or accrued 
     after October 13, 1995.
       (d) Spread of Income Inclusion on Surrender, Etc. of 
     Contracts.--
       (1) In general.--If any amount is received under any life 
     insurance policy or endowment or annuity contract described 
     in paragraph (4) of section 264(a) of the Internal Revenue 
     Code of 1986--
       (A) on the complete surrender, redemption, or maturity of 
     such policy or contract during calendar year 1996, 1997, or 
     1998, or
       (B) in full discharge during any such calendar year of the 
     obligation under the policy or contract which is in the 
     nature of a refund of the consideration paid for the policy 
     or contract,

     then (in lieu of any other inclusion in gross income) such 
     amount shall be includible in gross income ratably over the 
     4-taxable year period beginning with the taxable year such 
     amount would (but for this paragraph) be includible. The 
     preceding sentence shall only apply to the extent the amount 
     is includible in gross income for the taxable year in which 
     the event described in subparagraph (A) or (B) occurs.
       (2) Special rules for applying section 264.--A contract 
     shall not be treated as--
       (A) failing to meet the requirement of section 264(c)(1) of 
     the Internal Revenue Code of 1986, or
       (B) a single premium contract under section 264(b)(1) of 
     such Code,

     solely by reason of an occurrence described in subparagraph 
     (A) or (B) of paragraph (1) of this subsection or solely by 
     reason of no additional premiums being received under the 
     contract by reason of a lapse occurring after October 13, 
     1995.
       (3) Special rule for deferred acquisition costs.--In the 
     case of the occurrence of any event described in subparagraph 
     (A) or (B) of paragraph (1) of this subsection with respect 
     to any policy or contract--
       (A) section 848 of the Internal Revenue Code of 1986 shall 
     not apply to the unamortized balance (if any) of the 
     specified policy acquisition expenses attributable to such 
     policy or contract immediately before the insurance company's 
     taxable year in which such event occurs, and
       (B) there shall be allowed as a deduction to such company 
     for such taxable year under chapter 1 of such Code an amount 
     equal to such unamortized balance.
            TITLE V--HEALTH CARE FRAUD AND ABUSE PREVENTION

     SEC. 500. AMENDMENTS.

       Except as otherwise specifically provided, whenever in this 
     title an amendment is expressed in terms of an amendment to 
     or repeal of a section or other provision, the reference 
     shall be considered to be made to that section or other 
     provision of the Social Security Act.
              Subtitle A--Fraud and Abuse Control Program

     SEC. 501. FRAUD AND ABUSE CONTROL PROGRAM.

       (a) Establishment of Program.--Title XI (42 U.S.C. 1301 et 
     seq.) is amended by inserting after section 1128B the 
     following new section:


                   ``FRAUD AND ABUSE CONTROL PROGRAM

     ``Sec. 1128C. (a) Establishment of Program.--
       ``(1) In general.--Not later than January 1, 1997, the 
     Secretary, acting through the Office of the Inspector General 
     of the Department of Health and Human Services, and the 
     Attorney General shall establish a program--
       ``(A) to coordinate Federal, State, and local law 
     enforcement programs to control fraud and abuse with respect 
     to health plans,
       ``(B) to conduct investigations, audits, evaluations, and 
     inspections relating to the delivery of and payment for 
     health care in the United States,
       ``(C) to facilitate the enforcement of the provisions of 
     sections 1128, 1128A, and 1128B and other statutes applicable 
     to health care fraud and abuse,
       ``(D) to provide for the modification and establishment of 
     safe harbors and to issue interpretative rulings and special 
     fraud alerts pursuant to section 1128D, and
       ``(E) to provide for the reporting and disclosure of 
     certain final adverse actions against health care providers, 
     suppliers, or practitioners pursuant to the data collection 
     system established under section 1128E.
       ``(2) Coordination with health plans.--In carrying out the 
     program established under paragraph (1), the Secretary and 
     the Attorney General shall consult with, and arrange for the 
     sharing of data with representatives of health plans.
       ``(3) Guidelines.--
       ``(A) In general.--The Secretary and the Attorney General 
     shall issue guidelines to carry out the program under 
     paragraph (1). The provisions of sections 553, 556, and 557 
     of title 5, United States Code, shall not apply in the 
     issuance of such guidelines.
       ``(B) Information guidelines.--
       ``(i) In general.--Such guidelines shall include guidelines 
     relating to the furnishing of information by health plans, 
     providers, and others to enable the Secretary and the 
     Attorney General to carry out the program (including 
     coordination with health plans under paragraph (2)).
       ``(ii) Confidentiality.--Such guidelines shall include 
     procedures to assure that such information is provided and 
     utilized in a manner that appropriately protects the 
     confidentiality of the information and the privacy of 
     individuals receiving health care services and items.
       ``(iii) Qualified immunity for providing information.--The 
     provisions of section 1157(a) (relating to limitation on 
     liability) shall apply to a person providing information to 
     the Secretary or the Attorney General in conjunction with 
     their performance of duties under this section.
       ``(4) Ensuring access to documentation.--The Inspector 
     General of the Department of Health and Human Services is 
     authorized to exercise such authority described in paragraphs 
     (3) through (9) of section 6 of the Inspector General Act of 
     1978 (5 U.S.C. App.) as necessary with respect to the 
     activities under the fraud and abuse control program 
     established under this subsection.
       ``(5) Authority of inspector general.--Nothing in this Act 
     shall be construed to diminish the authority of any Inspector 
     General, including such authority as provided in the 
     Inspector General Act of 1978 (5 U.S.C. App.).
       ``(b) Additional Use of Funds by Inspector General.--
       ``(1) Reimbursements for investigations.--The Inspector 
     General of the Department of Health and Human Services is 
     authorized to receive and retain for current use 
     reimbursement for the costs of conducting investigations and 
     audits and for monitoring compliance plans when such costs 
     are ordered by a court, voluntarily agreed to by the payor, 
     or otherwise.
       ``(2) Crediting.--Funds received by the Inspector General 
     under paragraph (1) as reimbursement for costs of conducting 
     investigations shall be deposited to the credit of the 
     appropriation from which initially paid, or to appropriations 
     for similar purposes currently available at the time of 
     deposit, and shall remain available for obligation for 1 year 
     from the date of the deposit of such funds.
       ``(c) Health Plan Defined.--For purposes of this section, 
     the term `health plan' means a plan or program that provides 
     health benefits, whether directly, through insurance, or 
     otherwise, and includes--
       ``(1) a policy of health insurance;
       ``(2) a contract of a service benefit organization; and
       ``(3) a membership agreement with a health maintenance 
     organization or other prepaid health plan.''.
       (b) Establishment of Health Care Fraud and Abuse Control 
     Account in Federal Hospital Insurance Trust Fund.--Section 
     1817 (42 U.S.C. 1395i) is amended by adding at the end the 
     following new subsection:
       ``(k) Health Care Fraud and Abuse Control Account.--
       ``(1) Establishment.--There is hereby established in the 
     Trust Fund an expenditure account to be known as the `Health 
     Care Fraud and Abuse Control Account' (in this subsection 
     referred to as the `Account').
       ``(2) Appropriated amounts to trust fund.--

[[Page S3854]]

       ``(A) In general.--There are hereby appropriated to the 
     Trust Fund--
       ``(i) such gifts and bequests as may be made as provided in 
     subparagraph (B);
       ``(ii) such amounts as may be deposited in the Trust Fund 
     as provided in sections 541(b) and 542(c) of the Health 
     Insurance Reform Act of 1996, and title XI; and
       ``(iii) such amounts as are transferred to the Trust Fund 
     under subparagraph (C).
       ``(B) Authorization to accept gifts.--The Trust Fund is 
     authorized to accept on behalf of the United States money 
     gifts and bequests made unconditionally to the Trust Fund, 
     for the benefit of the Account or any activity financed 
     through the Account.
       ``(C) Transfer of amounts.--The Managing Trustee shall 
     transfer to the Trust Fund, under rules similar to the rules 
     in section 9601 of the Internal Revenue Code of 1986, an 
     amount equal to the sum of the following:
       ``(i) Criminal fines recovered in cases involving a Federal 
     health care offense (as defined in section 982(a)(6)(B) of 
     title 18, United States Code).
       ``(ii) Civil monetary penalties and assessments imposed in 
     health care cases, including amounts recovered under titles 
     XI, XVIII, and XXI, and chapter 38 of title 31, United States 
     Code (except as otherwise provided by law).
       ``(iii) Amounts resulting from the forfeiture of property 
     by reason of a Federal health care offense.
       ``(iv) Penalties and damages obtained and otherwise 
     creditable to miscellaneous receipts of the general fund of 
     the Treasury obtained under sections 3729 through 3733 of 
     title 31, United States Code (known as the False Claims Act), 
     in cases involving claims related to the provision of health 
     care items and services (other than funds awarded to a 
     relator, for restitution or otherwise authorized by law).
       ``(3) Appropriated amounts to account for fraud and abuse 
     control program, etc.--
       ``(A) Departments of health and human services and 
     justice.--
       ``(i) In general.--There are hereby appropriated to the 
     Account from the Trust Fund such sums as the Secretary and 
     the Attorney General certify are necessary to carry out the 
     purposes described in subparagraph (C), to be available 
     without further appropriation, in an amount not to exceed--

       ``(I) for fiscal year 1997, $104,000,000, and
       ``(II) for each of the fiscal years 1998 through 2003, the 
     limit for the preceding fiscal year, increased by 15 percent; 
     and
       ``(III) for each fiscal year after fiscal year 2003, the 
     limit for fiscal year 2003.

       ``(ii) Medicare and medicaid activities.--For each fiscal 
     year, of the amount appropriated in clause (i), the following 
     amounts shall be available only for the purposes of the 
     activities of the Office of the Inspector General of the 
     Department of Health and Human Services with respect to the 
     medicare and medicaid programs--

       ``(I) for fiscal year 1997, not less than $60,000,000 and 
     not more than $70,000,000;
       ``(II) for fiscal year 1998, not less than $80,000,000 and 
     not more than $90,000,000;
       ``(III) for fiscal year 1999, not less than $90,000,000 and 
     not more than $100,000,000;
       ``(IV) for fiscal year 2000, not less than $110,000,000 and 
     not more than $120,000,000;
       ``(V) for fiscal year 2001, not less than $120,000,000 and 
     not more than $130,000,000;
       ``(VI) for fiscal year 2002, not less than $140,000,000 and 
     not more than $150,000,000; and
       ``(VII) for each fiscal year after fiscal year 2002, not 
     less than $150,000,000 and not more than $160,000,000.

       ``(B) Federal bureau of investigation.--There are hereby 
     appropriated from the general fund of the United States 
     Treasury and hereby appropriated to the Account for transfer 
     to the Federal Bureau of Investigation to carry out the 
     purposes described in subparagraph (C)(i), to be available 
     without further appropriation--
       ``(i) for fiscal year 1997, $47,000,000;
       ``(ii) for fiscal year 1998, $56,000,000;
       ``(iii) for fiscal year 1999, $66,000,000;
       ``(iv) for fiscal year 2000, $76,000,000;
       ``(v) for fiscal year 2001, $88,000,000;
       ``(vi) for fiscal year 2002, $101,000,000; and
       ``(vii) for each fiscal year after fiscal year 2002, 
     $114,000,000.
       ``(C) Use of funds.--The purposes described in this 
     subparagraph are to cover the costs (including equipment, 
     salaries and benefits, and travel and training) of the 
     administration and operation of the health care fraud and 
     abuse control program established under section 1128C(a), 
     including the costs of--
       ``(i) prosecuting health care matters (through criminal, 
     civil, and administrative proceedings);
       ``(ii) investigations;
       ``(iii) financial and performance audits of health care 
     programs and operations;
       ``(iv) inspections and other evaluations; and
       ``(v) provider and consumer education regarding compliance 
     with the provisions of title XI.
       ``(4) Appropriated amounts to account for medicare 
     integrity program.--
       ``(A) In general.--There are hereby appropriated to the 
     Account from the Trust Fund for each fiscal year such amounts 
     as are necessary to carry out the Medicare Integrity Program 
     under section 1893, subject to subparagraph (B) and to be 
     available without further appropriation.
       ``(B) Amounts specified.--The amount appropriated under 
     subparagraph (A) for a fiscal year is as follows:
       ``(i) For fiscal year 1997, such amount shall be not less 
     than $430,000,000 and not more than $440,000,000.
       ``(ii) For fiscal year 1998, such amount shall be not less 
     than $490,000,000 and not more than $500,000,000.
       ``(iii) For fiscal year 1999, such amount shall be not less 
     than $550,000,000 and not more than $560,000,000.
       ``(iv) For fiscal year 2000, such amount shall be not less 
     than $620,000,000 and not more than $630,000,000.
       ``(v) For fiscal year 2001, such amount shall be not less 
     than $670,000,000 and not more than $680,000,000.
       ``(vi) For fiscal year 2002, such amount shall be not less 
     than $690,000,000 and not more than $700,000,000.
       ``(vii) For each fiscal year after fiscal year 2002, such 
     amount shall be not less than $710,000,000 and not more than 
     $720,000,000.
       ``(5) Annual report.--The Secretary and the Attorney 
     General shall submit jointly an annual report to Congress on 
     the amount of revenue which is generated and disbursed, and 
     the justification for such disbursements, by the Account in 
     each fiscal year.''.

     SEC. 502. MEDICARE INTEGRITY PROGRAM.

       (a) Establishment of Medicare Integrity Program.--Title 
     XVIII is amended by adding at the end the following new 
     section:


                      ``MEDICARE INTEGRITY PROGRAM

       ``Sec. 1893. (a) Establishment of Program.--There is hereby 
     established the Medicare Integrity Program (in this section 
     referred to as the `Program') under which the Secretary shall 
     promote the integrity of the medicare program by entering 
     into contracts in accordance with this section with eligible 
     private entities to carry out the activities described in 
     subsection (b).
       ``(b) Activities Described.--The activities described in 
     this subsection are as follows:
       ``(1) Review of activities of providers of services or 
     other individuals and entities furnishing items and services 
     for which payment may be made under this title (including 
     skilled nursing facilities and home health agencies), 
     including medical and utilization review and fraud review 
     (employing similar standards, processes, and technologies 
     used by private health plans, including equipment and 
     software technologies which surpass the capability of the 
     equipment and technologies used in the review of claims under 
     this title as of the date of the enactment of this section).
       ``(2) Audit of cost reports.
       ``(3) Determinations as to whether payment should not be, 
     or should not have been, made under this title by reason of 
     section 1862(b), and recovery of payments that should not 
     have been made.
       ``(4) Education of providers of services, beneficiaries, 
     and other persons with respect to payment integrity and 
     benefit quality assurance issues.
       ``(5) Developing (and periodically updating) a list of 
     items of durable medical equipment in accordance with section 
     1834(a)(15) which are subject to prior authorization under 
     such section.
       ``(c) Eligibility of Entities.--An entity is eligible to 
     enter into a contract under the Program to carry out any of 
     the activities described in subsection (b) if--
       ``(1) the entity has demonstrated capability to carry out 
     such activities;
       ``(2) in carrying out such activities, the entity agrees to 
     cooperate with the Inspector General of the Department of 
     Health and Human Services, the Attorney General of the United 
     States, and other law enforcement agencies, as appropriate, 
     in the investigation and deterrence of fraud and abuse in 
     relation to this title and in other cases arising out of such 
     activities;
       ``(3) the entity complies with such conflict of interest 
     standards as are generally applicable to Federal acquisition 
     and procurement;
       ``(4) the entity meets such other requirements as the 
     Secretary may impose; and
       ``(5) in the case of any contract entered into for years 
     prior to 2000, the entity has entered into an agreement under 
     section 1816 or a contract under section 1842.

     In the case of the activity described in subsection (b)(5), 
     an entity shall be deemed to be eligible to enter into a 
     contract under the Program to carry out the activity if the 
     entity is a carrier with a contract in effect under section 
     1842.
       ``(d) Process for Entering Into Contracts.--The Secretary 
     shall enter into contracts under the Program in accordance 
     with such procedures as the Secretary shall by regulation 
     establish, except that such procedures shall include the 
     following:
       ``(1) Procedures for identifying, evaluating, and resolving 
     organizational conflicts of interest that are generally 
     applicable to Federal acquisition and procurement.
       ``(2) Competitive procedures must be used when entering 
     into new contracts under this section, or at any other time 
     considered appropriate by the Secretary, except that the 
     Secretary may contract with entities that are carrying out 
     the activities described in this section pursuant to 
     agreements under section 1816 or contracts under section 1842 
     in effect on the date of the enactment of this section.
       ``(3) A contract under this section may be renewed without 
     regard to any provision of law requiring competition if the 
     contractor has met or exceeded the performance requirements 
     established in the current contract.
       ``(e) Limitation on Contractor Liability.--The Secretary 
     shall by regulation provide for the limitation of a 
     contractor's liability for actions taken to carry out a 
     contract under the Program, and such regulation shall, to the 
     extent the Secretary finds appropriate, employ the same or 
     comparable standards and other substantive and procedural 
     provisions as are contained in section 1157.''.
       (b) Elimination of FI and Carrier Responsibility for 
     Carrying Out Activities Subject to Program.--
       (1) Responsibilities of fiscal intermediaries under part 
     a.--Section 1816 (42 U.S.C. 1395h) is amended by adding at 
     the end the following new subsection:

[[Page S3855]]

       ``(l) No payment may be made for carrying out any activity 
     pursuant to an agreement under this section to the extent 
     that the activity is carried out pursuant to a contract under 
     the Medicare Integrity Program under section 1893.''.
       (2) Responsibilities of carriers under part b.--Section 
     1842(c) (42 U.S.C. 1395u(c)) is amended by adding at the end 
     the following new paragraph:
       ``(6) No payment may be made for carrying out any activity 
     pursuant to a contract under this subsection to the extent 
     that the activity is carried out pursuant to a contract under 
     the Medicare Integrity Program under section 1893. The 
     previous sentence shall not apply with respect to the 
     activity described in section 1893(b)(5) (relating to prior 
     authorization of certain items of durable medical equipment 
     under section 1834(a)(15)).''.

     SEC. 503. BENEFICIARY INCENTIVE PROGRAMS.

       (a) Clarification of Requirement to Provide Explanation of 
     Medicare Benefits.--The Secretary of Health and Human 
     Services (in this section referred to as the ``Secretary'') 
     shall provide an explanation of benefits under the medicare 
     program under title XVIII of the Social Security Act with 
     respect to each item or service for which payment may be made 
     under the program which is furnished to an individual, 
     without regard to whether or not a deductible or coinsurance 
     may be imposed against the individual with respect to the 
     item or service.
       (b) Program to Collect Information on Fraud and Abuse.--
       (1) Establishment of program.--Not later than 3 months 
     after the date of the enactment of this Act, the Secretary 
     shall establish a program under which the Secretary shall 
     encourage individuals to report to the Secretary information 
     on individuals and entities who are engaging or who have 
     engaged in acts or omissions which constitute grounds for the 
     imposition of a sanction under section 1128, section 1128A, 
     or section 1128B of the Social Security Act, or who have 
     otherwise engaged in fraud and abuse against the medicare 
     program for which there is a sanction provided under law. The 
     program shall discourage provision of, and not consider, 
     information which is frivolous or otherwise not relevant or 
     material to the imposition of such a sanction.
       (2) Payment of portion of amounts collected.--If an 
     individual reports information to the Secretary under the 
     program established under paragraph (1) which serves as the 
     basis for the collection by the Secretary or the Attorney 
     General of any amount of at least $100 (other than any amount 
     paid as a penalty under section 1128B of the Social Security 
     Act), the Secretary may pay a portion of the amount collected 
     to the individual (under procedures similar to those 
     applicable under section 7623 of the Internal Revenue Code of 
     1986 to payments to individuals providing information on 
     violations of such Code).
       (c) Program to Collect Information on Program Efficiency.--
       (1) Establishment of program.--Not later than 3 months 
     after the date of the enactment of this Act, the Secretary 
     shall establish a program under which the Secretary shall 
     encourage individuals to submit to the Secretary suggestions 
     on methods to improve the efficiency of the medicare program.
       (2) Payment of portion of program savings.--If an 
     individual submits a suggestion to the Secretary under the 
     program established under paragraph (1) which is adopted by 
     the Secretary and which results in savings to the program, 
     the Secretary may make a payment to the individual of such 
     amount as the Secretary considers appropriate.

     SEC. 504. APPLICATION OF CERTAIN HEALTH ANTI-FRAUD AND ABUSE 
                   SANCTIONS TO FRAUD AND ABUSE AGAINST FEDERAL 
                   HEALTH CARE PROGRAMS.

       (a) In General.--Section 1128B (42 U.S.C. 1320a-7b) is 
     amended as follows:
       (1) In the heading, by striking ``medicare or state health 
     care programs'' and inserting ``federal health care 
     programs''.
       (2) In subsection (a)(1), by striking ``a program under 
     title XVIII or a State health care program (as defined in 
     section 1128(h))'' and inserting ``a Federal health care 
     program''.
       (3) In subsection (a)(5), by striking ``a program under 
     title XVIII or a State health care program'' and inserting 
     ``a Federal health care program''.
       (4) In the second sentence of subsection (a)--
       (A) by striking ``a State plan approved under title XIX'' 
     and inserting ``a Federal health care program'', and
       (B) by striking ``the State may at its option 
     (notwithstanding any other provision of that title or of such 
     plan)'' and inserting ``the administrator of such program may 
     at its option (notwithstanding any other provision of such 
     program)''.
       (5) In subsection (b), by striking ``title XVIII or a State 
     health care program'' each place it appears and inserting ``a 
     Federal health care program''.
       (6) In subsection (c), by inserting ``(as defined in 
     section 1128(h))'' after ``a State health care program''.
       (7) By adding at the end the following new subsection:
       ``(f) For purposes of this section, the term `Federal 
     health care program' means--
       ``(1) any plan or program that provides health benefits, 
     whether directly, through insurance, or otherwise, which is 
     funded directly, in whole or in part, by the United States 
     Government (other than the health insurance program under 
     chapter 89 of title 5, United States Code); or
       ``(2) any State health care program, as defined in section 
     1128(h).''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 1997.

     SEC. 505. GUIDANCE REGARDING APPLICATION OF HEALTH CARE FRAUD 
                   AND ABUSE SANCTIONS.

       Title XI (42 U.S.C. 1301 et seq.), as amended by section 
     501, is amended by inserting after section 1128C the 
     following new section:


    ``GUIDANCE REGARDING APPLICATION OF HEALTH CARE FRAUD AND ABUSE 
                               SANCTIONS

       ``Sec. 1128D. (a) Solicitation and Publication of 
     Modifications to Existing Safe Harbors and New Safe 
     Harbors.--
       ``(1) In general.--
       ``(A) Solicitation of proposals for safe harbors.--Not 
     later than January 1, 1997, and not less than annually 
     thereafter, the Secretary shall publish a notice in the 
     Federal Register soliciting proposals, which will be accepted 
     during a 60-day period, for--
       ``(i) modifications to existing safe harbors issued 
     pursuant to section 14(a) of the Medicare and Medicaid 
     Patient and Program Protection Act of 1987 (42 U.S.C. 1320a-
     7b note);
       ``(ii) additional safe harbors specifying payment practices 
     that shall not be treated as a criminal offense under section 
     1128B(b) and shall not serve as the basis for an exclusion 
     under section 1128(b)(7);
       ``(iii) interpretive rulings to be issued pursuant to 
     subsection (b); and
       ``(iv) special fraud alerts to be issued pursuant to 
     subsection (c).
       ``(B) Publication of proposed modifications and proposed 
     additional safe harbors.--After considering the proposals 
     described in clauses (i) and (ii) of subparagraph (A), the 
     Secretary, in consultation with the Attorney General, shall 
     publish in the Federal Register proposed modifications to 
     existing safe harbors and proposed additional safe harbors, 
     if appropriate, with a 60-day comment period. After 
     considering any public comments received during this period, 
     the Secretary shall issue final rules modifying the existing 
     safe harbors and establishing new safe harbors, as 
     appropriate.
       ``(C) Report.--The Inspector General of the Department of 
     Health and Human Services (in this section referred to as the 
     `Inspector General') shall, in an annual report to Congress 
     or as part of the year-end semiannual report required by 
     section 5 of the Inspector General Act of 1978 (5 U.S.C. 
     App.), describe the proposals received under clauses (i) and 
     (ii) of subparagraph (A) and explain which proposals were 
     included in the publication described in subparagraph (B), 
     which proposals were not included in that publication, and 
     the reasons for the rejection of the proposals that were not 
     included.
       ``(2) Criteria for modifying and establishing safe 
     harbors.--In modifying and establishing safe harbors under 
     paragraph (1)(B), the Secretary may consider the extent to 
     which providing a safe harbor for the specified payment 
     practice may result in any of the following:
       ``(A) An increase or decrease in access to health care 
     services.
       ``(B) An increase or decrease in the quality of health care 
     services.
       ``(C) An increase or decrease in patient freedom of choice 
     among health care providers.
       ``(D) An increase or decrease in competition among health 
     care providers.
       ``(E) An increase or decrease in the ability of health care 
     facilities to provide services in medically underserved areas 
     or to medically underserved populations.
       ``(F) An increase or decrease in the cost to Federal health 
     care programs (as defined in section 1128B(f)).
       ``(G) An increase or decrease in the potential 
     overutilization of health care services.
       ``(H) The existence or nonexistence of any potential 
     financial benefit to a health care professional or provider 
     which may vary based on their decisions of--
       ``(i) whether to order a health care item or service; or
       ``(ii) whether to arrange for a referral of health care 
     items or services to a particular practitioner or provider.
       ``(I) Any other factors the Secretary deems appropriate in 
     the interest of preventing fraud and abuse in Federal health 
     care programs (as so defined).
       ``(b) Interpretive Rulings.--
       ``(1) In general.--
       ``(A) Request for interpretive ruling.--Any person may 
     present, at any time, a request to the Inspector General for 
     a statement of the Inspector General's current interpretation 
     of the meaning of a specific aspect of the application of 
     sections 1128A and 1128B (in this section referred to as an 
     `interpretive ruling').
       ``(B) Issuance and effect of interpretive ruling.--
       ``(i) In general.--If appropriate, the Inspector General 
     shall in consultation with the Attorney General, issue an 
     interpretive ruling not later than 90 days after receiving a 
     request described in subparagraph (A). Interpretive rulings 
     shall not have the force of law and shall be treated as an 
     interpretive rule within the meaning of section 553(b) of 
     title 5, United States Code. All interpretive rulings issued 
     pursuant to this clause shall be published in the Federal 
     Register or otherwise made available for public inspection.
       ``(ii) Reasons for denial.--If the Inspector General does 
     not issue an interpretive ruling in response to a request 
     described in subparagraph (A), the Inspector General shall 
     notify the requesting party of such decision not later than 
     60 days after receiving such a request and shall identify the 
     reasons for such decision.
       ``(2) Criteria for interpretive rulings.--
       ``(A) In general.--In determining whether to issue an 
     interpretive ruling under paragraph (1)(B), the Inspector 
     General may consider--
       ``(i) whether and to what extent the request identifies an 
     ambiguity within the language of the statute, the existing 
     safe harbors, or previous interpretive rulings; and
       ``(ii) whether the subject of the requested interpretive 
     ruling can be adequately addressed by

[[Page S3856]]

     interpretation of the language of the statute, the existing 
     safe harbor rules, or previous interpretive rulings, or 
     whether the request would require a substantive ruling (as 
     defined in section 552 of title 5, United States Code) not 
     authorized under this subsection.
       ``(B) No rulings on factual issues.--The Inspector General 
     shall not give an interpretive ruling on any factual issue, 
     including the intent of the parties or the fair market value 
     of particular leased space or equipment.
       ``(c) Special Fraud Alerts.--
       ``(1) In general.--
       ``(A) Request for special fraud alerts.--Any person may 
     present, at any time, a request to the Inspector General for 
     a notice which informs the public of practices which the 
     Inspector General considers to be suspect or of particular 
     concern under the medicare program or a State health care 
     program, as defined in section 1128(h) (in this subsection 
     referred to as a `special fraud alert').
       ``(B) Issuance and publication of special fraud alerts.--
     Upon receipt of a request described in subparagraph (A), the 
     Inspector General shall investigate the subject matter of the 
     request to determine whether a special fraud alert should be 
     issued. If appropriate, the Inspector General shall issue a 
     special fraud alert in response to the request. All special 
     fraud alerts issued pursuant to this subparagraph shall be 
     published in the Federal Register.
       ``(2) Criteria for special fraud alerts.--In determining 
     whether to issue a special fraud alert upon a request 
     described in paragraph (1), the Inspector General may 
     consider--
       ``(A) whether and to what extent the practices that would 
     be identified in the special fraud alert may result in any of 
     the consequences described in subsection (a)(2); and
       ``(B) the volume and frequency of the conduct that would be 
     identified in the special fraud alert.''.
     Subtitle B--Revisions to Current Sanctions for Fraud and Abuse

     SEC. 511. MANDATORY EXCLUSION FROM PARTICIPATION IN MEDICARE 
                   AND STATE HEALTH CARE PROGRAMS.

       (a) Individual Convicted of Felony Relating to Health Care 
     Fraud.--
       (1) In general.--Section 1128(a) (42 U.S.C. 1320a-7(a)) is 
     amended by adding at the end the following new paragraph:
       ``(3) Felony conviction relating to health care fraud.--Any 
     individual or entity that has been convicted after the date 
     of the enactment of the Health Insurance Reform Act of 1996, 
     under Federal or State law, in connection with the delivery 
     of a health care item or service or with respect to any act 
     or omission in a health care program (other than those 
     specifically described in paragraph (1)) operated by or 
     financed in whole or in part by any Federal, State, or local 
     government agency, of a criminal offense consisting of a 
     felony relating to fraud, theft, embezzlement, breach of 
     fiduciary responsibility, or other financial misconduct.''.
       (2) Conforming amendment.--Paragraph (1) of section 1128(b) 
     (42 U.S.C. 1320a-7(b)) is amended to read as follows:
       ``(1) Conviction relating to fraud.--Any individual or 
     entity that has been convicted after the date of the 
     enactment of the Health Insurance Reform Act of 1996, under 
     Federal or State law--
       ``(A) of a criminal offense consisting of a misdemeanor 
     relating to fraud, theft, embezzlement, breach of fiduciary 
     responsibility, or other financial misconduct--
       ``(i) in connection with the delivery of a health care item 
     or service, or
       ``(ii) with respect to any act or omission in a health care 
     program (other than those specifically described in 
     subsection (a)(1)) operated by or financed in whole or in 
     part by any Federal, State, or local government agency; or
       ``(B) of a criminal offense relating to fraud, theft, 
     embezzlement, breach of fiduciary responsibility, or other 
     financial misconduct with respect to any act or omission in a 
     program (other than a health care program) operated by or 
     financed in whole or in part by any Federal, State, or local 
     government agency.''.
       (b) Individual Convicted of Felony Relating to Controlled 
     Substance.--
       (1) In general.--Section 1128(a) (42 U.S.C. 1320a-7(a)), as 
     amended by subsection (a), is amended by adding at the end 
     the following new paragraph:
       ``(4) Felony conviction relating to controlled substance.--
     Any individual or entity that has been convicted after the 
     date of the enactment of the Health Insurance Reform Act of 
     1996, under Federal or State law, of a criminal offense 
     consisting of a felony relating to the unlawful manufacture, 
     distribution, prescription, or dispensing of a controlled 
     substance.''.
       (2) Conforming amendment.--Section 1128(b)(3) (42 U.S.C. 
     1320a-7(b)(3)) is amended--
       (A) in the heading, by striking ``Conviction'' and 
     inserting ``Misdemeanor conviction''; and
       (B) by striking ``criminal offense'' and inserting 
     ``criminal offense consisting of a misdemeanor''.

     SEC. 512. ESTABLISHMENT OF MINIMUM PERIOD OF EXCLUSION FOR 
                   CERTAIN INDIVIDUALS AND ENTITIES SUBJECT TO 
                   PERMISSIVE EXCLUSION FROM MEDICARE AND STATE 
                   HEALTH CARE PROGRAMS.

       Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended by 
     adding at the end the following new subparagraphs:
       ``(D) In the case of an exclusion of an individual or 
     entity under paragraph (1), (2), or (3) of subsection (b), 
     the period of the exclusion shall be 3 years, unless the 
     Secretary determines in accordance with published regulations 
     that a shorter period is appropriate because of mitigating 
     circumstances or that a longer period is appropriate because 
     of aggravating circumstances.
       ``(E) In the case of an exclusion of an individual or 
     entity under subsection (b)(4) or (b)(5), the period of the 
     exclusion shall not be less than the period during which the 
     individual's or entity's license to provide health care is 
     revoked, suspended, or surrendered, or the individual or the 
     entity is excluded or suspended from a Federal or State 
     health care program.
       ``(F) In the case of an exclusion of an individual or 
     entity under subsection (b)(6)(B), the period of the 
     exclusion shall be not less than 1 year.''.

     SEC. 513. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH OWNERSHIP 
                   OR CONTROL INTEREST IN SANCTIONED ENTITIES.

       Section 1128(b) (42 U.S.C. 1320a-7(b)) is amended by adding 
     at the end the following new paragraph:
       ``(15) Individuals controlling a sanctioned entity.--(A) 
     Any individual--
       ``(i) who has a direct or indirect ownership or control 
     interest in a sanctioned entity and who knows or should know 
     (as defined in section 1128A(i)(6)) of the action 
     constituting the basis for the conviction or exclusion 
     described in subparagraph (B); or
       ``(ii) who is an officer or managing employee (as defined 
     in section 1126(b)) of such an entity.
       ``(B) For purposes of subparagraph (A), the term 
     `sanctioned entity' means an entity--
       ``(i) that has been convicted of any offense described in 
     subsection (a) or in paragraph (1), (2), or (3) of this 
     subsection; or
       ``(ii) that has been excluded from participation under a 
     program under title XVIII or under a State health care 
     program.''.

     SEC. 514. SANCTIONS AGAINST PRACTITIONERS AND PERSONS FOR 
                   FAILURE TO COMPLY WITH STATUTORY OBLIGATIONS.

       (a) Minimum Period of Exclusion for Practitioners and 
     Persons Failing To Meet Statutory Obligations.--
       (1) In general.--The second sentence of section 1156(b)(1) 
     (42 U.S.C. 1320c-5(b)(1)) is amended by striking ``may 
     prescribe)'' and inserting ``may prescribe, except that such 
     period may not be less than 1 year)''.
       (2) Conforming amendment.--Section 1156(b)(2) (42 U.S.C. 
     1320c-5(b)(2)) is amended by striking ``shall remain'' and 
     inserting ``shall (subject to the minimum period specified in 
     the second sentence of paragraph (1)) remain''.
       (b) Repeal of ``Unwilling or Unable'' Condition for 
     Imposition of Sanction.--Section 1156(b)(1) (42 U.S.C. 1320c-
     5(b)(1)) is amended--
       (1) in the second sentence, by striking ``and determines'' 
     and all that follows through ``such obligations,''; and
       (2) by striking the third sentence.

     SEC. 515. INTERMEDIATE SANCTIONS FOR MEDICARE HEALTH 
                   MAINTENANCE ORGANIZATIONS.

       (a) Application of Intermediate Sanctions for any Program 
     Violations.--
       (1) In general.--Section 1876(i)(1) (42 U.S.C. 
     1395mm(i)(1)) is amended by striking ``the Secretary may 
     terminate'' and all that follows and inserting ``in 
     accordance with procedures established under paragraph (9), 
     the Secretary may at any time terminate any such contract or 
     may impose the intermediate sanctions described in paragraph 
     (6)(B) or (6)(C) (whichever is applicable) on the eligible 
     organization if the Secretary determines that the 
     organization--
       ``(A) has failed substantially to carry out the contract;
       ``(B) is carrying out the contract in a manner 
     substantially inconsistent with the efficient and effective 
     administration of this section; or
       ``(C) no longer substantially meets the applicable 
     conditions of subsections (b), (c), (e), and (f).''.
       (2) Other intermediate sanctions for miscellaneous program 
     violations.--Section 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is 
     amended by adding at the end the following new subparagraph:
       ``(C) In the case of an eligible organization for which the 
     Secretary makes a determination under paragraph (1) the basis 
     of which is not described in subparagraph (A), the Secretary 
     may apply the following intermediate sanctions:
       ``(i) Civil money penalties of not more than $25,000 for 
     each determination under paragraph (1) if the deficiency that 
     is the basis of the determination has directly adversely 
     affected (or has the substantial likelihood of adversely 
     affecting) an individual covered under the organization's 
     contract.
       ``(ii) Civil money penalties of not more than $10,000 for 
     each week beginning after the initiation of procedures by the 
     Secretary under paragraph (9) during which the deficiency 
     that is the basis of a determination under paragraph (1) 
     exists.
       ``(iii) Suspension of enrollment of individuals under this 
     section after the date the Secretary notifies the 
     organization of a determination under paragraph (1) and until 
     the Secretary is satisfied that the deficiency that is the 
     basis for the determination has been corrected and is not 
     likely to recur.''.
       (3) Procedures for imposing sanctions.--Section 1876(i) (42 
     U.S.C. 1395mm(i)) is amended by adding at the end the 
     following new paragraph:
       ``(9) The Secretary may terminate a contract with an 
     eligible organization under this section or may impose the 
     intermediate sanctions described in paragraph (6) on the 
     organization in accordance with formal investigation and 
     compliance procedures established by the Secretary under 
     which--
       ``(A) the Secretary first provides the organization with 
     the reasonable opportunity to develop and implement a 
     corrective action plan to correct the deficiencies that were 
     the basis of the Secretary's determination under paragraph 
     (1) and the organization fails to develop or implement such a 
     plan;
       ``(B) in deciding whether to impose sanctions, the 
     Secretary considers aggravating factors such

[[Page S3857]]

     as whether an organization has a history of deficiencies or 
     has not taken action to correct deficiencies the Secretary 
     has brought to the organization's attention;
       ``(C) there are no unreasonable or unnecessary delays 
     between the finding of a deficiency and the imposition of 
     sanctions; and
       ``(D) the Secretary provides the organization with 
     reasonable notice and opportunity for hearing (including the 
     right to appeal an initial decision) before imposing any 
     sanction or terminating the contract.''.
       (4) Conforming amendments.--Section 1876(i)(6)(B) (42 
     U.S.C. 1395mm(i)(6)(B)) is amended by striking the second 
     sentence.
       (b) Agreements With Peer Review Organizations.--Section 
     1876(i)(7)(A) (42 U.S.C. 1395mm(i)(7)(A)) is amended by 
     striking ``an agreement'' and inserting ``a written 
     agreement''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to contract years beginning on or 
     after January 1, 1997.

     SEC. 516. ADDITIONAL EXCEPTIONS TO ANTI-KICKBACK PENALTIES 
                   FOR RISK-SHARING ARRANGEMENTS.

       (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-
     7b(b)(3)) is amended--
       (1) by striking ``and'' at the end of subparagraph (D);
       (2) by striking the period at the end of subparagraph (E) 
     and inserting ``; and''; and
       (3) by adding at the end the following new subparagraph:
       ``(F) any remuneration between an organization and an 
     individual or entity providing items or services pursuant to 
     a written agreement between the organization and the 
     individual or entity if the organization is an eligible 
     organization under section 1876, or if the written agreement 
     places the individual or entity at substantial financial risk 
     for the cost or utilization of the items or services, or a 
     combination thereof, which the individual or entity is 
     obligated to provide, whether through a withhold or 
     capitation, or other similar risk arrangements which places 
     the individual or entity at substantial financial risk.''.
       (b) Regulations.--Section 1128B(b) (42 U.S.C. 1320a-7b(b)) 
     is amended by adding at the end the following new paragraph:
       ``(4) The Secretary, in consultation with the Attorney 
     General, not later than 1 year after the date of enactment of 
     Health Insurance Reform Act of 1996, and not less than every 
     2 years thereafter, shall promulgate regulations to define 
     substantial financial risk as necessary to protect against 
     program or patient abuse.''.

     SEC. 517. EFFECTIVE DATE.

       Except as otherwise provided, the amendments made by this 
     subtitle shall take effect January 1, 1997.
        Subtitle C--Data Collection and Miscellaneous Provisions

     SEC. 521. ESTABLISHMENT OF THE HEALTH CARE FRAUD AND ABUSE 
                   DATA COLLECTION PROGRAM.

       (a) In General.--Title XI (42 U.S.C. 1301 et seq.), as 
     amended by sections 501 and 505, is amended by inserting 
     after section 1128D the following new section:


         ``HEALTH CARE FRAUD AND ABUSE DATA COLLECTION PROGRAM

       ``Sec. 1128E. (a) General Purpose.--Not later than January 
     1, 1997, the Secretary shall establish a national health care 
     fraud and abuse data collection program for the reporting of 
     final adverse actions (not including settlements in which no 
     findings of liability have been made) against health care 
     providers, suppliers, or practitioners as required by 
     subsection (b), with access as set forth in subsection (c).
       ``(b) Reporting of Information.--
       ``(1) In general.--Each Government agency and health plan 
     shall report any final adverse action (not including 
     settlements in which no findings of liability have been made) 
     taken against a health care provider, supplier, or 
     practitioner.
       ``(2) Information to be reported.--The information to be 
     reported under paragraph (1) includes:
       ``(A) The name and TIN (as defined in section 7701(a)(41) 
     of the Internal Revenue Code of 1986) of any health care 
     provider, supplier, or practitioner who is the subject of a 
     final adverse action.
       ``(B) The name (if known) of any health care entity with 
     which a health care provider, supplier, or practitioner is 
     affiliated or associated.
       ``(C) The nature of the final adverse action and whether 
     such action is on appeal.
       ``(D) A description of the acts or omissions and injuries 
     upon which the final adverse action was based, and such other 
     information as the Secretary determines by regulation is 
     required for appropriate interpretation of information 
     reported under this section.
       ``(3) Confidentiality.--In determining what information is 
     required, the Secretary shall include procedures to assure 
     that the privacy of individuals receiving health care 
     services is appropriately protected.
       ``(4) Timing and form of reporting.--The information 
     required to be reported under this subsection shall be 
     reported regularly (but not less often than monthly) and in 
     such form and manner as the Secretary prescribes. Such 
     information shall first be required to be reported on a date 
     specified by the Secretary.
       ``(5) To whom reported.--The information required to be 
     reported under this subsection shall be reported to the 
     Secretary.
       ``(c) Disclosure and Correction of Information.--
       ``(1) Disclosure.--With respect to the information about 
     final adverse actions (not including settlements in which no 
     findings of liability have been made) reported to the 
     Secretary under this section respecting a health care 
     provider, supplier, or practitioner, the Secretary shall, by 
     regulation, provide for--
       ``(A) disclosure of the information, upon request, to the 
     health care provider, supplier, or licensed practitioner, and
       ``(B) procedures in the case of disputed accuracy of the 
     information.
       ``(2) Corrections.--Each Government agency and health plan 
     shall report corrections of information already reported 
     about any final adverse action taken against a health care 
     provider, supplier, or practitioner, in such form and manner 
     that the Secretary prescribes by regulation.
       ``(d) Access to Reported Information.--
       ``(1) Availability.--The information in this database shall 
     be available to Federal and State government agencies and 
     health plans pursuant to procedures that the Secretary shall 
     provide by regulation.
       ``(2) Fees for disclosure.--The Secretary may establish or 
     approve reasonable fees for the disclosure of information in 
     this database (other than with respect to requests by Federal 
     agencies). The amount of such a fee shall be sufficient to 
     recover the full costs of operating the database. Such fees 
     shall be available to the Secretary or, in the Secretary's 
     discretion to the agency designated under this section to 
     cover such costs.
       ``(e) Protection From Liability for Reporting.--No person 
     or entity, including the agency designated by the Secretary 
     in subsection (b)(5) shall be held liable in any civil action 
     with respect to any report made as required by this section, 
     without knowledge of the falsity of the information contained 
     in the report.
       ``(f) Coordination With National Practitioner Data Bank.--
     The Secretary shall implement this section in such a manner 
     as to avoid duplication with the reporting requirements 
     established for the National Practitioner Data Bank under the 
     Health Care Quality Improvement Act of 1986 (42 U.S.C. 11101 
     et seq.).
       ``(g) Definitions and Special Rules.--For purposes of this 
     section:
       ``(1) Final adverse action.--
       ``(A) In general.--The term `final adverse action' 
     includes:
       ``(i) Civil judgments against a health care provider, 
     supplier, or practitioner in Federal or State court related 
     to the delivery of a health care item or service.
       ``(ii) Federal or State criminal convictions related to the 
     delivery of a health care item or service.
       ``(iii) Actions by Federal or State agencies responsible 
     for the licensing and certification of health care providers, 
     suppliers, and licensed health care practitioners, 
     including--

       ``(I) formal or official actions, such as revocation or 
     suspension of a license (and the length of any such 
     suspension), reprimand, censure or probation,
       ``(II) any other loss of license or the right to apply for, 
     or renew, a license of the provider, supplier, or 
     practitioner, whether by operation of law, voluntary 
     surrender, non-renewability, or otherwise, or
       ``(III) any other negative action or finding by such 
     Federal or State agency that is publicly available 
     information.

       ``(iv) Exclusion from participation in Federal or State 
     health care programs due to program violations.
       ``(v) Any other adjudicated actions or decisions that the 
     Secretary shall establish by regulation.
       ``(B) Exception.--The term does not include any action with 
     respect to a malpractice claim.
       ``(2) Practitioner.--The terms `licensed health care 
     practitioner', `licensed practitioner', and `practitioner' 
     mean, with respect to a State, an individual who is licensed 
     or otherwise authorized by the State to provide health care 
     services (or any individual who, without authority holds 
     himself or herself out to be so licensed or authorized).
       ``(3) Government agency.--The term `Government agency' 
     shall include:
       ``(A) The Department of Justice.
       ``(B) The Department of Health and Human Services.
       ``(C) Any other Federal agency that either administers or 
     provides payment for the delivery of health care services, 
     including, but not limited to the Department of Defense and 
     the Veterans' Administration.
       ``(D) State law enforcement agencies.
       ``(E) State medicaid fraud control units.
       ``(F) Federal or State agencies responsible for the 
     licensing and certification of health care providers and 
     licensed health care practitioners.
       ``(4) Health plan.--The term `health plan' has the meaning 
     given such term by section 1128C(c).
       ``(5) Determination of conviction.--For purposes of 
     paragraph (1), the existence of a conviction shall be 
     determined under paragraph (4) of section 1128(i).''.
       (b) Improved Prevention in Issuance of Medicare Provider 
     Numbers.--Section 1842(r) (42 U.S.C. 1395u(r)) is amended by 
     adding at the end the following new sentence: ``Under such 
     system, the Secretary may impose appropriate fees on such 
     physicians to cover the costs of investigation and 
     recertification activities with respect to the issuance of 
     the identifiers.''.
                  Subtitle D--Civil Monetary Penalties

     SEC. 531. SOCIAL SECURITY ACT CIVIL MONETARY PENALTIES.

       (a) General Civil Monetary Penalties.--Section 1128A (42 
     U.S.C. 1320a-7a) is amended as follows:
       (1) In the third sentence of subsection (a), by striking 
     ``programs under title XVIII'' and inserting ``Federal health 
     care programs (as defined in section 1128B(f)(1))''.
       (2) In subsection (f)--
       (A) by redesignating paragraph (3) as paragraph (4); and

[[Page S3858]]

       (B) by inserting after paragraph (2) the following new 
     paragraph:
       ``(3) With respect to amounts recovered arising out of a 
     claim under a Federal health care program (as defined in 
     section 1128B(f)), the portion of such amounts as is 
     determined to have been paid by the program shall be repaid 
     to the program, and the portion of such amounts attributable 
     to the amounts recovered under this section by reason of the 
     amendments made by the Health Insurance Reform Act of 1996 
     (as estimated by the Secretary) shall be deposited into the 
     Federal Hospital Insurance Trust Fund pursuant to section 
     1817(k)(2)(C).''.
       (3) In subsection (i)--
       (A) in paragraph (2), by striking ``title V, XVIII, XIX, or 
     XX of this Act'' and inserting ``a Federal health care 
     program (as defined in section 1128B(f))'',
       (B) in paragraph (4), by striking ``a health insurance or 
     medical services program under title XVIII or XIX of this 
     Act'' and inserting ``a Federal health care program (as so 
     defined)'', and
       (C) in paragraph (5), by striking ``title V, XVIII, XIX, or 
     XX'' and inserting ``a Federal health care program (as so 
     defined)''.
       (4) By adding at the end the following new subsection:
       ``(m)(1) For purposes of this section, with respect to a 
     Federal health care program not contained in this Act, 
     references to the Secretary in this section shall be deemed 
     to be references to the Secretary or Administrator of the 
     department or agency with jurisdiction over such program and 
     references to the Inspector General of the Department of 
     Health and Human Services in this section shall be deemed to 
     be references to the Inspector General of the applicable 
     department or agency.
       ``(2)(A) The Secretary and Administrator of the departments 
     and agencies referred to in paragraph (1) may include in any 
     action pursuant to this section, claims within the 
     jurisdiction of other Federal departments or agencies as long 
     as the following conditions are satisfied:
       ``(i) The case involves primarily claims submitted to the 
     Federal health care programs of the department or agency 
     initiating the action.
       ``(ii) The Secretary or Administrator of the department or 
     agency initiating the action gives notice and an opportunity 
     to participate in the investigation to the Inspector General 
     of the department or agency with primary jurisdiction over 
     the Federal health care programs to which the claims were 
     submitted.
       ``(B) If the conditions specified in subparagraph (A) are 
     fulfilled, the Inspector General of the department or agency 
     initiating the action is authorized to exercise all powers 
     granted under the Inspector General Act of 1978 with respect 
     to the claims submitted to the other departments or agencies 
     to the same manner and extent as provided in that Act with 
     respect to claims submitted to such departments or 
     agencies.''.
       (b) Excluded Individual Retaining Ownership or Control 
     Interest in Participating Entity.--Section 1128A(a) (42 
     U.S.C. 1320a-7a(a)) is amended--
       (1) by striking ``or'' at the end of paragraph (1)(D);
       (2) by striking ``, or'' at the end of paragraph (2) and 
     inserting a semicolon;
       (3) by striking the semicolon at the end of paragraph (3) 
     and inserting ``; or''; and
       (4) by inserting after paragraph (3) the following new 
     paragraph:
       ``(4) in the case of a person who is not an organization, 
     agency, or other entity, is excluded from participating in a 
     program under title XVIII or a State health care program in 
     accordance with this subsection or under section 1128 and 
     who, at the time of a violation of this subsection--
       ``(i) retains a direct or indirect ownership or control 
     interest in an entity that is participating in a program 
     under title XVIII or a State health care program, and who 
     knows or should know of the action constituting the basis for 
     the exclusion; or
       ``(ii) is an officer or managing employee (as defined in 
     section 1126(b)) of such an entity;''.
       (c) Modifications of Amounts of Penalties and 
     Assessments.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)), as 
     amended by subsection (b), is amended in the matter following 
     paragraph (4)--
       (1) by striking ``$2,000'' and inserting ``$10,000'';
       (2) by inserting ``; in cases under paragraph (4), $10,000 
     for each day the prohibited relationship occurs'' after 
     ``false or misleading information was given''; and
       (3) by striking ``twice the amount'' and inserting ``3 
     times the amount''.
       (d) Claim for Item or Service Based on Incorrect Coding or 
     Medically Unnecessary Services.--Section 1128A(a)(1) (42 
     U.S.C. 1320a-7a(a)(1)), as amended by subsection (b), is 
     amended--
       (1) in subparagraph (A) by striking ``claimed,'' and 
     inserting ``claimed, including any person who engages in a 
     pattern or practice of presenting or causing to be presented 
     a claim for an item or service that is based on a code that 
     the person knows or should know will result in a greater 
     payment to the person than the code the person knows or 
     should know is applicable to the item or service actually 
     provided,'';
       (2) in subparagraph (C), by striking ``or'' at the end;
       (3) in subparagraph (D), by striking the semicolon and 
     inserting ``, or''; and
       (4) by inserting after subparagraph (D) the following new 
     subparagraph:
       ``(E) is for a medical or other item or service that a 
     person knows or should know is not medically necessary; or''.
       (e) Sanctions Against Practitioners and Persons for Failure 
     To Comply With Statutory Obligations.--Section 1156(b)(3) (42 
     U.S.C. 1320c-5(b)(3)) is amended by striking ``the actual or 
     estimated cost'' and inserting ``up to $10,000 for each 
     instance''.
       (f) Procedural Provisions.--Section 1876(i)(6) (42 U.S.C. 
     1395mm(i)(6)), as amended by section 515(a)(2), is amended by 
     adding at the end the following new subparagraph:
       ``(D) The provisions of section 1128A (other than 
     subsections (a) and (b)) shall apply to a civil money penalty 
     under subparagraph (B)(i) or (C)(i) in the same manner as 
     such provisions apply to a civil money penalty or proceeding 
     under section 1128A(a).''.
       (g) Prohibition Against Offering Inducements to Individuals 
     Enrolled Under Programs or Plans.--
       (1) Offer of remuneration.--Section 1128A(a) (42 U.S.C. 
     1320a-7a(a)), as amended by subsection (b), is amended--
       (A) by striking ``or'' at the end of paragraph (1)(D);
       (B) by striking the semicolon at the end of paragraph (4) 
     and inserting ``; or''; and
       (C) by inserting after paragraph (4) the following new 
     paragraph:
       ``(5) offers to or transfers remuneration to any individual 
     eligible for benefits under title XVIII of this Act, or under 
     a State health care program (as defined in section 1128(h)) 
     that such person knows or should know is likely to influence 
     such individual to order or receive from a particular 
     provider, practitioner, or supplier any item or service for 
     which payment may be made, in whole or in part, under title 
     XVIII, or a State health care program (as so defined);''.
       (2) Remuneration defined.--Section 1128A(i) (42 U.S.C. 
     1320a-7a(i)) is amended by adding the following new 
     paragraph:
       ``(6) The term `remuneration' includes the waiver of 
     coinsurance and deductible amounts (or any part thereof), and 
     transfers of items or services for free or for other than 
     fair market value. The term `remuneration' does not include--
       ``(A) the waiver of coinsurance and deductible amounts by a 
     person, if--
       ``(i) the waiver is not offered as part of any 
     advertisement or solicitation;
       ``(ii) the person does not routinely waive coinsurance or 
     deductible amounts; and
       ``(iii) the person--

       ``(I) waives the coinsurance and deductible amounts after 
     determining in good faith that the individual is in financial 
     need;
       ``(II) fails to collect coinsurance or deductible amounts 
     after making reasonable collection efforts; or
       ``(III) provides for any permissible waiver as specified in 
     section 1128B(b)(3) or in regulations issued by the 
     Secretary;

       ``(B) differentials in coinsurance and deductible amounts 
     as part of a benefit plan design as long as the differentials 
     have been disclosed in writing to all beneficiaries, third 
     party payers, and providers, to whom claims are presented and 
     as long as the differentials meet the standards as defined in 
     regulations promulgated by the Secretary not later than 180 
     days after the date of the enactment of the Health Insurance 
     Reform Act of 1996; or
       ``(C) incentives given to individuals to promote the 
     delivery of preventive care as determined by the Secretary in 
     regulations so promulgated.''.
       (h) Effective Date.--The amendments made by this section 
     shall take effect January 1, 1997.
                 Subtitle E--Amendments to Criminal Law

     SEC. 541. HEALTH CARE FRAUD.

       (a) In General.--
       (1)  Fines and imprisonment for health care fraud 
     violations.--Chapter 63 of title 18, United States Code, is 
     amended by adding at the end the following new section:

     ``Sec. 1347. Health care fraud

       ``Whoever knowingly and willfully executes, or attempts to 
     execute, a scheme or artifice--
       ``(1) to defraud any health care program, in connection 
     with the delivery of or payment for health care benefits, 
     items, or services; or
       ``(2) to obtain, by means of false or fraudulent pretenses, 
     representations, or promises, any of the money or property 
     owned by, or under the custody or control of, any health care 
     program in connection with the delivery of or payment for 
     health care benefits, items, or services;

     shall be fined under this title or imprisoned not more than 
     10 years, or both. If the violation results in serious bodily 
     injury (as defined in section 1365(g)(3) of this title), such 
     person may be imprisoned for any term of years.''.
       (2) Clerical amendment.--The table of sections at the 
     beginning of chapter 63 of title 18, United States Code, is 
     amended by adding at the end the following:

``1347. Health care fraud.''.

       (b) Criminal Fines Deposited in Federal Hospital Insurance 
     Trust Fund.--The Secretary of the Treasury shall deposit into 
     the Federal Hospital Insurance Trust Fund pursuant to section 
     1817(k)(2)(C) of the Social Security Act, as added by section 
     501(b), an amount equal to the criminal fines imposed under 
     section 1347 of title 18, United States Code (relating to 
     health care fraud).

     SEC. 542. FORFEITURES FOR FEDERAL HEALTH CARE OFFENSES.

       (a) In General.--Section 982(a) of title 18, United States 
     Code, is amended by adding after paragraph (5) the following 
     new paragraph:
       ``(6)(A) The court, in imposing sentence on a person 
     convicted of a Federal health care offense, shall order the 
     person to forfeit property, real or personal, that 
     constitutes or is derived, directly or indirectly, from gross 
     proceeds traceable to the commission of the offense.
       ``(B) For purposes of this paragraph, the term `Federal 
     health care offense' means a violation of, or a criminal 
     conspiracy to violate--
       ``(i) section 1347 of this title;
       ``(ii) section 1128B of the Social Security Act; and
       ``(iii) sections 287, 371, 664, 666, 669, 1001, 1027, 1341, 
     1343, 1920, or 1954 of this title if the violation or 
     conspiracy relates to health care fraud.''.

[[Page S3859]]

       (b) Conforming Amendment.--Section 982(b)(1)(A) of title 
     18, United States Code, is amended by inserting ``or (a)(6)'' 
     after ``(a)(1)''.
       (c) Property Forfeited Deposited in Federal Hospital 
     Insurance Trust Fund.--
       (1) In general.--After the payment of the costs of asset 
     forfeiture has been made, and notwithstanding any other 
     provision of law, the Secretary of the Treasury shall deposit 
     into the Federal Hospital Insurance Trust Fund pursuant to 
     section 1817(k)(2)(C) of the Social Security Act, as added by 
     section 501(b), an amount equal to the net amount realized 
     from the forfeiture of property by reason of a Federal health 
     care offense pursuant to section 982(a)(6) of title 18, 
     United States Code.
       (2) Costs of asset forfeiture.--For purposes of paragraph 
     (1), the term ``payment of the costs of asset forfeiture'' 
     means--
       (A) the payment, at the discretion of the Attorney General, 
     of any expenses necessary to seize, detain, inventory, 
     safeguard, maintain, advertise, sell, or dispose of property 
     under seizure, detention, or forfeited, or of any other 
     necessary expenses incident to the seizure, detention, 
     forfeiture, or disposal of such property, including payment 
     for--
       (i) contract services,
       (ii) the employment of outside contractors to operate and 
     manage properties or provide other specialized services 
     necessary to dispose of such properties in an effort to 
     maximize the return from such properties; and
       (iii) reimbursement of any Federal, State, or local agency 
     for any expenditures made to perform the functions described 
     in this subparagraph;
       (B) at the discretion of the Attorney General, the payment 
     of awards for information or assistance leading to a civil or 
     criminal forfeiture involving any Federal agency 
     participating in the Health Care Fraud and Abuse Control 
     Account;
       (C) the compromise and payment of valid liens and mortgages 
     against property that has been forfeited, subject to the 
     discretion of the Attorney General to determine the validity 
     of any such lien or mortgage and the amount of payment to be 
     made, and the employment of attorneys and other personnel 
     skilled in State real estate law as necessary;
       (D) payment authorized in connection with remission or 
     mitigation procedures relating to property forfeited; and
       (E) the payment of State and local property taxes on 
     forfeited real property that accrued between the date of the 
     violation giving rise to the forfeiture and the date of the 
     forfeiture order.

     SEC. 543. INJUNCTIVE RELIEF RELATING TO FEDERAL HEALTH CARE 
                   OFFENSES.

       (a) In General.--Section 1345(a)(1) of title 18, United 
     States Code, is amended--
       (1) by striking ``or'' at the end of subparagraph (A);
       (2) by inserting ``or'' at the end of subparagraph (B); and
       (3) by adding at the end the following new subparagraph:
       ``(C) committing or about to commit a Federal health care 
     offense (as defined in section 982(a)(6)(B) of this 
     title);''.
       (b) Freezing of Assets.--Section 1345(a)(2) of title 18, 
     United States Code, is amended by inserting ``or a Federal 
     health care offense (as defined in section 982(a)(6)(B))'' 
     after ``title)''.

     SEC. 544. FALSE STATEMENTS.

       (a) In General.--Chapter 47 of title 18, United States 
     Code, is amended by adding at the end the following new 
     section:

     ``Sec. 1033. False statements relating to health care matters

       ``Whoever, in any matter involving a health care program, 
     knowingly and willfully--
       ``(1) falsifies, conceals, or covers up by any trick, 
     scheme, or device a material fact, or
       ``(2) makes any materially false, fictitious, or fraudulent 
     statement or representation, or makes or uses any materially 
     false writing or document knowing the same to contain any 
     materially false, fictitious, or fraudulent statement or 
     entry,

     shall be fined under this title or imprisoned not more than 5 
     years, or both.''.
       (b) Clerical Amendment.--The table of sections at the 
     beginning of chapter 47 of title 18, United States Code, is 
     amended by adding at the end the following:

``1033. False statements relating to health care matters.''.

     SEC. 545. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF FEDERAL 
                   HEALTH CARE OFFENSES.

       (a) In General.--Chapter 73 of title 18, United States 
     Code, is amended by adding at the end the following new 
     section:

     ``Sec. 1518. Obstruction of criminal investigations of 
       Federal health care offenses

       ``(a) Whoever willfully prevents, obstructs, misleads, 
     delays or attempts to prevent, obstruct, mislead, or delay 
     the communication of information or records relating to a 
     Federal health care offense to a criminal investigator shall 
     be fined under this title or imprisoned not more than 5 
     years, or both.
       ``(b) As used in this section the term `Federal health care 
     offense' has the same meaning given such term in section 
     982(a)(6)(B) of this title.
       ``(c) As used in this section the term `criminal 
     investigator' means any individual duly authorized by a 
     department, agency, or armed force of the United States to 
     conduct or engage in investigations for prosecutions for 
     violations of health care offenses.''.
       (b) Clerical Amendment.--The table of sections at the 
     beginning of chapter 73 of title 18, United States Code, is 
     amended by adding at the end the following:

``1518. Obstruction of Criminal Investigations of Federal Health Care 
              Offenses.''.

     SEC. 546. THEFT OR EMBEZZLEMENT.

       (a) In General.--Chapter 31 of title 18, United States 
     Code, is amended by adding at the end the following new 
     section:

     ``Sec. 669. Theft or embezzlement in connection with health 
       care

       ``Whoever willfully embezzles, steals, or otherwise 
     willfully and unlawfully converts to the use of any person 
     other than the rightful owner, or intentionally misapplies 
     any of the moneys, funds, securities, premiums, credits, 
     property, or other assets of a health care program, shall be 
     fined under this title or imprisoned not more than 10 years, 
     or both.''.
       (b) Clerical Amendment.--The table of sections at the 
     beginning of chapter 31 of title 18, United States Code, is 
     amended by adding at the end the following:

``669. Theft or Embezzlement in Connection with Health Care.''.

     SEC. 547. LAUNDERING OF MONETARY INSTRUMENTS.

       Section 1956(c)(7) of title 18, United States Code, is 
     amended by adding at the end the following new subparagraph:
       ``(F) Any act or activity constituting an offense involving 
     a Federal health care offense as that term is defined in 
     section 982(a)(6)(B) of this title.''.

     SEC. 548. AUTHORIZED INVESTIGATIVE DEMAND PROCEDURES.

       (a) In General.--Chapter 233 of title 18, United States 
     Code, is amended by adding after section 3485 the following 
     new section:

     ``Sec. 3486. Authorized investigative demand procedures

       ``(a)(1)(A) In any investigation relating to functions set 
     forth in paragraph (2), the Attorney General or designee may 
     issue in writing and cause to be served a subpoena compelling 
     production of any records (including any books, papers, 
     documents, electronic media, or other objects or tangible 
     things), which may be relevant to an authorized law 
     enforcement inquiry, that a person or legal entity may 
     possess or have care, custody, or control.
       ``(B) A custodian of records may be required to give 
     testimony concerning the production and authentication of 
     such records.
       ``(C) The production of records may be required from any 
     place in any State or in any territory or other place subject 
     to the jurisdiction of the United States at any designated 
     place; except that such production shall not be required more 
     than 500 miles distant from the place where the subpoena is 
     served.
       ``(D) Witnesses summoned under this section shall be paid 
     the same fees and mileage that are paid witnesses in the 
     courts of the United States.
       ``(E) A subpoena requiring the production of records shall 
     describe the objects required to be produced and prescribe a 
     return date within a reasonable period of time within which 
     the objects can be assembled and made available.
       ``(2) Investigative demands utilizing an administrative 
     subpoena are authorized for any investigation with respect to 
     any act or activity constituting or involving health care 
     fraud, including a scheme or artifice--
       ``(A) to defraud any health care program, in connection 
     with the delivery of or payment for health care benefits, 
     items, or services; or
       ``(B) to obtain, by means of false or fraudulent pretenses, 
     representations, or promises, any of the money or property 
     owned by, or under the custody or control of, any health care 
     program in connection with the delivery of or payment for 
     health care benefits, items, or services.
       ``(b)(1) A subpoena issued under this section may be served 
     by any person designated in the subpoena to serve it.
       ``(2) Service upon a natural person may be made by personal 
     delivery of the subpoena to such person.
       ``(3) Service may be made upon a domestic or foreign 
     association which is subject to suit under a common name, by 
     delivering the subpoena to an officer, to a managing or 
     general agent, or to any other agent authorized by 
     appointment or by law to receive service of process.
       ``(4) The affidavit of the person serving the subpoena 
     entered on a true copy thereof by the person serving it shall 
     be proof of service.
       ``(c)(1) In the case of contumacy by or refusal to obey a 
     subpoena issued to any person, the Attorney General may 
     invoke the aid of any court of the United States within the 
     jurisdiction of which the investigation is carried on or of 
     which the subpoenaed person is an inhabitant, or in which 
     such person carries on business or may be found, to compel 
     compliance with the subpoena.
       ``(2) The court may issue an order requiring the subpoenaed 
     person to appear before the Attorney General to produce 
     records, if so ordered, or to give testimony required under 
     subsection (a)(1)(B).
       ``(3) Any failure to obey the order of the court may be 
     punished by the court as a contempt thereof.
       ``(4) All process in any such case may be served in any 
     judicial district in which such person may be found.
       ``(d) Notwithstanding any Federal, State, or local law, any 
     person, including officers, agents, and employees, receiving 
     a subpoena under this section, who complies in good faith 
     with the subpoena and thus produces the materials sought, 
     shall not be liable in any court of any State or the United 
     States to any customer or other person for such production or 
     for nondisclosure of that production to the customer.
       ``(e)(1) Health information about an individual that is 
     disclosed under this section may not be used in, or disclosed 
     to any person for use in, any administrative, civil, or 
     criminal action or investigation directed against the 
     individual who is the subject of the information unless the 
     action or investigation arises out of and is directly related 
     to receipt of health care or payment for health care or 
     action involving a

[[Page S3860]]

     fraudulent claim related to health; or if authorized by an 
     appropriate order of a court of competent jurisdiction, 
     granted after application showing good cause therefor.
       ``(2) In assessing good cause, the court shall weigh the 
     public interest and the need for disclosure against the 
     injury to the patient, to the physician-patient relationship, 
     and to the treatment services.
       ``(3) Upon the granting of such order, the court, in 
     determining the extent to which any disclosure of all or any 
     part of any record is necessary, shall impose appropriate 
     safeguards against unauthorized disclosure.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     223 of title 18, United States Code, is amended by inserting 
     after the item relating to section 3405 the following new 
     item:

``3486. Authorized investigative demand procedures.''.

       (c) Conforming Amendment.--Section 1510(b)(3)(B) of title 
     18, United States Code, is amended by inserting ``or a 
     Department of Justice subpoena (issued under section 3486),'' 
     after ``subpoena''.
          TITLE VI--INTERNAL REVENUE CODE AND OTHER PROVISIONS

     SEC. 600. REFERENCES.

       Except as otherwise expressly provided, whenever in this 
     title an amendment or repeal is expressed in terms of an 
     amendment to, or repeal of, a section or other provision, the 
     reference shall be considered to be made to a section or 
     other provision of the Internal Revenue Code of 1986.
                Subtitle A--Foreign Trust Tax Compliance

     SEC. 601. IMPROVED INFORMATION REPORTING ON FOREIGN TRUSTS.

       (a) In General.--Section 6048 (relating to returns as to 
     certain foreign trusts) is amended to read as follows:

     ``SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOREIGN 
                   TRUSTS.

       ``(a) Notice of Certain Events.--
       ``(1) General rule.--On or before the 90th day (or such 
     later day as the Secretary may prescribe) after any 
     reportable event, the responsible party shall provide written 
     notice of such event to the Secretary in accordance with 
     paragraph (2).
       ``(2) Contents of notice.--The notice required by paragraph 
     (1) shall contain such information as the Secretary may 
     prescribe, including--
       ``(A) the amount of money or other property (if any) 
     transferred to the trust in connection with the reportable 
     event, and
       ``(B) the identity of the trust and of each trustee and 
     beneficiary (or class of beneficiaries) of the trust.
       ``(3) Reportable event.--For purposes of this subsection--
       ``(A) In general.--The term `reportable event' means--
       ``(i) the creation of any foreign trust by a United States 
     person,
       ``(ii) the transfer of any money or property (directly or 
     indirectly) to a foreign trust by a United States person, 
     including a transfer by reason of death, and
       ``(iii) the death of a citizen or resident of the United 
     States if--

       ``(I) the decedent was treated as the owner of any portion 
     of a foreign trust under the rules of subpart E of part I of 
     subchapter J of chapter 1, or
       ``(II) any portion of a foreign trust was included in the 
     gross estate of the decedent.

       ``(B) Exceptions.--
       ``(i) Fair market value sales.--Subparagraph (A)(ii) shall 
     not apply to any transfer of property to a trust in exchange 
     for consideration of at least the fair market value of the 
     transferred property. For purposes of the preceding sentence, 
     consideration other than cash shall be taken into account at 
     its fair market value and the rules of section 679(a)(3) 
     shall apply.
       ``(ii) Deferred compensation and charitable trusts.--
     Subparagraph (A) shall not apply with respect to a trust 
     which is--

       ``(I) described in section 402(b), 404(a)(4), or 404A, or
       ``(II) determined by the Secretary to be described in 
     section 501(c)(3).

       ``(4) Responsible party.--For purposes of this subsection, 
     the term `responsible party' means--
       ``(A) the grantor in the case of the creation of an inter 
     vivos trust,
       ``(B) the transferor in the case of a reportable event 
     described in paragraph (3)(A)(ii) other than a transfer by 
     reason of death, and
       ``(C) the executor of the decedent's estate in any other 
     case.
       ``(b) United States Grantor of Foreign Trust.--
       ``(1) In general.--If, at any time during any taxable year 
     of a United States person, such person is treated as the 
     owner of any portion of a foreign trust under the rules of 
     subpart E of part I of subchapter J of chapter 1, such person 
     shall be responsible to ensure that--
       ``(A) such trust makes a return for such year which sets 
     forth a full and complete accounting of all trust activities 
     and operations for the year, the name of the United States 
     agent for such trust, and such other information as the 
     Secretary may prescribe, and
       ``(B) such trust furnishes such information as the 
     Secretary may prescribe to each United States person (i) who 
     is treated as the owner of any portion of such trust or (ii) 
     who receives (directly or indirectly) any distribution from 
     the trust.
       ``(2) Trusts not having united states agent.--
       ``(A) In general.--If the rules of this paragraph apply to 
     any foreign trust, the determination of amounts required to 
     be taken into account with respect to such trust by a United 
     States person under the rules of subpart E of part I of 
     subchapter J of chapter 1 shall be determined by the 
     Secretary.
       ``(B) United states agent required.--The rules of this 
     paragraph shall apply to any foreign trust to which paragraph 
     (1) applies unless such trust agrees (in such manner, subject 
     to such conditions, and at such time as the Secretary shall 
     prescribe) to authorize a United States person to act as such 
     trust's limited agent solely for purposes of applying 
     sections 7602, 7603, and 7604 with respect to--
       ``(i) any request by the Secretary to examine records or 
     produce testimony related to the proper treatment of amounts 
     required to be taken into account under the rules referred to 
     in subparagraph (A), or
       ``(ii) any summons by the Secretary for such records or 
     testimony.

     The appearance of persons or production of records by reason 
     of a United States person being such an agent shall not 
     subject such persons or records to legal process for any 
     purpose other than determining the correct treatment under 
     this title of the amounts required to be taken into account 
     under the rules referred to in subparagraph (A). A foreign 
     trust which appoints an agent described in this subparagraph 
     shall not be considered to have an office or a permanent 
     establishment in the United States, or to be engaged in a 
     trade or business in the United States, solely because of the 
     activities of such agent pursuant to this subsection.
       ``(C) Other rules to apply.--Rules similar to the rules of 
     paragraphs (2) and (4) of section 6038A(e) shall apply for 
     purposes of this paragraph.
       ``(c) Reporting by United States Beneficiaries of Foreign 
     Trusts.--
       ``(1) In general.--If any United States person receives 
     (directly or indirectly) during any taxable year of such 
     person any distribution from a foreign trust, such person 
     shall make a return with respect to such trust for such year 
     which includes--
       ``(A) the name of such trust,
       ``(B) the aggregate amount of the distributions so received 
     from such trust during such taxable year, and
       ``(C) such other information as the Secretary may 
     prescribe.
       ``(2) Inclusion in income if records not provided.--
       ``(A) In general.--If adequate records are not provided to 
     the Secretary to determine the proper treatment of any 
     distribution from a foreign trust, such distribution shall be 
     treated as an accumulation distribution includible in the 
     gross income of the distributee under chapter 1. To the 
     extent provided in regulations, the preceding sentence shall 
     not apply if the foreign trust elects to be subject to rules 
     similar to the rules of subsection (b)(2)(B).
       ``(B) Application of accumulation distribution rules.--For 
     purposes of applying section 668 in a case to which 
     subparagraph (A) applies, the applicable number of years for 
     purposes of section 668(a) shall be \1/2\ of the number of 
     years the trust has been in existence.
       ``(d) Special Rules.--
       ``(1) Determination of whether united states person 
     receives distribution.--For purposes of this section, in 
     determining whether a United States person receives a 
     distribution from a foreign trust, the fact that a portion of 
     such trust is treated as owned by another person under the 
     rules of subpart E of part I of subchapter J of chapter 1 
     shall be disregarded.
       ``(2) Domestic trusts with foreign activities.--To the 
     extent provided in regulations, a trust which is a United 
     States person shall be treated as a foreign trust for 
     purposes of this section and section 6677 if such trust has 
     substantial activities, or holds substantial property, 
     outside the United States.
       ``(3) Time and manner of filing information.--Any notice or 
     return required under this section shall be made at such time 
     and in such manner as the Secretary shall prescribe.
       ``(4) Modification of return requirements.--The Secretary 
     is authorized to suspend or modify any requirement of this 
     section if the Secretary determines that the United States 
     has no significant tax interest in obtaining the required 
     information.''.
       (b) Increased Penalties.--Section 6677 (relating to failure 
     to file information returns with respect to certain foreign 
     trusts) is amended to read as follows:

     ``SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT TO 
                   CERTAIN FOREIGN TRUSTS.

       ``(a) Civil Penalty.--In addition to any criminal penalty 
     provided by law, if any notice or return required to be filed 
     by section 6048--
       ``(1) is not filed on or before the time provided in such 
     section, or
       ``(2) does not include all the information required 
     pursuant to such section or includes incorrect information,

     the person required to file such notice or return shall pay a 
     penalty equal to 35 percent of the gross reportable amount. 
     If any failure described in the preceding sentence continues 
     for more than 90 days after the day on which the Secretary 
     mails notice of such failure to the person required to pay 
     such penalty, such person shall pay a penalty (in addition to 
     the amount determined under the preceding sentence) of 
     $10,000 for each 30-day period (or fraction thereof) during 
     which such failure continues after the expiration of such 90-
     day period. In no event shall the penalty under this 
     subsection with respect to any failure exceed the gross 
     reportable amount.
       ``(b) Special Rules for Returns Under Section 6048(b).--In 
     the case of a return required under section 6048(b)--
       ``(1) the United States person referred to in such section 
     shall be liable for the penalty imposed by subsection (a), 
     and

[[Page S3861]]

       ``(2) subsection (a) shall be applied by substituting `5 
     percent' for `35 percent'.
       ``(c) Gross Reportable Amount.--For purposes of subsection 
     (a), the term `gross reportable amount' means--
       ``(1) the gross value of the property involved in the event 
     (determined as of the date of the event) in the case of a 
     failure relating to section 6048(a),
       ``(2) the gross value of the portion of the trust's assets 
     at the close of the year treated as owned by the United 
     States person in the case of a failure relating to section 
     6048(b)(1), and
       ``(3) the gross amount of the distributions in the case of 
     a failure relating to section 6048(c).
       ``(d) Reasonable Cause Exception.--No penalty shall be 
     imposed by this section on any failure which is shown to be 
     due to reasonable cause and not due to willful neglect. The 
     fact that a foreign jurisdiction would impose a civil or 
     criminal penalty on the taxpayer (or any other person) for 
     disclosing the required information is not reasonable cause.
       ``(e) Deficiency Procedures Not To Apply.--Subchapter B of 
     chapter 63 (relating to deficiency procedures for income, 
     estate, gift, and certain excise taxes) shall not apply in 
     respect of the assessment or collection of any penalty 
     imposed by subsection (a).''.
       (c) Conforming Amendments.--
       (1) Paragraph (2) of section 6724(d) is amended by striking 
     ``or'' at the end of subparagraph (S), by striking the period 
     at the end of subparagraph (T) and inserting ``, or'', and by 
     inserting after subparagraph (T) the following new 
     subparagraph:
       ``(U) section 6048(b)(1)(B) (relating to foreign trust 
     reporting requirements).''.
       (2) The table of sections for subpart B of part III of 
     subchapter A of chapter 61 is amended by striking the item 
     relating to section 6048 and inserting the following new 
     item:

``Sec. 6048. Information with respect to certain foreign trusts.''.

       (3) The table of sections for part I of subchapter B of 
     chapter 68 is amended by striking the item relating to 
     section 6677 and inserting the following new item:

``Sec. 6677. Failure to file information with respect to certain 
              foreign trusts.''.

       (d) Effective Dates.--
       (1) Reportable events.--To the extent related to subsection 
     (a) of section 6048 of the Internal Revenue Code of 1986, as 
     amended by this section, the amendments made by this section 
     shall apply to reportable events (as defined in such section 
     6048) occurring after the date of the enactment of this Act.
       (2) Grantor trust reporting.--To the extent related to 
     subsection (b) of such section 6048, the amendments made by 
     this section shall apply to taxable years of United States 
     persons beginning after the date of the enactment of this 
     Act.
       (3) Reporting by united states beneficiaries.--To the 
     extent related to subsection (c) of such section 6048, the 
     amendments made by this section shall apply to distributions 
     received after the date of the enactment of this Act.

     SEC. 602. MODIFICATIONS OF RULES RELATING TO FOREIGN TRUSTS 
                   HAVING ONE OR MORE UNITED STATES BENEFICIARIES.

       (a) Treatment of Trust Obligations, Etc.--
       (1) Paragraph (2) of section 679(a) is amended by striking 
     subparagraph (B) and inserting the following:
       ``(B) Transfers at fair market value.--To any transfer of 
     property to a trust in exchange for consideration of at least 
     the fair market value of the transferred property. For 
     purposes of the preceding sentence, consideration other than 
     cash shall be taken into account at its fair market value.''.
       (2) Subsection (a) of section 679 (relating to foreign 
     trusts having one or more United States beneficiaries) is 
     amended by adding at the end the following new paragraph:
       ``(3) Certain obligations not taken into account under fair 
     market value exception.--
       ``(A) In general.--In determining whether paragraph (2)(B) 
     applies to any transfer by a person described in clause (ii) 
     or (iii) of subparagraph (C), there shall not be taken into 
     account--
       ``(i) except as provided in regulations, any obligation of 
     a person described in subparagraph (C), and
       ``(ii) to the extent provided in regulations, any 
     obligation which is guaranteed by a person described in 
     subparagraph (C).
       ``(B) Treatment of principal payments on obligation.--
     Principal payments by the trust on any obligation referred to 
     in subparagraph (A) shall be taken into account on and after 
     the date of the payment in determining the portion of the 
     trust attributable to the property transferred.
       ``(C) Persons described.--The persons described in this 
     subparagraph are--
       ``(i) the trust,
       ``(ii) any grantor or beneficiary of the trust, and
       ``(iii) any person who is related (within the meaning of 
     section 643(i)(2)(B)) to any grantor or beneficiary of the 
     trust.''.
       (b) Exemption of Transfers to Charitable Trusts.--
     Subsection (a) of section 679 is amended by striking 
     ``section 404(a)(4) or 404A'' and inserting ``section 
     6048(a)(3)(B)(ii)''.
       (c) Other Modifications.--Subsection (a) of section 679 is 
     amended by adding at the end the following new paragraphs:
       ``(4) Special rules applicable to foreign grantor who later 
     becomes a united states person.--
       ``(A) In general.--If a nonresident alien individual has a 
     residency starting date within 5 years after directly or 
     indirectly transferring property to a foreign trust, this 
     section and section 6048 shall be applied as if such 
     individual transferred to such trust on the residency 
     starting date an amount equal to the portion of such trust 
     attributable to the property transferred by such individual 
     to such trust in such transfer.
       ``(B) Treatment of undistributed income.--For purposes of 
     this section, undistributed net income for periods before 
     such individual's residency starting date shall be taken into 
     account in determining the portion of the trust which is 
     attributable to property transferred by such individual to 
     such trust but shall not otherwise be taken into account.
       ``(C) Residency starting date.--For purposes of this 
     paragraph, an individual's residency starting date is the 
     residency starting date determined under section 
     7701(b)(2)(A).
       ``(5) Outbound trust migrations.--If--
       ``(A) an individual who is a citizen or resident of the 
     United States transferred property to a trust which was not a 
     foreign trust, and
       ``(B) such trust becomes a foreign trust while such 
     individual is alive,

     then this section and section 6048 shall be applied as if 
     such individual transferred to such trust on the date such 
     trust becomes a foreign trust an amount equal to the portion 
     of such trust attributable to the property previously 
     transferred by such individual to such trust. A rule similar 
     to the rule of paragraph (4)(B) shall apply for purposes of 
     this paragraph.''.
       (d) Modifications Relating to Whether Trust Has United 
     States Beneficiaries.--Subsection (c) of section 679 is 
     amended by adding at the end the following new paragraph:
       ``(3) Certain united states beneficiaries disregarded.--A 
     beneficiary shall not be treated as a United States person in 
     applying this section with respect to any transfer of 
     property to foreign trust if such beneficiary first became a 
     United States person more than 5 years after the date of such 
     transfer.''.
       (e) Technical Amendment.--Subparagraph (A) of section 
     679(c)(2) is amended to read as follows:
       ``(A) in the case of a foreign corporation, such 
     corporation is a controlled foreign corporation (as defined 
     in section 957(a)),''.
       (f) Regulations.--Section 679 is amended by adding at the 
     end the following new subsection:
       ``(d) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (g) Effective Date.--The amendments made by this section 
     shall apply to transfers of property after February 6, 1995.

     SEC. 603. FOREIGN PERSONS NOT TO BE TREATED AS OWNERS UNDER 
                   GRANTOR TRUST RULES.

       (a) General Rule.--
       (1) Subsection (f) of section 672 (relating to special rule 
     where grantor is foreign person) is amended to read as 
     follows:
       ``(f) Subpart Not To Result in Foreign Ownership.--
       ``(1) In general.--Notwithstanding any other provision of 
     this subpart, this subpart shall apply only to the extent 
     such application results in an amount being currently taken 
     into account (directly or through 1 or more entities) under 
     this chapter in computing the income of a citizen or resident 
     of the United States or a domestic corporation.
       ``(2) Exceptions.--
       ``(A) Certain revocable and irrevocable trusts.--Paragraph 
     (1) shall not apply to any trust if--
       ``(i) the power to revest absolutely in the grantor title 
     to the trust property is exercisable solely by the grantor 
     without the approval or consent of any other person or with 
     the consent of a related or subordinate party who is 
     subservient to the grantor, or
       ``(ii) the only amounts distributable from such trust 
     (whether income or corpus) during the lifetime of the grantor 
     are amounts distributable to the grantor or the spouse of the 
     grantor.
       ``(B) Compensatory trusts.--Except as provided in 
     regulations, paragraph (1) shall not apply to any portion of 
     a trust distributions from which are taxable as compensation 
     for services rendered.
       ``(3) Special rules.--Except as otherwise provided in 
     regulations prescribed by the Secretary--
       ``(A) a controlled foreign corporation (as defined in 
     section 957) shall be treated as a domestic corporation for 
     purposes of paragraph (1), and
       ``(B) paragraph (1) shall not apply for purposes of 
     applying section 1296.
       ``(4) Recharacterization of purported gifts.--In the case 
     of any transfer directly or indirectly from a partnership or 
     foreign corporation which the transferee treats as a gift or 
     bequest, the Secretary may recharacterize such transfer in 
     such circumstances as the Secretary determines to be 
     appropriate to prevent the avoidance of the purposes of this 
     subsection.
       ``(5) Special rule where grantor is foreign person.--If--
       ``(A) but for this subsection, a foreign person would be 
     treated as the owner of any portion of a trust, and
       ``(B) such trust has a beneficiary who is a United States 
     person,

     such beneficiary shall be treated as the grantor of such 
     portion to the extent such beneficiary has made transfers of 
     property by gift (directly or indirectly) to such foreign 
     person. For purposes of the preceding sentence, any gift 
     shall not be taken into account to the extent such gift would 
     be excluded from taxable gifts under section 2503(b).

[[Page S3862]]

       ``(6) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this subsection, including regulations 
     providing that paragraph (1) shall not apply in appropriate 
     cases.''.
       (2) The last sentence of subsection (c) of section 672 of 
     such Code is amended by inserting ``subsection (f) and'' 
     before ``sections 674''.
       (b) Credit for Certain Taxes.--Paragraph (2) of section 
     665(d) is amended by adding at the end the following new 
     sentence: ``Under rules or regulations prescribed by the 
     Secretary, in the case of any foreign trust of which the 
     settlor or another person would be treated as owner of any 
     portion of the trust under subpart E but for section 672(f), 
     the term `taxes imposed on the trust' includes the allocable 
     amount of any income, war profits, and excess profits taxes 
     imposed by any foreign country or possession of the United 
     States on the settlor or such other person in respect of 
     trust gross income.''.
       (c) Distributions by Certain Foreign Trusts Through 
     Nominees.--
       (1) Section 643 is amended by adding at the end the 
     following new subsection:
       ``(h) Distributions by Certain Foreign Trusts Through 
     Nominees.--For purposes of this part, any amount paid to a 
     United States person which is derived directly or indirectly 
     from a foreign trust of which the payor is not the grantor 
     shall be deemed in the year of payment to have been directly 
     paid by the foreign trust to such United States person.''.
       (2) Section 665 is amended by striking subsection (c).
       (d) Effective Date.--
       (1) In general.--Except as provided by paragraph (2), the 
     amendments made by this section shall take effect on the date 
     of the enactment of this Act.
       (2) Exception for certain trusts.--The amendments made by 
     this section shall not apply to any trust--
       (A) which is treated as owned by the grantor or another 
     person under section 676 or 677 (other than subsection (a)(3) 
     thereof) of the Internal Revenue Code of 1986, and
       (B) which is in existence on September 19, 1995.

     The preceding sentence shall not apply to the portion of any 
     such trust attributable to any transfer to such trust after 
     September 19, 1995.
       (e) Transitional Rule.--If--
       (1) by reason of the amendments made by this section, any 
     person other than a United States person ceases to be treated 
     as the owner of a portion of a domestic trust, and
       (2) before January 1, 1997, such trust becomes a foreign 
     trust, or the assets of such trust are transferred to a 
     foreign trust,

     no tax shall be imposed by section 1491 of the Internal 
     Revenue Code of 1986 by reason of such trust becoming a 
     foreign trust or the assets of such trust being transferred 
     to a foreign trust.

     SEC. 604. INFORMATION REPORTING REGARDING FOREIGN GIFTS.

       (a) In General.--Subpart A of part III of subchapter A of 
     chapter 61 is amended by inserting after section 6039E the 
     following new section:

     ``SEC. 6039F. NOTICE OF GIFTS RECEIVED FROM FOREIGN PERSONS.

       ``(a) In General.--If the value of the aggregate foreign 
     gifts received by a United States person (other than an 
     organization described in section 501(c) and exempt from tax 
     under section 501(a)) during any taxable year exceeds 
     $10,000, such United States person shall furnish (at such 
     time and in such manner as the Secretary shall prescribe) 
     such information as the Secretary may prescribe regarding 
     each foreign gift received during such year.
       ``(b) Foreign Gift.--For purposes of this section, the term 
     `foreign gift' means any amount received from a person other 
     than a United States person which the recipient treats as a 
     gift or bequest. Such term shall not include any qualified 
     transfer (within the meaning of section 2503(e)(2)).
       ``(c) Penalty for Failure To File Information.--
       ``(1) In general.--If a United States person fails to 
     furnish the information required by subsection (a) with 
     respect to any foreign gift within the time prescribed 
     therefor (including extensions)--
       ``(A) the tax consequences of the receipt of such gift 
     shall be determined by the Secretary in the Secretary's sole 
     discretion from the Secretary's own knowledge or from such 
     information as the Secretary may obtain through testimony or 
     otherwise, and
       ``(B) such United States person shall pay (upon notice and 
     demand by the Secretary and in the same manner as tax) an 
     amount equal to 5 percent of the amount of such foreign gift 
     for each month for which the failure continues (not to exceed 
     25 percent of such amount in the aggregate).
       ``(2) Reasonable cause exception.--Paragraph (1) shall not 
     apply to any failure to report a foreign gift if the United 
     States person shows that the failure is due to reasonable 
     cause and not due to willful neglect.
       ``(d) Cost-of-Living Adjustment.--In the case of any 
     taxable year beginning after December 31, 1996, the $10,000 
     amount under subsection (a) shall be increased by an amount 
     equal to the product of such amount and the cost-of-living 
     adjustment for such taxable year under section 1(f)(3), 
     except that subparagraph (B) thereof shall be applied by 
     substituting `1995' for `1992'.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Clerical Amendment.--The table of sections for such 
     subpart is amended by inserting after the item relating to 
     section 6039E the following new item:

``Sec. 6039F. Notice of large gifts received from foreign persons.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts received after the date of the 
     enactment of this Act in taxable years ending after such 
     date.

     SEC. 605. MODIFICATION OF RULES RELATING TO FOREIGN TRUSTS 
                   WHICH ARE NOT GRANTOR TRUSTS.

       (a) Modification of Interest Charge on Accumulation 
     Distributions.--Subsection (a) of section 668 (relating to 
     interest charge on accumulation distributions from foreign 
     trusts) is amended to read as follows:
       ``(a) General Rule.--For purposes of the tax determined 
     under section 667(a)--
       ``(1) Interest determined using underpayment rates.--The 
     interest charge determined under this section with respect to 
     any distribution is the amount of interest which would be 
     determined on the partial tax computed under section 667(b) 
     for the period described in paragraph (2) using the rates and 
     the method under section 6621 applicable to underpayments of 
     tax.
       ``(2) Period.--For purposes of paragraph (1), the period 
     described in this paragraph is the period which begins on the 
     date which is the applicable number of years before the date 
     of the distribution and which ends on the date of the 
     distribution.
       ``(3) Applicable number of years.--For purposes of 
     paragraph (2)--
       ``(A) In general.--The applicable number of years with 
     respect to a distribution is the number determined by 
     dividing--
       ``(i) the sum of the products described in subparagraph (B) 
     with respect to each undistributed income year, by
       ``(ii) the aggregate undistributed net income.

     The quotient determined under the preceding sentence shall be 
     rounded under procedures prescribed by the Secretary.
       ``(B) Product described.--For purposes of subparagraph (A), 
     the product described in this subparagraph with respect to 
     any undistributed income year is the product of--
       ``(i) the undistributed net income for such year, and
       ``(ii) the sum of the number of taxable years between such 
     year and the taxable year of the distribution (counting in 
     each case the undistributed income year but not counting the 
     taxable year of the distribution).
       ``(4) Undistributed income year.--For purposes of this 
     subsection, the term `undistributed income year' means any 
     prior taxable year of the trust for which there is 
     undistributed net income, other than a taxable year during 
     all of which the beneficiary receiving the distribution was 
     not a citizen or resident of the United States.
       ``(5) Determination of undistributed net income.--
     Notwithstanding section 666, for purposes of this subsection, 
     an accumulation distribution from the trust shall be treated 
     as reducing proportionately the undistributed net income for 
     undistributed income years.
       ``(6) Periods before 1996.--Interest for the portion of the 
     period described in paragraph (2) which occurs before January 
     1, 1996, shall be determined--
       ``(A) by using an interest rate of 6 percent, and
       ``(B) without compounding until January 1, 1996.''.
       (b) Abusive Transactions.--Section 643(a) is amended by 
     inserting after paragraph (6) the following new paragraph:
       ``(7) Abusive transactions.--The Secretary shall prescribe 
     such regulations as may be necessary or appropriate to carry 
     out the purposes of this part, including regulations to 
     prevent avoidance of such purposes.''.
       (c) Treatment of Loans From Trusts.--
       (1) In general.--Section 643 (relating to definitions 
     applicable to subparts A, B, C, and D) is amended by adding 
     at the end the following new subsection:
       ``(i) Loans From Foreign Trusts.--For purposes of subparts 
     B, C, and D--
       ``(1) General rule.--Except as provided in regulations, if 
     a foreign trust makes a loan of cash or marketable securities 
     directly or indirectly to--
       ``(A) any grantor or beneficiary of such trust who is a 
     United States person, or
       ``(B) any United States person not described in 
     subparagraph (A) who is related to such grantor or 
     beneficiary,
     the amount of such loan shall be treated as a distribution by 
     such trust to such grantor or beneficiary (as the case may 
     be).
       ``(2) Definitions and special rules.--For purposes of this 
     subsection--
       ``(A) Cash.--The term `cash' includes foreign currencies 
     and cash equivalents.
       ``(B) Related person.--
       ``(i) In general.--A person is related to another person if 
     the relationship between such persons would result in a 
     disallowance of losses under section 267 or 707(b). In 
     applying section 267 for purposes of the preceding sentence, 
     section 267(c)(4) shall be applied as if the family of an 
     individual includes the spouses of the members of the family.
       ``(ii) Allocation.--If any person described in paragraph 
     (1)(B) is related to more than one person, the grantor or 
     beneficiary to whom the treatment under this subsection 
     applies shall be determined under regulations prescribed by 
     the Secretary.
       ``(C) Exclusion of tax-exempts.--The term `United States 
     person' does not include any entity exempt from tax under 
     this chapter.
       ``(D) Trust not treated as simple trust.--Any trust which 
     is treated under this subsection

[[Page S3863]]

     as making a distribution shall be treated as not described in 
     section 651.
       ``(3) Subsequent transactions regarding loan principal.--If 
     any loan is taken into account under paragraph (1), any 
     subsequent transaction between the trust and the original 
     borrower regarding the principal of the loan (by way of 
     complete or partial repayment, satisfaction, cancellation, 
     discharge, or otherwise) shall be disregarded for purposes of 
     this title.''.
       (2) Technical amendment.--Paragraph (8) of section 7872(f) 
     is amended by inserting ``, 643(i),'' before ``or 1274'' each 
     place it appears.
       (d) Effective Dates.--
       (1) Interest charge.--The amendment made by subsection (a) 
     shall apply to distributions after the date of the enactment 
     of this Act.
       (2) Abusive transactions.--The amendment made by subsection 
     (b) shall take effect on the date of the enactment of this 
     Act.
       (3) Loans from trusts.--The amendment made by subsection 
     (c) shall apply to loans of cash or marketable securities 
     after September 19, 1995.

     SEC. 606. RESIDENCE OF ESTATES AND TRUSTS, ETC.

       (a) Treatment as United States Person.--
       (1) In general.--Paragraph (30) of section 7701(a) is 
     amended by striking subparagraph (D) and by inserting after 
     subparagraph (C) the following:
       ``(D) any estate or trust if--
       ``(i) a court within the United States is able to exercise 
     primary supervision over the administration of the estate or 
     trust, and
       ``(ii) in the case of a trust, one or more United States 
     fiduciaries have the authority to control all substantial 
     decisions of the trust.''.
       (2) Conforming amendment.--Paragraph (31) of section 
     7701(a) is amended to read as follows:
       ``(31) Foreign estate or trust.--The term `foreign estate' 
     or `foreign trust' means any estate or trust other than an 
     estate or trust described in section 7701(a)(30)(D).''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply--
       (A) to taxable years beginning after December 31, 1996, or
       (B) at the election of the trustee of a trust, to taxable 
     years ending after the date of the enactment of this Act.

     Such an election, once made, shall be irrevocable.
       (b) Domestic Trusts Which Become Foreign Trusts.--
       (1) In general.--Section 1491 (relating to imposition of 
     tax on transfers to avoid income tax) is amended by adding at 
     the end the following new flush sentence:
     ``If a trust which is not a foreign trust becomes a foreign 
     trust, such trust shall be treated for purposes of this 
     section as having transferred, immediately before becoming a 
     foreign trust, all of its assets to a foreign trust.''.
       (2) Penalty.--Section 1494 is amended by adding at the end 
     the following new subsection:
       ``(c) Penalty.--In the case of any failure to file a return 
     required by the Secretary with respect to any transfer 
     described in section 1491 with respect to a trust, the person 
     required to file such return shall be liable for the 
     penalties provided in section 6677 in the same manner as if 
     such failure were a failure to file a return under section 
     6048(a).''.
       (3) Effective date.--The amendments made by this subsection 
     shall take effect on the date of the enactment of this Act.
   Subtitle B--Repeal of Bad Debt Reserve Method for Thrift Savings 
                              Associations

     SEC. 611. REPEAL OF BAD DEBT RESERVE METHOD FOR THRIFT 
                   SAVINGS ASSOCIATIONS.

       (a) In General.--Section 593 (relating to reserves for 
     losses on loans) is hereby repealed.
       (b) Conforming Amendments.--
       (1) Subsection (d) of section 50 is amended by adding at 
     the end the following new sentence:
     ``Paragraphs (1)(A), (2)(A), and (4) of section 46(e) 
     referred to in paragraph (1) of this subsection shall not 
     apply to any taxable year beginning after December 31, 
     1995.''.
       (2) Subsection (e) of section 52 is amended by striking 
     paragraph (1) and by redesignating paragraphs (2) and (3) as 
     paragraphs (1) and (2), respectively.
       (3) Subsection (a) of section 57 is amended by striking 
     paragraph (4).
       (4) Section 246 is amended by striking subsection (f).
       (5) Clause (i) of section 291(e)(1)(B) is amended by 
     striking ``or to which section 593 applies''.
       (6) Subparagraph (A) of section 585(a)(2) is amended by 
     striking ``other than an organization to which section 593 
     applies''.
       (7) Sections 595 and 596 are hereby repealed.
       (8) Subsection (a) of section 860E is amended--
       (A) by striking ``Except as provided in paragraph (2), 
     the'' in paragraph (1) and inserting ``The'',
       (B) by striking paragraphs (2) and (4) and redesignating 
     paragraphs (3) and (5) as paragraphs (2) and (3), 
     respectively, and
       (C) by striking in paragraph (2) (as so redesignated) all 
     that follows ``subsection'' and inserting a period.
       (9) Paragraph (3) of section 992(d) is amended by striking 
     ``or 593''.
       (10) Section 1038 is amended by striking subsection (f).
       (11) Clause (ii) of section 1042(c)(4)(B) is amended by 
     striking ``or 593''.
       (12) Subsection (c) of section 1277 is amended by striking 
     ``or to which section 593 applies''.
       (13) Subparagraph (B) of section 1361(b)(2) is amended by 
     striking ``or to which section 593 applies''.
       (14) The table of sections for part II of subchapter H of 
     chapter 1 is amended by striking the items relating to 
     sections 593, 595, and 596.
       (c) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 1995.
       (2) Repeal of section 595.--The repeal of section 595 under 
     subsection (b)(7) shall apply to property acquired in taxable 
     years beginning after December 31, 1995.
       (d) 6-Year Spread of Adjustments.--
       (1) In general.--In the case of any taxpayer who is 
     required by reason of the amendments made by this section to 
     change its method of computing reserves for bad debts--
       (A) such change shall be treated as a change in a method of 
     accounting,
       (B) such change shall be treated as initiated by the 
     taxpayer and as having been made with the consent of the 
     Secretary, and
       (C) the net amount of the adjustments required to be taken 
     into account by the taxpayer under section 481(a)--
       (i) shall be determined by taking into account only 
     applicable excess reserves, and
       (ii) as so determined, shall be taken into account ratably 
     over the 6-taxable year period beginning with the first 
     taxable year beginning after December 31, 1995.
       (2) Applicable excess reserves.--
       (A) In general.--For purposes of paragraph (1), the term 
     `applicable excess reserves' means the excess (if any) of--
       (i) the balance of the reserves described in section 
     593(c)(1) of such Code (as in effect on the day before the 
     date of the enactment of this Act) as of the close of the 
     taxpayer's last taxable year beginning before January 1, 
     1996, over
       (ii) the lesser of--

       (I) the balance of such reserves as of the close of the 
     taxpayer's last taxable year beginning before January 1, 
     1988, or
       (II) the balance of the reserves described in subclause 
     (I), reduce by an amount determined in the same manner as 
     under section 585(b)(2)(B)(ii) on the basis of the taxable 
     years described in clause (i) and this clause.

       (B) Special rule for thrifts which become small banks.--In 
     the case of a bank (as defined in section 581 of such Code) 
     which is not a large bank (as defined in section 585(c)(2) of 
     such Code) for its first taxable year beginning after 
     December 31, 1995--
       (i) the balance taken into account under subparagraph 
     (A)(ii) shall not be less than the amount which would be the 
     balance of such reserve as of the close of its last taxable 
     year beginning before January 1, 1996, if the additions to 
     such reserve for all taxable years had been determined under 
     section 585(b)(2)(A), and
       (ii) the opening balance of the reserve for bad debts as of 
     the beginning of such first taxable year shall be the balance 
     taken into account under subparagraph (A)(ii) (determined 
     after the application of clause (i) of this subparagraph).

     The preceding sentence shall not apply for purposes of 
     paragraphs (5), (6), and (7).
       (3) Recapture of pre-1988 reserves where taxpayer ceases to 
     be bank.--If during any taxable year beginning after December 
     31, 1995, a taxpayer to which paragraph (1) applied is not a 
     bank (as defined in section 581), paragraph (1) shall apply 
     to the reserves described in subparagraph (A)(ii) except that 
     such reserves shall be taken into account ratably over the 6-
     taxable year period beginning with such taxable year.
       (4) Suspension of recapture if residential loan requirement 
     met.--
       (A) In general.--In the case of a bank which meets the 
     residential loan requirement of subparagraph (B) for a 
     taxable year beginning after December 31, 1995, and before 
     January 1, 1998--
       (i) no adjustment shall be taken into account under 
     paragraph (1) for such taxable year, and
       (ii) such taxable year shall be disregarded in 
     determining--

       (I) whether any other taxable year is a taxable year for 
     which an adjustment is required to be taken into account 
     under paragraph (1), and
       (II) the amount of such adjustment.

       (B) Residential loan requirement.--A taxpayer meets the 
     residential loan requirement of this subparagraph for any 
     taxable year if the principal amount of the residential loans 
     made by the taxpayer during such year is not less than the 
     base amount for such year.
       (C) Residential loan.--For purposes of this paragraph, the 
     term ``residential loan'' means any loan described in clause 
     (v) of section 7701(a)(19)(C) of such Code but only if such 
     loan is incurred in acquiring, constructing, or improving the 
     property described in such clause.
       (D) Base amount.--For purposes of subparagraph (B), the 
     base amount is the average of the principal amounts of the 
     residential loans made by the taxpayer during the 6 most 
     recent taxable years beginning before January 1, 1996. At the 
     election of the taxpayer who made such loans during each of 
     such 6 taxable years, the preceding sentence shall be applied 
     without regard to the taxable year in which such principal 
     amount was the highest and the taxable year in such principal 
     amount was the lowest. Such an election may be made only for 
     the first taxable year beginning after December 31, 1995, 
     and, if made for such taxable year, shall apply to the 
     succeeding taxable year unless revoked with the consent of 
     the Secretary of the Treasury or the Secretary's delegate.
       (E) Controlled groups.--In the case of a taxpayer which is 
     a member of any controlled group of corporations described in 
     section 1563(a)(1) of such Code, subparagraph (B) shall be 
     applied with respect to such group.
       (5) Continued application of fresh start under section 585 
     transitional rules.--In the case of a taxpayer to which 
     paragraph (1) applied and which was not a large bank (as 
     defined in section 585(c)(2) of such Code) for its first 
     taxable year beginning after December 31, 1995:

[[Page S3864]]

       (A) In general.--For purposes of determining the net amount 
     of adjustments referred to in section 585(c)(3)(A)(iii) of 
     such Code, there shall be taken into account only the excess 
     of the reserve for bad debts as of the close of the last 
     taxable year before the disqualification year over the 
     balance taken into account by such taxpayer under paragraph 
     (2)(A)(ii) of this subsection.
       (B) Treatment under elective cut-off method.--For purposes 
     of applying section 585(c)(4) of such Code--
       (i) the balance of the reserve taken into account under 
     subparagraph (B) thereof shall be reduced by the balance 
     taken into account by such taxpayer under paragraph 
     (2)(A)(ii) of this subsection, and
       (ii) no amount shall be includible in gross income by 
     reason of such reduction.
       (6) Continued application of section 593(e).--
     Notwithstanding the amendments made by this section, in the 
     case of a taxpayer to which paragraph (1) of this subsection 
     applies, section 593(e) of such Code (as in effect on the day 
     before the date of the enactment of this Act) shall continue 
     to apply to such taxpayer as if such taxpayer were a domestic 
     building and loan association but the amount of the reserves 
     taken into account under subparagraphs (B) and (C) of section 
     593(e)(1) (as so in effect) shall be the balance taken into 
     account by such taxpayer under paragraph (2)(A)(ii) of this 
     subsection.
       (7) Certain items included as section 381(c) items.--The 
     balance of the applicable excess reserves, and the balance 
     taken into account by a taxpayer under paragraph (2)(A)(ii) 
     of this subsection, shall be treated as items described in 
     section 381(c) of such Code.
       (8) Conversions to credit unions.--In the case of a 
     taxpayer to which paragraph (1) applied which becomes a 
     credit union described in section 501(c)(14)(A)--
       (A) any amount required to be included in the gross income 
     of the credit union by reason of this subsection shall be 
     treated as derived from an unrelated trade or business (as 
     defined in section 513), and
       (B) for purposes of paragraph (3), the credit union shall 
     not be treated as if it were a bank.
       (9) Regulations.--The Secretary of the Treasury or the 
     Secretary's delegate shall prescribe such regulations as may 
     be necessary to carry out this subsection, including 
     regulations providing for the application of paragraphs (4) 
     and (6) in the case of acquisitions, mergers, spin-offs, and 
     other reorganizations.
                      Subtitle C--Other Provisions

     SEC. 621. EXTENSION OF MEDICARE SECONDARY PAYOR PROVISIONS.

       Section 1862(b) of the Social Security Act (42 U.S.C. 
     1395y(b)) is amended--
       (1) in paragraph (1)--
       (A) in subparagraph (B), by striking clause (iii) and 
     redesignating clause (iv) as clause (iii); and
       (B) in the matter following clause (ii) of subparagraph 
     (C), by striking ``, and before October 1, 1998''; and
       (2) in paragraph (5)(C), by striking clause (iii).

     SEC. 622. ANNUAL ADJUSTMENT FACTORS FOR OPERATING COSTS ONLY; 
                   RESTRAINT ON RENT INCREASES.

       (a) Annual Adjustment Factors for Operating Costs Only.--
     Section 8(c)(2)(A) of the United States Housing Act of 1937 
     (42 U.S.C. 1437f(c)(2)(A)) is amended--
       (1) by striking ``(2)(A)'' and inserting ``(2)(A)(i)'';
       (2) by striking the second sentence and all that follows 
     through the end of the subparagraph; and
       (3) by adding at the end the following new clause:
       ``(ii) Each assistance contract under this section shall 
     provide that--
       ``(I) if the maximum monthly rent for a unit in a new 
     construction or substantial rehabilitation project to be 
     adjusted using an annual adjustment factor exceeds 100 
     percent of the fair market rent for an existing dwelling unit 
     in the market area, the Secretary shall adjust the rent using 
     an operating costs factor that increases the rent to reflect 
     increases in operating costs in the market area; and
       ``(II) if the owner of a unit in a project described in 
     subclause (I) demonstrates that the adjusted rent determined 
     under subclause (I) would not exceed the rent for an 
     unassisted unit of similar quality, type, and age in the same 
     market area, as determined by the Secretary, the Secretary 
     shall use the otherwise applicable annual adjustment 
     factor.''.
       (b) Restraint on Section 8 Rent Increases.--Section 
     8(c)(2)(A) of the United States Housing Act of 1937 (42 
     U.S.C. 1437f(c)(2)(A)), as amended by subsection (a) of this 
     section, is amended by adding at the end the following new 
     clause:
       ``(iii)(I) Subject to subclause (II), with respect to any 
     unit assisted under this section that is occupied by the same 
     family at the time of the most recent annual rental 
     adjustment, if the assistance contract provides for the 
     adjustment of the maximum monthly rent by applying an annual 
     adjustment factor, and if the rent for the unit is otherwise 
     eligible for an adjustment based on the full amount of the 
     annual adjustment factor, 0.01 shall be subtracted from the 
     amount of the annual adjustment factor, except that the 
     annual adjustment factor shall not be reduced to less than 
     1.0.
       ``(II) With respect to any unit described in subclause (I) 
     that is assisted under the certificate program, the adjusted 
     rent shall not exceed the rent for a comparable unassisted 
     unit of similar quality, type, and age in the market area in 
     which the unit is located.''.
       (c) Effective Date.--The amendments made by this section 
     shall be construed to have become effective on October 1, 
     1995.

     SEC. 623. FORECLOSURE AVOIDANCE AND BORROWER ASSISTANCE.

       (a) Effectiveness and Applicability.--Section 407 of The 
     Balanced Budget Downpayment Act, I (Public Law 104-99) is 
     amended--
       (1) in subsection (c)--
       (A) by striking ``Except as provided in subsection (e), 
     the'' and inserting ``The''; and
       (B) by striking ``only with respect to mortgages insured 
     under the National Housing Act that are originated before 
     October 1, 1995'' and inserting ``to all mortgages insured 
     under the National Housing Act''; and
       (2) by striking subsection (e).
       (b) Technical Amendment.--Section 230(d) of the National 
     Housing Act (12 U.S.C. 1715u(d)) is amended by striking ``the 
     Departments'' and all that follows through ``1996'' and 
     inserting ``The Balanced Budget Downpayment Act, I''.

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